By Alasdair Smith

The recent report of the committee chaired by Lord Browne, former BP chief executive, on UK higher education funding and student finance should raise concerns about policy being driven by accountancy rules, rather than by rational argument.

An economist reading the report might in particular be puzzled by an element in the comparison offered between a graduate tax and the proposed ‘student finance plan’. The report says that:

“a graduate tax does not produce sufficient levels of revenue to fund higher education until ca. 2041-2042. With a graduate tax set at a rate of 3 per cent of earnings over the income tax threshold, revenue would not start flowing until 2015-2016 (when the first students in the new system graduate) and would only build up very gradually over 25 years.”

There are important differences between a graduate tax and a deferred tuition fee (and Browne is correct to opt for the latter). But they also have features in common: just like a graduate tax, Browne’s ‘student finance plan’ has no up-front fees, and collects the payments from graduates through the income tax system, so revenue would not start flowing until 2015-2016 and would only build up very gradually over 25 years. It may therefore seem odd that he argues against a graduate tax on the basis of features which are shared with his preferred system.