Vince Cable has opened the door to radical changes in the structure and funding of higher education in a landscape of reduced public investment, with potential innovations including bigger graduate contributions for high earners, the end of the distinction between further and higher education, state money for private providers and cash to reward teaching excellence.

The business secretary also said that the previous government’s commitment to a 50 per cent participation target would be dropped in a move towards greater provision of technical education in further education, more part-time courses and additional adult study.

In a speech today at London South Bank University, he said: “The reality is we are going to have to develop a model in which the balance of funding for higher education in England combines less public support and more private investment from those who benefit most from it.”

Mr Cable criticised the current system of university funding and student finance and called for a variable graduate contribution linked to individual incomes.

����Vlog

“We already have a form of graduate tax,” he said. “The problem is it is a fixed sum, a kind of poll tax, regardless of the income of the graduate.”

Under the current system, Mr Cable said, the “teacher, care worker or research scientist is expected to pay the same graduate contribution as a top commercial lawyer or City analyst”.

����Vlog

The existing system also reinforces the perception that graduates have a fixed burden of debt, whereas most individuals do not think of their future tax obligations as debt, he said.

“A lot of this is about language and perception,” he added.

Mr Cable said that Lord Browne of Madingley, who is heading the independent review of fees and funding, has given assurances that he is “looking at this issue as part of his review”.

“No decisions have been made,” the business secretary told the audience. “It is not a change in policy. We are investigating options.”

Mr Cable criticised the previous Labour government, arguing that it had focused too much on “completely artificial” targets for student numbers.

����Vlog

“I do not believe we should be setting targets or ceilings,” he said.

He added that the government “should remove any barriers of funding” between full- and part-time study, and look to provide technical apprenticeships in further education “rather than degrees”.

There was further criticism for Labour over the “current lack of incentives for teaching” in the funding system, along with approval for greater research concentration.

����Vlog

“We need to move away from a position where prestige is associated almost entirely with research performance,” Mr Cable said. “Of course, we must back internationally excellent research. But what we can’t afford is a system in which everybody tries to do everything – badly and at high cost.”

On the question of how universities could “do more with less”, Mr Cable said one approach would be to “let the market operate more freely”.

“What that means is a greater range of higher education providers,” he added. “To make this work, we need to remove some big institutional barriers, such as the boundaries we erect around the institutions that can, and can’t, receive public funds.”

But Mr Cable said that new providers could award their degrees through traditional institutions.

����Vlog

john.morgan@tsleducation.com