Keir Starmer is being urged by shadow cabinet figures to replace tuition fees in England with a graduate tax, amid growing concern that the finances of universities are becoming unsustainable under the current system.
An injection of cash in the form of maintenance grants to the poorest students is also backed by some of the Labour leader’s top team as a way of ensuring students are not put off by the increasing living costs of attending university.
Starmer has been criticised by the left of the party after conceding that he would not meet the pledge, made during his leadership election victory in 2020, to abolish tuition fees.
He said that the country now finds itself in a “different financial situation”. However, the party is examining alternatives.
Some of his shadow cabinet team favour a graduate tax as a way of creating a fairer system that also raises enough money for the sector, which is becoming increasingly reliant on uncapped fees placed on overseas students.
“A graduate tax is what we should do,” said one shadow cabinet figure. “The problem at the moment is that students see it as debt. We’ve got to get rid of the idea that debt is hanging over them. But fees can’t be abolished – it’s a big chunk of money that we are going to need.”
The restoration of some form of maintenance grant would help ease the costs of attending university for poorer students, but Labour is waiting until closer to the general election before allocating funds to election pledges.
Some believe the party’s next manifesto could simply contain a fudge on the issue of university funding, including a pledge to overhaul the current system.
The Observer revealed modelling last week that showed many lower-paid earners will face an increase in their total lifetime repayments of more than £30,000. By contrast, the highest-earning graduates will see their lifetime repayments fall on average by £25,000, compared with the previous arrangements, according to an analysis by the consultancy London Economics.
Under the student loan reforms, the repayment period for fees will be extended from 30 to 40 years, the salary threshold at which payments are made will be cut to £25,000 and interest rates on the repayment of the loan will be reduced to retail prices index inflation. Graduates repay 9% of their income above the threshold.
The government’s own impact assessment said the student loan reforms were more likely to have a “negative impact” on certain groups, including women, lower earners and those from disadvantaged backgrounds.
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Advocates of a graduate tax say it would be much fairer because higher earners would pay more. It would eliminate upfront debt and could also be adapted to ensure it provides proper funding to the university system. However, some fear that because it would make universities dependent on government funding, it could become politicised.
All Labour’s spending plans are being strictly monitored by the shadow chancellor, Rachel Reeves, and the shadow chief Treasury secretary, Pat McFadden, who has become the main enforcer in ensuring that no commitments are made without being completely costed. Scrapping tuition fees would have cost about £9bn a year in England.
There is a natural nervousness within the party about any big change that could be spun as applying additional taxes on graduates. One of Labour’s chief attack lines against Rishi Sunak’s government is that he has been delivering a growing tax bill at the same time as struggling public services.
The issue has become more pressing as university vice-chancellors have begun to demand an independent commission on funding while forthcoming changes to the way tuition fees are repaid are set to tip the system further in favour of better-off graduates. Universities have warned that the cap on fees has been frozen at £9,250 a year since 2017, meaning their value has fallen significantly.