The New Statesman’s rolling politics blog


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?

Subscription offer: Get 12 issues for just £12 PLUS a free copy of "The Idea of Justice" by Amartya Sen.