One of the UK’s greatest economic advantages is its world-class higher education system, which produces highly skilled graduates who fuel the country’s tech sector. This talent coming out of UK universities is a key driver of innovation, investment and entrepreneurship. 

For hiring departments in particular, it’s a vital pool for growing their teams and overcoming digital skills gaps. But it’s a talent system currently battling a perilous situation. 

Overall numbers of international students coming to study in the UK are dropping. Without their fees, universities are facing a financial crisis and “have announced budget cuts exceeding £238 million”, leading to staff redundancies and courses being cancelled. To fill the void, fees are going up slightly (another deterrent to attracting students), but there is simply not enough government funding to ensure these institutions’ monetary and operational stability. 

If universities face financial collapse, the consequences for the whole economy will be severe. The UK tech sector, for example, is now worth £1 trillion and is currently the third largest in the world, after the US and China. Graduate talent is what helps to drive the industry’s startup scene, innovation and position in the global landscape.

And that’s just one sector. STEM graduates are needed in industries across the board, and without this stream of talent, UK companies will suffer. But why are these graduates so valuable? And how can the private sector help? 

UK businesses depend on STEM graduates

The UK’s startup and scaleup ecosystem relies on a steady flow of highly skilled graduates, particularly in technical fields. If universities go bust or scale back their STEM programmes, businesses will struggle to hire the talent they need, driving up recruitment costs and forcing companies to look abroad for skills. This will make the UK a less attractive place to build and grow tech businesses, harming the broader economy.

Universities UK analysed government data and showed “that higher education gives graduates the skills to get good jobs and create economic growth”. In particular, it illustrated that 72% of the workforce in the Digital and Technologies sector were graduates, and this formed part of a wider trend that the key ‘growth eight sectors’ which make up the government’s industrial strategy “need high-level skills that graduates have”. 

Further Universities UK research has shown that in the next ten years, the percentage of the UK workforce that need to hold a higher education qualification will have to increase by nine per cent. 

If that increase was to correlate with the Digital and Technologies sector, that would mean four in every five employees would need to be graduates. It shows just how valuable higher education institutions are to UK businesses’ hiring requirements and the economy at large. 

A threat to innovation and entrepreneurship

Universities aren’t just talent hubs; they’re incubators of innovation. Many of the UK’s most successful startups began as university spinouts, benefitting from research funding, academic support, and access to cutting-edge facilities. Again, these companies directly contribute to the wider economy. 

“Since 2014, 1,300 spinouts from 91 UK universities have generated more than £20bn in investments and created nearly 29,000 jobs,” writes Irene Tracey, vice-chancellor of Oxford university, for the FT. But she also points out how many fail to make it to market due to a funding gap that only research-intensive universities like Cambridge, Oxford, Imperial and UCL have the funds to overcome. 

If financial pressures force universities to cut back on research and entrepreneurship programmes, it will stifle the next generation of startups in areas like deeptech and AI, weakening the UK’s position as a leader in global innovation. 

Given the government is actively prioritising growth in these areas, particularly with AI, there is a clear return on investment in it providing research funding and academic support, especially as these are the skills most in demand. 

A skills deficit continuing to grow

It’s well known that businesses are already contending with a growing skills shortage, with STEM and digital skills particularly sought after. The digital skills gap is estimated to cost the UK economy £63 billion a year, and businesses have found “that the supply of graduates with specialist data skills from universities is limited”. 

Now, the rapid development of AI has created a whole new category for what skills are required in the workforce. The World Economic Forum (WEF) recently reported that AI will create more jobs than it will take over, but this leaves a significant need to upskill staff and hire talent to fill the void. 

All of this has increased competition amongst companies in attracting STEM graduates, with skilled supply becoming harder to find in meeting growing demand. So, with universities losing out on money and courses under threat, what other ways are there to protect STEM courses and this vital flow of graduates? 

The role of the private sector 

The private sector can directly play its role in boosting STEM talent, strengthening industry-academia partnerships, co-funding research, and expanding alternative training routes to ensure a robust talent pipeline. 

By collaborating on university research programmes, for example, companies can support STEM courses financially and input their expertise into the research and the curriculum. In return, the company gets access to this talent pipeline which is specifically equipped with the skills they need. 

Creating this common language between universities and industry is crucial to creating business-ready graduates. As another report by the WEF highlighted, there can be a mismatch in the skills taught between education providers and businesses. Therefore, it is in the interests of HR teams and their companies to provide these gateways. 

Tech companies can also set up their own incubators, talent academies like coding schools, apprenticeship schemes, and competitions like hackathons to try and provide alternative training pathways for learning digital skills and nurturing talent. This can include reskilling and upskilling programmes to build an alternative stream of transferable talent from within the business. 

Crucially, these are also all effective methods for generating an interest in their field that could lead to an uptake in STEM courses. 

The need for urgent action to drive growth

The government must recognise that this isn’t just an education crisis – it’s an economic one. Investing in universities, particularly in STEM education and research, should be a national priority.

Specialised roles and industries require highly skilled STEM talent to overcome skills gaps and drive innovation, but this is about more than just filling jobs. The UK’s long-term economic competitiveness depends on its ability to create high-value industries, build globally competitive companies, and unlock new markets.

With sluggish productivity growth, regional inequalities, and intensifying global competition, future prosperity will hinge on sustained investment in research, talent, and ideas – the raw materials of innovation. 

Universities are not just education providers; they are economic engines, developing the workforce and anchoring regional ecosystems. Weakening them undermines the UK’s growth potential at its core. If the UK allows its higher education sector to decline, it risks losing one of its most significant competitive advantages, weakening not just the tech ecosystem but the economy as a whole. Safeguarding STEM courses is what will allow UK companies to prosper and drive the nation’s economic growth.