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26 January 2015

Reducing tuition fees: is Labour about to propose a tax cut for the rich?

Labour’s mooted tuition fee policy would increase inequality.

By Tim Wigmore

How do you spend £2.5bn? Few Labourites, one suspect, would advocate a tax cut that only favour the highest earners. Yet that is what the party will advocate if, as widely reported, it announces its intention to reduce tuition fees from £9,000 to £6,000 a year.

The politics might be shrewd. Putting fees back on the political agenda should remind left-leaning Lib Dems who have defected to Labour – Labour’s “firewall” – why they were so angry with Nick Clegg’s party in the first place and that Labour, and not the Greens, can offer them the policies they want. And it should also give the disillusioned young a reason to go to the ballot box. In 1987, over-65s were only 9.4 per cent more likely to vote than under-25s. In 2010, that figure was 22.9 per cent, according to the British Election Study. Closing that gap should edge Ed Miliband closer to No 10.

But, in a time of austerity, the beneficiaries of the policy might not sit easily with Labour’s base. Ostensibly the rationale is that lowering fees will open up university access to more students than ever before. This ignores that, contrary to all expectations, applications from disadvantaged pupils are already at an all time high. There is no evidence that a reduction in the headline tuition fee figure would lead to an increase in application from the poorest pupils.

While it lacks the political symbolism of tuition fees, a much greater problem for students today the meagre provision of maintenance loans. Emily Connor, the President of Sheffield Hallam Students’ Union, received only £7.50 a week in living costs after accommodation expenses before she took up her post. “Having to take out and juggle part time work impacted greatly on how much time I could spend on my studies, but also my health and wellbeing,” she says. Thousands of students around the country have had similar experiences. This has nothing to do with the headline figure of tuition fees. Resolving to give more generous maintenance loans to students is a less snazzy policy than lowering tuition fees, but it would have a far greater benefit for disadvantaged students today.

The current tuition fees system is essentially a graduate tax paid by those who are earning £21,000 and over. Everyone can afford it, because you only pay when you only pay it back when you are earning enough. The financial pressure that students face comes from the inadequate provision of maintenance loans and grants. Because state provision for these is frugal, poorer students rely on bursaries, which vary hugely between institutions. This is why students face financial strain – not the prospect of paying a higher marginal rate of taxation if they are successful later in life.

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Cutting fees to £6,000 a year would do nothing for the lowest earning graduates. Their loans would be written off before they paid back the full amount anyway. Under the existing system only the highest earning 55 per cent of graduates are expected to have to repay the full £9,000 a year fees. It is they who would benefit most from a tuition fee cut. 

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Labour’s proposal would reduce the amount that bankers and lawyers have to pay back on their degrees, and so reduce the tax burden of the richest in society. There are plenty of progressive alternatives to current tuition fee policy – like increasing the threshold at which graduates start paying loans back, or making the repayment rate lower than nine per cent for basic rate taxpayers. Yet Labour’s apparent new policy amounts to an income transfer from the state to the wealthiest graduates.

Ed Miliband says that tackling inequality is his defining mission in politics. But this mooted new policy seems irreconcilable with that aim. By reducing tax for the richest graduates and doing nothing to help the poorest ones, these tuition fee changes would actually increase inequality.