Peter Mandelson has said that tuition fees paid by students in England must rise to stave off the “severe and worsening” financial pressures facing universities. Mandelson, a Labour peer and a candidate to be Oxford University’s next chancellor, said raising domestic undergraduate fees from £9,250 to £9,480 a year would provide stability before the government embarked on further reforms to higher education and student funding. Mandelson, writing in the Guardian, said: “England’s universities have reached an inflection point. Financial pressures are severe and worsening.” Mandelson argued for future tuition fees to rise alongside inflation, capped at a 2.5% annual increase. But Mandelson also suggested that universities needed more support to improve the numbers of students coming from disadvantaged backgrounds. “I believe introducing some form of inflationary link to domestic tuition fees would be a fair approach, recognising the country’s very tight fiscal constraints and the need to steady university finances,” Mandelson said. “It would ensure fees do not become more expensive in real terms for students while securing the value of this income for universities. This would be a stabilising move ahead of further much-needed reforms both to improve university finances and make the loans system fairer for individuals.” In return, Mandelson said universities would need to make “more tough choices” to improve efficiency, noting that Italian state universities had one teaching staff for every 21 students while UK universities had one for every 13. Jacqui Smith, the skills minister, told a meeting at the Labour conference that changes to student maintenance funding were being considered. “We totally hear the message that cost of living has impacted students almost more than any other group. And if you want to have the kinds of changes on access we’ve talked about, maintenance has to be part of it. That’s all I’m willing to say at the moment,” Smith said. Mandelson also calls for a more progressive system of student loans, with repayments starting at 2% of a graduate’s income and increasing by 2 percentage points for each additional £10,000, up to a maximum of 8%. Mandelson, the chancellor of Manchester Metropolitan University who will stand down from the role in January, said economists found that the progressive system had similar costs to the one in place now – which takes 9% of graduates’ income over £25,000 – by reducing repayments for low and middle earners and raising repayments for higher earners. “This would be particularly beneficial for women, who are more likely to pursue degrees in subjects that are crucial to public services, such as nursing, but whose salaries can be comparatively low,” he said. Tim Leunig, an economist and adviser to the Treasury and the Department for Education under the Conservatives, told a Labour conference fringe meeting that the current loan system should be scrapped in favour of a proposal involving graduates paying a minimum of £10 a week. Leunig said the 40-year repayment term for student loans was “absurd” and should be halved to 20 years, with student loans no longer accruing interest. Instead, employers should pay a 1% surcharge on each graduate they hire, alongside graduates repaying at least £10 a week, and more according to their earnings. Mandelson is the author of a chapter on university research and innovation in a “blueprint” for higher education, by Universities UK, an organisation of higher education institutions, to be published next week. In it, Mandelson is expected to argue that research needs to be focused on a smaller range of technologies as part of a national industrial strategy, similar to countries such as Singapore. The blueprint will say universities should receive increased government research funding while raising more from external partners and spin-off companies.