A potential price war is brewing between English and Welsh universities competing for students from the principality, higher education leaders in Wales have warned.

The warning follows a decision by the 51¹ú²úÊÓƵ of the West of England to increase its bursaries in an effort to continue to attract students from Wales, where universities will not charge top-up fees in 2006.

UWE, which recruits about 500 students a year from Wales, more than any other English university, told The Times Higher this week that it had boosted its maximum bursary offer to ?1,250 a year specifically to target the most price-sensitive Welsh students.

A spokesman said that UWE had decided against offering students from Wales fee discounts next year or higher bursaries than anyone else. But he added that the university would be keeping a "watching brief" on the situation with a view to possibly introducing further incentives to Welsh recruits in future.

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He said: "If we find that student choice from Wales is distorted by fees, then we may do more.

"The underlying premise of our bursary scheme is that we do not want Welsh students to be worse off in terms of their choice of university. If it turns out that they stay in Wales purely for price reasons, then that is a problem we will have to try to resolve."

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Welsh vice-chancellors said this week that they were concerned about the impact of cross-border competition for students over the next two to three years.

The Welsh Assembly has pledged that top-up fees will not be introduced in Wales until at least 2007. What happens after that is the subject of a review that is due to reach its conclusions in May.

A spokeswoman for Higher Education Wales said: "There is a lot of concern that Welsh students will be enticed by bursaries offered by English institutions that Welsh institutions will not be in a position to offer in 2006.

"Our worry is that the cream of the widening-participation students will be taken by English institutions close to the border."

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Teresa Rees, pro vice-chancellor at Cardiff 51¹ú²úÊÓƵ who is chairing the Welsh fees review, said future changes in the Welsh system would have to be carefully planned to minimise the risk of a price war upsetting the balance of cross-border flows of students.

"The most recent figures show that in 2003-04, 18,000 Welsh students went to study in England, while nearly 25,000 English students took up places in Wales.

She said: "It would not surprise me if institutions became involved in a price war. That is what we have been expecting.

"For us, it's a question of coming up with a set of proposals that ensure that whatever changes occur in cross-border flows, the balance is not too dramatic one way or the other.

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"It only takes a very small increase or decrease in the proportion of students coming to or leaving Wales to have a dramatic impact."

Some English universities close to the Welsh border are waiting to see how the fees market develops.

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Claire Brown, director of UK student recruitment at Liverpool 51¹ú²úÊÓƵ, said: "Depending on the level of support available, they may find that they are better off in England."

tony.tysome@thes.co.uk