courtesy : Tax University
Background
Under the Higher Education Act 2004 British and European Union students at publicly funded universities in England, Wales and Northern Ireland are charged tuition fees (called “top-up fees”) directly by the universities. The amount of the fees is limited by law and the fees can be funded by government-backed student loans issued by a government-backed company. The loans need only be repaid when the graduate is earning a sufficient amount of money to do so. Non-EU students can be charged an unlimited fee by the universities, and these are usually considerably higher.
In 2009 the National Union of Students (NUS) proposed a tax on graduates who have received academic degrees over a period of years after the granting of the degree. Four of the five candidates running in the British Labour Party’s leadership election in 2010 also backed the proposal.
A graduate tax was mooted before the introduction of top-up fees in the United Kingdom, but was ultimately rejected. A system of graduate tax was seriously considered as part of the Browne Review although Vince Cable has stated that “No decisions have been made.” On 15 July 2010 Vince Cable appeared to endorse a graduate tax, saying in a speech that he was “interested in looking at the feasibility of changing the system of financing student tuition so that the repayment mechanism is variable graduate contributions tied to earnings”.
Proposals and supporters
LSE
Howard Glennerster, a London School of Economics economist, was an early proponent of the graduate tax in the 1960s along with several other LSE economists. In 1968, Glennerster had identified problems with the higher education system which was at that time funded almost exclusively through general taxation, “in the United Kingdom, higher education is now financed as a social service. Nearly all the costs are borne out of general taxation. But it differs radically from other social services. It is reserved for a small and highly selected group…. It is exceptionally expensive [And] education confers benefits which reveal themselves in the form of higher earnings. A graduate tax would enable the community to recover the value of the resources devoted to higher education from those who have themselves derived such substantial benefit from it.”
CVCP proposals
In 1990 the Working Group on Funding Mechanisms, set up by the Committee of Vice-Chancellors and Principals (CVCP), published a report which proposed four possible alternatives to university funding: a full system of tuition fees charged at variable rates by subject; top up fees supplementing government funding; a loan scheme operating through National Insurance; and finally a graduate tax. Incoming Prime Minister John Major read the report but delayed any decisions on higher funding after dissatisfaction at the range of options. During the second Major ministry, a second CVCP working group chaired by Clive Booth, named Alternative Funding, again proposed four alternative models of university funding with a graduate tax once more making the list, however, it was not adopted.
Social Justice Commission
The Social Justice Commission, chaired by Sir Gordon Borrie within the Labour Party from 1992 and concluded in 1994 under Labour’s leadership of Tony Blair, produced a report which contained a proposal for a graduate tax. Blair was seen as initially not averse to the idea, unlike his predecessor John Smith who had worried about potential loss of support among middle class voters by adopting a fees system.
Gordon Brown
Gordon Brown favoured a graduate tax as an alternative to top-up fees
In 2002, Chancellor of the Exchequer Gordon Brown came out in favour of a graduate tax after an earlier review by the Labour government had suggested a 3% tax levied on graduates earning more than £30,000 until fees were repaid. Brown proffered the graduate tax as an alternative to Prime Minister Tony Blair’s plan to top-up existing tuition fees, a plan which had caused Blair to come under pressure from some members of his Cabinet opposed to fee increases as well as from opposition Conservative Party leader Michael Howard who also opposed the increases.
NUS proposal
The National Union of Students has proposed a tax that would be levied on graduates for 20 years following their graduation, progressively ranging from 0.3% to 2.5% of their income.
David Willetts
Former Conservative MP and Minister for Universities in the Clegg-Cameron coalition David Willetts was a strong proponent of the graduate tax during the Browne Review in 2010.
Vince Cable
Liberal Democrat politician Vince Cable, who was closely involved with the tuition fees system introduced by the Conservative-Liberal Democrat coalition government, had supported the idea of a graduate tax in July 2010. However, by October 2010 Cable had abandoned plans for a graduate tax, stating that a “pure” graduate tax was not viable due to graduates potentially paying more than was necessary and the tax being impossible to collect on graduates who emigrated.
Adam Smith Institute proposal
In 2017, Dr Madsen Pirie of the free-market think tank Adam Smith Institute proposed a graduate tax in the Institute’s A Millennial Manifesto publication: it suggested a tax of 5% levied on graduates earning over £22,500 in income, rising to 8% for those earning over £30,000. It also suggested that there should be no interest charged, instead indexing the amount each year in line with inflation.
Justine Greening
Former Education Secretary and Conservative MP Justine Greening proposed a graduate tax in 2018. Greening outlined a plan for a ‘higher education fund’ in which all graduates earning above £25,000 would pay into through a 9% levy on income over a 30-year period. Furthermore, Greening suggested that employers could also contribute to the fund to support degrees that had benefited their organisations.
