When you write an essay (or a pamphlet) you never really know what climate it will emerge into.
When David Willetts put together his latest essay for HEPI (aided by the University of Portsmouth’s Dean Machin), he must have known that a pre-Budget piece would come alongside speculation about the future of HE funding in England. But he surely can’t have foreseen one of his core recommendations – a lowering of the graduate repayment threshold – would already be touted as a done deal, with only the policy detail (£20k is “a bit low”, £23k was the Augar recommendation) to be filled in.
The former university minister neatly splits the difference at £21k – coincidentally the figure originally suggested in the Browne Review. His policy prescription as a whole represents a tinkering with the edges of a system he (along with HEPI’s Nick Hillman) designed and implemented – though there is some sense talked about preserving BTECs, broadening level 3 study away from our restrictive A-level specialisms.
We get some crowd-pleasing selections from the Willetts back catalogue too. He still seems to think that there is a tsunami of alumni donations waiting to be tapped (via a letter distributed with SLC correspondence, of course!), and the idea of universities holding their own graduate debt makes another appearance. The latter is not a sensible idea, though I admit to a perverse wonkish delight at the idea of a graduate debt derivatives market emerging. At least he’s stopped talking about MOOCs, I suppose.
The design of the existing system was not a straightforward operation. It appeared shortly after – and contradicted much of – the 2010 Browne Review. Browne called for uncapped fees but a cap on government contributions (top up fees, basically), maintenance grants for disadvantaged students alongside loans that are not means tested, a regular review to the payment threshold, and low interest rates. Of course, very little of this happened. The higher level fee limit was set at £9,000 because of the political undesirability of a five-figure sum – there were grants, but they didn’t last long. The repayment threshold did not rise with inflation, although Theresa May’s intervention restored that link momentarily. And interest rates are not low by any stretch of the imagination.
A broken model
What remains are the flaws and inequities. High-earning graduates pay off less than their lower earning cohort. Students from comfortable backgrounds will start their working life with lower (or, rarely, no) debts. The design and funding of English higher education has been based almost entirely around the aggregated preferences of school leavers and their parents. The design of the system, which includes a subsidy covering the value of loans that are not repaid, is politically toxic and has led to the conflation of graduate earnings with the “value” of a degree.
And, with RAB hovering at around 50 per cent, the system costs the taxpayer more than the pre-2012 direct funded model. As it was always going to. We’re not looking at funding cuts because higher education is too expensive, or because too many poor kids want to study creative arts. We’re looking at funding cuts because the funding model is broken.
The recent rise in National Insurance contributions coupled with loan repayments has introduced a marginal tax rate of around 50 per cent for moderately earning graduates. Lowering the repayment threshold would expand this tax band to those earning less than the median salary. It’s enough to make David Willetts quote Marx – which he does, in support of putting the full cost of study on the individual.
One of the postulated reasons for the culture wars attacks on the sector are that universities are machines for making people hate Tories. I don’t hold with it – I think the deep psychological scarring incurred that turned the current brace of northern Tories into instinctive contrarians plays a part – but it is thoughtful of Rishi Sunak to complete the job by taxing low earning recent graduates into oblivion.
But all this financial pain does not build or maintain a higher education sector fit for the future. Avowedly “selective” providers are growing faster than they can invest in capacity, valuable locally-focused providers in unfashionable areas are facing financial calamity. The government confusion of levelling up and status is played out in shuttered courses and academic job losses.
The history man
I’ve a lot of time for David Willetts’ writing. He is probably the only higher education minister we’ve ever had with such a deep interest in the history of the sector – the early parts of “A University Education” are genuinely superb and you should read them whatever your politics. There is a taste of this at the start of the HEPI pamphlet – like many current and former conservatives he is happy to think radical thoughts about the past except where his own actions are called into question.
It is long past time for a fundamental rethink. Auguar was not it, and this pamphlet isn’t it either.
The industry that has built up in the political centre of policy writing that either defends the Willetts-Hillman model or proposes minor tweaks that do not address the fundamental problems with the system has a chilling effect on the wider debate. The only exception is the continued existence of free education advocates – who are right in the long term but unlikely to change the political weather in the short term. There is a hole in the policy landscape that urgently needs to be filled.
What is odd is that the system as we have it was defined in opposition to two closely related alternatives – on the one hand the Browne model of top-up fees, and on the other the Ed Milliband approach: the graduate tax. As the Conservatives have systematically stolen most other Miliband policies in recent years is it time to give the graduate tax another look?
Down to brass tax
It is often argued that Willetts’ system is to all intents and purposes a graduate tax. Like a tax it takes a marginal proportion of take home pay above a threshold, and like a tax the more you earn the more you pay each month. However it is not a tax in that it is associated with a specific unit of spending hypothecated to the individual – the sum of fee and maintenance loans, plus a genuinely usurious (if variable) rate of interest. Once the principal is cleared, the tax is no longer levied.
It is, indeed, so much like a tax that the Browne review itself included an infamous page detailing why the proposed model was better than a deliberately unattractive straw man model of a graduate tax. Even then, the actual system as implemented struggles in comparison with both models – funding following students directly has led to a perverse incentive to over recruit (as we saw this year) rather than a rush to drive up the quality of the student experience. And the idea that there are no upfront costs to study is mythological when loans don’t even cover rent and the assumed “parental contribution” is around £3k a year for a nurse and a primary school teacher.
The principal argument against a graduate tax is that it is perpetual. This is odd as it is entirely possible to levy a conditional, time-constrained, tax – National Insurance, for instance, is only paid when you are in employment and until recently you were not required to pay it beyond state pension age. You only pay vehicle excise tax while you own a car. There is nothing to stop us charging a tax on all graduates for a given 30 year period – you could even start it five years after graduation.
Breaking the link
The “flaw” here is that we break the link between student fee and maintenance loans and graduate incomes. Though the link makes instinctual sense it is the facet of the current system that is most regressive – graduates that earn more pay less over a shorter period, graduates who earn a moderate amount pay more over a longer period.
A graduate tax would mean those who have benefited most from higher education pay more – our current system stops taking a fair share of these benefits earlier, putting more pressure on those who earn less. We also have the option of using tax credits or exemptions to support nurses, teachers, social workers and other low paid graduate public sector roles. Or we could pay them what they are worth – that works too.
It would also end the issue that sees graduates from a more advantaged background paying less back than their peers from less advantaged backgrounds working in the same role for the same pay. And it makes the idea of a series of strategic and future-focused decisions about the shape, place, and coverage of the sector possible again.
The other argument for the current system is that hypothecated taxes tend to disappear into general spending – offering the government of the day the chance to lower higher education spending. It would be a foolish government that did not want to invest in the future workforce and reap the wider cultural benefits of higher education – but we’ve had our fair share of foolish governments and I don’t see this changing quickly.
There’s not an infallible fix for this – it would be possible to prominently publish the income from this tax and for the sector to reasonably expect that it would return to them, and it would be possible to put something into primary legislation to require that this happens. But bad governments are going to govern badly, although this is as applicable to changes to the current funding model too. And indeed to the genesis of the current model.