The Independent View: A new report from CentreForum highlights the problems with Labour’s tuition fees policy

A new report entitled “A Labour of Love?”, released today by CentreForum and written by Tom Frostick and Chris Thoung, weighs up the pros and cons of Labour’s recently announced policy on tuition fees, one which revolves mostly around the fees being cut from their current £9k maximum to a £6k ceiling. The report can be read here.

On the plus side, the policy does acknowledge the importance of maintenance grants. It also reopens the discussion that needs to be had regarding the balance between state and individual investment in undergraduate education by lowering the percentage of loans the government estimates will not be repaid. It would also apply to all undergrads, including those currently studying, so would be fair in that regard.

But there is a lot to say about the policy that is negative. If introduced, it would have little to no impact on a staggering lowest 60% of graduate earners and would mostly benefit higher earning graduates only (and even then, up to twenty-eight years after they’ve left university). It is also costed in such a way that could discourage pension saving, and its higher interest rate scheme for wealthier graduates contributes only modestly to the intended progressiveness of the policy. 

But for me one of the principle weaknesses in the Labour tuition fee plan is that the reasoning behind it is faulty in and of itself. Applications from disadvantaged students have gone up since the present scheme was introduced at the end of 2010, not down. This perhaps has more to do with the more fundamentally progressive bits of the Coalition’s policy, such as only having to pay back anything at all once they graduate are earn over £21k a year. But the lowering of fees from £9k to £6k is a mostly cosmetic exercise, one that only sheds light on how difficult lowering the fees are from a fiscal discipline point of view in the first place (why not lower them to a pre-Coalition level of £3k? Or better yet in terms of messaging with parts of the Left: nothing at all? Because it would be far too expensive is the answer).

Given that Labour’s focus in creating the £6k policy seemed to be helping the most disadvantaged of potential and current undergraduates, it can only be deemed unworthy. As I said already, the graduates who stand to gain the most from the policy are those on high incomes, particularly those earning more than £80k a year. Anyhow, if you’re interested in understanding more of the detail, I urge you to read our report.

The Independent View‘ is a slot on Lib Dem Voice which allows those from beyond the party to contribute to debates we believe are of interest to LDV’s readers. Please email [email protected] if you are interested in contributing.

* Nick Tyrone is a liberal writer. He blogs at nicktyrone.com and is an associate director at CentreForum.

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61 Comments

  • A staggering 60% of graduates “won’t benefit” because their debts are getting written off, in other words. The government is going to pay the money in 30 years time. How is kicking the can down the road like that a good thing? Surely, it’s better to have an honestly costed scheme now rather than one so incompetently put together that the majority of students aren’t paying off their debts.

    As for “could discourage pension saving”, we’re talking about people with pension pots capable of generating an income of £58k/year, over twice the median wage, being hit. This is hardly a problem.

    (Incidentally, would it be possible for someone to alter the source for this site so that it defaults to en-UK rather than en-US for this textbox? This is after all a UK site and it’s rather annoying that it keeps switching my spell checker to US English rather than British English.)

  • Jack “As for “could discourage pension saving”, we’re talking about people with pension pots capable of generating an income of £58k/year, over twice the median wage, being hit. This is hardly a problem.”

    It is a problem because those pension pots have been built up over decades. To have such a pot in future, particularly now where the vast majority of pension schemes are defined contribution, graduates will need to start saving between 20~25% of their gross annual salary in a pension scheme as soon as they start working. I know many people who in their early 20’s thought they could delay starting a pension and wake up when they were turning 40 that they didn’t have any pension beyond state pension…

  • Jack re: default to en-UK rather than en-US for comments textbox

    I suspect the problem is at your end.
    If you are using Chrome hover your mouse over the comments box and right click and go into language settings and ensure “English (United Kingdom)” is enabled as “This language is used for spell checking”. If memory serves me correctly, I actually had to make this change in the settings rather than just use the radio button provided for the change to stick.

    Other browsers will have a language setting, which in general should be set according to whatever locale your machine has been set to, but some browsers like Chrome ignores that setting.

  • @Roland: it’s not at my end, it doesn’t do it on any other site and, if you go and look at the page source, you can see that it is set to en-US not en-UK.

  • @Roland: “It is a problem because those pension pots have been built up over decades. To have such a pot in future, particularly now where the vast majority of pension schemes are defined contribution, graduates will need to start saving between 20~25% of their gross annual salary in a pension scheme as soon as they start working. I know many people who in their early 20’s thought they could delay starting a pension and wake up when they were turning 40 that they didn’t have any pension beyond state pension…”

    How is this affected, in any way shape or form, by cutting the tax rebate on those tiny handful of very rich people who are able to rack up a £1m pension pot?

  • @Tom Papworth
    “Actually, the damage resulted from the party not responding to the CentreForum paper… Had the party, which was never going to be in a position to deliver it, changed its policy before 2010 as the author recommended, we would not have been forced to do a U-turn when we formed a coalition with a much bigger party, with a totally different policy, at a time when we needed to shrink a deficit of £150 billion a year.”

    The paper you link to certainly wasn’t recommending anything like what the Lib Dems ended up voting for i.e. a trebling of fees. On the contrary, it suggested a modest increase in student support.

    As for your reference to the deficit – I’m astonished that people keep trotting out this excuse, when it’s been long known that the current scheme will be much MORE costly to the taxpayer for many years to come. If deficit reduction were the prime motive, the government should have left the scheme as it was.

  • “But for me one of the principle weaknesses in the Labour tuition fee plan is that the reasoning behind it is faulty in and of itself. Applications from disadvantaged students have gone up since the present scheme was introduced at the end of 2010, not down.”

    It is your reasoning that is faulty, in and of itself.

    Applications, both in general and from disadvantaged students, had been increasing for years before the 2010 reforms. The trends were strong. None of the government’s critics (or at least, no sensible ones) ever claimed that the trebling of fees would send these trends into permanent reverse. What those critics predicted was that the trebling of fees would put a lot of people off applying – which they certainly did, as applications fell substantially in the first year. The fact that the previous growth trends subsequently re-established themselves in no way proves that the trebling of fees has not put applicants off. What matters is whether the numbers applying now are higher or lower than they would have been had the fees not been trebled – and looking at selected annual growth rates does not, indeed cannot, tell you that.

    UCAS analysis shows that, regardless of the return of growth in applications, the actual level continues to be lower than would have been expected had pre-2010 trends continued :-

    https://www.ucas.com/sites/default/files/jan-14-application-rates.pdf

    A lot of people (including those bright sparks at Centre Forum) seem to struggle with the mathematical concepts here, so let me give you a simple analogy.

