Nick Clegg outlines pay rises for public sector workers

Public sector workers would be guaranteed pay rises of at least the rate of inflation if the Liberal Democrat had their way. Nick Clegg is to give the details of the plan today. This would mean a minimum pay rise of £350 for a nurse on £25,000, £420 for a police officer on £30,000 and nearly £500 for a teacher on £35,000 over the next two years. After that, the government would recommend to pay review bodies that they give above inflation increases so that wages can rise in real terms.

Outlining the plan, Nick Clegg said:

Workers across the public sector have made enough sacrifices. You have done your bit to help get the country back on track.

That’s why the Liberal Democrats believe it is time to end the era of pay restraint.

Under our plans, we will give all public sector workers – from teachers and nurses to social workers and police officers – pay rises that at least keep pace with the cost of living every year.

No more pay freezes or below inflation pay rises. We can do this because with the Liberal Democrats, there is light at the end of the tunnel.

For two years pay in the public sector will, at the very least, keep pace with prices. After that, we will make sure it rises above inflation – giving millions of workers a real terms pay rise for the first time in years.

If you are a public sector worker worried Tory cuts threaten your job, or Labour’s refusal to deal with the deficit means another year of pay cuts, then only a vote for the Lib Dems will guarantee you a fair pay deal.

Where the Tories’ first priority is to give the rich a massive tax cut, the Liberal Democrats want to see the people who deliver our public services rewarded after five years of austerity.

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93 Comments

  • Robin Wilde 22nd Apr '15 - 8:56am

    So Clegg to cut teachers’ salaries by £1500 a year, then.

  • And Robin Wilde to go on to a successful career in stand up.

  • did anyone else see poll on news this morning measuring public views on a number of issues lib dems scored over twice its poll ratings in every question including that of trust?
    Nick has finally found a peg to hang liberal dems hat on

  • Too late Mr Clegg.
    You have spent the last five years running down the pay of the people working in the Public Sector; getting rid of many of them on redundancy schemes that were altered to lower the amounts they were entitled to, contrary to decades of previously agreements. Those pay freezes will permanently affect the pensions of all the people who lost their jobs in the five years, myself included.
    Nick Clegg made a big point that he would not let the Tories introduce ‘Regional Pay’, stating he wanted to protect people working in poorer areas, but that is simply not true. Regional pay was not introduced, because when the renumeration of Private vrs Public sector was compared by an independent private body, the years of Public Sector pay freezes meant that the Public sector would have needed a pay increase to match the private sector.
    Clegg will be judged on his actions , not some election ‘promise’ not worth the pixels its generated with.

  • @Bob no do you have a link?

  • matt (Bristol) 22nd Apr '15 - 10:27am

    I applaud this policy as far as it goes, but am a bit nervous for all the parties’ — this has been an election almost entirely run on spending promises; we know that ALL the parties (even including the SNP, I suspect) are going to have to swallow some spending cuts. The promises are so various and scattershot that any coalition (assuming there is one) or deal is going to involve one party or other compromising something, or deliviering something it promised in a way people weren’t expecting. The next tuition fees fiasco is still scheduled to arrive sometime soon. It might nnot happen to this party, but it’ll happen to someone. This is not how to engage the public, this is how to drive voter participation down even further.

    Nick Clegg can’t be blamed for that, he’s just doing what the other parties are doing. Spend, spend, spend. Hide the cuts.

    And I am concerned, for one, that adult social care spending in England is going to come in for real terms cuts, again, which will – again – be blamed on local authorities, not central government. There have been no specific spending pledges in this area, only promises about targetted delivery and ‘quality’ (eg Labour’s near-meaningless no-15-minute-visits pledge). When parties say ‘cut local government waste’ vulnerable people get services withdrawn.

  • Cllr. David Becket 22nd Apr ’15 – 9:31am

    “I hope this is costed.”

    As Jon Snow pointed out to Michael Gove when he interviewed him for C4 News – once you know that your party will not have an overall majority – you can make any promises/commitments you like – because you know they can be dropped during the coalition negotiations. This of course applies particularly to another Tory/LibDem coalition. Miliband does seem to be taking his manifesto promises a little more seriously.

    The conduct of politicians has fallen to an all time low during this election – almost certainly as a result of engaging Lynton Crosby and Ryan Coetzee .

    Given that politicians are now considered less trustworthy than estate agents – how big a premium would the Party be paid if it adopted a policy of truth & honesty after the GE?

  • The private sector has had to bear the brunt of the recession and Brown’s destruction of the private pensions. People are living for 20-30 years after retiring and the pensions for state employees come from taxes. Across the western world state employees have far more generous pensions than those in private employment and are threatening the economic stability of many state organisations.

    Working for the state has very low risk: no technology or country is likely to emerge which is going to put one’s organisation at risk. One only has to look at companies such as Nokia and Blackberry which have faded recently to show the high risk of many companies.

    The reality is that the vast majority of the public sector lack the qualities to survive in the fast moving private sector , especially with the emergence of new countries. Many in the public sector want flexi-time , the ability to leave at 4:30pm , take far more sick days than the private sector and far more generous pensions. In the private sector one has to serve the client and if that means flying out of an airport on a Sunday, missing Bank Holidays and family celebrations, then so be it. If a there is problem with equipment which one has sold to a client , then one has to arrive on site to start fixing it as soon as possible. If there is a problem with a factory for which one is responsible , then one again one has to arrive as soon as possible.

    In the construction industry one is often working far from home: this can mean one only arrives back late on Friday morning and one has to leave on Sunday or very early ( 4 am ) to be on site when work starts. Working out of doors in a cold wet British winter or midday in mid summer in a desert , takes time to acclimatise.

    The modern day business World may mean one is dealing people all around the World , consequently decisions often have to be made with insufficient information and time. Most of the Muslim World does not recognise Christmas and Easter as holidays , so if one is involved in construction, oil and gas , shipping , often there are no holidays .
    In the private sector companies goes bust because of mistakes or just because they have become redundant ; for example there is not much demand for sail makers anymore: this is not the case in the public sector.

  • @matt (Bristol) “deal is going to involve one party or other compromising something, or deliviering something it promised in a way people weren’t expecting. …This is not how to engage the public, this is how to drive voter participation down even further. ”

    I think the public generally are further ahead of the politicians here – we know from our daily lives that to coin a phrase “you can’t always get what you want”, and that you have to compromise.

  • matt (Bristol) 22nd Apr '15 - 11:35am

    TCO – the trouble with your thesis there is, it is entirely likely that many people have already ‘compromised’ their own views by voting for a political party at all. They are then going to be further depressed / made more cynical by not getting the thing they didn’t entirely want but sounded good enough that that party/person ‘promised’ and the didn’t do anyway.

    Anyway, I agree that that compromise and accepting you don’t get what you want is is part of the system, the unwritten contract the underpins bothering to vote at all. But when an election is entirely run on semi-honest spending promises that get wilder and wilder, that unwritten contract in itself is threatened as credibility is stretched to breaking point. This is what David Beckett is getting at above.

    The problem for minor parties is that ‘new’ challengers tend to be believed more than ‘old’ challengers – so Clegg was seen in 2010 as more credible on his promises because he was a novelty, so people got more angry when he did on tuitition fees and in other areas what in their heart of hearts the other parties would wuite possibly have done in the same situation.

    This is incidentally why I believe we will not get a hard and fast SNP coalition with Labour, whatever the Tories say, only a vote by vote deal on confidence and on other specific measures – the SNP don’t really want an ‘end to austerity’ (at least not in the same, push the boat out, reverse the 1980s, terms as Plaid and the Greens seem to – I believe The SNP is more spending-cautious than in England people realise) and they will want to find a way for Labour to take the fall for any really hard decisions that risk hurting people, even if they’re unavoidable and arise from principle or necessity.

  • matt (Bristol) 22nd Apr '15 - 11:37am

    sorry – mangled paragraph should read:

    The problem for minor parties is that ‘new’ challengers tend to be believed more than ‘old’ challengers – so Clegg was seen in 2010 as more credible on his promises because he was a novelty, so people got more angry when he did on tuitition fees and in other areas what in their heart of hearts PEOPLE KNEW the other parties would QUITE possibly have done in the same situation.

  • @matt the only real answer to this is the continental PR system where parties set out their prioritised policies, red lines, and preferred coalition partners up front for all to judge. You can’t do this with FPTP though.

