The UK's universities are said to be spending at least �1bn a year less than they need to on their buildings and equipment.

Raising the amount they charge businesses and charities for research, to more like the true cost of doing it, could make up about a fifth of the shortfall.

But that would mean they still needed about �800m from government to avoid a collapse of their infrastructure, according to a review committee headed by Professor David Westbury, vice-principal of Birmingham University.

He predicts the most likely result of continued underfunding will be that universities will cut costs by reducing staff - at a time when they are supposed to be expanding and taking on more students.

His committee - known as the joint costing and pricing steering group - is working on behalf of the higher education funding councils and the heads of British universities.

Expansion

The review was ordered in 1998 by the Department of Trade and Industry, he said.

It showed that universities spent �13.47bn on teaching and research last year but should have spent �14.48 billion, or about �1.01bn more.

Prof Westbury said that around �200m of the shortfall should come from asking businesses and charities to pay the full price for research.

"Universities and colleges were not able to keep up with the right levels of spending on infrastructure as the increases in activity have come about over the last 10 years," Prof Westbury said.

"That huge expansion has in fact been underfunded and universities and colleges have done their best to manage that largely because they haven't put enough money into buildings and infrastructure to deal with the level of activity they've now got."

He said "sweating the assets" was a reasonable thing to do but at some point that spilled over into doing too much without enough money.

The government wants half of young people experiencing higher education by 2010, and if it were to meet that target it would have to decide where the rest of the money should come from, he said.

The organisation which represents the heads of universities, Universities UK, has already called on the Chancellor, Gordon Brown, to provide an extra �9.94bn over three years in his comprehensive spending review announcement in July.

It had hoped for a big mention in his Budget speech but got only a promise.

Tiny surplus

Typically at least a quarter of the universities operate in the red each year.

Even the surplus made by the majority amounts to a slender �9m on total spending of about �13bn.

"That means that the whole thing is hugely at risk and the slightest wobble could cause difficulties," Prof Westbury said.

Staffing levels

"I think the thing which could happen is that in order to solve the finance problem, universities will reduce their staffing - they will have no alternative.

"That is resulting in severance packages in universities, just at a time when they ought to be retaining staff and gearing up for expansion to meet government recruitment targets."

He said the problem was not something which had arisen suddenly and nor would the collapse be sudden - there was a process of "genteel decline".

"If we don't start fairly soon to come to an agreement as to how these things are going to be done in the future then we will end up damaging the delivery of what the government wants.

"It's the government's decision, really, as to how much risk they want to take with the higher education system," he said.

Extra money

The chief executive of Universities UK, Diana Warwick, said: "What is of concern to all universities is ensuring that our students, whatever their background, have a high quality experience.

"That requires university teaching to be informed by research, provided by high quality and motivated staff, in buildings fit for purpose and using modern equipment."

The Department for Education and Skills said there was no doubt the review reflected the history of under-investment.

The figures did not take account of the extra capital spending for research of �1bn for 2002-3 and 2003-4, which was coming from the government and the Wellcome Trust.

"Future funding is a matter for this year's spending review," a spokesperson said.

But Sally Hunt, general secretary of the Association of University Teachers, said universities were reaching breaking point.

"The academic community is angry about the way it has been treated by successive governments and fed up with promises of money tomorrow when cash is urgently required today."