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11 November 2026 |
FOR IMMEDIATE RELEASE Graduates hit with tax rates of up to 71% as university degrees lose their value
Graduates are facing effective marginal tax rates of up to 71% while the financial returns from university degrees continue to fall, according to a new book from the Institute of Economic Affairs (IEA), which warns that Britain's higher education system is failing students and taxpayers alike. The Higher Education Delusion: What’s Gone Wrong with the UK’s Universities?, edited by Professor Len Shackleton, brings together ten contributors who examine the sector’s finances, standards and culture, and set out the case for radical reform. Higher education consultant Peter Ainsworth argues that the student loan works as a tax on graduates. For graduates earning between £29,385 and £50,270, repayments of 9% of earnings above the relevant threshold, layered on top of income tax and National Insurance, can produce an effective marginal rate of 37%. For those earning between £100,000 and £125,140, the combination of income tax, the withdrawal of the personal allowance, National Insurance and student loan repayments can push the marginal rate to 71%. In 2024–25, total repayments in England grew by just 0.1% in cash terms, despite more graduates entering repayment. Ainsworth warns that half of all loan value may ultimately be written off, compared with a Department for Education projection of 29% in 2024. Meanwhile, the financial rewards of going to university have diminished as student numbers have expanded. Economist Julian Jessop shows that the graduate earnings premium for 21 to 30-year-olds has fallen from around 35% in 2007 to 25% in 2024. Around 30% of graduates are now in non-graduate jobs, and Jessop argues that an earlier estimate suggesting one in five graduates would have been financially better off without a degree is likely to understate the problem today. Academic standards are also under strain. Professor Michael Ben-Gad’s analysis of UCAS data shows that the average entry score across seven major subjects fell from 135 points to 124 in just four years, between 2019 -20 and 2023 - 24. Separately, the proportion of students awarded first-class degrees has risen from 7% in 1993 - 94 to 30% in 2024 - 25, with 79% of finalists now receiving a first or a 2:1. The book also raises questions about how universities spend the fees they collect from students. Professor Shackleton estimates that around 20% of tuition fee income is used to subsidise academic research, often without students’ knowledge. The 2021 Research Excellence Framework cost £471 million, and the share of UK research rated “world-leading” rose from 14% in 2008 to 41% in 2021. This suggests an improbable improvement in quality – or, more likely, the research equivalent of grade inflation with the sector marking its own homework. Other contributors examine the sector’s dependence on international students, whose fees made up 47% of all tuition fee income in 2023–24. They also look at the roughly half a million “missing men” who have not gone to university over the past decade, and at a growing political monoculture on campus, where the left-to-right voting ratio among academics now stands at over 6:1. The book’s proposals include allowing struggling institutions to fail, making universities share the financial risk of their students’ loans, concentrating research funding, strengthening free speech protections, and opening the sector up to new providers as artificial intelligence transforms how people learn. Professor Len Shackleton, Editorial and Research Fellow at the IEA and editor of The Higher Education Delusion, said: “The UK’s Higher Education Sector is in a mess, economically, academically and culturally. “For decades, young people have been told that going to university is the surest route to a better-paid career. But for growing numbers of graduates, that promise is no longer being fulfilled. “Students are taking on substantial debts, taxpayers are underwriting the costs, and universities face too little pressure to demonstrate that their courses deliver value. “We need to stop treating university expansion as an end in itself and start asking whether the system is delivering for the people who pay for it.”
Saqib Bhatti MBE MP, Shadow Minister for Education, said: “Universities are a major source of economic growth, employ hundreds of thousands of people and are going to continue to be an enormous part of modern Britain. “However, Universities in the UK are facing some significant financial and societal challenges. Amidst the backdrop of a changing jobs market and more volatile world, our universities must be prepared to confront some of these hurdles. “This timely research highlights some of the important challenges that must be met. From ensuring degrees support graduates into work to creating a more resilient society. The Government have showed very little support to the university sector and our graduates and need to urgently come up with some answers because if we lose our universities, we lose our society.” |
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