  • matt (Bristol) 22nd Apr '15 - 12:06pm

    Yes, I know, that’s why I support a model of politics that is more akin to that found in other Western and European. That’s a key reason I support this party. But it’s not just about ‘systems’ it about culture — until we change the system, I oppose any party’s casual quiescence in the continuing drift in UK political culture towards an excessive playing and abusing of an inherently unfair system to produce callous and hypocritical results.

  • TCO 22nd Apr ’15 – 11:55am
    “…. the only real answer to this is the continental PR system”

    Which country uses this system, in which continent?

  • David Evershed 22nd Apr '15 - 2:46pm

    In a market economy pay levels are set by demand and supply.

    If there is a shortage of physics teachers for example then they should get offered more to attract staff. If there is a shortage of teachers in deprived areas then they should be offered more to attract staff. Where there is an oversupply of teachers then there is no need to increase salaries.

    The Lib Dems are supposed to be strong supporters of a market economy. Centrally planned economies incorporate too many cross subsidies and inefficiencies to succeed.

    Let Headmasters and Governors set salaries for staff. Let Hospital managers set salaries for staff. But public sector salaries should not be determined by politicians trying to buy votes with pay promises.

  • Eddie Sammon 22nd Apr '15 - 2:49pm

    I think this is a good policy. It will mean a lot to people. However all non essential government spending needs to go. Why do policies such as “rent to own” even get considered, never mind become party policy?

    I’m also still waiting for the party to make up for the dividend tax increase. I fail to see how the manifesto as a whole is good for small businesses.

    Regards

  • Eddie Sammon 22nd Apr '15 - 3:02pm

    I was probably a bit too harsh on rent to own there, but my point is the same: the party cannot afford gimmicks, spending increases, tax cuts and deficit reduction. Which budgets are going to get hollowed out or who are the taxes going to fall on?

    It doesn’t inspire confidence.

  • matt (Bristol) 22nd Apr '15 - 3:04pm

    David Evershed, the corrolary of what you are saying is that decisions over public sector pay restraint and cuts to pensions should have been devolved (at what level and who to … I think we might find we differ) during the early stages of the coalition without steerage or rhetoric from Whitehall / Westminster and the issues should be ‘de-politicised’ and therefore should not have been campaigned on by politicians during the 2010 election – or do you want to have your cake and eat it?

    Oh, and how do the headteachers, governors, hospital managers etc get the money to pay their staff … oh, they have to deal with politicians! (Or do you want expenditure of tax-payers’ money to be totally non-accountable with no democratic oversight?)

    So you can never entirely de-politicise public sector pay, but I definitely agree we could devolve the decisions (to regional bodies?) and central government could butt-out of making grandiose promises that are in response to nationa, nor local or regional trends.

  • @David Evershed “If there is a shortage of physics teachers for example then they should get offered more to attract staff. If there is a shortage of teachers in deprived areas then they should be offered more to attract staff. Where there is an oversupply of teachers then there is no need to increase salaries.”

    I agree with you to a certain extent, but this only works if the market applies at all ends.

    In a situation where schools are given a fixed budget, their choices are:

    – employ more, “cheaper” staff (typically new graduates with no experience)
    – employ fewer “expensive” staff (older more experienced teachers or ones with more qualifications, eg PhDs)

    If pupil numbers rise but funding doesn’t then they will be forced into the first position by economic necessity. If they go down the second route, they may find themselves attracting greater numbers through “excellence”. The problem is there are no mechanisms to balance all forms of supply and demand – the demand for teaching from the school by extra pupils, the demand for better quality teachers, the supply of teachers and the supply of salaries.

    There is also the issue that if you want to attract committed, enterprising people you have to look at what’s the competition. Salaries are part of that competitive impulse, and if the government employs teachers it has to be prepared to offer higher salaries.

  • matt (Bristol) 22nd Apr '15 - 3:10pm

    Charlie: ‘Working for the state has very low risk’

    Tell that to careworkers made redundant and their work given to agencies. You are talking as if ‘working in the public sector’ was all one job. That is naieve. The several public sector organisations are generally very complex bodies which carry out many different roles; my local council runs docks, museums, libraries, care homes, call-centres, and employs an enormous variety of specialist workers in a great many roles and technological change could affect all of these roles in a great many ways. You are talking b*lge.

  • Does this count as a pledge? I mean is it any more or less binding than the pledge to vote against any increase in tuition fees?

  • I hope on this occasion that IF he (Clegg) has the opportunity to implement this proposed policy that he sticks by his word. I am willing to forgive him for increasing tuition fees, even though it had a detrimental affect on my son. Whether I would be of this opinion if ANY of the other parties had a credible manifesto I would hazard a guess I would not. There is a distinct lack of personal choice for me in all parties, but I feel that Lib Dems are the lesser evil.

  • Charlie 22nd Apr ’15 – 10:56am……………..The private sector has had to bear the brunt of the recession and Brown’s destruction of the private pensions. People are living for 20-30 years after retiring and the pensions for state employees come from taxes. Across the western world state employees have far more generous pensions than those in private employment and are threatening the economic stability of many state organisations…………….Working for the state has very low risk: no technology or country is likely to emerge which is going to put one’s organisation at risk. One only has to look at companies such as Nokia and Blackberry which have faded recently to show the high risk of many companies………………..The reality is that the vast majority of the public sector lack the qualities to survive in the fast moving private sector , especially with the emergence of new countries. Many in the public sector want flexi-time , the ability to leave at 4:30pm , take far more sick days than the private sector and far more generous pensions……………………………….

    Once upon a time, perhaps….It used to be acknowledged that the public sector earned less than the private and, in exchange, had more job security and guaranteed pensions….That no longer exists…Private companies are taking on the tasks that were once deemed to be State responsibility (Health, Prisons, Probation, even the Olympics) and what happens when things go wrong? The private companies walk away leaving the taxpayer to clear up the mess….
    As for pensions????????? Ask Francis Maude….

  • Alex Sabine 22nd Apr '15 - 4:53pm

    First I think we should examine what this proposal means a bit more closely, then we can have a debate out its merits. At first glance both those who are proclaiming it and those who are – rightly, in my view – wondering how all these promises can be paid for may have been misled into exaggerating its significance. On today’s Daily Politics Vince Cable seemed keen to play down the significance of the commitment, claiming it was ‘neutral’ in terms of its effect on public expenditure. If he is as good as his word on that, then it cannot simultaneously be presented as a big ‘offer’.

    The first point to note is that in the financial year now underway, 2015-16, public sector pay growth has been capped at 1% (with schools given some flexibility to exceed this), which represents a real-terms increase. Inflation is currently zero and the forecast for the financial year as a whole is 0.2%. It is rather odd for Nick Clegg to imply that public sector pay is currently being reduced under the coalition, when this is no longer the case.

    The Lib Dem commitment is to protect the real value of public sector pay in 2016-17and 2017-18. On the face of it, that would actually represent a less generous settlement than the 2015-16 one. This is the kind of point that Lib Dems have gleefully seized on when it comes to Labour’s proposed energy price freeze now that household energy bills are coming down. What’s sauce for the goose is sauce for the gander, I fear…

    However, the reality is that inflation is currently unusually low. The 2015-16 figure of 0.2% is unlikely to be repeated in the coming years. The OBR is forecasting CPI inflation of 1.2% in 2016-17 and 1.7% in 2017-18. Therefore we can take it that the Lib Dems would increase nominal pay by at least these figures. That would be slightly more generous than a continuation of the 1% cap (which is hypothetical since no party has committed to it, but which I suspect is the minimum the Tories would have to do to have any chance of hitting their spending targets).

    Vince Cable was at pains to point out that this commitment was a matter of ‘reassuring’ public sector workers but not a new spending commitment. Up to 2017-18 this claim could stand up: a real freeze in public sector pay does not increase real public expenditure. However, the Lib Dems are seeking £12 billion per year of departmental spending cuts by 2017-18. Therefore protecting pay in real terms will mean laying off more staff compared to a scenario where they held pay rises below inflation.

    Cable did not deny this trade-off in his interview with Andrew Neil; instead he pointed out that the labour market is now getting quite tight and there is therefore less of a need to prioritise jobs over pay. This is a perfectly valid position but it should not be pretended that protecting pay within a shrinking overall budget does not have consequences: both coalition parties have repeatedly stated that there is a trade-off between pay and jobs and that will continue to be the case in the next parliament.

