This year the tables are turned. The number of students is fewer than the number of places and universities are chasing students. This is despite the fact that the 300,000 confirmed in their initial choice of courses is one of the highest on record. A further 90,000, mostly with below the requisite qualifications, will be allocated places through the clearing house system, education’s answer to eBay. A decrease in the latter group is partly the result of a 17,000 drop in overall applications with the start of the £3,000 top-up fee this year (balancing the surge last year).

This suggests that a market economy is lurking deep within British higher education. Worthy students are qualifying for places in unprecedented numbers. Less worthy ones are being mildly deterred from wasting time and money on a possibly lesser degree.

When the means-tested £1,000 fee was introduced by Labour in 1998 a socioeconomic catastrophe of declining working-class studentship was predicted by the left. There was no catastrophe. The same was predicted for this year’s £3,000 top-up fee. Yet there is no evidence that students from poorer backgrounds regard higher education as any less worthwhile than they did a generation ago. Student numbers are continuing to rise.

The government naively hoped that universities would vary top-up fees to offer students a choice. In fact only three of Britain’s 96 universities have not imposed the full amount, which suggests that the fee was far too low. A few universities desperate for applicants are being tempted to reduce their fees at the last minute, because for every £1 they get from an extra student they get £2 from the government, a state subsidy to mediocrity.

Last week a university regulator, Sir Martin Harris of the Office for Fair Access, warned universities not to introduce discounts during clearing. His concern was not for the fee income lost, however, but because discounting would undermine principles of fairness and equity. Harris is a devotee of the Alexander Pope school of higher education that wants to “bring to one dead level every mind”, with every student place as of equal value.

Given the soaring cost of universities to the taxpayer, now about £8 billion, so-called fair access has become a ruling political obsession. Ministers cannot bring themselves to achieve it through the most obvious and economical means, a proper fee-and-scholarship system as in America. Yet since the result has produced the biggest of all middle-class subsidies the government struggles to enmesh it in reverse discrimination. Gordon Brown tried to code A-level results so as to bias entry against middle-class students. His then higher education minister, Margaret Hodge, tried to spot wealthy parents “cheating” any admissions bias by switching from private schools to comprehensive school sixth forms.

This centralisation of higher education began under Margaret Thatcher with Kenneth Baker’s 1988 act followed by Ken Clarke and then Brown at the Treasury.

It sought to turn universities into an educational National Health Service. Government would measure everything and pay for everything, professorial teaching quality, scholarly output and the right socioeconomic balance in each institution.

This Leninist ideal was undermined by the survival of the “voucher” principle that had long applied to British universities. Since the Robbins expansion of the 1960s, money followed the student. Universities were left free to offer courses at will with their total fees picked up by central government. A further expansion to 30% of the age group under the Tories in the 1980s and towards 50% under Labour meant throwing money at any university that could attract more students.

The Treasury’s response, until it won top-up fees, was to reduce subsidy per student by almost two-thirds since 1980. This boosted the average staff/student ratio from 1:8 in 1980 to 1:18 today. Universities, the most ineffective professional lobby in Britain, simply took this on the chin. They did not protest that less money per student would mean lower standards and worse degrees, but the opposite. The less the teaching the more they inflated degree grades. More meant cheaper meant better.

The truth is that nobody can value a university education except its customers and they are not charged its cost. As a result universities remain among the last unreformed corners of the public sector, still working to the medieval calendar. Students are left untaught for half the year so they can attend harvests, pilgrimages and religious festivals (refashioned as pubs, fly-drives and raves).

Expensive campuses, laboratories and libraries are left idle for most of this time. Courses that could be completed in one or two years are stretched to three or even four. Meanwhile, centralised research assessment has become fantastical. About 150,000 academics must overproduce work of doubtful benefit to be measured by peer review, metrics and citation indices.

Explore Education

• Schools

• A Level & GCSE Results

• Good University Guide

• Sunday Times University Guide

• Student

Times recommends

• Five essential tips for your year abroad
• Are students killing television?
• Reading masses discover British Library