Archive for January 2, 2010

Back to Life, Back to Reality

Posted in Finance, Science Politics with tags , , , , on January 2, 2010 by telescoper

Today is the 3rd Round of the FA Cup, which traditionally marks the end of the Christmas holidays. In fact, I was going to watch Bristol City versus Cardiff City which was due to be shown live for free on Welsh channel S4C. However, the pitch is frozen and it’s been postponed. So I’ll be taking down the Christmas decorations instead…

Now that it is no longer the season to be jolly, I’ve decided to return to the theme of doom and gloom that prevailed before Christmas. In particular, you may recall that just before Christmas, Lord Mandelson wrote to the Higher Education Funding Council for England (HEFCE) to announce a package of £135 million cuts for next year. It has now been confirmed – see the story in the Times Higher – that these cuts are on top of huge cuts arising from decisions announced in the pre-budget statement, earlier in December. Altogether these cuts will amount to over £900 million being taken from the Higher Education budget over the next three years, or about 12.5% of the total.

The reduction in budget amounts to a cut in the “unit of resource” paid by the government directly to universities, and with a review of tuition fees currently being carried out by Lord Browne, the likelihood is that students will have to pay much more in future to make up the difference if the sector is to survive at its current level. This would require lifting the cap on tuition fees, a decision on which will almost certainly be postponed until after the next General Election (due by summer 2010). The combination of immediate cash cuts and uncertainty about the future will cause widespread unease and apprehension throughout the university system, and I think it won’t be long before we start hearing of more closures.

We won’t know what the situation will be in Wales until the Welsh Assembly announces its allocations to HEFCW, the Welsh counterpart of HEFCE. I can’t say I’m optimistic, especially after reading their recent discussion document on the future of higher education in Wales. Things might work out rather better in Scotland, where the university sector seems to be valued more highly than elsewhere in the United Kingdom.

Physics will be hit particularly hard by these cuts. It’s an expensive subject to run, and attracts only modest numbers of students paying customers. Savage cuts in research grants and postgraduate funding from STFC will have sent a clear message to university administrators that this is a risky subject to be investing in, a point of view likely to be reinforced by the inexplicably poor showing of physics in the 2008 Research Assessment Exercise.  The outlook for physics and astronomy  looks even bleaker than for the rest of the university system, at least in England and Wales.

But my fears for the New Year are even wider than that. The deep cuts that have been imposed on Higher Education will save less than £1billion over the next three years. Compare that with the estimated budget deficit for 2009/10 of £178 billion and you’ll realise that it’s a drop in the ocean. The problem is that there’s an election coming up and the government is scared of trying to tackle the problem because of fears it will alienate voters. It has ring-fenced expenditure on politically sensitive things like schools and hospitals so the only things that it can cut are things that potential labour voters don’t care so much about, such as universities. And of course it realises that doing the sensible thing  and putting up income tax would be electoral suicide, although it is absolutely certain that whoever wins the next election will have to do it.

The biggest danger with the strategy of waiting until after the election before deciding to start tackling the debt crisis properly is that before long the international markets are going to realise that Britain is basically insolvent. It is true that the stock market has  recovered from its low point in March 2009, but only slowly and uneasily. The government seems to be assuming that  the markets will politely wait until Britain has gone to the polls before passing judgement on the longer term futue. However,  if sovereign debt rather than private debt becomes a major concern, I don’t think the UK economy will survive until the election without at least one major market correction, and off we’ll be into another, probably deeper, recession. It might not be the UK that sparks this off, but the levels of sovereign debt in Central and Eastern Europe could trigger a market panic that engulfs Britain too. The prospect of a hung parliament could easily give investors the jitters too.

There have been considerable increases in the level of government investment in UK universities over the last decade.  Admittedly, not all of it has been useful – much has been wasted in extra bureaucracy, pointless initiatives and ever-growing Human Resources departments – but at least years of neglect were being reversed.  Now the next few years offer the prospect of all the increases in funding being reversed. Higher education was one of the last sectors to benefit from extra government spending, and it is the first to have it taken away again.