Is a Graduate Tax going to be Ed Miliband’s ‘radical offer’?

With Ed Miliband’s promise of a ‘radical offer’ on tuition fees there is an ever increasing feeling that Labour will commit to a graduate tax.  This follows Liam Byrne’s suggestion that Labour’s election manifesto could set out ‘a long-term shift to a graduate tax.’ The announcement that Labour will reduce tuition fees to £6,000 suggests tuition fees are going to be a real election issue.

Graduate tax was advocated by the National Union of Students as early as 2009.  In offering a short-term fee reduction as well as a future of more progressive taxation policy Labour could position itself as the party on the side of students.

Whilst the details are still being ironed out a graduate tax would essentially be a tax on earnings of all university graduates. Labour would most probably adopt a model wherein the rate of tax is variable dependent on income.  The initial benefit to students of this model is that education becomes free at the point of access.  As many students are put off university by the prospect of large debts, a graduate tax could increase participation from students from poorer backgrounds.  Furthermore, the current tuition fees system means that all graduates pay the same regardless of the actual cost of the deliver of their degree, or the benefit of their degree to them.  Taxation on a progressive scale over a set period of time would mean repayment closer reflects the value of a degree to an individual.

The two key elements to make a graduate tax economically viable are; the period of repayment, and the percentage of income tax is levied at.  The most economically sensible way of making a graduate tax viable would be to offer a fixed term repayment period (the NUS previously suggested twenty years) and an increasing tax scale dependent on earnings.  This would make it possible to collect the same amount of revenue as tuition fees whilst ensuring that ability to pay is aligned with amount repaid.  Under this system high earners would pay significantly more tax compared to those who earn less.  A fixed payment period would alleviate the feeling of a debt so huge that it is inescapable and seem more manageable than a debt that is rarely paid off.

The proposal to reduce fees to £6,000 as an initial step should not be seen as back-pedalling from a graduate tax as some have suggested.  With the news this week that the tax payer will subsidise roughly 45% of the student loan book under the £9,000 regime, the Labour Party has the opportunity to show itself to be both economically savvy  and on the side of students by making this initial reduction.  The gradual introduction of a graduate tax will position the Labour party as being brave enough to take on the challenge of funding Higher Education in a way that is both practical and fair.  Whilst it may seem ideologically and practically difficult the introduction of a graduate tax further imbeds the idea that university is beneficial to society, not just the individuals who attend.  Opening up the possibility for future Labour governments to advocate for universal taxation to fund university.  A step that may seem inconceivable at the moment but is surely more progressive than raising tuition fees, something which Universities Minister David Willetts has refused to rule out.

Labour here has the chance to realign itself as being on the side of students.  A graduate tax is the first step in making university education both more accessible and more economically sustainable.  This can be Labour’s first step in putting a flag in the ground for developing policy for a more progressive education policy.  A policy that looks at, proper postgraduate funding, greater provision for scholarships and bursaries, and perhaps the greatest challenge of increasing access to students who would be less likely to attend university.  Labour can revolutionise the way we view university education, this could be the first step in doing so.