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Students in Favour Of Tuition Fee Reform Discussion watch

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    (Original post by DJKL)
    Not strictly true, the repayments come out of net pay, not gross. Accordingly your £25,000 first gets reduced by National Insurance, then by Income Tax. You will also soon have compulsory pension deductions as the state second pension ceases and you have to make contributions. (phase in from 2012) Once these are deducted your 9% of £4,000 (25,000-21,000), £360 is deducted. I doubt this will service the interest on the debt, so at least it will stay static at what it was as if contribution due does not cover interest, the interest is reduced I understand.

    For info tax will be circa £3,705 NI circa £2,121 if say 2010/2011 tax year bands used. Of course NI rate goes from 11%-12% in 2011/2012, albeit thresholds change. The new pension scheme is to be phased in, dependant upon employer size, with circa minimum 4% employee contributions (unless employer has acceptable scheme, however chances are 4% will be lower than required employer scheme contribution, usually circa 6%) This means further £1,000 from your £25,000.

    So in Summary Gross £25,000 less tax £3,705, less NI £2,121 less min pension £1,000 = take home £18,174. From this you pay your £360 loan repayment, leaving £17,814 for you to live on, £1,484.50 per month.

    It would not be that bad if you knew the £1,000 a year to the pension scheme would be enough, after all your employer will contribute 3% and the government 1%. Sadly an 8% contribution to a money purchase scheme for your whole working life is unlikely to give you, even including the state pension, an income in retirement of 2/3 final salary, the level we all aspire towards but few reach.

    You will note the state has received in one way or another £7,186 of your £25,000, of course it has also charged your employer National Insurance of circa £2,468 and of course his 3% contribution on the pension of £750, so the actual cost to him of your employment is £28,218 (25,000+2,468+750), you get £17,814, state gets £10,404.

    Of course once your gross hits above circa £45,000 the marginal rates are 40% income tax, 1% NI, 9% student loans and 4% pension (Unless it has an upper limit, I will have to check this) So marginal rate on your employment 54% deduction, plus employer still paying 12.8% on the top as NIER, possibly 3% pension (if no upper limit, see above) so for every extra £1,000 on your gross pay the state gets 54% by deduction and 15.8% from your employer, total 69.8% of your marginal gross pay.

    For whose benefit will you all be working?
    A fair point regarding it not actually being equivalent to earning £25,000 less £360. I disagree that contributions to a pension scheme should really be counted in a marginal pay analysis. After all, you still benefit from having contributed more.

    It's worrying how high the marginal tax rates will be above £45,000. But my point was that, ceteris paribus, paying for higher education out of higher income tax would have almost exactly the same effect in redistributive terms, unless it was done in a less 'progressive' way (which is presumably not what the protesters want).
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    (Original post by Quady)
    Eh?

    It comes out of gross pay (as you have worked though the rest of your spiel)

    If it came out of net pay then it would be based on the amount you earn after tax/NI/pension contributions.

    No, it is calculated based on gross, 9% of excess over £21,000, but the funds to make payment come from net pay. In effect the loan repayment does not reduce pay for the purposes of tax and NI calculation purposes, it is only the net after these (and soon the compulsory pension deduction) that the payer has available to make the necessary payment.
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    (Original post by Budgie)
    A fair point regarding it not actually being equivalent to earning £25,000 less £360. I disagree that contributions to a pension scheme should really be counted in a marginal pay analysis. After all, you still benefit from having contributed more.

    It's worrying how high the marginal tax rates will be above £45,000. But my point was that, ceteris paribus, paying for higher education out of higher income tax would have almost exactly the same effect in redistributive terms, unless it was done in a less 'progressive' way (which is presumably not what the protesters want).
    The key is that the incentive to try to increase ones earnings is being eroded, total rate is irrelevant, marginal rate is what matters. At the margin, above £21,000 gross ,you will soon pay 45% (20 I Tax, 12 NI, 4 pension and 9 student loan)

    Once you are in the land of 1% NI you also, near the same level ,hit 40% tax, so marginal 54% (40 I Tax, 1 NI, 4 pension and 9 student loan)

    I would accept your argument re the pension if the new scheme was not replacing the state second pension (previously SERPS) which was previously covered within ones NI bill, but this is going, what was previously received back as part of your contributions is now paid for by you. (albeit you ought to receive more than you would have via SERPS/SP2)The new pension scheme is there because the state currently has an obligation to top up those who were retired whose pension (maybe only basic state and small SEPS/SP2) was below this minimum. This obligation is now to be passed to the taxpayer but with no resulting NI reduction, in fact the opposite, it is going up.

