John Oxley is a consultant, writer, and broadcaster. His SubStack is Joxley Writes.
Through the election and leadership contest, there has been plenty of discussion of tax cuts. As Conservatives, we almost all agree that letting people keep more of their own money is both economically productive and morally right.
Even those who might support a bigger role of the state or are more concerned about the country’s fiscal position, with faltering public services and an ageing population, still accept that taxes should be kept as low as possible whilst meeting spending needs.
Yet there is one government levy that the Conservative Party has so far been unmoved about cutting: student loan repayments.
The student loan system is, of course, not truthfully a tax. It is a repayment of a debt. Your lifetime payment is capped according to how much you borrowed and how quickly you paid it back. You can make overpayments to get it down or wait until the unpaid balance is written off at the end of the loan period.
For most people in the system, however, it functions exactly like taxation. For those who started university after the post-2012 changes, the combination of higher fees and interest rates means they will never pay off their student loans.
Even with the time limit, they will likely be servicing them for the entirety of their working lives. This becomes a de facto tax of nine per cent of their income above the repayment threshold. Graduates earning £40,000 will pay an extra £100 a month to the government compared with those without loans.
However, that it is a loan makes it function far less somewhat than other taxes. Though on the face of it progressive (the more you earn above the threshold, the more you pay), the system squeezes the middle hard.
If you have a very high income or receive a windfall of capital at some point and clear the balance, you pay far less over the loan’s lifetime. Equally, if your income stays close to or below the repayment threshold, you will repay very little of the borrowings and interest. Those who go from their degrees into moderately well-paid work are the ones who pay the most for the longest time.
Viewing the payments as a loan also means they are separate from the usual discussions about taxation.
So far, there has been very little political pressure from the right about repayment thresholds and rates. The Conservatives introduced the current scheme, and the general principle has been that those who benefit from degrees should bear the costs. Yet, as the Party loses ground among working-age voters, this seems increasingly misguided.
Many voters, including those the Conservatives could have once counted on, are now stuck with an extra tax the Party imposed upon them. It compounds the other cost of living issues which push voters in their twenties and thirties away from the Party. The expense of student loans also makes it harder to afford a mortgage or leaves less money for childcare – the things that already raise the cost of living among even relatively affluent younger voters.
If income tax or national insurance were causing these pressures, the Conservative Party would be keen to reduce it. The Party proudly strives to help people keep more of their own money.
But student loans seem the exception. Even though it is perceived as, and operates as, a tax to most people, there is little interest from the Party in reducing or rolling it back. This disconnect is likely hampering the Party’s chances with working-age voters, especially those with degrees.
Looking at the statistics from July’s election, it is hard to overstate how badly the Party now polls with younger demographics. Less than ten percent of those under 25 backed us, compared with nearly a third in 2010. Even in 1997, around a quarter of young people voted Conservative.
In the next cohort up, the picture is perhaps even more bleak. For those between 25 and 49, the demographic of working people with families, homes, and the other trappings that tend to correlate with voting Tory, just 15 per cent did so. The Party is now also in a minority with university-educated voters, with less than a fifth of degree holders voting Conservative in July.
These trends aren’t something that the Party can ignore and ride out. Due to changing demographics and increased university participation over the subsequent few electoral cycles, these voters will become increasingly essential blocs. This group is faced with an extra deduction on their pay, which the Party seems to be fairly uninterested in.
It is hard to see the Conservatives coming back to power without reversing these trends, and part of that will require policy offerings that appeal.
The idea of writing off current debt or abolishing fees as such is largely a pipe dream. It would be hugely expensive and largely act as a bung to the better off. Reformulating the student loan system away from its current incarnation towards a graduate tax might, however, be beneficial.
At present, we have the worst elements of both systems. Treating student fees as a debt allows the rich to buy their way out of future obligations and pay less overall. It also acts as a disincentive to going to university, especially for those from poorer backgrounds.
Meanwhile, “borrowing” tens of thousands of pounds sounds intimidating, even when the loan amount is only tangential to how much you end up paying across your career. More than that, there is little political incentive to see repayments in the same term as other taxes and to discuss how it fits in with the overall burden on individuals.
The Party is always right to worry about how much tax people are paying. It is important to balance the funding of public services with individuals keeping as much of their own money as feasible. Having a separate system that feels like a tax to those paying yet functions differently at a political (and Treasury) level has created a blind spot.
Perhaps if the Tories were to start seeing student loans as a tax, they might be inclined to think about cutting it.