The Cross Cutting Review of Science and Research published this week describes the research funding situation in UK universities as "unsustainable in the medium to long term". It also warns that any cash injection to remedy the situation should be gradual.
"Recent experience suggests that the problem of underfunding requires a solution that addresses the problem over time; the funding system does not react well to external shocks - even injections of funding," the review says.
The Cross Cutting Review was made available to ministers in March to inform the development of UK science strategy.
The document incorporates the findings of the transparency review that asked academics to identify the true costs of teaching and research. It reveals that universities spend on research £2 billion a year more than they are paid for.
It is estimated that between £300 million and £600 million of the shortfall is the result of underinvestment in the science infrastructure. Overseas and private tuition fees and money from conferences were found to be subsidising publicly and privately funded research.
Government departments emerged as some of the worst offenders for underpaying for science research. Departments have to secure best value for money when placing research contracts, encouraging universities to undercut each other to secure work.
In 1999-2000, government departments spent £337 million in UK universities, an eighth of all research income. One estimate from a Russell Group university suggested that the shortfall may be as much as 70 per cent of the cost to the departments. This would mean a £240 million shortfall in universities for the full economic costs of research carried out for the government.
The review, however, did not suggest a short-term fix for British science. It said: "Not all this can be achieved immediately. Righting the investment shortfalls of the past may take the rest of this decade."
The main recommendations for future science funding made as a result of The Cross Cutting Review were incorporated in the government's science strategy Investing in Innovation published in July. The recommendations were:
* A long-term capital funding stream over a decade to reduce the investment backlog. The science strategy earmarked £500 million by 2004-05 for distribution through the Department for Education and Skills and the Office of Science and Technology
* Increased contributions from the research councils to cover indirect research costs. An annual £120 million extra per year was allocated from 2005-06
* Increased recurrent funding for the funding councils to balance funding streams. The strategy promised an extra £244 million by 2005-06
* A ring-fenced sum for academic pay to attract and retain talent. This was echoed in the science strategy but no figure was given.
One of the main concerns highlighted by The Cross Cutting Review is to close the funding gap by ensuring university science is properly priced. It makes recommendations for institutions to be made responsible for ensuring this is done.
The review makes various other observations. Currently education is devolved but science is not. The review warns that this could lead to a false market between universities in the different countries of the UK.
The review says a new forum chaired by science minister Lord Sainsbury should be established to bring together science ministers in the national parliaments and the Welsh Assembly.
It says that the dual support system of research councils and the funding councils contributing to research costs should continue but it needs to be redefined and possibly extended.
In particular, research money from the funding councils must be boosted and its purpose clarified. At present, this money, known as "QR", is determined by performance in the research assessment exercise. The university can choose what to spend it on.
The review document states: "It has never been made explicit whether QR funding was originally intended to be limited to supporting blue-skies research and research council project funding or whether, in addition, to support - that is to say, subsidise - the research of other sponsors as well.
"This ambiguity is one of the key contributors to the funding gap, since it has created a situation in which universities are not incentivised to charge the full costs of research and, likewise, non-research council sponsors likewise do not feel the need to pay more than the research councils."
The Cross Cutting Review suggests that the ongoing review of research assessment should consider whether the RAE encourages people to appoint more staff rather than to repair a crumbling laboratory.
It also recommends a regional science investment fund to develop emerging regional research strengths that may not be picked up by the research assessment exercise.
The review says money must be available for differential salaries in a move towards "a more market-related pay system". It reports that lecturer salary structures are too rigid and says there should be more salary variation at lower levels as well the professorial level if key staff are to be retained.
The report was one of seven cross-cutting reviews commissioned by the secretary to the Treasury to inform priorities in the 2002 spending review.