IFS: Labour fees plan will not make any difference to repayments by the poorer half of graduates

Interviewed by Mark Mardell on the BBC’s World at One yesterday, Paul Johnson, Director of the Institute of Fiscal Studies made these comments about Labour’s tuition fee plans:

There is a small help there for poorer students through an increase in the maintenance grants, that would cost the government about £200 million a year. But the £3 billion a year cost of the reduction in student loans actually doesn’t help the poorer half of graduates. So, half of graduates will not be earning enough to be paying back any less under the Labour party policy than under the current policy. So the group to whom this £3 billion is going, the group who will benefit from this, are the higher earning half of graduates. So those graduates who go on to the best jobs will find that their repayments go down, whereas those graduates who go on to less good jobs will not find any difference in the repayments that they actually have to make.

Here is the audio of the interview:

* Paul Walter is a Liberal Democrat activist and member of the Liberal Democrat Voice team. He blogs at Liberal Burblings.

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  • Simon Shaw

    But surely it’s the rich that are paying for the reduction in fees through the pension changes. How is that helping the rich?

  • Philip Thomas 28th Feb '15 - 10:25am

    It is redistributing money from the old rich to the young not-quite-so-rich. It also helps alleviate the subjective fear of debt burden which is holding back a small number of poorer students.

    My main problem with it is that the numbers probably don’t add up (the old rich are quite good at avoiding new taxes) and so it probably means yet more increase in the deficit.

  • What’s hard now for the Lib Dems is how they answer the question, would you support the change or not, and if not, why not? Labour’s policy is squarely aimed at middle England (where the additional votes are) and dressed as a fairness to all. I’d like to the Lib Dem response to be – “because if you’re gonna help wealthy graduates then there should be proportionally further help for less well off graduates too”.

    After all, the social Liberal philosophy is to remove barriers to social economic participation by those in society that, by accident of birth, find themselves disadvantaged. The middle class, on the other hand, can be helped by reduction in general taxation as and when that is achievable for all.

  • Hmmm, tricky one this:

    a)Would I rather pay £27k plus interest for my degree


    b)Would I prefer to pay £18k plus interest for it.

    5 separate articles now – seriously guys, you’re beginning to look ridiculous !

  • A Social Liberal 28th Feb '15 - 10:54am

    In 2010 we promised to abolish tuition fees because we found them grossly unfair and morally wrong. To quote the manifesto we said we would

    “Scrap unfair university tuition fees for all students taking their first degree, including those studying part-time, saving them over £10,000 each. We have a financially responsible plan to phase fees out over six years, so that the change is affordable even in these difficult economic times, and without cutting university income. We will immediately scrap fees for final year students.
    • Reform current bursary schemes to create a National Bursary Scheme for students, so that each university gets a bursary budget suited to the needs of its students. These bursaries would be awarded both on the basis of studying strategic subjects (such as sciences and mathematics) and financial hardship.”

    From a moral stance to a pseudo Tory one in five short years.

  • Tsar Nicholas 28th Feb '15 - 11:29am

    If the Lib Dems were at all concerned about the rich getting an unfair share they would ban bankers’ bonuses and start jailing those who have broken the law.

    Too big to fail and too big to jail should no longer dominate British policy.

  • Philip Thomas 28th Feb '15 - 12:15pm

    @Simon Shaw. If taxes don’t pay for public spending, why don’t we just abolish taxes and increase spending by an infinite amount?

    @Tsar Nicolas Lib Dems don’t think prison always works.

  • “a)Would I rather pay £27k plus interest for my degree
    b)Would I prefer to pay £18k plus interest for it.”

    Labour are playing straight into UKIP’s hands here, because if you are an non-UK EU resident, where you are expected to repay the full cost of your university education, it is obvious which one you will support, particularly if you want the kudos arising from attending a Russell Group university.

  • Neil Sandison 28th Feb '15 - 12:38pm

    Lets tidy up any bits the tories imposed and call it what it is a graduate tax which we have long supported .I am sure a graduate tax that encourages those who are least well off or working part time learners will understand Labour is just pandering to the upper middle classes to garner votes.

  • Philip Thomas 28th Feb '15 - 12:43pm

    It isn’t a graduate tax. Which is good because a graduate tax would be unfair and unworkable. The current system works (in a sort of Heath Robinson way) but is even more unfair: graduates who attended university before the introduction of tuition fees don’t pay anything.

