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Higher education should plan for cuts of 35 per cent to its public funding over the next four years, the Cabinet secretary has told vice-chancellors.

Times Higher Education has learned that Sir Gus O'Donnell delivered the message in meetings with groups of vice-chancellors. According to some of those present at the meetings, which were held over the past few weeks, Sir Gus said it would be prudent for the sector to plan for 35 per cent cuts over 2011-15, the period covered by the next Comprehensive Spending Review.

In this scenario, and assuming that student numbers remain static, the annual level of public teaching and research funding per student in England would fall to ?3,537 from today's ?5,441, if teaching and research were to share the cuts equally with capital funding (see graph above).

A 25 per cent reduction - which some in higher education believe is the best the sector can hope for - would shrink funding per student to ?4,081. That compares with ?9,553 in 1989, the earliest point for which the Higher Education Funding Council for England could provide data.

Gareth Williams, emeritus professor at the Institute of Education's Centre for Higher Education Studies, said a 35 per cent cut would be the sector's sharpest decline in overall funding since the Great Depression.

"If the numbers quoted are realised, it would be far worse than anything universities have experienced since the 1930s. In terms of expenditure per student, it is far worse than anything in recent memory," he said.

The sector will also suffer from a reduction in capital funding, an area already trimmed by the previous government.

Lord Browne of Madingley's review of higher education fees and funding, expected to report in the autumn, is under pressure to allow universities a significant injection of income from tuition fees or graduate contributions in compensation for lost public funds.

Universities will also look to overseas student fees, which are not capped, to generate more income.

To cope with much-reduced per capita funding, higher education may increasingly be delivered via distance learning, Professor Williams suggested.

"It probably would be possible to provide the basic training that goes on at most universities at the sort of price that is being talked about," he said. "But it would be a very different student experience from what we take for granted. It raises big questions about the nature of a university experience, what a university is for, why people go to university."

A 'reasonable level' is possible

Lord Baker of Dorking, who introduced per capita funding during his tenure as education secretary (1986-89), dismissed predictions of a 35 per cent cut. In any case, he argued, capital or research funding could be reduced to keep the teaching grant at a "reasonable level".

Lord Baker said the system of per capita funding gave students better chances of access to university as they came with a "bill around their neck". But he said pressures to fund primary and secondary education and other demands on the public purse meant that "no government, of whatever composition, will ever give universities the money they need or deserve".

Lord Baker said that although some state funding per capita should be maintained, the cap on tuition fees should be raised. Top universities should be allowed to charge fees of up to ?10,000 if they established effective bursary schemes, he argued.

"Higher education is one of Britain's great assets. We've really got to look after it and find ways to make sure it doesn't fall away in relation to America," he said.

Roger Brown, professor of higher education policy at Liverpool Hope University, said cuts would lead to "increased student-to-staff ratios and greater pressure on physical resources" such as libraries.

The prospect of a severe contraction of capital funding presages a "nightmare scenario", he said. "You are charging students more - assuming fees will go up after the Browne review - and at the same time they are being taught in crumbling lecture theatres."

On the possibility of raising income from alternative sources including overseas students, Professor Brown said: "That assumes other income will continue to grow to compensate for the reduction in public funding. That is not necessarily a safe assumption, and certainly not ... for all institutions."

A Cabinet Office spokesman said Sir Gus, the country¡¯s top civil servant, was ¡°reflecting what this government has always said ¨C that we must have a financially sustainable higher education system for the longer term.

¡°Once Lord Browne has reported in the autumn, we want to ensure that universities have more robust funding arrangements fit for the 21st century.¡±

He added that the Treasury had asked all non-protected government departments to plan for cuts of between 25 and 40 per cent.

¡°The Cabinet secretary¡¯s advice to everyone in the public sector is that, until we find out exact budgets in the autumn spending review, it would be prudent to prepare for cuts at the higher end of that range,¡± the spokesman said.

john.morgan@tsleducation.com