The Business Secretary Vince Cable has said a variable graduate tax, with higher earners paying higher rates, could be a fairer way for students to help fund their university education.
The Institute of Directors has said that this would undermine the competiveness of the UK economy (regular readers will know that I sit on the committee for the Central London Branch of the IoD, as well as chairing its Young Directors’ Forum).
While I understand the argument that graduates should pay their share for an education that gives them a career advantage, to be made to pay for this throughout the duration of their subsequent career borders on the pernicious. I agree with the IoD that it could prove to be economically counterproductive.
The IoD’s full argument is presented in this paper. Some of its key points are:
- It would encourage a ‘brain drain’. A graduate tax would increase marginal tax rates and could act as an incentive to the most able domestic students to study and work abroad, thereby depriving the UK economy of vital skills, universities of income and the Treasury of receipts.
- A graduate tax would be, at least in part, a burden on employers as graduates would expect higher salaries to compensate. This means increased national insurance contributions from employers. It might seem to be fair to charge employers for the benefit of having highly-educated employees, but to the extent that education is commercially worthwhile that is already reflected in higher salaries. Therefore a graduate tax could act as a counterweight to the Government’s laudable aim to create the most competitive corporate tax system in the G20.
- It would be a tax on effort and merit. The more diligently a student spent his or her time at university, and the more effectively he or she laid the foundations for a successful and well-remunerated career, the more they would ultimately contribute towards the cost of their studies. Conversely, a student who enjoyed the same opportunity, at the same university, but wasted it, would likely contribute less.
Taxing graduate salaries may seem like an ingenious alternative to raising university tuition fees in this Parliament, but the long-term cost to both graduates and the economy will be greater. A positive impact from a graduate tax is far from certain, while there is a high risk of disincentivising all students from all backgrounds from studying and working in the UK.
Tackling poverty and social attitudes to education are more likely to effect meaningful change, though I grant these are tough nuts to crack
One argument in favour is that low tuition fees combined with a graduate tax will encourage those from poorer backgrounds to access university. This could be true, but I doubt it. Mike Harris, Head of Education and Skills Policy at the Institute of Directors, has said: “Advocates of a graduate tax should abandon their argument that it would solve the problem of widening participation. The single biggest factor determining access to higher education is not social class, not worries about variable fees, but earlier educational attainment.”
My view is that social class can be a major determinant of educational achievement, but class disadvantages tend to do their work during the earlier stages of education. Tackling poverty and social attitudes to education are more likely to effect meaningful change, though I grant these are tough nuts to crack. In the short-term it would be far better, I think, to look at expanding the existing system of variable fees to facilitate access for the less well off, while leaving the rest well alone.
Any views expressed in this article are those of the writer and do not necessarily reflect the views or policy of the Institute of Directors.
