Sadly, it’s a graduate tax that is stupid, not Vince Cable

by Nick Keehan

With a student demonstration marching on Westminster today, it will be tempting for Labour to throw in its lot with the protesters and embark on wholesale opposition to tuition fees. Before we do, however, we should ask ourselves a question: how stupid do we think Nick Clegg and Vince Cable are?

Really stupid, that is. Not wrong. Not dishonest or unprincipled. Not sanctimonious, smug or irritating. Not ignorant or ill-informed, but stupid. Totally useless and incompetent. So inept and ineffectual that stuck on a sinking ship they would burn the lifeboats.

Whatever else they may be, Nick Clegg and Vince Cable are not that stupid. When it comes to tuition fees, however, this is what we are expected to believe.

Clegg and Cable, with opinion polls putting support for the Lib Dems at 10 per cent and below, are confronting the prospect not only of breaking their own personal pledges to vote against any rise in tuition fees, but also of having to face down a large rebellion of their own backbenchers, possibly including two former party leaders.

In these circumstances, you would think that a graduate tax would have been the answer to their prayers. It is relatively popular, it is progressive and, most important of all, it would have allowed the Lib Dems to keep the solemn promises they made to their constituents at the last election. It would have been something they could point to as a real achievement from going into coalition and might even have saved some seats at the next election.

With the government’s announcement on student finance last week, however, it was clear that as HMS Lib Dem slipped beneath the waves and the sharks started to circle closer, Clegg and Cable would happily wave the SS Graduate Tax on, declaring that they would be fine and could swim the rest of the way.

Politicians do not simply drop vote-winning policies for no good reason. There has to be a good reason why the Lib Dems did so. And there is: a graduate tax is complicated, ineffective and, from a policy perspective, pointless.

The problems with a graduate tax are set out clearly in the Browne report. It would not bring in sufficient revenue to fund higher education until 2041-42. There would be little relationship between what graduates paid and the education they received. Higher earning graduates would have to pay much more than the cost of their education. Graduates would also still have to pay off maintenance loans. The money from a tax would go to the treasury or some other central body, weakening the relationship between universities and their students. The contributions of EU and international students, as well as UK graduates who moved overseas, would be difficult to collect.

None of these problems is insurmountable, but a graduate tax would need to offer some pretty big advantages to make it worthwhile. It does not. The only supposed benefit of a graduate tax over fees and loans is that it avoids the headline fee. That is, graduates still have to pay the fee, they just do not know what it is and it bears no relation to the course they have studied.

In light of this, Alan Johnson was surely right in the summer when he wrote that it made no sense to pursue the idea of a graduate tax. Which makes it all the more bizarre and dispiriting that John Denham, in his response to the government’s announcement last Wednesday, stated that a graduate tax is now Labour’s long-term goal.

To be fair to Denham and the shadow cabinet, it is unlikely that they envisage a pure graduate tax as considered by Lord Browne. However, it is difficult to see how we could put forward a proposal that avoids the drawbacks outlined in the Browne report while still being a worthwhile change.

A Labour graduate tax might, for example, look something like the model put forward by the national union of students, which has a shorter repayment period and differs in a number of ways from the pure graduate tax dismissed by Browne. The suggestions made by Ed Miliband during the leadership campaign certainly seem to be reasonably consistent with the NUS’s proposals. If this were the case, however, it would only serve to make Labour’s position even more peculiar.

The NUS website attempts to tackle some of the “myths” about a graduate tax and purports to show “what a real graduate would look like”. Under a “real” graduate tax payments would be made as a percentage of a graduate’s earnings and for a fixed period, not for a graduate’s whole working life. Payments would only be made above a certain threshold. There would be a cap on the total amount paid. There would also be an opt-out scheme whereby the tax is waived if a student agrees to pay the maximum amount in advance. It turns out that a “real” graduate tax looks remarkably similar to a system of fees and loans.

If Labour were to make a graduate tax along the lines suggested by the NUS a long-term goal, we would go into future elections promising a complete overhaul of student finance, in order to deliver a system that was more centralised, more complicated and less effective, and whose primary benefit could be more easily achieved were graduates simply to throw their statements from the student loans company into the bin unread. Why would we want to do this?

A graduate tax works only as a piece of short-term politics. It might have made sense for candidates to support a graduate tax during the leadership campaign, but the Browne review put forward a progressive graduate contribution which provided a good opportunity to drop the opposition to tuition fees as quickly and as painlessly as possible. Our response should have been to accept Browne’s general principles and overall direction, but to press for a levy to ensure that those from wealthy backgrounds do not pay less by paying earlier and to raise some objections to the overall level of cuts to government funding. After the government’s response, we should also now oppose those changes to Browne’s proposals that will have a negative impact, such as making the maintenance loan means-tested rather than universal.

What our response should not be is to campaign on abolishing tuition fees and to make promises that cannot be kept or are not worth keeping. This works fine for a third party. For a party of protest. For a permanent opposition. It does not work for a party of government. Ask Nick Clegg. Ask Vince Cable.

Nick Keehan works in Parliament.


