Photo: Getty
Show Hide image

Here's what the argument about tuition fees is missing

Tax cuts for me, but not for thee.

There is a lively debate over tuition fees and taxation as the Labour manifesto commits to scrap one – at a cost of £11bn – and to raise taxes on people earning above £80,000. The party plans to introduce a new band of tax at £80,000 and to increase the top rate – to be levied on incomes of £125,000 and higher – to 50p in the pound.

Adding to the debate, the Liberal Democrats have defended their decision to raise tuition fees in the coalition in their manifesto, as the changes secured at the time mean that repayment is more progressive and is time-limited.

There’s some criticism that, taken with the Conservative changes to the tax threshold, there is now a cliff-edge at £100,000 where people pay a higher rate of tax and thanks to national insurance some people will in fact be paying a rate of more than 60 per cent.  (When you pass over £100,000, you lose your tax free allowance, meaning that you pay significantly more on your first £11,000 over £100,000 than you do subsequently.)

The second criticism of Labour’s plan is that in order to hit the repayment threshold for the £9,000 tuition fees you have to earn more than £21,000 means that the bulk of the beneficiaries of Labour’s tuition fee change are earning above the national average.

This is true. There will be some earning above £100,000 who will be paying tax at a rate of 60p in the pound and it is also true that the main beneficiaries of scrapping tuition fees will be people earning above average incomes. Just as with Ed Miliband’s reduction of tuition fees, Labour is redistributing from the well-off above 40 to the benefit of the well-off under 40.

But there are a couple of important caveats. The first is that, in practice, tuition fees are a form of income tax. They’re paid through PAYE or after self-assessment and in practice they are no different to an increased income tax.

So if you’re worried about the fact that national insurance and the loss of the income threshold creates a higher-than-advertised marginal rate, you should also be concerned by the fact there is, in effect, a hidden tax threshold for people repaying tuition fees of £3,000 a year at £17,500 and for people paying fees of £9,000 at £21,000.

This works both ways. Taken together, increases in the income tax threshold under the coalition government means that the graduates of 1997 – the last year not to pay tuition fees – were paying roughly the exact same amount in taxation as the graduating class of 2012 – the first to pay the £9,000 fee. So seeing the issue as one of “the last generation didn’t pay for higher education” or “this change is regressive” is missing a wider story of what is going on as far as tax in Britain goes.

Does that mean that scrapping tuition fees is a good or a bad thing? Well, it depends.

In practice, that cutting tuition fees it is in effect a redistribution from people earning above average over 40 to people earning above average under 40 isn’t necessarily an argument against scrapping them. Because of their greater share of asset wealth and savings, there is a strong argument for generational redistribution.

Governments assess tax rises through the prism of behaviour changes all the time – that’s why you can reduce the amount you pay in tax by putting more into your pension, as there’s an obvious public good. If it emerges that the higher £9,000 fee is driving changes in student and graduate behaviour that is socially undesirable – a sense that a degree of a certain quality has been earned solely through the fee, a post-graduation career trajectory that focusses away from jobs in the public realm and towards higher-paying jobs – then there is a case for revisiting whether the fee would be better off paid through income tax. (It is worth noting that the feared decrease in higher education participation from people from a lower-income background hasn’t happened, so that case doesn’t work.)

There are also issues around tax collection to be considered. If I move abroad, the government continues to collect my tuition fees – it doesn’t, of course, continue to collect income tax on earnings in another country. So you may need a greater tax take just to stand still in terms of revenue for higher education.

But the crucial thing is that all of these issues – the most effective way to collect tax, and the fairest system of who pays for it – are not specific to tuition fees. The argument around them makes more sense in the context of a wider discussion about tax.

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.

Photo: Getty
Show Hide image

Nicola Sturgeon is betting on Brexit becoming real before autumn 2018

Second independence referendum plans have been delayed but not ruled out.

Three months after announcing plans for a second independence referendum, and 19 days after losing a third of her Scottish National Party MPs, Scotland’s First Minister Nicola Sturgeon booted the prospect of a second independence referendum into the heather. 

In a statement at Holyrood, Sturgeon said she felt her responsibility as First Minister “is to build as much unity and consensus as possible” and that she had consulted “a broad spectrum of voices” on independence.

She said she had noted a “commonality” among the views of the majority, who were neither strongly pro or anti-independence, but “worry about the uncertainty of Brexit and worry about the clarity of what it means”. Some “just want a break from making political decisions”.

This, she said had led her to the conclusion that there should be a referendum reset. Nevertheless: "It remains my view and the position of this government that at the end of this Brexit process the Scottish people should have a choice about the future of our country." 

This "choice", she suggested, was likely to be in autumn 2018 – the same time floated by SNP insiders before the initial announcement was made. 

The Scottish Lib Dem leader Willie Rennie responded: “The First Minister wishes to call a referendum at a time of her choosing. So absolutely nothing has changed." In fact, there is significance in the fact Sturgeon will no longer be pursuing the legislative process needed for a second referendum. Unlike Theresa May, say, she has not committed herself to a seemingly irreversable process.

Sturgeon’s demand for a second independence referendum was said to be partly the result of pressure from the more indy-happy wing of the party, including former First Minister Alex Salmond. The First Minister herself, whose constituency is in the former Labour stronghold of Glasgow, has been more cautious, and is keenly aware that the party can lose if it appears to be taking the electorate for granted. 

In her speech, she pledged to “put our shoulder to the wheel” in Brexit talks, and improve education and the NHS. Yet she could have ruled out a referendum altogether, and she did not. 

Sturgeon has framed this as a “choice” that is reasonable, given the uncertainties of Brexit. Yet as many of Scotland’s new Labour MPs can testify, opposition to independence on the doorstep is just as likely to come from a desire to concentrate on public services and strengthening a local community as it is attachment to a more abstract union. The SNP has now been in power for 10 years, and the fact it suffered losses in the 2017 general election reflects the perception that it is the party not only for independence, but also the party of government.

For all her talk of remaining in the single market, Sturgeon will be aware that it will be the bread-and-butter consequences of Brexit, like rising prices, and money redirected towards Northern Ireland, that will resonate on the doorstep. She will also be aware that roughly a third of SNP voters opted for Brexit

The general election result suggests discontent over local or devolved issues is currently overriding constitutional matters, whether UK-wide or across the EU. Now Brexit talks with a Tory-DUP government have started, this may change. But if it does not, Sturgeon will be heading for a collision with voter choice in the autumn of 2018. 

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines. 

0800 7318496