Proposals to reduce tuition fees for students in England would have severe consequences for universities, which are already struggling in a challenging financial environment, a Lords committee has said.

The Augar review into post-18 education and funding, which reported this year, recommended that annual tuition fees should be cut to a maximum of £7,500 per year, from £9,250 at present. Ministers are considering the proposal.

But a report by the House of Lords science and technology committee said the recommendation should be implemented only if the government was prepared to fully compensate universities with additional teaching grants. Otherwise, the report said, institutions would have to take money away from research to subsidise teaching, with “devastating” consequences.

The report highlighted a long-term deficit in research funding. It said quality-related (QR) funding, which forms the bedrock of research funding for universities, had fallen 12.8% in real terms since 2010 and said the government should commit to increasing QR funding each year by at least the rate of inflation.

The committee’s chair, Narendra Patel, said “The Augar review has completely missed the mark by not considering research funding in its review. By ignoring research and cross-subsidies, it has made recommendations which, if implemented, could prove harmful to the already challenging ecosystem of university funding.”

There has been growing concern in recent months about the financial health of some higher education institutions. According to recent analysis, nearly one in four universities in England were in deficit last year. The number of universities in England with operating deficits in 2017/18 increased to 32, compared with 24 the year before and 10 in 2015/16.

The Lords committee said any further funding shortfall would make the situation in universities unmanageable. “The immediate casualties will likely be widening-participation programmes, student experience, infrastructure maintenance and repair, and the hands-on elements of courses,” Lord Patel said. “Without adequate research funding, the consequences for the UK will be devastating and the UK risks falling behind other countries.”

Universities are bracing for the impact of Brexit. The Lords report said the government after Brexit should match in full the level of funding the UK currently receives from the EU.

“The UK will not reach its target of investing 2.4% of GDP in research and development by 2027 unless funding for research in universities is secured and the UK can attract researchers from overseas,” the report concluded. “We recommend that the government ensures that its post-Brexit immigration laws do not hinder the ability of UK universities to recruit and retain researchers.”

A government spokesperson said: “As part of our ongoing review of post-18 education and funding we will be responding to Philip Augar’s recommendations in due course. We have committed an additional £7bn for research and development by 2022, the largest increase since records began.”