Today's grant announcement represents a good settlement for this year

Funding council chief, Sir Howard Newby

The Association of University Teachers (AUT) says this means nearly half of all England's universities are facing real-term cuts in their research budgets.

Sally Hunt, the union's assistant general secretary, said: "While it is welcome news that for the second year running there will be a real terms increase in funding per student, this is the clearest statement yet that we are heading for a two-tier university system.

"Despite the overall investment in teaching and widening access there are real threats to jobs and research. This year's settlement will not be able to fund the pay of staff in universities."

Call for more money

Hefce's chief executive, Sir Howard Newby, said: "Today's grant announcement - which for the first time tops �5bn - represents a good settlement for this year.

"After many years of decline, this is the second year in which the rate of funding per student has shown an increase in real terms."

On the issue of reduced funds for research at some institutions, he said the total avilable had gone up but was insufficient to fund fully the better performance measured by the 2001 Research Assessment Exercise (RAE).

"We are committed to build on these excellent results - which demonstrate higher levels of world class research - and will continue to argue strongly for additional funding," he said.

Redundancies

On Wednesday students at one of the most prestigious universities - Durham - occupied a library for a time, in protest at a review of courses there.

Universities UK's president, Professor Roderick Floud, said a significant number of universities now faced a cut in real terms in their total funding - although the figures were difficult to interpret.

He was alarmed by the move to "claw back" money within the year from any institution which did not meet its targets for recruiting students. Previously this happened in the following year.

"The new arrangements impose unsustainable year-on-year changes, which work against sensible planning," he said.

"This will almost certainly mean significant redundancies and course closures."