Government Should End University Fees Cap, Not Tax Graduates, Browne Says

John Browne, the former chief executive officer of BP Plc asked to review U.K. university funding, rejected the option of a graduate tax and proposed removing the current cap on tuition fees.

His report, which the ruling Conservative-Liberal Democrat coalition endorsed, proposed students should pay the fees from government-backed loans to be repaid at a rate of 9 percent of any income above 21,000 pounds ($33,300) a year. Interest rates, currently subsidized, would be pegged to the cost of government borrowing with a rebate for low earners. Any balance would be written off after 30 years.

The proposals published in London today were welcomed by universities, which expect to see the amount of money they get from the government fall as the coalition seeks to eliminate the record budget deficit. They present a problem for Liberal Democrat Deputy Prime Minister Nick Clegg, who fought the May 6 election calling for the abolition of tuition fees and may struggle to stop his lawmakers voting against the plan.

“Under our proposals, the bottom 20 percent of earners will pay less than today and only the top 40 percent will pay back close to the full amount,” Browne said in a statement setting out why he preferred his proposals to a graduate tax, as proposed by some. “The money will follow the student who will follow the quality.”

Photographer: Mario Proenca/Bloomberg

Former CEO of BP Plc John Browne, seen here, said in a statement, “Under our proposals, the bottom 20 percent of earners will pay less than today and only the top 40 percent will pay back close to the full amount.” Close

Former CEO of BP Plc John Browne, seen here, said in a statement, “Under our proposals,... Read More

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Photographer: Mario Proenca/Bloomberg

Former CEO of BP Plc John Browne, seen here, said in a statement, “Under our proposals, the bottom 20 percent of earners will pay less than today and only the top 40 percent will pay back close to the full amount.”

Treasury Gains

Under the current system, fees are capped at 3,290 pounds a year, paid for from interest-free loans repaid when graduates earn more than 15,000 pounds.

The independent Institute for Fiscal Studies disputed Browne’s figures, saying that under the proposals the lowest- earning 30 percent of graduates would pay less than at present, while only the highest-earning 30 percent would repay the full loan. According to the London-based IFS, the biggest gainer from the plan would be the Treasury, which would be able to reduce its funding to universities by 6,000 pounds per degree issued.

Browne said universities that charge more than 6,000 pounds a year should pay a levy to help support the poorest students, and those charging more than 7,000 pounds should have to demonstrate that this was justified to government.

“Different courses in different places need different amounts of money to remain competitive,” Browne told BBC television.

‘Make or Break’

The Russell Group, which represents 20 leading British universities including Oxford, Cambridge and Edinburgh, welcomed the proposals. “These recommendations could make or break our world-class universities,” Director-General Wendy Piatt said. “That’s because, bluntly, our leading institutions will not be able to compete with generously funded universities in other countries if they are not able to secure extra funding.”

The National Union of Students, which had campaigned for a graduate tax, attacked the report. “Browne’s review would hand universities a blank check and force the next generation to pick up the tab for devastating cuts to higher education,” Aaron Porter, its president, said on the NUS website. “The only thing students and their families would stand to gain from higher fees would be higher debts.”

Business Secretary Vince Cable, a Liberal Democrat whose department oversees universities, said the government “endorses the main thrust” of the report.

“As a strategic direction, the government believes the report is on the right lines,” Cable told Parliament. Asked by Labour lawmakers about his party’s commitment to abolish fees in the campaign for the May 6 elections, he replied, “In an ideal world that’s what we would do. We’re not in an ideal world. We have inherited a giant financial mess.”

‘Fails Fairness Tests’

On Oct. 9, Cable e-mailed members of the Liberal Democrats, telling them that while a graduate tax was “superficially attractive,” it “fails both the tests of fairness and deficit reduction.”

The opposition Labour Party, which introduced tuition fees under Tony Blair, has since moved away from the idea with its newly elected leader, Ed Miliband, backing a graduate tax under which higher earners pay more. Business spokesman John Denham attacked Browne’s report in Parliament today.

“The coalition has decided to put the responsibility for reducing the deficit onto the bank accounts of the country’s brightest and most talented young people,” Denham said. “It’s middle-income graduates who will pay more than their fair share.”

“The roads to Westminster are covered with the skidmarks of political parties changing direction on this issue,” Cable said.

To contact the reporter on this story: Robert Hutton in London at rhutton1@bloomberg.net.

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net.

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