Universities subsidise research commissioned by outside bodies to the tune of £2 billion a year, it was revealed this week.
The full extent of the funding gap emerged from an official review that did groundwork for the comprehensive spending settlement and the government's science strategy, published this summer.
The Cross Cutting Review of Science and Research was commissioned by the Treasury last year to review "how to place university science research funding on a more sustainable long-term footing". It was chaired by science minister Lord Sainsbury and sent to other members of the government in March.
The review highlights four key areas for increased government funding, including "a ring-fenced sum for academic pay". It says money must be available for differential salaries in a "more market-related pay system". Lecturer salary structures are too rigid to retain key staff, it says.
No further details on this have emerged from the Office of Science and Technology or from the Department for Education and Skills, although the science strategy puts a price on spending targets for the other three recommendations: a £500 million capital funding stream; an extra £120 million from the research councils; and an extra £244 million from the funding councils.
A DFES spokesman refused to comment on claims that it wanted to divert money allocated by the Treasury for scientists' pay to other areas. He said: "The Higher Education Funding Council for England grant letter out later this year will cover all of HE pay (as in past years) and we want to wait till then before outlining pay sums for specific areas."
Research will have its own section in the government's higher education strategy document to be published at the end of next month. All universities will retain a research role, but the paper is expected to signal greater selectivity in the allocation of funding.
Like proposals on top-up fees and the restoration of limited student grants, the research blueprint will be subject to three months of consultation. But extra money for pay will be contained in the delayed budget announcements for 2003-04 to 2005-06.
According to the review, research will not become sustainable until universities take responsibility in costing the research they do. Research funders - government departments, research charities, industry, the European Framework programmes - are said to be reluctant to contribute to overhead costs of research.
Tony Bruce, director of policy development at Universities UK, said: "This ties in with work being done by universities on costing and pricing their activities, work that stemmed from the transparency review.
"Universities are embarking on the second phase of this work. While there are systems in place to ensure that the university correctly costs and prices its activities, this has yet to be extended to faculty level or departmental level."
Among the review's other recommendations are:
* A forum to bring together science ministers from the English and Scottish national parliaments and the Welsh Assembly
* A rethink of the research assessment exercise. The review asks if the RAE encourages people to appoint more staff rather than to repair a crumbling laboratory.
The review, which was delivered to ministers in March, is believed to have been released after pressure from Ian Gibson, chairman of the House of Commons science and technology committee.
The committee is to publish a report on the OST next week that is expected to be critical of a perceived lack of openness.