  • Neil Sandison 28th Feb '15 - 1:30pm

    The problem i have is how often can you milk the same cash cow .ie wealthy pensioners Winter fuel allowances ,TV licences ,Consessionary bus and train passes.some form of the mansion tax and now student tuition fees .The public will begin to think that progressive parties are out to penalise those who save or make provision for their old age.
    Those not paying fees before the introduction of tuition fees will disappear at graduation .

  • Philip Thomas 28th Feb '15 - 2:00pm

    @Neil Sandison. Yes, it is weird how tax rises tend to target people with money, isn’t it? Most unfair…

  • David Allen 28th Feb '15 - 2:13pm

    Philip Thomas said:

    “It is redistributing money from the old rich to the young not-quite-so-rich. It also helps alleviate the subjective fear of debt burden..”

    Gosh, I’ve found a sensible reasoned comment (as is John Minard’s beneath it) somewhere among all the Shavian denial-of-service dross!

    So basically, Labour’s policy is centrist. It’s what an old socialist like Dennis Skinner would have called milk-and-water, in that it ducks out of attempting any substantial redistribution from rich to poor. On the other hand, a traditional Liberal or SDP politician a generation ago would probably have accepted it as a pragmatic compromise which tries to make a bad situation a little bit better.

    All politics has shifted to the right. The professional politicians seem pretty comfortable with that. Meanwhile the planet burns, war returns to Europe, the young go on the discard pile, and inequality soars.

  • Philip Thomas 28th Feb '15 - 6:18pm

    No, we don’t have hypothecated taxes. But if a party says “we will raise X tax” and “we will raise spending on Y” and the amounts in question are the same, there is a broad sense in which the party is saying X will pay for Y.
    In a broad sense, the £12bn lopped off benefits for people below pensionable age has paid for the £12bn added to welfare spending on pensioners, for example.

  • @Simon Shaw

    I recall you being an eager supporter of the coalitions welfare cuts all in the name of austerity and the need to reduce the deficit.
    Now it has transpired that the welfare budget was not cut at all and was “revenue Neutral” as you call it, because the cuts to working age benefits was given away to pensioner related benefits are you still such a proud supporter of the policy?

    Are you not appalled that this Government has at the expense of the tax payer to untolds hundreds of millions pounds, allowed wealthy pensioners with £40k hanging around to invest in pensioner bonds with an interest rate of 4%
    Are you proud that Liberal Democrats have sunk to Tory levels in chasing the silver voter to the expense and detriment of everyone else?

  • Peter Watson 28th Feb '15 - 8:42pm

    We don’t have hypothecated taxes, but a few years ago that did not stop Lib Dems promising to put a penny on income tax to pay for education.

  • Chris Manners 28th Feb '15 - 9:16pm

    It’s amazing how wholeheartedly the current tuition fees system is being defended here- how many articles is this?

    Given that it was supposed to go above £3k over your dead bodies, and even when you lifted the limit to £9k, that was going to be the exception, one might conclude that you actually envisaged something rather more like this. Am I right?

    21 Lib Dem MPs rebelled, and one can presumably assume, probably prefer lower fees. They’re going to have a fun time again.

  • @Paul Walter
    What level of fees do you think we should have?

  • I worry about the hyperbole generated by Labour claiming to “help young people” meaning the University students when it will make no difference anyway. But what about the 60% young people who aren’t at Uni? And what about the cuts to school Budgets for 100% of our children which threatens the pupil premium funding being used otherwise than intended and what about the cuts to Early Years Centres ? These affect all our kids and Labour would be more convincing if they promised to tackle these issues.

  • @Paul Walter
    What level do you think the fees should be fine-tuned to?

  • Philip Thomas 1st Mar '15 - 12:09pm

    @Paul Walter. Presumably the fees cap is going to have to increase at the rate of inflation, if not annually at least periodically? Otherwise university funding will decrease in real terms (Or we’ll have to increase general taxation subsidy for universities, but we’re opposed to that, right?).
    I realise inflation is almost zero at the moment.

  • @Paul Walter
    “Stuart – the fine tuning should be on things like the payment threshold, payment rate, maintenance grants and incentives for bursaries – not the fees cap

    Just so I don’t get accused of misquoting – you are saying there that the fees should remain at £9,000, correct?

  • @Simon Shaw
    Your argument is logically incoherent and flies in the face of everything you said in the other thread two weeks ago. If your desire is genuinely to help “less affluent” graduates, then you should be welcoming Labour’s proposals.

    The fact that you are not shows that your only real interest is to play political games over the issue, rather than discuss what’s fair for students and graduates.

  • Chris Manners 1st Mar '15 - 3:01pm

    @Paul Walker,

    Yes of course, I know what the IFS have said.

