Laurie Penny

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We need a retroactive graduate tax

Vince Cable’s plans are bold and progressive, but could go further to reduce inequality.

This morning, Vince Cable signposted his plans for a change in university funding, whereby graduates might find themselves repaying the cost of their degrees in the form of a tax based on earnings, as opposed to the current student loans system, which discriminates in favour of those who go on to more profitable careers. Cable said he would ask the former BP boss Lord Browne, who is leading an independent review into university fees and funding, to examine "the feasibility of variable graduate contributions".

This is a bold and progressive idea. But why not be a little more bold and a little more progressive, and apply the graduate tax to all graduates, not just current and prospective students? If tax can be applied retroactively, why not levy a fee from all working-age graduates, including those aged 30 and above who have used the benefits of free higher education to carve out high-paying careers for themselves?

Cable has a track record for sound ideas about higher education, including his observation that too many graduates are now going into jobs that were previously the province of non-graduates. This has implications for his cited figure of £100,000 as the average difference between the earnings of graduates and comparable non-graduates net of tax. The graduate earnings premium peaked in the 1980s; today, a university degree is a mandatory requirement for most lower- and middle-management jobs, rather than an optional educational extra to boost one's earnings.

Cable previously told the BBC that "if you're a schoolteacher or a youth worker you pay the same amount as if you were a surgeon or a highly paid commercial lawyer. I think most people would think that's unfair." Surely it's rather less fair to expect those over 30 to pay nothing at all? Surely it's not beyond the pale to ask those who enjoyed British higher education at its most lucrative and inclusive to give something back?

If Britain is to remain a world leader in research, innovation and education, our higher education system needs more money, and fast. But why should the burden of financing the necessary cash injection be placed solely upon today's young graduates, who have rather less chance of going on to high-paying careers than those who left university in the 1970s and 1980s?

The money that could be raised by taxing graduates across the board might well be enough to reduce the cost of university for young people from disadvantaged backgrounds, as well as solving the problem of higher education funding more fairly. If a variable graduate tax were truly based on earnings, there would be no reason for graduates of any age to pay more than they could reasonably manage. Parents of current students might even find themselves paying less overall, if their graduate tax liability offset the costs of contributing to higher tuition and maintenance fees for their children.

The new president of the National Union of Students, Aaron Porter, has said that while the NUS welcomes the graduate tax proposal, any changes to funding should be genuinely fair and progressive to win students' support. The core injustice of tuition fees has always been that they imposed a burden of debt on the young which rewrote the script for young adulthood in this country. And although there are indeed more young graduates now than there were 20 years ago, most are labouring under a double load of unavoidable personal debt and high unemployment.

Meanwhile, Vince Cable, George Osborne and David Willetts, along with nearly every other policymaker currently responsible for higher education funding, were financed through their degrees by a generous grants system, left university in credit, and entered a booming job market. A universal graduate tax would be a fair way of sharing out some of the proceeds of that extraordinary generational luck.

If the deficit must be paid for, it is not unreasonable to expect it to be paid for on the basis of equal sacrifice. If the principle of retroactive taxing is being considered at the highest levels of government, it is not far-fetched to suggest that the rich be taxed as well as the poor, the old as well as the young, on the basis of the services that they have enjoyed from the state.

I'd stop short at suggesting that Cable backdate the graduate tax to 1970, of course -- that would leave older people with degrees owing, ooh, tens of thousands, almost as much as an average humanities graduate in 2010. And nobody would stand for that.

34 comments

Martin L's picture

Thats exactly what I meant Mrs J. As previous posters have said, the principle of retroactivity means that every decision we take now must include a risk assessment of what a future government might do. Personally, I do not have supernatural power to see into the future. Also who could have predicted that the lib-dems woyuld be in power? (or at least influence). Anything is possible (almost).

Therefore, retroactivity is crippling and indefensible.

Laurie Penny1's picture

James - actually, most students I know who do not come from wealthy families have additional debts on top of their student loan, which *do* need to be paid for before earning begins.

Silver Shred's picture

Because it would be a complete and utter breach of covenant. Whenever we went to university we knew the deal - either we went at a time when fees were payable or we didn't. We proceeded on the basis of informed consent.
This half-witted suggestion would be struck down by any legal tribunal that looked at it; there is no contractual basis for teh action proposed.
We've had a perfectly good model for a taxation regime (as opposed to equitable tax rates) for decades; those who earn most pay tax at a higher rate. Whether or not they are grduates is - and should be - irrelevant.

