There is no growth without universities

Andy Burnham is almost certainly going to be the next Prime Minister. He has the numbers, the momentum, and even the most loyal advocates of the current Prime Minister are asking when not if he will go. Starmer’s goose is cooked and the man who has laid the golden egg of “Manchesterism” will be in charge. The only question is whether it will be a coronation or the kind of prolonged but pointless fight the Labour Party is addicted to.

Burnham is clearly a politician of some considerable skill. He has not only cemented his own electoral success as King of the North but turned Greater Manchester into the Red Sea of Labour councils. He has won a by-election for an incumbent government in a heavily Leave-voting seat. He is an arch triangulator not in the sense of violently prevaricating between a range of options which leaves everyone unhappy (hello welfare reform, winter fuel payments, staff appointments) – but in that he is able to hold wildly different ideological positions like expanding detention centres at the same time as nationalising utilities and get away with it. As Marie Le Conte has put it, Andy Burnham’s greatest weakness may be his need to be loved – but it might be good to have a Prime Minister who is at least liked.

Burnham will inherit an economy that is broken and his promise to stick to the Chancellor’s fiscal rules leaves him with little room for new investment without cutting expenditure. Starmer and Burnham may support different teams and be on different sides but they are both fundamentally playing the same game.

Burnham has five key economic advisors: former chief economist at the Bank of England Andy Haldane, former executive director of IPPR Carys Roberts, former under-secretary of state, and chief executive of the New Economics Foundation Miatta Fahnbulleh, former chair of the OBR Richard Hughes, and the man known for coining both the term BRICS and the Northern Powerhouse, Lord Jim O’Neill.

There is a whole piece to be written on what the mixture of a former central banker, co-operative think tanker, Goldman Sachs director, and career civil servant means for Burnham’s plan but for now let’s take it to mean he is serious about economic growth with greater distribution of wealth and with the appetite to intervene more directly in the economy through nationalisation, investment, and geographic rebalancing.

Already, he has a blueprint for this model as the putative premier has seen the impact of Manchester’s universities on his own patch. The last decade has been an enormous success story for Manchester and it has been in no small part powered by the constellation of research assets, university led capital investment, a growing labour force, and inward investment, that the universities have brought. The complementarity between the universities providing local, global, vocational, specialist and research focused education all at once, has been a significant asset.

The problem Burnham faces isn’t that the education led success of Manchester could not be replicated in other parts of the country – it could, and there are versions of it elsewhere – it is that the situation universities are in makes pulling those levers expensive, difficult, and politically unpopular.

Bye bye NIMBYs bye bye

A reality of economic growth, no matter how the NIMBYs may complain, is that it requires infrastructure to be built. In universities these are things like laboratories to do research in, and buildings to teach the labour force of tomorrow in, and super-computers to do super-computing. It is not possible to imagine the economic success of cities without the research infrastructures which turned ideas into innovations and innovations into goods the real economy can make use of.

However, the university sector is currently not in a position to invest in capital spending. University capital expenditure was lower in 2024–25 than 2016–17, 2017–18, and 2018–19. After a dip during the Covid years it rose again to around £5bn in 2023–24 only to drop to around £4.8bn in 2024–25. It’s not only the volume of that spending that is changing but its nature too. As my colleague DK has noted, the main current source of capital investment is not borrowing or, barring some outliers, external donations, but internal funds realised from surpluses. A 2024 PWC report highlighted both the need for university capital expenditure and the lack of cash to do so while UKRI has reprofiled some of its capital spending. Universities are finding it harder to borrow, they have less cash to spend, and finding match-funding for large capital programmes is increasingly difficult.

It isn’t only capital spending where growth is imperilled. As the sector has pointed out ad infinitum, research spending relies on a significant cross-subsidy from international student fees. The more the sector struggles to recruit these students, the more its finances struggle, and the less research it can fund.

UKRI’s four bucket model is an attempt to focus funding on doing fewer things with more resources by eliminating duplication and waste. However, that model won’t help universities with the actual cost of research because UKRI does not fund 100 per cent of the cost of research. It will not force universities to specialise in a few research areas as ultimately surplus follows students not researchers. It will also not cause universities to focus on unglamorous but economically useful research while the incentive remains for individual researchers to publish, bid for, and win, as much research as possible.

A smaller higher education sector is also a smaller UK economy. Aside from the fact that on average graduates will earn more and therefore pay more tax, the decline of the university sector also threatens the kind of agglomeration benefits that Jim O’Neil has spoken about. Even assuming home students might do something else with their time and money if they did not go to university there is no reason to believe that international talent would choose to come to the UK were it not for study. Smaller institutions with fewer students and less research have less leverage to bring in investment, which in turn limits the spillover benefits of their work, which in turn harms the places and companies within the proximity of universities, and in turn which will damage the very economies (often outside of London) that Burnham is worried about.

Fools gold

If decline were to become institutional failure where universities are amongst the largest employers it would usher in a kind of reverse Manchester. Fewer jobs, less attractive investment opportunities, declining populations of workers, and looser anchors to tie complementary economic assets together.

There are any number of things that Burnham may choose to do, and any number of sector bodies that will tell him what he could do, but whichever route he takes to economic growth he will eventually hit a reality that he can’t allow the university sector to fall over if he wants an economy which can grow. Irrespective of its imperfections there is just no future for the UK that does not rely on a strong knowledge economy.

His job is not to try and rebuild the sector as it is today.  His job is to steer a sector, which is remarkably difficult to steer, toward a different future. Practically, there needs to be a dedicated transformation fund with explicit legal permissions for greater exploration of mergers, collaborations, groups, and federations. Politically, there is a vacuum for a politician to explain their vision for the higher education sector, and align the machinery of government to make it happen.

Onwards then to Burnham’s return and with it an optimism that the North will have a fair hearing, the economy can be more equal, and 90s music will make a comeback. It is not a challenge the scale of Greater Manchester but an economic revival of that magnitude in nearly every other part of the country. There is an economy to rebuild and to do it a sector to change.