Graduate tax set to replace tuition fees for students

Vince Cable endorses a graduate tax and calls for two-year degrees to cut costs.

The Business Secretary, Vince Cable, will announce plans for a new graduate tax to replace tuition fees in a speech later today. In a bid to cut costs at universities, he will also suggest introducing two-year degrees in some courses and encouraging more students to live at home.

A graduate tax would mean students repaying the costs of their education through taxation once they begin working, with higher earners paying more. Speaking at London's South Bank University, Cable will call for a "radical re-think" of how universities in England are funded and say the government wants to work with the sector "to turn the current funding crisis into an opportunity".

Cable will say that the government should look at the "feasibility of changing the system of financing tuition so the repayment mechanism is tied to earnings - so that maybe lower earners pay not more - maybe less - and higher earners pay more".

The University and College Union, which represents lecturers, warned the government that a graduate tax had to be more than just a "rebranding exercise".

The UCU general secretary, Sally Hunt, said: "If the government thinks it can get the public to swallow higher fees as some sort of graduate tax it is living in a dream world. We need a proper debate on how to fund our universities, not an exercise in rebranding.

"We will judge the plans on what they actually do and whether or not students will be forced to pay more, not how the government markets them."

But the shadow education secretary, Ed Balls, praised the coalition's decision to support a graduate tax.

He said: "As the first Labour leadership candidate to call for a graduate tax, I'm pleased that Vince Cable has followed many of my fellow contenders in backing this idea. When I was a Treasury adviser I argued for a graduate tax, because it was a fairer system which meant no upfront costs and no assumed debt for students and their families. It means graduates pay a contribution to the cost of their university education, but only once they are in work and clearly based on their ability to pay."

All of the Labour leadership candidates, with the exception of David Miliband, have come out in favour of a graduate tax.

In the past, the Liberal Democrats have campaigned for free university education and pledged to phase tuition fees out at the election. The coalition agreement allows them to abstain on votes on the issue.

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How can Britain become a nation of homeowners?

David Cameron must unlock the spirit of his postwar predecessors to get the housing market back on track. 

In the 1955 election, Anthony Eden described turning Britain into a “property-owning democracy” as his – and by extension, the Conservative Party’s – overarching mission.

60 years later, what’s changed? Then, as now, an Old Etonian sits in Downing Street. Then, as now, Labour are badly riven between left and right, with their last stay in government widely believed – by their activists at least – to have been a disappointment. Then as now, few commentators seriously believe the Tories will be out of power any time soon.

But as for a property-owning democracy? That’s going less well.

When Eden won in 1955, around a third of people owned their own homes. By the time the Conservative government gave way to Harold Wilson in 1964, 42 per cent of households were owner-occupiers.

That kicked off a long period – from the mid-50s right until the fall of the Berlin Wall – in which home ownership increased, before staying roughly flat at 70 per cent of the population from 1991 to 2001.

But over the course of the next decade, for the first time in over a hundred years, the proportion of owner-occupiers went to into reverse. Just 64 percent of households were owner-occupier in 2011. No-one seriously believes that number will have gone anywhere other than down by the time of the next census in 2021. Most troublingly, in London – which, for the most part, gives us a fairly accurate idea of what the demographics of Britain as a whole will be in 30 years’ time – more than half of households are now renters.

What’s gone wrong?

In short, property prices have shot out of reach of increasing numbers of people. The British housing market increasingly gets a failing grade at “Social Contract 101”: could someone, without a backstop of parental or family capital, entering the workforce today, working full-time, seriously hope to retire in 50 years in their own home with their mortgage paid off?

It’s useful to compare and contrast the policy levers of those two Old Etonians, Eden and Cameron. Cameron, so far, has favoured demand-side solutions: Help to Buy and the new Help to Buy ISA.

To take the second, newer of those two policy innovations first: the Help to Buy ISA. Does it work?

Well, if you are a pre-existing saver – you can’t use the Help to Buy ISA for another tax year. And you have to stop putting money into any existing ISAs. So anyone putting a little aside at the moment – not going to feel the benefit of a Help to Buy ISA.

And anyone solely reliant on a Help to Buy ISA – the most you can benefit from, if you are single, it is an extra three grand from the government. This is not going to shift any houses any time soon.

What it is is a bung for the only working-age demographic to have done well out of the Coalition: dual-earner couples with no children earning above average income.

What about Help to Buy itself? At the margins, Help to Buy is helping some people achieve completions – while driving up the big disincentive to home ownership in the shape of prices – and creating sub-prime style risks for the taxpayer in future.

Eden, in contrast, preferred supply-side policies: his government, like every peacetime government from Baldwin until Thatcher’s it was a housebuilding government.

Why are house prices so high? Because there aren’t enough of them. The sector is over-regulated, underprovided, there isn’t enough housing either for social lets or for buyers. And until today’s Conservatives rediscover the spirit of Eden, that is unlikely to change.

I was at a Conservative party fringe (I was on the far left, both in terms of seating and politics).This is what I said, minus the ums, the ahs, and the moment my screensaver kicked in.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.