It is June, and university art departments are undergoing a spectacular metamorphosis. Walls are whitewashed, canvases hung, photographs framed and unique and often baffling installations erected. This is the end-of-year show.

For art and design students, this final exhibition marks the climax of three years of intensive study. Agents, curators and employers come from across the globe to see the work of the UK's finest young talent.

But the position of the UK as a world leader in art and design is at risk. While universities in economic powerhouses such as China and Japan fight their way into the market, encouraging their nationals to study at home - and thereby depriving British universities of lucrative foreign students - funding for the subject in the UK is stretched to breaking point.

Although student numbers are on the rise (enrolments have increased by more than 7,000 students in the four years to 2006-07), delivering art and design is a costly business. It requires expensive technology and materials, which constantly need upgrading and improving. Critically, it takes up space. The average mathematics student needs half a square metre to complete his or her studies; most art students need 20 times that.

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Trends in course popularity are also affecting universities' income from tuition fees, as some subjects flourish while others struggle. Traditional craft-based subjects such as ceramics and glass-making, which are expensive to offer by their very nature, are struggling to pull in sufficient student numbers. Meanwhile, graphic design and digital art are experiencing a meteoric rise.

These changes leave institutions with some difficult questions to answer. At the Norwich School of Art and Design, Sue Tuckett, the principal and chief executive, is contemplating the demise of some of the college's more traditional courses - stone lithography, bronze founding and fabric dyeing - as student applications drop off.

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"There are some traditional, highly skilled areas of craft production that the generation applying for higher education don't really have in mind when applying," she explains. "They're not listed as (³ÉÈËVRÊÓƵ Funding Council for England)-endangered subjects, but they are endangered in terms of people's understanding of some of these craft skills.

"A very difficult decision, in terms of the role of an institution such as this, is how much we should do to protect some of these traditional areas, even though they may not be areas that students particularly want to engage in. How much do we respond to market-driven recruitment and how much do we have a role to foster subject areas and skills?" Tuckett asks.

Students certainly vote with their feet - 60 per cent at Norwich are enrolled on design courses. Many of the skills that are in decline are needed by industry, but the problem is that students are not aware of these subjects and their potential. Limited funding across the entire education sector has forced secondary schools to cut back on their art and design curriculum, and has led higher education and further education colleges to streamline the syllabus of their foundation degrees. Art and design students can arrive at university with no knowledge of these less popular routes of study, and the cycle is self-perpetuating.

Moreover, advances in technology mean that students can produce a finished product without learning the basics, leaving core art and design skills at risk of being phased out from higher education and lost for ever. "Basically, you don't have to know how to use dyes and weave to design for woven textiles, because you can do it on a computer," says Tuckett. "What I worry about is that, by the time that we see what's happened (the loss of core art and design skills teaching), it may be too late."

Maureen Wayman, pro vice-chancellor and dean of the faculty of art and design at Manchester Metropolitan University, has also noticed a shift in course trends stemming from the school curriculum.

"All of the big 'making' areas that art and design has grown up around are areas in which we're starting to see changes," she says. "There's not exactly a falling-out of favour - we still take on 60 or 70 students a year as we are seen as a centre for this type of work - (but) we are watching it very carefully because of the changes that have happened with schools.

"When you go into schools, you see the children being offered a completely different experience. They're making their choices based on what they bring with them from school. They are less aware of the learning-by-making options that are offered in an art school environment," Wayman adds. "We're seeing students coming in with different types of skills."

Manchester Met offers a course in 3D design for which student numbers are holding steady, and the institution still takes 180 students a year on to its foundation degree, which allows art students to experiment with new skills such as ceramics. But if the time comes, as is sometimes feared, when universities can no longer afford to offer foundation courses, these skills will be further marginalised.

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One option, Wayman says, would be to add an additional, varied year to each degree, giving students a chance to try out a range of skills and techniques in art and design before they specialise. This, of course, would leave art students forced to fund a further academic year's expenses from already overstretched wallets.

