Sunday, 25 September 2011

A quick post on Ed Miliband's £6k fees proposal

There is a lot of bewildering gubbins going around about Miliband's pledge to cap tuition fees at £6k instead of £9k. I can't say I'm any great fan of the idea. He could have gone a lot further (to say, £3-4k) if he'd simply said he'd limit or reverse cuts to HEFCE's budget, which is what gave rise to £9k fees in the first place - instead, his proposals work within those cuts (I assume because he didn't want to be dragged into an argument on deficit reduction).

In any event, that doesn't stop me from scratching my head at some of the accusations being levelled at the proposals. Chief among them is that they only benefit the very rich. To my knowledge this argument first made by Graeme Strachan Cowie, and was later taken up by Stephen Tall. It has since proved very popular among journalists and Lib Dems in the Twittersphere.

Roughly it seems to go like this, deep breath now:

Student A and student B are graduating from University. Student A earns a starting salary of £25k, rising to £140k after 30 years - the point at which the debt is wiped. Student B has a starting salary of £50k, rising to £200k after 30 years (my guess is the number of people this applies to is negligible, but it's the example of a high earner given by the author, so fine). Under £9k pa fees system, the total sum of money owed at the end is such that, because of the way repayments are structured, student A will never repay it all before the 30 year wipe-out point. However, student B will earn enough to pay all of his total debt back before the 30 year limit kicks in. Therefore, high earning student B will ultimately end up paying more back to the Treasury than lower earning Student A, who will hit the 30 year brick wall (It's in this rather dog-eared, round-about way that people argue the new system is akin to a graduate tax).

Cutting fees to £6k, however, does not reduce the overall amount owed enough to stop Student A from hitting the 30 year limit at the same amount paid as under £9k - £24,940, using the MoneySavingExpert calculator. High earning student B, however, still pays it off before 30 years (as with 9k) but this time he pays less in sum to the Treasury because he owes less. So...in this way, Miliband's proposals are just a cut for the richest. Goddit?

Except I may be missing something, but this argument strikes me as completely missing the point.

Firstly, it is a total red herring anyway to look at the absolute amount paid. Under either £6k or £9k, low earners will be saddled with fees deductions from their payslips for the bulk of their working life, while the highest earners may be free of them in 15 years, for instance. For this reason, the system is not the same as a graduate tax. The fact that most will hit the 30 year limit is not a sign of how progressive the system is, it is a testament to how unaffordable the total amounts are for most people under any kind of reasonable repayment system.

Secondly, and most importantly, the internal logic of the argument is barmy. If followed through it can only lead, somehow, to the strange Orwellian position where members of a party who used to oppose all fees end up arguing that the higher the fee, the more progressive. Afterall, given repayment rates are linked to salary rather than the amount owed, and apparently it's the absolute amount paid back by different earners that matters to Graeme, why stop at £9k per year fees? Why not raise them to £10k, £12k, £18k, for instance? That way, lower earners (student A above) will hit the 30 year limit at the same amount paid, but top earners (student B) will end up paying even more in absolute terms to the Treasury. I'm sure Universities would welcome the investment, too!

The answer is, or should be, because fees that high will likely deter people from applying to University in the first place. And that's my point: Graeme's entire argument is the definition of looking down the wrong end of the telescope. It is based on the faulty pre-supposition that "...the headline figure [of debt] is of zero relevance to the majority of graduates, for whom repayment matters". Most research shows this is rubbish, especially when it comes to kids from working class backgrounds.

Whatever way those defending the Coalition's changes spin it and blame the NUS/Labour (delete as applicable) for confusing prospective students, the headline fee of money owed will always matter under a loan system. People will always be able to tot it up beforehand, and they will always consider it debt - even if the repayment system is structured differently. The scale of the sum will always be weighed up against the perceived benefits - and indeed the Government's whole marketised language around fees being an 'investment' encourages this. The higher the fee, the more working class parents will likely come down on the side of discouraging their kids from going to University - especially those more prone to ambivalence because there is no family history of individuals going to University, which is a lot of them.

To my mind a proper graduate tax (with lots of caveats and strings attached which I won't go on about now) is the only way to avoid or limit this, outside of funding HE entirely through general taxation. But unlike Graeme's post, Miliband's proposals are based on the right assumption - that headline amounts matter in terms of attracting students, and cutting it is therefore a slight improvement on the Coalition's plans if ultimately unambitious, and a retreat from his previous position.

As for many of the others citing Graeme's post approvingly, burying their head in such minutiae seems like just the latest attempt to avoid seeing the wider picture, and the horrific Tory cuts that form its backdrop.

Sunday, 11 September 2011

Labour's 50p test

Little blog I wrote during the week but forgot to put up! Also on Labour List.
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Labour's 50p test

Rarely have two-a-half pages of A4 attracted as much vitriol as Shaun Woodwards recently leaked memo. ‘Na├»ve’ and ‘suicidal’ were two of the nicer things said of Woodward, who suggested Labour could make headway in arguing that the Conservatives have abandoned the centre ground in favour of “major strides back towards their ideological roots”. But what if, on one issue at least, he has a point?

