Nothing fair about a graduate tax, Ed and Vince (with update pm 15-7-10)

Ed Miliband, second favourite after his big brother for the Labour leadership, has written a piece on his campaign blog in which he argues for a graduate tax as a fairer alternative to tuition fees.  Four of the five candidates now favour a graduate tax and the press reports that the coalition government is actively encouraging the idea.  Vince Cable was on the radio this morning talking it up, not as an alternative to tuition fees but as an addition to them.   I see nothing fair about this idea.  I have posted a comment on E Miliband’s blog post explaining why, but it’s still “awaiting moderation”.  In case my comment doesn’t survive the moderator’s Delete key, I’m reproducing it here:

There’s absolutely nothing fair about a graduate tax.  It assumes that a university degree increases the earning power of graduates, which is no doubt true as a generalisation but certainly not true of all graduates — especially at a time when growing numbers of people are going to finish their university courses with degrees but no hope of a job at a time of very high unemployment.  It has never been true of the many graduates who work for the not-for-profit sector or even in many areas of the public sector.  Many graduates are forced to take jobs for which they are over-qualified and therefore underpaid, with no extra earning power attributable to their degrees.

But the even more serious objection to a graduate tax is that a university degree is only one of numerous factors that may result in above-average incomes:  high IQ, industriousness, unscrupulousness, good contacts through well-off parents or through having been to a ‘public’ school, an affluent upbringing and social confidence, good luck — the list is endless. There’s no possible justification or need for government to single out the beneficiaries of one particular advantage (such as a university degree) for an additional tax obligation:  if the tax system is progressive, as one day a future Labour government might just possibly make it, then the higher people’s incomes, the more tax they pay, regardless of the reasons for their relative affluence.  Why should a graduate pay more tax on her income than someone with no degree but an identical income?

Other arguments against a graduate tax are:

  • that the provision of university education to all those who can benefit from it benefits the whole of society in numerous obvious ways, including indirectly those who haven’t been to university, so society should pay for university education collectively through the tax system;
  • that the prospect of having to pay a graduate tax on top of income tax and other taxes would inevitably discourage many able young people  from aspiring to a university education;  and
  • that a graduate tax, calculated to pay for the costs of university education, is in effect a hypothecated tax, whose proceeds would be earmarked for a specific category of expenditure; and this is contrary to the basic principle that taxes go into the Consolidated Fund which the Chancellor of the Exchequer can use with total flexibility for whatever needs may arise.

The fair solution to the problem of funding university teaching is a general increase in the higher rates of income tax, on the principle that all those who can afford to contribute more to social goods,  not just graduates, should pay more tax .  A future Labour government will need to be much less timid about taxing very high incomes — and wealth — on a steeply rising scale.  The new 50% marginal rate (which incidentally doesn’t mean anyone paying 50% of their entire income in tax, as many people seem to think) is a start, but there’s ample scope for much more.  Threats from the mega-rich to emigrate if their taxes go up are a bluff that should be called — and if it’s not a bluff, good riddance to them. To each according to his need….

Please think again, Mr Miliband and Dr Cable.  Tuition fees should certainly be abolished, but not to be replaced, still less supplemented, by a graduate tax.  The arguments for financing state school education out of general taxation apply every bit as strongly to higher education.  Grasp the nettle!

Up-date, 15 July 2010: My comment (i.e. this post) has now appeared on Ed Miliband’s blog (here).  So have a good number of other comments, mostly making very good points both for and — especially — against the idea of a graduate tax.  I was especially struck by this one:

Rob Hepworth  [Moderator]
It’s preferable to fees but still the lesser of evils. I’m nervous about hypothecated taxes. There’s a danger that our opponents will jump at this and do it for other services eg health – a “health Tax” – to be paid only by people who use the NHS ? Or a schools tax only paid by parents whose children use state schools ? No!! …  If we need a tax on top, why not a tax on larger companies whose future manpower depends on a supply of educated graduates?

Other comments on Mr E Miliband’s blog post advance additional cogent arguments against this deeply flawed idea.   And there are yet more very good points in comments on the version of this post at Labour List.  I can’t believe that Dr Cable’s heart is really in it, or that Ed Miliband’s should be.


3 Responses

  1. AnneJGP says:

    An interesting article, Brian, thank you.

    I’m inclined to think that we made a mistake in widening the spectrum of university courses so much. I would very much like to see student grants restored because I see the system of loans as one of the worst social policies of recent times. On the other hand, I  think a much more hard-core spectrum of subject matter would be better. It used to be claimed that the big benefit of a university education lay in teaching its students to think and, in that sense, the topic was secondary. (I don’t know whether this claim is still made.)

