Institute of Fiscal studies: Labour’s tuition fees plan would “benefit higher income graduates”

In a detailed report, funded by the Nuffield Foundation, on Labour’s higher education funding plans, the Institute of Fiscal Studies concludes:

The reform to HE funding announced by Labour on 27th February would:

  • Leave university finances largely unaffected in the short run, but perhaps more
    susceptible to spending cuts in the longer run;
  • Benefit higher income graduates;
  • Leave the half of graduates with lower lifetime income largely unaffected;
  • Increase the incentive for those who expect to have high income in future not to
    participate in the loan system at all;
  • Boost “cash-in-pocket” for around half of students by up to a maximum of £400 per

Previous evidence suggests this reform will have a limited impact on full-time
participation in HE, but might have a positive effect on part-time participation.

The effects on the public finances of the HE reform by itself would be to:

  • Leave government debt largely unaffected in the short run, but higher in the long run;
  • Increase borrowing in the short term, by around £3.2 billion a year;
  • Reduce the uncertainty around the public cost of funding HE, by replacing some of
    the uncertain costs of loans with a certain cost of grants.

When you account for the additional revenues Labour expects from the announced
package of changes to the taxation of pensions the overall effect on the public finances
would be to:

  • Reduce government debt in both the short and long run;
  • Leave government borrowing largely unaffected in the short run and lower in the
    long run.

You can read the full report here.

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

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  • And yet it was the policy that Clegg, Cable, etc promised would be the “norm” following the publication of the Browne report.

  • Already three threads about tuition fees…..If this continues we may well be looking to oust Labour for the title of… “The longest suicide note in history”

  • stuart moran 27th Feb '15 - 10:13pm

    Don’t the IFS also say that increasing the tax threshold (a Lib Dem success) also benefit higher tax payers more… a similar fashion?

    I wait for that thread!

  • stuart moran 27th Feb '15 - 10:36pm

    so the answer is yes it does……..thanks for agreeing (I am not sure what %age has to do with it…..)

    and then you increase vat to negate most of the benefit as well as changing benefits to the detriment of those as well

  • Barred? I expressed an opinion. I thought the LD welcomed debate. Obviously not.

  • Peter Watson 27th Feb '15 - 11:25pm

    @Simon Shaw “As I am sure you know, the IFS reported that the increase in the standard rate of VAT from 17.5% to 20% was “mildly progressive”.”
    As far as I recall, that was based upon redefining progressive to be in terms of expenditure rather than income.

  • I think Simon Shaw concentrates his fire on topics where he thinks the Lib Dems have a serious weak point. What he does is essentially a “denial of service” attack. He floods the comment thread with a mind-numbing succession of meaningless trivialities. The intention is to bore all readers to tears, and thereby prevent them from noticing more important comments which identify and effectively demonstrate the Lib Dem weak point.

    Don’t feed the (mythical creature under the bridge), guys!

  • I do like the way that Labour has once again successfully managed to divert attention away from yet another pensions savings raid. Whilst it would seem the measure only impacts those on very high incomes, I do think we need to carefully evaluate just what Labour’s proposed changes will do to the pensions landscape. I have my doubts about the figures being used, as given how few people HMRC report as earn over £150K, £3bn is rather a lot of money.

  • Roland. On the issue of pension raids, the LDs have zero credibility just like tuition fees. Just look at how they raided public sector pensions along with the Tories in the past 5 years. Pay 50%more, receive less, work longer. And it wasn’t to make them more sustainable. It was to reduce the deficit that had nothing to do with public sector workers. The LDs used to receive a lot of support from students and public sector workers, and yet they seem to have gone out of their way to antagonise these two important groups of voters. No wonder they are languishing in the polls.

  • I think we have to acknowledge that the tuition fees system is regressive at the top end. This can only and should be corrected with other corrective taxes. Labour’s proposal is to make the system more regressive, implying that higher taxes should be raised on those earning over £35 000.

    Labour’s proposal to take the money from wealthier pensioners will surely have unintended consequences such as a greater tendency for those with money to invest in the buy to rent market. Labour may well find that when it comes to it, the money simply is not there.

  • Simon – If I was you would continue to comment on these threads. You are the best reason not to vote LD. Good luck in Southport on your 36% Your condescending and demeaning attacks clearly indicate someone who is rattled. Yet again you make general assumptions that are not true. Both myself and my wife are in public sector pension schemes.

    We have both seen a 50% contribution increase, both asked to work an extra 6 years and will both get less when (if) we retire. All we asked was for the Government to value the schemes which they refused to do. Why? Is there something to hide.

    No one I speak to at work minds paying a little bit more, working a little bit longer. No one. This was introduced in the early part of the Govt in the hope people would forget this, but they clearly haven’t – same as tuition fees. I see you have fallen into the Daily Mail trap of describing them as generous. My mother has retired on a public sector pension that I would not describe as generous, but there you go. Politicians are the only public sector workers not affected by the changes btw. Fair…progressive….?

