Senior Tories are pressuring Theresa May and Philip Hammond to ease austerity, with calls for a debate on university tuition fees.
Any change to higher education funding would be seen as a sharp about turn for the Conservatives, after a general election campaign which criticised a Labour pledge to scrap the £9,250 annual charges.
But May’s most senior minister, Damian Green, said Britain may need to have a national debate on the issue.
Green was answering questions after a speech calling for Tory modernisation to win over young metropolitan voters who back Labour.
The First Secretary of State said current system allows UK universities to deliver high-quality courses and teaching, and accounts for the country’s disproportionate number of top institutions.
But he acknowledged that student debt was a “huge issue”, telling the Bright Blue liberal conservative think tank’s conference: “If you wanted to say you want to reduce that (fees) then either fewer people go to university or the experience would be less.
“Because the only other way you can get extra money to go in, if you wanted the same number of people, the same kind of teaching, would be to take it from working people through their taxes.
“Governments have to take money from everyone at work and companies that provide jobs to provide those essential services.
“And it may well be that this is a national debate that we need to have.”
Ministers have also suggested the issues of public sector pay and schools funding should be re-considered.
Public sector pay
Environment Secretary Michael Gove urged the Prime Minister and Chancellor to listen to independent bodies that review public sector pay, after a week in which Labour attacked a government “shambles” for initially raising, then playing down hopes that the cap could be lifted.
Gove’s intervention ties in with reports that Health Secretary Jeremy Hunt is to demand a wage boost for NHS workers.
It comes with the Government under pressure after losing its House of Commons majority in the general election as Jeremy Corbyn’s anti-austerity Labour outperformed expectations.
According to the Observer, Hunt is to demand an end to the 1% pay cap for nurses and other health workers, citing evidence from the Government’s own NHS pay review body published in March.
It appears he has the backing of Gove, who told the Sunday Times: “You’ve got to listen to the public sector pay review bodies.
“When they made recommendations on school teachers’ pay I think I always accepted them.
“My colleagues who deal with these pay review bodies would want to respect the integrity of that process.”
According to the Sunday Telegraph, a separate front has opened up with Education Secretary Justine Greening demanding an extra £1 billion to protect schools funding per pupil and will demand a statement in weeks.
A Number 10 source told the Press Association the Government was responding to the recommendations of public sector pay review bodies which are currently reporting to ministers “on a case-by-case basis”.
The source said the pay cap was brought in to “deal with the mess we inherited from Labour” and acknowledged the “hard work and sacrifice” made by public sector workers, saying jobs had been protected and the deficit reduced by three quarters.
“While we understand the sacrifice that has been made, we must also ensure we continue to protect jobs and deal with our debts,” the source added.
It came after Corbyn used a speech to protesters in Parliament Square to attack the Tories for their “shambles” over the pay cap earlier in the week and accused the party of “hypocrisy”, linking the issue to the Grenfell Tower disaster.
He told the crowd opposite the Palace of Westminster: “The utter hypocrisy of government ministers and others who queued up in the chamber over there in the House of Commons to heap praise on the emergency services, the following day to cut their wages by refusing to lift the pay cap.
“The hypocrisy is absolutely unbelievable.”
On tuition fees, shadow education secretary Angela Rayner said: “If they want a debate on fees they could start by allowing one in the Commons on their latest fee hike, along with a vote.
“Actions speak louder than words and from trebling tuition fees to scrapping the maintenance grant, the Tories’ decisions have hugely increased student debt, with the most disadvantaged hit the hardest.
“This latest potential U-turn is evidence of more chaos and confusion at the heart of government where uncosted pledges are made to try and appease the public.”