CBI chief warns that severity of cuts in public spending could force mergers of universities

Business leaders today voice their concern over the level of public spending cuts facing Britain's universities. Richard Lambert, director general of the Confederation of British Industry (CBI) warned that some universities might find it difficult to "pull through" as a result of the scale of the cuts.He was echoing fears expressed by Professor Steve Smith, the president of Universities UK, which represents vice-chancellors, who told The Independent he could foresee institutions having to merge.

Mr Lambert said British taxpayers at present "got a good bang for our bucks" when it came to spending on higher education, but that this happy position was now being threatened.

"We know that the UK has lots of world-class universities," he said. "Eighteen out of the top 100 universities are from the UK. We're worried at the scale of the public-spending cuts that are being discussed right now. The Department for Business, Innovation and Skills [in charge of university spending] is not ring-fenced ... there is talk of 35 per cent cuts over the lifetime of the spending review. I think there is no question that they would have serious consequences. Some institutions would find it difficult to pull through on that basis."

Mr Lambert said it was also a "worry" that the spending review would assume the Government inquiry into student finance headed by former BP boss Lord Browne would "plug the gap" on spending, and therefore not softer the blow for higher education.

He made it clear that businesses supported the general thrust of the Government's public-spending cuts policy, that the deficit should be wiped out over the period of this Parliament rather than spread over a longer period.

Lord Browne's review is expected to report early in October – a week before the results of Chancellor George Osborne's spending review are published – to give civil servants the chance to factor any increased income from students into their equations.

The review is thought to be moving towards paving the way for Britain's more prestigious universities to charge higher fees than the rest. But Professor Smith has warned that any income from a rise in fees would not be paid back into Treasury coffers for five years after the first students had finished their courses. In the meantime, they would have to fork out more for loans.

Mr Lambert said that members of the CBI were critical of the option of a graduate tax, which was floated by Business Secretary Vince Cable earlier this summer. He warned that the brightest graduates would seek jobs abroad to avoid having to pay it, and that graduates from the European Union would simply leave at the end of their courses, making it virtually impossible to reclaim it from them.

"Students would have an incentive to work overseas especially at a time when the top rate of tax is 50 per cent," he added.

He was also worried the tax would lose the link between the student's fees and the university they attended, the money going to the Treasury with the prospect that it would not be ploughed back into higher education. He also called for an emphasis on "quality not quantity" in terms of student numbers, adding that businesses were glad the target of getting 50 per cent of young people into university had been withdrawn by the coalition Government. "We're concerned that we've got ourselves into a position where kids that don't go to university are thought somehow to have missed out," he said. "Firms that say we're only going to interview graduates play into that."