Your starter for 10 – isn’t a graduate tax just plain dumb?

There is hardly any subject more painfully contentious, especially at this time of year, than the question of university places — who gets one, who didn’t have a fair chance and, not least, who pays. Lord Browne of BP fame is preparing a university funding review, to be published in the autumn, but quite unexpectedly Vince Cable, the skills secretary, made a pre-emptive headline grabbing speech last week to a collection of university vice-chancellors. He suggested, among some other controversial proposals for universities, a new graduate tax.

Actually he called it a graduate contribution, but it clearly is a tax. He may have been trying to nudge Browne’s conclusions or he may have been making soothing internal party political noises to resentful Liberal Democrats, who oppose tuition fees, but the effect of his startling suggestion has been to stir up an educational hornets’ nest.

For those who value academic and personal freedom, for those who hope for a smaller state, more devolution of power and less bureaucracy (along with support for the less fortunate), for those who believe the coalition government stands for exactly that, Cable’s graduate tax sounds like a massive leap backwards. It is a remarkably bad idea — statist, invasive, bureaucratic, demoralising and unnecessary. What’s so strange is that the speech in which Cable recommended it was in many ways both brave and wise.

Of course he was right to insist that university funding is in crisis and hard times lie ahead. His department — 80% of whose budget is devoted to universities — faces cuts of 20% to 25%. A funding model designed long ago for the 10% of the population who went to university in his own youth cannot be applied to today’s 40%. Even without the recession, taxpayers could no longer afford to subsidise such an explosion of students, nor would it be fair to ask them, especially as many courses seem to be of doubtful value.

Cable was also brave to point out that there “could be a law of diminishing returns in pushing more and more students through university … recent data shows rising unemployment for recent graduates”. There is plenty of evidence of graduate disillusion as well. Clearly, as he says, students must pay more for the privilege of a degree, in so far as it is one, at some stage in their careers. “The reality is,” he says, and one can only applaud, that we are going to have to develop a higher education funding model “that ensures good universities receive a reliable stream of income and are less dependent on the state”.

Inefficient universities should be allowed to fail. It is students, not institutions, that matter and they should be able to vote with their feet. Cable is also right that “we need to rethink the case for our universities from the beginning” and that university funding “is not something governments can or should directly control. Universities are independent institutions and should not be directed like Soviet-era tractor factories”.

Three cheers. And obviously he’s right in saying that we already have a form of graduate tax — the student loans system, which is repaid only when a graduate earns enough to start doing so.

It is a total mystery, then, that having come up with the right analysis and the right approach, Cable should trail a suggestion that is entirely at odds with both. Consider what a graduate tax would probably mean in practice, although he himself is vague on the details.

Cable appears to mean that university graduates in England would pay an extra earnings-related university tax for a period over their working lives (yet to be defined), so arranged that lower earners would pay less in total and high earners would pay much more. This tax would be collected by the Inland Revenue, presumably over a long period, and only then (if at all, in practice) returned, somehow or other, to the universities, presumably according to some redistributive system dreamt up by Cable’s civil servants.

Although this “contribution” would start out as a hypothecated tax for university education, history suggests that hypothecation tends not to last; the money goes into the general pot sooner or later.

It is hard to know where to start with the obvious objections to a tax. For one thing graduates who make money do indeed already pay a great deal of tax out of their large incomes. Lawyers, doctors, accountants, entrepreneurs and media people who have been to university contribute large sums to the tax man — and rightly so — long after having paid off many times over the cost of their education.

We already have a kind of graduate tax, as Cable says. Admittedly the student loans system is unfair, as well as wasteful and badly managed. Most of the state subsidy goes to students who are already well off, instead of being directed specifically to the poorest. At least, though, it targets the individual, who then pays his or her university directly, and it could be adjusted for fairness.

Cable’s graduate tax, by contrast, would send all the money to Whitehall to be evaporated in a boiling cauldron of red tape, micromanagement and waste and then dribbled out for some entirely different sector. This is to say nothing of the vast complexity of discovering what graduates are earning from good years to bad years, as they change jobs or lose jobs. Only years after a student had graduated would the money be available and then only at Whitehall’s discretion.

Universities would be deprived of yet more autonomy, becoming yet more dependent on the state, largely indifferent to the wishes of customers, the students — yet more like Cable’s Soviet-era tractor factories, in fact.

What is also curious about Cable’s speech is that he talks of the need to rethink our universities from the beginning, but that is just what he doesn’t do. Like most people today, even many Conservatives, Cable seems content, no matter what he claims, to leave universities pretty much in the hands of the state. But why should the state have any control over universities, other than making sure that the less well-off could somehow afford to go to them? Had he really been interested in radical thought, in academic freedom, in the autonomy of students and universities, and in a bonfire of the statist inanities which have already brought many universities low, he would have come up with something different. Let’s hope that Browne does.

Gillian Bowditch is away