V-cs seem ready to break with the state by securing other funding streams but, as Chris Bunting reports, talk of privatised autonomy is a red herring for most universities.

It was a peculiarly polite battle cry. Buried deep in Oxford University vice-chancellor Sir Colin Lucas' annual oration last month, among the traditional lengthy tributes to university benefactors and mind-numbing explorations of the more arcane shores of higher education finance, was a glimpse of a "privatised" future for Britain's universities.

Che Guevara or Lenin might have dispensed with Sir Colin's fastidious explanation of the "Human resources money now to be incorporated into the baseline as a function of the T-grant rather than T and R as previously which, as the document recognises, will reduce the size of the HR grant" but, when he got warmed up, his message was revolutionary.

He attacked core government funding as "woefully below cost" and warned that the government's preoccupation with auditing and quantifying all aspects of performance was "eating at the cherished autonomy of universities in the Anglo-Saxon tradition". Furthermore, Oxford would not enter into a "Faustian bargain" with ministers over widening access if that compromised its admissions principles. But perhaps the most worrying passage for Whitehall policy-makers outlined Oxford's determination to think "about what we can do outside the arena of the controlled economy" of government-funded higher education.

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Sir Colin said: "In particular, I have argued before that there is a good strategic and academic case for increasing the number of graduate students and investing in overseas students at that level... The fact is that British and European students are a net financial loss to both university and colleges. This will remain the case, albeit less so, even if legislation brings in the proposed additional fee (and its full effect would not be felt until 2009)."

In other words, if the government could not fund domestic students adequately, Oxford would find other students who would bring enough money with them. Although Sir Colin stopped short of an explicit call for privatisation, a research paper has been circulating among Oxford college heads and finance directors calculating how much the university would need to raise through increased tuition fees if it were to forgo its annual state teaching grant of ?52 million and break free of state control.

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Similar discussions have been held in most of the elite Russell Group of research-led universities, and the drive to recruit more fee-paying foreign postgraduates is shared across the sector. Andrew Oswald, an economist at Warwick University, argues that the "privatisation" of British higher education is unstoppable and that some universities will have gone private by 2011.

In debates on privatisation, James Tooley, professor of education policy at Newcastle University, believes we need to be more clear about the status of universities. "People talk about state or public higher education in Britain and contrast it with the private universities of the US," he says.

"But, in truth, all universities in the UK already are private." Some universities are companies limited by guarantee, but most are private and independent foundations created by royal charter or by statute.

The extent to which we can talk about a "state-controlled" university sector, Tooley argues, is the extent to which universities have surrendered their independence to the state in return for public funding. He believes that increasingly tight government regulation of the sector, through the research and teaching audits and the linking of money with government priorities such as widening access, combined with an inadequate level of funding, is encouraging a long overdue independence among vice-chancellors.

Tooley, who is a well-known advocate of privatisation, believes it is as much about a change of mindset. "Perhaps (Lucas' speech) can be seen as a sign that the culture of kow-towing to the state is changing. We call ourselves 'public' universities, but it is really just laziness. If you compare the finances of some of the universities in the US that call themselves private institutions and some of our leading universities, you won't see that much difference."

Vanderbilt University in Tennessee proudly describes itself as a private independent foundation, and yet - ignoring the large amounts of government funding that goes into its hospital - it received 36.2 per cent of its income from government funds in 2002-03. Tooley believes the advent of fees and the development of loan schemes that have moved the source of a large proportion of undergraduate funding away from state handouts will help confirm an increasing independence in the sector. "The Rubicon has been crossed because the principle has been conceded that fees are the order of the day and that the private individual pays," he says.

Stephen Ball, director of the education policy research unit at the Institute of Education - which is about to start a seminar series on private-sector involvement in higher education - rejects the idea that a creeping privatisation is the manifest destiny of British higher education.

"The idea that higher education is somehow already private is pure polemic.

