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The Pledge and the Manifesto - what do they mean?

There have been some questions as to what The NUS Pledge and the commitment in the Lib Dem Manifesto mean.

Let us start with the NUS Pledge:
“I pledge to vote against any increase in fees in the next parliament and to pressure the government to introduce a fairer alternative.”

This is normally misrepresented by people as a simple statement against voting against fees. In fact often only the first part is mentioned.

I interpret the statement as meaning that whilst the system remains as it is then the fees should not go up. However, when we have a "fairer alternative" then the limitation on fees should not exist.

This is obviously the right interpretation. Otherwise the implication would be that the capitation paid to universities would have to be static. The new system disconnects the student "graduate contribution" from the amount of fees paid to the university (by the government or an agent of the government) for the majority of students (source IFS). What the students pay is the key issue rather than what the universities get from the perspective of the pledge.

Hence if we really do have a "fairer alternative" the pledge is satisfied by getting the fairer alternative.

Given that the NUS are proposing their own fairer alternative which is quite similar to that proposed by the government then I would assume that this is also the interpresetation of the NUS.

As far as the manifesto goes we had set out an objective of phasing out fees (which means the government paying them) over a period of 6 years. That was in a strict sense not scrapping fees, but paying them out of general taxation.

The coalition's proposal is a hybrid where there is a capped graduate tax subsidised by general taxation. It is not the same as the manifesto proposal, but it is not a U turn.

-- further point added after comments.
The alternative interpretation of the pledge that under no circumstances fees should go up is in fact in conflict with the Lib Dem Manifesto. The Lib Dem Manifesto argued that the government should pay for fees over a 6 year period. The "no circumstances" interpretation would imply therefore that the sum paid to unversities should not be increased even if more of it was paid from general taxation. This is clearly an absurd interpretation.



tom said…
“I pledge to vote against any increase in fees in the next parliament and to pressure the government to introduce a fairer alternative.”

To me the obviously right interpretation is that you will vote against any increase in fees AND seek to introduce a fairer alternative.

That is not the same as voting for an increase in fees but it being a "fairer alternative" than whatever you think the Conservative party would have done had they been a majority government.

There are two parts to the pledge. You have broken the first part in my eyes, and in the eyes of many other people.
The second part of the statement is irrelevant - by breaking the first part of the pledge you have broken the pledge.

Personally I don't think it could be any clearer.

Please do not keep saying this is a graduate tax, it is not a tax, it is a debt, the two are fundamentally different.

You can try to spin it how you want but I understand you are a businessman and so you really should be financially literate and know the difference between a loan liability and a tax liability.
Both are liabilities that deduct from the balance sheet but they are fundamentally different in their nature.

Will you acknowledge that there is a difference between a liability that accrues interest (thus growing over time) and a liability that does not accrue interest?
john said…
I have explained why your interpretation of the pledge is irrational. However, we will have to agree to disagree.

The liability is due when the income is earned. That is a tax.
tom said…
I'm happy to agree to disagree about the tuition fee pledge, we have both explained our points of view.

If the Lib Dems are still brave enough to bring in the right to recall we will find out how many of the electorate agree with me, and how many agree with you. I think the Lib Dems will quietly drop that one though, as many Lib Dem MPs are vulnerable, being in student heavy areas (particularly Nick Clegg).

Do you really think there is no difference between a debt accruing interest and a debt not accruing interest?

Also, the liability is not due when income is earned - it is due when you are at university (I'm not sure of exactly when the tuition fees become due, if it's all at the start of each year or spread out across the year).

There is then a system of loans in place so that students can borrow the money to meet the initial liability.

The liability from the loan becomes due when income is earned, but that does not make it a tax, can you name me any other tax that accrues interest before it becomes liable for payment?
PoliticalHack said…
John, the irrationality is yours. Nobody else believes that you - and your fellow Lib Dems who voted with the government - stuck to your promise. To claim that you have done so goes against the facts and indicates either self-delusion on a grand scale or a grossly inadequate relationship with the truth.