    Trouble is it’s not what you said until you got into government. In fact, you said pretty much the opposite of what you said for a decade. And one presumes, not what the 21 rebel MPs still think.

  • Chris Manners 1st Mar '15 - 3:03pm


    There was lots of funding for disadvantaged areas before the pupil premium.

    That would doubtless continue under Labour.

  • Chris Manners 1st Mar '15 - 3:12pm

    What’s being missed here is that people aren’t “the richest graduates” when they’re studying. Unless they’re having fees paid by parents or a bursary, then they’re racking up terrifying debts.

    Making that debt less terrifying is surely a positive thing.

    All the “whatabouts” can be addressed by with broader changes to the tax system.

  • @Simon Shaw
    “Vince anticipated exactly what Labour have now announced. Aren’t you in the least bit embarrassed?”

    Yet more fiction from you Simon – unless, of course, you can provide me with a link where Vince predicted enhanced maintenance grants, higher interest for high earners, the cuts in pension tax relief, guaranteed funding for the universities, etc etc etc.

  • @Simon Shaw
    Your take on this is indeed logically incoherent. I’ll explain why with the aid of one of those thought experiments you enjoy.

    Suppose we were to take a trip back to 2012 in Vince Cable’s amazing hot tub time machine.

    It’s decided to replace Labour’s old scheme with a new one. Two alternatives are proposed.

    In Scheme A, low paid graduates pay less than in the previous system.

    In Scheme B, low paid graduates pay exactly the same as they would in scheme A, but in addition many of them (if not most) will receive a larger maintenance grant, which they will never have to pay back.

    On the whole, which of the two schemes is better for low paid graduates / graduates from poor backgrounds?

    Which of the two schemes would you choose to implement?

  • @Simon Shaw
    So as I rightly expected, you can’t provide a link where Vince predicted any of the things I listed.

    Have you seen my post of 3:31 pm? Your reluctance to reply – when you’ve been posting non-stop all week-end – speaks volumes Simon!

  • @Simon
    I just thought it was a really strange question. It seems clear to me that Scheme B is better for low paid graduates / graduates from poor backgrounds. Was it that simple, or is there some sort of trick?

    There was no trick – it was pretty obvious that scheme B (which you say you prefer) is Labour’s new scheme.

  • Philip Thomas 1st Mar '15 - 8:32pm

    @Simon Shaw- stuart is talking in relation to the situation in 2012, when the fee level was £6,000 anyway.

  • Philip Thomas 1st Mar '15 - 8:46pm

    Erm, sorry, no it wasn’t, it was £9,000… never mind then.

  • Neil Sandison 3rd Mar '15 - 2:06pm

    Paul Walter – Can we but hope to see that fine tuning before the general eletion so that fairness can be demonstrated .

  • The strangeness is that the Cable-Willetts plan finesses a lot of borrowing off the accounts sheet, but despite this the borrowing is still there. Labour’s plan is to reduce this ‘invisible’ borrowing and at the same time increase taxation without any perceptible gain for anyone in the sort term.

    In the longer term higher paid graduates benefit as they will see an earlier decrease in their HMRC deductions. Meanwhile everyone else has to wait until they are 50 or so.

    Of course at some point all schemes have to be paid for, so the Labour Party could claim that it will reduce future costs when the ‘loans’ have to be discounted and have to be paid for in the most part by (would you know it?) better off graduates!

    Clearly the logic suggests that aspiring bankers, hedge fund managers etc ought to be induced by this to vote Labour. Somehow, however, I do not think very many will take the bait.

  • David Allen 3rd Mar '15 - 3:46pm

    Reading Martin’s post makes me think of this parable for our times (on TV last night):


    Probably unique in the history of whistleblowing – a company fraud where the whistleblower was the CEO. Admittedly, a British executive, Michael Woodford, promoted to head a Japanese company.

    Woodford discovered fraud and blew the whistle, knowing that money had left the company in a fraudulent manner. However, at the time he blew the whistle, he had no idea where the money had actually gone.

    What eventually emerged was that the company (Olympus) had been covering up losses for some thirty years. Initially this was done by forming offshore offshoots which bore the losses. But though the losses were thus taken off book, they were still losses. So a later generation of corrupt management effectively bought back the offshore offshoots (disguised via the purchase of “shell” companies) at inflated prices. This eliminated the losses by converting them into overpayments! The managers were let off with suspended sentences, partly it seems because they made no personal financial gains, partly because Japanese business united to minimise adverse publicity.

    Japan has stagnated for thirty years. Perhaps Britain, also increasingly mired in financial manipulation, will go the same way.

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