Universities in England are to receive a below-inflation increase in funding for next year.

Funding for higher education in England in 2000-2001 has been set at �4.5bn, which the head of the Higher Education Funding Council for England, Sir Brian Fender, said represented an average 1% cut in real terms.

The overall budget increase of only 1.5% could leave universities struggling to recruit and retain academic staff, said Sir Brian Fender.

The funding settlement will leave over half the universities in England with an increase lower than inflation - compared to a third last year - said lecturers' union leader, David Triesman.

However many individual universities will receive above-inflation increases, as research funding - almost a third of the budget - is awarded to those universities which "have demonstrated strength in research".

For instance, the University of Bath will receive a 7.7% increase, Aston University will receive a 7.2% increase and Essex will receive a 6.9% increase.

The biggest single loser in year-on-year income will be Thames Valley University, with a 11.3% reduction. And among those with below inflation increases, the London School of Economics and the University of Sussex will only receive 0.5%.

In addition to this funding from central government, many universities draw incomes from other research contracts.

But the funding council settlement is the largest single contribution to universities - representing about a third of the total income received by the higher education sector.

The government says that directing extra funds towards the best performing universities encourages and rewards higher standards.

A spokesman also said that over the full course of the parliament, there would be an increase of 11% in spending on higher education - compared to a fall of 36% per student funding between 1989-1997.

Expanding access to higher education remained a priority, said Sir Brian Fender, and within the funding package, �60m is designated for extra places and �20m will support students facing financial hardship and those from under-represented groups.

Universities will be expected to create an extra 37,000 places next year.

"The basic recurrent funding position is less satisfactory. An average cash increase of only 1.5%, following on cuts in the 1990s, will pose difficulties for institutions, particularly in recruiting and rewarding staff," he said.

The budget breakdown for 2000- 2001 is:

• �2,923m core funding for teaching
  
• �60m for 37,000 additional student places
  
• �25m to widen participation by under-represented groups
  
• �867m for research
  
• �483m special funding