Making the case for more cash from Mr Brown

University and college leaders are preparing their case for more investment in higher education in chancellor Gordon Brown's spending review, SR2000, which will cover 2002-05. The chancellor wants evidence that such investment will pay.

Higher education has a good case. Unfortunately it cannot put it directly to the chancellor. Instead, spending departments must be persuaded to put higher education's case by proxy when it may not always coincide with those departments' other pressing priorities - schools, further education and getting the unemployed into work. This means that higher education cannot rely on making its case privately to its home department. Other friends inside and outside Whitehall must be recruited so that several departments put the case for investment in higher education to the Treasury. For it is not just a bit more money here and there to help people from poorer backgrounds go to university or boost teaching of enterprise skills that is needed. More general investment in research and mainstream undergraduate teaching is now essential.

What arguments can universities and colleges use? The most important is that articulated by Nicholas Barr (pages 6 and 7): governments cannot afford not to invest. Higher education is one of the main engines of a knowledge-based economy. Ruin it and you ruin the country's competitive chances.

In making this case the Department for Trade and Industry, with its responsibility for the science base and its eagerness to find a role, will be an important ally. Some in higher education are wary of the DTI: the research money it distributes is not ring-fenced for higher education; it is distributed highly selectively; and it comes with strings. But such reluctance would be a mistake. The days of reliance on block grants are fading. Ever more money is tied to specific initiatives - the latest this week being summer schools for sixth-formers. And the DTI, concerned with the practicalities of pushing research out into the market, is campaigning for substantial new money for its outreach programmes that would benefit all universities.

Furthermore the DTI will be a useful ally in persuading the Department for Education and Employment of the economic importance of maintaining the flow of talented people from universities. For this is where the case for investing in higher education across the board is most likely to appeal to the chancellor.

The case has two parts. First the flow of graduates must be maintained or increased. The high representation of graduates in new, small companies suggests that a university education - no matter what the subject - gives people the self-confidence and flexibility to start new things. It is not important to insist on vocational courses: it is important to make the investment, trust the students and respond to their needs. Too much insistence on vocational relevance - relevance to what? - risks stifling creativity.

The second reason for investment is that while our present economic success owes much to the increased flow of graduates, more still needs to be done. Charles Leadbeater, in focusing on "the missing middle", has identified the need for skills to grow small companies into large businesses. At present too many companies fail and too many are bought up by predatory overseas conglomerates seeking talent.

There are plenty of taught masters courses, full and part-time, that partly meet the demand for upskilling, but they can be too long, too inconvenient and too expensive for people struggling to make a company fly. Universities and colleges could help much more through short courses at convenient times and places, perhaps delivered through distance learning. But higher education is sorely stretched already and to do more will mean staff, IT services and support for students. In short it needs investment.