Labour's big idea to launch a £15billion raid on pensions to fund a cut in the tuition fees of students was described as ‘financially illiterate’ yesterday. Ed Miliband confirmed he would slash fees from £9,000 to £6,000, despite warnings it would benefit the better-off and could damage universities. The Labour leader said the measure would help relieve the ‘scourge of debt’ which he said was holding back young people and the economy. Ed Miliband: University vice-chancellors have warned that his fees pledge could cause 'colossal' damage by slashing funding for higher education . But his announcement that Labour will raid middle-class pension pots to pay for it sparked a furious backlash. Among the critics was the respected consumer champion Martin Lewis of MoneySavingExpert.com, who condemned them as ‘financially illiterate’. The tuition fee cut would apply from September 2016, including students mid-way through courses. Labour plans to raise the money through two pension changes. The first is cutting tax relief from pensioners earning more than £150,000 from 45p to 20p. This saving had been earmarked to fund a ‘jobs guarantee’ for the young unemployed, but Labour sources admit the falling number of jobless young people means this would cost less than expected. Secondly, the party would cut the ‘lifetime allowance’ for pensions from £1.25million to £1million and cap the amount which can be put away per year from £40,000 to £30,000. Newly indebted: Graduates must pay back fees of £9,000, on top of other costs of getting educated . Under this threshold, pension savings would be taxed at the rate of income, with the first 25 per cent tax-free. But above this level, a punitive rate of 55 per cent would apply. The independent Institute for Fiscal Studies described the pensions raid as ‘misguided’. Paul Johnson, director of the influential think-tank, said the policy entailed a ‘significant tax increase’. IFS analysis found the biggest winners from the change would be ‘mid-to-high-income graduates … with the very highest earners benefiting the most’. It said the plan would have little impact on the number of young people from poorer backgrounds entering higher education as they have not been put off by the hike to £9,000. Mr Lewis said: ‘This is the worst type of politics … that may appeal to people on the surface, but it’s financially illiterate.’ He added that the policy ‘effectively meant poorer students would be subsidising City investment banking graduates’ – and said if any other party had launched it, Labour would be leading protests in the streets. Mr Miliband claimed the £2.9billion-a-year pensions raid, for at least five years, would only hit the very wealthy. But Treasury analysis suggested the move would hit thousands of ordinary public sector workers, such as teachers, nurses and fire crews. The Labour leader also revealed high-earning graduates would face higher interest charges on student loans, to fund bigger bursaries for the poor – a policy critics called a ‘tax on aspiration’. David Cameron said Labour’s ‘ill-thought-out’ plan would ‘damage our universities and our economy, and hardworking taxpayers would pay the price’. Chancellor George Osborne added: ‘[Ed Miliband’s] new tax on pensions will hit many people on middle incomes … a tuition fees policy that only benefits better-off students is being paid for by hard-working taxpayers on middle incomes.’ Speaking at Leeds School of Music yesterday, Mr Miliband said his pledge to cut tuition fees was ‘cast-iron’, adding: ‘The scourge of debt from tuition fees is not only holding back our young people, it is a burden on our country. We’re going to change it.’ But Treasury analysis found the proposed £30,000 cap on annual pension contributions would hit those on final salary schemes who receive a promotion late in their careers. For example, a senior nurse earning £35,500 and promoted to matron on £53,500 after 25 years would face a potential £5,000 tax charge. A teacher on £27,000 promoted to head on £43,000 would face a tax bill of £900. Consumer champion Martin Lewis of MoneySavingExpert.com said Labour's policy was 'financially illiterate' Saga warned funding a tuition fees cut by curbing tax relief on pensions was ‘playing Russian roulette with people’s futures’. Spokesman Paul Green said: ‘Of course education is crucial … but so too is ensuring we foster a savings culture where people ensure they put enough by for their futures.’ Tom McPhail, of Hargreaves Lansdown, said Labour’s plan was ‘reckless’ and would ‘penalise responsible middle-income workers who want to provide for their retirement and make sure they aren’t a burden on the state’. He added retirement savings were being viewed as a ‘piggy bank which can be raided to pay for pre-election promises’. Mr Miliband guaranteed to plug the university funding gap caused by the fees cut, for at least five years. But Wendy Piatt, of the Russell Group of top universities, said members ‘remain cautious’ as the plan would make them ‘vulnerable to future cuts’. A Shadow Cabinet source said it was clear the money could be better spent elsewhere – but said Mr Miliband feared his credibility would be hit if he backed down. 