The government has frozen the salary threshold at which graduates start repayment of student loans, which from April will hamper the home payment of university leavers in England.
The Institute for Fiscal Studies, a think tank, described the move as a “tax increase through stealth” that would leave graduates earning £ 30,000 with an additional annual repayment of £ 113.
Higher Education Minister Michelle Donelan said on Friday that the loan repayment salary threshold would remain at £ 27,295 for the next tax year rather than increase by 4.6 per cent in line with average earnings, as is the current policy.
The government, which is facing increasing criticism over its handling of the cost-of-living crisis, has previously considered to cut the threshold, which applies to graduates who have taken out loans since 2012.
“Today’s announcement of a freeze on the student loan repayment threshold is effectively a tax hike by sneaking on graduates with mediocre earnings,” said Ben Waltmann, senior research economist at IFS. “It will be a further hit for the actual income of these graduates in addition to the rising cost of living.”
Donelan, who had previously announced that the university’s annual tuition fees would remain at £ 9,250, said the government had instituted the freeze as the “overall cost” of higher education to taxpayers rose.
She said the combination of the repayment threshold and fee-freezing would “help ensure the sustainability of the student loan system while keeping higher education open to all who have the ability and ambition to benefit from it.”
The move came after months of intense strife between Downing Street and the Treasury. One senior Whitehall official said Chancellor Rishi Sunak was “absolutely determined” cut the cost of funding three-year degrees, despite opposition in Number 10 against anything that could be interpreted as a tax increase.
Matt Western, Labor’s minister of shadow universities, condemned the decision. “We have a cost-of-living crisis being made in Downing Street, and while number 10 is paralyzed, Rishi Sunak is raising taxes on millions of people.”
Boris Johnson, who is fighting for his political survival over lockdown parties, is also under pressure from his party’s right wing to delay April’s increase in national insurance. “No 10 were desperate to prevent them from being seen filing charges or taxes of any kind,” one insider said.
Another insider in Downing Street described the decision to freeze the threshold as a “massive collapse” for Sunak and the Treasury, pointing out that it amounts to a real-time reduction to take graduates’ home payments.
The National Union of Students said, while it was “pleased” that the government had “U-turn” on plans to lower the threshold, tuition fees must be scrapped.
Nick Hillman, director of the Higher Education Policy Institute, a think tank, said the decision made “sense” because the existing system made the taxpayer carry a greater burden than originally envisaged.
Waltmann said if the freeze is made permanent, “it could change the student loan system, with a much lower cost to the taxpayer and a much greater burden on graduates.”
Donelan said the government would “soon” outline further plans for the future of university funding.