The Independent View: The con(s) of student fees and the increase in debt since 2002

In 1998, Tony Blair introduced University Student fees with the assertion that the “poor” should not have to contribute (through taxation) to University Student fees for graduates who would likely become “wealthy” as a result of University education.

There are about 42 million people in the UK of working age ( 16 to 1 day short of 65 ). About 20% do not wish to work (inactive), about 4% are unemployed, about 20% do not earn enough to pay income tax, which leaves 56% who do pay income tax. Split that 56% into an upper half and a lower half. From this table (Income tax for % groups), the upper half pays approx 90% of income tax, the lower half 10%. The government receives taxes other than from Income (e.g. NI, Indirect taxes such as VAT, Corporation tax) – almost all 42 million people of working age will pay some of these taxes. Assume, therefore, that the “upper half” of income tax payers pays 75% of the total tax and the “lower half” pays 25% (for the purposes of this post ignore the rest).

Education spending in 2014 (i.e. it is after 1998, so university students are already paying some portion of their fees) was approx £84.7 billion, consisting of £10.4 on Universities, £37 on secondary schools, £26.1 on primary, £5.2 on under 5’s and £6 on “other” (all billion). The “lower half” would pay 0.25 x 84.7 = £21.1 billion of the £84.7.

The spending on secondary, primary and under 5’s = 37 + 26.1 + 5.2 = £68.1billion. If it is assumed that all of that £21.1 billion goes into secondary, primary and under 5’s, that covers only 31% of that spending but everyone uses that part of the education service. So the “lower half”, say, is half the users but covers only 31% of the spending even without the university and “other” spending. I won’t try to argue what percentage is fair for the “lower half” to pay but on this basis, the “upper half” is paying 69% plus all the university and other spending. I am not aware of Tony Blair ever justifying his assertion for introducing university student fees.

In any case, that is not how the Welfare State is supposed to work. Everyone contributes “what they are able to” and uses it when they need to. It does not work on the basis that one pays only for what one uses. If so, what happens if the top 10% of earners ( who pay about 50% of income tax ) decide to take out private health insurance so don’t need the NHS, send their children to private school so don’t contribute to education spending, similarly social benefits, housing, pensions etc.

I have made various assumptions in the above numerical analysis to keep it simple – I was trying to give a “ball park” view of the issue.

So why did Blair introduce student fees? It seems to me to help mitigate the borrowing (he knew in 1998 what level of borrowing he had in mind for 2002 and after) that the Labour government engaged in from 2002 to 2010. The borrowing from 2002 to 2007 was £207 billion and in 2008 and 2009 was £263 billion (Deficit and Debt House of Commons 2017). It looks very much like the intention was to hide those numbers behind the £135 billion borrowed to bail out the banks especially as, since then, the vast majority of the UK electorate believes that the increase in debt since 2002 was due to bailing out the banks. However, the bailout ended in 2009 but the debt continues to increase to this day ( even without the COVID crisis spending ).

It is obvious that the British electorate has been conned. That is not in doubt – the question is what is being hidden and why is it being hidden?????????

* Roger D'Ornellas is a British citizen and a retired structural engineer who was born and raised in what is now Guyana.

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32 Comments

  • Hi Roger,
    Nice to see a new contributor here.
    The growth in the public debt makes interesting reading: the reality is rather different than the expedient story peddled by the culprits: Lab, Con & Coalition Governments since 2008. The table shows that debt in 2010 was roughly double what Blair & Browne inherited in 97 and I think it’s near enough doubled since then. It’s worth bearing in mind that the figures would look worse without PPP that has shifted, what otherwise would have been financed by public debt, off the balance sheet.
    As a matter of detail what is the source of the first table?
    I don’t think in this case that there is a conspiracy to hide the truth because the data is freely available in the public domain. However, there is no rush to change the story because it is probably thought too difficult to explain and while inflation and interest rates are manageable it’s better to keep options open.

