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Cable: Graduate tax should replace tuition fees

15th Jul 2010
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University tuition fees could be replaced by a new ‘graduate tax’ under new proposals put forward by business and skills secretary Vince Cable.

The government would pay fees directly to universities instead of lending money to students to cover the cost.

Students would then repay their tuition fees through taxes once they start working, with higher earners paying more.

"We need to rethink the case for our universities from the beginning. We need to rethink how we fund them, and what we expect them deliver for the public support they receive," said Cable in a speech at London’s South Bank University this week.

An independent review of university fees and funding is currently underway, and Cable said he would ask the review to examine "the feasibility of variable graduate contributions".

“Students may have to pay more but that is only part of the answer,” he added.

Accountancy professionals have been sceptical about the proposal so far. Michael Watts, a partner at chartered accountancy firm Haslers said: “This is a backward step – a graduate tax may start forcing graduates to go overseas to study and then they may not come back. In addition this country needs highly-educated individuals for the future as we are primarily a service-led country and this will certainly discourage that.

“The majority of those that go to university become higher-rate tax payers in any event, so they are already making a valid contribution to society.”

Jonathan Russell, partner, ReesRussell and vice-president of the UK200Group of accountancy and legal firms commented:  “This really is a nonsense but is something which the LibDems have long promoted. The concept was always that people who had a degree would be able to get a job paying more money than a non-graduate and hence could afford to pay more tax!  If they earn more money they pay more tax anyway, so this is really a double whammy”.



Replies (22)

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By Trevor Scott
16th Jul 2010 10:11

Another goverenment sticking plaster, but it won't fix the broke

I found that info on handbags and shoes had more substance and reality that Vince Cable’s student tax.

Fiddling with numbers rather than increasing standards of education.

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Della Hudson FCA
By Della Hudson
16th Jul 2010 10:56

Net lifetime earnings £100k more for graduates than equivalent n

BBC website quotes the statistic above. To me this means that graduates ALREADY pay £100k more tax (at 50% or £67k at 40%) than their non-graduate equivalents IN ADDITION to the fees etc. Why should they pay even more?

I qualified by degree then ACA. Today I would consider an alternative route to ACA or ACCA just to avoid this tax for the rest of my life. This is a huge disincentive to raise the education levels of individuals in this country. Should I encourage my children to seek alternative qualifications/employment? It would certainly save me a fortune as a parent.

I'll calm down now and consider more practical issues:

What about UK students who study/graduate overseas?What about EU students who study/graduate but never work in the UK?What about UK students who never work in the UK?

I think that this tax would be both unfair and impractical as well as undermining any attempts to improve Britain's status in the world.

I'd love to hear any positive comments as I can't think of any.



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By pauljohnston
16th Jul 2010 11:06

Further education costs money

In this country we have had a mutil tiered system for years.

Like many I did not go to University but obtained my qualifications through evening classes and weekend revision schools etc and had to pay for it all out of taxed income.  At that time if I had been a university graduate as my wife was - the only contribution was the cost of living away from home.  Although this was a burden on her parents.

Now we have asystem of graduate loans with the current proposal for a graduate tax.

In my opinion education at all levels is the singularly most important tool for future prosperity.  But as usual governments no matter what colour think it is an easy hit because most students cant vote until nearing the end of the study period.

If we look overseas some countries pay for it all and some the parents pay for it all and I am sure others follow our messy system.

We have 10x more graduates that 10 years ago so how is it to be funded.  That I dont know but I do welcome 2 year degrees and I rthink that degree availabilty should be more aimed at the requirements of the country and funds diverted away from subjects which from experience mean getting a job is more difficult.  The system should not just be an open door as it has been so that according to the Newspapers there are 70 applicants for each graduate job.  But must be shaped so that the output matches demand and if this means that some applicants are unlucky thst is how it must be.

We also must look at the blue collar professional services.  I do wonder how many are sent to university and end us with this type of work.  In my part of the world there are shortages for qualified plumders, electricians etc

Mr Cable thinks that graduates earn more in their life time than someone without a university degree.  Almost all the real entrpreneurs that I come into contact with have not got past GSE stage in formal education.  Sadly it is a policitian making these statements not some one in the real world.

I use to admire him but this has sunk my admiration



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By richardterhorst
16th Jul 2010 11:06

Hare brained schemes from Gov again.

 So if I understand it correctly if I get a degree and actually do well with it I pay more for my degree than someone who is not succesful.

