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Thursday, 30 January, 2003, 10:58 GMT
Why graduate tax was ruled out
people in street
Graduate tax "would cost 1bn a year" says Clarke
The education secretary has said that a graduate tax to increase funding for universities would have meant probably 3p in the pound for 25 years.

In an article for Friday's left-wing magazine, Tribune, Charles Clarke set out his reasons for deciding against such a tax in last week's higher education White Paper.

Instead the government is to allow universities to charge higher fees - up to 3,000 - from 2006, with repayments deferred until graduates are earning above 15,000.

A tax on graduates' earnings is said to have been the favoured option of the Chancellor, Gordon Brown, and some Labour backbenchers have continued to argue for it.

A group wrote to the Guardian newspaper calling on the government to publish its assessment of the option.

How long?

In his tribune article, Mr Clarke says he started out as a sympathiser of the idea and can "very well understand the attraction".

But he then sets out reasons against it - including difficulties in defining it.

"Would it be paid back for life? For a fixed period of time, say 20 years? Until a particular sum has been paid off?

"These choices can be resolved but not without controversy.

"A likely rate of a graduate tax would have been 3p in the pound for 25 years if the sums were to add up."

Competing demands

Revenue from it would have to be "hypothecated" - funnelled either to universities as a group or, preferably, to individual universities.

This was not possible, so universities would have to compete with other public spending priorities.

"Many such priorities, such as investment in pre-school education, might well be more socially progressive than investment in universities."

A graduate tax would give "no incentive whatsoever" for other contributions, whether from scholarships for poorer students, parental contributions or working while studying.

So it would cost more to run - he estimates "up to 1bn a year" - and would take the state longer to recoup the money it had given up-front to universities.

User testing

On the other hand, fees income gave individual universities more independence.

"All opinion testing suggests", he says, that graduates would consider paying back their own fees and living costs, but were "very loath" to pay back other people's.

Fiscal rules mean a graduate tax would add about 3bn to the "public spending" column of the government's balance sheet.

It would also be very difficult to recover money from students from other EU countries.

Mr Clarke argues that the best way to create "a more progressive taxation regime" is through raising income tax itself.

But that would have to be set alongside other proposals such as the National Insurance increase already coming into effect in April.

And finally, letting universities charge more gave the newly-announced independent Access Regulator a sanction - requiring universities to do more to encourage applicants from a wider range of social backgrounds before they could put up their fees.

"I believe that the approach which I propose gives the best basis for the future of higher education and access to it," he concludes.

News and analysis of the government's plans for higher education
See also:

23 Jan 03 | Education
22 Jan 03 | HE overview
22 Jan 03 | HE reaction
22 Jan 03 | HE reaction
22 Jan 03 | HE case studies
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