London Metropolitan University is facing a financial crisis after the funding council confirmed that problems with the university's data on student dropouts meant that it had been substantially overfunded for several years.

In an e-mail sent to all staff last week, Brian Roper, the university's vice-chancellor, said the Higher Education Funding Council for England was proposing to reduce the university's teaching grant by ?15 million in 2008-09 and was considering clawing back other funding for the three previous years.

In 2007-08, the university's total teaching grant was ?68 million.

The cuts will come "despite the fact that Hefce had not previously highlighted any problems with our data relating to (student) completion", he writes. Professor Roper said the move followed Hefce audits of London Met data for the past three years. The problem identified related to data on student completion, which determines how much teaching funding a university gets.

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"The financial impact of this on the university will be significant and the board of governors has asked the executive group to identify ways to reduce the university's expenditure in order that we are able to operate with a greatly reduced income stream ... Unfortunately, some job loss appears to be inevitable. Rationalisation of academic provision, changes to professional service provision and to services and facilities will also be necessary ... This will mean difficult decisions, but I am confident that the university will survive these uncertain times," the message says.

In a statement, Hefce said it had been working with London Met for some time to ensure that its student data returns "fully reflect the reporting definitions that apply". The council confirmed there would be a "significant, downward, funding adjustment" for the next academic year.

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Implementing this would be "challenging", but Hefce would work with the university to help protect the interests of students, the council said. "The flexibility of the university's provision can make tracking student progress demanding," the statement acknowledged.

"There are also data issues about student numbers relating to 2005-06 and subsequent years, which the university recognises. These have led to substantial overfunding during this period."

Hefce said the amount it would need to recover for the period 2005-06 to 2007-08 would depend on decisions to be made after a strategic review.

London Met's University and College Union branch said it believed that the way Hefce calculated the data penalised institutions that worked to widen participation. In a statement, it said: "The UCU is utterly opposed to reductions in the 2008-09 budget and would resist any attempt to take money from the university retrospectively."

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Hefce said it was "totally committed" to widening participation; the way it counted students in funding calculations was longstanding and applied equally to all institutions, it added.

rebecca.attwood@tsleducation.com.