Scottish higher education's capacity to innovate is being undermined because it is having to use externally raised funds to subsidise teaching, according to a submission to the Scottish Executive's 2002 spending review from Universities Scotland.
Interim findings from the Treasury-driven "transparency review" suggest a teaching funding deficit of between 2 and 4 per cent.
Analysis by the Scottish Higher Education Funding Council shows that the sector's liquidity is not healthy. "The number of days the sector could sustain itself on the basis of its reserves varies between 22 and 29 over the period of the spending review," Universities Scotland said.
"A financially healthy sector would expect to see liquidity of something more like 90 days."
Shefc's total budget is set to rise to £643 million in 2002-03 and £655 million in 2003-04, but Universities Scotland said basic funding, excluding top-sliced initiatives, should be £738 million next year, rising to £814 million.