A graduate tax would bring transparency to university funding

The popularity among young voters of the Labour Party’s pre-election pledge to abolish tuition fees in England has made politicians of all colours sit up and take note.

The issue of higher education funding is clearly not going away. With every week that passes, public dissatisfaction with the current model appears to be intensifying, no doubt fuelled by recent reports of students leaving university with debts in excess of £50,000 and by predictions that a large proportion of student loan debt will never be repaid.

But rushing headlong into adopting Labour’s model would create as many issues as it would solve. Instead, we should be looking for an approach that maintains the benefits of the current system while recognising that the present loan arrangements are unsustainable – at least politically, if not economically as well.

A return to free-at-the-point-of-delivery higher education would probably result in a return to a capped and controlled system, stifling progress made in innovation and widening participation, and threatening English universities’ ability to remain internationally competitive.

There are appreciable private benefits in attending university and also much public good in having a flourishing university sector. One of the challenges with the current loan system is that debate has focused on the former; the slashing of the teaching grant that accompanied the introduction of the £9,000 fees regime in 2012 was seen by many as the withdrawal of state subsidy for higher education.

But this is far from the truth. The current system still includes a financial recognition of the public benefit to higher education. This is manifested via additional government funding for a range of high-cost degrees and the writing-off of many student loans before they are repaid in full. Although there is debate about the exact cost of the write-off, it is estimated by the Office for Budget Responsibility to be between 0.2 per cent and 0.25 per cent of gross domestic product: currently somewhere north of £5 billion.

Alongside concerns about student debt levels, a strand of commentary has suggested that the funding provided to universities through the current system is too high. This is simply not the case: as a proportion of GDP, total UK spending on tertiary education is only slightly above the average for members of the Organisation for Economic Cooperation and Development (1.8 per cent versus 1.6 per cent).

But the debate offers an opportunity for England to develop a hybrid that builds on the successes that the current system has delivered but also acknowledges its downsides.

A new system should, as far as is practical, preserve student-led demand in providing places. It should foster educational innovation that supports students across a full career. It must protect quality by maintaining current overall funding levels. And it must appreciate the multifaceted missions of universities by continuing to reflect the public good as well as the private benefits they provide.

Based crudely on the OBR figures, the student loan write-off equates to about 40 per cent of the cost of the current system. That level of contribution by the government seems proportional, as a reflection of the public benefit of higher education. But it needs to be made more transparently and strategically than at present.

I suggest that every student should have individual learning accounts, which would be flexible but capped over a lifetime. Greater flexibility would foster innovation and allow students much more choice in how they study. For example, a standard three-year undergraduate degree could equate to a certain number of units of funding, but those units could also be used more rapidly or more slowly depending on individual circumstance.

Repayment of these individual learning accounts could be made through a tiered graduate tax payable over a working lifetime. The 60/40 private/public model could be adapted to reflect the level of public good associated with a particular course, with subjects such as nursing and midwifery being prime candidates for higher levels of government subsidy, and thus lower graduate tax rates.

Of course, this system would still mean that graduates have to make significant financial contributions towards their university education, and in many ways what we have now is not altogether dissimilar to a graduate tax. But by providing both greater flexibility and clarity around public benefit, a redesign along the lines I suggest would ensure that the UK has a system that has widespread support and is not reengineered every few years.

It is obvious that this will not be an easy debate, and compromise will inevitably be required. However, that must not deter us from arguing strongly for a sustainable solution that supports individual students, a high-quality university system and the nation as a whole.

Iain Martin is vice-chancellor of Anglia Ruskin University.