TONY BLAIR’S intervention against Gordon Brown means that elite universities will have the freedom to charge higher fees than other institutions.

The Prime Minister’s decision to side with Charles Clarke, the Education Secretary, on the issue of variable fees goes to the heart of the argument raging within the Government over the best way to fund higher education.

Mr Blair hopes that by insisting on their freedom to set their own fees within a cap of £3,000 a year, the country’s top universities will be able to compete more effectively in the global market of teaching and research.

Mr Clarke supports this vision of allowing individual universities to develop their own distinctive mission and character. But Mr Brown, and a sizeable number of ministers and backbench MPs, sees this as the road to an “elitist”, two-tier higher education system. He is demanding assurances that poorer students will not be deterred from even applying for places on more expensive courses at top universities simply out of fear of debt.

Under the proposals, which are to be published in a White Paper next week, students are expected to be offered loans to cover their fees and to repay their debts through their earnings after they graduate.

The present annual fee of £1,100 would be abolished when the new arrangements are introduced. The White Paper will also restore limited maintenance grants for the poorest undergraduates.

Crucially, students will be asked to repay only the fees charged for their individual courses. This amounts to a rejection of a broader graduate tax, which the Chancellor is known to favour to ease fears that poorer applicants will be deterred from seeking places on more expensive courses.

One Whitehall source said: “The central issue all along has been that Blair wants to free universities and Brown doesn’t. Brown doesn’t believe they will spend the money properly.”

Universities have argued that they need an extra £9.94 billion by 2006 to pull them out of financial difficulties that have seen half of institutions plunge into the red. Many of the most oversubscribed universities, such as Oxford, Cambridge, Warwick and Nottingham, are likely to leap at the opportunity to charge higher fees. Warwick says it loses about £1,500 for every home student that it teaches: the difference between the cost of their degree course and the money the university receives from the taxpayer.

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