    While you bring up the subject of taxpayers funding public sector pensions I would also like to point out that public sector workers, through their taxes, also subsidise private sector workers in the form of extra retirement benefits for the majority who fail to make any provision whatsoever for their retirement. Is this fair (and progressive as this seems to be in the in word at the moment in all your threads) that low paid public sector workers subside this for people who received more wages than them but made no provision.

    Simon I would hate to live in your sort of society, where people pay taxes, loans, fees, etc according to need and not ability to pay. I received excellent care on the NHS several years ago that would undoubtedly have cost me £1,000s. I was the ONLY beneficiary. Yet you and your wife helped pay the cost. Thank you. Are you saying this sort of benefit should be borne by those who directly benefit. That was not the sort of society that LD’s used to believe in. That has now changed and why I will never go back.

    No the deficit was not caused by public sector workers Simon. Show me any evidence you have for this. I have not heard one single commentator ever, in the past 7 years ascribe the problems to them. Where you get your ideas from I will never know,


    “In computing, a denial-of-service (DoS) or distributed denial-of-service (DDoS) attack is an attempt to make a machine or network resource unavailable to its intended users. … One common method of attack involves saturating the target machine with external communications requests, so much so that it cannot respond to legitimate traffic, or responds so slowly as to be rendered essentially unavailable. … In general terms, DoS attacks are implemented by either … or obstructing the communication media between the intended users and the victim so that they can no longer communicate adequately.”

    That’s Simon Shaw!

  • @Jackson – I appreciate that, like many you are upset because public pension arrangements were very publicly adjusted to bring them more into line with reality. However, my point was about the changes that have been made by stealth.

    So my reference to Labour, was the way they managed news and also implemented changes to pensions, with one major change having it’s debate in the commons timeboxed to an hour late one night when the majority of MP’s would of headed back to their constituencies, they however generously devoted significantly more time to debating Fox hunting and ensured this debate got maximum public exposure. I did not see anything like the same level of news and time management being applied to the more recent changes made by the coalition.

  • Philip Thomas 28th Feb '15 - 12:54pm

    VAT is currently not charged on some very basic items of expenditure (food for example). To the extent that the poor (in income terms) spend a greater proportion of their income on basic items, increases in VAT can be viewed as mildly progressive, although this has to be balanced against the tendency for the poor (in income terms) to spend a greater proportion (often more than 100%) of their income rather than saving it.

  • Who is simon shaw? I’ve been reading these threads for many months now and he’s the rudest person on here. Is he definitely a Liberal Democrat? You would never know. However it’s no surprise you’re a politician. You show utter contempt for anyone why disagrees with you.

    Jackson you’re spot on with your comments. Some public sector pensions are periodically valued however there are set terms of reference that politicians use to skew the outcome. So for example the 2012 valuation of the teachers pension scheme had no historical aspect nor did it take into account surpluses in the scheme and how they have been used in the past. There is a deficit at the moment, however it’s share as a % of national income is predicted to fall even before so called reforms. I use the word reform lightly as it is usually a euphemism or politician speak for cuts. There has been no full valuation of any pensions scheme under this Govt unless it was used to back up a govt position and hence any outcome was predictable. I thought you would have at least considered that.

    Something that is always overlooked when the issue of “gold plated” pensions is in the news is how much taxpayers (and I include public sector ones at that) subsidise the choices of private sector workers who make no provision for their retirement. Well over half make no private provision whatsoever and end up on retirement benefits that are income related and the rest of us pick up the tab. So we have dinner ladies, cleaners and teaching assistants paying out of their taxes for retirees who make no provision. Nothing has been done about this and it’s an injustice. I though that would be something that all LDs would support but apparently not.

    Anyway back to the issue of tuition fees as this is what this thread is about. None of the parties have any credibility on this issue and it’s used as a political football. I would have thought the LDs would welcome this cut as it is a step in the direction of their stated position at the last election and what we were told would be the norm in 2010.

  • @Simon Shaw
    “You don’t need to be a qualified actuary to predict that the cost of any final salary pension scheme in a time of rapidly rising life expectancy is going to be higher than it used to be.”

    What do you mean by “a time of rapidly rising life expectancy”?

    Life expectancy has been rising at a pretty constant rate since the start of the 20th century. See graphs here :-

    There has been no acceleration in this increase in recent years. See here :-—2012/stb-uk-2010-2012.html#tab-Life-Expectancy-at-Birth

    I agree with Jackson that there has been injustice in the way that pension entitlements have been cut back so drastically and rapidly, and only for people below a certain age, because the increase in life expectancy has not sneaked up and taken anybody by surprise – it’s been rising predictably for many decades now.

    Frankly I think this is one example (another being tuition fees) of how the younger generations are being ripped off due to the incompetence of the people who have been running the country for years.

  • Stuart: Your link suggests that in the sixties a pension for men needed on average to provide for 2 or 3 years beyond a retirement age of 65.

