Clarke pushes variable scheme

December 12, 2003

Education secretary Charles Clarke went head to head with Labour rebels this week, making his pre-Christmas sales pitch for top-up fees repaid through a graduate contributions scheme rather than a graduate tax.

Two meetings were held on separate evenings to boost attendance by members of the parliamentary Labour party. Some 75 MPs attended, barely half the number opposing top-ups.

Mr Clarke told them: "Our graduate contribution scheme pulls out many of the key fairness principles of a graduate tax. Both systems require graduates - not students - to pay contributions towards their higher education. Both systems link repayments to earnings, so payments are always based on what the graduate earns and not on what they owe.

"Both systems mean that if a graduate doesn't work, they don't pay. Both systems never charge a real rate of interest - the government pays the cost of borrowing under both proposals.

"The difference is that our system provides a guaranteed source of additional income for universities independent of the government. It directly relates what a student pays to the costs they incurred while they are studying. Because of this, it will help to drive quality and value for money in higher education.

"And it also generates a higher private level of revenue for universities with lower short-term and medium-term public expenditure implications."

A paper outlining the graduate contribution proposal, drafted by the Department for Education and Skills, was circulated to Labour MPs. It compared the scheme with a possible graduate tax, highlighting the similarities and differences.

It concluded that there were four key reasons - those outlined by Mr Clarke - why the government was pursuing a graduate contribution scheme in preference to a graduate tax.

Two further meetings outlining why the government favours variable tuition fees over flat-rate fees have been scheduled for Monday and Tuesday evenings next week.

Graduate contribution scheme vs graduate tax

The similarities

  • Students pay only once they have graduated and are earning
  • Repayments are made through the tax system
  • Payments are linked to earnings
  • No real rate of interest would be charged for deferral of payment
  • Those who do not work, don't pay

The differences

  • Money from a graduate tax would go straight to the exchequer, so a mechanism for hypothecating the revenue would be needed. Money from the contribution scheme would go direct to universities, giving them an independent source of income
  • With a graduate tax, repayments are not directly related to costs incurred while studying. Under variable fees, graduates would pay back only what they spent. It would be an individualised graduate loan
  • Under the graduate tax model, the government would not recover the money for at least 20 years. Graduates would pay for 25 years. Under the graduate contribution scheme, the average payment period would be about 13 years.

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