Universities in Scotland are increasingly falling behind those south of the border in teaching and research because of funding differences, according to a new report.

Action group Universities UK, which represents the heads of higher education across the country, said institutions in England are becoming larger and better-resourced than those north of the border, which have favoured a "less market-orientated policy" following devolution.

The block of funding passed to Holyrood for higher education takes no account of the increase in money being fed to English universities by means of top-up fees, with a Barnett settlement not triggered by the added funding, said report author Alan Trench, a research fellow at the University of Edinburgh.

This has led to a number of "challenges" for Scotland, given that the government has chosen not to generate funding from students but instead to opt for a more inclusive agenda.

Mr Trench said: "The Government in Scotland pursues a policy of inclusiveness, but the resources need to be found to support that, particularly when England is attracting resources into the sector by deferred variable fees and Scotland has chosen not to take the approach.

"On one hand it is not surprising that the Scottish Government is in difficulty finding resources because there are many other calls on the block grant.

"It does not take into account the extent of what is happening in England. Scotland is being pulled along by policy development in England.

"Scotland has traditionally been an area of very high quality higher education but is subject to a number of challenges and pressures."

The report noted that a "clear trend" was already visible between the sector in England and those in Scotland, Wales and Northern Ireland.

Although higher education is growing in them all, the report found that England was moving ahead in research funding, student numbers and international student income.

While Scotland takes 12% of research funding every year, compared to its 9% share of the UK population, the report said that there was an acceleration in the amount of money moving south of the border.

However, yesterday two major Scottish universities announced major funding achievements. The University of St Andrews has won backing from the Engineering and Physical Sciences Research Council for a new centre that will tackle climate change and hi-tech crime. It will collaborate with Edinburgh and Heriot-Watt on the venture.

The same body has also awarded funding to The University of Strathclyde to develop research in wind energy.

Students in England pay £3000 a year, called the deferred variable fee, which is payable after graduation. Maintenance grants of up to £2700 are also available.

In Scotland the graduate endowment served as an alternative to upfront tuition fees, but the system was scrapped earlier this year.

Those from Scotland and other EU countries who go into higher education in Scotland do not pay fees.

The existence of different funding regimes in each of the devolved countries of the UK has led to a "convoluted patchwork of provision" that has resulted in a slight drop in the number of students going to university out of their home territory, the report also found.

Scots students were most likely, out of all of the UK, to stay on home ground, with 93% of them attending a Scots institution. This figure has stayed much the same over the last decade.

A spokesman for Universities Scotland said: "The policy of English universities has been to move closer to an American model and away from a European model. That has been England's choice and Scotland has chosen to remain in a more European tradition.

"We do not accept that this has made Scotland's university sector weaker. England has just chosen to be different. This is what devolution means."

A Scottish Government spokesperson said that it would reject the suggestion in the Calman Commission that powers of student support should be given to Whitehall.

"Despite Westminster imposing the tightest financial settlement since devolution, we are investing a higher proportion of spending in our universities than the previous administration - a 2.9% real terms increase in funding across the spending review period."

The total investment in the sector is more than £1bn a year, she said.