The government plans to hit graduates with a real-terms tax rise, it has emerged, despite a mounting cost of living crisis across the UK.
In a written statement to parliament, the Convervatives' education minister, Michelle Donelan, said: "I can confirm today that I intend to bring forward regulations that will keep the repayment threshold for plan two student loans – the income level above which post-2012 student loan borrowers are required to make repayments – at its current level for the financial year 2022-23.
"The threshold will be maintained at its financial year 2021-22 level of £27,295 per year, £2,274 a month, or £524 a week. The post-study interest rate thresholds that apply to plan two loans will also be kept at their current levels in accord.
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"It is now more crucial than ever that higher education is underpinned by just and sustainable finance and funding arrangements, and that the system provides value for money for all of society at a time of rising costs. This government has already confirmed that we will freeze maximum tuition fee caps again for the 2022/23 academic year, the fifth year in succession that we have held fee caps at current levels."
Ms Donelan also confirmed that plan three (postgraduate) student loans will also see their repayment threshold frozen at "£21,000 per year, £1,750 a month or £404 a week for financial year 2022-23".
Ms Donelan admitted in her statement that the threshold was due to rise by 4.6 per cent, in line with the rise in average wages, in April, but will no longer do so.
While student loan repayments are not technically a tax, they are paid off as a percentage of income and controlled by the government. Graduates must pay off, at a rate of nine per cent, any earnings above the threshold, on top of income tax and national insurance.
The freeze therefore equates to a cost rise for all recent graduates once inflation, currently at 4.8 per cent, is taken in to account. It means poorer graduates who were not paying off their student loan may now need to do so, while those already doing so will have to pay the tax on a larger proportion of their income.
Paul Johnson, the director of the Institute for Fiscal Studies, said it would mean an approximate tax rise of £150 per year for graduates with student loans. He said it was "not an obvious response to the 'cost of living crisis'". Others dubbed it a "graduate stealth tax".
Hillary Gyebi-Ababio, the National Union of Students' vice-president for higher education, expressed relief that the threshold has not been reduced - as had been mooted in some quarters - but said there should be no threshold as tuition fees as a whole are wrong.
She said: “We were totally opposed to reducing the salary repayment threshold for student loans. We are pleased that the government have U-turned on these plans, which would have retrospectively altered the terms of contracts which have already been signed and targeted those earning lower incomes, in the face of overwhelming student pressure.
“But the concept of a repayment threshold only exists because this government prefer marketising higher education rather than seeing it as a public good. They should get their priorities right, stop viewing education as a product to be bought and sold for individual gain, and scrap tuition fees. Only then can we begin to build the student movement’s vision of a fully-funded, accessible, lifelong, and democratised higher education system”.
The move comes at a time of increasing economic pressures, particularly on lower-paid people. In addition to the freeze on the student loan repayment threshold, income tax bands, including the personal allowance, are also being frozen, which again equate to a real-terms tax hike and mean more lower-paid people will be paying income tax - and paying more of it.
National Insurance is also getting hiked by around 10 per cent, or 1.25 percentage points, in April for both employees and employers. Finally, the energy price cap is set to rise by up to 50 per cent at the same time, meaning millions of households will suddenly find themselves paying hundreds of pounds more per year for their gas and electricity.
Labour's shadow universities minister, Matt Western, said: “We have a cost-of-living crisis made in Downing Street, and whilst No 10 is in paralysis, Rishi Sunak is raising taxes on millions of people.
“Labour has a plan to help hard-working families, including cutting VAT on energy bills, saving most households £200, paid for by a windfall tax on North Sea Oil and gas producer profits."
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