Volumes have been written on this site and elsewhere about the political, moral and social impacts of the coalition government increasing tuition fees in the last parliament.
I do not propose to rekindle that debate, but rather to examine the emerging, and potentially very long-term economic consequences of tuition fees.
Whilst the UK economic recovery started to gain a genuine depth, public policy makers and private sector market participants alike commented on both the narrowness of the recovery (the rate of growth being pedestrian for an economy exiting recession), the lack of wage growth, the subdued level of capital investment and lack of productivity growth.
Some of those metrics, notably wages, have shown improvement more recently, whilst demographic changes and the impact of quantitative easing on asset prices carry much of the blame for some of the other structural ills that have haunted this economic recovery.
But it is the contention of this article that the tuition fee rise has had a direct impact on the progress of the UK economy in recent years and will continue to do so in two distinct ways.
Broad-based economic recoveries traditionally occur when what the great economic liberal Lord Keynes called ‘animal spirits’ enter the economy, this is the largely unquantifiable feeling from the general populace, each coming to the conclusion independently, that their own economic conditions are improving.
A combination of happenstance, and government policy presently means that the cohort of the UK that has had the greatest incentive to animal spirits since the recession are the over-50s, who, in aggregate, have better pension provision than any generation before or since, and state benefits that reward even the wealthiest of pensions. But the problem, from an economic point of view, is that, whilst senior citizens having the heightened spirits identified by Keynes is resolutely good, the animal spirits are not as powerful, because their inclination to spend and consume will be lower than those of a younger person.
The younger generation – emerging into the world of work, having been cast into a world of debt – are unlikely to possess Keynes ‘animal spirits’, as debt naturally dents ones sense of wellbeing, and their sense of content at their economic prospects diminishes.
whatever the short-term economic data says, dented confidence means depressed growth prospects in future.
The second factor, perhaps harder to measure and much longer term, is the damage to productivity.
Every year the workforce in any organisation is somewhat refreshed as the new recruits replace the retiring. The new recruits straight out of college are likely to have learned the latest trends and innovations in their sector; it is the progress delivered by these changes that increases productivity and economic output.
And the new, disruptive companies emerge from this: a certain cohort of the graduates decide before long that they would prefer to set up their own business, and challenge the incumbent firm. This drives innovation further, and increases the level of business investment and productivity. Such graduates emerging into a world of debt may be less able to raise or save the finance needed, preventing the challenger companies from being formed, and perpetuating the current social and economic order, rather than challenging it as Liberalism truly demands.
* David Thorpe was the Liberal Democrat Prospective Parliamentary Candidate for East Ham in the 2015 General Election
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“A combination of happenstance, and government policy presently means that the cohort of the UK that has had the greatest incentive to animal spirits since the recession are the over-50s, who, in aggregate, have better pension provision than any generation before or since, and state benefits that reward even the wealthiest of pensions. ”
They are also the generation who are sitting on the largest gains in asset value – namely housing – in the economy.
Perhaps that explains their security in terms of calling for greater state spending and higher taxation.
Is this entire piece based upon the idea that tuition debt = commercial debt?
I hate to break the news, but the two are so radically different the phrase ‘debt’ is almost not warranted in terms of tuition fees. There is a income beneath you will not pay back anything, and the proportion of payment past that point is leveled up progressively. So I cannot see what would actually prevent someone from starting up a company despite having a tuition fee debt.
The marginal effect of interest on debt being the only possible way this could impact the decision (if the person in question had anticipated on paying their debt off within 30 years only).
@ Daniel Carr
The whole problem with tuition fees which David Thorpe identifies is the real economic blight which tuition fee debt causes and it’s wider impact in restraining Keynes “Animal Spirits” which trigger growth. My generation benefited from student grants and debt free higher education leaving us free to afford to marry earlier and get on the property ladder quicker than today’s graduates. Not only are tuition fees a breach of the principle of free access to high education but also a debt which blights but for many is never paid back. Stupid, Stupid, Stupid. We should return to our pre-2010 policy of opposition to fees and find a credible way of paying for it. Higher education is a form of economic investment.
It gets worse than that. A proportion of our immigration comes from a need of qualified people in the STEM subjects. And often, those STEM immigrants have an advantage over our English home grown STEM graduates, who have a £30/40,000 debt to look forward to.?
To improve matters, we could design a policy to level the playing field for home grown STEM students. Lets also create an incentive for more home grown students to consider a career in STEM subjects. And hopefully, with more home grown STEM graduates, it would perhaps, lessen the need for immigration due to a present UK shortage in STEM qualified graduates?
Outline Policy idea :
Lets cancel the tuition fees of English STEM graduates, if they work here in the UK, paying taxes for 5 years after graduation?
Also @ Daniel Carr
I’m not sure you are right about “…and the proportion of payment past that point is leveled up progressively.”
This is from Moneysavingexpert.com
( The £21,000 threshold was scheduled to rise in line with average earnings, to start in April 2017. However, the Government is consulting on freezing this threshold for five years – a move which would retrospectively increase the cost of student loans. )
“the great economic liberal Lord Keynes”
No! He was a great Liberal economist which is not the same thing at all. He would have been appalled at the pro-austerity nonsense spouted by “economic liberals”.
“The younger generation … are unlikely to possess Keynes ‘animal spirits’, as debt naturally dents ones sense of wellbeing “
It’s not so much that “debt dents ones sense of wellbeing” as that it reduces disposable income for those caught in its jaws (see Daniel Carr’s comment above).
What the policy does economically speaking is to privatise a big chunk of public debt. In future students will be leaving university with a nominal debt burden of around TWICE their per capita share of the national debt. For those that will eventually pay it represents a big tax increase. For the very fortunate few whose parents will pay, it represents an opportunity to get ahead by avoiding a substantial ‘tax’ their peers will face. Meanwhile, those that never earn enough will see their debt trickle back onto the government’s balance sheet, but only in a safely distant future from the government POV.
Another way of putting it is that it’s a raid on future prosperity and an outrage to intergenerational equity. Previous generations’ fees were paid for by their parents’ taxes. Now, in a one-off change, a single generation has broken that chain, kept the money and used it to pay off the banks.
