Higher Education: Universities set to close as funding is slashed by 40 per cent

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Widespread closures of universities and colleges were forecast last night in the wake of a 40 per cent cut in funding for higher education. The budget is to be slashed from its present level of £7.1bn a year to £4.2bn by 2014-15.

Ministers intend the reduction to be offset by a massive increase in tuition fees following the recommendation by Lord Browne's inquiry into student finance last week that the current fee cap of £3,290 be lifted.

Certain subjects will find themselves badly hit by yesterday's cuts. In future, only science, technology, maths and engineering will be funded by the Government, with other subjects being financed by student fee income.

Those institutions which feel they cannot raise their fees to the £7,000 considered necessary to offset the cuts will be in danger of closure or of being merged. A raising of the cap to £7,000 is being considered by the Business Secretary, Vince Cable, rather than the free-for-all which could see some universities charging £12,000 for courses if Lord Browne's recommendations were implemented in full.

The one crumb of comfort yesterday was that research funding – thought to be about to take a £1bn hit – is to be spared. Ministers also announced the creation of a new national scholarship fund to be worth £150m a year by 2014-15, which will help disadvantaged young people.

Professor David Eastwood, vice-chancellor of Birmingham University and a former head of the Government's funding council for higher education, described the universities' package as heralding "a period of unprecedented financial turbulence".

Further education suffered a less severe cut, seeing its budget reduced by 25 per cent to £3.2bn over the four-year period.