‘The system we have got overall is the worst of all worlds.’
Rt. Hon. Bridget Phillipson, UK Education Secretary
It was good to see Bridget Phillipson’s plans for tackling the knotty problem of student finance in The Times’s lead article on Saturday’s front page.
The critical state of university finances has featured heavily in the media recently, with UK student fees having been fixed for several years while the number of foreign students continues to fall. International students accounted for 24% at English universities in 2020/21 and they paid 40% of tuition fees: so the reduction in their numbers is a serious issue for university finances.
Meanwhile outstanding student loans have ballooned to £236 billion as reported on last Friday’s front page in The Times, and the Guardian reported earlier this year that the student finance system is expected to cost Government over £10 billion per year.
But it's not just the raw cost to universities or to the state. We have drawn attention in a number of our commentaries to the real — and psychological — burden of graduating with £50,000 of student debt. It's a major deterrent to getting started in adult life, and it contributes much to delaying family formation and independent living. The system also works against encouraging equal opportunity: those whose families can afford student fees will not be held back, but the loan system is a significant deterrent for disadvantaged young people to spending three years as an undergraduate.
That’s why Bridget Phillipson is right to say that we need a new approach for empowering disadvantaged young people, and she plans to re-introduce maintenance grants for disadvantaged students. The dual impact of socialist universality which has been acting to limit the extent of much needed targeted support, and of short-term political economics (which invariably resorts to debt to resolve problems), is not working.
Inter-generational rebalancing could do much to get us out of this fix, if Bridget Phillipson is able to persuade Rachel Reeves to establish a strategy for hypothecating inheritance tax. It's an economic approach that uses the logic of the human generational cycle in order to empower young people from disadvantaged backgrounds.
It’s a fact of life that wealth has to be left behind when we die. So, just as we want our assets to help our own children and grandchildren to make a good start to adult life, we should also recognise the need for disadvantaged young people throughout the wider human family to be included in some of that benefit.
Empowering disadvantaged young people requires targeted support rather than universality, as Bridget Phillipson’s proposal for a targeted grant system recognises. The funds to finance it should be drawn directly from inheritance tax receipts (currently £7.5 billion p.a. and anticipated to rise to £9.7 billion p.a. by 2028/29, assuming the Chancellor leaves the current structure in place).
Targeted higher education support is not the only way forward for inter-generational rebalancing: it's also important to ensure that a programme of starter capital accounts and life skills is provided for all disadvantaged young people, many of whom cannot aspire to higher education.
The 1997-2010 Labour Government sought to do this with the Child Trust Fund, with a significant uplift in their contributions for young people from low-income families: these comprised 36% of all recipients. If there was no response from families for opening CTF accounts, they were allocated by HMRC and, probably due to the fact that they may not have been as experienced with savings and investment, the proportion of low-income young people among this HMRC-allocated group is 51% compared with 30% for the rest of the Child Trust Fund recipients.
HMRC has just released a figure of 671,000 for unclaimed adult-owned accounts. 48% of accounts have now reached maturity: 55% of all unclaimed adult-owned Child Trust Funds are HMRC-allocated compared to just 14% for the others. This means that there are over £800 million worth of HMRC-allocated accounts owned by young low-income adults which remain unclaimed because they know nothing about their good fortune.
These statistics underpin the need for the ‘Default Withdrawal at 21’ process which has been proposed by The Share Foundation, and on which we commented on 2nd September. Government needs to set special arrangements such as this to ensure that these schemes are delivered effectively, and it can do so at no cost to the public finances. Child Trust Funds for young people in care were moved from the Official Solicitor’s oversight to The Share Foundation in 2017, and it required a massive reconciliation effort in order to ensure that the benefits were being delivered — this has now been done.
Incentivised learning is another route towards inter-generational rebalancing, where The Share Foundation has again made a real break-through with its Stepladder Plus programme, designed to empower young people in care aged 15-17. Nearly 1,100 young people have taken an average of over four out of its six steps, earning £900 in incentives.
64% of all participants have completed at least four steps, and we have been surveying those who will be at least 19 years old in November this year. The responses show that just 23.6% are NEET compared to the average ‘adult care leaver at 19’ rate of 38% (the national average generally is 13%). These statistics prove that the public finance benefit from the return on the cost of incentives is about 700%, in addition to the transformation of adult life prospects for these young people.
These three initiatives — maintenance grants for low-income-background university students, a much more targeted version of the Child Trust Fund, and funding incentivised learning for disadvantaged young people (including care-experienced young people) — are all strong reasons for ring-fencing Inheritance Tax receipts. The lives of huge numbers of young people in the United Kingdom (and, potentially, overseas) could be transformed as a result. This is what we mean by inter-generational logic.
Gavin Oldham OBE
Share Radio