The coalition government was today said to be split over how to charge graduates for their degrees after a senior Conservative source was reported to have dismissed plans favoured by the skills secretary, Vince Cable, for university leavers to pay according to how much they earn.

Last week, Cable, a Liberal Democrat, said he was persuaded of the benefits of a graduate tax to replace tuition fees. Under this system, the government would pay for each student's university tuition, and graduates would be taxed according to how much they earned. This would ensure a low-paid teaching assistant paid much less than a City banker for their degrees.

However, the BBC has reported that a senior Conservative source has said this idea has been rejected by the government because it would break the link between students and universities. The tax could go to the Treasury.

The source said: "It is important that the money goes to the institutions. They have to have an incentive for student recruitment or a penalty if the numbers are falling". The graduate tax was an "unlikely" option, he said.

An independent review, led by Lord Browne, the former chief executive of BP, is looking into whether tuition fees should be raised or replaced and will report this autumn. It is a divisive issue for the coalition because a key part of the Lib Dem manifesto was the abolition of fees.

On BBC Radio 4's Today programme this morning, Tim Farron, Lib Dem MP for Westmorland and Lonsdale, said university education should be paid for by a general tax. "Tuition fees are a poll tax and we need to change that. If [as a graduate] you earn £20,000, you should pay a bit and if you earn £220,000, you should pay a lot. The objective is fairness."

A spokeswoman for Vince Cable contradicted the BBC source and said the government was not in a position to rule anything out. "All the ideas are being looked at. Vince was clear that he wanted it to be looked at. He hadn't thought of all the variables. This isn't a refinement."

A spokeswoman for the department of Business Innovation and Skills said: "Last week Vince Cable outlined his interest in a system of variable graduate contributions that could replace the current system of fees. Lord Browne confirmed that he was looking seriously at this option as part of his wideranging review into university funding, and this has not changed.

"The Independent Review of Higher Education Funding and Student Finance led by Lord Browne will report in the autumn. The coalition agreement makes clear that the review's findings will be judged against a range of criteria including the impact on student debt, ensuring a properly funded university sector, improving the quality of teaching, increasing social mobility and attracting a higher proportion of students from disadvantaged backgrounds. We cannot pre-empt its recommendations."

Source: Guardian.co.uk