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Tuition fees are a ticking time bomb

Sir Vince Cable
June 28, 2023

As someone caught in a previous student tuition fee explosion, I am more conscious than most of the ticking sound warning of a new blast soon. I suspect it is timed to detonate shortly after a change of government probably this time next year.

The warning signs are there. The £9000 maximum cap on undergraduate tuition fees which I introduced 12 years ago no longer covers the cost of most courses at most universities thanks to inflation. A lot of universities are in financial trouble. In addition, angry lecturers have been striking for months for better pay and conditions. 

Yet The Home Secretary is doing her best to keep out overseas students who are a lucrative, alternative, source of income. The government itself faces severe financial constraints and is not able to provide more funding; nor is the Labour opposition committing itself to any more public spending than a few high-profile priorities of which this is not one.

Welcome to my world; or rather the world I occupied in 2010. The situation was made much worse for my party by a misguided pledge before the election not to raise fees and, indeed, to phase them out. The pledge was undeliverable in a context of financial crisis in the government budget and university budgets. We cast around desperately for a way out but there was none.

The alternatives were worse. We could hardly have taken money from schools – an absolute no-no – or FE colleges which were already being badly cut. We could have cut student numbers, barring qualified students from higher education. These damaging choices have been made in Scotland where the nationalist government has ducked raising fees. 

The coalition government tried to describe the fee increase as a graduate tax (which it is in reality; there are no upfront fees and payment is by graduates at 9p in the pound once their income passed a threshold). But no one was persuaded that it was other than fees creating a debt. My party suffered terrible political damage and my party leader was burnt in effigy.

One would have thought the Labour Party would have gone to great lengths to avoid repeating this history. But magical thinking and a Corbynite legacy of hostility to fees seem to have prevailed. Mr Starmer has committed himself to reopen this can of worms and to ‘abolish’ fees replacing them with a ‘graduate tax’. I fear he may be treading the same path as I did. I spent months with a seconded team of Treasury high-fliers trying to convert ‘fees’ into a ‘graduate tax’ but their collective brain=power couldn’t crack the problem.

It couldn’t be done. It isn’t possible to introduce a tax on past graduates since, even if such a retrospective tax were acceptable, there is no data base to apply it. A graduate tax on new graduates, furthermore, would go to the Treasury, not to universities, requiring a constant battle over the funding formula: who gets the money and when. Crucially, university courses vary greatly in length and substance, but a tax would be uniform. My grandson for example is just completing a very good, distance learning degree in data science for half fees. Other students pay double to be on campus. Some universities offer intensive but cheap two-year degrees, others four-year courses. What is the tax rate for all these different university experiences?

The uncomfortable reality is that the next Secretary of State will have to raise fees again without the cosmetic make-over of a ‘graduate tax’, as I did. I hope he or she has body armour. It would be better instead to learn from the past and that includes accepting that the system of fees generally works well. For most of the last decade universities have been well funded.

They have been able expand the numbers of domestic students who, contrary to the doom-laden predictions, were not put off going into higher education by student debt. The number and proportion of young people from disadvantaged backgrounds has increased. Recently the Institute of Fiscal Studies gave what I felt was the strongest vindication yet: increased student tuition fees have been the biggest single factor in reducing income inequality. That should commend itself to an incoming Labour government.

Increased student tuition fees have been the biggest single factor in reducing income inequality Quote

Of course, the system could be improved. The Conservatives have cut the repayment threshold which I introduced to make the system fiscally progressive. Interest rates are inexplicably high (RPI +3%) which adds to the time period over which repayment occurs and often must be written off. 

Arguably, more priority should be given to student maintenance costs and restoring student grants to those from low-income families. But all these improvements cost money and that raises the question of how high university students should be as a priority for government spending.

If a future government can find more resources to spend on post-school education, I would look in a different direction. My priority would be to give everyone an entitlement to support for life-long learning whether in higher, further or adult education. The entitlement could be a lump sum or an account, drawn down when the student wants to study and to be built around careers and families and to reflect changing skill demands. ‘Going to uni’ is one option alongside an apprenticeship or a mid-life part-time degree course.

It is time to get past the obsession with university student tuition fees which has unjustifiably dominated the debate around post-school education.

The current system is a graduate tax in all but name; so why change it? In practice the problems of changing to a formal graduate tax operated by the Treasury create serious operational problems which Labour clearly hasn’t thought about.

Image: Chris Boland

Vince Cable profile

Sir Vince Cable is a former Secretary of State for Business, and led the Liberal Democrats from 2017-19.

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