Graduate Tax

Apparently this is no longer on the cards. There are certain unavoidable truths. University have to be paid either by the taxpayer or the student. If the decision that all or part should be paid by the student, as the majority do not have the ready cash, either they must be lent the money, to repay when they earn, or they must pay in higher taxation on their earnings.

The financial effect to the student of these two approaches is broadly the same, since whether money is taken from their later pay in extra tax or loan repayments; money is money whatever you call it. This whole question does, with other current problems of matching expenditure by government to its incoming revenues, pose an interesting question. It is this.

There is an obvious fact that people do not pay enough tax to meet all the demands they make upon the state and the deficit is evidence of this. The gap can be narrowed by increasing economic activity and thus tax revenue, or by raising tax rates, or any combination of the two. There is an accepted wisdom that excessive tax rates drive down revenue, so tax increases are generally avoided if possible. Nevertheless I have for long thought that the basic rate of income tax (at 22% basic rate and 20% lower rate) under the last Conservative government was about right,  and subsequently pushed down too low by New Labour, to balance the national books.

Add to that the fact the  New Labour built economic prosperity on debt;  its own and the consumer’s. This created an economy which generated from the working population huge revenue, in the form of interest payments on debt, to the banks, thus reducing the available margin to go to the government in tax, without hitting economic activity.

If we can now build an economy less reliant on borrowing and if households have to pay less for it, a margin will develop to restore, safely, a basic rate of income tax which pays, with other taxation, the bills of the government. In other words move back to a more realistic rate of basic rate tax. Fundamentals, like higher education, might then go back to being free to all.  As it was before New Labour came to power in 1997.