Sunday (Monday) thoughts: Is this the way forward for Labour on student tuition fees?

Jonathan Simons
8 min readMay 8, 2023
“Labour set to ditch pledge for free university tuition, Starmer says” https://www.bbc.co.uk/news/uk-politics-65454944

Last week, seemingly almost as a surprise to them, Labour confirmed one of the worst kept secrets in higher education policy when they formally announced they weren’t going to scrap tuition fees after all if they get into power. The announcement was clearly rushed, weirdly timed (just before the locals) and there’s no details on what replaces the commitment, though the party promises some (not at all hastily thrown together) consultation and more details before the election.

And on Friday, after the locals, Public First announced what we’ll be doing to help this.

Our plan actually isn’t in response to Labour’s rushed announcement this week; we’ve been planning it for a while (see above, worst kept secret). But together with our friends at Progressive Britain, and supported by the universities of Greenwich, Manchester, Warwick and York, we’ll be running what we think is the biggest ever opinion poll on tuition fee reform, and applying it on a constituency by constituency basis to see just what the alternatives are, and — crucially — how they play politically, and what the impact might be. We’ll also be doing some more detailed focus group work with what we identify as the key groups who might be swayed, politically, by whatever Labour announce. The plan is to have all the polling and findings — and our analysis for what this might mean — released by the time of this Autumn’s party conference.

Importantly, what we’re not doing is further modelling and technical work. We don’t think there’s a shortage of that — for one thing, UAL commissioned a really detailed piece of work from London Economics at just the tail end of last year, and UUK have a large group of VCs looking at funding reform too. Plus there’s still, you know, the Augar modelling.

What’s missing is something that bridges the gap between technically feasible, affordable, and publicly acceptable. One of the things that bedevils tuition fee policymaking is that it’s phenomenally complicated, and easy to misunderstand, deliberately or accidentally. To take just one example, interest rates on student debt are one of the most progressive aspects of the system (because they make people who would pay debt off early — higher income earners, mostly men — pay it off later, and that money subsidises some of those who pay less or not at all) but is also one of the most disliked.

In other words, technically good solutions aren’t always politically good solutions.

And that’s why I’ve come round to the idea of a graduate tax.

I’ve always hated a graduate tax, for four main reasons: two practical, and two philosophical. The first practical issue is that if you introduced a tax to replace fees overnight, the time lag between the Treasury having to pay out income in lieu of fees and loans, and receiving that back from latter cohorts of graduates, is huge. In other words, for a significant number of years, the public finances suffer because of this switch, and that has to be met by taxes, borrowing, or spending cuts elsewhere. Secondly, a tax suffers from the fact that a lot of people find it quite easy to avoid — notably foreign students, and / or UK students then moving abroad. But most important to me are the philosophical objections. I don’t like the principle that graduates overpay for a service. University seems to me different than a pure public service, in that I don’t mind if I pay more for the NHS than I use it: both because it is by its very nature collective, and also that over time this may reverse. But for acquiring a degree, that I have to pay for alongside the state, it seems to me that I should pay for that debt, plus interest, and no more (beyond that which I pay in income tax later on). But I’ll come back to that. My last, and probably most firmly held view, is that a graduate tax fundamentally weakens university autonomy, because it makes them reliant on the largesse of the Chancellor of the Exchequer for their income in any given year. Let’s ask almost any other public service what they think of that.

Nevertheless, to solve the current HE funding model, which is clearly under resourced, it seems to me that there really are only three options. We can pay more, as a society, for HE — through taxes. We can reduce the number of students going to university, so that they have more spending per head. Or we can ask students — or graduates — to pay more. And of those, the best seems to me to be the third.

In 2010, the Coalition government was wrestling with what to do with university funding, on the back of the Browne review, which had recommended higher fees. The Lib Dems, of course, (in)famously backed the trebling of fees to £9,000, but in the days and weeks beforehand that seemed unlikely, and in a revelation that will surprise no one nor break any confidences, we were doing a lot of work in government to think about different options in the face of Lib Dem nervousness. I was a pretty junior person in the discussions at the time in No10, but I distinctly remember thinking / saying that the solution would have surely been to introduce a “capped graduate tax”. What would its features have been? Well, students wouldn’t have paid up front, graduates would have done so on an income contingent basis every month through their payslip, there would be no “student debt”, and at a certain point that may or may not have aligned with what paying back £9,000 a year tuition plus maintenance would have looked like, that graduate tax would end — hence capped.

