Graduates' tax bills will rise by 20% under new student finance proposals

Graduates who earn the national average salary will be hit with tax bills almost 20% higher than non-graduates if new plans to fund universities are implemented, warns new research published today.

Analysis by UCU revealed that a graduate earning the national average salary of £31,916 would have a 19.3% higher tax bill than work colleagues who had not been to university, for the duration of student loan repayments.

The union said the government would be introducing a stealth tax on learning and aspiration through controversial plans to shift the cost of university tuition from the state to the student. Tomorrow's teachers, scientists and doctors could see their tax bills increase by a quarter, while they repay their student loan debts.

The union analysed the impact of a 9% repayment through tax on earnings over £21,000, as proposed by the coalition government. Students who leave university and earn the average graduate starting salary (£25,000) would see their tax bill increase by almost 10%.

School teachers would see their tax bill rise by a quarter (23.5%) and graduates who go on to become university lecturers would see an increase of 27%. Police inspectors would see their tax contribution upped by more than a quarter (25.5%) and doctors would face a similar hit (24.1%). The full table is below.

UCU general secretary, Sally Hunt, said: 'The coalition is introducing a learning tax that will saddle the next generation of professionals with years of lost revenue. The message this sends is that in the UK we now penalise aspiration rather than encourage it. Mums and dads who just want their children to have better opportunities than they did will see this for what it is - a stealth tax on learning and aspiration.

'George Osborne started his spending review by saying that he did not wish to saddle children with debts the government was not willing to pay. That is just utter nonsense when put against his government's plans for university funding. Future students will be saddled with record levels of debts and it doesn't matter how they are dressed up, they still need to be paid off.'

Table: The impact on earnings of Income Tax and student loan repayments, Nov 10 [20kb]

Source: Average earnings: Annual Survey of Hours and Earnings 2009 (ONS) (pdf) mean average gross full-time employees, table 14.7a; tax information for 2010-11; tax payment and loan repayment calculations: UCU.

Notes: All employees assumed to have an Income Tax Personal Allowance of £6,475; Basic rate of Income Tax @ 20% paid on earnings between £6,476 and £43,875; Higher rate of Income Tax @ 40% paid on earnings between £43,876 and £156,475; Student loans for tuition fees and maintenance are repaid at the rate of 9% of earnings above £21,000; Student loan repayments are made by graduates if earnings are above £21,000; until the loan is repaid; providing the loan is less than 30 years 'old'.