Income gains may backfire

Academics who have worked hard to bring in extra revenue to universities need to brace themselves for a tight spending review, according to experts.

The leak this week of an early draft of an analysis of financial prospects for English universities by the Higher Education Policy Institute - which shows strong revenue growth - marks the beginnings of the comprehensive spending review battle.

The University and College Union and Universities UK are preparing interim CSR submissions to the Treasury, with final drafts planned for the autumn.

While the Hepi leak could influence the pay dispute, the eventual publication of the analysis will provide an important overview of universities' financial health. The general view is that the next CSR will not see significant increases in public funding.

Tony Travers, adviser to the Education and Skills Select Committee and director of the Greater London Group at the London School of Economics, said: "I have no doubt that it will be argued by the Treasury that top-up fees represent significant additional revenue for universities.

"Given the constraints on the overall public resource available, I would be surprised if universities were a major recipient of public money." Instead he believes the real debate will be over the lifting of the cap on variable fees.

Nevertheless, vice-chancellors and unions are preparing to make a strong case for additional public funds. Both are expected to argue that universities have endured such a substantial deficit in their funding over the three decades that there is a long way to go to plug existing gaps.

While UUK is unlikely to put in a submission for as much as £8.8 billion, as it did in the last spending review, it is still likely to ask for substantial sums.

UUK and the UCU acknowledge that income has gone up since the turn of the century - and is set to increase further - but point out that expenditure figures match new income in some years.

Figures supplied by the UCU show that the total expenditure of English higher education institutions has been higher than total income in three out of the past five years.

Steve Smith, vice-chancellor of Exeter University and chair of the 1994 Group, agreed that more money had gone into the sector - particularly for science - but said that the same could not be said for teaching. "It is clear that the CSR battleground in England will be over the unit of funding for teaching," he said.

Vice-chancellors and unions are determined to ensure that the introduction of variable fees this year will not mean a deterioration in core teaching grant. But the omens are not good.

Speaking at the UUK residential meeting last year, Ruth Kelly, then Education Secretary, was careful to guarantee the funding per student, or unit of funding, only up to 2007-08 - but not beyond.

Furthermore, exactly what the unit of funding is and whether it has been maintained or improved is likely to be a highly contested area.

The received wisdom is that the unit of funding for teaching has remained stable in recent years, but only because of the initial introduction of tuition fees in 1998-99.

But a careful analysis by Stephen Court, senior researcher at the UCU, of annual grant letters and funding council allocations in England, reveals a rather more rosy picture.

"The unit of public spending on teaching per full-time education student in England plus private fee contributions - including additional top-up fees estimates net of outreach, administration and infrastructure costs - has grown by 15 per cent above inflation in the period between 1997-98 and 2007-08 - an above annual increase of 1.5 per cent over inflation over the decade," he said.

If his analysis is right, a pressed Treasury is unlikely to be generous.