Glasgow School of Art's funding is going up by a third. Photograph: Murdo Macleod for the Guardian
Scotland's universities are to be held accountable by the Scottish government for improving access and performance under a new budget deal designed to plug the funding gap between Scottish and English institutions.
Universities north of the border could face financial or other penalties if they fail to observe individual agreements that will require them to widen access, improve flexible learning and the employability of students, and form a closer collaboration with business and industry.
In return, the 10.9% cut in teaching grants imposed last year will be fully reversed for the 2012-13 academic year and extra investment is planned in research, science and in opportunities for learners in Scotland's more remote communities.
In total, Scotland's 19 higher education institutions will receive £1.02bn of funding in 2012/2013. There will be nearly 1,500 extra student places, the bulk of which will go to students in the Highlands and Islands.
The figures were laid out in an indicative grant letter from the Scottish Funding Council, which denied that the proposed deal amounted to the biggest ever degree of state control in the university sector.
"This is a something for something deal," said Mark Batho, chief executive of the Scottish Funding Council. "This is not just a closing of the gap. It is an investment by the Scottish government."
The Scottish education secretary, Michael Russell said the "generous" funding package was designed to fit in with the government's plans for post-16 education, and came with the agreement that "universities will work with us to take forward these reforms, for example, through improving the learner journey, widening access and enhancing collaboration with industry."
University officials welcomed the deal and said the conditions attached to it were to be expected in the current economic climate.
"It will be a different way of working but we don't see it as a massive interference or a whole new level of accountability," said a spokeswoman for the umbrella group Universities Scotland. "We see this as a reasonable thing in the circumstances. We have done well in terms of the spending allocation."
The Scottish government has been under pressure to explain how it will plug the funding gap between Scottish and English universities caused by the introduction of higher tuition fees in the south.
Student leaders said the new Scottish deal reinforced Scotland's commitment to funding higher education from the public purse. Robin Parker, NUS Scotland president, said: "There is no doubt that there are sufficient funds now on offer to Scottish Universities to put the issue of tuition fees for Scottish students to bed, once and for all."
He said the public, and students in particular, would be looking to university principals to make sure that universities were open to all regardless of background.
Discussions will be held between the SFC and individual universities over the coming months to draw up agreements on areas such as access, retention, flexible degrees, the employability of students and translating research into more opportunities for Scottish business.
Batho said it was not yet clear what form penalties might take if universities failed to hold to the outcome agreements, but sanctions would have to be part of the process.
"If it doesn't have any teeth it won't be worth the paper it's written on," he said. "Whether that means financial penalties or other penalties remains to be seen … we will need to have compliance on what is agreed with us and the universities."
The biggest increase in funding will go to Scotland's more remote and specialised institutions, including the University of the Highlands and Islands (UHI), which will see a 41% increase in its main teaching and research grants and an extra 1,000 student places. Glasgow School of Art has seen a 36.9% increase in funding.
Almost £2m has gone to creating an extra 300 student places for science, technology, engineering and mathematics. In four years' time, that number will have increased to 1,200 extra places.