Tuition fees: new IFS publication says new system “substantially more progressive”

News from the IFS confirms what others, including Money Saving Expert’s Martin Lewis and of course Nick Clegg, have previously argued:

The government’s decision to raise maximum tuition fees to £9,000 will create a system that is “substantially more progressive” than the previous system. That is because the 30% of graduates with the lowest lifetime earnings will be better off under the new arrangements.

And no cynical comments please about just how far down The Guardian’s story this paragraph was placed 🙂

 

P.S. As it’s the weekend and people may have other things to do, in order to save time I’ve taken the liberty of pre-writing a few comments.

Comment A: I DON’T CARE WHAT SOME NEWSPAPER SAYS YOURE ALL LIARS AND CHEATS

Comment B: Scrapping Trident and axing tuition fees would be much more progressive.

Comment C: Silly, stupid, nonsense. I’ve seen those idle students enjoying several years drinking and fornicating at the local Uni, just to spend rest of their lives stacking shelves in Tesco. Now you tell me it is good they won’t have to pay their money back????? I call that scrounging not progressive!!!!

Comment D: Security message from HSBC – please email me  your account number and password to confirm access to your account, which will otherwise by shut down at midnight.

Comment E: How dare you say the Liberal Democrats were right to break their pledge and raise tuition fees! And don’t you dare point out that you don’t say that in the post – that’s just typical weasely politician for you.


* Mark Pack is Party President and is the editor of Liberal Democrat Newswire.

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44 Comments

  • Mark, 60% will be worse off under this analysis. Electoral suicide. Especially given the famous pledge.

  • “I don’t think many in the party would argue that the new system is better than the last – that’s demonstrably true.”

    The trouble is that there are two issues here.

    One is the question of how much of the cost of higher education should be met from general taxation and how much by some sort of graduate loan scheme (or graduate tax),

    The other is how the graduate loan/tax payments should be shared out among the graduates.

    You can argue that the second aspect has been made somewhat more progressive. But with regard to the first aspect, there has unquestionably been a big shift away from funding from general taxation and towards funding from graduate payments.

    So it’s not at all demonstrably true that “the new system is better than the last.” You may have ameliorated things for the bottom 30%, but most graduates will be paying a lot more (which is the whole point, after all). That is diametrically opposed to the policy the Lib Dems fought the last election on.

    And on top of all that, there is the matter of that pledge …

  • The trap of trumpeting being “better than Labour” is going to haunt in 2015. People do not vote for someone just to better than the party they kick out, they want them to demonstrate integrity. The new system, created by failing to live up to pre-election promises, is better than the last one, created by failing to keep to pre-election promises.

    To use a football analogy, we don’t want to see a team that scrapes through on penalties having failed to live up to it’s pre tournament promise. Those wins will be short lived and due to their nature are unlikely to be repeated. Political ‘teams’ should try to be like Brazil. Before a tournament they promise results and entertainment and when they get to play they do not disappoint…

  • The reality remains that too many people went to university thanks to Blair’s pie in the sky attitude to higher education. Individuals have different abilities and aptitudes perhaps better suited to non-academic pathways in their post-A Level lives. The expansion of higher education resulted in the squeezing of the graduate job market.

    We need a system akin to one in Germany which recognises the value of both academic and non-academic/vocational qualifications.

    At first I was sceptical about these arrangments, but then I read between the lines. I don’t see why any prospective student should be deterred from applying, as they only have to pay back the fees when they’re earning above £21k. We cannot afford a free higher education, as well as the fact that it should be a privilege not a right.

  • This is the IFS – the same organisation that continually re-defines the definition of tax progressivity to suit its agenda of heralding indirect taxation, e.g. stating that VAT (actually regressive across all income deciles using ONS data and the strict definition) is progressive!

    In absolute terms, tuition fees are progressive for low to middle graduate incomes and then regressive above middle incomes – i.e. rich graduates will pay a smaller proportion of their income over their lifetime compared with graduates on lower incomes. This is the opposite of a graduate tax, which would at least be proportional and could be made progressive by the use of thresholds and different rates, etc.

