The international activities of UK universities have created a “highly knowledge-intensive export industry” and are a prime example of innovation in the public sector – but government funding cuts put that under threat.

That is the message of a report published today by The Work Foundation, singling out case studies that suggest the public sector should be “correctly thought of and supported as a knowledge economy sector”.

A narrow focus on cuts and the “outsourcing” of innovation to the private sector risks neglecting the potential of the public sector itself, the report argues.

It cites estimates that the international education sector contributes £40 billion to the UK economy, second only to the financial services industry.

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The key factors for this success identified in the report are the result of exploitation of several “public intangible assets” including: the “brands” of its universities; research excellence that attracts postgraduates; the “mature institutional environment” anchored by bodies such as the Higher Education Funding Council for England; the greater study intensity of degrees that are shorter than those in the US and continental Europe; and the cultural experience offered by the UK.

Charles Levy, senior researcher at The Work Foundation, said the report, Making the Most of Public Services: A Systems Approach to Public Innovation, looks at the UK’s international higher education market as “a highly knowledge-intensive export industry” and as “a good example of the way in which the public sector can create value from what it has”. But the report warns that the UK’s main competitors, including Australia, Germany and the US, “have all increased public sector funding for higher education to stimulate economic growth”.

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It says funding uncertainties for UK universities “should be viewed as a cause for concern”, with future sharp cuts in capital funding “a particular worry”.

Other concerns identified include the end of funding under the Prime Minister’s initiative to promote UK education abroad, and the recent tightening of visa rules.

“Despite public recognition of the importance of international education, policy does not appear to be offering clear backing for these activities – future funding of the sector remains uncertain, and action on visas risks sending the wrong signals to prospective students,” the report concludes.

john.morgan@tsleducation.com