Saturday, 24 September 2011

The art of pledging: Ed Miliband and tuition fees

There was a law that was set in stone in the strongest possible terms in late 2010...don't make pledges that your party can't cash. Nick Clegg and the Lib Dems paid a heavy price that may end up doing long-term damage to the party by promising to do one thing (not raise tuition fees) before the election, and then being forced in to a situation where that promise was broken.

Need, tact, tempering or two-facedness aside...whatever your view on the reasons...abandoning a pledge and a promise is not something to do lightly when you are aiming to garner the trust of the electorate. So when Ed Miliband promises that he'll lower tuition fees if Labour get back in power, is he playing with fire?

The key here is what is actually being promised, and how likely it is that it will be broken. Has Ed actually taken any risk by pledging this stance?

The plans, to lower tuition fees to £6k and pay for the difference by reversing a tax cut for banks and making those who earn over £65k a higher rate of interest on their loans.

Lowering loan values in a graduate tax era
First of all the thing that should be noted here is the sheer lack of ambition in these proposals. Reducing the fees to £6k is essentially claiming the same policy that the Lib Dems and Tories wanted from their change in the cap on fees, before failing to understand the need of more than just the top class universities to charge more.

There is also, in terms of cost to students, very little change by making such a claim. The reason for this is the Lib Dems have, through their changes to Tory plans, created a de facto graduate tax system...albeit one that the very poor (and the very rich) can escape in one way or another.

By reducing the cap to £6k the effect on the average student, let alone the poor student, is nothing. Whether your loan is £6k or £9k a year it will take you more than 30 years to pay off that loan (plus interest), at which point the loan is written off.

To put it bluntly, Ed Miliband is promising a change that is no change

There are some assumptions here, and that is that inflation will remain around 3-4%, and that that average student will start working straight away as a graduate and have a good career progression. (3% above wage inflation) The reality is many, perhaps the majority, won't achieve this and are even less likely to be affected by Ed's attempt to stop the "loading the costs of paying off the deficit onto our young people"

Increasing fees from Labour's last stance
The only reason too that Ed can make this stance is that the coalition have changed the rules in such a way that they can present a rise that they would have introduced anyway at a minimum by following the review in to Higher Education as a cut.

It is extremely cynical to present this as a cut, when it is nothing more than a slightly different interpretation of the Browne review of Higher Education. Of course we will also never know exactly how much they would have followed the review as the Tories wished to do either.

Destroying the principle of non-retrospective changes?
It has been the case that those that sign up to a student funding plan in whatever way don't have the terms of that plan changed. I had a student maintenance loan, but I don't get affected by the changes being put forward for 2012. Those who got loans before me have different terms to their repayment as well.

Labour intend to ask those who earn over £65k to pay even more through higher interest on their loans. If this is only on students that take up the deal after Ed's changes then this isn't an issue...indeed it's arguably just an extention of the Lib Dem policy on turning loans into a de facto graduate tax by extending the length of time that higher earning students will pay a percentage of their wage to the state simply for being a graduate.

The losers?
In one way then, the rich are losers.

By increasing the value of their interest on loans they will find themselves paying their loan back for longer. But this in itself is also deceiving, since the lowering of the fees to £6k in itself actually helps the rich by allowing them to pay their loan off in a shorter amount of time than those who earn less than them.

For example, someone who starts on £30k with a good wage progression might be looking at paying around £40k back after 18 years, someone that enters on £21k with the same level of progression will pay around £52k for the same education before remaining debt is written off after 30 years.

By contrast with £9k fees the average graduate wage earner still pays back the same amount, but the graduate starting on £30k pays for 6 years longer, and pays back around £79k.

Ed's plans would actually severely cut the proportion of money entering HE from rich graduates.

(There are many assumptions here, including that the student examples also didn't take maintenance loans. If maintenance loans were taken wealthier graduates wouldn't necessarily pay less than graduates starting out on an average salary, but they would still be better off through Ed's plans)

A pledge that can be kept
This is a pledge that Ed Miliband can afford to keep...and in a political sense it may even be a good idea. But it is a facetious one, and one that is designed to dupe and fool the electorate rather than to affect any real change, other than to further help rich graduates escape equitable contribution.

Ed won't have to break this promise because he won't have to take any economic risk in fulfilling this policy, but it may be a case where a politician doing what he said he would do is actually worse; entrenching the current situation rather than daring to truly change it and further moving his party from it's roots of economic redistribution from those who are better off to those that haven't been so lucky.