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Outlook grim—response needed

Andrew Westwood looks at the challenges for universities posed by the spending review

Any commentary on the shortened spending review has to start with the context and some very significant (and rather frightening) statistics. We are still in the middle of a global pandemic. According to the Office for Budget Responsibility, the UK economy is expected to shrink by 11.3 per cent this year and to be 3 per cent smaller in 2025 than was forecast in the March budget.

Underlying debt will be 91.9 per cent of GDP in 2020 and is forecast to continue to rise to 97.5 per cent in 2025-26. There will be £394 billion of borrowing this year and eventually the government will have spent some £335bn on tackling the coronavirus, which, according to the Resolution Foundation, works out at around £12,000 per household.

These are very big numbers. As Torsten Bell, the foundation’s director, says: “The British state has never seen anything like this outside of world war two.” These numbers will transform the economy for the next decade and the shape and purpose of the state—what it does, how it thinks and what it spends its money on.

If we’re honest, many of us in higher education normally pay little attention to this bigger picture. Like others, we look quickly for the announcements that might affect us: What about R&D? Or tuition fees? What does the spending review say about universities?

That time is over. The wider picture is grim and it will materially affect spending and policy decisions, including on further education, higher education and R&D, for years to come. We had better get used to it.

Research settlement

In the spending review, chancellor Rishi Sunak confirmed that the government would spend £280bn on responding to Covid-19 this year and a further £55bn next year. That’s not just for furlough and business support but also for vaccine orders, for personal protective equipment and other medical equipment, for ventilator challenges, for Nightingale hospitals and for ‘test and trace’. Some of this has been worth every penny and a lot of it has not.

In practice, this was a mix of a three-year and a one-year spending review. Some departments and policy areas have received long-term, multi-year settlements and headline announcements, such as those on infrastructure, capital spending and defence—and on schools and the NHS. Pretty much everything else has had to settle for a one-year allocation, together with the strong signal that they aren’t a priority and there’s little prospect of significant spending increases for them in the future.

R&D has remained part of that privileged first group, with a multi-year settlement and an increasing trajectory. The government and the Treasury remain committed to making the UK a ‘scientific superpower’ and to investing nearly £15bn in R&D in 2021-22.

The spending review also announced (or rather re-announced) an “ambitious multi-year settlement for the national academies and UK Research and Innovation’s core research budgets”, which will grow “by more than £400 million on average per year for the next three years”. By 2023-24, the government will be investing £1.4bn more per year in core funding for research. So we can still talk about 2.4 per cent of GDP going to research. And about reaching that target sometime in the middle of the decade.

The departure of Dominic Cummings and the ‘resetting’ of government has not meant a U-turn on these commitments—nor on ‘levelling up’, infrastructure spending or, it has to be said, on some of the more populist announcements on overseas aid or the blue wall. This is still a government that knows how to campaign.

Goodbye Arpa?

There are other announcements that consolidate a strong message on R&D investment: £17m to establish a unit and fund focusing on “the last mile of innovation” from public sector knowledge assets; and £450m to support government priorities and “the whole research and innovation ecosystem”, which will go mostly to UK Research and Innovation. This includes £50m of an £800m investment by 2024-25 in “high-risk, high-payoff research”. It’s goodbye Arpa, led by Cummings and his ‘weirdos and misfits’, and hello HRHPR, staffed by much more normal people in the Swindon area.

The 2.4 per cent target and ambitions for research and productivity will also be boosted by other spending. Defence increases include over £6bn for R&D. There is £1bn for carbon capture and storage, a £240m Net Zero Hydrogen Fund and £81m for pioneering hydrogen heating trials. Another £500m is going to mass-scale production of electric vehicle batteries, £125m to nuclear technologies and £385m to an Advanced Nuclear Fund.

Purists might worry that much of this comes with strings attached and lots of government direction—in many cases with clear targets, dates and outputs, including jobs. But in the scheme of things, most are likely to take that. They may not want to party, but they’ll at least breathe a fairly large sigh of relief.

Skills gap

And what of the rest of higher education? The long-awaited Shared Prosperity Fund is beginning to take shape and will be launched next year, replacing various European Union funding streams that have supported regeneration, skills and research projects.

But there is no sign yet of a response to Augar or of the promised further education white paper. There is actually very little spending on skills and very little suggestion that this is really going to be a ‘skills-led recovery’. Not much training or retraining is visible in the spending on Covid-19 measures to support employment or in the schemes such as Kickstart and Restart that are promised to tackle the expected rise in unemployment to around 2.6 million.

This is a worry. As the Resolution Foundation has pointed out, looking further ahead, the cuts to planned spending and ongoing protections for the NHS and schools mean it will not feel like the end of austerity for many public services. The long-term picture is that the day-to-day spending of unprotected departments will remain almost a quarter lower in real per capita terms in 2024-25 compared with 2009-10.

This suggests not so much a second tier in spending priorities as perhaps a third: a ‘too difficult box’, alongside social care and local government finance, where ministers have a big reform agenda and know they must do something drastic but where doing something just seems too much to contemplate now.

This brings different concerns given that the departure of Cummings and Lee Cain, and a much-heralded ‘reset’ of the government’s approach, is also expected to signal an extensive ministerial reshuffle. We now don’t know which will be out first: a response to Augar and a skills white paper, or Gavin Williamson as education secretary.

Going local

There is one further message that this slimmed-down spending review sends us. If we return to the last proper three-year exercise, carried out in 2015 by George Osborne (before the EU referendum and before the pandemic), the overall austerity headlines also included a then surprising increase to R&D in line with inflation. This cumulative £1.5bn from 2016-17 to 2020-21 was spent on a Global Challenges Research Fund and simultaneously counted towards the 0.7 per cent GDP target for spending on overseas development.

Now that this target is being cut—supposedly temporarily—to 0.5 per cent, the Global Challenges Research Fund looks likely to be cut back too. Together with Sunak’s surprise announcement of a £4bn Levelling Up Fund and support for more domestic agendas on health, energy and defence, you might detect a shift for R&D and for universities from global challenges to local ones.

Back to the overall context, which is dominated by the enormous costs of tackling unemployment and renewing the economy: this, with the eye-wateringly high numbers involved, is significant for all of us and will be so for years to come.

Universities have spoken a lot about mission-led innovation in recent years. Here, then, is the country’s new mission: rebuilding the domestic economy and the jobs and wages of its citizens. That is now the grand challenge. What role does higher education want to play in it?

Andrew Westwood is professor of government practice and vice-dean for social responsibility at the University of Manchester.