Is this the end of the glory days for Oxford and Cambridge?

Should taxpayers continue to pay the extra pounds 2,000 per head which it costs to educate undergraduates at Oxford and Cambridge, the richest universities in Britain? That question, posed by Sir Ron Dearing in his report on higher education in July, is being reviewed by ministers.

Is it right that British taxpayers should continue to pay the extra pounds 2,000 per head which it costs to educate undergraduates at Oxford and Cambridge, the richest universities in Britain? That question, posed by Sir Ron Dearing in his report on higher education in July, has been picked up by new Labour ministers who are reviewing the matter. As a result the higher education funding council has been asked to advise the Government on mechanisms for future funding of Oxford and Cambridge - and to report as soon as possible in November.

These moves are causing jitters in some Oxford and Cambridge colleges, particularly the poorer ones without much in the way of endowments. The extra money is worth pounds 35m a year to the two universities combined, according to figures from the Department for Education and Employment. They fear that losing the cash could mean the end of their unique - or virtually unique - tutorial system. It could mean the end of a system which bases tutorials in colleges in tiny groups of one tutor to two students and sometimes one to one, thereby giving students much more individual attention than they would get elsewhere. It could lead also to job cuts and even bankruptcy, they say, with small colleges such as Oxford's Linacre and St Peter's being the first to go under.

Dr Evan Harris, Lib-Dem MP for Oxford West and Abingdon, claims removal of the college fee - the additional amount paid for the tutorial system, libraries and pastoral care in colleges - would destroy the teaching system. "It would be a disaster," he says. "We need to have some universities capable of competing with the best worldwide. In Oxford and Cambridge we have world-class standards of teaching and research. You don't get that for nothing."

Not everyone takes the same view. His colleague in Cambridge, Labour MP Anne Campbell, has declined to join his campaign for the status quo. She says the Labour Party fought the general election on equity of funding for undergraduate courses and on that basis the tutorial system cannot be justified in the long term. "Cambridge has better accommodation than any other university," she says. "It has the best teachers, the best research and the best students. To suggest that extra money is required to support that system probably doesn't stand up." At the same time Ms Campbell is calling on the Government to phase in any change to Oxford and Cambridge funding, so that colleges can make plans to cope with a reduction.

Both sides have prominent supporters. Some of the critics of the status quo are Oxford and Cambridge graduates. Sir Christopher Ball, for example, former head of Keble College, Oxford, and now a strong advocate of lifelong learning, says: "It no longer makes sense to be investing disproportionately in the most able people."

The issue has arisen for two reasons. First, the Higher Education Funding Council is pursuing a new policy of equalising funding, so that four broad subject groups are funded on a similar basis around the country. Within that it is taking account of special needs to ensure diversity. Therefore it needs to work out how, whether and to what extent Oxford and Cambridge should receive extra money under the new policy.

Second, Sir Ron Dearing queried whether the additional funding for Oxford and Cambridge represented value for money. Professor Alan Smithers, of Brunel University, comments: "I think it was an invitation for ministers to reconsider that particular advantage."

Baroness Blackstone, the minister in charge of higher education, (a graduate of the LSE), has said nothing publicly about Oxford and Cambridge since coming into office but there is a suspicion that, like Sir Ron, she questions their funding advantage. Certainly other Labour politicians do. The MP Margaret Hodge, for example, who chairs the House of Commons select committee on education, says: "I think it's grossly unfair and it's an issue we need to address."

Oxford and Cambridge supporters were alarmed by an unexpected development shortly after the General Election that showed that Labour took a different line from its predecessor. In June the new Labour government decided unilaterally to cut the college fee for the coming academic year. In so doing, they overturned an agreement made by the Conservative government which would have given Oxford and Cambridge a rise of between 3.5 and 3.8 per cent.

"We have concluded that the college fees for 1997-98 should be increased by no more than the overall increase in public funding for higher education, ie 1 per cent," said Kim Howells, junior education minister in a letter to the colleges' fees committees. "We are clear however that we should proceed on the basis of an equitable distribution of public funds in higher education." The more recent announcement of the Government's review of the funding arrangements alarms them further.

"We do feel we are on the edge of a precipice," says Michael Allen, bursar of Churchill College, Cambridge. "We don't know what is going to happen next. We can't foresee the outcome of the Government's inquiry."

John Fleming, warden of Wadham College, Oxford, thinks that the two universities should be able to make a strong case for a larger contribution from public funds by reference to three principles. First, Oxford and Cambridge can claim more because of their superior teaching; second, they can make a claim for matching funds from government because of the private money they put in through endowments; third, they have low drop-out rates and high graduate employment. The third point makes the universities good value for money, he maintains.

The current system whereby the colleges receive public money to cover much of their costs (on top of the cash which the universities get from the funding council) has been in operation since 1962 when maintenance grants were introduced.

The annual increase in college fees used to be a matter of negotiation between the colleges and departmental officials. They were byzantine, according to one participant. College bursars would produce schedules of items (Welsh slate was a regular because it was needed to repair college roofs) accompanied by details of the annual inflation rate for that item, and argue for an increase in the fee. Eventually such detailed negotiations were replaced by a more objective formula.

Successive governments have sought to avoid a public scrap on the issue. The signs are that the current government is no exception. Faced with the political difficulties of introducing tuition fees - and the myriad other problems thrown up in the aftermath of Dearing - it is unlikely to want a quarrel with Oxford and Cambridge, too.

The same is true of the two universities. They don't want a huge public debate about whether or not their privileged status should stay because they might lose out. A number of prominent people in both places, who are not prepared to talk on the record, do not think their privilege can be justified - particularly in a world where the priority is to improve the average level of education of the whole population rather than the education of a tiny elite.

The universities themselves are playing it cool. Professor Alec Broers, vice chancellor of Cambridge, declined to speak to The Independent. Dr Peter North, outgoing vice-chancellor of Oxford, reiterated the point made by the local MP Evan Harris that it costs money to sustain a university in a world league table. "We're competing with North American universities but we're doing so on much lower fee income and with endowments that are seven or eight times less," he adds. Moreover, employers want to recruit graduates produced via the Oxford and Cambridge tutorial system.

No one is certain what the outcome of the Government's inquiry will be. But the indications are that the HEFC will find some way to continue funding Oxford and Cambridge for its superior teaching model, but that the extra money will be less than they receive now. Certainly, academics at the two universities are bracing themselves for such an outcome.

funding question

It costs the taxpayer pounds 6,000 a year on average to teach an undergraduate at Oxbridge compared with pounds 4,000 elsewhere, according to figures from the Department of Education and Employment. But this official estimate is regarded as too high by sources at Oxbridge.

Funding of the two universities is fiendishly complicated. That is because funding comes from two sources: the universities themselves receive money from the Higher Education Funding Council; the colleges receive a fee for each student via the local authorities. That pays for college costs: tuition, libraries and other facilities. But the HEFC grant to the two universities is reduced by 40 per cent to take account of college fees. After that deduction is made, the two universities still receive an extra pounds 35m from the taxpayer.