Monday, 19 January 2015

Nick Clegg belatedly calls a spade a spade.

From The Tab:

A vote-hungry Labour party would scrap tuition fees and replace them with a graduate tax.

Ed Miliband’s party plan to cap fees at a maximum £6,000 a year and place an annual levy on wages.

Almost seven million students finish uni with up to £40,000 of debt with less than half will land a graduate level job. According to the Sunday Times, student loans are never paid off in full by 45 per cent of students, leaving a £90 billion black hole by 2042.

From The Metro:

Meanwhile, Mr Clegg admitted he ‘regretted massively’ the furore caused by his tuition fees U-turn.

‘What we have introduced is a graduate tax and I really wish we had called it a graduate tax at the time,’ he claimed.

That's the whole point, which most people missed at the time.

If the amount of the loan repayments are based on a graduate's income, with the unpaid balance written off after a few decades, then that is to all intents and purposes like a 'graduate tax'.

The Tories only changed the system to discredit the Lib Dems because of the AV referendum, keen eyed observers would have noticed that the new system is actually 'progressive', in that graduates on low incomes would pay little or nothing, i.e. less than the previous system, and graduates on good incomes would pay a lot more.

It seems like a shit way of doing things, but that's how it is.

So assuming that Labour write off the nominal amount of loans, and just have a graduate tax of 9% on annual income above £16,910 (as at present), the amount which graduates have to pay will be no different; it's purely a psychological thing and bookkeeping entries.

So fair play to Labour, tactical genius.
@ Mombers. The Universal Credit withdrawal rate is officially 65%, but that applies to income net of PAYE.

If you earn less than the NIC thresholds, the rate is indeed 65%. If you earn more enough to trgger NIC but no income tax, the rate = 1 - (0.35*0.88)/1.138) = 73%. If you earn more than £10,000, the effective taper rate = 1 - ((0.68*0.35)/1.138) = 79%.

UC is supposed to replace Housing Benefit but not Council Tax Benefit. But Council Tax Benefit doesn't exist any more, each local council just invents their own Council Tax Reduction scheme (which is a lot less generous than Council Tax Benefit, rightly or wrongly), whatever the withdrawal rate is, this will nudge the rates mentioned above that much closer to 100%.


mombers said...

The Tories really pulled the wool over the Lib Dems' eyes on this one - genius.
The idea of a graduate tax is terrible. Tax and NI on £21k is already a marginal rate of 40.1% (employer NI!), this goes up to nearly half. Add in all the means tested stuff like working tax credits, housing benefit, child benefit, etc, I reckon grads will be facing benefit tapers going up well passed £60k a year. Universal credit should in theory limit marginal rates to 65% (MW I think you said that this excludes council tax benefit though so you're looking at over 80?). This makes tax avoidance or working abroad very attractive...

Steven_L said...

Salary sacrifice is another good way to avoid paying off your student loans.

I get £40 a month off my Pug 208 like that.

DBC Reed said...

I was a pre Plowden and Robbins Report student who got a full grant.The idea was that you'd make so much extra dosh after graduating that you'd pay it all back in high rate Income Tax- a hope, in my case,sadly unfulfilled. However I paid my debt to society by working in the public sector for genteel poverty wages.

Bayard said...

ISTR that, even in the halcyon days of full grants and no tuition fees to pay, people were saying that there were too many graduates being produced and that a lot of graduates went on to do jobs that they could have got without a degree. ISTR also that anyone with a half-decent set of a-levels could find a place at university somewhere.
It's hard not to conclude that the purpose of expanding tertiary education was to get the number of young people on the dole down (and incidentally get those young people introduced to the idea of a lifetime of indebtedness being normal at the same time).

Mark Wadsworth said...

M, see footnote.

SL, splendid plan, did you think that up?

DBC, fair enough.

B: "get those young people introduced to the idea of a lifetime of indebtedness being normal at the same time"

Correct. Which might be why they attached a nominal debt figure to the extra tax they pay. Actually it's only the extra tax which matters.

Dinero said...
This comment has been removed by the author.
Lola said...

All this all does is make me crosser and crosser. All these silly machinations based on pointless complexities...and whilst these politicos are playing these juvenile games the Poor Bloody Worker is left under the thrall of equally pointless and utterly self serving functionaries. Grrrr.

Dinero said...

The threshold element introduces a potential perculiar dynamic to marriages concirning the repayment.
Whilst partners are with an income of twice the theshold from one salary, but two loans there is only one repayment, or if one of the partners is in no salary and loan then there is in that case one salary and no repayments. If they split and halve the income between them then the amount of repayment could be double or more.

DBC Reed said...

Bayard is right.All this "demand" for more graduates ,necessitating a loan system etc, was all highly suspect.I was only trying to add that there was no clear demand for loans or a graduate tax either.Why have a tax on graduate income separate from an income tax per se? If an average graduate income is supposed to be so great that it supports the repayment of a loan then it should provide a commensurate income tax.

Random said...

Mark look at this bollocks -
Gentrification, oh noes. Housing crisis!

Mark Wadsworth said...

Din, are you sure that's correct? Splitting the income ought to make the total tax payments smaller as they can use two personal allowances.

R, there's nothing wrong with gentrification, provided the uplift is collected in Land Value Tax. There, I've made enemies of both sides now.