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Browne Report and graduate tax


The Browne report, Securing a Sustainable Future for Higher Education, has just been published.

The almost universal view among commentators is that Lord Browne has conclusively argued the case against a graduate tax.

In this blogpost I argue that the Browne Report has done no such thing. Rather it has set up a straw man version of a graduate tax, and shown this straw man to be unworkable. It is perfectly possible to set up a version of a graduate tax that avoids the Browne Report’s objections. (Note that in this post I am not arguing for or against a graduate tax, merely that the Browne Report has not made a convincing argument against a graduate tax.)

[A straw man argument is an informal fallacy based on misrepresentation of an opponent's position. To "attack a straw man" is to create the illusion of having refuted a proposition by substituting a superficially similar yet unequivalent proposition (the "straw man"), and refuting it, without ever having actually refuted the original position.]

What some of the commentators say

The Times in its editorial of Wednesday 13 October 2010 says:

This series of proposals demolishes the case for centralised control of universities and they demolish the case for a graduate tax…

Vince Cable in his statement to the House of Commons says:

But Browne identifies serious problems with a ‘pure’ graduate tax. The proposal is unworkable; does not produce sufficient revenue to finance higher education until 30 years from now; weakens university independence; and is unfair to British graduates as opposed to graduates living overseas.

The Independent in its editorial of Monday the 11th October says:

Vince Cable has, mercifully, surrendered the notion of a graduate tax, paid retrospectively, which would have been a bureaucratic nightmare to administer.

The Guardian in its editorial of Wednesday 13 October 2010 says:

Browne’s plan, with its strong support for the less well-off, is also better than a full-on graduate tax.

Have any of these people actually read the Browne Report?

What the Browne Report actually says

The arguments against a graduate tax are in Chapter 7, Other Proposals we have Considered. I’ve repeated them below for reference:

Issues Graduate Tax Student Finance Plan
1 Cost of learning No upfront costs No upfront costs
2 Cost of living Will require support through loans – this means that graduates have to pay the additional tax as well as make loan payments Graduates make a single set of payments to cover the costs of learning and living provided upfront by Government
3 Payment terms Linked to income, no fixed mortgage style payments, payments continue indefinitely Linked to income, no fixed mortgage-style payments , payments stop when costs of learning and living are paid back – or 30 years – whichever is earlier
4 Protection for graduates on low incomes Graduates start paying when they cross the income tax threshold – £6,475 per year Graduates pay nothing until they earn £21,000 per year
5 Costs for graduates Uncapped, could be several multiples of the cost of the degree Maximum payment is equal to the charge for the degree. Majority of graduates will pay less
6 Funding to universities Tax revenues take time to build up – for first 25 years, model depends on Government filling that gap; after that, depends on Government enforcing a ring fence around graduate tax revenues Direct funding relationship between student and university
7 Burden on Government Additional £3bn a year until 2015-16 at least; additional spending continues until ca. 2041-42 No additional spending; continuing requirement to provide student finance
8 Relationship between students and universities Student experience does not matter to university for raising funding University depends on student willingness to pay for significant proportion of funding, so providing a high quality student experience is critical
9 Incentives for institution No variability in funding, so no incentives to focus on quality, access or student experience Sustaining income – or raising it – depends on improving quality, access and student experience

Virtually all of these objections assume a particular (and not very sensible) version of a graduate tax.

Lets look at each in turn:

1) Cost of learning – same for both options.
2) Cost of living – true, but the level of the graduate tax could be set to take this difference into account.
3) Payment terms – there is nothing inherent in a graduate tax that says it must continue indefinitely. It be formulated to stop when the tuition costs have been met and/or after 30 years. (Indeed, the Browne Report even mentioned it looked at the NUS proposal of a graduate tax with a capped maximum contribution.)
4) Protection for graduates on low incomes. Again there is nothing inherent in a graduate tax that says it must kick in as soon as the graduate starts to pay income tax – it could also kick in at an earnings threshold of £21,000.
6) Funding to universities – clearly a graduate tax cannot immediately replace the current system, it needs to be phased in over a number of years.
7) Burden on Government. As for (6) a transition period is clearly required. The Browne Report does not make it clear why the burden to government during that transition period would be any more than the current system.
8) Relationship between students and universities. The Brown Report’s statements are true if the graduate tax is paid to central government. However the report has not even considered the possibility of the graduate tax being paid directly to the university. Such a tie would mean the university would have a long term interest in the success of the student.
9) Incentives for institution. Similarly to (8), if the graduate tax is paid directly to the university, then the university has a long term interest in the student. This would provide incentives not only for good teaching, but also good careers advice and even for continuing education and refresher courses. It would also provide disincentives for admitting students just to make up the numbers, since if these students failed to graduate, the university would not gain any income from them.

Of all the arguments posed against a graduate tax, the only serious one is about how to manage and fund the transition from the current system to a graduate tax. The Browne Report doesn’t consider a transition period – it looks at an immediate changeover to a graduate tax with the funding gap filled by government: of course this is going to look unfavourable, it’s the most expensive (to government) way of funding the transition.

Conclusion

The Browne Report’s case against a graduate tax is based on a fallacious straw-man argument.

There may be legitimate arguments against a graduate tax, but the Browne Report has not made them.

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  1. cim
    Oct 26, 2010 at 12:55

    Agreed – Browne does not make a strong case against a graduate tax, not least, I think, because in effect it is a graduate tax, very similar to the NUS-model graduate tax, in terms of payments made by graduates. (The repayments are bigger for the richest graduates, and smaller for the poorest graduates, than under the NUS model, but not by much in either direction)

    With a £32k student debt (£7k fees + £3,750 maintenance loan, for three years) you need to have average annual earnings for the thirty years after graduation of around £38k to repay it all. Since that is already more than most graduates will earn, on the smallest fees that Browne’s removal of most direct teaching funding makes plausible, it’s effectively a 9% graduate tax on earnings over £21k.

    There’s an interesting perverse incentive here, of course – if, to the majority of graduates, the debt resulting from a 3 year course on £7k fees is not completely repayable before the government writes it off, then you might as well take a course with £12k fees – or £20k fees – because it won’t affect your repayments unless you get unexpectedly rich (in which case: hey, you’re unexpectedly rich, you can afford a few more repayments). Which means there’s no incentive for universities to charge anything other than top fees or unrealistically low ones: they get more money, even with the taper; the students won’t pay more back as graduates; the government funds the difference from general taxation.

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