David Davies: Financial crisis will hit top universities hardest

The debate on the funding of higher education has been transfixed by government efforts to appease its backbenchers, and by the failure of the Tory opposition to provide any worthwhile policy. At the same time students have been mobilised to resist the call to contribute what is now a tiny percentage, after all concessions have been granted, towards the cost of an Oxford education, which is estimated to cost an average £18,600 a year.

I graduated from Oxford in the early 1960s. When the time came for me to return a small part of my debt, I helped to provide counsel to my old college on a number of financial issues. I became aware of an uneasy malaise that permeated parts of the university with murmuring of financial problems. Could it be that Oxford was on track to become a second-tier body, neither producing top-class graduates nor attracting the most talented applicants? I received only ill-formed responses.

The only way to get to the bottom of the matter was to commission an independent report. What seemed to be missing was informed consideration of the core of the problem. What are the financial needs of the system? What is the cost of maintaining UK universities' position "among the best in the world"? How can this cost best be met?

Unfortunately it has become clear that the Government's Higher Education Bill will not provide the answer. Not when Oxford spends two-thirds less educating each undergraduate than its US counterparts. Nor will it provide the answer when it pays its dons two-thirds less per teaching hour. The annual loss on an Oxford education will, under the current system, increase to £35m a year by 2012 and, even after the new Bill, will still reach £14m a year.

There is the "aspiration gap", too, arising from lower academic pay, heavier teaching loads, lower don-to-student ratios, lower ratios of support staff, and lower levels of infrastructure maintenance. The outlook for top universities is grim. The extent of the resource gap must be addressed. These institutions are way down the financial slippery slope. If they are to sustain their pre-eminence, then they will require access to greater resources.

Sir David Davies is chairman of EFG Private Bank Ltd. He was responsible for commissioning the Oxford Centre for Higher Education Policy Studies report