Friday, July 16, 2010

Financial Times - 16-07-10

Graduate tax is an elementary error

A hoary old chestnut has been exhumed. Vince Cable is the latest British politician to be seduced by the idea of a graduate tax: an income levy on ex-students to pay for England’s universities. The Liberal Democrat business secretary has asked a government review of university finance, due to report in the autumn, to consider it. But this idea has rightly been rejected several times before.

At the moment, English undergraduates are given loans with which to pay for tuition. When their earnings later break a threshold, the government takes a share of their income until they have repaid the debt. The system has two crucial advantages: it makes students pay a portion of their degree costs while allowing needs-blind admissions.

A graduate tax would differ in that ex-students would keep making repayments even after they had covered the cost of their study. The main attraction of this tax to Mr Cable is that it would require high-earning graduates to pay more for their education. But the distributional effects would be paltry, and the damage to the university sector could be enormous.

England’s universities are among its most liberalised public services: the main force driving up teaching standards is the sharp-elbowed consumer student. Since fees were introduced in 1998, undergraduates have forced universities to raise their game in order to compete for custom.

So the logical conclusion for the university finance review is that the tuition fees payable by students, which are currently not allowed to rise above £3,225 per year, should be allowed to reach at least £7,000. The extra money would help cash-strapped universities, but also allow competition between institutions on price. Competition would be sharpened, driving up standards.

By contrast, a flat graduate tax would break the link between the cost of a degree and the student’s pocket. All degrees would cost the same. Institutions would depend less on the good will of its students than of the Treasury. So a graduate tax would erode university autonomy and damps the pressure on universities to respond to their students’ concerns.

There are, furthermore, formidable practical difficulties to such a tax. How will university drop-outs be charged? Will Britons be able to leave the country to escape paying for their education? Will Europeans coming to the UK be allowed to study for free? Mr Cable’s idea causes a host of new problems without solving any old ones.

No comments:

Post a Comment