The IoD also wants to see the top rate of income tax cut from 50% to 40%.

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The IoD study, with pay consultancy group Croner Reward, looked at 3, 815 director jobs at about 1, 000 organisations.

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The IoD argues that a graduate tax would place an extra burden on employers because graduates would expect higher wages to compensate.

BBC: Graduate tax 'could hit UK's competitiveness'

The balance of companies which were more rather than less optimistic about their prospects fell to 10% in December, from 23% in October, the IoD said.

BBC: UK business confidence slumps

No organisation has in all seriousness advocated the straw men the IoD have constructed, leading to a wrong headed attack that adds nothing to the debate.

BBC: Graduate tax 'could hit UK's competitiveness'

Several speakers at an Institute of Directors (IoD) debate called for an end to the system, which governs the length of time people can live in Guernsey.

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However, the IoD said that aggressive interest rate cuts by the Bank of England last year coupled with rising public spending should stave off a recession this year.

BBC: UK business confidence slumps

The IoD report says under an open-ended system, a graduate tax becomes the student loan you never pay off and would be "a tax on effort and merit".

BBC: Graduate tax 'could hit UK's competitiveness'

The IoD report says the coalition government "finds itself perched atop the horns of a particularly prickly dilemma" in having to decide how to reform higher education funding.

BBC: Graduate tax 'could hit UK's competitiveness'

"The manufacturing sector continues to underperform the rest of the economy, reflecting its exposure to difficult overseas trading conditions and the weak euro, " said Ruth Lea, head of the IoD's policy unit.

BBC: UK business confidence slumps