As Budget Day approaches there have been the usual leaks about fights within the Cabinet over public expenditure cuts. The two alleged victims are social security and education. This is bad news for higher education which clearly comes below nursery education in today's political priority order.

The Committee of Vice Chancellors and Principals is reported to be joining the ranks of lobbyists seeking cash for investment in the research and teaching infrastructure. That the vice chancellors have managed to establish common ground here is welcome but this is unlikely to be a winning strategy.

There are several reasons that can be reduced to one: justifying extra cost on value-for-money grounds. That is not to imply the Government has downgraded the importance of training and education as a desirable objective. The key question is: who pays? Part of the answer is clear: there is a limit to the share falling on the taxpayer.

This problem is not unique to Britain. A recent report, Quality and Relevance: the Challenge to European Education, by the Industrial Research and Development Advisory Committee of the European Commission, pointed out that average expenditure on higher education in the OECD countries is typically twice as high as on primary and secondary education. However, both society and students may be getting a poor return from this investment.

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Examples cited include the mismatch between graduate skills and employment needs (between 20 per cent and 40 per cent of graduates surveyed face important knowledge and skills gaps in their jobs and, conversely, 25-50 per cent are over-qualified for theirs ); and substantial and rising graduate unemployment (currently 1.5 million in the European Union).

The IRDAC found wide discrepancies in the costs between OECD countries only partly related to differences in course length and completion rates. National access policies tended to confuse the right to higher education with the right of access to university. The IRDAC also signalled its concern about the tendency towards academic drift in vocational higher education, arguing that society needs a broad spectrum of graduates with different mixes of knowledge and skills.

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IRDAC suggests that tax-payers can reasonably expect a reconciliation between ". . . the basic missions of higher education with responsiveness to society's needs and cost-effective use of public resources. Cost should be a concern for all stakeholders . . . no student should not know the cost of that education . . ."

The committee's main conclusion is that innovation and quality are the prerequisites of successful European competitiveness and that this in turn relies on closer collaboration between industry and higher education. In the British case, the CBI has added a further condition: that the graduate rate increases to 40 per cent by the end of the century and 50 per cent thereafter. But who will pay for this expansion? At the recent CBI conference, the Chancellor signalled a potential limit by blocking all capital spending in ministerial departments except where private finance has been considered. Perhaps this provides the vice chancellors with an opportunity for winning some brownie points by demonstrating their responsiveness to the Quality and Relevance challenge, forging new financial partnerships with the private sector.

Diana Green is pro vice chancellor of the University of Central England in Birmingham.