Student loans are the unfair graduate tax
Written by Editor Monday, 28 March 2011 11:24
he Conservative-led coalition government pushed a decision through the House of Commons on the 9th of December 2010 to permit universities to raise the current annual cost of tuition from £3290 to £9000.
Vince Cable, the Secretary of State for Business, the department within which responsibility for Higher Education falls, argued that his proposals were “fair” and that they were fairer for students and taxpayers than an “unworkable” graduate tax.
The government argued that the rise in tuition fees was unavoidable: the deficit meant that the taxpayer could no longer afford to fund universities directly and that student contributions would have to rise. The truth of the matter is that the change is part of an ideologically driven agenda to amend funding for the welfare state by moving away from progressive taxation to flat rate income taxes.
A generalised change that George Osborne, the Conservative Chancellor of the Exchequer, first called for back in 2005 in a speech to the a right-wing think tank, the Social Market Foundation.
The government defends its proposals by saying that its funding mechanism is more progressive than the one it inherited from the previous Labour government.
This is misleading. Technically, “progressive” charges are defined as ones where the proportion which you pay increases as your income rises. Income tax is a progressive tax since as you earn greater amounts of income then the rate rises. Charges which are imposed at a flat rate are defined as “regressive”. Value added tax (“VAT”) is a regressive tax, since regardless of how much you earn, you pay the same rate of tax for any purchase to which VAT applies.
Independent analysis of the proposals by the Institute of Fiscal Studies supports the government’s assertion that its loan scheme is marginally more progressive for the lowest earners than the one it inherited. This is because the charge on loans provided under the last Labour government was also regressive.
However, the key difference is that the bulk of tuition costs were met by the general taxpayer through income tax. So, the charges levied by the Labour government were regressive for a sum of approximately £9000 over the three years of a typical degree, whereas the Coalition government’s charges are regressive for a sum approximating £27,000.
The government argues that a graduate tax is unfair or unworkable. The Prime Minister, David Cameron, has argued “I don’t believe it is right that we ask those on low incomes to pay taxes to prop up an unaffordable university funding system that they are not benefitting from directly”. There is some merit in this point.
However, it is not an argument against a graduate tax. The latter could be applied in two ways to make it fair. It could be restricted to graduates but apply to all of them, whenever they graduated. All of the graduates sitting around the Cabinet table were fully subsidised when they went to university.
According to polling conducted for the National Union of Students, most people consider that it would be fair if all graduates should pay extra tax to finance the system that allowed them to get where they are today. If, inexplicably, this is off the table, then a funding system which applies only to future graduates could still be made more progressive. It is irrelevant whether it is called a loan or a graduate Tax. It could be done by charging graduates higher interest rates if they earn more.
The government have claimed that a graduate tax is unworkable because graduates might move abroad to avoid paying it. If this is a genuine problem, it applies with equal force to a Loan. It is not a basis for choosing between the two.
The government’s broader argument that the university funding system is unaffordable financed by income tax, but affordable when paid by loans is clearly nonsense. The level of expenditure is either affordable for a country or it is not affordable. The design of the charging system is not a decision about the amount which can be afforded by a country, but instead about who in a country pays for something.
Income tax is met by the broadest group of people, a graduate tax by a less numerous group (if charged to all graduates) and loans by the least numerous feasible group. As a consequence of being fewer in number, the latter individually face higher charges. The estimate going forward is that most graduates will face a permanent additional charge on their incomes for thirty years.
The government has opted to charge the narrowest group and it has opted that the charge should be set on a regressive basis. The reason the Conservatives have favoured this is that it suits their ideological and material preferences.
It is, on the other hand, astonishing that the Liberal Democrats have gone along with this.
The famous expression says that the route to hell is paved with good intentions. In this case, from a progressive perspective, one might say that it is specifically paved with the shreds of the Minister for Business, Vince Cable’s, credibility and that of his party, the Liberal Democrats.
“We disagree with Nick” – the no vote’s winning slogan?
he phrase “I agree with Nick”, took on a life of its own during the 2010 election. It was repeatedly used by Gordon Brown and David Cameron in the first leaders’ TV election debate. It became a popular slogan and the Liberal Democratic Party even printed it on t-shirts for its activists.
