The report, commissioned by the Russell group of 19 leading universities, argues that students should pay more towards the cost of gaining a degree because of the higher earnings of graduates. The current system “redistributes income from low-income to high-income taxpayers”, the report says.

It rejects the claim that allowing universities to set their own fees would reduce access for students from poor backgrounds. The authors, Professor David Greenaway and Dr Michelle Haynes of Nottingham University, suggest that these students from low- income families could be given bursaries while others should have access to loans which would be paid back through the national insurance system, according to ability to pay.

Without top-up fees, a significant rise in income tax would be the only way to expand higher education, they warn. Allowing universities to levy their own fees would raise more than pound;1 billion a year.

However, the National Union of Students said the report’s conclusions were “totally misplaced”. And the Government dismissed the report. “The Government’s position has not changed. We are opposed to top-up fees and legislated early in this parliament to prevent them being levied,” a spokesperson said.

Instead, ministers concentrated on two measures designed to help more young people to university. Foundation degrees, launched by education minister Baroness Blackstone this week, are designed to act as a bridge between further and higher education.

The first courses will begin in autumn 200 and are likely to include financial services, health care, tourism, the media and computing - sectors of the economy with big skill shortages.

Vocational GCSEs will also be introduced in an effort to engage more young people in education. David Blunkett, the Education Secretary, confirmed that the new exams, including subjects such as catering and engineering, will be introduced from 2002, as The TES reported two weeks ago. Despite concerns among traditionalists about “dumbing down” the proposals were broadly welcomed.

Meanwhile, proposals to crack down on retirement through ill-health among public-sector workers provoked a backlash from teacher unions.

A report published by the Treasury, described the 22,000 public workers who retire due to sickness as an “unacceptably high” number - and a third higher than the private-sector rate. A Government source said: “We are determined to cut the bill and get the money to where it is needed most - in front-line services.”

However, a spokesperson for the National Union of Teachers said the Treasury did not have to deal with the problems teachers face. “Teachers are having to retire in their forties because of stress and other health problems. They have to go back to their doctors over and over again because of the existing constraints on premature retirement,” she said.

Pupils’ health could get a boost from the Government after reports suggesting that ministers are considering a plan to give schoolchildren free fruit.

The Department of Health is considering following the example of Finland where the incidence of heart disease has fallen after fruit was handed out in schools.