Scottish higher education could be facing a 16 per cent spending cut in the next academic year - the equivalent of pound;166 million - the head of the Scottish Funding Council has warned. Job losses could not be avoided, Mark Batho added.

Dundee University is the latest institution to announce staffing reductions, with up to 195 jobs at risk. But that was on the assumption that the sector would have to find savings of 25 per cent, spread over four years. Mr Batho warned university leaders last week that they should prepare for a much deeper reduction in their teaching and research budgets for 2011-12.

He also revealed deep concern, echoing that of the local authorities, that Finance Secretary John Swinney’s budget statement later this month will cover only a single year, rather than a three or four-year span which would allow longer-term planning.

As higher education budgets followed the academic year rather than the financial year (beginning in April), Mr Batho said the funding council would probably have to guess how much money it should be allocating to institutions. Each grant letter would have to be based on assumptions, and accompanied by a warning that the sum was liable to alteration.

“This will increase uncertainty and is not a good place for us to be in,” he told delegates at a conference on the future of higher education in Scotland, held in Edinburgh.

The higher education debate in England was framing much of what was likely to happen in Scotland, Mr Batho continued. Although universities in England have been told they will see a 40 per cent reduction to their teaching and student support budgets over the next four years, paid for in part by graduate fees, their position could turn out to be much worse as there was likely to be a decrease in the amount of Government-funded research along with cuts to the numbers of student teachers and nurses.

“I hope every principal in Scotland has tucked away in a locked drawer a scenario for a 16 per cent cut, because there will be other pressures,” he added.

Savings that universities had already achieved would not count for anything, he warned, “because the Government will be looking for further efficiencies and looking back will not feature in their thinking”.

The sharing of back office functions would account for only a small amount of overall savings, and there would have to be structural change.

Mr Batho commented: “Pushing together institutions into forced mergers is a bad idea, but structural change within institutions has some short-term advantages. And there has got to be reduction in staffing - 65 per cent of expenditure is accounted for by staff costs.”

At the same conference, Education Secretary Michael Russell described the Scottish Government’s spending position as “stark”, due to “the appalling mismanagement of finances by the Westminster Government” and the absence of “full fiscal powers” for the Scottish Government.

The Browne review of HE funding in England, recommending the removal of the current cap on tuition fees, was wrong in principle because it shifted responsibility for funding higher education from the state to the student, said Mr Russell.

Unlike the Westminster Government, Scottish ministers were not in favour of such a switch, although Mr Russell reiterated that he did not rule out the possibility of asking graduates to make some kind of contribution.

“In Scotland, we need to find a separate solution,” Mr Russell declared. “If we follow the Browne route, there is a real risk that some students will decide not to go to university.”

He said he had rejected only one thing in his forthcoming Green Paper on higher education - upfront tuition fees. But he warned that giving Scottish universities the power to set their own fees, based on the cost of courses, would create a two-tier system. Such a proposal would benefit larger universities offering courses that led to well-paid jobs at the expense of smaller institutions or those offering less lucrative degrees.

Mr Russell commented: “In institutions where the number of high-earning graduates is quite low, such as the Glasgow School of Art, if there is a direct relationship between those graduates and the institution in paying back what they have had, they are not going to get their money back.”

Call for contribution

University leaders in Scotland have admitted that a “graduate contribution” is needed to maintain competitiveness, following the Browne review of higher education funding in England.

The report by Universities Scotland, Towards a Scottish Solution, marks the first admission by university principals collectively that free higher education may soon disappear - although some have called individually for the introduction of a graduate contribution.

Now, fears of a widening funding gap between Scottish and English universities, following the Browne report and the Chancellor’s spending review, have prompted an urgent rethink of Scottish policy.

Scottish university leaders know that cuts to Government funding of higher education in England, as the student contribution is stepped up, are likely to mean substantially less money for Scottish institutions under the Barnett formula.

But the Universities Scotland report maintains that university education in Scotland should remain free at the point of entry, and that graduate payments should be set at a level that does not discourage participation.

Alastair Sim, the director of Universities Scotland, said: “We need urgently to build a political consensus about a fair model of graduate contribution for Scotland that can be consistent with Scottish political values.”

But the paper does not address the issue of whether there would be a variable graduate contribution, depending on the cost of an undergraduate course.