Calls for the higher education standards watchdog to be reshaped in the mould of Ofsted were rejected by John Denham, the Universities Secretary, as he faced MPs investigating allegations of dumbing down and grade inflation in the sector.

Mr Denham told the final session of the Innovation, Universities, Science and Skills Committee inquiry that although no system of its size could be perfect, the sector did not have a "systemic" problem with quality and standards.

He added that it would be wrong for the Quality Assurance Agency to behave like the schools inspectorate.

"The work of the QAA in general shows that we don't have a systemic problem," he said. "However, there are a number of things we need to look at."

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First, the sector had not been good at responding to allegations of falling standards, Mr Denham said. Some of the allegations made to the committee had been "kicking around the system for years", he added.

"If someone comes out and says: 'I was an external examiner and I was leant on by 'X' University to pass a load of people who were not up to it,' we are not very good at sorting out that situation one way or another quickly," he said.

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"I am realistic - we've 141 institutions, 2 million students, hundreds of thousands of staff - of course things will go wrong somewhere, sometimes."

Mr Denham added that the QAA had to do more to inform the public about its role and explain how universities handled issues of quality and standards.

He also said that the watchdog should take the lead in examining "persistent issues", such as those with external examiners, and make recommendations about best practice.

Despite these points, Mr Denham said it was right for the QAA to examine universities' quality assurance processes rather than scrutinise individual courses.

He said: "There is a philosophical choice. We could, as it were, 'do an Ofsted', and you could have somebody sat in the back of every tenth lecture assessing the teaching quality.

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"That to me is a move towards a very prescriptive and different sort of regime.

"I think it is right that universities hold responsibility for the processes by which they establish quality and standards, and the QAA checks whether they are good enough."

Mr Denham, speaking last week, also discussed the funding cuts recently announced by the Department for Innovation, Universities and Skills.

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In a letter to the Higher Education Funding Council for England on 6 May, Mr Denham said that the higher education sector had to find ?180 million of the ?400 million in savings demanded from his department in last month's Budget.

He told the committee: "The challenge for us is this: for a society and economy such as ours, it is inconceivable to me that higher education will not be even more important in 10 or 15 years' time than it is today ...

"As a nation, that means we are going to have to put more of our resources into higher education ... so we have got to find a path through the current economic challenges that enables us to achieve that."

He said the sector was being asked to concentrate on efficiency savings in 2010-11 and "on protecting frontline teaching and frontline research", but that this should not divert it from its "long-term vision".

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rebecca.attwood@tsleducation.com.