Nile's picture

A place at university, a reasonable degree and an unimpeded passage into and upward in the professions can be had by anyone who gives a satisfactory answer to a single-question exam at the age of four: "How much does your father earn?"

Conservatives do not regard this as an appalling social evil and an indictment of the education system: they see it as a good reason to regard higher education as a paid-for service - like elocution lessons, or cosmetic surgery, or a good tailor.

In that worldview, Gove's prejudices and Clegg's policy proposals are surprisingly benign; and they will face stiff opposition from the class-warriors and the economic neocons.

cwhitrow's picture

I see the logic behind both the idea of a graduate tax, and the proposal that it should be retrospective. However, if graduate tax were the only form of funding for higher education, it would create strange inequities and would not reflect the fact that an educated workforce is a public good, as well as a private one.

First, I agree that if we were to have a graduate tax at all, it should be retrospective, otherwise it would be grossly unfair on those under 40. I say this even though I was among the last to benefit from a full grant myself.

But graduate tax is a ultimately a fudge. Why should someone in a low-paid job pay a larger part of their earnings in tax, for the rest of their lives, just because they did a degree? Meanwhile, some barrow-boy who made good in the city, without a degree, will be making a mint and paying less tax. Graduate tax is a lifelong burden, and would not stop when the cost of education is covered. It would be far too generous to wealthy non-graduates, who nevertheless benefit from being part of an educated society. It would also remain a powerful disincentive to higher education for those from poorer backgrounds, just as the current system is.

This takes us back to the central question of how to fund tertiary education. May I suggest we do it in much the same way as we fund secondary education, or is that just too radical? I mean largely through general taxation (on everyone, including the large companies who benefit most from having an educated workforce). I would favour the restoration of generous grants for the most academically competent - relative to social and educational background - combined with the provision of cheap loans and smaller grants for those who are still motivated to study at university. There should also be an expansion in provision of part-time degrees and distance learning (as with the OU), to allow alternative routes into higher education for people of all ages.

Denny's picture

Silver Shred: since when was tax contractual?

Simon W's picture

Depressingly shallow analysis. "Pop culture" indeed. If (and I mean if) it is the case that graduates earn more, then they are already paying, and always have, through the tax system for their degrees. Unless of course they gice up work, for whatever reason, before the break-even point. Super-Tax for graduate stay-at-home-parents , anyone?

Vince Cable - and the New Statesman - could more usefully address themselves to the issue of equitable taxes in considering that taxes raised across the country subsidise free Scottish degrees, while students in England (whose parents pay the into the same tax regime) end up saddled with debt.

Dave's picture

Retroactive? Don't be utterly daft.

For a tax system to be fair you have to be able to make informed choices. People know that by going to university they will have to pay fees. People in the future will know they will face higher taxation and will make choices accordingly. Do they need a degree? Will they need to chose a higher salaries job to afterwards to afford bear the higher tax burden?

Imposing a tax retroactively is unfair, unethical and an absolute non-starter. A dreadful idea.

Frankly, this is right up there with the article you wrote about football.

The Law's picture

Not going to happen:
http://www.bbc.co.uk/news/education-10711568

ph23ms's picture

As a fairly recent graduate, I dont even consider my student loan as a tangible debt. I just pay £100-odd per month right off my pay-check.

The student loan I received barely covered 9 months rent in the cheapest accomodation, without bills, food, travel etc. Even despite working throughout university, I still left with £2k+ on credit cards, £3k+ in overdrafts and owing my family money also.

I am fortunate enough to have found a well-paid job, which means I am quite quickly repaying these debts, but for many who are on minimum wage jobs as graduates this would be an unmanageable amount of debt.

I would much rather have received a larger student loan (enough to live off) and be paying that back PAYE, than having to borrow from banks etc. which has left me in a poor financial situation.

As far as I can see it, I borrowed the money as a loan, and I am paying it back with interest. Whether that loan originated from a bank or from the government is almost irrelevant.

Whose higher education would I be paying for in a retrospective tax?
As far as I am concerned, once that loan is paid off, I am all square...

If universities arent making enough money to survive, then they need to look at their spending more closely. Rather than running as an individual 'organisation' they should buy in consortium, for example, rather than trying to impose some ill-imagined stealth tax.

JH's picture

@Silver Shred

Breach of covenant? Anybody who has a) a genuine interest in some form of social justice and b) had the rules of the game skewed in their favour from the outset should not be too shocked if "covenants" get breached from time to time. According to your logic, nothing can change and nobody can revolt, ever, since by definition these changes will entail loss of what had, in some quarters, been naively "banked upon". Get real.

