Shake-up call for higher education funding

Mr Willetts said the current funding system is not viable and that Labour had left it on "shaky financial foundations".

He also identified a weakness in university teaching, saying excellent teaching is not universal throughout the sector.

In a speech at Oxford Brookes University yesterday Mr Willetts called the funding system "inflexible" and unsuitable for the current economic climate.

He said: "The 2004 funding structure has turned out to be surprisingly inflexible. It is in such delicate equilibrium that shifting any single element requires us to shift everything else.

"If fees were to go up, the Government would have to lend people the money to pay for them - and that would push up public spending.

"It's not just that students don't want to pay higher fees: the Treasury can't afford them. So the arrangements we have now are clearly unable to respond to the current economic climate."

Addressing academics, he suggested that universities have not been made to hold down their costs, and will need to be more cost effective in the future, citing lecturers' final salary pensions as an example.

He said: "When Labour implemented changes in 2004, they failed to demand enough of the sector in return for the massive financial infusion.

"They did not push universities sufficiently to make tangible improvements to the student experience as a quid pro quo for the students' own contribution.

"They didn't press universities to hold down their costs. For example, it's very hard asking students to pay higher fees in order to prop up final salary pension schemes for universities when their own parents have lost theirs."

Mr Willetts said universities will need to improve the quality of the student experience in the future.

In the current economic climate, prospective students are right to ask why they should pay bigger fees, when current students are saying they do not receive enough feedback, or proper preparation for the job market, he said.

At the moment, excellent teaching in universities is "not universal", he said, and there is nothing to reward good teaching.

Any reforms following Lord Browne's review of the student funding system must be in the "best interests of the students themselves", Mr Willetts said.

Lord Browne's review, which could pave the way for higher fees, will report back in the autumn.

Fees currently stand at 3,225 per year.

Mr Willetts also announced that universities and colleges will be made to publish "employability statements" on job prospects in the future.