The paper, to be published in an Institute of Public Policy Research magazine this summer, suggests Labour could find a way out of its dilemma on grant-maintained schools by developing a national funding formula and says post-compulsory education should be partly funded by graduates paying back some fees and loans through National Insurance contributions.

The author, Howard Glenn-erster, is professor of social policy at the London School of Economics. Although in many ways his ideas on nursery funding differ little from a right-wing Centre for Policy Studies scheme currently being considered by Downing Street, they are likely to be carefully read and discussed in senior Labour circles. One of Tony Blair’s first actions when he became leader was to hire foremost IPPR researcher David Miliband to head his private office.

Whether the IPPR’s ideas find their way into Labour policy documents is more doubtful. Nursery vouchers are contrary to party policy while plans by the Shadow Education Secretary David Blunkett for GM schools, due to be published next month, are already at an advanced stage.

Professor Glennerster’s paper, Opportunity Costs, says Labour is likely to enter the next election on a platform of pre-school education and day care, a more highly-trained workforce - and the supposition that taxpayers cannot be asked to pay much more. “If the party does go into the election on such a platform, it will fall flat on its face - and deservedly so. It also has an ambiguous or undecided position on opted-out schools - another banana skin. The party needs to think radically about educational finance, from pre-school to university,” the paper says.

Professor Glennerster argues that there is a powerful case for giving purchasing power to families of pre-school children, and students in the case of post-school adults, enabling them to follow their own needs and preferences.

All mothers of three-year-olds could, he suggests, receive a nursery voucher with their child benefit which would be cashable in pre-school and day care facilities - but only those run by local authorities or self-help groups, not private organisations.

Parents getting family credit or income support might be entitled to an enhanced voucher for younger children.

“The cost would be significant. It could total Pounds 1 billion for pre-school education and the same again for extra day care. One way of finding the money would be to abolish child benefit for children over the age of 11 or where all the children in the family are over 11 I The abolition I would save about Pounds 2bn - the sum required. This is not the best solution but may be the only one if it really is impossible to raise the additional taxes required. ”

Professor Glennerster says state schools should be funded by a common formula. Every child would receive a grant - which would vary according to age and any special educational needs - from a central funding body. Schools would also be compensated for teaching children with special needs. Bonuses might be paid for children from deprived areas. Professor Glennerster adds: “If this led to middle-class families scrambling to live on slum housing estates, so much the better.”

The paper says that any school receiving the basic grant for its pupils would have to agree to achieve a mixed-ability intake and be open to all local children. It adds that local authorities would monitor schools and make sure provision was adequate.

Post-school education would be subsidised by the Government to reflect its knock-on benefits to society as a whole. “Part would be funded on a fee or contribution basis, depending on the cost of the course. This could be waived, and in return the student would undertake to repay the fee on an income-contingent basis collected through the mechanism of the national insurance scheme.”