The spring budget earlier this week presented a mirage for many who expect to pay more in tax despite some concessions. There was little on education generally and nothing on addressing the inequalities in higher education. While the government has fired a ‘pop gun’ at the worsening situation, a new government will have to bring some big guns to bear if they are to breach the ramparts of inequality. However, the government has spiked the opposition guns by announcing that National Insurance would be abolished eventually. TEFS favours a graduate tax through a National Insurance levy on graduate employees and employers. Now, the electorate must decide if they want to lose all that this represents.
The lowering of the National Insurance contribution will offer some relief for the middle-income families but will not offset the costs of those supporting their children in colleges and universities. The tactic is clearly aimed at the would-be conservative core voters for the election. But it is predicated on the assumption that their voters are driven by self interest and selfish greed. Regardless of this, the promise to abolish National Insurance has also set alarm bells ringing. This would leave a hole in the finances of around £148 billion per year and effectively sink the welfare state and state pensions. There would also be a lot of fallout across the NHS.
Reactions.
There were of course a multitude of analyses of the budget documents and the Chancellor’s speech. The Office for Budget Responsibility (OBR) provided a valuable backdrop to the economic situation along with the House of Commons Library in January with ‘Tax statistics: an overview’. Others included the Institute for Fiscal Studies (IfS) and the Resolution Foundation who made the following observation,
“A sluggish growth forecast, and high costs associated with student loans and transfers relating to quantitative easing, make it necessary to run a materially tighter fiscal policy if debt is to fall as a share of GDP”.
But perhaps the most telling and poignant view comes from the Joseph Rountree Foundation in ‘A Budget for big earners and big owners’.
CEO, Paul Kissack said,
“This was a Budget for big earners and big owners. Prioritising capital gains tax cuts for owners of multiple properties is an insult to almost four million people facing destitution in the UK today”.
Spinning the old efficiency line.
All past governments have covered up simple cuts to services with promises of even greater efficiency. They usually falter at the start as real cuts bite. Universities will find it to mean the same. As financial pressures mount, they will have to plan for maintaining student numbers taught by fewer staff who end up being paid less as experienced staff are replaced by new staff on poorer contracts. Meanwhile students with fewer resources from their families will have to soak up the increasing pressure with less support.
In his speech, Hunt expects less funding to do more,
“Across education, the police, the courts and local government I want to see more efficient, better value and higher quality public services”.
Spiking the National Insurance and graduate tax guns.
The UK government is in a poor financial state and any new administration will have little room to manoeuvre. The idea of moving from student loans to a more progressive graduate tax is circulating and may be an attractive option for a new Labour government. But the guns of a new government have been spiked by the nature of the tax cuts announced.
TEFS has favoured the idea of a graduate tax, but also a system that makes all the stakeholders and beneficiaries pay their fair share. This would be more easily achieved through a levy on National Insurance that would have to raise enough to reintroduce maintenance support.
Currently, in England all the burden is on students and graduates through loan repayments extending for 40 years. Elsewhere in the UK there is a mixture of student and state combined funding that is well presented in recent reports for the Nuffield Foundation by London Economics. See General Election Briefings: Examination of higher education fees and funding across the UK – February 2024 – London Economics (pdf).
Since loan repayments are gathered via the HMRC system, any rational person would view this as a ‘graduate tax’ in all but name. But it is not very progressive and is viewed as favouring the better off. So, a move to a tax would be viewed as a more honest and fairer way to fund the investment.
National Insurance graduate levy.
If it is accepted that the main stakeholders are graduates, their employers and wider society in general, it follows that they should all bear some of the costs. The simplest way to do this is to put a graduate levy onto National Insurance with both employer and graduate paying their share. It would have to be ringfenced for colleges and universities. This would be across the UK and serve to unify the system for all students regardless of which jurisdiction they come from. The government would also need to step in to fund strategic subjects that might be more expensive. The upshot would be graduates generally paying less, but it would be progressive and tightly linked to earnings.
The reckless announcement of plans abolish National Insurance is clearly an election ploy to limit options and effectively spike Labour’s guns.
The author, Mike Larkin, retired from Queen’s University Belfast after 37 years teaching Microbiology, Biochemistry and Genetics.