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Graduate employer levy: A practical and political solution

  • 11 April 2024
  • By Johnny Rich
  • This HEPI blog was kindly authored by Johnny Rich, Chief Executive of outreach organisation Push, Chief Executive of the Engineering Professors’ Council, and a consultant in higher education and careers. 

It’s easy to criticise policies – such as the funding system for higher education in England. It’s far harder to offer something better that could be delivered in practice, given political and fiscal realities.

HEPI’s latest report How should undergraduate degrees be funded? seeks to do just that. It has taken four proposed models for funding HE in England and one for Scotland and subjected them to a rigorous costing analysis (with modelling by London Economics) and a poll (by UCAS) of the opinions of current and potential applicants.

I was grateful to be invited to contribute my own proposal for a ‘graduate employer levy’ and was thoroughly delighted to discover that, compared to the current English model, an employer levy would result in a saving of just over £8 billion for each cohort of students. If you want to see what the proposal is and how it achieves those savings, do please read the report and maybe refer back to Fairer Funding, a paper I wrote for HEPI in 2018 which argued the case for what was then a less developed version of the scheme.

I said the saving delighted me. ‘Stunned’ might be a better description. Saving money hadn’t been my intention, but nor had I wanted it to cost anything.

When devising the system, I had started from the premise that, to be politically palatable, it must be at least cost-neutral when compared to the current system. As a result, I didn’t seek to change variables such as the level of support to students, the funding to universities, or the threshold or rates of repayment.

That doesn’t mean that I think maintenance support is adequate at its current level. It’s not. It was shocking to learn recently that now more than half of supposedly full-time undergraduates are doing paid work for more than 15 hours a week and nearly a quarter have full-time jobs alongside their studies to make ends meet. The scale of poverty among students is desperate and it’s damaging to their wellbeing and their outcomes.

It also doesn’t mean that I think current levels of HE funding are adequate. In the face of dozens of universities announcing redundancies, it is clear the system has been pushed to breaking point by real terms cuts for the last decade and we are now seeing the beginnings of a slow and painful implosion.

The fact that I thought the cost would be roughly equivalent and was out by a margin of £8 billion shows how little I know about economic modelling and how important it was that such modelling should be done by experts such as the team at London Economics.

I would not want HM Treasury to absorb all the difference. At least some of this fiscal headroom should be seen as an opportunity to reintroduce means-tested grants, raise the level of maintenance for all students1, and return per capita student funding to realistic levels. This last change would be necessary only in the medium term: an important feature of the employer levy is that over time higher education institutions would see their income increasingly linked to the earnings of their graduates.

That direct link with graduate earnings removes most of the politics from this discussion. It also ensures that there is a balance between what students want to study and what the long-term labour market needs. The fact that there is a graduate premium across almost all degree subjects (albeit a variable one) shows that it is not merely the subject of study that is valued, but the transferrable employability skills that make a graduate resilient and attractive whatever the future labour market may throw at them.

Rather than the current busted market where demand from “students at the heart of the system” determines the courses that universities offer, institutions would aim to optimise the balance between what students want to study with the skills that employers need. Universities would also work harder to embed employability into the experience of every student, whatever they study.

The taxpayer would need to step in to support the cost of courses where the social need for graduates would not be met by salary returns – nursing, for instance – but that is entirely consistent with an approach where the costs are shared fairly among those who benefit: where the social need is greatest, it’s only right that taxpayers contribute more.

As well as the economic upside, it was gratifying to hear that my proposal topped the polling among prospective students. This was less surprising as it echoed a far larger survey across a wider section of public opinion conducted last year by Public First.

The polling, however, did highlight a crucial element of my proposal. Many of the students’ comments valued the freedom they would feel to choose the right place for them. My proposed redistribution of income through a National Access Fund would be critical to ensure the system did not favour those with pre-existing employability.

£8 billion goes a long way and, even if the scheme were more generous to students and universities, it would still leave the exchequer considerably better off. In fact, should Labour form the new government, this might help them plug the £2 billion hole in their planning left by the Chancellor’s adoption of their withdrawal of non-dom tax privileges.

This is, I hope, a proposal that rises to the challenge to offer a solution that not only improves the system, but is also practically and politically deliverable.

1  An employer levy may also make it easier to introduce a sharia-compliant alternative to loans – something that has been promised and not delivered for more than a decade.

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