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It is based on ignorance of history and economics. Huge amounts of money were pumped into the sector by the state to build it in the postwar period.

Most universities are state creations."

In fact, a close look at the sources of higher education funding shows that public funds have been rising, rather than decreasing, in importance in recent years. In 1998-99, universities and colleges received 50 per cent of their funding from public funds (local education authority fee payments and grants from the ³ÉÈËVRÊÓƵ Funding Council for England and the research councils). By 2001-02, the proportion had climbed to 60 per cent.

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This figure, somewhat contentiously, included the income from fees paid through The Student Loan Company. But even if all loan and LEA-sourced fees were added to the private side of the account, 57 per cent of funds would still come from the public purse.

Jonathan Rutherford, a lecturer in cultural studies at Middlesex University, believes that, although some Russell Group high-fliers may eventually escape the nest, the reality for most institutions is a continuing struggle to make ends meet on state funding. While some in the leading research universities eagerly anticipate "privatisation" as a route to greater autonomy, the meaning of "privatisation" for the rest of the sector is exactly the opposite, he says. Rutherford has monitored the rhetoric advocating greater responsiveness to market forces that has overtaken much of the public sector since the 1980s. It is, he says, a reforming agenda that does not aim to reduce state control. Indeed, private-sector involvement has worked hand in glove with a tightening of the screws of government surveillance of public-sector workers. In the school sector, for instance, the companies that now run many of Britain's inner-city local education authorities were levered into control under the auspices of Ofsted, perhaps the public sector's most intrusive inspection regime.

Instead, the "obsession with market models" is aimed at integrating higher education into the notion of a "knowledge economy". Universities may not be owned by private-sector companies or funded by them, but they must, according to this rhetoric, be steeped in the culture of the market and be responsive to its demands.

Rutherford quotes new Labour's first education secretary, David Blunkett:

"Universities are autonomous institutions, and rightly so. But... in the knowledge economy, entrepreneurial universities will be as important as entrepreneurial businesses, the one fostering the other. The 'do-nothing'

universities will not survive." Charles Clarke, the current education secretary, said the future of higher education was "fundamentally market-based".

For Rutherford, that does not mean greater independence but a culture in which the infrastructure of higher education is "increasingly viewed as a market opportunity". Private finance initiative funding and other types of private-public deals are not yet as commonplace in higher education as they are in the health and schools sectors, but millions of pounds of university assets, particularly in the provision of student accommodation, are being transferred to the private sector. Millions of pounds are being made by the banks on the student loans apparatus, and armies of consultants and other private-sector professionals are trooping through the management suites of British higher education. As Blunkett remarked: "Learning has become big business."

But it is not this "privatisation", narrowly defined in terms of private profit-making, that Rutherford believes is the main threat to academic autonomy. "In many ways, the private ownership thing is a bit of a red herring. As Tooley says, universities are already, strictly speaking, private entities. What is really at stake is how the internal culture is being changed to fit the market."

The "marketisation" of universities, whereby academics are increasingly exposed to the rigours of supply and demand, and whereby their research and teaching output is minutely measured by audit regimes focused on the economic usefulness of their research and teaching "products", poses a dire threat to traditional academic autonomy, according to Rutherford.

"Those who work in universities are faced with a new paradigm in which the influence of educational values and academic professionalism have been significantly downplayed in policy-making," Rutherford claims. "Of course, universities necessarily apply business practices, but the goods and services they produce - knowledge creation, learning, ideas - do not conform to the commodity function of manufactured goods.

"The university needs to reclaim the value of knowledge and learning as a public good. We need a language with sufficient potency to articulate ways of organising and valuing learning, knowledge and culture that are rooted in a democratic, as opposed to a market, paradigm," he says.

A series of seminars on "Private sector participation in public sector education" will start at the Institute of Education, London, on November 28. For details, contact J.hall@ioe.ac.uk

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Next week: are private companies in the US eyeing up the UK market?