Vice-chancellors made an eleventh-hour plea to chancellor Gordon Brown this week for more cash as the Treasury finalised its spending review.
Labour peer Diana Warwick, chief executive of the Committee of Vice-Chancellors and Principals, opened a conference in London on Wednesday by saying: "I trust that the power of the beneficial interaction between universities and the economy will not be lost on the Treasury as it comes to consider SR2000."
Universities were rattled by reports in The THES in June, that they could be looking at cuts per student of up to 3 per cent a year until 2004. The sector had been lobbying government for an end to the one per cent per capita annual cut imposed on it by the first spending review in 1998. The results of the second spending review (SR2000) are imminent.
Alasdair Smith, vice-chancellor of Sussex University, said: "There have been alarming signals in recent weeks about Treasury plans about the funding of teaching ... No one should be under the illusion that research can deliver on its national objectives if the research institutions are crippled by unsustainable reductions in the funding of teaching."
But the problem for the sector has been to prove to the Treasury that further investment in higher education generates a measurable return to the economy.
A letter from David Triesman, general secretary of the Association of University Teachers, to the chancellor last week attempted to provide the "killer facts" that would prove this link, including research proving a correlation between investment in higher education and economic strength.
Wednesday's conference, Know- ledge Means Business, provided the sector with a platform to show its economic importance. Six key areas of economic contribution were identified as research and increasing knowledge, producing skilled graduates, new equipment and methodologies, networks, problem solving and the creation of new companies and spin-off firms.
Science minister Lord Sainsbury told the conference that a transformation is taking place in university relations with business as higher education rises to the challenges of the knowledge-driven economy.
He said that universities had to adopt different missions and that this diversity needed to be supported by a stronger third stream of funding to complement existing teaching and research cash.