What would it cost? (a retrospective graduate tax)


I have been asked what a retrospective tax would cost. Here’s my very guestimated answer.

It would depend, partly, on what it was meant to cover but let’s assume for the moment it was to replace £3bn worth of cuts to HE. At the moment there are approximately 8.6m income tax-paying graduates in the UK workforce, or about a third. So the cost to them, on average, would be about £350 a year in additional income tax, or £6.72 a week, or less than a 2-2.5p increase in the basic rate of income tax for graduates.

It is a price I’d certainly be happy to pay, and as most of those being asked to pay it will have (a) benefitted from the system in the past and (b) in the majority of cases will have children and even grand-children who would benefit from it now, I suspect this is one tax increase that might find unexpected support.

And of course a retrospective Graduate Tax has one big advantage over every alternative – the administrative costs would be negligible because it would simply form part of the tax coding system.

Before anyone starts yelling, yes I know those figures include Scotland and there’s lots of other details to work out. But this at least give some idea of just how easy and how un-painful a retrospective graduate tax would be.

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About Prof. Colin Talbot

Professor of Government (Emeritus). Universities of Cambridge and Manchester, England.
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7 Responses to What would it cost? (a retrospective graduate tax)

  1. Luis Enrique says:

    don’t these figures come close the student loan repayments under £9000 fees? people don’t appear to be happy to pay that.

    (personally, I’d favour just putting 2p on mid-band income tax for everyone – even simpler)

  2. Colin Talbot says:

    The big difference is the LOAN. I was ‘lucky’ in that my mother was sufficiently poor that when I went to university in the early 70s I got a full maintenance grant and of course my fees were paid. But she probably wasn’t quite poor enough, on today’s rules, for me to have escaped having to take out a maintenance loans and pay fees. I, as a working class kid, simply would not have gone to University if I’d been faced with such a huge debt, however easy the repayment terms.

    I think it’s reasonable to say the HE benefits society as a whole and the individual, so the burden of paying for it should be shared between the general taxpayer and the individual. But we are not America, the culture here is very different, and a lot of low and middle income kids would be put off if this sharing is done via huge loans.

  3. David says:

    “I, as a working class kid, simply would not have gone to University if I’d been faced with such a huge debt, however easy the repayment terms.”

    This may be true, but the point is that University would have been a perfectly viable choice.

    Saying “LOAN” in capital letters does not change the facts of the repayment system, which works exactly like a tax. The difference is that it is somewhat higher than a retrospective graduate tax might be, at 9% on earnings above £15,000 pa (or £21,000 if the new system gets through).

    No-one today is poor enough to escape taking out Maitenance loans and paying fees. If people choose to take some years out between school and University and save, it can be done that way, of course. But “being faced with debt” does not make University unaffordable to anyone. You may disagree with the system, but the fact is that University cannot, on its own terms, bankrupt anyone, because of the conditions upon the debt.

  4. igb says:

    Having been referred to this proposal by a professor in my department, I think I should set why I think it is unworkable and undesirable.

    Firstly, it’s regressive. You propose that it should be “part of the tax coding system.” Taxes collected through tax codes fall most heavily on those with lower incomes, as they amount to 20% of the code change for basic rate tax payers, 40% for those at or just below (as the code change lowers it) the threshold for higher rate tax. This is fixed by altering the marginal rate, but having worked in the innards of payroll processing I can tell you that many software systems used for payroll would not be able to code with marginal rates that differ between two people with similar circumstances.

    Secondly, it is complex and full of anomalies. Does your definition of “graduate” include three year courses that were not degrees by later became so without changes to syllabus of admission requirements (pre-93 Diplomas in Physiotherapy and pre-80 Cert Eds)? What about qualifications that were not degrees but were retrospectively converted into them (Diplomas from Colleges of Advanced Technology that because universities post-Robbins)? Do you intend to tax people who obtained degrees from the OU in later life (“don’t try to better yourselves, proles, because we’ll tax you on it later”)? Will you differentiate between people who received maintenance grants and those that didn’t? Why are three year courses suddenly the special object of taxation, and not HNDs?

    Thirdly, it will discourage people from applying to university. Your figure of 8.6m people contains a disproportionate number of people who have already paid tuition fees, as takeup rose substantially in the years following their introduction. Charging people for something they have already paid for, with the implication that those taking out student loans today could similarly be taxed even though they have already repaid their loans, is clearly chilling. More generally, the concept of a retrospective tax on past, unchangeable behaviour is entirely new in UK policy, and falls into the concept of retrospective legislation that parliaments have been extremely, and rightly, unwilling to enact.

    Fourthly, it is a pay cut across entire swathes of the public services. It’s a cut for all teachers bar some older, largely primary, ones with two (or possibly three, depending on how you slice it) Cert Eds. It’s a cut for all social workers, again possibly bar some older ones. Every member of university academic staff. Most (again, some older ones may be exempt) para-medical staff like physios, lab technicians and nutritionists. It’ll also hit many younger nurses (my, how good the government will look, making all nursing qualifications into degrees to bolster the number “going to university”, and then whacking them with a tax for a degree many of them didn’t ask for). All doctors. Most career civil servants. As the tax is regressive, this will fall more heavily on junior staff than the more senior, too, disproportionately women. If you want to cut the pay of large numbers of (relatively poorly) paid public sector staff to fund education, why not say so? And from a recruitment and retention perspective, discouraging women from remaining working part time whilst they have children (because regressive taxes fall particularly hard on part-timers) is incredibly unwise: once they stop teaching/nursing/social-work, they are far less likely to return to it. It’s hard to see the public-sector unions, even moderate ones, supporting that.

