Only a spin doctor would prescribe a graduate tax

November 16, 2001

Labour's purported remedy for the crisis in universities is only a superficial solution, argues Kenneth Baker

The crisis hitting our universities is caused not by social exclusion but by constant and massive underfunding.

Our government is simply not spending enough on universities. The governments of France and Germany spend 1 per cent of gross domestic product on universities. America spends 1.1 per cent of its GDP on universities. The amount the United Kingdom spends is a little over a half of that.

The whole funding debate has been in a serious state of confusion since Tony Blair's declaration at the Labour Party conference that he wanted a fundamental review of university funding in order to secure greater social inclusion.

The government's fundamental review will consider the scrapping of fees; the reintroduction of grants; the modification of the loans system; and the introduction of a graduate tax. These are all issues that are directed at the social aim of inclusion rather than at the educational aim of arresting the decline in our universities.

There was no mention from the prime minister of any extra funding beyond what has been announced. So universities will go to the back of the queue, well behind hospitals, the foot-and-mouth crisis and the war against terrorism. This is a very bleak prospect for universities and, ultimately, for the economy.

The silliest proposal is the graduate tax - which rumour has it the government favours. The first question to ask is who benefits? Certainly not the graduates. They will have to pay over a long period, maybe 25 years, probably as much as 3p in the pound. This is a lifetime payment that holds with the concept that graduates should pay for the advantage they have gained from going to university. It is almost a reverse dividend payable on the capital that the state has spent on their education.

But is a graduate tax the most sensible way? It is deeply flawed, and it raises a number of important questions.

First, should the tax be set to recover the cost of a course? If so, should the historic cost be recovered, or should it be updated to compensate for inflation over the years?

Second, is it fair that graduates in philosophy, in which the only equipment costs are a piece of paper, a pencil and occasionally a rubber, should be expected to pay the same level of tax as medical graduates, who have been supported with the huge capital investment in laboratories, operating theatres, hospital wards and million-pound pieces of equipment?

Third, is it fair that a graduate in theology, where the rewards are likely to be modest, or even in the next world, should pay the same rate of tax as a graduate in law and accountancy? Is it fair that a female graduate who earns £30,000 should pay the full tax, when her former college friend who does not work and is married to a lawyer who earns £100,000 a year, pays nothing?

Fourth, will a student who has taken undergraduate and postgraduate courses, extending to say five years, pay the same rate of tax as someone who has spent just three years at the university?

Fifth, as all graduates are going to be treated equally, how does the Inland Revenue expect to reclaim tax from the 100,000 students from the European Union attending British universities? How will they collect from the Italian graduate who has decided to live in Germany or Thailand?

And what about the British high-flyer who decides to live abroad? There are well-tried and professional ways of recovering debts from such people, but recovering tax from them is virtually impossible.

Sixth, how will it be possible for Scottish graduates to pay this tax when the Scottish Parliament does not have powers to levy such a tax?

Seventh, if participation rises to 50 per cent, it follows that many graduates will probably earn quite modest salaries during their working lives. Why should they be burdened at the time they are buying a house, or starting a family, with an extra tax?

Eighth, how will universities benefit? The yield of a graduate tax will take years to materialise. Will universities be asked to wait for additional funding until some part of this tax reaches them? And what percentage of the tax will they get?

In the past, the Treasury has always opposed hypothecated taxes. It has refused to be the tax-gatherer for social purposes, or sectional interests.

A graduate tax is all about social engineering and not about improving the engineering departments in our universities. It has a superficial attraction that may, for a time, just conceal its fundamental flaws. It is the ideal choice of a spinner.

Lord Baker of Dorking was secretary of state for education from 1986-89.

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