    In the summer, I often put my son’s pet tortoise on the lawn and she sets off at full speed (which isn’t much) for the far end. As she gets close to the border, I pick her up, walk backwards about twelve feet, and put her down again. She sets off in the same direction as before. Though she is progressing at exactly the same speed as she was previously, she is nevertheless twelve feet further back than she would have been if I hadn’t picked her up.

    That’s basically what happened with university applications. The growth trend may well have continued as it was before, but this does not compensate for the massive correction that took place in 2011.

  • @Jack – The use of en-us in the page source explains some fo the things I’ve been seeing. A quick test shows that in Chrome to make the use of the en-uk spell checker the permanent action, I had to set “English (United Kingdom)” as both “Display Google Chrome in this Language” and “Use this language for spell checking”. But you are correct the LDV page setting should be one of ‘en’ or ‘en-gb’ but not ‘en-uk’ (this denotes the Ukrainian English dialect!).

  • Alex Sabine 28th Mar '15 - 2:06am

    A typically thorough and high-quality piece of analysis by CentreForum, which fairly highlights some of the more attractive (and voter-friendly) features of the policy as well as its major defects.

    The headline conclusion must be that this is a straightforward ‘retail offer’ to those who are fearful of debt and those who might expect to become well-paid graduates, not the progressive reform it was originally billed as. It wouldn’t surprise me if it ‘plays well’ with voters all the same, since progressiveness is a preoccupation of politicians rather than Joe Public. But in policy terms it is intellectually incoherent and a strange priority given the straitened fiscal situation and the more pressing demands on the public purse that a Labour Chancellor would face.

    The essence of this policy is that it reduces the total amount borrowed by students but does little or nothing to reduce the amount that the majority of graduates will repay. As the CentreForum report says: “It is the highest earners that have the most to gain from Labour’s proposal, because they will graduate with less debt. These graduates benefit either by paying off their debt sooner than otherwise or by paying off their debt when they would not have under the 2012 system. In both cases, these graduates are left with more disposable income in subsequent years.”

    The main benefit of this proposal is that it increases the projected repayment rate – ie reduces the proportion of the total loan value that is expected to be written off – although only slightly. This does not mean the policy would save the Exchequer money, since of course there would be an extra demand on taxpayers to make good the lost fee income. Universities will naturally be concerned that this offsetting increase in the teaching grant might be vulnerable to future salami-slicing by the Treasury.

    And of course there are other ways in which the repayment rate could be increased: a small rise in projected earnings growth makes a big difference to the modelling over 30+ years, as would a less generous indexation of the repayment threshold (eg in line with inflation rather than earnings growth).

    The other key point the report makes is that the original rationale for lowering fees appears to have been the assumption that there would be a big drop-off in participation, particularly among those from poorer backgrounds. Yet these predictions have turned out to be largely groundless. Indeed, “full-time enrolments among disadvantaged students have risen in this period, weakening the case that the fees cap needs to be reduced because it puts these individuals off applying.”

    Although there has been little evidence so far of a deterrent effect from higher fees, the CentreForum report acknowledges that it is “plausible” that some people might be put off by the fear of large debts. But in so far as it is a problem, Labour’s policy response is the proverbial sledgehammer to crack a nut.

    As Martin Lewis writes on MoneySavingExpert.com: “The one positive of this plan is that cutting tuition fees is likely to reduce fear among those who don’t understand the system. Yet instead of spending billions to do this, why not spend £100 million on financial education for potential students and their parents to fight unfounded fears?”

    Lewis was too polite to point out that those who might benefit most from such financial education are the members of Labour’s policy team who came up with a policy that he brands “financially illiterate”.

  • @Jack – Firstly a £1m pension pot isn’t a particularly big pot (although I accept that it’s accrual is a challenge). My understanding is that it would currently purchase an index linked pension of between £26~30k pa. for a person retiring at 65 with the option for the pension to transfer to their surviving spouse.

    So whilst Labour (and others) go on and on about the rich you may wish to ponder how someone about to retire on a final salary pension of circa £26,000 pa (ie. the national average wage) can be considered to be significantly better off than the average person (ie. rich)!

    The issue therefore isn’t so much about those who earn over £150,000 pa but normal people, who are 10~20 years off retirement who have accrued pension pots of circa £700,000, who thanks to the coalition’s recent budget raid on pensions that lowers the lifetime allowance further to £1m (generating circa £2.7bn of revenue), will almost certainly have pension pots that exceed the lifetime allowance when they retire, even if they stop paying in now.

    For Labour’s tuition fee’s policy to be funded as they intend from reductions in pensions tax relief, a further reduction in the lifetime allowance will be necessary (to £750,000?). All this simply serving to make pensions a less attractive long-term investment, hence the warning from CentreForum that Labours plans “could discourage pension saving”.

    Whether people would actually stop saving for their retirement is another matter, I suspect many will simply ensure they make full use of all the various tax efficient savings options available to them.

    [Aside: There is a minor error in the Centre Forum report – page 4 where it quotes Labour “but with greater protection for individuals in defined benefit schemes” I suspect the actual source for this quote is .
    The relevant sentence in the source given in the CentreForum report – , reads ” we will provide better protection for those who get a large pay rise and are part of a final salary scheme.”. But then neither of these differing statements or words with the same intent can be found in Ed Milband’s speech… ]

  • Alex Sabine 28th Mar '15 - 3:38am

    Stuart:  You dispute the conclusion that the fee hike has not hit applications by extrapolating from the previous trend, but the difference is too marginal to justify a significantly different interpretation. The fact that there was a dip in applications in 2012 pales into insignificance given the subsequent resumption of the rising trend. If I remember rightly there was also a temporary lull when the previous fee changes came in. And as Martin Lewis argued at the time, misinformation about the new system when it was introduced may well have deterred students unnecessarily.

    In terms of overall applications, as the BBC’s education correspondent Sean Coughlan writes: “The UCAS number crunchers say that applications are slightly below what they would have been if fees had not been increased, but not by much, and the long-term upward trend has returned.”

    Moreover, applications from those with disadvantaged backgrounds dipped less sharply in 2012 and are now at a record high; while the gap in applications between the better-off and less well-off has continued to narrow throughout the period that tuition fees have been in place. Overall, the richest 18-year-olds in the UK are now 2.4 times more likely to apply for university than the poorest; in 2006, when deferred fees were introduced, they were 3.7 times more likely to submit an application.

    You can argue that the reason for these statistics is the underlying trend rather than the change in fees; but if the consequence was a single-year blip followed by a resumption of these underlying trends then I reckon that isn’t a bad outcome for a reform that did trigger doom-laden predictions.

    You say: “None of the government’s critics (or at least, no sensible ones) ever claimed that the trebling of fees would send these trends into permanent reverse.” That is not how I remember it.

