Opinion: No Need for a Graduate Tax

For a decade or so now governments have been firmly fixed on the idea that students should pay for their own education. So firmly fixed, in fact, that it’s easy to forget that until 1998 Higher Education was funded from general taxation and was, to the student, completely free.

It’s true that most taxpayers are in no further need of Higher Education. But that doesn’t mean they don’t benefit from its existence. Since most tax payers will one day be dependent on a pension (public or private) it’s in their interests that the next generation of wealth creators is educated properly so that the economy remains buoyant enough to pay it.

Similarly, it’s in the interests of any tax-payer who might one day be ill that enough doctors are trained to treat them (though only the first part of that training counts as Higher Education in this debate). And indirectly the same logic applies to the training of teachers and of those students who become university lecturers.

So if it’s reasonable to ask students to pay for their own Higher Education, it’s also reasonable that the amount they pay should be related to what they gain from it personally, rather than what it costs to provide that education. And this seems to be what Vince Cable’s recent proposals are aiming at: by linking the “graduate repayment mechanism” to earnings he aims to tax only the benefit to the individual, thereby making the tax “fair”.

Consider an alternative, in which the repayment was linked to the cost of providing the education. The teachers with the best degrees are not, in general, very much better remunerated than their peers. But it would be ridiculous if those who’d had the mostly costly education were discouraged from teaching by a tax system which meant that they ended up less well remunerated than their colleagues.

So Vince Cable’s proposals are, in that sense, to be welcomed as an improvement on the current system of tuition fees.

But where I think these proposals fail is in their attempt to treat higher education as something very different from the earlier stages of education. After all, there’s no proposal for a last-two-years-of-secondary-school tax, even though those years of education are (currently) optional. And there is, of course, no way to separate the value to the individual of their degree from the rest of their education, so as to decide how much they should pay back. So “fairness”, in the sense that they seem to be aiming it, is unachievable.

The only fair way, in my opinion, to fund Higher Education, is for every taxpayer to contribute to it according to their means, regardless of what sort of education they had themselves. And that means funding it from general taxation, just like we did for much of the last century.

* Malcolm Wood is a Lib Dem member in Edinburgh East.

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  • David Morton 23rd Jul '10 - 12:38pm

    Indeed. However we can’t ingnore three looming political problems

    1. That party policy is politically unsustainable in light of the sorts of cuts to front line services that are going to be made. If we bang on about abolishing fees even over 6 years while Lib Dem ministers are making “savage cuts” in real life we’ll look awful.
    2. The escape clause in the coalition agreement allowing LD MP’s to abstain on the outcome of the Browne review is nothing of ther sort. Apart from the fact poor old Vince is the relavent cabinet minister it’s an anoraks defence. No real voters will be impressed at a technical abstention on an issue of signature policy so we can say “not us gov” while we take the ministerial salaries.
    3. a signifigant ( but smaller than it was I suspect ) number of party members see this as an issue of identity/principal. Free education. Full stop. Of course this model is only really viable in perpetual opposition or with a booming economy with high public spending.

    While I’m actually completely opposed to a Graduate Tax it is at least an attempt to talk about and then square the circle for which Vince deserves credit.

  • toryboysnevergrowup 23rd Jul '10 - 12:54pm

    It appears to me there is quite a lot of woolly thinking going on in the higher education debate, much of which is often driven by self interest and personal prejudices. Higher education is clearly both a public good and a private good – and the middle classes are very good at emphasising the former as a means of protecting the latter. And I’m afraid such an argument does not stop there – listen to all those who want tax breaks for capital gains and the self employed (e.g. the IR 30 crowd) on the basis that society will benefit from their entrepreneurship. Anyway, I have news for all of you public finances are tight and the amount available to pay for public goods is now limited and is likley to become more limited. So this means that some priorities have to be set (remember Nye saying that socialism was the language of priorities), so yes by all means propose that more be spent on higher education – but plase tell us why it should have a higher priority than other public goods i.e. what would you spend less on instead.

    And yes I do think that there is more of a public good in educating everyone up to 18 before providing support to those who want to go into higher education. Please imagine the consequences and waste if everyone had to pay for their education after 16 and compare with what has actaully happened when that requirement was introduced for hgher education. And yes it would be in my family’s self interest not to have to pay tuition fees – but that is not a very rational basis for spending public money.

  • But if you are to fund Higher Ed to the extent that it would like to be funded – and to which some students are happy to fund it – then taxes would end up high enough to have dis-incentive effects. The next generation does not want that either – higher taxes are not always costless to economic growth.

  • As somebody who works in the higher education sector I am really rather worried about the way in which this debate has been conducted for a long time now: we always just hear about how expensive the fees are, but thee is little debate about the money universities simply need to keep going.

    The student perspective is obviously important, and I really do feel for all the students who get into so much debt these days to fund their degrees. It’s pretty awful. But at the same time, we need a proper debate about the funding universities need, and yes, we should also discuss publicly what universities do for society and the economy. The problem is that the Higher Education sector is already seriously underfunded, in spite of the rise in investment during recent years. And this rise in investment was of course at least in part due to top-up fees. I simply cannot imagine a solution where we can find enough money for universities from general taxation. As it is, we’ll have cuts which will do severe damage to the sector (at a time when most states try to invest more, since universities are usually considered a crucial motor of economic recovery).

    I think some realism has to be injected into the debate, and I appreciate that Vince Cable has been trying to do just that.

  • Malcolm Wood 24th Jul '10 - 9:58am

    @Tim: agreed. But what confuses me about the whole debate is the idea that somehow a “graduate tax” does not count as taxation. It’s still a tax, even if not a general one. Doesn’t it still have the same impliciations for economic growth?
    And secondly, I’m not advocating funding Higher Education according to the demand. I’m advoctaing funding the bits which are beneficial to the country as a whole. There are almost certainly courses which provide no real value to the students (except in the sense of giving them an easy life for three unproductive years), and there can be no reason for funding those. Which isn’t to stop them from being available to those willing to pay for it themselves.

  • The debate about Higher Education should be about what benefit does it derive society and the individual that goes into Higher Education it is not just about the short term public finance squeeze. If we believe that Higher Education can get us out of the mess that looking in those terms is shooting ourselves ion the foot. Observations. Some Higher Education courses mean soem Graduates get better paid jobs, some courses clearly now do not. Students must have the info to make informed choices. It pains me to agree with my fellow Brummie but Digby Jones may have a point about what should hapen to the future of Higher Education. Finally yes those of us who have enjoyed Higher Education should be paying a Graduate Tax end of story. Student Loans impoverish our children, and we expect themto pay for our future care as well? One problem with a Graduate Tax being introduced now. I am a lot lot poorer finacially than I was when I first left College for the second time?

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