The Labour Party leader Ed Miliband finally announced his party’s proposal for how it would fund higher education after the upcoming general election, ending a period which had seen widespread speculation over which of the available policy options he might choose.
Miliband’s proposal, and the method he also announced of funding it, appears to have opened up a new debate as the country heads towards the 2015 general election: are the two main parties making a strategic decision to represent the interests of particular generations?
£6,000 tuition fees
The Labour leader announced that the maximum possible tuition fee students could be charged at English universities would be cut from £9,000 to £6,000, with the difference in higher education funding to be made up by lowering the tax relief on pension saving for people earning over £150,000 per year – a move which will inevitably hit middle-aged and older professionals hardest.
The Labour leader warned that the Coalition’s current higher education funding model is unsustainable because such a large amount of the new student debt – potentially at least 45% of it – will end up being written off. The party argues that, even though the Coalition has created a situation under which the average student will graduate with around £44,000 in debt hanging over them, the government will eventually end up writing off £21 billion per year.
The think tank the Institute for Fiscal Studies (IFS) has published an analysis of Labour’s proposals which suggests that they should be affordable on their own terms – meaning the extra revenue raised each year by the changes to pension savings should offset the increased cost to the government of spending more on teaching grants for universities. However, they also observe that graduates who go on to enjoy high-earning careers will be the biggest winners under the new scheme because they will be able to pay off their debts more quickly than they otherwise would have done, while the repayments of middle- and low-earning graduates will be virtually unaffected. Part of the Labour Party proposal attempts to offset this by charging people higher interest once their earnings cross a certain level, but the IFS thinks high-earners will pay off their debts too quickly for this to have much of an effect.
Stoking intergenerational conflict?
The bigger theme which emerged from Miliband’s announcement was the idea that intergenerational conflict is going to play an important role in the 2015 general election, which seemed especially pertinent given that it came so quickly on the heels of David Cameron’s announcement that the Conservative Party would protect all universal benefits for pensioners if they end up forming the next government.
Several commentators have been quick to highlight the looming intergenerational showdown which these policies appear to be setting the stage for: the BBC’s economics editor Robert Peston argued that “One way of seeing Labour’s tuition fee plan is that it is replacing £3.1bn of university financing via student loans with £3.1bn of financing from taxation – through a tax raid on pensions,” while the Independent’s Andrew Grice proclaimed that both parties were now guilty of playing an “unseemly ‘generation game’” with the electorate.
Of course, the reality is more complex than this: few people vote strictly according to their generational self-interest, and within individual families there will be many students who are concerned about their elderly relatives, just as there will be many grandparents who are worried about the younger generation. What may be more important is the politicians’ assessment of how they think people are likely to vote, where age is a key component of how they assess voters’ priorities.
However, the threat of intergenerational conflict is definitely a real one. As a recent leader in The Economist pointed out, the Coalition’s austerity policies have reduced the income of working-age families by an average of £500 each, while benefits for young people have been cut especially harshly, yet at the same time many pensioners have never had it so good because of rising house prices and generous private pensions, while the value of the state pension has been increased 16% by the new “triple lock” policy. It seems inevitable that people will begin to think about generational imbalances more seriously if government policy continues to re-enforce them.