Funding chiefs have moved to dispel suggestions that the sector could face budget cuts of 20 per cent despite universities modelling this "worst-case scenario".
Richard Pike, chief executive of the Royal Society of Chemistry, said this week that it was common knowledge within the sector that funding bodies had considered this drastic reduction.
"I've had discussions with various people and there seems to be no secret about this. People are talking openly about a worst-case scenario of 20 per cent," he said.
However, the Higher Education Funding Council for England said that it had not looked at cuts of this magnitude, although it added that it was "prudent" to prepare for all eventualities.
A spokesman said: "We have not asked institutions to model a 20 per cent cut and have not done so ourselves. Prudent institutions routinely model different scenarios all the time."
He added that Hefce was working to financial parameters set out in the Chancellor's Budget in April, which, along with a subsequent letter in May, said the sector's funding would be cut by £180 million from 2009-10 to 2010-11.
Despite Hefce's dismissal of the 20 per cent claim, one vice-chancellor, who asked not to be named, admitted to modelling cuts of this scale and said that others had done the same.
He said: "A few months ago we modelled 5 per cent cuts, then we went up to 10 per cent and within the past few weeks we've modelled 20 per cent. But that doesn't mean we expect them to come."
He added: "The models help us to work out what we would need to do in terms of replacement income if that level of cut did occur.
"People are looking at replacing that income with international students paying full fees, which explains why everyone is so nervous about the effects of the new computerised visa system."
Worst-case scenario models were also "driving redundancy considerations", the vice-chancellor said. "They are focusing minds on staffing costs, which is why there's been such a hard line taken on pay this year."
Last week, the Universities and Colleges Employers Association increased its pay offer from 0.4 per cent to 0.5 per cent, far short of the 8 per cent minimum demanded by the University and College Union when negotiations began last year (see story below).
The challenges facing the sector were highlighted last week when an MP said that up to 30 higher education institutions could join a list of universities at risk of financial failure in the next year.
Times Higher Education revealed earlier this month that there are seven institutions on Hefce's confidential list of "at higher risk" institutions - four post-1992 universities and three specialist colleges.
Rob Wilson, Conservative MP for Reading East, said in a Commons debate on 16 July: "According to Hefce, seven institutions are already described as at high risk ... including London Metropolitan University and Thames Valley University. According to sources at the funding council, that could increase to as many as 30 next year."
In response, David Lammy, the Higher Education Minister, said the situation at London Met, which has been asked to repay £36 million in public funding after inaccuracies were uncovered in its student-data returns, was "unusual".