Private businesses would be encouraged to award their own degrees in direct competition with traditional universities under a government shake-up to be announced in the new year.
A senior source at the Quality Assurance Agency confirmed this week that the agency was preparing for a rethink of the rules governing the legal right to award degrees, which is expected to be announced in the government's strategic review of higher education in January.
It is understood that ministers want to relax the criteria that the QAA and the Privy Council use in granting degree-awarding powers so that corporations and for-profit education and training providers may seek to gain them. The move would be part of plans to open higher education to market forces.
While critics were quick to denounce the idea as a dangerous "McDonaldisation" of higher education, one US for-profit education provider immediately declared an intention to seek the powers to compete directly with public-sector British universities.
The QAA source said: "It is likely that the DFES (Department for Education and Skills) will ask the QAA to look at the whole issue of degree-awarding powers again in the strategic review. We are certainly already thinking about it."
Although the rules that govern the granting of degree-awarding powers do not preclude private bodies, they are biased towards traditional, campus-based institutions in setting staff-to-student ratios, dictating a broad spread of courses and presupposing standard structures of governance and management.
"There are lots of different providers of education," the QAA source said. "Not all receive public funding, not all are on traditional campuses. The question is: should the criteria be relaxed to let them in?"
Geoffrey Alderman, dean of the private profit-making American InterContinental University, said that relaxing the criteria was a good idea. The AIU offers British degrees from a London base through a validation arrangement with the Open University and has just become a subscriber member of the QAA.
"We want to compete with British institutions, and we intend in the medium term to seek the powers to award British degrees," he said. "It would give us a flexibility and autonomy we do not have and would boost our academic credibility."
Private higher education providers have not been alone in seeking greater academic recognition for their programmes. Corporations that offer their staff extensive and high-level in-house training - often in self-styled corporate universities - have been doing the same, Professor Alderman said. "The idea of a British Aerospace university college is not so far-fetched," he said.
The US consultancy Corporate University XChange said the number of corporate providers in the US has rocketed from 15 in the early 1980s to more than 2,000 today.
In the UK, Motorola and British Telecom are among a number of companies with in-house "universities" that often have formal links to traditional universities. Many may want to offer their own degrees.
James Tooley, professor of education policy at Newcastle University, said:
"Labour is to be congratulated for thinking the unthinkable. It is very desirable to allow competition in. If we know we've got a monopoly on awarding degrees, we can become rather complacent and we are not going to be innovative."
The government's move to open the British market may also be driven by the World Trade Organisation's General Agreement on Trade in Services, which is set to include higher education.
Brian Everett, assistant general secretary of the Association of University Teachers, warned that relaxing degree-awarding rules could be a step towards "McDonaldisation". "This could be the start of the creeping privatisation of public-sector higher education, which would diminish the quality and raid the public purse, thereby depriving future generations of decent university education. Private-company universities will produce workers capable of following a career related to that industry alone. That would not be higher education as we know it."
Bob Fryer, chief executive of the National Health Service University, which hopes to seek degree-awarding powers, said: "It is very important that any review maintains the reputation of British universities for high quality and excellent standards at the same time as reflecting the diversity of university forms and functions."
Peter Williams, chief executive of the QAA, would not be drawn. A spokesman for the DFES said its plans for the sector would become clear in January.