South African Money Laundering and Corruption

View speech on Parliament TV (at 16:30)

My Lords, it is a real privilege to follow the noble Baroness. I have been in the House for less than two years, but she has always struck me as a real star. I have marvelled at the way in which she has managed to make the Government’s case on Europe vaguely plausible, which shows expertise and charm. I have also noticed that the noble Baroness has always spoken and answered questions from the Front Bench, including from myself, with great courtesy, even giving the impression in her answers that she has listened to the questions. Her colleagues may well want to bear that in mind. I note that the casualty rate in the post that she has just left seems to be quite high. I wish her all the best in the future, and I am sure that the whole House does as well.

The noble Baroness made the case for sanctions against South Sudan and elsewhere compellingly. I do not refer to her specifically, but I remember the way in which this House opposed sanctions against the apartheid regime. If she had been in the Conservative Government at the time, perhaps that might have changed.

There have been no criminal prosecutions for money laundering of financial institutions, and very few of other “enablers” such as lawyers and accountants. There have been regulatory fines, but it is not clear that these are enough to deter banks and other financial players from making their anti-money laundering compliance regimes a tick-box exercise rather than a meaningful one. This Sanctions and Anti-Money Laundering Bill enables the Government to introduce regulations that would create new civil penalties and criminal offences for money laundering, but the threshold for the latter is low—a maximum three-month sentence for a criminal conviction.

As the noble Baroness, Lady Bowles, mentioned, using such powers to enable the Government to introduce criminal offences by regulation is against parliamentary convention. The noble and learned Lord, Lord Hope, also referred to this matter with his expertise. Surely it would be better for the Government to accept or introduce an amendment to the Bill to introduce a “failure to prevent” money laundering offence, like that in the Bribery Act and as there now is for tax evasion, which would ensure that such an offence was introduced by primary legislation.

As I said, the noble Baroness, Lady Anelay, made moving points about South Sudan and elsewhere from her experience. However, my main focus today is whether the Bill will deal effectively with the massive money laundering organised from the very top of the Government in South Africa, the presidency itself—the subject of my Oral Question on 19 October in your Lordships’ House and my letter to the Chancellor of 25 September. I beg some indulgence in speaking at greater length than the noble Baroness on this to spell it out. It is serious.

Corruption within and money laundering from a monopoly capital elite around the President’s family in South Africa and their close associates the Gupta brothers—which is painful for me to witness, having been active along with my brave parents in the anti-apartheid struggle—show that winning the war against financial crime will require co-ordination, influence, action and accountability between multi-jurisdictional law enforcement agencies. Money laundering is a key enabler of organised crime, allowing criminals to transmit multi-billion pound illicit funds into the legitimate economy, undermining its integrity and public trust. However, confronting it is difficult, partly due to the fragmented information-sharing arrangements across borders and between banks and law enforcement agencies. It is all very well to develop better protection for our own country, as this Bill purports to do, but, without simultaneously enhancing cross-border co-operation, we will not win the war against financial crime.

On regular visits to South Africa—most recently last month—I have been stunned by the systemic transnational financial crime network facilitated by an Indian-South African family, the Guptas, and the presidential family, the Zumas. If there had been more proactive and genuine co-operation between the multi-jurisdictional law enforcement agencies, and within and between the banks, which have been moving money for the Gupta/Zuma laundering network, the devastation wrought on South Africa could have been significantly reduced, and perhaps the financial institutions involved would have been able to better mitigate their exposure.

I had delivered by hand last night to the Chancellor printouts of transactions and named the British bank concerned, and I asked that he again refer these to the Serious Fraud Office, the National Crime Agency and the Financial Conduct Authority for investigation. This information shows illegal transfers of funds from South Africa made by the Gupta family over the last few years from their South African accounts to accounts held in Dubai and Hong Kong. The last columns of each sheet, now in the Treasury, show the relevant banks involved, and the records show all account numbers used. Many of the transactions are legitimate, but many certainly are not.

The latter illicit transactions were flagged internally in the bank concerned as suspicious, but I am reliably informed that it was told by the UK headquarters to ignore it. That is an iniquitous breach of legal banking practice in the UK, which I trust Ministers would never countenance, and it is also an incitement to money laundering, which has self-evidently occurred in this case, sanctioned by a British bank, as part of the flagrant robbery from South African taxpayers of many millions of pounds and many billions of their local currency, the rand.

