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There are problems with Labour’s tuition fees policy – but not that it’s regressive

The policy amounts to a transfer from the very affluent to the merely affluent. 

By Stephen Bush

Labour’s manifesto – and the commitment to abolish tuition fees – has once again triggered an argument about how progressive or regressive the change is. As ever, the argument – on both sides – is missing a significant dimension.

Tuition fees are, in practice, a form of income tax. Like income tax (for most people), fees are collected via pay as you earn. Unlike any other form of debt you care to name, your degree cannot be repossessed. If your earnings fall, just as with income tax, your payments drop off.

That isn’t necessarily an argument for or against scrapping tuition fees. Governments tweak and change taxes all the time. A student funding model that worked well in the 2000s and 2010s may not be fit for purpose in the 2020s. The government also – entirely legitimately – changes how and who it taxes in order to maintain political consent for its programme.

The Institute for Fiscal Studies has found that the biggest “winners” from the change are graduates earning above £70,000, who will enjoy the largest increase in their take-home pay. The problem is, the people who Labour plans to tax are those, whether with a degree or without one, earning £80,000 or above. In practice, that means the change is a mild redistribution from people aged 18 who will earn above average, at the expense of people earning above average who are aged 21 or older.  

This creates an anomaly in the tax system, though, which is that it saddles people aged 18 to 42 earning above £80,000 – the cohort that paid for university via tuition fees – with two regimes of income tax. The first is the increased marginal rate of tax Labour has introduced to fund tuition fee abolition for those graduates earning £80,000 or above. The second is the higher marginal tax rate – effectively the equivalent of an extra six to nine pennies in the pound – for all graduates aged 18 to 42 years old.

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In practice, of course, people earning above £80,000 can well afford the extra tax and continue paying their tuition fees, while people aged 18 to 42 can afford the marginal rate increase of tuition fees.

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The problem is that this puts Labour in a bit of a bind: either you think that you need to find the £20bn to forgive the debt of those already paying for tuition fees (good luck funding that within Labour’s fiscal rules without putting up everyone’s taxes) or, if you accept that 18-42 year olds can live with the extra taxation, why on earth would you want to spend £11bn a year abolishing tuition fees?

You might be concerned about the indirect negative consequences of introducing tuition fees. The concerns about the fees model when introduced were that it discourages applicants from poorer backgrounds because of the fear of debt, that it incentivises people away from degrees who don’t have a large earnings premium, and that it creates perverse incentives in the world of higher education.

The good news is that the numbers of people applying to and attending university, from all backgrounds, has continued to rise. Strikingly, there doesn’t appear to have been a change in behaviour as far as which degrees students pick either – though we don’t yet have as clear a picture about this.

The dog that has barked is working conditions in higher education and the broader student experience. Tuition fee rises have resulted in ever-growing pay settlements for senior leadership teams, large and poorly-constructed student blocks that are unpleasant to live in, and increased workloads for academic staff.  These are challenges that could and should be addressed through policy changes elsewhere in higher education policy, absent the £11.5bn cost. As it stands, the policy case for tuition fee abolition is thin.

But there is also an electoral case for it. As I wrote shortly after the 2017 election, the implicit argument against scrapping tuition fees is that you can recoup the £11.5bn of tax rises without having to spend them on getting rid of tuition fees. If you can do this, it’s essentially impossible to defend tuition fee abolition – even within the education budget, whether it is wraparound childcare, further education spending, apprenticeships, language lessons, teacher salaries – there is almost nowhere across the education brief you couldn’t spend £11.5bn and do more good. That’s even without looking at the wider context of public policy and the fairly tight rules on day-to-day spending that John McDonnell has set himself.

Of course, not every part of the policy programme is designed to meet a party’s political objectives. Some of it is based on winning power. The Conservatives’ various bungs to the affluent elderly did not help them close the deficit directly – but it is hard to argue, particularly given what happened in 2017, that they could have done better politically without those bungs. Tuition fee abolition might be the Labour equivalent.

And that’s the real test for tuition fee abolition: if Labour’s manifesto can’t bring about a turnaround in the party’s fortunes, then it will have on three occasions – in 2015, 2017 and now 2019 – gone to the country pledging to reduce or abolish tuition fees and been repudiated by the voters three times. If nothng else, they might at that point wonder whether that £11.5bn might be better deployed wooing a different group of voters.