Graduate tax

A graduate tax is a proposed method of financing higher education. It has been proposed in the United Kingdom and the Republic of Ireland. Under the Higher Education Act 2004 British and European Union students at publicly funded universities in England, Wales and Northern Ireland are charged tuition fees (called 'top-up fees') directly by the universities. The amount of the fees is limited by law and the fees can be funded by government-backed student loans issued by a government-backed company. The loans need only be repaid when the graduate is earning a sufficient amount of money to do so. Non-EU students can be charged an unlimited fee by the universities, and these are usually considerably higher. In 2009 the National Union of Students (NUS) proposed a tax on graduates who have received academic degrees over a period of years after the granting of the degree. Four of the five candidates running in the British Labour Party's leadership election in 2010 also backed the proposal. A graduate tax was mooted before the introduction of top-up fees in the United Kingdom, but was ultimately rejected. A system of graduate tax was seriously considered as part of the Browne Review although Vince Cable has stated that 'No decisions have been made.' On 15 July 2010 Vince Cable appeared to endorse a graduate tax, saying in a speech that he was 'interested in looking at the feasibility of changing the system of financing student tuition so that the repayment mechanism is variable graduate contributions tied to earnings'. Howard Glennerster, a London School of Economics economist, was an early proponent of the graduate tax in the 1960s along with several other LSE economists. In 1968, Glennerster had identified problems with the higher education system which was at that time funded almost exclusively through general taxation, “in the United Kingdom, higher education is now financed as a social service. Nearly all the costs are borne out of general taxation.... But it differs radically from other social services. It is reserved for a small and highly selected group.... It is exceptionally expensive.... education confers benefits which reveal themselves in the form of higher earnings. A graduate tax would enable the community to recover the value of the resources devoted to higher education from those who have themselves derived such substantial benefit from it.” In 1990 the Working Group on Funding Mechanisms, set up by the Committee of Vice-Chancellors and Principals (CVCP), published a report which proposed four possible alternatives to university funding: a full system of tuition fees charged at variable rates by subject; top up fees supplementing government funding; a loan scheme operating through National Insurance; and finally a graduate tax. Incoming Prime Minister John Major read the report but delayed any decisions on higher funding after dissatisfaction at the range of options. During the second Major ministry, a second CVCP working group chaired by Clive Booth, named Alternative Funding, again proposed four alternative models of university funding with a graduate tax once more making the list, however, it was not adopted. The Social Justice Commission, chaired by Sir Gordon Borrie within the Labour Party from 1992 and concluded in 1994 under Labour's leadership of Tony Blair, produced a report which contained a proposal for a graduate tax. Blair was seen as initially not averse to the idea, unlike his predecessor John Smith who had worried about potential loss of support among middle class voters by adopting a fees system. In 2002, Chancellor of the Exchequer Gordon Brown came out in favour of a graduate tax after an earlier review by the Labour government had suggested a 3% tax levied on graduates earning more than £30,000 until fees were repaid. Brown proffered the graduate tax as an alternative to Prime Minister Tony Blair's plan to top-up existing tuition fees, a plan which had caused Blair to come under pressure from some members of his Cabinet opposed to fee increases as well as from opposition Conservative Party leader Michael Howard who also opposed the increases.