Each originating transaction would start with one bank account and then be split into a number of accounts a couple of times to disguise the origin. Undoubtedly, hard questions will need to be asked of the facilitating banks, because they have aided and abetted the Gupta money laundering activities. Can the Chancellor please ensure that such evident money laundering and illegality is not tolerated and that the bank is investigated for possible criminal complicity in this matter? Urgent action is needed to close down this network of corruption.

Then let us consider an example of the devastation caused to South Africa by cross-border money laundering. The Free State, one of nine provinces in the country, is marked by miles of flat, rolling grassland and crop fields, and it is the country’s granary, responsible for 70% of total maize production. Britain played a defining part in the history of this province, as it marked one of the most contested spaces during the late 19th century/early 20th century South African wars involving the British imperialists, the Afrikaner nationalists and the Basotho people.

Today, the Free State is one of the poorest provinces in South Africa. Nearly one in two of the people are unemployed and nearly two-thirds live below what is called the “upper bound poverty line”. More than half of the people in that province survive on one meal a day, tens of thousands of children go to school hungry, if they are fortunate enough to be in school, and over half of the province’s children drop out of school before obtaining their matric—roughly equivalent to our A-levels—primarily because their daily focus is on survival.

Therefore, when in February 2013 the Free State Government announced that they would spend £18 million —approximately 340 million South African rand —to build, in a small Free State town called Vrede, a dairy farm which would be part-owned by 80 impoverished beneficiaries, the local community felt a sense of hope. Indeed, this kind of public/private partnership is a commendable and deeply necessary model of economic empowerment to redress the profound racial inequalities generated by the apartheid state, which continue to reverberate throughout South Africa.

What the people of Vrede did not know was that this project, and therefore their village, would become the scene of a transnational money laundering crime committed by collaborators from within the Free State Government on the one side and the now notorious Guptas on the other. In essence, this criminal network used these 80 people and their families as pawns in a swirl of international money laundering, which involved some British and other financial institutions.

The laundering operation went like this. Step 1: in May 2013, three months after the Free State Government announced the dairy farm project, a company called Estina—ostensibly the vehicle for the 80 beneficiaries but which was actually linked to the Guptas—was handed a farm to begin building the dairy. Estina’s sole director was an IT salesman with no farming experience. The project was not put out to public tender. Step 2: the Government almost immediately transferred about £6 million to Estina. Step 3: instead of investing this in the farm, Estina transferred most of the money to a Gupta company in the United Arab Emirates called Gateway Ltd. Gateway is registered in Ras al-Khaimah, RAK, which is one of seven emirates making up the UAE and a highly secretive offshore company jurisdiction. At the time, Gateway held its account with the British bank Standard Chartered, which the bank has subsequently closed.

Step 4: once the funds were in Dubai, the Guptas engaged in a classic laundering cycle, transforming illicit money into ostensibly legitimate assets. In arguably the most eye-watering example, they transferred over £2 million of the Estina dairy money in two separate tranches through two shell companies, ultimately consolidating it in their Standard Chartered account for another of their UAE-based companies, called Accurate Investments. The bank has since closed this account too. Step 5: they then transmitted this money into an entity called Linkway Trading, banked with the State Bank of India, back into South Africa.

Step 6: once in Linkway, the Guptas used these funds to pay for a lavish four-day family wedding where, among other extravagances, over £1,000 was spent on chocolate truffles, £120,000 on scarves for guests and £20,000 on fireworks. At about the same time that the Guptas were celebrating at the wedding, veterinarians in the town of Vrede were called to the dairy farm because of the reeking stench of dead animals. According to their report, they found at least 30 cows that had been buried in a ditch having died from,

“an unknown condition that could be caused by malnutrition”.

I have detailed the Vrede dairy example because many of us do not appreciate the destitution caused by money laundering. It almost always requires the complicity, whether witting or unwitting, of financial institutions. In this case, some of those are headquartered in Britain, such as Standard Chartered. I am grateful that the bank is now being investigated, along with HSBC and the Bank of Baroda, by the Serious Fraud Office, the Financial Conduct Authority and the National Crimes Agency following my Question in your Lordships’ House on 19 October and my request to the Chancellor.