    To cite just three examples from the parliamentary debate in December 2010, Labour’s then BIS spokesman John Denham said: “We constructed the support, the routes and the ladders of opportunity for more and more of those bright, talented young people. All that has been kicked away.” His Labour colleague Gareth Thomas was no less apocalyptic: “Tonight, Opposition Members speak for ordinary working people. We speak for Britain’s middle class. We will speak for those on low incomes in every constituency, and for all those who are outraged by this attack on the ambitions and aspirations of the brightest and best of Britain’s next generation.” And the Tory MP Julian Lewis, who voted against the fees hike, said: “I can hear people talk about percentages until they are blue in the face-or yellow in the face-but they will not convince me that young people from poor backgrounds will not be deterred.”

  • Alex Sabine 28th Mar '15 - 3:50am

    If Labour wanted a more effective, and much cheaper, reform to higher education policy they would have done well to take up this suggestion from the New Statesman‘s Tim Wigmore: http://www.newstatesman.com/politics/2015/02/if-labour-cuts-tuition-fees-it-wont-help-more-disadvantaged-students-go-university

  • @Alex Sabine
    “To cite just three examples from the parliamentary debate in December 2010”

    If the three quotes supplied are the best you can come up with then I’m obviously right, since none of the people you quote were claiming that the trends would go in to permanent reverse. Why on earth would anyone expect them to? It’s a rather obvious straw man.

    What people said was that the trebling of fees would lead to fewer people applying than would otherwise be the case – and that’s exactly what UCAS’ analysis suggests has happened. This is the only important question here. The fact that we are now back on an upward trend is irrelevant to the question of whether the current scheme has caused applications to be higher or lower than they would have been otherwise. I’m surprised that you should make such a fundamental error.

  • @Alex Sabine
    “The headline conclusion must be that this is a straightforward ‘retail offer’ to those who are fearful of debt and those who might expect to become well-paid graduates, not the progressive reform it was originally billed as.”

    Was it really billed that way?

    There are two issues (at least) with criticisms of Labour’s policy on progressiveness grounds.

    First, Labour’s critics seem to have a very narrow view of “progressiveness” which involves looking at graduates in isolation and ignoring everybody else. Hence, if “better off” graduates (which actually means most of them, including those on average incomes) benefit more than badly paid graduates, then the policy, according to the critics, must be regressive. This view completely glosses over the fact that the policy is financed largely by taxing pension savers earning in excess of £150,000 pa. How does redistributing money from people earning £150,000 to people earning, say, £35,000 leave you with a less progressive overall system than you had before?

    Second (though this is related), progressiveness is not the only determinant of fairness. The 2010 reforms massively shifted the burden on to graduates, particularly graduates on average incomes. Many people consider this to be stonkingly unfair in principle. The government attempted to assuage its conscience by reducing payments for low paid graduates – hence the current system was claimed to be more “progressive” than the previous one. But whether low paid graduates are better off than before – which nobody would fail to welcome – or not, this does not in itself justify the eye-watering increases in payments suffered by graduates on average incomes.

    Labour’s latest proposals need to be looked at in the context of all the earlier reforms, particularly the 2010 ones. Under Labour’s plan, “well-paid” graduates will still end up paying massively more than they were under the pre-2011 scheme. In fact, fees will be at the very same £6,000 level my local Lib Dem MP was telling voters (in 2010) would be outrageously and unfairly high if they ever came to pass. To see Labour’s plan described (as some posters here have done) as “largesse” is ludicrous when graduates will still be getting clobbered compared to what they were before 2010 – they just won’t be getting clobbered quite so much.

  • “This view completely glosses over the fact that the policy is financed largely by taxing pension savers earning in excess of £150,000 pa. ”

    No Stuart, the bulk of the finance is coming from the reduction in the lifetime allowance, namely circa £2.7bn pa, contributing the £40bn of savings that Ed claim his policy will accrue by 2030. The change in rules for those earning £150,000 plus is small beer, in fact so small that I can’t find a Labour party source that puts a figure on it. Likewise for the reduction in the annual allowance from £40,000 to £30,000.

  • @Roland
    “No Stuart, the bulk of the finance is coming from the reduction in the lifetime allowance”

    Not according to this :-

    http://www.theguardian.com/politics/2015/mar/18/ed-balls-labour-pledge-cut-tuition-fees-george-osborne-labour-shot-fox

    The reduction in the lifetime allowance accounts for just £06.bn of Labour’s proposed £2.9bn pension tax reforms. The rest (£2.3bn) will come from people who are either earning over £150,000, or saving more than £30,000 pa in their pension pots.

    George Osborne complains that the latter move will penalise “teachers and nurses”, which makes you wonder exactly which planet he’s living on.

  • @Stuart – Thanks for the additional piece of information, which given the Guardian quote George Osborne can be taken as a robust figure. It is a shame the article doesn’t go on to give a full breakdown of revenues by source that Labour envisage will fund their policy, but then neither does the CentreForum report and I suspect that this is a deliberate decision by Labour.

    To accept the Labour proposal you are accepting discrimination, that someone who’s gross earnings amount to £149,995 is entitled to tax relief at 40% on their pension contribution, whereas someone earning £150,000+ is only entitled to 20% tax relief on the same contribution. That doesn’t seem right to me, but then the Labour movement was never really about equality.

    I think the issue with respect to public servants such as “nurses and teachers” and any one with a final salary pension is how their notional pension pot is valued and treated in all of this. So whilst George Osborne’s comment does seem a little off, I suspect he has seen something that others are currently missing.

    What is becoming clearer is that we will be having to save more for retirement, not just because of the switch to defined contribution schemes and the poor performance of investments since 2008, but also because successive governments are treating pensions savings as just another pot to raid to fund their spending.

  • If we start supporting £9,000 fees now (Ed Davey recently said Labour were ‘stupid’ to promise to reduce fees even to £6,000), how did we get the maths so wrong before the last election? Are we saying our 2010 policy was simply wrong then? The apology Nick gave for not being able to delver on fees in the coalition Government. also makes no sense in the light of this ‘new ‘ policy position.

  • Philip Thomas 28th Mar '15 - 5:26pm

    Nick’s apology was for making a bad promise, not for failing to deliver on that promise.
    It is a funding question- where do you get the money from?

  • Philip Thomas 28th Mar '15 - 5:56pm

    Couldn’t we get an even more progressive tuition fee approach by increasing fees to say, £12,000? Only the highest earning graduates would have to pay any more.

  • Call me daft by all means, but if I was going to university and I was offered exactly the same course for 6 grand or 9 grand I’ll choose the 6 grand. That’s what most people would do and that is why so close to the GE the LibDems are only polling 1/3 of what they polled in 2010. All this talk about only the rich will benefit from Labours plans is hogwash, even the BBC found 60% would benefit and none would be worse off.

  • Philip Thomas 28th Mar '15 - 6:48pm

    In fact, wouldn’t the most progressive approach of all be an infinite tuition fee burden? Only the richest students would have to pay any more.

