Millennial elephants, taxed and sunk, have said goodbye to the campus

This angry millennial was glad to see the Resolution Foundation’s final report of its Intergenerational Commission, entitled “A New Generational Contract“.

This thorough and vital piece of work has been pieced together by a crack team of cross-party wonks, including former Conservative minister David Willetts, former Ed Milliband advisor Torsten Bell, the TUC’s Frances O’Grady, Sarah O’Conner of the Financial Times, and Paul Johnson of the IFS.

Let’s start with some some facts.

Millennials have the same average earnings and the same average disposable income at the same age as previous generations did, despite all other generations seeing an increase in comparison to their elders. Millennials are more likely to work part-time, to be self-employed, and to work in low-paying sectors such as care and leisure. They are 20% less likely to move jobs than Generation X were at the same age, and therefore see slower career and pay progression. Consumer spending by 25-34 year-olds is now 15% less than that of 55-64 year-olds.

The statistics are far worse when it comes to housing. Millennials are half as likely to own a home by age 30 than the baby boomers were. They are four times more likely to live in the private rented sector, and on average have less space in their residences and commute for longer than previous generations at the same age. Millennials now spend a quarter of income on housing, compared to less than ten per cent for the Silent Generation.

The younger generation’s prospects for retirement are also bleak, with millennial workers in the private sector half as likely to be on a defined benefit pension as the generations before them.

The indebted millennial elephant

Have you spotted the spectre at this bleak statistical feast yet? Willetts’ leading role in this otherwise excellent report likely explains the absent fact that university-educated millennials have been served a 9% marginal tax increase, above either £18,300 or £25,000, compared to their university-educated elders.

As one of a small number of HE commentators actually feeling the bite of these fiscal challenges every month on my payslip, allow me to indulge in picking this apart. All politics is personal, after all.

Seven years on from completing my undergraduate degree, funded via ‘plan 1’ (£3,000) loans, I pay an effective tax rate of 28.4% on my income: 23% of income tax and national insurance, plus 5.3% paying back my student loan.

ItemEffective rateMarginal bands
Total effective tax rate28.4%Marginal tax rate at 41% of earnings above £18,300
National Insurance9.7%12% of earnings above £8500
Income Tax13.3%20% of earnings above £11,500
Student Loan5.3%9% of earnings above £18,30

For every £20 I earn, I pay £1 more tax than someone on equivalent income who either did not go to university (which seems fair), or did go but is fortunate enough to be a decade or more my senior (which does not). Their marginal tax rate, assuming they do not enter the higher-rate band, is 32%. Mine is 41%.

The elephant in the room is that if I happened to be four years younger and had incurred the ‘plan 2′ (£9,000) fees, my effective tax rate would actually be 1.5% less than it is. This is because the repayment threshold for the £3,000 fee-plan loans is currently at £18,300, as opposed to recently being lifted to £25,000 for the £9,000 loans. In either case, the marginal tax rate is a whopping 9% above the respective thresholds.

As Times columnist Jenni Russell put it in a recent Red Box podcast, no government would dare impose a comparable tax increase on the rest of the population. One can spend a lot of time in Wonkhe circles debating the relative progressiveness of the current student loans system in-and-of-itself. Far less time is given to considering the fairness of student loans compared to the wider tax system, and compared to those who have never incurred the debt at all.

It is frustrating how little the economic (for young graduates) and political costs (for Liberal Democrats and Conservatives) of all this are appreciated in universities. There are many legitimate (and illegitimate) reasons for some of the hostility directed at the sector over the past year, but the growing numbers of loan payees out there must surely be part of the puzzle.

One might expect a politician such as David Willetts to be in some denial about the unjust intergenerational legacy of his own time in office, but universities should definitely not forget it. For all the loathing of “consumerism” and newly-expected deference to millennial students’ whims and wishes, over 35s working in universities would do well to remember that it is recent graduates who have lost out to sustain their wages (and pensions) over the past decade and a half.

The wicked web

In the grand scheme of real-world injustices, it would be easy and fair to write much of my moaning off as a fringe and largely middle-class concern. But as WG Runciman’s famous study of “relative deprivation” from the 1960s shows, relative inequality often matters more politically than real inequality. People get angry when their situation doesn’t match their comparators or expectations. For middle-class graduate millennials, this is usually their middle-class graduate parents.

