Credit-based funding looks set to become the panacea for the otherwise intractable difficulty of finding a fairer way of subsidising higher and further education. It is a good idea. The present situation is an unfair mess with half the students in higher education, those signed up for full-time first degree courses, uniquely privileged with free tuition and access to mandatory grants and loans, while everyone else must pay fees and find their keep.

With a credit-based system, subsidy could be attached to each unit of study rather than to the institution as a whole. All students are then equal whether they study full-time, part-time, or after dropping out for a while or moving to another university. The funding authorities can decide how to titrate the subsidy: compulsory courses in information technology might be free: business modules on financial derivatives might carry a fee.

Such a system can only work, however, in tandem with a credit accumulation and transfer scheme. And the two together raise a number of questions which have been largely avoided up to now: comparability of standards; universities' right to design and examine their own courses; collaboration in a competitive environment; and universities' ability to use their block grant as they see fit.

To make CATS work, universities and colleges have to agree to recognise each other's units of assessment for credit. Is Cambridge going to accept a student into the third year of an undergraduate course with two one-year credits from Poppleton? It means taking other institutions' standards on trust or accepting independent outside assessment.

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This is the ground on to which the Government's qualifications agency is advancing with vocational qualifications at levels 4 and 5. It has proved difficult enough in the area of professional qualifications where outside involvement is long established. It is far more problematic with academic subjects.

Much quiet work has been going on with CATS. Such schemes as exist seem to be most successful locally where people are familiar with the work of the institutions involved and where there is already overlap between the levels of work undertaken. Where, for example, the higher level institutions have difficulty filling places, there is plenty of incentive for collaboration. Getting agreement across the system would be quite another matter.

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Developing such a system would require much goodwill. A change of this magnitude carelessly introduced could also undermine the standing of British higher education qualifications. Good will will be best secured by seeking voluntary argeement rather than by coercion. It will not be readily forthcoming if the higher education bit of education is plundered by a government eager to tackle problems in schools.

Protecting the credibility of qualifications should rule out an output-based element in any credit funding regime. The payment-by-results element of the further education funding regime is not its most distinguished feature. Such criteria are an open invitation to institutions to be too generous in passing students. It should not be imported into higher education. There is already suspicion surrounding the recent increase in the number of higher class degrees awarded, a suspicion increased by the use of degree scores as an institutional performance indicator. Output-based funding could only increase this scepticism.