Tuesday, 10 August 2010

The graduate tax might be rather cunning

There have been renewed mutterings over the last few days that an additional income tax might be levied on university graduates. It's all rather vague at the moment, presumably because it is a novel idea to introduce an income tax surcharge for one group of people so the government is letting out little hints in order to see what reaction they receive. Obviously the usual suspects are against it - trades unions, Labour politicians, quangocrats and university employees. The proposal could be to expand university places by fifty percent and these members of the awkward squad would condemn it for not being sixty percent, so we needn't take much notice of them ... unless they support their objections with sound reasoning.

As I understand the present system students are required to pay tuition fees each year and to provide for their living costs. Indeed I remember having a pupil about twelve to fifteen years ago who had gone through university and the Bar course under that system and left with debts approaching £40,000. It is the spectre of young people being saddled with hefty liabilities that invites examination of alternatives. Now, it shouldn't be thought that all students incur big debts, many go to their local university and live at home, many receive grants, scholarships or bursaries to help defray the costs; nonetheless with the student contribution to annual tuition fees currently set in excess of £3,000 (it's said to be a maximum, ha ha ha) that's still the best part of ten grand for a three year course.

The massive expansion of the university sector over the last fifteen years has provided the benefit of call centre workers having some specialist knowledge of media, fashion and football but it has also meant that the old system of grants for those without the means to pay became unaffordable. When the last government increased the tuition fee contribution they consistently justified their position by arguing that graduates earn more on average than non-graduates. That argument only goes so far because there are only so many jobs for which a university degree is actually necessary (or, at least, of significant advantage). Increasing the number of graduates does not increase the number of graduate jobs. It might allow someone to join a business one rung up the ladder but the difference in lifetime earnings for someone in manufacturing or retail cannot be calculated. I know graduates working in retail who did join a rung or two up the ladder but further promotion depended on experience so by the time they reached the third or fourth rung they were on a par with their non-graduate contemporaries. They had earned a little more for a few years while their colleagues had been earning for the three years they had incurred debts.

Essentially the same argument seems to be being put forward by the current government but in a slightly different way. The clearest hint given of current thinking was by David Willetts last weekend who is reported as having used the phrase "higher contribution to the benefits of the university education they have received". That is deliberately vague but it has been interpreted by some as the graduate tax expounded by Vince Cable a few weeks ago (reported here). Cable's proposal was quite wide-ranging and expressly kick-started a debate rather than being a fully formed policy. There is much to be said for it although it's not without its difficulties.

As with so many problems the current government has to address the first observation is that they really shouldn't have to start from here. This is just one more in the long list of utter failures concreted in place by Labour over the last decade to try to buy votes regardless of the longer-term consequences. However, we are where we are so the first question should be to ask what is wrong with the current system. I have identified the two main problems already - students leaving university with heavy debts and insufficient graduate jobs being available to provide the added earnings required to pay back those debts. These are both consequences of one thing and one thing alone - political interference. In this instance the same type of interference has caused both, namely the desire to buy votes by promising university education (almost) regardless of the suitability of individual students. It started when John Major turned the Polytechnics into Universities and has been a boast of every government since that young people have better educational opportunities than ever before. All that has really been achieved is the opportunity for many to get worthless pieces of paper when previously they would have had to earn a living for three years.

The ideal situation is that each University should be wholly independent and should sink or swim according to its ability to attract students. If the university is able to raise funds from graduates or businesses or elsewhere to provide bursaries it will have more students, apart from that it's pay-as-you-go. How many would offer courses in Football Studies or Feminist Sociology? I've no idea, if they can get the business that's fine if they can't they'll have to offer something useful.

