Welsh university heads have reacted angrily to "effective real-terms cuts" as allocations were unveiled this week by the Higher Education Funding Council for Wales.
Allocations for teaching for next year are set to rise across the sector by 3.9 per cent, but funding for quality-based research has fallen by 6.7 per cent and is expected to be frozen for third-mission work with industry.
Five of the 13 higher education institutions in Wales have been left with an overall inflation-only increase of 2.46 per cent.
The vice-chancellors of these institutions have described their allocations as an "effective real-terms cut", arguing that costs were rising annually by about 4.5 per cent. They said this would mean they would have to make some tough decisions in the coming year.
Robert Pearce, vice-chancellor of Lampeter University, said that the allocations amounted to cuts at a time when institutions were recruiting more students than the funding council expected.
He said: "It is disappointing that we are not able to expand in the way that English institutions are able to do."
Professor Pearce said that a new £4.1 million research investment fund, created by the funding council to support work rated 3a and 3b in the research assessment exercise, was no compensation for the loss of the same amount from the quality-based research budget. "There is no guarantee that a bid for a share of that money will be successful, and making a bid involves additional costs," he said.
Phil Gummett, the funding council's interim chief executive, admitted that institutions had received "essentially flat funding".
But he added that this had followed clear signals from the Welsh Assembly that funding would be tight for next year.
The cuts in research funding followed increases two years ago that could not be sustained at the same level. But departments rated from 4 up to 5* will still receive the same level of funding as those in England.
"We did not feel we could do more because of the consequences for teaching," Mr Gummett added.
Welsh resources for teaching and research
Hefcw funding tables 2003-04 to 2004-05