Funding chiefs will today launch a ten-year strategy to reshape higher education. Universities will be expected to excel in at least one of four areas - teaching, research, reach-out and widening participation.
The change comes as vice-chancellors are threatening to undermine the government's 50 per cent participation target by staging a revolt over funding. They say privately that universities may refuse to recruit the extra students necessary unless there is more cash.
The briefing paper to be discussed at today's annual meeting of the Higher Education Funding Council for England states: "The government's target for 50 per cent of people under 30 to have experienced higher education by 2010 is a manifesto commitment, and it has been made clear that this will be the primary measure by which the performance of the council and the sector will be judged."
Hefce is considering whether to change the way in which students from non-traditional backgrounds are funded. It may switch the 10 per cent funding premium away from students from under-represented neighbourhoods to students with poor prior educational achievement to help students who are less well-prepared for higher education.
Hefce also proposes to concentrate funding on institutions with the highest proportion of students most at risk of dropping out - those with low entry qualifications.
Speaking at a research conference last week, Sir Howard Newby, chief executive of Hefce, said that research would be funded more selectively between now and 2010, although he reassured new universities that they would not be prevented from doing research.
He also outlined five alternatives to the research assessment exercise that will be considered by the funding council. They are: amending the current exercise to meet specific criticisms; using a formula based on research-grant income (perhaps complemented by earmarked funding for researcher-driven research); a two-track exercise with a light touch for existing centres of excellence; reputational assessment consisting of an opinion poll of UK and foreign competitors; and an assessment of multiple dimensions of research excellence, such as pure and applied research and the development of staff and students.
Plans are afoot to put funding for reach-out to business and the community on a more equal footing with research. This funding stream would consist of two strands, rewarding links with business and the community. Sir Howard promised to give five years' notice of any fundamental changes to the funding model.
Sir Howard said: "The role of higher education institutions has changed strikingly. They are not just doing teaching and research but knowledge transfer, tackling social exclusion and contributing to local regeneration."
Earlier this week, in a letter to education secretary Estelle Morris, vice-chancellors said that universities would be unable to deliver the government's 50 per cent target unless higher education gets the additional billions of pounds it needs for teaching and research.
The letter to Ms Morris, from Baroness Warwick, chief executive of Universities UK, followed a stormy UUK board meeting last Friday. Vice-chancellors are angry with Hefce over a real-terms cut to core teaching funds for next year, presented by the funding council as a real-terms increase.
In her letter Baroness Warwick said: "The impact of these funding decisions reinforces the damage done to universities by the years of cuts in their unit funding, which has seen a decrease of some 38 per cent since 1989."
The funding council includes all teaching funding, including money earmarked for specific purposes such as widening participation and lecturer recruitment and retention. This gives a real-terms increase in teaching funds of 4.9 per cent in 2002-03 compared with this year.
But UUK excludes earmarked money from core teaching funding as the sums are hypothecated and not necessarily recurrent. Its analysis shows that there will be a real-terms cut of 0.72 per cent in cash per student in 2002-03.
The Department for Education and Skills estimated that universities would have to recruit an extra 400,000 students to reach its participation target. UUK estimates that this would require an extra 17,000 lecturers.
Financial problems are compounded by the funding council's failure to fully fund the improvement in research performance in the last RAE. UUK estimated that universities were £140 million short.