Higher education in the UK is among the best in the world. Four British universities are in the top ten globally. Foreign students comprise 15% of the college population. International evidence suggests that UK research is the most efficient in the world in terms of turning inputs of money into outputs of scientific papers and patents. But since the recession many have started questioning whether the system is fit for purpose. According to the Higher Education Statistics Agency one in ten university graduates is unemployed.

Some critics say that the best solution lies in sending fewer school leavers on to university: the model of three-year residential universities is unsustainable given student numbers, and the astronomical cost of maintaining student loans. Moreover, with 50% of the population matriculating, the market for graduates may be saturated.

But cutting places isn't the solution. The global economy is expected to add a billion skilled jobs within 20 years. And UK workers lag 13 - 20% behind competitors in productivity (according to the 2006 Leitch Report, at least a fifth of this gap is attributable to a gap in skills). The priority is not to cut university places but to reform higher education to do its main jobs better: creating knowledge, helping students learn and contributing to the success of the economy and community.

During the past six months the Young Foundation has been investigating innovative ways in which universities can adapt to changing demands. We've looked at important new models - such as Aalto in Finland which is aiming to become the world's first innovation university with multidisciplinary teams and a focus on problem solving; or Singapore's Biopolis; or Melbourne's radical approach to curriculum design.

Part of the focus has been on how institutions can save costs while retaining scale and quality. For example, the Scottish Universities Physics Alliance joins up the research insight and expertise of eight universities. This allows them to adopt a coherent approach to staffing strategy, research training, research initiatives and funding opportunities; cutting costs by pooling equipment and resources as well as reducing duplication and presenting one strong external brand.

Other universities are addressing the issue of graduate unemployment head on, while also cutting costs. For example, the Federal Work-Study Programme brings hundreds of US universities together to help allows university students to offset the cost of their loans by working in university offices and admin roles whilst enrolled. This cuts back-office costs for the universities, offers work experience to students and could be expanded to include loan offset for internship placements, voluntUrism and academic performance. In other words, providing incentives for desirable behaviours. A more radical variant is CIDA in South Africa where students carry out many of the day to day jobs to help keep costs down.

This research is the beginning of a longer programme of work on innovation in higher education.

This article is from the July 2010 Young Foundation newsletter update "All in a day's work".