Out of the blue, into the red?

“In for a penny, in for a pound” is an unlikely motto for an austerity chancellor.

Yet George Osborne threw caution to the wind last week when he announced that the student numbers cap is to be abolished within two years.

This was a bolt from the blue indeed.

The policy landscape has become increasingly labyrinthine over the past few years as we have inched closer towards “the market”.But AAB/ABB and the core-and-margin model have now been consigned to the dustbin under the plans outlined in the Autumn Statement. That no one saw it coming is down to the near universal doubts about the funding regime.

David Willetts, the universities and science minister, spoke with deeply held conviction about the merits of widening access during the Robbins anniversary celebrations. But in recent weeks the focus has returned to the inadequacies of the regulatory and funding system – and talk of a black hole at the heart of the higher education budget.

That expansion is to be funded by the sale of the loan book, and that nothing is to be done about the flawed loans system, is cause for grave concern

The news that universities are to be allowed to expand as they see fit, to grant places to the thousands of qualified applicants who have previously been shut out, is excellent. There were 1.4 applicants to every acceptance in 2011 and this mismatch is not restricted to the Russell Group: Middlesex University, for example, had a ratio of 6.7:1 that year.

However, that expansion is supposedly to be funded by the sale of the loan book, and that nothing is to be done about the flawed loans system, is cause for grave concern.

Perhaps the conclusion to draw from Osborne’s policy grenade is that if an overhaul of the funding regime is inevitable after the general election, he has decided that there’s no need to wait to press ahead with the creation of the higher education market.

In a recent book, Browne and Beyond, Gill Wyness, a researcher at the London School of Economics, speculates that removing the cap would result in an escalation of what we have already seen among the mini-league of elite institutions under AAB/ABB. Students would “trade up” as their grades permit, with each rank of institutions taking students from the rank below, she writes. This would continue until excess demand was absorbed.

The pressure would be heaped on those in the lower reaches, although there might also be increased competition between closely matched institutions, as was witnessed during the ABB feeding frenzy.

Another factor in ensuring that this bold move succeeds is quality assurance. When Australia abolished its cap, standards were judged to have suffered in some quarters.

The Autumn Statement addresses this point, although the wording is vague (the government “reserves the right to reimpose number controls on institutions that expand their student numbers at the expense of quality”).

These questions, particularly over the sustainability of funding, will hang like the sword of Damocles until they are properly addressed.

Given the circles he moves in, Osborne will be familiar with Eton’s unofficial motto Esto perpetua (“May it last forever”). The proceeds from the sale of the loan book will not, nor will the hard-earned reputation of our higher education system if the government’s laudable ambition is not matched with the coherent and sustainable framework it needs to flourish.

john.gill@tsleducation.com