Our economy would benefit from sending students to study abroad

Britain reaps the benefits of welcoming overseas students to study in the UK - but internationalism works both ways. We should also be enabling UK students to study abroad.

UK students don't venture into foreign universities as much as their overseas counterparts. While this won't come as a surprise given the country's language issues, the recent publication of the "Outward Student Mobility Strategy" by the UK Higher Education International Unit (IU) has emphasised the urgency of the situation.

The strategy has been developed as an original request from the Minister of Universities and Science, David Willetts, and highlights the importance of raising awareness at a national level of the benefits associated with studying, volunteering or working abroad. In addition, it raises the issue of making this opportunity widely available to students from both a financial (i.e. scholarships) and academic (i.e. credit recognition) point of view.

Some might say the reluctance of UK students to study abroad ultimately benefits the economy, stopping a brain drain - something that Southern European countries are currently experiencing. Coincidentally, the countries with higher rates of student mobility are those least “Anglophone-oriented”, such as Spain, France and Germany. Many continental students (mostly under the Erasmus programme) use overseas experience as a means to improve their knowledge of English and also as the best alternative to a gap year, which is not so widespread in Continental Europe as it is in the UK or the US.

I don’t believe there is a risk of brain drain in the UK. The nation's economy is dynamic and attracts more international workers than any other European country. However, I do think that in the long run this lack of interest among UK students in investing a few months studying abroad could be detrimental. It is not purely the academic aspect of this experience that is valuable for students, but also the chance to be immersed in the culture and everyday life in their host country. It enables them to understand different societies and their ways of life, a better perspective of the role the UK plays at a global level, exposure to fresh thinking and ideas, and access to new networks of contacts.

I have been working on the internationalisation of university students since 1996. Back then, student mobility was perceived as the privilege of just a few. Throughout the years we have built bridges between Latin American and European universities and seen real change and growth. When Santander Universities began its activity in the UK in 2007, we knew that the contacts between UK and Latin-American universities were not as frequent and numerous as with other areas of the world, such as the USA, Asia or Australia. Today things have changed and those contacts have increased exponentially. Yet there is still tremendous potential which has not been fully developed. Economies such as Chile or Brazil grow at a yearly rate of around 5 per cent. Middle-class populations are expanding rapidly and have a particular interest in higher education. UK firms can prosper in Latin America, and not only in Brazil, but also Colombia, Mexico and Chile.

There is a need for employees who understand these markets, either by speaking the language, having lived in those countries previously, or both. A graduate who has recently been in, for instance, Chile and can speak Spanish, will be a great asset to a company wanting to export their products to Chile or expand in that market. The same rules may be applied to universities. Many Latin American students tend to choose the USA when studying abroad for proximity and reasons of cultural affinity.

However, those who choose the UK seldom regret making that decision. There is a keen interest from Latin American students to study in the UK, but not enough promotion of UK universities in those countries. A bigger marketing effort is needed to entice students into choosing the UK for their postgraduate or Master's courses.

There is also the need to provide financial support for UK students who wish to take the step towards studying abroad. This is where private institutions play an important role. Companies with a global presence such as Santander, with strong links both in the UK and Latin America, should commit themselves to helping those students to study and carry out research abroad. This financial support can come in many different shapes and sizes: from scholarships to travel grants, funding of special projects or PhDs, bilateral exchange programmes etc. All stakeholders involved, government, universities and the private sector, have a responsibility to increase contact and build networks if a hugely important opportunity for the UK is not to be missed.

Luis Juste is Director of Santander Universities UK

The Graduate School of Economics building at UNAM (Universidad Nacional Autonoma de Mexico). Photograph: Omar Torres/Getty Images.
Luis Juste, Director, Santander Universities UK
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Q&A: What are tax credits and how do they work?

All you need to know about the government's plan to cut tax credits.

What are tax credits?

Tax credits are payments made regularly by the state into bank accounts to support families with children, or those who are in low-paid jobs. There are two types of tax credit: the working tax credit and the child tax credit.

What are they for?

To redistribute income to those less able to get by, or to provide for their children, on what they earn.

Are they similar to tax relief?

No. They don’t have much to do with tax. They’re more of a welfare thing. You don’t need to be a taxpayer to receive tax credits. It’s just that, unlike other benefits, they are based on the tax year and paid via the tax office.

Who is eligible?

Anyone aged over 16 (for child tax credits) and over 25 (for working tax credits) who normally lives in the UK can apply for them, depending on their income, the hours they work, whether they have a disability, and whether they pay for childcare.

