A STUDY of the education sector’s finances suggests that one in five of UK universities and higher education centres are in debt.

Carried out by accountants at Grant Thornton, the report studied the situation between 2009-10, before the recent funding reforms.

Half of the institutions have below the suggested surplus minimum, and while there was improvement for most institutions’ finances, 26 have suffered deterioration in their financial position.

The report has also predicted that the UK government’s White Paper on funding changes for 2013-14 will create a middle group of universities with an 11 per cent income cut.This will, according to Grant Thornton partner David Barnes, make a “two-tiered structure” based on the policy of letting high-ranking universities expand and accept more students.

The study comes after warnings from the UK Business Secretary Vince Cable that the UK government cannot continue to prop up institutions haemorrhaging money.

“We already have a lot of universities that are effectively broke. If they were in the private sector they would have been filing for bankruptcy. Various arrangements have been cobbled together to keep them going, and we can’t continue to do that.

”The survey did show an overall improvement in the financial state of higher education; a surplus rise of £345 million to £811 million. High-ranking Russell Group universities have enjoyed particularly strong financial growth.However, the Universities and Colleges Union general secretary Sally Hunt insisted there were dangers in the development of a potential two-tiered system.

She said, “While there may be a handful of winners under the new system, many institutions will struggle to cope financially with a new untested regime.”

“If the government is happy for some to fail then it should at least be brave enough to spell out which institutions it doesn’t believe are worth saving.

”It is expected that the research-focused universities of the 1994 Group will be particularly affected, with the lowest proportion of surpluses, and only 2.2% income.

David Barnes elaborated “The current policy of allowing universities to recruit as many AAB grade students as they can will inevitably lead to some polarisation. A key question will be how the less favoured universities are able to maintain their student numbers in the future, particularly if the number of students applying to universities declines.

”Responding to this, The Higher Education Funding Council for England (Hefce) said that there are “strong cash balances and healthy reserve levels” for higher education institutions.

They added, “The sector is in good financial health. No institution is currently at risk of insolvency. Our expectation is that overall performance will remain robust over the next few years.”