How much should the new maintenance grant be?

In her speech to the Labour Conference, education secretary Bridget Phillipson framed the aim as follows:

Conference, their time at college or university should be spent learning or training. Not working every hour God sends. That is the difference that this Labour government makes.

As I noted on the site at the weekend, if we disregard any means testing and parental contribution for a moment, every major proper review of student finance in recent years has pegged the package to the minimum wage.

So let’s imagine for a moment that the grant will be real extra money rather than displaced loan, and that “by the end of this Parliament” actually meant now. As I also noted at the weekend, 60 ECTS credits means that students are notionally removed from the labour market for 1200 hours when they’re learning.

Right now, the National Minimum Wage is £12.21 (aged 21 and over) – so if that was the peg, we should be looking at a core (away from home, outside London) total of £14,652. But as it stands, the notional maximum maintenance loan is just £10,227 – a shortfall of £4,425.

As such, if Phillipson is serious about that “time should be spent learning or training” line, it follows that the maximum loan for the poorest students wherever the means test threshold is set should be £4,425.

We might regard that as unlikely – but it becomes more unlikely the more that three other factors come into play.

The first is whether the grant and the maintenance loan will be pegged to any kind of annual inflator. The current method – taking OBR projections of RPI – just bakes in declines in real terms every time the OBR undershoots. Sadly there’s not much evidence of it ever balancing out with overshoots.

Boris Johnson’s 2020 nursing bursary of £5,000 should now be worth £6,407, but it’s still stuck at £5,000.

The second is where the parental income threshold is set both in terms of minimums and maximums. Right now (and since 2007) the minimum is £25,000 – which is less than a single parent earning 40 hours a week earns if they’re paid that minimum wage.

It would be very odd indeed to set it at a different level for the new grant than it is for the loan – but with a dwindling proportion of students actually getting that maximum every year, the increased political scrutiny that comes with an announcement like this could be very tricky if the threshold isn’t raised.

Then there’s the maximum. Right now the max loan tapers off from £25,000 to £62,377 a year. If the government says out loud that students do indeed need £14,652 to address that “time spent learning or training” thing, if nothing is done to the thresholds, it’ll also be saying to a family whose gross household income is about £55,200 (the UK mean for 2024) for the financial year ending 2024 that the grant will be £2,528 – a total parental contribution (ie shortfall when you add in the loan of £6,026) of £6,098.

That little illustration starts, I suspect, to flesh out the trouble ahead for the government. Whatever level the grant is set at, even if the government factored in some additional part-time work on top of the 40 hours a week the credit system says they’re studying for, it’s hard to believe that the government would argue that any penny is money students don’t need.

But as a result, the enhanced scrutiny coming with a policy of this sort means that the implied parental contribution goes up. Ironically, unless it throws a lot of money at the policy, that may well have the effect of putting more and more students off higher education – because while students aren’t put off HE via higher loans for borrowing, parents very much will be if the overall budget for stuff doesn’t stack up at the outset.

How much money might be needed? In 2022/23 alone, 255,235 students got the maximum loan. That will have gone down a little since because that threshold is frozen in seeming perpetuity, but if all of those students were in the priority subject areas and the grant really was £4,425, that’s a price tag of £1.1bn – and that’s without thinking about any partial grants or anything else that the levy was intended to fund in the skills sector.

Our calculations suggest that a 6 per cent levy on international fees in 2023-24 would yield £620 million from English institutions, as long as universities don’t all pass the levy on and collapse numbers. In other words, to get even a little beyond narrow totemic tokenism, the envelope already looks impossibly small.