Charles Clarke: Take the package in its entirety. Or not at all

Against all the odds British universities are a great success story. For years they have survived on falling investment and resources. Between 1989 and 1997 funding per student fell by over 35 per cent, leading to declining facilities, and less investment in research and teaching.

Against all the odds British universities are a great success story. For years they have survived on falling investment and resources. Between 1989 and 1997 funding per student fell by over 35 per cent, leading to declining facilities, and less investment in research and teaching.

However, they have still managed to produce 44 Nobel prize-winners in the past 50 years. Links with industry are improving, stimulating exciting innovation. And they have done so while expanding university places beyond the preserve of a tiny élite.

There can be no doubt that change is needed. The status quo is no longer an option. I'm confident that the reforms to higher education we published last week will help to achieve this change, increasing investment in higher education and opening up opportunity to everyone with the talent to benefit.

The Conservatives' proposals to abolish fees and to reduce the number of places will not achieve either of these objectives.

This Government wants to find a solution to the funding problems which have hung over our universities for the past 10 to 15 years. I'm confident that the reforms we published last week will set universities on a sustainable funding path and open up opportunity for all.

There is no doubt that we have put forward controversial proposals, by proposing to reform fundamentally the way universities charge for their courses.

At the moment every university charges exactly the same £1,125 upfront fee for all courses, whatever the type, length or the level of demand. Universities are not allowed to charge any less than this fixed amount.

We are proposing to allow universities to charge up to a maximum of £3,000 for their courses and to put a stop to the unfair demand that students or their parents pay up front. Instead, graduates will be asked to contribute through the tax system once they earn £15,000 (rather than £10,000 which is the current level), based on money earned not money owed. This means that a graduate earning £20,000 will pay just £8.65 per week under our proposals, rather than £17.30 as they do now.

So despite the controversial element of variability, the new proposals provide a fairer deal for students, parents and graduates than the current system does.

The Conservatives' proposals to abolish the standard fee altogether is pure political opportunism. Their proposals will immediately reduce student places by 100,000. They would sacrifice another 200,000 to 250,000 places as a result of abandoning expansion plans.

The Conservatives' position is untenable and dishonest. Tim Yeo, the shadow Education Secretary, said over Christmas that he was "completely open-minded" about how a future Conservative government would fund universities. He added that although the Tories will oppose a government Bill to introduce variable fees, after the Commons vote the "landscape" would change on the issue.

Michael Howard should have taken the opportunity to ditch Iain Duncan Smith's ridiculous policy, which many from his party, all universities and serious commentators disagree with. Writing in these pages last week , the Conservative education spokesman Tim Collins asserted that our plans would frighten able students from low-income backgrounds away from study. This is patently untrue.

Under our proposals, students and their families will not have to pay any fees up front: 30 per cent of the poorest full-time students will be guaranteed at least £3,000 per year. We will provide a fee grant of £1,200, and a new higher education grant of up to £1,500 from 2006. Disadvantaged students will get financial support to study what they want when they want. A student who gets the maximum government money will also get a minimum of £300 in bursary from their university if it charges £3,000 for their course.

We will also protect low-earning graduates. The average student will expect to repay their loan in around 13 years. For some it may take longer. Those who take lower paid jobs, those in and out of work and those who take time out to raise a family will have any amount outstanding after 25 years wiped out.

Mr Collins implied that our policy "gives the state, not universities, control over admissions". This is not true. The 1992 Education Act makes clear that the state cannot get involved in university admissions, and we have no plans to change that. We have repeatedly made it clear that admissions will remain a matter for the universities themselves. Universities' admissions policies and procedures will be outside the remit of an access agreement and the new regulator, the Office for Fair Access.

Mr Collins went on to assert that "few nations have a higher graduate proportion of the workforce than Britain". Forecasts by the Institute for Employment Research show that between 1999 and 2010 the number of jobs in higher level occupations - the ones most likely to be filled by those who have been through higher education - will grow by more than one and a half million. That represents 80 per cent of new jobs over the decade.

The UK must produce more graduates to meet this growing demand by increasing participation in higher education: rates of entry into HE in the UK are currently at 45 per cent, well behind many of our global competitors. For example, Finland has a participation rate of 72 per cent, New Zealand 76 per cent, Sweden 69 per cent and Australia 65 per cent.

As for Mr Collins saying that "it is increasingly unrealistic to expect our universities to compete globally for the best minds", that is not only defeatist but also an insult to our universities.

UK institutions already have some of the best minds in the academic world. As well as Nobel winners, we have 1 per cent of the world's population and an 8 per cent share of the world's scientific publications. Thirteen per cent of the world's most highly cited publications are British, making the UK second only to the US in terms of academic citations.

We do accept that institutions still need greater levels of funding to compete internationally. But, contrary to Mr Collins saying that "the Government's plans will make funding levels per student worse", in fact we are increasing public investment in HE to £10bn in 2005-06.

And, additional investment in universities from variable fees, based on 75 per cent of universities charging the full £3,000 fee, will deliver £1bn extra each year. Universities already generate £800m through the current fees. So with our reforms, they will receive £1.8bn a year in fee income. A university charging a £3,000 fee receives extra income that equates to a 30 per cent increase on the average funding per student.

Finally, Mr Collins contends that "the traditional UK system kept drop-out rates low. Mr Blair's breakneck expansion undermines this". In fact, nationally, the non-completion rate has remained broadly the same since 1991/92, a period of considerable expansion in student numbers. Latest figures published by the Higher Education Funding Council for England show drop-out rates are going down and, furthermore, we have one of the lowest drop-out rates of any OECD country.

The abolition of upfront fees, the HE grants and bursaries, the raising of the interest-free loan, the higher repayment threshold, and the 25-year write-off of debt mean that students will have the money they need while they learn, and can afford to contribute when they earn.

And universities get the sustainable funding stream they need to deliver world-class higher education. This is a coherent package to be taken as a whole or not at all.