And while interest in at-risk traditional and craft subjects at Manchester Met seems to be holding up, that is partly because the city acts as a regional design hub. The art and design facility has 3,500 students and is also used by local professionals. As funding becomes more limited, institutions will have to decide what they can realistically provide, and these decisions are likely to be taken on a regional basis. "We perhaps need to move more quickly and be more flexible in terms of moving between specialisms," Wayman says. "In the North West, we're the only institution that offers ceramics. I think it's going to come down to what the region can provide.

Meanwhile, new university courses somewhat peripheral to core art and design, such as curating, are becoming increasingly competitive in higher education. Cheap to run and popular with students, they are a gift to universities, allowing profit-making courses to cross-subsidise the more expensive and unpopular subjects that colleges believe they should preserve.

Andrew Renton, the director of curating at Goldsmiths, University of London, has redesigned the institution's course to respond to the needs of the art world. He says that he finds the growth in its popularity "just staggering".

"I have so many people applying for the places I offer," he says. "It's a growth area, but it's a direct response not only to a vocational need but also to a growing discipline."

For Renton, these trends are a simple reflection of the art world as it is outside academe. "The art world is probably many, many times larger than it ever was. There are more artists coming into the world. There are more galleries being established. There is infinitely more money involved, so there's an art world out there that's just generating huge amounts of income and it needs servicing."

Degrees of this type are bringing a new level of professionalism to the British art scene. They provide a direct route into what was once a chaotic, elitist and seemingly opaque world. In fact, the very idea of teaching curating, of thinking about exhibition-making in the abstract rather than alongside a practical specialism, is a relatively new one. Renton reinvented the course at Goldsmiths to reflect this change, but he insisted that his students should be based in the practical art department, away from the humanities and history of art.

"Because it's an art department, you become very aware of its delivery costs compared with the others. Arts students are very expensive," he says. "My programme is a very cheap programme to run. It's very profitable in comparison."

Inevitably, the profit made by the department on Renton's students is used to fund their more costly peers. "I'm extremely happy with that, for very strategic reasons," he says. "I'd love it to go into my course, but the environment in which my students are working needs to be a thriving, healthy, expensive art environment. I'd say that's an integral part of my students' education. Every day they have to negotiate and encounter the reality of art students making art. I don't even think of myself as supporting or subsidising. Certain programmes are just expensive to deliver; if they are expensive to deliver, they must still be delivered."

Renton is in a lucky, perhaps unique, position - he is unlikely ever to be asked to make cuts or find efficiency savings by reviewing his course content. Meanwhile, the subjects that surround his students are constantly pinched. Course leaders or department heads may postpone upgrading a computer suite or purchasing the latest digital photography technology. Recruiting more students isn't the answer because space is limited. More and more art undergraduates now find space so tight that they are asked to book studio space in advance.

Renton agrees there is a balance to be struck between using funds from profitable courses such as his to preserve at-risk subjects (ceramics, for instance, and life drawing, which was once the bread and butter of British art schools but is now increasingly on the margins) and following trends in course popularity. Fashions in art are difficult to predict.

"The irony is that one of our most famous artists today, Grayson Perry, is a potter. But it hasn't resulted in popularity for the discipline of ceramics," Renton points out. Young artists are looking for public visibility as well as a chance to develop their skills. "The last thing someone's going to do is try to move into a minority craft or restrict themselves.

"I'm torn between saying that we should preserve these specialist skills and turning around and looking at what young artists want to be doing. The art world moves on. If artists today want to make something in ceramics, they have no qualms about asking someone else to do it. It's one thing to say that it's our responsibility to preserve (these skills), but it's another thing if students don't want to go and do them."

Of course, if one follows this thought to its logical conclusion, such endangered art forms could eventually die out entirely; there will be no specialist ceramicist for the young, aspiring conceptual artist to call on for help turning his or her idea into a physical work of art.

Perhaps this is an unnecessarily negative view. Niche interests do tend to endure, after all, and not all academics working in art and design are so quick to perform the last rites over less popular subjects. For some, this debate is as old as their career.

"My views are not as apocalyptic as some people's," admits Simon Lewis, pro vice-chancellor and head of the College of Art and Design and Built Environment at Nottingham Trent University. "I think this notion of unpopular subjects being under threat isn't new. I remember a time when you went to art school and you studied painting, sculpture and printmaking. Sculpture came under threat a long, long time ago, so fine art courses came into being, where students can study across disciplines. Sculpture hasn't died, though I can remember there was a lot of comment in the late 1960s and early 1970s about the end of sculpture. It's changed. It has survived."

