Demand to explode but no new cash

Universities are set to be denied funds for extra places next year, despite fresh evidence that demand for higher education will far outstrip the government's plans over the rest of the decade.

The Higher Education Funding Council for England board was recommended to scrap the annual competition for additional student numbers because enrolments already exceeded government plans. The decision flies in the face of a think-tank report warning that up to 250,000 more places will be needed by 2010.

Hefce's decision, which is likely to be repeated next year, casts doubt on the government's commitment to reach 50 per cent participation in higher education without cutting funding levels. The mismatch will increase the pressure on higher education ministers to secure extra funding for universities in the spending review beginning this autumn.

Growth in the number of 18-year-olds and improvements in school achievement will be responsible for explosion in demand, according to the Higher Education Policy Institute. Its report predicts that the extra students will want three-year full-time university places, contradicting government plans for growth to come through part-time foundation degrees.

The report, Higher Education Supply and Demand to 2010 , has been sent to members of the Commons select committee on education and will inform their forthcoming report. Barry Sheerman, who chairs the committee, said: "This poses an interesting dilemma for the government. It is going to coast to the 50 per cent target, but how it funds it is going to be of the utmost urgency."

Tim Boswell, shadow higher education spokesman, said that Conservative proposals to limit the number of university places would not necessarily be affected by an extra 250,000 potential students who are expected to gain university entrance qualifications. He said: "Higher education is not always the most appropriate route for young people. For some of them, it might be better to seek a high-grade vocational route."

The report warns that the proportion of young people in higher education will fall unless extra places are created. It also advises the government not to restrict the number of traditional places because the extra students are more likely to reject university altogether rather than settle for a foundation degree.

The report concedes that there may be demand for foundation degrees from students who have achieved university entrance standards but who do not come from social backgrounds where university is the expected route. But this is only likely to delay the problem, since more than half those studying for higher national diplomas go on to do a full degree. The progression rate from foundation degrees is expected to be similar.

The report concludes: "There are important lessons here for the future of any government that might wish to try and steer demand: the supply of places does not dictate demand."

However, a spokeswoman for the Department of Education and Skills said: "The government remains firm in its view that expansion should be through foundation degrees because they meet the needs of students as well as the economy."