Vice-chancellors have warned that new figures showing an improvement in higher education's finances mask the reality of a continuing cash crisis.

Figures released by the Higher Education Statistics Agency indicate that the UK's academic sector turned an overall deficit of ?50.5 million in 2000-01 into a ?210 million surplus by 2002-03.

Over the same period, the number of institutions recording a deficit dropped from 75 to 48, and the biggest deficit held by any single institution fell from ?18.3 million to ?6.2 million. (The names of individual institutions are not identified in the report.) Total income climbed to just over ?15.5 billion from ?13.5 billion, while spending went up to just under ?15.4 billion from ?13.5 billion.

Universities UK said this week that the headline figures failed to take account of a variety of financial constraints and demands that institutions were now operating under.

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A UUK spokeswoman said: "As ever, the detail is the key: the high-level nature of these figures masks issues such as the fact that a lot of income is earmarked for expenditure on specific projects and/or has very specific restrictions regarding its use."

UUK also pointed out that while overall finances appeared to have improved significantly, the sector was a long way short of achieving financial health as defined by the Higher Education Funding Council for England.

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The spokeswoman said: "In our spending review submission, we noted Hefce's estimates that the sector needs an operating surplus of 3 to 4 per cent of income per annum to provide a positive cash flow for reinvestment and to fund future developments.

"Against the headline figure of ?15.5 billion income published by Hesa, 3 per cent would amount to ?465 million - in other words, more than twice the Hesa quoted surplus of ?210 million."

The figures were based on returns from 171 institutions in 2002-03 and 167 in 2000-01. Hesa plans to publish a more detailed breakdown of the data in June.