University funding

Jim Pickard

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. 

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.

Willetts is, understandably, still skirting around the issue. But the declaration of intent to bring down the cost to the taxpayer is clear:

“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.

At the moment the government offers terms that are beyond generous.