    So, in effect, this promise on pay up to 2017-18 is equivalent to another ‘ringfence’ over a large part of the public sector’s outgoings. It means there is a smaller area from which the £12 billion cuts will have to be found. If this promise delivers real pay increases, the task will be that much harder. For this reason I think the Tories and Labour have been wise not to tie their hands. That said, it inflation undershoots expectations then all parties are likely to find that pay restraint will not be contributing to the achievement of their DEL targets (even if they continue with 1% nominal rises).

  • matt,
    Ever since WW2 , the vast majority of the state sector has been unaware how the development of technology and new economies, influences employment. The independence of the Indian Sub-Continent meant the beginning of the decline of the Lancashire Cotton Industry and associated industries of dyes, and mechanical engineering; only Orwell appear to have realised the economic consequences.

    The development of CAD and CAM has meant the removal of vast swathes of employment. . In the 1980s rooms would be full of draughtsmen, now the work is done a few CAD technicians. Car factories employment far fewer people to make cars. The closure of the Suez Canal for 8 years meant oil tankers increased from 50,000T to up to 500,000T which meant the massive reduction in the number of seamen needed to move the same amount of oil. Containers meant the reduction of the numbers employed as dockers and soon, most port operations will be automated.

    Most coal and ores such as iron and aluminium are produced by open cast methods using vast trains and carried by massive bulk ore carriers . Lorries in mines can be controlled remotely. The amount of coal produced by a single person has greatly increased meaning far fewer people are employed. The development of forklift vehicles and tracked excavators which can move through doorways has meant a massive reduction in unskilled labour on construction sites.

    Some technology companies may only have a life span of 5-10 years. The reality is that swathes of forms of employment in the private sector have disappeared: as I said earlier there are not many sail makers left in the UK.

  • @JUF “Does this count as a pledge? ” It was interesting to note that the BBC described it as a pledge when it was of course a manifesto commitment. Dogwhistle?

  • @CML ” I am willing to forgive him for increasing tuition fees, even though it had a detrimental affect on my son. ”

    Genuine question: what effect has it had on your son?

  • TCO
    @CML ” I am willing to forgive him for increasing tuition fees, even though it had a detrimental affect on my son. ”

    Genuine question: what effect has it had on your son?

    Is this a serious question?

    As for public sector pay increases, does anyone outside the bubble seriously believe Clegg any more. I know I don’t. His decisions have eroded all that.. LD’s used to get a great deal of support from public sector workers and students, then spent the last 5 years screwing them. NOW, its election time, he wants us to believe him that he wants our pay to increase. No. I am sorry Clegg. I do not believe you. They already have the perfect excuse ready for when they break this pledge….well we didn’t win the election….blah, blah, blah

  • Pay rises for public sector workers.Best Lib Dem policy announcement of the campaign!Rapid response literature now required to back it up!

  • @Jackson “Is this a serious question? ”

    Yes it is a serious question. I am trying to understand what effect it has had on his son. he has raised it as an issue and I want to know what the issue is.

    Perhaps you would indulge me with your version of the answer?

  • http://www.paulburstow.org.uk/conservative_councillor_resigns_and_backs_paul_burstow

    A leading Conservative Councillors makes a helpful contribution.

  • @Jackson perhaps I’m missing something obvious http://www.youtube.com/watch?v=Td58HHfl1Rk

  • TCO – not too sure what the analogy of your youtube clip is and I don’t know what the detrimental affect this has has on CML’s son, although its not hard to imagine,when you look at the amount of debt now being built up. It has had a detrimental effect on my son however in that he hasn’t applied to go to University simply because its too expensive and I can’t afford to pay the fees. I don’t want him and he doesn’t want to be saddled with £44k debt for his working life, and I imagine this is the same or similar for CML’s son.

  • @TCO – are you Nick Clegg in disguise?

  • @Jackson ” It has had a detrimental effect on my son however in that he hasn’t applied to go to University simply because its too expensive and I can’t afford to pay the fees. I don’t want him and he doesn’t want to be saddled with £44k debt for his working life, ”

    I can understand that University might be too expensive, but Tuition Fees are not the reason why it would be too expensive.

    The expenses that a student incurs whilst they are at University are those they need to live – accommodation, food, clothing, entertainment etc. Until c40 years ago these were covered by a Government-provided maintenance grant, but its been a long time since they were and no party has offered them since (so this is not the “fault” of the “nasty” Lib Dems).

    As to Tuition Fees, why would you have to pay them? There is nothing to pay upfront. By you, or him.

    Which leaves the issue of the eventual £44k (Not sure where you get this figure from – 3 x £9k = £27k, but I’ll let it pass).

    We have to ask ourselves whether debt is a problem or not. A debt is a problem if:

    – the interest payments to service it cannot be met
    – it is secured against an asset that can be repossessed if there is a default on payment

    Tuition Fees do not fall into this category. They are not a problem for the borrower – the student – because:

    – the interest (and capital repayment) only starts above a certain threshold; nothing is payable if the graduate earns less than this threshold *at any time* during the life of the debt obligation
    – after 30 years the debt is written off if it is not fully repaid
    – interest (and capital payments) are on a progressive scale that get bigger as salary increases
    – the debt is not secured against anything and cannot be called in

    So I fail to see how this debt can possibly be a problem to either you or your son. And if we view going to University as a purely financial transaction (which I don’t – see below) then its a no-risk bet. He borrows money he only has to repay if he earns sufficient to exceed the threshold, and he increases the chance of earning considerably more (£150k on average over his lifetime) than if he hadn’t gone to University.

    Furthermore if I was giving my son advice I wouldn’t be focussing on the financial aspects (assuming maintenance was affordable – being the only “real” cost). I would be talking about the life-enhancing opportunities provided by a University education – namely the opportunity to pursue the study of a subject you love to a high level to enrich yourself, of the friendships you make, and the chance to try out new sports and other activities at a time in your life when everything is possible.

    I hope you gave your son this advice.

  • Groannnn. Here we go again. Another Lib Dem in the bubble telling people what’s good for them, that the debt isn’t really debt, that £9k fees aren’t really fees, that loans aren’t really loans and that in 30 years time someone will click their fingers and £10s of billions of student debt will magically disappear. Although that’s a new one on me, by claiming that LD’s aren’t responsible for all students debt, just most of it. Maybe try that on the doorstep around here in Sheffield. Maybe that will get someone to listen to you.

    Your response about how £44k debt if calculated is really not worth the effort of typing. If that’s what you believe then go ahead. I fully understand how the new system works. I know fees aren’t payable up front, etc, etc. However the total amount of debt is hanging over you for most of your working life and may never be paid off. Don’t believe the hype about it not counting against you when applying for mortgages, loans etc. I have just had my wife’s students debt and repayments calculated into out disposable income figure when determining affordability for a re-mortgage. That is more lies from the LD spin machine.

    Interest and payments are not on a progressive scale. For example a very wealthy family sending their child to school can opt to pay up front and therefore no interest is charged and therefore pays £44k. Someone who earns say £35k a year will pay £34k more in repayments than someone who earns £15k more on £55k. How is that progressive that a higher earner pays much less than a lower earner. Doesn’t sound very progressive to me.

  • Matt (bristol) 22nd Apr '15 - 8:25pm

    Charlie, I’m not discounting what you say, but why do you think this technological has not affected the public sector? Where are the public sector jobs that haven’t experienced technological change? Or do in your local council do they still have a typing pool who write up minutes of meetings from hand-written notes? Do they use abacuses still? Do they not have a website? And you think none of this has affected jobs?

    Pull the other one – technology has affected all jobs and you cannot argue it has affected the private sector more than the public one…

  • This is what TCO says –
    “…TCO 22nd Apr ’15 – 7:06pm! “…The expenses that a student incurs whilst they are at University are those they need to live – accommodation, food, clothing, entertainment etc. Until c40 years ago these were covered by a Government-provided maintenance grant, but its been a long time since they were and no party has offered them since (so this is not the “fault” of the “nasty” Lib Dems).”

    This is a fact. An inconvenient fact if you are TCO. When he says “no party has offered them since” he is clearly wrong.
    From the 1992 Liberal Democrat manifesto —
    “Fund students properly.
    We will abolish student loans and restore student entitlement to housing benefit and income support.
    As our plans for the reform of tax and benefits are implemented, we will establish a Student Income Entitlement and a Student Allowance to which all students, both full- and part-time, will be eligible.”

  • @Jackson “Groannnn. Here we go again. Another Lib Dem in the bubble telling people what’s good for them, that the debt isn’t really debt, that £9k fees aren’t really fees, that loans aren’t really loans and that in 30 years time someone will click their fingers and £10s of billions of student debt will magically disappear. Although that’s a new one on me, by claiming that LD’s aren’t responsible for all students debt, just most of it. Maybe try that on the doorstep around here in Sheffield. Maybe that will get someone to listen to you.”

