How students will pay

Observations on university fees

The delay is cosmetic. Even though the announcement of the government's plans for higher education funding has been held back until mid-January, Tony Blair, Gordon Brown and Charles Clarke have settled on a broad compromise formula. And while the details are still being honed, it suits the protagonists to play up the differences. The Prime Minister likes his Heseltinian Elites-R-Us image. The Chancellor is happy that people see him as being on the equality side of the excellence debate. And the Education Secretary doesn't want us to think he is the sort of politician who would accept a fait accompli in the first week of his new job.

These are the outlines of the compromise - and they're not far from the original formula that Estelle Morris, who resigned as education secretary last month, felt uncomfortable with:

Top-up fees: Brown is prepared to bite the bullet and agree to allow universities to charge students more than the present flat-rate annual fee of £1,100. His admiration for the American way, with its unfusty, business-oriented university sector, has persuaded him that some form of latitude for universities is unavoidable. He has, however, ensured that there will be a ceiling on what universities can charge, which may vary from place to place and subject to subject. And to conform to a manifesto commitment that ruled out top-up fees for this parliament, the increases won't come into effect until after the next election. Then they are likely to be phased in over several years.

Graduate tax: Some universities, such as Imperial College, London, want to charge fees as high as £15,000 a year. Blair is clear that this won't wash with the middle classes. So how will the money be found? The present system - whereby students pay fees up front but, if necessary, take out cheap loans to pay back after graduation - will continue. But there will also be some kind of graduate tax. No agreement has been reached on whether graduates should pay a percentage of their salaries over a fixed period (so that the more prosperous ones, in effect, subsidise those less successful financially) or whether they should pay an absolute sum, tapered for low earners.

General taxation: Universities need a major injection of cash, partly to finance an increase in student numbers, partly to enable the best to compete internationally in doing cutting-edge research and attracting the best lecturers. Some money will therefore come from general taxation. And to make up for the shortfall in funds before the revenue in graduate taxes can be collected (there is no intention of taxing existing graduates or those who have already started their courses), universities will be encouraged to borrow, with the government possibly introducing some form of underwriting scheme. However, ministers are keen to force universities to professionalise their fund-raising and to increase links with business sponsors.

Grants: Student maintenance grants will return for the poorest minority. Downing Street says that the changes may make it harder to realise its ideal of increasing access to higher education for students from poor homes. But ministers also agree that universities must have a significantly increased income stream. As one official put it to me: "Tony has an international perspective on this. The word egalitarian doesn't immediately spring to mind."