Belief that academic excellence is a shield for universities' autonomy is clearly wrong, according to Thorsten Nybom, director of the Swedish Council for Studies of Higher Education in Stockholm. "The British system in which the Government intervened was the best, certainly in Europe and possibly in the world," he told a seminar in London last week, the first of six on changing relationships between higher education and the state sponsored by the Economic and Social Research Council.

Professor Nybom's use of the past tense is ominous. The British system has certainly been under extreme pressure in the past 15 years with numbers shooting up, per capita funding falling and Government increasingly calling the shots. But must we concede that it has lost its pre-eminent excellence? And if so how may that be retrieved?

All hopes currently rest on the bipartisan committee of inquiry into British higher education set up under the chairmanship of Sir Ron Dearing. Now that its membership has been announced (É«ºÐÖ±²¥S, May 17) the flood of submissions and the lobbying will begin. The Labour party was first in the field this week with its paper Lifelong Learning.

It is too early to predict which way the committee, or even indeed the evidence it receives, will tend. It is noticeable, however, that among its members are a number of senior people whose record and experience may incline them towards designing a neat, controlled system with a strong vocational emphasis rather than a structure which encourages diversity and autonomy and puts its priority on academic excellence. The committee looks like a central planners' dream team put together by a Department for Education and Employment which does not see why a Government that provides Pounds 7 billion a year should not tell higher education what to do.

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Here are Sir William Stubbs, chief architect of the system for planning and controlling further education; Sir Geoffrey Holland, who has worked for over 20 years on new systems for vocational education; David Watson, vice chancellor of Brighton University and principal protagonist for the Higher Education Funding Council for England's quality assessment system; Sir Ron Oxburgh, mastermind of the last centrally planned subject rationalisation (of earth sciences) in British universities.

If it is thought that the autonomy of universities is important and that their unusual degree of independence has been at least in part responsible for their quality, then the case will need to be made forcefully in the next few months. That is what former higher education minister, Robert Jackson, would like to see, since for him "the principle of university autonomy is fundamental". In his view centralisation has already gone too far and he used the ESRC seminar to warn vice chancellors that some of the models for financing higher education, which the Dearing committee will be considering, could "become another instrument of centralisation".

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The schemes he had in mind are usually described as graduate tax, collecting a contribution from students through the tax system when their earnings reach a certain level. The Treasury controls the money and can spend it either to produce specific outcomes from higher education, or to pay for other services entirely. Funding schemes that involve fees paid direct to universities (which could of course be mitigated by bursaries or covered by loans) would increase autonomy. They are also the only way universities can be sure of getting their hands on the extra money.

But Mr Jackson's is a lonely voice. His political party did not command much support among academics even before the last general election and is more unpopular now. He was not a popular minister and the loans scheme he introduced, against the best advice available at the time, has not been a success.

The tide is running strongly towards Labour, and the Labour party, in its submission to the Dearing committee, clearly favours control, access and vocational emphasis. "Up-front tuition fees" are ruled out on the grounds that these would make access dependent on ability to pay Q though it is not entirely clear that all forms of payment for tuition, for example through Learning Accounts held in a Learning Bank, are ruled out. The critical word may turn out to be "up-front", but it is up-front extra money the universities most need.

Labour has ducked the fee issue, opting for the abolition of maintenance grants instead. This is estimated to save Pounds 1 billion. This, it says, would be used to provide more places and it is evident from its paper that it is attracted by providing these in further education colleges where the unit cost is much lower.

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This policy is worrying. It is highly regressive. Only those from the least well-off families receive maintenance grants. They will be the losers. It may turn out to be impracticable. Extending loans for the full cost of maintenance to the full range of students would be hugely expensive unless private financial institutions can be persuaded to advance the loans. This will only be feasible if an incoming Labour chancellor of the exchequer can, unlike others before him, make the tax authorities collect student debts and a real rate of interest is charged. Third, such a scheme does nothing to provide the additional investment needed to give existing let alone extra students a good education.

The Dearing committee will not only be concerned with funding. It will have to consider the research role of the universities also. Heavy guns are likely to be brought to bear on the committee in this area, where its representation is light, unless the main players in the research game can be reasonably confident they will be protected. The outline of a possible deal is now emerging. Two recent studies of research funding policy, one from the National Academies Policy Advisory Group, the other the Harris report on postgraduate education, have argued for greater concentration of research money in high-rated university departments.

If the dozen or so research-dominated institutions received differential funding from the state, under the research label, which would allow them to continue to provide higher education on the model which Professor Nybom admired, they might be expected not to break ranks, declare independence, charge premium fees or do any of the other things which so alarm politicians and civil servants.

Selective funding for research is inevitable, as Labour accepts. But Labour proposes a more open, if no less planned, set-up with centres of research excellence established collaboratively between institutions on a regional basis. The idea has attractions, not least in avoiding the re-emergence of an elite tier of universities. Success, however, would depend on how far it was willing to invest in such centres and then let them get on with the job over a long period. Such a model is not cheap.

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Labour's paper is but the first formal shot in the battle for Dearing's attention. It has an advantage in that the committee has been set up and appointed in agreement with Labour. It is now for others, less privileged, to have their say. The outcome will be crucial in determining whether Britain can hold on to its reputation for university excellence. If this is to be achieved, today's preoccupation with money must not be allowed to swamp other considerations including the relationship between higher education and the state. As Professor Nybom and Mr Jackson agreed last week, it is time for a new constitutional settlement with clear rules.