Universities could face fines of up to £500,000 after the regulator has its powers strengthened, the government has warned.

The Office for Students will now be able to impose financial penalties of up to two per cent of a university’s income, or half a million, for grade inflation, high vice chancellor pay and rising unconditional offers.

Universities that fail to admit enough poor students could be forced to lower their fees under the plans.

Jo Johnson, the new universities minister and brother of the new prime minister, has urged the higher education regulator to use its “full range of powers” – which come into effect today – to ensure students “receive value for money.”

It comes after figures revealed that the proportion of university applicants being offered a place on a course regardless of grades has risen to nearly two in five despite a government crackdown.

Student news in pictures Show all 34 1 /34 Student news in pictures Student news in pictures South Korean policemen detain a student demonstrator during a protest against South Korean President Park Geun-Hye EPA Student news in pictures South Korean policemen detain student protestors during a protest against South Korean President Park Geun-Hye outside the National Assembly in Seoul, South Korea. The protesters demanded that the parliament takes steps to impeach President Park Geun-Hye EPA Student news in pictures Filipino demonstrators face off with anti-riot police during a protest near the US Embassy in Manila, Philippine EPA Student news in pictures Hundreds of protesters including Indigenous People, students and militant groups marched towards the US Embassy to protest against the presence of US military troops and condemning the violent dispersal which left at least forty people hurt including twenty police officers and three people who were run over by a police van EPA Student news in pictures A federal judge in Mexico has ordered that a once-fugitive police chief be held on charges of kidnapping in the disappearance of 43 students Student news in pictures A man holds up a photograph of a missing student with a caption reading 'We are missing 43,' during a meeting marking the 25-month anniversary of the disappearances of 43 students in the southern state of Guerrero, in Mexico City. 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A Japanese court ordered municipalities to pay $13.7 million dollars to families of school children who were swept away to their deaths by the 2011 tsunami Getty Student news in pictures A group of student at Ewha Womans University calls for a thorough investigation into those involved in years of engagement with state affairs backstage by Choi Soon-sil, a personal confidante of South Korean President Park Geun-hye, at the school's front gate in Seoul, South Korea EPA Student news in pictures Students raise placards during a strike action called by the student union, in Madrid against university entry exams Getty Student news in pictures Libyans throw a newly graduated student into a fountain as they celebrate during the graduation ceremony for students from the Faculty of Pharmacy at the Al-Arab University in the eastern Libyan city of Benghazi Getty Student news in pictures Libyans celebrate as they attend the graduation ceremony for students from the Faculty of Pharmacy at the Al-Arab University in the eastern Libyan city of Benghazi Getty Student news in pictures Libyans celebrate as they attend the graduation ceremony for students from the Faculty of Pharmacy at the Al-Arab University in the eastern Libyan city of Benghazi Getty Student news in pictures Thousands of Thai Catholic students take part in mourning tributes and in singing the Thai Royal Anthem to honour late Thai King Bhumibol Adulyadej at Saint Dominic School in Bangkok, Thailand EPA Student news in pictures Students of Silpakorn University paint portraits of the late Thai King Bhumibol Adulyadej at the university campus in Bangkok Getty Student news in pictures A student of Silpakorn University paints a portrait of the late Thai King Bhumibol Adulyadej at the university campus in Bangkok Getty Student news in pictures St Andrews University students take part in a foam fight known as Raisin Monday in the Lower College Lawn behind St Salvator's Quadrangle following the Raisin Weekend PA wire Student news in pictures St Andrews University students take part in a foam fight known as Raisin Monday in the Lower College Lawn behind St Salvator's Quadrangle following the Raisin Weekend, an annual tradition where student 'parents' inflict tasks on the unfortunate first-years they have adopted as 'children' as part of a mentoring scheme PA wire Student news in pictures Students at the Cuba's National Ballet School (ENB) in Havana, Cuba Reuters Student news in pictures Students at the Cuba's National Ballet School (ENB) take part in a practice in Havana, Cuba Reuters Student news in pictures Students at the Cuba's National Ballet School (ENB) wait in line to enter a classroom in Havana, Cuba Reuters

Ministers have also criticised universities for handing out a rising number of first class degrees.

In his first comments since taking up the ministerial post under his brother, Mr Johnson said: “Our vision for the Office for Students (OfS) was for it to be a regulator with teeth and it has already made a significant impact on the sector. Now I expect it to use its full range of powers to ensure students up and down the country are at the heart of the system and receive value for money from our universities.

“For the thousands of young people collecting their A-level results this month and starting university in September, they can be confident that the OfS will be a champion for students which is able to take strong action. Our universities are world-leading and this reputation must be protected.”

Universities found to be damaging students’ interests also face extra conditions on their registration, or – in the most serious cases – the removal of the right to award degrees.

From today, the regulator also has the power to reject a university’s plan for widening access among disadvantaged groups if they do not believe it goes far enough.

Sir Michael Barber, chair of the OfS, said: “We are now able to impose substantial financial penalties where universities are evidently not acting in the best interests of students and taxpayers short, medium and long-term.

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“We have been clear from the outset that we would much prefer to resolve problems such as grade inflation or unconditional offers without using our formal powers; but also that we will not hesitate to use them if necessary. Our world-class higher education system is immensely important to our economy and society and we will do whatever it takes to ensure its success in the future.”