    When is a debt not a debt? When its not repayable. Lots of heat my Labour friend, but not much light. Let’s move on ….

    “Your response about how £44k debt if calculated is really not worth the effort of typing. If that’s what you believe then go ahead.”

    I presume you’re taking your £44k figure from this report: http://www.suttontrust.com/researcharchive/payback-time/

    if you go and read that report, and the supporting documentation contained in the .pdf it links to, you’ll find that the £44k is inclusive of loans taken out for maintenance purposes. As I explained carefully in my considered and reasonable response to your lazy assertions, loans to cover maintenance will be incurred regardless of fees paid (or not) and have been a feature of higher education since the late 1970s. They are nothing to do with the Lib Dems.

    “I fully understand how the new system works. I know fees aren’t payable up front, etc, etc. However the total amount of debt is hanging over you for most of your working life and may never be paid off.”

    I repeat – what is the implication of a debt that won’t be paid off? A debt that is never paid off is not a debt.

    “Don’t believe the hype about it not counting against you when applying for mortgages, loans etc. I have just had my wife’s students debt and repayments calculated into out disposable income figure when determining affordability for a re-mortgage. That is more lies from the LD spin machine.”

    Mortgage repayment affordability calculations will take into account any sort of debt. That will be “priced into” the loans advanced as student loan debts work into the system and will reduce the amount of money lent. However this will also have a knock on effect in the property market, as house prices are partly a function of the money lenders are prepared to lend; prices will fall if the amount buyers can bid for a property is reduced. In any case its not the size of the debt but the amount paid on servicing it that’s taken into consideration by the lender.

    “Interest and payments are not on a progressive scale. For example a very wealthy family sending their child to school can opt to pay up front and therefore no interest is charged and therefore pays £44k. Someone who earns say £35k a year will pay £34k more in repayments than someone who earns £15k more on £55k. How is that progressive that a higher earner pays much less than a lower earner. Doesn’t sound very progressive to me.”

    Sending their child to school? I thought we were talking about University.

    As we’ve shown above, £44k includes maintenance which cannot be paid up front; it is expenses incurred during the time a student is at University. Only the tuition fee element can be paid up front.

    As to progressiveness or not, its far more progressive to defer fee-payment until after graduation than to demand it upfront as the previous Labour system required. And its far more progressive to set a payment threshold of £21k p.a. rather than £16k p.a. as Labour did.

  • Inflation at zero, deflation possible, “wage rises for 2 years to keep pace with price rises” Seems no rise then!!!

  • @Jackson, furthermore the report states:

    “For example, the lowest-earning graduates will pay back less under the new system than under the old one, while higher-earning graduates will pay back substantially more. This makes the new system substantially more progressive than the old one (at least in terms of graduates’ lifetime earnings).”

  • Ignoring the psychological trauma inflicted by a debt burden, are we?

  • @David-1 “Ignoring the psychological trauma inflicted by a debt burden, are we?”

    Any psychological trauma experienced over tuition fee debt is purely as a result of the sort of disinformation and falsehood put about by the likes of @Jackson.

    let me repeat what I wrote above:

    We have to ask ourselves whether debt is a problem or not. A debt is a problem if:

    – the interest payments to service it cannot be met
    – it is secured against an asset that can be repossessed if there is a default on payment”

    If you know you can’t meet interest repayments, for example of you lose your job, that would be traumatic. But tuition fee repayments reduce or cease if personal income reduces or ceases.

    if you know that your possessions or house could be repossessed, that would be traumatic. But tuition fee loans are not secured on anything so your possessions and home are safe.

    Tuition fee debt is not the same as “normal” debt and there would be no reason for “debt trauma”; other than that caused maliciously by our political opponents.

  • I take it TCO has never experienced a serious debt burden or known the limitations that the fact of having debt hanging over one’s head — for, potentially, one’s entire life — puts on an individual, and the deep distress that comes along with it: leading to grave ills not only for the person but for society as a whole.

  • David-1 “I take it TCO has never experienced a serious debt burden or known the limitations that the fact of having debt hanging over one’s head — for, potentially, one’s entire life — puts on an individual, and the deep distress that comes along with it: leading to grave ills not only for the person but for society as a whole.”

    Funnily enough, David-1, I have. Along with another 9.4 million or so households, I have a mortgage debt (over a 30 year term, as it happens).

    Given the popularity of home ownership it would seem that the largest debt anyone is ever likely to have isn’t really too traumatic.

    And to repeat – if there is no compulsion to pay the debt if your income is low, it gets written off after a time period if its not fully repaid with no further consequences, and there’s no possibility of asset seizure for default because there’s no such thing as default, how can you have debt trauma?

    And that’s not even mentioning the huge social, cultural and financial benefit you’ve had from receiving a University Education!

  • What dis information? You are the one peddling disinformation. I have proved how un-progressive the payments are. How someone earning £55k pays far less than someone on £35k.

    You can paint students debt in any colour you like. If it walks like a duck and quacks like a duck…its a duck. 1,000’s of students are now leaving university with an average of £44k debt (unless you are lucky enough to have extremely wealthy parents to pay for you) and are now starting the next 30 years paying for their education. What happens to the remaining debt at the end? Who pays it? Does someone wave a magic wand and it disappears? You are implying that the new system is so marvellous and fantastic, so the hell didn’t a single Lib Dem candidate advocate it at the GE2010. Apparently you had a fully costed plan to abolish tuition fees over 6 years. What happened to the plan? And if everything you say is true, then how come you aren’t riding high in the polls and people aren’t rejoining and kissing the ground Clegg walks on thanking him for being so kind and holding the Tories back. Is it because people probably know better than you and your leader or because of my “dis-information”.

    With regards to the advice I gave my son. I spoke at length with him about it, but left the decision to him. He decided against, like many of his friends, because of the debt burden (or whatever you want to call it). He looked at the figures at did not want to start working life in so much debt.

    The more I read some of the sanctimonious comments on her making excuses for Lib Dem lies the more I am turned off politics for good. As for being a Labour voter. Again you clearly do not know what you are talking about. I last voted Labour in 1997, and switched my vote to LD in 2001, 2005 and 2010. I also became a member of the LD’s. I tore up my membership card and ended my membership in Jan 2011 following the tuition fees episode. I said to local party members this will not go away, and many agreed and left with me. Some stayed. I used to believe LDs had principles and would stick with them not sell out at the first whiff of power. I was proved wrong on that. LDs are no different to any of the other main parties and this time I shall spoil my paper, although I am strongly tempted to vote Labour for the sole purpose of removing Clegg as my local MP ( which I think will happen anyway).

  • The BBC is reporting this as “Clegg in public servants’ pay pledge”.

    I can’t think why, but that produces in me a feeling of low confidence in this policy.

  • @John Tilley. That was “offer” in the sense of “provide”.

  • @Jackson “. What happens to the remaining debt at the end?”

    The money was paid to the university 30 years previously and spent by that university at the time. The debt is no longer deemed to be a debt at the 30 year point.

    “Who pays it?”

    No-one. It’s cancelled.

    ” Does someone wave a magic wand and it disappears? ”

    In effect yes. Except its called waiving rather than waving.

  • stuart moran 22nd Apr '15 - 10:57pm

    TCO

    Well isn’t that lovely that someone can WAVE (and in this case it is wave despite your correction) a wand and the money disappears – that money tree you right winges have the audacity to keep mentioning to Labour and you come up with statements like this

    Why can’t we just wave that wand now and reduce the fees? If the money can disappear in 30 years why not today? Wouldn’t it make things a bit simpler?

    I know there are accounting tricks that are played, pretending it isn’t debt etc but that is all they are – tricks

  • @Charile, have you ever even seen inside of a public sector building, or do you just base your ideas off the Daily Mail. Today, was technically a holiday for a friends of mine, but actually, it was an exam for their masters that they are paying for themselves (unlike those from the private sector on the course, the public sector does not fund their further education). Do you know where they were at 6:30 this evening after their exam finished (5 hours and 30 minutes for the exam), they were back in my office working because this particular lazy public sector worker who dared book a holiday so they could take an exam was too busy to actually not go in the office.

    My sister as a nurse spent last Saturday evening/night on the Ward, she did not bother coming home as her next shift started few later on the Sunday morning, so it was easier to just sleep in the staff room.

