The Case for an All-Age Graduate Tax in England

Following the large increase in Higher Education (HE) tuition fees in 2012, together with later variations in the terms of repayment and the interest rate to be paid, new graduates are now leaving university with very heavy debt repayment obligations. These debts are both inequitable and difficult to sustain. Inequitable, because current and future generations of students are expected to pay for HE opportunities which previous generations of graduates received for free. Difficult to sustain, because three quarters of current student borrowers are not expected to be able to repay their loans in full before their outstanding debt is written off after 30 years, as provided for in the current loan system. The full extent of these underpayments is hard to predict. Hence, the long-term fiscal foundations of the income-contingent loan system are both uncertain and weak. This paper sets out a proposal for an all-age graduate tax which would have three key advantages compared to the present HE loan system. First, in the interests of intergenerational equity, this tax would be applied to all existing generations of graduates, not just to recent graduates who are expected to meet the onerous repayment obligations attached to nstudent loans. Second, graduate tax payments made by those earning over £21 000 would been lower at all levels of earnings, than are current annual loan repayments, and thus less burdensome on graduates. Third, an all-age graduate tax would contribute to government tax revenue from the first year that it was introduced, bringing substantially more revenue than the current level of loan repayments made to the Student Loans Company. It would thus provide a more secure fiscal foundation to HE finances than can be achieved through the present loan system. Furthermore, an all-age graduate tax could also provide a means of tackling the problem of accumulated loan debt incurred by recent graduates.