UK Graduate Tax Rejected

by Amanda Banks, Tax-News.com, London

14 October 2010

Liberal Democrat party member, and Secretary of State for Business, Vince Cable has welcomed proposals in the recently released report by Lord Browne on graduate fees and the funding of higher education, but has noted, as admitted in the report, that a graduate tax is 'unworkable'.

Speaking in the House of Commons, Cable said: “The government endorses the main thrust of the report but we're open to suggestions from inside and outside the House over the next few weeks before making specific recommendations to Parliament, with a view to implementing the changes for students entering higher education in autumn 2012.”

"More detail will be contained in next week's spending review on the funding implications - but as a strategic direction, the government believes the report is on the right lines."

Cable backed a recommendation of the report that there “should be no upfront tuition fees for students, as this would seriously deter students from low- and middle-income families.” In addition, the proposed removal of upfront fees for part-time students also received Cable's backing.

U-turning on the Liberal Democrats’ pre-election policy of abolishing tuition fees, Cable admitted that removing fees is impossible in the current climate, and instead announced that “[the government is] considering a level of GBP7,000, [up to a maximum of GBP12,000 in the case of some courses], with the fee level set lower at the university or colleges’ discretion."

On the payment of such fees, Cable said: “We believe it is essential that if the graduate contribution is to rise it should be linked to graduates’ ability to pay. On average, graduates earn comfortably more than GBP100,000 over their lifetimes compared with non-graduates. But not all graduates benefit in this way. Some choose socially useful but modestly paid or unpaid work, which may include time spent bringing up a family. At present the graduate contribution acts like a poll tax, and is not fair.”

“Lord Browne has come up with persuasive proposals to deal with this issue. He suggests a GBP21,000 graduate income threshold before any payment is made, as against GBP15,000 at present, and to be linked to average earnings.”

“He suggests that a real rate of interest should be paid but only over that threshold. The effect is striking: 20% of graduates could pay less than they do now. The top third of graduate earners would pay more than twice as much as the lowest third. That is fair and progressive: the government broadly endorses this approach and will examine the details of implementation. The principle of needs blind admission to universities must remain central.”

On proposals for a graduate tax, Cable told the House: “There are some key features in the current proposal for progressive graduate contributions which incorporate the best features of a graduate tax. [Such a tax] would be collected through the pay packet at a rate of 9p in the pound above the GBP21,000 threshold; combined with a real interest rate as Browne recommends, it would be progressive and related to ability to pay.”

“[However] Browne identifies serious problems with a ‘pure’ graduate tax. The proposal is unworkable; it will not produce sufficient revenue to finance higher education until 30 years from now; weakens university independence; and is unfair to British graduates as opposed to graduates living overseas, ” Cable concluded.

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