Some universities may not be able to afford their 2008-09 staff salary bills as a number of costs begin to bite.
Higher than expected pay rises, the cost of implementing historic pay reforms, a looming pensions time bomb, and the inevitability of disappointing research assessment exercise results for some will combine to make next year financially difficult, vice-chancellors predict.
"Things are going to get tougher," Jocelyn Prudence, chief executive of the Universities and Colleges Employers Association, said.
Under the current three-year national pay deal, the increase for 2008-09 will be matched to the retail price index inflation figure for September 2008. The RPI has risen since the deal was signed in 2006, hitting 4.1 per cent in January.
At the same time, Ucea has suggested that the historic 2004 national framework agreement is proving expensive.
Under the reforms, 8.6 per cent of academics and 15 per cent of support staff have been "green-circled" - handed a pay upgrade after an evaluation of their roles and responsibilities - in addition to standard national pay rises. This compares with the 2.4 per cent of academics and 6.8 per cent of support staff who have been "red-circled" and had their pay frozen.
Universities are also having to contribute more into local pension schemes for clerical and manual workers, with several institutions now paying about 20 per cent of salaries as pension contributions for these workers.
The Universities Superannuation Scheme (USS) pension fund will be revalued this month. If a deficit is identified, a rise in employer contributions, which currently stand at 14 per cent of salary, is likely to follow.
John Craven, vice-chancellor of the University of Portsmouth, said there would be "serious issues" for the sector in 2008-09.
"The general view is that the October (pay) increase will be about 4 per cent, and noises are being made about increased pension contributions. This is in a year where some universities will not do so well in the RAE while others will be losing money through the funding cuts for equivalent or lower qualifications," said Professor Craven.
Some universities could struggle to meet their bills and job losses were a possibility, he added.
Steve Smith, vice-chancellor of the University of Exeter and chairman of the 1994 Group, said the USS pension revaluation was a "time bomb" that could mean a 5 per cent increase in employers' pension contributions.
Geoffrey Crossick, warden of Goldsmiths, University of London, said: "The pressure of salary and pension costs is a matter of concern to universities. To this year's salary increase and the higher than expected costs of the framework agreement, we now have to add an impending crisis over pensions.
"We'll have to wait for the USS revaluation, but it looks as though it will require increases in contributions much greater than anyone thought possible and much greater than universities can afford," Professor Crossick said.
But the University and College Union said the sector could sustain pay rises. It said that universities had been given more than £880 million in recent years to pay for the salary rises under the framework agreement and the sector was forecasting a general operating surplus after staff costs.