IFS: Browne offers “a graduate tax by another name”

The Institute for Fiscal Studies (IFS) have looked at the Browne Report. Their conclusion raises some interesting points.

our analysis suggests that graduates with higher earnings would repay unambiguously more than their lower-earning counterparts.

Under Lord Browne’s proposals, this would for many become a 30-year graduate tax of 9% above £21,000 (with this threshold indexed in line with earnings). Indeed, for the lowest-earning 30% of graduates the actual level of fees makes no difference to how much they repay

Paradoxically, therefore, the more fees go up, the more the system approximates a graduate tax – indeed, a pure graduate tax would arise under the current system if fees were infinitely high.

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7 Comments

  • George W Potter 16th Oct '10 - 9:53am

    Here’s the rub. I don’t particularly object to these proposals I don’t know how I’ll be able to face voters on the doorstep if our MPs break their word over the issue.

  • Broken promises aside, this absolutely sums up the situation, even now with regards to student loans. I’ve recently graduated and frankly I cant see any difference between graduate tax contributions, higher income tax, and the repayments I make to my student loan. I paid nothing up front, and now a small sum (equal to approx 1/10 of by NI and income tax contributions) is withdrawn from my wages each month to repay the debt. When I was unemployed I paid nothing, and most importantly, unlike proper debt, my student loan has no affect on my ability to borrow from the banks for mortgages and such like. The best thing about student loans is that unlike tax, they are time and balance limited. If I don’t pay back the balance of my debt in the next 25 years (which I hope will) it would be wiped off.

  • @BGBRIghton ……..unlike proper debt, my student loan has no affect on my ability to borrow from the banks for mortgages and such like.

    I appreciate what you are saying but its also like saying Ive got this bloody big credit card bill yet the banks don’t have to care and will lend me another load of money.

    Debt is debt is debt no matter how dressed up. Thats why a lot of potential students are worried.

  • Anthony Aloysius St 16th Oct '10 - 12:57pm

    “Indeed, for the lowest-earning 30% of graduates the actual level of fees makes no difference to how much they repay”

    This doesn’t make sense, because they also reckon that the majority (58% if fees are raised to £7k) of graduates would have some debt written off, and so would effectively pay a graduate tax over 30 years. Obviously, for that majority the level of fees would make no difference.

    I assume this is a subtle effect of their classification of lifetime income into percentiles. I suppose each percentile contains different ways in which income varies over the lifetime, which will make a difference to how much is repaid. So at any given level of lifetime income it’s possible that some will have some debt written off and others wouldn’t.

    Presumably what they really mean is that for _all_ students whose lifetime income is in the bottom 30%, the level of fees will make no difference, and also for _some_ students with higher lifetime incomes the same will be true. And that when you add the numbers in each percentile up, you find that for a _majority_ the level of fees will make no difference.

  • Anthony Aloysius St 16th Oct '10 - 1:06pm

    “The only issue is that people on higher incomes will be able to pay off their debts quicker, not run the full 30 years and hence pay off less in total. This belies the “progressive” nature of the tax.”

    But what the IFS has found is the opposite – that the amount paid rises progressively as the lifetime income increases.

    There is a subtlety there, too, because the Social Market Foundation found that the 9th and 10th income deciles paid less than the 7th and 8th, and that those who paid upfront paid less than the 5th-10th deciles. But the IFS argues that you should correct for more than just the rate of inflation (because if the money were invested it would outperform the growth in prices), and when that is done they find a progressive increase in the amount repaid as income rises, and they also find that paying upfront is the costliest option of all.

  • @paul – except you’ve ignored the major factor that differentiate student debt from real debt – the way that student debt is collected like tax. If we were to have graduate tax, or a higher rate of income tax to fund universities, I would still continue pay out a proportion of income each month to the government in exactly the same manor as we do now, only there would be no limit to the amount of time or balance of payments. Basically we have a system where students are allocated a time (25years) and balance (size of ‘borrowing’) limited block of extra tax. I don’t really see how that is like proper debt in anything other than perception (which I admit is a problem).

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