Tories may back 'progressive' student fees compromise

Mr Hammond hinted at a possible compromise over interest payments on student loans

The Conservatives are considering Lib Dem calls for higher earning graduates to pay more interest on student loans after rejecting a graduate tax.

Tory Transport Secretary Philip Hammond said a graduate tax, put forward by Lib Dem Business Secretary Vince Cable but now ruled out, was "unfair".

But he praised varying interest payments based on income, which Mr Cable says would be "progressive".

Meanwhile Labour said the Lib Dems had "abandoned" opposition to higher fees.

The last Labour government introduced student tuition fees but their new leader Ed Miliband has said he is now sceptical about their impact on education opportunity and prefers a graduate tax.

Lord Browne's review of university funding in England, due to be published on Tuesday, is expected to recommend increasing fees from the current £3,290 per year to £7,000 or more.

The BBC's Political Correspondent Ross Hawkins said government sources suggested no final decision had been made on a future model for university funding and that ministers would not respond to the Browne review until after the comprehensive spending review on 20 October.

The issue has the potential to open up a rift between the Conservatives and the Lib Dems, who hold different positions on the policy.

'Out of reach'

At the general election, Lib Dem MPs, including party leader Nick Clegg, signed personal pledges that they would vote against any increase in tuition fees.

The coalition agreement between the two parties allows Lib Dem MPs scope to abstain over the issue in future votes in the House of Commons.

But having long argued that student fees should ultimately be phased out, the Lib Dems will face accusations of a major u-turn should they fail to prevent the measure from becoming law.

On Saturday, Mr Cable said he wanted the final fees package to be "progressive" but said that a graduate tax was not the "way forward".

He sought to pre-empt the Browne report by highlighting "progressive" elements in it such as making loan repayments more expensive for graduates in higher-paid jobs.

'Unfair and unworkable'

This could see high-earning graduates having to pay a higher interest rate on their loans than those in less well-paid jobs.

Mr Hammond told Andrew Marr there was a "world of difference" between variable interest payments based on income and a full graduate tax.

A graduate tax - which would see graduates pay different amounts based on their earnings - would be "unfair and unworkable" and it was the "right call" to reject it, he said.

While the system of university funding needed to change, it was reasonable to expect those graduates earning more to make more of a contribution, he argued.

"So it is right that those who benefit from higher education make a contribution to it. And it is right that those who benefit the most by going on to high-paid work contribute the most."

Varying interest on loans could mean "those with the lowest incomes have their interest rate effectively subsidised while those on the highest incomes contribute something additional to provide that subsidy", he added.

Shadow Education Secretary Andy Burnham said Mr Cable's comments were "worrying" and he would oppose variable fees between different universities and courses.

'Damaging trust'

"I worry greatly that we might be about to build a university system that is out of reach for ordinary families," he told the BBC's Andrew Marr programme.

"I do not want to see a pure market in university education where the best universities can practically charge what they like."

He said the Lib Dems' decision to "abandon" their position on tuition fees had come hot on the heels of the Conservatives' announcement of a cut in child benefit for high rate taxpayers - which it had ruled out before the election.

"This is a growing pattern with the coalition. It seems what the coalition means is that everything the parties said before the election they can quite simply tear up now...This is very much going to damage trust in politics."

Mr Burnham would not be drawn on whether Labour would oppose a doubling of fees but said he supported the principle of better-off graduates making a "greater contribution".

Universities, which already face a reduction in their budget in the forthcoming spending review, say they are in urgent need of extra funding.

But the National Union of Students has warned the Lib Dems against any U-turn over tuition fees, claiming it would be "absolute betrayal" of the electorate.