Business leaders believe tens of thousands would emigrate to avoid being charged for degree according to salary

Tens of thousands of the UK's best graduates would emigrate if ministers went ahead with plans to charge university leavers for their degrees according to how much they earned, business leaders warn today.

The Confederation of British Industry said it was alarmed by the idea of a graduate tax, suggested by Vince Cable, the business secretary.

The government currently lends students money to cover the cost of their degrees. Graduates pay this back once they earn above £15,000 a year. They pay the same amount regardless of how much they earn, but those on high wages pay back quicker than those on low salaries.

Under a graduate tax, students who end up highly paid would be likely to pay far more for their degrees than they do now and prop up those went into low-paid jobs.

Richard Lambert, director-general of the CBI, said business leaders had decided a graduate tax would create more problems than it solved.

The CBI's higher education taskforce includes the president of McDonald's, the managing director of Microsoft UK and the chairman of Shell UK. The taskforce concluded that "the risks are great for a graduate tax", Lambert said. "If we had [this tax], UK students would have an incentive to work overseas to escape paying, especially when the top rate of tax is 50%," he said. "And how would you get EU students to pay for their degrees?"

Under a graduate tax, the government would pay fees directly to the universities instead of lending money to students to cover the cost of their studies. This, Lambert said, would "weaken the incentives for universities to sharpen up their act". He added: "A graduate tax would undermine universities' autonomy – part of what makes them great. It would just become another stealth tax."

The CBI taskforce recommends that the government continues to lend students money to cover the cost of degrees and graduates pay this back once they earn more than £15,000.

Lambert would not be drawn over whether fees – currently £3,290 a year – should rise. But the government could charge students a higher rate of interest, he suggested. At the moment they charge a near zero interest rate on their loans.

Ultimately, "we get a good bang for our buck", Lambert said. "Something like the present system, adjusted somewhat, would be the best way forward."

A review of student finance by Lord Browne has been tasked with finding a way to cut the public cost of funding students through university without curbing access to degree courses for the poor.

The review will be published just before the comprehensive spending review, which is expected to recommend dramatic cuts to public spending.

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