    My friend who is a police officer was working through Camden from the Friday evening through until the early hours of Saturday morning, keeping people safe, sometimes at risk to his own life. What were you doing on Friday evening? Watching the TV, I suspect.

    The worst thing about people such as yourself is you bad mouth the public sector, but I suspect you still expect them to help when you are sick or in need of their service.

  • @Jackson “He decided against, like many of his friends, because of the debt burden (or whatever you want to call it). He looked at the figures at did not want to start working life in so much debt”

    I would be happy to talk to him and give him an alternative viewpoint; one that balances risk and reward – particularly that puts the context of tuition fee debt into a risk profile that is non existent compared to a reward profile that is highly advantageous.

  • @Jackson – Please explain what you think you personally will be paying for with respect to your son’s potential university education? and how you think that your son will accrue a debt burden of £44k outside of the student loans system. Because from your posts, you are obviously confusing the individual position with the wider considerations and so aren’t making much sense.

    In responding to the above please note that the current (post 2012) student loan system may be very different to the one under which your wife’s loan was taken out (which is why I presume you are concerned about the remaining debt)…

    Also can you please explain the relevance of the repayments not being progressive to your current situation ie. going/not going to university. Because your son will only be expected to make repayments solely on the income he can command during the 30 years following graduation. So if your son does well he may well earn £55+k and repay his loan, alternatively he could fall on harder times and repay none and have the loan waived (ie. the general taxation monies that were spent 30 years previously are not recouped)!

    I personally think both yourself (and CML) are actually failing in your duty to both your family and society in the advice you are giving your son and the viewpoint you are expressing. Because, I presume you do want your son to do something they really want to do and not be modelled on what their father thinks is right. Also I presume you do want the state to pay you benefits and a pension? To do this as I have said previously on LDV, the country needs lots of young people who become higher rate tax payers!! (and preferably before they are 30) and one of the best ways of achieving this is to get up and out and go to university.

    As for the debt burden, remember the majority of 17~18 year olds have very limited appreciation of time and money, so all numbers apart from beer money seem large. I remember buying my first home and feeling weighted down by the commitment to repaying something for 25 years, I wasn’t even 25 at the time. Then doing the maths and realising the size of the elephant (interest rates were 15%, so total repayment was effectively purchase price x3), but after a year or two, I got used to the numbers and things became manageable and life reverted to normal…

  • Alex Sabine 23rd Apr '15 - 1:18am

    Coming back to the public sector pay proposal, the commitment to above inflation increases in the final two years of the parliament is a new spending commitment, whatever Vince Cable says. No specific funding stream has been identified to pay for it, so we must assume that it will be met from within the public expenditure totals that the Lib Dems have outlined for 2018-19 and 2019-20.

    As I pointed out in another thread, most of the increases in overall public spending proposed by the Lib Dems for the later years of the parliament are not financed by specific measures (whereas, in an attempt to stake a claim to fiscal credibility, Labour have funded their explicit commitments, even if their costings can be disputed). Instead they are to be funded by the proceeds of expected economic growth, and by a policy decision to increase overall public spending in line with GDP in those years.

    The justification for this approach is that it is what governments have often done in office. Most governments that are not carrying out a fiscal consolidation (or have completed one) increase public spending, and they typically finance the additional spending wholly or predominantly from the proceeds of growth. Since tax receipts tend to grow broadly in line with GDP, policy measures to increase taxes are only required when a government wants to increase spending over and above the rate of GDP growth (ie increase spending as a proportion of GDP).

    The Lib Dems are not proposing to do this but rather to grow spending at the same rate as national income, holding spending constant at just below 37% of GDP after 2017-18. Thus, IF the economy grows in line with the forecasts, spending increases could be financed from the extra tax receipts that growth would generate without the need for tax rises or spending cuts elsewhere.

  • Alex Sabine 23rd Apr '15 - 1:47am

    The risk to this serene picture is of course that the growth on which the spending plans are predicated may not materialise. It has often been the practice of British governments to commit to public spending plans based on growth projections which then turn out not to be fulfilled. Even if the forecast growth does materialise, the forecast tax revenue may not. Typically, the spending – most of which is locked in through multi-year settlements – goes ahead anyway even though the higher national income that was supposed to finance it proves illusory. That is one of the main ways governments end up running higher than anticipated budget deficits. They then seek to justify improvident fiscal policy by invoking Keynes, ignoring his lesson that deficit financing is appropriate in slumps not when the economy is humming along.

    One would have thought that the Lib Dems, having lectured Labour about the dangers of such improvidence over the past five years, might have taken their own strictures more seriously. At the very least they should be building in a reasonable contingency against the possibility that the growth or revenue does not come in as per the forecast: say, increasing public spending by 1.5% per year in the final two years rather than the full 2.3%-2.4%.

    More fundamentally, I’m afraid I am cynical about the reasons why the party feels it is in a position to start divvying up the proceeds of growth in 2019-20 yet cannot say how it will allocate the £12 billion of cuts between different departments in a Spending Review that it says will take place this autumn (to set budgets up to 2018). We are told only that these £12 billion of departmental savings will come from “the more efficient delivery of public services, prioritising key public spending and the use of proven spend to save initiatives”. Those are the kind of platitudes that the Lib Dems are the first to deride when mouthed by other parties. It’s all very well making a hue and cry about the Tories’ evasions over their missing £9 billion of welfare cuts, but those in glass houses should not throw stones…

    Of the measures which have been costed, I notice that more than half of the projected additional revenue by 2017-18 (£7 billion of the net £13.5 billion of increased taxation) is to come from reducing avoidance and evasion, which looks fairly ambitious. £2 billion of the £3 billion of welfare savings is to come from lower fraud and error and savings in back-to-work support. These savings might be achievable and are nice to have, but they aren’t a particularly sound basis for budgeting. (The Tories reckon they can squeeze £5 billion from tax avoidance and evasion, the Lib Dems £7 billion, and the Greens whatever ‘tax gap’ they have read in the latest George Monbiot column… )

  • Alex Sabine 23rd Apr '15 - 1:55am

    (Minor correction: the Lib Dem projections see public spending settling at around 37.5% of GDP rather than just below 37% as I said)

  • @Roland I think there’s a more general point about financial literacy (or rather the lack of it) in society as a whole. I was under the impression that Universities had advisors and outreach teams to dispel some of the myths (as articulated by @Jackson) concerning the costs associated with a University education and how and when (if ever) these are paid by the student.

  • @TCO – I would agree there is a general issue about financial literacy and I fully support Martin Lewis is his campaign to get finance into the schools curriculum. Because clearly it is needed if school students are to make a clear headed and informed decision about going to University.

    It is worry to consider how many adults fully understand what Alex Sabine in his back on topic comments is saying? Because it would not surprise me if (aided and abetted by some unions) post 2017-18 some workers get involved in industrial action because the pay increases leaders ‘promised’ in 2015 haven’t happened, and totally failing to understand that they were predicated on economic growth, which didn’t go according to forecast…

  • Liberal Al
    Friday night was often spent driving for 4 hours back from a construction site and a similar length of time was spent driving on Sunday or Monday morning. International business has meant me waking up in a country and for a short while not remembering which county I was in because of continuous flying. Much construction, mining, oil and gas, fishing, utilities maintenance , farming and manufacturing requires irregular shift work . Things go wrong and plans have to be altered requiring people to be flexible. Hill farmers often have to walk cross country in driving sleet and snow to attend ewes who are lambing . When it comes to harvesting, farmers need to work around the weather as do all those who work in the agricultural sector. When it comes to political events such as the Iraq invasion of Kuwait , whole areas can suddenly stop economic investment. The private sector has to cope with sudden change which largely the public sector does not have to. The change is due to technology, economic development in other countries, political/war, storms and unforeseen disasters – BP Oil Rig Gulf of Mexico , Flixborough or the bad winters over the last few years which has brought groundworks in the construction industry to s standstill and pushed up costs. If we look at Tesco , the economic losses which they are showing would have been inconceivable a few years ago. The introduction of new low cost supermarkets and the improvement in the performance of Waitrose and Sainsbury’s makes Tesco’s future rather bleak.
    .
    The way to cut university fees to is to bring back the old pre 1988 Scholarship level exams at schools. The old S level exams provide a good enough education to enter management. Writer such as Shakespeare, Dickens, Austen, Bronte, Kipling, Orwell and Churchill left school at 16 or earlier. Most of great artists such Michelangelo, Leonardo, Titian and Rafael, Turner and constable were trained through apprenticeships not via art school.

