Increasing difficulties for?English universities in?covering the full cost of?teaching domestic undergraduates could undermine any efforts by the government to?boost research funding, experts have warned.

The observation comes as new data show a deterioration in the ability of UK institutions to recover the ¡°full economic costs¡± of their activities, including the investment needed to properly sustain activities such as teaching and research in the future.

According to the latest , about 93?per cent of full economic costs were recovered last year, down from 96?per cent in?2018-19.

One of the reasons for the fall was a decline in income from ¡°other¡± sources such as student accommodation, as institutions issued refunds resulting from the disruption caused by the first Covid-19 lockdowns at the tail?end of the 2019-20 academic year.

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Income from sources other than teaching and research, which also include on-campus catering and conference operations, normally provides a surplus for universities; however, that covered only 88?per cent of costs last year.

There was also a slight fallback in the recovery of research costs, which had been on a downward trend for a number of years and dipped below 70?per cent in 2019-20 as lab work was halted at the start of the pandemic.

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But one university chief financial officer said that a more worrying trend to watch in the coming years might be the recovery of costs for publicly funded teaching, which mostly represents domestic undergraduates.

Although this fell only slightly last year, from 96.2?per cent to 95.8?per cent of full costs recovered, the sector had been recovering close to 100?per cent on publicly funded teaching three years before.

Andrew Connolly, chief financial officer at the University of Exeter, also pointed to the 2019-20 figures pre-dating the large influx of new domestic entrants last year, which is set to continue this autumn because of the uptick in exam grades.

At the same time, he said, teaching grants in England were failing to keep pace with this increase in students, while tuition fees ¨C which have been capped at ?9,250 since 2017 ¨C were still being eroded by?inflation.

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Speculation is also rife about further changes the Westminster government could make to undergraduate funding in England, including whether to cut the headline fee to ?7,500, as recommended by the Augar review of post-18 education.

Mr Connolly warned that if universities¡¯ ability to cover undergraduate teaching declined over the coming years, this would have an impact on research funding, even if the government followed through on its pledge to increase investment in research to ?22?billion by 2024.

¡°My main concern is that cost recovery for home [teaching] is on a strong downward decline, accelerated by the government¡¯s A-level policy over the last two years, aided by the long-standing and accumulating trend of the real-terms decline in the value of the fee ¨C and this is before we hear what the government¡¯s response to Augar is going to be,¡± he said.

He added that it was also ¡°highly possible¡± that income from international students ¨C which has been the main source of cross-subsidy for universities to help fund research and which increased its Trac surplus in 2019-20 ¨C could be on a downward trend in the future.

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This might be because universities increasingly feel the need to ¡°compete against each other for international students¡± to cover other costs, driving up the outlay required to attract them through fee discounts, scholarships and the like.

The upshot was that institutions faced being ¡°squeezed on all sides¡± over the next few years, warned Mr Connolly, who is also a member of the sector¡¯s Trac Development Group, which oversees the evolution of the scheme.

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simon.baker@timeshighereducation.com