A system that assumes a "quite good" institution is unable to get better, and thus denies them the funds that would enable them to get better, is probably not an optimal system for promoting merit. A system that rewards in proportion to merit would at least be able to recognise and reflect the dynamism of university research; research groups wax and wane as people come, go, get disheartened, get re-invigorated.

it could be argued that we don’t just need an elite: we need a reasonable number of institutions in which there is a strong research environment, where more senior researchers feel valued and their graduate students and postdocs are encouraged to aim high. Our best strategy for retaining international competitiveness might be by fostering those who are doing well but have potential to do even better

Bonitz, M., & Scharnhorst, A. (2001). Competition in science and the Matthew core journals.Sciento-metrics, 51(1), 37–54