A GRADUATE TAX-HOW MANY TAKERS?

A GRADUATE TAX

Idea  for university funding, previously rejected, again on agenda

But how many takers?

Comment

This much is clear. The way we fund our Higher Education institutions  is unsustainable.

There is cross party consensus on this issue. There is no question that for the UK to maintain its world-class standards in teaching and research, individuals who benefit from higher education should be expected to contribute to its provision.

Lord Browne is due to report on HE funding by the end of the year. Vincent Cable, the Liberal Democrat business secretary, has asked Lord Browne  to consider a Graduate Tax even though this idea has  been rejected several times before. A graduate tax is an income levy on ex-students to pay for England’s universities.  At the moment, English undergraduates are given loans with which to pay for tuition. When their earnings later break a threshold, the government takes a share of their income ,until they have repaid the debt.

A graduate tax would differ from the current system  in that ex-students would keep making repayments even after they had covered the actual  cost of their study. (which on the face of it doesn’t look fair) The main attraction of this tax to Mr Cable and others  is that it would require high-earning graduates to pay more for their education. But it is arguable that  the distributional effects  of such a tax would, in practice ,be  minimal and critics claim that   the damage to the university sector could be enormous.

It is widely believed that the Browne Review will probably recommend an increase in tuition fees. So that the tuition fees payable by students, which are currently not allowed to rise above £3,225 per year,  might  be for example be  allowed to reach at least £7,000  The extra money would help cash-strapped universities, but also allow competition between institutions on price.  One of the problems with the graduate tax is that there  the absence of a direct   link between the institution and funding .

As the FT has pointed out   ‘A flat graduate tax would break the link between the cost of a degree and the student’s pocket. All degrees would cost the same. Institutions would depend less on the good will of its students than of the Treasury. So a graduate tax would erode university autonomy and damps the pressure on universities to respond to their students’ concerns.’

Cable has suggested that the tax will be hypothecated but  over the longer term hypothecation rarely works and future Governments will not of course  have to honour Cables commitment on this score.

History is replete with examples of taxes ostensibly intended for one purpose disappearing into the general pot, with the history of the road fund perhaps the most obvious example. It would also be fearfully complicated to collect-what would happen to the large number of graduates who would be residing and working abroad? Would the Government be able to collect an income-based tax outside its jurisdiction? Probably not. This could affect maybe  quarter of all graduates.  The proposed tax, in any case,  would take years to yield returns sufficient to enable our universities to survive, so it will not help to solve the immediate funding crisis or, indeed, pay for undergraduate education in the short term.

Better surely to have a system where our universities can charge the full cost of their education to those who can afford it, while levying a premium on those who can afford to pay it to enable institutions to establish reserves to pay bursaries to those who cannot afford the fees.  This  though is  a big political issue within the coalition  as the Lib Dems are against tuition fees and want rid of them over time  and the graduate tax amounts to their main alternative  proposal to fund HE.

There  doesn’t appear to be a Plan B. Worrying, given that the idea of the graduate tax has not been welcomed in many quarters and a senior Tory recently  told the BBC that a graduate tax  will never happen.

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One thought on “A GRADUATE TAX-HOW MANY TAKERS?

  1. Graduate Tax has some takers. In the Labour party several leadership contenders – including significantly Ed Miliband – back it. It does have its atractions – I am a former Believer.

    Labour may seek to embarrass the Liberal Democrats – and even peel some votes away. (Don’t forget the Liberal Democrats are to abstain on any increase in tuition fees.)

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