Improbable as it may seem, Britain's economy has a new hero—its higher education institutions (HEIs). In recent years, the number of overseas students studying here has risen to the point where the higher education sector is a major exporter, outstripping even the fashionable cultural and media industries. The development vividly illustrates how the economy is changing and, in particular, the increasing importance of knowledge-based services.
A new paper by the Higher Education Policy Institute (HEPI) in Oxford tells the story. In 1992 there were only 95,900 full-time international students studying in Britain. Numbers began to rise noticeably in 2001-02, and by 2004-05, the last year for which figures are available, there were 240,290 international students studying full-time at British HEIs. Including part-time students, the total was 318,400—around 14 per cent of the total student body in Britain. Of the full-time students, 72,590 were from the EU and the rest from countries outside the EU.
The increase is part of a global phenomenon. There are now 3-4m students worldwide studying outside their own countries. Britain's share of this growing market fell from 16 per cent in 1998 to 11 per cent in 2004, but the absolute rise in the number of overseas students around the world meant that the number studying in Britain still went up, and in 2004 its share stood second only to the US, which had a fifth of the market.
Such students contribute substantially to the economy, directly and indirectly. Directly, they pay fees and spend money on living expenses. Indirectly, they create employment in higher education—which translates into taxes on the salaries of academics and others employed by HEIs.
The impact of these injections into the economy is magnified by the multiplier effect. The multiplier is the ratio of the increase in injections into the economy to the bigger increase in national income which results. For its purposes, the HEPI assumes a multiplier of 1.5—for each £1 spent, another 50p of output is produced elsewhere.
The effect is powerful. In 2004-05, EU students (who under EU law pay the same fees as British students) paid an average of £1,454 a year as undergraduates and £2,205 as postgraduates. Non-EU students paid fees averaging £6,868. The total value of fees paid by international students amounted to a considerable £1.39bn, and they spent £2.35bn on living expenses. Putting together fees and living costs gives an injection into the economy of £3.74bn, which the multiplier raises to £5.5bn.
To get some perspective, this sum of £3.74bn exceeded the export value of alcoholic drinks, textiles, clothing, publishing and the cultural and media industries. The indirect benefits to the British economy are also sizeable. On reasonable assumptions about earnings, and applying the multiplier, overseas students who stay in Britain to work will contribute about £2bn to the economy each year. In addition, the net fiscal benefit—the gain to the exchequer after consumption of government goods and services—could be up to about £350m.
There are, of course, costs, such as grants to EU students, which should be set against all these benefits to the economy. Moreover, it is unclear whether the higher education sector is a net exporter after allowing for imports—that is, British students studying abroad. But the size of the sector, its growth and its attraction to foreign students are undoubted.
The question is how to improve on this record. It has been government policy for some time to encourage foreign students to come to Britain. Tony Blair launched a "prime minister's initiative," which brought together the universities, the old home office and the British Council, among others, to make Britain as enticing as possible for overseas students by, for example, removing unnecessarily restrictive visa requirements. Universities claim that the high quality of higher education in Britain draws students. But a powerful factor for which nobody can claim credit is the growing popularity of English around the world.
One difficulty for the universities is that non-EU students pay full tuition fees—unlike in Germany, where the government picks up the bill. However, the report's suggestion that the answer is to subsidise non-EU students is unlikely to win favour with Gordon Brown. Better to provide more value for money—which may mean HEIs finding ways of improving their efficiency and competing on fees. The knowledge economy is fiercely competitive—and Britain's universities are part of it.
Commodities in the can
The $38.1bn agreed bid by Rio Tinto, the giant British mining company, for Alcan, the Canadian aluminium group, is evidence that commodities are hot. Soaring demand for everything from alumina to zinc, especially from China and India, has pushed commodity prices to record levels. Oil is back to the highs it saw last year. The official view is that commodities are not the inflationary indicator they once were. But that may be complacent. At the very least, we should not be too sanguine about interest rates if the commodities boom continues.
