Watching Question Time on TV recently, one particular discussion caught my attention. It focused on higher education, particularly how the costs of funding an increasing number of students should be met.
At this point, I should state that I graduated in 1997 with a degree in financial services from UWE, Bristol. I was lucky in that, while I did not receive a grant, my time at university predated the introduction of any fees. It would not be appropriate for me to put forward any political views regarding the merit or otherwise of increased fees, loans or graduate taxes but I do have a very practical concern borne from working in financial services. I believe it should also be a concern for many others.
It seems to be generally accepted that graduates will earn more during their working lives than non-graduates. However, one Question Time panelist questioned whether this would continue if the market was flooded with graduates while employers grew sceptical about the content and value of degrees.
This reminded me of a statement made to me by a senior person from a financial services body that: “There is precious little link between the education that you receive from universities like UWE, Bristol and the requirements of the regulator in terms of joining the industry.” This is incorrect as, quite rightly, the regulator deemed the degree to be sufficient to exempt holders from the FPC. However, if someone in such a senior position within an organisation awarding designations could be so unaware of the content of a course related specifically to the industry he operates in, then one can see that the panelist was quite right to voice concern.
When I left university in 1997 aged 22, my student loan repayments from April the following year were set at around £89 a month for 60 months. This was based on total loans of just over £5,000. Currently, we are told that students are leaving university with debts of two or maybe three times that amount, depending on which article you read. But even these debts may look small to future generations. Repayments through loans or a graduate tax will have a significant effect on finances.
My concern is the following. At present, we are told that we have a £27bn savings gap. We are confronted with regular stories of final-salary pension schemes winding up or closing to new members. We are told that stakeholder take-up has not met the levels expected. We have house price rises that, while unsustainable in the long term, still need a substantial correction in some areas for many first-time buyers to enter the market. We read of a British economy overreliant and overexposed to credit. Against this background, it could be argued that the introduction of higher fees repayable through loans or a graduate tax will only serve to exacerbate the situation. Increased debt will lead to the further delay of the first property purchase. Funding for retirement will be put off for even longer.
I have carried out a “back of a fag packet” calculation and it is interesting to note that my student loan repayments would create a retirement fund in the region of £60,725 at age 65, assuming basic-rate relief, 7 per cent a year growth and payment of the contribution as a lump sum of £89 multiplied by 60 at age 27. Again, I reiterate that recent graduates would consider my repayments low.
Given the vast number of reviews being conducted in our industry and through the Government, I would suggest this is an area which would merit broader consideration rather than being looked at in isolation. I am not saying I have the answer but one idea that might be worth consideration would be for a proportion of loan repayments or graduate tax to be rebated into an individual's pension fund.
In an ideal world, a culture of planning for such costs would be fostered, which is a long-term aim that the Government and ourselves should be working towards together.
My main concern is that if changes are introduced too quickly without considering the impact, such decisions could rebound on other areas of our economy. Then the effects on individuals and the UK could be felt for many, many years to come.
Tom Warwick is a consultant at Warwick Butchart Associates