Universities in England risk breaking competition laws if they add loopholes letting them withdraw offers from students at the last minute if courses are oversubscribed, ministers and regulators have told vice-chancellors.

For the last two years, the surge in A-level grades allowed more students than forecast to meet their offer targets, and some universities withdrew offers when it became clear that courses would be oversubscribed.

In a concerted push by the government, the Office for Students (OfS), the higher education regulator for England and the Competition and Markets Authority (CMA), universities have been told to remove the oversubscription clauses from their offers or face possible punishments from the regulators.

Michelle Donelan, the universities minister, told vice-chancellors that it was “vital” that their offers were fair as an incentive for hardworking students to attain their grades.

“It is therefore disappointing that, during previous admissions cycles, there have been instances of providers introducing oversubscription conditions that permitted them to withdraw places where the number of students meeting offer conditions exceeded the number of places,” Donelan said in a letter sent to all vice-chancellors in England.

The OfS said it was “concerned” that higher education institutions had added the oversubscription clauses to their contracts with students.

“Our view is that providers should not use such clauses, as doing so would probably contravene consumer law,” the OfS stated. “A potential breach in consumer law may prompt the OfS to investigate and, if appropriate, carry out enforcement action to address any failures to comply.”

The CMA, which regulates universities for possible breaches of competition law, reiterated its view that the offer and acceptance of a university place was effectively a legally binding contract, with the university obliged to reserve a place providing the student met specific entry requirements such as A-level grades.

A clause allowing wide discretion to cancel an accepted offer “is likely to be unfair under ‘unfair terms’ legislation”, the CMA said. Similar clauses that would limit the liability of a university if it fails to provide qualified students with a place “are inappropriate and potentially unfair”.

Universities UK, which represents the leadership of major institutions, said decisions on admissions were a key area of university autonomy, and that institutions were “well aware of their legal obligations under consumer law and strive to ensure these are met”.

University leaders say they have been forced to withdraw places or offer incentives for students to change courses or delay their study because of the uncertainty created by the pandemic, especially the government’s decision to cancel formal exams and use teacher-assessed grades instead. That led to a much higher number of top grades awarded than admissions offices had forecast.

Donelan also welcomed efforts by Universities UK and GuildHE to draw up a new sector-wide code of practice for admissions. But she also urged universities to reject the use of “conditional-unconditional” offers, which give students a guaranteed place in return for immediately rejecting all their other choices.

During the pandemic, the OfS placed a temporary ban on the use of these offers, which expired in September. Donelan said she would “strongly encourage” universities to continue “avoiding the use of conditional-unconditional offers and other practices which may place undue pressure on students to make choices”.