Labelling them "economically irrational" for veering so close to the fees cap, Vince Cable, the business secretary, said in a speech at the ÖйúAƬ Funding Council for England's annual conference last week that the tactic would only "magnify risk".

He warned that student places would be permanently removed where demand failed to hold up, and said universities would be unable to fall back on moderation funding to smooth any big loss in income.

Mr Cable, who had not made a major speech on ÖйúAƬ since last year, joked that although many in the sector would see his role as that of the "bad cop" compared with David Willetts, the universities and science minister, "we are both cops in the sense that we're wanting to act on behalf of your customers - the students".

After his speech, Mr Cable was approached by vice-chancellors who called for more information on the government's exact plans for the upcoming White Paper and asked for greater involvement in policy formation.

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Although the minister agreed to listen to their concerns, murmurs of discontent continued after his departure, and later speakers criticised his comments.

Mr Cable's attempt to rein in vice-chancellors also appeared to fall on deaf ears, with another batch of institutions announcing plans to charge ?9,000 in 2012, including Keele University, Southampton University, the University of the Arts London and University College Falmouth.

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It now seems increasingly likely that the government will propose throwing a proportion of overall student numbers into a bidding process from 2012-13 - the "core and margin" model - with fees levels one of the key factors in reallocating places.

John Denham, the shadow business secretary, said that while making universities bid for funding might work for specific innovation projects, a "systematic" core and margin policy could be "deeply damaging".

"However it is dressed up, we know that the overriding aim would be to reduce the cost of fees that the government has let get out of hand," he said.

"Once you start saying that (the) main reason for allowing a university to expand is how low its fees are rather than the quality of its education, you're bringing in an approach that has never been part of the English system."

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Making price the key factor in any bidding process could also potentially place ministers on a collision course with Sir Alan Langlands, Hefce's chief executive. In a question-and-answer session at the conference at Aston University, he warned that relying on price to apportion places would not be a "terribly respectful policy position".

Sir Alan also revealed that a Hefce consultation on the future of teaching funding will be split into two parts - with changes for 2012-13, including any proposal for a core and margin model, being considered in the first part to run after the publication of the White Paper.

The later consultation would deal with changes in the system from 2013-14 onwards, including how Hefce would allocate what remains of its core teaching funding.

simon.baker@tsleducation.com