Malcolm Gillies, who leads London Metropolitan University, said the dramatic fall in the number of applications by EU undergraduates to study at UK universities had been largely overlooked by the sector.

Higher education institutions were focused mainly on preserving their levels of non-EU students, who pay higher tuition fees and are outside student number quotas, Professor Gillies said.

Latest figures released by the Universities and Colleges Admissions Service show that 6,132 fewer EU students applied to UK universities for 2012 entry compared with the same time last year - a drop of 12.9 per cent to 41,543 in total.

While those numbers represent a fraction of overall applicants - 6.7 per cent of the 618,247 total - losing large numbers of EU undergraduates could harm many universities, Professor Gillies said.

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"I am really worried about EU students," Professor Gillies told an audience at a conference in Bristol organised by AMOSSHE, the student services organisation, on 11 July.

"We have seen 20 per cent drops in applications at some institutions, and acceptances will be falling because [in economic terms] Europe has got much sicker," he said.

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At the conference, Professor Gillies reasserted his determination to reduce London Met's costs by merging its support services with those of nearby universities.

He said other institutions should examine whether they were paying too much for non-academic services.

"We have to ask how much we have feather-bedded the costs of those services in our institutions if we cannot provide them cheaper than private institutions, given our 20 per cent VAT rebate," he said.

Three companies - BT Global, Capita and Wipro, an Indian IT and consultancy firm - are bidding for the London Met shared services contract, which could be worth up to ?500 million depending on how many universities are involved. Unions oppose the plans, arguing that London Met is a test case for the privatisation of support services across the sector.

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The university is set to announce its preferred bidder towards the end of August.

jack.grove@tsleducation.com.