Spot the difference: pensions vs student loans

It's only OK to retroactively change a deal when it affects young people.

The Guardian's Aditya Chakrabortty and the False Economy network have a massive scoop this morning. A secret government report from 2011 proposes retroactively changing student loan agreements to force pre-2012 graduates to pay more for their education:

At the moment, the cap on student debt taken out before 2012 keeps repayment rates at 1.5%. Lifting it would mean a rate of 3.6%, in line with RPI in March 2012. One indicative calculation suggests that an employee on £25,000 a year, with £25,000 of undergraduate loans taken out before 2012, could work until retirement without ever paying off their debt if the interest rate cap were removed.

Somewhat astonishingly, the report also contains a "script" for ministers to push the policy:

"We all live in difficult times," they suggest ministers argue. "You have a deal which is so much better than your younger siblings (they will incur up to £9,000 tuition fees and up to RPI+3% interest rates)".

Needless to say, the report does not address the fact that the ministers' generation had a deal which is considerably better that either younger or older siblings.

There's an element of sleight of hand at play here. Since the actual fees are not retroactively raised, the government would be able to argue that it's not really changing all that much, just the terms of repayment. But student loans are already basically taxes in how they're repaid. What this will do in that assessment is extend the length of time which those taxes are paid – in some cases, right up until the 25-year cut-off, at which point the outstanding debt is wiped away.

The reason why the change is so remarkably unfair is because of its retroactive nature. A cohort of students decided to go to university based on the deal that they would repay loans at the lower of 1 per cent above the Bank of England base rate or RPI. If that weren't the deal at the time, it's a fair bet a number of people might not have decided to get themselves into around £20,000 of debt.

There's a certain amount of fun to be had comparing the proposals to the reaction to Labour's markedly less radical suggestion that pensions count as welfare spending, and might need to be capped if welfare spending as a whole grows too large.

That is not a particularly bold statement. As Ian Mulheirn of the Social Market Foundation has showed, given the rate at which pension liabilities are growing, just to keep total expenditure flat would require massive cuts to every other spending program. Nonetheless, it's led to comments like this, from the National Pensioners Convention:

Ed Balls has made a fundamental error of judgement in suggesting that state pensions are just another benefit in the general scheme of welfare spending.

Everyone knows that you only receive a state pension if you have paid national insurance for at least 30 years. This contributory principle means that it’s not a benefit, but an entitlement.

Interestingly, no-one brings up the same point when contributory JSA is cut, a benefit which also relies on NI contributions. But the larger point is that the contributory principle says nothing about the level of benefits.

It may well be a terrible idea to cut pensions, for exactly the same reason that it's a terrible idea to retroactively increase student loan payments: people make spending plans spanning decades based on these figures, and a cut can wreck those plans at a time when there's no chance to rescue them.

(Of course, that objection doesn't quite hold water in the case of pensions, which have, thanks to the Government's "triple lock", increased in present value significantly. Removing the triple lock could not irreparably damage anyone's long term plans)

But young people are easier to screw over than old people. And divide and rule – pitting one cohort of young people against another – makes it even easier still.

Here's a better idea for funding universities: don't scrap a tax which brings in billions of pounds from people who can overwhelmingly afford it, and then complain that the one generation which actually paid for their university education should pay more.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty Images
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The Fire Brigades Union reaffiliates to Labour - what does it mean?

Any union rejoining Labour will be welcomed by most in the party - but the impact on the party's internal politics will be smaller than you think.

The Fire Brigades Union (FBU) has voted to reaffiliate to the Labour party, in what is seen as a boost to Jeremy Corbyn. What does it mean for Labour’s internal politics?

Firstly, technically, the FBU has never affliated before as they are notionally part of the civil service - however, following the firefighters' strike in 2004, they decisively broke with Labour.

The main impact will be felt on the floor of Labour party conference. Although the FBU’s membership – at around 38,000 – is too small to have a material effect on the outcome of votes themselves, it will change the tenor of the motions put before party conference.

The FBU’s leadership is not only to the left of most unions in the Trades Union Congress (TUC), it is more inclined to bring motions relating to foreign affairs than other unions with similar politics (it is more internationalist in focus than, say, the PCS, another union that may affiliate due to Corbyn’s leadership). Motions on Israel/Palestine, the nuclear deterrent, and other issues, will find more support from FBU delegates than it has from other affiliated trade unions.

In terms of the balance of power between the affiliated unions themselves, the FBU’s re-entry into Labour politics is unlikely to be much of a gamechanger. Trade union positions, elected by trade union delegates at conference, are unlikely to be moved leftwards by the reaffiliation of the FBU. Unite, the GMB, Unison and Usdaw are all large enough to all-but-guarantee themselves a seat around the NEC. Community, a small centrist union, has already lost its place on the NEC in favour of the bakers’ union, which is more aligned to Tom Watson than Jeremy Corbyn.

Matt Wrack, the FBU’s General Secretary, will be a genuine ally to Corbyn and John McDonnell. Len McCluskey and Dave Prentis were both bounced into endorsing Corbyn by their executives and did so less than wholeheartedly. Tim Roache, the newly-elected General Secretary of the GMB, has publicly supported Corbyn but is seen as a more moderate voice at the TUC. Only Dave Ward of the Communication Workers’ Union, who lent staff and resources to both Corbyn’s campaign team and to the parliamentary staff of Corbyn and McDonnell, is truly on side.

The impact of reaffiliation may be felt more keenly in local parties. The FBU’s membership looks small in real terms compared Unite and Unison have memberships of over a million, while the GMB and Usdaw are around the half-a-million mark, but is much more impressive when you consider that there are just 48,000 firefighters in Britain. This may make them more likely to participate in internal elections than other affiliated trade unionists, just 60,000 of whom voted in the Labour leadership election in 2015. However, it is worth noting that it is statistically unlikely most firefighters are Corbynites - those that are will mostly have already joined themselves. The affiliation, while a morale boost for many in the Labour party, is unlikely to prove as significant to the direction of the party as the outcome of Unison’s general secretary election or the struggle for power at the top of Unite in 2018. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.