    Fifthly, it is far from simple to collect. People paying standard rate taxation don’t fill in tax returns, and don’t have to declare their personal circumstances since the abolition of married man’s allowance and child tax allowances. Tax Credits are widely seen as a public policy quagmire, as they introduce a massive layer of complexity to a simple to collect tax (PAYE). However, tax credits are at least voluntary: if you don’t claim them, the state saves money. In this case, every employer would have to conduct a return of which of their staff had degrees, check those qualifications against a list and alter tax codes accordingly. It’s hard to see the CBI being happy about that.

    Sixthly, it entrenches advantage. I’ve saved over the years — I may be a humble post-grad now, not I spent twenty-five years in industry — and in collaboration with my parents, 1950s graduates from the golden generation of defined benefit pensions, I am in a position to put my children through university debt-free. If a UK degree attracts an elevated rate of taxation for life, well, there are plenty of universities elsewhere. My children could go to fine universities elsewhere and avoid paying (as they may anyway, as it happens, as EU and even many US universities are cheaper and if I intend to pay their fees, why pay more?)

    Seventhly, good luck figuring out how to make this work with regard to Scottish and Welsh devolved powers. Tax rates aren’t a devolved matter, but it’s unlikely that the SNP would wear this proposal even if they were. Someone born in Scotland 20 February 1951, attended Scottish universities, takes job in 10 Downing Street: liable or not liable? What about someone who was born in England in the 1950s, attended an English university, but lives in Scotland? As university funding _is_ a devolved matter, HEFCE’s remit only running for E for England, do you propose to remit money taken from taxation on Scottish graduates working in England to Scotland, or what?

    Eighthly, university fees and grants weren’t historically paid by central government, they were paid by local authorities from their education budget, and many degree-granting institutions were funded in capital terms by local authorities (most polytechnics, for example). If we’re imposing retrospective taxes to repay past benefits, shouldn’t they go to the bodies that actually provided the benefit in the first place?

    Ninthly, this is a hypothecated tax. Enough, I think, said.

    Whatever the moral and ethical merits of this scheme, it is simply not politically deliverable, for any and all of the reasons above. One of the things that caused my rupture with the Labour Party was the endless succession of policy proposals in opposition that fell to pieces as soon as you looked at them with a calculator in your hand. One activist in my local constituency proposed, in the early 1990s, that Labour’s manifesto should include a commitment to a universal pension paid at the average household income. All one can think is that it’s an impossible promise, and an impossible promise that the electorate would see through. How does the rest go? “You start with far-fetched resolutions. They are then pickled into a rigid dogma, a code, and you go through the years sticking to that, outdated, misplaced, irrelevant to the real needs, and you end in the grotesque chaos of a Labour council — a Labour council — hiring taxis to scuttle round a city handing out redundancy notices to its own workers . . .”

    If you want to fund education from taxation, as I do — because the benefits come to all of us, just as being a doctor benfits society as much as the individual — then the answer is to fund it from general taxation. From income tax, corporation tax, capital gains tax, inheritance tax: from general taxation. The cost should not fall onto individuals. Quite why you say that people would be deterred from education by debt, but not by a lifetime commitment to pay an elevated rate of income tax I can’t understand; as “David” says, the fact that student debt is a LOAN or instead recouped as a TAX is irrelevant year-on-year, except arrangements in recent years provide for a progressive form of repayment which your proposal would replace with a regressive system.

  5. igb says:

    Mangled while typing: “were not degrees by later became so without changes to syllabus of admission requirements ” is, of course, “were not degrees but later became so without changes to syllabus or admission requirements ”.

  6. Gareth Mostyn says:

    IGB, you are getting over excited. Yes, of Colin Talbots suggestions above, a 2 pence rise in the rate of income tax would be the better system. So go with that option rather than rejecting the whole idea. Yes there would be some fine lines drawn between what is a degree and what is not. But you could charge everyone the tax and then offer all those who have not been on one of the listed types of education at the listed points in time the opportunity to self certificate out, with a hefty fine for lying. You can remove the nurses or those who have already paid tuition fees if you want to. I agree with you that on balance I prefer general taxation but lets look positvely at some of the alternatives that are better than what this government is proposing. To do that you need to look at some of the solutions to the problems not just the problems. I want to do something to support these students and I do not think you are helping.

    And Colin Talbot, where is the facility on your website that allows people to vote for the option and mark that they like it on facebook to get some interest in the idea and to discuss how to make it work. Is this, as igb suggests, just an ivory tower discussion to be enjoyed at dinner parties, or is it a real attempt to change ideas and opinions and have a real influence on outcomes. If the latter, then have a web site where you develop and hone the idea in response to comments. Get people to vote for it and pass on the links to their friends. Support for alternatives will help undermine this unpleasant government initiative. Don’t let the negativity of igb types get in the way.

  7. Colin Talbot says:

    Gareth, thanks for the suggestions. The lack of facilities you point to isn’t due to any unwillingness on my part, more my techno-ignorance, and a general time-poverty problem, I’m afraid. but I’ll try….

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