Can't pay, would like to pay

The Labour Party is united in its support of expansion in higher education. But it still has to resolve how to pay for it. The lifetime graduate tax mooted this week is one of the most controversial options being considered, but not the only one.

Its very appearance on Labour's agenda is significant, though: it is the strongest signal yet that the party hierarchy accepts that a university degree should no longer be free.

Twelve months ago Jeff Rooker, the party's former higher education spokesman, was sacked from the front bench after drawing up a paper supporting charges for students. The document was thrown out by John Smith, then the Labour leader, due to misgivings in the party and concern about the impact on middle-class families.

The debate on student funding was rejoined two months ago when the Social Justice Commission recommended that graduates should repay their tuition fees and living costs and the new Labour leader, Tony Blair, indicated that he was not averse to the idea. David Blunkett, the Shadow Education Secretary, and Bryan Davies, higher education spokesman, are to draw up a report in the new year on how Labour can fund a higher education system that promotes increased access but is committed to quality and standards. Privately, both Mr Blunkett and Mr Davies acknowledge they have to "grasp the nettle". But any review of policy will inevitably reopen old wounds.

One sector of the party favours a hypothecated tax, with higher-income earners (whether graduates or not) paying a special levy earmarked for higher education and the health service. The fee could be collected efficiently and easily through income tax orNational Insurance payments.

Aware that such a radical reform would be a vote-loser with better-off non-graduates, others prefer a moderated and less lucrative version: the lifetime graduate tax. Opponents claim it would be little better than the existing student loan system. They say it would scare many students away from taking a degree in the first place and defeat the original objective of drawing more people from different backgrounds into higher education.

The level of earnings which would trigger the tax has not been decided. But sources say Labour would set it above the £14,500 a year cut-off point used by the existing student loan system.

There is, however, a significant faction in the Labour Party which believes neither a general tax nor a graduate tax would be workable. They note instead that the three alternatives set out by the Social Justice Commission all entail repaying a finite sum. One is a monthly "mortgage-style" loan repayment, although this would mean disproportionately high repayments when graduates have the least income, and smaller sums when they could afford to pay more.

Another option involves a surcharge added to National Insurance, though this might mean graduates beginning repayments from earnings as low as £57 a week - the level at which National Insurance is first paid. Or it could be a rising surcharge on NationalInsurance applied only to those earning a certain level of income.

This option has its supporters in the Labour Party. They favour a system similar to that used in Australia: graduates would receive loans for maintenance and for one-fifth of their tuition costs. They would begin repaying the money once they were earninga reasonable amount.

Labour politicians argue that the current loans system, under which undergraduates borrow up to £1,375 a year for a maximum of five years, favours richer students. They say that the trigger point is too low and the pay-back period too short. (All students have to pay back their loans within five years, provided they earn 85 per cent of the average wage.) Supporters of an Australian-type system believe these problems could be resolved by raising the trigger and setting longer deadlines.

In the past Mr Blunkett has backed the general principle of a hypothecated tax. He is wary of any scheme that would leave students from low-income families having to repay loans while their wealthier counterparts start their careers free of debt because their parents have helped them.

The Labour Party says it recognises that the student grant of £2,265 (for those outside London) is insufficient. It argues that thefreezing and then cutting of grants, and the corresponding introduction of top-up loans, has increased hardship and acted to the detriment of the student experience. The National Union of Students claims that today's sixth-formers are likely to leave university with debts of more than £8,000. These statistics, Labour's policy-makers believe, are unacceptable and show that the current system has broken down.

Senior party officials say that a Labour government would have to be pragmatic in its approach to funding the escalating cost of higher education. And they cite the fact that graduates still earn better salaries than many non-graduates as justification

for targeting them. If this change were introduced, however, Labour would be abandoning once and for all its traditional view that higher education is the right of everyone, and a right that the state should pay for.