The Government has confirmed that the fresh cuts to higher education funding announced by Lord Mandelson are in addition to the ?600 million cuts set out in the pre-Budget report, prompting warnings that ?915 million is to be slashed from the sector over three years.
In last week's grant letter to the Higher Education Funding Council for England, Lord Mandelson announced a cut of ?135 million in its 2010-11 settlement, alongside the ?180 million in "efficiency savings" announced in the 2009 Budget.
The Department for Business, Innovation and Skills has now confirmed that the ?135 million reduction will be on top of the ?600 million cut to higher education and science funding announced in the pre-Budget report earlier this month, which is to be implemented between 2011 and 2013.
Senior figures in the sector said the overall reduction is likely to amount to a ?915 million cut in Hefce's budget over three years - a 12.5 per cent decline.
Lord Mandelson's letter also reveals a real-terms reduction in the unit of resource - the amount that universities are given per student for teaching - despite a pledge to maintain the current amount during this Comprehensive Spending Review period.
Paul Marshall, chief executive of the 1994 Group of small research-intensive universities, said that higher education was being targeted for "bigger cuts than any other part of the public sector".
"There is a real danger of moving into an increasingly unstable world where we don't know from month to month what the next hit is that will fall on our budgets," he said.
Mr Marshall said that most in the sector expect the ?600 million savings to come from Hefce's settlement.
When this is added to the ?135 million cut and the ?180 million in efficiency savings, Hefce's annual budget would fall from ?7.291 billion in 2010-11 to ?6.376 billion in 2012-13, he said. This would be a "massive" 12.5 per cent cut in its annual funding over three years.
Mr Marshall added that the cuts placed an "enormous burden" on Lord Browne, who is leading a review of higher education funding and student finance and is examining whether the cap on tuition fees should be lifted.
Under the reduced unit of resource, universities will receive ?190 less per student in 2010-11 than they were given this year.
Lord Mandelson says in the grant letter that this reduction took account of ?164 million in "efficiency savings" in the teaching grant and a ?51 million grant reduction to "meet departmental pressures, including the additional costs of economic support at a time of economic downturn".
These additional costs are thought to relate to an increasing number of students whose parents have lost their jobs, making them eligible for grants for which they would not have qualified a year ago.
Wendy Piatt, director-general of the Russell Group of large research- intensive universities, said that "reducing the amount of funding per student will create real and long-term difficulties for UK universities and will serve only to undermine the quality of the student experience."
However, Lord Mandelson's letter says the ?135 million cut in Hefce's teaching grant was needed "to meet additional pressures, in particular the higher than expected costs of student support during the economic downturn".
He tells Hefce that the savings should be delivered "in ways that minimise impact on teaching and students", and that research funding should be protected.
To achieve these ends, Lord Mandelson proposes that ?84 million be switched from capital funding to hold the cut in the teaching grant to ?51 million.
The First Secretary also asks Hefce to continue to develop proposals for the research excellence framework, which "should provide significant incentives to enhance the economic and social impact of research".
He refers to the "Government's presumption in favour of more, rather than less, research concentration".
There should be more courses "that make a special contribution to meeting economic and social priorities", Lord Mandelson's letter says, and "a mechanism to redeploy funds, on a competitive basis, to those institutions that are able and willing to develop new or expanded provision in these areas".
And he says there should be more degree courses that can be completed in two years of full-time study - a move dismissed by David Willetts, the Conservative Shadow Universities Secretary, as "chaff thrown out from the fleeing plane so as to divert the missile".
The letter also set fines for universities that over-recruited students in 2009-10 at ?3,700 per person.
Les Ebdon, chair of the Million+ group, which represents new universities, and vice-chancellor of the University of Bedfordshire, said the Government was "protecting the research budget and having to take it all out of the teaching budget".
This would have a "heavy impact" on universities that rely on teaching for their income, he said.
"The universities that take the widening participation students that the Government says it wants, that teach employer-focused courses that the Government says it wants - they are the ones bearing the brunt of the cuts," Professor Ebdon said.
Sir David Watson, professor of higher education management at the Institute of Education, University of London, said there would be "serious disappointment" about the announcement on two levels.
"The big picture is that this Government has given up on pursuing social and economic development through the expansion of higher education," he said.
"The once 'non-negotiable' 50 per cent participation target is now replaced by threats and fines for responding to demand, while the biggest economic pressure is a consequence of the expensive and inefficient system of student support cobbled together in 2004."
On the second "disappointment", Sir David said: "At the more detailed level, the danger is that as the Government wants to invest less, it seeks to micro-manage more.
"The prospect of greater 'competition' for a smaller pot sits uneasily with an instruction to 'minimise the impact on teaching and students'."