The time is ripe for privatisation in ÖйúAƬ, argue Paul Clark and Mike Baxter, while Jonathan Rutherford says universities need state aid.

In an ideal world, the United Kingdom's universities and colleges would receive all the money they needed from the government. But this is not an ideal world, as the funding issues surrounding the research assessment exercise 2001 have shown. This government has gone some way towards making more money available for ÖйúAƬ, but not enough, and in the absence of other obvious solutions, the time has come to hold a serious debate about privatisation.

For many, this idea would have been unthinkable ten or 20 years ago. But the political and economic landscape has changed. Privatisation may, if handled correctly, be a realistic solution to the funding impasse. This is a contentious issue - one about which many in the sector rightly feel uneasy. Nevertheless, it could be managed in a way that would provide not only financial security and independence, but would preserve academic freedom and give freer rein to universities to play their traditional critical role in society. There need also be no conflict between privatisation and the maintaining of a commitment to the values of equality and social responsibility.

Universities have two products at their disposal to privatise: teaching and research. Suppose, for the sake of argument, that the four institutions comprising the "golden triangle" - Cambridge, Imperial College, Oxford and University College London - elect not to receive their block ÖйúAƬ Funding Council for England grant for teaching. This would allow more than ?200 million (or 7 per cent of the total allocation for teaching) to be redistributed through the public system - nearly a quarter of the funding gap originally identified by Universities UK. Based on the pattern of grant distribution in 2001-02, this would result in an across-the-board increase of 8 per cent in teaching grants to all institutions.

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To replace the grant, these universities would be permitted to set their own tuition-fee levels, the average fee level needed to make up the teaching element of the grant being just over ?3,000 (based on total student numbers in 1999-2000). In practice, much larger fee levels could be set, and the pattern of fees differentiated, for example, to account for the relative costs of different courses.

When it comes to research, the picture is considerably more complex, due mainly to the large number of actors involved in the UK's research funding culture. No university could survive being cut off from all sources of public funding for research, which include Hefce and government departments. Nor would this be especially desirable given the importance of university research to the economy. Nevertheless, to give an indication of the figures involved, the four golden triangle universities account for nearly 30 per cent of the Hefce funds for research. If they were to forgo these grants, more than ?250 million would be released into the public system, resulting in an increase of nearly 40 per cent to all remaining institutions. To make up for the loss of this core funding, the four universities would need to increase their research grant and contract income from all sources by an average of 51 per cent, most of which would need to be in indirect costs. This would not be easy as major research sponsors would not necessarily cooperate in such a scheme.

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Without a significant change in the research funding set-up, privatisation of teaching looks like the more viable option. Nonetheless, all universities have the prospect of generating money from research, through profits from spin-off companies, exploitation of intellectual property, consultancy and investment. Intra-institutional cross-subsidy could support subjects that traditionally have lower potential for generating money through research than others. Universities are only beginning to take advantage of these opportunities - heightened commercial awareness will mean successive generations of researchers grow accustomed to thinking partially in terms of the business possibilities of their findings, and universities embed systems to take advantage of this.

Surplus funds generated from privatisation would be re-invested in the institution, ensuring, among other things, that staff salaries were placed on a world-competitive basis, that teaching and research facilities were of the required standard, and that money existed to invest in new opportunities. The extra funds redistributed through the public stream would allow similar improvements for institutions remaining within that sector.

In academic terms, institutions that privatised would need to put in place their own internal quality-assurance procedures. These could involve the voluntary establishment of peer-review structures with other similar institutions, on a global scale - based on the university's mission and its position in the UK and world spheres. The same is true of research quality and direction. Panels of international experts could be established to advise institutions on research portfolios.

In social terms, a partially privatised system would be acceptable only if a significant part of the additional money raised by each institution taking the option were put towards the creation of bursary schemes, to widen participation. Imaginative packages of student support would have to be developed, comprising contributions from the state, the individual and the institution. Other social benefits include the contribution universities would continue to make to the economy - UUK estimates this as being ?35 billion.

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Opponents of privatisation may point to such dangers as the sector becoming fragmented; the potential institutionalising of elitism; or the fact that privatisation would probably benefit only Russell Group universities.

But the sector is already fragmented, and no system of funding can serve the diverse needs of all institutions within it. Moreover, it is the two-tier school system that bears most of the responsibility for any class differentials in accessing our top universities - universities expose the problem rather than cause it. Finally, privatisation could be designed to benefit all universities, by releasing more money for public funding and allowing those institutions that have the ability to raise their own funds to do so. In a survey, five heads of Russell Group universities said they favoured privatisation as a funding option. This is a sensitive issue that the sector should not be afraid to confront. There is a very real danger of quality suffering if new solutions to the present funding difficulties are not sought.

Paul Clark works in planning and policy in ÖйúAƬ. He writes in a personal capacity.