to think a graduate tax is a very bad idea

[olderandwider]

Just read that a graduate tax is now Government's preferred option for funding universities. Lord Browne is reporting later in year on his findings, so the idea may stay on the drawing board - but still, I need to rant.

1. How will this grad tax be ring-fenced so the universities get the money? What is to stop Gov just treating this grad tax as an extra income stream to pay for new pet projects or pre-election sweeteners?

2)It will encourage a brain drain as graduates go abroad to avoid paying the tax.

3. The idea that graduates earn on average over a lifetime £100,000 more than non-grads presumably is based on figures pre-dating the huge rise in the 90s of graduates (because graduates of the 90s haven't completed their careers and won't for several decades so their earnings are unknown.)

So, perhaps the graduate earnings premium has been diluted to the point that for many, a degree is not longer a guarantee of far better earnings. Doesn't that make the grad tax very unfair?

4. Once you put a tax in place, it usually stays there. And goes up. Will students know before they enrol at uni what their extra tax rate will be? Or are they signing a blank cheque for the Gov to dip into their earnings whenever it feels a bit short?

Anyone agree with me? Or is this actually fairer than, say, allowing unis to charge more for tuition fees in return for providing burseries for poorer students.

sorry, very long post! Also, bursary not bursery.

I don't think this one is going to happen, largely because we have so many overseas students. We wouldn't be able to recover anything from them via tax once they had graduated. Payment in advance has to be preferable with some help for students without money.

I can see the need for review though, I wonder how many students take the loans and never actually pay them back as they dont work (mums that have chidlren) or they dont earn over the threashold - too many graduates means lots have to take basic jobs these days.

Not sure if a tax is the fair way to do it but i'd back any system where the money loaned is actually paid back at proper interest rates if not paid up front/as they go along by the student rather than only paid once certain criteria is met.

But overseas students pay their own fees and living costs - the universities are keen to get overseas students because they pay more in fees.

If it's true that graduates earn more, then the difference will be reflected in income tax. No need for an expensive new administration system.

BitofFun - exactly.

Hmm, hope this idea just dies quietly.

BoF - agree with you. Graduates often pay higher rate tax and so pay more back into the system anyway. Adding an extra layer of tax is just a sham way of the simpler objective of raising more tax.

The other important point is that raised by olderandwider of ensuring the graduate tax really goes to universities. The hypothecation of taxes is often used as a justification for the imposition of a potentially unpopular tax rise. A few years down the line it just ends up in the general tax pot and everyone forgets about the original promise to ring fence it.

The imposition of National Insurance is a classic case. The origial promise was that it would pay for the welfare state but the fact is it is collected by HMRC and just goes to the Exchequer - it very clearly does not go into a seperate pot to pay for the future pensions, benefits and healthcare of the employees that pay it.

The broader issue here is that older retired or nearly retired voters have no intention of giving up state benefits, pensions, healthcare or paying any more tax so this is yet another example of the younger generation being more highly taxed than the older generation who got university education for free.

I heard that there was a potential £400 000 extra earnings (over a lifetime) for someone with a degree. I reckon there's at least £150 000 in tax to be paid on that (with income tax, interest, VAT etc.)

If my "tuition" cost £15 000 per year (didn't pay tuition fees - just got in before they were introduced) then that's still only £60 000 for my 4 year science degree so the government is still in profit as a result.

If they do introduce a graduate tax and apply it to everyone who currently has a degree then we're leaving and not coming back!

Can someone explain it to me. If you have a degree, would you automatically be taxed more than just your income tax? Does it matter if you're not working in the area your degree is in?

I have a nursing degree, but am no longer a registered nurse. Would it mean I would pay more tax forever?

What a way to put people off doing degrees!

"I heard that there was a potential £400 000 extra earnings (over a lifetime) for someone with a degree"

Most figures like that assume there is a large pool of non-degree, white collar jobs to compare with. Now that university take-up is about 45%, it's almost impossible to do those comparisons, as there simply aren't the wide range of non-degree white-collar jobs there were, and people who don't have degrees are dramatically non-homogenous with those that do. The claims of degrees being hugely lucrative mostly look at the cohort that did degrees in the fifties and sixties, when take-up was under 10%. Even for those of us that went to university in the early 1980s, degrees from decent universities were sufficiently thin on the ground that we had a scarcity value. None of this is true today, and a mediocre degree in a non-demand subject from a middle-ranking university is something you do for yourself, not for employability.

My parents very generously funded me through university (admittedly before fees were charged, but would have paid fees too if necessary). I would like to be able to do this for my children, but it wouldn't be possible with a graduate tax.

Universities like overseas fee paying students, but they would be getting quite a cheap deal compared to some graduates who go on to get high paying jobs. Would an opt out and paying full fees for some people be an option? Otherwise going to the US for university might be attractive for high-flying people aiming for lucrative careers.

Is it reasonable that men will pay far more for their university education (on average) than women?

i think the main issue is it would remove the link between the student and the university - that is, as income would come from ex-stuents there would be no impetus on universites to improve their offer to future and current students.

TBH i think Universities do not need all the money they are currently getting, could stand to run fewer places (and thereby increase the value of a degree) and much of the money spent seems to relate only indirectly to running courses (eg enormous high-status building projects)

Personally i do not see how it would cost more than £3k per annum to run the Philsophy course i took (given how few the hours of lectures, the number of people in the letures (ie lots), the low pay of tutors/ lecturers at the time (justifiable as many people want to do it) and the only materials required = books that the student may buy for themselves anyway..)

