Graduate Tax - we can do better - a letter from Vince Cable MP

Dear David, As you know, one of the most urgent tasks facing the Coalition Government is to reform the funding of Higher Education. Our objectives are clear: high-quality university teaching and research; fair access for all, regardless of background; and a progressive funding structure.

At the same time, we are delivering a tough deficit reduction programme, necessary to save the economy from a major financial crisis centring on the country's credit worthiness. If we are to avoid substantial cuts in higher education more money must be found.

Next week, Lord Browne will publish his report, with recommendations for reform. The Government will respond shortly. But I can say now that I want a system that meets all of our key objectives for HE, and that helps with our deficit reduction programme.

I can also say now that it is already clear that an additional tax on graduates - a 'pure' graduate tax - is not the way forward. While it is superficially attractive, an additional tax on graduates fails both the tests of fairness and deficit reduction. There are a number of objections to such a tax - which is why the Labour government rejected it - including:

First, since a graduate tax is open-ended, some graduates would unfairly find themselves paying many times the cost of their course. This is not fair.

Second, foreign students could end up paying less than some UK graduates, because taxes cannot be collected from people living in other countries. This is not fair either.

Third, a graduate tax would do nothing to reduce the deficit over the next five years. Indeed, it would add many billions to public spending, meaning that further cuts would be needed in other areas of government spending. We have looked hard at possible ways of bringing forward tax revenue from graduate tax revenues - but they don't work.

A strong university sector is very important for future national prosperity and for social mobility. We need a system for funding universities that is fair and robust. As a Government, we have therefore looked in detail at all the options for reform. A graduate tax has some attractive features - especially in-built progressivity in repayments - which is why we have looked at it from all angles.

But Labour was right when it rejected a graduate tax as an option, and would be wrong to support it now. Indeed, there is a very useful publication - entitled 'What's Wrong with a Graduate Tax' - published by the last Labour Government. I feel sure that Ed Miliband, when he considers the options carefully, will cease to support a graduate tax.

As I have said on previous occasions, I am entirely committed to a progressive system of graduate contributions, the details of which we will be able to confirm shortly. And I have been open-minded about the possibility of a pure graduate tax. But it is clearly not the right vehicle. We can do better - and we will.

Vince Cable

Secretary of State for Business, Innovation and Skills