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Tuition fees and the Consumer Price Index

November 14, 2012

Yesterday’s publication inflation measures covering the year to October 2012 show the Consumer Price Index moving to 2.7 per cent (from 2.2 in September). As suggested by my report for Intergenerational Foundation, and, more recently, by the Higher Education Policy Institute, part of this increase is attributable to impact of the higher tuition fees that came in this academic year.

Today’s Financial Times covers the story under the online headline, ‘Tuition fees endanger BoE inflation target’. It attributes 0.32 percentage points out of the 0.5 rise to the new fees policy – this is higher than the earlier Office for Budgetary Responsibility estimate of 0.2 percentage points.

Official government response here is very unclear: ranging from denial to ignorance. As the FT points out, we could expect a similar impact from tuition fees as two further cohorts arrive in 2013 and 2014.

What many are concerned about is how this increase affects the welfare budget, since CPI is now used to calculate the annual increases to benefits and public pensions. The significance is that any saving achieved to the higher education budget could be lost through the knock-on effects to that other, much larger budget from April 2014. Again, there is no government statement on this matter.

  1. Mike Ratcliffe permalink

    It would be excellent for local public relations if we can attribute an increase in pensions to the fees that students are paying.

    Of course, it is madness that the government has got us here with Vince’s “experimental” system.

    • September 2013 CPI is expected to be used to set new rates from April 2014. But the government could alter the index – CPIx for example, excluding tuition fees.

  2. Alex Buckley permalink

    Why has the impact on inflation happened (or started) now? Isn’t it the increased level of repayments that impact on inflation, which haven’t kicked in yet?

    • Tuition fees are in the basket of goods used to determine CPI, not student loan repayments (loans are an option to pay fees).

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