The comments come as the body revealed that the sector¡¯s operating surplus was ?1 billion - or 4.6 per cent of total income ¨C last year, up from a surplus of ?708 million or 3.2 per cent in 2009-10.

However, according to the Higher Education Funding Council for England¡¯s review - Financial health of the higher education sector: 2010-11 financial results and 2011-12 forecasts - the surplus is forecast to fall to ?0 million in 2011-12 as a result of government funding cuts ahead of the introduction of higher fees.

The review, which is based on the annual accountability returns filed to Hefce by universities, concludes that despite uncertainty over government policy, there ¡°is strong evidence that the sector is financially well prepared for the new funding system¡±.

On fears that the main risk from new fees and funding arrangements would be a drop in student numbers, the review says: ¡°This risk now looks unlikely to materialise in the short-term as the recent [University and College Admissions Service] data indicate that student demand, for full-time undergraduate courses, is likely to exceed the number of places available in 2012-13.¡±

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But the review also refers to the uncertainty ¨C with the government yet to announce the future extent of price-based ¡°margin¡± places and the AAB policy ¨C over the proportion of student places that will be contestable between universities in 2013-14 and beyond.

¡°There continues to be a large degree of uncertainty about how the new system will operate in the medium term¡­ in particular with regards to the policy of controlling student numbers,¡± the review says. ¡°As the policy becomes clear we will need to re-assess the future financial prospects of the sector.¡±

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Among other statistics, the review also shows that staff costs fell to 53 per cent of the sector¡¯s income in 2010-11, down from 54.3 per cent the previous year.

john.morgan@tsleducation.com