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# Students in Favour Of Tuition Fee Reform Discussion Watch

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Surely you'd need growth in tax revenue of (£160bn x 0.035)/0.4 = £5.6bn?

(assuming a lower tax take of 40% of GDP)

So a rise in GDP/annum of 1%

Since GDP rose by 0.8% in the last quarter alone how is 1% a ridiculously high rate of growth?
What's the 0.035 on the top there? Just so I follow your logic. You'd need a growth in tax revenue of £160bn to eliminate a deficit of £160bn!

But the greater flaw in that analysis is that it ignores the fact that the deficit increases by itself every year it is not completely eliminated, due to increasing public debt and therefore interest bills. So if you don't shrink the deficit by £160bn in the first year, you in fact have to shrink it by more overall. If the rate by which it increases exceeds the rate of growth in tax revenue, you are truly screwed.

Edit: I make it you'd need ((160/568) * 100) = 29% increase in tax revenue. Assuming tax revenue is a constant fraction of GDP, that implies 29% growth in GDP. That would take 10-11 years at an annual growth rate of 2.5%, by which time your interest bill on the public debt which has been growing by the size of the (remaining) deficit all that time would have got a lot bigger.
2. (Original post by Budgie)
What's the 0.035 on the top there? Just so I follow your logic. You'd need a growth in tax revenue of £160bn to eliminate a deficit of £160bn!

But the greater flaw in that analysis is that it ignores the fact that the deficit increases by itself every year it is not completely eliminated, due to increasing public debt and therefore interest bills. So if you don't shrink the deficit by £160bn in the first year, you in fact have to shrink it by more overall. If the rate by which it increases exceeds the rate of growth in tax revenue, you are truly screwed.
10 year gilt yield = 3.5% (actually 3.41% today http://www.yieldcurve.com/marketyieldcurve.asp)

Nobody said anything about getting rid of the deficit, just reducing it (close the deficit as you said)

borrowing % (3.41%) x amount you're borrowing = increase in interest charge for next year, right now thats about £5.5Bn.

If tax take increase by that amount the deficit next year is lower not higher if all spending is equal.

No?
10 year gilt yield = 3.5% (actually 3.41% today http://www.yieldcurve.com/marketyieldcurve.asp)

Nobody said anything about getting rid of the deficit, just reducing it (close the deficit as you said)

borrowing % (3.41%) x amount you're borrowing = increase in interest charge for next year, right now thats about £5.5Bn.

If tax take increase by that amount the deficit next year is lower not higher if all spending is equal.

No?
Ok this is quite interesting - I think you have a point. The problem is that this is using an interest rate on the debt which is already taking into account the fiscal policy of the government - it all depends how much the markets trust you to pay back your debt pile because eventually you have to pay back the principal.

I'm just going to quickly model this in Excel before I confuse myself with back-of-the-envelope calculations!
4. (Original post by Budgie)
Ok this is quite interesting - I think you have a point. The problem is that this is using an interest rate on the debt which is already taking into account the fiscal policy of the government - it all depends how much the markets trust you to pay back your debt pile because eventually you have to pay back the principal.

I'm just going to quickly model this in Excel before I confuse myself with back-of-the-envelope calculations!
The market sets the interest rate so how does it matter what the market does or does not take into account?
I think you're over estimating Govt IT :P

I'd be interested to know if unis have lists of graduates (probably) and their dates of birth (unlikely), for say the 1950's.

Not that it'd be computerised even if they do.

There would be a lot of John Smiths arguing 'it wasn't me' :P
The Queens College Register goes back far further than that, my father graduated circa 1947/1948 and he is not nearly the earliest graduate. Anyway if you only levy say to age 65, and the graduates were at least 20 on graduation (Scotland, I doubt very many in England under 21) then if 65 in say 2011 you really only need go back until 1966.

The registers of Births and Deaths coupled with NI and National Health records would likely have most of the data required, besides in the main most people are law abiding, if a tax is levied with a duty to disclose and normal penalties for non disclosure I would think you would get 90% of still resident graduates fairly easily.

I would be very surprised if the Universities do not have listings on databases, they spend a fortune writing to and phoning graduates for donations, Edinburgh has a small team whose function is to raise such funds. My son's University writes to us , his parents, looking for donations and neither of us went to his University.
The market sets the interest rate so how does it matter what the market does or does not take into account?
Because if the government announced tomorrow that we were no longer going to take fiscal measures but were just going to let growth eliminate the deficit, the yield on the bond would go through the roof.

I've done a few calculations in Excel and I reckon that while you are right that holding interest rates constant, you don't need a high level of growth to close the deficit, the problem is that if we just relied on this strategy public debt to GDP would stand at 108% by the time the deficit was closed. That is a huge ratio, and obviously it is therefore unrealistic to assume that the risk premium on the bonds would not shoot up in response, eroding the assumption of low interest rates.

