2 June 2023

Why Labour’s student loan reform pledge is underwhelming

The announcement will not inspire graduates, nor will it fix the broken higher education system.

Today (2 June) the Times revealed that Labour would cut monthly student loan repayments for graduates.

Writing in the Times’s Red Box section Bridget Phillipson, the shadow education secretary, said that the “Conservative tuition fees system has long been broken” and that Labour would rework the present system to give scope for a “month-on-month tax cut for graduates, putting money back in people’s pockets when they most need it”. She said that a future Labour government “could reduce the monthly repayments for every single graduate without adding a penny to government borrowing or general taxation”.

This announcement comes the same week that the centre-right think tank Onward released a report showing millennials – an increasingly important electoral cohort – would like to keep more of their own money. They are, according the report, “shy capitalists” who favour lower taxation over redistribution. While this might seem counter-intuitive from a generation that leans heavily towards Labour, it is hardly that surprising given how heavily graduates from this generations are taxed (adding in repayments to post-2012 student loans leads to a marginal tax rate of 41 per cent for a graduate on just over £27,000). Moreover, as Rachel Cunliffe succinctly wrote earlier in the week – our tax system is “overwhelmingly skewed towards insulating the old”. Millennials have more of their earnings taken by the taxman, and are less than enthused about how it is being spent. In this context, Labour’s announcement seems well-timed.

However, Phillipson was tight-lipped about exactly how the plan will work. Perhaps she has learned from the example of childcare, her signature policy: the Conservative government stole key elements Labour’s childcare plan for its spring budget. Or perhaps Labour is still exploring different options, such as extending the repayment period to accommodate smaller monthly repayments, or cutting interest rates on student loans.

[See also: We should celebrate Labour’s nepotism]

Either way, the incompleteness of the student loans policy makes Labour’s announcement underwhelming. It has elicited criticism from the National Labour Students Committee, whose vice chair, Fabiha Askari, called on the party to “kick out” the Tories and their “failed policies” on tuition fees altogether. A vague commitment to reduce what is essentially a graduate tax is not quite the inspiring young Labour supporters may have hoped for, especially in the shadow of Keir Starmer breaking his leadership campaign pledge to abolish fees altogether.

Those within the universities sector tell me they’re similarly uninspired. Labour’s present reputation for fiscal restraint has left many sceptical about how the policy will be paid for. Some are worried that extending the loan repayment period will simply leave students indebted for longer. Slashing interests rates might be preferable, but there is a question mark over whether Labour would willingly reduce the amount of money the government makes from charging interest – £4.8bn in the 12 months up to March this year.

This week university vice-chancellors warned that the funding model for higher education was “broken” and that the tuition fee cap (£9,250 per year for domestic students in England and Wales) should be reviewed as universities could find themselves “squeezed between the plummeting value of domestic tuition fees and declining overseas recruitment”. Those within the sector are concerned that without raising tuition fees, or committing to a hybrid public-private model, universities will start to fail. “If Labour recognises that higher education is a public good and that graduates are obscenely overtaxed, replacing fees with direct public funding is the only solution,” a union insider told me.

Phillipson’s announcement may be a comfort to graduates who feel disheartened by the expensive student loan repayments taken off their payslips each month. But without details, uncertainty lingers around what the announcement means for repayments in the long term, or for the next generation of students. For those within the sector, the announcement merely raises more questions about how Labour intends to deal with a university system in crisis.