Analysis: Dynamic sector demands respect

June 21, 2002

An industry worth £35 billion a year 'is being neglected'. Alan Thomson reports

Higher education is a £35 billion-a-year Cinderella industry underappreciated by the government, according to a new report.

With a total income of £12.8 billion, it is bigger than advertising or air transport. It is on a par with aerospace and is not too far behind legal activities in its importance to the economy.

The government's concentration on the social and educational mission of higher education fails to do justice to a sector that generated £34.8 billion directly or indirectly for the UK economy in 1999-2000. The sector employed nearly 563,000 people, directly and indirectly, in 1999-2000.

The report, commissioned by Universities UK, warns the government that policies that focus on social and educational aims could undermine the sector's economic importance. One fear is that the government's desire to expand and diversify provision while streamlining the sector could lead to fewer higher education institutions and to changes in the nature of institutions. Such changes could harm local, regional and national economies.

UUK also hopes the report will persuade the Treasury that higher education should get more money from the comprehensive spending review, the results of which are due next month.

The report says: "Government policy intended to affect 'social' aspects of higher education, or indeed to encourage one type of higher education activity over another, may need to take into account any wider ramifications, perhaps unexpected, on HEI (higher education institution) activity and the implications for the UK economy overall.

"The reality of higher education as a major industry in the UK, measured in conventional terms of income, expenditure and employment, remains to be fully realised by government, by politicians, by the public at large and often indeed by the higher education institutions themselves."

The authors - Ursula Kelly, Richard Marsh and Iain McNicholl of Strathclyde University - show that higher education institutions through their expenditure and activities directly and indirectly generated an economic output of £32.5 billion in 1999-2000.

They calculated that for every £1 million of output from higher education institutions, £1.56 million was created elsewhere in the economy via knock-on effects.

There was also an estimated £2 billion of income from overseas students and £235 million from overseas visits generated directly or indirectly by institutions. Total output is just over £34.8 billion.

The report found that the sector received £8 billion from UK public funds in 1999-2000 (63 per cent of all income) and £3.7 billion ( per cent) from the UK private sector. Gross export earnings were £1.3 billion (10 per cent).

Comparisons with a similar study carried out in 1997 show that the proportion of total income from the public purse fell from 73 per cent in 1995-96 to 63 per cent in 1999-2000. In the same period, income generated from the private sector climbed from 19 per cent of total income to per cent. The proportion of income generated from overseas activities and students rose from 8 per cent to 10 per cent.

The fall in the proportion of public funding and the commensurate rise in private income is due mainly to the introduction of means-tested tuition fees for home and European Union undergraduates in 1998.

The growth in income from overseas reflects the rise in numbers of overseas students as a proportion of total UK students.

The proportion of academic fees and support grants from private sources was per cent in 1999-2000, compared with 13 per cent in 1995-96. The proportion from UK public sources fell from 64 per cent to 44 per cent.

The proportion of private research grant and contract income climbed from per cent to 34 per cent while the proportion from UK public sources dropped from 62 per cent to 54 per cent.

UK higher education institutions employed 345,300 people in 1999-2000. The single largest group of people, 94,105, was teaching and research staff. They comprised 40 per cent of total numbers.

Other staff were in a range of job categories, including senior management at 1.4 per cent of total employees, other management and administration (10.9 per cent) and secretarial and clerical (22.1 per cent).

The overall staffing figure of 345,300 equates to 297,216 full-time equivalent jobs or 1.4 per cent of the total UK working population.

The report estimates that 240,032 full-time equivalent jobs were created by higher education institutions through secondary or knock-on effects stemming from their expenditure and employee activity. It means that, directly or indirectly, UK higher education provided 537,248 full-time equivalent jobs in 1999-2000, which was 2.6 per cent of the working population. This excludes about 26,000 jobs generated by overseas students and visitors to institutions.

Higher education institutions paid £7.3 billion in wages to staff, and an estimated £5.3 billion was paid to employees in other sectors as a result of higher education staff spending those wages. For every £100 paid directly to a member of staff of a higher education institution, £72 was paid elsewhere in the economy.

Baroness Warwick, chief executive of UUK, said: "The return on investment in higher education is clear, in hard economic facts as well as wider social benefits. We have argued a strong case for additional funding and now look to the government to deliver."



Reading University 2000-01
Total income: £118 million, of which £21 million was from research grants and contracts. Private sources accounted for 10 per cent of research grant and contract income.

Other operating income from sources such as conferences, consultancy, licensing and professional development courses amounted to £ million, with the private sector estimated to have contributed about £10 million of this.

Reading earned about £4.1 million from endowments and investments.

Total income from private sources was about £16 million.

Total expenditure: £118 million, of which £76 million was staff costs. The university estimated that its staff spent £43 million locally.

Total students: 12,009 Total overseas students: 2,233, who spent an estimated £19 million locally.

Manchester University 1999-2000
Total income: £298 million. Research grants and contracts accounted for £63 million, and nearly £23 million of that came from private sources. Other operating income was £57 million, £41 million of which came from private sources. Nearly £11 million came from endowments and investments.

Manchester estimated that total income from private sources was about £104 million.

Total expenditure: £289 million, of which £164 million was spent on staff and pay, which is injected into the local and regional economies.

Total students: 22,786 Overseas students: 3,767

Plymouth University 1999-2000
Total income: £100 million, of which £16.8 million was reckoned to have been earned from the private sector. Income from research grants and contracts totalled £6.6 million, of which more than £1.2 million was from private sources. Academic fees and support grants totalled £24 million, of which more than £4 million came from the private sector. Other general operating income totalled £9.8 million, all of it earned from the private sector. More than £3.3 million was earned from overseas activities and students.

Total expenditure: £100 million, of which nearly £60 million was spent on staff and pay, which is spent in the local and regional economies.

Total students: 24,166 Overseas students: 1,683, who are estimated to have pumped £8.4 million into the local economy.

Lincoln University 2000-01
Total income: Nearly £54 million. Private sources accounted for about £8 million of this. Total grant and fee income was nearly £46 million, but the university could not say how much was from private sources.

Total expenditure: £55 million, of which nearly £26 million goes on staff costs. Almost £22 million of this is spent on wages for its 9 full-time equivalent staff.

Total students: 9,294 Overseas students: 1,022, who contribute an estimated £5 million to the local economy

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