Labour hits out at Tory loans policy

The education secretary, Charles Clarke, today issued a critique of the Tories new top-up fees policy claiming it will leave universities ?1.1bn short and would penalise the lowest earners. The sums, he said "simply do not add up".

In an open letter to the shadow education secretary, Tim Collins, Mr Clarke claimed that by introducing commercial rates of interest on student loans the students who go on to take the lowest paid jobs - including many in the public sector - would, under a Tory government, take the longest to pay back their debts and would accrue the highest payments of interest.

The quick rebuttals and fierce language in the letter places the issue of student finance firmly at the heart of both party's campaigns leading up to the general election, expected next year.

This morning the Conservative party set out their vision for student finance: The end of tuition fees, students paying commercial rates of interest on loans and universities controlling the student loans system and reaping the extra money brought in by the raised interest rates.

In a complex set of financial reforms universities would benefit from the existing repayments that are being made and would be able to raise money for future loans on the capital market.

The plan has been condemned by students but cautiously praised by universities.

Mr Clarke's letter read: "real rates of interest are regressive. Those on the lowest earnings take longest to repay and so repay the most. The effect will be worst on those who decide to take a career break to start a family."

He continued: "a medium earner such as a teacher not taking a career break would repay getting on for ?20,000 if they had a ?10,000 loan liability, whereas a high earner in the city in the same circumstances would repay around ?14,000.

"This policy would have the effect of discriminating between students who sat next to each other on the same course but who took up different jobs."

For universities, he wrote, the Conservatives have "seriously" overestimated the new income their policy would bring - by ?1.1bn.

"In total I calculate that your [sic] sums are short of ?1.1bn if they are to be viable."

Earlier today, Tony Blair argued that the policy would leave a ?500m "gaping hole" in the government's finances. A statement from the Tory Central Office immediately refuted this saying: "completely untrue. Our policy has been fully costed, checked by financial institutions, and is cost-neutral to the Treasury."

In concluding his letter to Mr Collins, Mr Clarke took a dig at his opposite number saying: "thank you for letting me know that you will not be present at oral questions tomorrow because you will be at the country fair in Cumbria. I am sorry we will not have the opportunity to discuss these matter further."