The quicker readers among you will have spotted some familiar elements between a loan system and this.

And it’s the fundamentals of this system which I’d return to now — with a couple of differences. Let’s call it a hybrid graduate tax. (I should note with appreciation a great piece from Jim at Wonkhe on this which helped me sharpen my thinking, though I don’t agree with everything in his and I suspect vice versa!)

The main two political problems that a progressive party needs to solve, it seems to me, are the hated interest rate, and the fact that rich students / graduates pay less / nothing at all, because they either opt out of the loan system by paying up front, or they pay off their debts quicker and accrue less interest.

Let’s park that the interest rate is a) good and b) actually already cut, very expensively, by Michelle Donelan from this Sep coming, and that c) only about 5% of students pay for university up front. We’re dealing politics here.

What if we said the new system works like this: every student entering university from when this new system kicks in (let’s say Sep 2025 or Sep 2026) will pay a graduate tax for 40 years. You are not allowed to pay for university upfront, and if your 40 years of tax contributions equal to one and a half or two or even three times the cost of your own higher education, so be it.

But it’s a hybrid system because universities do not become funded out of general tax revenue. Instead, they continue to be funded from government borrowing, specifically for universities. Students also receive maintenance support that is funded by that dedicated borrowing. In other words, we don’t have the tax revenue lag. Crucially, also, the revenue universities get for teaching remains fixed in statute — currently £9,250 a year — and flows to universities per head on the basis of numbers of students they recruit.

A hybrid system in this way eliminates student debt — because students aren’t taking loans. Instead, they’re entering into a graduate tax system. And because there’s no loans, there’s no interest rate. And because everyone pays for 40 years, there’s no regressive elements of the system whereby nurses pay back more in student debt than bankers.

The full 40 year repayment system for everyone (as opposed to the current system, where 55% of borrowers will pay back in full, i.e. they won’t pay for all the 40 years) also brings in a lot more money to government. I’d do three things with this extra money (caveat, I haven’t run numbers here, so this is just a sense of priorities).

  • Firstly, I’d expand maintenance. Again, because everyone is now paying back for 40 years, the distinction between maintenance loans and grants is now moot. So you can present a system where every student has what you could call a grant. You could still, however, taper this by income — so a full grant, partial grant etc. I’d want to get to a system whereby you’d peg student support so that the average student’s grant is sufficient to cover housing costs at a minimum (you’d still expect parental contributions or private income from jobs for most students as well, as happens now).
  • Secondly, I’d eliminate all graduate tax repayments for anyone working in named public services — education, healthcare, social work, and some others. Governments have flirted with various elements of loan repayment schemes in the past, but let’s do it, and do it properly. For every year a graduate works in a named profession, a tax cut.
  • And thirdly, I’d fund an increase in the £9,250 ‘fee’ going to universities — moving it up by the lower of inflation, or average wage growth, every year. (In an average year, you’d expect graduate tax repayments to grow by more than inflation, which pays for the additional things above. If wage growth is lower than inflation, by only raising fees by that lower level, you protect spiralling costs to the exchequer where HE funding requires additional expenditure).

There’s lots missing here because I haven’t fully worked it through: where do you set the graduate tax level — at £25,000 as now to protect lower earners, or at the lower income tax level of c£12.5k? And what % should it be? What do you do about postgraduates; do they pay fees or are they funded out of a graduate tax, and do they pay a higher rate of tax because they’ve had 2 degrees? What do you do about people who under the forthcoming system might draw down some of their new LLE to pay for one Level 4 module; surely they don’t pay graduate taxes for 40 years? Does borrowing for HE on this basis, where you’re not creating a loan book, now mean that the funds are treated differently in the national accounts and public sector borrowing rules?

And I still don’t hugely like my new system! In fact, in a benign technocratic state, I’d simply maintain most elements of the current model, and raise fees by inflation every year. I worry my hybrid approach brings universities too close to the Exchequer, and I still don’t like the fact that almost half of graduates in my new system are now overpaying.

But I do recognise that this might be politically tricky, and there definitely needs to be some elements of reform to the current system too. The truth is that Labour probably will need a full review or similar to fully work through the issues. But identifying the politically salient elements of what you want to change, and therefore setting the terms of reference to address them, is needed prior to any review. Fleshing out the principles of a hybrid model such as this may be a way to achieve it.

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