Nigel Fletcher: The debate about higher education funding should address the issue of how to encourage graduates to donate to their alma mater

Nigel Fletcher served as Special Adviser on Education and Skills in the Conservative Research Department between 2004 and 2008.

So now we know. It’s going to be a graduate tax. Or maybe it isn’t. Depending on which newspapers you happened to read over the last couple of weeks, the future of higher education funding will either be an additional premium on the income tax of graduates, or a more complex income-linked repayment system.

Some Conservatives were alarmed to see that the coalition had apparently identified a new tax as their favoured solution. In fact, those who watched David Willetts being interviewed the other weekend will have heard him say something rather different. What he actually said was:

"We do have a preference for a way of going forward that involves graduates after they have got into work… we do think that then graduates should make a higher contribution to the benefits of the university education they've received."

This line is one I find rather familiar - and is not exactly new. It has in fact been Conservative policy for five years. On 20th August 2005 the Shadow Education Secretary - one David Cameron - said in an interview with the FT:

"We all know that we want Britain's universities to be the best in the world. That will mean that there ought to be some method of co-payment for people going on to higher education."

When he became Leader that policy was confirmed, and has remained his view ever since.

‘Co-payment’ and ‘graduate contribution’ are both compatible with some form of graduate tax. But that term itself is unhelpfully vague, and could mean many things. It could be a ‘pure’ graduate tax on a proportion of all future earnings, or, for instance, a capped contribution paid after graduation by those earning over a certain threshold, and collected through the PAYE system. The latter neatly describes what is, in effect, the current system. So do we have a graduate tax now?

Terminology is vitally important in this area of policy, and it was a serious failure by the previous Labour government that when they reformed the tuition fees system they allowed the language of ‘up-front fees’ to persist, signalling to thousands of poorer students that universities were being put beyond a paywall, when in reality no student has to pay until they have graduated and are earning over £15,000.

Even the language of ‘student debt’ is somewhat misleading, given the safeguards in this repayment system. But the concept of being in debt is rightly a concern for many. One of the attractions of a graduate tax is that it provides the same funding mechanism - of graduate contribution, possibly to a higher value than currently - without the stigma of the ‘D’ word.

All these arguments are being considered by Lord Browne in his independent review, and he is hardly short of submissions. There is a healthy debate going on, and it is notable that the NUS, whose shouty rhetoric made it almost irrelevant in the past, is now engaging sensibly and advancing its own proposals. NUS President Aaron Porter even slapped down the lecturers’ union UCU for their ‘sensationalist and simplistic’ attack on the possible effects of a graduate contribution scheme.

But whilst there is a consensus building on the principle (if not the form) of graduate contribution, there is one aspect which has not received much attention. The UK lags a long way behind the United States when it comes to the most direct form of graduate contribution - donations from alumni. According to the Sutton Trust, only about 1 per cent of British graduates currently donate to their alma mater, compared with levels of between 15 and 30 per cent in US state universities, and as much as 61 per cent at Princeton. This gap is reflected in the difference between the levels of university endowments - Harvard alone has an endowment fund of over £13 billion, whilst the combined total for all UK universities is barely £8 billion, with the majority of that being held by Oxford and Cambridge.

There have been concerns that a system of greater graduate contributions in the overall HE funding system will harm voluntary alumni giving, but that surely misses an obvious opportunity. Whatever form the new funding system takes, there is surely scope to encourage greater voluntary giving by graduates as well. Why not allow such donations to be offset against the new payment liabilities of graduates?

Rather than donations being the preserve of the super-rich, all graduates could choose to pay a portion (or all) of their ‘contribution’ not to the Treasury, but direct to their university’s endowment fund. To put it in crude ideological terms, they could choose whether they wish to be taxed for the general HE ‘pot’ or undertake an act of philanthropic generosity to reduce their tax liability. The revenue to the university sector would be the same whichever path is taken, but it would give a huge boost to university endowment, with all the benefits that would bring for the sector, its students (and ultimately the taxpayer).

Whether or not such a radical system is adopted, imaginative proposals on alumni giving and endowments are a key part of maintaining strong and well-funded universities.