Worrying times: Russell Group alarm as pressure for cuts continues and record graduate unemployment forecast

Massive funding cuts to UK higher education are "starting to be noticed" on the international stage, a university leader has warned.

Michael Arthur, chair of the Russell Group of large research-intensive universities and vice-chancellor of the University of Leeds, said the UK was the only "serious player" on the world stage not investing more in higher education. His comments came after the Institute for Fiscal Studies (IFS) warned that unprotected government spending, including higher education, could face cuts of up to 33 per cent in the next few years.

In his emergency Budget on 22 June, the Chancellor, George Osborne, said that such spending would be reduced by an average of 25 per cent, but he noted that there were "particular pressures" on education and defence.

According to the IFS, if spending on schools and defence is cut by only 10 per cent, the Department for Business, Innovation and Skills will be among those picking up the tab.

At a Westminster Education Forum conference in London, Professor Arthur said: "If 25 per cent (of funding) is removed ... then quality will go down like night follows day, there is no question in my mind about that."

He said that major industrial nations such as France, Germany and the US were still increasing investment in higher education despite the world recession.

"These are international comparisons that are starting to be noticed," he added.

Professor Arthur said that to preserve jobs he would be "highly supportive" of a two-year pay freeze for university staff in an echo of the government's public sector policy.

Meanwhile, university finance directors have been asked directly for ideas on cutting waste in a letter from the Prime Minister and his deputy.

The letter, part of the government's Spending Challenge initiative, was aimed at public sector workers, but its distribution to universities is being seen as evidence that higher education will be targeted for cuts.

The funding challenge has also been addressed by David and Ed Miliband, who are vying for the leadership of the Labour Party.

In a newspaper article last week, Ed Miliband said he would be in favour of replacing the tuition fees system with a graduate tax, while his brother was due to use a speech on 30 June to pledge support for expansion of the sector.

In a separate development this week, the Higher Education Careers Services Unit (Hecsu) warned that graduate unemployment could reach record levels as a result of public cuts, possibly exceeding 20 per cent. The highest rate of graduate unemployment previously recorded was 13.5 per cent, in 1983.

Hecsu also predicted that up to 240,000 graduates - equal to an entire year's university graduating cohort - could lose their jobs.

It said that public sector cuts could have a disproportionate effect on graduates because a higher proportion of public than private sector workers are qualified to degree level.