Universities challenged: Further education budget reduced by £573m

More than 100 universities have had their budgets slashed or frozen, it emerged today in the first real glimpse of how public spending cuts will bite.

Figures released this morning show 99 of the 130 universities in England – including Oxford and Cambridge – have had their funding cut in real terms. A further two face a freeze. A breakdown of this year's budget – cut by £573m in cash terms (or 1.6 per cent) – also shows 6,000 fewer students will be enrolled this September. This is in spite of the fact that applications have soared by 23 per cent (106,000), and this will leave about 220,000 would-be students – out of an estimated 700,000 applicants (including international students) – without a place. In addition, 20 universities face hefty fines for recruiting too many students last September.

The bleak picture could get worse, warned Sir Alan Langlands, chief executive of the Higher Education Funding Council for England (HEFCE), the Government's university funding body. "You need to have been at the North Pole not to recognise there will be reductions in public spending over the next few years," he added.

The figures brought condemnation from lecturers' leaders and some university vice-chancellors. Sally Hunt, general secretary of the University and College Union, said: "The Government is abandoning a generation who, instead of benefiting from education, will find themselves on the dole alongside sacked lecturers."

The Russell Group, which represents 20 of the country's leading research institutions, said the settlement would "pose real challenges" for its members. "Our competitors in Europe, Asia and the US are pouring more resources into higher education as a strategy for coming out of recession," said Dr Wendy Piatt, its director general. "The Government's spending plans only run to March 2011 and we remain deeply worried about the possibility of more cuts."

As a result of the squeeze, the HEFCE has given priority to fund top-class research – with a bigger concentration on funding for élite universities. The decision will create a bigger divide amongst universities, with the top five for research (Oxford, Cambridge, University College London, Imperial College London and Manchester) getting 33 per cent of all the cash available. Their combined grant shoots up to £533m (an increase of around 4 per cent compared with 0.4 per cent overall). The overall budget is £7.4bn.

A breakdown of the figures shows 69 institutions getting less money than last year, a further 30 given a cut in their budget in real terms, two facing a freeze and only 29 receiving an increase. The cut is the biggest faced by higher education for at least 13 years.

It will inevitably put pressure on the government review of student funding, headed by Lord Browne, to come up with proposals to at least raise the cap on student tuition fees – currently standing at £3,240 a year. The clamour to allow universities to charge what they like has been growing, with Oxford University's chancellor Lord Patten and the Government's social mobility tsar Alan Milburn backing the lifting of the cap in the past week.

Today's figures show that top priority is being given to boosting recruitment in the so-called "Stem" subjects – science, technology, engineering and maths. That is why two of the biggest losers in this year's budget are the London Business School and the London School of Economics, which do not specialise in these areas.

Cambridge (up only 0.1 per cent at a time when inflation is running at 2 per cent) and Oxford (up 1 per cent) also lose out in real terms. This is because capital budgets for the upkeep of historic buildings have been slashed.

Sir Alan Langlands said: "We still have in this country a world-class system and, in making these allocations, we've been doing our very best to protect the core of that system." He acknowledged, however, that universities were living in "slightly more challenging times".

Professor Les Ebdon, chairman of the university think-tank million+, said the funding council had "clearly tried" to lessen the impact of cuts. "For universities this is a phoney war because this funding settlement could be completely blown out of the water if there is a second Budget after the general election which makes further cuts to higher education. Many institutions, especially those with a focus on widening participation, could be reduced in size."

David Willetts, the Conservatives' universities spokesman, added: "Now we know that next year the Government is cutting the cash at half of all England's universities. They are the victims of Labour's mismanagement of public finances." He confirmed a pledge that his party would provide an extra 10,000 student places this autumn, financed by offering a bonus to students who made an early repayment of their loans.

However, David Lammy, the Higher Education minister, said the figures showed ministers had been right to say the funding position was "manageable". "Like everyone else in the current financial climate, institutions have to do their fair share of belt-tightening, but these figures do not show a university system in crisis," he added.