A growing number of universities will run the risk of bankruptcy as a result of the Government's higher education reforms, the National Audit Office will warn today.
The NAO, which is responsible for scrutinising Government spending, believes the new fees regime which allows universities to charge up to £9,000 a year will see a rise in the number of institutions going into the red.
Its concern is that if establishments pitch their fees too high it will deter applications and this could become rapidly self-feeding leading to a downward spiral.
The report said: "While there are a number of financially strong institutions, there is wide variation in institutions' financial performance and over 25 per cent of institutions in 2009/10 were performing below at least one of the financial benchmarks. Nine per cent of institutions have had a financial deficit on two of the last three years."
Last year, seven universities were placed on an "at high risk" register by the Higher Education Funding Council for England (HEFCE). One estimate suggested this could increase to 23 by the end of the first year of the new fees being introduced.
As many as one in four universities – 43 – failed to reach at least one of the financial benchmarks set down by HEFCE, the report concluded. The threat to universities comes as their funding for teaching is being slashed by up to 80 per cent by the Government, making them more reliant on tuition fees.
Today's report urges HEFCE to name the institutions considered at risk so students are warned of any potential financial difficulties.
Amyas Morse, head of the NAO, said: "The sector is now facing a period of transition to a very different financial environment, increasing financial and management pressures on our higher education system."
The report said: "As a greater proportion of funding begins to follow the student... the funding council needs to consider the balance between protecting institutions and their students, on the one hand, and enabling prospective students to take more informed decisions on where to study."
However, many in higher education believe "naming and shaming" universities as soon as they fall into the "at risk" category could be counter-productive, as it would prompt student numbers and income to dry up.
Gareth Thomas, Labour's Shadow Universities Minister, said: "Coming on top of growing evidence that the Government has got its figures for future university finances wrong, the NAO's finding that the level of risk within the sector is set to increase is further proof that the decision to treble tuition fees isn't sustainable as well as being unfair and unnecessary."