  • Simon McGrath 18th Jul '20 - 1:42pm

    This is a deeply strange article. Blair would have been prescient indeed if he know in 2002 that he would be bailing out banks in 2008

  • Tony Blair introduced University Student fees with the assertion that the “poor” should not have to contribute (through taxation) to University Student fees for graduates who would likely become “wealthy” as a result of University education.
    Well the only question here is whether the “wealthy” students do in fact repay their student fees, in which case they (Student fees) have delivered against this assertion…

    As to the other aspect, yes Student Fees, PPP etc. have all had the effect of removing debit for the Governments books. I suspect part of the reason for this was an attempt to (appear to) stay within EU borrowing constraints.

  • The figures given by Roger D’Ornellas are interesting, and so is the analysis. The bit I believe is missing is what the vast majority of the U.K. electorate believes about debt. Or even what anyone believes about debt. In fact we have at the moment the government spending huge amounts of money which it does not have and they say they will have a recovery plan at some stage.
    Having said that I can only give my opinion. In balancing My budget I have to look at my income and if my income is too low, I have either to find a job, borrow money or spend less. I can,ot print money, I cannot demand money from others, I cannot decide how others should behave.
    So managing the National debt is not something that I have experience of. I see little evidence that most people, including the prime minister, really believe that the way of managing money is the same when you have the power to print money, to alter how people behave and so on.

  • Peter Martin 19th Jul '20 - 8:09am

    “It is obvious that the British electorate has been conned. ”

    Have they? You’re right that Tony Blair did want to minimise public debt and deficits etc. We had all kinds of off-balance sheet mechanisms to apparently minimise lending. Just why it made sense to force hospitals to borrow from the private sector at much higher rates of interest than government could provide is still a mystery to all though !

    But to be fair to Tony Blair, ( I really don’t like saying that 🙂 ) he wasn’t the only one to think along these lines. There were, and still are, many in all political parties who thought the same way. So were they all in on the con or did they simply not understand what they were doing?

    Stephanie Kelton explains where we’ve all been going wrong.

    https://www.amazon.co.uk/Deficit-Myth-Monetary-Peoples-Economy/dp/1541736184

  • Rich people can’t manage without the NHS. The private sector will not provide emergency or intensive care. It just allows people to jump waiting lists.

  • Steve Trevethan 19th Jul '20 - 8:50am

    Debt is an excellent tool for controlling people.
    Might this have been a motive for the introduction of student fees?
    Making knowledge and skills a commodity rather than an inter-generational gift is an horrendous harm to society.
    Might it be a Neo-Liberal technique to strengthen the financial economy to the cost of the “real life” economy?

  • Antony Watts 19th Jul '20 - 8:58am

    As usual people have got everything wrong way round. First you decide what a Social Market we are going to live in (Basic needs etc). Then you have to find the money to do it – and that is government’s job. Which I mat say they are very good a shirking.

  • Steve Trevethan 19th Jul '20 - 9:05am

    If student/apprentice fees are paid in in £s might we be “borrowing” from and/ or paying to ourselves?
    If so, where’s the problem?
    That societies with a greater generality of skills tend to be more successful, than those without, might be a handy economic concept we could follow?

  • Roger D'Ornellas 19th Jul '20 - 9:10am

    Reply to John Payne
    The source of “income tax groups” is HM Revenue & Customs – Statistics on Wages & Tax Percentages.
    As you say the debt information is freely available and the UK enjoys a free press. Yet it is the public perception that the debt is almost due to bailing out the banks in 2008/09. In the decade since the bank bailout, only a few Tory politicians have countered the perception but with weak comments like “the terrible state in which Labour left the government’s finances” – statements that sound to most people like a lame excuse for austerity ( that is another story for another time ).

  • Roger D'Ornellas 19th Jul '20 - 9:22am

    to Simon McGrath
    Thank you for reading my “Op-ed” but you haven’t understood it.
    Blair was using the fees to mitigate the borrowing from 2002 to 2007 when he was PM. I believe he was trying to meet the borrowing limits required by the EU Growth and Stability Pact ( max deficit of 3% GDP ) – refer to the H of C Paper.
    Brown became PM in 2007 and he borrowed £260 billion in addition to £135 billion to bail out the banks ( 2008/09 ) – refer to H of C Paper.

