Students will have to pay annual tuition fees of up £3,000 a year under plans confirmed by the government.

And for the first time, universities could be allowed to set different levels of fees.

The controversial plans have caused splits in the cabinet and led student groups to claim the new fee structure will encourage elitism.

But Professor Nicholas Barr of the London School of Economics supports the government's plans and believes they will improve access and the quality of higher education.

Professor Barr answered your questions.

Transcript:

Newshost:
Hello and welcome to this BBC News Online interactive forum. Well now it's been confirmed - university students are facing higher tuition fees in future but they won't have to pay them back until after they've completed their courses. In its long awaited reform of higher education the government has announced its plans to scrap up-front charges allowing graduates to pay only when they start work.

The controversial plans have caused splits in the cabinet and complaints that the new fee structure will encourage elitism. But is this the case? Well joining me from our Westminster studio is Professor Nicholas Barr from the London School of Economics.

Professor Barr, we have lots and lots of e-mails to put to you this afternoon but first of all let's establish where you stand on this new announcement by the government.

Nicholas Barr:
Well I'm very much in favour of it. I think that because student loans now have repayments that are added on to income tax what the government has in fact done is, once people understand what they're proposing, is to bring back universal grants because students will go to university, money will be squirted into their bank accounts to pay their living expenses, they won't pay any tuition fees at the time.

They get their degree and once they start earning beyond a certain amount they will pay a somewhat higher rate of tax for a period of years. So it really is like universal grants except that the tax that pays for it is not paid by all taxpayers but only by the people who've been to university.

Newshost:
Well that sounds all too good to be true so let's put to you some of these points that have come in from our viewers. Mandy Auvache from Basingstoke says, on the subject of standards - improving the standards of education: "How do you see that this will improve education standards? Will it not just be a case of making a greater divide between the haves and the have-nots?"

Nicholas Barr:
British higher education has expanded from five per cent of students going to university, what is a very elite system, to 40 per cent, that expansion has been absolutely wonderful. But one of the implications is that funding hasn't kept pace with student numbers. As a result funding for teaching per student has halved over the past 20 years and standards are falling. So one of the drives behind this, as well as improving student support, has been to give universities more money in order to improve quality.

If universities don't get more money then quality will continue to decline. And the argument in the White Paper is that where some of this money should come from is not taxpayers generally but from those people who go to university and who do well financially afterwards. So that's where the quality improvement will come from - more resources for university.

Newshost:
A point made by Mather from Glasgow says that basically - some idea of what he says here - that we're in this problem because we've opened up the university system with crazy polytechnics, turned them into universities, so we've created the problem by having more universities, more students.

Nicholas Barr:
But I think more students is not a problem, I think it's a wonderful thing, in many ways it's a solution. Fifty years ago the number of graduates we had in the economy didn't matter, it was really a luxury good for people who liked studying.

In today's knowledge economy you need a lot of people who have a very widely diverse range of skills, so you need more graduates, you need greater diversity of degrees, you need more repeated retraining because knowledge has a shorter half life. So the problem hasn't been caused by more students, more students are needed but that has implications for the amount of resources that universities need.

Newshost:
We've just had a live e-mail come in from Vincent in Peterborough, he asks: "Will this affect all students at universities in September 2004 or just those commencing their studies at that time?"

Nicholas Barr: My understanding is from next October the up-front fee will disappear, it'll be covered by a loan, from October 2004 grants for families will be reintroduced and fees above the current level of £1100 won't happen until October 2006. And in the past changes have only affected students starting in that year, so none of this will affect people who are currently at university.

Newshost:
Okay, Sam Long from Glasgow, he's actually an Australian living in Glasgow, says: "What guarantees do universities have that if the government introduces higher education fees that this money will all be used to directly fund universities? The Australian higher education system, which I believe was once world class, has been decimated by the government's cutbacks."

Nicholas Barr:
If government sets fee levels, as in Australia from 1989, as in the UK, then as fee income goes up, taxpayer money can go down and universities go back into crisis. Fees were introduced in Australia to solve a funding crisis, as Sam rightly says, Australia's now back in crisis.

That's the problem with fees set by government - funding is close ended, the treasury's in charge. One of the many advantages of flexible fees is that if taxpayer funding were to go down universities can respond to that, if they wish, by increasing their tuition fees. So the great difference between what the White Paper is saying and the Australian system is government doesn't set fees, universities will.

Newshost:
We've got another tax related question for you from Matt in Wales, he's asking: "The effects of supply and demand must mean that the more graduates which exist the less they're likely to be paid. How can it be fair to tax graduates on less than the average salary, a number which will grow, that equates to a tax on learning?"

Nicholas Barr:
Other things being equal if the supply goes up the price will go down, that's quite right. But other things aren't equal. The supply of graduates is going up but, as I said, the demand for skills is going up as well. That's why despite the very rapid expansion we've seen in higher education in Britain, the so-called graduate premium, the extent to which graduates on average earn more than people without degrees, has not fallen.