This continued argument - in the face of statements from your colleagues - renders your credibility ever more laughable.
john said…
On the issue of the pledge in a strict sense the Lib Dem manifesto was in conflict with the pledge because even if tuition fees were all paid by the state MPs would have been bound not to increase them. That is clearly absurd and, therefore, an interpretation of the pledge that the amount of money the university gets should not increase is an invalid interpretation.

Interest is normally related to the likelihood of payment. That is the reverse in the government's proposals. The formula for interest is explicitly devised to increase the payments by the better off. That is of the nature of a progressive tax.

The charge is a contingent liability and in terms of book keeping would only be charged to the balance sheet when the liability is in some way due.
john said…
As far as John O Shea's comment goes. I am not the only Lib Dem MP who takes this view. I am quite clearly right on this notwithstanding others disagreeing.

On Tom's point about debt. If it were to be a real debt it would be a valid charge on the debtors estate. It isn't.
tom said…
I'll have to find and re-read the manifesto to answer your point properly, but I think what most people understand by tuition fees is the amount of money that students must pay to go onto a course, not the amount of money that universities receive for having the student on their course (whether from the student or the government).

Perhaps you could explain the interest payments to me then, since my understanding is that the interest rate charged will be the same for everyone, regardless of earnings.
The only relation to earnings is that you won't have to start paying back the loans until you earn over £21k (although this has not yet been agreed so might never happen).
If you could link me to a policy document that explains things differently, I would appreciate it. I have been trying to find such a thing, but as I'm sure you can appreciate, it's kind of hard to find specific stuff online right now when on this topic - it's all general news about the votes and protests.

In principle, I don't understand how you could make those earning more pay more interest, surely those earning more will pay off the loans more quickly, and thus pay less in interest, even if they have higher rates? And, how do you enter a loan agreement legally without a defined interest rate?

Your post suggests to me that somehow someone who earns say £40k/year will have a higher interest rate than someone who earns £25k/year. Perhaps I am wrong about that.

I can only assume you are correct about charging the liability when it becomes due, I've only had business loans on which payments were due immediately, except directors loans, and the directors loans were on the balance sheet as a liability as soon as they were put into the company, but I'm not an accountant so perhaps that is not always the case.

I'm sure though that when applying for credit individuals who have student loans will have those loans taken into account - I know that I have had them taken into account when applying for mortgages.

In that sense the loans certainly appear on the individuals balance sheet before they become liable for payment.

Can you name me a tax which charges interest before it is due?
john said…
Tom: I am pleased that you recognise that the pledge is not a simple constraint on university capitation funding.

That being the case you need to look at what student/graduates actually pay. The government will pay the fees and the graduates will make a graduate contribution.

For 25% of graduates the net present value of this is lower than currently. On an annual basis the charge for those that pay is less.

For those people the "fees" will have gone down.

The balance on a student loan under the new system should not affect either mortgages or credit limits (I have this confirmed by the Council of Mortgage Lenders).

In fact under the new system people should be able to get a bigger mortgage.
tom said…
John, I must admit I'm not entirely sure what you mean by "university capitation funding" - does this refer to the amount that universities receive in grants from governments? And thus is distinct from the tuition fees paid by students.
I'm going to assume that is correct in my following statement, so ignore the next bit if I'm wrong.. (but please explain clearly what you mean by university capitation funding)

The pledge had nothing to do with university capitation funding - it is a simple pledge to (a) vote against a rise in tuition fees and (b) seek a fairer alternative..

We already know we disagree about the view of the pledge, I think that some or all of the disagreement might come because I see tuition fees as being distinct from central grants in a way that you do not.

It is not just how much money a university receives (per student) that is important, it is also how it is paid.
One of the major problems with a fee/loan system is that people from poorer backgrounds will be put off by the amount of debt they will accrue taking the course, regardless of the £21k point of repayment (and yes I need to find some research that shows this happened with the introduction of ~1K and ~3k fees but I'm not going to do that right now, sorry, I'm off out shortly).

Could you provide a link for the workings of your claim that 25% of graduates will pay less than currently please - unless this is somehow relative to the debt, I find it hard to believe that many people will pay less as an absolute figure after fees have risen to 9k/year, even if the other measures that are yet to be voted on are introduced.