  • Tony Harris 19th Jul '20 - 9:33am

    Nice to have somebody remind everybody that it was Labour who introduced tuition fees (and increased them under Peter M).

  • Roger D'Ornellas 19th Jul '20 - 9:36am

    Reply to William Francis
    Re your initial “question” on fees, refer to my reply to Simon McGrath.
    Re debt values – can be represented in at least 3 ways – straight forwardly in £s, in real £s ( ie allowing for inflation ), as % GDP. Two of these are indicated in the H of C Paper.
    Re that Paper, one thing I’m not sure about is why the Public Debt annually increases more than the annual borrowing. Perhaps some better informed reader can explain this to us.

  • Say there were 2 million university students in 2002 (prob an overestimate but that’s a figure from 2018 so lets go with it.)

    There fees would have been £3000 (£1000 per year) – totaling £6bn. Thats a pretty insignificant drop in the ocean if you are talking about trying to hide borrowing of over £200bn.

  • Roger D'Ornellas 19th Jul '20 - 9:45am

    Reply to Roland
    I agree with your points,
    But why did Brown borrow £260 billion in 2008/09 compared with an average of about £35 billion in each of the previous 6 years. That £260 was spent mostly on the NHS, education and tax credits – very interesting this but for another time.

  • Roger D'Ornellas 19th Jul '20 - 9:58am

    Reply to Tom Harney
    Re what the UK electorate believes about the debt. For the last 10 years, I have hardly missed a BBC Question Time on Thursday nights. I can think of only 2 shows when a properly informed question was asked on the subject and no truthful answer from the panel other than Tories weakly mentioning the mess in the government’s finances left by Labour in 2010. I think that gives a ball park assessment of what the electorate thinks.
    Re the debt – important to note that there is a world of difference between borrowing for “day to day” spending and, let us say “infrastructure” spending ( for another time ).

  • Peter Martin 19th Jul '20 - 9:59am

    ” In balancing My budget I have to look at my income and if my income is too low, I have either to find a job, borrow money or spend less. I can,ot print money, I cannot demand money from others, I cannot decide how others should behave.”

    That’s because you aren’t a currency issuing government with the power to demand taxes from the population with the threat of jail if they don’t comply! Once you had that you would be able to issue currency and make it worth something.

    It’s probably an uncomfortable truth for Lib Dems but our system does depend on the power of coercion. Once government loses its power to demand payment in its own issued currency it becomes worthless.

  • Roger D'Ornellas 19th Jul '20 - 10:07am

    Reply to Peter Martin
    I think the electorate has been conned. Space and time are too limited here for me to go into that. Suffice to say, for the time being, that the clue to the explanation lies in the rise of Asia as an economic power to challenge the West and the increase in payments in tax credits between 2000 and 2010 ie from £6 billion a year to £30 billion a year

  • Roger D'Ornellas 19th Jul '20 - 10:20am

    Reply to Meg Thomas
    If there were a “demand” for such a private service, I’m reasonably confident it would be satisfied.
    However, I was not predicting this as a likely outcome – just a warning to the governing class not to overdo the stupidity !!!!!!!!!

  • Roger D'Ornellas 19th Jul '20 - 10:31am

    Reply to Steve Trevethan
    Knowledge and skills, relevant to the 21st century, are an absolutely vital necessity for the West. Asia is clever, hungry and the added benefit of large populations. Unless the West measures up, there will be lean times indeed ahead.

  • Roger D'Ornellas 19th Jul '20 - 10:51am

    Reply to Antony Watts
    There is no finding the money – it has to be created, usually by knowledge, ideas and work, in our times, in the global market. Restrict yourself to a domestic market will eventually lead to subsistence living for most of the population.
    The government’s role is to provide, from the wealth created, a supportable Welfare State supplying health, education etc and an up to date infrastructure.

  • Roger D'Ornellas 19th Jul '20 - 10:59am

    Reply to Tony Harris
    You’re welcome.
    Trying to get the message over that the increase in debt since 2002 is not due to the 2008/09 crisis. The bail out was a separate, and lower, borrowing affair.

