I have written about the NUS graduate tax proposal before, and I think it’s time for another attempt. Please read my previous post if you want to understand where I’m coming from here, and this (overdue) update aims to convince you that you do like the idea, as a compromise and a step in the right direction.

Let’s do a quick analysis of the winners and losers under a Graduate Tax that takes the form of a fixed term tax (for 10 years after graduation, say) which is, just like student loan repayments, 9% of income above £15k, compared to the current system. Firstly, people whose parents were wealthy enough to just pay the fees are now in: no more privelege premium. Secondly, those who went straight from a law degree to corporate law on hundreds of thousands (and paid off their loan in about 6 months) now have to pay considerably more. Thirdly, those who chose to work as teachers or for a charity for much less than they could earn elsewhere are paying much less; because their tax cuts out quicker. People like me who went straight from graduation to a technical career on £26-35k will pay about the same (as it’s these people who would normally take the proposed 10 years to pay of their loans).

But, why are we justified in messing with the sorry mess that is the tuition fees system? Those earning lots of money (the big loosers) are already paying higher rate tax, what justifies taking any more off them? The starting point is that university education is a public service, not a comodity. Graduates are much more likely to vote, to give to charity, to be model citizens. Having more of them around is in everyones interest, and the public purse should be a significant (if not the only) contributer to the costs. Given that free university education is not possible at the moment, the graduate tax has many advantages over the tuition fee model:

• Firstly, we get closer to measuring what each individual degree is worth, and charge people on that basis, rather than a one size fits all, English Literature is the same price as Law model. Since we only charge the tax on earnings above a baseline that roughly represents what people might have earned without the degree, we are literally taking a portion of the personal gain they got from taking the course.
• Secondly, given that we already have the student loans contributions system integrated into PAYE, the cost of the extra bureaucracy is minimal compared to basically any other change. This is not a “new” tax, people are already used to paying it.
• Thirdly, the disincentive to apply for university that is caused by the requirement to put oneself into thousands of pounds of debt is completely removed. Banks are no longer allowed to discriminate their mortgage deals based on the existig debt, and the system is seen as low-risk; if you don’t gain and end up working at starbucks, your grad tax is tiny (unlike the debt you would have under the current system.)

In summary, university should be free. But since it can’t be, let’s have a system that charges people based on personal economic gain, not one that charges everyone the same. It is fairer, as the rich pay more than they do at the moment, it incentivises people to work as a teacher or for a charity for a few years after graduation, to dodge part of the tax, and it requires minimal implementation costs.