Alison Wolf

Do you remember a big admissions scandal a few years ago in which an undercover reporter convinced a couple of Oxford dons that he would donate £300,000 if they created an extra place on one of their courses for his son? He got an encouraging response, broke the story and the academics' resignations were instantaneous.

I was amazed that anyone still trusted a plausible stranger promising gifts. But then look at Sven-Goran Eriksson and the "fake sheikh" a few weeks back. And, of course, Oxford had signed the usual university agreement with the Higher Education Funding Council for England, which obliged it to impose the national fee tariff on all home students - not a penny more, not a penny less. So there was a small matter of legality involved. Nonetheless, it seemed a pretty victimless action to attract such opprobrium. No one was going to lose a place: the idea was to add one to the Hefce quota.

At the moment we are encouraged to charge non-European Union students any fee the market can bear, regardless of their personal circumstances. This keeps us solvent and in effect subsidises UK and EU students (whatever their income). Full-time British undergraduates, however, can pay more than the set amount only if they go somewhere else, such as New Zealand or North America. If I were a British parent and could see the numbers of "home" places on desirable courses shrinking in favour of full-fee entrants from overseas, I might think this was bizarre. Why not let some home students pay higher fees, too?

Like most simple solutions, this one creates its own problems. However, a number of countries do combine either low and high-fee or free and fee-paying places for their own citizens. In Australia, up to 35 per cent of home students on a university course can be high-fee payers. So if your exam results don't quite get you on to the course you want, you can choose between opting for another one, or raising the extra money and applying for a fee-paying place.

In some of the transition states of Eastern Europe and the former Soviet Union, allowing universities to take extra paying students, alongside those supported by the state, is what has prevented bankruptcy and collapse. In Russia, at least half the students now pay fees. But it was a recent conference on Russian student finance that highlighted, for me, the problems such a system creates.

There are always tensions around university admissions, because we do not just educate people, we provide signals about what they are worth.

Graduates earn more, on average, than non-graduates. But how much of this is because university makes people more skilled, how much because graduates were more able to begin with and how much because the labour market just thinks they are brighter or more skilled? Oxbridge graduates generally earn more than other British graduates. Are they really better? Or is it merely that employers believe that they are?

Anyone thinking about the job market, or their children's futures, tends to believe - with reason - that where you go sends an important signal with a life of its own. In a system in which the brightest get free places, and others can pay for a place, another signal quickly appears. Obviously, if you get a free place you must be brighter than if you pay. Employers will want to know - and a free place will be worth more in later life.

In raw economic terms, it may therefore be worth paying as much as, or even more than, the fees to obtain a "free" place. And the word on the Russian street is that exactly that is happening. Parents are starting to pay handsomely for "free" places, especially in the prestigious institutions (which also have the largest fees).

I do not think anything like this is imminent in Australia. Corruption takes hold when the money involved matters desperately to the recipients.

Australian universities are rich by world standards, as are our own. Even so, we feel the tension between maintaining standards and bringing in the fee income we all need. In the US and in the EU, politicians and business leaders are now proposing permanent residence status for overseas students gaining technical and science degrees. Would every faculty across the Continent hold the line on quality then? It is asking a lot.

If you create two rigid and very different groups - grammar schools and secondary moderns, upper and lower seconds, Oxbridge and the rest - you also create major pressures around the process of allocation, especially for marginal candidates. Adding full-fee home places to our subsidised ones would create a new, problematic divide. But the ones we have already are creating their own tensions and threats to academic integrity. A less controlled, more complex fee system might actually be fairer to everyone.

Alison Wolf is Sir Roy Griffiths professor of public sector management, King's College London.