Money, students and manifestos

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It’s only a few weeks since the UK General Election and already Labour seem to be rowing back on their promise to write off student debt, with claims in the last few days that it was more of an 'ambition' than a firm policy, even if it didn’t exactly sound that way during the election campaign. 

Here in Wales, Plaid Cymru, the party which helped Labour introduce tuition fees in the first place during the One Wales period, is now criticising Labour for increasing fees to match the latest change in England, claiming that the proposal goes against the Labour Party’s manifesto.  They presumably assume that we’ve all forgotten that when most of the Plaid AMs voted to introduce fees in the first place they were also going against their own manifesto commitment.  (And it’s worth noting that the politician taking the decision to increase fees is actually a member of the Lib Dems, another party with a somewhat, shall we say ‘chequered’, history on the question of fees.)  The whole issue of student fees seems to be one which unites governing parties in supporting them whilst opposition parties unite in opposing them, and that’s true whichever party forms either the government or the opposition.

The underlying question has two strong ideological elements to it.  The first is whether services supplied by the government should be collectively funded or paid for by those who actually use them, and the second is to do with the question of the availability of money for the government to pay for things.

Regular readers will know that I’m a committed supporter of the idea that services should be funded collectively rather than paid for individually, and I entirely accept that that is a position which flows from my own ideological standpoint.  In the case of university education, I accept that those benefitting from it often end up better off financially than those who don’t, but a properly progressive taxation system would ensure that those with the highest earnings also make the highest contributions to paying for services.  (And, as an aside, people who end their education at ‘A’ level tend to do better financially than those with GCSEs, and those with GCSEs do better than those without.  Why single out one particular type of education for payment at point of use?)

But let’s turn to the second ideological factor – the availability or otherwise of money.  Governments, of whatever colour, tell us that ‘we can’t afford’ to provide university education without charging for it.  But like all the other things that they tell us we can’t afford, it comes down to policy choices.  How much the government raises in taxes, how much it borrows, and how much it spends are all political choices.  When the government needs a few billions for some project or other – such as buying the support of the DUP or starting another war somewhere – it can always find it, because the UK Government controls the money supply.

However, the Welsh Government does not control its money supply.  It has long been a theme of this blog that governments are not like households, and they really don’t have to balance their budgets in the same way, but more accurately, that is only true for governments which can control the supply of money – like the UK Government.  The Welsh Government’s budget, on the other hand, really is more like that of a household, and a household whose purse strings are controlled elsewhere and which can be arbitrarily loosened or tightened.  Whilst I might have had more sympathy for Labour’s response if they had been more honest and spelled out more clearly that any promise relating to fees in Wales was wholly dependent on the election of a Labour Government for the UK as a whole (and therefore on voters in England), their basic point that they can only find the money to do something different in Wales if London gives it to them or they cut elsewhere is a valid excuse in itself.

The backtracking by UK Labour is a far more serious issue.  The interesting point is that in his interview McDonnell actually acknowledged that half the nominal amount of student debt will never be paid back in any event.  And figures elsewhere suggest that 70% of students will never repay the whole of their debt.  In essence, the whole edifice of student loans and debts is based on little more than an accounting sleight of hand. 

The UK Government pretends that it is not paying student fees because the students are paying them.  But the students do so by borrowing the money from the Student Loans Company which is wholly owned by the UK Government.  And where does their money come from?  From the Government, of course.  So, instead of using borrowing, taxation or the magic money tree to pay fees, the government raises the same money from the same sources to fund loans through the SLC, and for accounting purposes assumes that it’s going to get around half of it back over a lengthy period.  The other half – the bit that will never be repaid – will, in effect, have already been paid by the government – exactly what the government says it ‘can’t afford’ to do as a reason for introducing tuition fees in the first place.

Before the election, it appeared that Labour were offering hope to young people that they could enjoy a university education in exchange for paying a fair share of tax if they earned more when they took up employment.  It even looked as though they understood that governments are not like households.  After the election, it appears that they’re reverting to type and falling in with the Tories’ attitude towards finances after all.