Tax relief on pensions for higher earners would be cut to pay for Labour’s plan to reduce university tuition fees from a maximum of £9,000 to £6,000 a year, Ed Miliband announced today.
But a row broke out over whether his flagship policy would help better off graduates rather than the poorest. Some senior Labour figures are believed to have expressed such fears in private – including Ed Balls, the shadow Chancellor; Chuka Umunna, the shadow Business Secretary and Tristram Hunt, the shadow Education Secretary. Paul Johnson, director of the Institute for Fiscal Studies, said Labour’s sums added up but the shake-up would not help the poorest half of graduates. He said they would not earn enough to be paying back any less under the Labour policy than under the current policy. “The group who will benefit from this are the higher earning half of graduates. So those graduates who go on to the best jobs will find that their repayments go down where as those graduates who go on to less good jobs will not find any difference in the repayments that they actually have to make,” he said.
Labour disputed that, pointing to other proposed changes. Graduates earning £42,000 a year or more would pay a higher rate of interest on their loans – 4 per cent—instead of 3 per cent. Maintenance grants would be increased to from £3,400 to about £3,800 a year --at a cost of £200m-- for students from families with an income below the 40p income tax rate.
Speaking in Leeds, Mr Miliband promised the £9,000 cap on fees in England would be cut by a third from September next year if his party wins the May election. The £2.7bn annual cost would be found by cutting tax relief on pensions enjoyed by people on incomes of over £150,000 a year would be cut from 45 to 20 per cent. The amount of pension contribution that attracts tax relief would be reduced from £40,000 to £30,000 a year and the lifetime limit would be cut from £1.25m to £1m.
Mr Miliband said the changes would be a non-negotiable “red line” in any coalition talks and that a long-term move to a graduate tax was “something we continue to look at.”
Labour insisted it would be “progressive” for high earners to relieve the £44,000 debt burden on graduates when they leave university. It said the top 1 per cent of earners currently enjoy 7 per cent of pensions tax relief.
Last night (fri) university vice-chancellors cooled their opposition to Labour’s plan to cut fees.
They had feared the move would lead to damaging cuts in higher education spending. But Professor Sir Christopher Snowden, president of Universities UK - which represents vice-chancellors -said universities “will welcome the assurance that the balance in funding will be made up in full”.
The Russell Group, which represents 24 of the most selective institutions, warned the proposal would leave it “in a position of having to trust that any future government will provide sustainable funding for our universities and not divert resources to other priorities”.
John Cridland, the CBI’s director-general, said: “The key thing is that funding to higher education is maintained.” But he warned the changes to pensions’ tax relief would “make it very difficult for people who are trying to save for the long term”.
Both university lecturers’ and students’ leaders welcomed the move as “a step in the right direction”.
Vince Cable, the Liberal Democrat Business Secretary, attacked Labour's plan as "completely financially illiterate" , warning it would "do great harm to universities and create a costly black hole in the national budget". He said it would benefit only the richest graduates such as investment bankers.Reuse content