Graduate tax

Pat McFadden has become the latest senior Labour figure to question the party’s own proposals for a graduate tax, urging his colleagues instead to back the coalition’s plan for further education funding laid out by Lord Browne this week – writes Elizabeth Rigby.

In a shot across the bows of Ed Miliband, his new leader, the Blairite former business minister of state said yesterday that Labour should stop opposing the plans and concentrate on making the Browne proposals more palatable to less affluent pockets of society. Lord Browne’s report on higher education, which is likely to be backed by the coalition, has advocated charging more for courses funded through student loans rather than a pure graduate tax. Read more

One big test for any reform to higher education funding is whether students should be allowed to pay fees upfront. It exposes the political divide over how progressive the system should be. Here are the pros and cons:

Reasons for a ban: Allowing students to pay fees upfront is a rich kids charter. Those from wealthy families will be able to sidestep the burden of repayments placed on those from poor or middle income households. It will give the lucky a leg-up while giving the middle classes a sack of debt to carry. It will give a free pass to those without credit constraints while placing a tax on those who do. For all these reasons, it does not pass the political fairness test. Those who pay upfront will pay less in total than those who are forced to repay over 30 years. A duke will pay less than his university contemporary who turns to teaching in a primary school. Read more

There are many flaws to the graduate tax. But this one – mentioned by Martin Wolf today – is something special. Will Ed Miliband or Vince Cable really be able to justify a system that gives a free ride to French, Polish and Romanian students?

Today there are around 120,000 European students at British universities (i.e from European Union states other than the UK).

The Treaty of Maastricht enshrined their right to a study on the same terms as any UK national. So they must be offered student loans rates at the same rates — subsidised to the tune of 23p in the £1. And they must be offered exactly the same terms on fees as any British student.

Now just imagine that a simple graduate tax was introduced. Any Greek, Irish or Spanish student would pay for their course by promising to give the British government a slice of their future income.

The snag is when they leave the UK, which most do. At the border they’ll thank us all for their superb degree — and wave goodbye to HM Revenue & Cutoms. The British taxpayer will be left to pick up the bill. Read more

Ed Miliband loves the idea. Some of the coalition are even toying with the policy. Here are four reasons why the Treasury should ignore them.

1. The dead hand of state control

A graduate tax will kill any sense of a market in university degrees, as all funding will be centralised. Bureaucrats will divvy up the cash for the university courses they judge to be worthy. Instead of following the informed decisions of students, the money will follow the whims of Whitehall. This tax “reform” would effectively run universities like the Further Education sector. Brilliant. Read more