Beneath the political headlines lies a deep unease. A massive programme of cuts is on its way, and universities are directly in the firing line.

The government is currently conducting a top-to-bottom spending review that will have profound consequences for every corner of public policy. The chancellor has promised to ensure government spending falls by around £2.5bn each year until 2019-20 – which will take us to levels that the Office for Budget Responsibility (OBR) describes as “the lowest share of GDP spent on public services since 1964-65”.

Getting there won’t be easy. The government has tied one hand behind its back by promising to protect spending on the NHS, schools and defence – leaving everything else vulnerable. And universities and science fall squarely into the “everything else” category.

The Department for Business, Innovation and Skills (BIS), is unprotected. To find its share of cuts, about 20% of its budget needs to be wiped out over the next four years – that’s around £2.6bn billion in total.

Of course, since undergraduate tuition fees were raised to £9,000, universities depend to a much greater extent on fee income than government funding. BIS provides only £1.6bn for teaching – and this is mostly earmarked for specialist “high cost” subjects, such as medicine and engineering.

This pales in comparison to the £8bn that universities receive from fees. The only thing which could threaten that income would be a fall in student numbers, and there are no signs of that happening.

The Department for Business, Innovation and Skills needs to wipe out 20% of its budget over the next four years

But while in theory, the high-fee, low-central-funding model protects universities from the looming cuts, vice-chancellors are increasingly nervous about how the savings will actually be found. There are not a lot of places left for the axe to swing.

The recent conversion of maintenance grants to loans should save the government around £2.5bn. But it was the last big financial trick left to be played that would magically cut spending without affecting university income. But, against the hopes and wishes of vice-chancellors, that saving has not been put in the bank for the spending review.

Over the summer, the government appointed McKinsey, the management consultancy notorious for cost-cutting in the public and private sector, to review everything BIS funds.

After several startling encounters with sector leaders, stories began to leak about McKinsey’s lines of inquiry. Many now fear that the Higher Education Funding Council for England (Hefce) and the research councils are set for a major shake-up.

When it comes to research funding, it’s not just how much is handed out, but also the method of delivery.

BIS spends £4.6bn on research, which is notionally ringfenced: because of the widespread political consensus about the importance of research , it has thus far been protected against cuts.

But what’s making the sector most nervous is the way this money might be handed out in the future. Currently, a “dual support” system sees some cash given to research councils to fund specific projects via grants, with the rest going to Hefce to dole out to departments as ”quality related” (QR) funding. That quality is assessed during the lengthy process known as the Research Excellence Framework.



Universities like the system. QR gives them a block of money that allows them to support research at their own discretion. At the same time, the expert-led research council grants recognise and fund exciting new research, and have a pretty good track record of identifying the most important work to fund.

But this balanced arrangement, which has emerged over time, could be quickly shattered if one part of the dual support system disappears or faces significant changes.

The current arrangement could be shattered if one part of the dual support system faces significant changes

And the government, reluctant to cut its actual spend on research, might now see an opportunity to bring all research funding under one roof, making savings by creating big efficiencies in the system. The key question being asked is: “Why have two complicated and expensive research funding systems when we can have one?”

However this question is answered, there’ll be big losers. Without QR funding, which is dispersed much more widely than research council grants, many universities would barely get a look in, and Hefce would be left without its biggest and most important function. And without grants, a host of vital specialist research areas would be at risk of not being funded.

But the spending cuts will need to be found somehow, which is why the sector is now “thinking the unthinkable”: research, which has been relatively stable in funding levels and structure, may be next in line for change, come the spending review announcements on 25 November.