The most intractable problem facing Sir Ron Dearing is not that of funding students - for which solutions awaiting only political will have long been available - but of funding institutions. How should higher education be resourced so that the dream of a large, thriving and heterogenous university system, which so many of us supported when the new unified sector was created, can be kept alive?

What is now crystal clear is that a single uniform funding model can only lead to convergence, and the only question is, how long it will be before all that is special or distinctive is lost. The reason for this is simple: a single funding model can only reward or penalise success or failure by a standard set of parameters and can thus only modify the behaviour of institutions in similar ways.

As a direct result, institutions are encouraged to modify their policies in ways that may be contrary to their mission or strengths, perhaps as a result competing directly with a sister institution nearby. This way leads inevitably to what was recently described as "convergence on mediocrity", an endpoint I assume none of us want.

This can only be avoided by moving rapidly towards a more diverse funding mechanism, one which has as an inherent feature the rewarding of excellence, particularly distinctive excellence, more generously than the norm. And in my view, this needs to take full account of an institution's mission and record, and of what is available in other institutions nearby.

³ÉÈËVRÊÓƵ

If, for example, part-time postgraduate students engaged in life-long learning are perceived as particularly valuable as the United Kingdom strives to upskill its workforce, then striking success in this domain needs to be rewarded just as surely as outstanding research elsewhere. What is demonstrably disastrous is to set the same hurdles for very different institutions, so that missions blur and strengths are undermined.

The problem for Sir Ron, of course, is how such distinctive funding is to come about, so that all institutions, whatever their age or mission, can be rewarded for excellence in their chosen purposes. There are two options: public and private.

³ÉÈËVRÊÓƵ

The first requires the re-establishment of a planning and judgemental substructure by the funding councils, to distribute public funds substantially more differentially than hitherto, and to weather the storms such judgements will inevitably lead to. Would it be easy for the next government to accept this?

The second option also requires the recognition that excellence costs more, and would encourage institutions to charge whatever the extra cost may be in order to avoid the process of homogenisation which is presently rampant. For such a policy not to be socially divisive, such extra costs, if paid by students, have to be borrowable and repayable on the same basis and timescale as is eventually agreed for maintenance costs.

Neither the public nor the private option is without snags. The first may simply lead (within finite resources) to the robbing of Peter to pay Paul, while the second, if mishandled, could lead to an unacceptable degree of social unfairness.

We should, however, remind ourselves that while university education is not, and must never be, about social elitism, it is about intellectual excellence: students of whatever age and background being stretched to the limits of their own ability. Any funding system must allow, indeed encourage, this. If Sir Ron and his team can resolve the conundrum of differentiation without unfairness, we shall all owe him a huge debt of gratitude.

³ÉÈËVRÊÓƵ

Martin Harris is vice chancellor of the University of Manchester.