Colleges, not universities, should drive the continued expansion of higher education, according to college leaders south of the border.

Their initiative comes as the Government in Westminster decided to fund universities this year for 10,000 fewer places than they had been expecting, as part of its initial plans to cut the public-sector deficit by pound;6.2 billion. It is not clear if this will have any knock-on effect on Scottish universities.

The swift move by the Association of Colleges (AoC) to take advantage of the financial pressures on universities in England is based on the argument that money should be transferred from universities to FE colleges, because they are better able to deliver higher education at a lower cost.

The AoC set out its case in a submission to the Independent Review of Higher Education Funding and Student Finance in England, chaired by Lord Browne.

It said: “A sustainable higher education system in England will need to cut its cloth to fit the budget, but this does not preclude reform and expansion. We believe there may be an opportunity for the HEFCE (the Higher Education Funding Council for England) to secure cost-effective expansion of higher education participation by directing funding towards colleges.”

The AoC argues against raising HE tuition fees, unless a way can be found to provide more scholarships and loans without increasing the cost to Government. It suggests higher interest rates are applied to student loans, allowing Government to extend them to more people.

The paper also calls for more colleges to be handed foundation degree- awarding powers and be funded directly by the HEFCE rather than through partner universities.

Meanwhile, a paper from the 157 Group in England calls for colleges to take a greater role in delivering “value-for-money, locally-based higher education” at a time of cutbacks. The group has no members in Scotland, but represents 28 of the largest and most influential colleges in England and is fast becoming the FE equivalent of the Russell Group of top “ivy league” universities in the UK. The name stems from paragraph 157 in the Forster review of FE south of the border, which called on principals of the largest and most successful colleges to make a splash on the national stage to promote the work of FE.

In Scotland, colleges are already much more heavily involved in higher education activity, largely due to the impact of Higher National certificates and diplomas. Scotland has been close to the target of having 50 per cent of under-21s in higher education, ahead of the rest of the UK, although that has dipped slightly in recent years.

But only around a third actually have a full-time university place - the rest is made up by HNC and HND students in colleges.

The latest figures show that 22 per cent of college activity is in higher education, and a quarter of home-based Scots study higher education in a college.