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Universities have warned that their finances will be tight during the credit crunch after the Government called on them to direct a ?120 million VAT "windfall" towards helping workers who lose their jobs in the recession.

John Denham, the Universities Secretary, said universities would benefit from the cut in the VAT rate to 15 per cent, announced in the Pre-Budget Report, because they are classed as charities. He urged them to think "creatively" about the support they could offer during the financial downturn through advice and training, particularly to white-collar workers who might be reluctant to turn to Jobcentres.

But Universities UK said that while universities may save money through VAT, the recession would drive other costs up.

Rick Trainor, president of UUK, said: "Universities, running on tight margins for the past few years, will, like all organisations, have to cope with significant adverse effects from the economic downturn. Although there might be temporary savings from the recent reduction in VAT, there will also be permanent increases in the form of rises in national insurance, for example."

He said universities were already working with business to offer help.

rebecca.attwood@tsleducation.com.