The once-predictable world of academia has accommodated some peculiar developments during the past decade, but perhaps none more so than the pair of unholy alliances which has emerged recently.

On one side are universities and students, united in their alarm over the growing dearth of public money to support them. And on the other are the three main political parties, all apparently moving towards the same uncomfortable conclusion that more of the financial burden of higher education must in future be shouldered by the beneficiaries - the students themselves. But in the best traditions of farce, it took the logical conclusion of combining both positions - last week’s suggestion by university vice-chancellors that freshers should be charged a Pounds 300 levy - to bring matters to a head.

Events had been edging towards some radical shake-up of university and student funding since the early 1990s, when it became apparent that the Government’s target of getting a third of 18-year-olds on to degree courses by the turn of the century was going to be reached well before it intended.

Apparently alarmed by the burgeoning costs of supporting 108 universities and 50 per cent more students - now Pounds 7 billion a year - expansion was capped and grants were not just frozen, but have been cut by 10 per cent per annum since 1994. Universities and students complained. But it was not until last November’s Budget imposed a 7 per cent cut in overall university funding - including a slashing of almost a third of capital spending - that the revolt came in earnest.

Fuelled by alarm over the capital spending edict - after years of deferring maintenance spending on crumbling colleges, many of which were built in the 1960s and are now in serious need of repair - as well as an effective moratorium on buying large pieces of scientific equipment, the Committee of Vice Chancellors and Principals decided on an audacious move.

Its effectiveness appears to be largely down to the CVCP’s new chief executive, Diana Warwick, a former general secretary of the Association of University Teachers. Her major strengths as a fixer have, according to one observer, “transformed an unguided missile into a steering committee”.

The brilliance of the levy scheme lies in its threat to the middle classes, anxiously wooed by politicians as the key to the next election. Unless the Government makes serious moves to accede to the universities’ demands - restoration of the capital funding and perhaps a proportion of fees to be paid by students - there is the politically unpalatable prospect of an unofficial higher education tax in an election year. Even if the CVCP as a whole did not make a move, there is nothing to stop individual institutions doing so, opening up the uncomfortable possibility of some universities being closed to poorer students.

Until now, students and universities were too enveloped in their own misery to pay much attention to each other. But lack of cash affects both: a CVCP survey in January found increasing numbers of undergraduates dropping out, in part, they suspected, due to financial difficulties.

Despite a wary sympathy between universities and students for each other’s problems, there is little or no consensus on a solution. The CVCP wants tuition fees from students, repayable under the Australian-style system as a proportion of earnings, possibly with maintenance treated in the same way. The policy of the National Union of Students is for free education, and a return to the 1979 level of grants and benefits. Unofficially, the union is riven, with some senior figures preferring the more pragmatic approach that since some element of payment seems inevitable they should campaign for the best possible deal.

Politicians have been aware for two or three years that potentially uncomfortable decisions were going to have to be made, preferably by someone else. Former education secretary John Patten challenged the vice-chancellors to start thinking about radical solutions, while retreating from supplying his own. Labour’s then higher education spokesman, Jeff Rooker, was sacked for articulating the unthinkable about a graduate tax.

The Government has procrastinated as long as it dares but the CVCP’s threats may finally force some action. Gillian Shephard, the Education and Employment Secretary, promised to publish proposals on the structure and funding - its long-awaited Higher Education Review - within the next two weeks. This is likely to be treated as a kite-flying exercise to ascertain what might be acceptable electorally. This week’s launch by the Conservative Political Centre (CPC) with the apparent backing of Minister of State Eric Forth may also be used in the same way. Suggestions that the Government might be considering either a Royal Commission or a Green Paper - in effect deferring a decision whilst taking soundings on the consequences - also appear likely. In many ways, the higher education funding debate does not fall into traditional party lines. Although the CPC scheme revives that old Tory favourite, the voucher, the effect would be free fees but student-funded maintenance. Labour appears to have ruled out tuition fees, while the education-minded Liberal Democrats would apparently charge students a third.

The two nettles which must be grasped are those of university and student funding. Should students pay at least part towards higher education from which they are likely to benefit financially? And how should they be supported while doing so?

While there is little consensus on the first question, most authorities seem to agree that the present support system is a dwindling grant, now worth Pounds 1,885 a year to students outside London, plus loans which must be paid back within five years once graduates are earning more than 85 per cent of the national average - is not ideal, penalising the lower-paid or those who took longer courses. Most students are working for cash, either to make ends meet or to lessen their eventual debts. Possible replacements include the Australian system, where students pay back tuition fees and maintenance at a rate determined by their income.

Labour, anxious to avoid any suggestion of an extra tax, is likely to investigate the possibilities of such a scheme particularly carefully. A selling point might be that if grants were completely abolished, the financial burden of a student child could be completely lifted from parents.

But the important - and so far unanswered - question is the effect on potential students. Applications are down around 1.5 per cent this year, which the Universities and Colleges Admissions Service believes is partly due to fears over finance, while Secondary Heads Association president John Dunford knows of pupils who have deferred university to earn cash. He said: “Sixth-formers are extremely concerned about the level of debt. We should be looking for a better method of repayment than we have at the present.”