So no it is not a tax on learning, it is saying if somebody goes to university, on average, he or she will do very well and that some of that benefit should be repaid through retrospective income related contributions. I think that's fair, that's not a tax on learning.

Newshost:
OK, here's another question on how it relates to improving standards. Brian in Manchester is asking: "How is charging more for college courses going to improve anything when the biggest problem is the inefficiency within the universities and the departments?"

Nicholas Barr:
If you allow universities to set their own fees essentially what you're doing is you're saying to universities you're now competing with each other. The way you get universities to improve their efficiency is to make things more competitive. I mean I've seen this at my own institution - the London School of Economics - where we've been operating in an international competitive market for 70 plus years.

But particularly when the overseas fee subsidy from the British government was withdrawn in 1980 all of a sudden we found ourselves in a highly competitive situation and we had to deliver for students. And those competitive pressures are what will put in place forces that will force institutions to improve their efficiency.

Newshost:
Now a question come in from Vince in Manchester, which is particularly pertinent for me being of a Scottish persuasion. "If Scotland can get grants for free university education why can't England?"

Nicholas Barr:
The English system is - announced in the White Paper - is essentially the same as the Scottish system with only one difference and that is the fee level is not set centrally as in Scotland, by the Scottish Executive, universities can set their own fee levels up to a ceiling. So in essence this is the Scottish system.

In Scotland a lot of it is paid by the taxpayer, some of it is paid by the beneficiaries of higher education through their graduate premium. In England the graduate contribution is somewhat higher than it is in Scotland but the principle is exactly the same - the costs of higher education should be shared between the taxpayer and the beneficiary - the graduate - and one can argue about exactly what that share should be.

Newshost:
Isn't this going to create - this is me asking you this - isn't this going to create a problem though in Scotland because fewer Scottish students will want to come down to pay for their education in England and more English students might want to go north of the border to Scotland, so it's going to create a position in Scotland where it's going to become fiercely competitive to get a position at university is it not?

Nicholas Barr:
Yes I mean there's always a problem where you have two different price regimes and it could be that one of the results of this, certainly if it goes well, is that Scottish vice-chancellors might see that there would be advantages if they could set their own fee levels.

So you sort of see a sort of a zig zag going on between England and Scotland. Scotland improved on England in what it did about two years, we are now, I think, improving on Scotland and it may well be that Scotland will then respond.

Newshost:
This has obviously struck a chord because we've got an e-mail coming in from Declan in Stirling, he asks: "Will a two-tier system created by differential fees cause students to choose university according to what they can afford rather than where their academic abilities allow them to go?"

Nicholas Barr:
Gosh there's a lot to discuss there. First of all the two-tier thing is a myth, we already have a 100 tier system. I mean to pretend that all universities are the same is the emperor's clothes, some universities are better than others, we know that, some university degrees confer greater earning power than others. It's not only a myth, it's a dangerous myth.

If we continue to treat the best universities and local universities as the same they will become the same. It's the Henry Ford school of universities. And the result of that would be to hand our research base over to the US, which is one of the things that the White Paper says explicitly the government does not want to happen.

To come on to the issue of will this put off the poor? I think there are at least four reasons why it won't. First of all, they're not up-front fees, they're deferred fees - so higher education is free at the point of use, no one has to pay a penny when they go to university.

Secondly, repayments of loans are income-related - so low earners make no repayments or only low repayments. Thirdly, to argue that poor people won't go to the best universities is I think deeply patronising, it's saying better off people are bright enough to realise the benefits of going to a good university, poor people are not.

Now that's simply untrue. Students are a savvy street wise bunch, they will make good choices. And the final reason why the poor won't be put off - universities aren't interested in having rich students, what we want to have are bright students. So universities with higher fees will have, out of self interest, will wish to have scholarship schemes so that we can attract the brightest students irrespective of their background.

Newshost:
Okay, one of your colleagues, Ian from Southampton, has just e-mailed us saying: "I already have 250 students in my lectures, no more please. Surely it should be equality, irrespective of ability to pay, not quantity. Where did this 50% figure come from?"

Nicholas Barr:
Well the 50% figure is not one that I - my preference would be to have a sensible system of student support - let students choose whether they want to go to university, let universities make choices about numbers and the prices they charge. Let employers decide which students they want to hire. And the participation rate is then a consequence of all those decisions, rather than the target set by government.

But I think that government is right to wish to encourage more people to go to university and I think my response to my colleague in Southampton - I sympathise with the large lectures, by allowing universities to charge higher fees that starts to address the quality issue, it starts to make it possible for universities to improve the staff/student ratio.

And don't forget the Chancellor or rather the Secretary of State for Education announced today that universities were going to get an extra 6% real funding increase per year for the next three years, so that will also make a start on enabling us to improve our staff/student ratios.

Newshost:
Well I'm afraid we've just scratched the surface, this is such a huge wide-ranging subject, we've had so many e-mails but I'm afraid we've run out of time. Thanks very much Professor Barr and thank you very much for all your many questions and that's all from the interactive section this afternoon, from me Carole Jones, goodbye.