The success of these criminal networks relies also on the action or inaction and co-operation or non-cooperation of the relevant law enforcement authorities. Always, it is the poorest who bear the brunt. In my letter to the Chancellor on 25 September requesting that he investigate UK bank exposure to the Gupta/Zuma network, I listed the 27 entities and individuals who were, among others, involved in the Vrede dairy farm tragedy. It is by no means the only example of the devastation wrought on South Africa by the Zuma/Gupta network.

The Vrede dairy criminal catastrophe proves that the laundering was effected through a transnational triangulation between South Africa, the UAE and British and other global banks. Therefore, the success of our law enforcement authorities in protecting our country from the proceeds of ill-gotten gains entering our financial system, as this Bill seeks to do, and by association protecting more vulnerable developing nations from falling victim to extractive criminal networks, depends on genuine and proactive co-operation and collaboration between the relevant law enforcement agencies in the concerned jurisdictions. Frankly, this Bill falls well short of what is required to do that.

Familiarising myself with the Vrede dairy farm tragedy—and taking some time in this House to explain it—what struck me time and again is why an internationally respected bank such as Standard Chartered would open bank accounts for shell entities registered in a free trade zone such as Ras al-Khaimah, whose primary attraction is as a highly secretive offshore jurisdiction. What was it doing this for? Shell companies, by virtue of their ownership anonymity, such as those used by the Guptas in the Vrede dairy tragedy, are generally classic vehicles for money laundering and other illicit financial activity. According to the Financial Crimes Enforcement Network, shell companies,

“typically have no physical presence other than a mailing address, employ no one, and produce little to no independent economic value”.

The Financial Action Task Force, established in July 1989 at the G7 Paris summit, has consistently warned that free zones could be used for illicit trade and money flows that fall below the radar of regulatory authorities. We know that free zones have become an increasingly popular mechanism for the UAE and other countries looking to lure international investment and boost foreign trade. However, the question for us is whether we are ensuring that our financial institutions are facilitating, inadvertently or not, the misuse by those interests attempting to move their illicit funds from one part of the world to another in order to facilitate money laundering, mafia crime, terrorist activity and financing, as the Minister said, and robbery from taxpayers, as in the South African case.

There are disturbing questions around both the complicity, witting or unwitting, of UK global financial institutions in the Gupta/Zuma transnational criminal network, and also about these institutions’ wilful blindness to the reality that the laundering process most often necessitates financial systems with lax regulation and controls. Unless we urgently find ways to leverage our respective capabilities to co-ordinate and influence action between the law enforcement and banking sectors—domestically here in the UK and globally—we cannot win this battle.

I have received new information, which is still being corroborated, that the Gupta/Zuma network may be using the global metal recycling sector—some of the company names I have received have a UK presence—to launder the proceeds of their corruption. Indeed, this preliminary information suggests that, as South African banks, including British headquartered ones there, have shut down Gupta accounts in response to the financial crime risk they pose, so the family has simply shifted its laundering machine into the metal recycling sector, using intermediaries within these companies in South Africa, the Middle East, possibly the UK and Hong Kong, to move their funds for them.

My question, therefore, to British-based financial institutions and to the Government is: are their compliance departments applying the necessary forensic eye to this secondary-layer threat—as primary accounts are shutdown, so the illicit funds must find alternative channels—and are law enforcement agencies and their regulators applying their minds, sharing information and, in so far as they can, acting on it?

My latest information, supplied as before by South African whistleblowers deep inside the system and disgusted by the corruption at the heart of the state, suggests metal recycling is the latest conduit. However, there may be other sectors these criminal networks are penetrating and I ask the Minister to investigate this.

Unless we use the opportunity before us to crack down meaningfully on these criminals, they will always be one step ahead. Over the past few months, several multinational companies have either fallen or been massively contaminated as a result of their complicity in the Gupta scandal, including Bell Pottinger, McKinsey, KPMG and SAP. The US Justice Department and the US Securities and Exchange Commission are now investigating German multinational SAP after it apologised the other week—“wholeheartedly and unreservedly”—to the people of South Africa for paying over £6 million in kick-backs to Gupta companies as part of their network of corruption headed by President Zuma and his family.