    Trying to argue that the new system is fairer than the previous system is the route to electoral oblivion. Graduates aren’t stupid and are not going to be convinced that paying back three times as much money over their lifetime is fairer (unless they don’t land a graduate job at the end of their studies, in which case they’ll pay less). The new system penalises the majority of graduates in the middle of the income range and lets off graduates on low and high incomes.

    That’s before we get on to the discussion of the burden of paying for HE, Previously, graduates were subsidising the rest of the population as the extra tax they paid over their lifetime more than covered the cost of their course. Under the new system they are subsidising everyone else even more. I don’t see much of a future for this country when we penalise hard work and education. Of course, it all fits with the Tory feudal fantasy of a country that simply consists of owners and semi-literate workers. The most pernicious lie spread by the Tories is that non-graduates on low incomes were subsidising graduates. Nothing could be further from the truth – people on low incomes receive more in the value of state services than they pay for in taxation. It is the rich taxpayers (that pay for more than they receive) that were subsidising HE under the old system – as it should be in my opinion – those who did well helped to provide a level playing field for the younger generations.

    How we approach the funding of HE goes to the heart of the country we want to be. That is why tuition fees has been the most significant policy decision of this government to date. Tuition fees are firmly neo-liberal. Funding HE through progressive taxation is firmly modern/social liberal. That’s why it has come to define the ideology of the Lib Dems in coalition (and that’s before we come on to the question of the broken pledges, etc). Nothing that has happened since the tuition fees debate has had any effect on the Lib Dem’s poll ratings. That tells you everything you need to know.

  • paul barker 30th Jun '12 - 1:57pm

    The proportion of young people going to university is rising all round the world, either we make student support relatively less generous or the proportion of state spending that goes on student support will increase. Theres an argument for doing that but it has to go along with ideas for absolute cuts in other areas.
    I have a child whos a student & the present deal seems fair enough to me.

    On the political consequences I dont see any evidence that many non-students care very much. Students, of course undergo a complete turnover every 3 years & dont have a high voting rate anyway.

  • @Paul Barker
    “On the political consequences I dont see any evidence that many non-students care very much. ”

    Look what happened to the Lib Dem share of the vote at the end of 2010 (when the tuition fees issue was being dealt with in parliament):

    http://ukpollingreport.co.uk/voting-intention

    It hasn’t budged since. The evidence overwhelmingly suggests the opposite of your assertion.

  • Malcolm Todd 30th Jun '12 - 5:47pm

    “Look what happened to the Lib Dem share of the vote at the end of 2010 (when the tuition fees issue was being dealt with in parliament)”

    Except that the figures you link to show the truly precipitate decline in Lib Dem support (from low-to-mid 20s to low-to-mid teens) came in July–August 2010; there was no very significant change in October–December, when the tuition fees issue was top of the news. I’m as appalled as anyone by the naked abandonment of a signature pledge, and I don’t approve of the massive shift from state to individual funding of degrees that the new system represents; but the theory that it’s what’s responsible for the party’s lasting unpopularity doesn’t really hold water. We were already toxic; and I suspect it’s other things (the NHS and the impression of being captured by the Tories on economic policy, principally) that have kept us down since.

  • Tony Dawson 30th Jun '12 - 6:45pm

    @Steve:

    “re: “On the political consequences I dont see any evidence that many non-students care very much. ”

    Look what happened to the Lib Dem share of the vote at the end of 2010 (when the tuition fees issue was being dealt with in parliament):”

    Steve, I think you are confusing two things. The polls dropped for Lib Dems after the UK public saw the Parliamentary leadership exposed as abandoning a policy on which they had made a clear public electoral pledge to differentiate it from other policies. They (with more than a little help from the Labour Party and the media) put that in the context of Nick Clegg’s pre-election statement that we would be different than other politicians, you could trust us. Their disbelief caused us to shed vote share in buckets. That is a very different matter to the public being particularly interested in the student funding issue. They are not, by and large.