    There is a better way within the taxation/benefits scheme to finance University, spread the cost to all graduates past and future. If this issue is not addressed we may upset the balance of the economy: where are first time house buyers to come from, what can they now afford? Entertainment/ Leisure sector (already on its knees) may contract, younger people have a higher marginal propensity to consume than average this measure will contract the economy.

    We may have a brain drain, graduates who start seeing 54% (or even 45%) of any earnings increase passing to the state may move abroad.

    I have no personal benefit decrying these measures:

    a. I am in Scotland, we will likely follow, but by then my youngest child will likely already be at University, my older is already in second year at a Scottish University.

    b. I have received my education, in the main it was free- but these measures are unfair, one generation working longer and paying more.

    c. General graduate tax would hit both myself and possibly my wife, however at a modest level (say 2%), spreading the load, it would be fair. My current marginal tax rate is 41% (40 I tax plus 1 NI) with the pension scheme it will become 45%, however I, in a good year, earn nearly 3 times the starting £21,000 which will incur a 45% marginal rate.

    Hitting relatively low earning graduates > £21,000 with marginal deductions of 45% is madness.
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    (Original post by DJKL)
    No, it is calculated based on gross, 9% of excess over £21,000, but the funds to make payment come from net pay. In effect the loan repayment does not reduce pay for the purposes of tax and NI calculation purposes, it is only the net after these (and soon the compulsory pension deduction) that the payer has available to make the necessary payment.
    Whats the difference between that and saying NI and tax comes out of net pay after student loan but is calculated based on gross pay?

    Can you link me a source?
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    (Original post by Quady)
    Whats the difference between that and saying NI and tax comes out of net pay after student loan but is calculated based on gross pay?

    Can you link me a source?

    I think it is really a question of definition, Gross Pay is the headline figure pre deductions, the deductions like Tax and NI (where one is employed) are by statute taken from the gross to arrive at net pay by the employer and remitted to HMRC. These are terms I use without thinking, I work as Group Accountant for an local Edinburgh company and have either worked in practice or in business for > 25 years.

    I have no idea of the proposed mechanics of the loan repayments i.e. will employers be made responsible for deduction and remittance or will the individual receive his net pay and be personally responsible, however the loan repayments will not be a deduction to arrive at the gross subject to tax and NI these will continue to be calculated on the existing basis of: (2010/2011 rates used)

    Tax= Gross, less tax deductible deductions (Some pension scheme contributions) - Personal Allowance £6475 = Taxable. Initial rate on £37,400 of 20%, 40% on excess (Lets ignore the new 50% rate)

    Therefore marginal rate 40% on Gross > £43,875

    NI= Gross- Primary theshold 5,720= Subject to NI. 11% (soon to be 12%) on next 38,168 (52x UEL of 844= 43,888)-Primary threshold 5,720 and then 1% on excess.

    Therefore marginal rate of 11% up to gross £43,888, then 1% on excess

    All these are on www.hmrc.gov.uk , under individuals click into tax, second line down gives rates/thresholds, NI same approach.

    The new pension rules are pretty much compulsory, yes strictly individuals will be able, I believe, to opt out, however with the employer paying in 3%, employee 4% and state 1% (In effect 20% tax relief on notional employee 5%) unless alternative employer provision most people would be mad to forego the employer contribution. However what the new scheme will likely do is reduce availability of more generous employer schemes, they will become the defacto norm.

