The Government's crackdown on university expansion has scuppered plans for a merger between Thames Valley University and the Academy of Contemporary Music.
Times Higher Education understands that the privately run academy, which has its higher education courses accredited by the universities of Middlesex and Surrey, asked the Higher Education Funding Council for England for help in finding a merger partner.
Hefce suggested Thames Valley, which agreed that the academy would be a good fit with its London College of Music. The deal would have resulted in about 1,000 students transferring to the university.
But Thames Valley said that when the two parties were close to agreement, Hefce announced that the merger could not proceed because it would mean the university gaining students at a time when the Government has frozen student numbers.
Following the discovery of a £200 million gap in the student support budget, John Denham, the Universities Secretary, wrote to Hefce on 22 January, instructing it to "bear down on over-recruitment by institutions" in 2009-10.
"Any over-recruitment in the coming year could result in a transfer of Hefce grant back (to the Government) ... in order to meet the consequent unanticipated student support costs," he warned.
Ian Tunbridge, deputy vice-chancellor of Thames Valley, said: "The university has been in outline discussions with the Academy of Contemporary Music regarding longer-term relationships, as there is significant synergy between ... our organisations.
"Unfortunately, Hefce has made it very clear that transfers of numbers of students are not possible at this time as a result of a government freeze on student numbers. This is regrettable: however, (we) will continue to explore opportunities to work together."
A spokesman for Hefce said: "Thames Valley has been in discussion with a private provider of higher education, with a view to bringing their numbers into the university. We have had to emphasise the requirement for higher education institutions not to exceed student intake numbers from 2008-09."
At Hefce's annual conference in London last week, Diana Warwick, chief executive of Universities UK, pointed out that Labour rhetoric on the role of higher education in improving the skills of the UK's workforce to combat the recession was belied by its decisions to cut funding for students taking equivalent or lower-level qualifications and reduce student numbers.
Tim Melville-Ross, chairman of Hefce, said "alternative ways" of reskilling had to be found, such as "employer engagement".