I believe that it is a matter of time before financial institutions in South Africa, in the Middle East, in Hong Kong, here in the UK and in the US will be forced to answer hard questions about their own complicity, and they must. I am today sending a copy of this speech, together with my letter of 25 September to the Chancellor, to the US Ambassador to London formally asking the US regulatory authorities to intervene, as the FBI has already begun to do. I am also asking the Government—I would be grateful if the Minister could respond on this point—to press the financial authorities in Hong Kong and Dubai to cut all links with the Guptas and Zumas. My Labour MEP colleague Neena Gill is raising the matter in the European Parliament, and Commissioner Pierre Moscovici has agreed to her request to investigate European banks which may be involved. In parallel, I wrote to the President of the European Commission, Jean-Claude Juncker, on 25 September asking him to act, but have not yet had a reply.

It is not only financial institutions and Governments which need to ensure that they are above reproach. A number of other global firms, whether legal, auditing, forensic or advisory in nature, have provided professional services to some of these complicit individuals, companies and institutions. These include UK-based firms such as Grant Thornton and Hogan Lovells, which have conducted forensic investigations at the South African Revenue Service under the brief of its Gupta-aligned head, Tom Moyane. Norton Rose Fulbright and Morrison & Foerster have assisted in the internal investigation at McKinsey into that company’s links to the Guptas. There are other examples. I am not suggesting that these firms are necessarily complicit in the corruption, because in most cases they have been employed by the complicit companies—for example, Norton Rose and Morrison & Foerster by McKinsey—to try and surface the corruption.

In conclusion, I am suggesting that it is absolutely critical that all professional firms cut their contacts entirely with any individuals or entities associated with the Gupta and Zuma families or their associates. At the very least, whatever pressure they may come under from their clients and whatever the cost is to their commission or fees, they must conduct themselves according to the highest professional standards, which most if not all have palpably failed to do so far, as we saw with KPMG, McKinsey and SAP. To its credit, the law firm Cliffe Dekker Hofmeyr recently upheld the highest professional values by boldly exposing corruption and dishonesty by senior executives at the country’s power utility, Eskom.

As I stand here today, the 80 individuals who were supposed to benefit from the Vrede dairy farm are destitute. The complicity of our financial institutions in this, as well as the responsibility of law enforcers and regulators in all the concerned jurisdictions, should make UK Government Ministers and UK parliamentarians hang their heads in shame. Just as they were complicit in sustaining apartheid, so today they are complicit in sustaining the corrupt power elite in South Africa which is now betraying the legacy of Nelson Mandela and the anti-apartheid struggle.

STUDENT FEES CRISIS IN BRITAIN: LESSONS FOR SOUTH AFRICA?

STUDENT FEES CRISIS IN BRITAIN: LESSONS FOR SOUTH AFRICA?

Text of lecture given by Peter Hain, Visiting Adjunct Professor, Wits Business School

10 October 2017

 

‘The students are coming!’

WhatsApp pictures had alerted staff to students marching from the main University towards the Wits Business School during my first visit to this Campus a year ago, and I made a hasty exit to avoid being locked in.

It almost made me nostalgic for my own militant student protestor days against sports apartheid 45 years ago when we invaded UK rugby and cricket grounds and caused mayhem to visiting whites-only South African teams, imposing an anti-apartheid boycott which lasted until transformation.

It also reminded me of profound dissatisfaction with England’s system of student fees and university finance which is unfair, discriminatory and dysfunctional. I say England’s system because they do things differently in Scotland and Wales, thanks to devolution, which I had a hand in shaping while I was a Minister in the UK Government.

Quite apart from being unfair and discriminatory to all but students with the richest parents, who pay off the fees anyway, the current system of tuition fees in England is unsustainable.   Students are emerging from universities with mountainous debts, preventing them getting loans for cars or houses, and universities are increasingly short of funds. It seems to me the same is true of South Africa.

English fees are over R160,000 annually and are a serious disincentive for some to go into higher education, especially those who are poor or mature – mature meaning people returning to study after some years break.

Average student debt in England is now R840,000, rising to R1 million for the poorest students.

The current system is based on individuals taking on student debt to pay for tuition fees. Graduates have to repay 9 per cent of their earnings above the repayment threshold (currently set at R350,000 per year) for a maximum of 30 years before any outstanding debts get written off.

