British universities used to be the envy of the world. They educated those who went on to make Britain the world's leading global power and honed some of the finest scientists, economists and philosophers of the past 200 years. For much of the 19th and the first half of the 20th century, along with Germany's academy, they led the world in higher education and research. But after 1945, US universities increasingly eclipsed them. Britain still has Oxbridge, Imperial College London, University College London and the London School of Economics, but in aggregate the UK sector has lost its global pre-eminence.

No action from the new coalition government is more important than a once-in-a-generation increase in higher education expenditure and resources. The story is well known. Britain spends just 1.3 per cent of its gross domestic product on higher education - ?7.6 billion a year, due to be cut to ?7.15 billion in 2010-11. This defies belief.

As a teacher, I applaud the increases in spending on schools in the past 10 years, but deplore the cuts in higher education from already unacceptably low levels. Labour's spending decisions seem to have been the result of the political muscle of Ed Balls, the former schools secretary, rather than a careful consideration of the appropriate division of resources.

The US spends 2.9 per cent of its GDP on universities. Unsurprisingly, it is attracting not only bright British academics, but also the best products of our schools. The trickle that crossed the Atlantic in the noughties could become a torrent this decade.

ÁñÁ«ÊÓƵ

Felix Cook, one of my students, turned down his place at the University of Oxford last September for Harvard University, saying that he found the prospect of undergraduate life there much broader, facilitated by superb resources. Generous endowments on top of higher spending makes education in American universities much more rounded than in their underfunded British counterparts. Reports of overcrowded lectures and seminars, poor pastoral care and substandard facilities in a range of British universities are now reaching our schools, to pupils' dismay.

Where the British government cuts, Europe invests. President Nicolas Sarkozy is determined that French higher education should rise to the top of the world, and will spend EUR11 billion (?9.4 billion) a year to achieve it. Germany is going to spend EUR18 billion on its higher science and business education.

ÁñÁ«ÊÓƵ

The International Herald Tribune recently ran an article by Yale University president Richard C. Levin that discussed the doubling of universities in China to nearly 2,500 over the past 10 years and India's plans for 40 million extra students in the coming decade.

Other Asian countries are emulating them in a well-funded drive to build world-class universities to compete and indeed outdo the best in the US and Europe, attracting top academics with offers of higher pay and better facilities, especially in the sciences. They understand the importance that university-based scientific research played in driving economic growth in Japan, the US and Western Europe. Shanghai University had no foreign staff five years ago: today, the figure is 4 per cent. China will take over from the US as the world leader in higher education and research sooner than many think.

One way in which British universities could combat this trend is to open branches abroad. New York University has 11 campuses around the world, and other institutions in the US and elsewhere are following suit. But British universities have proved reticent, preferring instead safer collaborations with overseas universities. Opportunities are going begging in China, India, across East Asia and in the Gulf states.

Where would British companies be if they had refused to expand abroad? The majority of the FTSE 100 companies have a foreign reach, including some of our greatest names: GlaxoSmithKline, Pearson Publishing and Tesco. The British car industry failed to make this transition, and look what happened.

ÁñÁ«ÊÓƵ

Our universities still attract students from across the world because of their reputation, and they should not be deterred by difficulties to date. They should not assume that overseas students will always come if the "Little Britain" culture remains.