STAFF and students at one of Scotland oldest universities are facing cuts after it forecast a deficit of up to £10 million by the end of 2017.

Dundee University said the latest funding settlement from the Scottish Government - which will see a 3.3 per cent reduction - combined with increases in staff pay, pensions and national insurance contributions was "a real threat to our financial sustainability".

In an email to staff, the university's principal Professor Sir Pete Downes said: "While we are delivering a break-even budget in this current year, the outlook for 2016/17 is a deficit in the university finances of £8m to £10m.

"Unless we take action to address this then we will be looking at a real threat to our financial sustainability."

Sir Pete said the university had plans to create new income through initiatives such as expanding student recruitment, but that there would also have to be "significant" cost savings.

He added: "We have an imbalance in our research and teaching profile which needs to be corrected so that the costs of our research can be better matched against the income we can generate through teaching.

"The negative implications this has for our finances has brought us to a point where we have to fundamentally look at the sustainability of the university and consider the shape and size of the institution.

"We are doing too many things that have an adverse effect on our financial position and we are not as efficient as we could be in the delivery of some of our research and teaching."

The university's ruling Court will be asked at its meeting next week to consider outline proposals to target a return to a surplus budget over the next three years.

Mary Senior, Scotland Official of the UCU lecturers' union, said: “This is a worrying time for staff at Dundee University. Having taken strike action in each of the past two years to protect jobs the idea that management are again setting the scene for more cuts is deeply concerning.

"The union will do everything we can to ensure jobs are protected and that the university maintains its reputation. What will stick in the throat of staff is the fact that this warning letter has come after it emerged that the principal accepted a 15 per cent pay rise.”

The email to staff also prompted opposition politicians to attack the Scottish Government's funding regime.

Iain Gray, Scottish Labour's opportunity spokesman, said: “The First Minister pledged to make education the driving and defining priority of her government, but instead we are seeing universities having to make swingeing cuts because of the SNP budget.

“This cuts off opportunities for our young people and short changes the future of our country and our economy.”

However, a Scottish Government spokesman hit back at criticism.

He said: “We have invested over £4 billion in the higher education sector over the last four years.

"Notwithstanding a very tough budget round, we will continue to invest over £1bn in our higher education institutions in 2016/17, ensuring that all of our institutions receive financial support to enable them to deliver high-quality teaching, world-class research and knowledge exchange."