Cash penalties will be imposed on universities if they take too many students in the run-up to top-up fees under a government commitment that puts teaching quality ahead of student expansion.
Charles Clarke, the Education Secretary, this week wrote to the Higher Education Funding Council for England to say that any overrecruitment in the coming year might mean the council would have to repay grant money to the Government. Hefce could then decide to recoup money from the institutions guilty of overrecruitment.
Mr Clarke confirms in his grant letter that teaching funding will be maintained in real terms up to 2008 and that there will be no clawback of public funding when variable tuition fees are introduced in 2006. Spending on research will also increase by 30 per cent in real terms.
Mr Clarke says that the recent overrecruitment trend has to stop. He writes: "My commitment to maintain the unit of funding can only be achieved over this period if the sector as a whole manages recruitment of students in line with the underlying planning assumptions."
The move casts doubt over whether the Government can meet its 2001 manifesto commitment to get half of all 18 to 30-year-olds into higher education by 2010.
This week's grant letter shows that student numbers will increase by 82,000 by 2008. This will boost the proportion of 18 to 30-year-olds in higher education by 1.5 per cent, from 44 per cent to 45.5 per cent.
Universities could be forced to turn away potential students in droves next year if more apply for entry in 2005 to beat the introduction of top-up fees the year after.
The Universities and Colleges Admissions Service reported a 1 per cent increase in applications last month. And it said this week that online applications had gone through the roof, with 140,665 so far for 2005 entry compared with 55,678 last year. Online registrations stand at more than 310,000 compared with 122,000 last year.
A Ucas spokeswoman said it was too early to say if the increase in applications was due to the introduction of top-up fees.
Bahram Bekhradnia, director of the Higher Education Policy Institute, said:
"If a brake on growth is needed to ensure that the unit of funding is maintained, then that is preferable to growth with a reduction in funding per student. But it should not come to this. The Government has made a commitment (to widening participation) and the cost of that has not changed."
Hannah Essex of the National Union of Students welcomed the money for teaching, but said: "In making financial plans for our universities, the Government needs to continue to honour its commitment to widening participation as the threat of top-up fees looms."
The Government denied it had sacrificed its 50 per cent participation target to honour its spending commitments.
A spokesman for the Department for Education and Skills said: "We want all students to have a quality experience and we are not going to provide extra places on the cheap."
The grant letter says that higher education spending will rise by £2 billion to £9.5 billion in 2007-08. DFES spending on research will rise from £1.3 billion in 2004-05 to £1.7 billion in 2007-08.