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11 September 2017

Why cutting student interest rates may not help the Tories

The plan risks looking feeble next to Labour's offer and merely increases the issue's prominence. 

By George Eaton

The Conservatives have a youth problem. At the general election, the surge in support for Labour among this demographic cost them their majority. It was Jeremy Corbyn’s pledge to abolish tuition fees that proved the party’s “big bazooka” (in the words of aides). The Tories, by contrast, had nothing to offer. 

Heedless of this, the government recently confirmed that the top interest rate on student loans would rise to 6.1 per cent, meaning the average student will accrue £5,800 in charges even before they graduate. At present, graduates pay a marginal tax rate of 41 per cent on earnings over £21,000 (20 per cent income tax, 12 per cent national insurance and 9 per cent student loan repayment). This, combined with the average debt (£50,800), leaves them struggling to save for a home deposit, or even to pay the rent. The Conservatives, unsurprisingly, are unable to sell capitalism to voters with no capital. 

Theresa May is now reported to be having second thoughts (as she has been known to have before). In advance of the Conservative conference, the party is reportedly exploring cutting the interest rate on student loans. Chancellor Philip Hammond last week told the backbench 1922 Committee that he was mindful of the issue of student debt and invited MPs to submit 250-word proposals. 

Not before time, the Tories have recognised that inaction is not an option. But cutting interest rates may not be the solution they need. The plan risks looking like a pea-shooter next to Labour’s big bazooka of fees abolition. And it would further raise the salience of an issue that favours Corbyn (the Tories’ attack on the Labour leader’s alleged betrayal over student debt had notably little effect). Indeed, some students are unaware that they pay any interest at all; they may not thank the government for this discovery. To narrow Labour’s advantage, the Tories likely require a more significant move, such as reducing fees to their pre-2012 level of £3,000. 

But if the Conservatives truly wish to improve their parlous performance among the young (a mere 27 per cent of 18 to 24-year-olds voted for the party, compared to 62 per cent for Labour), the answer is clear: build more houses. 

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