Analysis: You don't need a degree to know that universities are hard up

The argument over top-up fees is raging in the Labour Party, but the truth is that higher education has been underfunded for years

The question of whether universities should charge students top-up fees may be tearing at the Labour Party these days. But all sides in the argument agree that the university system is drastically underfunded and in need of a big cash injection as soon as possible.

Most of this problem has been caused by the drive by successive governments to increase participation in higher education. Labour set itself the famous target of getting 50 per cent of those aged 18 to 30 into some form of higher education by the end of the decade. The figure is just over 40 per cent and has been rising steadily since the Robbins report in the Sixties advocated the goal of a higher education system open to all with the ability to benefit from it.

But figures from Charles Clarke, the Secretary of State for Education, at the weekend show the rise in student numbers has not been matched by the rise in funding. The amount of funding per student fell by some 36 per cent during the 18 years of Conservative reign. Indeed, Mr Clarke also acknowledged that although Labour had ploughed an extra 15.6 per cent into higher education since it took office in 1997, the amount of funding per student had merely "stabilised''.

The result of the boom in student numbers has had its impact on all aspects of university life. Universities UK, the umbrella group that represents vice-chancellors, says this has reduced their ability to offer high enough salaries to retain top-level research staff and avoid them joining a "brain drain'', particularly to universities in the United States.

It has also led to a levelling down of university salaries so there are better prospects for many in teaching at primary and secondary schools. Lecture rooms have been crammed full of students so academics have far less time to spend on individual tuition, and the shortfall in capital investment is so acute that a £5.3b investment is needed to bring facilities up to a modern enough standard to provide a satisfactory university education for the 21st century.

Mr Clarke said at the weekend: "Morale is thus lower than it needs to be. So there is a funding gap that needs filling. But the question is how and whatever solution we choose will raise difficult political issues.''

This is why, for 13 months, Tony Blair and his Cabinet have been grappling with the question of financing universities and still failed to come up with a solution. The Prime Minister announced a review of student finance to the Labour Party conference last year, which has turned into a much broader strategy document on the future of higher education to be published in January.

Stephen Byers, the former cabinet minister who was the leader of the country's local education authorities before he became an MP in 1992, says: "Despite university funding increasing by more than £1bn a year and a considerable increase in investment in research, there is a concern that we are falling behind universities in other countries, particularly in the US. Salaries are uncompetitive, especially for younger academics and those in highly competitive disciplines.

"At a time of globalisation we face a worldwide battle for talent. If we are to succeed we must have world-class university departments that can attract the leading players in their field, the Ronaldos and Beckhams of the academic world.''

Despite the massive growth in student numbers, ministers are worried because they have been unable to attract many youngsters from deprived backgrounds to a university career.

Margaret Hodge, the minister for Higher Education, launched what has been widely interpreted as the Government's "softening-up'' campaign for higher student fees at a conference organised by Universities UK last Friday. She said the gap between working-class representation at university level and middle-class representation had widened. In the Sixties, only 4 per cent of those from the three lowest social economic groups went to university compared with 27 per cent of those from the middle classes. Latest figures show this has changed to 18 per cent and 48 per cent respectively. In other words, Mrs Hodge said, the gap in participation has risen from 23 points to 30 points. Others note that working-class students are now four times as likely as they were to win a university place.

That is where the argument over how to fund the university system comes in. Nothing has been ruled in and nothing has been ruled out, according to the mantra repeated almost daily by Mrs Hodge and other ministers when they are questioned about the Government's intention.

But there are perceived to be three separate options on the table: top-up fees, which critics have said are bound to deter students from poor homes from going to university; a graduate tax, likely to incur the wrath of Middle England, which will say it is evidence Britain is moving towards a "tax-and-spend'' society; and the third option of a big rise in the present level of fees from £1,075 a year to either double that or something approaching £3,000.

The other argument, which is gaining favour in the Tory party, is to question whether we need to have this target of 50 per cent of young people going into higher education. Essentially, supporters of this argument believe universities should still retain an element of academic elitism, and there should be a beefed-up programme of proper vocational qualifications available to those who want to acquire craft skills.

Chris Woodhead, a former chief inspector of schools, backs this notion, saying you do not need to call out someone with a university degree if you want your plumbing fixed.

Damian Green, the Conservative education spokesman, said yesterday that Labour had "got itself into a muddle'' by trying to pursue too many goals at once. It wanted to fund universities properly, increase the number of students and "avoid clobbering parents or students that many of them will be unable to pay'', he said.

"It is not clear you can do all these things at once. The least useful one is the increase in sheer numbers going to university. Do we need to pursue that? If you dropped the 50 per cent target figure, at least some of the money that would be saved from the funding of universities could go into providing those aged 16 to 18 with the kind of skills they would need at a sub-degree level.''

But Labour will not go down this route. What the Government will do is put more of the burden for paying for a university education on to the student. It is floating the idea of a cap on top-up fees of possibly £3,000, as advocated by Mr Byers, who is thought to have been acting as a mouthpiece for Tony Blair in the past week. Mr Byers also wants a return of student grants worth £2,000 a year for those from the poorest homes.

Research shows Britain stands alone, out of the 10 industrialised countries in the Western world committed to widening participation, in failing to offer any grants to students. Under the Byers formula, students whose parents earn less than £25,000 a year would also be exempt from tuition fees.

Some means of charging larger amounts of up-front fees to students is almost certain to be included in the higher education strategy document. A total reliance on a graduate tax to be paid by students after they have gained their qualifications would mean universities having to wait for years until they could recoup enough extra money to make themselves competitive in the current global environment.

Ministers do not believe they can afford to ask the taxpayer for all the necessary extra cash in the meantime. Expect, therefore, the Byers plan or some variation on it to be the centre-piece of the higher education strategy document when it is unveiled early next year.