Higher education may be starved of cash for expansion, research and pay if the education department fails to spend its allocated budget.
Treasury officials are keeping a close eye on the Department for Education and Skills - formerly the Department for Education and Employment - which has underspent its budgets since 1998-99.
While the Treasury allows departments to carry forward surplus funds, it becomes concerned if departments fail to use their funding year after year. Ultimately, it could decide that repeated underspending indicates too much cash.
The DFES underspent by £1.29 billion last year, £828 million in 1999-2000 and £659 million in 1998-99.
With three weeks to go to the end of this financial year, the DFES is predicting another underspend for 2001-02.
Last year's underspend amounted to the equivalent of 48,000 senior lecturers' salaries or grants worth nearly £800 a year to every one of England's 1.65 million higher education students.
It would easily cover the £140 million shortfall required to fully fund research next year following the huge improvements in ratings in the 2001 research assessment exercise.
The underspend is particularly disconcerting in a week when a number of universities received cuts in their resources for next year.
Any further squeeze on the public money available could jeopardise the expansion required to hit the government's 2010, 50 per cent target.
A spokeswoman for Universities UK said: "If the DFES does indeed have a considerable underspend, then UUK would want to see this money being spent immediately funding the needs of universities."
A spokesman for the Association of University Teachers said: "It appears insensitive in the extreme that ministers are sitting on pots of money when there are well-documented problems with pay, research funding and expansion."
A spokeswoman for the DFES said that some underspend was expected this year given the £1.29 billion underspend carried forward from last year and a 6 per cent real-terms increase in this year's budget.
The department is unable to give specific figures for this year's underspend until the end of the financial year, but the Treasury is expected to publish provisional departmental expenditure figures for 2001-02 in the summer.
The Treasury will take this year's and previous year's expenditure into account when deciding DFES budgets from 2003-04 to 2005-06, due to be announced as part of the 2002 comprehensive spending review in July.
It does not follow, however, that the department's budget allocation will be cut because of underspending.
Since April 1 1999, departments have been able to carry forward any surplus funding from the previous financial year. This rule was introduced to improve continuity and to avoid the traditional use-it-or-lose-it scramble to spend budgets before the end of the financial year.
A Treasury spokesman said that a department's budget could be reassessed if underspending was found to signify problems in the department. But he said that there seemed to be no such problems at the DFES.