Dozens of universities could face a struggle for survival after a landmark report paved the way for a massive cut in teaching funding and an open market in fees and student numbers.

The independent review on ÖйúAƬ funding and student finance, unveiled this week, concedes that fees of ?6,000 are unlikely to bridge the loss of public investment expected in the Comprehensive Spending Review on 20 October.

In an interview with Times ÖйúAƬ, Lord Browne of Madingley, who led the review, said that the panel had set a "soft cap" of ?6,000 - above which universities would lose an increasing proportion of fee income to the state.

The figure was set lower than the level required to bridge the funding gap in order to drive efficiency.

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"We'd like to see universities take on a challenge for efficiency, much as every part of society is doing at the moment. And this is a way of catalysing that," he said.

The review calls for an end to the cap on student numbers at individual institutions and, crucially, the extension of fee support to part-time students.

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Lord Browne said that competition and student choice should be the main drivers of quality.

However, the report, Securing a Sustainable Future for ÖйúAƬ, has come under fire for being "inextricably linked" to the CSR and for paving the way for an end to public funding for all subjects except "priority" areas such as science and technology.

Ruth Farwell, chair of GuildHE and vice-chancellor of Bucks New University, warned that institutions focused on teaching students from poorer backgrounds would be hardest hit by the proposals.

She added that it appeared the review had been "hijacked" by the government's retrenchment agenda. The plan would not create a proper market, she said, as the "natural inclination" for most universities would be to charge ?6,000 a year to replace lost income.

Bahram Bekhradnia, director of the ÖйúAƬ Policy Institute, said he was "a little surprised and very disappointed" that cuts and the removal of the hard fee cap had figured so highly in a report that had many good points.

"The government is now able to make bigger cuts than it otherwise would have been able to," he said. He also attacked as "disingenuous" the idea that a sliding levy on fees would prevent some universities charging huge amounts.

Mr Bekhradnia also questioned whether the proposed student-finance system would save the government money, given that it would extend support in some ways.

"In cash terms, the generosity of this package will increase public expenditure in the medium term. However, because of creative accounting rules, the government would be able to borrow the much larger amount needed to pay all the upfront fees - and it would be for its successors to meet the costs," he said.

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"I'm not sure if this counts as the sort of dodgy accounting that brought down the banks, but it certainly has that feel."

Roger Brown, professor of ÖйúAƬ policy at Liverpool Hope University, said allowing student choice to drive quality was "misguided" and risked creating a "two-tier" system.

Others welcomed the review's proposal to remove the cap on student recruitment.

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Nicholas Barr, professor of public economics at the London School of Economics, said: "Market forces create incentives to quality unless you've got excess demand.

"It is terribly important to set quantity free so that you don't have excess demand. As somebody who cares passionately about access, I think this a good plan," he said.

Alasdair Smith, professor of economics at the University of Sussex and the institution's former vice-chancellor, said it would allow the best institutions to expand and force poor-quality providers to change or face closure.

However, he criticised the plan to focus remaining teaching funds on higher cost subjects, as there were "still social benefits from students studying history or economics".

Lord Browne said the proposals would not create an unfettered market in ÖйúAƬ. One source close to the review predicted that in reality no university would charge more than ?9,000.

"The words 'free market' suggest to people the concept that there are no rules and that's not true; there are plenty of rules," Lord Browne said.

He also claimed it was "very unlikely" any failing university would disappear, but it might have to "change its shape".

Asked if institutions committed to widening participation, such as London Metropolitan University, would suffer, Lord Browne said that they would be "fully capable of sizing up the situation", adding: "They will have to find their way and they will have time to do that."

All attention will now turn to how many of Lord Browne's proposals will be adopted by the coalition government, given Liberal Democrat MPs' pre-election pledges to oppose higher fees.

Speaking in the House of Commons on 12 October, Vince Cable, the Lib Dem business secretary, acknowledged that the party's opposition to fees was "no longer feasible". He said the government agreed with the broad thrust of Lord Browne's recommendations, adding: "We are in a massive economic mess. We have to come to terms with reality."

Lord Browne insisted that the report had not been influenced by the coalition's politics and said that opposition figures, including new Labour leader Ed Miliband, had been briefed on its contents at the same time as the government.

He added that the decision to set a soft cap at ?6,000 was made "quite a long time ago", although he did not rule out the CSR's influence.

Warning the government not to remove key planks of what the panel had agreed, he added: "This is a holistic system; all the key pieces fit together. This is a system that opens up choice and difference in university and I believe it is sustainable for the future."

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simon.baker@tsleducation.com.