Universities face a risky and rapid move into uncharted territory after multibillion-pound cuts revealed a new higher education landscape "starved" of public funding for teaching.
The government has signalled an end to virtually all state funding for teaching in the arts, humanities and social sciences after announcing a cut to higher education funding, excluding research, of 40 per cent, or £2.9 billion, by 2014-15.
Future state funding has been promised only for science, technology, engineering and mathematics (STEM) subjects.
Because the new settlement includes both teaching funding and student support - with maintenance support for students likely to grow - the full cut to teaching funding is likely to be significantly higher, putting pressure on all disciplines.
It also means that funding will rely heavily on the future level of tuition fees, although any proposed increase has yet to be put before Parliament.
Sir Alan Langlands, chief executive of the Higher Education Funding Council for England, said the shift heralded by the Comprehensive Spending Review was "in its politest form a new paradigm for higher education funding...a rapid move to an as-yet untested model starved of Hefce teaching grants".
Addressing vice-chancellors at the Hefce annual conference in London last week, Sir Alan said the loss of funding must not simply be transferred on to students.
His comments came as the government indicated that it was preparing to reject proposals from Lord Browne of Madingley to completely abolish the cap on fees.
Sir Alan also said that:
• Lord Browne's "aspirations" for more investment and a 10 per cent increase in student numbers could not be delivered "on a sustainable basis" over the CSR period
• Hefce modelling shows a potential shortfall in total income that could be "considerably in excess" of £1 billion (see chart below)
• Although the government has promised to focus the cuts on the second half of the CSR period, universities should expect an "extremely tough" year in 2011-12 - the year before the new fee regime kicks in - and there could also be cuts this academic year
• The issue of public funding for teaching must be revisited in future.
Sir Alan said it would be a huge mistake for the sector to treat students as cash cows.
"If we value our students simply for what we can get out of them or what they might earn in the future, they will in turn estimate our value by what they can get out of us," he warned.
"This would be a real betrayal of higher education and what it stands for."
Common sense to revisit funding
Sir Alan said that since cuts to public funding were linked to the banking crisis, it was "worth remembering that when the banks were being bailed out to the tune of £117 billion, higher education was generating £59 billion per annum" for the nation's coffers.
As the economy improves, the question of public funding for learning and teaching must be revisited, he added, "not as some point of ideology, but because that is the sensible thing to do when we see what is happening in every other developed country".
The CSR cuts come on top of reductions made by the previous government. Reduced public spending elsewhere could also hit universities in areas such as training for health professionals.
David Willetts, the universities and science minister, told the Hefce conference that the central proposition of Browne was "that the bulk of the teaching grant, which is currently distributed to universities via Hefce, should be replaced by spending power placed directly in the hands of students".
Teaching funding would be reduced from 2012-13, he said, adding that universities would be able to replace it with fee income as long as "they can attract students to their courses".
Mr Willetts was asked by Baroness Blackstone, vice-chancellor of the University of Greenwich and a former Labour higher education minister, why he thought it was "justified to completely abandon a contribution from the taxpayer to undergraduate teaching".
He argued that there would still be "a very high level of public support", but it would flow "in a different way - via the financial support to students".
He acknowledged that some universities would struggle, but said the government was "entitled to expect significant improvements in cost control" from institutions.
Mr Willetts added that it was unlikely that there would be "a very large back pocket" of cash to support universities that got into difficulty.
On the precise fee model that will be adopted by the coalition, Mr Willetts indicated that the government was considering a two-tier cap.
He added that finding a mechanism for controlling overall student numbers remained a "thorny problem" that Lord Browne had "not cracked".
Mr Willetts also hinted that the mergers of quangos in the sector might be limited to joining Hefce with the Office for Fair Access.
In a debate at the Inside Out festival in London on 25 October, Geoffrey Crossick, vice-chancellor of the University of London, said he believed that the balance between taxpayer funding and graduate contributions proposed was "wrong".
"I believe there should be a greater taxpayer contribution ... there should also be a greater graduate contribution. The balance has swung very violently in one direction," he said.
If funding did not flow into the higher education sector, "we could see the destruction of this system", he warned.
'HUNGRY' FOR THE HUMANITIES? WILLETTS SAYS STARVATION GRANT RATIONS WON'T DOOM SUBJECTS
Students' "enormous hunger" for arts and humanities subjects will ensure their continued provision at university despite the removal of public subsidies to teach them, David Willetts assured a cross-party panel of MPs.
The universities and science minister said he was confident that demand for such courses would hold up as young people realised the value of studying them.
However, he confirmed that the government supported the "broad approach" put forward by Lord Browne of Madingley's independent review of student fees and finance that subjects other than priority areas such as science and technology should be funded by graduate payments alone.
Speaking before the Business, Innovation and Skills Committee on 26 October, Mr Willetts also said he could not offer any "guarantee" that all university departments would stay open following funding cuts.
Under intense questioning on the size of the proposed retrenchment to teaching funding, he confirmed it would be the "biggest single adjustment" to the higher education budget.
The minister said he hoped the cuts would be "back-loaded" until the end of the Comprehensive Spending Review period - which ends in 2014-15 - so that universities had time to replace lost funding with tuition-fee income.
He said he hoped that more detail on the cuts for the academic year 2011-12 would be spelled out to the Higher Education Funding Council for England by Christmas.
Pressed about the likely removal of subsidies for arts and humanities subjects, he said: "We think this is a reform that empowers students...Money will still flow into university departments - provided there are students that still want to study these subjects."
Mr Willetts added that he was sure there would be demand as "there is an enormous hunger for students to study these subjects".
The minister added that detail on which subjects would lose all their grant funding had still to be decided, and that strategic courses such as modern languages might still receive state money.