Funding for teaching at England's universities is being cut by 1.36 per cent next year to save £65m. All universities will be affected but the biggest impact will be felt by the OU, with a loss of £2.5m; £1.4m at Manchester; and £1.2m at Leeds.

Unions are angered at the decision but the Department for Business, Innovation and Skills (BIS) said that this sector, like others, had to tighten its belt. The University and College Union (UCU) said the cuts will equate to a loss of 1,500 full-time lecturing and support staff.

Sally Hunt, general secretary of the UCU, said this was likely to be the first wave of new cuts. "What kind of message does this send out to future generations of educators?" she said. The news would come as a "hammer blow" to staff and students, she added.

Wes Streeting, president of the National Union of Students, said: "It is disgraceful that the quality of teaching in our universities is gong to be compromised by significant cuts to the teaching budget. Any savings should be made from peripheral areas of the sector, not from the bread and butter of teaching itself."

The impact of the teaching funding cuts will be compounded by the previous announcement that universities in England can recruit another 10,000 students this year – but will not be given any funding for teaching them.

It also accompanies news from Industry Secretary Peter Mandelson that tuition fees could rise later this year to help fund higher education. Lord Mandelson said questions surrounding the implications of funding decisions are being discussed.

"Any institution that wants to use greater costs to the student to fund excellence must face an equal expectation to ensure that its services remain accessible to more than just those with the ability to pay."

"Whatever funding mix for higher education we develop, there must always be a link between what an institution charges and its performance in widening access and supporting those without the ability to pay."