The levy on international student recruitment will hit ‘new’ HEIs harder

The new tax

This blog will begin by stating that within the context of wider fiscal policy there is nothing new, novel or philosophically different about the new tax on international students. The word ‘levy’ has been employed. It is in fact a tax. However it is a ‘fixed rate’ tax which means it is regressive. Well branded, high status institutions tend to command higher prices in the international market place. Those institutions with a weaker international profile tend to charge lower fees.

Full-time MBA International Fees

 When a fixed tax of £925 is levied on all individual international students after the first 220 this represents a 4.8% burden for the University of Sunderland while the University of Warwick will pay 1.55% of its international fee income (based on current fees). Hence the high profile, high status institution will be paying less than half that of the University of Sunderland in percentage terms. This is in line with a long tradition within fiscal UK policy.

Some whimsical reflections

An individual with financial means can invest £20k each year in an ISA. After ten years that person will have £200k earning interest tax free. Meanwhile a 20 year old flipping burgers will be in receipt of £10.85 an hour and be taxed. Similarly someone earning up to £50,270 a year will be paying 20% tax. For every pound they choose to invest in a pension scheme they receive tax relief of 20 pence in the pound. On the other hand someone in receipt of £50,271-£125,140 salary is taxed at 40% (PAYE); for every pound directed into a pension plan they receive 40% in tax relief. Smaller, financially weaker HEIs often running deficits will, from 1^st August 2028, carry a higher percentage tax burden for their international students that those internationally respected, influential and powerful institutions.

A puzzling situation

It is claimed that these newly acquired resources (from the tax) will be directed towards those students from financially disadvantaged families.  However it seems possible that 45% of HE providers could run a deficit this year[1]. Viewed with a dispassionate financial eye the sector might be considered unsustainable in its current form.

Conclusion

Ministers often refer to the sector positively in terms of its economic contribution and social benefits and the term ‘soft power’ is used in reference to those international students who study within the sector and later return to their countries of origin. Within this context it is a conundrum as to why the UK state has chosen to introduce a new tax which is likely to place more financial stress on to an already struggling sector.

[1] https://publications.parliament.uk/pa/cm5901/cmselect/cmeduc/807/report.html