Women and individuals in the middle of the earnings distribution are disproportionately impacted by student fee repayments over the course of their working lives.

For most graduates, their middle years of working life are likely to be characterised by significant deductions from their pay packet to repay their student debts – reaching up to 4 per cent of average earnings over their entire working lives. This will clearly lead to a reduction in their disposable income at a time when many graduates will be looking to start a family and/or purchase a house. This ‘middle age squeeze’ – actually a squeeze on graduates in their 30s and early 40s – was not foreseen by the UK government.

Student debt has another perverse effect. The current rate of interest on student debt in Britain is 6.1 per cent compared with a Bank of England base rate of 0.25 per cent. So an individual’s debt keeps rising rapidly in real terms at a compound rate, making it even more difficult to repay. Rather than a student’s debt obligation being fixed on graduation it can get heavier over time due to this exorbitantly high real rate of interest, leaving graduates feeling that the goalposts are shifting even while they are doing their best to play the game.

Nearly half English students default on repaying any of their their fees back, increasing government borrowing and debt. Which is supremely ironic, because reducing public spending was the intention of the Tory/Lib Dem Government in 2010 which effectively privatised university teaching with an 80 per cent budget cut that transferred the cost from taxpayers to students and their families.

But the projected share of individuals with some or all student debt written off rose from 41 per cent in 2011 to 77 per cent in 2017 following the 2015 removal of maintenance grants for students from the poorest families. That means three-quarters of students in England will never pay back all of their debt – a colossal failure in the system which was designed to reduce the Treasury’s debt and borrowing. In fact, as a direct result of the fees system, it has increased, with wasted public money on the cost of administering the system and with masses of students in despair at ever-mounting debts as a result of high interest rate charges.

It has been estimated that around the midpoint of this century, when the UK’s 30-year Treasury rule kicks in and the debt is written off, fully R1.5 trillion (£90 billion) of the R3.4 trillion (£200 billion) student support funded by the Treasury would remain unpaid. And that was the figure for 2014; under the latest, even more punitive, fees system the total will be even higher.       That is a colossal waste of the very public expenditure that the British government is ideologically fixated with cutting.

Other research shows that English taxpayers now spend R130 (£7.50) on debt cancellation for every R17 (£1) they spend on teaching students.

Meanwhile university capital spending has been severely cut and in consequence more universities have been plunged into greater debt to finance the investment they require.

This high-fee, high-debt cancellation English system actually forces up fees and waste. As well as being grossly unfair, the system is financially unsustainable and damaging to Britain’s long-term economic let alone social ambitions.

South Africa

As you will know only too well South Africa suffers from many of the same discriminatory and dysfunctional features as Britain. Indeed, especially given much higher levels of poverty and inequality, the problem is much, much worse.

According to a report by South Africa’s National Student Financial Aid Scheme, the #FeesMustFall movement, which had its early beginnings during 2015, arose from two key concerns: the need to put a stop to fee increases; and serious concern about the increasing amount of student debt, reported as increasing from R2.6 billion in 2010 to R3.4 billion in 2012, effectively 31 percent over two years.

To assist students with the worst historic debt and their continuing 2016 academic year costs, the Department for Higher Education and Training put aside R4.6 billion for the 2016 academic year. While this goes some way in alleviating the student debt crisis, it is not in the long term a sustainable solution, and the government will need to find strategies and mechanisms for making higher education more affordable.

In 2016 an official research study reported that the value of loan recoveries as a percentage of disbursements had fallen to its lowest rate – 3.7 percent – in 2014, due mainly to the growing problem of non-payment amongst debtors, with half the debtors having dropped out and inefficiencies in tracking and following debtors. Again this is unsustainable and dysfunctional, both socially and financially.

Other Countries

In Germany from October 2014, every state in Germany abolished student tuition fees following widespread political pressure.   The following other European countries do not charge tuition fees: Denmark, Finland, Iceland, Norway, Sweden, Greece Austria, and the Czech Republic. The Dutch and the Swiss have modest tuition fees way below England’s.

Even in America in January 2017, New York State announced plans to make state universities tuition-free for children from families earning up to $100,000 annually extending to children whose families earned up to $125,000 by 2019. That is a million families or the great majority in the State.

