The coalition government's ÖйúAƬ policy is a "dog's breakfast" that is harming the economic recovery by preoccupying vice-chancellors at a time when universities should be the drivers of growth, the shadow business secretary has said.

In an interview with Times ÖйúAƬ, John Denham said institutions were in the "appalling" position of trying to decide tuition fees without information on the future direction of policy, much of which will be set out after charges have been agreed.

Universities still lacked information on vital issues including the way student places will be allocated from 2012-13, the nature of competition from new providers and how they will be judged on widening access - a key requisite for charging fees of more than ?6,000 a year.

Mr Denham said: "It all points to a policy being rushed through much too quickly.

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"The leadership of universities - who I would have liked to see concentrating their efforts on supporting growth and prosperity in the national and regional economy - is inevitably preoccupied by this huge challenge of deciding how to price courses. It really is the wrong priority and a damaging one for the country as a whole."

Mr Denham said that although the Office for Fair Access is due to publish detailed guidance this month on how universities can meet access criteria, there were still "massive" questions over how ministers intended to keep down fees.

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He said he was "very worried" about reports that dropout rates might be used to beat down prices, as it would penalise universities that supported more "challenging" students. He added that ministers' failure to tell Offa exactly which "exceptional circumstances" would allow institutions to charge ?9,000 was "cynical".

The former secretary for innovation, universities and skills said his own experience of trying to widen participation was that the answer was not "simplistic" and represented a complex mix including outreach, advice in schools and the use of contextual data for admissions.

He admitted that the Labour government should have "sent a signal" earlier that bursaries and scholarships were less effective than had been supposed, adding that the coalition's focus on a National Scholarship Programme showed that it had not heeded the evidence.

Mr Denham also said that ministers were failing to learn from his government's experience that markets cannot be relied on to provide the quality and breadth of provision needed in publicly funded services. David Willetts, the universities and science minister, was naive to see student choice and competition as panaceas, he said.

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Mr Denham added that he welcomed better information and more choice for students, but the employability data currently on offer were inadequate and only reflected jobs taken up to six months after graduates left university.

"The theory of the fees system is that 14-year-olds sit down with their parents, read information saying what happened to graduates 10 years previously, decide which university to go to and therefore in some way make universities change their courses," Mr Denham said.

"It is just so implausible that the market will work effectively in that way."

He defended Labour's introduction of top-up fees as necessary to the expansion of the sector at the time, but said the coalition's policy was pushing charges past the "tipping point" that would put off poorer applicants.

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Mr Denham also denied that his party made a mistake by pledging to look at a graduate tax as it helped "focus policy on the ability to pay".

"It means we can look to a system of graduate contribution that is more fairly distributed," he added.

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simon.baker@tsleducation.com.