Investment in education is key to reducing the deficit

Spending on higher education yields a long-term economic benefit for Britain.

One of the strangest claims in the current debate on education is that raising student fees will enable British universities to compete internationally. If we take just the "elite" universities, this is already happening – four out of the world's top 20 universities are British.

As ever, the devil is in the detail. If you sift closely through the Browne review, you will see he recommends that no extra resources be made available for higher education, the proposed increase in fees being designed to compensate for the withdrawal of funds from central government.

If the government follows Browne's advice, the chronic underfunding of higher education will deepen and Britain will fall further behind our economic competitors. In the space of eight years, the UK has gone from having the third-highest graduation rate among industrialised countries to languishing in 15th place, according to the latest OECD survey.

This irrational approach mirrors the economic debate, which has become dominated by the Budget deficit. However, the deficit is a symptom of the economic crisis, not its cause. And cutting spending will depress activity further, which will depress tax revenues and lead to deficit widening.

Education can and must be allowed to play a leading role in any revival. However, for that to happen, the government needs to follow the advice of the OECD, which recently recommended increasing investment in higher education to create jobs and raise tax revenues.

Annual spending on higher education in Britain is £23bn, for which the Treasury gets back an estimated return of £60bn. This arises from various sources, including jobs, exports, innovation, royalties and so on. There is also a long-term economic benefit, which is slightly harder to measure, that comes from a more highly educated and productive population.

That £60bn is a return on investment and highlights the madness of cutting spending on higher education. Spending cuts will lose jobs, exports and innovation.

The cuts are all made in the name of being fiscally responsible, getting the deficit under control and not living beyond our means – the economic saws of Thatcherism. Yet not only will the economy suffer as a result of education cuts, but government finances will deteriorate as result.

This arises from two effects. First, taxes will fall as a result of a weaker economy. Second, spending will end up higher as the government is forced to shell out millions in welfare payments to those denied places in education and made redundant from university jobs, including teachers and clerical, cleaning and catering staff.

If we look closely, the government's economics simply do not add up. A £1bn cut in spending on higher education leads to £2.6bn in decreased activity. This decrease in activity leads to both lower tax revenues and higher government spending, as mentioned above.

The same process also operates in reverse – an increase of investment in higher education will produce a positive net return to government finances through increased activity and the higher tax revenues, as well as the lower welfare payments that flow from it. Every £1bn increase in investment in this sector would produce a positive return to government finances, which could be used either to reduce the Budget deficit or to fund further much-needed investment, for even greater return.

Sally Hunt is general secretary of the University and College Union and Michael Burke is a former senior international economist for Citibank London.

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Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.