A surcharge paid by employers on graduates’ national insurance contributions could be a key plank of a fairer student finance system in England that would allow university funding to be increased without leaving the government out of pocket, according to a leading economist.
Tim Leunig, the London School of Economics professor who advised Rishi Sunak at the Treasury and No 10, and was also a senior Department for Education adviser – during which time he invented the UK’s Covid furlough scheme and the national funding formula for England’s schools – says in a Higher Education Policy Institute (Hepi) report published on 26 September that the current student funding system “has not worked”, leaving graduates saddled with debt for up to 40 years and universities on the brink of bankruptcy.
In a wide-ranging prescription for reform, Professor Leunig says that it is “time to accept that employers benefit from a better educated workforce. They too should play a part in covering the costs.”
He proposes a 1 per cent surcharge on national insurance contributions for graduates, paid throughout their working life, which would, he says, raise an additional £10.7 billion per cohort.
An employer levy won widespread support among students surveyed for a Hepi report published earlier this year, while the University and College Union has also advocated making companies subsidise the education of the graduates they recruit.
Universities UK has shifted towards calling for the government to pay more to support the English higher education system, but the significance of Professor Leunig’s intervention is that it would allow increased support without additional cost to the Treasury.
The employer levy, he estimates, could fund the reintroduction of maintenance grants for students whose parents earn less than £65,000, as well as a £2,000 increase in the unit of resource per student – worth about £3 billion to the sector for each cohort.
Other elements of Professor Leunig’s blueprint include:
- Writing off student loans after 20 years instead of 40, and introducing a “no rise” clause so that the total amount owed never increases, even if repayments do not keep up with interest
- Introducing a £10 per week compulsory repayment, however much graduates earn, as well as a 3 per cent repayment rate between the income tax threshold and the current repayment threshold, meaning monthly repayments would go up
- Offsetting this by allowing graduates to reduce their pension contributions by up to 3 per cent while they are repaying their student loan.
Professor Leunig also proposes a new higher interest rate for the richest graduates and continued availability of maintenance loans for students whose parents earn up to £100,000 – while leaving tuition fees unchanged at £9,250.
He says that this system would be cost-neutral for the government, while in terms of loan repayments it would be progressive, with most lower-earning graduates paying back less and the top half of the graduate earnings distribution paying back more – up to £8,000 more for the very richest graduates.
“We have to acknowledge that – broadly speaking – the 2012 settlement hasn’t worked. We’ve had only one nominal rise in fees and massive real-terms cuts. And we don’t have students saying, ‘We’re getting a great bargain,’ 10 years on,” Professor Leunig told Times Higher Education.
“We have to accept the equilibrium that [former universities minister] David Willetts and co created hasn’t worked and we need to be more radical than just tinkering around the edges.”
However, the National Centre for Universities and Business said it would “urge caution” on the introduction of a national insurance surcharge, warning that while there was “an urgent need for funding for universities to be put on a more secure footing”, at the same time “the UK must become a more competitive place for businesses to invest in a difficult global climate”.
“Raising a national insurance surcharge for employers could have a range of unintended consequences,” said Rosalind Gill, the centre’s head of policy and engagement.
“Employers already make significant contributions to higher learning, including working with universities on course design, placements, apprenticeships, and employability, as well as making investments in the lifelong learning of people beyond the three years of a degree.
“Further complicating the taxation system with an additional surcharge would not help employers to genuinely invest in the skills they need, and will not help address the challenges being faced in the university sector.”
