A GRADUATE TAX
Idea for university funding, previously rejected, again on agenda
But how many takers?
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.