The Higher Education Minister Margaret Hodge said spending on research in Britain's universities had fallen "outrageously behind" that of other developed countries.

She said the government would need to spend �300m a year more on research and development to catch up with France and Germany.

She said she would "seek to invest more" but that universities would have to modernise and reform.

Time to modernise, says Margaret Hodge

"There may be vice-chancellors who yearn for the fictitious past era when the government simply doled out the cash and the universities were left alone," she said.

"Those times have gone - if indeed they ever existed.

"No institution has a God-given right to continue to function in its present form.

"I expect to see a different pattern of provision in 10 years' time.

"Some universities may have gone, others would have merged and some would have expanded."

Student funding

Mrs Hodge was speaking after university executives called on the government not to overlook higher education in the budget.

The vice-chancellors - represented by the group Universities UK - said they needed �10bn funding to keep Britain as a world leader in academic research and to cater for the increase in the student population the government wants to see.

The higher education minister also made it clear there would be no announcement on changes to the student support system until July, after the results of the spending review.

It must realise that it cannot just tinker with a failing system in the hope of masking a broken promise

Owain James, NUS president

She said the government was facing difficult choices: "There are competing priorities in education and across governments.

"It would be a gross abrogation of my duty if we focused our money on subsidising tuition and living costs of students at the expense of other competing areas for investment."

That angered the National Union of Students (NUS).

The union's national president, Owain James, said: "NUS would be amazed if the government chose to ignore the countless independent evidence that recognises the urgent need for maintenance support and the call from a third of its own backbench MPs to abolish tuition fees and bring back grants.

"After promises from both the prime minister and the chancellor in October it is imperative that the government uses this review to get things right and that it actually delivers.

"It must realise that it cannot just tinker with a failing system in the hope of masking a broken promise."

Mrs Hodge said higher education was at a crossroads, and universities would need to transform management structures and break down boundaries with colleges and schools.