Tuition Fees

There was yet another article in the New Statesman today detailing a compicated sleight of hand fudge as a way out of the student tuition fees mess.

It is beyond me quite why something that complicated is required when the simple truth would be sufficient for any right thinking person.

Student debt is another set of debt that isn’t really a debt. So just cancel it all.

Here’s why and how.

The current system is a hybrid hypothecated taxation system. What happens is that the grant and fee system is administered by the Student Loan Company (SLC), which is essentially a government departmental company probably now under the Department of Education. They do all the administration of grant and fee applications. However the money is actually paid to the Universities by the Department of Education — and therefore ultimately by the Treasury in the normal way any government spending is paid.

The Student Loans Company is there to maintain a record of this payment as a notional ‘debt’ on the individual applying for it. And they increase this notional debt over time by some arbitrary interest rate. The result is a number on a sheet of paper that the SLC frightens the individual with on an annual basis.

The aim of all this subterfuge is to maintain a list of people who can then be charged a higher tax rate than everybody else. That list of people being those who wanted an education but weren’t rich enough just to pay for the whole lot out of daddy’s pocket change. The list then gets subject to an additional income taxation system of 9% above £21,000 earned, either for 30 years or until you hit zero on your notional balance, whichever comes first.

There is an excellent description of the system from the point of view of the individual by Martin Lewis of Money Saving Expert. It is a recommended read that shows how this complicated system is really just a fancy form of tax.

So the poor avoid paying additional tax, and the rich essentially pay all their tax up front — avoiding the additional cost of the interest charges. Those in the middle have an albatross around their neck for the majority of their working lives.

The whole thing is a distributional tax choice to place the collection burden on the third, and fourth quintiles of the income distribution — reducing their lifetime income. All because they wanted to better themselves and add more to society.

So the way to deal with this is firstly to reveal the Noble Lie. Explain that when government spends it creates a chain of transactions that causes taxation to flow, and creates savings at the Bank of England that match the initial spending. In the ratio of about 90% tax for 10% savings. Penny for penny, each time, every time, for any positive tax rate.

There is no ‘paying for things’ in money terms. The money comes from spending the money, and in this case is already being spent anyway.

Then pay tuition fees and grants directly from the Ways and Means account, stop recording those as debts of individuals at the SLC, and preferably write off the rest. The result of that is a tax cut to millions of middling income earners and therefore a straightforward stimulation of the economy. Something it could undoubtedly do with.

Labour continues to tie itself in knots because it accepts the Tory framing of government finance. Education is the best way, and arguably the only way, a society can invest in its future. Labour should be proud to stand for that and show how the government system can make it happen for all.

This is a perfect example of how blowing apart the Noble Lie leads to benefits for precisely the section of society whose votes Labour needs to get into government.