    It also seems to me that the whole of our society’s approach to education needs to be re-thought from first principles, because our universal compulsory education has long since entered a sort of negative feedback loop. Far from being a valuable opportunity to be grasped, many pupils don’t want to be in school and behave accordingly; conversely schools find it hard to exclude those whose behaviour makes it impossible for others to learn. In many countries, any education at all is valued as a privilege in its own right. Here, “privileged” is a derogatory label we apply to people when they have something beyond what state education offers.

    I haven’t any answers to offer, though.

    Brian writes: Thank you for this. I’m not sure how far government should go in laying down which university courses should be funded and which should not (or which should be closed down). Such matters should surely be decided by an arm’s-length predominantly academic body like the old University Grants Committee, and by the universities themselves. I think it’s a given that, as you say, the value of a university education lies in the intellectual discipline involved in learning almost any subject in depth and being trained to apply evidence-based reason to one’s mental processes (although quite how that can be applied to the study of theology I have never been able to grasp!). I doubt whether the problems of (some but by no means all) state schools which you describe have any real bearing on the question of a graduate tax, thought-provoking though they are.

  2. Bob says:

    I think a graduate tax is an appalling concept which shouldn’t even be considered by any aspiring Labour Party leader – or by any party member for that matter.  The rationale behind such a tax is that a degree is a privilege leading to greater eventual earning power. Even if this were true – which it isn’t in so many cases – to regard spending three or four years in higher education purely as a means to the end of earning ‘good’ money is a Philistine and mechanistic view of what is a complex developmental process. It is negligent and cynical to ignore the ultimate benefits to society as a whole from the personal and professional development of its graduates. Is the Labour Party under its new leader really going to fly the flag of taxing graduate teachers, nurses, doctors, social workers and so on because they enjoyed a privileged education? Or perhaps the party will have plans to offer pro-rata tax discounts based on the thousands of other lives these professionals touch and improve in so many ways….?
    As for the detailed application of such a tax, the mind boggles. Given approval by parliament (under whichever government) might its sponsors not suddenly decree that degrees in some subjects be taxed more heavily than degrees in others? Cue changing patterns of applications leading to falling/ increasing student rolls and staff numbers. Pandora’s Box in HE, in other words. 
     And all because a degree is suddenly seen as THE advantage which mustn’t be given free to those who will eventually be capable of paying for it, regardless of the greater good they do in the world! What a misanthropic,  myopic standpoint.
    So watch out all you working-class kids who make it to university! You won’t be able to help out your sacrificing parents just yet a while if this tax comes in….But you folks who didn’t go to university but got a job in the City through ‘contacts’, or in advertising because of your looks, or who ‘work the system’ in a range of ways – and earn multiples of a graduate nurse’s salary – you’ll be OK. No extra tax for you despite the fact that you, your family and children will benefit enormously from the modestly paid graduate state employees who educate and look after you all from birth to death.
    Which is exactly why state higher education – like state school education – should be funded through progressive taxation, with those earning most (by whatever means) paying most. And if the current Labour leadership aspirants don’t have the courage to advocate this, we deserve to stay out of power until someone comes along who has.
    PS. Is a graduate tax, if brought in by the current coalition, likely to lead to less unhappiness and hardship than (imminently) increased fees and student loans?   That isn’t the point. They all amount to re-arranging the deck chairs until someone abolishes the lot and funds education from taxation.

    Brian writes: Thanks, Bob. There’s nothing left to say except Amen to all that.

  3. John Miles says:

    I agree  with most of what you say, and so, I think from what he says, does Mr Gable.
    He’s perhaps slightly more likely as any future Labour government to make our tax system more progressive, but don’t hold your breath

    Perhaps it would be fair to inflict a graduate tax on people like you and me.
    Many, perhaps most, graduates older than about thirty five or forty got their degrees without costing themselves or their parents a penny.
    You ask, “Why should a graduate pay more tax on her income than someone with no degree but an identical income?”
    Possible answer: “Because even if the degree I’ve enjoyed at other people’s expense hasn’t increased my earning power, it hasn’t done it much harm and it’s done wonders for my quality of life.”

    Brian writes: You could say the same thing about everyone who has benefited from education at state schools or from the NHS. Social goods should be financed by society as a whole, through a progressive tax system that ensures that those who can afford to contribute more, do so.

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