Annual funding worth £7 million that helps to support the Oxbridge tutorial and interview systems is set to be cut.

The universities of Oxford and Cambridge receive £4.2 million and £2.7 million a year respectively in “institution-specific” funding from the Higher Education Funding Council for England as a contribution to “particular” costs faced by the universities, including having smaller class sizes and holding interviews with almost every undergraduate applicant.

No other undergraduate university has ever received additional funding for such purposes, with the deal agreed about 15 years ago in lieu of the abolition of Oxbridge college fees. However, the funding body has now confirmed that the two institutions will no longer be eligible for a share of its £65 million funding stream, which will now be concentrated on small specialist providers in disciplines such as music, drama and art.

The change is part of a review of institution-specific funding, led by former Arts Council England chair Sir Christopher Frayling, which will require specialist providers to show that they are providing “world-leading teaching”.

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The funding stream has been subject to several previous reviews, but new rules stating that at least must be based in one academic cost centre mean that Oxbridge is no longer entitled to apply for funding.

A spokesman for Oxford said that it was aware that “Hefce funds are under increasing strain” and an earlier consultation had made it clear that “it was likely we would no longer be eligible to apply for this funding”.

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“The university will be forced to identify funding from other sources to safeguard its high-quality, tutorial-based academic teaching,” he added.

A Cambridge spokesman said that it had made a case for the funding, but had “anticipated” its ending “for some years” so it came as “no great surprise”, adding that the university had “time to adapt” to the changes.

The planned withdrawal of the funds comes ahead of next week’s emergency Budget when details may be released of how universities will be affected by in-year cuts worth £450 million to the Department for Business, Innovation and Skills.

Nick Hillman, director of the Higher Education Policy Institute, said that a lack of transparency over Oxbridge’s cost base – in addition to the upcoming cuts – may also explain why it is in line to lose institution-specific funding.

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“Oxford has said it costs £16,000 to educate an undergraduate, but it has never given policymakers the evidence to substantiate this figure,” he said.

“If their goal was to keep this money, they have never really done enough to provide information on how they spent it,” he added.

The change in eligibility criteria may also threaten other institutions that have previously received institution-specific funding.

The School of Advanced Study at the University of London, which is due to receive £9.2 million next year from the stream, is no longer listed by Hefce as eligible.

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The University of London said that it recognised that the SAS did not meet the criteria laid out in the review, but would “expect ongoing support from Hefce following the very positive review in 2012 of the School of Advanced Study’s national role in supporting, promoting and facilitating research in the humanities”.

A Hefce spokeswoman said that it had consulted over the potential changes and is now “in discussion with institutions that do not meet the criteria for funding to consider the impact of this”.

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jack.grove@tesglobal.com