Labour’s Better Approach: fairer for students, fairer for taxpayers

Labour will tackle spiralling student debt by cutting the tuition fee cap from £9,000 to £6,000 for undergraduates from September 2016 and providing additional grants for students from lower-income backgrounds…

  • Cutting the tuition fee cap will reduce graduate debt by nearly £9,000.
  • Labour will also increase student grants by £400, so that the full grant increases from around £3,400 to around £3,800, benefiting all students with a household income up to £42,620. More than half of students will benefit.
  • The grant increase will cost £200 million and be paid for by asking the highest earning graduates to pay more by increasing the interest rate on loans from 3 to 4 per cent for the highest earners.

But crucially, because we will fully fund these changes, universities will not lose out and we will cut the national debt by £40 billion…

  • It will mean lower Government borrowing and reduce Government debt by £40 billion by 2030-31.
  • Even just over the next Parliament it will mean £10 billion less debt.
  • Universities will not lose out because we will increase the teaching grant they receive by around £2.7 billion, the same amount that the fee income falls.

 

This will be funded by restricting Pension Tax Relief for those on the highest incomes.

To fund this package, Labour will restrict Pension Tax Relief by £2.9 billion for those on the highest incomes with two sets of changes.

  • Tax relief on pension contributions goes disproportionately to those on the highest incomes, and the Government’s reforms to pension rules have further strengthened the case for restricting tax relief for those on top incomes. Those with incomes over £150,000:
  • get tax relief at a rate of 45 per cent, rising to 50 per cent when we reintroduce the 50p tax rate – more than twice the rate of basic rate taxpayers.
  • are the top one per cent of taxpayers, but receive 7 per cent of all relief.
  • get over £22,000 of tax relief a year on average when making pension contributions. This is as much as the average worker in the UK earns in a year.

 

Change 1:Labour will make the system fairer by reducing the rate of relief for those with incomes over £150,000 to 20 per cent – the same rate as basic rate taxpayers.

Change 2:We will also continue the Government’s policy of reducing the annual allowance and lifetime limit that cap the amount people can into their pensions tax free. Labour will reduce the lifetime allowance to £1 million (from £1.25 million) and the annual allowance to £30,000 (from £40,000).

This is a fair choice because it means the taxpayer would help people save £1 million pounds into a pension but not more than that.

The annual allowance will be nearly ten times higher than the annual average pension contribution each year, while the lifetime limit will be twenty five times higher than the average pension pot.

We will protect lower income earners whose employers make large one-off payments into their pension scheme because they get a large pay rise and are part of a final salary scheme by allowing them to roll over unused annual allowances, as under the Government’s approach.

We will consult on increasing the roll-over period to five years from the current three – giving an overall cap of £150,000 in these cases. This is better protection than under the Government’s approach, which only gives an overall cap of £120,000.

This will form part of Labour’s Young People’s Guarantee, providing apprenticeships and a Compulsory Jobs Guarantee funded by a Bank Bonus Tax.