The estates we're in: the finance 'jam' has been spread too thinly and too erratically for far too long

October 8, 1999

UK research may be a world leader but, Brian Salter argues, it urgently needs an injection of cash to stem the decay in its infrastructure

As the funding councils launch their reviews of research funding policies, it is important they confront once and for all the issue of capital finance and the research infrastructure. Lately shored up by charitable donations from the Wellcome Trust via the Joint Infrastructure Fund (JIF), the buildings and equipment on which the international research reputation of UK universities depends are in a parlous condition. To focus purely on the recurrent funding of research, by the Research Assessment Exercise or some other mechanism, is to omit a significant slice of the science policy equation.

As long ago as 1982, the Merrison report on the support of university scientific research showed that expenditure on equipment, laboratories, libraries and technicians had been declining steadily over the previous decade relative to the size of the system. Since then, that decline has accelerated (Table 1).

By 1993-94 the old universities' non-recurrent Exchequer grants (mainly for building) had shrunk to a quarter of the 1979-80 level as part of their total income. Equipment grants had been reduced by more than a third. As a result, surveys in 1989 and 1992 found maintenance requirements totalling Pounds 1.2 billion.

In 1995, with commendable honesty, the Higher Education Funding Council for England announced that from March 31, 1996 there would be no further funding for the capital projects and backlog maintenance programme.

The funding councils no longer take overall responsibility for the higher education infrastructure, but they provide some selective support through the competitive bidding system of the special initiatives. Programmes such as the Improving Poor Estates Initiative, the Laboratory Refurbishment Initiative, the Metropolitan and Local Area Network Initiatives, the Joint Research Equipment Initiative and the JIF all provide infrastructure support.

But inevitably this ad hoc approach cannot hope to meet the needs of the institutions. It is an approach with no overall rationale, no coordination of its separate parts and no long-term justification. Underpinned by a fluid and indecipherable relationship between the funding councils, the research councils, the Office of Science and Technology and now the Wellcome Trust it serves the important political function of creating the illusion of action and purpose.

In the absence of adequate support from the state, institutions' only option has been to finance the capital needs of their estates by increasing their levels of borrowing from the private sector (Table 2).

But there is a limit to how far HEIs can service continually expanding debt from their recurrent income. As the HEFCE points out in its analysis of the 1998 financial forecasts: "The impact of the low forecast levels of reinvestment is that large parts of the sector's infrastructure will continue to age, with replacement and refurbishment cycles for some buildings and items of equipment continuing to increase."

The council is also aware that the effect of this vicious circle of debt servicing and restricted investment has been a decline in the infrastructure to the point where in 1997 it warned that "the sector could face building failures within the next two or three years". Dearing estimated that the shortfall in capital expenditure is likely to be Pounds 250 million per year given the accumulated backlog in the refurbishment of the estate and in replacing equipment, and the need for investment in communications and information technology. Some short-term help is available in the form of the JIF initiative in response to Dearing pressure (largely geared to the research infrastructure and jointly supported by the Wellcome Foundation) but this can provide only temporary relief.

Then, of course, there is the Private Finance Initiative as the solution to all infrastructure ills. Launched in 1992 across all government departments, the PFI has the objective of increasing the commitment of private capital to public schemes. It has been enthusiastically embraced by the Labour government.

Given that the PFI was designed as a vehicle for publicly owned bodies to gain access to private capital, initially it was not relevant to HEIs. But in a policy statement in 1998, the government made plain that although the PFI policy was aimed at public sector bodies, "the principles are equally valid for bodies in the private sector, such as higher and further education institutions which receive substantial public funds and have a duty to secure value for money".

Responding to this change of direction, the HEFCE immediately produced its own guidance, both for institutions and for the private- finance market itself. This guidance was at pains to present higher education as an investment opportunity where the total estates needs stood at Pounds 4.2 billion, where "directly targeted public funds now only provide a very small fraction of the requirement", and where universities are "looking increasingly to the private sector as partners in investment and commercial opportunities".

Unfortunately, the smart money says that the PFI (now restructured as Public-Private Partnerships) can make only a small dent in a very large problem. Dearing was highly sceptical of the capacities of PFI given the size of the problem as was the 1997 HEFCE analysis of institutions' financial forecasts. The analysis explained that the constraints on reinvestment "are not limited by the procurement options available to HEIs; direct purchase, borrowing and the PFI all have to be financed from positive cash flows" - of which there is not a lot about.

No matter how you cut it, the bottom line is that there will be no more money from government, that existing resources will have to be applied selectively to rescue the research infrastructure, and that spreading the jam thinly and erratically is not working. Block research funding from the funding councils is less concentrated than that from other major research funders. According to the latest statistics, the top ten UK university earners won 43.5 per cent of funding council grants in 1997-8, but secured 50 per cent of research council funds and 62 per cent from charities.

Twelve years ago the Advisory Board for the Research Councils' report, A Strategy for the Science Base, recognised the inevitable and proposed that institutions be categorised into one of three types: research; teaching and research; and teaching. The logic of the position has not changed but it remains to be seen if the politics have altered.

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