If I get a degree and then work overseas its a free degree. Right?

If I get a BA ([***] All) degree which gets me no job but lots of satisfaction its low cost as I am maybe a humble, but happy labourer. Never mind the cost to the Universities.

Question? What have they been smoking?

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By NeilW
16th Jul 2010 11:31

Where does this end

Since the state has infinite financial capacity it makes sense for the state to invest and increase the skill level of the population since that has always increased the value returned later on in terms of increased tax receipts.

If the government is now suggesting a hypothecated tax for a part of education that suggests that the return equation is no longer clear cut. In other words degrees are largely a waste of money.

Plus where does this end. Charging those who get GCSEs or A levels more than those who don't? Charging the fat or elderly for the increased healthcare they impose on the rest of society?

This is a half baked idea. The market approach would be to set the universities free and withdraw all state funding up front. The state could support then by allowing the interest on training loans against earnings (ie employees are taxed on a profit basis - something I have long advocated).

The availability of loan funding would then very quickly sort out the wheat from the chaff in terms of value for a degree, and the toy degrees would become the preserve of the well heeled - as perhaps they should be.


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By P2
16th Jul 2010 15:03


I remember the "Permanent Students" as we used to call them in the seventies and eighties - those who struggled to get a degree first time, tried again and eventually went on to do Masters degrees - perhaps dodging employment well into their thirties.  For "Permanent Students" read "Dossers"!

I agree with Richard' comments above and to a certain degree (no pun intended) this new measure simply compounds the deficiencies of the existing arrangements whereby industrious graduates begin to earn over £15,000 soon after leaving university and have to begin repaying their student loans. 

It doesn't kick in where the dossers are concerned.

Under the proposed measure, the graduate tax targets the industrious graduates while the dossers and dodgers continue to stay below the radar.

On the one hand I regulary get asked by young business start ups how much they need to spend on laptops, etc. just before the tax year-end to qualify the business for sufficient AIAs (capital allowances) to bring their taxable profits below the magic £15,000 so that "we can avoid having to make any student loan repayments".

On the other hand a very industriuous young client of mine managed to acheive business profits of just over £200,000 last year (he is only 27) and sure enough he was met with a demand for the full balance of his student loan - £30,000 to be repaid - and all in one go!

An aside - in fact he only owed them just over £10,000, but student loan repayments are calculated and taken by HMRC as a % of income irrespective of the facts.  The Student Loan Company is no help.  HMRC and SLC do not appear to share information.  My client was told to pay up £30,000 to HMRC and reclaim the £20,000 at a later date once SLC had processed the overpayment - duh!  Will graduate tax be mired in the same sort of pointless bureaucracy, I wonder.









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By dnicoll
16th Jul 2010 15:26

Typical unfairness from LibDems

So, three people, doing the exact same course, using exactly the same resources from the state, and receiving exactly the same degree pay three completely different amounts back depending on their career and lifestyle choices, motivation, and so on. And this is a 'fair' way to tackle funding.

Typical of the Lib Dems. When will politicians realise that tax is NOT and never will be 'fair'. It is an enforced exaction from the people to pay for things they wouldn't otherwise buy which is useful for some societal goods like national defence but is very arguable when it comes to something with a more direct individual benefit like education (and higher education in particular).

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By pauljohnston
16th Jul 2010 15:31


Sad he did not have a Ltd Co and just extract enough to clear the loan.

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By cymraeg_draig
16th Jul 2010 19:24

This could be expensive

OK - I got a degree in one discipline - I have a succesful career - so Mr Cable thinks 50% tax is "fair".

I also took a second degree in a differet discipline.  It also is invaluable in my career.  Is Mr Cable therefore suggesting I pay 100% tax ?

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By taxhound
17th Jul 2010 11:13

Perhaps this could go further?

If I have a stay in hospital, my tax bill should be higher next year, or because my children go to a state school, maybe I should pay more tax at the moment?

This is just not going to work.

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By cymraeg_draig
17th Jul 2010 18:55

Disparities in figures -

If I have a stay in hospital, my tax bill should be higher next year, or because my children go to a state school, maybe I should pay more tax at the moment?


Posted by taxhound on Sat, 17/07/2010 - 11:13


Dead right - serves you right for being ill, and why should I pay for your kids :)

Of course we already have this system in that motorists pay road tax to maintain the roads - and 3/4 of it "disappears" and is not spent on the roads.  The amount taken in national insurance, and the amount spent of the NHS and pensions doesnt tally either.


