Treasury set to grab back £90 million

Higher education will be stung for an extra £90 million next year because of chancellor Gordon Brown's hike in employers' national insurance contributions, it emerged this week.

The Department for Education and Skills' estimate of the additional cost of raising employers' NICs by 1 per cent from next April is three times the extra amount made available to universities next year to help cover the cost of improved research performance.

The DFES puts the cost of additional NICs for further education colleges, including sixth-form colleges, at £25 million.

University heads are dismayed as the additional cost comes on top of an estimated £140 million shortfall in research funding next year and a 0.7 per cent cut in core teaching funds.

Institutions also face a pay claim for next year of between 13 and 15 per cent from the joint unions pay body. Employees will pay an extra 1 per cent in NICs from next April.

Universities UK and the University Finance Directors' Group are carrying out a survey of the NIC burden. Interim findings reveal that the combined extra costs faced by the 68 institutions that have responded so far is nearly £31 million. UUK has 122 member institutions.

Baroness Warwick, chief executive of UUK, said: "Following the recent Hefce (Higher Education Funding Council for England) funding allocation and RAE (research assessment exercise), this comes at a time when universities can ill afford it. This added burden reinforces our case for the government to provide the necessary additional investment for higher education in the forthcoming spending review."

The additional costs might not stop there as institutions may have to stump up millions more to pay the additional NICs of researchers if research grants are insufficient. So far, the UUK/finance directors' group survey puts this extra cost at £6.6 million.

Michael Yuille, chairman of the finance directors' group and director of finance at Glasgow University, said: "At Glasgow University the additional amount of the NIC could be £720,000, with possibly £300,000 for researchers."

Calculations are being based on Mr Brown's speech that revealed a 1 per cent increase in employer contributions. From April 1 next year employer NICs will be charged at 12.8 per cent on salaries above £4,628, up from 11.8 per cent.

A DFES spokeswoman said the extra cost of meeting increased NICs for higher and further education would be considered alongside other priorities in the 2002 spending review, the results of which are due this summer.

• Education secretary Estelle Morris this week told UUK it was being "unhelpful" in omitting cash earmarked for specific purposes from its calculations of core teaching funds. Ms Morris was responding to Baroness Warwick's letter a fortnight ago that warned of the 0.7 per cent cut to core teaching funds once earmarked cash for initiatives such as widening participation were stripped out. Ms Morris also said that it would be helpful if UUK included capital investment in schemes such as the science research infrastructure fund in its calculation of unit funding.