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Original poster

"Graduate tax" in all but name

30 replies

longfingernails · 09/10/2010 20:14

The press is reporting a Lib Dem "u-turn" but how is what is being proposed anything other than a graduate tax? It seems those in higher-paid jobs will have to pay a higher interest rate on their loans than those on lower salaries.

To those of us who believe in flat taxes, that is fundamentally unfair.

It costs someone earning £50k the same amount to buy a TV as someone who is unemployed. It costs them both the same amount to buy 30 litres of petrol. Why should those who, in the future, earn higher salaries pay more in interest for a fixed number of lectures and tutorials than those on lower salaries? How is that "fair"?

It is just socialist redistribution claptrap - more of this "inequality" nonsense - punishing the successful for being successful. I don't care about relative poverty in the slightest - though absolute poverty is a problem. "Combatting inequality" is just a fancy way to say "more tax".

I understand why Vince Cable wants it, but why are the Tories letting this happen?

OP posts:
huddspur · 09/10/2010 20:18

I don't have an issue with a graduate tax, if you benefit more from your degree (ie you earn more) then it doesn't seem wrong to me that they have to pay more towards your degree.

BeenBeta · 09/10/2010 20:25

It wont work. High paid graduates will just pay of their loan more or less straight away and hence never pay the higher rate of interest.

MumInBeds · 09/10/2010 20:27

That depends what you mean by "work" BeenBeta I think the gov are keen to get loans paid back ASAP as that money is needed to loan to new students, so anything that stops people paying the minimum because the interest makes it pointless to do otherwise will help.

onimolap · 09/10/2010 20:34

I'm with OP in that I think it is wrong to charge different prices for the same product.

And I'm wondering how it will impact on potential applicants: especially for long courses such as medicine (where I really want the best, not those from the wealthiest families).

Original poster
longfingernails · 09/10/2010 20:34

BeenBeta Yes - I guess that would be the rational response.

Providing there is no penalty for early redemptions, like with mortgages, that might mean it is not as bad as I first thought.

OP posts:
Original poster
longfingernails · 09/10/2010 20:37

onimolap Medicine is already very oversubscribed as a course, I think. The A-Level grades required to get in are now very high - rising faster even than grade inflation - so hopefully only the best are making it through!

OP posts:
Siasl · 09/10/2010 21:08

We already have a way of taxing highly paid graduates: its called income tax.

Why does the UK have such a frantic desire to tax those with aspirations, particularly if they happen to be young aswell.

Another tax to hit the young, while the baby boomers book their P&O cruises.

complimentary · 09/10/2010 21:49

Is this a tax on aspiration? It sounds like a load of nonsense to me, and totally unfair on graduates. So are those who go into engineering going to be taxed more than those who take up a marketing degrees, once they are employed. At present this country is woefully short of engineers, we should be encouraging people to take up the harder degrees, maths physics, etc, not putting blocks in there way! I bet this idea was originally thought up by that bastard Ed Balls. Does anyone know if this was going to be a Labour policy or was it really dreamt up by the Liberals?
Thanks to the OP for pointing this out.

Original poster
longfingernails · 09/10/2010 21:53

complimentary

I think Red Ed wants to go even further than Red Vince, and have a full-on graduate tax which you can't ever pay off, except by emigrating!

Labour's graduate tax would definitely lead to a brain drain. The graduate interest-rate tax might not, if it is possible to pay off loans early, as BeenBeta suggests - but still makes me uneasy.

OP posts:
onimolap · 09/10/2010 21:55

longfingernails: very true! But would it stay that way with higher fees, differentiated graduate tax and any further fiascos (a la MMC)?

Will there be a general flight of UK students to foreign universities? Yes, pay up - but no tax surprises. I'd go for it at this juncture; especially as a change in tax structure part way through a degree could hit very hard.

LilyBolero · 09/10/2010 21:56

I felt upset by this at first, but I think it has some merits.

It does seem fair that if you have benefited more from your degree (via a high paid job) that you should contribute more than someone who is doing a job that is vital to society but low-paid (eg nursing, for which a degree is often necessary). Pay for jobs is fundamentally unfair - why do bankers get such enormous salaries when a nurse who works incredibly hard, often in difficult conditions, is on a very meagre salary? It is not down to hard work.

And I like that it is related to future earnings, not parental earnings, as that is no measure of how you have benefited from your degree.

As it will be proportional to income (via the tiered interest rates), it would still mean that people earning more, keep more of their money. If you had to pay 10% of 100,000, (taking arbitrary figures) you still retain 900,000. 10% of 10,000 leaves 9,000. But a flat rate of, say 3,000 would mean the higher earner kept 97% of their salary as opposed to 70% of their salary. Fair?

LilyBolero · 09/10/2010 21:56

The Times said that an important part of this policy would be that you were not allowed to pay it off early, as then the rich really would benefit, and you would end up with the poor paying MORE than the rich.

burgandy · 09/10/2010 21:59

I am happy to pay more for my degre than someone who earns less.

