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Summer Budget 2015: Impact on Education

Chancellor George Osborne unveiled a workplace-centric Summer Budget yesterday, realigning the way people get money in their pockets.

So a rise in the minimum wage – cunningly re-named the National Living Wage so as not to appear too stolen from Labour’s policy book – is twinned with cuts to working tax credits and benefits, while businesses get a tax cut to help pay their extra wage bills. (According to the BBC, even the Institute of Directors agreed it was “time for companies to increase pay”.)

Banks, however, will pay more tax. Companies will also have to pay a levy to fund apprenticeships, people can earn more before paying income tax, and the tax privileges of non-doms will be abolished.

UPDATE 13/7/2015 – Policy blog Wonkhe examines some of the uncertainties about the future here: http://wonkhe.com/blogs/the-budget-what-it-means-for-the-longer-term/

Maintenance grants become loans

In all of this, students also now need to focus more on their future earnings. Families earning £41,000 or less will no longer get maintenance grants for children to go to university – this money will instead be loaned to students who start in 2016/17, repayable after the student graduates and is earning more than £21,000. Martin Lewis, the Money Saving Expert, told the Telegraph that the systems of loans for students has reached the point where it might be better to call it a graduate tax. He said: “The real effect of going to university is you add 9% to your marginal income tax rate when you earn £21,000.”

Furthermore, the amount loaned (£8,200) will be greater than the current maximum grant.

Those who start university this year will not be affected by the change.

On his website, Martin Lewis said: “In practical, financial terms, getting rid of the maintenance grant won’t make that much difference. That’s because with maintenance loans, you only repay 9% of everything you earn above £21,000 over thirty years.

“And if you actually do the maths behind this, you would only pay more because of the switch from a grant to a loan, if you were already going to be repaying in full within the 30 years anyway. So you’d have to be earning roughly more than £30,000 for it to make a difference.

“But the real impact of this is psychological, especially for those from non-traditional university backgrounds who tend to be risk averse, as the idea of a much bigger loan runs the risk of putting them off going to university.”

As UniBox has pointed out, student loans remain a cheap way of getting money to pay for your studies.

It has not yet been decided whether the £21,000 threshold for repaying student debt will be frozen. If it is, then more people would have to start paying their loans back earlier as wages rise – something Mr Lewis has vowed to organise a protest about if the Government makes it happen (for more info see moneysavingexpert.com)

The decision to move from maintenance grants to loans came as the Department for Business, Innovation and Skills – which funds higher education – was going to have to cut £4bn from its £13bn budget.

Furthermore, the Times Higher Education quotes Mr Osborne saying the government’s removal of the student numbers cap was not affordable “unless we tackle the cost of student maintenance grants – that is set to almost double to £3 billion over this decade.

“There’s also a basic unfairness of asking taxpayers to fund the grants of people who are likely to earn a lot more than them.”

As HE policy blog, Wonkhe, points out, though, the Chancellor softened the blow by aiming now to get the Exchequer in surplus by 2019/20. “This means there will need to be £20bn public sector cuts over the next five years, rather than the £13bn expected to be made over the next two years, as the last Budget had announced,” Wonkhe reports.

Wonkhe also notes: “Of course on a human level, it adds further debt on to (usually) young people who will now graduate with more debt. A quick calculation shows that it could amount to about an extra £12,000 in debt for the poorest students… Although the switch to loans wont take cash out of students pockets, it remains to be seen whether the policy will impact on participation rates and whether the debt-averse psychology will trump the shorter-term opportunity to have extra cash from loans.”

There has been criticism of the scrapping of grants, much of it based around the idea that loans haven’t gone far enough, in the past, to cover living expenses, and also that the idea of paying it all back is worrisome. The Guardian has a vox pop of students here: www.theguardian.com/education/2015/jul/09/students-react-to-the-scrapping-of-maintenance-grants.

According to the Guardian, the Labour Party is “privately struggling to calibrate a response [to the Budget] that accepts the principle of the reforms but opposes the way in which they are being implemented.”

UPDATE 13/7/2015 – Lucy Webster, in the Guardian, says plainly: “This is a budget that turned its back on young graduates”.

The Times Higher Education quotes Sally Hunt, general secretary of the University and College Union, who says: “Maintenance grants are crucial for engaging students from disadvantaged backgrounds who are already daunted by cripplingly high tuition fee debt. Increasing the debt burden on students will act as a disincentive to participation, and it does not make sense for the taxpayer either as the extra loan amount is unlikely to be repaid in full.”

Meanwhile, the THE says, “Sir Peter Lampl, chairman of the Sutton Trust and the Education Endowment Foundation, warned that the grants change ‘could also put off many low- and middle-income students and tip the balance against their going to university. The reality is that the government has miscalculated the levels of repayments it will get from its student loans under the new fees system. Rather than penalising poorer students, it should have a fundamental review of the repayments system. We need long-term solutions not a short term fix.’”

Rising fees

The Chancellor announced that higher education fees can be raised in line with inflation from 2017-18 for “universities that demonstrate excellence in teaching”, according to Wonkhe. This looks set to be tied to the proposed Teaching Excellence Framework, announced recently as a measure to drive up teaching quality. Universities themselves had been calling for an inflationary increase in fees, to maintain their income in real terms.

In the Times Higher, Wendy Piatt, director general of the Russell Group, said that the group: “Welcome the announcement that from 2017-18 tuition fees will increase in line with inflation for universities that provide excellent teaching.

“Good teaching and world-class facilities require proper investment and indexing the fees cap to inflation is a crucial step towards the long-term sustainability of the UK’s leading universities. However, it is vital that appropriate measures are used to judge teaching excellence, without adding to the regulatory burden on universities or stifling innovation.”

Additional changes for young people

This is a Budget that sees young people being more supported by their parents than by the state, if they are not in work. Housing benefit will not now be paid automatically to 18 to 21-year-olds, suggesting that many young people might defer leaving home.

Landlords will take a tax hit, as they will have less opportunity to get tax breaks by using their mortgage interest to reduce their taxable profits. This may mean higher rents over time, or it may deter some people from becoming buy-to-let landlords and charging high rents for small student properties in the first place.

As a teacher, what do you make of the Budget?

What are its implications to your students?

We welcome your thoughts in the comment section below…

Posted by Nicholas Manthorpe on Thu, 2 Feb 2017



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Nick was a reporter for the Eastern Daily Press and its sister weekly titles in Norfolk and Waveney, then served as Media Officer for North Norfolk District Council for 13 years. He now works as a writer and PR and media relations consultant. He is a member of the Chartered Institute of Public Relations, an associate member of the Chartered Management Institute and a member of East Anglian Writers.

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