Labour’s high stakes pledge to lower the annual cap on tuition fees in England from £9,000 to £6,000, funded by removing £3bn worth pension tax relief, has been described as fraudulent by the coalition government and criticised by some experts as helping richer graduates.
In an effort to challenge the main criticism that the plan favours richer students, Labour said it would raise the interest rate on loans for wealthier graduates earning £47,000 a year or more and increase the maintenance grant by £400 a year for students whose family income fell below £25,000. It said the overall package was being funded by removing tax reliefs on some of the wealthiest in society.
Labour challenged claims that tuition fees had not deterred poor students and warned that rising non-repayment of loans was storing up a long-term problem for the public finances.
The Labour leader, Ed Miliband, said in a speech at the Leeds College of Music that the £2.7bn package would come into force in September 2016 and vowed he would not allow the pledge to be dropped in government.
Miliband first made the promise to cut tuition fees in 2011 and has decided to press ahead, despite doubts in the shadow cabinet, anxiety in universities and criticism from some opponents who claim the reform is financially illiterate. The pollster Peter Kellner claimed that up to nine seats with a sizeable student population could swing to Labour if the commitment was seen as a credible.
The changes to pensions allowances to fund the fee cut would also mean the lifetime limit on pension pots would be reduced from £1.25m to £1m and annual maximum contributions to pension pots would be cut from £40,000 to £30,000. There will also be a reduction in the rate of tax relief from 45p to 20p for those earning more than £150,000.
George Osborne, the chancellor, said: “Far from hitting only the richest as Ed Miliband claimed, his new tax on pensions will hit many people on middle incomes including nurses, teachers and firefighters. So a tuition fees policy that only benefits better off students is being paid for by hardworking taxpayers on middle incomes.”
He said a nurse team leader earning about £35,500 who is in a final salary scheme and was promoted to matron on a salary of £53,500 with 25 years’ service (after carrying forward unused allowances) would lose £5,000.
Labour said the criticism of its pension plans misunderstood its proposals.
The party is not changing the basic student repayment structure whereby students have to repay 9% of earnings above £21,000 for up to 30 years.
Miliband, anxious to avoid a repeat of Liberal Democrats’ leader Nick Clegg’s failure to deliver a pre-election promise on tuition fees, said Labour’s policy would be a “red line” in any coalition negotiations after the election.
Asked whether it was a “cast-iron” promise, Miliband said: “Yes, yes, yes.”
“Everyone is still better off as a result of this, because of the reduction in the fee level,” he said. He insisted it was a progressive package and pointed out that the level of student participation was still below 2011 figures. “The government is not achieving the 60,000 expansion that they promised,” he said.
Paul Johnson, the director of the Institute of Fiscal Studies, said the figures in the package broadly added up, but added: “Half of graduates will not be earning enough to pay back any less under the Labour policy than under the current policy.
“The group that will benefit from this £3bn package are the higher earning half of graduates, so those graduates who go to the best jobs will find their repayments will go down, whereas those who go to less good jobs will not find any difference in the repayments they will have to make”.
Only high earning graduates currently have to repay their loans in full.
Martin Lewis of the website moneysavingexpert.com, who was asked by the government to educate students on the impact of its tuition fees policy in 2011, described Miliband’s plan as a populist, focus group policy.
He said: “This is the worst type of politics and is financially illiterate. If any other party was launching a policy that effectively meant poorer students would be subsidising City investment banking graduates, there would be protests in the streets.” He believes only graduates on starting salaries of £35,000 a year will be required to pay back their full loan
Lewis has previously been more equivocal about the fee cut, telling students at the London School of Economics in February that he was torn about the Labour policy, conceding “the problem with £9,000 tuition fee is that it is a psychological deterrent to going to university for people from non-traditional university backgrounds”.
The business secretary, Vince Cable, who has promised a review of student finance, predicted Labour would not implement the policy if in government and said the current system was working well and that universities were well funded.
But Universities UK, the body that represents Britain’s universities, welcomed the change on the basis that the cut in the fee would be replaced by funding by the Treasury derived from ending pension tax reliefs.
Prof Michael Gunn, who chairs the university thinktank million+, said: “This is a very welcome clarification from Labour. The commitment to fully fund universities for the lifetime of the next parliament will provide an assurance to universities that they will not be short-changed if fees are reduced.”
