SCOTTISH universities fear the loss of up to £450 million as a result of controversial legislation to change the way they are run.

University principals have warned new laws on governance could make it harder for institutions to raise vital private investment cash - worth some £370m to the sector every year.

They also believe the Scottish Government legislation could undermine philanthropic giving of £53m a year and threaten their charitable status - worth £27m annually from non domestic rates relief.

The warning comes after the publication of the Higher Education Governance (Scotland) Bill which proposes radical changes to the way the sector is governed.

Universities believe the introduction of greater ministerial control over the powerful Courts that run institutions could lead to them being reclassified by the Office for National Statistics (ONS) from "non-profit" to "public sector" organisations.

If that happens universities - which only get 45 per cent of their overall income from the government - say they would no longer be able to hold surpluses on their balance sheets and would therefore lose the ability to borrow from private sources such as banks and investment companies.

Philanthropic giving could also be hit if donors felt substantial gifts could not be retained by institutions at the end of the financial year.

Charitable status could also be under threat - although the Scottish Parliament could legislate to avoid this.

The concerns have been raised in a statement to the Scottish Parliament's finance committee by Universities Scotland, which represents university principals.

It said: "Our more fundamental financial concerns are that the Bill substantially increases the risk that the Office for National Statistics may reclassify higher education institutions as part of the public sector and may create a risk to institutions’ charitable status.

"The realisation of either of these risks would have far-reaching financial implications for higher education institutions and their contribution to Scotland.

"In practical terms, ONS reclassification would leave universities facing the loss of incentive to earn entrepreneurial income, restrictions on borrowing, the inability to create surpluses and invest them in improved facilities, the loss of philanthropic income and a major reduction of partnership with the private sector.

"Without the financial tools and the autonomy to invest strategically in this way, universities would inevitably have to reduce their levels of activity and investment, with significant implications for their ability to deliver on Scottish Government priorities, such as skills provision, innovation, and social mobility."

Other recent examples of adverse ONS reclassification include Scottish Futures Trust funding for the Aberdeen western peripheral route and its current consideration of whether to reclassify housing associations in England as a result of increased ministerial control.

The move comes after SNP ministers published a Bill which introduces a number of measures aimed at reforming the way universities are run.

They include the appointment of trade union members to university ruling Courts and elections for the powerful post of Court chair.

The Scottish Government has previously denied the legislation will introduce greater control with a spokesman saying last week: "The Bill's aim is to strengthen governance in Scottish higher education by ensuring membership of governing bodies is balanced, fair and inclusive.

"Far from increasing control, we are simply trying to introduce measures to ensure greater consistency and transparency."

The origins of the Bill date back to 2011 when a number of universities, including Glasgow and Strathclyde, brought forward course cuts.

There was a strong feeling from the wider communities these institutions serve that consultations with staff and students were rudimentary and decisions were motivated by economic considerations rather than academic ones.

There have also been long-running concerns over the spiralling salaries of principals and the increasing autonomy of their senior management teams.