Graduate Tax: What’s in a name?

Obviously quite a lot if the fall-out from Vince Cable’s speech on universities is anything to go by. Of all people, the Secretary of State will know the difference between a graduate tax and a graduate contribution scheme. The question as to who wants what in the Coalition now hangs in the air – and whatever Ministers think they want, no-one yet knows what Liberal-Democrat backbench MPs will settle for.

For a while there has been a move by some universities and politicians to re-brand the current graduate contribution scheme as a graduate tax. The graduate contribution scheme is most certainly not a tax but it does require graduates from English universities to pay a contribution to the cost of their higher education linked to an annual tuition fee once they earn £15,000 or more. Part-time students are not so fortunate, get no fee or maintenance loans and still have to pay fees upfront. Little wonder that part-time enrolments have not increased.

If Vince Cable wanted a ‘fairer’ version of this contribution scheme he might have done well to say so. It does offer benefits to students and graduates: the contribution period is relatively short compared to some other countries and covers fee and the maintenance loans which students need to help them participate in university. Those with lower earnings have their debts written off after 25 years. Interest rates are so preferential that they could probably be adjusted to the 1-2% rates applied in countries like the Netherlands without any significant impact on participation.

The thousand dollar question is whether Ministers want to create a graduate contribution scheme which they can describe as a more progressive graduate tax in order to facilitate a sharply differentiated market in fees as public funding is reduced.

The catch is that this is not the graduate tax linked to earnings but uncoupled from fees which some Liberal-Democrat MPs favour and which some Labour Party leadership contenders now appear to advocate. A hypothecated graduate tax should not be dismissed out-of-hand: it could be more progressive; it need not go to the Treasury but it does have its own complexities about who pays, at what rate and for how long. It is also likely that a separate student support scheme covering maintenance grants and maintenance loans would still be required.

Is it surprising that senior Tory sources have been briefing against a graduate tax while Liberal-Democrat MPs take to the airwaves to defend it? Probably not. The real risk is that the price of the Coalition’s survival is a political and funding muddle rather than the fair, transparent and well-resourced system based on a broad political consensus about the funding which universities and students need. Perhaps most disturbing in all the skirmishes is that the latest UCAS figures which confirm a record number of applications to universities in 2010, have gone unnoticed. Students and their parents may want to ponder on Vince Cable’s other plans to ‘shrink’ the university sector as they struggle to find places and universities face the prospect of fines if they admit more students than they have been allocated. As they consider what’s in a name, Ministers and MPs ignore at their peril the real issue for students and universities in the summer of 2010.