This is the worst type of politics and is financially illiterate. If any other party was launching a policy that effectively meant poorer students would be subsidising City investment banking graduates, there would be protests in the streets. (Martin Lewis of website <moneysavingexpert.com>
The biggest net winners from this reform are those in the top deciles of the graduate earnings distribution, who repay less in total than under the current system, despite the higher interest rate. ('Labour’s higher education funding plans’ - Nuffield Foundation/Institute for Fiscal Studies, February 2015).
The pledge by Labour to cut university tuition fees by a third from the current maximum £9000 should it win May’s general election must surely be the most outstanding recent example of terrible economics, counter-productive in its effects in relation to its supposedly aim of reducing inequalities, but is – amazingly - excellent politics.
You Wouldn't Want To Start From Here
At present, students only start paying back their loans once they start earning over £21,000. The introduction of tuition fees for standard university courses – more about the Open University’s distance learning programmes in a moment – began in the late 1990s under the first Blair government.
Labour had stated its 1997 manifesto that “improvement and expansion (of Higher Education) cannot be funded out of general taxation”, but didn’t spell out what that meant in terms practice. The classic response by the British political establishment to a difficult area of policy was brought into play. The Dearing Commission duly reported.
As ever, the government ignore the bits it didn’t like and went for the bits it did like: a small proportion of the cost of student tuition to be paid by them. But Dearing proposed that 25% of the cost of the education should be paid by the students themselves – and that through a graduate tax. Labour didn’t like this idea of being cast as the party that introduced more taxation though, so we got the £1000 per year fee, paid directly to the universities, which then became debt collectors. Naturally, the universities hated this.
Following its next election manifesto in 2001, having made a further pledge not increase the tuition fees (“we will not introduce ‘top up; fees and have legislated to prevent them’), another Labour government got round it that commitment by scrapping the upfront fee, s but instead providing a loan for a proportion of the fees to the students, which they then had to pay back at a set rate once they had reached a fixed point in their future earnings.
Fast forward to the 2010 general election and the most prominent, often stated and clear pledge by the Liberal Democrats to scrap tuition fees (“for all students taking their first degree, including those studying part time…we will immediately scrap fees for final year students”), in coalition government with the Conservatives, proceeded to treble the tuition fee loans. The maximum universities were able to charge this £9000 a year but the scheme, but together by a Tory education minister, David ‘two brains’ Willetts, presumed that most universities would not charge the full fees– certainly not the ones that the one I work for, outside the supposedly elite Russell Group institutions.
This proved to be one of the most grotesque mis-readings and poorest projections ever made by a government minister. In fact, nearly all universities for nearly all courses calculated they’d better go for the maximum fees, perhaps partly because they didn’t trust the government’s funding process in the future and had been starved of funds for years, but mostly because they feared that students who saw universities charging less, rather than seeing that as good value, would assume that they were inferior. Imagine the damage Willetts would have caused had he had only the normal one brain rather than two!
However, neither did this trebling of fees have the effect that so many commentators and politicians on the left at least presumed that it would have. It did not seem to deter those students from poorer backgrounds or where there was no tradition in their families of entry higher education. In fact, undergraduates from that socioeconomic sector rose, in total and as a proportion. Certainly, it has saddled many students with mortgage-sized debts, but critics of the system had failed to account the two things.
One was that ‘millenialls’ were generally much more relaxed about debt than were their parents’ and grandparents’ generations and far more used to taking out loans for all sorts of things and even having substantial balances on credit cards, which charged a much higher rates of interest.
Secondly, many trades and professions in which, not so long ago, graduates were a rarity, such as police, nursing and journalism, are now setting an honours degree as a basic entry-level requirement. You couldn’t even get an interview without having your BA or BSc. So effectively, the entry point to many careers was a degree and therefore there was no realistic alternative but to go for it. But something else happened which again, anyone with a reasonably functioning single brain could have predicted. The huge increase in the proportion of those with first degrees meant that the average lift in salary from being a graduate was diminished. Quel surprise! What, you mean if you increase the proportion of graduates in the workplace from around 12 - 15% to close to 50%, that the effective value of that degree is reduced? Who could have guessed that!?
Plus, the outrageous situation whereby Scotland’s ‘funding formula’ allowed them to offer ‘free’ higher education to any other EU citizen other than the those form other parts of the UK really rankled. You have to offer the same system to any other member state of the EU, and free movement of peoples, including to HE, is a principle of EU membership. Which is fine, except the number of EU citizens having the required levels of English language to allow them to study in England far exceed the number of Englanders with the equivalent facility to study in another EU country. And how many EU students will ever pay back their loans? Is the Quango set up by the government really going to pursue a student from, for example, Lithuania, who went back home after studying, say 10 or 20 years in the future? In reality, most EU students who study in England are getting a free education, at the expense of the English taxpayer. But we don’t mention that in ‘polite society’, or one is liable to be branded a little Englander, nationalist, ‘anti-European’, or all the cobblers those who have pointed out the iniquities of the EU over the years have had to endure.
The net result was that the Treasury forecasts of repayment of the loans has gone wildly askew and therefore the government’s borrowing costs have gone up. The second impact was that fewer students than predicted will ever repay the loans. In fact, less than 50% will, especially as the debts are written off after 30 years. And one factor which I’ve not seen reported in any of the coverage over the last 24 hours or so since this announcement was made is the big gender gap and the impact this has on repayment.