The two main reasons advanced by New York’s Governor Andrew Cuomo in announcing the new free tuition policy are significant. First, by 2024, 3.5 million jobs in New York State will require a degree or higher qualification – roughly 420,000 more jobs than in 2014, so many more university students will be needed. Second even as university education becomes more necessary for an individual to succeed, the cost to attain a degree is rising beyond what most American families can afford.

Like many other countries, India and Argentina student fees are a small fraction of those in England which has the highest university fees by far of any public university system anywhere in the world.

Therefore those demanding fees must fall or be abolished do have other countries’ experiences to count upon.

Neoliberalism

This debate also bears upon the type of society we wish to build.

England, after the US, has the most unequal and divisive educational systems in the developed economies, with the current Conservative government promoting selective high schools, and elite private schooling are spreading. Social and economic inequality is increasing. England has one of the lowest levels of social mobility in the developed world, according to the Organisation for Economic Cooperation and Development. And all that is being worsened by growing inequality in our universities.

By comparison, Scandinavian countries and Germany have high-quality universities with no student fees. They are Europe’s most social cohesive and economically successful countries – far more so than Britain.

Significantly Scandinavian countries head the World Economic Forum’s ‘inclusive development index’. Britain and the US are way back in 21st and 23rd places respectively.

It is no coincidence that around 1980 Britain turned its back on the post-World War Two history of Keynesian economic management and opted for neoliberal economics, an ideology favouring market forces wherever possible and tolerating state intervention only where absolutely necessary. For much of the period since, Germany was looked down upon by the high priests of Britain’s de-regulated, privatising, marketising, shrinking-the-state agenda. Scandinavian countries with their high social standards and higher income taxes were seen as ‘old-fashioned’ and ‘uncompetitive’.   Although the 2007-2008 crisis in the global financial system was the culmination of that neoliberal agenda, Britain continues to pursue it.

Yet the Germans and the Scandinavians, who never went down the neoliberal road, have more buoyant public finances and higher economic productivity. They have been able to afford to abolish student fees, whereas the UK government has been doggedly introducing neoliberalism into England’s university system, privatising the cost and dumping it upon students and their families, and marketising the entire university system.

Priorities

However the mounting no-fees demand in both our countries ignores the reality that Britain – and even more South Africa – has other much greater and pressing priorities for public spending, not least because a university degree is a real privilege for those of us that have one, and normally leads to higher earnings.

In 2016, working age university graduates in England earned on average R160,000 per year more than non-graduates, while postgraduates earned on average R260,000 more. Over an entire working life therefore university graduates will earn around R6 million more than non-graduates.

If all university students were to make no contribution at all to their privileged education, that would leave much less money, for example to prioritise pre-school and primary school education which all the research shows is absolutely crucial to life opportunities, more so than at any other time in the educational cycle.

The truth is that the cost of university education has risen massively because the number of students is so much greater than in the past. When I went to university in London in 1970 fewer than one in ten school leavers went to university. Now the figure is over four in ten – numbers have more than quadrupled.

In South Africa the trend is in the same direction. For example there are over 400,000 extra students since apartheid ended, overwhelmingly black students. Again very welcome, but at huge extra cost, taking resources away from other pressing social and economic priorities, especially given the depth of poverty and homelessness in South Africa.

Notwithstanding the argument about ‘decolonisation’ from some angry South African students, the truth is there are tough choices in your country as there are for Britain’s: for both our governments, for both our universities and for both our students

In Britain we have been living through ten years of austerity and savage cuts in public spending – with many years more of the same to come promised by the Conservatives. In South Africa you have huge extra demands on the Treasury, imposed not least by the awful legacy of apartheid.

A Graduate Tax

My answer for Britain is to replace the student fees system with a graduate tax – a small addition to income tax paid by all graduates during their working lives.

In England – and by extrapolation South Africa – let’s assume that there is no alteration in the real value of money received by universities from the Treasury, and there are no changes in student numbers.

The main detailed English studies currently available come from the Million+ higher education think tank. Its 2010 study estimated that a graduate tax of 1 per cent could be adequate. But the figures rose sharply with the 2010 trebling of English fees, as a more recent Million+ study showed.

