FEARS of a mounting funding crisis at Scottish universities have been shot down by John Swinney who suggested they had a healthy cash surplus of almost £150 million.

Reacting to claims universities were facing "unsustainable" levels of public funding, the Education Secretary highlighted figures which showed they boasted reserves worth billions of pounds.

It comes one week after university principals called for urgent talks over the future financial sustainability of universities after the Scottish Government cut the revenue budget for higher education by 1.3 per cent in cash terms.

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Professor Andrea Nolan, convener of Universities Scotland, said ministers had tried to protect higher education, but added: “This settlement does not enable recovery towards sustainable funding of universities’ core teaching and research activities."

At the committee, Mr Swinney said funding settlement for universities amounted to an overall cash increase with a £20m uplift in capital and a £13m reduction in resources.

The final reduction would amount to only £5m because universities can now charge higher fees to students from the rest of the UK and could see a rise in postgraduates with a new package of funding support, he added.

But Liz Smith MSP challenged him over the apparent financial straits engulfing the sector.

He replied that the "context" for the financial warning was sector reserves of £2.5 billion and a surplus of £150 million in 2014/15.

Mr Swinney said: "That is the context into which a reduction of £5m of resource has to be considered.

"The cash resources available to universities will have increased.

“I have had a lot of discussion… with the universities about a combined and collaborative agenda to make sure they can fulfil their agenda because I recognise the extent to which I believe they represent a significant critical economic asset for Scotland."

A recent Audit Scotland report found universities had received only 94 per cent of the cost of teaching students in 2014/15, while research is under-funded at 86 per cent of what it costs to deliver.

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Although the sector made an overall surplus of £146m in 2014/15 the cash is disproportionately concentrated in just two universities with Edinburgh and Glasgow accounting for 41 per cent of it.

It also revealed there had been a six per cent real terms cut to university funding between 2010/11 and 2014/15 and warned of “underlying risks” to finances.

In the wake of the report, universities suggested potential options for saving money included course cuts and even compulsory redundancies.

Speaking after the committee hearing, Ms Smith, education spokeswoman for the Scottish Conservatives, said: "These are very serious concerns raised by both Universities Scotland and Audit Scotland about the long term sustainability of the higher education sector which is under even greater financial pressures because of the Scottish Government Budget published last week.

"It simply isn't good enough for the Cabinet Secretary to dismiss these concerns by implying it is possible for universities to make up the financial shortfalls by raising more of their own money through private means. That is not how the system works.

"What became clear at the recent audit committee meeting is that there needs to be a fundamental review of higher education funding if the Scottish universities are to maintain their academic excellence and international competitiveness."

During the debate Mr Swinney said universities had an income of £3.5 billion and overall income increased 38 per cent in real terms between 2005/06 and 2014/15, according to Audit Scotland.

The report also said the sector had made a surplus of £146m in 2014/15 with most universities generating a surplus every year in the past decade. Overall reserves stood at £2.5 billion.

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Earlier in the committee, Mr Swinney defended budget cuts for implementing the flagship Curriculum for Excellence (CfE) arguing that it was at a stage that justified a reduction.

Analysis by the Scottish Parliament Information Centre (Spice) shows money for CfE was reduced by 50 per cent between the draft budgets of 2016/17 and 2017/18 on the grounds that "budget decrease stems from a maturity of the CfE and completed implementation of the new national qualifications".

Labour MSP Johann Lamont pressed Mr Swinney on the "huge uncertainty" she said exists in the sector and among parents about the reforms.