Shake up universities says minister

She told university chief executives meeting in Aberystwyth that she wanted the market to "play a much stronger role in determining student choice and research investment".

"I accept allowing a freer market may create more turmoil in the sector," she said.

"But actually, if students and research funders do not want what is on offer, why on earth should we carry on funding it?"

Funding review

Margaret Hodge talked of institutions being encouraged to play to their strengths, whether that was research or teaching.

"We need to think about moving from a system which only rewards numbers and research to one which allows institutions to play to their strengths," she said.

The government's plans for higher education are to be outlined in a review of university funding, which is expected in November.

Government officials are billing it as the most radical shake-up in education in more than a decade.

Margaret Hodge was addressing university chief executives at the annual conference of their umbrella group, Universities UK, in Aberystwyth.

Before she spoke, the president of Universities UK, Roderick Floud, told delegates the crucial issue was securing more funds for universities.

Universities UK believes universities need another £10bn if the government is to meet its target of having 50% of young people in higher education by 2010.

Sections of Margaret Hodge's speech had been leaked, so Professor Floud commented on the idea of allowing the free market to have more impact on universities before she stood up.

"Some government ministers have, in response to current difficulties, talked of allowing some universities to 'fail' while others expand," he said.

"This makes no sense to any of us. Are we really being told to dismantle capacity just before a 22% expansion?"

Professor Floud said universities were not resistant to change.

"We are innovators and drivers of change," he said.

"We will work to the government's objectives and we have said so strongly and consistently.

" We've met every challenge that we've been given. We're getting on with the job but we need the right tools."