Higher Education: Graduate now, pay later: As hard-pressed universities contemplate tuition fees, Nicholas O'Shaughnessy and Nigel Allington propose an alternative

THE GRADUATE tax is firmly back on the higher education agenda, since a straw poll revealed overwhelming support among vice-chancellors at a recent Higher Education Funding Council meeting. Failing that, some universities will introduce fees. John Ashworth, director of the London School of Economics, has suggested that his institution might charge top-up tuition fees of pounds 500 per course, rising to pounds 1,000 a year later, in order to raise additional revenue. He has broken the taboo on fees, but this route is nefarious, since it takes us back to pre-war Oxbridge, which was the exclusive redoubt of the upper middle classes. The change of heart, however, is easily explained.

In return for rapid expansion, universities have been rewarded with new cuts as public expenditure surges in a recession. Tuition income for arts subjects has been cut by 30 per cent, and other subjects have been frozen, in an attempt to restrain expansion in the arts and direct students towards science and engineering subjects where there are perceived to be shortages. There comes a point, however, where good management ends and parsimony begins: the scope for efficiency gains is not limitless, and many in universities believe that such a point was reached some time ago.

The present resource famine in higher education impinges heavily on academics. Research funding is also under pressure: witness the rejection recently of a research proposal from Sir Geoffrey Wilkinson, the Nobel prize-winning chemist.

It would be foolish, however, to expect government to fund the expansion in higher education (up from 90,000 in the Sixties to 800,000 in 1993), since there are stronger political constituencies making competing demands. The state has a greater need to subsidise training, where Britain lags behind its competitors. The necessity now is for a rational evaluation of UK priorities, with savings directed to enhancing competitive advantage: until recently, spending on higher education was rivalled by the state subsidy for executive cars.

Fashionable management theory asks what is the core competence of an organisation, and seeks to build on that, rather than slavishly to imitate other companies. The lesson for the country is that we can never be a gimcrack Japan: we must build on our strengths, of which our universities are part, if we can find better mechanisms for them to feed into research and development.

Funding arrangements therefore need to be changed radically to make universities less dependent on the state by creating a direct consumer-issued stream of finance. Our proposals would permit a populist system, without destroying the ethos and quality of higher education, because they will enable substantial expansion to be properly financed.

The answer does not lie in burdening parents further, nor in creating monstrous student indebtness, but to subtract from the future high earnings of the student. When described as a tax this is offensive to Tories. It is not a tax, but a charge for substantial services rendered by the state.

The solution is to adopt a user-payment scheme, justifiable on the grounds that the benefits from university education are private as well as public. There should be some kind of personal payment, while seeking to avoid the negative clutter associated with the idea of debt. Graduates in general employment have better jobs, suffer less unemployment, have higher average incomes, personal fulfilment and enhanced promotion prospects.

The opposing argument, often put, is that graduates already pay higher taxes and that the benefits of a degree have been overestimated. Graduates contribute through higher taxes to total state expenditure, but the university component is a tiny fraction of government expenditure ( pounds 3bn out of pounds 280bn), and therefore their complaint that they already pay for higher education is nullified.

The scheme we advocate is derived from the successful Australian Higher Education Contribution Scheme, now in its fourth year, but our proposal avoids the worst features of that and can incorporate student maintenance, which the Australian scheme does not. Under our Higher Education User Payment Scheme, universities would receive direct funding from the government in the form of a voucher for each student admitted. The voucher would not necessarily cover all tuition costs and the student as consumer would pay through the tax system, but without interest payments. Universities would set full- cost tuition fees, reflecting not only the cost of separate courses, but also premiums to cover the prestige, teaching and research profiles of the particular university. Research costs not covered by tuition fees would continue to be met by the research councils, the Government, industry and charities.

Vouchers would be higher for more expensive courses and these deemed socially or economically important (school teachers or specialist linguists, for example). The cost of student maintenance could be added, making the average cost for a three- year honours degree pounds 21,600 - a small investment for the individual but, collectively, a considerable cost for the public purse.

Repayments would not exceed pounds 1,500 a year (the most costly scenario). They would start five years after graduation and even then be payable only when personal income rises above average earnings (about pounds 12,500 a year at present, which is also the average graduate starting salary). Voluntarily up-front payments from whatever source (student, parent, employer, etc.) would attract a substantial discount on costs.

At present tax-payers sustain nearly all the costs of higher education; block grant, fees and maintenance. They receive few of the subsequent benefits, as most do not participate in higher education. Under present funding arrangements, the universities' future is mediocre indeed. The myopic neglect of the only viable alternative source of funding, the future wealth of students, has destined the universities to quiet but inexorable decline.

All the international models of universities are flawed. In the United States the well-being of the middle class has been sabotaged by uncontrolled medical and higher education costs (Harvard fees, for example, are dollars 104,000, or pounds 68,874). In Japan, private higher education (70 per cent of universities are private) puts pressure on parents and ensures that the salaryman's strenuous labours will receive limited reward when 30 per cent of income goes on education.

In Europe, the slow-burning mixture of work and study ensures that the least-intelligent labour is performed by the most intelligent, with a consequent postponement of tax yields until graduates start serious work in their late twenties or even early thirties.

Yet all of these bogus models are those that the British have, at various times, been exhorted to emulate. The distinction of our home-grown alternative is that it achieves what their systems do without the ridiculous costs.

Our user payment (not a tax) establishes a more equitable balance of responsibility between funder and consumer. The benefits of universities to most of the population are too abstract to justify their bearing the whole funding burden.

The authors lecture at Cardiff University and the Judge Institute of Management, Cambridge.

(Photograph omitted)