I find it quite strange the quota system survived so long (and still does in many ways), but I agree with Dr Leunig about the way the limited relaxation could make a difference:
Universities do not compete in the same way. The student quota system, imposed by government and supported by the sector, guarantees that universities and colleges will get the expected number of students each year. “Top” universities are particularly well insulated from competitive pressure, since they get far more applicants than they can accept. Frankly, whether you have five or 10 applicants per place makes little difference.
This weakens the incentive to think about students at the institutional level. In elite universities, no one is worrying that if the courses are not good enough, if the faculty doesn’t teach well enough, if the feedback isn’t helpful enough, then they will fail to get enough students and go bust. Since their principal rivals cannot expand, they are all but guaranteed to get the students they need.
It’s unfair to say that no one is worrying about courses not being good enough, I have worked with academics and managers from many institutions and have not come across a single one who would behave that way, but I can see that it would be easy for standards to slip and for it to take something drastic to happen for anyone to notice.
His final point is one that I really hope comes off:
Of course, the best form of competition would be to allow students to move from one university to another after they have started their courses. LSE takes foreign students for a year, under the general course programme. They take second year courses, and if they do well enough, and prefer LSE to their previous university, then they can stay on for the third year and graduate with an LSE degree.
Imagine making this the norm for every British undergraduate. Now that would concentrate minds in senior common rooms across the country.
This sort of transfer is already technically possible between Universities that run credit based (modular) courses, but in reality the processes are so complex and convoluted that I wouldn’t wish it upon any student to try. I suspect it will be a very long time before universities in the UK make it any easier.