Is the graduate tax actually fairer?

Paying for education indefinitely is more likely to act as a deterrent to poor students.

In his first key speech on higher education, Vince Cable has outlined proposals for cutting costs in universities. The graduate tax, which Cable claims would be fairer and more sustainable, has attracted the most attention.

Under the current system, students take a loan from the government which they use to pay their tuition fees and part of their living costs. This is paid back gradually when the graduate starts earning more than £15,000.

At first glance, that sounds rather similar to the measure being proposed -- money is paid over someone's career, and the amount increases with earnings. The main difference is that the graduate tax will be infinite; in effect, it will mean that graduates are permanently paying a higher rate of income tax.

The jury is out on whether this is "progressive" or not. The main argument in its favour is that it would be linked to income, meaning that high earners will ultimately pay more and could subsidise those less well off.

Ed Balls -- a proponent of the graduate tax -- said it means that graduates will contribute to costs, "but only once they are in work and clearly based on their ability to pay".

I'm not convinced by this. It is already the case that repayments start only once you are earning, and the situation would presumably stay the same if fees were to rise further. The difference is that, currently, everyone ends up paying the same amount, whereas the idea under the new system would be for the rich to end up paying more.

There are many problems with this. While the National Union of Students has been advocating a graduate tax for the past four years, they have also pointed out that a graduate tax can fail to take into account the diminishing importance of education and the increased role of work experience in establishing a career (note: they believe that their proposed model neutralises this). Paul Cottrell of the University and College Union (UCU) argues that poor graduates could even end up paying a higher percentage of their income through a tax than through a loan system.

Two years ago, Sutton Trust research on the impact of tuition fees showed that teenagers from poorer families were forgoing a university education because they were concerned about debt.

Another argument for a graduate tax is that abolishing the upfront payment aspect would remove this deterrent. This is disingenuous. As it stands, it is assumed that you will pay back your fees at a later date. You fill in a form for a loan, and the money goes straight to the university without passing through your bank account.

While a graduate tax could be framed as the abolition of fees, I find it difficult to believe that essentially paying for your education for ever would be less of a deterrent than a fixed amount of debt. Surveys have shown students concerned that they will be paying back their student debt for a decade; surely, permanently paying more tax is worse?

I'm inclined to agree with Sally Hunt of the UCU, who has called the proposal "an exercise in rebranding". Isn't this just higher fees by a different name?

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Samira Shackle is a freelance journalist, who tweets @samirashackle. She was formerly a staff writer for the New Statesman.

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Debunking Boris Johnson's claim that energy bills will be lower if we leave the EU

Why the Brexiteers' energy policy is less power to the people and more electric shock.

Boris Johnson and Michael Gove have promised that they will end VAT on domestic energy bills if the country votes to leave in the EU referendum. This would save Britain £2bn, or "over £60" per household, they claimed in The Sun this morning.

They are right that this is not something that could be done without leaving the Union. But is such a promise responsible? Might Brexit in fact cost us much more in increased energy bills than an end to VAT could ever hope to save? Quite probably.

Let’s do the maths...

In 2014, the latest year for which figures are available, the UK imported 46 per cent of our total energy supply. Over 20 other countries helped us keep our lights on, from Russian coal to Norwegian gas. And according to Energy Secretary Amber Rudd, this trend is only set to continue (regardless of the potential for domestic fracking), thanks to our declining reserves of North Sea gas and oil.


Click to enlarge.

The reliance on imports makes the UK highly vulnerable to fluctuations in the value of the pound: the lower its value, the more we have to pay for anything we import. This is a situation that could spell disaster in the case of a Brexit, with the Treasury estimating that a vote to leave could cause the pound to fall by 12 per cent.

So what does this mean for our energy bills? According to December’s figures from the Office of National Statistics, the average UK household spends £25.80 a week on gas, electricity and other fuels, which adds up to £35.7bn a year across the UK. And if roughly 45 per cent (£16.4bn) of that amount is based on imports, then a devaluation of the pound could cause their cost to rise 12 per cent – to £18.4bn.

This would represent a 5.6 per cent increase in our total spending on domestic energy, bringing the annual cost up to £37.7bn, and resulting in a £75 a year rise per average household. That’s £11 more than the Brexiteers have promised removing VAT would reduce bills by. 

This is a rough estimate – and adjustments would have to be made to account for the varying exchange rates of the countries we trade with, as well as the proportion of the energy imports that are allocated to domestic use – but it makes a start at holding Johnson and Gove’s latest figures to account.

Here are five other ways in which leaving the EU could risk soaring energy prices:

We would have less control over EU energy policy

A new report from Chatham House argues that the deeply integrated nature of the UK’s energy system means that we couldn’t simply switch-off the  relationship with the EU. “It would be neither possible nor desirable to ‘unplug’ the UK from Europe’s energy networks,” they argue. “A degree of continued adherence to EU market, environmental and governance rules would be inevitable.”

Exclusion from Europe’s Internal Energy Market could have a long-term negative impact

Secretary of State for Energy and Climate Change Amber Rudd said that a Brexit was likely to produce an “electric shock” for UK energy customers – with costs spiralling upwards “by at least half a billion pounds a year”. This claim was based on Vivid Economic’s report for the National Grid, which warned that if Britain was excluded from the IEM, the potential impact “could be up to £500m per year by the early 2020s”.

Brexit could make our energy supply less secure

Rudd has also stressed  the risks to energy security that a vote to Leave could entail. In a speech made last Thursday, she pointed her finger particularly in the direction of Vladamir Putin and his ability to bloc gas supplies to the UK: “As a bloc of 500 million people we have the power to force Putin’s hand. We can coordinate our response to a crisis.”

It could also choke investment into British energy infrastructure

£45bn was invested in Britain’s energy system from elsewhere in the EU in 2014. But the German industrial conglomerate Siemens, who makes hundreds of the turbines used the UK’s offshore windfarms, has warned that Brexit “could make the UK a less attractive place to do business”.

Petrol costs would also rise

The AA has warned that leaving the EU could cause petrol prices to rise by as much 19p a litre. That’s an extra £10 every time you fill up the family car. More cautious estimates, such as that from the RAC, still see pump prices rising by £2 per tank.

The EU is an invaluable ally in the fight against Climate Change

At a speech at a solar farm in Lincolnshire last Friday, Jeremy Corbyn argued that the need for co-orinated energy policy is now greater than ever “Climate change is one of the greatest fights of our generation and, at a time when the Government has scrapped funding for green projects, it is vital that we remain in the EU so we can keep accessing valuable funding streams to protect our environment.”

Corbyn’s statement builds upon those made by Green Party MEP, Keith Taylor, whose consultations with research groups have stressed the importance of maintaining the EU’s energy efficiency directive: “Outside the EU, the government’s zeal for deregulation will put a kibosh on the progress made on energy efficiency in Britain.”

India Bourke is the New Statesman's editorial assistant.