Economics in British universities is in crisis and pushing the annual salaries of top professors up to Pounds 100,000 may be the only solution, according to a report to be published next month.

The best economics graduates are flooding into the City, where, by the time they hit 30, they can expect to be earning six-figure salaries. The result is a critical shortage of British-trained economics postgraduates, the lifeblood of the academic profession. According to one insider, every top British economics department has at least one vacancy for a professor.

Economists from abroad, especially Italy, are plugging the gap - but senior government and academic figures are seriously worried about the lack of British-trained staff.

Already universities such as the London School of Economics are planning radical shake-ups of their salary structures in a bid to lure academic economists. Last year the LSE, traditionally the biggest supplier of economics postgrads, signed up no British students to its PhD research programme. At Nuffield College, Oxford, there were no British takers for a PhD in economics last year.

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Andrew Oswald, professor of economics at Warwick University, and co-author of next month's report, says: "Young economists with first-class degrees can do almost anything. Even if they think there is a chance they will get to be the top economics professor in the UK, they still will not earn as much as a moderately successful stockbroker."

"I predict salaries for the top economics professors in British universities will go up to Pounds 100,000 a year. Until we approach that level people with firsts in economics are not going to come into the profession."

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Salaries are already being pushed up as universities bid against each other for a dwindling pool of applicants. The highest-paid economics professor in Britain may already earn about Pounds 85,000, according to Oswald.

The only other solution is to raise salaries at the bottom end of the profession and entice 25-year-old postgraduates to stay in universities by paying them Pounds 35,000. "One of my PhD students has just gone to a US university on a salary worth about Pounds 60,000," he says. "That's what we're competing against."

The report, commissioned by the Economics and Social Research Council, will go to the ESRC's postgraduate training board next month.

Sian Griffiths