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September 25, 2011

What Ed Miliband's promise to cap tuition fees at £6,000 really means

Ed Miliband has today backed a policy of capping tuition fees at £6,000 a year. If you are new here, then you should know that about a month ago I recommended that Labour (or indeed the Lib Dems or Conservatives) adopt a policy of a tuition fees cap at £6,000. Here's my assessment of the new Labour policy.

Mili The Sunday Mirror is the original source and quotes Ed Miliband as saying: “Parents up and down the country are incredibly worried about their sons and daughters. We want to take action to make it easier for people to go to university and not feel burdened down by debt. If we were in government now, we would cut the maximum tuition fee from £9,000 to £6,000 a year.”

This carefully crafted soundbite shows that the new £6k policy is rooted in political reality.

The worry that Miliband mentions is real. We know from polling done both before and since the Browne Review last year that most people think £7,000 is about the upper limit of what is reasonable for tuition fees. Much of the outrage over tuition fees has been fuelled by the simple feeling that they have just been allowed to go too high. Voters may ask questions about Labour's economic competence and its ability to make the financing of the policy add up and whether a higher bank tax is what they want. But they won't ask questions about the £6k policy itself. To most people, it is nothing more than common sense.

Equally, he is right that graduates feel weighed down by debt. That is already true of graduates under the existing system who only have to pay fees of about £3,000 a year. The strength of feeling on this that has been uncovered by some recent polling is, to me, staggering. What Miliband has done here is to cut through all the arguments about repayment thresholds and interest rates and go for the political jugular.

What this adds up to is a political recognition of Mark Rawlinson's observation in Research Fortnight (£) that the teenage years are becoming "colonised by anxiety".

Miliband will have no trouble arguing that his £6k cap is also socially progressive. Universities estimate they need a bit over £7,500 a year to cover the cost of undergraduate teaching. So any cap below this figure provides all students with a subsidy. That is most valuable to the poorest students. The current cap at £9,000, by contrast, is above the free market price of most courses. It ensures a subsidy only for those students on expensive courses like medicine or top universities like Oxford and Cambridge, who could charge £20,000 a year or more in a free market. And who gets that subsidy? Overwhelmingly the wealthy, privately educated families who have colonised these bits of higher education.

I've seen some calculations arguing that the £6k policy would be of most benefit to relatively high-earning graduates and hence concluding that it is socially regressive. That seems to me to miss Miliband's point. This is not primarily about what happens decades down the line. It is about the choices being made now. And if it gets more kids from poor families into university then it will have succeeded.

The two different angles in play here on social mobility essentially depend on two different measures for their justification. The government - and critics of Miliband's policy - are measuring progressivity in terms of the impact on different deciles of graduates by earnings - an issue that is decades away. Miliband is looking at deciles of parents by earnings - the here and now of it. Studies by the Institute of Fiscal Studies give comfort to both positions.

The £6k cap is also even more affordable than Miliband realises. Tuition fees are one of the items in the basket of goods and services for the Consumer Prices Index measure of inflation. So when tuition fees go down, so does CPI - and a huge wadge of index-linked state spending, including public sector pensions and many welfare benefits. The savings on this could be over £1 billion a year.

Miliband has now cunningly buried his previous attachment to the hopeless graduate tax. But to some extent, his new policy is a hostage to fortune. If applications to universities for 2012 hold up, then the government will say people have not been put off by the rise in fees and have learnt to like the new policy. But Miliband's gambit also has a self-fulfiling quality to it. By keeping the debate over tuition fees in the forefront of the political debate, he will be reminding everyone of the £9,000 figure that potential students don't like. This in turn is likely to depress applications.

For universities, Miliband's move in the short term adds to the risk that applications and hence income may decline. It also undermines those who have been saying that universities now have a secure and stable future (John Browne, where are you?). In fact, their financing seems now to be highly vulnerable to the tossing of political storms. Tuition fees are a big political issue and Miliband hopes to make sure they stay that way. Come the general election, I reckon all three main parties could end up advocating policies that are in different ways violent repudiations of the current one.

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Comments

Though they probably won’t go far enough in the direction I sketch below, I think it’s a brilliant move for Labour to fund (or at least partially fund) the lowering of the tuition fee to £6,000 out of higher interest on student loans to those who go on to earn a high income.

The current £9,000 fee is the ‘sticker price’ rather than the lower actual amount that many will pay back, once their loans are written off. Even though a graduate won’t pay back that full £9,000 if he can’t afford to do so because his earnings are modest – and hence he won’t be saddled by a debt he can’t repay – this fact will be lost on many 16-17 year olds who are deciding whether to apply to university. Rather they’ll be deterred by the £9,000 sticker price and the ‘mountain of debt’ they think this will place them under.

There is an increase on interest on repayments for loans for £6,000 fees -- with higher earners paying much more interest on these loans than they will on the coalition government’s loans for £9,000 fees -- that would result in graduates paying about as much back (taking extra interest repayments into account) on these £6,000 fees as they would on the government’s £9,000 fees. This would be less of a deterrent to those who are debt-adverse, since the headline tuition fee would be lower. This headline fee would also be more accurate and less misleading insofar as it would be closer to what the average graduate would end up paying back.

A problem with such a hiking of interest rates is that it would make it rational for some to pay their £6,000 tuition fees up front, from cash from their parents or even via financing by a commercial loan on better terms, rather than take out a student loan. But would it not be possible to charge a much higher tuition to those who pay up front (e.g., £12,000) and a discounted £6,000 tuition to those who take out student loans?

Why is it desirable to widen access to university, eg to people who can't afford it?

So what you're really saying is that Ed Miliband is measuring progressivity and fairness on a basis of parental income, which has ABSOLUTELY NO EFFECT on the fees and notional debt figure, or their ability to pay for their education?

In a graduate contribution scheme, the definition of fairness is, and can only be, one which looks at the ability of the actual graduate to be able to pay. The system is set-up so that absolutely all graduates can pay what is demanded of them. It is actually taken at source like a graduate tax, and for the majority of students, it is a 30 year graduate tax in its effect.

If Ed Miliband really wanted to address accessibility here and now, he would look at increasing the maximum monthly maintenance grant payment; not fiddle about with the fees level which, if putting off students, does so because of perception rather than reality. It's time our politicians stopped scaremongering our young people and set out the facts as they are. The Lib Dems learned this the hard way and it's time for Labour to learn it too

@Michael You seem to have summed up the issues on that nicely.

@Graeme Your parents' wealth can of course have a huge effect on your ability to pay high fees. Because wealthy parents can pay the fees either up front or in their will.

yeah that was very fine to the fees of the students ..

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