According to an assessment of the sector¡¯s financial health by the Higher Education Funding Council for England, universities will be financially ¡°sound overall¡± until 2015-16 and no institutions are at risk of insolvency.

But its report, released today, warns that any further reductions in public funding for capital projects ¡°could risk the quality of the infrastructure¡± across the academy.

The sector¡¯s operating surplus is forecast to drop to 2.7 per cent in 2012-13, significantly down from 4.2 per cent the year before, the report says.

It will then fall even further to 2 per cent in 2013-14 because of the extra cost of additional staff, before recovering to 3.8 per cent by 2015-16.

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¡°While short-term health is not a concern, some institutions will need to increase surpluses in future years, especially if the increase in public capital funding does not materialise,¡± it comments.

On average, the sector expects to recruit 3.1 per cent fewer full-time UK and EU undergraduates by 2015-16, compared with 2011-12.?

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This figure hides huge variations. Some institutions fear a drop of more than 30 per cent, while six predict growth of more than a fifth.

Despite worries that a tightening up of migration rules could put off overseas students, income from international students is projected to grow by 40 per cent from 2011-12 to ?3.9 billion in 2015-16.

Part of this rise is expected because of an anticipated 16.1 rise in international students, although numbers are anticipated to be very slightly down in 2012-13. The rest of the boost in income will be down to higher tuition fees.?

But there is huge variation between institutions over their predictions for overseas student income. Five institutions are expecting it to grow by more than 200 per cent, while others anticipate a reduction of up to a half.

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The sector is ¡°becoming increasingly reliant on this source of income¡± the report notes.

david.matthews@tsleducation.com