Up to half the former polytechnics may be effectively stripped of their research role under proposals in the government's strategy document due next month.
Education secretary Charles Clarke is determined that universities should "play to their strengths" to best use scarce resources. He believes that millions of pounds are being wasted by supporting low-rated research.
The Higher Education Funding Council for England is already planning to give only "core" funding to all universities, with selective aid for teaching, research and outreach activities. But ministers are considering a more radical approach, possibly removing the power to award research degrees from a number of universities.
Some victims of the cull would become centres of excellence in teaching, charged with helping to raise regional tuition standards. The centres will be chosen on merit and will be spread among institutions of all types.
Under the plans, promising research departments would be able to bid for a special funding stream, but most support would be concentrated on established centres. Teaching universities would be encouraged to form partnerships with neighbouring institutions to give their staff access to research networks.
Mr Clarke gave MPs an indication of his preferred approach in his first parliamentary question time. He said: "For 35 years, there has been a sense of drift in the definition of a university. We need to identify much more clearly the great research universities, the outstanding teaching universities and those that make a dynamic, dramatic contribution to their regional and local economies. The funding system flows from the conclusions."
In 2002-03, five universities - Anglia, Derby, Lincoln, London Metropolitan and Thames Valley - will get less than 1 per cent of their Hefce funding for research. In contrast, Imperial College London's £60 million research allocation represents more than half of its funding council grant.
Fourteen universities were awarded less than £1 million in Hefce's original grant allocation in March. Thames Valley's £36,000 was the smallest by far.
The funding council has already floated plans to bar departments with poor research assessment exercise grades from support for PhD students. To qualify for funding, departments would also need at least five research-active staff or postdoctoral students.
Any division between teaching and research institutions will be resisted by Universities UK. Baroness Warwick, its chief executive, told the Lords: "We do need a real recognition of the link between research and teaching. There is a danger that the recommendations in the review could lead to an irreversible split between these complementary disciplines."
She said universities would find it difficult to recruit the best teachers if they were not able to offer research opportunities. In addition, Britain would be at odds with the emerging European Higher Education Area, in which all other universities awarded PhDs.
The Council for Industry and Higher Education is also against limiting university roles. In a report published today, it says: "Any government attempt to typecast institutions, further restrict their autonomy and flexibility or reduce diversity would be against the aim of reduced state intervention... Such an attempt would be contrary to the principle of excellence with diversity.
"Typecasting would put the brakes on change and the ability of institutions to evolve to meet the changing needs of society at large and their local communities," the report adds.
Bernard King, principal of the University of Abertay Dundee, put the case for universal access to research funds in a graduation-day speech this week. "Research-free" universities would destroy the UK's future in the knowledge economy, he claimed. He said eight of Abertay's ten most popular courses had been launched in the past decade, all of them driven by the needs of new industries.
• The results of the 2001 research assessment exercise will not be fully funded until at least 2005-06, universities were told this week.
It will be at least two academic years before the rise in money available to fund the RAE will be anywhere near the level of the £244 million allocated to the funding council research budget for science this summer.
Rama Thirunamachandran, Hefce's director of research and knowledge transfer, said: "There is false expectation in the sector. There is not going to be funding at that level for 2003-04 or 2004-05."
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