  • Philip Thomas 28th Feb '15 - 9:40pm

    “Something that is always overlooked when the issue of “gold plated” pensions is in the news is how much taxpayers (and I include public sector ones at that) subsidise the choices of private sector workers who make no provision for their retirement. Well over half make no private provision whatsoever and end up on retirement benefits that are income related and the rest of us pick up the tab. So we have dinner ladies, cleaners and teaching assistants paying out of their taxes for retirees who make no provision. Nothing has been done about this and it’s an injustice. I though that would be something that all LDs would support but apparently not.”

    While I am in favour of cutting the state pension, it is an intrinsic part of the welfare state that tax payers pay for people who have failed (for whatever reason) to provide for themselves: “dinner ladies, cleaners and teaching assistants” pay out of their taxes for the unemployed poor, whatever age they may be. It is difficult to see how to avoid this unless A) we exempt lower paid workers from taxation or B) we withdraw support from the unemployed poor.

    A is a Lib Dem policy up to a point- raising the income tax threshold. B is a popular Tory policy (although not for pensioners) but I don’t any Lib Dem would contemplate it – even I only want to cut pensions back to their 2010 levels (as if they had been frozen like various other benefits).

  • A genuine question here which may be down to my trying to read the IFS report on an ipad without my reading glasses.

    Did the report take into account that the richest graduates would receive less tax relief on their pension contributions?

    By this I mean the very richest graduates of course…

    I haven’t had chance to take a real view on Labour’s policy yet as I have been away from home and decent broadband etc, other than that 6000 was what we were told would be the norm..

  • @Simon Shaw
    “If look at the graph in Figure 2 you will see the significant increase in life expectancy at age 65 that has occured, certainly over my working lifetime. In relation to males particularly you will note that the rate of increase has been accelearating over that last 20 or 30 years.

    No it doesn’t – you are reading the graph incorrectly. If you hold a ruler to the male line, you will see that there has been hardly any deviation from a straight line since about 1970. This means the rate of increase has NOT been “accelerating”, since the rate of increase is determined by the gradient of the line of best fit.

    The female line is even more regular, being close to a straight line all the way back to about 1915.

    You seem to have been misled by the fact that the male line has been slightly steeper than the female one since about 1970. But this means that male life expectancy has been rising (very) slightly faster than female life expectancy; it does NOT mean the rate of increase has accelerated.

    The graphs show, exactly as I said, that life expectancy increases have been remarkably steady for decades – a hundred years in the case of women.

  • @Simon
    “You are simply wrong – I am talking about the graph in Figure 2 on page 4.”

    Nope. Was Vince Cable your maths teacher? (Only joking!) We’re both looking at the same graph, but you are interpreting it wrongly. Have you tried holding a ruler up against the line from 1970 onwards, as I suggested? It should be obvious to you then.

    It’s even more obvious on this graph :-—2012/stb-uk-2010-2012.html#tab-Life-Expectancy-at-Older-Ages

    Again, hold a ruler up against the line, positioned to give as good a fit as possible. If “the rate of increase has been accelerating” as you mistakenly claim, you would expect the line to climb steeply away from your ruler. It doesn’t.

  • “It happens that I did precisely that (strictly the edge of a sheet of paper)”

    And what is the difference (in millimetres) between your sheet of paper and the line at the point where you reckon this “acceleration” is taking place? You must be holding the paper in the wrong place (e.g. horizontally??).

  • @Stuart – “Life expectancy has been rising at a pretty constant rate since the start of the 20th century.”

    I suggest you read your references:

    “Figure 2 shows that period life expectancy at age 65 was fairly stable at around 10.5 years
    for male and 11.5 years for females during the latter half of the 19th century. These
    figures began to rise during the 20th century, initially more rapidly for women than for
    men. However, the greatest decline in death rates for advanced ages has occurred since
    the 1970s, from when large increases in expectation of life at age 65 have been seen,
    particularly for males as mortality at older ages began to improve more rapidly than
    female mortality; ”

    [ ]

    For the ONS document, you can download the XLS and perform a simple rate of change analysis on the data…

  • Peter Watson 3rd Mar '15 - 12:14am

    This debate over life-expectancy seems to have become quite heated. Looking back up the thread, I believe that Simon and Stuart initially talked about “life expectancy”, which without qualification could be assumed to mean life expectancy at birth and Stuart’s references do seem to show a constant rate of increase (i.e. figure 1 in the DEIP_Gallop reference). At some point it became a debate about life expectancy at 65 (which might be more relevant to pensions, though perhaps less so as the pension age increases), which appears to show an increasing rate of increase for men and a constant rate for women (i.e. figure 2 in the DEIP_Gallop reference).
    However, the initial point of the dispute seemed to be whether or not the rate of increase is rapid rather than if it is increasing.
    And despite all this, perhaps we can all agree that
    1. life-expectancy has increased and is increasing
    2. this has huge implications for the cost of pensions and health provision
    3. this predictable trend has not been well-handled by governments over the years (probably because it is too long-term compared to the 5 year election cycle)
    4. this has drifted a long way from the topic of the original post!

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