The UK is one of only three countries in Europe where fewer than 10 per cent of students go on to postgraduate study, a major report has revealed.
In most major European countries, between 15 and 24 per cent of students continue with their studies after gaining an undergraduate degree. But in Britain, the number is significantly lower.
It leaves the UK in the company of Andorra, the tiny principality and partial tax-haven between France and Spain, and Kazakhstan, the vast uranium-rich country in Central Asia where insulting the President and officials is a criminal offence.
The situation in Britain is leading to a crisis in postgraduate education, forcing leading employers to consider leaving or hiring more foreign staff to plug skills gaps, the study by the Higher Education Commission shows.
As a result, many employers are finding it difficult to recruit UK staff to fill vacancies that require high-level skills – such as nuclear engineering, electronics and pharmacology.
Soaring fees are likely to exacerbate the crisis, with students being put off due to the debts they have accumulated following the introduction of fees of up to £9,000 a year.
The past decade has seen a 200 per cent rise in the number of international students choosing postgraduate study in the UK – but the number of home and EU students has only gone up by 18.5 per cent.
"The Commission is concerned that this increase masks stagnation in the qualification and skill level of the home-domiciled population," the report says. The Commission says it was warned by leading employers, including GlaxoSmithKline and Rolls-Royce, that skills shortages were affecting both them and their supply chains.
Sir John Beddington, the Government's chief scientific adviser, also voiced concern about the UK's vulnerability in employing postgraduates with skills in subject areas like algorithmics and statistics – fields vital in maintaining our cyber security.
The report recommends that ministers consider setting up a loans scheme for postgraduates, arguing: "Availability of funding is an important factor in many British students' decision not to undertake postgraduate study."
Don Nutbeam, vice-chancellor of Southampton University, added: "Unless we address this funding challenge, postgraduate education will only be for the rich and for international students and will not meet the evolving future needs of our advanced economy."
The report warns that postgrads are facing a "perfect storm" of higher fees and a reluctance by banks to lend money at a time when higher-level qualifications are becoming increasingly important.
Squeezed universities are also likely to increase fees for the courses, it adds: "The austere financial landscape in higher education has encouraged universities to calculate the full economic cost of their provision. Universities will no longer be able to justify charging £3,000 or £4,000 fees for advanced education when undergraduates are paying £9,000."
A spokeswoman for the Department for Business, Innovation and Skills acknowledged there were "concerns" over postgraduate provision, adding that the situation was being monitored and reviewed by the Higher Education Funding Council for England.