There are many examples of such Darwinian mutations - the best drawing skills may now be found not on fine art courses, which are veering increasingly towards the conceptual, but among the students working towards a degree in illustration or animation. It is this ability to change to meet the needs of modern art and design that helps make the UK a world force in the provision of higher education.

"That's something that our world competitors are extremely envious of - our ability to produce these highly adaptable and creative students," Lewis says. "These skills have not disappeared, they've just moved elsewhere. Fine art is in a certain sense of crisis nationally - in a funny sort of way it's lost its raison d'etre. It used to be the central subject. Not any more. It's moved to the edge, and it is design activities that have moved to the centre."

Lewis also believes that mutation and cross-fertilisation are part of the protection process for niche disciplines. It is not time to lament the impending loss of ceramics or glass-making, he says, but to celebrate how they continue to work themselves into modern art practice. "You put together skills learnt from craft-based activities with the new and you end up with something where craft can reinvent itself," he concludes. "Looking for some sort of golden age that never actually existed is an exercise in nostalgia that I'm not very interested in. Looking around the degree shows there are fantastic skills here - they're just different skills."

A brief comparison of the courses offered by art colleges and design departments over the past decade highlights the pace of change. There is certainly a stronger emphasis on employability and career prospects. Nowhere are these shifts more obvious than at the University of Westminster. "We have responded to the big market changes," says Sally Feldman, dean of the school of media, arts and design. "We have changed our courses and launched new courses." The way that universities approach "the whole business of employability", she says, is what makes the difference for both students and their parents when it comes to choosing a degree course in art and design.

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"That's definitely what I think has made a big change over the years. If you offer work placement, then that's a big advantage for getting students involved with the industry. There is a big influence now, since top-up fees, of parents being interested. They're probably steering students towards things such as industry accreditation of courses."

Many of Westminster's degrees are accredited by Skillset, the sector skills council for the creative industries. This gold standard allows the institution to demonstrate that it offers relevant practice-based courses that supply students with the skills that employers actually want.

Feldman also monitors course trends carefully to be sure that the university is always adapting. Some outdated postgraduate courses, including the rather enigmatic masters degrees in hypermedia and design for interaction, have been dropped. But this commitment to market adaptation can also have other results. When applications to Westminster's computer science courses dropped sharply, their leaders got together with the art department to discuss what could be done to stimulate student interest. The university now offers a BSc in computer games, which is oversubscribed.

"That's very successful. What you're offering is something very attractive because (the students) like games but also because there is a real prospect of employability," Feldman says.

It is not just individual universities that get bogged down in questions of relevance. The umbrella Council for ³ÉÈËVRÊÓƵ in Art and Design (Chead) is asking how its members can repackage and redesign courses to attract students. It is working with the Crafts Council, the Arts Council and the Design Council to make sure the potential of art and design is promoted now that the secondary-school curriculum has been slimmed down. It is considering whether something as simple as a rebranding could be the answer for struggling subjects such as ceramics.

"We have found that potential students and pupils don't necessarily understand what the opportunities are," says Frances Corner, president of Chead, echoing the sentiments of academics specialising in niche craft disciplines. She believes that terms such as "ceramics" can be confusing and off-putting. "That tends to conjure up a traditional way of thinking," she says. "How do we turn it around? How do we increase demand and relevance?"

These questions are, of course, still under debate, and some feel the debate itself is beginning to shift the focus away from what young artists are actually achieving in higher education.

Jane Ropeley, head of college at Central Saint Martins, University of the Arts London, worries about the obsession with the onward march of technology and digital art. It is one growth area within the discipline, she says, but it does not put the entire legacy of the creative arts at risk. "People presume that art and design is very digital or going even more digital. Of course it is; but, in a way, that's just another tool. It's not replacing, it's adding," Ropeley says. "We have digital technology, but we still make a hell of a lot. Part of the function of art and design in society is to make things that people live with, use and look at."

She, too, has been forced to undertake a curriculum review and has had to take tough decisions about which courses to close and which to preserve. Fashions in course trends are acknowledged at Central Saint Martins, but not pandered to.

