Colleges told: raise standards if you want more cash

Universities will have to agree to regular Ofsted-style inspections in exchange for raising the cap on tuition fees

Universities will be subject to more rigorous school-style inspections to earn the right to charge students more for their services.

Lord Mandelson is expected to demand increased accountability from universities in return for raising the cap on tuition fees, as part of an imminent shake-up of higher education. The universities watchdog, the Quality Assurance Agency (QAA), will get greater powers to enable it to carry out regular, in-depth investigations of individual courses, departments and entire institutions. It will also be given powers to demand immediate improvements and impose huge fines on universities if they fail to meet its standards.

It was revealed yesterday that the number of students complaining about their courses, including teaching and marking, had doubled since 2005. The independent adjudicator Robert Behrens said: "There's no sign that these numbers are going to diminish in the coming years."

The proposals to drive up university standards emerged as Lord Mandelson prepares to unveil details of a wide-ranging inquiry into the future of higher education in England and Wales, alongside a fees review that could leave students paying thousands more for their courses.

The Government is expected to raise the current cap on annual tuition fees from £3,225 to as much as £7,000 a year, in an effort to give universities the chance to increase their revenue and make up for a relative decline in government funding.

Lord Mandelson hinted last week that students would have to contribute more when he suggested that fee increases would encourage universities to improve courses and tailor teaching to individual students. His comments came days after Professor John Holman, who advises ministers on maths and science, said it was "very difficult" to protect standards without higher fees.

Roger King, an expert on higher education, said the Government would probably opt to raise the fees ceiling rather than remove it altogether, as that "would cause considerable dissent from a range of student and middle-class groups". Professor King, of the Open University's Centre for Higher Education Research and Information, added: "Any government must be tempted to make the rise quite significant, not just on additional resource grounds in the context of tightening public expenditure, but also to allow a reasonable prospect of variable fees being introduced by universities with variable strengths. As for the QAA, it is not hard to see pressure coming for it to tighten up on standards."

But the case for fee increases has been undermined by official figures showing that the project has not altered the social mix of students. The Higher Education Statistics Agency (HESA) reported that, while the number of students has increased since 2003 as part of Tony Blair's drive to see 50 per cent of all British teenagers educated at university, the breakdown of their social backgrounds has barely changed. According to the HESA, since 2003 almost 50 per cent of new undergraduates came from managerial, professional and "intermediate" backgrounds, while only 4 per cent recorded their family background as "routine occupations". None were "never worked" or long-term unemployed.

The Tory MP Rob Wilson, a former shadow universities minister, said: "In higher education as elsewhere, it is the disadvantaged groups in our society who have been failed most."