CBI Against UK Graduate Tax

by Robert Lee, Tax-News.com, London

07 September 2010

Richard Lambert, director-general of the Confederation of British Industry (CBI), has warned that a 'graduate tax' could encourage the UK's brightest university leavers to seek employment opportunities in other countries.

A graduate tax is an idea that is currently being considered by the coalition government and is one of several proposals being studied by an independent review into alternative sources of funding for the UK's higher education system. The proposal is known to be favoured by Business Secretary Vince Cable, but Lambert has warned that, when added to the country's already high tax rates for top earners, Britain's most talented graduates could explore employment opportunities elsewhere.

"We worry that if you had a graduate tax, unless you were jolly brilliant in constructing it, UK students would have an incentive to work overseas especially at a time when the top rate of personal tax is 50%," he said.

Lambert argues that a graduate tax has several flaws; for example, foreign students who return home to work after their studies would potentially receive a free university education in the UK.

At present, students take out low interest loans from a government agency to pay for tuition fees and other expenses associated with their degrees, which they start to pay back once in employment and their annual salary rises above GBP15,000 per year. However, according to the University and College Union (UCU), the cost of a university degree would "rocket" under a graduate tax system.

An analysis of various graduate tax models by the UCU concluded that teachers, nurses, doctors and social workers would pay "considerably more" back than under the current system of tuition fees. Under a model where graduates pay a tax of 5% over 25 years, doctors would pay back over GBP105,564 and teachers close to GBP46,046.

Lambert also suggests that a graduate tax would complicate the system of higher education funding and erode the autonomy of universities with regard to government.

Last month, universities minister David Willetts told the BBC that he favoured a system whereby graduates would make an additional "contribution" to university funding once in employment, noting that graduates earn on average GBP100,000 more than non-graduates over the course of their working lives, although he was careful not to frame such a proposal as a 'tax'.

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