Conservative conference 2017: ministers know the fees system must change

The main political parties are finally waking up to the need to address the policy concerns of young voters. Labour leader Jeremy Corbyn famously rallied the youth vote in the last election with promises to abolish university fees and loans. Following that there has been a flurry of announcements and informal briefings from Conservative and Liberal Democratic ministers about possible new measures to address the current crisis with university financing and graduate loan debt.

However, so far the policy plans are vague. Ministers will need to come up with more plausible proposals at the Conservative Party conference in Manchester this week if they are to win the trust of younger voters who are highly educated and, not surprisingly, a little skeptical of political parties when it comes to the generational issues that they have ignored for so long. 

During his speech to the Labour Party conference, Corbyn opened up a new flank with proposals for restoring rent controls in cities and giving communities new powers over major redevelopment projects – thus addressing one of the key issues facing young people. It’s an important start, but if he really wants their votes he will need to go further. Labour needs to sign up to radical reforms to housing taxation – the only way to bring down the cost of housing, which currently excludes virtually all young people from home ownership except the lucky quarter who get help from their families.

There was also nothing new on higher education funding and student debt, which will rise to about £50 000 for the average new student. Corbyn is still surfing the wave from the announcements on scrapping fees but he has not explained what he will do about the accumulated student debt that is set to rise, according to a House of Lords select committee, to £1 trillion by the 2040s. 

The Tories have a different problem. They still want to defend the current system brought in by the coalition government in 2012. But they also know that it has to be reformed. Jo Johnson, the minister for higher education, and David Willetts, the former higher education minister and co-author of the latest version of the fees and loans system, claim that the system is working as intended. If, as predicted, three-quarters of students fail to pay back all their debts, this, they say, just shows how much they are doing to help lower-earning graduates. This is more than a little disingenuous.

The truth is that the government never expected universities to charge £9,000 a year for all courses, causing student debt to skyrocket. It also knows that the predicted costs to government from unpaid student debt will not be sustainable. Hence the recent attempts to get graduates to pay more by increasing the interest rates on loans for higher-earning graduates and reducing the real-terms earnings threshold for graduates to start paying back their loans. 

Recent suggestions from UK chancellor Philip Hammond, do not stack up. Tinkering with the interest rates and payment thresholds will not meet the challenges posed by both the vast debts for the unlucky post-2012 students, or of the long-term accumulated loan debt. Reducing the fee cap to £7,500, on all or some courses, would alleviate both problems somewhat, but probably not enough to save the system now described by its original architect, Lord Adonis, as a Frankenstein’s monster.

In any case, how will this be done? The chancellor suggests that universities should take the brunt by charging less for some courses. But, having created a market for higher education provision, the government cannot now fix prices for individual courses, and universities are unlikely to change their charging model voluntarily. It can reduce the overall fee cap. but if universities are to be compensated by higher tuition grants, this will cost the government more than £1.5 billion per year. The chancellor needs to say where he will find the money for this and what will happen then to the unlucky generation of students who paid the £9,000 per annum fees. Will part of their loans be written off?

Liberal Democrat leader Vince Cable will also have a problem explaining his proposals to young people. He wants the current system scrapped and replaced with a graduate tax. But, like most advocates of this solution, he assumes that this tax should be levied only on new graduates, not on those home graduates over 30, who mostly paid much lower fees, and nor on those over 37, who mostly paid none. The late-Millennial generation, who were students between 2012 and 2018, would just be an exceptionally unlucky group.

A graduate tax solution?

With an all-age graduate tax of about 2.5 per cent on graduates earning more than £21,000 (with a taper ensuring very low repayments up to the £25,000 income threshold) there would be many more liable for the tax. Annual payments could therefore be less than half of what current students are meant to repay on their loans and yet contribute more than twice the annual revenue currently generated by loan repayments.

This would be affordable to taxpayers and represent a genuine reduction in intergenerational inequality. A tax limited to new graduates would have to be levied at a much higher rate and new graduates could end up worse off than those currently on loans repayment.

If Vince Cable and other party leaders want to win the young vote they are going to have to do much more to address intergenerational inequality in higher education, housing and other areas that crucially affect this generation’s life chances.

It may make electoral sense for them to start doing this. Currently, young people are a small part of the electorate and represent an even smaller fraction of actual voters. But those under 46 are still half the electorate. In 10 years’ time the Millennials start to enter early middle age. If the majority are still struggling to buy houses and to get decent jobs that match their qualifications, and if those who follow them are doing no better, there is likely to be a very large block of voters demanding greater intergenerational equity.   

Andy Green is director at the Centre for Research on Learning and Life Chances (LLAKES) at the UCL Institute of Education. Further details of the all-age graduate tax proposal are available here.