“Strong and stable economy” repeated Theresa May over five times during a brief speech on a whistle stop tour of Wales last week. When such statements are made by politicians, it is always worth asking oneself, well, who’s this economy for?
The economic policy of the recent Conservative government has been one of the most fiscally contractionary in post-war history. Taxes and government spending are at record lows. Many in government portray this as an economic success story. Yet, like all stories there are winners and losers. And under this fiscal tightening, one of the biggest losers of all has been students, especially those from low-income backgrounds.
In 2016, maintenance grants for the poorest students were replaced with maintenance loans. Jo Johnson, Minister of State for Universities and Sciences at the time, stated that such a policy was necessary as the grants to students were simply no longer affordable. Yet if there is one policy that accurately represents the economic divide and rule of the current government, it is this one.
What this policy effectively amounts to is a working class graduation tax. The maximum maintenance loan that students from low income backgrounds can access for the academic year 2017/18 will be £11 002.
With a student tuition fee of £9 250 on the horizon this leaves a per annum debt of £20 252. Students therefore expect a loan of 60 or 80 thousand pounds, which is then subject to interest once leaving university. In contrast, wealthier students who have their living expenses and fees paid off by their parents, will leave with either half the debt or none at all.
This results in the indebtedness not just of students then, but a direct tax on the opportunity seeking working class. To make matters even worse, the interest paid on this debt has recently risen to a market defying 6.1 per cent per year. This is largely due to leaving the EU which has increased inflation, thereby agonisingly making young people pay for a political decision that they probably didn’t even vote for. To put this in context, 6.1 per cent of £60 000 is £3 600 per year added on to the debt. So the interest alone charged on the debt of a student from the poorest background is larger than the entire annual tuition fee of a previous student just five years ago.
The problems that stem from this economic inequality of debt are plain to see. It effectively means that graduates from the poorest backgrounds will never afford the mortgage on a home, holidays and many other opportunities their wealthier colleagues will have. On top of this, analysis by the British Educational Research Journal, through qualitative data in Canada, has shown that students from lower incomes struggle to afford or find the connections to complete an impressive internship.
This means they are less likely to gain a high paid job, so they are stuck in the worst case repayment scenario of an average income of around £30 000, which would not even be enough to pay off the interest. All of this leads to a situation where most students, especially those from low income backgrounds, will never pay off the entire debt. Yet this is no reason for students to become complacent, with the £21 000 mark at which graduates must start repaying their debt frozen to inflation and the thirty-year expiry mark likely to be removed, the debt is likely to be a bigger burden than most students would hope for.
As £21 000 devalues over time, the tax burden repayment placed on graduates will become tighter over time. With the government adding interest to loans, it simply adds insult to injury. Here is just one policy breakdown that represents the economic divide and rule strategy of the current Conservative government.
It is worth noting that while ministers were preaching about not being able to afford maintenance grants for the poorest students, they were also busy endorsing lowering inheritance tax on homes over £650 000 and cutting capital gains and corporation tax.
Next time Theresa May tells us she’s building a strong and stable economy, remember it is worth asking, who exactly for?