I would still like an answer about how the interest rates can be charged at a varying rate for different income levels, or if that is not the case, how someone who earns more (and therefore pays the loan back earlier) can pay a higher rate of interest.

I'd also like an example of a tax that interest is paid on before it is due, or an admittance that no such tax exists.

I am, however, glad to know that lenders will ignore student loans when considering credit in the future. This is not the case for me - the payments I have to make on my student loans were definitely counted when I applied for mortgages a few years ago.
john said…
Capitation funding is the same as a tuition fee. It is a sum of money paid for the tuition of a student. Calling it something different does not make it different.

I have explained why your interpretation is absurd and conflicts with the Lib Dem manifesto. I won't repeat this argument ad infinitum.

The 25% figure is sourced from the IFS and government. You need to go there for the detailed calculations.

The point about the proposed system is that it operates as a taxation system with a cap. The interest rates are used to make it progressive.
tom said…
John, I already agreed to disagree about the pledge being broken, you brought it up again referring to the Lib Dem manifesto, then started talking about "University Capitation Funding", so don't get annoyed with me for continuing to discuss the matter. (If I've misread your tone of voice in the last post, my apologies).

If University Capitation Funding is exactly the same as tuition fees: ie: the amount a student pays to enter a course, then why did you change the language?

The sum of money paid for as student is not the same as the sum of money paid by a student. The source of the money is important, and I do believe that there is a difference between that money coming from central government (and therefore from general taxation or in theory a graduate tax) or being paid directly by the student whose parents can either afford to pay it upfront, thus incurring no future loan/debt, or by taking a loan to cover it.

If you want it to be a tax, it needs to be a tax, not a debt. Why should the absolute richest in society - those whose parents can afford to pay the fees upfront - pay no tax?

The IFS report misses this point, it only examines people who have been forced to take the loan.
My reading of it also is that the comparison to the current system does not take into account the fact that fees will be raised by as much as £6,000 / year, so anyone will end up paying back more under the new system.
What the report does is compare how repayments would fair under the current system if the fees cap were simply raised.

I completely acknowledge that student loans do not work in the same way as personal loans or a mortgage, but that does not make it the same as a tax. I also acknowledge that the proposals would see an interest rate weighted on earnings, which combined with early repayment levies will make it more progressive than I thought - but this does not change my opinion the matter of fees. (And obviously has no impact on what I think about the pledge).

People do not see a future tax liability in the same way that they see a debt. The prospect of leaving university with £27k-£40k of debt (the higher figure including some borrowing to cover living expenses) fills people with fear - for many people it is an unimaginable sum of money, and something without a tangible asset to weigh it off against.

The prospect of paying extra in tax does not have the same effect, even if it would mean that they end up paying more in tax over their lifetime than they would have paid for the borrowing.

That is my experience talking with people, with the students that I work with and with the teenagers and parents that I know. In the link below, 46% of parents have said they would be put off sending their children to university by the charges.

Is this why the Lib Dems are so desperately trying to repaint tuition fees as a tax? 66% disagree with the rise in tuition fees and 61% do not trust Nick Clegg - a total reversal of the situation before the election.

Nearly 50% of people who voted for the Lib Dems at the last election are less likely to do so at the next election.

john said…
I am not annoyed, it is merely that I have a limit as to how many places and times I can discuss something.

There is an important distinction between language and concepts. For example the same word can be used for different concepts and the same concept can be described by different words.

What I want to see is the funding for tuition to be approached as something other than debt. This is where the priority of effort needs to go.

That, in itself, will achieve a lot even if over time people pay the same sums of money.
tom said…
If you want the issue of funding to be approached as something other then debt, then why support a system that sets it up as debt?
I find this bizarre.

Or is at just that the Lib Dems are feeling the heat of public anger and distaste for what the Lib Dems are doing and you are desperately trying to spin this so people don't see it for what it is?

Don't patronise me about language and concepts. When you are using a term for a concept in a discussion, there is no reason to suddenly use a different term without any explanation.
john said…
All that has been set so far is the amounts of money that go to the universities.

What the students/graduates will pay and what this will be called has not been set. I pressing for it not to be debt.

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