Labour's plan to cap tuition fees may be a 'graduate tax'

The Labour Party's proposal for a tuition-fee cap of £6,000 could be classed as a tax if implemented because it would force some graduates to "overpay" on student loans.

The crucial detail of the policy emerged after Labour leader Ed Miliband marked the start of his party's conference in Liverpool by trumpeting the plan to cut the coalition government's cap of £9,000 by a third, if Labour were in power now.

Keen to demonstrate the party's economic competence, the policy was pitched as being "fully costed" - it would be funded through a reversal of a corporation tax cut for the banks and by charging better-off graduates more interest on student loans.

Within hours of its announcement, the proposal was under attack from the coalition government, with David Willetts, the universities and science minister, accusing Mr Miliband of a U-turn over his previous objections to fees.

That was followed by an analysis by CentreForum, a thinktank with links to the coalition, that claimed that the richest graduates would gain most from such a move.

However, a key element of the proposal - to force richer graduates settling student loans early to make additional payments for two years - did not emerge in the initial media interviews with Mr Miliband.

Under Labour's plans - which the party has stressed may not form part of its next manifesto - graduates earning more than £41,000 who pay off a loan within 20 years would make the overpayments.

Gareth Thomas, the shadow universities minister, said this element, together with a higher interest rate for top earners, made the proposal more progressive than critics were suggesting.

"While 90 per cent (of graduates) would be better off, for those in the top 10 per cent the benefit of lower fees would be more than offset by their overpayments," he said.

In a fringe meeting hosted by Universities UK and the Social Market Foundation, Mr Thomas added that the policy was a "strong contender" for the party's next election manifesto.

However, he admitted that the party still had a policy review process to go through and the announcement did not reflect Labour's long-term view on tuition fees or whether it would move towards a graduate tax.

Despite this, Times Higher Education understands that current Office for National Statistics rules mean that such an "overpayments" policy would be close to the point where it would class the whole student support system as a tax.

This may explain why some party sources were keen to paint Mr Miliband's announcement as a possible "step towards" a graduate tax, an idea he supported during his leadership campaign.

Liam Burns, president of the National Union of Students, said the policy was better than the coalition's £9,000 cap and White Paper proposals as it would militate against market competition driving choice down for poorer students.

"It delivers stability to the sector and stops people asking for less money to be spent on them because public investment is coming back into the sector," he told the UUK and Social Market Foundation fringe.

But he added that he would be against such a proposal if a "sticker price" fee still formed part of Labour policy at the next election and called for an explicit move towards a graduate tax.

Others in the sector questioned whether Labour had fully considered the costs of its plan, which would deliver an extra £1.1 billion in annual direct funding for universities.

Chris Snowden, vice-chancellor of the University of Surrey, said that in addition to the real costs of tuition, it was not clear from the proposal how the cuts in capital funding would be countered, which were leaving institutions "worse off" even with £9,000 fees.

Alasdair Smith, former vice-chancellor of the University of Sussex, said he thought the proposal was also likely to lead to continued controls on student numbers due to the limit on funding.

Meanwhile, Paul Wellings, vice-chancellor of Lancaster University and chairman of the 1994 Group of smaller research-intensive institutions, said it was important for political parties to stop "flip-flopping" on policy.

"My concern as chairman of the 1994 Group is that we should avoid a cycle of flip-flop management coming from parties. We need to get to a policy framework that is sustainable and enduring," he told a 1994 Group fringe meeting.

simon.baker@tsleducation.com.