Ever since Tony Blair's "education, education, education" mantra and his government's target to have 50 per cent of young people reach higher education, debate has raged about whether the UK really does need so many graduates. But on the London School of Economics' , Libby Hackett, director of the University Alliance mission group, dismisses the "too many graduates" argument as a myth.

Ms Hackett insists that the UK must increase the capacity for "higher education places in future years if we are to grow our economy and ensure a bright future for more young people".

Her comments come as the latest recurrent grant allocations from the Higher Education Funding Council for England suggest that some post-1992 institutions, including University Alliance members, could lose up to 13 per cent of their undergraduate places next year.

"The popular perception is that...young people should question whether it is worth going to university," she writes. "The way government, universities and employers collectively choose to respond to this popular perception will have serious consequences for the future wellbeing of our economy and society."

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She refers to University Alliance's recent report The Way We'll Work: Labour Market Trends and Preparing for the Hourglass, which says that the shortage of people moving into higher education threatens the growth of the economy. "Contrary to popular belief, the labour market indicators we looked at suggest that there is a shortage of graduates in the UK. Technology is changing the way we work and...the structure of the labour market."

Since the early 1990s, several factors had led to the "hollowing out" of the labour market in developed economies: sustained growth in high-wage, analytical, non-routine jobs; an expansion of manual, lower-wage jobs; and a contraction of routine, middle-wage jobs. To support this hourglass-shaped labour market, "the proportion of our working population at graduate-level will influence the nation's productivity, pattern of economic growth and ability to meet the needs of business, individuals and the wider society...Professional development is essential in order to tackle rising inequality and to ensure that people do not get trapped at the bottom of the employment market."

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Ms Hackett adds that the report shows that the UK economy is not presenting any of the four "labour market signals" that might suggest that there are too many graduates in the economy. "Graduate employment rates have been maintained despite the rapid expansion in the number of graduates. Added to all of this there is still a significant graduate premium," she writes. "Demand for going to university is high. Social mobility is at a standstill, yet we know that in our changing economy it is a university degree that creates more opportunities for people than anything else."

However, she says that coalition government policies will lead to the loss of about 25,000 university places next year and "could seriously hold back our capacity for economic growth". She concludes that UK higher education is at risk of falling further behind its global competitors, who continue to pump money into the sector.

As with other areas of the economy, investment in universities - rather than cuts - is what is needed, Ms Hackett concludes.

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