The government has radically scaled back the number of "core-and-margin" places that will be open to bids in 2013 from low-cost universities and further education colleges, raising the prospect that institutions that cut fees for 2012-13 could raise them again.

In a much-delayed announcement on 2013-14 student number controls finally released last week, the Department for Business, Innovation and Skills also said that institutions would be allowed to recruit an unlimited number of students with grades of ABB or above in A levels or the equivalent. The move lowers the threshold from AAB in 2012-13.

Under the margin system, introduced to help create competition for student places, 20,000 non-AAB places were top-sliced from institutions' quotas and reallocated to those charging average tuition fees of no more than ?7,500 a year in 2012-13.

Twenty-five universities and colleges cut their fees so that they could compete in the auction, in which further education colleges picked up more than half the places.

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For 2013-14, however, just 5,000 places will be redistributed in this manner, although institutions that won places from the margin this year will be given an additional allocation of the same number in 2013-14 to help "bed in" the changes.

But in last year's higher education White Paper, the government said it wanted the margin "to grow steadily in future years".

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Bahram Bekhradnia, director of the Higher Education Policy Institute, said that "the government seems to have blinked first" in a "game of chicken" it had played with the sector.

Presented with a pool of 20,000 places available to those with lower fees, "universities didn't respond to that by reducing prices as much as you would expect them to", he said.

Universities that dropped their fees will be "really cheesed off because they put their prices down expecting the ratchet to continue", Mr Bekhradnia said. They might now decide to raise their fees, he added.

Andy Westwood, chief executive of the GuildHE mission group, has written that it is now "likely that many more institutions will move more quickly to the ?9K level with only a marginal disincentive".

His point was echoed by Pam Tatlow, director of the Million+ group of universities. She said that it was "unlikely" that universities would feel it necessary to reduce fees below ?7,500 to win places.

Although most of the 5,000 margin places to be redistributed in 2013-14 will continue to go to institutions with average fees of ?7,500 or less, BIS says in a letter to the Higher Education Funding Council for England that a "sizeable minority" will go to those charging between ?7,500 and ?8,250 because the ?7,500 cut-off point in 2012-13 had created a "cliff edge" for universities.

With ABB, sky's the limit

The changes to the second element of the competition mechanism, allowing universities to recruit uncapped numbers at the lower grade threshold of ABB, will in effect take many Russell Group and some 1994 Group universities out of student number controls from 2013-14.

Speaking after the BIS announcement, Wendy Piatt, director general of the Russell Group, said: "We do not believe our leading universities will decide en masse to expand at the first opportunity, but it is right that those with the capacity and demand can now choose to recruit more students if they wish."

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Other were less sanguine. Ms Tatlow argued that the policy would create "greater financial instability across the sector".

"(If) you can't control expansion in some parts of the sector ... that will inevitably mean a loss in other parts, and that's not predictable," she said.

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Hefce has not released data on how many ABB students each institution attracts because it is yet to identify all the ABB equivalencies in non A-level qualifications.

Information on AAB students at each institution in 2009-10, released last year by Hefce, showed no simple correlation between mission group and A-level entry grades.

For example, the University of Bath, which is a member of the 1994 Group, had the 10th-largest proportion of AAB entrants: 69 per cent.

There were smaller proportions at Russell Group members such as the University of Manchester (50 per cent), the University of Birmingham (48 per cent) and the University of Liverpool (32 per cent).

Libby Hackett, director of the University Alliance, said that 60 to 70 per cent of students at its member institutions were on professionally accredited courses, for which demand would be "relatively stable". Such programmes could even be expanded in the wake of the policy revision, she suggested.

The ABB policy is likely to cover an increased number of students with qualifications equivalent to A levels, including BTEC national diplomas and the International Baccalaureate.

Nick Davy, higher education policy manager at the Association of Colleges, said that at "a few" colleges, roughly half the higher education students earned qualifications equivalent to ABB and that those institutions were looking to expand their numbers.

Price tag unknown

The policy announcement suggests that BIS has convinced the Treasury to allow the reduction of the grade threshold despite difficulties in estimating ABB student numbers. The uncertainty creates a risk of over-recruitment and thus overspends on publicly subsidised student loans. If BIS spends more than anticipated, it will be expected to foot the bill from its own budget, it is thought - although Treasury funds could still be sought as a last resort.

david.matthews@tsleducation.com.