Jamil Salmi, director of tertiary education at the World Bank, said "something will give" in even the top universities if current declines in investment continue over the long term and the sector struggles against fierce competition from Asia.

He added that institutions in the US that are being squeezed by state funding cuts also faced losing out as rivals including China, South Korea and Singapore add to their roster of world-class institutions.

In an interview with Times Higher Education ahead of delivering the Higher Education Policy Institute's annual lecture in London on 23 February, Dr Salmi said the policy debate in the UK was too narrowly focused on comparisons with the US.

"When you think about the spending of the UK (on higher education) and compare it with China, there is a big question mark whether UK universities will be able to keep up," he said. "That competition is going to get fiercer, and the funding cuts are threatening the competitive advantage of British universities.

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"The UK", he continued, "is the outlier in Western Europe and more like the US in terms of rankings. The question with all these cuts is whether (the UK) will become more aligned with continental Europe; that is one of the dangers."

Dr Salmi, whose Hepi lecture was titled "Flourish or fail? Higher education in crisis - the global context", said it remained to be seen whether the move to divert investment in the UK through student loans would compensate for losses in direct public funding. However, he noted that the most successful higher education systems relied on large amounts of both public and private investment.

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He pointed out that the UK was not the only country whose reputation was at risk. In the US, institutions are under pressure as states continue to cut their funding - public spending on higher education fell in 48 out of 50 states last year, Dr Salmi noted.

The Moroccan economist, who is author of the World Bank's tertiary education strategy, said he did not want to be "alarmist" and stressed that there were efficiency savings that could and should be made.

In the long run, however, underinvestment "can be dangerous", he said. "You will not stop being a top university because of severe cuts in the first year, but over the second and third year it becomes a trend and something will give one day."

In his lecture, Dr Salmi was also due to highlight the importance of "value-added" measures in assessing universities' teaching and learning quality, rather than focusing on research output and reputation.

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He said this would allow good community colleges and teaching-led institutions to stand out, although he stressed that the best research-intensives also excelled in this area. "To be able to monitor the difference between incoming students and the skills and competencies acquired by the time they graduate gives you a much better sense of quality than traditional input-based measures," he said.

simon.baker@tsleducation.com