UK willing to spend £450m a year on EU students if it can join Made in Europe scheme

Ministers are prepared to spend as much as £450m a year to give students from the EU discounted university fees, the Guardian has learned, but only if Brussels allows the UK access to its Made in Europe industrial programme.

The UK government has drawn up plans to allow students arriving from the continent pay the same fees as British students, sources say, and is willing to spend hundreds of millions of pounds compensating universities to do so.

British officials insist, however, they will only make concessions on fees if the EU allows Britain entry to its proposed protectionist industrial scheme, which will impose trade restrictions on countries outside the bloc.

On Sunday the former chancellor Rachel Reeves praised the prime minister, Andy Burnham, for a willingness to think boldly about the UK’s relationship with Europe – saying she believed Britain’s future was within the EU. But in her first major intervention since leaving the Treasury when Burnham took office, she said those forging a path back towards EU membership had to make compelling arguments to the public.

Ministers hope if such an agreement is reached at a Brussels summit later this month it will unlock millions of pounds’ worth of benefits for British companies looking to do business in the EU, and show that the prime minister’s attempts to forge much closer ties with the bloc are paying off.

But giving EU students cheaper access to British universities could prove controversial domestically, especially when many graduates are calling for changes to their own student loan repayment plans.

One person with knowledge of the talks said: “We are willing to give the Europeans what they want on fees, but we will have to get something significant in return. The biggest prize we are pushing for right now is access to Made in Europe, so there is a deal to be done there.”

A government spokesperson said: “We are building an ambitious, close relationship with the EU that will strengthen our economy, protect British industry, and create more opportunities for young people across the UK.”

Negotiators have been thrashing out a series of deals for months to be finalised at the long-awaited summit on 20 November. Burnham wants to use it to show his commitment to much closer ties with the EU and to lay out options for how the relationship could develop in the future, including full re-entry.

In a speech at Harvard on Monday, Reeves will say the UK’s “economic interests, common values and basic geographical reality all point towards Europe”. Praising Burnham’s “willingness to face reality head-on”, she will say it is vital the British government can “prove to the public the benefits of a closer relationship and prove to Europe that we are serious and open to compromise”.

Before the summit, agreement is understood to have largely been reached in a number of areas, including on emissions trading, agricultural products and a youth mobility scheme, with reports suggesting up to 80,000 young Europeans could be allowed to come to Britain to work, live and study. EU member states had demanded between 100,000 and 150,000, with some arguing in favour of no quota.

The two sides are also nearing agreement to allow Britain access to European biometric databases, the Guardian has learned, which could help the UK government track asylum seekers.

British access to the Made in Europe scheme, which is due to be finalised next year, and European demands for cheaper fees for students at British universities are the two remaining hurdles.

EU officials say they want their students to pay fees of just over £9,000 a year rather than international fees, which can rise above £60,000. The demand briefly brought negotiations to a standstill this year, with British officials saying they had been blindsided by its inclusion in talks.

The first draft of a joint statement will be presented to EU ambassadors on Wednesday with room for text to be added or deleted up to 20 November. The agreement will include fresh commitments to strengthen efforts to end the small boat crossings in the Channel, including commitments to explore the possibility of restoring the UK’s access to EU databases.

EU diplomats say top of the UK’s shopping list is access to Eurodac, an EU database that holds fingerprints of all asylum seekers from the age of six. But they also warn there will be challenges for the UK as the database was not built for law enforcement, and sharing data with a non-EU member may not be supported by all states.

Member states are pushing for firm language on fees while the UK holds out for guarantees on Made in Europe. France dropped its opposition to the inclusion of the UK in the Industrial Accelerator Act with a proposal any country in the single market on 1 January 2020 could be involved as along as it dynamically aligned on trade measures.

Ten days ago, with talks still deadlocked, the EU discussed “decoupling” the discussion on fees from the joint statement at the summit entirely, deferring any agreement for six months. But EU diplomats still hope for an agreement to allow talks to flourish for what one called “the real reset”.

Sources have told the Guardian the government is willing to concede on fees and is prepared to pay cash-strapped universities for the income they will lose. Treasury officials have been drawing up estimates for how much such a policy will cost under various scenarios, including different levels of discounts for European students and different levels of demand for British university courses.

Two sources who have seen the costings have told the Guardian that under the most expensive scenario, which involves reducing fees to the same level as domestic students’ and very high levels of demand, the government could end up paying £450m a year. Another source said the true cost was likely to be lower, while a government official described the figure as “speculative”.

Mark Corver, an analyst of university funding and director at Campus Numerics, previously calculated it would cost the sector £140m in the first year and £400m across the three-year period of a typical course.

UK negotiators are only willing to give way on fees if they get a guarantee that British companies will be treated the same as those from the EU under the new industrial scheme.

The UK was excluded from the definition of “European” for the purposes of the scheme, prompting warnings from the British government and the UK car industry. More recently, however, France – which was the principal opponent of Britain’s inclusion in the scheme – shifted its position with a new proposal to allow British manufacturers into the system as long as the UK accepted “dynamic alignment” on EU tariffs.

This could cause a problem for the UK, which has much lower tariffs on Chinese electric vehicles than in the EU. Jonathan Reynolds, the business secretary, recently told the Guardian he would not set tariff policy in response to pressure from Brussels.

The UK is also working on securing access to the Schengen Information System II – a database holding records of fugitives, missing persons and stolen goods, which gives real-time alerts on their cross-border movements.

The EU commissioner responsible for migration, Magnus Brunner, had been due to meet the home secretary, Shabana Mahmood, in London two weeks ago to flesh out that text, but after a last-minute cancellation, work has continued between officials at the Cabinet Office and the European Commission.