In the second of our series on what the government must address in its upcoming strategy paper, Alison Goddard considers the case for top-up and differential fees.

Despite prime minister Tony Blair's reassurance that the review of higher education "will not mean that parents will have to pay thousands of pounds upfront in fees", top-up fees remain on the agenda.

Many of those who heard the prime minister speak in the Commons on December 4 last year took his words to mean that top-up fees were defunct.

The National Union of Students, for example, said the statement was "the biggest indication yet that he would not force top-up fees on to students and their parents".

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But top-up fees and upfront fees are not the same beast. The higher education strategy document due later this month is expected to recommend that students pay a higher price for a university education.

Students would be allowed to borrow enough to cover tuition fees and living costs and then repay the sum after graduation, in accordance with their earnings.

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Nor are top-up fees necessarily the same as differential fees. The government could merely raise the flat-rate fee of ?1,100 to perhaps ?3,000 or ?4,000 a year.

Differentiated fees would allow universities to charge different amounts for different courses. It could also result in universities charging fees differentiated by subject. Classroom-based subjects could have lower tuition fees than laboratory-based subjects and clinical sciences.

Such an approach would drive a coach and horses through the public funding system for higher education, which provides each university with the same funding for someone studying, say, physics, irrespective of the institution he or she attends.

At present, no university is allowed to charge more than ?1,100 a year and still receive public funding. Asked about future tuition fees last month, education secretary Charles Clarke said that this fee could very from university to university.

This week, however, he hinted that up-front fees could be on their way out. Mr Clarke said: "I think we would be pretty clear that we would be charging fees, unlike now, after university. So you pay through the tax system later in your life. The question of how you do it is what we are discussing at the moment."

The Department for Education and Skills later said there was not "an iota of anything new" in Mr Clarke's comments.

The effects on universities of increasing the price students pay for their education remain to be seen. Last October, when Imperial College London said that the true cost of one of its degrees was ?10,500 a year and that tuition fees could rise to ?15,000 a year, middle England reacted with horror.

The applications deadline for entry in the autumn has not passed, but the college acknowledges that applications are down on last year.

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A college spokesman told The THES that it was difficult to disentangle the effect of the declining popularity of the sciences from any fall in applications that may have been caused by the publicity. But in November, the college was moved to issue a statement that it "has no intention of charging 'top-up' fees for UK and European Union students entering in October 2003 or October 2004 either on admission or at any time during their course".

If student demand for higher education falls as a result of the new funding arrangements expected this month, the country could suffer.

A survey by the Confederation of British Industry found that almost half of employers expect to recruit more graduates over the next three years. Moreover, a fall in student demand would have grave consequences for those universities already finding it difficult to attract students.

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Any top-up fee must also increase the income to the university or college. The capped fee was introduced by the government after a recommendation in the 1997 Dearing report on higher education. But, while the income generated has meant that funding per student has not fallen in real terms, the government has cut the teaching grant, and universities do not receive the full extra income generated by fees.

A paper by University of Nottingham economists David Greenaway and Michelle Haynes calculated that if universities were allowed to charge upfront fees of ?4,000, this could bring in ?3 billion to the sector. But the pair - who two years ago wrote the report for the Russell Group calling for students to pay more for tuition - argue that such a scheme would have to be accompanied by greater availability of income-contingent loans.

Last month, Mr Blair called a Downing Street meeting of vice-chancellors from the universities of Bristol, Brunel, Cambridge, Central England, Leeds, Nottingham, Oxford, Sussex, Warwick and Imperial. Also present were his special education adviser Andrew Adonis, education secretary Charles Clarke, higher education minister Margaret Hodge and the chief executive of the Higher Education Funding Council for England, Sir Howard Newby.

Not all these institutions are on the record as supporting top-up fees. Even those that do support them as a way of getting more money into universities have some caveats. Universities charging higher fees would still want to receive public funding, for example. None would want to admit students on their ability to pay, and all would have to provide bursaries for talented applicants from the poorest backgrounds. They would also look for a critical mass to start charging higher fees as no institution would go it alone.

To give an idea of the price range in the absence of any state subsidy, one has only to look at the prices charged to students from outside the EU. British universities are free to charge these students tuition fees at what- ever level they feel appropriate.

Mike Reddin, a former senior tutor at the London School of Economics, has conducted a survey of tuition fees. He compiled the data from the average fee charged by individual universities. The Royal Veterinary College was the most expensive institution to respond. It charges on average ?14,214 a year.

Beating Cambridge into third place in this league table was Oxford, which charges ?7,482 for arts and ?9,975 for music, fine art and science plus an additional ?3,000 to ?4,000 in college fees. The clinical medicine fee is ?18,285 a year plus any college fees.

The university warns international students that the estimated total costs, including university and college fees and maintenance for 2001-02, amounted to ?17,400 for arts subjects, ?19,800 for science and ?,700 for clinical medicine.

Cambridge charges ?7,248 for classroom-based subjects and ?9,492 for laboratory-based subjects. Clinical subjects cost ?17,568 in tuition fees. Again, college fees of about ?3,000 should be added.

It tells overseas students that, to have the financial freedom to complete their studies in 2001-02, they had to have ?15,600 a year for predominantly classroom-based subjects and ?17,800 for music and laboratory-based subjects.

Imperial charges overseas students ?12,600 a year for a science degree; many Imperial science degrees take four years to complete. Its fee for clinical medicine is ?20,700 a year.

The college warns its overseas students that they need an extra ?8,800 a year in addition to fees, taking the total annual cost to ?21,400. Taking your spouse pushes the cost up to ?,200. With two dependent children, the minimum annual cost to the student is ?31,200.

The costs are comparable with those of a public school education. A year in the upper school at Dulwich College, an independent boys' school in London, costs ?9,330. With accommodation and food thrown in, the price rises to ?18,450.

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