Tax haven from self-interest

July 22, 2010

Certain Russell Group members have displayed distinctly self-interested behaviour in past weeks with regard to student fees. Universities are social assets, yet the extremely well-paid managerial elites controlling them are indulging in rent-seeking behaviour, attempting to maximise institutional income without robustly demonstrating that this is the way to maximise social returns. Lifting the cap on student fees, as they want, would allow them unfettered access to profit-taking from these social assets. This is wrong.

What is right is a less individualistic and more socially driven approach to student funding, such as the graduate tax. Such a tax would be progressive for individuals and inhibit elite institutions from self-interested income-maximisation strategies.

The Russell Group has, rightly, queried how the gap between the cessation of student fees and the advent of graduate-tax income would be bridged. This is simple: institutions could establish a central funding office to which the government would commit to paying the graduate tax's revenues. The office would then pay funds to the institutions on an equitable per capita basis. The gap could be filled by the office taking out long-term commercial loans guaranteed by future tax revenues, repaid over, say, 25 years.

The costs of borrowing would be borne by the first student cohorts, with the better-paid also cross-subsidising their worse-paid peers. This would recognise that education is of social as well as individual benefit and should be, to some extent, treated as a social rather than an individual expense. And there would also be an intergenerational benefit: the early graduate taxpayers would help establish a fair system for their own children.

Rebecca Boden, University of Wales Institute, Cardiff.

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