This week's letter to the FT from economists calling for a cut in the top rate of tax has not come out of nowhere. Pick up almost any edition of the Evening Standard or Times this summer and briefed across nearly every dispatch from Westminster you'll see George Osborne laying the ground for scrapping the 50p rate. 'It raises no money', 'it's anti-growth' and 'it drives away business' have lead the way in terms of Treasury explanations so far.

As ever, though, the Chancellor's main motive is probably political – he thinks that it'll divide the Labour party, and unfortunately he may be right. Ever since its introduction, the 50p tax has been a shibboleth for some of those on the right of the party agitating that Labour are positioning themselves as too left wing or ‘anti-aspiration’. In the last 10 months alone, Alan Johnson has gone renegade and said it should be scrapped, while Blair himself made his opposition clear. Then there’s ‘friends’ of David Miliband who, at the height of uncertainty of his brother’s leadership in Spring, helpfully whispered to the Mail: “David thinks taxes are too high. He would have pledged to repeal the 50 pence top rate of tax. He opposes the top rate tax because it sends out all the wrong signals to the business community.”

But on this issue the Tories, and those who would wish to ape them, are way out of step with the public. Poll after poll show voters of all stripes vehemently against cutting tax for the top 1%. YouGov found that 59% of people oppose the move, with even 50% of Conservative voters against it (23% strongly). 57% told ComRes that abolishing the 50p rate would show we’re not “all in this together”. This is hardly surprising. Those who think the 50p tax is ‘anti-aspiration’ simply haven’t grasped how our politics have changed in the last fifteen years. Not only are people now feeling squeezed by stagnating wages, government cuts and tax rises, but the hugely disproportionate gains made by the most wealthy have left a huge gulf between the middle and the top. Most voters can not even countenance earning over £150,000 a year.

Notwithstanding the moral case against cutting the 50p rate in times like these, the economic arguments for abolishing it are entirely without foundation. There is not a jot of evidence in today’s FT letter to support accusations that the rate is deterring investment. It is all supposition. In fact, as Touchstone have argued, all attempts thus far by the right to argue the 50p tax drives away business have been based on flimsy surveys and outdated assumptions. As for the amount it raises, current Treasury estimates (being reviewed by HMRC at the Chancellor’s behest) suggest the top rate will bring in £12.6bn. That not an irrelevant sum of money. In fact the true figure may even be higher than the estimates, based as they are on old Treasury models. Duncan Weldon has also argued that there are grounds to believe the rate was behind the 18% increase in tax revenue in January from the year before.

One of the main reasons growth is flat is because consumer confidence has gone down the toilet since last year. And it's the government's austerity rhetoric, combined with underlying wage stagnation, that has driven it there, with cuts compounding the misery. The idea that the solution to our ills is to shovel more money in the direction of the rich is zombie economics. It’s a policy without any grounding, far to the right of where the British people are, based on outdated Westminster parlor games and failed neoliberal dogma. And it’s imperative that all those on the centre-left say so with one voice.

There will be some on the Labour side who will worry that the public will only hear a ‘tax cutting’ message from the Tories, regardless of the details. But if Labour sticks united to its message in opposing this move then it will help entrench public feeling that this is a tax cut for the richest at a time when everyone else is hurting. It will call the Tories bluff and leave them standing as the party whose first priority is to cut at the top to the detriment of everybody else, exposing them as something much of the public have always suspected: the party of privilege. From there, Labour could shift the debate towards relieving the tax burden on those on low and middle incomes. But all this requires cohesion and unity, from all ranks of the party – no jittery dogwhistle politics or off the record briefings.

Labour did this effectively before the last election on Tory proposals to raise the inheritance tax threshold. In putting aside misplaced anxiety about being seen to wage ‘class war’ and facing the Tories down on the policy, they successfully turned it from an idea they were initially too afraid to do anything but mimic into a commitment Cameron couldn't spend enough time running away from.

Above all, then, the 50p debate is a test for Ed Miliband. As it stands the Lib Dems will likely waive the cut through in exchange for concessions elsewhere, leaving the Tories with a free run at imposing what would be one of the most unjust economic moves of modern times. If Miliband believes the 50p rate should stay and that it should be permanent, he should have the courage to say so: firmly, loudly and consistently, facing down all those in his party who state otherwise. If he really believes it’s a “matter of fairness”, he should hold it up as one and run with it. No half measures.

Unfortunately, his first PMQs after the summer break was not promising – the Labour leader could easily have raised poor growth and pointed out that the Tories only solution is a tax cut for Britain’s wealthiest 350,000 people. He could have exploited coalition tensions on the issue. Instead, he ducked it. Miliband and the people around him have made a point of telling everyone that the party can help shape the ‘new centre ground’ which New Labour ignored; his aides are constantly briefing journalists that he admires ‘The Spirit Level’ and such like. But words alone are not enough – on the 50p rate, he urgently needs to match them with action.