"Education is our right –
we should be cutting tuition fees, not raising them”, declares Malia Bouattia
in her Guardian column. It’s rare to see quite so much confusion all crammed
into one article, but we’ve been through this before on this Blog (see here,
here and here for example) so I won’t labour the points again.
There
is a deeper problem, though, with tuition fees. According to Merryn Somerset
Webb at MoneyWeek - one of the go to places for statistical updates - currently
around 45% of student loans end up being written off, where the tipping point
at which the whole thing starts costing rather than saving money is 48%. This
problem is in part due to graduates earning less than expected, or sometimes
nothing at all, but also due to the tax avoidance incentives woven into the
system, such as salary sacrifice.
“With clever planning, an
employee can use salary sacrifice to reduce their income below certain
thresholds and therefore make further savings. Take student loans, for example;
many students leave university with high hopes of landing a top job but can
find themselves undone, with low pay and laden with debt. Repayment of student
loans is 9% of income earned above £17,335 for those taking out student loans
before September 2012, and £21,000 for those taking a loan out after 1
September 2012. This can often leave many university leavers with a lot less
take-home pay than they need. Taking into account Income Tax and National Insurance,
a graduate will take home just 59p in the £1 for part of their income earned
above the repayment thresholds. This would further reduce to 49p in the £1 for
income earned above the basic rate tax threshold and a quite frightening 32p in
the £1 for each pound of income earned between £50,000 and £60,000 if the
graduate has two children and is in receipt of Child Benefit payments.”
It's
not exactly rocket science, is it? Suppose our graduate earns £30,000, and has
a choice of putting money into her pension either via salary sacrifice or out
of her net salary (whereby the tax is claimed back). If she does it using
salary sacrifice, her official gross salary is not £30,000, it is £27,000. That
cuts her National Insurance bill and her income tax bill – but most
essentially, it also cuts her loan repayments from £810 to £540, where the
resultant outcome is a take home pay of £20,907 instead of £20,277. That's all
very nice for our graduate, but it's not such good news for taxpayers as a
whole. It might well be time to ditch the salary sacrifice scheme.
The
thing is, if the university supply and demand curves intersect - that is, if
the demand for degrees and the supply of degrees are in market equilibrium,
then a tuition fees system whereby the government loans to those who need the
money to obtain a degree, and then only asks for payment when the post-graduate
can afford to repay with a small proportion of their earnings, is not a
terribly bad system. It's not perfect, but it isn't too shabby.
However,
once the system becomes skewed whereby nearly half the graduates never pay back
even a penny of their student loan, the alarm bells ought to start ringing,
because it's obvious that this is down to there not being enough post-grads doing
degree-level jobs. This is the market’s way of trying to tell us that there
are currently too many people doing degrees.
Because
the taxpayer picks up the cost of unpaid student loans, it means the surfeit of
university degrees in this country end up being subsidised by the general
public - many of which are low earners. Consequently, this means a great many
of them are subsidising people that are doing degrees and never earning enough
to pay them back, while the rest of the post-grads, the people that do pay them
back, are people whose degree earns them a degree-level job, and whose lifetime
earnings are likely to make them better off by approximately 60%. Any writer that entitles their article “We should be cutting tuition fees, not
raising them”, really ought to think
a bit more about the basics of arithmetic and supply and demand before waxing lyrical on this
subject.
