City holds key to university funding

UNIVERSITIES could attract as much as pounds 300m in private capital each year to pay for lecture halls, libraries and laboratories, according to an unpublished report.

But banks and investors in the universities would need to be reassured of continued government funding to the sector and to individual universities where teaching or research was unsatisfactory.

They would also need to fully understand the risk in lending to the sector if demand from students fell off.

The report was commissioned by vice-chancellors, the higher education funding councils of England, Wales and Scotland, and higher education college principals.

It describes how universities and colleges could raise finance from the capital market and looks at how they could use pension funds and insurance companies to get desperately needed money for their expansion.

The aim would be to get long-term funds, 20 or 30 years, at a fixed rate of interest, to provide core facilities. Universities have long used private finance for residential accommodation, but not for other services which are meant to be provided for by public money.

The report, drawn up by consultants European Capital and Trowers & Hamlins, says at one extreme, that private funds could attract 'substantial capital funding (say, over pounds 300m per annum) to all, or substantially all, 160 higher education institutions'.

Alternatively, there could be a smaller financial exercise to raise between pounds 75m and pounds 150m for a strictly limited group of universities.

The Government would be unlikely to guarantee any lending by outside investors, the report says. In the absence of this support, 'HEIs (higher education institutions) perceived to be at the margin of the sector will not meet investors' credit requirements,' it says.

Funding should not, however, be limited to the strongest and largest institutions, it adds.

Universities or colleges 'most vulnerable to shifts in the pattern of higher education provision or particularly government funding' would be barred from borrowing from investors, who would have to take a 'worst case' scenario into account.

The report also suggests what kind of security institutions could offer. It says this could either be physical assets, such as university offices with commercial value, or cash flow.