Higher education institutions receive public money for teaching, research and special initiatives - which include links with business and special schemes to widen participation.
Research funding is the most selectively distributed. Sir Howard Newby, chief executive of the Higher Education Funding Council, wants to create funding streams that reward other kinds of excellence in a similar way.
Funding chiefs take the view that all teaching is good and each subject should be funded at the same level across the sector. Similarly, all widening participation is good and uniformly rewarded, although the 5 per cent premium paid for such entrants may be increased. Excellence in research is recognised. That leaves links with business, industry and the community as a possible funding stream to beef up. The community aspect could include links with other educational institutions.
Sir Howard said: "We need to look again at how we fund institutions to encourage diversity and excellence.
"The 14 to 19 progression issue is the key issue if we are to hit the (50 per cent) target and that implies closer collaboration between schools and colleges. I suspect that a number of institutions are looking at the Bradford approach (where the university and further education college are planning to merge). If some universities are best at widening participation, then we need to encourage them."
How should insitutions be judged in a more diverse system? The Council for Industry and Higher Education this week called for six indicators to be developed, each of which should be adjusted to reflect the intake of students:
* Student completion rates - to measure the effectiveness of an institution at supporting and guiding students
* Percentage of students recruited from lower social groups or specific postcodes - to measure how far the institution embraces the widening participation agenda
* Percentage and total amount of teaching and research income generated from private sources - to measure the reputation and effectiveness of the institution at working with others
* Percentage of graduates in jobs making use of higher education skills - to measure whether a graduate perceives himself to be in a graduate job more than a year after completing study
* Graduate perceptions on the effectiveness of their course at meeting the objectives set and equipping them for employment
* Employer perceptions on the capabilities of the graduates they employ from different institutions.