The European Union has demanded Labour accept an uncapped youth mobility scheme as Sir Keir Starmer looks for a reset in relations with Brussels.
Officials in Brussels want no maximum annual number of young Europeans who can come and live and work in Britain as part of the scheme
The Times report the announcement has divided Sir Keir Starmer's cabinet as his party trails behind Nigel Farage and Reform UK in the polls.
While the Home Office has concerns about the proposal's impact on net migration, the Treasury wants to agree an "ambitious" scheme with Brussels.
Brussels wants European students to be exempted from having to pay international university fees, which can be double those for domestic students, as part of an "equal treatment" with their British counterparts.
The European Union is also calling on the Prime Minister to waive the NHS surcharge fee covering the potential cost of medical treatments.
This is £776 per year on other youth mobility schemes, reports The Times.
Europe Minister and MP for Torfaen Nick Thomas-Symonds is likely to discuss it when he meets his European counterpart Maros Sefcovic in Brussels on Wednesday.
Keir Starmer and Ursula von der Leyen agreed on a deal in May | PA
Nick Thomas-Symonds met with Brussels negotiator Maros Sefovic in May
| GETTYDiplomatic sources said that while negotiators in Brussels did not want the scheme to be subject to quotas or caps they envisaged an emergency clause if there was a sudden surge in numbers.
One diplomat told The Times "We do not see the need for setting a quota or cap. What is wrong with our young Europeans? We do not have a problem with young Brits,
"It will not be a free-for-all as there will be conditions as well as the age and time of stay limits."
The UK has youth mobility schemes with about a dozen countries, all of which have an annual cap.
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European President Ursula von der Leyen during the 2025 UK-EU Summit | GETTYA Government spokesman told The Times: "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.
They added both the UK and EU had agreed last May that "any final scheme must be time-limited and capped."
They said: "We will not give a running commentary on ongoing talks."
While the text of the agreement did not talk about a cap, it instead stated that the deal should ensure that "the overall number of participants is acceptable to both sides."