AN OPEN-ENDED GRADUATE TAX: PROBLEMS BUT
93. An open-ended graduate tax (ie one which
is paid for, say, 25 years irrespective of a person's earnings)
creates major problems.
94. Continued reliance on public funding.
Since a graduate tax is irredeemably a tax, it cannot be privatised.
It merely continues public funding through a different route.
Thus the flow of private finance via graduates' repayments is
slow in coming, and hence does nothing to improve access or quality
in the short term.
95. Even in the medium term, a graduate
tax does not necessarily produce extra resources for higher education,
since increasing flows of private finance in (say) 10 years time
can be offset by reduced public funding. This is exactly what
has happened in Australia, whose Higher Education Contribution
Scheme (HECS) was introduced in 1989 with the express aim of increasing
resources for higher education. That aim remains unfulfilled.
"A year-long investigation into Australian
higher education by a senate committee has found the nation's
university system in crisis and in need of substantial public
investment over the next 10 years."
"The committee found that universities were
seriously underfunded and were worryingly reliant on non-government
sources of revenue, notably on fee income from foreign and local
students" (Times Higher Education Supplement, 19 October
2001, p. 10).
96. In sharpest contrast, a well-designed
loan scheme could bring in private funds from day one, in ways
which avoid these problems.
97. Closes options which a loan scheme leaves
open. As discussed in section 4, above, a scheme which avoids
interest subsidies makes possible a wide variety of highly desirable
options, such as making higher education free at the point of
useoptions which the fiscal cost of a graduate tax entirely
98. Unfair. A graduate tax is unfair (and
hence politically unpopular) for several reasons:
People are compelled to make continuing
contributions, with no option to pay upfront if they wish.
Those contributions are unrelated
to the cost of their higher education.
The contributions will be considerable
for a successful professional, and can be enormous, eg for the
Mick Jaggers or Stelios Haji-Ioannous of this world.
99. Hypothecation. What happens to the revenue
from a graduate tax?
If it is simply another source of
income for the Consolidated Fund, it is a tax, pure and simple,
and higher education continues to be publicly funded.
If it is explicitly dedicated to
higher education, it is a hypothecated taxa mechanism which
(with the exception of the national insurance fund) the Treasury
has always regarded as an anathema. Any such move would be a major
policy shift. Such a shift might be worth discussing if the potential
gains are great, but that is not the case here.
100. Boundary problems. A graduate tax is
(a) compulsory (contrast loans, where students can choose whether
or not to borrow), and (b) binary (contrast loans, where students
can choose how much to borrow), and thus creates major boundary
problems as between:
Different occupations. Do all UK
students pay the graduate tax? Doctors? Nurses? Intending teachers?
Once a group is granted an exemption, there will be pressure to
extend it, and considerable difficulty in removing an exemption
from any group.
Different modes of study. Does the
graduate tax apply equally to full-time and part-time students?
What about Open University students?
Different parts of the UK. A major
problem arises because taxation operates on a UK basis but the
responsibility for higher education is devolved. A graduate tax
thus opens up a Pandora's boxfor example, the Scottish
Executive could ask for a different form of graduate tax, or could
opt out altogether. If the graduate tax is not the same throughout
the UK, would an English person who studied in Scotland pay the
English rate or the Scottish rate? Would the answer be the same
for a Scot who studied in England? Ditto Northern Ireland (over
half of whose students attend universities in the Republic of
Ireland or the mainland)?
Different parts of the EU. Does the
graduate tax apply to UK graduates who studied in other EU countries
(or elsewhere); and how are EU students at UK universities treated?
101. All these boundary problems raise major
practical problems for the tax authorities as well as creating
a potential political minefield.