@Jonathan Pile “My generation benefited from student grants and debt free higher education leaving us free to afford to marry earlier and get on the property ladder quicker than today’s graduates. ”
Not “your generation” but, at best 10-15% of your generation benefitted. At 50% participation rates that model is just not sustainable.
I agree with Daniel, it is very worrying that supposedly informed adults are still going on as if tuition debt = commercial debt, this constant repetition of a misrepresentation I think is doing much to create a sense of a debt millstone around the necks of our prospective undergraduates and graduates.
I think Jonathan Pile is more on target with the impact the deductions from post-graduate earnings that repayments have, which many will be paying until they are in to their 50’s.
As from Jonathan’s other point, I suspect that once you take out the tuition debt many of today’s graduates are just as much in debt as those who benefited from free tuition and grants. Which brings into question the validity of Keynes “Animal Spirits” (if you didn’t already question it given the display of “Animal Spirits” we’ve seen for many decades in and around Silicon Valley…
John Dunn’s point is interesting, as when we had free tuition and grants, I don’t remember there being a mass exodus of UK graduates abroad. Yes there was a brain drain, but that was largely due to the UK not wishing to pay market rates…
Well, since banks have to base lending on net income, then the loan repayment of 9% p.a. over £21k will obviously restrict what you can borrow for a mortgage, which even self-employed people tend to want…
@Andrew “Well, since banks have to base lending on net income, then the loan repayment of 9% p.a. over £21k will obviously restrict what you can borrow for a mortgage,”
And house prices are a function of mortgage debt – as we can see from the explosion in prices in tandem with cheap money. When 50% of the (best paid in the) population are paying tuition fee repayments, the supply of mortgage credit will dictate that house prices have to fall to match the supply of mortgage credit to buy them.
“But it is the contention of this article that the tuition fee rise has had a direct impact on the progress of the UK economy in recent years and will continue to do so in two distinct ways.”
It’ll take 10 to 20 years after the first graduates have graduated to assess the (probably quite dire) impact of the changes to tuition fees. So far, we’re about 10 to 20 days into that period so I’m a bit confused as to how the fee rise has had an impact on the progress of the UK economy in recent years?
because its not about what they are actually paying back-its about the senitment they feel-which is that they are starting their working life in £20k or more of debt-which is not helpful for their prospects of buying a house or taking risks, its irrelvenat when they pay back, or what the payment terms are, they have the debt on them now-and the physcogolical impact sarts now. Steve, your point about the timeline-I think you will find that the aggrevated debt levels in the economy are impacting now on growth and senirment-at least they are according to the range of economists I speak to every day
An issue which is usually overlooked is: how to help our British students, from all financial backgrounds, do better than imported students – who may or may not stay in UK after graduation.
We need our best brains to do better for us. These are not always those who go to the best-known schools and colleges. Many years ago we began checking progress [via added measures of achievement] and there have been indications that this might be looked at again. The basis is to estimate total ability, not percieved ability due to extra tutorials etc.
Everyone in schools and colleges knows that our home students can do better than they do, as a cohort and as individuals, if they are given the challenge to achieve for a reason. The reason might be for financial progress [as now] or for altruistic giving help [teaching, small business etc] to future generations.
Unfortunately some people think that going along with little effort and becoming a spad is the end product. Guess who?
“because its not about what they are actually paying back-its about the senitment they feel-which is that they are starting their working life in £20k or more of debt-which is not helpful for their prospects of buying a house or taking risks”
I didn’t say it was about what they are actually paying back – I was referring to the fact that they’ve only been out of uni for a couple of weeks! Whether your argument is about sentiment and/or the money they pay back, I find it difficult to understand how you can measure the impact on the economy, going back years, when the first cohort has only just left. Maybe I’m missing something?
Steve
Well, the government has borrowed more money and given it to universities than it would have done. Probably only about £1.5 billion over 3 years though, so small beer.
TCO: If house prices DO fall as a result of tuition fees it will be deemed a calamity, won’t it?
@Andrew the reality is that the rise will be slower.
First thing to say, I thought that this was an interesting article. I’m not sure I agree with all of it, but this is an interesting perspective.
If anything however, I thought that this understated the issue:
‘debt naturally dents ones sense of wellbeing, and their sense of content at their economic prospects diminishes. whatever the short-term economic data says, dented confidence means depressed growth prospects in future.’
The conditions matter more I think than the article credits. The debt is one issue, but more than that is the question of the terms which, as far as I can tell, are not fixed. The current guide to the terms and conditions (http://www.sfengland.slc.co.uk/media/862137/sfe_terms_and_conditions_1516_d.pdf) is quite clear on p2. ‘The conditions for repaying Income Contingent Loans are included in the following regulations (which may be replaced by later regulations).’ That part in brackets seems to me to be critical. As far as I can see, the repayment threshold can drop, the interest rate can rise, the 30 year write-off limit can rise – unless anyone has seen anything different?
Quite what that will do for animal spirits is anyone’s guess.
More generally, this point about immigration is an interesting, and I am surprised that it has not attracted more comment. The fees policy was predicated on the assumption of there being a, ‘graduate premium.’ To me that implies some action to protect that premium.
More generally, as far as I can tell this system rather urgently needs a sharp rise in graduate incomes, and there seems little prospect of that.
@TCO
It is a challenge to pay 50% 18-22 to go to uni free but a higher rate of tax on current and higher earners pith to be the correct method to pay when people are benefitting from state investment .
I find it incredible that so many people ignore the real hurdle to increasing future productivity, investment and enterprise. I speak of the emergence of ‘generation rent’. I’ve long anticipated a huge social and financial split in our society – between home-owners/landlords and a significant number of private renters.
I expect the turnover of UK property to remain greatly reduced, as more people to retain and rent out (rather than sell upon moving) and landlords remain reluctant to sell. The £1m inheritance tax theshold will also encourage hoarding of property, and allow inheritees to amass unearned property wealth and more rental properties. These people will have little reason to gamble on business investment or productive so long as property caters for them so well.
