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AGR Conference: Ring fencing funding for science, technology, engineering and maths makes no economic sense, says LSE's Howard Davies

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Government rhetoric about protecting science, technology, engineering and maths (STEM) subjects at university is based on "a romantic view of what we would like the British economy to be, not what it is", one of the country's leading university chiefs said yesterday.

Howard Davies, director of the London School of Economics and Political Science (LSE), former chairman of the Financial Services Authority, ex-deputy governor of the Bank of England and former director-general of the CBI, said the economic rationale behind ring fencing funding for STEM subjects was "nonsense" and "not a clever business decision".

Business demand today is in areas such as investment banking, media and communication, Davies said.

"To pretend our competitive advantage will be somewhere else is romantic disillusion," he told delegates at the Association of Graduate Recruiters conference.

His comments come on the back of coalition government declarations that the UK needs a rebalancing of the economy, away from its reliance on the financial services and public sector towards technology and manufacturing.

"Manufacturing is only 12% of the economy," Davies said. "That is not going to change simply by increasing the number of engineering graduates. Ring fencing STEM will result in a mismatch between what graduates need and what they have."

Davies added that employers need to hammer home the role of UK universities as the breeding ground for future talent as the Government axe reaches into the higher education sector. He said that the expected cuts in higher education funding would put severe pressure on the sector.

While recognising that university spending on areas such as pay rises (last year there was an 8% increase in pay) may not be the wisest use of money, he said that higher education spending was not as favoured as other parts of the educational sector.

"Government spending per student has been generally flat since 1997 so the cuts are not coming off the back of a large growth in spend. Do universities have a cushion to cope with this? Broadly speaking, no. We do not have mechanisms in place, such as shared services, like the business sector. It will be a tricky environment and Government may find itself politically having to prop up failed institutions, with the worry that the rest of us will face even worse cuts."

Davies predicted pay freezes, pension restructuring and industrial action as well as the first mergers as universities look for back office savings. While the Browne review, which is due to be published shortly, is likely to recommend an increase in fees, this would not be enough to make up for the cuts.

"The average surplus across the sector is 2% and when cuts come in we will end up with an 8% deficit. It is practically impossible to make money on the core proposition of teaching and research. The Browne review is too late to cope with the size of the squeeze," he told delegates in a packed hall at the Celtic Manor in Newport.

With university education one of the country’s most successful exports (19% of candidates for LSE alone come from China and that country is now a £1.7 billion export market) and the UK sector now competing with more global universities for students, backing universities during difficult times needs to be given a higher profile, Davies said.

"We need a clear and coherent voice from employers on the importance of maintaining the flow of good quality candidates. The employer voice is crucial and a louder voice is needed."