As BBC Radio 4’s excellent More Or Less programme pointed out a few weeks before the announcement, some 60% of male graduates I respected to repay the loans but only between 20 to 35% of female graduates. And what even that programme didn’t point out was the big gender imbalance in the modern student intake, that is weighted some 2:1 in favour of the females. So, if women are far less likely to pay back the tuition fees because of lower earnings compared with their male counterparts and there’s a greater portion of female graduates, it follows that the figures for repayment will be further reduced.
New Old Labour Nonsense
So, now to Labour's new proposals for maximum yearly fees of £6000 for first degrees, paid for by reducing some tax exemptions from pensions. This is supposedly helping to rebalance the generation gap; the older generations are doing very nicely, thank you, from government taxation and other policies, with their children and grandchildren suffering from relatively poor wages, insecurity in employment, much more expensive housing and who generally can look forward to a reduced standard of living, compared with at least to the baby boomers (who – for the small minority who went to university had free tuition and relatively generous maintenance grants).
Of course, for the majority of people in that age group, like me, didn’t go to university, and a substantial number who paid upfront for their (subsidised) degrees through the excellent Open University from their taxed salaries, this argument runs pretty thin! I get pretty sick of commentators saying ‘ah, you baby boomers – you had it all! All the benefits of the post-war welfare state AND free university courses!' But, most of my contemporaries left school or college between 15-19 years old, have been working ever since (40 years plus) and didn’t go to university, but have subsidised their children’s education and lives right through into their early 20s and beyond - so suck on that!
But anyway…(!) as the Institute for Fiscal Studies, and other financial commentators have pointed out, the cut in tax relief on pensions could hit many of those outside or we normally call ‘the rich’ bracket, e.g. nurses and teachers who have a big jump in salary following promotion in their final years. But the most outrageous part of Labour’s new policy is that it won’t impact on poorer students at all. It won’t even help many in the middle classes.
The one third reduction in fees will only help those already then earning enough to pay back their tuition costs. It would do nothing to bring about the reversing of social mobility that we’ve seen over the last couple of decades, or encouraging those with family backgrounds without a history of entering higher education. And of course, that £3000 gap still has to be paid for out of general taxes, which are paid by pretty much everyone, even those who don’t own more than the income tax threshold, through VAT and the like.
However, it IS great politics. Labour have had their focus groups and they have found out what ever nonsense is the policy, for all the reasons stated above, it plays well with your voters. It resonates especially well with younger ones who, if they can be persuaded to vote at all (younger generations vote much less than older ones, which of course partly explains why government policies tend to favour the higher age groups) and to vote Labour, it could, according to Peter Kellner of YouGov, bring them nine seats at the election which would otherwise have gone to other parties. Judging from the vox pops with students at one university on the TV news last night, despite many of them thinking the policy was cynical, it would be enough to buy them their vote.
A High Degree Of New Thinking Needed
So, what is the answer? Well, I won’t press on your time and patience too much longer, dear reader, by expanding my thoughts on this blog, but rest assured I shall return to the topic! There are also fundamental questions about what a university education is for, both of the individual and society as a whole, which I’ve touched on several times before but to which also I shall, no doubt, return. In essence though, I think the problem is being looked at in the wrong way and with the wrong methods.
If the aim is to open up access to higher education on a meritocratic basis and to use that as a launch pad, as it were for greater meritocracy and social mobility overall, then we need to have policies and commitments which impact at a lower age. In particular, they need to impact or white, working-class males, which is the group that is falling behind in the school years in which is hugely under-represented in higher education.
There is a myriad of psychological, cultural, was economic issues are involved in this which require intelligence, and empathy as much as cash. But if there is more cash it needs to be flung at the ‘Cinderella’ FE sector which does such brilliant things (again, a declared interest as it was in that sector which did so much for me aged 16-19 and in which I did my first lecturing). Much, much more should be spent on access courses, foundation courses, and general confidence-building, long-term and consistent mentoring; breaking through the cultural and machismo barriers that say education is ‘soft’ and may involve a loss of face and estrangement from the peer group. More on THIS soon!
There should certainly be discounts - if not the abolition of tuition fees - for those who enter university after working for some years full-time; this could be calculated and implemented through the National Insurance system, which seems the best way of implementing a graduate tax - surely the most efficient and equitable system.
The other aspect which certainly needs boost is the brilliant Open University (OU), through which I became a graduate and is one of the greatest achievements in post-war British politics. Don’t take just my word for it: the Labour Prime Minister Harold Wilson, whose government pushed through the legislation (though it was actually implemented under its Conservative successor, under an education department led by Margaret Thatcher) described it as the greatest and most lasting achievement of his entire time in office.
When I studied with the OU though we did not pay the full cost of the courses - and quite rightly so, I reckon, given as I noted above that we were paying for this generally through income that had been taxed for many years. A little reported aspect of the hike in intuition fees for students at traditional universities was that the same policy essentially applied at the OU.
Distance learning is not just an economically efficient way of educating people but it allows everyone to study, whatever their family and social circumstances - not least, women with young children, and those already established in careers who simply cannot afford to stop earning and got to a traditional university, even part time.
The OU should not be just an adjunct to the system: it should be its cornerstone, even for higher degrees. Combined with week-end classes, summer schools, with ways of teaching online becoming ever greater and more effective, this brilliant invention, now some 45 years old, could transform the prospects of the country and millions of individuals.
But will Miliband, should he be (as is still likely) Prime Minister after May 7, have the determination and imagination and the balls (upper and lower case) to take on the powerful lobby that is the university establishment to do it? On the evidence so far – no. It won’t be long before the universities will be screaming that they are underfunded (and they are, relative to many of our competitor nations). Fiddling with the current system is not going to be enough and is likely to be counter-productive. Now is the time for really bold thinking and that ‘vision thing’. In fact, a PhD with steroids.