'There are lots of people who don't think it's worth the candle,' the source said. 'Reducing fees from £9,000 to £6,000 does not look like a game-changer, particularly this late in the day. It's a lot of money to spend to leave fees at double the level they were when we left office. 'But Ed sees this as a policy that he is personally associated with and thinks he can't abandon it. He won't be talked out of it, so that's that.' Nick Pearce, head of the Downing Street policy unit under Gordon Brown, said the plan to cut tuition fees 'may not be a good policy'. He added: If I had upwards of £2 billion (a year) to spend on any policy, I would direct it into early-years education and childcare, not a reduction in tuition fees.' Mr Pearce, now director of Mr Miliband's favourite think tank the Institute for Public Policy Research, said the Coalition's controversial reforms to tuition fees would lead to long-term problems for the public finances, but had not damaged young people's enthusiasm for university. 'The Coalition's reforms have been very successful at increasing funding for universities, protecting fair access and upholding student numbers (with the significant exception of part-time students, whose numbers have fallen dramatically), while at the same time cutting public spending,' he said. How do tuition fees work now? A degree can cost up to £9,000 year in tuition fees. Medicine and law degrees can cost more. Rent, living expenses and books are covered by a separate loan. Unless students have wealthy parents, they need to apply for a loan from the Student Loans Company. It is paid directly from the SLC to the university. But it’s each student’s responsibility to pay it back once they graduate. The interest rate is charged at different rates according to income, up to 5.5 per cent. In Germany, tuition fees have just been scrapped, while in the US the vast majority of students benefit from grants, scholarships or work-study schemes to keep the cost down. Do the loans get repaid? Students repay 9 per cent of everything they earn above a £21,000-a-year threshold. This is set to rise with average earnings from 2017. A graduate then continues to repay until they have cleared what they borrowed plus interest, or until 30 years have elapsed since the April after they graduated – whichever comes first. In practice, all but the highest-paid graduates end up repaying debt for all of the three decades. After 30 years, the debt is cleared, by which time the average earner will have repaid £46,300. The rising numbers of overseas students has led to fears thousands are deliberately avoiding loan repayments. This is because it is difficult to get the cash back through the UK tax system when foreign students return home. Would Labour’s plan help? Critics warn Labour’s plan to cut tuition fees to £6,000 a year by cutting tax relief on pensions would actually benefit the better-off. They say cutting fees helps those with a high starting salary as they can get rid of the debt more quickly. Calculations by Martin Lewis of MoneySavingExpert show only those earning £35,000 a year, with inflation-linked pay rises, would benefit – including trainee lawyers and bankers. Estimates by the Institute of Fiscal Studies also suggest the plans would help top earners. Most lower-earning graduates would be unaffected, it said. How would this affect pensions? Capping pension pots at £1million means a 65-year-old who swaps this pot for an inflation-linked annuity – an insurance policy which pays out until you die – for themselves and their spouse would get no more than £27,000 a year. For savers desperate to retire on a comfortable income, this is hardly aspirational – and would not encourage saving. For those in generous final salary schemes funded by their employer – public sector workers and civil servants – the limit would mean they could take up to £50,000. Others say cuts are likely only to hurt those whom the policy is supposed to help. It will do nothing to redistribute wealth from those who have already accumulated large pension pots, and instead simply restrict opportunities to build up a big pension for those just starting work. Hasn’t Labour already pledged to cut the rate of relief? Yes. It previously said it would use the money, an estimated £500million, to fund its compulsory jobs guarantee and apprenticeships. But this will now be covered instead by a planned surplus from corporation tax receipts in the wake of a cut and freeze of business rates.
Miliband fears his credibility would be hit if he backs down on pledge .
Vice-chancellors have warned that it could cause 'colossal' damage .
