The Richard Koch Breakthrough Prize is an annual essay competition run by the Institute of Economic Affairs. This year entrants were asked to consider “What single policy would give everyone in society, whatever their background, a real opportunity to succeed on their own merit?”
The winning entry by Peter Ainsworth and Tom McKenzie EDegg: The EDucation, Enterprise and Giving-back Grant – A nest egg of opportunity for all, proposes re-arranging the flows of money into higher education so that universities, rather than the government, lend to their students, and in return receive income-related repayments.
This would save taxpayers £10.6bn that is currently lost on student loans. Combining this £10.6bn with the £2.7bn generated through the Apprenticeship Levy, would be sufficient to offer each 18 year-old a £20,000 credit, to be used towards: (i) further education or training, (ii) starting a business or (iii) voluntary activities. The money would not all have to be used at age 18. It is a Lifetime Opportunity Credit, offering financial support at many different stages of life.
The current system of funding appears to favour university students, who come predominantly from wealthier backgrounds, in the form of the subsidisation of their student loan. EDegg’s redistribution of this subsidy provides the same help for all, regardless of background or level of training.
Under EDegg, post-18 providers including universities can set their own fees but share the risk faced by students, relying in part on income-related payments after graduation. Hopefully, this will lead to institutions offering courses oriented to the jobs market, as well as redesigning courses to make the most effective use of time on campus and provide “aftersales-support” to un- or under-employed graduates. Arts and Humanities courses will thrive as they develop the creativity needed in the robot age. The NHS will benefit from more doctors being trained as the limit on the number of medical students is removed, since the government will no longer bear the costs. The institutions will benefit from less red tape and a government guarantee on loans made to them.
EDegg funds may also be used to start a business, but funds will only be released after a bank has agreed to lend at least an equivalent amount. Banks that take on the risk will be incentivised to only approve loans for viable business ideas.
EDegg could also finance new Community Interest Companies (CICs), to provide services to local communities. To confirm that a CIC has popular support, and that the community is willing to share in the risk of the venture, a total of £1,000 must be raised from 100 local citizens.
Finally, any EDegg credit that is unused by age 55 can be paid into personal pension plans, subject to confirmation that the individual has undertaken voluntary work equal in hours to the EDegg credit divided by the minimum wage.
At launch, EDegg will create an initial wave of optimism as 18-year olds receive a £20,000 credit. Over the medium term, it should make university education more worthwhile – with institutions keener to help after graduation. There will also be increases in vocational training, business start-ups and the local community-enhancing projects.
EDegg is both feasible and politically compelling, using free-market principles to increase opportunity at zero cost to the Exchequer.
The full winning essay “EDegg: The EDucation, Enterprise and Giving-back Grant – A nest egg of opportunity for all”, by Peter Ainsworth and Tom McKenzie, can be downloaded here.
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