British government spending on university science is Pounds 2.3 billion in the current financial year, equivalent to an income tax rate of 1.8p per pound - not bad when the basic rate is only 24p. But despite this apparently large sum there are always more valid demands for research funding than any possible settlement can satisfy.

After the election and the Dearing report, the picture might get clearer, but it is not likely to be hugely more generous. There will be pressure to restrain public spending and, despite attempts to lower expectations, a Labour government in particular will be prey to demands in every sector from foreign aid to nursery education. British research spending may be low by G7 standards, as we report on page 6, but the funding and research councils cannot expect large increases.

The conclusion for university research is the same as the case for top-up fees for teaching: without a major new source of money, things are going to become increasingly grim. And in both cases, getting new money means forging new relationships and ways of working, especially with the private sector. As we report this week, there is already alarm in the British pharmaceutical industry, one of the UK's few unambiguous economic success stories, over the state of British academic research. George Poste of SmithKline Beecham (page 12) is calling for further concentration of resources in response to the dearth of good British university departments.

While the pharmaceutical industry and others want Britain to have a superb higher education system, they do not see it as their job to create or maintain it. They are willing to put in significant sums, but only when they see a worthwhile base onto which these can be grafted. The same applies to the large sums spent by the research funding charities, which are active mainly in medical and social research.

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The research assessment exercise provides a basis for funders' judgements about where to put their money, which in many cases will buttress the personal judgements they make already. This makes it harder for low-rated departments to appeal to corporate backers while a minority become more attractive. The departments that appeal to industry are likely to be the ones that have already appealed successfully to the research councils. For Britain as a home for science-based industry this may be the best outcome, but it is ominous for the departments outside the charmed circle.

However, there is still scope for creative scientists to build research organisations that can enrich them and their institutions. Oxford University (page 17) is belatedly following the example set by hungrier universities like Salford in the 1980s, turning bright ideas into profitable companies. In Oxford's case, biotechnology, including everything from computerised drug design to equipment for reading sugar sequences, is proving especially marketable. The backers of such research do not want to get involved with anyone who is not excellent, and they do not want to know about fields which are not highly commercial. Setting appropriate boundaries between commercial and academic activities is a skilled business which deserves more attention.

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The task for politicians is to ensure that potential investors who look at British higher education find good conditions for basic research onto which they can attach their own projects. The task for the managers of British universities is to see that applied work and consultancy enriches rather than drains the university. Money from industry and others can help ensure that work develops in new directions. It cannot guarantee the basic infrastructure nor can it be relied on to ensure that British higher education continues its crucial role as producer of graduates to staff research centres. Here not all the signs are bad. This week's UCAS figures (page 1) show that more people want to read biochemistry, physics, computer science and biology. Also on the up are combined science or science and arts courses, which may not produce potential Nobellists but can yield graduates with scientific understanding, a valuable asset for employers.

The UCAS figures show continuing problems for engineering - and suggest that the bubble may have burst for media studies (down 14 per cent). In a few years Britain should have the best-run hotels and leisure centres in the world, with institutional management applications overtaking physics with a 50 per cent rise (though this is partly due to a change in methods of counting.) Overall the figures suggest that potential students are keenly attuned to the market - and that these days biotechnology and leisure seem to offer more exciting prospects than engineering.