Then there’s the masses of under 40 renters. No future capital to invest, and not knowing where they’ll be living in as little as two months time. The rent also consumes up to 50% of their income, and rents will continue to rise strongly in the years ahead. Financial independence will never be achieved. I expect consumer spending from this cohert to be much lower too, as landlords catch an increasing proportion of their earnings.
PT add to that the general erosion of pensions and the fact that if you do not own a house when you retire, whatever pension you get you will be a lot worse off having to pay private rent…
We are indeed creating a new “property owning class”. “Generation rent” are the people voting for Corbyn. They feel abandoned by the system..
decades of liberals have fallen intot he trap of thinking that economic liberalism is a tory idea-because people like thatcher missapropriated the work of of adma smith and the word liberalism. smith would hate thatcher-and keynes would as well, but keynes believed in counter cyclical economic policies and debt funded spending to get out of recessions, which is exactly what we have had-0as vince cable wrote in the new statesmen-coaliron policy was orthodox keynesian. as for generation renti dont see a problem with it-germany has had many generations of rent and it is apparentlky a social democrat paradise-the uk obsesison with the country being a property owning democracy is tory idea (osborne even used that phrase oin the bydget-having a home is a human right-owning a house isnt
i would also point out that tuitrion fee debt didnt start with the lib dems, it strtecd many years beifre-so events now can be traced back many years-not just from the coalrion increase in fees.
I quite agree. I don’t understand why we have £9,000 fees, but subsidised repayments – why not just have less debt? “So the universities get funded properly” – well they will get funded properly if the subsidies go to the university instead.
I can’t understand it. So I am rather agree with the author of this piece.
‘as for generation renti dont see a problem with it’
Damn right. It is the very leitmotif of a liberal society when young workers are handing over half their take-home to the landlord classes. Why it should be seen as a privilege for the young to be in such a position. The landlord classes to see are amongst the finest of wealth creators. In fact I would go so far as to say they are the last true patriots.
The levels of rent extraction we see speak to just how happy with BTL tenure today’s young are. There are plainly no problems of any sort whatsoever and anyone who thinks otherwise is just a sour, hate-filled envious type who almost certainly doesn’t deserve housing security.
Why I’m quite sure that all the owner-occupiers here wistfully think at night, ‘where did I go wrong, I could be in a BTL too.’
‘germany … is apparentlky a social democrat paradise’
Just as a matter of interest, what makes you think this?
Indeed, the Christian Democrats (aka Tories) have been the largest party in 14 out of 16 German Federal elections since 1950…
“It’ll take 10 to 20 years after the first graduates have graduated to assess the (probably quite dire) impact of the changes to tuition fees. So far, we’re about 10 to 20 days into that period so I’m a bit confused as to how the fee rise has had an impact on the progress of the UK economy in recent years?” (Steve 27th Jul ’15 – 4:36pm)
Well Student Loans have been around since the academic year 1990 and tuition fees and their associated loans since academic year 1998. Whilst the T’s & C’s of these loans have varied, I suggest we have 25 years of real-world experience to draw upon to see their economic effects…
Plus we also have the real-world experience of other countries where fee’s and paying for your own maintenance are the norm.
David, renting in Germany is somewhat different to the UK. There is far more protection for tenants and regulation of landlords, things which surely contribute people there being more comfortable as long term renters.
As someone who moved to the UK from America, I cannot stop wondering: what makes some of the English youth study at all? There is little difference in the income of most college grads and those without education, and will be even less with the new “living wage” – while the college grads pile on debt comparable to that of their America counterparts in state universities (trust me, I paid less for my children at UNC-Chapel Hill than the unfortunate English students have to pay – even if not immediately – for something like Sheffiled-Hallam and other “now-universities”).
I realise that there are too many kids in college now for the government to foot the bill, but it might help to move aside the political correctnes a bit, and subsidise useful studies, such as STEM, teachers, doctors, etc. , while not subsidising to the same extent various “diversity studies” and such like.
Otherwise, what are we going to do after we get the last Romanian engineer and the last Bulgarian doctor?
peter-yes i know-and we would be wells erved to intoriduce those sory=ts of reforms into the UK. germany has frequently been sighted as an example of another form of capitalism to the anglo saxon model-and it certainly is a model that has much to recommend oit-but the word apparently was used witha tinge of irony….
@ steve-
they havent only been out of unia couple of weeks-tuition fees were intorduced under the blair government-the people who graduated then are the people who are now generation rent
jackie im no supporter of landlors-but no economic liberal should be-but rebtning is normal in generamny and the US the fomer a country the right aspire to make britain more like-the latter one the left admire…
thtcher used the phrase property owning democracy and its amazing how many alleged left wingers now seem tpo agree with her
“Well Student Loans have been around since the academic year 1990 and tuition fees and their associated loans since academic year 1998.”
I paid my student loans back years ago, and I’m 40. Today’s graduates are the ones with the serious debt against their name – tuition fees were 1k per annum in 1998 – graduating with 3k in debt seriously cannot be compared with the minimum 27k the coalition inflicted upon graduates.
A sense of proportion please.
Sorry to labour the point, but the article is all about the fee RISE in 2012, e.g. “But it is the contention of this article that the tuition fee rise has had a direct impact on the progress of the UK economy in recent years…”
Quote: … the over-50s, who, in aggregate, have better pension provision than any generation before or since, and state benefits that reward even the wealthiest of pensions …. Unquote
May I just point out that the annuities are down, Equitable went bust, most pension pots lost 50% of their values, the retiring age increased. Where is the better provision ‘before or since’ coming from? Rather than exercising ‘animal spirit’ the ‘over 50s’ retiring in next few years have to spend more disposable income (which went down by £5,000 annually since 2008) on their pension savings to come anywhere near to planned income.
There is a huge fundamental flaw at the core of this article. If, instead of tuition fees, we had “free tuition” i.e. paid out of general taxation, tax rates, probably income tax, would have to be higher.
Now, instead of everyone paying higher income tax, based on the ability to pay, covering the whole of the population, graduates are repaying fees, again based on ability to pay.
In aggregate, where is the difference in terms of the effect on “animal spirits” between the one system and the other.