This will require a massive culture-change, one that will take many years of small steps, weaning the universities off the tax teat and leaving them to "struggle" for students just like the University of Buckingham and BPP University College. I see the graduate tax as a step in the right direction albeit for a somewhat quirky reason. It seems to be the case that current students are not put-off university by the threat of debt, perhaps the lie of higher earnings has not been exposed sufficiently or they think they will be among the lucky few who will secure a true graduate job. It's rather different if there is a long-term tax consequence because liability will not (on the face of it) end when the cost of their tuition has been repaid. Perhaps there will be a long-stop but it is, after all, a tax and we all know they rarely go down, indeed once established the possibility for expanding them has been seized by every government in living memory.

Given the choice of having your fees paid by the taxpayer and then facing an unlimited tax or securing private funding, I know which I would find more attractive. Private funding might involve the need to reimburse part or all of the money but you can be as sure as the Stoke-on-Trent College of Art is now Staffordshire University that it will be cheaper than the new tax.

What is the quirk? Here's where I think Mr Cable and Mr Willetts are being rather clever. As the availability of non-tax bursaries for able students expands so incurring debt will be less attractive. It's not attractive now but lots are in the same boat. so they don't see themselves at a disadvantage compared to their peers. The fewer in that boat, the more they will be forced to examine whether incurring debt is right for them. I see this plan as a back-door way to reduce undergraduate numbers and weed-out pointless courses at third rate institutions, and to do so not by having students sign-up to it but by having them follow a different path. The taxpayer will not lose out because the universities will be funded by government only for those students who volunteer for the tax.

As I say it's one step in the right direction, albeit one that comes at a price for the students caught by it. Sufficient lead time will focus universities' attention on raising funds privately to entice quality students and should mean relatively few choose to commit economic suicide in order to get a fancy certificate signed by the Vice Chancellor, Professor M Mouse.


Mark Wadsworth said...

No, it's a terrible idea. You hint at the proper answer yourself, which is as follows:

1. Increase cap on graduate fees so that universities are largely self-funding (and those posh f*ckers at Oxbridge can pay £20,000 a year AFAIAC). Or until sufficient people are deterred from going to uni so that whatever subsidy the taxpayer is prepared to pay is enough to pay the shortfall on the rest.

Universities will always offer free or subsidised places to really bright students out of naked self-interest.

2. It's up to the universities to sort out their own student loans scheme for repaying fees once you are earning, but what we have isn't the worst kind of scheme TBH.

3. Get rid of student grants/loans and pay students the same welfare as people on income support etc (i.e. about £52 a week).

4. Apart from that, students can work at evenings, weekends, days off (to pay rest of living costs or to pay tuition fees. Or beer). I once did a law degree by attending evening lectures while working full time and it still only took me three and a half years, and that was at the rip old age of "mid thirties".

5. Scrap all targets for x% of young people to go to uni. I have no idea what the right figure is, it might be 10%, it might indeed be 50%, but nobody else knows either, and there's only one way to find out.

gyges said...

Some points ...

1 You say, "it shouldn't be thought that all students incur big debts, many go to their local university and live at home,"

In the Northeast a number of people lived at home, spent very little but incurred the maximum debt. This was used as a deposit on a property purchase.

2 "All that has really been achieved is the opportunity for many to get worthless pieces of paper "

We seem to have a degree apartheid system whereby jobs that do not necessarily need a degree are going to people who have degrees. Very wrong in my opinion.

3 As to the repayment of the loans: there seems to be a gender difference. Just as there is a gender difference with regard to salaries - for arguable reasons women tend to earn less than men; anecdotal evidence says that men are paying back more of their student loan contribution than women. Perhaps your graduate tax will redress this imbalance?

Barnacle Bill said...

I have always view NuLabor's university for all drive as a cunning plan to keep young people off the unemployment register, whilst they are funding their own unemployment benefit!

james c said...

The strange thing about the university bubble is that employers insist that candidates have degrees, even when they are known to be worthless. Why don't they open their recruitment to non-graduates and use their own selection tests?

Anonymous said...

You still in the land of the living? Your absence is becoming a concern.

Andrew W