It's independence day for those who rise to the Browne challenge

At last, an official report to get excited about! The Browne Review deserves immediate and full implementation. It can dramatically improve higher education in England by bringing in a judicious combination of market freedoms and incentives, coupled with income-contingent loans to ensure equity and social justice. It is actually the twin-pronged approach some of us have been backing for some time.

Thirteen years ago, the Institute of Economic Affairs published my Debate on Higher Education, which recommended allowing universities to charge whatever student fees they desired to close the funding gap. To ensure equity and social justice, I argued that there should be provision of income-contingent loans repayable through the tax or National Insurance system.

This IEA publication was inspired by Milton Friedman's 1962 book Capitalism and Freedom. It is good to see these ideas becoming acceptable at last.

The Browne Review will of course be compared with that of Lord Robbins. Old shibboleths clearly no longer hold sway. Robbins was in thrall to central planning - he gushed about higher education in the USSR and the "imaginative plans" adopted in France. In contrast, Lord Browne drily notes that genuine competition for students between institutions is a "surer way to drive up quality than any attempt at central planning".

Competition is going to be enhanced in many ways - I counted 23 references in the report - but one of the most important, apparently overlooked by commentators, is putting part-time students on a level playing field with full-timers for loans.

Almost alone of all Lord Browne's proposals, this will dramatically increase the incentives for universities to innovate with the kind of courses and delivery they offer, competing for the 40 per cent of students who currently prefer part-time study, and the many more who may prefer it once the Browne Review is implemented.

Of course, while promoting competition, the report still leaves plenty of room for state bureaucrats to reassert themselves.

Herein lies the danger. There is the strangely out-of-place language of how the system needs 10 per cent expansion over three years, places that will be allocated using "tariff point mechanisms" and "minimum tariff entry standards". There is plenty of meat for the bureaucrats to get their teeth into here.

Courses in science and technology, clinical medicine, nursing and "strategically important language courses" will all be effectively immune from the drive for innovation and efficiency, given that they will continue to receive direct public funding rather than funds driven by student choice. And for universities that want to charge annual tuition fees higher than £6,000, there awaits "tougher" scrutiny of their "access commitments" and the system of steep levies paid to government - so that 40 per cent of the next £1,000 has to be returned, and 75 per cent if the fees go up to £12,000.

Importantly, these levies are "to cover the costs to government of providing students with the upfront finance".

This raises the possibility of some creative accounting from innovative universities. Perhaps a university can charge fees of £6,000, and a "supplement" of £1,000, administered through its own account or via a partner bank. This would avoid the additional levy and bureaucratic scrutiny without apparently offending Lord Browne, as it wouldn't bring additional costs to the government.

This kind of creative thinking raises the most important question of how the review affects the power balance between universities and the government. It is a myth that we have public universities in England. It is worth reiterating - because in my experience it is always new to someone - that the universities are in fact all private, usually corporations, sometimes companies limited by guarantee. They accept public funding so have the full gamut of regulations thrust upon them. But after Browne, the power equation may look somewhat different to vice-chancellors.

Currently about 60 per cent of their income comes from government, so it is too easy to think of one's institution as public and acquiesce in the bureaucratic impediments to freedom that come along with that. Browne changes all that. In future, the vast majority of university income will be privately financed - albeit with some part of it through government-assisted loans.

I can imagine that will cause some vice-chancellors to reflect on whether it might be better to avoid all those regulations - and let's be clear, the new Higher Education Committee will not be slimmed down for very long, such is the nature of government bureaucracies. Somehow I don't think I will be waiting another 13 years before I hear of the first group of universities reclaiming their glorious independence.