    Now, given that non-graduates also benefit from the education of graduates, wouldn’t it be only fair for them to pay something as well? Some proportion of the tuition fee burden- which we’ve just established should be infinite- so this part would be infinite as well. Only the richest non-students would have to pay any more, of course. We could roll the two burdens together and create a single charge on people’s income progressively increasing the more they earn. It could be called something like “income tax”.

  • @ Caracatus. Completely agree.

    @Philip Thomas. A big error then, but the Lib Dems need not have caved in to this extent. They also could also have suggested a £6,000 compromise figure. This would have at least demonstrated some respect for the pledge made to students. With very high interest on student debt even £3,000 less in fees would have made a difference and the Government would not have had to borrow so much to lend to students either.

  • Philip Thomas 28th Mar '15 - 7:20pm

    @Judy Abel
    The black hole in the University finances revealed by the report that came out shortly after the 2010 election required some form of funding. I would have preferred to fund it by increasing income tax (still have that preference). But that was never going to be sold to the Tories. Hence tuition fees. Now the hole is roughly £9,000 per student in size- so a £6,000 policy would still have left the government needing to find £3,000 per student from somewhere else (Labour say they can raise this by raiding pensions). So £6,000 fees does not mean “the Government would not have had to borrow so much”- they would still have had to raise the same amount of money, by borrowing or otherwise.

  • “But that was never going to be sold to the Tories.”

    Did anybody even try? Isn’t declaring your own defeat before you wage the battle rather missing the point of politics?

  • Philip Thomas 28th Mar '15 - 7:57pm

    I don’t know. I wasn’t politically active then. I’m just guessing that the Tories might not have been enthusiastic about a sharp rise in income tax. Maybe they’d have been completely for it, who knows?

  • Alex Sabine 28th Mar '15 - 8:24pm

    @ Stuart
    “If the three quotes supplied are the best you can come up with then I’m obviously right, since none of the people you quote were claiming that the trends would go in to permanent reverse. Why on earth would anyone expect them to? It’s a rather obvious straw man.”

    Those three quotes were certainly not the most apocalyptic I could have dug up, but since you confined your claim about the predictions made to “sensible” critics of the new fees policy that did narrow the sample…

    You claim these MPs wouldn’t have dreamt of predicting a “permanent reverse” in the underlying trends of rising demand for university places and rising demand from poorer students. They may not have given statistical hostages to fortune, but their rhetoric surely implied just such an alarming outcome. John Denham and Gareth Thomas accused the coalition of kicking away all the ladders of opportunity for bright, talented young people; and of launching an “attack on the ambitions and aspirations of the brightest and best of Britain’s next generation”.

    It is stretching credulity to claim that these warnings were consistent with – or could be justified by – an expectation that there would be a 1.7 percentage point drop in the application rate (in 2012 incidentally, not 2011 as you state) followed by a resumption of the previous upward trajectory, taking the application rate back above the previous high-water mark by 2014.

    Moreover, you seem to be relying on the most favourable metric for your argument. The application rate for students from disadvantaged backgrounds was less disturbed by the policy change and has performed particularly strongly, and it was this that was the focus of the greatest anxiety: that poor students would recoil in horror at the new fee system and be the most likely to be deterred.

    At the very least, the warnings turned out to be hyperbolic and there is a huge gap between the rhetoric and the reality of what has happened to university participation.

  • Alex Sabine 28th Mar '15 - 8:31pm

    @ Stuart
    “What people said was that the trebling of fees would lead to fewer people applying than would otherwise be the case – and that’s exactly what UCAS’ analysis suggests has happened. This is the only important question here… I’m surprised that you should make such a fundamental error.”

    I grasped the statistical point you were making the first time, Stuart. In my comment I stated that there was a one-year blip in the application rate. Of course you are right that this means the subsequent rises were starting from a lower base. I explicitly referred to UCAS’s analysis. What I disputed was the exaggerated significance you attribute to this, and the gulf between the doom-mongering of 2010 and the reality. I also suggested that the widespread (and often politically motivated) misinformation about the new policy, of which Martin Lewis among others complained and which he did an admirable job in challenging, may well have succeeded in deterring some people in the early stages.

    I pointed out that there was a similar one-year drop in 2006 when ‘variable fees’ were introduced. Yet few people were arguing in 2010 that this was proof that the policy had backfired and that too few school-leavers were applying for university as a result. Even the Lib Dems, who wanted to scrap fees altogether, did not justify this in the basis that there was a pressing need to boost overall university application or participation rates. Indeed, many were questioning Labour’s 50% participation target, the suitability of courses, the lack of attention paid to those not planning to attend university etc.

    It is not clear that the application rate per se is the goal we should be trying to maximise. I cannot agree with your assertion that it is “the only important question here”. Lots of other things matter when assessing the state of our higher education system and the quality and impact of HE policy.

    After all, if the only object of policy was to maximise the demand for university places and the application rate, the thing to do on your logic would be to scrap all fees and reintroduce maintenance grants. Other things bing equal, we would expect that to increase demand. But not only would meeting existing plus any additional demand place a large extra burden on the taxpayer, it is far from clear why it would be an appropriate policy objective.

    The closure of the participation gap between different socio-economic groups is probably more important than the absolute number in my view, along with other indices of the quality of the education being provided, student satisfaction etc. Certainly we should not regard a difference of one or two percentage points in the overall university application rate as the litmus test of whether our HE system is working or not and whether the funding model is appropriate.

  • Philip Thomas 28th Mar '15 - 8:55pm

    Seems to me scrapping all fees represents a shift in the burden on the taxpayer from one group of taxpayers (those who have to repay their fees) to the more general population. The overall burden does not increase. Likewise, because maintenance grants are made to taxpayers, that too is a shift in burden not an increase.

    You can argue whether or not it is fair to shift the burden. But don’t act like a new burden has been created out of nothing!

  • Philip: Of course in any system of university finance the cost is borne by someone. There is no question of “a new burden [being] created out of nothing”. And of course graduates are also taxpayers. But there are a great many taxpayers who are not graduates. That is the point. So scrapping fees and reintroducing maintenance grants would represent a shift in the burden onto the general taxpayer, as opposed to the subset of taxpayers who are graduates. Given that graduates are on average better-off than other taxpayers, it would redistribute the burden from those on average earnings and above to those on lower earnings. There are arguments for and against this but in terms of conventional distributional analysis it cannot be described as progressive. Sorry if that wasn’t clear enough.

  • @Alex Sabine
    “I grasped the statistical point you were making the first time, Stuart. In my comment I stated that there was a one-year blip in the application rate.”

    You say you grasped the statistical point but then immediately say something which demonstrates that you still haven’t.

