When the levy breaks

A flawed graduate tax will harm students and the sector, says Alan Ryan

July 22, 2010

An elderly colleague of mine, dead for many years, was prone to periods of melancholy. In these enlightened times he would have got a diagnosis of being mildly bipolar and a chemical fix; he coped by looking for something to jolt him out of it. His longest period of freedom from the black dog was the Second World War. He wasn't made manic by the Blitz, but calmly cheerful. Towards the end of the war, he got his fix by going down to Dover from where he could hear the heavy artillery on the other side of the Channel.

I've been feeling somewhat as he must have done in 1944. Everything about the state of higher education in the UK is deeply depressing; even before the scalpel has made the first incision, along comes the naval surgeon, armed with a saw from the days of Lord Nelson. We encourage teenagers to stop being Neets - not in education, employment or training - and get some higher education, and immediately find that we have to turn away 50, 60, 100,000 of them. Oddly, I'm sorry to be watching from 3,000 miles away and not in the thick of it.

I can't think why; the last time cuts like this were imposed, during the 1980s, it was a grim business. The University of Salford lost 40 per cent of its budget, Keele University almost as much; in Keele's case it meant the death of the most innovative undergraduate degree programme in the country. At the University of Oxford, we shed one post in eight. Everywhere an erosion began that has never been reversed, not only of academic provision but of the pleasures of academic life altogether.

One of the battles I'd like to fight is over student fees; the other is over the cost of higher education. There is a myth that my generation had it easy because we got a free higher education, while our children and grandchildren are plunged into debt. It's less than the whole truth, as you can see when you start thinking about tax rates. The National Union of Students thinks a graduate tax would be a good idea, and so does the Brownite Miliband, Ed, while his Blairite brother David doesn't. David Willetts says that students should treat the repayment of the loans they take out for fees and living costs as a form of income tax, which up to a point it is, although only up to a point.

Now we have Vince Cable, floating the idea of a graduate tax that will avowedly take from the better-off more than they would have borrowed in the present scheme, and ideas about paying fees directly to universities that hint at even more restrictions on what they can charge. Before he goes further, he should at least explore the Australian system, which sets fees according to prospective earnings and takes only the cost of the degree in a graduate (and graduated) tax.

From the perspective of universities, a graduate tax is a really bad idea. Governments don't hypothecate tax revenue, and once the Treasury had the money, universities might or might not see it (probably not). From the point of view of a student, it might feel as though a tax surcharge was not a debt, but there are two things to reckon with.

The first is that a well-paid graduate would not only pay off the cost of her education, but a great deal on top - supposing, for instance, that the 9 per cent surcharge that repayments currently amount to was imposed for the 25 years during which student loans are currently not "forgiven". There would be no incentive for governments to remove the tax once her education had been paid for; once a graduate always a graduate, and it is meant to be a tax on being a graduate.

The second is that students would be in almost exactly the position their parents were in 30 years ago. The basic rate of tax today is 20 per cent, and national insurance 11 per cent; stick a 9 per cent graduate tax on that and you're paying 40 per cent. In 1983, the basic rate of tax was 33 per cent, and national insurance 6.5 per cent. Total: 39.5 per cent.

There are two ways in which their parents were better off than they will be; one was the existence of tax relief on mortgage interest, and the other was a much lower rate of VAT, 8.5 per cent against what will be 20 per cent from January next year. Those changes, however, are aspects of the larger fraud perpetrated on every one of us, graduates or not, by governments that want to boast of cutting the headline rate of income tax but who can't persuade the electorate to accept the cuts in provision that lower revenues imply.

The subject is bedevilled by the fact that for all the shouting about tuition fees, the real expense of higher education is the visible one of living costs and the invisible one of forgoing three or four years of paid employment. The latter is the larger real cost, although it doesn't show in the loan. The implications are obvious. For a lot of students, perhaps 80 or 90 per cent of the present student population, a system of higher education that allowed them to work while they did all, most or part of their degrees makes much more sense than the present system. The present system isn't geared up for it, but students complain a good deal about having to work when they should be studying. A system in which they could do both, but take longer to graduate, makes a lot of sense.

The possible ways of achieving this are, if not infinite, at any rate numerous; greater use of The Open University, cloning Birkbeck, moving away from standard three-year degrees to "two plus two" patterns with the first two years done part time and close to home, with tuition fees set as low as possible. It would probably extend the average time to degree until it came close to the US pattern of about half the incoming class graduating in five years, but that's a fair trade-off for the present dropout rate.

Let's hope Vince Cable is on his way to Canberra.

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