Ed Miliband has finally announced a policy he has long promised to make a Labour pledge.
On Friday he said a Labour government would cut the maximum fees universities could charge their students from £9,000 a year to £6,000. He said the existing system was ‘a betrayal of an entire generation’. The cut would be paid for by increasing the taxation of pensions. But is this the best policy for universities, for the country or even for students themselves?
University tuition fees have been a political headache for politicians of all parties ever since they were first introduced by the last Labour government. They became inevitable once governments decided they wanted a huge increase in the number of young people going to university Their target was 50%. That meant it was no longer possible simply for the government to foot the bill as it had done when only a small minority had gone into higher education. The problem was what level of fees to set and how to pay for them.
Opposition politicians tended to promise to cap, cut or even abolish fees. But those promises did not surviver the reality of office – and the inevitable U-turns brought big political costs. Ask Nick Clegg. He and the Liberal Democrats were badly damaged when he agreed, as part of the initial coalition deal between his party and the Tories, to raise fees even though he had categorically promised before the election that he would abolish them.
The system the coalition brought in five years ago set the maximum fees universities could charge a student at £9,000 a year. Students paying these fees are offered loans. When they start earning they begin to pay these loans back, but only once their annual incomes are above £21,000 a year, at which point they pay back no more than 9% of what they were earning each year. Any outstanding debt is written off after thirty years.
It was expected that many universities would not charge the full fees but in fact the average fee has turned out to be just under £8,700. It was also estimated that around 30% of loans would end up not being repaid but in fact the proportion is now over 48%. These bad debts have to be met by the government and the consequences for the state’s finances in the long-term are serious. Labour claims that by the end of the next parliament in 2020, the government will be saddled with £16bn more debt than was originally expected.
But what has most worried critics of the system, including Mr Miliband, is the effect on individuals. From the beginning they argued that the prospect of incurring large debts would deter students from poorer backgrounds from applying to university in the first place. They also argued that graduates would leave university with a burden of debt that would hang like a millstone round their necks making it harder for them to incur further debts, such as mortgages, which earlier generations had taken for granted.
As things have turned out, the level of debt is higher than most people forecast. The average debt, incurred to pay not only tuition fees but also maintenance costs, is £44,000.
Mr Miliband said of the predicament of young graduates: ‘This is a disaster for them and a disaster for the future of Britain too – a country where the next generation is doing worse than their parents is the definition of a country in decline. What has happened over the last five years is more than just a betrayal of election promises, it is a betrayal of an entire generation.’ He appealed to ‘every parent and grandparent in Britain: we can turn this around for your children and your grandchildren. None of us want to see our kids treated like this.’
So Mr Miliband plans to cut the maximum allowable fees to £6,000. But in order for university income to be maintained, the shortfall of around £3bn a year has to be found somewhere and how to do so has caused rows within the Labour frontbencher The shadow business secretary, Chuka Umunna, said the process had been ‘torturous and difficult’. In the event it’s been decided to increase the taxation of pensions, especially for higher earners, to raise the money.
But Labour’s plan has been attacked from all sides. The universities themselves are unhappy because they think their income will be less secure than under the current system. That’s because fee-income is guaranteed whereas income that comes from general taxation, as the £3bn shortfall will be, is always vulnerable to governments looking for savings.
The policy has been questioned from within the Labour Party too. Lord Mandelson, the last Labour cabinet minister to have responsibility for the issue, said a decision should be ‘deferred’. In particular, he said there was no evidence that students from poorer backgrounds had been deterred by high fees. His successor as business secretary, the Liberal Democrat, Vince Cable, claims there has been an ‘exceptional’ increase in applications from students from disadvantaged backgrounds. More generally, the Engineering Employers’ Federation draws attention to the 8% increase in applications to study engineering since fees were raised to £9,000.
But perhaps the strongest criticism has come from those who argue that the changes will benefit high earners rather than low earners. This is the point made by Martin Lewis, a personal finance expert, who argues that what matters is not so much how much debt students incur as how much they end up paying back. In this regard graduates who earn relatively low incomes will not be helped whereas those who start work on salaries of £35,000 or more will end up paying less. In other words, the benefit of Mr Miliband’s cut in fees will go to future city bankers and lawyers.
These criticisms lead some people to believe that Mr Miliband’s main motivation is electoral rather than trying to make the system fairer. In making his announcement (in a speech to students in Leeds) he was keen to remind them how, in his view, students had been betrayed by both the Tories and the Liberal Democrats. As student votes may be crucial in several marginal seats in the coming election, it’s clear he is after the student vote.
There is nothing wrong with that, of course. All politicians chase votes. The question is whether the policy he has announced and which he hopes will attract student support is in their best interests and also in the interests of universities and the country. Vince Cable attacked the policy as ‘fraudulent’. Others think it will come as welcome relief to students. What’s your view?