Surely higher general taxation on graduates and non-graduates alike would have just the same negative effect.
RC,
What we have at the moment is a system where the richest graduates pay exactly the price of their tuition, while the poorest half will never pay off the loan and will eventually be subsidised by the general population, rich and poor alike.
We could have had a graduate tax where the richest graduates subsidise the poorest graduates and all pay a much lower marginal rate than 9%. We could even have introduced that retrospectively so that people like me and most MP’s who got free education would pay a bit back for it… That would actually have helped the deficit as well…
@Andrew – you missed (deliberately?) RC’s point.
The issue isn’t who does or doesn’t pay off their Student Loan, but the impact on ‘animal spirit’ a system that allocates the cost of an education onto the individual – as a P11D style of benefit, has compared to one that allocates the cost to taxpayers in general – remember the LibDem pledge of 1p on [basic rate] income tax “for education?
RC raises an interesting point, which once again we can look to history. Through the decades of free university education, we had high levels of taxation; did these stop people from following their ‘animal spirits’? Yes there will be some who will cite this as a reason not to do something, we see that today among the new generation of “young entrepreneurs” who complain that taxes they will only ever incur if they are massively successful are a disincentive, whereas others just get on with knowing that the majority of ventures will not succeed but this one might be the exception.
[Aside: By the way, the richest will only pay exactly the price of their tuition by not taking out a Student Loan; once a Student Loan is taken out, there will always be some interest to pay… ]
“Sorry to labour the point, but the article is all about the fee RISE in 2012”
Well the article could do with a little more clarity over which specific increase it is referring to…
The question is who actually directly incurs these tuition fee’s?
The oversea’s (non-EU) students in general pay a market rate for tuition fee’s and have to fund their own maintenance.
The EU (non-UK) and UK students incur these fees. However they can both offset them by converting them to a Student Loan.
So the only people who will directly incur these fee’s are those who can afford not to take out a Student Loan, namely the rich!
However, the 2015 changes to remove the tuition fee’s cap without any guarantee that the Student Loans provision will increase to cover these higher fee’s will be a game changer…
the title of the articlde is the economic consequnces of tuition fees….it does not mention 2012 and refers to the current system in the UK in all its iterarions…
George-annuities wont be down for mucb longer-watch gilt yields rise…and this is the last geneartion that willr etre at 66…every otherr geneartion in hisotry will have to work longer
Andrew
Indeed, the Christian Democrats (aka Tories) have been the largest party in 14 out of 16 German Federal elections since 1950…
No, European Christian Democrats are NOT the same as Tories. The Tories originated as the party of the aristocracy. Christian Democrats originated as the party of peasantry. Christian Democracy was strongly influenced by the social teaching of the Catholic Church, in particular the encyclical Rerum Novarum. So although Christian Democracy has been socially conservative, it is much more centrist economically than the Tories. In terms of economics, the Liberal Party in the UK is the closer equivalent to European Christian Democracy than the Tories.
This also explains why continental liberalism was (until the Orange Book takeover here) historically much more right-wing than UK liberalism. In economic terms, continental liberals were the UK Tories. Liberals in the UK were more left-wing because the Tories here took over the right-wing economic aspects of liberalism.
Angela Merkell seems to have rather similar views on austerity to the British Tories though? I have never got the impression that well-off middle aged Germans are much more left-wing than the same people in Britain, and they must be voting Christian Democrat, since there is no serious party further right. I think the Christian democrats are perhaps like the Pre-Thatcher Tories who accepted the post-war social market consensus..
And of course Reublicans in the USA regard the British Tories as dangerous lefties, what with their support for the NHS!
“And of course Reublicans in the USA regard the British Tories as dangerous lefties, what with their support for the NHS!”
They need to deal with issues such as gerrymandered constituencies in the House of Representatives, too much money in politics, indirect voting for the President and Vice-President, … and then hold fresh elections.
David Thorpe
The younger generation – emerging into the world of work, having been cast into a world of debt – are unlikely to possess Keynes ‘animal spirits’, as debt naturally dents ones sense of wellbeing, and their sense of content at their economic prospects diminishes.
Does this not apply even more to mortgage debt? Part of the hypocrisy of the Labour “nah nah nah nah nah”s, who jeered at us over tuition fees, is that the massive house price rises that took place during the 1997-2010 Labour governments imposed a much higher debt burden: average house prices went up by much more than £27,000, yet no-one seemed to think that an issue and consider how bad it was for young people.
In fact I think one of the reasons the Tories liked the idea of shifting towards owner-occupation was the way it encourages a conformist attitude among those with mortgages. Remember that the same “animal spirit” that would make someone an entrepreneur is also likely to make someone a militant trade unionist, willing to take the risk of industrial action to better themselves economically.
I myself saw in my own family as I was growing up in a council house how the security of tenure and low rent gave my parents a freedom which those with heavy mortgage payments did not have. My father was a talented amateur artist and was able to try working part-time in order to make money instead through his art work, a form of entrepreneurialism. It didn’t really work out, but he would never have been able to try doing this if he had a heavy mortgage to pay.
So it would seem to me now, and I have said this before, if you REALLY want to encourage entrepreneurialism among the young, and you should as they have the energy, the best way to do it is to provide cheap and secure housing for them. In this way, the biggest attack on entrepreneurialism was what the Tories did when they closed down council housing as an option for all.
Andrew
Angela Merkell seems to have rather similar views on austerity to the British Tories though? I have never got the impression that well-off middle aged Germans are much more left-wing than the same people in Britain
Consider the workers’ rights that are considered the norm in Germany, and supported by the Christian Democrats as much as the Social Democrats. If anyone were to propose anything like that in this country, they’d be shouted down as a dirty red Commie.
Roland
Yes there will be some who will cite this as a reason not to do something, we see that today among the new generation of “young entrepreneurs” who complain that taxes they will only ever incur if they are massively successful are a disincentive
I think you will find it’s comfortable wealthy older people who use this line, pretending to be speaking on behalf of young entrepreneurs. Can anyone seriously accept the argument that a young person with a good idea for a new service or product is going to sit and watch TV or play computer games or whatever, saying “Oh, I won’t bother with my idea, because if I did I’d make a lot of money and have to pay a lot of tax on it, so it’s not worth it”.