    Bring back the old poly’s which taught engineering, applied science , law, accountancy, surveying, banking, insurance and art in the evenings and weekends. People used to take U Of London External exams or those set by the institutions – Civil, Mech Eng, Law/ Bar School, Royal society of Chemistry at the local poly’s . This approach often produced the best engineers. The people who have benefitted the most from the massive university expansion the most are the employees and the construction companies . As they say in Buddism ” When expectation exceeds reality , there is unhappiness “. The reality that the massive expansion in arts degrees in the last few years is going to produce the same quality of life that those arts graduates who left university the 1960s is absurd. The most sought after degree is chemical engineering . Where Britain is short of graduates is in the STEM subjects.

    People obtained practical skills while working and the theoretical /academic skills at night school; it took longer but it produced more balanced practitioners ( balanced between the practical and theoretical ) and the cost was very low.

  • @ TCO
    “Until c40 years ago these were covered by a Government-provided maintenance grant”

    “When is a debt not a debt? When its not repayable.”

    40 years ago was 1975 and maintenance grants were provided then. In fact it was the Major government who replaced then with student loans from September 1990. If a person was still paying off their load from then in the year 2013/14 they would have to earn £28,775 pa before paying anything. Tuition fees were introduced by the Blair government from September 1998. Grants were maintained for poorer students I think to up to £1940 for those studying in London in year 2009/10. For this year I think the grant is up to £3,387.

    When looking at the cost of university a student would take the base £27,000 and then add £5,740 per year for maintenance making a total of £44,220. If I have understood the present system correctly they need to add interest of inflation plus 3% to the debt each year (on year one this would be £442.20 if inflation were zero).

    It is a lovely idea to think that a student loan is not repayable. I had one of the early ones and I have never earned above the amount where payments start, but often they took a payment or two before processing my annual application not to pay them and they never repaid these amounts back to me.

    When I took out my mortgage it was three time my salary. When a graduate is earning £22,000 a year their student loan is twice their salary. I can understand why some students might decide that with the jobs market being as it is and many graduates not getting well paid jobs they decide that if they go to university there will less of a chance of being able to buy their own home once they graduate.

  • @Charlie – “International business has meant me waking up in a country and for a short while not remembering which county I was in because of continuous flying.” – not just me then 🙂

    “People obtained practical skills while working and the theoretical /academic skills at night school; it took longer but it produced more balanced practitioners ( balanced between the practical and theoretical ) and the cost was very low.” – When I was at university (early 90s) the guy who was consistently #1 on the Mech Eng course had started as an apprentice in the bus company depot, worked his way up as far as he could go without a degree, and then they had offered to sponsor him. He got a degree and promotion, they got someone they already knew as a graduate engineer.

    A bit more of that mutual commitment from both employers and employees could go a long way to addressing STEM shortages.

  • @MichaelBG I went to University in 1987 and despite my parents only having a modest income I got no maintenance grant. And there wasn’t a government loan option either.

    When looking at the total cost of University I accept you have to add in the cost of maintenance, but the point I was making was that this cost has been there for a very long time – the days when everyone qualified for a maintenance grant ended in the 1970s.

    Specifically – the tuition fee loan is not repayable if (I) the student leaves the country or (ii) it has not been repaid at the end of 30 years.

    Regarding housing – the current average house price is many multiples of the average salary in most places. There can’t be many places where property is available for £66k. besides, when making a decision to lend, the lender takes account the affordability of repayments, ie how much a person has left to support interest payments at the end of the month. Clearly tuition fee loan repayments will be a factor in that but would, I suggest be relatively small compared to much greater factors like interest rates, local prices, the mortgage term etc. s

  • @ jedi
    “Spending no more than the limit of public tolerance to taxation on any sustained basis? Revolutionary, says I!”
    It will be if they stick to it… Of course they still plan to borrow so evidently they feel the tax constraint is a little lower: 36.8% to be precise.

    Even on the Tory plans to raise only £5 billion in additional revenue, the projection is for an additional £2,000 of tax per head by 2020. That’s what a growing economy does for the coffers. Their plans represent tax revenue at 36.3% of national income, so very much in the same ballpark. Remember that economists use decimal points to show they have a sense of humour 😉

  • @Michael BG – Adding to TCO’s comment, one of the reasons for the introduction of the loans system in 1990, was to help make higher education affordable again, as many students were using bank loans/overdrafts/credit cards to cover their maintenance costs and these were being charged at normal commercial rates with no consideration as to whether the student could or could not afford the monthly repayments.

    I agree that for many students starting in 2015/16 your total loan calculation is spot on; although for those who qualify these will be reduced by various grants and allowances. The only concern is whether the loans are sufficient to cover maintenance costs or whether the student will be calling on other income sources and hence potentially accrue debts outside of the student loans scheme.

    As for repayments, currently the interest on the loan is RPI (currently 0%) +3% and simply added to the amount outstanding. What is confusing the issue is various politicians talking about wanting to further increase the interest rate to bring it more into line with commercial bank rates among other things, which understandably creates uncertainty particularly with respect to loans for future academic years. However, putting to one side the political muck stirring, this doesn’t actually change the monetary amount of repayments, which are fixed at 9% of all income over the repayment threshold, it only impacts how long a student will be making repayments – hence why the more a student earns the more they repay each year.

    Yes, I also agree that one of the anomalies of the system is with PAYE where repayments are calculated and deducted monthly and not annually, with no simple refund mechanism as there is with tax, but then this is the same as with NI contributions.

    With respect to housing, when I graduated, house prices in the area I grew up in, were typically x8 the typical graduate starting salary, so not much chance of buying a house straight-away. But then the expectation was that with two year’s post-graduate experience their wage level would rise significantly potentially by a factor of x2. The question is therefore whether todays graduates can look forward to similar increases in income in relation to house prices.

    Yes I can understand that some school students may decide to “not make the effort” because of poor reasoning, lack of experience and being uncertain of the step into adulthood. Yes going to university will take you our of the job market for 3~4 years, but the one constant for several decades now has been our economy is more knowledge-based and hence gaining a greater level of knowledge can only help to find a job and if it happens initially to be low paid then nothing to repay. Also if a new graduate can only get a low paided job, I suggest their chances of buying a house are very similar to those who didn’t go to university; however their chances of improving their situation are greater.

  • Alex Sabine 23rd Apr '15 - 3:02pm

    @ Roland
    “The question is therefore whether todays graduates can look forward to similar increases in income in relation to house prices.”

    Indeed. And the answer to that is no, not if house prices continue to increase at the kind of rate they have since the early 2000s – certainly in London and the southeast where demand is highest. It is not remotely feasible for income per head to grow by 5%-10% per year. (Or, to put it another way, London house prices are a much higher multiple of the typical graduate starting salary than a generation ago, so although wages/salaries can grow rapidly in the early years of employment they have much further to catch up.)

    A much more ambitious set of policies is needed on the supply side if the problem you identify is to be addressed, including a radically different approach to land-use planning controls. Alternatively, you can take the UKIP approach and try to ration demand through lower population growth (to the extent that you can influence this through immigration policy) and thus lower household formation. But even then there would need to be an increase in housebuilding if the objective is to stabilise prices.

    It is possible demand could be constrained by changes to the property tax regime but I’m sceptical how much difference this would make compared to the underlying price dynamics: housing is now much less tax-privileged than it was 20 or 30 years ago, and total UK property taxes are among the world’s highest (although much of this is due to onerous business rates), yet price increases have accelerated.

    A rate of house price growth in line with income growth would be a big step forward, but even that – which currently looks a distant prospect in some regions – would simply stop the problem getting worse rather than improve affordability. Obviously the pick-up in income growth the OBR and others are expecting over the next few years will help, but the increase in residential property prices they are forecasting (of between 5% and 7% per year) comfortably outstrips this.

  • @Alex isn’t one of the biggest price drivers (in London, which then ripples out) purchase of offplan flats that sit unused? How do we tackle that? Occupancy tax?

  • Alex,
    I think their will be another crash. The economy is too reliant on the financial sector to supply bubbles of debt fuelled growth. The point to me is that homes are too expensive not that there are too few of them. Building more homes will not necessarily mean that the basic problem of incomes that are too low to pay for them will go away. In fact it may exasperate existing problems because rather than incomes going up or prices falling banks will be encouraged to lend more and there will be pressure to extend things like help to buy. Think of parts of Spain and Ireland where massive building programs simply resulted in lots of brand new unsold houses. I think this statement by Nick Clegg is at least an acknowledgment that you have to put money in people’s pockets to achieve any kind od sustainable growth.

