Political parties wrangle over facts and figures in Labour’s £6k fees plan

Labour’s plan to cap tuition fees at £6,000 would be of greatest benefit to graduates in their 50s earning £72,500 a year, according to an analysis.

September 27, 2011

The assessment by CentreForum claims the policy announced by Labour leader Ed Miliband is “regressive” as almost no lower earners or young people would gain.

According to the think tank, richer graduates would benefit more from the fee cap being £3,000 less than the £9,000 maximum imposed by the coalition government from 2012 because they would pay off loans quicker.

Meanwhile, those who earn a small or moderate income over their lifetimes would still be paying student debt off after 30 years – the maximum repayment period for loans before they are written off – despite the lower cap.

The think tank’s study also claims the policy – which Labour says it would partly fund by reversing a cut in corporation tax – would harm the economy.

This is because banks would be taxed now so that some graduates paid back less in the long term, the report says.

Tim Leunig, chief economist at CentreForum, which has links to the Liberal Democrat Party, said: “Labour's plan may look attractive, but has nothing to commend it.

“Given the way that the student loan system works, the majority of the gains are illusory – what government gives on one hand, it takes back on the other.

“The gains that do exist go overwhelmingly to people whose lifetime earnings exceed £2 million.”

The report, published today, was seized upon by government ministers including Vince Cable, the Lib Dem business secretary, who said it was a “very informative analysis” which “exposes Labour’s claim that they want to help young people as completely false”.

However, Gareth Thomas, the Labour shadow universities minister, said Centre Forum had missed key points in the proposal.

“Their calculations, and their claim that the package is regressive, are incorrect,” he said.

“Analysis carried out by the House of Commons Library, using the Department for Business, Innovation and Skills’ own model, found that our package would benefit the lowest 10 per cent of earners the most.

“They would be 16 per cent better off than under the government’s plans.

“The highest 10 per cent of earners, those with incomes of £65,000 or more every year of their working lives, would be 2 per cent worse off.

“This is because under Labour’s proposals the highest earning graduates would pay more.

“All gradates would benefit from lower fees. But those who pay off their loan within 20 years and are earning £41,000 or more at the time, would make additional payments for two years.

“Combined with the increase in the interest rate for this group, it means that while 90 per cent would be better off, for those in the top 10 per cent the benefit of lower fees would be more than offset by their overpayments.”

simon.baker@tsleducation.com

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