The perennial debate over the way universities receive government research funds was reignited this week amid warnings that the sector is once again "galloping away to disaster".
A report on the future of dual funding streams for research by Jonathan Adams, director of consultants Evidence, and Bahram Bekhradnia, director of the Higher Education Policy Institute (Hepi) think-tank, suggests that only a significant boost to core research grants will enable the dual-support system to operate properly.
But a senior Treasury official warned that extra government money would not be forthcoming until research funders paid the full costs of existing research projects in universities.
Under the dual-support system, research councils allocate grants to researchers for specific projects, while the higher education funding councils provide block grants to universities for general facilities and salaries. But the system has become increasingly unbalanced, as the numbers of project grants have boomed in recent years without equivalent increases in block grants to support them.
Responding to the report, Lord Dearing said that universities were being plunged back into the financial crisis he identified in his 1997 inquiry into higher education.
He said: "In 1997, one of the major points was the huge need for funding in (research) infrastructure. The Wellcome Trust and the Gatsby Foundation came to the rescue then, but now we are galloping away to disaster."
The analysis suggests that one funding body could run both elements of dual support. According to Hepi, many of the system's problems could be eliminated if research councils were to provide core block grants to institutions as well as project grants.
But the report concludes that more money in the system is the only solution. It states: "The key issue is not one of changing the way funds are allocated but substantially restoring the core funding stream and building back the characteristics that have enabled the UK research base to be so effective."
The report warns that the convention, under which research funders - including research councils, charities and businesses - do not meet the full overhead costs on projects, "is almost certainly untenable in a system as stretched financially as the research base now is".
Government officials have estimated that as much as an extra £1 billion a year for general infrastructure funds is needed to properly support the existing project grants in English universities.
But Daniel Storey, head of science and industry at the Treasury, told a seminar on the Hepi report that government cash would not be forthcoming unless universities stopped conducting more research than they were paid to do.
He said: "We need to have a clear case to make to ministers that this is a system worth investing in rather than a system heading towards another crisis."
Research councils, charities, industry and government departments must pay the full costs of the university research they commission, according to advice issued by the Treasury this week.