Universities should think twice before bidding for every funding council grant on offer, the president of the vice-chancellors' forum Universities UK is scheduled to say this week.
In a lecture at Queen Mary, University of London, due to be made after Times Higher Education went to press this week, Steve Smith will lament universities' "unfortunate habit of chasing every available pot of money, sometimes irrespective of whether it is either in institutions' own strategic interest, or likely to result in activity that will at least break even in financial terms".
In the speech, seen by Times Higher Education, he suggests that the habit undermines universities' autonomy and furthers the Government's instrumentalist agenda.
Professor Smith predicts a growing tension in the sector between a desire to serve government priorities, which he describes as "a good thing", and a "purely instrumental" approach by ministers to higher education - "probably a bad thing".
The Government plans to make universities compete for a greater proportion of their income from the state in future. The contestable funds will force institutions to link more of their work to economic needs.
Lord Mandelson's Higher Education Framework, which had been scheduled for release on 19 October but has been delayed until November, is expected to detail how "contestable funding" will work.
Professor Smith's speech criticises the approach, saying it has "potential to be highly inefficient and damaging to institutions' strategic and sustainable action".
In an earlier speech, delivered to the Association of University Administrators (AUA) on 19 October, Professor Smith said the framework would emphasise universities' role in helping sectors such as digital industries, pharmaceuticals and low-carbon products and services.
University teaching, research and knowledge-exchange activities are likely to be significantly affected by the Government's "industrial activism" - intervention to promote training and investment in key areas of the economy, Professor Smith said, adding that these policies are "not uncontroversial".
Lord Drayson, the Science Minister, has already begun a debate about how the science budget could be targeted towards areas most likely to boost the economy. This summer, the Government restricted 10,000 extra unfunded university places to science and business subjects.
In a speech at the Confederation of British Industry's higher education summit this week, Lord Mandelson, the First Secretary, said: "As the CBI has argued, we do need a greater degree of competition between institutions that encourages them to improve and tailor courses. That can mean competing for collaboration with industry, but the key drivers of change should be students and student expectations. The more information students have on courses and their outcomes, the more their choices will drive universities to improve. This is something we will directly address in the new framework."
Concluding the AUA speech, Professor Smith predicted that great change lies ahead for the sector, with more higher education moving into further education. "Not only are we likely to see cuts, but we are very unlikely to see these implemented in a uniform manner," he said.