The middle third means an expansion in the types of education on offer: increasing diversity within as well as between institutions

Application numbers to universities may have recovered slightly this year but that is largely driven by increased interest from 18-year-olds: informed school- or college-leavers choosing traditional three-year full- time degrees, typically away from home.

The policy focus on this group neglects the need for a much more diverse range of provision across further and ÖйúAƬ. Already, more than 40 per cent of students stay close to home, a third study part-time and a third are mature learners.

In this context, two recent but largely forgotten policy statements are significant. One is the Coalition Agreement¡¯s commitment to create more university and college places. The other comes from the Organisation for Economic Cooperation and Development¡¯s 2012 Skills Strategy, which suggests that more needs to be done in the UK to link graduate skills to labour markets. The broad conclusion is that the coalition - like other governments - still believes that more higher-level skills are required but that they should be better attuned to the economy.

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When it comes to increasing such skills, however, the new funding system may not allow much room (or currently elicit much demand) for expansion. Nor are there sufficient incentives or opportunities for institutions or individuals to do things differently.

The OECD report shows that the UK still spends much lower proportions of its gross domestic product on both further and ÖйúAƬ than most developed countries. Former Labour Cabinet minister Alan Milburn, the coalition¡¯s ¡°social mobility tsar¡±, has suggested protecting this expenditure in the same way as international development is ring-fenced. Realistically, most in further and ÖйúAƬ are just holding their breath and hoping to avoid deep budget cuts in 2015-16 as austerity continues to bite - but we should be arguing vigorously for more investment while moving boldly to implement greater flexibility across both sectors.

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There will always be a role for traditional degrees and apprenticeships, but we also need a middle route between further and ÖйúAƬ if we are really to encourage and increase participation. This would involve more HE in FE, and perhaps more FE in HE. It should also involve a more developed role for employers through the design and co-financing of two- year degrees, sandwich courses and higher-level apprenticeships.

A productive ¡°middle third¡± of post-secondary education would embrace flexible modes of attendance, including part-time study, distance learning and intensive study - as well as combinations of all three.

This is where a more active industrial policy might meet ÖйúAƬ more effectively. And (say it quietly) it is also the way in which individuals, employers and the state might be able to afford more ÖйúAƬ in a lengthening age of austerity.

But the middle third should not be considered as something that fits between further and ÖйúAƬ in yet another hierarchy. Nor does it mean creating new types of institution or returning to the binary divide between polytechnics and universities. Rather, it means an expansion in the types of ÖйúAƬ that colleges and universities offer: increasing diversity within as well as between institutions.

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There is no reason why even leading universities should not be offering some of their courses through apprenticeships: many, after all, are already developing free schools and university technical colleges. Equally, there is no reason why new universities, specialist institutions and colleges should not be directly engaged in research: innovation is much more likely when you bring diverse elements of the system together.

New providers may pressurise universities to re-examine their costs and prices but there is limited evidence that they will address the need for more higher-level vocational skills in sectors such as engineering, construction, pharmaceuticals and retail management.

The development of higher apprenticeships in areas such as finance, law and aeronautical engineering is welcome. But greater incentives for developing such provision would allow the UK to achieve so much more.