Why the government must abolish tuition fees and write off student debt

'The aim was to shift state expenditure and debt on to low and middle income households, and create space for tax cuts for corporations and the rich'


Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.

The UK economy is held back by shortages of skilled labour. There is a desperate need for more doctors, nurses, radiologists, engineers; information technology, biotechnology and aerospace experts. Instead of long-term planning and developing national capacities, successive governments have raided other countries, but many emerging economies are retaining their own skilled labour.

Another major reason for slow economic growth is that due to real wage cuts and workers’ shrinking share of GDP, people do not have sufficient purchasing power to buy goods and services and stimulate the economy.

Both of the above problems can be addressed by ending university tuition fees, and writing off student debt. The state can also provide free vocational education to alleviate shortage of electricians, plumbers, carpenters and house builders. This would encourage more people to upgrade their skills and transform the economy. Without the burden of student debt, families will have greater purchasing power and stimulate demand in the economy.

Under the spell of neoliberalism, governments have done the opposite. In September 1998, a Labour administration introduced university tuition fees of £1,000 per year for undergraduate and postgraduate students. Subsequent governments abolished maintenance grants to meet living expenses as well. The aim was to shift state expenditure and debt on to low and middle income households, and create space for tax cuts for corporations and the rich. This policy also reduced disposable income of families and stifled economic growth.

Tuition fees are currently £9,250 a year for students domiciled in England.  Students attending university for the first time do not need to pay fees or living costs up front. Instead, they are eligible for limited loans conditional upon parents’ income and other factors.

The government-backed tuition and maintenance loans are administered by the Student Loan Company. Students starting in 2023 are expected to pay around £9.5bn in tuition fees. Around £20bn a year is being loaned to students and the amounts increase by interest charges. The average debt of a graduating student is around £45,000. Medical students on longer courses, typically rack up between £50,000 and £90,000 of debt.

Interest is charged at varying rates, depending on when the loan was taken, of up to 7.3% or more. Due to low wages, industrial decline and loss of skilled and semi-skilled jobs, around 27% of full-time undergraduates starting in 2022/23 were expected to repay the loans in full.

Rather than writing off the debt the government has extended the repayment period from 30 to 40 years and effectively increased the cost of loans to graduates, especially those on low wages. From 2024-25, graduates will repay loans upon earning £25,000 rather than the current threshold of £27,295. The government expects 61% of the new students from 2023/24 onwards to repay loans in full, a target which is unlikely to be met. Data shows that only 65% of graduates who are liable to repay are in the UK tax system and just 37% made a repayment in the financial year 2022-23.

Since 2017-18, the interest added to loans has exceeded repayments. In 2020-21 and 2021-22 the interest added was £4.7bn a year, rising to £8.3bn in 2022-23, compared to £4.2bn in repayments. At the end of 2022-23, £205.6bn of loan was outstanding, and is expected to rise to £460bn by the mid-2040s. Despite inflicting hardship to graduates and their families for up to 40 years, most of the debt will never be repaid.

Governments can easily cancel the debt and stimulate purchasing power and demand in the economy. The debt of £205.6bn does not have to be written off in one instalment. It only needs to be written-off as and when it becomes due for repayment. Therefore, the write-off will be spread over the next 30-40 years.

The shifting of what used to be public spending and debt to households has reduced the spending power of low/middle income families, and their ability to rebuild the economy. Loan repayments reduce disposable income of graduates, just when they are thinking about starting a family, business or buying a home.

High graduate debt has persuaded too many English students to shun Masters and Doctoral level studies and skills enhancement programmes, leading to chronic skills shortages. Indeed, England is being left behind other European nations, many of which levy low or no fees to locally domiciled students at public universities. These include Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Italy, Norway, Scotland and Spain, just to name a few.

Evidence shows that comparatively less wealthy countries are providing free university education. The UK can invest in its future too, but is held back by political dogmas.

The 2019 election manifesto of the Labour Party  sought to stimulate the economy and address skills shortages by promising to “abolish tuition fees and bring back the maintenance grant”. In 2020, this commitment was reaffirmed by the new leader Sir Keir Starmer. However, in May 2023 he reneged on his pledge and claimed that “the country could not afford it”. So, how is the UK to address skills shortages and increase purchasing power of the people?

Free university tuition and write-off of student is eminently affordable through progressive taxation and elimination of the tax perks of a wealthy minority. These include a wealth tax on the ultra rich, a financial transactions tax; taxing capital gains, dividends and investment income at the same rates as wages; restricting tax relief on pensions contributions to the basic rate of income tax; a withholding tax on interest and dividends paid to offshore affiliates and by eliminating methods of avoiding inheritance tax, just to mention a few options. Since 2010, between £450bn and £1,500bn of tax has not been collected due to evasion, avoidance and error. Investment in HMRC can help to collect some of the lost amounts.

Dethroning the gods of neoliberalism is a necessary condition for economic rejuvenation and prosperity, and free higher education is a small step towards that.

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