Any attempt to establish a link between university funding and course quality should be pursued with extreme caution, higher education leaders have warned.

In its framework on the future of higher education, published this month, the Government says that funds will be diverted from institutions whose courses "fail to meet high standards of quality or outcome" to boost courses that "meet strategic skills needs".

Speculation is growing in the sector about what this could mean.

When launching the document, Lord Mandelson, the First Secretary, said that one outcome of importance to students was the success of previous graduates in securing good jobs.

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But in a speech last week, Peter Williams, former head of the Quality Assurance Agency, said it was "anybody's guess" how quality and funding could be linked.

"Those that have tried it in the past have always got their fingers burnt," he said.

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Meanwhile, Bahram Bekhradnia, director of the Higher Education Policy Institute, told Times Higher Education that such a policy could be morally questionable.

One problem would be how to define quality, he said. More importantly, it could be "potentially very damaging" for students.

"It is a highly doubtful proposition that a student that goes to a university or attends a course that is rated 'poor', or not as good as others, should actually have less money devoted to them, fewer books in the library and worse student-staff ratios," he said.

"There is a moral and philosophical point here. In research, you are quite happy to have some universities do more research than others and be better funded - but in teaching it is completely different and highly doubtful that you would want to penalise those students who attend universities that are already ... less 'good'."

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The topic was also discussed at a lecture by Paul Ramsden, chief executive of the Higher Education Academy, at City University London on 10 November.

Responding to questions from the audience, Professor Ramsden warned it would be "very difficult" to link institutional funding to measures of teaching and learning performance.

He added that Australia's national Learning and Teaching Performance Fund, which distributes money on the basis of teaching information, had proved to be controversial.

If such a scheme were to be introduced in England, the National Student Survey (NSS) could be one metric used, he suggested.

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However, even comparing departments in the same discipline would be difficult, he added, because a department often performed well in some areas of the NSS and less well in others.

Professor Ramsden said that if the plans were to go ahead, the sums of money involved should be "as small as possible".

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He warned: "I think we have to be very careful here. It seems to me that universities in the UK are very concerned about improving teaching, and the student experience ... We've got to be very careful that we don't over-egg the pudding."

rebecca.attwood@tsleducation.com.