Students face big rise in fees at top universities

An elite group of "Ivy League" universities would be allowed to charge top-up fees of up to £6,000 a year to students under government proposals for a shake-up of higher education to be unveiled next month.

A graduate tax and a proposal for a substantial across-the-board rise in tuition fees for all students will also be put forward by ministers.

They will present the three options for raising the money required to meet their pledge to put half of young people through higher education by 2010.

Estelle Morris, the Secretary of State for Education and Skills, is to announce six months of consultation on the options in a White Paper on higher education funding. The universities, which have argued for a huge increase in state support to meet government targets on student numbers, will anxiously scrutinise the document to see if their appeals for extra funding have succeeded.

Most contentious among the options would be allowing institutions to charge extra tuition fees. While a graduate tax would raise substantial sums, it would take years for the Treasury to recoup the extra money spent on students. A universal increase in fees would bring in revenue immediately, but risk fresh political problems for the Government.

The idea of top-up fees, seen as a possible front-runner, has has already won the support of some of the country's leading universities – mainly in the Russell Group of universities, which includes Oxford, Cambridge and the London School of Economics. It is also supported by senior advisers in Downing Street and the Department for Education and Skills, who believe the move to inject market forces into the higher education system will foster excellence and encourage universities to tailor their courses more closely to demand.

Critics say that would lead to the creation of a two-tier system in which poorer students were deterred from applying to the best universities.

Any move to allow universities to introduce top-up fees is almost certain to be introduced in the third term of a Labour government because of a manifesto commitment in 2001 not to introduce them in the lifetime of this parliament.

Some vice-chancellors are worried that many universities would need vast subsidies to meet the cost of funding students from poorer homes. One senior higher education figure said: "It would be possible for Oxford and Cambridge to support students from lower income homes from endowments and income they have – but I doubt if many others could."

Margaret Hodge, the minister for Higher Education, was accused of a U-turn by MPs when she was asked at a recent Education Select Committee hearing whether top-up fees would be introduced and replied: "Nothing is ruled in and nothing is ruled out."