Vince Cable announces 'graduate tax' plan

Graduates will have to pay more for their university education in the future, Vince Cable said today, under sweeping reforms being considered by the Government.

Higher graduate contributions are the "only possible way forward" to make the higher education system fairer and sustainable for the future, the Business Secretary said.

Mr Cable was setting out a more "progressive" system of funding that includes proposals for a so-called "graduate tax".

And he admitted that as the university sector becomes more competitive, it is inevitable that some institutions will struggle and should be left to fail.

In his first speech on higher education, Mr Cable told a meeting at London South Bank University: "The reality is we are going to have to develop a model in which the balance of funding for higher education in England combines less public support and more private investment from those who benefit most from it."

Students "almost certainly will have to pay more", he said.

Tuition fees currently stand at £3,225 per year. Under proposals for a new type of tax, graduates would not take out loans to pay tuition fees, but would pay premiums depending on their earnings once they are working.

Speaking after the speech, Mr Cable acknowledged that some graduates are likely to end up paying more money back than they would do under the current fee rate.

"I don't want to see the quality of universities cut, we don't want to narrow the opportunities for young people to go to university, so therefore the only possible way forward is by having a bigger graduate contribution. The issue then is how you do it fairly."

He added: "It's a logical consequence of what we've said that yes, if there's less Government money, then the private contribution, through the graduate contribution, is going to be bigger obviously."

Mr Cable said he has asked former BP boss Lord Browne, who is leading a review into student funding, to look into proposals for a graduate tax. The review is due to report to Government in the autumn.

Mr Cable told this morning's meeting: "It surely can't be right that a teacher or care worker or research scientist is expected to pay the same graduate contribution as a top commercial lawyer or surgeon or City analyst whose graduate premium is so much bigger."

He added: "I am interested in looking at the feasibility of changing the system of financing student tuition so that the repayment mechanism is variable graduate contributions tied to earnings."

Mr Cable did not rule out the possibility that graduates from different universities could pay different amounts.

In response to a question about whether the graduate tax could vary between universities, he said: "Well it could, but when we use the phrase variable, we are talking about in relation to earnings, but of course it could vary, that part of the exercise Lord Browne's looking at."

"It could vary in all kinds of ways," he added.

And he said it was "unlikely" that graduates would be asked to make contributions for life.

"It's very unlikely that one would want to come up with a system that involved payment for life. We are looking to see what Lord Browne comes up with."

Addressing the issue of universities being left to fail, Mr Cable said: "We already know there are some that are struggling. We are going to have to devise a system in which some institutions can fail without damaging the students going through them."

He later added: "We are going to need a failure regime, because some universities will get into trouble, some already are, you can't just do it through a band-aid, there's got to be a proper regime for dealing with it. Mergers are one and there are others too.

"If you have a more open, competitive system this is going to happen, you can't just let it happen, you've got to have a system."

The University and College Union (UCU) said it still remained concerned about the future of university funding.

UCU general secretary Sally Hunt said: "Vince Cable's speech this morning will do little to convince students or their parents that university debt would not increase under plans for a graduate tax. Whether or not graduate debt goes up will be the key test for students and their parents around the fairness of the system.

"The Government must understand that it simply cannot rebrand student debt as a graduate tax, nor should it expect students to pick up the bill for its punitive cuts agenda."

Professor Steve Smith, president of vice-chancellors' group Universities UK, said reducing investment in higher education would be "economically self-defeating".

He said: "Universities UK shares the view that, since graduates benefit personally from their degrees, it is right that they make a direct contribution to the costs of study.

"Our submission to Lord Browne's review argued that the current tuition fee and loan system should more accurately be described as a 'graduate contribution'.

"We have also argued that the system could be made more progressive with reforms such as a real rate of interest, which would reduce the taxpayer subsidy for higher earners."

Libby Aston, director of University Alliance, said: "This is a welcome announcement from Government. An effectively implemented Graduate Contribution Scheme would address two fundamental weaknesses of the current system - reducing the cost to Government, freeing up money to invest in a higher number of students and replacing a complicated and poorly understood system that ensures that those even on the lowest incomes are able to study for a degree."

Paul Marshall, executive director of the 1994 Group of research intensive universities, said the Government's proposals showed a "bold and progressive vision".

But the million+ think tank said the tax should not be used as an excuse to cut student numbers.

Chairman Professor Les Ebdon, said: "A graduate tax may satisfy the left hand of the coalition and his proposals to introduce private providers may suit the right hand, but the real question is what happens to people of all ages who want to study at university if student numbers are cut?

"After this morning's speech, we still do not know how many students will be encouraged and funded by the coalition Government to study at university in future years or what the Government proposes to do about students who cannot get places in 2010."

Aaron Porter, president of the National Union of Students (NUS), said: "Vince Cable's support for the principle of a graduate tax is to be welcomed, as is his recognition that those who earn most after university should contribute more back as and when they do so.

"He is right to ask why, under the current unpopular and regressive top-up fee system, a care worker or teacher is expected to pay as much as a corporate lawyer or banker.

"The fair solution is to abolish tuition fees and ensure that graduate contributions are based on actual earnings in the real world, rather than stick prices in prospectuses, which are based on guesswork."

The Russell Group of leading universities, including Oxford and Cambridge, said they were against the idea of a graduate tax.

Director-general Dr Wendy Piatt said: "As the Business Secretary notes, graduates benefit significantly from their university education and so should make a greater contribution to the costs of their degrees.

"Graduates, employers and society all benefit from higher education, but taxpayers currently foot the lion's share of the bill. This is unsustainable.

"As Dr Cable suggested, the current system is very similar to a graduate tax, with no upfront payment and graduates only paying back a small fraction of their income when it reaches £15,000.

"In fact, the current system has all the positive features of a graduate tax without the downsides. We, therefore, do not agree that a pure graduate tax would be a better or a fairer system."

Shadow universities minister David Lammy said: "This a PR exercise from a man whose party have just completed the biggest U-turn in their history. At the last election, and for the last decade, the Liberal Democrats have opposed any graduate contribution as an article of faith. Now they are in favour of an unlimited graduate contribution paid over the course of a life-time.

"He's trying to pacify his party's MPs and membership and prepare the ground for them to accept higher fees."

Labour's higher education spokesman, David Lammy, said: "This is a non-announcement - Lord Browne was asked to look at the graduate tax when the review was set up.

"This a PR exercise from a man whose party have just completed the biggest U-turn in their history. At the last election, and for the last decade, the Liberal Democrats have opposed any graduate contribution as an article of faith. Now they are in favour of an unlimited graduate contribution paid over the course of a lifetime.

"He's trying to pacify his party's MPs and membership and prepare the ground for them to accept higher fees."

Responding to the suggestion that the Government could drop the target of 50% of young people going to university, Mr Lammy said: "This is inevitably going to mean fewer students from Britain's most deprived areas - yet another regressive measure instituted by this Government."