In fairness to the Resolution Foundation, their focus has been instead turned to the plight of the non-university educated young, who have seen their educational opportunities decimated by successive funding cuts to further education, greater crowding out in the labour market by the dominance of higher education graduates, and employers unwilling to offer apprenticeships or work-placements in order to develop skills or experience.

And quite rightly, a great deal of attention is given in the report to the greatest millennial challenge of them all: housing. But this cannot be divorced from education for two reasons. Firstly, as the NUS Poverty Commission report demonstrated only a couple of weeks ago, housing is one of the most significant cost-barriers for students. Current maintenance provision is insufficient to cover average housing costs, as Martin Lewis has been at pains to point out. And beyond graduation, it is not difficult to draw a direct line from my student loan repayments to my lack of a mortgage deposit and the inability to independently build up any personal assets. It’s certainly more substantive than my expenditure on avocados.

The paradox of higher education’s role in the story of intergenerational injustice is that millennials are the best-educated generation in UK history. But it has come at a cost – specifically, somewhere in the region of 3% to 6% of most middle-class graduates’ incomes. Where previous expansions of educational opportunity have been collectively funded and often put pressure on universities’ resources, now the pinch is being felt simultaneously with unreliable landlords, unaffordable rent, unobtainable mortgages, inadequate pensions, limited opportunities for career progression, and a general mentalité of insecurity.

The best minds of my generation are not starving, hysterical or naked – far from it. But many of us are still a bit fed-up.

4 responses to “Millennial elephants, taxed and sunk, have said goodbye to the campus

  1. The cost of HE is high, and it’s very high when given to 50% of the population. This article makes clear how high

    The challenge for HE is to show that the costs are worth it: there’s no point arguing for more taxation as even if people would vote for more tax, there are 50,000 causes more deserving or more impactful on social mobility than student funding (support for the disabled, sure-start-style early interventions, housing etc). There’s no equity-based argument that has the less-well educated paying for the better-educated.

    HE investments in RG and equivalent universities typically pay for themselves (yes, it’s a generalisation that doesn’t apply to all courses). To make investments in lower-ranked HE worthwhile, HEIs either need to reduce costs (which mostly means trimming course portfolios and / or significantly reducing the time academics spend on research that does not attract funding) or deliver much stronger employment and productivity outcomes (which most means trimming course portfolios and / or really finding ways of working with employers)

    The situation is exacerbated by the Great Recession and aftermath, but the underlying problem will not go away. If the sector does not solve for this, politicians will. Probably badly.

  2. You’re not wrong Matt. The thing I want to be picked up upon more in the sector though is that if we agree that the less-well educated should not pay for the better-educated (which is fine), can we at least agree that the older better-educated should pay something to reduce the burden on the younger better-educated? Particularly given the other relative advantages they’ve had in life, as highlighted by the Res Foundation report?

    What’s most infuriating is that the people who a) make the decisions about this, and b) provide the education, fall into the ‘older better-educated’ category, and yet preach about ‘a fair graduate contribution’ being needed from the young. It’s all very convenient.

    Anyway, it’d be interesting to know what % of higher rate or top rate taxpayers are actually non-graduates anyway, but that’s a different discussion.

  3. Cohorts are going to be a big problem for the Augar Review.

    David’s right to point out the problems for the £3k cohorts. The Conservatives had a field day with the prospect that when ‘abolishing’ fees, Labour might have to do something for the £9k cohorts. Proponents of graduate tax get excitable about trying to charge all graduates, irrespective of cohort (a prospect with 0% chance of happening).

    We might not get all the way to inter-generational fairness, but inter-cohort fairness is going to have to be tackled.

  4. Admitting that there is an intergenerational equity issue, this post fails to explain why young milennials who went to university should be helped ahead of those who did not.

    The underlying sentiment here is that lower taxes would be great. But there is a resistance to the means of achieving this (students paying for what they get & getting what they pay for). Instead of calling for the older generation to likewise pay for what they demand (eg care) a complex web of transfers is envisaged which in the long run burdens everyone and saddles the next generation with an even worse deal at every stage of their lives.

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