In proposals he said would require a “leap of public perception”, Lord Owen suggested a withdrawal of all direct funding of university teaching. Universities would then be free to charge as much as they chose - far more than the current pound;1,050-a-year - with public support channelled into a pound;3 billion bursary fund to support poorer undergraduates.

Students could either pay the money upfront or apply for loans. All graduates would also be suject to a graduate tax, payable when they started earning pound;25,000 and likely to cost them up to pound;20,000 over a lifetime. The Government would fund research and inspect and monitor the universities, particularly on access.

The call was expected to be made on Wednesday in a speech to the Social Market Foundation, the influential centre-right think-tank founded by Lord Owen, who is also chancellor of Liverpool University.

But Andrew Pakes, president of the National Union of Students, said: “David Owen seems to get more right-wing the older he gets. It would take us back to the old days of university education purely for society’s elite.”