    Given the basic state pension (30 years NI contributions for full amount) is currently £5,078 per year (52x 97.75) and to be comfortable in retirement an individual should aim for minimum 2/3 final salary, if that was say in real terms £25,000 at retirement then 2/3 is £16,666 . If state pension covers £5,078 in real terms then other pensions need to provide £11,588. With current annuity rates that implies the money purchase new scheme needs circa £178,000 in real terms (assume annuity rate say 6.5%) to provide this difference.

    Remember also that other taxes also get paid out of net pay: Council Tax, vat and duty on fuel, stamp duty on houses, vat and duty on drinks, IPT on insurance, tax on flights, vat on non food purchases (most items) and odd bits of vat on some food items, Road fund licence on your car, charge each time you renew your driving licence / passport.

    Of course you only repay the 9% re the loan for 30 years, after that you may have some spare funds to save/ invest, but investment, to be effective should start early. You are all going to be in your early 50s by the time you stop paying and start saving, 17 say years then retirement.

    Good luck!
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    (Original post by Budgie)
    That's some very dubious economics. Please explain how it causes inflation?

    And your caricature of everyone who is in favour of tuition fees reform is indicative of the low level of argument peddled by those on your side of the debate. I have a tuition fee loan and a means tested maintenance grant and university Opportunity Bursary. I am in favour of the reforms. Start engaging with the actual issues rather than trying to engage in class warfare.
    The government lending out money it doesn't possess (i.e. in actual gold/silver reserves) devalues the GBP and therefore increases inflation, fairly simple economics for you there.

    It's not 'our side' with the low level argument, we have economics on our side and the broken promises of our elected MPs...

    And who is engaging a class warfare? I didn't mention class. Unless you want to call me working class just because my parents have little money and I receive maximum grants/bursaries? Because by my parents' profession I am middle class. Money does not link to class and it'd do you well to realise that - class is determined by profession, at least to all those but the simple minded that like to prejudicially class people by wealth.
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    For the record I have joined
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    excuse any ignorance on my behalf,

    I dont think that they should be as high perhaps, and that it would be much more benificial to cut course numbers on non vocational courses that ultimately arent useful to the economy i.e. television studies, popular music studies etc, but are still subsidised by the government, cutting course numbers for most numbers will drive up competition for places and mean only the hardes working students in the UK obtain a place. Not everyone needs to attend university because personally about 60% or more of my year group only intend to go for the lifestyle and the independence, (after the argument came onto the news my school took an annoyamous poll) choosing courses with the bare minimum needed to get in and subjects that they have no interest, I know someone applying to study english lit and he read his first book about a month ago not even finishing many novels on his Alevel english lit course. I dot think that many university courses could be replaces by internships, it would mean practical experience, free labour for employers and no student loans, this could work for a host of degrees such as the much berated media studies where voluntary work could take place in tv studios ect and then to keep an academic side in this by having self directed learning in spare time with self organised government endorsed exams giving out a qualifaction.

    I used to be against the fees rising but if you dont think that the fees are worth paying what does that say about your long term goals about going to university. A degree is an amazing thing and I have to admit that 50% of a population in third level education devalues the worth of them.

    I dont think that money should come into the equation, and I dont think that it will be the porrest in society that will be most affected rather the families who earn collectivly around £23,000 as the maitence bursary is signifacently less that that awarded to someone whose family earns £21,000.

    Please dont neg me lol
    any criticism or opposition to what I said would be interesting.
    sorry if I inadvertently offend anyone as its easy to do so when dealing with this.
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    (Original post by Taste of Honey)
    The government lending out money it doesn't possess (i.e. in actual gold/silver reserves) devalues the GBP and therefore increases inflation, fairly simple economics for you there.
    Thanks for the patronising tone, but given that these proposals basically just shift the burden from the money going directly to universities through the teaching budget to the graduate having to make the contributions in later life, it's hardly changing the money supply! It's just a wealth reallocation - the government is not engaging in money creation. It's no more inflationary / disinflationary than a shift to a graduate tax or increasing income tax to pay for it. Just because it's labelled with the word 'debt' doesn't mean you should jump headfirst into your A-level economics textbook on fractional reserve banking....

