University cash gap widens

Universities have warned of a serious funding shortfall

Universities could be forced to merge - as a financial divide widens between a handful of wealthy institutions and many struggling "new" universities.

This is the conclusion of a survey of university finances published by the HSBC bank, called Taking the Pulse, which suggests that many universities face a "tough operating future".

Although it does not name individual institutions, it says that there are 11 universities in a "particularly weak" financial state - and another 11 which are "heavily indebted".

The report warns of the vulnerability of such institutions to a reduction in student numbers - and it forecasts a greater level of specialisation and the likelihood of mergers.

The higher education sector has claimed that there is a £10bn shortfall in funding - but this survey highlights how the funding problems are not evenly spread.

At the wealthier end of the scale, the survey says that "financial strength is concentrated among of a small number of institutions".

Illustrating the disparities between the rich and poor universities, the survey says that 25 institutions accounted for 95% of budget surpluses, while at the other end of the scale, 25 universities accounted for more than half of long-term borrowing.

'Losers and winners'

The report points to the problems ahead when universities reach the limit of their borrowing capacity - and says that many remain in need of additional capital investment.

"Set against a background of tight finances and stiff competition between institutions, there will inevitably be losers as well as winners," the report concludes.

The highlighting of the financial problems of higher education comes as the government faces a challenge on its policy of allowing universities to introduce top-up fees.

The Liberal Democrats, in a parliamentary debate on Monday, will call on the government to abandon its proposals for higher fees for students - and will hoping to gain the support of Labour backbench rebels.

The government has presented higher top-up fees as a way of funding the expansion of university places.