Rachel Reeves’ Spring Statement was an outrage. It was more of a nasty political rant than a serious attempt to discuss the country’s financial health against the backdrop of a raging war in the Middle East.
What she shied away from telling us is the truth: namely, that the economy is growing anaemically and unemployment, already on the rise, is set to scale new heights.
And that’s before factoring in the negative impact of the war on the UK economy in terms of higher energy bills further down the line.
It was also a shame Reeves didn’t find time in between the ranting and raving to mention one of the biggest financial scandals perpetrated by politicians over the past 20 years. Namely, the foisting of long-term, high-cost loans on those going to university in the hope of learning skills that employers want to pay premium salaries for.
For many graduates, student loans – comprising a mix of tuition fees and living costs – have become millstones around their necks.
Rachel Reeves’ Spring Statement (pictured) was an outrage. It was more of a nasty political rant than a serious attempt to discuss the country’s financial health
The repayments represent an additional tax at a time when income tax thresholds remain frozen, the jobs market is challenging (especially for the young), and the cost of living continues to disrupt household finances. War in the Middle East will exacerbate this disruption. For many, they will be paying interest on them for 30, maybe 40 years. Egregious.
The servicing of the loans is also yet another obstacle standing in the way of young graduates wishing to get on the housing ladder.
Student loans have long been controversial – I first warned about the debt mountain they would create for graduates 13 years ago.
This was just after the coalition government ratcheted up the interest rates on loans for university entrants in England to inflation (as measured by the Retail Prices Index) plus three per cent.
At the time, research for The Mail on Sunday by Dr Mike Clugston, an academic at Tonbridge School, Kent, indicated that 85 per cent of students on these loans (known as Plan 2 loans) would never pay them off. A figure at odds with Government claims that 60 per cent would be able to clear them. How right Mike was.
The cost of these Plan 2 loans – impacting some 5.8million university leavers – is back in the spotlight for a number of reasons.
The main one is the Chancellor’s decision in November’s Budget to drag more graduates into start repaying their loans by freezing the repayment salary threshold at £29,385 from the start of the new tax year next month (the thresholds for other plans in England, Northern Ireland, Scotland, and Wales have also been frozen).
This freeze will remain until 2030, maybe longer. The amount students repay will be 9 per cent of any income they earn above the threshold. Graduates must currently earn £66,000 to keep their outstanding loan from ballooning.
Labour has been disingenuous in defending this freeze. Especially Reeves and schools minister Georgia Gould, who argue the freeze ‘is fair and reasonable’ and will help fund public services. Oh dear.
No wonder the young, especially those from humble backgrounds, feel victimised. They’re being bled dry to fund Labour’s splurge in welfare spending.
Kemi Badenoch has led the recent political debate on student loans. She has promised reform, describing them as a ‘debt trap’, increasingly feeling like a ‘scam’, and vowing to scrap inflation-busting interest rates.
A big step in the right direction, but not good enough for Martin Lewis, the self-proclaimed master of the financial universe. Last month the Money Saving Expert founder stormed on to the set of Good Morning Britain when Badenoch was discussing student loans and accused her of missing the point.
Last month Martin Lewis stormed on to the set of Good Morning Britain when Kemi Badenoch was discussing student loans
‘Lowering the interest rate now will only help those who can clear [the debt] within 30 years, which means lower and middle earning graduates won’t benefit,’ he said in the middle of a hissy fit. ‘If you have £1 billion to help students, the most direct thing that would help all students would be not freezing the repayment threshold.’
It was a point made in the worst possible way – mansplaining at its most awful. It was also aimed at the wrong person: Badenoch instead of Reeves, the architect of the threshold freeze.
Worst of all, it was a comment soaked in a deep vat of hypocrisy, given Lewis’s previous staunch support of the student loans system. For years, while The Mail on Sunday’s Wealth section highlighted the excruciating cost of student loans (not just me, but Money Mail’s readers’ champion Sally Hamilton), Lewis was the Pied Piper of student loans.
He urged youngsters (and parents) to view the loans as a ‘graduate contribution’ rather than a nasty debt, which they are.
Given his financial God-like status, they trusted his every word and took out the loans without realising what a financial straitjacket they would be getting into – or considering whether a better career option may actually lie outside the university system.
Lewis still doesn’t get it. He thinks all graduates want to repay as little of their loan as possible before it is written off after 30 (in some cases, 40) years. I disagree. Many want to get rid of it as quickly as they can.
I think it’s high time to have a serious discussion about student loans, the role of universities in preparing youngsters for the changing jobs market (change driven largely by the march of AI) and alternatives to higher education.
There are changes to loans that could help alleviate the burden for graduates. Labour could cut interest rates. Alternatively, it could do another U-turn by abandoning the freeze on the repayment threshold – a move that would bring a smile to the face of Lewis.
Other approaches include cutting the repayment rate – from 9 per cent to say 5 or 4.5 per cent – or putting a ceiling on how much interest can be added to a loan.
Welcome as most of these changes would be to the millions of graduates dealing with debt mountains, they don’t address the underlying issue – which is that many universities provide students with a poor return on their debt.
They don’t arm enough of them with the skills employers are crying out for in a world increasingly driven by huge technological advances. To cut to the chase, they’re failing their customers.
It’s a point made by Sir Peter Lampl, a former adviser to Tony Blair who in 1999 announced a target for half of young adults (those aged 18 to 30) to enter higher education. This, proclaimed Blair, would boost social mobility, and help foster a ‘knowledge economy’. Lampl, founder of social mobility charity the Sutton Trust, believes the target, which was reached seven years ago, has been ‘famously damaging’.
He adds: ‘How can universities look the nation straight in the face and claim penury when they charge £10,000 [a year] for a couple of lectures and a couple of tutorials per week?’
Students, he concludes, are piling up debt for a ‘dream that has, in too many cases, been mis-sold by both the universities and authorities’.
Well said that man. To Labour’s credit, it is on the case.
Sir Keir Starmer has emphasised the importance of apprenticeships. More apprenticeships would result in fewer school leavers embarking on nebulous, ‘crap’ (Badenoch’s description, not mine) degree courses that provide them with little or no tools to take into the world of work.
They would also generate a pool of talented youngsters with the skills that this country’s industrial and technological base is screaming out for (provided Reeves hasn’t destroyed it in the meantime).
Wouldn’t it be wonderful if Martin Lewis jumped on board and backed the idea.
Do you agree? Disagree? Please share. Email me at: jeff.prestridge@mailonsunday.co.uk