People who quote JM Keynes should actually read him. Keynes was writing at a time when government was less than 20% of the national economy and therefore his proposed spending to provide full employment would not have raised government expenditure to anywhere near the level it is now. The other facet of Keynes writing was that he hated debt. In his paper on paying for the war he argued that it should be paid for by taxation and not debt [hence the very high rates of tax during WW2].
I wrote a paper for the Green Economics institute on this subject and came to the conclusion that Keynes would not have supported the levels of government spending we have today and would have taken the very Liberal view that massive debt is not a good thing and that many services should be provided by the private sector.
Different times, different conclusions. After all, was it not Keynes who said ‘When the facts change, I change my mind. What do you do sir?’
I think that there are two issues that should concern us about tuition fees:
First, as has already been mentioned in the comments, the writing-off of unpaid fees after 30 years represents an intergenerational transfer of wealth, unlike the traditional funding model where fees were paid out of current taxation.
Secondly, students earning more than £21k are now paying an incremental tax rate of 41% (20% income tax, 12% NI and 9% student loan repayment), while for students earning more than £42k are paying 51% (40% income tax, 2% NI and 9% student loan repayment). This latter marginal rate is higher than even the 47% rate (45% income tax + 2% NI) on incomes over £150k paid by non-graduates. This is clearly inequitable as the tax reduces the amount of their disposable income relative to non-graduates (and those who graduated before tuition fees).
I would favour a return to the traditional funding model; an increase of 5% in the higher rate of income tax, or 1% on the basic rate and 1% on NI would be sufficient to cover the cost of fees. This would also make the cost of higher education more transparent.
Matthew Huntbach: yes and the tax relates to income or profits. In the early days of a business cash flow is more important than profit. Customers who will pay but have not done so yet can put you out of business.
@ Laurence Cox
“I would favour a return to the traditional funding model; an increase of 5% in the higher rate of income tax, or 1% on the basic rate and 1% on NI would be sufficient to cover the cost of fees. This would also make the cost of higher education more transparent”
The only honest argument I’ve seen presented here so far that recognises that whichever way you slice and dice it, the money has to be found from somewhere.
But try telling people that there’s no “free money” to be had and they won’t thank you for it.
Also, try telling non-graduates that they should pay extra tax to pay for half of the population to go to university. I think you’ll find that a hard sell at the ballot box.
@Andrew
“We could even have introduced that retrospectively so that people like me and most MP’s who got free education would pay a bit back for it… That would actually have helped the deficit as well…”
So you think retrospective legislation is a good principle? What about those people who would have chosen not to go to university in the past had they know they would be hit with extra taxes.
Sorry but your idea would be a recipe for electoral meltdown.
RC taxpayers (all of them) would be paying to have doctors, dentists, engineers, nurses, architects, etcetc. How would we manage without them??
In fact, nursing degrees are taxpayer-funded now if I recall correctly.
“Also, try telling non-graduates that they should pay extra tax to pay for half of the population to go to university. I think you’ll find that a hard sell at the ballot box.”
That’s what the Tories told people. However, they were lying. Even without tuition fees, graduates contributed more than enough additional tax receipts during their lifetime to cover their tuition. Graduates were subsidising everyone else.
RC, it surely depends on how it is presented to the electorate. If it is positioned as “do you want good teachers teaching your kids in school, do you want to be able to have good access to a GP, do you want enough doctors and nurses to be available when you turn up at A&E” then people may think differently about it. I suspect it would be pretty difficult to find someone in the UK who has not indirectly benefitted in any way from the fact that this country produces graduates. (If someone benefits from something, is it reasonable to expect them to make a contribution towards it?).
The idea of waiving repayments for graduates of certain subjects has already been floated in this thread, and I the idea of waiving repayments for people working in certain professions/roles is also worthy of consideration, as is the question of whether the current HE model in the UK is appropriate. There has been a lot of homogenisation of provision in the last 30 years, and there are questions to be asked about whether we need a broader diversity of types of provision (e.g. specialist technical colleges/universities) than we have today.
@Peter Parsons “There has been a lot of homogenisation of provision in the last 30 years, and there are questions to be asked about whether we need a broader diversity of types of provision (e.g. specialist technical colleges/universities) than we have today.”
Until 1992 we had Polytechnics and they did a different and useful job providing specialist technical and vocational education offered in a variety of ways to a variety of different types of student (full time, mature, part time, day release, HNC, HND etc etc …).
Much like the abolition of grammar schools, we lost a lot and gained very little by their conversion to “universities”.
@TCO, I was in the HE sector while what you reference was going on, I saw its impact and I agree with you.
Steve
That’s what the Tories told people. However, they were lying. Even without tuition fees, graduates contributed more than enough additional tax receipts during their lifetime to cover their tuition. Graduates were subsidising everyone else.
No.
The money raised by taxation currently does NOT cover university tuition. If one wished to pay for university tuition directly by taxation now, either taxation would have to rise, or something else would have to be cut.
Throughout 2010-2105, the political debate on this topic was nonsensical, because this basic fact, which ought to have been at the centre of it, was just ignored. Those attacking the Liberal Democrats over this issue generally based their argument on two contradictory suppositions:
1) University tuition involves a trivial amount of money, the government could just find that money easily from elsewhere and no-one would even notice.
2) University tuition is hugely expensive, imposing an unacceptable lifetime burden on those having to pay it.
Yet supposition 1) and supposition 2) are about exactly the same amount of money, that is what the cost of universities is. If that money were paid directly through taxation rather than indirectly through repayment of loans it would amount to much the same people paying much the same money. That is, to quite a large extent, the tuition fees and loans system was an accountancy trick.
There is no way the Conservative-dominated government of 2010-2015 would have agreed to that amount of direct state borrowing, and no way they would have agreed to big rises in taxation to pay for it. Cutting out that part of government spending which paid directly for universities was a major aspect in enabling the 2010-2015 government to be able to keep taxes at the level it kept them, and have that big increase in tax allowance. Had that not been done, spending on universities wold have been slashed in the way that spending on local government and further education was slashed.
