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The Government’s proposed graduate tax would lead to a UK brain drain, be a burden on employers and damage the country’s tax competiveness, company bosses have warned.
In a new paper, the Institute of Directors (IoD) expresses fears that a graduate tax is a misguided policy for addressing the issue of higher education funding, which would increase marginal tax rates and could act as an incentive to the most able domestic students to study and work abroad, thereby depriving the economy of vital skills, universities of income and the Treasury of tax receipts.
The IoD, a non-political professional body, goes on to argue that graduates would expect higher salaries to compensate for having to pay the tax, leading to increased National Insurance contributions from employers. Such a situation, says the organisation, would act as a counterweight to the Government’s aim to create the most competitive corporate tax system in the G20.
The proposed graduate tax would be based on a worker’s earnings following his or her higher education. Last month, the University and College Union suggested that a levy of 5% over 25 years would see a doctor paying £105,564, while a teacher would hand over £46,046.
Such a situation would be a punishment of effort and merit, claimed the IoD: ‘The more diligently a student spent his or her time at university… the more [he or she] would ultimately contribute towards the cost of their studies.
‘Conversely, a student who enjoyed the same opportunity, at the same university, but wasted it, would likely contribute less.’
Miles Templeman, director-general of the institute, added, ‘What has been lost in the debate so far is the negative impact a graduate tax would have on the UK’s tax competitiveness.
‘It makes no sense to create a funding model that encourages a brain drain, puts new cost burdens on employers and financially penalises students who work hard at university and demonstrate merit.
‘There are legitimate criticisms of the existing system of funding, and these need to be addressed, but it is surely easier, and more logical, to build on the system we have already than uproot it and start all over again,' said Mr Templeman.
