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Saturday, February 21, 2015

Labour faces its own tuition fees grief

I know that Liberal Democrats have nothing to boast about on tuition fees. We let people down and we are being punished for that. However, the outcome of that debacle, more by accident than design it has to be said, is that we have created an effective graduate tax, in which the principle of no up-front fees has been maintained, the vast majority of students will not repay the full amount, if they pay anything at all and which is actually leading to more people from deprived backgrounds going to university.

Labour's record on this issue is far from perfect as well. They introduced tuition fees in the first place and then brought in top-up fees. In both instances they broke firm manifesto promises, and they had a majority. How they deal with the present situation is therefore a big dilemma for them.

At first they thought that they might bring in a graduate tax, but then they realised that this is what is already in place. So they opted for the simple solution of reducing the maximum fee from £9,000 to £6,000. However, that has hit the rocks as well, for two simple reasons: they cannot find the money to pay for it and, more importantly, because that reform actually helps the better off and does nothing for students from poorer backgrounds who are unlikely to repay the money anyway because of the minimum income rule.

Now Labour have hit on the worst of all worlds. According to today's Times, Ed Balls is considering cutting some of the tax breaks handed to those saving for a pension to find the £2 billion needed each year to reduce fees.

The paper suggests that money could be saved by lowering the £40,000 that savers are allowed to put towards their pension each year tax free, or by cutting the £1.25 million lifetime limit on the amount of pension savings that are spared tax. Another option would be to change rules that allow savers to take 25 per cent of their pension pots tax-free. Capping such withdrawals to £36,000 would save £2 billion. Either way many pensioners will suffer.

And the tensions within Labour on this issue continue. The paper says that Lord Mandelson, the former business secretary, warned that cutting fees could trigger an increase in foreign students to plug the funding gap, squeezing places available for British teenagers:

In a speech that revealed the deep tensions within the party over the policy, he warned that Labour would have to make up the difference through direct taxation to ensure that universities did not lose out.

University vice-chancellors have already sounded the alarm over the policy, which they claim could leave a shortfall in their funding. In a letter to this newspaper this month, they said that the cut was “implausible” and would cost universities £10 billion by 2020.

The paper adds that Lord Mandelson suggested that cutting fees by a third could jeopardise research and teaching in science, maths and engineering, which are costlier than the arts: “I’ve no intention of going head to head with my party on this,” he said. “If any reduction in fees is announced, it is vital that replacement funding from taxation is identified and announced at the same time, not in a generalised way but in a specific way.”

Labour may see this as a totemic policy but can they really afford it and what are its consequences? Do they really want to use this money to subsidise better off students when they could for example use it to put in place grants to help those who do not have resources at their disposal to fund their time at university?
Personally I would be happy to see money redirected from pensioners to students (or, more realistically, to the public purse in general, since the loans just won't be repaid). Pensioners have been receiving inflation-plus increases in hand outs while others face frozen wages and benefits.
There's a key difference between the current loan system and a graduate tax - the affluent can repay the loan in full early, avoiding paying any interest. Those from disadvantaged backgrounds who end up on a good middle-wage could feasibly repay the entire loan amount but would also pay the interest as well, ultimately paying more than affluent students who chose to repay early.
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