BRITAIN - A radical plan for cut-price degrees has been outlined by Universities Secretary David Willetts as a means of solving higher education's economic woes.

In his first keynote speech since taking office he outlined a scheme in which students could attend lectures at their local university while living at home, but sit exams to gain a degree from another, more prestigious, institution.

The move, however, was given a lukewarm reception by academics ,who said it risked creating a new "two-tier" system of those who could afford to go away to study at university and those who could not.

In what was at first billed as the first clear sign from the coalition Government that student fees were set to rise, Mr Willetts actually cautioned against relying on a fees hike to raise much-needed money for universities.

"If fees were to go up, the Government would have to lend people the money to pay for them and that would push up public spending," he told an audience at Oxford Brookes University.

"It's not just that students don't want to pay higher fees: the Treasury can't afford them."

He added: "It's very hard asking students to pay higher fees in order to prop up final salary pension schemes for universities when their own parents have lost theirs."

He went on to outline a plan to separate teaching from learning - advocating that students could be taught in one institution near their home but study for an "external" degree at one of Britain's top universities. "Studying near one's home isn't always the best choice at the moment but if local providers opted for teaching existing highly-regarded degrees, it could improve students' employability," he said.

"I do think it's possible to provide good-quality higher education in an institution that doesn't award its own degrees and institutions may find it is cheaper and more efficient as well." Mr Willetts made it clear that universities - already facing cuts of £1.3bn this year - were facing a bleaker financial future. "There are universities struggling to make ends meet," he said. "Some have been prudent but others have planned on the assumption of ever-rising budgets."

He also questioned the idea - advocated in a speech by Richard Lambert, director general of the CBI - that the UK could reduce the number of students studying at university.

"I know of no Western country which has reversed such a trend (of rising student participation)," he said. "It is partly that education is one of those goods which we want to consume more of as we grow more affluent: it is partly that we need more education in order to become more affluent."

In response to Mr Lambert's remarks, he added: "I wonder how many of the CBI's larger members conduct graduate-only recruitment policies and, if so, whether they intend to change their approach.

"When people worry that too many youngsters are going into higher education, they imagine that we are forcing non-academic youngsters to sit in a seminar room for three years. But nowadays, university is a broad term which covers many types of learning - from computer games technology at Derby to physics in Exeter, from classics in Newcastle to yacht design at Southampton Solent - and this broad understanding of the university is a feature in many advanced countries."

Professor Les Ebdon, chairman of the university think-tank million+ and vice-chancellor of Bedford University, said learning at further education colleges and taking an external degree was "no substitute for students having the right to progress to and study at university". He added: "The proposals are a complete distraction from the real problems facing the many thousands of students who want to start courses at university in 2010 but who are at risk of not getting places."

Wendy Piatt, director general of the Russell Group of research-intensive universities, said: "An increase in graduate contributions to the cost of higher education is the fairest and only viable option for solving the funding shortfall in the system."

She warned that new ways of providing degree courses "must be carefully analysed" to ensure high-quality teaching was preserved.