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By mikewhit
19th Jul 2010 12:30

Education, education, ... taxation ?

I voted for the 1% education tax (what's happened to that ?) not because I think Uni VCs and 'outstanding' heads should be on £200k+ but because the economy needs well-educated men and women, to work in areas other than City finance, such as engineering and business - not to mention teaching !

We also need manufacturing development work in the UK; all that problem-solving which is part of manufacturing is now getting done in the far East, with no experience available for UK graduates, to help them form the next generation of businesses. 

Oh, and how about Child Benefit loans (pay back when they grow up), Jobseekers Allowance loans (pay back when you get work) ... Maternity Benefit loans (pay back once you aren't). I won't go on.

So, to summarise: 1% progressive tax on ALL for education ! (But what are the chances ...)


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By P2
19th Jul 2010 12:47


Similar to road tax and potholes.......

Agreed - how can we follow through the funding?  There is no transparency.

How much taken in "Graduate Tax" will be given back to the Universities and Colleges?

Best wishes


Thanks Paul (above) regarding the Ltd Co option - I set up the young man with a Company the very next year and he took out the lot in dividend distributions to buy a detached house for cash - duh!

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By david5541
20th Jul 2010 13:04









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By P2
21st Jul 2010 14:49


Should there also be a "Primary School Pupil" tax with the money re-invested in Primary and Junior Schools?

I am in my fifties and was fortunate to have parents and primary school teachers who encouraged me to read by myself and who taught me simple english grammar and how to spell correctly.

In particular being encouraged to read quality books (whether fiction or non-fiction) and newspaper articles from an early age has given me a good chance of continuing self-education and self-development for the next fifty years of my life.   As well as web research I read quality books and newspapers everyday and am always learning something new and acquiring fresh ideas and approaches to problem solving.

The education I received between the ages of four and eleven also taught me the importance of good grammar and spelling to written communication.

Without those primary skills I doubt I would have got into grammar school and University, let alone come out with a University degree.

In my work as an adult persuasive report writing has been as important as number crunching in thirty five years of audit, tax and accountancy work.

It is appalling that we are turning out graduates with such poor levels of written communication that do not even match the standards acheived by the 8 to 10 year olds of yesteryear, (see some of the posts above for examples of poor grammar and spelling).

No wonder customers, clients and employers sometimes feel cheated these days - poorly constructed reports, mis-spelt annual reports and statutory accounts, uncertain meaning and nuance within correspondence and letters of advice, mis-spelt articles, blogs and posts on professional websites.

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By Karl38
21st Jul 2010 16:36

People screaming... how boring righteous indignation is!

So, the general tenor of responses is "why should people who earn lots of money out of their degrees pay for those "dossers" who "are not successful""...

Perhaps because some carreer paths that require degrees pay more than others?

For example, under the existing loans system, if you use your degree to go on and become an accountant, you are quids in and debt free after a few years if you are moderately successful. However, if you use your degree to become, say, a teacher, or social worker for example, you are saddled with student loan debt for many more years because these professional earn much less.

Considering I presume that its fair to say we want teachers and social workers to be university educated (since we want our kids etc to be taught by highly educated people), and also considering that I presume we all agree that the taxpayer/state can't afford to pay them as much as private companies do accountants, perhaps those who go for the money after graduating should help out those who sacrifice high earnings and work in lower paid professions that clearly benefit our society.

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By pauljohnston
21st Jul 2010 17:15

Alan I agree in

principle but by hitting those who are successfull eg Accountants are we not just putting up the cost of an accountant which maens that it is cheaper to employ an accountant or at least part of his services from abroad.

Your suggestion that teachers and others that work for the state should be subsidised by others who work in the private sector just distorts the cost of education.  If you want to give them a better deal then this should be through the state funding of education.

As an earlier poster has said - if he teaches works he makes no repayments.  So under the current scheme those who work inthe private sector and do well are funding the states degree holding employees, those with degrees who have moved abroad who have moved abroad and dossers with degrees, using a terminolgy from above.

9% is a big hit.  That means for employees earning £100k 60+% deduction to the state

The previous idea that repayments were a % of salary for a fixed period or repayment of a loan were much better.  Of couse the last option is to reduce drastically the number of university places which could be funded out of our taxes.

