You pay for my study, I'll pay for your daughter's

October 31, 2003

One way to ensure cash for higher education is for each generation to invest in the next, argues Rob Marris

Whether top-up fees will have the positive effect on university funding suggested in the higher education white paper is open to considerable doubt.

Few extra resources will come from top-up fees unless either the £3,000 cap is soon breached or almost all courses charge the full amount.

But how will fees of, say, £10,000 a year, help to widen access? Only with a lot of government bursary money eating away the supposed increase. If everyone charges £3,000-plus, the access lever is gone.

The government has estimated that about 64 per cent of students will pay top-up fees ( Hansard , September 11 2003).

In neither of the two Commons debates on tuition fees in June did higher education minister Alan Johnson say by how much top-up fees were expected to generate. On July 29, Mr Johnson wrote that, if all (full-time) students had to pay £3,000 top-up fees, the extra annual gross income would be £1.412 billion.

But that is the gross figure. It would amount to about 14 per cent of the government's projected higher education spending of £10 billion a year for 2005-06, the last year before top-up fees are introduced. It sounds a lot, but it is not the net figure and it assumes that all full-time courses will charge the extra £3,000.

To find the net figure, one must look at both the proportion of students being charged top-up fees and the cost of assistance for poorer students - principally, the bursary scheme of £1,000 a year. In the Commons in September, I suggested to Mr Johnson that this assistance would knock £250 million a year off the gross additional fee income. His reply was most revealing: "We expect that at least one-third of the extra money coming in from fees will go to bursaries. We have calculated that around £300 million extra will go to bursaries..." ( Hansard , September 11 2003).

It follows that top-up fees will raise £900 million gross, out of a possible £1.412 billion if all students were charged. That is, the government expects about 64 per cent of students to be charged top-up fees.

Of that £900 million gross, £300 million will go on financial assistance - leaving a net increase of £600 million, on a budget of £10 billion. So, on the government's own figures, the net increase from top-up fees will be all of 6 per cent. Welcome monies, yes; but significant? Arguable.

But when, later in September, Mr Johnson wrote to clarify his bursary figures, it emerged that the £300 million bursary scheme is in fact to be introduced in September 2004 - two years before top-up fees - and the cost is included in the £10 billion budget for 2005-06.

Given that this £300 million is already budgeted for, and given that the tuition fees regime is predicted to bring in £485 million net in 2005-06, the shortfall for 2005-06 if tuition fees were abolished altogether, would be just £185 million. If about 20 per cent of students were taking two-year foundation degrees by 2005-06, each costing two-thirds of a traditional three-year undergraduate degree, there would be no £185 million shortfall in 2005-06. Above that 20 per cent, there would be an increase in funding.

So, how to increase funding, since the top-up fee regime is not likely to produce much extra? One possibility is extending another tax - value-added tax - to books. There are good reasons for children's books and textbooks to be exempt to avoid a tax on learning. Yet why should other books be exempt, particularly if the alternative is more money for learning? I suspect that graduates spend more on books than the rest of the population. Based on House of Commons library figures, I calculate that VAT on books would raise about £250 million a year net. As this amounts to only 2.5 per cent extra funding for higher education, perhaps it's not worth it.

But a tax on all graduates merits examination. Arguably, many graduates have enjoyed the fruits of a highly subsidised education, some for decades.

Perhaps it is time that they paid something back, through a National Insurance surcharge, as well as through income tax. Those graduates' sons and daughters are likely to enter higher education. Would a graduate rather pay off their child's £15,000 debt, or instead pay 1 per cent more National Insurance each year of their working life? With an NI surcharge, one generation collectively invests in the future of the next generation.

A 1 per cent NI surcharge on graduate employees would raise about £1.1 billion annually - almost twice as much as top-up fees - and this would rise as the proportion of graduates in the labour force increased. Welcome monies? Yes. Worth considering? Certainly.

Rob Marris is the Labour MP for Wolverhampton South West.

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