Browne was wrong. A graduate tax is fair.

by Dan Howells

I felt numb last week. As I did in 2005 when “top-up” fees were passed through Parliament under a Labour government. It felt then, as it did last week, that an ever-growing price tag on education presented a much larger barrier for pupils from the poorest backgrounds.

But there is a difference between last week’s reforms and those of 2005. Five years ago, record numbers of young people were attending university. This was coupled with record government investment in higher education institutions (HEIs). Under Tory-Lib Dem plans, record student fees are combined with massive cuts to the teaching budgets of our universities. Bowne says that his “proposals introduce more investment for higher education. HEIs must persuade students that they should ‘pay more’ in order to ‘get more’. The money will follow the student”. With record cuts to teaching budgets, I wonder how exactly will students get more?

I work in schools and have spoken to many pupils who are considering applying to university in the next few years. Not one has said to me that with these reforms they are more likely to go to university.

This begs the question: is there a better way?

There is. A graduate tax. Under such a system, graduates make a contribution toward the funding of their higher education. They pay afterwards, while they are reaping the rewards of their studies, and contribute proportionately according to their income. Browne seems to dismiss the notion of a graduate tax in his review. But a careful reading reveals that Browne’s findings are fundamentally flawed.

Let us take the payment terms. Browne says that under his proposals repayment is “linked to income, no fixed mortgage style payments, payments stop when costs of learning and living are paid back – or 30 years – whichever is earlier”. Compare that to a graduate tax which is “linked to income, no fixed mortgage style payments, payments continue indefinitely”.

Why does Browne insist that graduate tax payments must continue indefinitely? Why not end these payments after 30 years too? This would give ample time for graduates to contribute for the education they received, but in a means-tested manner. Yes, the price tag paid will vary from graduate to graduate, but it will be based on what they can afford depending on the career and financial reward that graduating helped them to achieve.

On protecting graduates on low incomes, Browne claims that under a graduate tax graduates will need to start paying back when they cross the income tax threshold, currently £6,475 per year. This is compared to his proposal where “graduates pay nothing until they earn £21,000 per year”. Why does he make this assumption? A graduate tax could be set up to allow graduates to begin paying back when they earn an amount deemed fair, not simply because they are over the income tax threshold.

Browne also says that if a graduate tax were uncapped graduates could pay several multiples of the cost of their degree. This does not have to be the case, as a ceiling could be imposed. But the point of a graduate tax is that graduates pay back in recognition of the benefits they gained from a university education.

In terms of the relationship between the student and the higher education institution, Browne claims that the “HEI depends on student willingness to pay for a significant proportion of funding, so providing a high quality student experience is critical”. He compares it to a graduate tax where the “student experience does not matter to HEIs for raising funding”.

First, with teaching budgets for HEIs being cut and the void being filled by the student, I find it hard to believe that the quality of student experience will improve significantly, if at all.

Second, Browne misses a key point in favour of a graduate tax. What better incentive could there be for a HEI to provide the best possible education than their funding streams being directly linked to the earnings of their graduates?

Let us say that universities kept 50% of the proceeds earned by their graduates via a graduate tax, with the rest distributed among the HEIs as deemed appropriate. Some of the remaining 50% could be distributed to those institutions whose graduates went on to fulfil roles considered to be of the “public good”, but not necessarily financially rewarding, such as nursing, teaching or social work.

Rather than producing graduates on a production line and throwing them out to fend for themselves in the work place, institutions would be incentivised to support their graduates through effective careers advice and support. Doesn’t this make sense?

Browne insists that “competition generally raises quality”. He appears to be referring to HEIs being able to charge what fees they deem fit. This argument does not hold water. An ability to charge a greater fee will only serve to put off pupils from low-income backgrounds who may be tempted to pursue a cheaper option.

What will drive up standards is a link between students’ outcomes and university funding streams. A graduate tax allows this. Yes, some will pay more, but is that not fair?

Dan Howells works for an NGO promoting educational equity. He writes in a personal capacity.

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7 Responses to “Browne was wrong. A graduate tax is fair.”

