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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.
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.
Put aside the talk of a rise in student fees. The most important hint given by David Willetts today is that soft student loans, subsidised by the state, will have to be reformed. He’s raising the axe over a indirect giveaway to the middle-classes worth around £1.2bn a year.
“What I want is something that does indeed reduce the burden on the taxpayer but it also has to strengthen the finances of universities in the long term, some of which are in a very fragile state because of the mess that Labour left behind,” he said.
Just consider what would happen if student fees were raised without tackling the student loans. Without stopping the perk, the state could end up spending even more on higher education, not less, in order to subsidise bigger loans. For Willetts to meet his goal of easing the burden on the taxpayer, the interest rates on loans must rise.
An interesting chart from the Institute of Government. Note the Lib Dem cabinet positions control less than 10 per cent of departmental spending (excluding the all powerful David Laws, of course).
Not sure whether this is a blessing. Axing 25 per cent of spending from transport or the police is never a career enhancing move in politics. But Vince Cable and Danny Alexander face some particularly tough choices on Scotland and student fees, which have the potential to backfire horribly on the Lib Dems.