UK Government Backpedals Over Graduate Tax Plans

by Jason Gorringe, Tax-News.com, London

16 January 2002

It was revealed on Tuesday that the UK government is backing away from plans to impose a graduate tax on university students following claims that this could discourage those from poorer backgrounds from pursuing higher education.

It was in his Labour Conference speech last October that the Prime Minister first raised the issue of replacing student loans with taxes as a serious proposition. At the time, advisers suggested that students would have access to grants to cover living expenses whilst at university, and then, when their postgraduate earnings reached a certain threshold, would be subject to a 10p in the pound tax for between 20 to 25 years.

However, consultations with focus groups revealed that this was likely to prove unpopular with voters, who dislike the idea of new taxes, even when linked to income thresholds.

Following this abrupt about-face, ministers are now left with no clear policy on replacing the widely unpopular student loans system. 'We rushed out the graduate tax idea to get ownership of the policy. Now we need to row back,' a senior source at the Department of Education and Skills told the Financial Times on Tuesday.

However, according to the FT, other officials at the DES were still insisting earlier this week that all possible options are still open and being considered by a panel of experts prior to a forthcoming consultation with ministers.

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