University degrees may cost more

Higher graduate contributions are the "only possible way forward" to make the higher education system fairer and sustainable for the future, the Business Secretary Vince Cable said yesterday.

Mr Cable was setting out a more "progressive" system of funding including proposals for a "graduate tax" but the announcement sparked warnings it could lead to a "lost generation" of young learners being priced out of higher education.

Mr Cable said that as the university sector became more competitive, it was inevitable some institutions would struggle and should be left to fail.

Universities have been told they must save 200m this year, on top of savings totalling around 1bn over the next few years.

In his grant letter to the Higher Education Funding Council for England (HEFCE) last month, Mr Cable said the sector would also be expected to help the Department for Business, Innovation and Skills (BIS) find additional savings of 100m in 2010/11.

In his first speech on higher education, Mr Cable told a meeting at London South Bank University: "The reality is we are going to have to develop a model in which the balance of funding for higher education in England combines less public support and more private investment from those who benefit most from it."

Students "almost certainly will have to pay more". Tuition fees currently stand at 3,225 per year. Under proposals for a new type of tax, graduates would not take out loans to pay tuition fees, but would pay premiums depending on their earnings once they were working.

Mr Cable later acknowledged some graduates would pay back more money than they would do under the current fee rate.

"I don't want to see the quality of universities cut, we don't want to narrow the opportunities for young people to go to university, so therefore the only possible way forward is by having a bigger graduate contribution. The issue then is how you do it fairly." The Business Secretary said he has asked former BP boss Lord Browne, who is leading a review into student funding, to look into proposals for a graduate tax.

Mr Cable said: "It surely can't be right that a teacher or care worker or research scientist is expected to pay the same graduate contribution as a top commercial lawyer or surgeon or City analyst whose graduate premium is so much bigger."

He added: "I am interested in looking at the feasibility of changing the system of financing student tuition so that the repayment mechanism is variable graduate contributions tied to earnings."

Sally Hunt, general secretary of the University and College Union, said the figures were frightening. Other countries are increasing the number of graduates to compete in a high-skill knowledge economy, yet our Government seems intent on doing the opposite. It is not scaremongering to talk about a lost generation of learners.

"It is disgraceful that thousands of applicants will be denied the chance to fulfil their potential at university."

Aaron Porter, president of the National Union of Students (NUS), said welcomed the tax in principle and also Mr Cable's recognition "that those who earn most after university should contribute more back as and when they do so.

"The fair solution is to abolish tuition fees and ensure that graduate contributions are based on actual earnings in the real world."

The Russell Group of leading universities, which includes Leeds and