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University tuition fees in England will rise in line with inflation from next year, as the government tries to address a funding crisis in one of Britain’s most successful sectors.

Education secretary Bridget Phillipson on Monday afternoon announced that tuition fees will increase in line with the retail price index to £9,535 in 2025, the first increase in eight years. Fees have been capped at £9,250 since 2017.

She also announced that the government would raise the maximum maintenance loan, for supporting students’ living costs, by £400 to above £10,000 in the next academic year. But the government has not reinstated maintenance grants, which do not have to be paid back and were abolished in 2016.

The university sector’s finances have been under pressure from rising costs while the freeze on tuition fees has left institutions increasingly dependent on a dwindling pool of international students, particularly from China.

“We will fix the foundations, we will secure the future of higher education so that students can benefit from a world-class education for generations to come,” Phillipson told the House of Commons.

She said the rise in fees had “not been an easy decision”. She added that the move would not cost graduates more each month as they start repaying their loans because repayments are based on earnings, not the outstanding balance.

Carl Cullinane, director of research and policy at the Sutton Trust, noted that raising tuition fees without also reintroducing maintenance grants would “hurt students from the poorest households the most” given that students from lower-income backgrounds had been leaving university with the highest levels of debt and were struggling with repayments.

Kate Ogden, senior research economist at the Institute for Fiscal Studies, said the increase would come as a “relief” to university vice-chancellors. But the increase in the size of maintenance loans only partially compensated for real-terms cuts. Even after the uplift, the poorest students will be entitled to borrow about 9 per cent less next academic year than an equivalent student five years earlier, she added. 

The National Union of Students welcomed the increase to maintenance loans but called for a fundamental review in the way that government finances higher education that takes into account the unaffordability of living expenses for the poorest students.

“Universities cannot continue to be funded by an ever-increasing burden of debt on students,” added Alex Stanley, vice-president for higher education at the NUS, describing the changes as a “sticking plaster”.

Vivienne Stern, head of Universities UK, said that “today’s decision cannot have been easy for government, but it is the right thing to do”.

But Nick Hillman, director of the Higher Education Policy Institute, said universities “need a fee rise that is significantly above inflation even to stand still”, adding the sector faces £400mn of extra costs as a result of increases in employers’ national insurance contributions announced in last week’s Budget.

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The Institute for Fiscal Studies said in June that tuition fees should rise with inflation from 2025-26, reaching £10,500 by the end of the decade, to avoid further real-terms funding cuts to the sector.

The cap on fees means universities are losing an average of £2,500 on every domestic student, according to analysis by the Russell Group of leading research universities. 

Labour said in its general election manifesto that higher education was “in crisis” and that the current funding settlement did “not work for the taxpayer, universities, staff, or students”.

More than 50 universities have announced job cuts this year and several are on the verge of bankruptcy, according to Whitehall officials.