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7 Responses to “Sadly, it’s a graduate tax that is stupid, not Vince Cable”

  1. Can we still have a riot if we have fees?

  2. Chris says:

    @Nick

    Sorry, but this article is nonsense. As you state, the current system and the one proposed by the coalition is a graduate tax in all but name, the only difference being that the debt is on the student’s balance sheet rather than the governments. All the other problems with a grad tax are the same with fees, graduates who move abroad can avoid paying their loans, or are because you want a market in HE.

    It would be easier and vote winning to abolish fees and implement a grad tax that is graduated with income, start the tax once earning over £20,000, fix the repayment period for 25 years, ring fence the money to be solely distributed between universities, put a 1% levy on corporation tax and investigate the insane remuneration of vice-chancellors.

    As we all knew introducing fees was going to be a slippery slop to eventual limitless tuition fees. With the Russell Group of universities trying to charge more than the Ivy League not because they’re worth it but to keep up appearances. Students would be mad to pay £6000+ a year for a lot of the degrees universities currently offer which have very little actual contact time.

  3. A graduate tax is no stupider than high fees supported by loans, because it’s not fundamentally dissimilar. Both involve paying out of future income and the conditions are not meaningfully different in any major way.

    The difference being that a graduate tax is popular. If you want to stop that, John Hemming wants to help. If you’re going to complain about the coalition plans, “Cameron wants to increase tax by nine pence in the pound for graduates” is the line to take, because it’ll go down like a bucket of warm sick pretty much everywhere.

    Your material on the Browne report is nonsense. Your first suggestion would be supernumerary, as the coalition has already done it, and the second is so meek that it’d annoy everybody. And accept its conclusions in general? Good God, are you mad, or just a Green Party sleeper? Do you want to make it impossible for us to win back any university seat? Do you want to put off everybody under the age of 40 from voting for us for a decade or three?

    Quite apart from the strong policy grounds on which the Browne report is out of touch lunacy, the politics of what you’re suggesting is suicidal. Supporting the uncapping fees is a recipe for removing Labour from areas where people expect to go to university. And with participation rates at over 40%, that’s the death-knell for any hopes of winning a working majority.

  4. CB says:

    Nick:

    “It would be easier and vote winning to abolish fees and implement a grad tax that is graduated with income, start the tax once earning over £20,000, fix the repayment period for 25 years, ring fence the money to be solely distributed between universities”

    This sounds like a Browne-style series of tuition fees and loans. If you don’t believe me, read page 42 of the Browne report.

  5. Nick Keehan says:

    @Chris and Edward Carlsson-Browne

    I should point out that I don’t think we should support uncapped fees. I agree that that would be political suicide.

    I think we’re generally agreed that there is not much difference between a graduate tax and Browne’s system. I also agree that it would be a vote winner at the next election. My point is that if we’re serious about getting back into power we should think about what happens after that.

    We would only get the chance to implement any policy in 2015, when the Browne system will have been in place for three years. If we were to implement a graduate tax, we would be uprooting that system and starting all over again with a new round of consultation, lobbying, bargaining and protests. And what would the result be? Graduates paying more or less the same, which anyone who had voted for us on the basis of a commitment to get rid of tuition fees would regard as a betrayal. We would be in the same position the Lib Dems are now.

    You could avoid this by bringing in revenue from another source, such as general taxation or the 1% levy on corporation tax Chris suggests. But graduates are generally financially better off than the rest of society anyway. After five years of cuts to various other areas of public spending, would subsidies for graduates really be the best use of this revenue? Even assuming this was a worthwhile use of revenue, why have a complete overhaul of the system? Why not just use the money to reduce tuition fees under the existing system?

  6. Chris says:

    @CB

    Exactly, but it removes the spectre of huge graduate debts. The current system is basically a graduate tax payable on average for 11 years. The coalition proposals are a graduate tax for 30 years with some messing about with the interest rate which just complicates the system and penalises the middle.

    @Nick

    If we committed to abolishing fees *and* introduce a graduate tax it wouldn’t be a libdem style betrayal. A grad tax would be far simpler to explain and administer, wouldn’t it?

    The problem for me with the coalition proposal is the poorest will get some help, the richest will pay the loan back much quicker unless there is a huge penalty in which case they will opt out of the system altogether. But the middle will have to shoulder the burden and pay 9% for 30 years.

    As you point out, after 5 years of Osborneconomics there will be higher priorities but we all know that if we carry on down this path unlimited fees and commercial loans will be the end result, it is already being forecast that the Browne system won’t be sustainable http://bbc.in/dAlgjN

  7. The Prodigal returns ?

    Apparently, the British youth are returning to their safe havens – parent’s homes.

    Nearly 25 % of all UK university graduates will head for parent’s home after graduation. And why ?

    According to market research firm Mintel ( as reported in Mumbai Mirror / 14 July,2011 ), here are the reasons :

    ? To save money ………………………………. 41 %

    ? For being between jobs / terms……… 34 %

    ? To enjoy home comforts ……………….. 13 %

    ? Could not pay mortgages …………….. 30 %

    ? Relationship broke-up …………………. 25 %

    And how do parents feel about this new trend ?

    ? Returning children hurt their finances …….. 50 %

    ? Feels good to be able to help children …….. 60 %

    It seems when FaceBook fails, it is “ Father knows best “ !

    With regards

    Hemen Parekh

    http://www.CustomizeResume.com

    Jobs for All = Peace on Earth

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