Elite universities have no incentive to seek to increase the proportion of school-leavers entering higher education because the price the government pays is too low, says Oxford University's registrar.
"But there is every reason to expand overseas student places at the expense of home and European Union students," David Holmes told the Association of University Administrators meeting in Warwick.
A pilot study of nine leading universities has shown that universities can lose up to £8 million a year on teaching British and EU students. Institutions cover the deficit with tuition fees charged to overseas and privately funded students, from whom they can make as much as £14 million a year.
Oxford intends to expand postgraduate provision to boost its coffers, Mr Holmes said. Postgraduate student fees are not subject to the government's £1,050 maximum. Any extra income would go towards salaries to attract the best staff, Mr Holmes added.
But he warned of the pitfalls of industry funding. "If scientists are free to take funding from industry, there is a real danger that universities will be compromised." A merchant bank has offered an Oxford department capital investment for a share in future spin-offs, Mr Holmes said. This presented a dilemma — if successful, both parties would gain, but the university was uncomfortable about making money for a bank.
In future, Mr Holmes added, universities would pursue diverse missions from a much more homogeneous core. Tim O'Shea, master of Birkbeck College and provost of Gresham College, London, told the meeting that the funding system forced institutions to become more similar. "If you have a system under which institutions bid for funding for different activities, any institution that was feeling less than rich would bid for all of the activities, and that tends to homogeneity."
Sir Brian Follett, vice-chancellor of the University of Warwick, added: "It's more than that: the money is top-sliced, and if you do not bid for it, you personally have given up on, say, £100,000."