The Scottish Government has been set a challenge by its Council of Economic Advisers: invest in universities and departments which have the potential to be world class. In its first annual report, the council last week urged acknowledgment that this could mean diverting funds from some institutions.

The council, which is chaired by Sir George Mathewson, former chairman of the Royal Bank of Scotland, said higher education was crucial to Scotland’s economic prosperity. This would require three things: more school leavers going on to higher education, more students taking higher-level degrees and more quality graduates.

It warned: “Improvements in all three are essential if Scotland is to prosper economically, but with a fixed education budget, more of one means less of another. All institutions can contribute to increased participation and increased levels of attainment, but only some departments in some universities can succeed in being world class.

“Squaring the budgetary circle of higher participation, higher levels and higher quality is very challenging. It calls for a greater diversity of institutions, and managing this process is also extremely difficult.”

Figures produced for the council show a mixed picture. Scotland does well internationally, with 46 per cent of the cohort obtaining higher degrees in 2005, which was fifth out of 25 countries in the Organisation for Economic Co-operation and Development. But while it was ranked eighth out of 30 countries for the proportion of the working-age population with low or no qualifications, this was 15 per cent of the eligible workforce which presented a “real challenge.”

The report states that ensuring Scotland’s comparative advantage on graduation rates translates into higher skill levels in the population at large “depends crucially on whether these graduates stay in Scotland”.

The advisers noted: “Scotland will have to be pro-active if it wishes to improve its relative position, and to have a strategy to fund the additional cost.”