Presumably you wouldn't have to pay it if you were in the group that have paid enormous top-up fees for four years to qualify as a teacher ahem?

Because that would be grossly unfair.

"My parents very generously funded me through university (admittedly before fees were charged, but would have paid fees too if necessary). I would like to be able to do this for my children, but it wouldn't be possible with a graduate tax."

Presumably, UK students would be quite at liberty to apply for an overseas place at a UK university on an overseas fees basis (cash on the nail). Remember, current fees are only partial: home students are all partially subsidised.

Alternatively, and this is the sort of unintended consequence that might play out well or badly depending on who you are, a graduate tax might make people who currently fund their children through Westminster and Oxford switch instead to funding their children through Westminster and (random overseas university) to avoid the graduate tax, thus reducing the number of private school pupils going to elite UK universities.

I agree with BoF etc. that as a graduate, if you are earning more, you pay more in the form of income tax.

There was something I read about tapering it, so that people who go and work for charities, lower paid jobs etc. don't pay as much as say a lawyer or consultant, but then ... income tax is taxed on that basis anyway.

I am also wondering whether or not they would take into account paying for professional studies (e.g. the bargainous £12,000 a year required for the LPC to become a solicitor), as it would suck having to pay twice for that

"If it's true that graduates earn more, then the difference will be reflected in income tax. No need for an expensive new administration system."

Agree BoF

This idea seems like yet another way to ensure it's not actually worth working hard to earn a higher amount, because they'll take it all off you anyway in one way or another.

This is a ludicrously stupid idea. I can't believe the coalition are even considering it, even if the idiot Vince Cable is threatening to flounce. The country would be better off with Cable nowhere near the levers of power. He is basically a communist in Lib Dem clothing.

Under a grad tax system, everyone would presumably have the option of paying full fees instead of a grad tax (if not, then the most ambitious will instantly go off to Harvard and MIT, and you instantly lose all the lucrative foreign students). That means that kids with rich parents get off paying the graduate tax altogether.

I hate the idea of taxing success. A child from a poor family would have even more incentive to emigrate as soon as they start to make a success of their career. As it is, the best thing we could do to give the economy a shot in the arm would be to get rid of the 50% top tax rate.

Meanwhile, if two people do exactly the same work for the same salary, the one who went to university pays more tax than the one who didn't - and the amount is totally unrelated to the cost of the university education. Totally unfair.

Also, how much do you solve the immediate funding problem? We have a massive, immediate deficit. If you introduce a graduate tax then the current funding stream dries up totally - just increasing short/medium-term government borrowing massively, at a time when we need to be reducing it, fast.

Not to mention the fact that breaking the direct link between universities and their students is a recipe for political interference.

This socialist fifth columnist Cable needs to be fired from the Cabinet as soon as possible. I am slightly disappointed by Cameron's lack of backbone in the last couple of days. He should have stuck to his guns on the milk cuts - and certainly on this.

'if two people do exactly the same work for the same salary, the one who went to university pays more tax than the one who didn't - and the amount is totally unrelated to the cost of the university education. Totally unfair.

Of course its not unfair.One person has been working,paying tax and as a taxpayer, supporting the other for 3 years!

katiestar True - but as I said, the amount of graduate tax bears no relation to the cost of the course. It is just extra income tax by another name.

Yes, i don't agree with a graduate tax but I don't think it is necessarily unfair in its ideology.I just think it would be unworkeable- the devil is in the detail as they say.

Yes, and if it does/did mean better earnings then graduates would be paying more tax anyway as a result, so why should they pay twice?

"So, perhaps the graduate earnings premium has been diluted to the point that for many, a degree is not longer a guarantee of far better earnings. Doesn't that make the grad tax very unfair?"

I think this is a bad idea.

I'm a died-in-the-wool Tory (quelle surprise, I hear some of you cry!) and think the Govt should allow universities to set the fees that they wish, with Govt bursaries to assist those from poorer backgrounds.

Students should be able to take larger loans out to meet the cost of the increased fees, which they then pay back on graduation, once their income exceeds a certain level.

Furthermore, tax relief should be provided to those that wish to make endowments to institutions - in order to encourage private investment and enable a greater numebr of bursaries for the less well-off/gifted.

I think a graduate tax is a dreadful idea. If implemented I will encourage my DC to emigrate on graduation.

However a solution to the funding crisis is needed and I think a compromise along the lines of a graduate tax whereby the total you end up paying back is never more than 150% of what your education actually cost government (including interest) would be fair.

So you pay your tuition fees and living costs through Uni, then maybe you pay for additional professional qualifications, then you pay higher rate income tax and NI and then you will pay an additional graduate tax too - wow what an incentive to get an education and good job. Is this how the Govt plans to encourage people not to sit on their arses and claim benefits?

If the Gov still wants to help and encourage students to go through university, when are they going to review the length of degree courses, particularly in non science subjects?

It costs people a lot of money to go through Uni - in my history degree I had one tutorial and 2 lectures each week, for 3 years, and I know plenty of other courses with a similar timetable. If Unis condense these courses into 2 years it will cost the student less, and mean they start earning and paying income tax sooner.