Graduate tax more progressive than Labour’s proposals

Tuition fees have been an emotive subject in British politics. Many different proposals have recently been put forward by politicians to solve the problem. Jeremy Corbyn has called for fees to be scrapped, former Education Secretary Justine Greening has called for a graduate tax, and the current Education Secretary Damian Hinds seems to want to bring in variable fees for different subjects. Other tweaks to the existing system, like changing the interest rate on student loans, changing the point at which students start making repayments or cutting fees, have also been proposed and some of them implemented by the government.

Which of these proposals is the best? There are several different criteria that could be used to judge the proposals, I have decided on three straightforward ones. The system must be progressive, in other words equally beneficial to rich and poor alike rather than just one group. It must also acknowledge that society benefits from university education, but that the main beneficiary is the student.

Keeping the system as it and tweaking it has many problems. The current system burdens students with a huge amount of debt, irrespective of their ability to repay it and with unjustifiably high interest rates. Whilst repaying the debt works like a tax in practice, the psychological pressure is vast. Cutting fees, as Ed Miliband proposed in 2015, only really benefits the better off. According to the Institute for Fiscal Studies, 83% of students will not pay off their loans under the current system, only those who have well paid jobs ever will. So only those on good pay would benefit from fee cuts, who, by definition, are those who least need help.

Jeremy Corbyn’s proposal to make tuition free is, ironically, not progressive at all. Middle and upper class students, who disproportionally go to university, get free education which makes them richer, while poorer students, who largely do not go to university, get nothing. Free tuition is a big subsidy for middle and upper class people, with working class people seeing only indirect benefits. This has been backed up by a study by the Centre for Research in Education Inclusion. In Scotland, which has no fees, the middle and upper class gained substantially from free tuition while the working class lost out. This is, once again, a very un-progressive proposal. Labour would argue their other proposals in education would change the class divide in higher education, yet nevertheless remains a problem for their proposal.

Variable tuition, proposed by Damian Hinds, has problems of its own. He says fees should reflect the costs for the student, the benefit the student gets, the skills the country needs, and the benefit society gets. Whilst the costs of a university course are easy to calculate, the rest are virtually impossible to predict. Automation and Artificial Intelligence could potentially render almost all the STEM subjects completely obsolete. We have virtually no idea how the economy will progress over the next 40 years; skills and degrees that are valuable today could be worthless in 10 years.

Justine Greening’s proposal for a graduate tax is the most compelling. It would work in practice in a similar way to National Insurance, with every graduate paying in once they earn over a certain amount. 30 years after graduating, the tax ends. Unlike the current system, wealthier graduates will keep paying into the system, rather than just paying off their personal student loans and then getting a “tax cut”, as they currently do. Unlike Corbyn’s proposal to make fees free, this will not be a subsidy to middle and upper class families, everyone will pay in accordance to the benefit the individual received from their degree. Likewise, unlike the current system, those from less well-off backgrounds won’t have crippling debts they will never be able to repay. It also does not require the government to predict the future, since whoever gains the most will pay more, rather than guessing how much a degree is worth when the student begins their studies.

A graduate tax meets all the criteria for a good system. Combing it with means tested living allowances and increases in funding for primary education, where inequality between the better and worse off starts, would lead to a more progressive, affordable and efficient system over the other proposals.

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