The Coalition is raising the threshold at which tuition fees will be paid back to £21,000. But this will be measured in 2016 prices and is worth a lot less in today's money.
The Coalition, to their credit, have announced that the £21,000 threshold will be uprated every year from 2016. It does not change the fact that the threshold is worth just £17,845 in today’s money – making the increase less than half the headline figure.
Left Foot Forward would like to claim that the Coalition was left reeling by our report at 08.45 this morning but have not yet been able to confirm if it’s true.
A key argument used by the Coalition in corralling support for the increase in tuition fees has been that the threshold at which tuition fees will be paid back will rise to £21,000. The problem for students is that this will be measured in 2016 prices and is worth a lot less in today’s money.
In an article for the Evening Standard last week, David Cameron wrote:
“Today graduates start contributing when they’re earning £15,000. Under our scheme, payments don’t even start until earnings reach £21,000 a year.”
While according to the BBC, Nick Clegg has said it was “crucial” people realised there would be no up front fees and repayments would begin at £21,000.
Using expected long-run inflation rate of 2.75% (the figure in the Government’s model and used by the Institute for Fiscal Studies), Left Foot Forward shows that the threshold is equivalent to £17,845 in today’s money. In 2005 prices, the year the threshold was raised from £10,000 to £15,000, the new threshold is worth just £15,582 – an effective rise of just £582. If inflation continues to rise, as many suspect, the value of the £21,000 threshold in 2010 prices will be even lower.
Lord Browne recommended that the threshold should be raised every year in line with earnings and inflation but the Coalition have determined only to raise the threshold once every five years. This will mean that the £21,000 threshold will still be in place in 2020 when it will be worth £16,010 in 2010 prices and £13,980 in 2005 prices – lower than Labour’s threshold change.
As with the introduction of top up fees in the first place, Labour deserves its share of the blame for failing to uprate the repayment rate threshold. But this is no reason for the Coalition to ignore the erosion of the value of the threshold increase.
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