Vince
July 16th, 2010 Posted in Economics, Liberal Democrats by Andy Mayer
Continuing the theme of serial delusion, the big debate on university finance within the Liberal Democrats now appears to be between those who want to bleed everyone and those who just want to bleed success. This against the status quo of making people who use a service, and can afford it, pay for it.
I wrote last month criticising the uncapped graduate tax proposal in detail. It’s a daft scheme. Who in their right mind would volunteer to pay a potentially unlimited liability for a degree? The long-term consequences would be to incentivise mediocrity.
Like the mansion tax the sage of Twickenham has proposed another complex tax evasion plan, and one, like the mansion tax that we hope stands no chance of becoming policy.
July 16th, 2010 at 7:30 am
It strikes me that a graduate tax, if designed properly, is very similar to an equity investment in a startup company. Venture capital could be invested on a debt basis rather than an equity basis, but it’s a high-risk area, so the interest rate would need to be pretty high, and that debt would be crippling for the businesses.
Students are quite similar to startups; some will earn a lot of money, many will never pay off their debts – bear in mind that a large fraction will drop out, and that another large fraction will take along time to get into work, and probably never get a job that makes any more than the national median.
On that basis, you either need a taxpayer-funded guarantee on the loans, ie the taxpayer pays off the loans for those who don’t earn enough (the present system), or you need to increase the interest rate to represent the risk properly (which will result in a lot of bankruptcies, and I’m not convinced that any rate will be high enough), or you have to do the investment through equity, so the successes cross-subsidise the losers.
Students should be given the option of paying their own way without accepting the investment – but that means paying the foreign-student level fees without getting any government assistance, so having to raise the money through commercial debt. You won’t find many commercial investors much inclined to take that debt.
July 16th, 2010 at 9:49 am
All start-ups though have a choice as to whose investment to accept and on what terms, earn-out periods are usually in the region of 3-10 years, and there is usually a good relationship between the initial investment and future success.
A graduate tax is a compulsary share scheme over 20 years where there is highly variable correlation between the investment and earning potential. No business who could afford the investment themselves would take the terms. If it’s a venture captial model it’s dreadful.
I take your point on the foreign student comparsion but that is surely not a fair option. With the graduate tax the government is offering to pay a contribution to the cost of tuition. Your parents taxes or your future taxes have presumably already covered the cost of the differential.
The graduate tax then pays back that contribution, other costs are covered by general tax. You should in a fair system then have an option to pay up front or seek an alternative loan arrangement rather than be forced to take the government’s terms. Those are both possible options with a fair capped graduate tax or loan repayment mechanism.
What Cable is proposing instead is a redistribution mechanism. Forcing a small number of highly successful graduates to subsidise everyone else. I see no logic or fairness in that, and the economic outcome will be very clear, talent will leave, elite English universities will decline.
July 16th, 2010 at 4:37 pm
Surely the answer is to take this out of high rate tax? Most high-rate earners at the lower end will have degrees anyway, and the high-end non-degree holders will be celebrities who can afford it.
At least this way, the Ministers and MPs who vote for this will get clobbered too, which, since they got their degrees on the cheap/subsidised/free, will (a) be fairer, and (b) make them think twice about it.
July 16th, 2010 at 6:38 pm
The massive expansion in higher education has not resulted in a correseppondingly large increase in the number of scientists, engineers and mathematicians but a huge increase in people with degrees in arts and humanities. China and India and even the Phillipines are producing more engineers than he UK.
Take 75% of the money spent on arts and humanities post 16 years of age and spend it on science, engineerng mathematics and modern languages. Many of those graduating in arts and humanities degrees from ex polys, colleges of higher education and many non- Russell Group universities, over the last 5-10 years, are unlikley to ever earn the salaries of those with degreed who graduated 15 or more years ago. Many arts and humanties degrees are sub-prime. Yes borrow to read law at UCL, economics at the LSE, engineering at a Russell Group university; but to aquire debts of £20-£30K after obtaining a humanities degree from many new universities is a waste of money and time. It would be much better joining a bank, law or accountancy firm or any company at 16 or 18, completing work related training and studying at evening school.
If we wish to reduce social inequality then we must ensure that every passes GSCE Maths and English by the time they leave school. Tesco and M and S have said they have to offer remedial English and Maths classes to some of their employees. After all, Shakespear, Austen, Bronte, Dickens, Orwell, Kipling, Churchill left school close to 16 but they had leant how to write and understand English.
The massive increase in post 16 and especially post 18 arts and humanities education, especially at the institutes with poor academic records, has mostly benefitted the middle class employees, not the students. In addition, many landlords, club and pub owners has made considerable amounts of money from the student population.
RJ Mitchell- Spitfire; Chadwick Lancaster Bomber; B Wallis – R100 AIiframe , Wellington ,Bouncing bomb and Tallboy, and swept wing technology all left school at 16, were apprenticed and studied at night school.
Dyson and Sykes( formerly of IC) are some of the few to state the importance of spending mony on engineering and academic excellence.
The reality is that politicians are more concerned about the unions and those employed in education than the students and employers.