WHITEHALL was in disarray last night over reports that a deal had been sealed to more than triple the cost of studying at university while scrapping upfront tuition fees.

Reports claimed that ministers had agreed plans to replace the present charge of £1,100-a-year with annual fees capped at £4,000. Students would be asked to pay the money from their earnings once they had graduated.

Controversially, universities would be allowed to charge different fees within the limit, opening the way to what critics say would be a “two-tier” system that could deter poorer students from applying to the best institutions.

The proposals, if confirmed when a White Paper is published next week, would see most students graduating with debts of up to £25,000 including such items as loans. Significantly, the change would extend tuition charges to all students by breaking the link between fees and parental income.

Downing Street sources insisted last night that final agreement had still to be reached, although variable tuition fees would be part of the reform package. The Times was told authoritatively that no deal had yet been done and that the Prime Minister will be forced to intervene to settle the row.

Gordon Brown, the Chancellor, is reported still to be arguing that there was no need for an early decision on the final funding formula for universities because he has already earmarked a generous cash settlement for the years up to 2006. Mr Brown wants universities to show a commitment to reform their governance, build better links with business and guarantee continued access to students from poorer backgrounds before being allowed to raise extra revenue.

Under the deal proposed by the Education Department, elite universities such as Oxford, Cambridge, Bristol and Warwick would be able to charge more than less popular institutions to reflect student demand for their degrees. Maintenance grants would be restored for the poorest students in a bid to overcome the deterrent effect of higher fees. It would be stressed that they earn far more as graduates than without a degree.

Several government departments voiced surprise at suggestions that the long-running row had been settled at a Cabinet committee meeting chaired by John Prescott, the Deputy Prime Minister. As presented, the agreement would signal a clear victory for Charles Clarke, the Education Secretary, over Mr Brown, who has argued that a generous settlement proposed under the Comprehensive Spending Review until 2006 means there is no funding gap before the next election.

Universities say that they need £9.94 billion by 2006 to end a funding crisis which has seen half of institutions go into the red.

It is understood that at yesterday's Cabinet committee meeting a number of ministers including Mr Prescott and Andrew Smith, the Treasury Chief Secretary, opposed an immediate deal.

David Blunkett, the Home Secretary and former Education Secretary, has also weighed in on the side of the Chancellor. Mr Blunkett, as Education Secretary, committed the Government shortly before the last election not to introduce top-up fees in the lifetime of this Parliament.

Even the Education Department appeared embarrassed as the details leaked out last night and refused to confirm BBC reports that a deal had been done. One Whitehall press officer described the events as “the clumsiest and most heavy-handed briefing operation ever undertaken”.

Forty per cent of undergraduates pay nothing at present because their parents earn less than £20,480. But placing responsibility for paying the fees on graduates, linked to what they earn, makes parental income irrelevant.

Damian Green, the Shadow Education Secretary, said: “The pretty massive increase that is threatened in deferred fees would mean some students leaving university with tens of thousands of pounds of debt hanging over them. This could deter some students from relatively poor families from applying to the best universities. Either the universities are going to lose out financially or the Treasury is going to have to shell out huge sums of money to fill the gap.”

Professor Roderick Floud, president of Universities UK, representing vice-chancellors, said: “Universities will be looking closely at what impact this will have on the whole access issue of widening participation and combating perceptions of debt among non-traditional students.

“Universities UK has also consistently flagged up the need for any funding mechanism involving differential fees to benefit the whole sector and not contribute to the formation of a two-tier system.”

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