Money raised from undergraduate tuition fees is to be diverted to help further education colleges, according to an internal government memo seen by The THES.
The Department for Education and Employment paper is the first evidence to emerge that the government is shifting resources from universities to FE colleges.
It confirms vice chancellors' suspicions that cash raised by Pounds 1,000-a-year fees will be directed away from higher education.
The memo says: "The issue is sensitive because the Pounds 165 million package for 1998-99 does not allow universities to keep all the funds raised from the new Pounds 1,000 fees as extra income (they retain Pounds 125 million out of an estimated Pounds 150 million).
"It also falls short by Pounds 23 million of the total amount raised by the new fees and re-phasing fee and loan payments because Pounds 7 million has been allocated to Wales and Pounds 16 million to the FE sector.
"We cannot at this stage identify the Pounds 16 million for FE because the package for FE has not yet been announced."
Further education heads are expecting that the government will announce this package in early November. David Blunkett is due to address the Association of Colleges conference in Harrogate on November 12.
Diana Warwick, chief executive of the Committee of Vice Chancellors and Principals, said: "This is incontrovertible evidence that not all the money has been released for higher education. We have made our position clear that all the money contributed by students should be invested in higher education. It would be extremely short-sighted to reduce the benefit coming to higher education from this stream."