Alastair Thompson is reading Politics and Economics at Bath University.
The Government seems to have managed to encounter a new paradox.
Amongst a plethora of reforms proposed for university funding, the Augar Report has suggested that there should be a cut in tuition fees from £9,250 to £7,500; that the rate of interest applied to tuition fees should be capped from a maximum of RPI +3 per cent to simply RPI; and that tuition fee repayments, which should now last for 40 years instead of 30, should begin at £23,000 rather than the current level of £25,000.
These proposals, to many, would sound good at first. Cheaper tuition has been heralded by the left and many student bodies such as the NUS as a need for the future, and university interest rates appear bizarrely high.
Yet these proposals will undeniably harm poorer individuals and do absolutely nothing to change the current stresses encountered by university students.
The effect of the cut in tuition fees is rather negligible (the average maintenance loan is roughly £7,200). Therefore the yearly reduction in the overall level of debt added through fees and the maintenance loan is only 11 per cent.
The rather more substantial effect comes through the reduction in interest rates. Under the current system an individual who had taken the average maintenance loan and earned a pre-tax income of £53,600, which would place the earner into the richest ten per cent, would pay £77,220 across the 30 years and finally have their debt wiped at the colossal figure of £91,500.
In the proposed new system, that very same individual would pay back just under £59,000 over 29 years, having paid off their entire debt.
If the only effect of the proposed reforms was to end the way in which higher earners still face a seemingly eternal ‘debt’, then I suppose I might have been praising this as some way forward. Yet these reforms could strangle those who may already be struggling. In many ways the struggles associated with repaying student finance are caused by the fact it is treated as a ‘debt’ rather than the tax that it really is.
The repayments of student finance are a tax. The evidence that it is implemented directly to work as a tax is overwhelming. Say two individuals graduate with a debt of £52,000. One individual earns £27,500 for 30 years straight, and the other earns £32,600. Under the current system who has the most ‘debt’ wiped off at the end?
The one who earned £32,600 each year, as they are charged a higher level of interest to assure that they remain in a form of ‘debt’, the reality is to assure they keep paying a tax.
It seems fair that a debate should be had on the morality of applying a system which keeps people in an almost permanent debt. The current system of student finance means that to clear an individual’s debt (assuming they take the average maintenance loan and three years of university education) the required pre-tax income to wipe an individual’s debt is £66,000. To have £66,000 of pre-tax income would, according to the ONS in 2017, place an individual narrowly into the richest six per cent of earners.
The proposed changes, however, would only lower this to £43,916, which in the same year would be equivalent to those who scrape their way into the richest 15 per cent of earners. Theses are the individuals who would see no benefit from paying off their ‘debt’ as they reach this point as soon as their debts are about to be wiped clear.
The only individuals to benefit from the reformed proposals are those with higher incomes which would be able to take advantage of not paying the nine per cent tax applied to them for repaying the ‘debt’. Those who just scrape their way into the richest ten per cent of earners within 2017 would save £18,580 over their lifetime.
Yet individuals who never paid off their debt, the majority, would pay further twice over, firstly through the extra maximum of £180 directly per year from nine per cent of income between £23,000 and £25,000 now being taxed, and secondly from the additional ten years of student debt repayments.
When these proposals are assessed by the Government, and potentially the future Prime Minister, it could be a relatively insignificant moment in our party’s history. Yet alternatively it could be a defining moment. The chance for us to see what kind of Conservative Party we will be. I believe in low taxes, yet this proposal is in reality a tax rise for the majority of individuals.
Does taxing those with a pre-tax income of £32,600 an additional £14,000 over their lifetime sound like the kind of Conservative Party we should be in the future? To me we should be helping these people own their homes, potentially invest in businesses to make their local area thrive, and help them keep their money to assure economic security.
I don’t believe we should be overloading people with a tax into their sixties and taking thousands more of their income away from them. This is why I hope the next Conservative Party leader will toss out these regressive suggestions from the Augar Report.
If the Government wishes to help students it should look elsewhere, such as reforms to maintenance loans to support vulnerable students and those without family support. They might also consider shifting student loan repayments from being based on pre-tax to post-tax income, to help those struggling to make ends meet after graduation.