OXFORD University is planning to cut hundreds of places for British undergraduates and increase those for foreign students as it aims to stem chronic losses that threaten its world-class status.

The university admitted that it was in effect being bailed out by profits from the Oxford University Press, which covered an annual £20 million deficit in running costs. Underfunding had left a £95 million deficit on teaching and research in 2003. A strategy paper concluded: “The available evidence suggests that if radical measures are not taken, Oxford’s standing will decline.”

Oxford’s plans underline the dilemma facing Britain’s top universities. Members of the Russell Group of 19 researchintensive universities have given warning repeatedly that the increase in tuition fees to £3,000 a year from next year is insufficient to meet global competition.

The proposals, set out in a “strategy paper”, will cut undergraduate numbers from just over 11,000 to about 10,000 within five years, the smallest total since 1992. More places will go to foreign students, who pay the full cost of their degrees, and cheaper graduate students will be used to teach courses so that academics can concentrate on research.

Oxford will also mount a vigorous recruitment campaign to raise the proportion of international students from 8 per cent to 15 per cent of undergraduates within a decade. The result will be a loss of about 1,600 places for British undergraduates.

John Hood, the Vice-Chancellor, acknowledged that it will become even harder to get into Oxford. “It will be more competitive, this is about driving quality up,” he said.

The paper on Oxford’s academic strategy said: “Nearly all of the university’s core activities lose money,” and it suffered from “chronic underfunding”.

“At the same time, Oxford’s international competitors are generating substantial surpluses and investing them to enhance their standing,” the report said.

With the Government ruling out further increases until 2010 at the earliest, institutions must seek to cut losses on British undergraduates if they are to keep up with leading universities in the United States.

Oxford’s paper, distributed to academics, calculated that the average undergraduate cost £18,600 per year to educate, but the university received only £9,500. It added: “The introduction of variable fees for home/EU undergraduates will make only a small dent in the loss per student.

“Currently the annual deficit in net cash from operations (c £20 million) is funded by the OUP ‘dividend’. There is, at present, no free cash flow for investment, depreciation or increased debt servicing.”

The strategy paper acknowledged that frustration at Oxford over constraints imposed by government had led to calls for privatisation of the university so that it could set its own fees. “What Oxford needs is not to forgo income from public sources but to increase its private income substantially.”

The document proposed “new undergraduate learning environments”. Graduate students and contract research staff would be trained to teach undergraduates, with greater reliance on seminars and group working instead of Oxford’s traditional one-to-one tutorials. “It might be fruitful to design patterns of teaching, learning and assessment by focusing on outcomes rather than the allocation of teaching hours,” the report said.

Bill MacMillan, Pro-Vice Chancellor (academic) at Oxford, told The Times that the tutorial would still be at the heart of the system but added: “We want to provide a rather broader diet of teaching and learning opportunities for students.”

The document makes plain that, despite considerable success in maintaining its position in the “international super-league”, Oxford faced formidable challenges.

Salaries paid to Oxford’s best lecturers were much less than at leading US universities. Teaching loads were significantly heavier than at Harvard, Princeton and Berkeley and administrative responsibilities were markedly out of line. “Such workloads compromise the ability of staff to perform at the highest levels and make retention of leading researchers difficult,” the paper said.

Oxford acknowledged that it did not rank as well as might have been expected in the amount of cited research produced by academics. It admitted that it was “short of ‘stars’ in some areas” and said that a “research productivity issue” had to be addressed by recruiting more distinguished scholars. Pressure on Oxford’s academics had grown because their numbers had remained static in the past 30 years, worsening the staff-student ratio since 1979 from 9.5 to 13.2.

Oxford’s endowment was dwarfed by that of Harvard and other US universities. It raised only £58 million from donations and investments in 2002/03, compared to £262 million at Harvard and £250 million in Stanford.

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