The UK needs a new deal for its highly taxed graduates

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What makes an ideal graduate? One answer, which has become more appealing to me as I’ve gotten older, is that the ideal graduate is someone who treats older people in their organization with unquestioning deference.

But a more useful answer is: the ideal college graduate would earn enough for low housing costs and a decent pension when he retires, and would have enough children – two and a few – to keep the population level stable. They could start a successful business or invent new technology along the way. And to help them on that path, they’ll have a good qualification.

This is essentially the vision that both Rishi Sunak and Sir Keir Starmer have for young Britons. Since 2025, however, the ‘ideal graduate’ in the UK may not have attended a university: when the right to loan for life graduates will be able to borrow £37,000 over their lifetime to pay for education or training, whether at technical colleges or universities, on the same terms as British university students borrow money from the government to pay for their degrees.

When an electrician or a historian can both learn programming at the same institution and repay their loans via the same mechanism in political terms, the distinction between a college graduate and a graduate of a higher education institution essentially becomes a matter of snobbery.

What they have in common becomes far more important: that both will, in practice, pay a higher IRPEF rate throughout their working lives than someone who hasn’t acquired a history degree, an electrician’s certificate, or the ability to code.

All the old debates about whether too many people go to college, or whether it’s better to have more technical education, will become redundant. The government will provide both with the same routes, on the same loan terms. Many jobs will be supported through something that closely resembles the UK’s higher education funding system. So it’s worth stopping and thinking about the strengths and weaknesses of the UK’s tuition fee model.

The genius of this model and the right to a lifetime loan is twofold. The first point is that by nominally tying funding for universities and higher education institutions to their individual students, the government helps these organizations avoid fighting schools for funds. This is a contest they will often lose, because issues related to schools impact far more voters than issues related to higher and higher education funding.

The second is that, in practice, tuition fees in England and Wales have turned out to be a way of surreptitiously raising income tax. The Truss government’s passion for tax cuts has sent the British economy and government ratings plummeting in polls, and Conservative enthusiasm for tax cuts continues to place limits on what Sunak can achieve in office.

On the Labor side, the anxiety of being seen as the high-tax party imposes constraints of a different kind on Starmer. But there is no serious caucus within the Parliamentary Conservative Party objecting to sky-high marginal rates – an eight percentage point increase for many college graduates – which form the model for UK taxes. And while very few college graduates are enthusiastic about the tax model, it doesn’t arouse the same bitter resentment as the income tax hike.

Nor has the introduction of tuition fees discouraged people from entering higher education. Today, many more people are attending college than in the free tuition era.

These are all reasons why Starmer feels he can back off his pledge to abolish tuition fees, and why Labor will keep the right to loan for life into force if they take office after the next election.

But when we think about what we want from the ideal college graduate, we should be clear that a higher marginal tax rate has implications for their ability to achieve the things we set out for them. Although some highly paid graduates will pay off their loan dues, most will make payments for most of their working lives.

This places severe limits on the ability of the average college graduate to save for retirement – ​​currently, nearly half of the average retiree’s income comes from private sources – to buy a home or to have a large enough financial cushion to set up their own business. The loan model has many positive features in terms of financing higher and further education. But it is a policy with real costs both for individual graduates and for society as a whole. If Conservative and Labor politicians alike want to not just maintain but expand the tax model, they will have to do more to help British graduates elsewhere.

stephen.bush@ft.com