Ministers are prepared to spend as much as £450m a year to give students from the EU discounted university fees, the Guardian has learned, but only if Brussels allows the UK access to its Made in Europe industrial programme.

The UK government has drawn up plans to allow students arriving from the continent pay the same fees as British students, sources say, and is willing to spend hundreds of millions of pounds compensating universities to do so.

British officials insist, however, they will only make concessions on fees if the EU allows Britain entry to its proposed protectionist industrial scheme, which will impose trade restrictions on countries outside the bloc.

On Sunday the former chancellor Rachel Reeves praised the prime minister , Andy Burnham, for a willingness to think boldly about the UK’s relationship with Europe – saying she believed Britain’s future was within the EU.…