  • @Malcolm Todd
    To me, the interesting aspect of the polling position is that there was movement before tuition fees and there has been no movement since. My argument is that tuition fees polarised voting intention in a way that nothing has. Those Lib Dem voters that sympathise with the economic ideology of Clegg (& Laws, Alexander et al.) and those that can tolerate it for the duration split into one camp and those that don’t and can’t split into another. Nothing since has changed their minds. Yes, there were falls in support prior to tuition fees – some of which would have happened anyway given the coalition with the Tories and the difficult decision to be made – some of it was due to the handling of the party in coalition and the perception that Clegg sympathised more with the Tories than with his own party’s manifesto, but there was still movement going on

    @Tony Dawson
    “That is a very different matter to the public being particularly interested in the student funding issue. They are not, by and large.”

    Maybe not the public, but I would say those that voted Lib Dem in 2010 are, given that the policy was a key differentiator and that a large percentage of Lib Dem voters are middle-class graduates.

  • “We were already toxic; and I suspect it’s other things (the NHS and the impression of being captured by the Tories on economic policy, principally) that have kept us down since.”

    The image is of the party’s popularity having a natural buoyancy, and remaining low only because there is something actively depressing it.

    I’m afraid that’s the wrong image. The party’s popularity has been where it is now for about 18 months. I think it’s likely that it will stay there unless something happens to push it upwards. I find it very difficult to imagine what that could be.

  • Simon Oliver1st Jul ’12 – 9:00am……….. I tell anyone who says we’ve broken a promise that they are misinformed. We have introduced a system that is better than the one that came before it, and better than a graduate tax…………………………

    Well that’s all right then. Now all we need to do is tell ‘the misinformed’ that the photo of Nick Clegg’s “I promise to vote against any rise in tuition fees.” was faked, by Labour, and that his speech (…..”Despite the huge financial strain fees already place on Britain’s young people, it is clear both Labour and the Conservatives want to lift the cap on fees . . .The Liberal Democrats are different. Not only will we oppose any raising of the cap, we will scrap tuition fees for good, including for part-time students . . . Students can make the difference in countless seats in this election. Use your vote to block those unfair tuition fees and get them scrapped once and for all”) was a Labour ‘voice-over’.

    While we’re at it we could pretend that we never voted for the NHS, Welfare and Disability bills……

  • @Simon Oliver
    “I tell anyone who says we’ve broken a promise that they are misinformed. We have introduced a system that is better than the one that came before it, and better than a graduate tax.”

    You’re wrong about a graduate tax. A flat graduate tax would be proportionate, whereas fees are regressive (above middle incomes). You wouldn’t have to do anything to a graduate tax in terms of thresholds to make it more progressive than fees across higher incomes. To make it as progressive for lower incomes requires nothing more than the introduction of a threshold, as exists with fees – so it wouldn’t be any more complex, but it would be more progressive. If only the NUS had your imagination, then they would be able to think of a trebling of gross repayments as fairer than the previous system. Do you realise how that sounds to voters?

    @Simon Shaw
    This report from the IFS describes Browne’s proposals for fees as progressive across all income deciles on the basis of a definition of progressivity that differs from every economics textbook ever written:

    http://www.ifs.org.uk/publications/5307

    You may wish to ‘respect’ them for doing this. I don’t.

  • Mention University Fees and off we go again…..blaming all the LIb Dem electoral woes on failing to keep a “pledge”. Many may still see us as having been carelessly linked in with an impractical idea about fees. Perhaps we should have seen this coming and avoided it…. Or was our real “electoral crime” to actually go into government with the Tories…. Sadly many people appear to have failed to register that a simple correlation is NOT an actual demonstration of causality.

    Historically Lib Dem policy makers should have considered the whole University education situation rather than the simple “headline pledge” idea. It is simplistic to believe that going to ANY University, doing ANY degree and achieving ANY grade is a passport to riches. Oddly some people still assume that once you have a place at University this becomes a guarantee for the future. The person who may offer a graduate a job should be looking for their suitability for their job not the “cudos” of having “graduates” on their payroll….

