GORDON BROWN has intervened over plans for a new system of higher education funding, insisting that extra resources must be matched by far-reaching reform of the universities.

His demands mean that next week’s education White Paper, which is expected to include proposals for top-up tuition fees, may now only set out options on which no final decision will be taken until after the general election.

Although Tony Blair has pressed for a new blueprint guaranteeing the future of the universities, the Chancellor believes that talk of a crisis in higher education finances is overblown. Aides say that next week’s announcement will show that he has already earmarked generous cash injections for the years up to 2006.

“We do not need to take an early decision on the period beyond that, not least because the additional resources being demanded by universities should be linked to modernisation — just as in any other public service,” a Treasury source said last night.

The Chancellor has already called for universities to build better links with the business world and improve their governance by ending outdated management practices, as well as offering guaranteed access to students from poorer backgrounds.

Elite universities have lobbied Downing Street for greater financial freedoms, including the right to charge higher tuition fees. They argue that unless billions of pounds can be raised in that way, higher education institutions, half of which are in debt, will never compete with the world’s best. The White Paper on a new funding system, which has already been delayed three times, was expected to go to the Cabinet tomorrow for approval before publication next week.

Charles Clarke, the Education Secretary, believed that he was close to agreement within the Government on a limited rise in tuition fees of about £3,000 a year with students being given the option of deferring payment until they graduate and find work.

Mr Brown, however, fears that even that system could deter poorer students from starting or completing courses. The Treasury is pushing for the White Paper to include an alternative option in which students who have completed degrees would pay a graduate tax linked to their earnings.

“We want to keep this open as a possibility until the next Parliament when the key financing decisions will be taken,” a source close to the Chancellor said.

Backbench Labour MPs are intensely nervous of voters’ reactions to higher fees.

Forty per cent of students now pay nothing towards their tuition because they come from families with annual incomes below £20,480; an equal proportion pay the full £1,100 annual fee because their parents earn more than £30,502 a year.

• An “historic” agreement between the Government and school unions to reform the teaching profession has been overshadowed by a row over money.

  Head teachers’ leaders said they were extremely concerned that schools would be denied the £1 billion promised for the reforms over the next three years.

  Local government officials gave warning that councils faced a choice between large council tax increases and sharp cuts in services if ministers forced them to hand over the money for schools.

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