  • Alex Sabine 23rd Apr '15 - 4:36pm

    To be honest I’m not sure I have a simple answer to that one. A land value tax would create an incentive to use property rather than leave it unoccupied, but I agree with the IFS that we should start by replacing business rates with an LVT since the practical hurdles are smaller.

  • Alex Sabine 23rd Apr '15 - 4:58pm

    A good discussion of LVT here: http://www.economist.com/blogs/freeexchange/2015/04/land-value-tax
    and here:
    http://www.economist.com/blogs/economist-explains/2014/11/economist-explains-0

    An important contributing factor in house price buoyancy has been monetary stimulus. Clearly this was intended to avoid the economy slipping into deflation and to limit the slump following the financial crisis, and as part of that it also prevented a full market correction of overvalued property. Like rescuing banks, it is an example of a policy that was justifiable in macro terms but has perverse results microeconomically and runs the risk of incubating new bubbles. (And loose monetary policy throughout the boom years – which looks very misguided ex post – helped to fuel the price bubble in the first place.)

    Since the crisis, boosting asset prices – and thereby driving down yields and prospective real returns – was an object of policy, and in this respect it has been successful. Prospective real returns on most standard, easily tradeable asset classes are now zero or near-zero. This is true of government bonds but also equities: when prices are high, prospective real returns are low not only because price:earnings ratios are high but because prices are more likely to fall than to rise.

    Perversely, however, those buying property for investment – including buyers from Hong Kong, the Chinese mainland, Russia or wherever – still find property attractive even at these high prices, at least in the ‘hot spots’ of high demand like London, because the locational/positional aspects of property and the constrained supply create an expectation of continued robust price growth.

    The Economist explored the global trend of expanding cities, high house prices, artificial as well as real scarcity etc in a recent issue on theme of ‘Space and the City’:

    http://www.economist.com/news/leaders/21647614-poor-land-use-worlds-greatest-cities-carries-huge-cost-space-and-city

  • TCO – please keep commenting. You are the perfect reason NOT to vote LD. I showed my wife your comments and she was wavering between LD and Labour. Now she is 100% Labour. Thanks for that. Your pretentious and sanctimonious comments are the reason I left the LD. Please come to Sheffield and canvas on behalf of LD and watch their support continue to ebb away. I also showed them my son who would be delighted to discuss his future with you. I doubt he would be heard from inside the bubble though. But he made up his own mind. He saw his sister canvas for Clegg in GE2010 who was 18 at the time, who is now so disillusioned she won’t be voting this time. Totally turned off politics. I suppose in a way this benefits Clegg because she won’t be voting at all as she paints all politicians the same.

    As to your warped description on debt in 30 years time. What planet are you on? Why doesn’t the Govt simply do the same with all debt in that case as it was all spent years ago. Let’s borrow billions for the NHS on the same principle of paying it back in 30 years time then click our fingers and it all disappears. I showed your comments to an economics teacher friend and asked if this true, which of course it’s not. But I’d love to live in your world where debt disappears.

  • Alex Sabine 23rd Apr '15 - 6:58pm

    Glenn – The OBR is forecasting decent earnings growth in the next few years: nominal rises of 4% to 5% per year with inflation well below the 2% target. It may be right or wrong in its forecasts but the point is that even if these figures are achieved, house prices are forecast to grow by 5% to 7% per year. Realistically you will not bridge this gap on the earnings side to stabilise the affordability situation.

    The nature of the property bubbles in Spain and Ireland was fundamentally different from the UK’s. I don’t think anyone is seriously suggesting there is likely to be a problem of excess supply in the UK even if there was a construction boom. The rate of housebuilding is still sluggish by historical standards and very low compared to the 1950s for example. It’s estimated that something like 250,000 new houses per year just to keep pace with rising population and increased household formation. I’m not arguing that house price bubbles always reflect ‘physical’ shortages of property – they are also a phenomenon of rising bank leverage – but such a structural under-supply does appear to be a big part of the story in the UK.

  • Alex Sabine 23rd Apr '15 - 7:24pm

    @ Jackson
    The debt doesn’t disappear, but after 30 years the remaining liability is assumed by the state. This is factored into the calculation of the long-run cost to the public purse, which hinges on the proportion of the total loan value that is written off.

    You can argue that this won’t deliver much, if any, saving to the Exchequer in the long run – although this obviously depends on what happens to graduate earnings – so there is a contingent liability for the taxpayer, as there is with public sector pension schemes for example. In both cases if a future government decides these numbers look alarming it will no doubt tweak some of the parameters (as we have seen with increased contributions to public sector pensions to reduce the scale of the taxpayer subsidy which had been rising significantly). I wouldn’t be surprised if the earnings threshold for repayment were to be indexed to inflation rather than earnings growth, for instance, or even frozen in nominal terms for an extended period.

    From the standpoint of the graduate any unpaid debt does disappear after 30 years. And from the standpoint of the universities the key difference compared to the pre-2012 system is that they are receiving £6,000 more per student over the duration of the typical course (an increase of 28%).

    I’m not saying it’s a perfect system by any means. There are advantages and disadvantages compared to the old system. But the fact that this is an incendiary subject for Lib Dems – because of the broken pledge – is an obstacle to a measured assessment of the merits of the policy itself.

  • Alex,
    fairpoints, but I still think the basic problem is cost rather than supply. Yes, population growth means some houses have to be built, but there is not a mass homelessness problem in Britain and certainly not amongst people on regular wages. More people are renting because the they can’t afford to buy. To me it looks like there’s a bit of up scaling and down scaling amongst home owners and buying for investments by property companies. but home ownership is going down because they cost too much. All this we need we need 250,000 new homes a year I suspect is wishful thinking because it reduces a problem caused by overpricing to one that can be easily solved by increased supply. Now if there was a genuine housing crisis caused by population growth the answer would be to bang up homes to meet the need and whether this lead to more renting or more ownership would be irrelevant. But this not what is being advocated. Instead we are talking about property ladders and affordable homes for first time buyers in something that sometimes resembles a pyramid scheme in a stagnant market, hence The Conservatives desire to extend Right to Buy to housing association tenants. . This is why I think there will be a crash.

  • Reflecting on the discussion (pay rises for public) I wonder whether Nick’s offer isn’t actually a rather smart form of QE! Because it directly puts money into people’s pockets, rewarding work and because public sector workers (as opposed to civil servants) have traditionally been low paid, is also highly targeted at the less well off… Which if the economy does begin to look better in 2017~18 could help strengthen the recovery.

    So provided he is clear about how this will be funded, namely out of economic growth, and so doesn’t get caught out as he was over tuition fees, this could be a good policy…

  • “Friday night was often spent driving for 4 hours back from a construction site and a similar length of time was spent driving on Sunday or Monday morning. ”

    You poor soul, the next time a nurse comes home bruised and beaten after having to help a drunk and violent patient, she or he should remember that it is not too bad, they could potentially have to face the horror of a 4 hour car drive. Truly, I can think of no worse fate.

    Anyway, crude sarcasm aside, my point was not that people in the private sector do not have tough jobs because that is obviously wrong, there is something called nuance, which means that there will be many different private sector jobs, some tough, some less so. My point was that your depiction of the public sector as some lazy, life in the slow lane, secure job for life is just wrong. Many public sector jobs put their staff on the front lines, often having to work with the most vulnerable and/or difficult of people and/or problems we have in our society.

    As for your, the public sector does not face shocks; well, that is just confirms your lack of understanding. The public sector by its nature has to live by the ever changing and never stable political cycle and is constantly at the whim of globol events, whether it is the FCO having to face the Iraq invasion of Kuwait (which you seem to think somehow only affect our private sector… right, that is not intelligently kaput) to our teachers constantly having to adapt to an ether expanding and changing curriculum.

    As for your point about technology making jobs redundant, yes, it has done so in the public sector. Technology changes the job market: it is your responsibility to prove your assertion that it does not affect public sector.

  • @ TCO
    “the days when everyone qualified for a maintenance grant ended in the 1970s.”
    I think you are mistaken because the maintenance grant was established as a national scheme in 1962 as a mean-tested grant. There was never a period when everyone received a full maintenance grant. The grant was always on a sliding scale, the student getting less grant in proportion to their parents income above a certain level.

