Student grants should be abolished in order to fund extra expansion of the universities, an influential Conservative Party policy group said yesterday.
A privatised loan scheme with repayments through the national insurance or tax system at market rates of interest could save the Government more than pounds 3bn a year, according to the Conservative Political Centre. Its report says tuition should remain free but students should be given vouchers for their fees.
The plan was published as ministers prepared to launch a new review of higher education and as universities threatened to impose a pounds 300 levy on students in response to budget cuts of pounds 200m.
But Eric Forth, the Higher Education minister, appeared to rule out further expansion at a conference to launch the centre's report on the future of Britain's universities.
Responding to claims that recruiting more students was "undoubtedly desirable," he said: "I am not sure that statement is necessarily as obvious as is suggested." Just under one-third of young people currently went into higher education, he said: "We have to ask ourselves if that is about the right proportion."
Yesterday's report is the result of more than a year's work by the centre's policy group on higher education, and will influence both a forthcoming government review and the Conservative Party's next manifesto.
It suggests that the banks would be prepared to offer flexible loans to students if they could be guaranteed payment through national insurance or the Inland Revenue. The abolition of grants would cut the Government's pounds 7bn higher education budget by one-third and allow more funds to go to universities. Privatising loans would save the treasury a further pounds 1bn per year.
Under the scheme, graduates would repay the total cost of their living expenses while at university, but would not start to do so until they were earning a set minimum wage.
The report also advocates a national transfer system under which students could move with ease from one university to another, taking the remainder of their tuition fees and maintenance loans with them.
Sir Cyril Taylor, a member of the group and chairman of the City Technology Colleges Trust, said the banks would support a privatised loans scheme if repayments were secured. The Government has twice tried to set up a privatised scheme, most recently last autumn, but the banks have refused to co-operate.
He added that more students should be allowed to go to university. "I don't believe it is part of Conservative philosophy to deny expectation," he said.