Universities' income from student tuition fees should be "top-sliced" to create a national student bursary scheme, an influential think-tank recommends this week.

A national bursary system will address the "serious shortcomings" and "distortions" of the student-support system, which penalises the universities doing most to widen access to non-traditional students, the ³ÉÈËVRÊÓƵ Policy Institute (Hepi) says in a report.

The recommendation has split the sector. It was this week firmly rejected by the Russell Group and the 1994 Group of research-intensive universities, while it was backed by the Million+ group, which represents post-1992 institutions, and the National Union of Students.

Universities charging the maximum student tuition fee of ?3,145 are required to set aside at least ?310 per student for bursaries. Beyond this, they are free to determine individually how to distribute financial support for low-income students.

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This has led to big differentials between institutions. In 2006-07, the average bursary from the Russell Group universities was ?1,764, while the average bursary from Million+ members was ?716.

Hepi's report, Financial Support in English Universities, notes problems with this "market" in bursaries.

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The situation is "unfair to both institutions and students", said Bahram Bekhradnia, director of Hepi. "The value of the bursary depends on the means of the university, and its strategy and ambitions, not the needs of the student.

"And for institutions, the (arrangements) are unfair because the more socially inclusive a university, the lower the level of bursaries it can afford to offer, and the more likely it is therefore that its more able students will be attracted to a neighbouring university that is more able to offer more, simply because it has fewer needy students.

"This is not the market at work, but a distortion of the market."

The complex system makes it hard to compare support packages offered by different institutions. The Office for Fair Access (Offa) has suggested that as many as 12,000 of the poorest students might not have taken up bursaries to which they were entitled. The gap between predicted and actual expenditure on bursaries in the sector in 2006-07 was ?19 million.

The Hepi report says the current arrangements do not widen access. Russell Group and 1994 Group institutions spent ?31 million on bursaries in 2006-07, it says, but they showed no rise in the proportion of full-time undergraduates from disadvantaged backgrounds.

Hepi says a national bursary will provide a standard sum to all eligible students - decided according to household income - and will be funded by a levy charged to all universities from their tuition-fee income. Institutions will still be allowed to top up the national bursary from their own funds, Hepi says, "but the worst distortions of the present arrangements would be mitigated".

Les Ebdon, vice-chancellor of the University of Bedfordshire and chair of Million+, said: "This hard-hitting report exposes the perverse nature of the bursary system. The universities that recruit the most students from poor backgrounds are distributing the largest sums of money in bursary payments far more widely."

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Wes Streeting, president of the NUS, said a national scheme would ensure that millions of pounds allocated to but not spent on bursaries would go to needy students.

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Wendy Piatt, director-general of the Russell Group, said the current system already guaranteed support to all students. "To suggest that it is somehow wrong for universities to then choose to top up this support with bursaries that far exceed the amount originally required seems profoundly misguided," she said.

"There is no evidence that a national bursary system would widen participation - in fact, it is more likely to hamper the efforts of Russell Group universities to encourage students from non-traditional backgrounds to apply."

Steve Smith, chairman of the 1994 Group and vice-chancellor of the University of Exeter, said: "A national bursary scheme would in effect be a tax, a forced pooling of tuition-fee income, which would be distributed away from the institution to which a student pays his or her fee. It would seriously compromise the direct relationship between a student's fees and their education."

melanie.newman@tsleducation.com

WHAT IS THE MOST EQUITABLE WAY TO WIDEN ACCESS THROUGH BURSARIES?

The ³ÉÈËVRÊÓƵ Policy Institute considered four ways to end the 'unfair' bursaries 'market'.

- Top-slicing part of the Government's annual teaching grant to universities and re-allocating the money to the universities with the largest numbers of poor students would allow them to spend more on bursaries, Hepi says. But this option will require more government spending on direct student support and, as Hepi assumes that the balance of public funding will not tip further towards direct student support, it does not consider this option to be realistic.

- Increasing government spending on student support via maintenance grants is another option Hepi suggests. The additional cost could be met by reducing the subsidy on student loans and raising interest rates on loan repayments. But Hepi says that because institutions with small numbers of low-income students will still be in a position to offer big bursaries, this model will "do little to reduce the inequality between two otherwise similar students with different institutional bursaries".

- The Government could require institutions with the fewest low-income students to spend more on outreach and other access activities, reducing the amount of money they would have available to fund large bursaries. But Hepi says this model will shrink the bursary differential between universities by cutting the values of the biggest bursaries rather than by increasing the values of the smallest.

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- A national bursary scheme that provides a standard level of support based on household income and is funded from a central pool "would address most of the problems with the present arrangements," Hepi says. It will ensure that a proportion of sector spending on bursaries is based on a common assessment of students' financial needs and will promote choice and affordability. "Universities with higher numbers of low-income students would then be better placed to compete in the market in financial aid," it says.