Less prestigious universities could face “financially crippling” losses after the Government’s U-turn on A-levels, researchers from the Institute for Fiscal Studies (IFS) have warned.

A-level students in England were told on Monday that they could use teachers’ recommended grades if they were higher than moderated grades they received four days before.

A briefing note from the IFS warned that while leading universities would now be “awash” with students, many lower-ranked universities risked losing a substantial share of their intake, which could be “financially crippling”.

The IFS described the Government’s handling of the A-level grades fiasco as a “clear fail” which would have “repercussions for universities and students” for years to come.

“A-level results should never have been released before being subject to scrutiny beyond Ofqual. The Government should not have had to rely on shocked 18-year-olds on results day to realise there was a problem,” the briefing note from the IFS said.

The Government’s U-turn came too late for many A-level students who had already made choices about universities based on the grades they were initially awarded, rather than teachers’ assessments.

Leading universities have warned that students who now have higher grades could still be asked to defer their place if there is no space left on their preferred course.

The University of Durham is offering a bursary and “guaranteed college accommodation” to students who volunteer to defer a year and start in autumn 2021 due to capacity issues caused by the U-turn.

On some courses, such as medicine and dentistry, institutions may not be able to admit more students this year as numbers are capped.

Health Secretary Matt Hancock acknowledged calls to increase student places at medical schools and promised that the Government is working on the issue.

Dr Helena McKeown, British Medical Association (BMA) representative body chair, said: “The UK is vastly short of doctors so increasing the number of medics in training makes sense, however this must be followed up with support and funding for both the universities sector and the NHS further down the line.”

Jack Britton, an associate director at the IFS, said: “The Government’s U-turn on A-level grades will cause further disruption for universities. Some will struggle with higher than expected numbers of students, while others may find it hard to fill their places.

“Had the Government been more transparent about their proposed mechanism for assigning grades, all this could have been avoided.”

Universities in England had only been allowed to recruit 5% more UK students than their targets this year to prevent institutions from over-recruiting to make up for lost revenue as a result of Covid-19.

But the Government announced on Monday that it will lift this temporary cap.

Vanessa Wilson, chief executive of University Alliance, which represents technical universities, said: “There are steps the Government can take to ensure our universities are not at a disadvantage as a result of this last-minute decision, including providing financial stability measures if universities lose large numbers of students through this very late change in the process, through no fault of their own.

“The Government should also urgently clarify their expectations on capacity for courses that require practical delivery and placements, such as nursing.

“Alliance universities are keen to support growth in these areas of strategic priority, and in return we need financial support, including cover for the costs associated with taking on additional students.”

Universities minister Michelle Donelan said: “We are working closely with the higher education sector to understand the challenges facing universities and provide as much support as we can.

“I led the first meeting of our new taskforce and I will hold meetings every day with the sector to resolve these issues.

“We are supporting universities, including by announcing our intention to remove temporary student number controls and working with them to help them prioritise students and uphold their first choice, either this coming year, or as a last resort the following year.”