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Thursday, 11 November 2010

'Fund our pot noodles or Millbank gets it' - The Tuition fees debate

So yesterday was the big protest about the increasing of tuition fees for university students in the future. The rise - is certainly controversial, yet, like most issues, has two sides both politically and economically.

First, it is vital to explain what is being proposed. This has sometimes been obscured by people who do not wish to have a proper debate, so it's worth making it clear.

The proposals allow universities to charge up to £9,000 per year, raising the cap from its current level of £3,290. The government would continue to loan students the money for fees. The threshold at which graduates have to start paying their loans back would be raised from £15,000 to £21,000.
Graduates would pay back 9% of their income each month above that threshold.The subsidised interest rate at which the repayments are made - currently 1.5% - will be raised. Under a "progressive tapering" system, the interest rate will rise from 0 for incomes of £21,000, to 3% plus inflation (RPI) for incomes above £41,000. If the debt were not cleared 30 years after graduation, it would be wiped out.

Right - so let's break this down:

The argument against tuition fees being raised

1. Education is vitally important to UK society. How much do we value having our citizens university educated? A well educated population should be more productive, which should lead to aggregate supply being increased without population increasing, which should allow for there to be sustainable economic growth without inflationary pressure.

2. University education is also a force for social mobility, so should we not pay for as many of our population as possible, whatever their background, to go to university, with the cost being no obstacle to them going?

3. The cost of free university education is a few billion a year, which is small compared to how much the UK spends on items which are surely worth less to British society, such as for instance aircraft carriers that will never be used?

4. Taking 9% of someone's income when they leave university will stop them being able to build up a deposit to get on the housing ladder, so this policy distorts the housing market.

5. Universities train our doctors, our nurses,our teachers and other vital members of our society. They should not be discouraged from these noble professions by the cost of it.

The argument for tuition fees being raised

1. Something has to be done about the deficit, and therefore the government has to be careful about what it is spending its' money on. Universities need to be properly funded, and asking those who benefit from it is surely the best way to do that.

2. Those who go to university benefit from it. Those who don't do not. So is it right to ask someone who earns a little bit more than minimum wage and thus pays a little bit of tax to fund the attempts by others to get themselves a higher wage? So this makes the taxpayer fully funding university a regressive tax.

3. How can tuition fees stop poorer people going to university? You do not pay it back UNTIL you are earning £21,000, which is close the median wage of the country - putting you already in the top 60% of earners. So you ONLY pay it back should you "benefit" from it in terms of future income - which will mean you aren't "poor" any more. Should your income fall below £21,000 you don't have to pay it so it is NOT like a mortgage. So it is actually progressive

4. Universities that charge over £6,000 would have to undertake measures, such as offering bursaries, summer schools and outreach programmes, to encourage students from poorer backgrounds to apply. Difference being they would have the money to be able to offer these schemes properly.

Some thoughts

It is interesting to look at the way that this gets organised in terms of the political continuum. Students tend to be left-wing. Why? Well, being left-wing is being optimistic in some way and looking for a utopia, which is fine. But just about everybody on that march yesterday have never paid a penny of tax, and it is often said that people get right-wing as they get older, and one of the main reasons is that they see tax literally taking the food off the plate of their children and being spent in dubious ways and they want it controlled. Students don't have these worries.

But actually, I think this could be more about what a university education actually does. Jon Cruddas, the highly-respected Labour MP who came to Latymer this afternoon was asked about this issue and he told the story of his family. 5 children - all with degrees, 2 PhDs and 2 Masters added to those. All without paying a penny. They didn't do those degrees for money, they did them to gain knowledge and wisdom and having inhabitants of our country with knowledge and wisdom is surely in the interests of society.

It's interesting the mess that the Liberal Democrats have got into over this. The problem with being a small third party in opposition is that sometimes you practice opposition for opposition's sake, thinking you will never get into government so it doesn't matter. To insist on full opposition for tuition fees in the middle of a massive receession without providing an economically sensical alternative runs the risk of exactly what has happened, which is that you may end up in power and having to act responsibly.

It's difficult for me, I got my university education free. I wish all my students could get one too. If this causes even one bright student not to go to university when it would have been right for them then I have a problem with the long-term consequences of that for the UK's prosperity. I go back to basic economics here - the opportunity costs of providing free university education could be large. The opportunity cost of not could be even larger.

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