Overseas student fees are subsidising the teaching of British and European Union undergraduates to the tune of tens of millions of pounds a year, according to confidential new figures.
The figures produced for the Higher Education Funding Council for England show that neither teaching nor research in British universities cover their costs.
Universities can lose up to Pounds 8 million a year on teaching British and EU students, according to the pilot study of nine leading universities. It also shows that in some institutions, doing research drains up to Pounds 50 million from other sources.
The teaching deficit on home and EUstudents is made up from tuition fees charged to overseas and privately funded students, from whom institutions can make as much as Pounds 14 million a year.
Clive Saville, chief executive of Ukcosa, the council for international education, said: "The bottom line is overseas students should not be subsidising home students, and we need to compete for the best-quality students in competition with the United States and Australia."
The University of Birmingham, where 10 per cent of students come from outside the EU, made a surplus of Pounds 15 million from teaching in 1998-99. The university was not willing to comment on the figures.
The University of Warwick, where 15 per cent of students are from outside the EU, made a surplus of Pounds 10 million. A university spokesman said the Pounds 10 million included income from industry-sponsored students.
At Imperial College, London, 22 per cent of the students are from outside the EU. Rodney Eastwood, head of planning, said the college charged the market rate. He added: "We think our overseas fees are reasonable representations of the costs, which include the capital costs of accommodating the students."
Between 1997 and 1999, fees for international students increased by between 6 per cent for laboratory-based subjects and 16 per cent for MBA courses, according to the Committee of Vice-Chancellors and Principals. Funding per English student fell by 1.2 per cent.
The study found that, overall, institutions just break even on teaching.
Stephen Paterson, director of finance at Heriot-Watt University, said:
"What makes teaching a non loss-maker are the efforts universities have made outside government funding - recruiting overseas students and offering continuing professional development courses."
However, University College London, is losing money through teaching, according to vice-provost Michael Worton. He said: "Non-publicly funded teaching is doing fine, but you need to look at the real costs of teaching all 16,500 students."
The figures for the University of Bristol show an Pounds 8 million deficit overall for teaching, but this is thought to be due to an anomaly in the accounting method.
Conducting research bleeds money, however it is funded, the study found. Universities are forced to make ends meet by allowing academics to work unpaid overtime and skimping on building maintenance.
The universities of Birmingham, Bristol and Warwick, plus UCL, have each reported annual losses of about Pounds 50 million from conducting research. Typically, Pounds 30 million is lost through publicly funded research, while Pounds 20 million is shed through privately funded work.
The losses are being blamed on the sponsors of research not meeting the costs of overheads. Research councils pay only a fraction of the true cost, with the EU paying even less and charities paying nothing.
Robin Jackson, a policy adviser for the CVCP, said: "We will be making the case for the sponsors of research to pay the full costs of the research they sponsor. Universities have underpriced the overheads of research they do and possibly that is something that they have to put an end to."
The data were collected as part of the transparency review of spending in higher education. Nine universities took part in the pilot study - Birmingham, Bristol, Cardiff, Heriot-Watt, Portsmouth, Surrey, Strathclyde, Warwick and UCL.
Each university was asked to identify the costs of five activities: publicly funded research; privately funded research; publicly funded teaching; privately funded teaching; other activities. The figures were sent to Hefce this week. They were not for publication.
The transparency review emerged from the 1998 spending review in which higher education claimed research was underfunded but was unable to demonstrate numerical proof. When the full extent of the shortfall is identified, universities will be looking to government to plug the gap.
* Funding chiefs will highlight that public funding for teaching includes an element for scholarship. The fundamental review of research, due to be published for consultation next month, will recommend that all academics engage in research or scholarship.