My son has just returned from Oxford (he is nearly 16 years old).  When we was there he was told that the university year was 26 weeks and then asked what does one do in the other 26 weeks.  Seems to me if this was radically increased we could have 18-20 month degrees and the costs of student laons would be lower and the student would be earning another  salary earlier in their working lives





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By P2
21st Jul 2010 17:21


Picking up the last two posts...perhaps the "Graduate Tax" should contain a formula which looks at total remuneration packages for young graduates including employers' pension contributions (and teachers pensions), etc.

Agreed...teachers, social workers and voluntary sector workers often have lower salaries (and therefore will pay less Graduate Tax if it is charged with reference to gross salaries alone). 

On the other hand these occupations are often compensated for low gross salaries with generous levels of employers' pension contributions which are ploughed into local authority associated pension schemes on their behalf.

This makes me think it might be fairer to assess the Graduate Tax on the value of the whole remuneration package of the graduate. 

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By petersrobertson
23rd Jul 2010 14:54








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By mikewhit
26th Jul 2010 00:21


Dear Peter S R,


please ...

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By Karl38
11th Aug 2010 17:17

Response to a number of points made after my first post
Response to Paul Johnston:

It’s true that under the current system someone who earns below the 15 k threshold their entire lives never pays off anything towards the cost of their Uni education, but they are still saddled with the debt (and stress) for many years until its written off. The system still stigmatises people who go on to low paying professions with debt, and that is wrong.

Your accusation having low paid state professionals' university education subsidised by highly paid graduate professionals distorts the cost of education is a bit flimsy. I'm not sure it increases the cost of an accountant, it merely decreased his/her take home income. All other things being equal the cost of an accountant will still be the same. Of course if it means accountants leave the UK leaving a skills shortage that may make the cost of an accountant higher, but that is kind of besides the points here. The point is that we all subsidise each other every day in many different ways through systems of tax and subsidy, as well as laws and regulations. Markets are rarely perfect (despite what some people would have you believe), and value in the sense you are talking about is always distorted by any kind of collective action (in this case it is collective action through the state). Furthermore, the high salaries of accountants might be a consequence of the fact that the wealthy companies and individuals that pay for them are rich. Maybe accountants are overvalued, and teachers are undervalued (due to the fact that everybody (including low earners) needs teachers, whereas most people don't need accountants (just wealthy ones).

My point is simply that value is not an objective fact mediated by the market, its subjective mediated and distorted by very many factors both within and without the market and the state.

Finally, in response to your point about the 26 week university term, do remember that part of the quality inherent in a university degree is that those teaching them are also engaged in current academic research, which is what they do the other 26 weeks of the year. Also, the other 26 weeks of the year come in handy for students - perhaps to work so that they can save up for their living costs, or perhaps just to soak up everything they are learning!

Response to P2:

I think there is a bit of a Daily Mail myth about public sector workers and huge pensions... They might be final salary at the moment, but we all know that they won't be for much longer. Even putting aside the current government’s zeal to reduce the deficit, we can’t afford them (either in or outside of the public sector). Also, even if you do have a final salary pension, if your final salary is low, then so is your pension!

But otherwise, you have a fair point, yes. We should take the whole of the remuneration package into account in determining a person’s income for a graduate tax. I agree.

Response to Peter S Robinson:

Its straight forward to leave the system as it is, Peter, yes. But what you are missing is that the current system is unsustainable, hence the debate about changing it. It’s true that a graduate that goes into a high paying occupation they'll pay more tax, but that’s equally as true for someone who goes into a high paying occupation who didn't go to university. And anyway, income tax goes into a general pool, which politicians can play fast and loose with. It is not ring fenced for paying for university education. So, it’s a bit of a non point, Peter. A bit of a pointless BELLOW from the back of the room!

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By pauljohnston
12th Aug 2010 09:48

Alan Beck

As we live in a global world if the costs of services can be obtained elsewhere the country looses income.  In your comments if an accountancy post moves from the UK to India we get no employment taxes at all.  If an accountant moves offshore and does the same work there again we loose the employment taxes and may be the business taxes too.  Many large corporates have exported large number of jobs just for this reason.

Therefore I dont feel happy with loading high earners - they too are able to move, you only need to speak with those in the city about the losses to Singapore etc because of the 50% tax band.

We are all looking to save costs including students.  We are at the stage where my son is questioning whether going to university is worthwhile for a £30k debt.  He has also worked out that if it was a 2 year course he would only have a £20k debt and would be earning a salary one year earlier.  This is why we must look at every option to enable those who go to university to have a wide range of choices.

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