Most universities and colleges in England lack the cash to reinvest and many are losing money, according to financial results for 1997-98.
More than half of England's institutions failed to generate the 3 per cent operating surplus needed for reinvestment, according to the Higher Education Funding Council for England.
Although HEFCE refused to divulge exact figures, the number of institutions below the 3 per cent level is thought to be down on the previous year. The average operating surplus for the sector was 2.8 per cent.
Ian Lewis, director of finance at HEFCE, said: "The 1997-98 operating surplus is still below the 3 per cent benchmark considered appropriate for reinvestment and to address the backlog of past under-investment. However, the results show an improving trend and a partial recovery following the reductions in funding after 1993-94. There is a mild improvement but a significant number of institutions - more than half - are below the 3 per cent level."
About Pounds 900 million was set aside in last year's comprehensive spending review to refurbish decaying laboratories and replace obsolete equipment, a third of which will be channelled through the funding councils.
"This additional capital funding will begin to address the backlog in infrastructure," Mr Lewis said. "However, the 3 per cent is an ongoing figure: the backlog is being addressed separately."
The funding gap could also worsen as HEFCE is looking at whether a 3 per cent operating surplus is sufficient. "HEFCE is working with 17 institutions to reassess the suitability of the 3 per cent target," Mr Lewis said. The study is likely to come out with a range of values, depending on various local factors, such as the condition of estates.
Many institutions are in deficit, although HEFCE again refused to divulge the exact number. The previous year, about 43 institutions were losing money.
"There are some institutions with reported deficits," Mr Lewis said. "There is the same kind of spread as in previous years. There continue to be some institutions that are more wealthy than others."