I think 2 as well. Certainly that's what the rebel Tories seem to want.
My worry is that the government won't be joined up enough to recognise that they need to address the university-side issue as well.
Currently universities made offers back in the Autumn in good faith on an assumption that A-level grades would broadly be the same as in previous years.
On Thursday last week when the results came out many universities will have firstly confirmed places to students who met the offer and then dropped a grade and worked via clearing to fill their additional available places. They will have planned to do this to come close to, but not breach the cap. A breach of the cap can mean a universities loses up to 15% of its tuition fee funding.
If the government now accepts teacher assessments retrospectively this will mean that many students who had previously failed attain the grades to get place will now have down so. If universities are expected to take these students, which seems fair, then it is completely unreasonable to clobber them financially for helping to sort out the government's mess.
Another knock on is that the very thing the cap was supposed to prevent will happen inadvertently - in other words the more popular universities taking in more students than in previous years (if they can), leaving those less popular universities struggling for students and therefore income. What will the government do - bail them out with transitional funding or let them fail? It may be, of course, that we will simply have more school leavers going off to university overall. Probably not an issue as there aren't going to be many other opportunities for these people with few jobs around. Better to allow them to gain higher levels of education/skills.