Courses cost far more to run than will be made in fees

It should also implement "vigorous" recruitment of overseas undergraduates as it seeks "the very best students", according to a strategy paper.

The university is seeking "significant" cost savings to pay staff more and improve the quality of learning.

Critics have accused it of seeking to cut UK student numbers in favour of those from overseas to boost revenue.

'Security and autonomy'

Cutting the number of undergraduates - from 11,000 to perhaps 10,000 - is likely to take five years.

Oxford, like most other leading universities, will charge the full �3,000 a year for all courses when "variable" tuition fees are brought in next year.

However, it costs �55,800 on average to put each undergraduate through a three-year degree.

This contributes to a deficit of �20m a year, which is made up from money raised by Oxford University Press.

The strategy paper warns: "The competitiveness of Oxford in the longer term is contingent on much greater financial security and autonomy.

"The fact that the university has retained its position amongst the world's elite is remarkable when viewed against the backdrop of chronic underfunding."

Bursaries

It adds that Oxford's attempts to recruit from overseas have been "very limited" compared with those of its rivals.

OXFORD UNDERGRADUATES 2003-04 From the UK: 10,045 Other EU: 349 Non-EU: 692 Total: 11,086 Total 1993-94: 9,846

The university is also hiring extra staff to encourage former students to make financial donations.

Currently, these amount to between �70m and �80m, compared with the �262m Harvard raises.

The strategy paper is being put out to consultation within the university before final proposals are drawn up in the summer.

Oxford has already announced it will introduce bursaries worth up to �13,000 for students from low-income families.

It said these would make it the "most affordable place" in the UK for talented, but less well-off students.

It would set targets for student numbers, reviewed annually, "to reflect academic priorities".

The likely reduction is not set out in the paper, but Oxford's vice-chancellor, John Hood, has suggested the total should be more like what it was 10 years ago.

Dr Hood said the motive was not financial, it was about ensuring that students mixed with people from a diverse range of backgrounds in the sort of communities they would go into when they graduated.

Complaints

Oxford's student union has said it accepts these assurances, at least for the time being.

But the president of the National Union of Students, Kat Fletcher, said: "Putting a market into higher education forces universities to perceive their students as customers - and therefore favour the highest paying ones during the admissions procedure."

The Liberal Democrat education spokesman, Phil Willis, said ministers should consider withdrawing the public grant Oxford receives.

The Higher Education Funding Council for England has just agreed a total grant for universities for the 2005-06 academic year of �6,332m, which it says is a cash increase of 5.6% on this year.

It includes �4,004m for teaching, up 2.8%. The funding council has yet to announce how much individual institutions will get.

But the CMU group of universities - representing mainly newer institutions - has complained that Oxford's resourcing is about six times that at the universities which educate the majority of Britain's students.