How England can keep its first-class universities When it comes to higher education, Britain starts from an enviable position. It has three universities in the global top 10, punching well above its weight for an economy of its size, and the UK is the second most popular destination for international students. When I led a review into higher education funding and student finance, we sought to maintain or improve England's overall position by increasing participation, improving quality and creating a sustainable long-term future for this valuable sector. On all three counts, we are moving in the right direction. Applications to and participation in higher education are near record highs, while the gap in applications between the most advantaged and disadvantaged groups is at a record low, confounding the pessimists. Those trends support our conclusion that so long as education remains free at the point of access and students, parents and teachers understand that it is free, participation will not suffer. There has also been a slight improvement in student satisfaction, taking it to a nine-year high, and universities are now on a fairer and more sustainable financial footing. Higher education in England is thriving. The recommendations in the review and the government's responses have played important roles in these improvements. By shifting the financial burden from general taxation on to the graduates who benefit from their degree, students have become more discerning. As the Financial Times recently reported, universities across the country are responding to more assertive and engaged students who are demanding more for their money. That is an important step towards the sort of system I envisaged, in which institutions compete for students on the basis of quality and value for money. But the review offered a set of recommendations, only some of which were implemented. Taken together, they were much more than the sum of their parts; they formed the basis of a higher education system in which tuition fees, public funding, access arrangements and regulation were designed to work towards a common set of goals. The government's decision last week to abolish the system of student place quotas that are used to regulate student numbers by 2015-16 is therefore welcome. As a consequence, students will be better able to choose an institution based on quality, value for money and teaching innovation, and should no longer find themselves with the right qualifications but unable to gain a place to study. That is good news for high-performing universities, which will be able to respond to competitive pressures by offering more places, improving the quality of provision across the entire higher education sector. And providing that places on the most strategically important courses are protected, the removal of the cap is unadulterated good news for the British economy, which will benefit from a more productive workforce as participation continues to increase. Our report envisaged open access, competition and quality existing in a virtuous circle. The removal of the cap on student numbers is another step towards that crucial goal. Recent reforms and improvements should be celebrated, but Britain's higher education system is not yet firing on all cylinders. Raising the cap on fees to £9,000 and shifting the burden from the taxpayer to the graduate made it financially possible to remove the limit on student numbers, but I still believe that placing a cap on fees is damaging. It drives institutions to cluster at the cap, which restricts student choice, hampers competition between providers, makes a university less accountable for the value it provides, and ultimately damages quality. Access and effective competition will be needed to keep the UK's institutions resilient in the presence of a growing number of alternative providers, including those offering the electronic courses ("Moocs") that are revolutionising higher education around the world, and private universities providing innovative and high-quality courses. Traditional providers cannot afford to be complacent. Recent data on international applications to British universities should serve as a further reminder not to take our global position for granted. While domestic demand is at record levels, applications from countries such as India and Pakistan have fallen by as much as a third since the introduction of tighter student visa requirements. If the UK is to retain its pre-eminent position in the global market for higher education, both policy and rhetoric must be supportive. The need for participation, quality and sustainability in higher education requires a joined-up approach. Last week's announcement represents one more brick in the wall, but several more are needed. That might be unpalatable to some, but it is absolutely necessary if Britain is to continue to lead the world in higher education. The writer, a former chief executive of BP and a crossbench peer, led a review of higher education funding and student finance in 2009-10