The sector risks being seen as ungrateful for a VAT exemption on shared services unless it shows the government it is willing to pool back-office functions, a Universities UK representative has warned.

The admonition comes after two high-profile shared services and outsourcing projects fell through.

In November 2011, George Osborne, the chancellor of the Exchequer, announced that the government would exempt shared services from charging VAT, just as individual institutions are spared.

The tax liability created by sharing services between universities was seen as a major barrier to such projects before the exemption.

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Jamie Arrowsmith, policy researcher at UUK, told Shared Services in Higher Education: Achieving Proficiency, Improving Performance, a conference held in London, that the exemption had been won only after "years of lobbying".

"The sector argued for this for a very, very, very long time, and there was a lot of political capital expended on actually getting this change through," he said on 5 December.

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The exemption was not a "free giveaway" by the government, which had calculated it would cost the state ?100 million to ?150 million over the next five years, he said.

He stressed that he was not saying that "everyone needs to go off and do cost-sharing just to say thank you".

But universities must be seen to be "exploring the opportunities and being very visible and very vocal" in support of the shared services agenda, Mr Arrowsmith said.

"I don't think any of us want a situation where the government turns round and says: 'Well, you're not doing any work on this, no one actually wants it,'" he added.

The government may conclude that the alleged barrier posed by VAT had been an "excuse" if the sector failed to take advantage now that it had been removed, he warned.

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Mr Arrowsmith added that it was "highly unlikely" that shared services could cut costs by up to 40 per cent, an idea often "bandied around" the sector.

Failed examples

The comments come as it emerged that shared services talks between the University of Warwick, outsourcing company Tribal and five unnamed universities have broken down.

Warwick announced the plans to pool IT and administration services in May 2011, with the group aiming to start combining student record systems from that summer. However, the plans were abandoned because they were "too complex", a Warwick spokesman said.

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He stressed that Tribal and the university had departed on good terms and that Warwick was still open to shared services.

In October, London Metropolitan University's plans to outsource all its functions save teaching to a private company were shelved. London Met ditched the bidding process for the ?74 million contract after its business was shaken by the withdrawal in August of its licence to sponsor non-European Union students.

Steve Butcher, head of procurement and shared services at the Higher Education Funding Council for England, told the conference that there was "latent will to take cost-sharing agreements forward".

"In the current climate...can institutions afford not to look at shared services?" he asked.

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Students paying higher tuition fees "will want to see an efficient and effective sector, and the sector has to rise to that challenge", he added.

david.matthews@tsleducation.com.