When Holyrood rejected tuition fees, it was heralded as a triumph of devolution, a move to protect the ability of all to afford to study at university. But now the lack of cash is beginning to bite, jobs are being cut and buildings are crumbling. We report on the deepening funding crisis at the heart of our university education system

When MSPs split from Westminster in 1999 and voted to reject student tuition fees in Scotland, the policy was presented as a triumph of devolution. Scottish politicians promised that not only would the move mean that a university education would continue to be accessible to everyone north of the Border, it would also attract undergraduates from all over the UK keen to take advantage of the deal.

Instead of paying upfront tuition fees of up to £3000 - as undergraduates in England and Wales have to - Scottish students must pay a "graduate endowment" of more than £2200 once they are earning at least £15,000.

But now that English universities are finally benefiting from tuition fees - with the prospect of raising even more funds when the current fee caps of £3000 are lifted in 2010 - the reality of Scotland's separate funding system has started to kick in.

So far this year, the University of Dundee has announced 100 job losses, and the University of Strathclyde is to lose 250 posts through voluntary redundancies because of budget pressures. Last year, the University of Glasgow shed 230 staff, and Glasgow Caledonian has introduced a wide-ranging voluntary redundancy scheme. Professor Mike Pittilo, the principal of Robert Gordon University in Aberdeen, also told the Sunday Herald this weekend that he "cannot rule out redundancies".

Although deeply unpopular with Scottish politicians and students, the leaders of Scotland's top universities say they are facing growing fiscal pressures which tuition fees could help ease. Some are even calling for fees to be introduced as a matter of "urgency".

Allied to the financial pressures are fears that English universities will use the extra cash they can raise to boost salaries and facilities. This could lead to a brain drain of talent from Scotland if academics decide to head south in search of higher wages. Principals at Scottish universities have warned that if a gap in quality and resources starts to grow it will be difficult - and expensive - to catch up again.

Thirteen major universities contacted by the Sunday Herald claimed the cost of rising salaries, maintaining crumbling lecture halls and student halls of residence, bridging gaps in pension funds and spiralling utility bills are creating a financial strain on current funding levels. In 2006, the number of Scots accepted at higher education courses in the UK dropped by 3.1%, which student campaigners say reflects concerns about getting into debt over student loans.

Universities in Scotland receive about £1.9 billion a year in revenue, 51% of it from the Scottish Funding Council (SFC). They earn around 35% of their income from the private sector and 14% from publicly funded research councils and contracts.

Since 2001, universities have seen an increase in their core funding from the SFC, but they claim expenditure outweighs income. With the next spending review being published in September, this year is critical for the financial future of universities. If the income to universities isn't increased, either from core funding or from commercial and publicly funded research, asking students to contribute to the cost of a degree is an option worth debating, say university bosses.

And although many have strong personal reservations about charging for degrees, all the options have to be explored - and "quickly", according to Professor Alan Langlands, principal of the University of Dundee.

"I think a decision will have to be made about the question of student contributions," he said. "There is no sign of the political parties wanting to do that, and I understand why, but the whole question will have to be addressed post election.

"Whether you agree with tuition fees in England or not, they made the decision to do it and they are seeing the financial return. They are getting on with it, even if they are not popular."

Professor Andy Walker, vice-principal of Heriot-Watt University in Edinburgh, agrees there should be a debate.

"The big challenge is to compete with English universities," he said. "We are very close to the bone financially at the moment, and in England they are using fees to partially solve that. I would add my voice to those saying we need to raise a debate on this issue - it is entirely appropriate that we review the tuition fee situation."

Pittilo would prefer extra government investment over fees, but he admitted: "When the cap comes off in 2010 and universities can charge what they like, the best Scottish universities will be at a disadvantage. Oxford and Cambridge will be able to bring in a high amount from fees, while Edinburgh, Glasgow and Stirling will be disadvantaged."

Professor Seamus McDaid, principal of the University of Paisley, says he is "instinctively" against tuition fees, but warned "there is a financial reality we have to face. I would be loath to say we need tuition fees, but the funding for universities has to come from somewhere. Investment has to be increased."

At Napier University in Edinburgh, principal Professor Joan Stringer says she has "always accepted" that students must make a contribution, although it must be "affordable". "That debate is long overdue," she added, but other principals believe the time for debate is over. What we need, they say, is action.

According to Professor Bernard King, principal of Abertay University in Dundee, higher education fund-ing must become a political priority if Jack McConnell wants to achieve his goal of a smart, successful Scotland built on a knowledge economy. King said his university could gain millions of pounds if tuition fees are introduced, and believes that Scotland's entire higher education system will suffer if they are not.