@Peter

All of society benefits from third level qualifications, sure. But I would argue that there is an absolute gulf between the benefits accrued by educated and non-educated citizens. Absolute in every sense, and unbridgeable in many senses. I find repugnant the notion that the broadening of my own horizons should be deducted from the pay packet of the office clerk or shop assistant.

lavinia moore's picture

Do we ever have a real debate about whether education is an investment, for the society as well as for the degree holder? Do we question whether education ought to be seen as a privelege or a right?
A society that does not benefit from educating its citizens is obviously not educating them. (Look up Malcolm X on the difference between training and education).
Maybe, given what it happening in some universities- turning them into cash cows milking overseas rich men for their children's wellbeing-we are demonstrating that we are not interested in education at all any more.
But education, like health care seems to me to be an absolute necessity if one wants to sustain our culture and our civilisation; it is necessary if we want to improve the quality of life of the citizens and perhaps enable us to solve ecological and humanitarian problems our world probably will have to face in the next few decades.
Why on earth is there any validity in a debate about charging for education? Why does anyone think that kind of nonsense is at all justifiable?
Soon they will be asking the recently deceased to pay for the cost of their dying health care!
Grow up. All who need health care should be provided it. And all who have the ability (and inclination to do the hard work)to study should be given the opportunity to do so.
And just as one suggestion I would much rather we ditched military aggressions and foreign occupations than education.
This is racist and elitist and "classist" claptrap.
Just get on with it and pay for our own people's education.
It will be worth it.
For all of us.
Lavinia Moore

Leigh's picture

There already is a "variable graduate tax tied to earnings" to fund universities. It's called a progressive income tax. The more you earn, the more you pay towards the university system. There may be those who do not go to university, but all of society benefits from more people going to university, not just or even mainly the graduates themselves.

Cable's proposals are NOT progressive, but make graduates pay twice. Don't get bamboozled by this, Penny.

Andy D's picture

Can I have a refund for the fees I've already paid for then?

swatantra's picture

It won't work. Its almost as silly as saying we'll have a graduated tax on the class of degree you got ie those with First Class Honours pay more. I suppose I could live with that.
No, the present loan system is satisfactory, as it is ayment upfront and an incentive to work hard for that degree.

Carol Ajegbo's picture

Re 'Blame your parents' 26th July. Are young people voting? If so why aren't they supporting changes in favour of more equality? i.e. socialism. Why do we have this current government? This particular baby boomer (sadly) and Labour Party memnber would welcome some more support from the young.Surely we can influence policy if enough people make the effort?

Martin L's picture

I would be knackered! having paid for OU courses and being funded through my Nursing and Probation Courses. Retroactive sanctiona are unconstitutional in my opinion.

Laurie Penny1's picture

'For a tax system to be fair you have to be able to make informed choices.'

I think this is the key point, actually. What choice do young people have today? University is now *mandatory* for most young people who want to go on to decent jobs. If you're talking about choice and fairness, the situation now isn't comparable to the situation thirty years ago, when the middle and upper tiers of work and pay were not effectively closed to those without degrees. That's still choice, but it's restricted, limited choice.

Laurie Penny1's picture

Martin L - what constitution would that be?

Martin L's picture

Laurie, you are quite right. The state has the power to suppress me in the name of its "legitimacy" to govern me. As a prole, I can imagine that I have protection from injustice. This false security and protection enables me to continue serving a corrupt hegemony (whether Labour or Tory).

Even my language "unconstitutional" is an illusion. Perhaps Orwell was right all along.

The only "rights" I have is to pay taxes until I die, supporting the Rich, and the welfare class. Its interesting how the welfare class are pitied as victims. Perhaps we are all victims.

Rob's picture

Most UK universities are an expensive, sick joke due to obtaining most of their money from the State. More State funding simply means more inefficiency, greater dependency,higher costs and more corruption. A low cost distance learning qualification that allows students to obtain a relevant/value-for-money education whilst continuing working/living at home will emerge once the State cuts off the £15b per year subsidy to the pretend "universities" that are not responsive to students educational and financial needs. Roll on the closure of a few dozen or so of these dreadful apologies of universities.

jie4v7i14's picture

Yes The Law, there seems to be a lot of hot air generated in Westminster these days it seems. Finding their feet? The Shadow Cabinet must be laughing their parts off.