By agreeing to the tuition fees and loans system, and arguing for full availability and generous repayment and write-off of the loans, the Liberal Democrats got the Conservatives to pay for universities in a way which was really disguised state borrowing to a level they would never have agreed to in any other form.
Phyllis
RC taxpayers (all of them) would be paying to have doctors, dentists, engineers, nurses, architects, etcetc. How would we manage without them??
Oh, easy-peasy, like we do now anyway. Get other governments to pay for education of their people in these skills, bring in those with the skills as immigrants, and rely on the political left and liberals to cheer in agreement at that because not to do so would be considered “racist”.
Peter Parsons
I suspect it would be pretty difficult to find someone in the UK who has not indirectly benefitted in any way from the fact that this country produces graduates. (If someone benefits from something, is it reasonable to expect them to make a contribution towards it?).
OK, so do we find people cheering at the prospect of tax rises? The Conservatives were elected on a pledge to keep taxes down. The Liberal Democrats (and I think they were wrong in this, and wrong to claim it was a 2010 manifesto promise) made a big thing in 2015 about their support for decreasing taxes. And now we have three out of the four contenders for the Labour leadership also thinking that one cannot support higher taxation as that is an “attack on aspiration”.
The reality is that most people in this country are innumerate and lacking in a budget mentality, so they have no idea of how the cost of state services needs to be balanced by taxation. So actually they aren’t willing to support the taxation to provide thing they benefit from, especially when putting their cross on their ballot paper. That is in part because they have unrealistic assumptions about how much things cost, as was very evident in the debate on tuition fees.
I blame the political left for this because they are too scaredy-cat to put the case for higher taxation, and dominated by out-of-touch wonk types, who ordinary people think are just weird and so wouldn’t believe them when they tried to put the case for higher taxation. So the right wins by default when it argues the case for lower taxation.
taxpayers (all of them) would be paying to have doctors, dentists, engineers, nurses, architects, etcetc
And media studies graduates? Creative arts graduates? Surely taxpayers would be happy to fund the degrees of out-of-work wannabe actors, right?
@Matthew Huntbach
“The money raised by taxation currently does NOT cover university tuition. ”
I never said it did. Did you actually read my comment?
I simply stated that the extra tax revenue paid by the average graduate over their life-time (a conservative estimate would be an extra 40k in taxes) in comparison to non-graduates is in excess of their tuition costs. Therefore, graduates were never subsidised by non-graduates. What you are talking about is the total tax receipts and how they failed to match total expenditure in 2010-2015 – that is something completely different – that is a failure of all taxpayers to pay for the other public services they receive.
A further couple of points – the largest increase in the percentage of the population going on to HE happened under Thatcher and Major between 1988 and 1992.
Sorry – posted that too soon. I was going on to point out that the Tories presided over a much greater expansion of HE than Labour ever did, yet without the need to raise additional funds from fees.
I was also going to say that it is naive to believe the Tories introduced their 2012 system in the belief that it would provide additional funding to the sector. The clear purpose was the marketisation of HE in which fee levels would be set according to the earning potential of the course – the Tories’ intention was that student numbers would decrease and the HE sector would decrease in size with it (all those media studies and arts degrees they love to hate). They failed because people at the age of 18 all think they’re going to end up in good jobs when they leave their course and are therefore prepared to pay whatever on the never never. That’s why I state that it is going to take decades for graduates to realise just how much those fees have cost them. Markets are supposed to work on informed decisions, yet graduates aren’t really informed abut how much their degree is worth until 10 or 20 years after they signed up.
“And media studies graduates? Creative arts graduates? Surely taxpayers would be happy to fund the degrees of out-of-work wannabe actors, right?”
Well some of those students go on to become the next Helen Mirren, Lawrence Olivier, etc entertaining the whole nation and winning Oscars etc or people who work behind the scenes to give us the Opening and Closing Ceremonies of the 2012 London Olympics. Society as a whole benefits from people with a good education.
Culture in its broadest sense is an essential and enriching part of our lives.
Well some of those students go on to become the next Helen Mirren, Lawrence Olivier, etc entertaining the whole nation and winning Oscars etc or people who work behind the scenes to give us the Opening and Closing Ceremonies of the 2012 London Olympics
Very few do. There are now more media studies graduates in the UK per year than there are jobs in the UK media total. Do you think that’s a good use of taxpayers’ money?
How much do you think taxpayers would, or should be willing to pay per Helen Mirren, do you think?
Matthew Huntbach,
I agree with much of what you say. I’ve long held the view that there are too many in the UK who seem to want Scandanavian levels of public services paid for by US levels of taxation and are not aware (or unwilling to accept) that this simply doesn’t add up. Someone needs to make the case and I’m not sure it should be left to the political left to do it.
The reality of the recent budget is that the overall tax take will go up as a consequence of all the changes, a clear case of the spin masking the reality (in many ways).
However I do disagree with you over the policy of taking the lowest paid out of income tax. It is a policy that I support, however I would have like to see it implemented differently, specifically changing the upper band thresholds such that those in the 40% and 45% bands do not see an equivalent cash gain when the tax free threshold is raised. That way only those in the lower part of the income scale benefit.
Peter Parsons 29th Jul ’15 – 5:53pm “… there are too many in the UK who seem to want Scandanavian levels of public services paid for by US levels of taxation and are not aware (or unwilling to accept) that this simply doesn’t add up.. ”
It has been possible to tax North Sea oil, which was sold into the market place, not just in the UK.
Australia taxes a variety of minerals, South Africa raises revenue from gold and diamonds, …
Peter Parsons, The Lib Dems in government ensured that the 40% threshold was reduced each year from 2011 to 2015 to prevent the gain you refer to, iirc.
David Evans,
Sadly not. While the 40% threshold was reduced over the course of the coalition, it was not by enough to offset the rises in the personal allowance. As an example, the total income tax take on a £50k salary with standard personal allowances was about £300 lower in the last year of the coalition than in its first year.
Steve
@Matthew Huntbach
“The money raised by taxation currently does NOT cover university tuition. ”
I never said it did. Did you actually read my comment?
