Graduates, you will [not] pay less under a Labour government

I’m old enough to remember when Secretary of State Bridget Phillipson was worried about students and cost of living. Writing for The Times Red Box in 2023, she was keen to recognise the pressure on students during their studies:

Every time I visit our world-class universities, I meet students taking on extra hours or new part-time jobs to cope with rising bills. The Tories’ economic mismanagement is hurting students’ studies and their chances: more hours spent earning means less time spent learning. That’s affecting the grades students can achieve. And all too often it’s students from lower-income families, sometimes the first in their family to go to university, who are struggling the most.

On Monday, her White Paper’s answer to that was to maintain the system for uprating maintenance that the Tories introduced. Then yesterday the Living Wage Foundation, which operates the real Living Wage, announced a rise in the rates of 7 per cent – taking pay to £13.45 an hour, and £14.80 in London.

On a 37.5 hour week, that’s a headline salary of £27,976, or £30,784 in London.

It’s calculated on the real cost of living – and the accompanying Resolution Foundation report details the drivers. Beyond council tax, the jump is being driven by sharp inflation in essentials (especially utilities and food), rent increases in the private rented sector, a rebasing of the basket (notably higher budgets for food and some healthcare costs), and ongoing “fiscal drag”.

Pretty much all of those affect students – food, for example, is a much bigger part an average student’s basket than the average family. Yesterday’s inflation figures actually show food and alcoholic beverage inflation slowing a little to 4.5 per cent. But ONS says that’s been caused mainly by supermarket and brand sales and discounting – so it masks the real figure if you’re already buying the basics.

Cocoa prices have more than doubled over the past couple two years as a result of poor harvests in West Africa, including Ghana and the Ivory Coast. There have been double-digit increases in the cost of meat, butter and coffee. Club bars – that used to read “If you like a lot of chocolate on your biscuit, join our Club” now bear the slogan “If you like a lot of biscuit in your break, join our Club.”

The real Living Wage only covers around half a million people – but we have a good indication of where the statutory minimum wage will be too. In August, the Low Pay Commission – which recommends the rate to Apply each April – said that it expects the 21 and over rate to be between £12.55 and £12.86 in 2026. Its remit now includes cost of living, effects on employment and developments in the wider economy.

More broadly, as economist Duncan Weldon points out, we’re witnessing a prolonged period of “wage compression” – where wages at the bottom are now much closer to wages in the middle than ever before in modern times. Over the past decade, the minimum wage has risen from about half of median earnings to nearly two-thirds. More than 2 million people in Britain are now paid at the minimum wage. And if you do the maths on a full-time basis, the minimum wage is now exactly what many entry-level graduate jobs are now offering.

For students who’ve racked up three years of debt, the reward for “doing the right thing” – staying in school, going to university, graduating – is finding themselves entering a workforce where they’re no better off than people working on minimum wage who haven’t followed that path. Except that for the first time, the threshold at which people start repaying their student loans is equivalent to what you earn on the minimum wage. So recent graduates aren’t just being paid no more than people without degrees – they’re paying an extra tax rate as their loan repayments kick in immediately.

Given how miserly the maintenance loan is – especially given that it’s only families on less than £25,000 household income that get the maximum – they’re also likely to graduate with a good wedge of commercial debt that needs paying off too.

It’s worth remembering that 2022’s changes to student loan terms in England – which held down the threshold over which graduates start to repay their loan – also result in richer graduates (those in lifetime earnings decile 7-10) pay much less for their degree over their lifetime. Back in 2023, Phillipson promised reform:

The Conservative tuition fees system has long been broken, and their latest set of reforms will make it worse. More unfair on women. More unfair on low earners. Higher loan repayments not only eat away at pay for young graduates just as they’re starting out on their working lives, but also deter older learners from retraining or upskilling. Future nursing graduates will repay about £60 more a month. The Tories’ choices are hammering the next generation of nurses, teachers and social workers; of engineers, of designers and researchers. It’s wrong.

In that article – under the headline “Graduates, you will pay less under a Labour government” – she referred to modelling showing that the government could reduce the monthly repayments for every single new graduate:

Reworking the present system gives scope for a month-on-month tax cut for graduates, putting money back in people’s pockets when they most need it. For young graduates this will give them breathing space at the start of their working lives and as they bring up families. This is a choice that the Tories could be making now to deliver a better, fairer system for our graduates and for our universities.

At the time, some worried about the extra costs to the Treasury – which might be more of an excuse now. But in the article, she said she could do all of that without adding a penny to government borrowing or general taxation:

Labour will not be increasing government spending on this.

Meanwhile, for graduates who’ve struggled on a PG loan, the repayment threshold remains stuck on £21,000. Those on the living wage in London next year working a 40 hour week will shell out £92.30 a month (or £1,108 a year) on top of their tax and NI, only to see their loan balance increase at the end of the year.

Looking at the Greens’ polling figures, I suspect Labour will pay for all of this at the Ballot Box.