    I obviously know that deficits can be inflationary, but there's nothing inherent in this policy that implies that it will be deficit funded. Indeed in the long run it shifts the burden away from the exchequer and onto the graduate. But the universities aren't receiving much/any additional money, it's just the source that is changing.
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    (Original post by Taste of Honey)
    And who is engaging a class warfare?
    (Original post by Taste of Honey)
    Do you not realise that raising tuition fees increases debt (not everyone can afford to pay them outright and therefore need a loan...though I'm sure YOU'LL all be fine with Mummy and Daddy paying it?)
    Fine, if you're unhappy with the word 'class' you're being a snob about wealth. You are trying to caricature everyone in favour of fees as someone who is rich. It's not true, and I presume you are only resorting to it for want of actual, y'know, arguments.
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    No, because I don't support the reforms.

    I have read the Browne report and understand the reforms, thank you very much, Vince Cable.

    I have seen no evidence they will 'reduce the deficit'.
    I am against the mass cuts being made to universities.
    The government will still be providing the £9k funding as fees will not be paid upfront - this does not save money!
    It seems some proportion of the fees will be unpaid after graduation - how does this save gov't money?

    The reforms will result in what could be regarded as a graduate tax of a sort. Those in favour claim this is a more progressive system. Surely it is more progressive to fun education through general taxation?
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    (Original post by No Future)
    No, because I don't support the reforms.

    I have read the Browne report and understand the reforms, thank you very much, Vince Cable.

    I have seen no evidence they will 'reduce the deficit'.
    I am against the mass cuts being made to universities.
    The government will still be providing the £9k funding as fees will not be paid upfront - this does not save money!
    It seems some proportion of the fees will be unpaid after graduation - how does this save gov't money?

    The reforms will result in what could be regarded as a graduate tax of a sort. Those in favour claim this is a more progressive system. Surely it is more progressive to fun education through general taxation?
    I support the reforms, but the part about deficit reduction is at best misleading, because in the short term expenditure is greater. Although over the long term more money will probably be recouped - this will not be for decades, by which time we may not even have a deficit. But the Government expects to regain 70% of loans, and if thats correct they will see a return compared to the current system - eventually. And interest on loans will increase the amount recouped.

    But you need to understand universities that charge £9k will get more funding, as it will more than plug the funding gap left by cuts. Bear in mind the average course costs £7k, so funding above that is extra (as will be the case with £9k fees).

    Simplistically, I would say taxing the people who benefit directly is good, but taxing the people who may indirectly benefit is bad, at least in the current climate. And if university was to be fully funded by the taxpayer, you would probably need to cut student numbers, or at least scrap pointless courses, so they get better value for money.
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    (Original post by Flob)
    I support the reforms, but the part about deficit reduction is at best misleading, because in the short term expenditure is greater. Although over the long term more money will probably be recouped - this will not be for decades, by which time we may not even have a deficit. But the Government expects to regain 70% of loans, and if thats correct they will see a return compared to the current system - eventually. And interest on loans will increase the amount recouped.
    Noted. Yes, it does seem unclear as to the long term effects of the new system.

    (Original post by Flob)
    But you need to understand universities that charge £9k will get more funding, as it will more than plug the funding gap left by cuts. Bear in mind the average course costs £7k, so funding above that is extra (as will be the case with £9k fees).
    My understanding was that if unis were to charge £9k they would have to offer more bursaries etc, surely cancelling out some of the increased funding they would receive? Seems rather pointless to me. Why not just have a lower maximum cap and keep it simple?

    (Original post by Flob)
    Simplistically, I would say taxing the people who benefit directly is good,
    Of course, but university education doesn't only benefit the graduates.

    (Original post by Flob)
    but taxing the people who may indirectly benefit is bad, at least in the current climate. And if university was to be fully funded by the taxpayer, you would probably need to cut student numbers, or at least scrap pointless courses, so they get better value for money.
    I am unsure as to whether university should be fully taxpayer funded. A reasonable contribution from the student seems sensible to me, along with a sensible system of student loans that actually covers all living costs.