  • All the big economies simultaneously print extra money to get them through the virus pandemic, the effect on currency exchange rates is small, one country prints extra money to pay state socialism, there is a run on the currency (doubling up because of known inefficiencies when the state runs things).

    I do get annoyed when commentators go on about the 300 billion debt piled up to ride out the pandemic in the UK, the BOE has already “printed” the money and covered the govn debt by buying gilts and the whole 700-800 billion of dent that the BOE holds can be written off without any effects on anything as far as I can see, once the govn moves back to a near balanced budget.

    On the other hand, Blair and Brown’s fiddling of the books so that debt was less than it seems has had a long-lasting effect on the value of Sterling, once the bubble burst in 2008 and govn income did a disappearing act. It would be quite easy for another hardcore Left govn to turn us into a real third world economy.

  • My comment to R.M.Sanderson. As far as borrowing money is concerned, the first time I borrowed money was to buy a second hand car. This was over fifty years ago. I was required to have an interview with the bank manager. It was made clear to me that I had to pay it back with interest. This is deferred payment, at a price. I have never found the magic money tree.

  • Re comment on my post by Roger D’Ornellas.
    On borrowing for capital or revenue purposes, my observation over the years that I was a councillor was that members were only too ready to consider the two as different. Whatever they think the reality is that money is useful because although for many purposes there are many types of money, they are all the same if you get them in your pocket.
    I was for a long time a member of our pensions committee. The local government scheme deals in real money, unlike most public sector schemes. So very large amounts of money have to be invested. The payments by and to the employees was always fixed by the government. This meant that the risk was carried by the council tax payer. The lack of interest in this by colleagues who were not on the committee was surprising to me.
    I have no idea why the questions asked on Question Time have anything to do with anything. People I meet have a very clear idea of how their own budgets work.

  • @William Francis & @Steve Trevethan
    It is important to note the previous system meant teritary education (especially university education) was inaccessible to all but the children of the more affluent sections of the middle classes.

    Interestingly, the corollary to this is to make being a bin collector etc. acceptable professions for the middle and upper classes…

  • Peter Hirst 20th Jul '20 - 1:05pm

    A graduate tax, that is what the tuition fees programme is is fair though needs much better explaining. One issue is that students and graduates don’t like the idea of being in debt even if it is unlikely they will ever have to pay it. If we are encouraging students to think carefully before embarking on a university course and explore other options, it seems sensible not to make funding them too easy.

  • Peter Martin 20th Jul '20 - 4:06pm

    @ Tom Harney,

    “I have never found the magic money tree.”

    That’s because you are a currency user and not a currency issuer. In principle, if you could raise an army and take over the country via a military coup you could cancel all the existing pounds and introduce the Harney. You could issue as many as you like.

    BUT on paper you’d be the poorest man in the country. Whereas everyone who held a Harney would have that as an asset, the issuer (ie you) would have to assume the liability so you’d be heavily in the red. You’d never get back in taxes all that you had created in the first place.

    So, if you are as debt averse as you appear to be, maybe that coup is not a good idea after all!

  • Roger D'Ornellas 21st Jul '20 - 10:20am

    Reply to Tom Harney
    Re the relevance of Question Time -it informed me that the members of the audiences were unaware that the increase in debt from 2002 to 2020 had little to do with bailing out the banks – the questions suggested that the audience members believed the debt was primarily responsible for the increase in debt.
    Reply to Antony Watts, PM & TH
    Re “finding” the money tree – the “finding” referred to is really “shuffling” the money around between gov’t departments – increases in spending generally come from borrowing and/or tax increases.
    Re COVID crisis spending – I invite you all to examine the House of Commons Library Briefing Paper 05745 12 March 2020 – an updated version of that mentioned in my article. Compare the borrowing that took place between 2002 and pre COVID 2020 with what is being proposed now !!!!!!!!!!
    Finally, I’d like to thank all who read my article and especially those who took the trouble to comment – thank you.

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