"Because of who we are in the sector, we're able to provide support for some of those more vulnerable subjects," Ropeley explains. "We should be in a sufficiently strong position to protect a few of these areas and look at them in a more imaginative and frankly sexier way that attracts a younger market." And when trends shift, those preserved courses will become profitable for the university again. "Things move in and out of vulnerability. Experience tells us the pendulum always swings."

Finding financial support for these decisions is more difficult. Central Saint Martins has worked hard over the past 25 years to ensure that it can fund itself without reliance on consistent student numbers. The college has changed its outlook "from being a fairly purist academic environment ... to a more entrepreneurial one". It now runs short courses and summer schools, offers publishing and consultancy services, and provides professional training for employees in the creative industries. It has relied on these income sources to support its provision of arts education for the past five to six years and expects to make even greater use of them in the future.

Perhaps the future for the arts in higher education, then, is broader than its past. At the Norwich School of Art and Design, Tuckett is forging links with other universities to take art into a range of other academic disciplines. "We are looking at how as a specialised institution we can develop partnerships with other institutions in order to bring together art and design with science, art and design with business and management, for example," she says. Pioneering work between Norwich and Cranfield University is already aiming to use cutting-edge nanotechnology to develop new materials, which respond to sound as well as heat and touch, for artists to experiment with.

This embedding of art and design in other disciplines may seem radical, and even controversial, but it could be the key to maintaining student interest in struggling creative disciplines and carving out a new and important role for artists and designers both in higher education and in the workplace. "It's protecting, but it may not be preserving," Central Saint Martins' Ropeley concludes. "You can't stand still; you need to reposition the subjects with relevance to a global context. In the process of doing that you are actually protecting the practice in some way."

WORKING WITH EMPLOYERS: UNIVERSITIES, SCHOOLS AND THE DESIGN COUNCIL

Art and design students are not the only ones worried about employability. Employers, too, are concerned that the creative industries are not able to recruit the graduates with the skills they need to remain competitive.

"At the moment there is still a lack of understanding about art and design as a professional career. It's still slightly treated that if you're not academic enough to do the science subjects you do art and design," explains Lesley Morris, head of design skills at the Design Council, the government-funded body representing designers and the design industry across the UK.

"There is also a lack of real understanding about the different options in art and design. Even students going into higher education will probably mostly think they're going to be creative designers. They won't know about other options," she says.

The Design Council is working with schools and universities to address these gaps in understanding, to help encourage aspirant students into higher education and into the design industry.

"What we're trying to do is make a stronger connection between professional practice and education, and help schools include things that are closely related to practice in their schoolrooms so we address the issue of career pathways and progression," Morris says.

Accordingly, the council has written a design blueprint outlining its recommendations for employers and schools, as well as for the further and higher education sectors.

These proposals include the creation of a network of "visiting professionals" to bring working designers into degree courses to support and advise undergraduate students, and the development of a design mark for schools to reward and recognise high-quality design education.

The council's recommendations were drawn up after extensive consultation with employers and the design industry.

"It really is about getting the industry to think about its own skills development, working more closely with the universities to do that," Morris says.

"If we don't develop and maintain our design education at all levels, we will run the risk of dropping down the league," she adds.

"It's about pushing towards the creative economy; how we as a country protect, support and maintain our leading position on developing creativity."

TRENDS IN THE ARTS

The number of students enrolled on undergraduate and postgraduate art and design courses in UK universities has risen from 72,235 in 2002-03 to 79,530 in 2006-07.

The popularity of fine art has stayed constant, with a small increase from 16,820 to 18,020 over the same period.

The graphic design cohort has almost doubled in size; 8,190 students were taking the subject in 2006-07 compared with 4,645 in 2002-03.

Calligraphy has dropped from 80 students to 25 over the four-year period, with no student studying the subject at postgraduate level. Typography also plummeted in popularity: 310 students studied it in 2006-07, compared with 745 four years earlier.

Meanwhile, enrolments on clothing and fashion design courses have soared from 2,340 to 7,460, and interactive and electronic design has doubled from 725 to 1,440 students.

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Source: ³ÉÈËVRÊÓƵ Statistics Agency.