    I very much agree that pointless courses should be cut and do think too many people go to university. Why not make some cuts to uni numbers and allow the brightest to go to uni? This would be a more efficient way to benefit society.
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    (Original post by No Future)
    The reforms will result in what could be regarded as a graduate tax of a sort. Those in favour claim this is a more progressive system. Surely it is more progressive to fun education through general taxation?
    This is not politically viable. The narrative of the minimum wage cleaner paying for someone to get a law degree would be too strong. Additionally, universities would have an incentive to just charge government the highest possible 'fee' as demand would be unresponsive to it, whereas under this system they at least have an incentive to keep it down.

    I actually in principle agree with you, however. The government's proposals involve a highly redistributive system from rich to poor among graduates. I don't actually see why the state should be additionally redistributive just among graduates than among the rest of the population. Any argument for a high-earning graduate subsidising a low earning graduate's education is equally applicable in favour of a high-earning non-graduate subsidising a low-earning graduate's degree. Therefore, if you are in favour of 'progressively' funding higher education, you should support funding it via general taxation rather than a graduate tax. The problem is that you would then run into the two problems I mentioned above. Because of those problems, the government's proposal is the best viable option.
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    (Original post by Budgie)
    This is not politically viable. The narrative of the minimum wage cleaner paying for someone to get a law degree would be too strong. Additionally, universities would have an incentive to just charge government the highest possible 'fee' as demand would be unresponsive to it, whereas under this system they at least have an incentive to keep it down.

    I actually in principle agree with you, however. The government's proposals involve a highly redistributive system from rich to poor among graduates. I don't actually see why the state should be additionally redistributive just among graduates than among the rest of the population. Any argument for a high-earning graduate subsidising a low earning graduate's education is equally applicable in favour of a high-earning non-graduate subsidising a low-earning graduate's degree. Therefore, if you are in favour of 'progressively' funding higher education, you should support funding it via general taxation rather than a graduate tax. The problem is that you would then run into the two problems I mentioned above. Because of those problems, the government's proposal is the best viable option.
    Well, in order to be progressive, why would minimum wage earners be taxed more? I was thinking along the lines of a very small % increase for the very highest earners. This would hardly change their quality of life.

    The universities do not have an incentive to keep fees down. They need to cover their running costs, due to the 80% cut to uni teaching budget, so keeping fees low will not help this end.

    I agree that it is politically difficult to impose a general taxation vs graduate taxation, but if this was just a couple of % to the highest earners it would not hurt those on low wages and not really hurt the high earners. If you're on a few hundred thousand a year, you are unlikely to feel a pinch
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    (Original post by No Future)
    Well, in order to be progressive, why would minimum wage earners be taxed more? I was thinking along the lines of a very small % increase for the very highest earners. This would hardly change their quality of life.

    The universities do not have an incentive to keep fees down. They need to cover their running costs, due to the 80% cut to uni teaching budget, so keeping fees low will not help this end.

    I agree that it is politically difficult to impose a general taxation vs graduate taxation, but if this was just a couple of % to the highest earners it would not hurt those on low wages and not really hurt the high earners. If you're on a few hundred thousand a year, you are unlikely to feel a pinch
    You couldn't pay for all higher education with a few % on those on a hundred thousand a year. Hardly anyone earns that much.

    I agree that you could make it such that taxes only went up in a way that kept the redistributive outcome similar. But it would still be politically unpalatable, as that's not the way it could be viewed. After all, if you did that, people would just argue "if graduates paid for themselves, taxes on the lowest earners could be lower". And it's true - they'd be paying in opportunity cost. I'm not saying it's a bad idea, just that I think it's politically completely unrealistic.

    There is an incentive for universities who do not need to charge £9,000 to charge less to attract students. If the state paid for all higher education centrally, there would be no such incentive - if the cap was £9,000 replacement funding per student, every university would obviously claim that that was what they needed.
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    (Original post by Budgie)
    You couldn't pay for all higher education with a few % on those on a hundred thousand a year. Hardly anyone earns that much.

