Liberal Vision

Ed Miliband’s mickey mouse degree plan

Labour leadership candidate Ed Miliband has joined his more improbable rival Ed Balls in backing a National Union of Students campaign that seeks to replace Labour’s tuition fees policy with a 20 year graduated graduate supplement on income tax.

If adopted and supported by a future Labour government this would be a highly retrograd step, moving Labour back towards the economics of punitive socialism and away from the economically liberal centre-ground.

Graduate taxes per se are not automatically an entirely awful proposal. If proportional and used as a mechanism of loan repayment, i.e. the actual cost of your tuition, there is little difference between them and the current loans for fees. In that context the argument is about which system is more efficient to administer, and how you maintain university funding in the transition between them. The difference is so slight that most people consider it not worth bothering.

That though is not the NUS/Miliband proposal. They instead would seek to impose a unknowable future cost of education on students based on future earnings. Their proposal is an attack on aspiration and success.

These graduate taxes create perverse incentives. If for example you are bright, ambitious and want to work in medicine you have a fair expectation you will be in the top quintile for wage earners very soon after university.

For you the grad tax is very likely to be much more expensive than fees and loans today. You would be wise then to consider study outside England. And that doesn’t just mean going to the US or mainland Europe. An England-only grad-tax would create incentives for a massive boom in elite education in Scotland, Wales, and Northern Ireland.

Labour’s scheme would incentivise a flight of self-assured, self-financed talent from English universities. That talent would then pay less for their education than late developers, or those with few resources up front. Hardly a progressive outcome, nor one good for the English economy and universities.

Worse, after university the scheme incentivises working abroad for twenty years out of the reach of the Revenue.

The NUS have entirely failed to model the impact of tax avoidance on their scheme.

It also begs the question why a bright American should be able to go to Oxford at cost via loans, then work in the UK without a tax bill whilst a native is denied that option. Surely this is discrimination?

But if you address that by making the scheme an option versus real cost loans, rates at the bottom would need to be raised or the scheme would fail to finance universities. Either way, unless the NUS are proposing to put a wall around England the price and market for university education will still exist, it will just be denied to the English.

At the other end of the scale, those with limited income expectations either through lack of ability or an ambition to work in low paid employment, are incentivised. Their demand for university education would go up.

Ed Miliband’splanwould then unwittingly create comparative advantage for the English university sector in providing mickey mouse degrees to marginal candidates.

And this the man that until recently was leading plans to encourage UK green-tech through building the science base. Good luck with that when the engineers are studying in Germany, and Cambridge is leading the world in homeopathy.

In the middle throughout the 20 year life of the ‘loan’ the bands in the tax would create small disincentives through high marginal tax rates. In recessions people might find themselves paying a higher graduate tax if their wages fall less than the average. It’s a crazily complex system, and this is before arguments about credit-based allocations of cost, employer contributions, and what counts as qualifying education as opposed to vocational training.

The advantage of fees, other than transparency and simplicity is that they encourage people to seriously consider the value of higher education.

It is precisely that cold market-discipline that enrages the left. They believe those capable of going to university are incapable of making a financial judgement no more complex than taking out a mortgage. Or rather the NUS think students shouldn’t have to think. Patronising, authoritarian and quaint, but somewhat self-defeating in an education system.

Their main worry, worth considering, is that some people who might be capable of benefiting from university choose not to due to their fear of debt. This is not an empty worry. Financial risk-aversion is more prevalent amonst thosefrom lower income backgrounds and at the margins can mean able children choose not to go to university.

But this is an education not system issue, and one that can be narrowly targeted at the small group in question for very little cost. We need to ensure people have the tools to make sensible investment decisions by the time they leave school, not continue to treat them like children throughout their lifetimes. Particularly not potential graduates.

Making an entire system, overwhelming used by those that can afford to pay free at the point of use to combat a marginal disincentive at the margins is ridiculous and wasteful. A criticism that applies equally to the Liberal Democrat’s current opposition to any fees or repayment at all.

The NUS has always been a clique of trainee Labour politicians unrepresentative of either student or public opinion. If this is the kind of interest group Ed Miliband feels will help win him the Leadership of the Labour Party you must wonder just how far left they have gone and will continue to drift during this Parliament. It can only bode well for the longevity of the Coalition.