There’s nothing fair about a graduate tax, Ed and Vince

By Brian Barder / @brianlb

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 Ed 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.

Update, pm 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 blogpost advance additional cogent arguments against this deeply flawed idea. And there are yet more very good points in comments here on LabourList. I can’t believe that Dr Cable’s heart is really in it, or that Ed Miliband’s should be.