Higher education funding chiefs have warned that Welsh Assembly plans to keep a tight rein on university finances could stall future mergers.
The assembly's reorganisation of higher education would be hard to achieve if it is too rigid on its "something-for-something" budget proposals, said Phil Gummett, head of the Higher Education Funding Council for Wales. He warned that inflexiblity could be "counterproductive" and hold back potential mergers.
An eight-year plan produced by the assembly last month says universities and colleges will get no extra funding unless they reorganise in collaborative clusters and act on proposals to improve research and widen participation. From next year, grant conditions will be tied to "practical, costed and quantified results".
The funding council welcomed the assembly's plan, Mr Gummett said, but he noted that institutions would need more money in the short term to have a chance of hitting the targets. Nearly half of institutions in the sector are running an operating deficit.
Mr Gummett said: "We are not whingeing - we are saying it's important to have sufficient funding available for investment. Even though funding levels are forecast to rise, they will still be too low in future years for institutions to invest.
"If the assembly proposes to provide more funding only for inflation and everything else is on a 'something-for-something' basis, we are concerned that an over-rigid application of this in the early years could be counterproductive."
Legislation is to be sought to give the funding council more strategic planning powers to help it implement the reorganisation. But Mr Gummett said the timetable the assembly had set for the changes was tight and that delivering it could be "tricky" even under the best conditions.
Big reorganisations would be expensive and would require more funding in the short term to achieve, he warned. "If you get really major structural changes such as mergers, the sums of money required in a given year can be quite large. Finding an extra couple of million in a year could be difficult.
"If we were faced with a situation where an institution said it was willing to consider a merger, it would be a great shame if we had to say we do not have enough money to allow it to go ahead."