Finance graduate devises new way for Scots to compete without top-up fees

A Scottish think-tank believes universities could solve their funding problems and boost their quality if they were funded through a pledged proportion of their students' future earnings.

There are fears that Scotland faces financial disadvantage with the advent of top-up fees south of the border. But the Policy Institute, an independent think-tank set up at the time of devolution, says fees are misconceived, since they reward universities for their past reputation and may deter poorer students. It also rejects a graduate tax as failing to reward good universities. Instead, it proposes that individual universities should collect a small percentage of their graduates' future earnings, borrowing against these to raise immediate funds.

The Policy Institute paper, sent this week to its 1,200 readers in the political, business, media and academic worlds, says: "Universities would be directly rewarded for improvement in the quality of their teaching, since it would result in higher graduate salaries and thus higher income.

Students would have no fear of debt and government would make major savings."

The paper, written by Ben Reilly, a St Andrews University graduate in financial economics, suggests that about 2 per cent of graduates' earnings would give the sector its current income.

Institutions could levy different percentages to reflect course costs, reduce them as graduate salaries increased, or raise them to hire academic high-fliers and build world-class facilities, the paper says. Frank Gribben, registrar of Edinburgh University's College of Humanities and Social Science, wants more detail. "Although in the short term we've got a reasonable settlement from the Scottish Executive, there is concern over how sustainable that will be in the medium term if the larger contribution from graduates in England gives real extra income that cannot be matched,"

he said.

Universities Scotland said it welcomed all sensible discussion on funding options.