  1. Yorkshireman says:

    This is all well and good – but aren’t the coalitions proposals for tuition fees essentially a capped graduate tax like you are proposing but going under a different name? We all agree they shouldn’t be slashing the teaching budgets, but on fees it seems their proposals aren’t that different.

  2. Forlornehope says:

    So what all the demonstrations and cries of woe boil down to is a simple question of symantics? In case you hadn’t noticed, there are a host of legal problems in introducing a graduate tax. Just for starters, you cannot collect it from EU students or from people who graduate and then emigrate.

  3. Tim Sewell says:

    I really think that somewhere along the line this debate has taken a fundementally wrong turn.

    University education is a public good and as such should be entirely, 100% taxpayer funded. There should be no deviation, to my mind, from that argument. What is more, the maintenance grant should be reinstated. People may cavill at this and say that it’s unaffordable, but compared to other major state provisions it is a trivial expenditure and one that reaps rewards for society stretching over generations.

    A first class, universally-available, free higher education system isn’t just a hallmark of an advanced and progressive society – it’s a causal factor of one.

  4. Dan says:

    I see your point, but there are a few key differences:

    1. A graduate tax is means tested- thus based on the financial reward a student gains from graduation and therefore solely based on their ability to pay. I reject any argument that says some graduates would pay more for the same. The reason they would pay more is they have gained more financially by graduating.
    2. Under a graduate tax there is no price tag; what a graduate will pay back is not known due to it being based on future earnings. No prospective student will be put off at the prospect of having to pay back £27,000 worth of fees- they simply pay back according to the benefit they gain from graduating. This is key- through my work in schools I know that it is the price tag that is putting doubt in the minds of some of the young people who could go to university.
    3. A graduate tax means no fees- thus preventing a market being created in higher education with universities competing on price. Access to the higher education institutions should be based solely on ability and never on an ability to pay. Preventing this market is also key in allowing former students like myself, who studied law but chose to pursue a career in the third sector, to do this and not feel obliged to pursue a more financial rewarding career to pay back expensive course fees.
    4. Rather than competing on price, universities will compete on the quality of service they provide, given that their funding streams would be based on the outcomes of their graduates. I believe this would also improve careers advice and support offered by HEIs. HEIS would also have a vested interest in helping to break down barriers of access preventing some students who are not ‘connected’ from gaining internship opportunities simply because they do not know the ‘right people’.

    My main question is how to reward HEIs for developing graduates who contribute in areas of ‘public good’, but do not earn vast sums of money?

  5. MJL says:

    Forlornehope – “Just for starters, you cannot collect it from EU students or from people who graduate and then emigrate”

    The same problem exists under tutition fees. As for eu students i believe the current law is that they have to pay the same as local students. I’m sure a comprimise could be worked out on that. As i say someone with a loan can just as easily leave the country and not pay it back.

  6. AnneJGP says:

    Please can somebody explain to me why it is that students from England don’t count as “EU students” in Scotland?

  7. Bally Singh says:

    An excellent article – if one defines fairness as being the outcomes a student achieves, then surely a graduate tax trumps the increased fee based system arising from the Browne Report.

    However as we all know, people define ‘fair’ in many different ways.

    So maybe the key is CHOICE for the student…

    The graduate tax can be offered as just one of several ways to pay for university.

    For example:

    A) Student pays for university from own source of funds.
    B) Student chooses to pay for university with 100% repayment loan.
    C) Student prefers a combination of option A and B, paying an agreed deposit amount from own source of funds, with the remainder contribution deriving from a repayment loan.
    D) Student decides to forgo paying fees, instead opting to sign up for a graduate tax.

    My guess is that students who can afford to will likely choose options A, B, or C. They would rather pay the fees upfront, than incur higher taxes on their future (above average) incomes.

    But option D will be an attractive choice for the rest of students, as they will no longer be required to pay the [increased] up front fees.

    As Dan rightly argued, it is essential we remove compulsory fees with a graduate tax option. Doing so will break down the barriers to increased university participation, and accelerate the social mobility we all want to see 🙂

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