Lord Bilimoria: Cash-strapped British universities could fall behind US and European rivals

The UK is second only to the US in higher education, but in the words of St Jerome: "Good, better, best. Never let it rest. 'Til our good is better and your better best."

This week's QS University rankings will be scoured by an estimated 100 million people worldwide, including students, academics, staff, graduates, politicians and business leaders – those who pursue knowledge for the love alone and those who hope to benefit the world through it.

It is an outstanding achievement for British universities to claim 30 places out of the top 200 – a testament to the intellectual power and potential of the UK and a key part of making Britain the best place in the world to live and work.

The UK must expect excellence, for the standards it upholds are the main reason why the world's most trusted and powerful people, including many former and present heads of state, are graduates of UK universities.

However, the traditional powerhouses of Oxford, UCL and Imperial have fallen in this year's QS World University Rankings. The overall success of British institutions cannot mask this decline.

Funding issues

The relative lack of funding at the disposal of our universities is halting progress while other countries excel. European and international competitors in this key area consistently outperform British investment. Finland spends 1.87% of GDP on higher education, while Germany devotes 1.12%.

The US far outstrips the UK on public expenditure too. Looking further into the details of this spending gap, it soon becomes clear that our failure to support this crucial sector has a direct impact upon economic performance. Matching productivity in the UK to levels in the US would raise GDP by 31%.

Public expenditure is one problem. Yet, alternative sources of income continue to elude British universities. Interaction with individual and corporate donors will close the gap. Universities in the US receive an admirable amount of private funding.

My experience of executive education at Harvard University left a lasting impression of the extraordinary levels of philanthropy underpinning a university that leapfrogged Cambridge into second place in the rankings. In the past two years, Harvard has received two of its largest ever donations. Alumni of the university contributed $750m to the medical and engineering schools.

These private benefactions are further supported by corporate partnerships. The coordination of revenue streams has not yet reached our shores and we would do well to emulate American counterparts.

Starts have been made. I can highlight the work being done at the University of Birmingham to raise £160m in its latest fundraising campaign, while the University of Cambridge recently raised £1bn as part of its 800th anniversary funding round.

At present, the combined public and private expenditure on higher education in the UK stands at 1.2% of GDP. This represents a marginal amount more than total public investment in Germany, a close competitor in the global economy, but it still far below the OECD average.

Universities UK recently highlighted that the higher education sector has generated £73bn of output for the British economy. As the total share of the job market requiring higher skills rises from 42% to 46% by 2022, universities will continue to do vital work plugging the skills gap.

Boosting British business

In addition, universities produce technology and innovations that, when made commercially available, represent a significant boost to British business, with around 15,000 graduate start-ups and academic spin-offs launching between 2010-14.

We can still say our universities are a source of national pride. However, the fall of several universities in these recent rankings show that without a sustained and coordinated approach to funding, our success is under threat. It makes little sense to get anything but the very best out of our universities.

By bolstering funding in UK universities and reinvigorating one of its greatest engines of productivity the UK would surely challenge the position of Germany as the largest economy in Europe.

However, it is not simply the economic advantages that need emphasising. We must continue to attract the world leaders of the future and in so doing benefit our international partners, strengthening connections and putting the British stamp on emerging nations' approaches to significant 21st-century challenges.

The rise of universities such as Durham, Warwick and LSE has no doubt boosted the reputation of higher education in the UK. As chancellor of the University of Birmingham, which has climbed 12 places, I feel enormous pride in the staff and students, and I feel those outside of everyday university life can still do a great deal to strengthen the performance of UK universities.

We must not be complacent. The successes of British universities, recent and historical, cannot hide the facts. Our leading few have fallen behind, hampering the growth of the UK's GDP and the reason is the lack of investment. With a coordinated response from private and public investors, we can maintain and develop our position in the global arena. The economic benefits of this approach will be substantial.

Lord Bilimoria is the founder and chairman of Cobra Beer, the founding chairman of the UK-India Business Council and the chancellor of the University of Birmingham.