Starmer doesn’t have any choice but to backtrack on university tuition fees

The hard reality is that Keir Starmer had little choice but to abandon Labour’s pledge to scrap university tuition fees.

The country currently faces crises wherever one cares to look; in health, local government (watch for more councils going bust), social care and other parts of the education system. My daughter’s school has just written to parents to warn us of a £500k budget shortfall. The Department for Education’s response is to refuse to acknowledge that this and other similar black holes in school budgets exist.

When Labour first made its fees promise in 2017, the IFS put the cost of the policy, along with an associated pledge to reinstate maintenance grants for poorer students, at £8bn a year – a huge figure. However, recent reforms to student loans have required a new estimate. For the cohorts starting in 2023 and beyond, the cost is put at £9.5bn annually. If, in addition, maintenance grants were reintroduced, the total long-run cost to the taxpayer would be around £11 billion per cohort.

That’s an awful lot of money to have to find before one even considers that the policy would inevitably serve to benefit the more fortunate parts of society, at a time when food has become so expensive that TUC research suggests that one in seven Britons are skipping meals.

In 2020, the Institute for Fiscal Studies also found that going to university delivered a return of £130,000 for men in terms of improved earning throughout their lives. It was £100,000 for women (so yes, this is why employers deserve to feel heat over their gender pay gaps).

Those figures come after taxes, student loan repayments and earnings foregone while studying. They were presented on a “discounted present value” basis, which means valuing earnings later in life (when they are typically higher) less than the money earned earlier on, which is obviously much more visible to the potential student trying to decide whether it’s worth it. Without that adjustment the returns were bigger still.

Abolishing fees thus amounts, in essence, to a middle-class tax break; one that could also ultimately end up depriving already cash strapped universities of funding they rely on, because the lost funds from fees would have to come from threadbare government coffers.

Could any responsible incoming government really justify all that a time when the financial wreckage left by the current one is still piling up?

The problem Starmer faces is political. While the policy of scrapping fees is expensive, it is also wildly popular with Labour members and Labour voters, many of whom are either students or the parents of students. They are often inclined to view fees, whether fairly or not, as a tax on opportunity, as well as a potential block on social mobility.

Starmer has yet to outline a replacement, but hard political realities mean that he’ll need to find something to buy off his voters at a time when enthusiasm for the Labour leader is less than effusive.

He suffers something of a trust deficit with a number of groups who despise the Tories, but aren’t exactly brimming with enthusiasm about his party as an alternative.

Students also have some legitimate beef – English students in particular, who get a raw deal when compared to those in the devolved administrations.

The government has, for example, failed to increase the maintenance part of loans in line with inflation. Students may thus be among those going without food as a result.

The IFS says the current system of funding actually looks very much like a graduate tax in the way it operates. Except that it’s not a particularly progressive one. It benefits the lowest paid graduates by imposing the least burden on them: they often don’t end up paying much of their loans back. But it squeezes those in the middle when compared to graduates at the top of the earnings scale.

Those changes to the system will impose more burdens on lower earning graduates by reducing the threshold at which they start to repay their loans. The government has also extended the repayment period to 40 years instead of 30 (after which debt is written off) – so almost to retirement, meaning more people will pay a higher proportion of their loans off.

It goes without saying that baby boomer graduates benefitted from free university education in addition to maintenance grants. Most Gen X-ers had to pay something for their maintenance: loans began under the Thatcher government which froze grants in 1990. It was not until eight years later that the Blair government scrapped them and introduced the first tuition fees given the need to fund its ambitious (and largely successful) plans to expand higher education and upskill the British workforce.

Those generations have largely been protected at the other end of their lives. While the state pension age has been rising, benefits for pensioners have been protected by successive administrations. The “triple lock” has ensured that the value of the state pension has kept on rising (ditto its cost to the exchequer).

Bus passes, free TV licences, winter fuel payments and what have you are still all available to wealthy pensioners. So there is a genuine question of intergenerational fairness to address when it comes to student fees. But the Labour leader isn’t going to go there, given that pensioners reliably vote.

The decision by Starmer might be necessary from a fiscal standpoint, given the UK’s substantial deficit and the other challenges he will have to deal with if he is successful in his quest for office. But it will inevitably serve to increase his trust deficit with voters in his camp.

What if they shrug and decide “they’re all as bad as each other?” His alternative policy, when it emerges, had better be good.