    Before retiring, I used to be responsible for undergraduate admissions to a University department. I found it was unusual for a school not to predict “3 As” at A-level for their pupils. But with too many applicants for available places (simply taking more students could have diluted the quality of the degree offered) we had to discriminate on the basis of other evidence. Perhaps employer also do the same when so many applicants have degrees….

    I also worked in many other European Universities and was horrified to hear academics say “why don’t UK students now know the basics of their subject”. Equally, I recently saw a graduate list from my old department and wonder at the basis for such a high proportion of First Class degrees now being awarded.

    It is obvious that just getting a degree is not a guarantee of a job or one sufficiently well paid to require you to pay back the grant. Perhaps potential students should be checking what employment a University’s graduates got before they sign up for a degree. A degree is not an end in itself.

  • Ok to those who think it is more progressive I’ll give you a choice of car loan.

    Two identical cars.

    Car A will cost you £9k, Car B £27k.

    Both of them are paid with a 9% tax on your income above £15k and Car B for income over £21k.

    If you earn the national average full time employee income of £28,400 then (assuming no inflation!) Car A will cost you £9000 and take you 7 years to pay off (at £1206 per year) after which your tax rate will drop by 9% for the rest of your career. Car B will cost £666 per year for 30 years before the debt is written off meaning it will have cost you £19980. Effectively you’ll be paying 9% of earnings over the threshold of £21k for your entire career and will still not have cleared your debt.

    So for the first 7 years of your career Car B will be £3780 cheaper but over the next 23 years it will cost £15318 more.

    I know “progressive” is being defined as costing the rich more than it costs the poor but I don’t know a single person who thinks the fact that people coming out of university unable to earn enough to pay off their debt being something to celebrate.

  • Picking up on Timak’s example: Those that only clear a part of their debt over 30 years do well out of the system. Those that clear their debt in a much smaller time frame because they’re on high incomes do well out of the system. It’s the graduates in the middle income range – the ones that just clear their debts over 30 years – that get hammered. It’s a system that disincentivises the majority of graduates from going to univeristy, whilst rewarding those that have no intention of getting a ‘graduate job’ and those who are likely to receive a high income. If we want a country of lawyers and cleaners then it’s a great system. If we want a country of engineers, scientists & teachers, then it stinks.

  • John Richardson 1st Jul '12 - 11:14am

    That’s only one aspect of this though, Timak. When you embark on your degree, or buy your car, you don’t know how much of a return you’re going to get from it. There’s no guaranteed pay-off. Under the new scheme if you only make £21K you pay nothing for your car. A free car! Of course under the old scheme you’d be paying £540 per year for the next 20 years. So which scheme do you choose now?

    The new scheme means higher education is now less of a financial risk than it used to be. It means people are better off in the early years after graduation when their salaries are lower but demand on income is higher as people try to buy homes and start families. In general the bigger your return the more you pay back. These reasons are fundamentally why the new arrangements are an improvement over the old. It’s not the ideal that Lib Dems promised but patently we were not given sufficient mandate by the electorate to deliver free tuition either.

  • Lee_Thacker 1st Jul '12 - 11:41am

    With the current state of the economy many graduates will be earning less than £25K for a good many years. Some will be earning less than £21K meaning they don’t pay anything back. The point of this system is that our universities needed money, but the general taxpayer didn’t want to help them out. I can’t see how it is going to be sustainable. In a few years time there will be further radical changes. Possibly the top universities will be able to charge uncapped fees?

  • It might be a far better idea for us, instead of ‘re-wallpapering’ our tuition fee fiasco, to steer well clear of the subject.
    Clegg’s photo-shoot and pre-2010 speech will feature in the run up to the next GE; but not in our publicity.

  • “Do you accept that the IFS has never said that VAT is progressive, as you alleged?”

    This statement from the IFS, quoted by Mark Pack, says precisely that:
    “Looking over the lifetime as a whole, what matters is whether the lifetime-rich or the lifetime-poor see a larger share of their lifetime resources taken in VAT, and on that basis VAT is progressive because necessities (consumed disproportionately by the lifetime-poor) are typically subject to zero or reduced rates of VAT.”
    https://www.libdemvoice.org/the-ifs-answers-is-increasing-vat-progressive-22157.html

    That was found in about 30 seconds with the help of Google. You really should check your own facts before accusing other people of “distorting” things.

