The government mistakenly believed that the Office for Fair Access had legal powers to "impose" different tuition fee levels on universities and is now struggling to deal with the financial consequences of its error, it has emerged.
In a candid assessment of the fraught policy position, Sir Martin Harris, the director of fair access, said that although he was unclear about how the government had come to such a view, he was sure that a solution would be found because "in the end, the Treasury always wins".
Vice-chancellors have been told that an institution's research funding or the number of student places it is allowed could be cut if it charges tuition fees close to the £9,000 maximum without justification. Earlier this month, in a long-delayed letter to Offa, ministers threatened to legislate "to ensure that there is differentiation in charges".
Speaking at a conference on widening participation in London last week, Sir Martin said: "The Treasury made assumptions, and one of the reasons for the delay in the letter of guidance to me...is that they thought that Offa was going to be in a position to have legal powers to impose certain fee levels.
"How they came to that view I cannot say because it was obvious to me from Day One that (Offa) didn't (have such authority). Now the government is in some difficulty in limiting expenditure to the levels that the Treasury has assumed.
"It would be fair to say that as of today, there isn't a solution - but there will be a solution because, in the end, the Treasury always wins."
He warned institutions to "think very carefully" about the access goals they set because the targets would be made public and universities would be "held to account" on their performance.
At the same time, however, he indicated that he was unlikely to refuse a 2012-13 access agreement outright. The threat of such a refusal is one of the key levers available to ministers keen to keep fees down.
"You remember what happened five years ago - there was a dialogue. The catastrophic outcome would be a putative access agreement rejected - therefore that isn't going to happen," he said.
"You have to trust us to be sufficiently flexible to the needs and the aspirations of different universities to try to reach a decent conclusion in respect of each university."
Brian Stratford, director of the Educational Liaison Centre at the University of Surrey, asked whether institutions that set themselves challenging access goals could find the "rug pulled from under their feet" if the trebling of the tuition fee cap deterred poor students.
"If we have set ourselves targets and failed to meet them, that then gives the Treasury the ability to beat ministers and put measures against us," he said.
Sir Martin replied that if poor students were deterred by high fees - a fear that he said had not materialised after the introduction of top-up fees - the government would be far more preoccupied with the "political dilemma" that this would create than with "whether certain universities have failed to meet targets that they made on the assumption that student numbers would remain buoyant".
While ministers have strongly encouraged universities to use fee waivers instead of bursaries to reduce the cost of student borrowing, Sir Martin said it was for universities to decide between the two forms of support.
"In terms of what you tell the director of fair access, they are the same," he said.
Research has shown that bursaries do not sway students' decisions about where to study, and Sir Martin said he suspected that fee waivers might also be "neutral" when it came to influencing students' choices.
Although far higher fees might change the picture, he suspected that decisions made long before sixth form had a far bigger impact on whether a young person would aim for a highly selective university than money offered at age 18.
Acknowledging that the rise in fees could make it "quite hard" to keep expanding participation, he stressed that - despite ministers' focus on fair access - widening participation would remain a priority for Offa.
All things not so beautiful
Asked about the government's National Scholarship Programme, he said the scheme had ended up being "all things to all people".
However, he did not hold ministers responsible for its form, which he attributed to every part of the sector demanding that "their pet enthusiasm be met".
Delegates expressed concern that ministers' preoccupation with individual universities' access targets could harm collaborative work to widen participation.
Sir Martin said he supported joint efforts but warned: "You are going to be judged more by the social composition of York than you are by the social composition of York plus York St John."
Access agreements will now be reviewed annually. Delegates asked whether this could jeopardise work with primary school students, the results of which would not be seen for years.
Encouraging universities to provide details of long-term initiatives in their agreements, Sir Martin said ministers had introduced the "one-year rule" because they wanted to be able to say "whether they felt universities were moving towards their goals or not".
He did not, however, expect annual checks to remain a permanent requirement.
rebecca.attwood@tsleducation.com
It's not a policy, it's a mess - Grant joins chorus condemning new funding model
The head of one of England's top research universities has become the latest to condemn higher education policy, labelling it "a mess" and calling the new funding model "seriously flawed".
Malcolm Grant, provost of University College London, said the problems were a result of political compromises made within the coalition government.
The Browne Review's call for a graduated levy instead of a cap on tuition fees had "a very fair logic" because the risk of default on student loans would be shared by the Treasury and the university.
But he told an event in London last week that what the government has now is "not Browne, it is a mess".
Arguing that a cap on fees protected the rich, Professor Grant said it was no surprise that universities were planning to charge close to £9,000, the maximum allowed, because the current model involved no "risk-sharing".
And rather than keep charges down, the efforts of the Office for Fair Access could have the opposite effect, he said. "Offa has no power to drive down fees - indeed, the intervention of Offa if anything pushes up the fees because the more money we are required to put into supporting students from less well-off backgrounds, the higher the overall fee."
Meanwhile, there was "real confusion" over the best way to help students from poorer backgrounds.
"There are rather curious and perverse influences bearing down upon us," Professor Grant said. Ministers' idea that students should take particular courses simply because they might earn more later in life was "appalling", he added.