Jamie H's picture

Er..also can I just say: what about parents that are graduates, who have already forked out for their children's university education? I think they would find the idea of a retrospective tax pretty abhorent

Cambo79's picture

Let me say I'm a big fan of the NS and I read it every week religiously. But this article was too much - and I suspect many graduates reading it will feel pretty angry too.

I started my undergraduate degree in 1998 - the year tuition fees came in with almost no warning. I had to take out the full value of the student loan each year to pay for them, my accommodation and living costs. I worked full-time every summer to pay-off my overdraft and credit cards. I then took out a whopping bank loan to pay for my post-graduate degree. I left uni with north of £25k of loan debts hanging over me that I've only just paid off.

I'm all for a progressive tax system but in what world is it fair to then be subject to an additional 'graduate tax' when you had no idea this would be the case at the outset? I get the case for reforming funding mechanisms for future students - you can design systems to administer that (possibly) - but how would it work retro-actively? How would you identify graduates? And would it be fair that people who are employed at the same pay grade are subject to different rates of direct taxation according to where and if they went to uni - even if they have already paid the fees they were charged by their uni? That wouldn't be a graduate tax - it would be an aspiration tax. In practice of course, it would just encourage tax evasion.

James's picture

"...most are currently labouring under a double load of unavoidable personal debt and high unemployment."
One doesn't begin to pay back a student loan until you are in work and earning.

Learn about a system and understand it before you attempt to critique it.

James's picture

And yes, as others have said, this is a most daft idea.

Mrs.Josephine Hyde-Hartley's picture

" Laurie Penny
16 July 2010 at 11:22

Martin L - what constitution would that be?"

In my view Martin probably means our wonderfully generous (largely unwritten) and therefore flexible UK constitution ie perhaps the same kind of wonderful jungle that is the charity world.

But I'm not sure I like the notion of retroactive this and/or retrospective that. It's hardly surprising the various "generations" don't seem to know whether we are coming or going. Bending over backwards may be very disorientating in my view and such posturing is best avoided where possible. We can't reasonably expect the common citizen to have eyes in the back of the head.

Nicodemus's picture

If they cancelled my tuition fees, I'd happily accept a graduate tax. However, the biggest problem is that the universities are an inherently elitist idea. They were only ever intended for a limited group of wealthy people. While i welcome more people spending more time in education, any socially just manifestation of universities requires a much more radical rethinking of university culture that doesnt commodify it or render academics impotent, as the present system does.

TimFootman's picture

How would HMRC be able to tell who's a graduate and who isn't?

Dan's picture

Aside from problems with a graduate tax (Govt have to provide tons of money upfront, question of ring-fencing etc) there are a couple of practical problems with this:

a)Finding and processing everyone who is a graduate. The Government is unlikely to have a central database of all UK graduates. They just won't find everyone. Those who now live and work overseas will be particularly difficult to track.

b) What about graduates who have already paid some fees- e.g. the previous £1000 upfront fee or newer £3000 'top up' fee...do they get a rebate? Money has already gone to the university so a rebate could require the Govt to clawback off universities. Not ideal.

writeoff's picture

Since the whole nation would then benefit from leading the world in research etc., why not extend the tax to non-graduates too. In fact why not just forget the whole bloody idea and admit it's far more equitable to fund higher education from general taxation. You know, like they did in Vince Cable's day. More and more people are getting sucked in by this crisis rhetoric. It shows how powerful the 'shock doctrine' is. Or should that be schmuck doctrine. Why not tax rich people. Why doesn't any one ever say we should tax rich people. We always used to tax rich people.

Peter's picture

Sorry, I can't agree.

Of course tuition fees and student debt should be abolished. Surely however, the basis of any fair tax system is one's ability to pay, and thus tax should be based on no factors other than wealth.

All of society benefits from there being universities, not just the graduates. And it doesn't necessarily follow that graduates will end up well paid.

Yes, the wealthier classes have always been and will continue to be the main beneficiaries of state spending in education and other areas. Therefore their taxes should reflect this and they should bear the heaviest burden. But they should be taxed more heavily because they are rich; not because they are graduates.

Peter Scott's picture

Where does this leave those like me who studied through the Open University? I had to pay all my own fees without the benefit of a student loan. Every penny of my fees had to be found out of the family budget over 6 years of very hard work. I now work in an office where many of my peers have no degree, but who do the same job based on experience and training. A universal graduate tax will penalise me when compared with those working alongside me earning the same salary and will take no account of the fact I have already paid all my fees in full.

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