Higher Education: It's time students learnt to pay: Pauline Perry says a graduate tax would allow for further growth

'PEOPLE must learn to see education as a consumer good, to be paid for on credit,' said the head of an American university, speaking at an international conference of European vice-chancellors and American university presidents last month.

That idea is foreign to people in Britain. The principle that higher education must be free to all participants and paid for by the taxpayer was accepted here more than 40 years ago, when less than 4 per cent of the population benefited from higher education and the tax bill was commensurately low.

At the end of the Forties, the introduction of maintenance grants further increased the cost to government for what was still a relatively small number of students. But while the taxpayer could foot the bill at that more modest level, there are difficulties in expecting fees and grants to be publicly financed now that we are moving towards higher education for perhaps one in three people.

In the past few years, as student numbers have increased rapidly, the Government has attempted to keep alive the model of free higher education. However, this is buttressed by a student loan scheme, which compensates for the freezing of the maintenance grant at its 1990 level, and an 'access fund' for students in hardship, which compensates for the withdrawal of student housing benefits.

Those measures were logical ways to tackle the issue, but the basic model remained unchanged. On all counts the system now appears to be flawed as a long-term way of financing higher education.

Heavy investment by central government in higher education brings with it all the disadvantages of a need for central planning, and, inevitably, a restriction on further growth.

After years of raising expectations, and achieving a more defensible level of participation in higher education, the Government has been forced to reduce drastically the funding for further expansion in classroom-based subjects where demand is still high. This could prove, both socially and politically, a high-risk strategy.

Furthermore, despite measures to freeze the student maintenance grant and the introduction of the loans scheme, the Government is still one of the most generous supporters of students' living costs in the world. Many might ask whether that is the best investment of money, when funding for the provision of higher education through fees and grants to universities and spending on the science research base also compete strongly for taxpayers' funds.

As far as the students are concerned, the level of financial hardship is a cause for concern. The expansion in numbers has brought in many students who are first-generation participants in higher education. They include some whose parents find it difficult to see the benefit of providing a contribution to their grant; even by 1989 40 per cent of parents were failing to make their full contribution. Many more students who enter higher education over the age of 25 are struggling with home and family commitments.

A fundamental rethink of the strategy for funding higher education and students is needed. Taxpayers cannot be expected to make an open-ended commitment to an expanding area of public expenditure, particularly when those benefiting will always be a minority - less than 50 per cent of their age-group.

Many learned voices in the industrial, commercial and academic worlds have been raised in support of some form of a graduate tax. This would permit students to enjoy a much higher level of maintenance grant during their periods of study. It would enable higher fees to be paid to universities - by all students, not just the few who could afford it; and that would enable universities to provide for continued expansion without a further burden on the general taxpayer. It would also permit increased costs to be paid back by graduates through a standard increase on their basic taxation.

I am impressed by the scheme put forward in Light, Liberty and Learning, by Nigel Allington and Nicholas O'Shauhnessy. They propose a 'user payment scheme' for higher education which would comprise a basic- rate taxation charge to all new graduates, covering a contribution to their fees and their maintenance grants, based on an Australian model.

The Australian system adds 2 per cent on average to graduates' income tax after they have reached the average pay level. Most pay within 10 years, but they have the option to pay immediately on graduation, when they are offered a 15 per cent discount. The system has allowed the Australian government to recoup substantial sums towards the cost of expanding higher education.

Universities would again be free to respond to market demand instead of being subject to central planning. Students would be freed from the more desperate cases of hardship during their university careers. They would also be spared the anxiety of heavy loans with interest, with all the disadvantages that loans present to people who may be temporarily unemployed, including those who stay at home and look after children.

For the universities, the system would offer extra funds for the provision of higher education and research.

I hope the Government will conduct a thorough and far-reaching review of the funding of higher education. Ministers should stop listening to civil servants who tell them it is all too difficult and instead send them away to devise a system that will work. As the Chancellor of the Exchequer said in 1919, in a centenary speech in memory of James Watt: 'It will be an evil day if universities look only to the Government.'

Baroness Perry of Southwark is the vice-chancellor of South Bank University, London.