Summer Budget: 'high quality' UK universities could be allowed to raise tuition fees

It intends to consult on the "mechanisms" of the proposal later in the year, according to the chancellor's summer Budget. The proposal is one of a number of measures intended to ensure that UK universities remain financially "sustainable" once the cap on student numbers is removed this coming academic year, which also include replacing maintenance grants with higher value maintenance loans for new students from academic year 2016/17.

In a speech to parliament, chancellor of the exchequer George Osborne said that the existing system of means-tested grants for students from families earning less than a combined £42,620 a year had become "unaffordable".

"If we don't tackle this problem then our universities will become underfunded and our students won't get places – and I'm not prepared to let that happen," he said.

The new loans would only be repayable once the recipient was earning over £21,000 a year, and students would be able to borrow up to £8,200 a year, he said. The government would also consult on freezing the existing loan repayment threshold for five years, he said.

Universities expert Nicola Hart of Pinsent Masons, the law firm behind Out-Law.com, said that replacing maintenance grants with loans was "an easy way to cut government spending at least in the short term", although the success of the move would depend upon the repayment of those loans in the longer term. It could also help to protect public funding for science and research, she said.

"Because BIS [the Department for Business, Innovation and Skills] is not a department protected from spending cuts, universities and higher education institutions which depend on government funding for teaching, for example because they are teaching high-cost, government supported subjects, will be concerned about the impact of possible cuts to teaching funding," she said. "However, for those universities which receive little science and research funding from government, and so do not benefit directly from those funding streams potentially being protected, the change to the structure of maintenance support could be more perturbing."

"The announcement on tuition fees will be welcomed by universities, but not by students. Tuition fees, paid for through the student loans system, have been capped at £9,000 a year since their introduction by the previous Coalition government, and most universities have been charging fees at that level ever since. The increased fees would in effect deliver more cash into English universities without any increase in on-balance sheet government spending. But the prospect of a rise in fees combined with the conversion of maintenance grants into loans will increase the debt burden on students from poorer families in particular," she said.