There’s a simple way to clear the university logjam

In this article Dr Madsen Pirie discusses private options for university funding, arguing against a graduate tax. He proposes universities follow the Harvard model of funding and that the government should promote bequests to universities through tax relief.

Today, more than 100,000 students with decent grades will begin the scrabble for the smallest number of clearing places in decades. Droves of young people will be turned away proving what everyone already knows: university finances are in a mess.

What’s the solution? Some advocate uncapping fees, which is just a short-term sticking plaster. Others want to tax graduates, which would put funds into the Treasury, but not necessarily the lecture hall.

In the past we have copied good things from America’s best universities — and, if we want the only long-term solution to our funding problem, then we need to adopt US money-raising methods. We need to build up endowment funds that aid poorer students and liberate the number of spaces at college from what the Government thinks it can afford.

Harvard’s endowment fund stands at more than $25bn, built up from private donations and judicious management. It allows the university to admit its high-achieving students on a needs-blind basis: all are picked on merit alone, and scholarships are awarded only to the needy. We should start to put UK universities on the same road. It will take serious money and radical incentives.

Americans are generous. It is an American tradition to make your pile, then use it generously. Bill Gates and Warren Buffett do on a grand scale what many Americans on more modest incomes do too. We lack that culture and the tax rules that encourage it, and we should change that.

US tax law fosters generosity. Money given or bequeathed to a university comes straight off their taxable income without complex rules and covenants. Money given to a university is money the US Treasury has no interest in.

We should follow suit. Gifts to universities should be taken off total income, leaving only the balance to be taxed. The same should apply to gifts from businesses.

We should also promote bequests. Those leaving money to universities should have their estates qualify for matching tax relief, so 20 per cent of an estate left to a university would remove inheritance tax from a further 20 per cent. A person leaving half their estate to a university would face no inheritance tax on the other half.

The aim, must be to make giving to universities, whether you are dead or alive, the norm. Education boosts social mobility — and we should be helping universities to build up the funds to offer a life changing chance to everyone who merits it.

Published in The Times