Less than a year later, opponents of voting reform are hoping to use Nick Clegg’s support for the Alternative Vote (AV) as the main reason why the public should oppose it when they vote in a referendum on electoral reform on May 5th 2011. It reflects a dramatic turnaround in the popularity of the Liberal Democrats and their leader – whose opinion ratings have fallen as low as 8% in recent months.
The reason a referendum will take place on May 5th to decide between these two systems is because it was the key demand of the Liberal Democrats in exchange for forming a coalition government with the Conservative Party.
Essex University’s British Election Study found that if the previous general election had been fought using this system then the overall result would have been 25 more Liberal Democrat MPs, 15 less Conservative MPs and 10 less Labour MPs elected. The Liberal Democrat leader says he hopes that it will be a “step” towards a fully proportionate system in the future which would see even more Liberal Democrat MPs elected.
Under a proportionate system, the number of MPs each party had elected would reflect the total number of votes received throughout the country. The current first past the post system based on individual constituencies tends to favour parties like the Conservative and Labour parties with concentrations of votes in particular regions and penalise parties like the Liberal Democrats with a more even geographic spread of support.
At the last election, the national vote shares of three main parties were 36% (Conservative), 29% (Labour), and 23% (Liberal Democrat), for which they received the following proportion of elected MPs: 47% (Conservatives), 39% (Labour) and 9% Liberal Democrats.
The No to AV campaign would like to retain Britain’s existing “first past the post” voting system for electing politicians. Under this system, each voter has one vote and the politician that receives the largest number of these individual votes in each constituency is elected.
Under the proposed change to AV, voters would get to rank the politicians standing in a constituency by order of preference. If no politician gets more than 50% of vote and is automatically elected, then the least popular politicians are “eliminated” in ascending order and the second preferences of the people who voted for them are re-allocated.
This elimination and reallocation process goes on until a single politician has more than 50% of the votes. The No to AV campaign is primarily staffed by Conservative activists, although it has some prominent Labour politicians taking part.
The Conservative Party, Nick Clegg’s coalition partner, is campaigning for a no vote. The Yes to Fairer Votes campaign is mostly made up of Liberal Democrat activists and is of course backed by this Party, although some even more prominent Labour politicians, including Labour’s leader, Ed Miliband, are backing it. The Labour Party is allowing its politicians a free vote on this issue.
The No to AV campaign argue on their web-site that AV is a “politician’s fix” “...taking power away from voters and allowing the Liberal Democrats to choose the government after each election. The only vote that really counts under AV is Nick Clegg’s”. It would be fair to say that the reform would make coalition governments involving the Liberal Democrats a much more likely outcome of General Elections. In addition, they also emphasise that AV is complicated and difficult to understand. This argument is patronising, there is no reason to believe that British voters are less capable than voters in other countries, like Australia, which have AV systems. They also say the existing system is fair, creates strong governments and excludes extremist parties like the British National Party (BNP).
The Yes to Fairer Votes argue that a reformed system would be fairer because it means that voters get more say: voters could vote for their true preference first and would not be forced to only vote for one of the two main parties. They also say that MPs of all parties would have to work harder because they would have to get more than 50% of the voters to support them to be sure of being elected. In addition, they argue, the number of safe seats where a Conservative or Labour candidate has a “job for life”, regardless of performance, would be reduced.
They also say that the level of support for extremist parties such as the BNP means that they would not get any MPs elected under this system either. Although the Yes campaign is running on an argument of “fairness”, it should be noted that the only party that will realistically benefit are the Liberal Democrats.
The pro- and anti- reform campaigns have just begun. At this stage it is too early to say who might win. The pollsters also disagree about the popularity of the two opposing positions. An ICM poll for the Electoral Reform Society in November 2010 found that 35% would vote for change and 22% would vote to keep the existing system. A You Gov poll conducted at the same time recorded that while 35% favoured change, 41% opposed it. Peter Kellner of You Gov thinks that the difference between the results is probably down to the phrasing of the polling question. You Gov’s question mentions that the Conservative-Liberal Democrat Government is in favour of change, the ICM question did not.
What these polling results do suggest is that the more closely the referendum is associated with the Coalition parties, the more likely the No Vote will succeed and the Yes vote campaign will fail. This is why the No campaign will try and turn the vote into a referendum on the popularity of Nick Clegg and the Liberal Democrats rather than the technicalities of the voting system.
By Andrew Tarrant
