Student loans are better than a new graduate tax
It’s right that students pay for their university education but you don’t need a degree to see that a graduate tax is the wrong way to recoup the cost. Let’s hope we can rely on the former BP boss, Lord Browne, to tell politicians their proposed tax is bad.
In equitable terms it is wrong to impose an open-ended liability on people who benefit from further education. What if a graduate becomes a pop-star or footballer (never mind an entrepreneur) and earns a fortune after leaving college – but not because of anything they learnt there? Should they pay some sort of supertax for the rest of their lives?
And in practical terms it is a bad tax. The temptation to go abroad rather than pay the lifetime levy will be great. Even if the tax is refined to exclude those who took degrees abroad but live in Britain, or those foreigners who pay at source for their UK degrees – and exempts low-earners but also lets off people who chose, say, to bring up families, rather than work – it will be as bureaucratic to collect as it is a burden to pay.
Ministers argue that graduates can afford to pay because over their life they will earn £100,000 more than the average person. Well, the past generation of graduates could: now that the average teenager goes to uni, not everyone can be earning more than the average. And while they may earn more because they are more intelligent, they aren’t brighter because they went to university - they went there because they are bright.
But there already is a good tax mechanism for recovering the cost of higher education. It is the progressive income tax system. People earning £100,000 extra will, at minimum, pay basic rate tax on that – currently giving the government £20,000. If they move into the 40 per cent rate, or even the 50 per cent bracket, the state recovers yet more.
And we have a student-loans scheme that recovers part of the cost of education as a 9 per cent levy on graduates earning above £15,000 a year. But once the loan is repaid, that’s it – the slate is clean. A graduate tax would mean those with successful careers quickly repay the cost of their own education but must then start paying for the less successful.
Lord Browne will report in the autumn of 2010 on how higher education should be funded. It is right graduates pay for their privilege with no cross-subsidy from those who shun college. And it is fair that some universities or come courses charge more than others: if students are paying they will demand value. But a tax that effectively gives the state an equity stake in graduates rather than providing a loan is fundamentally bad, and the BP boss should say so.