What are their circumstances?

The more you earn, the less you are likely to receive. Single claimants must work at least 16 hours a week. Let’s take a full-time worker: if you work at least 30 hours a week, you are generally eligible for working tax credits if you earn less than £13,253 a year (if you’re single and don’t have children), or less than £18,023 (jointly as part of a couple without children but working at least 30 hours a week).

And for families?

A family with children and an income below about £32,200 can claim child tax credit. It used to be that the more children you have, the more you are eligible to receive – but George Osborne in his most recent Budget has limited child tax credit to two children.

How much money do you receive?

Again, this depends on your circumstances. The basic payment for a single claimant, or a joint claim by a couple, of working tax credits is £1,940 for the tax year. You can then receive extra, depending on your circumstances. For example, single parents can receive up to an additional £2,010, on top of the basic £1,940 payment; people who work more than 30 hours a week can receive up to an extra £810; and disabled workers up to £2,970. The average award of tax credit is £6,340 per year. Child tax credit claimants get £545 per year as a flat payment, plus £2,780 per child.

How many people claim tax credits?

About 4.5m people – the vast majority of these people (around 4m) have children.

How much does it cost the taxpayer?

The estimation is that they will cost the government £30bn in April 2015/16. That’s around 14 per cent of the £220bn welfare budget, which the Tories have pledged to cut by £12bn.

Who introduced this system?

New Labour. Gordon Brown, when he was Chancellor, developed tax credits in his first term. The system as we know it was established in April 2003.

Why did they do this?

To lift working people out of poverty, and to remove the disincentives to work believed to have been inculcated by welfare. The tax credit system made it more attractive for people depending on benefits to work, and gave those in low-paid jobs a helping hand.

Did it work?

Yes. Tax credits’ biggest achievement was lifting a record number of children out of poverty since the war. The proportion of children living below the poverty line fell from 35 per cent in 1998/9 to 19 per cent in 2012/13.

So what’s the problem?

Well, it’s a bit of a weird system in that it lets companies pay wages that are too low to live on without the state supplementing them. Many also criticise tax credits for allowing the minimum wage – also brought in by New Labour – to stagnate (ie. not keep up with the rate of inflation). David Cameron has called the system of taxing low earners and then handing them some money back via tax credits a “ridiculous merry-go-round”.

Then it’s a good thing to scrap them?

It would be fine if all those low earners and families struggling to get by would be given support in place of tax credits – a living wage, for example.

And that’s why the Tories are introducing a living wage...

That’s what they call it. But it’s not. The Chancellor announced in his most recent Budget a new minimum wage of £7.20 an hour for over-25s, rising to £9 by 2020. He called this the “national living wage” – it’s not, because the current living wage (which is calculated by the Living Wage Foundation, and currently non-compulsory) is already £9.15 in London and £7.85 in the rest of the country.

Will people be better off?

No. Quite the reverse. The IFS has said this slightly higher national minimum wage will not compensate working families who will be subjected to tax credit cuts; it is arithmetically impossible. The IFS director, Paul Johnson, commented: “Unequivocally, tax credit recipients in work will be made worse off by the measures in the Budget on average.” It has been calculated that 3.2m low-paid workers will have their pay packets cut by an average of £1,350 a year.

Could the government change its policy to avoid this?

The Prime Minister and his frontbenchers have been pretty stubborn about pushing on with the plan. In spite of criticism from all angles – the IFS, campaigners, Labour, The Sun – Cameron has ruled out a review of the policy in the Autumn Statement, which is on 25 November. But there is an alternative. The chair of parliament’s Work & Pensions Select Committee and Labour MP Frank Field has proposed what he calls a “cost neutral” tweak to the tax credit cuts.

How would this alternative work?

Currently, if your income is less than £6,420, you will receive the maximum amount of tax credits. That threshold is called the gross income threshold. Field wants to introduce a second gross income threshold of £13,100 (what you earn if you work 35 hours a week on minimum wage). Those earning a salary between those two thresholds would have their tax credits reduced at a slower rate on whatever they earn above £6,420 up to £13,100. The percentage of what you earn above the basic threshold that is deducted from your tax credits is called the taper rate, and it is currently at 41 per cent. In contrast to this plan, the Tories want to halve the income threshold to £3,850 a year and increase the taper rate to 48 per cent once you hit that threshold, which basically means you lose more tax credits, faster, the more you earn.

When will the tax credit cuts come in?

They will be imposed from April next year, barring a u-turn.

Anoosh Chakelian is deputy web editor at the New Statesman.