At opposite ends of the world, two nations grapple with a common dilemma: how to continue to invest in higher education as a driver of growth while their own importance in the global economy dwindles.

The problem facing both Australia, analysed in our cover story, and the UK is that any government prepared to refuse support for teaching and invest public money in research alone could find that quality or participation, if not both, suffers as a result, harming the country's reputation abroad. Such a situation would lead to a downward spiral in which the future supply of skilled workers who could generate economic growth is choked off. Potential students abroad, seeing an academy in decline, would also spurn the country.

In Australia, they hope that a demand-driven places system to be introduced in 2012 will swell domestic numbers and thus counter the recent fall in overseas students caused partly by government visa policies (Damian Green take note), a strong Australian dollar and a spate of race attacks. What is not known is whether the government will fund this expansion long term (that has been left to a review). If it does not, quality will suffer in a country whose staff-to-student ratios already cause it reputational problems, and the bleak scenario painted above could come to pass.

In the UK, the government's supply-side reforms, however tarted up, are about funding higher education on the cheap. The result is that they will drive down quality at every university bar the very elite. Most students will have less choice, not more. Those who do not get AAB grades at A level (mostly state school pupils) will have to scramble to snap up places; if they lose out, they will have to turn to further education colleges, private providers or universities that may have sacrificed quality to price their courses below the ?7,500 mark.

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Unfortunately, the problems do not end there. Universities, as expected, are quietly raising postgraduate fees in preparation for 2012-13, when undergraduate tuition fees will go up. Average home/European Union postgraduate fees for taught master's courses have climbed 24 per cent (from ?4,989 last year to ?6,184 this year). For overseas students in classroom-based postgraduate subjects, the rise is 10 per cent (from ?10,337 to ?11,346). At the same time, the Higher Education Funding Council for England's T-funding consultation is suggesting that a smaller postgraduate teaching grant should support priority courses only.

This gives rise to worries that a UK student wanting to take a taught postgraduate course, now requisite for many professions, will have to shoulder not only the larger debts from her undergraduate course, but also higher postgraduate fees because of pressure from undergraduate price rises and lost teaching grant. Support for these students is yet to be resolved.

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All in all, this adds up to some formidable disincentives for UK students to pursue postgraduate study. It could mean fewer homegrown academics and a looming crisis for academia. As Bahram Bekhradnia, director of the Higher Education Policy Institute, points out: "The health of the sector - but also of the economy and society in general - depends on the health of postgraduate education." The coalition has pledged to keep a close eye on the situation, but the issue must not be ducked. Dealing with it is vital if the UK wishes to remain a serious player on the global stage.

ann.mroz@tsleducation.com.