In the run-up to budget day, John Ashworth argues the case for education mortgages that carry tax breaks

A defining characteristic of new, as opposed to old, Labour is the recognition that it is unwise to use the government's legal and regulatory powers to order commercial firms to subordinate commercial imperatives to social ones.

It was evident by the 1970s that it was commercial suicide for British Steel, shipbuilders, coal and Leyland (to name but four industries in which the United Kingdom had a major share of the world market) to be coerced by government into fulfilling employment objectives against their managers' better judgement.

These industries' exposure to international competition revealed how inadequate and incompetent by world standards the management of these industries had become - a lesson that looks as if it is sadly about to be painfully relearned at British Nuclear Fuels.

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New Labour realised that the better policy was to allow those running commercial enterprises the maximum exposure to international competition and to deal with any social stresses so-caused by means of specific, targeted initiatives and financial incentives.

The debate about "top-up", or "differential", fees needs to ask whether higher education falls into the same category as that sorry list of nationalised industries above. I think it does.

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First, the academic labour market is genuinely global. Academics fall into the same category as other creative individuals such as actors, footballers, singers and writers.

In such fields a "winner-takes-all" situation develops where small differences in talent among those regarded as "the best" are translated into widely different salaries.

When I was director of the London School of Economics, for example, I quickly learned of the realities of the global market for academic economists.

Second, the market for higher education is rapidly becoming worldwide, rather than national. The number of "mobile" students has risen rapidly for the past 25 years and the rate of increase shows no sign of faltering.

British universities had an enviable reputation in this market in the early 1980s and even the cack-handed imposition of full-cost fees for foreign students did nothing to dent the reputation that "British is Best".

For a decade or more we traded on that reputation, as had British shipbuilders in the 1960s, without realising that others had noticed the market that we were developing. The Australians began to become serious competitors in a number of markets in Southeast Asia and, more recently, so have the Americans.

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The seriousness of the situation was hidden from those who manage British universities because of the rapid growth of the market as a whole. The crucial indicator is the UK share of the global market. That has been declining for more than a decade - reminiscent of the fools' paradise our shipbuilders lived in in the 1960s until rudely awoken by Asian competition.

There is a close connection between these two phenomena. The best universities in the world are those that can attract the best students. The reason is simple: these are the ones that the best staff want to teach. The trick in managing a university is first to attract the best students - this is why all the best universities develop ever more generous scholarship schemes.

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These students attract the best staff who, second, will need competitive salaries if they are to stay. All this is expensive and the better the students, the better the staff and the more expensive it all becomes.

This is why there is something of a panic among the Russell Group of top 20 research universities and why they are calling for a debate about top-up fees with the government who, sadly, seem here to be acting more like old Labour than new.

The Teaching and Higher Education Act effectively nationalised British universities by taking away their power to determine pricing policies.

The government thus has responsibility to ensure universities are internationally competitive. How? It could give universities back the power to set their own fees and, in the forthcoming budget, introduce new tax breaks for education mortgages.

Subsidised mortgages worked so well in directing investment to house purchase that they have been phased out.

Now is the time to reintroduce them for personal investment in higher education. The debate must start soon for there is not much time to save our universities from the fate that overtakes nationalised industries exposed to global competition.

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John Ashworth, who is chairman of the British Library, writes in a personal capacity. To comment on this article, email us on soapbox@thes.co.uk