For over a decade, England’s student loan system has been a scandal waiting to happen. Graduates, who now leave university with average debt of £53,000, pay an additional 9 per cent of their income over £25,000 (while postgraduates pay 15 per cent). Treat this as effective taxation and those earning close to the minimum wage pay a marginal rate of 37 per cent. Those earning above £50,270 pay 51 per cent, just shy of Sweden’s top tax rate.
Except, of course, this isn’t like tax: those who attended university between 2012 and 2023 also face punitive interest rates of up to 6.2 per cent (more recent graduates pay 3.2 per cent). As a consequence, graduates need to earn £66,000 a year, far above the median full-time salary of £39,039, before they even begin to reduce their debt (now only written off after 40 years). The result is a world in which the traditional markers of adulthood – owning a home, starting a family – are ever further out of reach.
I first wrote about this issue back in 2021, noting how, combined with high housing costs and lower wage growth, graduate living standards were being crushed. It always animated readers: the left dislikes tuition fees, the right dislikes high marginal tax rates. But at Westminster it remained an irrelevance.
The question is whether this is changing. At last November’s Budget, as my colleague Rachel Cunliffe reported at the time, the government froze the student loan repayment threshold at £29,385 for three years, leaving graduates with no shield against inflation.
This could prove a political tipping point. Martin Lewis, the consumer champion who Britons once named their ideal prime minister, has warned Rachel Reeves: “I do not think this is a moral thing for you to do”. When Lewis takes up a cause – another was the removal of winter fuel payments – ministers should be on high alert.
But which party will benefit? Reeves has defended the system as “fair” on the grounds that “you only pay it back if you can afford to do so” and that half of people don’t go to university – words that will be of little consolation to those who did and grow more indebted until they are among the top 10 per cent of earners.
Both Reform and the Conservatives could take up the issue on low-tax grounds – though have an antagonistic relationship with socially liberal graduates. The Liberal Democrats, still traumatised by their broken pledge to freeze tuition fees, have little incentive to revisit this fraught question. That’s why the most plausible candidate is the Greens, who promised in their last manifesto to seek “to cancel the injustice of graduate debt”, and who are in second place in 39 Labour seats across university cities including London, Manchester, Bristol, Sheffield and Norwich. As in the US, where the likes of Bernie Sanders and Alexandria Ocasio-Cortez have embraced this cause, this is fertile territory for left populists. A Labour Party that has already lost fights with pensioners and farmers may soon face another with graduates.
This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here
[Further reading: Kemi Badenoch needs centrists to win]
Content from our partners
Related
Join the debate
Subscribe here to comment