Graduate Tax Would Cause an Exodus

September 6, 2010 Taxation in UK

Richard Lambert, CBI Public Services summit, June 2009If a graduate tax were to be instated in the UK, as previously suggested by the country’s Business Secretary, students would have little incentive to stay and contribute to the economy upon completion of their degrees, ultimately offsetting any possible benefits the system might have.

The Confederation of British Industry (CBI) has come out in protest of possible changes to the country’s tertiary education system, claiming that they are not in the best interest of students, institutions, or the economy. The view was explained by Richard Lambert, director-general of the CBI, on September 6th in a public statement made in response to the proposal of a national graduate tax brought forward by Vince Cable, Business Secretary of the UK, in July.

Under the current system, the Government lends students funds to cover the cost of their degrees. Loan holders are then required to make regular pre-set payments when their annual income exceeds GBP 15 000. The repayment amount does not depend on income. Under Vince Cable’s proposal, universities would be paid directly by the Government, but graduates would be charged an extra tax throughout their working career, levied directly on their earnings.

The CBI judged the proposed graduate tax on four primary criteria: fairness and practicality; free at the point of delivery for students; support and strengthening of education quality; and retaining the autonomy of institutions. The proposal was deemed to have had shortcomings on all points. Further, if instated, the tax will provide students will strong incentives to leave the UK upon completing their degree, to escape the new charge, burdening the Government both with a monetary shortfall and an economy lacking in newly-trained workers. The problem would be compounded by the UK’s top-earner personal tax rate of 50 percent, which is already regarded as a cause of high-earner emigration. As the graduate tax would be levied directly on income levels, it could also prove to be a strong disincentive to active career progression. According to Richard Lambert the indirect payment scheme would also “… break the link between the student and their chosen university, and distance graduate contributions from the education they receive. That would weaken the incentives for universities to sharpen up their act.”

Photo by The CBI