Sunday, 22 August 2010

A graduate contribution is still a tax!

I’m going out for a meal this evening with a friend.  The decision we have to make is who pays. He earns more than I do and will end up paying more for the meal than me under the meal contribution so it makes sense for me to pay and then we split the difference.  Ridiculous isn’t it.  If I pay for a service, I expect to pay the same amount as another person who has used the same service.  Yes, I can go to a different provider of that service and may have to pay more or less as a consequence but I still pay the same amount as anyone else using that service.

If one applies the same principle to graduate contributions, the same conclusion can be reached.  Just because I earn more than you, why should I pay more for the university education that we both had?  Certainly, if I go to a different university or follow a different course then it may be justifiable for me to be charged more or less for the service I received.   The argument that I earn £100,000 more in the course of my working life than someone who doesn’t have a degree seems to me specious.  Why should I spend three or more years in higher education and not expect to earn more?  Today few people go to university for its own sake, they go because they expect to have better life chances than people who don’t.  And, of course, because they earn more, they will pay more income tax anyway. 

Although a graduate tax (calling it a contribution is simply using weasel words) may appear to be fairer than student loans and, from a populist perspective, may be politically popular, but in reality people will end up paying considerably more under it than by taking out a loan.  There are, however, political problems with it.  Let’s say that the contribution is set at 3 per cent, there is no stopping a future government deciding to increase it to 5 per cent or more or reduce it or abolish it.  No government can guarantee that once a figure is set for you that that is what you will always pay: no government can make decisions that bind subsequent governments.  What about individuals who can afford to pay tuition fees up-front or who go abroad to take their degrees, will they also have to make the contribution?  iIf so, this would be grossly unfair since you would be paying twice for the same service. 

The current loans system is in need of reform, especially the need for loans to be at commercial rates but it is still a better system than a progressive graduate tax that will be seen as unfair from the outset.  If you take out a loan, you know what has to be repaid each month and also know when it will be paid off.  A graduate tax, whether for 25 years or longer, will simply become a mill-stone round individuals’ necks.