Almost half of Wales's higher education institutions have fallen into deficit despite increased public funding, putting teaching and research quality at risk, the funding council has warned.
Six of Wales's 14 higher education institutions reported an operating deficit last year, compared with just one in 1997-98, said the Higher Education Funding Council for Wales in its report on the financial health of the sector.
"The overall position of the sector has weakened between 1997-98 and 1998-99, with a worse operating position," the council warned. While income rose by Pounds 14.8 million to Pounds 569.9 million, expenditure rose by Pounds 21.6 million to Pounds 565.5 million. Staff costs increased by 6.3 per cent to Pounds 323 million.
Reliance on funding council grants increased, with a smaller proportion of income earned through research grants and contracts. In 1997-98, HEFCW grants made up 43.18 per cent of total income, but this increased to 45.05 per cent last year.
The funding council was particularly concerned about decreased levels of spending on equipment, and the danger to quality. Total spending on equipment fell from Pounds million in 1996-97 to Pounds 24.4 million in 1997-98, and to Pounds 22.9 million last year.
The report warned that decreased expenditure on equipment could mean "equipment will become increasingly outdated and unsuitable for higher quality teaching and research". Officers will need to monitor the position to decide whether the council needs to take action.
Only six institutions increased spending on equipment, with eight forced to cut back.
John Andrews, chief executive of the HEFCW, said that there were no institutions "where concern about finances is acute".
"But there are institutions where we feel they need to take a tighter control of their own interests, so they can ensure room for development. The six institutions in deficit are primarily in that category," he said.
Professor Andrews was speaking as the funding council confirmed the third consecutive funding increase for Welsh institutions.
It announced funding of just under Pounds 263 million for teaching and research for 2000-2001 - a 4.9 per cent increase on last year. Of the 19 institutions given higher education funds, not one saw its funding cut. Trinity College, Carmarthen, and the University of Wales colleges at Lampeter, Swansea and Cardiff had to be propped up with "safety net" funding because of a reduction in their historically high unit funding levels. The funding council has converged teaching funding so that the same subjects across Wales are funded at the same level, despite historical variations.
HEFCW chairman Sir Philip Jones said that institutions were meeting the National Assembly's demands for social inclusion and a high-quality research base that will improve Wales's economy.
"It does not mean, however, that universities and colleges can let up in their efforts to maintain their financial health and to make sure that they are well managed. Public pressure for accountability for the use of taxpayers' money is ever increasing."