Students to face higher costs as graduate tax proposed

Students will almost certainly have to pay more for university - possibly through a graduate tax - the Business Secretary Vince Cable has said.

He said he had asked Lord Browne to look at the idea of a graduate tax "as a priority" in his current review in to higher education funding in England.

This would mean students paying for their studies through the tax system, rather than through subsidised loans.

He said high-earning graduates would pay more than those on low incomes.

The money would probably be paid through taxes over a set period, not a life-time, he told journalists later.

Sweeping changes

In his first key speech on universities, Mr Cable set out a series of potentially sweeping changes, including the introduction of more market forces into the higher education sector and more flexible, shorter degree courses.

At London's South Bank University, he told a lecture hall of vice-chancellors and key figures from higher education it was time for a "radical rethink" of how universities were funded.

He said that the government wanted to work with the sector "to turn the current funding crisis into an opportunity".

Mr Cable warned of "severe financial pressure" to come in the next few years.

"I wonder how many people in this room are psychologically prepared for a period of consolidation, perhaps even contraction, because that is what we face," he said.

Mr Cable is expected to promote two-year degrees as a cost cutting measure

He said he wanted a fairer system.

"The reality is we are going to have to develop a model in which the balance of funding for higher education in England combines less public support and more private investment from those who benefit most from it."

Students "almost certainly will have to pay more", he said.

Mr Cable sees the current English system of tuition fees and loans as unfair and says he wants a more "progressive" system.

"It surely can't be right that a teacher or care worker is expected to pay the same graduate contribution as a top commercial lawyer or surgeon," he said.

And graduates, on average, could expect to earn £100,000 more in their life-time than non-graduates, he said, so should make a contribution.

Asked afterwards if graduates from different universities could face different rates of tax - and pay variable amounts - he said that was possible.

There would be no up-front fees for students and money coming back to the state through graduates' income tax would go to universities not the Treasury, he said.

Asked if people would pay a graduate income tax for life, he said: "It's very unlikely that one would want to come up with a system that involved payment for life. We are looking to see what Lord Browne comes up with."

'Radical ideas'

The idea of a graduate tax is supported by the National Union of Students, which favours that option over that of allowing universities to raise more money by charging variable higher fees, which it says would price poorer students out of top universities.

NUS president Aaron Porter said: "We think there are a lot of radical ideas here. A graduate tax is preferable to a market-based approach and we are keen to work with the government.

"A progressive tax would be a signal of a just society where the people who benefit the most pay more."

But the University and College Union said a graduate tax was "not necessarily a very fair system" and poorer students would probably end up paying a higher percentage of their earnings than through a loan system.

General secretary Sally Hunt said the key test of the system would be whether graduate debt went up or down under it.

"The government must understand that it simply cannot rebrand student debt as a graduate tax, nor should it expect students to pick up the bill for its punitive cuts agenda," she said.

The review of university fees and funding being carried out by former BP chairman Lord Browne is due to report in the autumn.

Students and the university sector are bracing themselves for the outcome, with many predicting that tuition fees could rise from their current level of £3,225 a year to as much as £7,000.

After his speech, Mr Cable told journalists Lord Browne had already been considering the idea of a variable graduate tax, but the coalition had told him this was "a priority".

Agreement on a graduate tax might help the coalition government over a potentially damaging stumbling block.

Liberal Democrats traditionally oppose tuition fees and had pledged to phase them out within six years.

The coalition government has said Liberal Democrats can abstain in votes on the issue.

But individual MPs - including Mr Cable and the Deputy Prime Minister Nick Clegg - signed pledges promoted by the National Union of Students promising to oppose any increase in fees in the run-up to the election.

With his department facing the need to find cuts of 25% over four years - and 80% of its funds going to universities - Mr Cable said it was time for radical thinking.

And all this comes at a time when applications to universities are running at a record high.

Figures on applications will be released on Friday.

In his speech, Mr Cable also set out some other ways of cutting the costs of higher education to both taxpayers and students - such as promoting two-year degrees, more students living at home and more flexible, part-time courses.

There were also calls for a wider role for private institutions in higher education, which could teach such courses.

Mr Cable said more students should be able to study close to home at a small institution which was teaching a course set by a larger, more distant one.

And he said market forces should be allowed a bigger role - and that universities which were not performing well should be "allowed to fail".

"We already know there are some that are struggling," he said.

"We are going to have to devise a system in which some institutions can fail without damaging the students going through them."