It looked at replacing the current English funding system (including the repayment of both fees and the maintenance loans which are provided), giving two options for 30- and 40-year repayment periods. It made calculations on the basis of abolishing the current fees system in the future, and also repaying maintenance loans.

Graduates would make a contribution based on their salary, with the rate of tax rising across bands in much the same way that income tax already does. Nothing would have to be paid on earnings up to R190,000 per year. Earnings between R190,000 and R450,000 would attract an extra tax rate of 2 per cent, then 2.75 per cent applied to earnings between R450,000 and R800,000. Earnings above that would be taxed at 3.5 per cent.

It would be perfectly practical for the Inland Revenue to implement such a system, and the economic costs to government would be less. It would be much, much simpler – involve far less costly bureaucracy – and it would undoubtedly be fairer. It seems certain that British graduates would prefer a graduate tax over the current system which involves them in a greater cost, saddles them with debts damaging their financial credibility and is totally unjust.

The clincher surely is that the new tax rates involved will all feel very much lower than what is paid now by students in interest charges in England, and thus remove the disincentive effect to enter university. Again surely the same would apply in South Africa?

Those in England earning between around R190,000 and R380,000 annually would pay extra 2 per cent tax, whereas under the present system such graduates pay back nothing at all until their pay exceeds R380,000, when they face a jump to an equivalent extra of 9 per cent because their fees debt is subject to an interest rate charge.

Compare even the highest graduate tax rate of 3.5 per cent which would be paid on earnings greater than R800,000 with the high 9 per cent now paid by former students in England earning over R380,000.

Foreign students would continue to pay fees of course.

However Vice Chancellors in Britain complain that whereas in the present system, money follows students into the University of their Choice. With a graduate tax, there is nothing to stop politicians in a tight spot redirecting funds away from universities to other priorities. I have heard the same argument from the Vice-Chancellor of one of South Africa’s top universities.

But surely it is up to Vice-Chancellors – and also up to students, their families, trade unions and businesses – to make the case for decent levels of public spending on universities, on the grounds that greater national economic success is the result?

Then it is said that a graduate tax would mean a ‘free ride’ for students from richer families who have their fees paid off by their parents. But that is not the case. They will very likely go into higher earning jobs where they will more than pay back the amount of the fees they incurred. A graduate tax is the fairest, most progressive way of dealing with the financing of university students because the more you earn, the more tax you will pay.

A graduate tax would also offer a more sustainable stream of revenue for the Treasury than currently, and thus be more fiscally responsible. Above all graduates would be in a much better place than they are now. So would their families and the whole country. So would universities.

In my view it’s a no-brainer. Certainly for Britain, and probably for South Africa too. Maybe your Government could look at the policy urgently and discuss it with student leaders and university vice-chancellors?

That way the student unrest could end, universities would be more stable and secure, and South Africa would be much better placed to confront fierce global competition.

There are 7.5 million new Chinese graduates and 7 million new Indian graduates every year. South Africa has 180,000 new graduates annually. Of course yours is a much, much smaller country, one-twentieth their size. But proportionately South Africa produces only half their annual graduate numbers.

Never forget that South Africa is being undercut by these economic superpowers, not just on low cost, but on high skills and high quality. And not just by those two countries but by many others.   Resolving the student fees conundrum is vital, not just for students and universities, but for the whole country.

Ends

Lord Peter Hain is Visiting Adjunct Professor at Wits Business School. His childhood was in Pretoria until his South African parents’ anti-apartheid activism led to their exile in 1966 to the UK where he became a British anti-apartheid leader, then MP and Labour Government minister. He is now in the House of Lords.

 

House of Lords Question on Syria

Peter Hain asked the Foreign Office Minister the following question in the House of Lords on 1st February

“My Lords, is not the very problem with our foreign policy that, to use our own phrase, we have tried to dictate what should happen, not having learned the lessons from Northern Ireland that you do not impose preconditions when trying to resolve a conflict? To demand at the beginning with a bit of bombast and bluster that Assad must go-he was never going to-then say that he should stay for only six months, and now say that he cannot stand for re-election, is a failed strategy which is contributing to a disastrous catastrophe. Why do the Government not change course and recognise that he has to be negotiated with and a transition agreed?”

For the full debate, click here.