MoneySavingExpert's Martin Lewis calls plan 'financially illiterate'
Labour's big idea to launch a £15billion raid on pensions to fund a cut in the tuition fees of students was described as ‘financially illiterate’ yesterday. Ed Miliband confirmed he would slash fees from £9,000 to £6,000, despite warnings it would benefit the better-off and could damage universities. The Labour leader said the measure would help relieve the ‘scourge of debt’ which he said was holding back young people and the economy. Ed Miliband: University vice-chancellors have warned that his fees pledge could cause 'colossal' damage by slashing funding for higher education . But his announcement that Labour will raid middle-class pension pots to pay for it sparked a furious backlash. Among the critics was the respected consumer champion Martin Lewis of MoneySavingExpert.com, who condemned them as ‘financially illiterate’. The tuition fee cut would apply from September 2016, including students mid-way through courses. Labour plans to raise the money through two pension changes. The first is cutting tax relief from pensioners earning more than £150,000 from 45p to 20p. This saving had been earmarked to fund a ‘jobs guarantee’ for the young unemployed, but Labour sources admit the falling number of jobless young people means this would cost less than expected. Secondly, the party would cut the ‘lifetime allowance’ for pensions from £1.25million to £1million and cap the amount which can be put away per year from £40,000 to £30,000. Newly indebted: Graduates must pay back fees of £9,000, on top of other costs of getting educated . Under this threshold, pension savings would be taxed at the rate of income, with the first 25 per cent tax-free. But above this level, a punitive rate of 55 per cent would apply. The independent Institute for Fiscal Studies described the pensions raid as ‘misguided’. Paul Johnson, director of the influential think-tank, said the policy entailed a ‘significant tax increase’. IFS analysis found the biggest winners from the change would be ‘mid-to-high-income graduates … with the very highest earners benefiting the most’. It said the plan would have little impact on the number of young people from poorer backgrounds entering higher education as they have not been put off by the hike to £9,000. Mr Lewis said: ‘This is the worst type of politics … that may appeal to people on the surface, but it’s financially illiterate.’ He added that the policy ‘effectively meant poorer students would be subsidising City investment banking graduates’ – and said if any other party had launched it, Labour would be leading protests in the streets. Mr Miliband claimed the £2.9billion-a-year pensions raid, for at least five years, would only hit the very wealthy. But Treasury analysis suggested the move would hit thousands of ordinary public sector workers, such as teachers, nurses and fire crews. The Labour leader also revealed high-earning graduates would face higher interest charges on student loans, to fund bigger bursaries for the poor – a policy critics called a ‘tax on aspiration’. David Cameron said Labour’s ‘ill-thought-out’ plan would ‘damage our universities and our economy, and hardworking taxpayers would pay the price’. Chancellor George Osborne added: ‘[Ed Miliband’s] new tax on pensions will hit many people on middle incomes … a tuition fees policy that only benefits better-off students is being paid for by hard-working taxpayers on middle incomes.’ Speaking at Leeds School of Music yesterday, Mr Miliband said his pledge to cut tuition fees was ‘cast-iron’, adding: ‘The scourge of debt from tuition fees is not only holding back our young people, it is a burden on our country. We’re going to change it.’ But Treasury analysis found the proposed £30,000 cap on annual pension contributions would hit those on final salary schemes who receive a promotion late in their careers. For example, a senior nurse earning £35,500 and promoted to matron on £53,500 after 25 years would face a potential £5,000 tax charge. A teacher on £27,000 promoted to head on £43,000 would face a tax bill of £900. Consumer champion Martin Lewis of MoneySavingExpert.com said Labour's policy was 'financially illiterate' Saga warned funding a tuition fees cut by curbing tax relief on pensions was ‘playing Russian roulette with people’s futures’. Spokesman Paul Green said: ‘Of course education is crucial … but so too is ensuring we foster a savings culture where people ensure they put enough by for their futures.’ Tom McPhail, of Hargreaves Lansdown, said Labour’s plan was ‘reckless’ and would ‘penalise responsible middle-income workers who want to provide for their retirement and make sure they aren’t a burden on the state’. He added retirement savings were being viewed as a ‘piggy bank which can be raided to pay for pre-election promises’. Mr Miliband guaranteed to plug the university funding gap caused by the fees cut, for at least five years. But Wendy Piatt, of the Russell Group of top universities, said members ‘remain cautious’ as the plan would make them ‘vulnerable to future cuts’. A Shadow Cabinet source said it was clear the money could be better spent elsewhere – but said Mr Miliband feared his credibility would be hit if he backed down. 