Gradually moving away from a graduate tax

David Willetts, the universities minister, gave a characteristically thoughtful tour d'horizon of the challenges facing higher education, when he addressed the Universities UK conference yesterday. But important though a reshaping of the 1992 Further and Higher Education Act will be to many colleges and universities, it was his further refinement of the coalition's ludicrous contortions on the repayment of fees that has inevitably attracted the media's attention.

Willetts clearly thinks his boss Vince Cable was mad to start floating the idea of a graduate tax; since then, he has loyally been trying to find ways to shift the position back towards the graduate contribution that David Blunkett introduced alongside fees in 1998 and which was refined with the 2005 changes to fees. Yesterday was his latest attempt. He told journalists at the UUK conference that he ruled out a full-blown graduate tax but was looking at making the current system more progressive.

What he and his boss signally fail to do is to explain the basic fairness of the current system, particularly compared to other countries. Students not only get their fees paid while at university, but - unlike many other countries - they get a generous loan (with a grant for some) to cover living costs while they enjoy a rite of passage experience subsidised by the taxpayer to the tune of 23p in the £. (In many other countries, most students go to their home universities.) Once they have started to earn at least £15,000 a year, English graduates are asked to pay back their loan at a rate of 9% on all income over the threshold. Those who earn more pay the loan back more quickly, though some high earning professions also involve longer studies and larger debts. The interest charged on the loan is rather less than that on most commercial loans, and certainly a lot less than is charged by banks for overdrafts or credit card companies. It would be ridiculous for the government to move radically away from this repayment system.

However, if the loan system is to keep pace with any rise in tuition fees, it will cost significantly more to the Exchequer initially, unless costs are cut in other ways. One would be to increase the rate of interest charged on the loan, but this would actually see lower earning graduates repaying more, since higher earners would pay the loan back more quickly, though it might also discourage those better off students who take out loans just because they are there. Another option, apparently being considered by Willetts and expounded by Neil O'Brien of Policy Exchange in today's Telegraph would see graduates who earn more paying back a higher proportion of their extra earnings by continuing 'repayments' until after the loan was paid off. If such a progressive contribution is to be introduced, this seems a perfectly sensible way to do it. But it should be combined with a greater encouragement for students to go to home universities or colleges where the course they want is available there - the British taxpayer-subsidised rite of passage is not a universal experience - while universities should do much more to link undergraduates to paid and useful work experience both during term and in the holidays.

I don't imagine any of these deliberations will do much to improve Vince Cable's demeanour. He and his colleagues are already struggling to explain to their student voters in university cities that the Lib Dems sold them a rather scraggy pup.