Yes. It was in response to “Also, try telling non-graduates that they should pay extra tax to pay for half of the population to go to university. I think you’ll find that a hard sell at the ballot box.” So, you seem to be saying that instead of having tuition fees, the extra tax raised by graduate earnings should go to funding universities. Well, that would mean that extra tax is no longer available as general funding for other government expenditure, which was what I meant.
So, by your argument something else would have to be cut to make up for it. What would you want? More welfare cuts? Slashing the NHS?
The argument you are using is similar to the one sometimes used by the very wealthy which goes that since they pay a lot of tax it is only right for that tax to be spent on things that benefit the wealthy rather than on welfare payments and so on.
Steve
I was also going to say that it is naive to believe the Tories introduced their 2012 system in the belief that it would provide additional funding to the sector. The clear purpose was the marketisation of HE in which fee levels would be set according to the earning potential of the course
Yes. When I’ve put the line I’ve been putting before, the line that has been thrown back at me has often been “Nah nah nah nah nah, since there’s no real money going to universities, it’s just loans, the government could just as well have paid it directly and not had tuition fees, so the only reason you’re saying what you’re saying is to disguise the fact that really you’re a Tory and it’s what you secretly wanted in the first place, you just pretended otherwise in the 2010 election, nah nah nah nah nah” (recognise that, Phyllis?).
That ignores the fact that the Tories were willing to borrow a huge amount of money to subsidise universities in this disguised way, but would NEVER have agreed to do the same through direct borrowing. The LibDems gave in to the Tories over tuition fees, but in return made them agree to subsidise universities even more generously than they were being subsidised previously through the generous write-off conditions. An accountancy trick, and the Tories fell for it. Trouble is, it was just too clever for the “nah nah nah nah nah”s to understand.
The Tories were willing to do this because they genuinely believed it would lead to market forces pushing university costs down. Which it didn’t do at all. The fact that it was obvious to those in the know that it wouldn’t do that is shown by the way almost all universities put their fees up to the maximum. I.e. it didn’t really take a genius to see that, unless you suppose universities are universally run by geniuses.
Peter Parsons
Someone needs to make the case and I’m not sure it should be left to the political left to do it.
Well, it used to be the Liberal Democrats who did it when we argued “a penny on income tax to pay for education” until the Orange Bookers took over at the top to push the line that liberalism means a Thatcherite approach to tax cuts and state services, with a bit of token social liberalism only when it doesn’t interfere with that.
Dav said
“And media studies graduates? Creative arts graduates? Surely taxpayers would be happy to fund the degrees of out-of-work wannabe actors, right?”
and then
“Very few do. There are now more media studies graduates in the UK per year than there are jobs in the UK media total. Do you think that’s a good use of taxpayers’ money?
How much do you think taxpayers would, or should be willing to pay per Helen Mirren, do you think?”
Addressing the first quote.
Why should they mind, until relatively recently the tax payer funded Classics degrees, Fine Art, Politics etc etc etc without complaint – all of which have little economic worth to the country. The point is is that all learning enhances our knowledge and therefore allows greater understanding. Degrees are not all about the subject learned but the process of analysis and learning which can be put to other uses than just gaining an understanding of the subject studied.
Addressing the second quote.
Using your argument there should no call for degrees in Marine Biology since there are many more graduates of said science than those employed in the subject. However, the degree enhances our understanding of marine life.
Peter Parsons
However I do disagree with you over the policy of taking the lowest paid out of income tax.
My point is that this was pushed as if just decreasing taxes was all we were about, as if that’s what was in our 2010 manifesto. But it wasn’t. In our 2010 manifesto it was put clearly that taking the lowest paid out of income tax would be balanced by higher taxes elsewhere, it was not out solely on the grounds that reducing tax altogether is a good thing.
If the line that reducing tax in itself is a good thing is pushed, then reduction in government services has to go hand-in-hand with that, and that needs to be admitted. In the 2010-2015 government, replacing direct government subsidy of universities with subsidy through disguised government borrowing to be paid back specifically by future graduates was a major reason why taxes could be kept down. In the 2015 election campaign our leadership went on and on about how good it was that it had pushed these tax cuts, but did not mention the cost in terms of spending reduction. In doing so it pushed this false idea that you can cut taxes with no consequences elsewhere.
Why should they mind, until relatively recently the tax payer funded Classics degrees, Fine Art, Politics etc etc etc without complaint – all of which have little economic worth to the country
You can understand, though, how a body of taxpayers which didn’t much mind (or even think about) funding a couple of hundred Classics graduates a year, might object when asked to pay for tens of thousands of media studies graduates per year? That penetrates, right?
Using your argument there should no call for degrees in Marine Biology since there are many more graduates of said science than those employed in the subject
Oh, clearly there would be ‘call’ for such degrees: there will always be a bunch of teenagers who fancy a degree in messing about on boats in the Caribbean, just like there’ll always be a bunch who would like to be funded to watch TV and waffle about it for three years.. The question is whether the taxpayers of Great Britain will and ought tofund them to do so, and then answer there is probably ‘no’ (in the specific case of Marine Biology, I suspect the taxpayer’s attitude will be ‘well they can be funded to do a first degree in Biology and then if they want to specialise in the Marine side they can do it as a postgraduate course, applying for funding from EPSRC and competing to show they deserve the money, rather than simply being handed it — that would be my attitude anyway).
Matthew H “…..nah nah nah nah” (recognise that, Phyllis?).”
Yes and it is very childish.
You insist on targeting me when I have never used those words. My arguments have been based on what we already know of the Clegg position on tuition fees but you insist on twisting my words.
Have you learnt nothing after May 2015?
Dav
So we should just sit around like Scrooge counting his money until we have no-one capable of putting on great theatrical works?
Matthew Huntbach,
No problem, thanks for clarifying your position, I guess I interpreted your previous statements in a manner not intended by yourself. I agree with your point over the “penny on income tax for education”, that was a policy I personally liked. It was clear, simple and you knew what you were getting for it, and there is far too little of that from the current crop of politicians. (I’d class Jeremy Corbyn as one of the few obvious exceptions and I would attribute some of his impact on the Labour leadership election to the fact that he is clear, concise and consistent in the messages he chooses to articulate.)