    Describing the drop in applications as “a one-year blip” suggests that applications in subsequent years have hit the levels we would have expected had that “blip” not occurred. But UCAS are clear that the data suggests otherwise. Applications have been below those expected under the previous trend in every subsequent year.

    It is meaningless for you to refer to “a resumption of the previous upward trajectory, taking the application rate back above the previous high-water mark by 2014”. That’s like saying that because GDP is now above 2008 levels, the economy must be doing as well as it would have done if the crash had not happened. It’s a completely mistaken way of looking at the data. This is really basic stuff.

  • @Alex Sabine
    “Of course in any system of university finance the cost is borne by someone.”

    It should be equally obvious though that our university system reaps massive returns for our economy. This tends to get overlooked as everybody worries about the “costs”. But it’s meaningless to keep referring to the “burden” of HE finance without taking the benefits in to account. This is not money that disappears down the plug hole.

    “scrapping fees and reintroducing maintenance grants would represent a shift in the burden onto the general taxpayer, as opposed to the subset of taxpayers who are graduates. Given that graduates are on average better-off than other taxpayers, it would redistribute the burden from those on average earnings and above to those on lower earnings. There are arguments for and against this but in terms of conventional distributional analysis it cannot be described as progressive.”

    That rather depends, though, on how you shift the so-called “burden”. What Labour are proposing to do is shift part of the burden not on to the “general taxpayer”, but on to a pretty well-off subset of taxpayers.

    I agree with Philip Thomas. It’s right and fair that HE should be paid for (either wholly or substantially) by those who benefit from it. And that means everybody, since we all benefit from living in an economy with a highly educated workforce.

    It’s funny that we don’t hear people complaining about the unfairness of people who don’t have kids or ever get seriously ill having to bear the “burden” of paying for schools and hospitals. In my view we should think of HE the same way, since the country wouldn’t get very far without highly educated people.

  • Alex Sabine 29th Mar '15 - 1:00pm

    Stuart: I don’t know how much more explicit I can make this. If you read what I actually wrote, I said the one-year drop (which I think it is fair to describe as a ‘blip’) meant that the subsequent rises were starting from a lower base. Therefore, other things being equal – if there has been no change in the rate at which applications have subsequently been rising – the level of applications today is (marginally) lower than it would have been without the one-year blip. I granted you that. Indeed in an earlier comment I mentioned the UCAS analysis on which this conclusion was based.

    I also pointed out that the same thing happened in 2006, which means there was the same ‘level’ effect in that instance, yet I am not aware that people were arguing the number of university applications four years later was shockingly low.

    Clearly there is a difference between a one-year drop reducing the absolute level of applications compared to the counter-factual of no rise in fees (in both 2006 and 2012), and a sustained year-on-year drop. If the effect of trebling fees is held to be a significant deterrent, why would it affect only one year’s cohort of students? That makes no sense. It seems more plausible to conclude that there was a transitional period in which people got used to the new system, learned more about it and assessed whether it materially diminished the case for going to university (it didn’t, though it might have made students more picky about courses and more demanding about what they are getting for their money, which is no bad thing).

    I also questioned the assumption that maximising the overall level of applications (the demand for university places) is the most appropriate policy objective (the “only important question” as you put it). In my view, it is not. The application rate is merely one of a number of useful benchmarks.

  • @Stuart
    I agree about people discounting the benefit to society of higher education.

    And why does no one mention the quality of the education. While we have OFSTED for schools, who independently regulates the university sector? I know, from family members, of students who are paying £9,000 for 7-8 hours tuition a week for an average teaching year of 24 weeks. I am told that some of the lecturers are not very good either! If the Netherlands manage fees of around £1,500 a year, France £1,000 and Germany has no fees at all, why are our our students paying so much? It’s also about charging the appropriate fees for the service that is being provided. The question about the rate of repayment cannot excuse some students being overcharged in the first place.

  • @Alex
    You’re still not getting it – and putting things in bold doesn’t make them any less wrong.

    Succinctness being a virtue, UCAS actually explain this very well in one sentence ;-

    “This pattern is consistent with the model that the introduction of higher and more variable tuition fees in 2012 reduced the level of 18 year old demand for higher education, but did not materially alter the pattern of annual increases in that demand.”

    We’re not talking about a one-year blip here, we’re talking about a lasting reduction in demand. I’m genuinely astonished that you don’t seem to be able to tell the difference.

    “the ‘only important question’ as you put it”

    Please go back and read the whole paragraph you lifted that phrase from, because this is the second time you have quoted it out of context and attributed a meaning that was not in the original.

  • “I agree with Philip Thomas. It’s right and fair that HE should be paid for (either wholly or substantially) by those who benefit from it. And that means everybody, since we all benefit from living in an economy with a highly educated workforce.” Stuart 29th Mar ’15 – 11:56am

    But that is exactly what the current system does do!
    The issue with student loans therefore isn’t the expectation that graduates are expected to make a contribution since they directly benefit from attending, neither is it that they may or may not fully pay off the loan, but who is actually responsible for paying for the debt write off. Labour in their proposed policy is effectively saying those who are prudent and save for their retirement.

  • Alex Sabine 30th Mar '15 - 4:39am

    @ Stuart
    This is getting rather tiresome… I did get it, I have studied economics and have a reasonable grasp of statistics. I know the difference between annual rates of growth and the cumulative level. As you say, we can draw an analogy with GDP: if it drops by 1.7% in one year and then resumes trend growth of (say) 2.5%, the level of GDP will be permanently lower than it would otherwise have been. The reason is precisely as I stated, and as you illustrated with your tortoise analogy: the trend rate of growth resumes from a lower base.

    From the get-go, in a comment way up the thread, I acknowledged this point in relation to university applications where I wrote: In terms of overall applications, as the BBC’s education corespondent Sean Coughlan writes: “The UCAS number crunchers say that applications are slightly below what they would have been if fees had not been increased, but not by much, and the long-term upward trend has resumed.”

    You seem to have got hung up on my term “one-year blip”. This is a perfectly accurate description of what happened in terms of the temporary interruption to the trend, as indeed is your point that it has had an ongoing effect on the level. Of course, with applications now rising again year-on-year, the magnitude of this ongoing effect in percentage terms is diminishing by the year.

    Overall I think it is hard to quibble with the following verdict from the IFS last month: “The introduction of the £9,000 per year tuition fee cap in 2012 appears to have had little or no effect on applications to, or participation in, higher education (HE) amongst full-time students. For this group, it is therefore unlikely that a reduction in the cap to £6,000 will boost enrolment.”

    We could do much the same statistical exercise with the 2006 drop and it would be of equally limited significance. It is hardly a clinching argument for or against each set of reforms, unless you think the sole yardstick of appropriate HE policy is the aggregate level of demand for places based on an extrapolated trajectory on an assumption of unchanged policy irrespective of the fiscal climate.

