Lord Mandelson has announced a £135 million cut to higher education funding to make up for “the higher than expected costs of student support during the economic downturn”.

Of the cuts announced in the annual grant letter today, £84 million will be switched from capital baselines, leaving a £51 million cut in teaching grant. The total teaching grant for 2010-11 will be £5,0 million.

In his letter, Lord Mandelson also says that research funding will be protected, calls for more research concentration and signals that there should be funding incentives to enhance the economic and social impact of research. The document sets fines for universities that recruited more students than was permitted at £3,700 per person.

The First Secretary sets out the spending requirements in the letter to Tim Melville-Ross, the chairman of the ����Vlog Funding Council for England.

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In the period ahead, Lord Mandelson says, “greater efficiency, improved collaboration and bearing down on costs will need to be combined with a commitment to protect quality and access”.

He confirms £180 million in efficiency savings from the 2009 Budget and an £83 million deduction following last year’s grant letter.

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“In addition, it has been necessary to make an adjustment of £135 million from your baseline to meet additional pressures, in particular the higher than expected costs of student support during the economic downturn,” Lord Mandelson says.

The savings should be delivered “in ways that minimise impact on teaching and students”.

Lord Mandelson is clear that he wishes to protect research funding. “To achieve these goals, we have agreed to switch £84 million from your capital baselines, so that the reductions to the teaching grant can be held to £51 million.”

On research, “securing greater economic and social impact will be important over the next year”, Lord Mandelson says.

“I want you to continue to develop proposals for the research excellence framework, following the consultation that ended on 16 December. These should provide significant incentives to enhance the economic and social impact of research.”

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The First Secretary refers to Higher Ambitions, the ten-year strategy document for higher education published earlier this year, which he says made clear the “Government’s presumption in favour of more, rather than less, research concentration”.

And he asks for Mr Melville-Ross’ views on how to achieve this in the 2010-11 allocations.

Deductions in grant for institutions that over-recruited are also set out.

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Lord Mandelson asks Mr Melville-Ross to make adjustments to grants for those institutions “at a rate of £3,700 per full-time undergraduate and PGCE student recruited above the permitted level”.

“My predecessor repeatedly made clear to the higher education sector the risks of student over-recruitment putting unmanageable pressures on our student support budgets,” he says.

He was “pleased that universities made a realistic pay offer in 2009”, he notes in the letter.

“Over the next year, moving towards a sustainable position on pensions within the sector will be a key challenge,” Lord Mandelson says.

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john.morgan@tsleducation.com

See the full grant letter at: