The forthcoming White Paper on the future of higher education is likely to contain radical plans to remove the student numbers cap for universities recruiting the highest achievers, as the government aims to ensure that the top-performing students enter elite universities.
The paper, currently under consideration at 10 Downing Street and due out in the next few weeks, is expected to focus on three key policies: removing recruitment caps at universities with A-level entry standards of AAB or above; removing the cap for institutions charging cheaper tuition fees below a fixed level; and a "core and margin" system, where a proportion of total student places is opened to competitive bidding from institutions.
The government believes that these interlinked policies would ease the pressure on public funds by driving down average fees, currently clustered around the £9,000 maximum.
In discussions with the sector, officials from the Department for Business, Innovation and Skills have cited the department's research on student distribution in the US, which found that "the top 5 per cent of high-school students enter the top 5 per cent of universities".
The government believes that this is not the case in the UK, a situation it aims to remedy by removing the recruitment cap for students with the highest A-level grades.
Times Higher Education understands that under the plans, the government will assess what proportion of a university's student body scored AAB or above at A level and remove those student places from the institution's standard allocation. If the university fails to recruit sufficient students above AAB, it would not be able to make up the numbers at lower grades.
This raises the prospect of fierce competition for students among elite universities.
But the standard allocation of student places for the bulk of institutions would be likely to be reduced to compensate for the lack of restrictions elsewhere.
A "core and margin" system could also be introduced, under which up to 10 per cent of the standard allocation of student places would be opened to bidding from institutions. These places would be allocated to the institutions deemed to offer the best value for money, with proposed fee levels a key factor.
The government also aims to remove the student numbers cap for institutions charging fees below a certain level - a £6,000 threshold has been discussed.
Several further education colleges have announced plans to offer degrees for fees under this level from 2012, but London Metropolitan University is the only university to have done so.
However, to control the cost to the taxpayer, removal of the recruitment cap for cheaper providers is expected to take place within an overall system of numbers control.
An A-level points entry tariff could be introduced, or cheaper institutions could bid for "margin" places.
The policies would combine to produce downward pressure on fees, the government believes, as universities unable to recruit students with grades above AAB would face tough competition from cheaper providers.
Vince Cable, the business secretary, outlined the key areas of government thinking at a recent meeting with vice-chancellors from the North West Universities Association.
Some were sceptical about competition for places above AAB level, suggesting that there was little scope or inclination for many elite universities to expand student numbers.
Andy Westwood, chief executive of GuildHE, said the White Paper could result in a system of "more distinct missions" and create "winners and losers".
Paul Marshall, chief executive of the 1994 Group of universities, said any moves to introduce flexibility on student numbers "must benefit those institutions that are most in demand" for quality of student experience, and "must not be used as a mechanism to auction off places to institutions charging low fees irrespective of...quality and value".
But Martin Hall, vice-chancellor of the University of Salford, pointed out that "a lot of this talk is around the needs of students who go to the 20 most selective institutions".
Some in the sector have raised concerns that the paper, which has been delayed for months, may not set out a firm policy plan but may instead resemble a Green Paper, offering different options and a more general "direction of travel".
At a meeting with vice-chancellors last week, the prime minister, David Cameron, is thought to have stressed the government's intent to work with the sector on the changes.
This comes after the government was damaged by rows over its NHS bill, which was perceived to have been developed in isolation from the health service.