    The IFS also note that the application rate among disadvantaged students appears to be increasing at a faster rate than was the case prior to the reforms: In fact, application rates have risen more quickly amongst those from the lowest participation areas, especially since 2012, which has reduced the gap in participation rates between areas.”

  • Philip Thomas 30th Mar '15 - 8:42am

    @Roland
    “those who are prudent and save for their retirement”. Right, because having enough money to save for your retirement is “prudence”. I guess you think it is unfair that income tax disproportionately targets those who are “prudent” enough to have high salaries.

  • Philip Thomas 30th Mar '15 - 8:55am

    “Philip: Of course in any system of university finance the cost is borne by someone. There is no question of “a new burden [being] created out of nothing”. And of course graduates are also taxpayers. But there are a great many taxpayers who are not graduates. That is the point. So scrapping fees and reintroducing maintenance grants would represent a shift in the burden onto the general taxpayer, as opposed to the subset of taxpayers who are graduates. Given that graduates are on average better-off than other taxpayers, it would redistribute the burden from those on average earnings and above to those on lower earnings. There are arguments for and against this but in terms of conventional distributional analysis it cannot be described as progressive. Sorry if that wasn’t clear enough”

    No, that depends entirely how one adds the burden to general taxation. Supposing it was done by raising the top rate of income tax. Since graduates on average earn less than those earning enough to pay the top rate of income tax, the result would be more progressive than a blanket graduate tax (which student fees is a less progressive version of since it doesn’t affect those who graduated before fees were introduced, who on average earn more than those who graduated after).

  • Charging students seems to be a cornerstone of the free-market dogma of some people in the Liberal Democrats.

    We are told it is “necessary” to cut the deficit etc etc
    We are told university funding would collapse with it.

    Odd then that the German government does to feel this compulsion to make education into a commodity to be bought and sold like consumer goods.
    Odd that German Universities are not collapsing on a daily basis.

    Last time I looked the finances of the German government were in better shape than those of the UK government.

    Am I missing something?

  • Philip Thomas “But there are a great many taxpayers who are not graduates. That is the point”

    There are also a great many taxpayers who do not have children, should we charge ‘school tuition fees’ for parents of primary and secondary age children and save taxpayers the burden of paying tax to educate other people’s children??

    Educated people are an asset to society at whatever stage their learning takes place.

  • Philip Thomas 30th Mar '15 - 9:47am

    @Phyllis- I entirely agree: the bit of my comment you are quoting isn’t my words- I was quoting (and disagreeing with) Alex.

  • Jane Ann Liston 30th Mar '15 - 9:52am

    The problem has arisen because since the 1980s successive governments have encouraged, nay required, increased student numbers, without making a comparable increase in student funding. To go back to anything like the level of student support when just 1 in 7 school leavers went to university when nearly 1 in 2 now do would require a rather large increase in funding, almost certainly in income-tax. That is likely to be a mite unpopular with most voters, I’d have thought.

  • @Philip – It is Labour who in this policy are making a direct link between pension savings and tuition fees and hence are effectively saying that the burden should fall disproportionately on pension contributions and savings, rather than coming out of general taxation. Hence I am framing my points within the context Labour has provided.

    With workplace pensions many more people are making pensions contributions. Rather than be envious of those who can afford to make pensions contributions, I would be grateful that they do, as firstly they will almost certainly be paying income tax and secondly through their savings they will be less dependent upon the state. So the need is ensure balance, remember those on low incomes need graduates to be successful and become higher rate tax payers and make pension contributions; which is something the Labour policy requires…

  • @Alex Sabine
    I’m also finding this a bit tiresome, so I intend to expend much less than 400-odd words on it.

    I still think you are making a fundamental (and pretty basic) error in claiming that a return to annual growth means all is well. Sometimes it helps to illustrate a mathematical point by making the numbers more extreme, so here’s my (hopefully) last try.

    Assume that university applications rise steadily by 5% pa. (You’ve studied economics so this kind of postulating will be familiar to you.) Then one year the government brings in a new student finance system and applications drop immediately by 50%. The following year, applications go up by 5% – the exact same growth rate that was well established before the system was changed. Would you claim that the return to a 5% growth rate meant that things were back to normal? Of course not, since it’s blindingly obvious that the application rate is barely more than half what you’d expect if the change to the system had not occurred (ceteris paribus). Even if you waited however many years (I would guess around 15) for the application rate to surpass the previous “high water mark”, you still wouldn’t claim that the policy had had no ill effects.

    It should be clear from this that the annual growth rate, when looking at only a selection of years, tells you precisely nothing.

    Of course the real-life figures are not as extreme – but the principle is exactly the same.

    ” Of course, with applications now rising again year-on-year, the magnitude of this ongoing effect in percentage terms is diminishing by the year.”

    No, you are mistaken. For said magnitude to shrink, you need the annual rise to be steeper than it was before. If the annual rise merely returned to the previous growth trend, then the magnitude of the shortfall would increase year on year. You can test this yourself by taking two numbers (say, 50 and 40) and repeatedly increasing each of them by the same percentage (say, 2.5%). You’ll find that with each iteration, the difference between the two numbers increases.

    “I did get it, I have studied economics and have a reasonable grasp of statistics.”

    For the record, I’ve also studied economics (to degree level) and statistics (to A level, plus lots of econometrics in my degree course) but I don’t normally mention it.

  • Alex Sabine 30th Mar '15 - 7:27pm

    @ Philip
    “No, that depends entirely how one adds the burden to general taxation. Supposing it was done by raising the top rate of income tax…”

    In my example, I was comparing a model of tax-financed higher education with a substantially graduate-financed model: broadly speaking, the old system of no fees plus maintenance grants versus the current system. Since we do not have hypothecated taxation in the UK, it is not plausible to imagine that under the old system the public expenditure cost of funding HE was borne entirely by top-rate taxpayers. This would only be true in the sense that the yield from top-rate taxpayers exceeded the cost of funding HE: but of course it was used to help fund all the rest of the government’s outgoings too!

    When political parties put forward ‘costed’ policies at elections, and in between them, they like to encourage the fiction that particular streams of revenue will be used to fund particular expenditure commitments. In the case of oppositions, often these links are no sooner announced than they change again, or the uses for which the revenue is supposedly earmarked multiply. I have lost count of the different uses to which Labour’s bankers’ bonus tax and mansion tax proposals have been put: as Vince Cable put it in his response to last year’s budget, with only mild exaggeration, Ed Balls specialises in an “annual conjuring trick: the 10 different ways you can use a bankers’ bonus tax”…

    Of course, even less opportunistic hypothecation does not describe how the system works in the real world. It all goes into, and comes out of, the same pot. It would make more sense if parties simply costed their total expenditure commitments and matched this with revenue measures totalling the same sum.

