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Labour announces its tuition fee policy

February 27, 2015

Labour’s long-awaited policy on tuition fees arrived today as part of its ‘zero-based’ spending review.

The opposition party has now committed to reducing the maximum tuition fee at English universities to £6000 per year (down from £9000pa). It would cover all undergraduates in 2016/17 not just new starters.

Speculation and criticism in advance of the announcement focused on how Labour would maintain current funding levels for universities and other higher education institutions if fees were to be lowered.

Ed Miliband pitched the sums at the level of national accounts. By restricting tax relief on pensions, Labour will fund an increase in direct grants to institutions. These two moves will more or less offset each other – as tax receipts and spending – so that the current balance is unaffected. (Current balance would be a Labour government’s ‘deficit’ target after the election.)

Loans are excluded from current balance and other income and expenditure measures. But because loan outlay is lowered each year, there will be an additional impact on the ‘public sector net cash requirement’, where loan outlay scores and which drives the change in public debt.

Labour estimate that PSNCR will be lower by £2.7bn annually as a result of the three changes. This will slow the growth in public sector net debt and lower it as a percentage of GDP on current projections.

By the end of the next parliament, in 2020, Labour expects public debt to be lower by £10bn as a result. It has even gone so far as to provide a projection through to 2030, when it believes debt will be £40bn lower if the policy is continued.

That seems painless. So what might we be missing? In effect, Labour is foregoing the projected future repayments associated with fees above £6k. These are due to arrive a long way in the future, mostly after 2035 (graduates in 2019 will be liable for loan repayments until 2050). Labour is in effect lowering the cash that goes out the door today at the expense of repayments estimated to arrive two decades and more away.

Analysts like London Economics will be in a better position than me to assess the long run economic costs of that trade-off and who benefits from these changes (it looks as if higher earners will be levied higher rates of interest). Some will have opinions about whether that money from tax relief restrictions would be better spent elsewhere (with only £400 added to the maximum maintenance grant). Universities will still harbour concerns that  the extra tax income is not formally hypothecated to undergraduate tuition.

Others will be disappointed that the notorious ‘RAB charge’ failed to make an appearance. The RAB charge is a convention that pertains to departmental, not national, accounts. What this does do is underscore a point I have made repeatedly on this blog and elsewhere – mostly recently in the London Review of Books – that it is the national accounting level and its cashflows that is most important for understanding student loan policy at present.

There is still too little detail on Labour’s HE policy. But an article just published at Times Higher Education by Liam Byrne promises more to come:

Over the weeks to come we’ll have more to say about reform and our ambition to build a British “dual track” system, creating for the first time a big, wide vocational, professional and technical path to degree level skills for students who want to earn while they learn, as the Institute for Public Policy Research’s Commission on the Future of Higher Education recommended in 2013. We’ll have more to say about how we help part-time students. More to say about supporting the teaching of high-cost courses. And more to say about repairing the damage to Britain’s global reputation for training international students.

I will add more today as more details emerge.

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3 Comments
  1. johnselby permalink

    Dear Andrew

    As ever, your understanding and careful explanation of the arcane prestidigitation of government accounting conventions is exemplary, but I think it has led you to miss the main and common-sense point.

    You write:  “Labour is in effect lowering the cash that goes out the door today at the expense of repayments estimated to arrive two decades and more away.”

    While this may be true in conventional (in both senses) accounting terms, it is a bizarre way of looking at things. The reason the repayments will be lower in two decades will be because current taxpayers (in particular high income taxpayers) are going to pay more currently and students will have to borrow less and hence pay back less. Repayments will be lower because the private debt  of the next generation will be lower. Chuka Umunna was very clear in his Radio 4 interview that this was part of a wider policy shift to reverse the extra burdens placed on young people by the current government. As someone who benefited from free higher education, I applaud this.

    John Selby

    • I don’t disagree. My point as such is that Labour has presented this policy at the level of cashflows and impact on PSND through to 2030, which is a little unusual in itself. Much of the critical commentary has focused on ‘costs’ and distributional effect, but the timing of those impacts get compressed on spreadsheets. From one perspective this policy reduces the uncertainty associated with a policy where the bulk of repayments are decades away. From a fiscal point of view that’s not irrelevant.
      I also agree that it is generally better for private debt to be lower given the nature of this particular debt where a future government is able to change terms of repayment using secondary legislation without parliamentary debate.
      On the plus side, it should also set the grounds for addressing problems in part-time study and ‘retraining’. The debate on fees largely assumes everyone has access to loans, but those coming back to study in later life could benefit from lower fees too. Addressing ELQ and part-time – along with the policies in the Byrne quote at the end of the blog – would go some way to making this a joined-up policy.

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  1. What would £6,000 fees mean for Scotland – and Wales and Northern Ireland? | Adventures In Evidence

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