All staff have been invited to apply for voluntary redundancy at the University of Gloucestershire under a major efficiency drive dubbed Transformation 2012.

In a letter to staff, Patricia Broadfoot, the vice-chancellor, says the university needs to save ?5 million over two years.

"Budget holders have been making non-pay cost savings. Other measures, such as restricting recruitment, are also in place so that we may avoid a deficit for the 2008-09 financial year," she writes.

But the letter warns that staffing costs will have to be cut. In 2007-08, Gloucestershire spent ?36.7 million on such costs against total income of ?62.2 million.

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A university spokesman told Times Higher Education that the savings would be achieved by "a mixture of voluntary severance, scrutinising non-essential spend, improving income and reconfiguring some activities to make them more efficient".

Compulsory redundancies have not been ruled out, he added.

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The university reported a surplus of ?117,000 in the 2007-08 financial year. But its annual accounts showed that long-term borrowing rose to ?32.6 million from ?30.8 million in 2006-07 to pay for infrastructure developments, such as a new campus in London. Plans to close Pittville Campus in Cheltenham and relocate to a ?40 million site in Gloucester have been shelved.

"Although the university is managing a challenging situation in line with the wider sector, it is growing and is confident about the future," Professor Broadfoot told Times Higher Education.

"Applications are up by 20 per cent ... and our grant settlement for 2009-10 is up by 3.9 per cent on last year," the spokesman added.

However, a source within the university, who asked not to be named, said the word "dire" was constantly used by managers when describing Gloucestershire's finances.

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"There are suggestions (that it) is looking to make up to 100 redundancies - it is not going to get all those voluntarily," the source said.

Local newspaper the Gloucestershire Echo quoted one member of staff as saying: "We aren't even allowed to buy ink for the printers."

Gloucestershire has hired two external consultants to manage Transformation 2012, which aims to improve university systems and make staff more "customer-centred".

In a recent interview posted on the university website, one of the consultants, Scott Harvey, who is providing HR support, said: "If people are not willing to support change, then maybe it's time for them to use their skills elsewhere."

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Gloucestershire's University and College Union branch said that it had been told by the university executive of the "parlous state" of its finances. It blamed a "top-heavy" management structure and poor decision-making relating to capital investments for the crisis.

"Our members have no responsibility for any of those financial decisions ... They are only guilty of arriving at their desks early, leaving late, taking work home ... and working hard to raise (Gloucestershire's) academic profile," the union said.

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melanie.newman@tsleducation.com.