Business secretary moots 'graduate tax' to replace 'poll tax'

The debate on university funding has escalated after Vince Cable opened the door to the abolition of tuition fees via the introduction of a system of graduate contributions tied to income.

In his first major speech on higher education, the Liberal Democrat MP and coalition business secretary told an audience at London South Bank University that he wanted to consider "variable contributions" linked to the premium in earnings received by graduates.

Mr Cable was careful not to label his proposal a "graduate tax".

A number of experts have been quick to point out the flaws in such a system, while others have suggested the plans could be a political smokescreen to avoid a schism in the coalition government.

There are known to be serious tensions within the Liberal Democrats over the issue of fees, which many of the party's MPs pledged to oppose in the run-up to May's general election.

However, senior Tories are said to be uncomfortable with the idea of a system under which the richest 10 per cent of graduates could end up paying far more than the cost of their education.

Speaking last week, Mr Cable said the current system of capped fees and student loans amounted to a "poll tax", with teachers and research scientists paying the same as City analysts or commercial lawyers.

Instead, he mooted a repayment mechanism tied to post-graduation income, with wealthier graduates paying more for their education than those in less well-paid jobs. The revenue raised would be ring-fenced and redistributed to the academy.

Critics were quick to point out that Mr Cable's proposals offered no indication of how short-term funding would be raised to plug the holes in public spending left by oncoming cuts. Others feared that scrapping fees would break the monetary link between undergraduates and universities, splintering the sector.

Roger Brown, professor of higher education policy at Liverpool Hope University, said Mr Cable's suggestion was almost certainly a political move designed to enable Lib Dem MPs to vote to increase graduate contributions.

Professor Brown said: "A graduate tax was nowhere and someone has suddenly thought that this is a great way of getting the Lib Dems off the hook.

"The basic question remains how the sector will cope with the cuts in public funding still on the horizon. There is no getting away from that."

Questions have also been raised about the influence that Mr Cable's speech may have on the ongoing independent review of fees and funding led by Lord Browne of Madingley, which is likely to report in October.

However, Professor Brown said that no government review was "truly independent" and that it was better for the coalition to influence Lord Browne now rather than dismiss his findings once he had reported.

Opting out

Meanwhile, Lorraine Dearden, professor of economics and social statistics at the Institute of Education, said that breaking the financial link between students and institutions risked some universities opting out of public funding altogether.

She said: "What this risks some universities saying is: 'Right, we don't do undergraduates any more,' or 'We'll go private.'"

Professor Dearden said a pure graduate tax related to income would be very progressive, but could also lead to high-earning graduates moving overseas.

Nicholas Barr, professor of public economics at the London School of Economics and one of the architects of the fees system in the UK, said that the fairness of wealthier graduates paying more was subjective. He also argued that universities should be allowed to set different contribution ceilings.

"You don't have to call them variable fees, but it seems to me that it is both efficient and fair if LSE graduates pay higher fees than 'Balls Pond Road Tech' graduates," he said.

Others warned that under current law, the government would be unable to collect a graduate tax from European Union students who have studied in the UK, with the result that British graduates could end up subsidising their EU counterparts.

Questions have also been raised about how maintenance support for students would fit into Mr Cable's proposed system.

Pam Tatlow, chief executive of the Million+ group of new universities, said: "Maintenance loans and grants are crucial to participation, so it is likely that this support would still have to be met by the state, with loans repaid by students when they graduate in addition to any graduate tax."

The issue of funding for part-time students, a key area of inequity being considered for reform by Lord Browne, could also be tricky to reconcile with a graduate-tax approach.

David Latchman, master of Birkbeck, University of London, which specialises in part-time courses, said: "Our plea is that we don't run off into a system that is entirely predicated on full-time three-year degrees - that would be our worry."

simon.baker@tsleducation.com