  • @Simon Oliver
    “I tell anyone who says we’ve broken a promise that they are misinformed.”

    And that is what is giving the impression to voters that the Lib Dems are no better or trustworthy than the other big two. The pledge was in two parts and the pictures of Lib Dem candidates standing next to it leave no margin for error.

    “I pledge to vote against any increase in fees in the next parliament and to pressure the government to introduce a fairer alternative”

    It’s the AND word in the middle that means the pledge is broken no matter what system transpires. You tell the public they’re misinformed and they will see the evidence in black and white (with soundbite and video link) courtesy of both Labour and the Tories. Until this is finally accepted by MP’s then good, hard working and effective Lib Dem councillors (none of whom broke their word) will continue to lose their seats, and come 2015.

  • Simon Shaw

    “I hadn’t actually read that before I made my posting, but I must clearly have remembered it as it says exactly what I said.”

    Oh, please! There’s no argument about the fact that the IFS said the rise in VAT was progressive. What’s at issue is your claim that it never said VAT itself was progressive.

    In the text I quoted,l the IFS says precisely that. Read it again:
    ““Looking over the lifetime as a whole, what matters is whether the lifetime-rich or the lifetime-poor see a larger share of their lifetime resources taken in VAT, and on that basis VAT is progressive because necessities (consumed disproportionately by the lifetime-poor) are typically subject to zero or reduced rates of VAT.””

    You should apologise to Steve for suggesting that he had distorted what the IFS said.

  • @Simon Shaw
    As pointed out by Chris, the IFS have previously stated that VAT is progressive in absolute terms, rather than just describing a change to VAT making it more ‘progressive’ than previously. They have also used another definition of progressivity to describe tuition fees (in the link I provided). Both of these definitions are different from the standard definition found in every textbook.

    Not only does progressivity/regressivity mark tuition fees as being very different from a graduate tax, but the gross repayment figure for fees is related to the level of fees and duration of the course, whereas a graduate tax is the same rate regardless of the cost of the degree. This is a fundamental difference in ideology. There is a reason tuition fees are called tuition fees and a graduate tax is called a graduate tax. It is quite likely that the level of fees between different universities will increase with time, as some universities start reducing fees (and reducing staff wages) in order to retain numbers and some universities will start pushing for an increase in the cap to attract more funding (and to pay higher wages to attract the best staff).

  • Old Codger Chris 1st Jul '12 - 11:48pm

    Getting back to Mark’s piece, I vote for Comment B.

    On the subject of paying for HE (leaving aside the small matter of breaking a cast-iron pledge) treating the repayments as a Tax rather than a Loan would be better because Debt is a dirty word, and never more so than now.

  • Andrew Suffield 2nd Jul '12 - 7:18am

    It’s the graduates in the middle income range – the ones that just clear their debts over 30 years – that get hammered. It’s a system that disincentivises the majority of graduates

    I think you have massively overestimated the amount of money people earn. The majority of graduates are not in that group.

    Not only does progressivity/regressivity mark tuition fees as being very different from a graduate tax, but the gross repayment figure for fees is related to the level of fees and duration of the course, whereas a graduate tax is the same rate regardless of the cost of the degree.

    Indeed. And by this measure, the current system is a bit of both but behaves like a graduate tax for everybody but the richest.

    (Recall that Labour’s proposal of setting the cap at £6k instead of £9k would benefit only those who earn over £40k/year career-average; nobody else would be affected)

  • @Andrew Suffield

    WIthout falling into the trap of defending Labour’s plans (they’re hardly ideal either, but still better than the current system), a more realistic threshold for those that would be better off is £33,958*, which is probably somewhere near the middle of graduate earnings given that the average graduate starting salary is ~£26k.

    Hopefully Labour might see sense and change their proposals to graduate tax. The Lib Dems might see sense and do the same. However, the debate within the Lib Dems is being strangled by all the attempts to point out that the new system is ‘fairer’ and somehow equates to a ‘graduate tax’ when it is clearly neither.

