Labour’s Tutition Fees Blunder?

If ever there was an example of a policy that appears to be driven exclusively by narrow, tactical, political considerations it is Labour’s pledge to cut student tuition fees from £9,000 to £6,000.

It will produce the opposite of its supposed intention: being fairer to poorer students/graduates. It is ill thought out in terms of University financing. It reduces to almost zero competition on price amongst Universities (one of the main reasons for introducing supposedly variable tuition fees). It is an administrative nightmare.

And for what? To shore up the votes of students and graduates who were betrayed by the Liberal Democrats in 2010 and who have already switched to Labour anyway.

Let’s just rehearse the problems with the proposal.

First, will it benefit poorer students or encourage more of them to apply to go to University? No. To many people’s surprise the £9k fee has not had any marked effect on University recruitment patterns so there’s no reason to believe dropping it to £6k will either. And as the Institute for Fiscal Studies (IFS) has firmly pointed out, those who benefit most from the drop to £6k will be those who go on to earn most.

Second, cutting the fee by a third means that Universities either have to (a) receive a lot more tax-payer funds or (b) cut. The likelihood is that the policy will lead to a mixture of both. Now increasing direct funding to Universities is not a bad idea – the existing student loans system is expensive because of poor repayment rates and expensive administration. But in the current climate it is unlikely the full £3k will be replaced by increased Government funding, so there will be cuts in Universities. increased staff-student ratios, poorer facilities, etc.

Third, one of the main reasons the tuition fees option was originally adopted, back in the dim and distant past, was that it would encourage price competition between Universities. Even when fees were very low it didn’t. Raising the fees to £9k, many thought “now we’ll see some real price competition”. We didn’t, or precious little. Reducing them back down to £6k will probably eliminate what little competition there has been. My own view is price competition is a bad idea in HE, but if you want it this won’t deliver it.

Fourth, the student loan system is an administrative nightmare. It requires a massive bureaucracy to try to keep track of who owes what and what they should be repaying. Dealing with UK students is hard enough, especially if they emigrate, but dealing with EU students is even worse. You almost couldn’t come up with a worse system and the result in terms of default rates is there for all to see.

The political debate around university education has tended to polarize into a “private good” versus “public good” argument. The truth is a University education for a minority of young people is both. It mostly helps them into better paid jobs (although for anywhere up to 25% it seems it might not). But it also helps society and the economy by having a better educated workforce.

So the obvious solution is that graduates should pay something for the personal benefit they have gained, and the state pay the rest. And the easiest way of doing that is a graduate tax on income. All it needs is a simple tax code change for individuals, so they pay a little extra income tax. Simples (well, probably not totally “simples”, but a lot easier than the loans scheme).

And the irony is that Labour could probably have gained just as much, if not more, politically from the graduate tax solution as from the frankly dodgy “£3k off” deal they are offering now.

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