Universities are to face fines for over-recruiting students and will have budgets cut by £135m next year, according to plans announced by Peter Mandelson.
The business secreatary said the record number of students going to university during the recession had meant it was necessary to introduce more cutbacks.
In his annual grant letter to the Higher Education Funding Council for England, he also told universities to start looking at creating “fast-track” degrees which can be completed in two years, the Press Association has reported.
The letter also warned that universities would be fined £3,700 for every student they took on this autumn above the limit set out by the government. Universities are understood to have recruited several thousand students too many, which could cost millions in fines.
Sally Hunt, general secretary of the University and College Union, said: “[It is] final proof that the government has completely lost its way when it comes to higher education. You cannot make these kinds of cuts and expect no consequences.”
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Steve Smith, president of vice-chancellors’ group Universities UK, said: “The sector will not be able to deliver more with less without compromising our longer-term sustainability and international competitiveness. The government must avoid sacrificing the long-term interest in favour of short-term aims.”
Last month, the chancellor announced a further £600m budget cuts by 2012 in the Pre-Budget Report.