    @ Roland
    “amount of repayments, which are fixed at 9% of all income over the repayment threshold”
    I now understand why people say that this will cost some students a lot of money.
    If you had £1000 over the threshold you would pay only £90, but even with zero inflation the interest for the first year after leaving university would be £1368.90. Therefore to just pay off the interest every year you would need to earn £15,210 above the threshold i.e. £36,210, but if you have not made any payments for a few years you would need to earn at least another £456.33 per missed year.

    Doesn’t this mean if you don’t pay anything off the loan and it will have grown by over £41,000 during the 30 years to end up over £85,000 in real terms?

  • Glenn

    “Now if there was a genuine housing crisis caused by population growth the answer would be to bang up homes to meet the need and whether this lead to more renting or more ownership would be irrelevant.”

    You are overlooking the fact that more and more 3 bed houses in popular parts of the country are being flatter so the total number of available dwellings increases buy the space and quality falls.

    There is undoubtedly a shortage but the solution is more than that. As Alex points out LVT would help if properly delivered. Also there is the issue of low interest rates and lack of good returns from other investments skewing the market.

    Finally the impression of housing being a “safe bet” for investment. The media have promoted this view since the early 2000s. The 90s were the last time I remember being measured about this because people remembered people loosing everything due to over extending on property. The next crash may correct that…

  • Glenn

    That is not to say earnings growth is not also important but we are seeing a the beginnings of that now but we will see over the next couple of years.

  • The article states, “This would mean a minimum pay rise of … nearly £500 for a teacher on £35,000 over the next two years.”

    If you didn’t qualify for a government bursary and have studied for four years to become a teacher your debt would be £61,738.78 when you start teaching at £22,023. It is likely to take over ten years to get to over £35,000. At a salary of £35,000 you would be paying £1260 off you student loan but interest charges would be over £1852.

  • @Michael BG – I think you, Jackson and many others who profess significant financial understanding, are actually missing the real point and being distracted by the word “loan” and hence think in terms of it being a loan and hence a debt that needs to be repaid in full, rather than something quite different.

    I would recommend to you (and Jackson) to read the Martin Lewis article: http://www.moneysavingexpert.com/students/student-loans-tuition-fees-changes and others on his website.

    Firstly, looking at the “Student Loan”. Monies are paid out, typically over a 3~4 year period, as monies are paid out interest starts to be accrued and added to the account. The “loan” only become repayable the April following graduation. So someone graduating in June 2015, will only begin to be liable for payments from April 2016. Because of this I calculate, using the figures that result in a total of £44,220 being paid out, that a further £4,000 of interest will have been accrued to the “Student Loan” account.

    Following your query, if a person paid off zero, after 30 years the total balance in the “Student Loan” account would, through the workings of compound interest, of increased to circa £117,000. However this number isn’t really all that important! the number that really matters is just how much will a graduate actually pay out in the 30 year period the government requires income dependent payments.

    So taking your example someone who earns £36,210 pa as a career average, will only repay/contribute £1368.90 pa or £41,067, £3,153 less than the amount originally loaned to them. Whereas someone earning a career average salary of £44,000 would pay (44,000-21,000)*9% = £2,070 pa = £62,100. In both cases after 30 years the graduate has no outstanding “Student Loan” payment obligation.

    So there is no outstanding loan debt to be written off, just a paper figure that has been used to calculate payments. Yes the government in balancing it’s books has to account for the difference between the money spent on tuition fees and maintenance and the monies it subsequently receives back, but one would hope that someone with a business nose has costed the scheme so the government ends up in pocket…

    @Jackson, please show your wife, son, daughter and economics teacher friend this entire discussion thread and give us feedback!

  • Just reread my opening sentence and noted that it could easily be misread: I use the phrase ” many others who profess significant financial understanding” to mean experts such as Martin Lewis and not Michael BG or Jackson.

  • @ Roland
    “I calculate, using the figures that result in a total of £44,220 being paid out, that a further £4,000 of interest will have been accrued to the “Student Loan” account.”
    “through the workings of compound interest, of increased to circa £117,000.” (re-odered)

    A three year degree I worked out as only £45,629.87, because I didn’t add in the interest on the final year. The figure of £61,738.78 was a four year degree course (e.g. teachers) and this is likely also to be on the low side because I didn’t add in the final years interest.
    I will happily accept that I didn’t compound the interest when I stated the figure of £85,000.
    I also accept that after 30 years the government pays off whatever is outstanding of the student loan. I believe that the loans are provided by a quango and that is why they don’t appear as government debt until the government writes them off.

    If someone is never going to earn more than £35,000pa then they may well regard the system as a 30 year tax on their income above £21,000.

    As you say someone earning £44,000pa will have to pay £2070 and this may well be enough to put some people off. I am not convinced this new system is that good a system and some people will be put off from going to University because of the money they may have to pay back in future years. And I am really glad all my tuition costs were paid for me when I attended university.

  • @Michael BG when did you go to University?

  • @Michael BG – Think what is actually putting people off is the way adults/parents talk about it being a loan and debt as if it has to be paid off in full and hence fall into the trap that Jackson and others that it will be some form of millstone. For most 17 year old’s, I suggest £22,000 is a large number (and probably a huge number for someone from a very low income home) and hence discussion involving the sorts of numbers we have mentioned here, can be truly scary to some.

    However, this problem isn’t just restricted to Student Loans. I well remember a lesson learn from one of my early business ventures: namely the difference between £500,000 and £0.5M, it wasn’t the numbers but the mindset!
    £.5M is a small number, £500,000 is a large number, the use of numbers was a good indicator to investors as to my confidence as to where the business might be going. I applied this lesson in another business venture and had to ‘educate’ my senior management – all 40+ in this rather important lesson.

    The challenge is thus to communicate to prospective undergraduates the cup is half full and not half empty.
    Thinking overnight about the ramifications of the viewpoint I expressed, some things become very clear:
    1. A student should always go for the maximum Student Loan they can get – since beyond a certain point it’s cost to them is practically zero.
    2. A graduate should seek out further education opportunities that can be paid for by a Student Loan, because these too carry a very low real cost to the individual, as they simply add to the outstanding balance in the loan account
    Yes, the government and hence political parties, has to workout what level to set things at so that they make a return on their investment so that they can reassure us taxpayers that they can afford this and everything else they’ve committed to funding, but that shouldn’t really be a factor in the decision making process of the individual intending to go to university.

    “then they may well regard the system as a 30 year tax on their income above £21,000.”
    In my dealings with people with issues over Student Loans, that is exactly how I present it. Because only a few will actually earn sufficient to clear their Student Loan account within 30 years. Also when dealing with tax matters it is sometimes useful to focus on take home income, because that is what we use to live on. So yes you get to keep more of the top £1,000 when you earn’t £21,000 than when you earn £22,000, but you still have more money in your pocket from taking that £1,000 pay increase than if you decline it (okay I’m ignoring the perverse effects that some benefit payments can have on increases in income). The same logic applies when a person takes a pay increase that takes them into the 40% tax band.

    Obviously, the only people who actually have to pay off their student debts in full are EU (non-UK) and overseas students. But the issue here I suggest isn’t one of making it easier for them to pay less but to make the proposition more attractive, so that they spend their money attending a UK university rather than a US or other foreign university.

    But yes I do agree with you, the system that was in place in the 70’s and early 80’s was much simpler to understand and didn’t have the (same) negative baggage that Student Loans have. I also am wary of any attempt to make the Student Loan more aligned to traditional bank loans, both in terms of repayments and interest rates.

  • Apologies to all for my extensive digression and particularly to Alex Sabine who has made several very good on topic contributions that may have been lost in the off topic discussion of Student Loans.

  • @Roland
    “I use the phrase ‘many others who profess significant financial understanding’ to mean experts such as Martin Lewis”

    I’m really tiring of this lionisation of Lewis by people who mistake being on the telly and radio a lot for being an “expert”.

    Most of what Lewis says is pretty elementary stuff that anybody with a good grasp of maths can understand. He doesn’t exhibit extraordinary knowledge on his subject in the same way that, for instance, Stephen Hawking obviously knows a lot more about physics than the man in the street. Don’t get me wrong, Lewis is unquestionably a genius at self-promotion and entrepreneurship – but that doesn’t make him more of a personal finance export than lots of other people out there.

  • I cannot say if he is an expert, or not, having never read any of his stuff, but I can say that I think you are confusing being a genius with being an expert.

    An expert is someone who has a high degree of knowledge and experience of the a subject field, not someone who exhibits extraordinary knowledge.

  • @ TCO
    “@Michael BG when did you go to University?”
    1978-81 and 1995-96.

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