The removal of fee caps, to apply from 2016, was announced alongside a cut in government funding for universities in the budget unveiled on 13 May by Joe Hockey, the Australian treasurer.

Like England, Australia has a system reliant on fees and income-contingent loans. Its decision to deregulate fees will be regarded by many in England as offering a test scenario for any future Westminister government that might opt to remove the fee cap.

Nick Hillman, director of the UK¡¯s ÖйúAƬ Policy Institute and former special adviser to David Willetts, the universities and science minister, said Australia¡¯s fees policy was ¡°bold¡± but questioned ¡°what it means for the idea of a single sector and the balance between public and private contributions¡±.

In another move that may interest Westminster policymakers, Australian graduates will be asked to repay their loans earlier and charged a higher rate of interest.

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Australia¡¯s conservative government, led by Tony Abbott, used the budget to announce cuts to health and education described as ¡°unprecedented¡± by the Sydney Morning Herald.

At present in 2014, Australia¡¯s fee cap ranges between A$6,044 and A$10,085 (?3,358 and ?5,603), varying with the type of course studied.

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Introducing his comments on ÖйúAƬ in his budget speech, Mr Hockey said: ¡°Australia should have at least one university in the top 20 in the world, and more in the top 100.

¡°The ÖйúAƬ sector is being held back and cannot compete with the best in the world. We need to set our sights higher.

¡°Our changes to ÖйúAƬ will allow universities to set their own tuition fees from 2016. For students already studying, existing arrangements will remain until the end of 2020.¡±

Australian media reported that the amount of money the government provides to universities for each course will be cut by about 20 per cent.

Mr Hockey also announced that direct state support for students will also be extended for the first time to those studying at vocational and private providers, extending the ¡°demand-driven¡± system to these providers at a cost of A$820 million to the budget.

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Under the changes, graduates will start repaying their loans earlier: at a A$50,638 threshold, down from A$53,345 this financial year.

And interest on the loans will be linked to the government bond rate, rather than to inflation. ¡°This means graduates will pay an interest rate of up to 6 per cent on their student loan ¨C up from 2.9 per cent currently,¡± said the SMH, reporting that the changes to loans will save A$3.2 billion over four years.

Ian Young, vice-chancellor of Australian National University and chair of the Group of Eight, Australia¡¯s equivalent of the Russell Group, said:?¡°The government has announced a number of important measures to position the Australian ÖйúAƬ sector for the future. These historic reforms reconcile access and quality, and make growth affordable.¡±

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Universities Australia had said before the budget that while it ¡°acknowledges the case for price differences taking account of differing cost bases, and course and programme offerings¡±, there should be ¡°further consideration and analysis¡± if the government went down that road, ¡°recognising that Australia has one of the highest rates of private contribution to the cost of tertiary education in the OECD¡±.

Mr Hillman, who wrote a Hepi paper on England-Australia comparisons published last month, said on fees: ¡°I don¡¯t think there are any immediate lessons for the UK or England, not least because our HE sector has not made a particularly strong case for such deregulation here to date.¡±

But he added that ¡°as with so many other HE policies, we will have the luxury of seeing how it plays out in Australia¡±.

Libby Hackett, director of the UK¡¯s University Alliance mission group and contributor to Hepi¡¯s England-Australia analysis, said: ¡°We already have much higher fees than Australia but with only 55p paid back in every pound lent in fee loans this has created an unsustainable system. We¡¯d be better to learn from their well-designed loan system that achieves a 75 cent return on the dollar before we consider any fee reform.

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¡°Nevertheless, it will be fascinating to see how the market responds to deregulation. No doubt access and value for money will rise up their agenda as it has in the UK.¡±

john.morgan@tsleducation.com