“The Government will explore introducing a levy on higher education provider income from international students, to be reinvested into the higher education and skills system. Further details will be set out in the Autumn Budget.”
35 words that have put the sector into a spin, spun out tens of thousands of words of analysis and rebuttal, and set into motion a shared panic that the government is not only going to reduce the number of international students but tax the students that universities manage to recruit.
Design
The only things that we know about the levy is that the government has used a six per cent tax on international fees as an “illustrative example” in its technical annex, the government assumes this cost would be passed on to international students, and that passing on these costs will depress international student numbers by around 7,000. In terms of the levy design there is the promise that the money will be ringfenced for higher education and skills but which parts and how is not defined. It is of course also not guaranteed.
The sector’s response has been to point out that reducing the number of international students and devaluing the unit of resource they bring with them will put additional financial pressure on universities. The impact will also be uneven with the largest recruiters of international students paying the highest levy.
The government has made a hugely consequential policy signal with no details, scant impact assessment, and no analysis of the consequences. However, if a levy of some form is going to happen the sector should think carefully about which kinds of levy they believe would be preferable. Not all levies are built equally.
Australia
The idea for a levy seems to have come from the Australian Universities Accord. The UK government does not seem to have noticed that the idea was heavily edited and caveated in the final report but in the interim report it was noted that:
The Review notes various submissions support establishing a specific fund that could be used for future infrastructure needs, as well other national priorities. This could include consideration of a levy on international student fee income. The use of this revenue for sectoral-wide priorities could reflect the collaborative nature of the sector in building a strong and enduring system. The Review notes further examination is required, including consideration of some level of co-investment from governments.
There is a little bit more detail here but not much. Like the UK version the fund would be hypothecated toward higher education and used to fund things on a system wide basis. The politics on the face of it appear progressive that the institutions that benefit most from private capital, the flow of international students, pay a proportion of it back to fund public goods in the wider higher education system. The less progressive element is that international students pay once to their institution, they would then pay a levy which their provider would pass on to them in increased fees, and they then prop up an education system of a nation in which they are not permanently resident.
The University of Melbourne did some follow up work looking at the implications of such a levy. Some of the issues they picked up are whether this would be a levy on all international students in all kinds of education, whether it is reasonable to distribute funding from high income to low income institutions, whether the idea of a levy in and of itself would dampen demand, and whether the impact of taxing income from individual providers is more harmful than the collective benefits they may receive from a shared fund.
Depending how the government chooses to apply its levy we would expect to see very different results. An Australian model which redistributes funding from the wealthiest institution to the least wealthy would have a very different set of consequences to a levy which took a six per cent flat tax and put it into a general fund for infrastructure. It feels odd within a market based higher education system to make one provider dependent on the success of another. It also feels odd to make international students who are studying at a specific institution responsible for the health of the wider sector.
Some would see an intra-university levy as a recognition that the success of the system is the success of each provider. Some would see it as an unjustifiable tax on the most financially successful institutions.
New Zealand
Australia’s Antipodean partner already has a form of student levy.
New Zealand’s Export Education Levy is charged as a proportion of the fee international fee-paying students pay to their providers. Depending on the kind of institution this is charged at between .5 per cent and .89 per cent of tuition fees.
The levy has a direct relationship between funders and beneficiaries. Although it is a tax on learners, and by extension a tax on providers, the funding is used for the development of the export education sector, a recovery scheme should a provider be unable to continue teaching, the administration of the international element of The Education (Pastoral Care of Tertiary and InternationalLearners) Code of Practice 2021 (this includes a range of safety, wellbeing and advice support), and the funding of the International Student Contract Dispute Resolution Scheme (a scheme for students to resolve disputes with their providers on contracts and financial issues.)
This system has been in place with some variations and the occasional suspension since 2002. The international education system is much smaller in New Zealand than the UK and the amount of funding the levy raises is modest at close to three million dollars in 2022/23. The model in operation here is a relatively small tax to fund things which providers have a shared interest in. It’s not a direct cash transfer between providers but a collective pot to reinvest into the economic commodity of international education. The scheme was suspended during COVID-19 as a measure to support the sector, so its financial impacts are clearly not negligible, but post COVID-19 international enrolments are recovering strongly. Whether they would have recovered even more strongly without a levy is impossible to know.
This is a light-touch, shared endeavour, we all should have some investment in international education, kind of a levy and it is not the only levy New Zealand has.
The Student Service Levy is a fee applied to all student fees to fund non-academic services. The University of Auckland surveys students every year on what they would like their fees to be spent on and in 2024, in descending order by amount, funding was spent on sports, recreation and cultural activities, counselling services and pastoral care, health services, child care services, clubs and societies, careers advice, legal advice, financial advice, and media.
This is a general levy but the principle has broader applications. It would be entirely possible to levy international student fees to pay for non-academic services. For example, university access budgets are effectively paid for by a levy on fees. This system seems fairer in some ways than a general levy. The place where a student studies is the primary beneficiary of their fees. From a policy perspective it would allow the government to move institutional behaviour toward things they care about by stipulating what the fee could be spent on. However, given that international student fees subsidy much of university work already it would again feel like they are paying twice. Additionally, if providers didn’t have to redistribute their funding on a national basis the providers with the most international students would be able to spend the most on non-academic elements.
Where else
It is also worth stating the government’s proposed levy would not function like the Apprenticeship Levy. The Apprenticeship Levy is a tax on employer’s payroll but employers are able to access the funds they contribute to spend on apprenticeships with any underspend clawed back by the government. Plainly, if government allowed providers to access the fees they contribute to the levy for the education of their own students there would be no point in having a levy in the first place beyond giving universities the political coverage to raise fees. Presumably, not an outcome the government is intending.
The argument against a levy of international student fees will dominate the sector for months to come. Should a levy come to pass universities would be well disposed to think of which kinds of levy they might prefer. A model which redistributes funding across providers and if so which providers and for what projects. A model which internally redistributes funding toward student support. Or, likely the least popular, a model which allows the government to reinvest the funding broadly and perhaps outside of higher education.
In making the case of the harm a levy could cause the sector may also win over more sympathy if it can explain which kinds of levies in which places have what kinds of effects depending on how they are applied. A levy may generally be a bad idea but some versions are much more harmful than others.
