Students will be the losers with the redistribution of Oxbridge college fees, says Robert Stevens.

Last week the Department for Education and Employment, in the best spirit of Christmas, issued its good news about more money for ÖйúAƬ. Tucked away in it was news of the settlement of the Oxford and Cambridge college fee issues. Basically, the colleges will lose one third of their income over the next ten years, and the remaining fees will, in future, be paid as part of the universities' block grant. Oxford responded with a grin-and-bear-it statement. Cambridge, as is its wont, offered a slightly more robust and concerned announcement.

At the risk of sounding Scrooge-like, it is perhaps worth repeating that any university that receives a one-third cut in its teaching budget - even if that is to be phased in over a ten-year period - has received a serious blow. It comes at the end of two decades of cuts and "efficiencies". Even though the restoration of some of the Tories' research cuts will help hide the damage, so that in the short run Oxford will not be severely affected, in the long run Oxford will have fewer permanent staff or staff paid at the national rather than the traditional somewhat inflated rates. Most importantly. the arrangement will ensure the increasing priority of research over teaching. Research is where the rewards will increasingly lie. Since this coincides with the preferences of most staff, the students, especially the undergraduate ones, will be the losers.

The other most significant achievement of the decision will be the beginning of the end of the collegiate or federal university. Whatever is said about ringfencing, however loud the protestations about the importance of the collegiate university, the money is now the university's and not the college's. While there is much wrong with the Oxford colleges, the prospect of the slow demise of what was a remarkably worthwhile system of education is sad. The redistribution of wealth between colleges may slow the demise. It will not prevent it.

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It was not only Oxford and Cambridge which suffered in the overall settlement. The Teaching and ÖйúAƬ Act has effectively banned top-up fees nationwide. While the Pounds 1,000 student fee will, indirectly, help the universities, providing the government sends it in their direction, British universities have now been underfunded for 20 years and the Labour government has announced it will continue "efficiencies". At best the future holds a status quo for university funding and at worst, a gradual decline in funding - particularly on the teaching side.

Now that the chance of universities charging students has gone, the possibility that universities might compete in both teaching and research with North American universities is evaporating. Tony Blair is no more willing to offend his voters than Margaret Thatcher was prepared to offend her voters by imposing real fees - the most logical way to fund universities adequately. The future of the British universities is therefore likely to be to follow the dismal demise of the French and German universities. At a time when the Imperials, Yorks, Warwicks, Manchesters and Bristols ought to be becoming more competitive internationally, their most realistic and reliable source of income has been cut off. The best American universities fund their regular staff positions out of endowment and student fees - so-called "hard money". British universities will gradually lose their ability to compete with them.

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With the ban on top-up fees, the idea that the universities are "independent" also becomes more risible. Universities and colleges are now more dependent on the state than ever before. Only the ephemeral (and sometimes corrupting) fund-raising from industry, alumni and friends is available; and one suspects, its potential in the United Kingdom is greatly overrated. Britain's reluctance to abandon its notion of ÖйúAƬ as a free good has been achieved by undercutting both independence and quality.

The Oxbridge colleges have been thrown one bone. They, like universities, are to be allowed to discriminate under the Race Relations Act and charge overseas students the real cost of their education. It would seem that, in order to avoid charging British middle and upper middle-class parents "real" fees, something that would be politically inconvenient for new Labour in this country, universities are to be allowed to screw the young or their parents in the Third World (the DFEE is even prepared to help). It would be interesting to know how Robin Cook squares this with his ethical foreign policy or Clare Short with her foreign assistance programme. In the long run "the London School of Economics solution" of packing in foreign students for profit or cross-subsidation is not a seemly one in the Liberal state.

Robert Stevens is master of Pembroke College, Oxford.