The much-vaunted private finance initiative - trumpeted by the Treasury as the answer to higher education's financial problems - is inappropriate and "unaffordable", according to vice chancellors.

The criticism follows the revelation this week that last year's Budget cuts - 50 per cent between 1996 and 1999 - will lead to 3,000 job losses this year as well as forcing two thirds of institutions to make compulsory redundancies.

The vice chancellors, together with officials from the Department for Education and Employment, in a joint report question whether the PFI has the potential to offset the reductions in public capital spending for buildings and equipment.

More than half of equipment funds, which have borne the brunt of the cuts, are spent on non-information technology items of less than Pounds 1,000 that are used for teaching and research and "where the scope for PFI seems limited".

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The report also concludes that PFI deals that add to recurrent spending without generating commensurate revenue "may simply be unaffordable". PFI involves the transfer of expenditure from capital spending to recurrent spending.

An additional constraint is that PFI deals are subject to VAT, which is not paid if universities and colleges provide the service themselves. The joint group has called on the DFEE to examine this.

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But the vice chancellors did not rule out PFI deals, especially for large building complexes, where universities are pursuing PFI solutions "energetically". There was also scope for procurement of large teaching and research equipment, especially IT equipment.