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UK Considering 'Graduate Tax'

by Amanda Banks, Tax-News.com, London

16 July 2010


The UK coalition government may introduce a new tax on university graduates to avoid making cuts in university spending. Many universities wish to increase tuition fees from the current GBP3,225 per year, some to as high as GBP20,000, a move the government is anxious to avoid.

Business Secretary Vince Cable is considering the new tax, which would see graduates paying back the cost of their education when they leave and are in work. At present, students have to borrow money and repay the loans when they find work. It has been suggested by one senior coalition figure that graduates would begin paying the tax once they begin to earn more than GBP20,000 per year, and continue paying it for 20 to 25 years."

According to the National Union of Students the average graduate debt is GBP23,000, and the Union in general welcomes the idea of a graduate tax. Supporters of the new tax claim that in the end there is little difference in repaying the debt over many years via income tax as opposed to taking out loans and repaying the money this way.

However, the Russell Group, which represents the top universities, is concerned that high-earning graduates from the more elite universities might end up paying far more in ‘graduate tax’ than the actual cost of their education.

Lord Browne is due to report in the autumn on higher education finance and it is expected that one of the recommendations will be to increase tuition fees. It remains to be seen if the two parties to the new coalition government will agree on any recommendations that come out of Lord Browne’s report and whether or not to implement them. It is believed that this concern is why a graduate tax is being considered.

TAGS: individuals | tax | United Kingdom | fees | education | individual income tax

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