Lord Browne's review of higher education could hand regulators the power to force vice-chancellors out of failing universities, analysts have warned.
The committee's report, Securing a Sustainable Future for Higher Education, says a proposed new Higher Education Council should be able to "make recommendations to the governing body of an institution where it views that management is ineffective".
In an interview with Times Higher Education, Lord Browne said the new regime must allow the council to deal with the "question of failure" in order to ensure that students had a safety net in the event of mismanagement.
Some experts view the plans as an attack on the sector's autonomy and see in them a reprise of the wrangle earlier this year over the rewording of the financial memorandum, the key agreement between universities and the Higher Education Funding Council for England.
David Palfreyman, the director of the Oxford Centre for Higher Education Policy Studies, said the wording exemplified the contradictions in the report between free competition and greater bureaucracy.
"The Browne report is quite schizophrenic. On the one hand it's saying, 'welcome to the market', and on the other hand it's saying, 'we've invented 92 new strings with which to tie you up'," he said.
"The great irony is that the less money the taxpayer gives you, the more hoops you have to jump through."
Earlier this year, Hefce came under fire for proposing new language in the financial memorandum that would, critics argued, allow the council to oust vice-chancellors.
The wording in the document was eventually watered down.
Attempts to change the terms of the agreement followed a stand-off between Hefce and London Metropolitan University, when the regulator was powerless to remove Brian Roper as vice-chancellor despite a scandal over inaccurate student-completion data.
It was a central tenet of the report that the regulator should have the power to deal with failing institutions to safeguard students, Lord Browne told THE.
"It is a little like the duty of the government to protect the depositors in the banks. That's been our driving philosophy - that the Higher Education Council should resolve the question of failure," he said.
His report makes clear that "targeted funding" should still be used to prevent university failure, but the council should also be able to "explore options" such as mergers or takeovers if an institution does not improve.
Mike Shattock, visiting professor of higher education management at the Institute of Education, said the phrasing was better than in the current financial memorandum even though it still appeared to conflict with the "whole idea of freedom" underlying much of the document.
He added that the proposed system could create an environment in which failure - and use of public money to prevent it - was commonplace.
"If you create a market that is essentially driven by student choice, then you inevitably make it more likely that there will be situations where there will be misappropriation of public money," he said.
Lord Browne also underlined the vital role played by university councils and called on the government to consider formally training council members.
"They have to be acutely aware that if they see anything going wrong with finance or demand by students then they need to take action," he said.