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Two universities are due to come off the Higher Education Funding Council for England's at-risk list this week, a House of Commons committee has been told.

Graeme Davies, chief executive of HEFCE, told the Public Accounts Committee that two of the six institutions listed in HEFCE's financial category one as at risk would be removed. The PAC was meeting this week to discuss the National Audit Office report The Financial Health of Higher Education in England, which was published in November. In front of an audience including his Welsh and Scottish counterparts, John Andrews and John Sizer, Professor Davies faced questioning that, because of the broadly favourable tenor of the report, was searching rather than hostile.

He agreed to supply the six names in confidence to the committee, and argued that having so few institutions out of 148 in difficulties after a period of rapid change was evidence of the financial competence of the sector and the funding council.

Questioned by Alan Milburn, Labour MP for Darlington, Professor Davies said that the largest annual deficit declared by any institution in recent years was Pounds 3.5 million, about 2 per cent of turnover. He said that it was unusual for deficits to exceed 1 per cent, and that this case had been covered by the institution's reserves.

Mr Milburn expressed concern at the expected increase in borrowing in the next few years, but was told that HEFCE kept a firm check on institutions. In the case of one institution seeking to borrow Pounds 50 million, the council had insisted that existing debt be converted to fixed-rate basis and that a sinking fund be set up to ensure that the new debt could eventually be repaid.

Questioned by Sir David Mitchell, Conservative MP for Hampshire North West, about penalties on institutions that missed recruitment targets, Professor Davies said that penalties of less than Pounds 20,000 would be remitted by HEFCE and that institutions had been extremely successful in hitting targets -- in some cases by making offers below their maximum number on the first round of applications and then filling the rolls through clearing.