"If you think of a potential £6000 a year per student in England going into infrastructure, libraries and staff, then it will, of course, have an effect. This is bad for Scotland on a competitive basis. This is not a smart, successful Scotland.

"If the government truly believes that the higher education system is the solution for the economy, then it cannot be allowed to go bankrupt."

Professor Stephen Logan, senior vice-principal of the University of Aberdeen, shares King's view. "Tuition fees are one of the ways we should look at increasing the level of funding," he said. "However, I'm sure political parties don't want to look at it."

The unwillingness of MSPs to confront the issue of tuition fees is a recurring theme among the principals. Dr Brian Lang, of the University of St Andrews, believes politicians must get to grips with how serious the funding gap could be for Scotland.

"I would say this to politicians: if we fall behind in investment in Scottish universities it will be even more difficult to catch up, and more expensive to catch up. If Scottish universities start to fall behind it will be an uphill struggle to regain what we had."

The problem for the higher education sector is that, with an election in the offing, parties are reluctant to endorse an idea they view as political suicide. So while Labour, the SNP and Greens agree there is a problem, they refuse to accept that this translates into a need to introduce tuition fees.

Deputy minister for lifelong learning Allan Wilson argues that the current "approach is working for Scotland", while SNP education spokeswoman Fiona Hyslop agrees there should be a debate about increasing university funding but rejects any measures that could increase student debt levels. The Greens want more government investment, leaving only the Tories willing to admit that fees should be looked at.

"No Scottish political party wants to see top-up tuition fees introduced here," said Murdo Fraser, the Scottish Conservative education spokesman. "But we have to recognise the real threat that now exists. We need a national debate on funding higher education that looks at all options."

Despite their best efforts to remain quiet on the subject of fees, politicians may soon have no option but to enter the debate. Although the introduction of top-up fees in England is considered the immediate threat to Scottish institutions, another traditional source of income is also at risk.

More than 27,000 overseas students are studying here, 17,000 of them from outwith the European Union, bringing a welcome £360m a year into the Scottish economy. But the number of foreign undergraduates in Scotland is reaching capacity and there is little room to grow this sector without changing the character of universities, say experts.

Lang wants St Andrews' intake of foreign students to remain at around one third of its total population to protect the university's character. "We want to remain a Scottish university," he said. "I could bring in many more overseas students, and the income they bring us, but then the very nature of the university would change, so I would be loath to do that."

That view is shared by Pittilo, who wants to raise Robert Gordon's proportion of international students to around 18%, "but no higher really. After that I think you do start to change the balance of the university."

The recruitment of foreign students is also likely to be challenged by the growth in educational provision overseas. Although some new universities will offer a comparatively low-quality experience, countries such as China and India are opening universities at the rate of one a week.

"These universities will be small, adaptable, nimble and quick," said King, who has seen the changes in higher education for himself in the Indian subcontinent. "I think we have to ask if Scottish universities are ready to cope with that kind of competition. What do we want from our universities?"

In contrast to the sense of foreboding among university bosses, Sir Muir Russell, convener of the umbrella group Universities Scotland and principal of the University of Glasgow, believes that Scottish higher education is not yet in meltdown. "This is not a sector in crisis, but a sector acting now to ensure we don't reach a crisis," he said.

"We have done lots to generate more income and only half our funding comes from core public funding. But there are limits, so while we can, for example, take in more fee-paying overseas students and sell more consultancy services to industry, we can't expand our commercial activity indefinitely if our core funding doesn't also rise.

"It is for politicians to decide how they fund us and where that money comes from. But we will be making a very strong case which says that transforming Scotland and its economy over the next 10 years will require strong, competitive universities. Anyone who doesn't think investment in higher education is a strategic priority for Scotland is divorced from reality."

One of Scotland's most senior educationalists, Lord Sutherland of Houndwood, a previous convener of Universities Scotland, former principal of the University of Edinburgh and the former president of the Royal Society of Edinburgh, has a similar message.

"A debate is very urgently needed," he said. "I see what is going on in England, and Scottish universities have to be able to pay competitive salaries and have competitive facilities.

"With big business reluctant to pay for higher education, and the Executive already saying they are giving adequate funding, the only remaining funding source is the students.

"I'm deeply concerned that English universities are gaining an advantage that Scottish universities are not. Political parties are, however, pretty well dug in on this one."

Meanwhile, from the students' perspective, at least the National Union of Students in Scotland looks likely to oppose tuition fees. Union president James Alexander said: "What we want are world-class universities in Scotland - if they are struggling financially it hinders the creation of a knowledge economy. But finding the funding from students is not the answer.

"On tuition fees you have to think what the purpose of higher education is in Scotland - is it for the elite or is education for everyone?"