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How progressive is the new tuition fees system?

October 3, 2012 3:45 PM
By Mark Pack in Liberal Democrat Voice
Originally published by East Midlands Liberal Democrats
  • "The new system eventually saves the taxpayer around £760 million per year, driven by a dramatic cut in direct public funding to universities."

  • "But for universities, this cut is more than offset by almost £15,000 in additional fee income per graduate - a 140 per cent rise over the old system. Thus the total amount spent - from both private and public sources - on higher education is expected to increase as a result of these reforms."

  • "The average student will also be better off while at university, enjoying an increase in cash support of some 12 per cent."

  • "The poorest 29 per cent of graduates will actually be better off under the new system [and the others will pay more]."

  • "Low-earning graduates benefit from the increase in the earnings threshold, which (combined with the debt write-off after 30 years) ensures that the majority of their loan is never repaid. This makes the new system substantially more progressive than its predecessor: the richest graduates are likely to repay ten times as much as the poorest, and would even pay back more than the value of what they borrowed."

  • "As long as students are well informed and not averse to the kind of debt involved - repayments of which only depend on one's ability to pay - participation rates should not suffer. But there are grounds for concern if students have difficulty understanding the complexities of the new system - which are substantial - or if they are deterred by the prospect of higher borrowing regardless."

Further details of the research are being published on Friday 9 November (and remember too Martin Lewis's excellent talk on the topic).

All in all, I think this highlights why Nick Clegg's apology was the right thing to do. Looked at dispassionately, the policy has many good points. If Liberal Democrat conference had voted for it in, say, autumn 2009 many conference representatives would have been very disappointed at not having 'axe fees' as the policy, but I doubt very many would have felt this alternative policy was dreadful.

Even the impact of the policy in practice so far is - the important caveat of mature student applications aside - turning out fairly well, with application rates (when remembering to factor in the declining number of teenagers year on year) holding up well, especially from the most disadvantaged households.

But politically all that is trumped by the pledge.

However, unless all you are interested in is the politics of a policy, the substance of how it works is also of interest. And on that the IFS's verdict includes not only a repeat of an unsurprising point - that for the least well-off the new system means they'll pay less - but also throws in an important point about overall funding for universities, which has often been talked about (at least where I've been listening) as if it has been cut under the new system. Their calculations are otherwise (see bullet point two above).

Martin Lewis article