Vince: why I’m saying ‘No’ to the graduate tax

by Stephen Tall on October 9, 2010

Vince Cable, Secretary of State for Business, Innovation and Skills, has tonight written to all Lib Dem members in anticipation of the publication next week of the report of the Browne Review (‘The Independent Review of Higher Education & Student Finance in the UK’ to give it its official title).

Here’s what Vince has to say:

Dear Friend,

As you know, one of the most urgent tasks facing the Coalition Government is to reform the funding of Higher Education. Our objectives are clear: high-quality university teaching and research; fair access for all, regardless of background; and a progressive funding structure.

At the same time, we are delivering a tough deficit reduction programme, necessary to save the economy from a major financial crisis centring on the country’s credit worthiness. If we are to avoid substantial cuts in higher education more money must be found.

Next week, Lord Browne will publish his report, with recommendations for reform. The Government will respond shortly. But I can say now that I want a system that meets all of our key objectives for HE, and that helps with our deficit reduction programme.

I can also say now that it is already clear that an additional tax on graduates – a ‘pure’ graduate tax – is not the way forward. While it is superficially attractive, an additional tax on graduates fails both the tests of fairness and deficit reduction. There are a number of objections to such a tax – which is why the Labour government rejected it – including:

First, since a graduate tax is open-ended, some graduates would unfairly find themselves paying many times the cost of their course. This is not fair.

Second, foreign students could end up paying less than some UK graduates, because taxes cannot be collected from people living in other countries. This is not fair either.

Third, a graduate tax would do nothing to reduce the deficit over the next five years. Indeed, it would add many billions to public spending, meaning that further cuts would be needed in other areas of government spending. We have looked hard at possible ways of bringing forward tax revenue from graduate tax revenues – but they don’t work.

A strong university sector is very important for future national prosperity and for social mobility. We need a system for funding universities that is fair and robust. As a Government, we have therefore looked in detail at all the options for reform. A graduate tax has some attractive features – especially in-built progressivity in repayments – which is why we have looked at it from all angles.

But Labour was right when it rejected a graduate tax as an option, and would be wrong to support it now. Indeed, there is a very useful publication – entitled ‘What’s Wrong with a Graduate Tax’ – published by the last Labour Government. I feel sure that Ed Miliband, when he considers the options carefully, will cease to support a graduate tax.

As I have said on previous occasions, I am entirely committed to a progressive system of graduate contributions, the details of which we will be able to confirm shortly. And I have been open-minded about the possibility of a pure graduate tax. But it is clearly not the right vehicle. We can do better – and we will.”

Here’s my first take on the announcement:

1. Tuition fees are on their way out; but a graduate tax won’t replace it. Vince has been careful never to use the term ‘graduate tax’, though the media has paid little attention to Vince’s words (see Andrew Hinton’s brilliant post here). It is interesting that Vince is ruling out the graduate tax at just the time Labour has elected a new leader who has voiced his strong support for it.

2. Don’t expect an immediate Coalition Government response to the Browne Review. Though Vince Cable and Tory higher education minister David Willetts have found much common ground on the future of universities, there are genuine disagreements over how higher education should be funded. Expect them to welcome the Browne Review’s contribution to the debate, and then continue to hammer away at a compromise which they will hope both parties can sign up to. What seems likely to be put on the table is a ‘graduate contribution’, with graduates paying back according to their means — not into central state coffers, but back to universities themselves. Whether this will be for a defined time period, or indefinitely is as yet undecided. It’s a system which should satisfy the Tories; whether it will be judged progressive enough for Lib Dems to sign up to is less clear.

3. Vince’s priority is reforming the HE system first, before sorting HE funding. Vince is said to half-regret not standing down the Browne Review when he took over as secretary of state, fearing that they are focusing on the wrong issue: how to pay for universities, rather than working out what it is universities are being paid to do. Expect Vince to look at the structures: research funding consolidated within the top universities, with more teaching-only universities, and two-year degree courses as standard rather than the exceptions. Why commit yourself to funding reforms before you’ve worked out what should be funded?