The Scottish Higher Education Funding Council is consulting on a radical funding shift that would reward institutions for their success in delivering government priorities.
The proposal comes in a Shefc-commissioned report by PA Consulting on the future of the sector, which includes a range of funding options. It says that while Shefc's existing formula funding is transparent, predictable and equitable, it favours "traditional" teaching and research institutions, entrenching past positions and discouraging innovation and enterprise.
Its preferred option is for public funds to go to those institutions whose results and forward planning showed they were best able to meet national goals in, for example, teaching, research, inclusion and innovation. Institutions themselves would choose which government aims to prioritise. This would be more like a commercial joint-venture investment partnership than a traditional public sector funding model, the report says.
Shefc funding would support institutions' basic capacity to deliver, but they would then have to attract funds from elsewhere to cover their full costs. The report says this would encourage diversity and reward excellence in each priority area.
But it warns that a shift from the current funding regime "could be disruptive and damaging for the least effective institutions".
Sir Alan Langlands, principal of Dundee University, said: "The notion of 'restructuring budgets around the agreed national policy goals' is fair enough, but universities are likely to spend even more time than they do now searching out new income streams."
Brian Ashcroft, policy director of Strathclyde University's Fraser of Allander Institute, said: "While there is a superficial attractiveness in linking funding to outcomes, they are extraordinarily difficult to measure." The costs of the shift might prove prohibitive, he said.
Bill Stewart, president of the Association of University Teachers Scotland, said the proposed system might be an improvement if it allowed institutions to rely on core funding while encouraging them to develop their strengths. But he warned there was a danger of a two-tier system emerging in public perception, if not reality.
Laurence Howells, Shefc's director of strategy and corporate affairs, said:
"The object of the exercise is to contribute to the development of a widely shared vision for the future of higher education in Scotland."