Business secretary Vince Cable announces plans to charge university-leavers according to how much they earn

Students who end up in highly-paid careers are likely to pay far more for their degrees in future, the business secretary said today, under plans to charge university-leavers according to how much they earn.

In his first major speech on universities, the business secretary Vince Cable said it was not right that teachers and care workers were expected to pay the same graduate contribution as top commercial lawyers or surgeons who earned much more.

And, in a speech entitled "the looming crisis", Cable warned that universities which were struggling financially would be left to go bankrupt in future.

The government wants to encourage the expansion of private universities and chains of globally-branded universities. This would inevitably lead to more competition and some universities would struggle, Cable said.

But he said that students at these universities would be protected. He used the analogy of a bank. "It would be similar to banks. Banks can fail, but depositors are still protected," he said. A handful of universities are known to be on an "at risk" list because they are in danger of falling into very heavy debt.

Universities had to be prepared for a period of contraction, he said. Britain is a poorer country than two years ago with a loss of income of over 6%, and future spending had to be adjusted accordingly. He called for the public to "rethink the case for our universities from the beginning".

He said: "The university sector has experienced half a century or more of expansion – in numbers of students, staff and institutions. There is enormous forward momentum. I wonder how many people in this room really – deep down – are psychologically prepared for a period of consolidation, perhaps even contraction," he said.

"We need to rethink how we fund them, and what we expect them deliver for the public support they receive."

Cable insisted he did not want to see the quality of universities fall. "We don't want to narrow the opportunities for young people to go to university, so the only possible way forward is a bigger graduate contribution."

Cable said he had asked Lord Browne, the former BP chief executive charged with reviewing student finance, to consider varying the contribution that graduates pay according to how much they earn, and possibly which university they attended.

This would mean those that go into highly-paid finance jobs and attended Oxford or Cambridge would prop up those that went into nursing at lesser-known universities.

The funds collected would go to the graduates' universities. "We have impressed on Browne that [charging graduates different rates] is a very important priority," he said.

Cable said he, the prime minister and the Chancellor were all in favour of a graduate tax – or contribution – under which university-leavers would pay a higher rate of tax. It would be unlikely that graduates would have to pay this back for the whole of their lives.

The government would pay fees directly to the universities instead of lending money to students to cover the cost of their studies. Students would pay the state back when they earned £15,000 or more.

Cable said it would be "quite tempting to use a Stalinist approach" and manoeuvre universities with levers such as cutting student numbers. "I don't want to do that; we are trying to get universities to develop themselves."