Oxford and Cambridge universities are anxiously awaiting a Government decision, expected before Christmas, on whether or not they will be allowed to keep the extra £35m a year they receive through college fees. BBC Education Correspondent Mike Baker reports:

The vice-chancellors of the two universities met the Education Secretary, David Blunkett, on December 10 in a last attempt to persuade him that Oxbridge is a special case, deserving additional funding because of the quality and style of its one-to-one tuition and its collegiate structure.

It is thought the Government might opt for a compromise solution which brings Oxbridge into line with the funding arrangements of other universities but pays a premium in recognition of its excellent teaching.

The inquiry into Oxbridge funding came after Sir Ron Dearing's report into the funding of higher education asked whether the extra cost of education at Oxford and Cambridge, which amounts to around £2,000 per student, was justified.

Many other universities, which are struggling financially, do not believe the Oxbridge premium is justifiable.

The issue gained extra momentum when the Chancellor, Gordon Brown, linked the issue of funding to the question of elitism.

At this year's Labour Party conference, Mr Brown said: "when at Oxford and Cambridge half of the places still go to the private schools, it is time to modernise and extend opportunity by redistributing resources."

Oxford and Cambridge have responded by saying they wish to encourage more applications from state school pupils. Cambridge University recently declared an ambition to raise to 65% the proportion of students coming from state schools.

However, figures released in the past week show that both universities continue to take a disproportionate number of pupils from the private sector.

Around 7% of pupils attend independent schools, although at sixth-form level the private schools account for around 20% of pupils. In 1996, just 41.6% of Oxford places went to state school pupils. At Cambridge, in 1997, state school pupils took 47% of places.

A report from the Higher Education Funding Council is currently sitting on David Blunkett's desk. The council appeared to offer some support to the Oxbridge case when it said nothing should be done "to damage the special character and world class standing" of Oxbridge.

The council has presented the Government with a range of options, ranging from maintaining the present system, to replacing college fee income with grants to universities. But it added that if any change led to a reduction in funding, it would want some form of financial cushion to avoid damaging the quality of teaching and research.

Some experts have argued that Oxford and Cambridge could make financial savings by transferring some teaching and administrative functions from the colleges to the university. College heads argue that they have explored these possibilities but they would not deliver substantial savings.
 

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