Higher education – Tax, debt or simply investment?

By Chris Cook

The hot – indeed, explosive – political topic of the moment is definitely higher education.

Having by chance been present recently at a CentreForum (the Liberal Party think tank) higher education gig at which David Cameron himself turned up to launch the coalition’s new policy I have to say that while I agreed with his critique of a graduate tax, I found the coalition proposal he outlined unconvincing.

Indeed, a lively debate has been taking place on LabourList as to whether it is Fish or Fowl. I have to agree with that the coalition’s proposal is indeed not debt, and from a financial background I observe a distinct similarity to what is known as ‘Equity’ investment – which conventionally takes place through shares in companies.

Since 21st century problems cannot be solved with 20th century solutions – whether debt; taxation; or the coalition’s bastard hybrid – maybe we could apply the new approach to equity which is the common theme of my LabourList posts.

Investing in People

I propose that every UK citizen should open at (say) age 18 – but possibly earlier – a ‘Knowledge Account’ and every young person would be entitled – subject to qualification – to such an account. A maximum annual public investment would be made through the account in vocational training; education or possibly – for young entrepreneurs – in supporting a ‘start up’ enterprise either individually or in collaboration with others.

The alchemy is to use a ‘capital partnership’ whereby the student enters into a revenue sharing framework agreement so that for as long as the public investment is used, the student is liable to pay a proportional share of his gross income into the public ‘Knowledge Pool’ fund by way of a Capital Rental.

For example, say a doctor incurs total fees and costs of £100,000 over a five year course which means that the public have made a £100,000 investment in his Knowledge Account. Once he qualifies, he would be liable to pay (say) 2% of his gross salary into the public Knowledge Pool. There are quite a few policy options which may then flow from this.

For instance, the young doctor could opt over time to redeem the investment, possibly through buying back ‘nth’s’ at an agreed multiple of his gross income, so that the repayment of 50% of the Account balance would mean his payment to the Pool would halve to 1% of his gross salary. He could receive credits against the balance in return for public service, and maybe at higher rates for voluntary service overseas – since this could be expected to accelerate his experience. If he wishes, the ‘capital rental’ due to the Pool could within limits be debited to his account rather than paid in cash. There are many other possibilities.

For a young IT worker, the account could be used in a similar way to pay for equipment, software and for professional IT training on exactly the same revenue sharing basis.

Equity

The result could be genuine investment which is neither debt nor taxation but rather a simple but radical partnership-based approach to investment in young people, whether or not they go to university.

I believe that this policy would be simpler; more flexible and more straightforward to introduce than the coalition proposal – with little or no legislation needed – and that a partnership approach is entirely consistent with Labour values of solidarity and mutuality.

In my view, those who benefit from a privilege conferred by society – such as that of education over age 18 – should share the fruits of that privilege with society, and I believe that this ‘quasi-equity’ approach to investment in people would achieve just that.