Concerns have been raised about the "level of control" being exerted by the government on the Higher Education Funding Council for England as an "arm's-length" public body.
Newly published Hefce board papers reveal internal fears about its ability to "maintain the standard of its work" and its relative independence given the pressure from ministers to cut its running costs. Hefce is making efficiency reductions of £2 million - amounting to a real-terms cut to its administration costs of 11 per cent this year - to help the Department for Business, Innovation and Skills save £836 million in 2010-11.
During a meeting on 25 November, the body's audit committee said it was worried that the "continued pressure" to reduce running costs would have a serious effect as it helps universities manage the changes to funding and the introduction of higher fees.
"We expressed our concern about the capacity and capability of Hefce to maintain its standard of work over the medium term when faced with continued pressure to reduce administration costs," a report of the meeting says.
"We also noted with concern the level of control imposed by BIS over Hefce and the potential impact on its governance and management."
One senior sector figure said that although Hefce had been under pressure to reduce costs for a few years, the audit committee's view showed the "stark" situation facing the body as it attempted to implement the government's funding reforms.
"The government will need all the help it can get in getting the sector to the 2012 'start line' as efficiently and safely as possible, as well as major help in making the reforms actually happen from that point on.
"All of that means that they don't want to be jeopardising Hefce's ability to help for the sake of a few quid here and there," the source said.
Hefce is classed as an executive non-departmental public body and, although ministers appoint members of the board and are ultimately accountable for its work, the body has "distinct statutory duties that that are free from direct political control".
Some interference may be expected given the major policy changes taking place, but Matthew Flinders, professor of politics at the University of Sheffield, said by exerting informal control on an arm's-length body, ministers can shift the blame if problems occur.
Professor Flinders said it would be the board members of an organisation such as Hefce that would have to take the tough decisions about specific cutbacks, rather than ministers.
"They act as the lightning rod", he said, warning that people could be deterred from sitting on quango boards in future, especially as they are paid little or nothing.
"A lot of people are saying that the public service bargain is so skewed towards ministers that people won't come forward to join the boards...because basically they'll get paid no money, they get no thanks and they get demonised by the press, so what's the incentive?"
Professor Flinders gave evidence to the Public Administration Committee during its recent inquiry into the government's plans to overhaul and abolish many quangos.
Its report, released last week, warns that the changes are being "poorly managed".
Others fear that the plans, currently going through Parliament under the public bodies bill, will make it easier for ministers to exert control over arm's-length bodies such as Hefce.
Gillian Evans, emeritus professor of medieval theology and intellectual history at the University of Cambridge, said the intention was "greatly to enlarge the powers of ministers to abolish, create, merge and make regulations for such bodies as Hefce".