The number of full-time undergraduate places will rise by only 5,300, the Higher Education Funding Council for England (HEFCE) said.

Nearly 1,700 of these places will be allocated to medical and dental courses, leaving only 3,600 new places for all other subjects. Another 5,700 places will be created on the Government’s two-year foundation degrees, aimed at students interested in work-related subjects.

Applications to university this year have increased sharply as students have scrambled to secure places before annual tuition fees rise to £3,000 next year. The Universities and Colleges Admissions Service reported last month that an extra 31,453 people were seeking places in October, up almost 9 per cent on 2004.

The HEFCE announcement of university funding allocations for 2005-06 means that only 11,000 new full-time places will be created, less than half of them on traditional three-year degree courses.

Sir Howard Newby, the council’s chief executive, said: “Is it going to be more competitive to get into university? The answer is probably yes.

“Attainment in schools at A level is going up, which is increasing pressure, and we are in a period of demographic growth for 18 to 21-year-olds, which will continue to 2011.

“All of that is producing considerable pressure on growth, which means you need a considerable increase in numbers to make any progress at all towards the 50 per cent target.”

Sir Howard said that government funding for universities in the Comprehensive Spending Review would increase the proportion of young people in higher education to 45.5 per cent in 2008, from 44 per cent now. There would have to be a “very considerable growth” in admissions at the end of the decade to meet the Government’s target of a 50 per cent participation rate by 2010.

Sir Howard noted: “The target is ‘moving towards 50 per cent’ rather than 50 per cent.”

Rising demand in European Union countries for British degrees will add to the pressure on places for home students. Sir Howard said that it was “theoretically possible” that all the extra places at university this year could be filled by EU candidates. “Places in UK universities are open to all EU students and they are treated in exactly the same way in terms of admissions,” he said.

Applications from the ten new EU member states in Eastern Europe, Cyprus and Malta have risen by 79 per cent this year to 3,427. In all, 12,280 EU candidates are seeking places, an increase of 25 per cent on 2004.

The Department for Education and Skills said that universities were making steady progress towards its target and defended the increased pressure for places.

A spokeswoman said: “Our universities are among the very best in the world and it is only right that there should be healthy competition for places.”

The HEFCE told universities not to exceed their admissions targets, despite the increase in student applications this year. It threatened to cut funding and to impose a cap on recruitment next year at any university that ignored the warning.

The council announced that universities will receive £6.33 billion in funding for teaching and research in 2005-06, an increase of 5.6 per cent, or

3.1 per cent after inflation.

Funding for teaching will rise by 5.4 per cent to £4 billion. The grant includes £282 million for “widening participation”, nearly two thirds of which will be spent on ways to prevent students from under-represented groups dropping out of their courses.

An extra 10,900 places for part-time students will be created this year. The HEFCE said that funding for the equivalent of 26,000 additional student places would be available in total, including about 4,000 places left unfilled in 2004.

Research funding will increase by 10.8 per cent to £1.25 billion, with more than a third of the money going to just five institutions. University College London will get £93 million, followed by Cambridge (£92 million), Oxford (£90 million), Imperial College, London (£82 million) and Manchester (£69 million).

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