The "capacity and capability" of the English funding council to help universities as they move to the new system of fees and finance is being put "at some risk" by the need to slash its own administrative budget, its chief executive has warned.
Writing in the body's annual report, Sir Alan Langlands says he has concerns about "the cumulative effect on our organisational performance" of attempts to control costs.
The Higher Education Funding Council for England was asked by the government to deliver savings of £2 million in the 2010-11 financial year - a figure that represented a real-terms cut of about 11 per cent of its running costs.
These savings have been achieved through measures such as limiting recruitment, freezing pay for staff earning above £21,000 a year, commissioning fewer policy reports and reducing investment in buildings and infrastructure projects, the annual report says.
An internal group was set up to help identify savings that would not harm the body's core work, but Hefce now faces further cost cutting to meet a government target to reduce spending by 16 per cent in real terms over the next four years.
The report expresses concerns about whether the tight spending controls would allow Hefce to "attract suitably talented and experienced staff to business-critical posts" as it tackles the major overhaul of the higher education funding system.
Sir Alan, whose own salary was frozen at £230,000 last year, writes in a statement included in the report: "Hefce's capacity and capability to continue to perform as an effective organisation that meets the expectations of its stakeholders is put at some risk by the constraints imposed on administration costs and the impact of other government spending controls."
He cites the example of Hefce not being able to replace some staff from outside the Civil Service without approval from the business secretary, Vince Cable, adding: "Inevitably, this affects our ability to seek staff from the widest talent pool and manage our resources and internal control system in the most efficient way possible.
"These controls impact on several activities and we have concerns about the cumulative effect on our organisational performance."
Meanwhile, the report also reveals that Hefce's gender pay gap is 44 per cent - more than double that of the public sector as a whole, in which men earn an average of 19 per cent more than women.
The funding council said that while the differential was "cause for concern", it was due in particular to the body employing more women than men in lower-paid jobs, an issue it had already identified and was working to address.