Ministers are braced for a defeat that would force Theresa May to abandon her much-criticised policy of counting foreign students as immigrants in official statistics.
A new Immigration Bill to be brought forward this year will allow MPs to force – and almost certainly win – a vote on the controversy, the Home Office believes.
Amber Rudd, the Home Secretary, is believed to have warned the Prime Minister that growing support for the rethink in Parliament means a U-turn is now inevitable.
Taking foreign students out of the official figures will be embarrassing for Mrs May, who has resisted the move as weakening the defences against higher immigration.
However, her claim that up to 100,000 foreign students a year fail to go home after graduating fell apart when official exit checks revealed that fewer than 5,000 overstay when their visas expire.
The Prime Minister has been left in what has been described as “a minority of one” as Cabinet opposition to the policy has grown.
Universities have warned that classing the students as long-term migrants is deterring young people from coming to Britain to study and damaging its successful higher education sector.
The Independent and Open Britain, which is pressing for a soft Brexit, are running a Drop the Target campaign against the policy of reducing overall annual immigration to “tens of thousands”, which includes calling for overseas students to be omitted from the statistics.
There are about 438,000 foreign students currently studying in the UK, so changing the policy could make a significant difference to the headline immigration numbers.
Ministers first contemplated defeat on the issue last year, after an amendment to the Higher Education Bill was passed by the Lords.
That attempt was killed off by June's snap election. But, with the Tories having lost their Commons majority - and an Immigration Bill looming - a reversal has become even more likely.
A Government source said: “It is inevitable that someone will bring forward an amendment on this, and it is very difficult to see how we could defeat it.”
Mrs May, who made her reputation with her tough stance on immigration as Home Secretary, fears that stripping out foreign students will be seen by voters as an attempt to fiddle the figures.
She has also argued that keeping them in the statistics maintains pressure on universities to root out bogus students.
The Home Secretary has already opened the door to a rethink by asking the independent Migration Advisory Committee to review the costs and benefits of overseas students.
Its study includes the impact of tuition fees and other spending on the national, regional, and local economy and the education sector and the role foreign students play in contributing to local economic growth.
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