An interesting article in today's Independent by Frances Cairncross entitled "The way to fund our universities". She stresses the central role of universities in our society saying they have the same role now as car manufacturing had in the 20th century - which was a rather unexpected analogy for me - and are crucial producing the " raw material of a flourishing society. However this is under threat because universities act as the gateway to being middle class. Consequently tuition fees are seen "as a tax on entry to the middle class" and so are both unpopular as they stand, and impossible to increase without huge protests. This starves the universities of funds.
However she goes on to reject the graduate tax as a solution, but does so by using something very close to a straw man argument. The version of the graduate tax she criticises is a variant it would appear of the loan scheme. She does not actually describe the system she would reject in detail, but I think it is a kind of loan scheme as she says it would not work because:- 1. Graduates from the same degree course would pay different amounts. But surely this is the whole point of a fair tax in general. It taxes on ability to pay, which will of course vary between graduates. It is also true of the current system but in the odd way that the very well off and the comparitively poor pay least. It is the middle earners that pay most. 2. People who studied abroad would pay nothing. True. Which is no doubt a point of particular concern as she is Rector of Exeter College, Oxford and therefore well aware of international competition. But the great increase in tuition fees that she advocates would similarly make overseas universities more competitive. 3 Wealthier families would avoid taking out a student loan so that their children would not face a repayment bill. This is already a feature of the current system which the inverse pension scheme avoids. 4.Universities need money now, not in the future when payments start. I hope I have shown how the inverse pension scheme does overcome this problem, and allow funds to flow at once. She concludes this bit of her argument by saying the real cost of a student at Oxford is £18,000 a year. So if the scheme I favour were to be introduced and Oxford were not to continue to suffer a loss on each student, tuition fees for all, at all colleges would have to be set at 18,000 pounds. Or so it would seem. I wonder has anyone produced a table showing what the expenditure per student in each university is? More on this article later...Graduate Tax part two (part one is below)
How to implement it?
Round about 1977 Jonathan Haughton departed to do his PhD in economics at Harvard. I emerged clutching my philosophy degree, and having completed a year as a full time (sabbatical) student union officer at Trinity College. I then found myself under the regrettable necessity of making a living. Finding a post was made less stressful in ways I can only guess by the fact I was not in debt. Over the next few years I held a number of administrative posts in various colleges, both in England and both parts of Ireland. The topic of student finance would occasionally surface and I might mention the idea of a graduate tax, as a possible solution but it rarely sparked any interest. However early on I encountered a Professor of Economics visiting my institution, who over coffee expressed interest. As I had a copy of the original paper to hand I gave it to him. He returned it in true academic fashion having in effect marked it, pronouncing it an excellent undergraduate effort, and recommending, if I was still interested, that I read several of his books. He also mentioned it to a colleague, a visiting lecture in Finance, who it turned out had taken early retirement from being a senior person with the pension fund of the Government of Ontario.
The colleague told me how it could be made to work.
His essential insight was to realise that the graduate tax scheme in the paper was a pension scheme backwards. In a pension scheme you pay in over your working life, and are then at retirement, paid a pension for as long as you live.
Obviously people live for different periods of time so the amount paid out in pension varies. However if you have enough pensioners it all averages out. Those who live a long time are paid for by those who live a short time.
In the graduate tax you are paid an allowance for tuition fees and maintenance which varies as to amount per year (within known limits), for a period of years which varies between known limits. Three year degree in English cheapest, seven year medical course dearest. He proposed that the upfront cost would be met by setting up an independent Graduate Tax agency that would function much like a pension scheme. This agency would pay the fees for each eligible student and pay them their maintenance grant. For the first three years no graduate tax would be collected, then a trickle would start. The agency would therefore start off by running a deficit, this would be met by:-
1. The Government continuing to contribute what they were already putting in (Or in our current circumstances, no doubt, what they put in last year minus 5 per cent over four years).
2. Bonds being issued to meet the rest of the expenditure each year . They would be dated to be repaid in 40 years time, and auctioned off each year for the best price. To start with the interest would be paid by the funds coming from the Government, then the revenue from the tax would be significant. After a further while the tax revenue would be sufficient that the bonds could be managed using a "sinking fund".
As the scheme approached maturity the government contribution (providing the levy was set at the right rate) would wither away, and eventually the revenue coming in from the levy would balance expenditure.
Three points to note about this particular implementation:-
1. The levy collected over forty years. In many professional (i.e. Graduate grade) jobs income rises over the career, so the last few years could be really important to tax. and it allows for a lower percentage levy.
2. This scheme pays for the fees and maintenance without means test; but in many middle class families children would be getting the graduate tax agency payment at the same time as parents paid the levy!
3.The state must determine the level of tuition fees for different courses, and also determine the number of student places, as otherwise accurate calculations not possible. (The liabilities of the fund need to be fixed)
I forget his name I am afraid, but he did say that any civil servant with experience of pensions would come up with the same idea. No doubt Vince Cable has someone working on this as I write...
At the time what ensured that no one in the UK was interested in this sort of scheme was the continuance of the student grant system, which conferred on students, of whom I had been one, the advantages of the graduate tax without the levy. We could indeed have the cake and eat. There was the argument from social justice, but actually there were many other aspects of the system more regressive than student grants...
These days with a student loan system and a funding crisis for the universities thinking may change.
Today's news Coverage
(I have promised a part 2..... but pending that this is part 1.1 )
Today's coverage of Vince Cable's coverage of Graduate Tax reports that the NUS is in favour of a graduate tax, and indeed they are. Which is good news.
You can find their proposal here
I have only had a chance to glance at their detailed proposal, and will write a response to it when I get the chance. I agree with the principle of their scheme as far as it goes However they do not include student maitenance, they link it to an abolition of tuition fees, with the graduate tax ultimately funding financing of universities through grants, for some reason they limit the levy period to 20 years, and they do not really address the upfront funding problem, so I would have things to say.
The Russell Group appeared to be opposed, with their spokesman Wendy Piat using what seems to me to be frankly a straw man argument. She says that people in top Graduate Jobs could be paying 16,000 a year in graduate tax. if the levy were set, as the NUS propose at 2.5 per cent exactly what ARE these top graduate jobs, how many of them are there, and she is talking about a taxable income of about 300,000 pounds a year....
So the next question is how can my daughter get one?