Friday, 13 August 2010

In favour of a graduate tax

The Business Secretary, Vince Cable, and Universities Minister, David Willetts, look to have pre-empted the Browne report on the future of university funding by declaring their preference for a graduate tax - or ‘contribution’ as they would prefer it to be termed. The disagreement over how higher education is to be funded and where the burden of that cost should fall has been raging for two decades now. Perhaps, if wisely implemented, a graduate contribution could at last settle this issue and provide a fairer method of paying for higher education.

There are three models of higher education funding. The comprehensive system, wholly subsidised by the treasury - as it was in the heady days prior to tuition fees - where all taxpayers contribute. The current tuition fee system; where a student pays an ‘upfront fee’ towards part of the cost of their education. And the graduate tax system where a student pays either part of, or the total cost of their education, over their working life through a change to their personal income tax allowance.

“Why should the bin man pay for the doctor’s education?” was the argument against universally funded higher education, albeit if somewhat paraphrased. I suspect that if the bin man’s life was saved by that doctor, he’d think the money was well spent. However it does also seem a reasonable argument that a doctor, earning a vast salary, should pay back the cost of their education. The increasing number of students - four hundred thousand in the early 1960s rising to 2 million by 2000 - has seen the cost of higher education to the state soar. In this ‘age of austerity’ it seems unlikely that we will be returning to a comprehensive system anytime soon – as appealing as that may be to the student body.

New-labour seemed reluctant to break this universal model, but recognised the cost to the Treasury was untenable. The tuition fee could perhaps be an example of Tony Blair’s “third way”, which implied a compromise between left and right wing political ideologies. The problem with tuition fees is that a teacher or librarian has to pay the same amount towards their education as a doctor or stock broker, even though the financial rewards are hugely disproportionate.

By presenting tuition fees as a loan, rather than as a short term higher tax rate, students from poorer backgrounds are deterred from university due to debt aversion. To the disproportionately large number of public school students in British universities, the tuition fee must seem laughably small when compared to their school fees and constitutes a subsidy to the wealthiest section of British society, therefore acting as a barrier to social mobility.

The merit of the graduate tax is that it does not seem like a debt. In reality of course, it is identical to tuition fees. Both are paid automatically from your wages when you are earning above a certain level. The majority of students are financially better off under tuition fees, but this does not equate to a fair system and does not protect higher education in the long run.

Our higher education establishments require more money to survive and it seems fair that those students who gain the largest financial reward from their studies should pay the most back. Those vocations which require highly trained staff but will never be able to pay wages that reward that educational investment – librarians being an apt example – could be protected. A graduate tax could also enable a level of social engineering by rewarding ‘worthy’ careers – such as teaching or nursing (currently totally subsidised) – by applying a lower rate until their earnings pass a suitable salary mark. The previous government’s suggestion that degrees should be tailored to the market ignored this argument entirely. It seems to me that education should be more than just supplying business with fresh meat as it were. They also have a role to protect Britain’s cultural and intellectual traditions, not just creating legions of lawyers and brokers.

The graduate tax is not without its critics. It has been suggested that it would lead to a ‘brain drain’ as British students will work abroad once qualified to avoid repayment; most students will end up paying significantly more towards their education; and universities will lose direct control of the finances that tuition fees currently deliver to them. The brain drain argument is weak. Britain is an importer of graduates and has been happy to strip the developing world of skilled workers for 50 years. It seems unlikely that the highly paid graduate will abandon the UK on the basis of several thousand pounds repaid over a lifetime of earnings. As already argued, it seems fair that the more a graduate is rewarded on the basis of their qualifications, the more they should pay back to safeguard the future of higher education. The last criticism is perhaps the strongest. A graduate tax can only work if the money raised is ring fenced and ploughed back into universities. As with all taxes, there is always the risk that sticky Treasury fingers will divert funds from their original purpose.

The graduate tax should be a deal between graduates, higher education providers and government. Graduates need to recognise that qualifications in the majority of cases will lead to higher wages over their lifetime, but also offer more than just financial reward. Higher education has the potential to open and develop minds as well as providing the potential to add to our intellectual heritage and contribute to our societal well being. Universities will be financially secure, but must prepare students suitably for the workplace. Government must protect funding and apply a graduate tax in a fair manner which recognises worthy and specialised vocations and see that it is applied in a redistributive way.

Should the graduate tax – sorry, contribution – be applied in the way I have suggested, then I would welcome it. It is certainly better than ever increasing tuition and proposed top-up fees.  Most importantly, it will change the perception of higher education as a financial gamble and could then perhaps encourage greater social mobility in this country.

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