Vince Cable and David Willetts, ministers in the Department for Business Innovation and Skills, have today written the annual grant letter which sets out English higher education funding and government policy priorities for 2013-14.

The letter, sent to the Higher Education Funding Council for England, confirms that the grade threshold at which universities can recruit unlimited numbers of students will be lowered from AAB to ABB.

The letter says that "given the pattern of recruitment in 2012-13", when there were shortfalls in student numbers at universities and a resulting underspend by the department, "we have the flexibility to apply student number controls less rigidly in 2013/14".

Mr Cable and Mr Willetts also tell Hefce that the "margin" of 5,000 places being distributed to cheaper providers next year will not need to be created by cutting existing places.

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"When expanding the margin by up to a further 5,000 places, you do not need to make a corresponding cut to the core," the letter says. "You should allocate these places flexibly taking into account evidence of student and institutional demand."

On over-recruitment, the letter says that universities which have over-recruited students this year will be fined by "?1,000 less than the average fee after fee waivers".

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However, Mr Cable and Mr Willetts add that "we know that many institutions will take a cautious approach to recruitment in attempting to avoid such grant reductions. This can lead to unfilled places."

So universities next year will be allowed "to recruit up to 3 per cent above their total recruitment of Hefce fundable students. This buffer zone would allow institutions to avoid grant reductions for minor over-recruitment," the letter says. "Grant reductions will continue to be applied where institutions recruit above these agreed number limits."

Mr Cable and Mr Willetts offer scant hope for any higher education staff wanting a pay rise, following several years of below-inflation rises. "We expect the sector to continue to operate restraint in relation to staff pay," they write.

Mr Willetts said in a statement: "We are providing more flexibility on recruitment to give students more choice and to allow the most popular institutions to grow.

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"We have now laid the foundations for a better funded and more responsive higher education sector, backing aspiration and equipping the UK in the global race. We estimate that the resources for teaching will rise from some ?8 billion in 2012-13 to ?9.1 billion in 2014-15, allowing for a better student experience."

john.morgan@tsleducation.com