Squeezing budgets; funding UK research

I work at the University of Dundee and today went along to Principal's Question Time. Perhaps due to the UK's austerity program there have been increasing pressures on funding. The latest would be a 2% rise in both pension and National Insurance^* contributions and the teaching and research grant to be cut by 3.9%.

A principal component of the University of Dundee's solution to their issues arise from observing similar universities plotted as points against axes of research income and teaching income. Apparently, the University of Dundee has a very high research:teaching ratio, even higher than that of Queen's University Belfast and the University of Aberdeen and, causal mechanism undisclosed, those institutions with a more typical ratio enjoy more financial sustainability.

What I've yet to have explained to me is why. Is there something about proposing research budgets to UK or EU sources that prohibits claiming enough indirects/overhead to cover the proposed project's true cost? Why on Earth would relatively more research than typical be a problem?

^*National insurance is like social security. Both the employer and employee contribute which is part of why I expect lower net pay. I now also expect a tighter household budget in the longer term because the council tax freeze looks to be ending and there will be some catching up to do there.