  • Alex Sabine 30th Mar '15 - 7:28pm

    Subject to that ‘health warning’ about false hypothecation, let’s assume a party had one additional spending commitment, which was to replace tuition fees with a higher teaching grant from the Exchequer, and that it planned to finance this through an increase in the top rate of income tax. On average, as you say Philip, this would be progressive in that top-rate taxpayers have higher incomes than the average graduate.

    But as an indication of how plausible this piece of earmarking might be, I would point you to HMRC’s estimate – signed off by the OBR – of the revenue yield from increasing the top rate of income tax. It is £100 million for each 1 percentage point increase above 45p in the £. This reflects an assessment that we are already at, or very close to, the revenue-maximising rate. Indeed, it will be interesting to see what Labour’s projected yield from reintroducing the 50p rate turns out to be: they have talked about £3 billion but on the HMRC/OBR figures it looks like a maximum of £500 million. And of course, the increased yield is not ‘scalable’ in a simple way and is likely to diminish the higher you push the top rate. On this basis the yield might well be “approximately zero” as the IFS have suggested before. In any event it is highly unlikely that it would be equal to the task of replacing the lost revenue to universities from graduate contributions.

    Of course, there are alternative ways of raising revenue from the better-off, though with many of these (such as restricting tax relief on pension contributions or increasing capital gains tax) it isn’t possible to make precise unambiguous claims about the distributional impact as it is with the top rate of income tax.

    So, in summary: of course you are right that how any package of HE funding changes is financed affects the overall distributional impact. But it is perfectly reasonable to argue that the ‘general taxpayer’ used to fund HE since we have never had hypothecation. Moreover, the tax system as a whole (direct and indirect) is broadly proportional  across the income distribution, whereas with a system of income-contingent graduate repayments the cost is borne by graduates (who tend to earn more than non-graduates) and disproportionately by relatively high-earning graduates.

  • Philip Thomas 30th Mar '15 - 7:33pm

    Actually the highest earning graduates pay less than the middle-earners (the ones who will repay the whole loan within the 30 years but only just) for two reasons
    1) Most of them graduated before fees came in
    2) Those that didn’t can pay off fees early and save on interest.

  • Alex Sabine 30th Mar '15 - 8:28pm

    Philip: I didn’t claim that the highest earning graduates pay the most. I agree that is not the case for your reason number 2 above. My point was that the profile is progressive across most of the graduate lifetime earnings distribution, whereas the UK tax system is roughly proportional across the household income distribution.

    According to the IFS, under the current system repayments (total real NPV repayments as a share of real NPV lifetime earnings) rise across the first 8 deciles of the distribution of graduate lifetime earnings. Those in decile 9 repay more in absolute terms than those in decile 8 but a lower proportion of their lifetime earnings, and those in the top 2 deciles pay a lower proportion than graduates in decile 8 because they repay debt earlier and so are not accumulating as much interest.

    So it is mid-to-higher earning graduates (who are likely to be high earners in relation to the general population, given the graduate earnings premium) who pay the most in proportional terms.

    In real terms, the lowest three deciles pay less than under the old system while the top 7 deciles will pay more – which illustrates the point that the majority of graduates will pay more than under the previous system. That is not in dispute, and is why arguments about the ‘internal’ progressiveness of the new system, while important, are not the be-all-and-end-all: the reform must be justified on broader grounds.

    The other interesting point is how much more the universities are receiving under these new arrangements. As the IFS point out, “overall funding per student over the duration of their course increased by around 16% as a result of the reforms, from £40,922 to £47,435 in 2014 prices, most of which went straight to universities.” In part this reflects the fact that more universities charged the full £9,000 than the government expected. In turn this feeds through into the lower projected repayment rate and higher debt write-offs, reducing the long-term public expenditure saving.

  • Philip Thomas 30th Mar '15 - 8:51pm

    But more broadly the problem with analysing specific items as being progressive on a narrowly fiscal basis is that it fails to take account the bigger picture. Strictly speaking, it is regressive to pay doctors’ salaries- doctors earn on more than the average taxpayer. But the progressive benefits of free health care outweigh this.

  • Oops! Apologies Philip Thomas – mea culpable!

  • Argh! Auto(in)correct strikes again! Should say ‘Mea culpa’ of course.

    (Though the wretched thing now tried to change it to ‘mea cuppa’!)

  • Alex Sabine 31st Mar '15 - 4:39pm

    A number of commenters seem to think that an argument that graduates should contribute to the cost of their university education amounts to a rejection of the pooling of health and more general education costs through taxpayer funding. This is a non sequitur.

    There are some fundamental differences between primary and secondary education on the one hand, and tertiary education on the other:

    1. The first two are compulsory, while tertiary education is voluntary.There is a strong ethical and practical argument that if parents are required by law to educate their children, the state must be prepared to bear the cost of that education.

    2. As a consequence of their being compulsory, primary and secondary education are universal. Tertiary education is not. Even after the massive expansion of HE participation over recent decades, less than half of school leavers attend university.

    3. As the Browne review argued: “Access to [HE] is determined by aptitude – not everyone is qualified to enter higher education – and by choice  – some people choose not to go even though they are qualified to do so. As a consequence it is reasonable to ask those who gain private benefits from higher education to help fund it rather than rely solely on public funds collected through taxation from people who may not have participated in higher education themselves.”

    4. The private benefit from higher education – that is the benefit which accrues directly to graduates rather than to wider society – is substantial. According to the Browne review: “recent OECD research shows that in the UK the benefits of higher education to the individual are, on average, over 50% higher than the public benefits.The private returns to higher education in the UK are high by international standards, though the private benefits exceed the public benefits in most other OECD countries as well. As a consequence it is not surprising that the argument for a private contribution to higher education has been made – and won – elsewhere as well as in England, in countries with a wide range of political values such as Australia, New Zealand, the United States, Canada, Japan and Korea.”

    The private financial benefits can also be expressed in terms of the additional earnings graduates are able to command over their working lives. According to BIS, the graduate lifetime earnings premium in net present value terms is £168,000 for men and £252,000 for women. A number of alternative methods can be used but they all show a high private rate of return, which is the basic justification for graduate contributions to the cost of financing HE.

  • Alex Sabine 31st Mar '15 - 4:42pm

    Of course it is true that having highly educated and well-qualified graduates is beneficial to the economy and society as well as to the individuals themselves. And the research activities carried out at elite universities in particular is highly valuable to society. That is why it is only right that there should be a substantial taxpayer contribution to the system, as indeed there still is after these reforms.

