Malcolm Grant, who takes over as chairman of the Russell Group of universities in July, said that as more highly qualified European students apply to Britain’s elite institutions, home students would be displaced.

By 2007, 91,000 EU students are expected to be studying in the United Kingdom, when the EU expands to 27 member states. But while the pool of very able EU students seeking to study medicine, maths and the sciences here grows, the number of vacancies is unlikely to rise to match the demand.

“It’s clear that the places for UK students in leading UK universities is starting to decline rather than increase,” Professor Grant, the Vice-Chancellor of University College London, told The Times.

“If the Government wants to maintain the number of British students attending Russell Group universities, they must look at the economics of doing that — because at the moment it’s not going to happen.”

With the Government encouraging half of 18 to 30-year-olds to attend university, a record 404,668 undergraduates started a degree this year. Of those, 14,049 were from other EU member states, including the ten accession countries. The number of home students who failed to gain a university place reached 106,430.

Under European laws, universities cannot discriminate between EU candidates. But with more universities offering better degrees than any other EU country, British academics fear that finances will be stretched to meet the costs of teaching European students.

The Higher Education Funding Council for England has agreed to fund just 5,300 extra full-time undergraduate places for 2005-06. It has threatened to cut funding and impose a cap on recruitment next year if any university exceeds its quota.

Professor Grant said that the Government could not expect Britain’s elite universities to compete with the likes of Harvard and Yale if it restricts the market. “We will be asking for greater resourcing for institutions which are setting the gold standard for British university education,” he said. “There is a fixed pot, so any adjustment will affect others, but there are big questions to be asked about the Government’s 50 per cent attainment rate, without a big uplift in funding.”

While higher education institutions earn an estimated £1.25 billion from international students in fees, researchintensive universities, such as the Russell Group, say that there is a shortfall when it comes to teaching British and EU undergraduates. Oxford has mooted teaching fewer home students to make up its £200 million funding gap.

The problem, says Barry Sheerman, chairman of the Commons Education Select Committee, is that Britain’s unique quality means it receives three students for every one studying on the Continent. He is calling for a rebate to offset the “very high financial penalty”. He admits, however, that EU students, with their exceptional qualifications in maths and sciences, are sustaining less popular courses.

Bill Rammell, the Higher Education Minister, said: “In the last decade we have seen a 50 per cent increase in the number of EU undergraduates studying in England and this has not affected the opportunities for UK students — we see no reason for this to change.”

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