    I agree that you could make it such that taxes only went up in a way that kept the redistributive outcome similar. But it would still be politically unpalatable, as that's not the way it could be viewed. After all, if you did that, people would just argue "if graduates paid for themselves, taxes on the lowest earners could be lower". And it's true - they'd be paying in opportunity cost. I'm not saying it's a bad idea, just that I think it's politically completely unrealistic.

    There is an incentive for universities who do not need to charge £9,000 to charge less to attract students. If the state paid for all higher education centrally, there would be no such incentive - if the cap was £9,000 replacement funding per student, every university would obviously claim that that was what they needed.
    Will look into figures.

    I'm not sure I follow your last paragraph/point.
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    (Original post by Budgie)
    You couldn't pay for all higher education with a few % on those on a hundred thousand a year. Hardly anyone earns that much.

    I agree that you could make it such that taxes only went up in a way that kept the redistributive outcome similar. But it would still be politically unpalatable, as that's not the way it could be viewed. After all, if you did that, people would just argue "if graduates paid for themselves, taxes on the lowest earners could be lower". And it's true - they'd be paying in opportunity cost. I'm not saying it's a bad idea, just that I think it's politically completely unrealistic.

    There is an incentive for universities who do not need to charge £9,000 to charge less to attract students. If the state paid for all higher education centrally, there would be no such incentive - if the cap was £9,000 replacement funding per student, every university would obviously claim that that was what they needed.
    Sorry but your first sentence is just incorrect. You could quite easily pay for higher education with a few % on the richest in our society. You are quite frankly naive about how rich the very rich are in this country. You could probably do it by putting a few % on less than the top 1% of earners and they would still be disgustingly rich.

    On your other point. I go to Royal Holloway, University of London. I had a chat with the Principal during an occupation we had about this issue and i asked him if Royal Holloway will be charging £9000 and he said it would. He also agreed with the point i made that pretty much all universities will charge the highest amount because it is about prestige and those that charge less than this will be seen as lesser institutions so they will not.
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    (Original post by JMG89)
    You could quite easily pay for higher education with a few % on the richest in our society. You are quite frankly naive about how rich the very rich are in this country. You could probably do it by putting a few % on less than the top 1% of earners and they would still be disgustingly rich.

    On your other point. I go to Royal Holloway, University of London. I had a chat with the Principal during an occupation we had about this issue and i asked him if Royal Holloway will be charging £9000 and he said it would. He also agreed with the point i made that pretty much all universities will charge the highest amount because it is about prestige and those that charge less than this will be seen as lesser institutions so they will not.
    1. I had suspected this. I agree that a small tax increase on the very rich would barely be anything to them, but would go a long way to funding things such as uni education

    2. Ah, I hadn't thought of that. Interesting to hear.
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    (Original post by No Future)
    1. I had suspected this. I agree that a small tax increase on the very rich would barely be anything to them, but would go a long way to funding things such as uni education
    (Original post by JMG89)
    Sorry but your first sentence is just incorrect. You could quite easily pay for higher education with a few % on the richest in our society. You are quite frankly naive about how rich the very rich are in this country. You could probably do it by putting a few % on less than the top 1% of earners and they would still be disgustingly rich.

    On your other point. I go to Royal Holloway, University of London. I had a chat with the Principal during an occupation we had about this issue and i asked him if Royal Holloway will be charging £9000 and he said it would. He also agreed with the point i made that pretty much all universities will charge the highest amount because it is about prestige and those that charge less than this will be seen as lesser institutions so they will not.
    You realise that the 50% top tax rate on earnings over £150,000 is anticipated to raise only £2.4bn over what the 40% rate raises, right? And that's what the government hopes - many predict less. You're looking at a bill of over £11bn to fund university. So just what kind of tax rise are you suggesting, if a ten percentage point tax rise on the richest only raises (optimistically) £2.4bn!?

    Make no mistake, you'd have to cut well into the top half of earners to fund it. And guess what? That's precisely what the government's proposals do, by putting most of the burden on well off graduates and none of the burden on those who earn below £21k, which is around the median personal income of the UK. That's progressive.

    You couldn't fund it just from the richest 1%. See the IFS report Taxing the rich - can it raise any money for the government?.
 
 
 
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