The government is poised to sweep away the era of tuition fees by announcing a graduate tax that students would pay when they finished their degrees.

In his first major speech on universities, the skills secretary, Vince Cable, today outlined plans for a new higher rate of tax payable by graduates. Under the system, the government would pay fees directly to the universities instead of lending money to students to cover the cost.

Cable said the plan – which he insisted was only an option and not the firm view of the government – would inevitably result in some students paying more. But he described the current system as a "poll tax" that took no account of earnings.

"We need to rethink the case for our universities from the beginning. We need to rethink how we fund them, and what we expect them deliver for the public support they receive," he said.

Tuition fees were introduced by the Labour government and were first paid by students in 1998. In 2004 Tony Blair risked his premiership by forcing through controversial top-up fees which have raised student contributions in England, Northern Ireland and for some students in Wales to £3,225 a year. That amount is payable after graduation.

Cable will also set out plans to slash costs in higher education which could see university degrees condensed into two years and more students living at home.

He is also keen to see the expansion of private universities, which could teach degrees that are then awarded by more established institutions.

Cable has asked Lord Browne's review of student finance to look at the possibility of a graduate tax, a government spokesman said today, which Browne has agreed to do. "It's an option that he wants Lord Browne to look at in some depth," the spokesman said.

The University and College Union, which represents lecturers, warned the government that a graduate tax had to be more than just a "rebranding exercise" that increased the financial burden on students.

The UCU general secretary, Sally Hunt, said: "If the government thinks it can get the public to swallow higher fees as some sort of graduate tax it is living in a dream world. We need a proper debate on how to fund our universities, not an exercise in rebranding.

"We will judge the plans on what they actually do and whether or not students will be forced to pay more, not how the government markets them."

The lecturers' union also urged the government not to introduce two-year degrees, which it feared would reduce the time university staff could spend on research and damage the reputation of British higher education.

Hunt said: "Two-year degrees may sound great on paper but are in effect education on the cheap. They would be incredibly teacher-intensive and would stop staff from carrying out vital research and pastoral duties. Our universities are places of learning, not academic sweatshops, and we need to get away from the idea that more can be delivered for less."

The lecturers' concern was shared by the National Union of Students, which fears that a simple graduate tax which begins at the basic-rate tax threshold would be unfair. Students are also opposed to a tax which takes money over an entire working life, because they say that fails to reflect the diminishing value of education compared to the growing importance of work experience to a career.

The Russell Group, which represents 20 top universities, expressed fears that a graduate tax would lead to some students overpaying for the cost of their education. In its submission to Lord Browne's review of fees, it warned that it was "far from clear" whether graduate tax contributions would be ringfenced for higher education.

Wendy Piatt, director general of the Russell Group, said: "All the disadvantages of a graduate tax that we outlined in our evidence explain why no other country has implemented this system of graduate repayments.

"There are other issues to consider too. For instance, it can be problematic even to define what is meant by 'a graduate'." The Russell Group is keen for universities to be allowed to set the levels of tuition fees themselves.

The shadow education secretary, Ed Balls, said: "As the first Labour leadership candidate to call for a graduate tax, I'm pleased that Vince Cable has followed many of my fellow contenders in backing this idea. When I was a Treasury adviser I argued for a graduate tax, because it was a fairer system which meant no upfront costs and no assumed debt for students and their families. It means graduates pay a contribution to the cost of their university education, but only once they are in work and clearly based on their ability to pay."

Browne, the former BP chief executive charged with reviewing student finance, is expected to say that fees should rise. One possibility is that students would be charged £7,000 a year for courses at universities such as Oxford and Cambridge, and up to £14,000 a year to study for a science degree.

Cable is concerned that lifting the £3,225-a-year cap on fees would only increase the cost to the taxpayer, as the budget for student loans would have to rise.

A study of the impact of tuition fees published two years ago revealed that teenagers from poorer families were turning their backs on a university education because of fears of debt.

The study, by the influential charity the Sutton Trust, showed the number of students planning to study at universities close to home had risen from 18% to 56%. But pupils from independent schools were more likely to move to a university in a different city.

Applications to university have soared, hitting a record high for the fourth time this year, but there are fears this masks a stagnation in the number of children from low-income homes applying for higher education.

A survey published shows that 34% of students predict they will graduate with more than £20,000 of debt, and nearly half believe it will take them a decade to pay off what they owe. The survey, by the Association of Investment Companies, found 8% believed they could be in debt for more than 20 years.

In his speech at London South Bank University, Cable is also due to outline his thinking on the balance to be struck between maintaining the number of student places and protecting government funding for research.

His speech comes the day after Malcolm Grant, provost of University College London, urged ministers to slash places at "pile it high, sell it cheap" universities – even if it meant some being forced to close – to protect "world-class" research institutions. He said cutting research funding would "decimate Britain's global competitiveness in research".

His comments were greeted with anger. Roger Brown, professor of higher education policy at Liverpool Hope University, said: "UCL is hardly typical of the UK system. For it to retain its present mission and position it needs less prestigious ones like those so sneeringly referred to as 'pile it high and sell it cheap'.

"Without such institutions, which educate, successfully, the great bulk of students, places like UCL would be obliged to cater for such students and change their character."

Source: Guardian.co.uk