Vince Cable, the Business Secretary who is responsible for universities, will say in a keynote speech tomorrow that the present system of higher education must undergo radical changes to enable the Government to balance the nation's books. Mr Cable accepts that universities, which account for about half of his £19bn-a-year budget, cannot be immune from the cuts. He believes that it is difficult to justify courses with tuition of six or seven hours a week. While two-year degrees would transform the university experience for thousands of undergraduates, Mr Cable believes that many would welcome three-year courses being condensed to reduce their tuition fees – and their debts.

The Liberal Democrat MP also wants more students to live at home, attending lectures at a local university while taking their degree at one much further afield. He says the need for savings cannot be achieved by "salami-slicing" and will require changes in the way higher education is provided – a signal that he will allow an expansion of private universities, some of which could provide the "close-to-home" lectures on behalf of the institutions awarding degrees. He also wants a debate about student support and numbers, amid signs that Labour's target of raising the number of people in higher education from 43 to 50 per cent will be abandoned.

Mr Cable's ideas will be among his department's options for spending cuts to be submitted to the Treasury by the end of this week. He will meet the Chancellor George Osborne's demand for 25 per cent cuts over four years, with other proposals for further reductions on top of that. Most departments have been asked to draw up plans for two scenarios – a 25 and 40 per cent reduction in their budgets.

However, Mr Cable will warn the Treasury that some of his budget – such as research funding for new industries and products – should be protected to ensure the Government has a "growth strategy." Ministerial allies insist that Mr Cable is not "playing games" by proposing politically unacceptable cuts and recalled that he was a "deficit hawk" before the May election. One said: "He is a team player. He will do his bit. There are hard choices to be made and university funding will be among them. He wants the Treasury and the Cabinet to know what would be involved."

Mr Cable wants to encourage more variable tuition fees. He believes that lifting the £3,225-a-year cap on fees – likely to be recommended this autumn in a review by Lord Browne of Madingley, the former BP chief executive – will not solve the funding crisis as it would raise public spending as the budget for student loans would increase.

Although Lord Mandelson, Business Secretary in the previous government, called for more two-year courses, he envisaged them being offered for a limited number of universities and courses. If adopted, Mr Cable's plan would range far wider.

Dr Terence Kealey, vice-chancellor of the private Buckingham University, the first in the UK to offer a standard two-year academic degree, said: "Many more people are suited to two-year courses than realise it. In future, instead of a gap year, people may work for two years and then take a two-year degree when they are a bit older. The advantage is that they are earning in year three. We should allow people to choose what they want. But two years is a very cost-effective option."

He cited new research by the University of Staffordshire suggesting that two-year students achieved an average grade increase of 0.75 of a point, turning a 2:2 degree into a 2:1. "The normal argument for a three-year degree is that you need a long, four-month summer break for deep thoughts. No other human activity requires that. On a two-year course at Buckingham, you still have 12 weeks holiday a year and you don't lose your train of thought," he said.

But Dr Wendy Piatt, director general of the 20-strong Russell Group of universities, said: "Two-year accelerated degrees ... are unlikely to work well for many of the courses offered by Russell Group universities, which are academically intensive and in many cases laboratory-based. The research-led learning at Russell Group institutions takes place in an environment where leading academic staff are engaged in both research and teaching and much of this activity takes places during the 'holiday' periods."

Source: Independent.co.uk