'There are lots of people who don't think it's worth the candle,' the source said. 'Reducing fees from £9,000 to £6,000 does not look like a game-changer, particularly this late in the day. It's a lot of money to spend to leave fees at double the level they were when we left office. 'But Ed sees this as a policy that he is personally associated with and thinks he can't abandon it. He won't be talked out of it, so that's that.' Nick Pearce, head of the Downing Street policy unit under Gordon Brown, said the plan to cut tuition fees 'may not be a good policy'. He added: If I had upwards of £2 billion (a year) to spend on any policy, I would direct it into early-years education and childcare, not a reduction in tuition fees.' Mr Pearce, now director of Mr Miliband's favourite think tank the Institute for Public Policy Research, said the Coalition's controversial reforms to tuition fees would lead to long-term problems for the public finances, but had not damaged young people's enthusiasm for university. 'The Coalition's reforms have been very successful at increasing funding for universities, protecting fair access and upholding student numbers (with the significant exception of part-time students, whose numbers have fallen dramatically), while at the same time cutting public spending,' he said. How do tuition fees work now? A degree can cost up to £9,000 year in tuition fees. Medicine and law degrees can cost more. Rent, living expenses and books are covered by a separate loan. Unless students have wealthy parents, they need to apply for a loan from the Student Loans Company. It is paid directly from the SLC to the university. But it’s each student’s responsibility to pay it back once they graduate. The interest rate is charged at different rates according to income, up to 5.5 per cent. In Germany, tuition fees have just been scrapped, while in the US the vast majority of students benefit from grants, scholarships or work-study schemes to keep the cost down. Do the loans get repaid? Students repay 9 per cent of everything they earn above a £21,000-a-year threshold. This is set to rise with average earnings from 2017. A graduate then continues to repay until they have cleared what they borrowed plus interest, or until 30 years have elapsed since the April after they graduated – whichever comes first. In practice, all but the highest-paid graduates end up repaying debt for all of the three decades. After 30 years, the debt is cleared, by which time the average earner will have repaid £46,300. The rising numbers of overseas students has led to fears thousands are deliberately avoiding loan repayments. This is because it is difficult to get the cash back through the UK tax system when foreign students return home. Would Labour’s plan help? Critics warn Labour’s plan to cut tuition fees to £6,000 a year by cutting tax relief on pensions would actually benefit the better-off. They say cutting fees helps those with a high starting salary as they can get rid of the debt more quickly. Calculations by Martin Lewis of MoneySavingExpert show only those earning £35,000 a year, with inflation-linked pay rises, would benefit – including trainee lawyers and bankers. Estimates by the Institute of Fiscal Studies also suggest the plans would help top earners. Most lower-earning graduates would be unaffected, it said. How would this affect pensions? Capping pension pots at £1million means a 65-year-old who swaps this pot for an inflation-linked annuity – an insurance policy which pays out until you die – for themselves and their spouse would get no more than £27,000 a year. For savers desperate to retire on a comfortable income, this is hardly aspirational – and would not encourage saving. For those in generous final salary schemes funded by their employer – public sector workers and civil servants – the limit would mean they could take up to £50,000. Others say cuts are likely only to hurt those whom the policy is supposed to help. It will do nothing to redistribute wealth from those who have already accumulated large pension pots, and instead simply restrict opportunities to build up a big pension for those just starting work. Hasn’t Labour already pledged to cut the rate of relief? Yes. It previously said it would use the money, an estimated £500million, to fund its compulsory jobs guarantee and apprenticeships. But this will now be covered instead by a planned surplus from corporation tax receipts in the wake of a cut and freeze of business rates.
vice-chancellors have warned that his fees pledge could cause 'colossal' damage by slashing funding Martin Lewis of MoneySavingExpert.com, who condemned them as ‘financially illiterate’. The feared his credibility would be hit if he backed