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17 May 2023

Why tuition fees are the progressive option

Students paying for their own tuition is fairer for everyone. Karl Marx knew that.

By David Willetts

Keir Starmer has now abandoned his predecessor Jeremy Corbyn’s pledge to remove all university fees, opening up a debate about how exactly Labour would fund universities. The end of the old pledge recognises the reality that graduate repayment is the best way to finance higher education. Public spending on higher education for over a million English students is not a political priority – not even within the education budget, where the conventional wisdom, rightly or wrongly, attaches much more weight to the first three years of schooling than three years at university.

But fortunately there is another way of financing higher education. Graduates do on average earn significantly more than non-graduates so it is reasonable to expect them to pay back for their education if and when they can afford to. In fact, that model is indeed more progressive than taxpayer funding.

Rather than aspire to do away with tuition fees, Corbyn would have done better to follow the wise advice of Karl Marx. When the German Social Democrats proposed free higher education in their Gotha Programme in 1875, Marx attacked the idea: “If higher education institutions are also ‘free’, that only means in fact defraying the costs of education of the upper classes from the general tax receipts.” Marx was right and Corbyn was wrong.

It is frustrating that we are trapped in a terminology describing the graduate repayment model in the language of fees and loans. Graduate debt is nothing like a commercial debt – it is an obligation to pay back at a rate of 9 per cent above a high threshold. That is why one group of reformers want to go the whole hog and have a graduate tax; indeed it was one of the arguments between the Brownites and the Blairites. But a graduate tax could mean some graduates paying much more than the cost of their higher education. At the moment if two people are on the same pay but one is having an extra 9 per cent deducted from their earnings above a threshold that is to pay back for the higher education they have received. It’s hard to defend simply paying higher tax with no upper limit just because you went to university.

[See also: Emily Thornberry interview: Jeremy Corbyn’s treatment is “very sad”]

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It’s also worth noting that we have no register of the nation’s graduates. So this scheme would have to be implemented gradually, taking many years to yield any useful revenues and doing nothing to fund universities now. As it would presumably be a tax on graduates of British universities specifically, students doing the courses likely to get them into high-paid jobs would be incentivised to escape the system by studying abroad instead.

All this means our best option is still to cap the total amount due at roughly the cost of the university education, which is what the current system does. The exact repayment terms of the current scheme could be adjusted. I suggest a specific commitment to a review of the terms every five years which would bring flexibility into the system. A Labour government could commission the first review and then commit to others. The repayment threshold or the repayment period could be changed. The repayment threshold had been pushed up so high by Theresa May as prime minister that graduates were paying back less and taxpayers having to write-off more; others might want a different balance and now the threshold is being brought down. The 9 per cent repayment rate could be changed.

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And then there is the most controversial feature of the graduate repayment system: the interest rate. This is already due to be cut but could be cut further. It was actually introduced to make the system more progressive by collecting more from high-paid graduates without increasing anyone’s monthly payments – the low-paid don’t pay back in full anyway. It does not increase anyone’s monthly payments but does mean more affluent graduates pay back for longer. Its unpopularity suggests there are limits to rebalancing the system to collect more from rich graduates – anyway this soon hits the same problems as the graduate tax. There are tricky trade-offs here that are important areas of political debate, but there is no reason for either the Conservatives or Labour to commit on these trade-offs now. It might make sense, however, to announce a review of the terms of the scheme.

A new report from the Centre for World University Rankings shows many of our universities dropping down the league tables – nearly 60 per cent of the top universities have fallen in global rankings. This is partly due to the rise of China but it is also the result of fees being pretty much frozen for a decade, leaving universities under-resourced and students losing out. The main source of extra revenue for our universities is overseas students; their fees used to help fund research but are increasingly diverted to subsidising domestic students, meaning research is cut instead.

An even more acute problem is elsewhere. For students the issue is cash to live on while at university. I regret the disappearance of any means-tested maintenance grant. If there were any public spending option for younger people that is where I would put it. But the money need not just go to students; it could be part of a universal capital grant for all young people on reaching a certain age. It could help to fund living costs at university, but equally could help with other forms of training including residential apprenticeships. It could go beyond education and help with the first deposit to rent or buy a flat.

Amid all this, the media narrative is that too many young people go to university, but this trend is not some strange English experiment. Almost every year in almost every country in the Organisation for Economic Co-operation and Development the number of young people going to university rises.

We aren’t creating more universities for them, so the result is that our universities are getting bigger. Indeed, the massification of higher education lies behind some of the criticisms in Adrian Pabst’s article for the New Statesman on what he sees as the ruination of our universities. He is right that there is too much bureaucracy but now a medium-sized university has a budget of £500m and the large ones are over a £1bn. That does bring with it the need for management structures rather different from those in the past.

But we should not force universities to grow bigger by obstructing the creation of new ones even while demand is growing. There is a great opportunity here for levelling up by running a competition to create more, with priority going to the towns which don’t have one yet. It would be open to further education colleges wanting to add higher education to their local offer.

Universities can be part of the answer to so many of Britain’s problems – spreading opportunity for more people than ever before and more geographically dispersed than any other global institutions. We need to fund them properly and expecting graduates to make a contribution to that is the right thing to do.

[See also: How to run as an independent: an advice letter to Jeremy Corbyn]