Pressure is building within the Labour party to drop any idea of cutting student tuition fees to £6,000 a year as both current Business Secretary Vince Cable and Lord Mandelson, who held the post under Labour, warned against it.
Mr Cable said the plans being considered by Labour were “very foolish” and a “populist gesture”.
Lord Mandelson, whilst making it clear he did not want to pre-empt party policy warned a cut in higher education funding could lead to cuts in vital courses - such as science, technology, engineering and maths (the so-called STEM subjects considered vital to the future of the economy).
In a speech to university vice-chancellors, he added: “Whilst I strongly welcome foreign students to Britain, I would not want to see them receiving preference over British students because of the greater income they bring to universities.”
Speaking to journalists before his speech Lord Mandelson added: “I think you have to consider whether there is a clamour for change - whether there is a demand for it and whether taxpayers would be happy with the alternative use of funding it if the taxpayer part wouyld have to rise.”
He counselled Labour - if it did go ahead with any pledge - to leave the door ajar for consultation after the election.
Labour, he added, would have to make it clear exactly where the alternative funding to compensate for the drop in income would be coming from.
“Any solution that leaves the universities less funded than they are at the moment is not the right solution,” he said.
In his speech, he made it clear there could be no expectation of tax rises to fund a cut in student fee income, adding: “None of the parties’ manifestos are going to expand state funding, that is obvious.”
The idea of the fee cut was floated by party leader Ed Miliband in 2011 as a level that the Government could move to at that point - rather than a cast iron policy for a future Labour administration.
Both Mr Miliband and shadow business secretary Chuka Umunna have since indicated they want to move to a graduate tax in future - but so far labour has not outlined its election policy.
Party sources were saying yesterday they would be announcing their policy “in the coming weeks” with some suggesting this could be as early as next Friday.
Mr Cable told BBC Radio Four’s Today programme that Labour was not “totally clear” about its plans, adding: “As I understand it, the people advising Ed Miliband and his team are telling him that this is a very foolish thing to do (cutting fees from £9,000 a year to £6,000 a year) because it will either open a very large hole in the budget or it will be funded by quite serious cuts to universities, which is the last thing we want.
“If we don’t provide the funding to universities they will simply cut back on their courses,” he said. “To go to £6,000 would be a populist gesture which would achieve nothing and do a lot of damage.”
The Liberal Democrat minister acknowledged his party had a “bad history” over tuition fees after committing a U-turn on its 2010 manifesto pledge to scrap them but insisted the new system was “fairer”.
Labour sources claim the present system is “unsustainable” with the majority of students expected not to repay the loans they take out for fees.
Sally Hunt, general secretary of the University and College Union, added: “Labour’s sideshow on the level of university fees has become something of an embarrassment for the party with even the likes of Peter Mandelson wading into the debate.
“The time has come for the party to make clear its policy.”