So we should just sit around like Scrooge counting his money until we have no-one capable of putting on great theatrical works
Funnily enough, there were a lot of great theatrical works produced even before the state paid for tens of thousands of people a year to do media studies degrees, so it doesn’t seem like stopping funding media studies degrees would stop, or even significantly slow, the rate at which great theatrical works are produced, does it?
Tom Stoppard never even went to university.
For reference, article in today’s Independent on the subject of tuition fees:
http://www.independent.co.uk/news/education/higher/tuition-fees-uk-universities-set-to-charge-10000-by-end-of-the-decade-says-major-report-10424931.html
Dav “There are now more media studies graduates in the UK per year than there are jobs in the UK media total. ”
You are wrong about the employability of media studies grads
http://www.managementtoday.co.uk/news/1221489/
They are the second most employable graduates after Medics but one of the least well-paid groups.
You are wrong about the employability of media studies grads
Not if you read what I actually wrote, which was:
‘There are now more media studies graduates in the UK per year than there are jobs in the UK media total’
Those graduates are employed, but they are not empolyed in the media. In fact, if you look at the average salarty, they are not even employed in graduate jobs: they’re doing the kind of semi-skilled labour which they don’t need a degree for, which they could have got straight out of school.
In other words, them doing degrees was a complete wastes of time and money.
At least when they have to pay back their tuition fees, it’s their own time and money. They come out loaded up with debt and unemployable except as call-centre staff, but that was their choice (liberals are supposed to be all about choice, right?).
But to ask taxpayers — either all taxpayers or other graduates who actually did do useful degrees — to subsidise them dossing about for three years writing essays about post-structuralism in Doctor Who?
That is not on. Not at all.
Dav but that is a whole separate issue. I do firmly believe that society as a whole should encourage and enable everyone to be educated to the absolute limit of their abilities or circumstances, because society as a whole benefits from a highly educated populace, whether this leads to work in that subject or not. I lived in Paris for a while and every day on the Metro I would see people from all backgrounds talking about all manner of things, art, literature, politics, in a way which doesn’t happen in this country. Their people are better educated. Ours are not on the whole, educated.
The fact remains that having doctors, engineers, dentists etc benefits the whole of society and therefore taxpayers should fund higher education. In fact most graduates will contribute anyway through higher taxes. If there are anomalies on the fringes, (there always are) well we can either accept them for the greater good or address them separately. But that should not detract from the over-arching principle that education at the highest level (for the individual) should be the aspiration and the expectation of every member of society and should be funded by society. In this country, there is an acceptance that graduates are somehow ‘previledged’ or ‘toffs’ and non-graduates are encouraged to be envious and/or resentful of graduates – it is a pernicious narrative which seeks to keep people down rather than move everyone up. . We should have an overarching vision which moves completely away from that narrative and replace it with an ‘education is the single best thing society can give you’ narrative. Because, after healthcare, it really is.
(I speak as someone whose grandfather, in the 1930s, taught himself how to be an electrician by going to his public library every day and studying the books there. He taught himself a whole new profession, having been made redundant, and saved himself and the family from penury).
The fact remains that having doctors, engineers, dentists etc benefits the whole of society and therefore taxpayers should fund higher education
That ‘therefore’ is not logically valid. Having doctors, engineers, dentists etc benefits the whole of society therefore society should ensure there are doctors, engineers, dentists etc.
One way of doing that might be to have taxpayers fund higher education, but it is not the only way and it certainly might not be the most efficient way, and I hope you agree that when spending taxpayers money it is important to at least try to do it somewhat efficiently.
In this case, it would be quite easy to spend it more efficiently: close down the ex-polys and joke courses, and concentrate funding on proper degrees. Then, it will be much easier to persuade taxpayers to fund the courses as (a) the overall bill will be smaller and (b) it wil be clear that the money is being spent on people who deserve it, and there won’t be any media studies undergraduates dossing around on the public penny.
I speak as someone whose grandfather, in the 1930s, taught himself how to be an electrician by going to his public library every day and studying the books there. He taught himself a whole new profession, having been made redundant, and saved himself and the family from penury
Good for him.
If he’d taught himself media studies instead, his family would have starved.
Phyllis
You insist on targeting me when I have never used those words. My arguments have been based on what we already know of the Clegg position on tuition fees but you insist on twisting my words.
Have you learnt nothing after May 2015?
Please look at what Peter Parsons wrote two messages later. I wish you had the decency to reply to me using similar words rather than continuing to attack me as if I were a fan of Nick Clegg when I have made it very clear I am not and never have been.
Your last sentence here is extraordinary, given all that I have been writing here for years and years. I wrote message after message saying why I believed the Liberal Democrats were presenting thing all wrong and how that was going to damage the party, and I was so unhappy with it that after over 30 years of activism in the party I pulled out and 2015 was the first general election since the 1970s when I did nothing at all to help the Liberal Democrats or Liberal Party as it was when I joined it. Yet you write that sentence as if I was fully in support of the 2015 Liberal Democrat election campaign and can’t understand what went wrong.
So, since you are clearly completely ignoring everything I am writing, your responses to me really do amount to “nah nah nah nah nah”.
… And as if on cue, just to prove there’s no point in funding higher education for 50% of the population:
http://www.bbc.co.uk/news/education-33983048
Over the years the tuitions of higher education have raised which, in time will manifest the effects it has on the economy. This is unfortunate as higher education gives citizens of America the ability to gain the knowledge to do anything. As a benefit to the country teachers, doctors, lawyers, engineers and other essentially important professional positions are filled. Once these professionals began to purchase homes, pay debts to loans and purchase other necessitates in America, the economy becomes highly affected. In likes of competitive advantage, there are several reasons why America has to remain the most powerful.
I completely agree to your article, The rise in tuition fee had a direct impact on the progress of the UK economy. According to the study, Students in England leave university with higher debts than almost anywhere else in the developed world.
David, we can’t compare rent in Germany with UK. Its a different story, I agree what the author has said in the article, rise in tuition fee has negatively impacted economy.