BeenBeta · 09/10/2010 22:01

The thing that bothers me about this whole debate is that people who have degrees already pay 'a graduate tax' in the form of 40% or even 50% tax rate by virtue of their higher earnings.

At this rate some people will be paying 60% marginal tax.

burgandy · 09/10/2010 22:07

I already pay higher rate tax, make substantual donations to charity an would be happy to pay a graduate tax. I feel incredibly lucky to be able to do so and am happy to enable others to do so.

complimentary · 09/10/2010 22:08

longfingernails. This policy is a right vote loser, it will be interesting to see how well it goes down with the public. Perhps they will not bring it in, as they always test the water of public reaction first. Goodnight.

Original poster
longfingernails · 09/10/2010 22:29

BeenBeta Some people already pay over 60% marginal effective income tax rate.

50% income tax + national insurance + pension tax relief withdrawal over £100k means those who earn just over £100k pay well over 60% marginal tax.

Now, the marginal tax rate for future graduates is going to be even higher! And if LilyBolero is right, they won't even be able to pay off their loans early!

OP posts:
BeenBeta · 09/10/2010 22:32

They will leave the country if that happens.

Its back to 1970s super tax by stealth.

Notice once again that it is the young who will pay and the older baby boomers will not. I am getting seriously sick of this.

Litchick · 10/10/2010 13:02

This is a terrible policy.

Wealthy parents like me will either pay for the degree up front or send our children abroad. Then they'll be free to take up high or low paid employment as they see fit.
We will not see our children saddled with 60% tax.

Young people whose parents can't do that, will avoid the highest paying jobs.

Great.

lucky1979 · 10/10/2010 13:45

It is a ridiculous idea.

So you have two people, equal grades at A level, both on the same course. One person works hard on the course, really knows their stuff, gets a first. They move straight into a good job with a fortune 500 company, move up steadily and in 10 years are earning 60K a year. The other person mucks around and falls into the student life, misses lectures, gets drunk and scrapes through with a third. They float around doing office jobs and in 10 years time are earning 25K.

Why should person one, who made the most of the course than person two who squandered it? They both had the same thing, same teachers, same facilities. It just doesn't make sense to me. Litchick is right, the families who can will pay upfront - they can't be suggesting that in effect they will force people to take out loans for tuition even if they're offering cash upfront.

I may start trying to impress upon DD that she would enjoy university life in the US so much more. :)

BeenBeta · 10/10/2010 16:03

Well a radical idea would be to let Universities charge what they want and let students decide if they want to take a loan from a Govt scheme to cover the cost and whether it is actually worth it.

The value of a degree in Media Studies from a former Poly is not the same as a science degree from Oxford or Cambridge.

Sorry but it just isn't equal value and no employer thinks so either so the cost should not be equal.

Siasl · 10/10/2010 16:54

I think one problem is that over the past 10 years there's been a big increase in the number of people going on the uni. Many of those people end up doing low-quality degrees in mediocre unis. They end up with £25k+ of debt and no graduate job to go to.

Perhaps we would be better off funding a smaller number of students in smaller set of high quality unis. Those students should feel more confident about paying higher fees since they have the most realistic chance of getting a good job.

MmeBlueberry · 10/10/2010 17:21

I think a graduate tax is a bad idea. If you earn more money because of your good degree, then you will be paying more tax anyway.

I think we need a system that incentivises doing well in important subjects.

Any proposal I have heard over the last few months have been more favourable to those students who do not do well. That is all wrong.

The tricky area is dealing with traditionally low paid professions where it is now necessary to be a graduate for entry, such as nursing and teaching. Perhaps in these subjects, students should be paid a small stipend for clinical placement/teaching practice to enable them to lower the cost of their loans before they get to the point of racking up huge interest charges.

BTW, my DH did his university education in the USA, and he managed to pay off his loans within 8 years for a five year degree. His parents did not have any savings for them as his father was out of work for several years. He did get a scholarship to fund part of his tuition.

I really don't think it is necessary for us to come up with creative solutions - there is plenty of experience in other countries.

There is a lot to be said for the US system. Firstly, parents save for their children's education using tax-free plans. Students are encouraged to go for courses that will pay out for them. It is possible to do part of the university course at a community college which is low cost, before moving to a prestigious institution for the final years.

The nature of Financial Aid in the USA is that they will make an offer of a place to anyone meeting academic requirements, and only then get into the finances of their parents. A poor child gets financial aid, a rich one doesn't.

burgandy · 10/10/2010 18:30

Years ago when I was studying to be a teacher it was suggested that studen loans would be wiped for those entering and staying in teaching for so many years. Although as a teacher I really have no objection to paying back for my studies, I have gained in so many ways it is the least I can do.

MmeBlueberry · 10/10/2010 18:45

There are golden hello payments for teachers payable in their 2nd or 3rd year of working.