Students face big rise in tuition fees and a tax after graduation

Lord Dearing - who first advocated charging tuition fees in a report 10 years ago that changed the way universities are now funded - told vice chancellors that universities can only remain globally competitive if they charge " differential fees". He added that the fees would almost certainly be considerably higher.

He also suggested that in future students could pay some sort of graduate tax.

His comments are expected to find favour with Alan Johnson, the Education Secretary, who last year said that he would like to see a "market place" in higher education, where courses were priced according to demand.

But Lord Dearing does not see "differential fees" as the only long-term funding solution and suggested there could also be some form of a graduate tax whereby students, after graduating, could agree to give a percentage of their income over a specific level, depending on how much teaching they had received.

About 95 per cent of England's universities and two thirds of further education colleges charge the full £3,000-a-year topup fees. But leading research universities have complained that this is not enough and must be raised to at least £5,000. In today's speech to Universities UK, the umbrella group of vicechancellors, Lord Dearing suggested that universities, "look beyond the state for meeting any further increase," adding: "With the recent increase to £3,000 in graduate contributions... it may be unwise to assume that [there will be a] further major increase across the board".

While research has shown that there is still a real financial benefit in investing in higher education, Lord Dearing noted that the return is far higher in some subjects, such as medicine and the sciences, than others, such as the arts.

However, while the returns are higher for scientists, he admits that if universities were to charge for them accordingly, it "would impact on engineering and the sciences where much is at stake for the institutions and the state". This raises the question of how much state funding they would gain in future and whether bursaries would have to be increased.

Britain is second only to America as the most popular destination for overseas students, with Cambridge and Oxford the only European universities in the Top Ten of both the Times Higher and the Shanghai Jiao Tong indices of university world rankings.

But to maintain that competitiveness, Lord Dearing suggested universities will need "markedly higher levels of funding than at present". "I respect the ability of universities to do what they think is right," he told The Times. "What we would like to see is a market that says that some courses cost nothing and some cost the £3,000 limit."