Graduate Tax?

Vince Cable's suggested yesterday that the forthcoming Browne review of University fees and funding should examine "the feasibility of variable graduate contributions". The announcement has been welcomed in some sectors, in particular by the National Union of Students, but it is hard to see how such a tax could be in students' best interests, and difficult to see how Conservative MPs could support any such motion should it come down to a vote.

University funding is in a poor state at the moment. Working in Higher Education myself, it is not difficult to see how the current situation has been reached. The country warmed to Blair's vision of Higher Education for everyone, with his ambitious target of 50% of school leavers going in to HE. The funding of such a picture, however, failed to materialise quickly enough and the funding to Universities has been stretched beyond capacity. Either the current cap on student fee income is lifted - which will see fees at redbrick universities rocket at least doubling in many instances - or the government must propose an alternative funding mechanism.

Politically, the LibDems campaigned to abolish student tuition fees altogether which makes the option to raise the cap a bit of a non-starter for our coalition partners: hence the graduate tax on earnings once a student enters full-time employment. Cable's argument is that a graduate will earn on average an additional £100,000 in income over their lifetime, making an initial investment in education appealing. But students already repay their existing tuition fee in a similar way.

At present a student will take out a student loan from the government to cover the £3225 annual fee and will only start to repay that fee once their earnings hit £15,000. Unlike the graduate tax, however, this is a loan. Once the loan is repaid (and of course the top earners will repay such a figure within a few years of graduating) that's it. The graduate tax, meanwhile, will continue to take a set percentage of income irrespective of how much that individual has already contributed. A high flyer will, no doubt, repay their student fee many times over under this proposal.

Cable argues that this is fair. Commenting to the BBC, under the current system, he argued, "if you're a school teacher or a youth worker you pay the same amount as if you were a surgeon or a highly-paid commercial lawyer... I think most people would think that's unfair." In other words, lawyers should pay more for their education because they earn more. Hang on, though, isn't that another income tax? Doesn't that highly-paid commercial lawyer already pay more to the government through current taxation? So why should he pay even more through a graduate tax, which he may be tied in to for anything up to twenty years?

There is another problem. Assuming that any graduate tax will be accompanied by an abolition of the tuition fee/student loan, this leaves Universities without any income up front, except from the Government. As the Government is already under financial pressure and unable to provide additional funding, how does a graduate tax provide further income? Further, as this is now a tax, rather than a loan, what guarantees are there that HE will see the return directly? Not to mention, of course, that as the tax will be payable on graduation, it will be years before Universities see any benefits. A graduate tax, variable or otherwise, does nothing to address the current funding problem for Universities.

The problem is real. But while the government is forced to cut spending, there seems no possibility of additional direct funding for Universities. Universities must instead continue to tighten their belts and concentrate on additional revenue through third stream funding. Meanwhile, the Coalition - Conservative MPs in particular - must rethink the proposed graduate tax, which does little to address the current failings, and represents a stealth tax on income for the middle classes.