How Cable’s university tax may become a long-term burden

In the pursuit of implementing policies that will benefit the society as a whole in the name of fairness and progression, Vince Cable announced last week his intent of abolishing the current system of subsidised loans by possibly replacing it with a university tax.

In the pursuit of implementing policies that will benefit the society as a whole in the name of fairness and progression, Vince Cable announced last week his intent of abolishing the current system of subsidised loans by possibly replacing it with a university tax. Exact details have not yet emerged, but the business secretary has asked Lord Browne to include an assessment of the graduate tax in his Independent Review of Higher Education Funding, which will be announced later this year and is expected to recommend a rise in tuition fees that is currently capped at £3,225.

This, however, does not entail that we should not begin scrutinising his self-proclaimed intent of making the system of university tuition fees fairer. At first sight, a graduate tax would close the ever-widening gap between the rich and the poor by charging a higher tax on those students who move on to higher-earning jobs. But in the same breath he reaffirmed that students will ‘almost certainly’ have to pay more.

Yes, the current tuition fee system may be costly and desperately requires profound change. Yes, it is only fair that those with top jobs should pay more than lower-earning graduates. And yes, by merely lifting the cap on tuition fees the coalition government could in no way argue that its policies are progressive.

Nevertheless, our worry is that whatever job category you fit in, you may be burdened well into your fifties or sixties by a special tax, which you will have to start paying once you earn more than £15,000. Although the tax would go directly to Universities and not the Treasury, the state will inevitably dig deeper into graduate pockets, which necessitates either a high-level tax for a short-term or a slightly lower one for a lifetime.

Back in May, the Russell Group had already termed such a plan as ‘the wrong option’, since those ending up in the upper 20 per cent of earners may have to pay as much as £16,000 a year once they graduate.

As with every policy by the government, the university tax cloaks itself in a robe of savings that will benefit our society as a whole in the long-term. Yet, beneath this disguise lies a sinister truth, which most of us would probably call common sense. Announced non-stop on the news, the Coalition is trying to reduce the UK’s budget deficit and thereby calm any speculation in the markets in the hope of preserving its vitally important triple-A credit rating.

Nevertheless, even with the planned broad introduction of two-year courses, the government will have to cover the massive expenses that would have been paid via tuition fees by the students over the time of their studies.

In an era of unprecedented cuts, the Treasury would have to pay the missing fees directly to universities, causing a financial black hole that will only begin to close after at least two years at which point the benefits of the tax will come trickling in and only gradually replace government spending. Considering the modest earnings that most graduates experience at the beginning of their careers, the time period is likely to be much higher. In support, Neil Shepard of Oxford University estimates that the graduate tax could leave up to £5bn in the budget deficit due to costs involved in the implementation process.

How ironic it would be if this matter of common sense would turn into reality and require the government, which announced cuts in investment in higher education in the name of long-term interests, to cover the costs involved in the implementation of the graduate tax over two to three years (and beyond) in the current unstable economic climate.

It remains to be seen how well thought-through and well-researched the announced policy by Dr. Cable will be once Lord Browne has given his assessment of the graduate tax. As stated in an article on last week, written by the president of the National Union of Students – Vince Cable: Friend of students or con artist? – families and students will not be fooled nor conned by any covering of the graduate tax as fair if it does not fully consider the devil in the detail.

First of all, it needs to clearly set out the exact financial numbers that graduates will need to pay. Secondly, the fog over how long they will have to pay needs to be cleared up. Lastly, the costs of the government in introducing a graduate tax in the first few years need to independently calculated (preferably not the OBR) and announced before the Coalition government ends the discussion prematurely by implementing an idea in its infancy.

10 Responses to “How Cable’s university tax may become a long-term burden”

  1. House Of Twits

    RT @leftfootfwd How Cable's university tax may become a long-term burden: //bit.ly/92i2zc

  2. David Glass

    RT @HouseofTwits: RT @leftfootfwd How Cable's university tax may become a long-term burden: //bit.ly/92i2zc

  3. DrKMJ

    How Cable's university tax may become a long-term burden: //bit.ly/92i2zc via @leftfootfwd

  4. Michael Burke

    Unless the graduate tax is related to ability to pay, it will be both regressive and a tax on learning. So, a non-graduate foreign exchange dealer will be paying a lower tax rate than the graduate sitting beside her/him.

    The non-graduate FX dealer, perhaps earning £000s will also be paying a lower tax rate than a graduate nurse.

    Any ‘graduate tax’ should always be related to incomes. We already have that. It’s called income tax.

  5. Robert

    No relation to Pitt the great is he. as for Cable what can you say, he and his mates will be fighting for their seats in five years time, but will they more then likely Cable will be in the Lords with Clegg, after all the good work they did for the Tories.

    The problem talking about what the Tories will or will not do is like saying as yes Labour would have done this as well, because we do not know what labour would have done, Brown kept it to himself, mainly because he did not have an idea.

  6. Gareth Wyn Abbit

    RT @HouseofTwits: RT @leftfootfwd How Cable's university tax may become a long-term burden: //bit.ly/92i2zc

  7. TVI Pay It Forward

    How Cable's university tax may become a long-term burden | Left … //bit.ly/bXHdY3

  8. Sam Browse

    I think Michael Burke (above) hits the nail on the head.

    Tax isn’t about whether you used a service or not – it’s about whether you can pay for it. Given that investment in HE has massive social benefits (it’s a driver of economic growth more generally) it doesn’t make sense that individuals who go to University should pay. I did A levels, but I don’t pay a graduate tax for those! (Although, as Michael Burke said, I do in the sense that I pay income tax).

  9. Simon

    It strikes me that this is also an attempt to reverse the Labour policy of having more people attend university.

    So much for “Big Society” when something that contributes to our national wealth and quality of life has to be paid for by the individual. Let’s just have a more progressive income tax, hey?

  10. Why Lord Browne has got his numbers wrong | Left Foot Forward

    […] £7,000 across all Universities in England, Wales and Northern Ireland. I largely remain an advocate of a graduate tax if the measure explicitly targets the narrowing of the rich-poor […]

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