The government should scrap the unfair and increasingly costly system of fees and loans, restore maintenance grants and fund higher education in England through an all-age graduate tax, a new book by a leading education expert proposes today.
The current loan system, says Professor Andy Green of UCL Institute of Education (IOE), is ‘out of control’. Students are taking on debts of up to £50,000 which many will never earn enough to repay in full. This will land taxpayers with an estimated 43 per cent of the loan bill, and more if fees are allowed to rise continuously.
Under the all-age graduate tax plan, both past and future graduates, when earning over £21,000, would pay an additional 2.5 per cent in income tax. This would mean a graduate on average earnings over £21,000 would see the annual amount they repay for higher education cut by around 60 per cent compared to the current system.
It would be a middle way between today’s regime of fees and loans and Labour’s general election promise to fund higher education entirely through general taxation.
In his new book “The Crisis for Young People: Generational Inequalities in Education, Work, Housing and Welfare” Professor Green maps out the growing ‘crisis of intergenerational inequality’, as today’s young people face soaring housing costs, uncertain job prospects and large student debt repayments as they progress through adulthood.
In this context he argues that the loan system is ‘morally indefensible because it is encouraging a whole generation of young people to acquire huge debts which they will be paying off through much of their adult lives while also paying historically high proportions of their incomes on rent or mortgages’. It is also increasing inequality both within and between generations. Fees for undergraduate courses are much the same, so graduates are expected to repay similar amounts regardless of the financial benefits of their particular qualifications on the labour market, which vary considerably. At the same time, the system represents a major source of intergenerational inequality as ‘one generation is paying for a service which previous generations have had for free’.
An all-age graduate tax, says Professor Green, would be more equitable and place a lower burden on the taxpayer both in the short and longer term. He proposes that all graduates in England earning over £21 000 who had received subsidised first degree higher education in English universities should contribute to the cost of their studies through an additional tax of around 2.5 per cent.
This would substantially reduce the average future repayments of young people who started their degrees after 2012, thus limiting their financial burdens through their 30s and 40s when family finances are most stretched. A graduate tax of 2.5 per cent would see graduates on average earnings above £21,000 paying back £812 per year, compared to the £2,025-per-annum loan repayments for the same group under the current system.
Green estimates that an all-age graduate tax today would generate an annual tax revenue of around £3.8 bn. With the total costs of first degree higher education, including restored maintenance grants, estimated at around £11.8 bn, this would require an annual taxpayer subsidy of about £8 bn. With a necessary enhancement to the level of the 2015 maintenance grants, the subsidy from taxpayers would be similar to that estimated for the current system. However, the burden on taxpayers would be lower both in the short term and in the longer term.
The graduate tax would represent immediate additional revenue for the Government which is currently paying the full cost of tuition fees by funding the loans issued by the Student Loan Company and which will not see the loans repaid for many years.
Over the longer term, all-age graduate taxes will also generate increasing annual tax revenue. Even assuming that HE participation rates soon peak, the proportion of graduates in the labour force will continue rising until 2067 when the current cohort of 18 year olds – with 48 per cent participation rates in HE – reach retirement age. By this time nearly half the labour force will be graduates and, even allowing for some decline in the graduate employment rate, there would be some 50 per cent more graduate employees liable for the graduate tax than in 2017, with a proportionate increase in the revenue from the tax.
At the same time university costs could be controlled by government restoring the caps on numbers taking bachelors degrees. This would also encourage more investment and participation in high quality shorter technical degrees which may offer more labour market opportunities to the additional students in an expanding tertiary system.
The proposal, Professor Green argues, represents a middle way between today’s system of tuition fees and loans and Labour’s general election pledge, apparently popular with young people, to scrap tuition fees and fund higher education entirely through general taxation. It is preferable to Labour’s plan, he says, because it acknowledges that graduates should make a contribution to the costs of the higher education from which they have benefitted financially, and places less burden on non-graduate taxpayers.
Professor Green said: “Perhaps surprisingly, the case for an all-age graduate tax has not previously been set out or evaluated. Now that we know the extent of the problems with our fees and loans policy, this would be a good time to debate it. It would place higher education funding on a much more stable foundation, as well as making an important contribution to reducing intergenerational inequity.”
‘The Crisis for Young People: Generational Inequalities in Education, Work, Housing and Welfare,’ is published by Palgrave and is available on open access at: http://www.palgrave.com/gb/book/9783319585468
Media coverage: Times Higher, 3 July 2017 https://www.timeshighereducation.com/blog/tax-all-graduates-pay-universities-even-if-they-graduated-years-ago