Her first effort – at an accountability hearing – was spoiled somewhat by Rishi Sunak affecting not to be aware of a Department for Education impact assessment on the new policy proposals coming out of the Augar response.
Because graduates will now start repaying loans at a lower threshold, and will continue to repay for 40 years rather than 30 – this means that lower earning graduates will end up paying back much more of their loan than the current model. This is despite much lower interest rates, a measure which only really benefits those who would already be expected to pay of their whole loan early – the higher earning two deciles of graduates.
Hardy’s argument is that this has a place based effect – graduates earning around the average wage in Hull will pay a lot more than they currently do, graduates earning around the average wage in London will pay less than currently. The opposite – in other words – of “levelling up”.
There’s a tendency in expert commentary to see this as a niche issue affecting only a small part of the population – but with participation rates rising (and set to rise further if we take into account both demographic bulging and the LLE opening the loan system to more people) there is a sizable marginal tax rate impact for a large part of a generation.
She raised these points again with Paul Johnson of IFS and Torsten Bell (the man who brought you the EdStone!) of the Resolution Foundation at a Treasury Committee hearing. Gemma Tetlow was there from the Institute for Government, though she didn’t get involved in these questions.
IFS has, of course, done analysis that largely backs up the DfE figures. Johnson noted:
The result [of these changes] was not surprising – highest earning graduates benefit most from changes to the interest rate. And lower earners are paying more because the threshold is being brought down
And he agreed with the regional effect, with Bell noting that there would be a wider impact on women, those from disadvantaged backgrounds, and those from minority ethnic backgrounds:
This package is really bad news for women – male graduates have much higher lifetime earnings.
Johnson also weighed in on the nature of the loan system;
There is a good case for moving towards a tax system – what is there currently has a lot of those aspects. It is very odd to fiddle with the conditions of existing loans – the committee would be first to complain if a private company changed loan conditions like this. But we have a hybrid system – because it looks better in public finances for a long time, and because universities prefer the ringfencing of fees (though they are struggling with the decision to freeze fee levels)
A bleak future?
Hardy asked about the marginal tax rate for graduates – the effective proportion of take-home pay swallowed by tax or the (still tax-like) graduate repayments. Bell put it that younger graduates are living in “a world of higher marginal tax rates” that would have been unthinkable a few years ago.
And it fell to Johnson to offer the only glimmer of hope in the whole exchange:
The loan repayment system has been changed three times in a decade. The idea that it will not change again by 2060s (when the current crop of graduates finish repayments) is for the birds.
Though it could, of course, get even worse.