Government ministers will lose a significant lever over regional economic growth by cutting public funding for teaching in most subjects, the new chief executive of GuildHE has warned.
Andy Westwood said the importance of universities to their local economies had been ignored in the debate over tuition fees and he accused the government of failing to link its higher education reforms with industrial policy.
"If you think the creative industries - as the prime minister and Vince Cable say - are a motor of our economy, you want some levers over the institutions that supply the human capital as well as the research," Professor Westwood told Times Higher Education.
Targeting funding on science, technology, engineering and maths was far too simplistic, said the former Labour government adviser who worked on the Leitch review of skills.
GuildHE institutions - many of which rely heavily on teaching grants - would be on the front line of the changes, he said. But he believed they were small and nimble enough to respond.
Some, such as the University of Cumbria, were local specialists that were vital to their region and had a key role to play in driving prosperity - a point that was "entirely missing" from the current debate on higher education, he claimed.
The idea that struggling universities should be allowed to fail did not hold weight when an institution trained its local workforce, generated growth and underpinned industry - all priority issues for voters.
Referring to the University of Cumbria, a GuildHE member that has been battling to stay afloat, he said: "You don't want to let (the university) go down because it is incredibly important to Cumbria and should be."
Professor Westwood, a visiting professor on local economic development at London's South Bank University who also works with the Organisation for Economic Cooperation and Development, said the great irony of Lord Browne of Madingley's report and the funding cuts were that they sowed the seeds for another review as university funding "has been turned completely on its head".
The government's approach also combined deficit reduction with "ideology", he said, and there was still a question mark over whether the coalition believed in public investment in universities once the former had been tackled.
Professor Westwood described David Willetts, the universities minister, as extremely knowledgeable and "passionate" about the sector, but suggested that the minister could find himself at odds with ideologues in the Treasury and elsewhere on the future direction of policy.
"I am sure he wishes it were a more considered and thoughtful debate about the complexity of higher education and where its benefits are...than either the time or the focus on the deficit would have allowed," he said.
He added that he was sure his own past role as a special adviser to John Denham, the former universities secretary, would not leave him pigeonholed by the Conservative-Liberal Democrat coalition because his background had always been in education policy rather than politics.