Leader: Rising revenue is not risk-free

Now that the Higher Education Policy Institute's report on the financial prospects for UK higher education has finally been published, it is easy to see why Hepi did not rush it into print. However carefully qualified, projections of steadily rising revenues increasing universities'

spending power by at least £1 billion a year would have been dynamite in the already frenzied atmosphere of the pay dispute. Even the current timing is questionable given the imminence of submissions for next year's Comprehensive Spending Review. The figures could be seen as a gift to Treasury cost-cutters, but a more subtle argument emerges in the analysis that accompanies them. Although revenues should grow steadily over the rest of the decade, there are risks attached. In particular, many universities are vulnerable to changes in international student recruitment and may need to invest more in staffing to maintain their position in an increasingly competitive market. There is also a potentially dangerous assumption that the Government's investment in science and innovation will live up to the promises contained in its ten-year strategy.

Hepi's report shows that even the healthy increases that should come the way of universities over the rest of this decade will do little to close the gap between UK and US spending. That would take billions of pounds more than any Chancellor is going to contemplate. And the report demonstrates that top-up fees will make a relatively minor contribution to the prosperity of the research-intensive universities that are most involved in international competition. While fees may account for almost a quarter of the revenue of the newest universities in 2008-09, they are expected to provide less than 7 per cent in Russell Group institutions.

In its way, therefore, the Hepi report makes a strong case for further investment in higher education. Whether civil servants and ministers will subscribe to its emphasis on staffing levels and academic pay is more questionable, however. The unions will have to make their own case for salary increases to the review promised as part of this summer's settlement. And the report's finding that the number of students per academic in all universities has risen from 16.5 to 18.2 over ten years may not seem persuasive in Whitehall.

Naturally, Universities UK will have to produce a balanced Comprehensive Spending Review bid, but the case for improved staffing may carry more weight in the subsequent debate on whether to lift the cap on top-up fees.

In the short term, Treasury negotiators will surely be more receptive to arguments based on research potential.