The ruling coalition in Scotland is expected to be put in jeopardy today when a report commissioned by the Government fails to meet Liberal Democrat demands for abolishing university fees.

The ruling coalition in Scotland is expected to be put in jeopardy today when a report commissioned by the Government fails to meet Liberal Democrat demands for abolishing university fees.

The Liberal Democrats have made clear their willingness to scupper the coalition if a face-saving formula is not found to assuage supporters committed to the abolition of the £1,000 annual charges. If they leave, the result will be serious for Tony Blair, who has supported the parties working together.

Today's report by an inquiry chaired by Andrew Cubie, a former director of CBI Scotland, is expected to recommend that tuition fees should be retained but payment deferred until graduates are earning more than £10,000 a year. It is also expected higher maintenance grants would be recommended for students on low incomes.

Although the Liberal Democrats might not be happy with this compromise, it would be a big shift for Labour, which would have to tolerate running different systems of student funding north and south of the border. Students from England attending Scottish universities will not be eligible for any of the concessions achieved by Liberal Democrats for Scottish students.

Jack McConnell, the Labour Finance Minister, tried to calm tempers by saying he expected the coalition to survive into the new year. The coalition has a month to resolve the crisis. A vote on the issue has been promised in the Scottish Parliament by the end of January.

Labour faces its first by-election for the Scottish Parliament after the surprise resignation of Ian Welsh, its MSP for Ayr, yesterday.

Mr Welsh, 46, said he had found it "difficult to adjust to a backbench role" at the new parliament. He won his seat by a narrow margin of 25 seats in the May elections.