Keith Duckworth (of Cosworth fame) was a very vocal proponent of fuel restrictors for F1. You would be free to have any engine you like, but the fuel delivered to the engine would be through a spec/sealed restrictor flow device.
Everyone would get a regulated mass flow of a spec fuel, and how they chose to utilize the energy content of that fuel mass was up to them. That's as fair as you can get. It would promote engineering creativity and efficiency.
As for the current rules, the engine power should be kept at 700hp or more, but the minimum vehicle weight should be increased. And that weight increase should include better crash resistance requirements.