    The other main issue regarding the transfer of HE funding from progressive taxation to fees is intergenerational unfairness. Yet again, the older generation is shirking from the social contract – their fees came from their parent’s tax returns, yet they’re not prepared to pay for their children and grand-children. HE funding is more expensive now because of the increase in student numbers, but that increase is more than matched by the 80% decrease in the teaching budget funded from general taxation.

    Anyway, getting back to the Lib Dems. You’ve gone through an incredible transformation of wishing to pay for increased HE funding through a 1% increase in income tax (here’s Phil Willis warning exactly what would happen if the proposal were to be dropped – ten years ago) to mumbling stuff about a graduate tax, to then stating in no uncertain terms that fees would not be increased and a fairer alternative would be found in 2010. The credibility issue is one thing, but the shift from a left-of-centre approach to HE funding to a very right-of-centre approach is an issue of ideological credibility. People don’t like voting for one thing then getting another.

    *using a model based on the current repayment thresholds and interest rate charges and with a fixed lifetime wage, inflating at 1% per annum, RPI and threshold increases at 3% throughout. To model all uncertainties in inflation and interest rates and provide proper confidence levels would be slightly more elaborate than the model I’ve just spent 10mins creating, but probably wouldn’t yield much different results.

  • “And by this measure, the current system is a bit of both but behaves like a graduate tax for everybody but the richest.”

    A graduate tax which will leave graduates in general paying/repaying substantially more than they did under the old system.

    This is diametrically opposed to Lib Dem policy at the last election, which was to abolish tuition fees and cover the cost of their abolition through general taxation – not to replace them with a different system of graduate payments!

    I’m baffled by the way in which Lib Dems are now defending the system on the grounds that it’s really equivalent to something they opposed at the last election. No wonder polls show that people find it difficult to understand what the party stands for.

  • @Simon Oliver

    Clegg’s promise..”Despite the huge financial strain fees already place on Britain’s young people, it is clear both Labour and the Conservatives want to lift the cap on fees . . .The Liberal Democrats are different. Not only will we oppose any raising of the cap, we will scrap tuition fees for good, including for part-time students . . . Students can make the difference in countless seats in this election. Use your vote to block those unfair tuition fees and get them scrapped once and for all”

    Which bit of that wasn’t a promise? No wonder students feel ‘conned’.

  • @Simon Oliver
    “lived up to the pledge”

    If the pledge was too simplistic then the people who signed it knowing it to be so were either too simplistic themselves or knowing misleading.

    The pledge was broken, the language is clear, if it was a contract of law it would have been broken. Unfortunately it was not binding but a contract of trust. Keeping this attitude that it was not broken will lead to more lost votes as for me, and I’m sure for many other voters it is a matter of integrity not political doublespeak.

  • “We came third in the election, or hadn’t you noticed?”

    Well, of course, the promise to “oppose any raising of the cap” would scarcely make sense if the Lib Dems had a parliamentary majority!

    That’s why the attempts to excuse breaking the pledge on the grounds that “we didn’t win the election” are so nonsensical. Because that’s the only circumstance in which the pledge would have been needed.

  • Simon Oliver2nd Jul ’12 – 9:56pm………………We came third in the election, or hadn’t you noticed?.

    Yes! But, unlike you, I’m not claiming we kept our pledge on tuition fees.

  • Peter Watson 3rd Jul '12 - 1:10pm

    @Simon Oliver
    “We came third in the election, or hadn’t you noticed?”
    So what? That does not prevent an MP from honouring a promise to vote against something.

  • The IFS are at it again – arguing for increasing their beloved VAT to pay for the NHS:

    http://www.guardian.co.uk/society/2012/jul/04/nhs-20-billion-pounds-2020

  • Simon Oliver7th Jul ’12 – 12:02am………………I very specifically aimed that remark at Jason because he was quoting an election speech made by Nick Clegg explaining the contents of our manifesto…………….

    Simon, You neglect to say that this speech ended with an exhotation for students (with the promise to abolish tuition fees) to help elect LibDems. That is why they feel betrayed and why the pledge was broken.

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