    This is self-evidently true of the continuing public funding of research budgets, but also of the repayment terms of the loan system. Indeed, one of the valid points made by critics of the reforms is that taxpayers might not save much money in the long run because of the extent of loan write-offs. So there is continuing taxpayer support of HE, directly in the form of research and indirectly in the form of tuition fee support. The difference is that graduates, especially higher-earning graduates, are now paying more and universities are receiving about 28% more per student (because the increase in tuition fees outweighed the reduction in teaching grants).

    Of course, assuming one accepts the argument that HE delivers both private and social benefits and that these respectively justify a mixed model of funding, it does not necessarily follow that the 2010 reforms got the balance right. It would have been possible to reduce the teaching grant by less and raise fees less sharply, but the costs of this scenario should also be recognised: for a given departmental spending total (DEL) there would have been less money available either for BIS’s other activities or for other government departments; and universities would have had less money to spend per student.

    My own comments on the drawbacks of Labour’s policy are relative to the present starting point – since it is a proposal for the next parliament – not relative to a hypothetical alternative funding model that might have been introduced in 2010.

  • Philip Thomas 31st Mar '15 - 4:57pm

    Secondary education used not to be compulsory past 14, but we still had state schools up to 18. Tertiary education was even less universal in the 80s than it is now, but if you were educated at University in the 80s the state paid for it.
    Some people don’t use state schools, but we don’t think they should be exempt from paying for them.

    And of course the substantial earnings boost granted by tertiary education feeds directly into extra revenue for the state through income tax.

  • Alex Sabine 31st Mar '15 - 7:18pm

    @ Philip
    “Tertiary education was even less universal in the 80s than it is now, but if you were educated at University in the 80s the state paid for it.”

    That is true, but only part of the story. The very fact that so few people went to university in the postwar decades meant that it made a much smaller claim on the public purse. The fact that it was reserved for an elite 10% or 20% of school-leavers also made it relatively cheap. It is perfectly fair to point out that the same arguments about graduate premia applied back then – indeed more so because they these benefits accrued to such a small subset of school-leavers – yet were not acted on. I fully accept that.

    But the pragmatic reality is that the expansion of HE participation pursued by all governments since then made the public expenditure implications a much bigger issue – highlighting the trade-offs with the need to fund early-years, primary and secondary education better.

    And from the universities’ point of view this made reliance on Treasury grants an increasingly unattractive option. State funding of HE did not keep up with the rising number of students under successive governments, and the Blair government in 1997 – with its ambitious 50% participation target – clearly decided that this trend of declining per-student funding would continue unless tuition fees were added to the mix. Governments could have taken a different decision, but the basic conclusion that both main parties drew was that graduate contributions would be needed if 40% or more of school-leavers were to attend university.

    Of course, with the high level of fees under the new system, plus the higher earnings threshold for repayments and generous loan write-offs, it might be that the long-term arithmetic is little better than neutral for the government – though this is highly sensitive to the assumptions about the evolution of graduate earnings over the next 35-odd years.

    In effect the government is using its balance sheet to subsidise the loans, with fee loans treated as financial transactions rather than public expenditure like the teaching and research grants. On one level this is simply an artefact of the way government accounting works, and might be dismissed as artificial and having no meaningful relevance. The universities, however, would beg to differ: as I say, the effect has been to increase the level of funding per student substantially, while also insulating their income from the Treasury salami-slicing that they had previously come to expect.

  • Alex Sabine 31st Mar '15 - 8:29pm

    @ Philip
    “Secondary education used not to be compulsory past 14, but we still had state schools up to 18.”

    True, but the argument pertaining to the specific issue of compulsion is not about past practice but about the fact of compulsion giving rise to obligations on the part of the state to provide the necessary funding. In other words, the period for which education is compulsory is the minimum period that should be state-financed. The state might decide to fund further education beyond the school leaving age – in whole or in part – but if so the arguments for doing so rest on a different premise.

    “Some people don’t use state schools, but we don’t think they should be exempt from paying for them.”

    No indeed. Notwithstanding your valid point about changes in the school leaving age, broadly speaking there is a distinction between schools and tertiary education which I think most people appreciate.

    “And of course the substantial earnings boost granted by tertiary education feeds directly into extra revenue for the state through income tax.”

    Yes, and of course extra income tax revenue is also generated by high earners who have not derived that premium from a university degree. A purely tax-financed system of HE funding makes no distinction between these two cases, which might be regarded as fairer or less fair, but which undoubtedly does represent a subsidy to well-off graduates. It can be defended on the basis that all education should be free as a matter of principle, or that we should maximise the pooling of resources in society irrespective of any distinctions between different tiers of education. But to the extent that well-off graduates do not pay for the educational advantages they have enjoyed, but only contribute through the tax system like other non-graduate high earners, the net result is that they pay less. Ultimately, which scenario one finds more equitable is a normative one: distributional data cannot ‘prove’ which is fairer but illustrates the nature of the trade-offs and cui bono. Personally I think there is a perfectly good justification for a system with a mix of taxpayer and graduate contributions (with strong taxpayer support of research in particular) but that it is only my subjective judgement obviously.

    One final point: the extra tax revenue generated by high-earning graduates is valuable to the Exchequer, as you say. The higher this additional revenue is, the more it also tends to confirm the high private returns from HE. It is rather like the debate about the proportion of income tax revenue generated by the top 1% or the top decile; the Right says it shows high earners are already paying through their noses, the Left say the very disproportionality simply shows how how unequal income distribution is. In fact both points are valid: the progressive structure of the income tax system and the unequal distribution of incomes together explain the fact that a large proportion of the revenue comes from a small number of taxpayers.

  • Alex Sabine 1st Apr '15 - 4:50am

    Just to clarify the difference in the amount universities receive per student over the duration of their course, in the final year before the new funding arrangements came in (2011/12) this was £22,143. The following year it rose to £28,250, an increase of some 28%. This comprised a large reduction in teaching grants (-83%) which was heavily outweighed by higher fee income (+137%).

    So while there might be little or no long-term saving for the Exchequer based on current projections of graduate earnings, what there has already been is a big increase in university funding – indeed the unexpectedly large scale of this increase (due to the number of universities charging the full £9k fees per annum) is one of the main reasons the long-run Exchequer yield/cost now looks perilously close to the ‘break-even’ point, since it has in turn pushed up the proportion of the total loan value which the government expects to write off.

    One thing that is clear is that relatively small changes in the projections of graduate earnings (which could go in either direction of course) make a big difference, since we are talking about a period stretching more than 30 years into the future. I would not be surprised if future governments use tweaks to the earnings threshold at which repayments kick in, the repayment rate (currently 9%) or the real interest rate to adjust the trade-off between university income, graduate contributions and the cost to the public purse. An extended nominal freeze in the earnings threshold strikes me as a likely (because stealthy) candidate. An increase in the repayment rate would be more ‘progressive’ but would increase the already high marginal effective tax rate faced by graduates (currently 41% for employees baying basic-rate tax and NI).

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