Saturday, 14 October 2017

The New Treasury Select Committee Chair Puts Tuition Fees in her Cross Hairs

This post focuses upon two particular elements that have been somewhat of mainstays here in Financial Regulation Matters, and those are the Treasury Select Committee and the tuition fee issue in the U.K. Upon Andrew Tyrie’s departure as Chair of the Treasury Select Committee in April of this year, we asked who it would be replacing him and how vivacious would they be in utilising the considerable influence that the Committee has. We had a brief taste of what Tyrie’s successor – Nicky Morgan – had to offer with her preliminary calls for RBS to release the controversial and likely extremely damaging report into the conduct of its ‘Global Restructuring Group’. Now, Morgan is returning to her old stomping ground from her time as Education Secretary and is launching an enquiry into the student loan system, ultimately aiming to examine recent policy changes like the tripling of tuition fees and the recent hike in interest rates related to the loans taken by students. So, today’s post will review some of the recent issues within this field of education and finance and will, unfortunately, continue the blog’s scathing analysis on the actions of those tasked with providing direction in this crucial sector.

Morgan’s scrutiny comes on the back of the Institute for Fiscal Studies’ (IFS) calculations that declare that Theresa May’s latest ‘pledge’ to the younger (and mature student) voters, in which she declared that the threshold for the initiation of repayment would rise by £4,000 to £25,000, would cost the country an extra £2.3 billion a year, increasing the long-term cost by over 40%. These statistics were coupled with the conclusions that more than three-quarters of graduates will fail to fully repay their loans over their lifetime, with the average student now leaving University with more than £50,000 worth of debt. This increased scrutiny has allowed for the issue to be debated across the spectrum, with Morgan making the point that the student loan system is projected to cost around £160 billion over the next six years which, according to the ‘architect’ of the current system and former advisor to Tony Blair – Andrew Adonis – is representative of ‘a pack of cards waiting to collapse’. Leaving aside Adonis’ views in light of his role in the system and his recent and unnecessarily provocative attempts to be as visible as possible for just one moment, the amount of criticism is increasing and there is a rumour, although how true is debatable, that the Government are considering bowing to this pressure and introducing a lower cap of £7,500 on tuition fees in the U.K. Yet, the reported rationale for this rumoured decision, that the Conservative Party are concerned with their appearance to younger voters, should be taken with a pinch of salt because, as we shall see, their sentiment is just as cold as ever.

Perhaps it would be better to not take the issue of the Conservative Party focusing upon how it is perceived with a pinch of salt absolutely because it is an important aspect of politics. We can see then when reading that the Universities Minister, Jo Johnson, is apparently ready and willing to adopt the advice of personal finance ‘guru’ Martin Lewis in that the tuition fee system should be renamed a ‘graduate contribution’ tax. Lewis’ rationale is that the connotations associated with the language of ‘debt’ and ‘loans’ are ‘psychologically damaging and misleading’, although whether Johnson is acting to protect the mental health of students in relation to their financial position is anyone’s guess. This author says this because, earlier this month, Johnson made the incredible statement that students should live more frugally to survive University, rather than asking their parents for money. He suggested that students can do more work to supplement their living, which not only ignores the fact that Universities are, for the most part, clear that students should not work more than a small amount of hours each week (usually six) because of the potential effect on their studies, but blatantly glosses over the rapid increase in costs that the Conservative Party have oversaw, with accommodation costs soaring as the Government actively encourage large investors to the sector. There are two issues here, and before concluding on the second of those issues, the first needs to be addressed – this sector is big business. It was reported in the last few days that the Government is primed to give the go-ahead to Barclays, JP Morgan, Credit Suisse, and Lloyds, to facilitate the ‘landmark sale’ of £4.1 billion of student loans to investors, which it hopes will raise £12 billion for the Treasury over the next four years. In addition to this the deal, which includes compensation clauses for investors dependent upon a number of elements which will likely be witnessed because of the precarious nature of the loans themselves – these securitised products are the first deal to be backed by income-contingent loans anywhere in the world, meaning that the likelihood of investors receiving what they expect to receive with the economic and political uncertainty present is particularly low; the Government would then have to compensate the investors because the loans must be serviced by somebody – the Government have essentially declared that they will offset that risk for investors. What does this mean? Well, it can mean many things, but one thing is for sure and that is that this Government is pushing the massive tuition-fee issue down the road for another day. Yet, whilst this approach can be criticised from a number of angles, we will conclude on the notion of sentiment because, if we read between the lines, the current Government (and perhaps all Governments) actively operate on that basis.

It is important that we conclude on Johnson’s ‘frugal’ statement because, quite frankly, it tells us all we need to know. After hearing that Jacob Rees-Mogg believes working families attending food banks is ‘uplifting’, we now have an Eton and Oxford-trained member of the elite telling students to live frugally at the same time that food banks are being set up on University campuses and surveys suggesting that 41% of students have gone without food because of financial concerns. Johnson’s answer to this – work more – is counterintuitive to students who are, because of the pressures on the graduate employment market, under ever-increasing pressure to leave University with the best degree possible. Whilst the comment is distasteful at best, his sentiment of turning the finger of blame and responsibility towards the subject is absolutely despicable. Whilst students have a responsibility to do the best that they can and work hard, the Government have a much greater responsibility to protect the students’ position by making sure that their accommodation is not commoditised and sold to the highest bidder, thus increasing the costs for students. The Government have not only failed with that responsibility, they have not even accepted it. Yet, we should not be surprised, because this sentiment of apportioning fault and blame to the vulnerable in society is inherent within the ideology of the Party. The right to believe in any which way is central to the idea of democracy, so Jo Johnson can believe and say (within reason) whatever he wants, but it the public that have to consistently remind themselves who these people are who are consistently attacking the poorest and vulnerable within society, whether they are poor, disabled, students, or a whole list of other targets.

Keywords – Conservative Party, Jo Johnson, Treasury Select Committee, Nicky Morgan, Tuition Fees, University, Education, Finance, Business, U.K., @finregmatters

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