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Brussels is demanding Britain slashes tuition fees for EU students to home rates of around £9,500 a year – or risk sinking Sir Keir Starmer’s flagship reset of post-Brexit relations. The ultimatum has torpedoed talks on a Youth Experience Scheme, one of three pillars for closer UK-EU ties ahead of a crunch summit in June or July. Agreement is close on food safety checks and emissions trading, but the fee row has created an impasse.

EU students currently pay international rates of up to £38,000 annually. Brussels insists they must now enjoy the same subsidised status as British counterparts under the youth mobility deal, which would let under-35s live, work and study visa-free. A source close to the talks warned: “It is true that talks have stalled and that this is now the main issue on which both sides cannot agree.”

UK officials had branded the demand a “non-starter”. Yet Downing Street is now quietly costing the move as a bargaining chip in Rachel Reeves’s drive for deeper single-market alignment, to be unveiled in her Mais lecture on Tuesday.

One government insider told negotiators any shift from last year’s red line would require: “something very big in return”. Equalising fees could cost universities £140m a year in lost revenue, potentially forcing a Treasury bailout.

Universities UK International director Jamie Arrowsmith: “This would carry a very significant cost and risks undermining the financial sustainability of universities, which would not be in the best interests of the UK, or the EU, or prospective students.”

The UK wants the scheme capped, limited to two years and with no fee cut. The EU is pushing for four years, no cap and full home-fee access. Central and eastern European states are already grumbling that any discount must not be rationed.

Labour chairman of the Business and Trade Committee Liam Byrne: “Britain’s negotiators have their work cut out getting the best bargain for Britain.” But he urged: “We’ve more to gain from drawing closer to Europe than we should fear to lose.”

The deadlock threatens to overshadow progress already sealed on security, fisheries and energy. Ministers including Nick Thomas-Symonds are in Brussels this week to woo counterparts and keep the reset alive.

Critics inside Labour warn the strategy lacks direction. Yet Sir Keir Starmer: “Britain has moved beyond the politics of the Brexit years.”

With transatlantic tensions rising, the Prime Minister sees Europe as the economic prize. But caving on fees could prove politically toxic at home – where graduates already face mounting loan burdens.

A government spokesman said: “We will not give a running commentary on ongoing talks. We are working together with the EU to create a balanced youth experience scheme which will create new opportunities for young people to live, work, study and travel.

“Any final scheme must be time-limited, capped and will be based on our existing youth mobility schemes, which do not include access to home tuition fee status.”