University leaders have warned of the dangers of "turning back the clock" on student numbers and prioritising low-cost courses after the government told them to prepare for contraction and "deep cuts".

Speaking last week, Vince Cable, the business secretary, predicted a new era of less public funding per student, fewer three-year degrees and more concentrated research funding.

Calling for "radical" thinking, Mr Cable indicated that the door would be opened to private providers and warned that universities should not expect to be bailed out if they failed to adapt to a "more competitive and specialised" environment.

He asked whether the academy was "psychologically prepared" for contraction, and said "no one should be under any illusion that there will be anything other than deep cuts".

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Vice-chancellors and educationalists raised strong concerns about his comments. For Les Ebdon, chairman of the Million+ group of new universities, the indication that the government intended to fund fewer students was "worrying".

Mr Cable criticised Labour's 50 per cent target for university participation, claiming that there could be "a law of diminishing returns in pushing more and more students through university".

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Professor Ebdon said: "For all of Mr Cable's laudable comments about increasing participation by people from lower socio-economic groups and older applicants, it will be they who miss out if funded numbers are reduced."

Steve Smith, president of Universities UK, agreed: "We cannot turn back the clock to a society where we flourished with a small number of graduates."

Mr Cable also vowed to end the "heavy bias" towards full-time three-year degrees for 18-year-olds and called for more two-year intensive courses, adult and distance learning, employer input in courses and modular programmes.

Craig Mahoney, head of the Higher Education Academy, said research showed two-year degrees "suited some students in some circumstances" but that their delivery was not necessarily more economical, while Professor Smith said that flexible provision should be driven by student need, not cost.

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Graham Gibbs, former director of the University of Oxford's Oxford Learning Institute, said that in some subjects: "The average English full-time student puts in so few hours a week that they would need to study for nine years to reach the Bologna definition of a bachelor's programme. Cutting the English degree to two years would reduce its reputation to rubble."

Mr Cable also criticised the lack of incentives for good teaching in the academy and Labour's "failure" to "tie the rise in student contributions ... to improvements in student satisfaction and teaching excellence".

Professor Gibbs said the business secretary was "partly right. Under Labour, only individuals were rewarded. There need to be mechanisms that benefit excellent teaching departments and institutions."

Mr Cable also made a commitment to backing world-class research, but said that "research funding is already highly selective, and ... will become more so". His suggestion that Oxbridge colleges should reserve places for state school students was poorly received by the elite Russell Group institutions.

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rebecca.attwood@tsleducation.com