Universities and colleges are expected to find more private funding to cope with cuts amounting to Pounds 500 per student over the next three years, under Budget plans announced this week.

Big reductions in capital funding coupled with efficiency savings and a continued clampdown on growth leave higher education facing real-terms reductions of more than Pounds 300 million (7%) next year and more than Pounds 550 million (12%) by 1998/99. Further education colleges are being asked to make efficiency gains of over 5 per cent a year over the three years as their capital funding is almost halved.

Cash for university buildings and equipment is set to drop in real terms over three years by Pounds 169 million, or 52 per cent. For next year, a reduction of Pounds 107 million out of Pounds 350 million available this year amounts to a 31 per cent cut. Capital funding in FE will fall from Pounds 110 million next year to Pounds 59 million in 1998/99.

Consolidation in higher education has been extended a year, with planned student numbers maintaining a participation rate among 18 and 19-year -olds of just over 30 per cent. Tuition fees have been frozen for next year and a compensating sum given to the funding council. On top of the capital cut the sector is expected to make efficiency gains of 3 per cent in each of the next two years and 2 per cent in 1998/99. In FE, recurrent funding will effectively be frozen against a growth target in student numbers of 20 per cent over three years.

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College heads and lecturers' union leaders joined shadow education secretary David Blunkett in condemning Secretary of State for Education and Employment Gillian Shephard's handout of Pounds 878 million to schools at the expense of universities and colleges.

"She is giving with one hand and taking away with the other," said Mr Blunkett.

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The Budget also brought:

* A 9 per cent drop in the main rate of student grants next year

* A corresponding increase in student loan rates

* A three-year freeze on access funds

* Continued squeeze on staff pay settlements

* A Pounds 116 million increase next year for youth training and modern apprenticeships.

Mrs Shephard said institutions would be expected to make up for capital losses by raising extra money from the private sector.

She said: "The Government believes that within the framework of the Private Finance Initiative, colleges in the further education sector and higher education institutions can, and should, be enabled to make much greater use of private finance in funding capital works."

Kenneth Clarke, the Chancellor, said in his Budget speech: "This money is replacing old-style public sector capital spending and can deliver big gains in value for money for the taxpayer."

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The Higher Education Funding Council for England warned institutions to brace themselves for inevitable significant reductions in the level of formula capital funding for equipment and building repairs.

In a letter to vice chancellors, Brian Fender, HEFCE's chief executive, said the council realised "reductions of this scale and suddenness are likely to cause difficulties for institutions". And he suggested that even commitments already made for capital projects could not be guaranteed.

The funding council must also take account of an instruction from Mrs Shephard to "have regard to equipment needs, especially equipment for research, in allocating grant to institutions" when it considers the full implications of the settlement at its December board meeting. The guidance implies that initiatives such as the Teaching and Learning Technology Programme, aimed at updating teaching methods through the use of new technology, may also lose out.

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In a post-budget meeting, the Committee of Vice Chancellors and Principals warned Eric Forth, the higher education minister, that the Private Finance Initiative was still in its experimental stages and that the amount of capital it could raise was uncertain. The Government's assessment of how much could be raised through PFI for education and employment projects, outlined in the financial statement and Budget report, falls well below the imposed cuts, at Pounds 110 million over the next three years. Mrs Shephard said universities had already attracted private backing worth Pounds 1.6 billion, while potential PFI projects in FE came to Pounds 650 million. But most private investment in higher education has been made in continued from front page the form of a loan. Mr Forth has promised talks with the CVCP to "identify problem areas". The Government has a hotline to give education, employment and training bodies advice on attracting private sector investment.

The committee said that Government figures suggested universities would be faced with a squeeze on unit running costs of at least 3 per cent. Capital cuts had to be set against an estimated backlog in building maintenance of Pounds 1,269 billion, and a need for an extra Pounds 100 million for technology-based learning systems.

Diana Warwick, CVCP chief executive, said the budget "will further impoverish universities, reduce their capacity to adapt, and make it more difficult to bring in outside investment."

The Association of University Teachers said the cuts were equivalent to the loss of seven universities, or 6,500 lecturers' jobs.

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Ruth Gee, chief executive of the Association for Colleges, said "students using poor equipment, or studying in overcrowded classes, or those who find the door closed to them, will remember this budget as the one that denied them the chance to realise their aspirations."