So it all depends how you think the market will react, which of course is a somewhat circular analysis. But given the risk averse attitude displayed by the markets towards other Eurozone countries, there is a strong case for caution. We don't really want public debt going much higher than it is now, if you compare against the figures of Portugal / Greece / Ireland.
7. (Original post by Budgie)
Because if the government announced tomorrow that we were no longer going to take fiscal measures but were just going to let growth eliminate the deficit, the yield on the bond would go through the roof.

I've done a few calculations in Excel and I reckon that while you are right that holding interest rates constant, you don't need a high level of growth to close the deficit, the problem is that if we just relied on this strategy public debt to GDP would stand at 108% by the time the deficit was closed. That is a huge ratio, and obviously it is therefore unrealistic to assume that the risk premium on the bonds would not shoot up in response, eroding the assumption of low interest rates.

So it all depends how you think the market will react, which of course is a somewhat circular analysis. But given the risk averse attitude displayed by the markets towards other Eurozone countries, there is a strong case for caution. We don't really want public debt going much higher than it is now, if you compare against the figures of Portugal / Greece / Ireland.
I didn't suggest that wasn't the case, I was just pointing out your forcefulness that there is only one solution is not true. There are many approaches with differing risks and benefits.

How can you say the market is 'risk adverse' when we are borrowing at the cheapest level for the last 100 years?

By 'though the roof' I assume you're exaggerating again, we were at under 4% running up to the general election and during the week after the election. Ireland borrows at 7.5%, but the key difference is that they have a large deficit whilst over 100% debt:GDP, we'd have a way smaller deficit at that point. Their real problem is that they are reducing spending/increasing taxes which will cause static or negative GDP growth over the next couple of years. We wouldn't be doing that.
I didn't suggest that wasn't the case, I was just pointing out your forcefulness that there is only one solution is not true. There are many approaches with differing risks and benefits.

How can you say the market is 'risk adverse' when we are borrowing at the cheapest level for the last 100 years?

By 'though the roof' I assume you're exaggerating again, we were at under 4% running up to the general election and during the week after the election. Ireland borrows at 7.5%, but the key difference is that they have a large deficit whilst over 100% debt:GDP, we'd have a way smaller deficit at that point. Their real problem is that they are reducing spending/increasing taxes which will cause static or negative GDP growth over the next couple of years. We wouldn't be doing that.
Because of the punitive rates they have imposed on Portugal, Ireland, and Greece. As I said, the current UK rate prices in the current government's policy.

I'm not exaggerating. If we announced no public spending cuts and no tax rises whatsoever? That was what we were paying going into an election which the Conservatives were initially expected to win (and therefore there was a strong chance of deficit reduction). Even if Labour won, the markets were expecting more moderate deficit reduction. So no, I don't think that claim is an exaggeration.
9. (Original post by Budgie)
Because of the punitive rates
How high do you think rates would be? Spain is being charged 5.08%, its pretty inconceivable we'd be charged more than them, so we'd be charged a full percentage point less than in 2007 (5% vs 6%).

Punitive would be 7-10% surely?

Also spread betting were priced to a hung parliament three months before the election.
10. Can anyone explain to me how the government expects the changes to reduce the deficit when we would not expect to see increased graduate contributions for another 10-15 years?
Thanks
11. (Original post by szillard)
Can anyone explain to me how the government expects the changes to reduce the deficit when we would not expect to see increased graduate contributions for another 10-15 years?
Thanks
They don't...?

But revenues will continue to rise as more and more people are payng back to the SLC.
They don't...?

But revenues will continue to rise as more and more people are payng back to the SLC.
But Nick Clegg's whole argument is that the state of public finances has necessitated these changes.
13. (Original post by szillard)
But Nick Clegg's whole argument is that the state of public finances has necessitated these changes.
Well it the Govt does get an asset (loans) it can then sell on if it needs to. But yeah, thats a bit of a rubbish reason.
14. so why are you in favour of inflicting yourselves with tens of thousands worth or debt?

wouldn't it be be better to start your working life with no debts?
15. (Original post by Duncan Idaho)
so why are you in favour of inflicting yourselves with tens of thousands worth or debt?

wouldn't it be be better to start your working life with no debts?
It's not like any other kind of debt. It's more like paying an additional income tax. It can't be foreclosed, and you can't fall behind on payments. If you earn £25,000, repayments would be £6.92 / week. Your income would be equivalent to if you earned £24,640. Hardly crippling!

Those who want 'free education' seem to think that the state is some kind of external money tree. We'd still end up paying for it through income tax. Presumably, the left would want this done in a progressive way. In that case, the burden of the bill would fall on high earners, most of whom will be graduates.

This is a very similar in distributive terms to what will happen under Browne. Most of the burden for paying for all higher education will fall on high earning graduates.
16. why do you want to pay an 'additional income tax'?

turkeys voting for christmas comes to mind
17. (Original post by Duncan Idaho)
why do you want to pay an 'additional income tax'?

turkeys voting for christmas comes to mind
So you think income tax/national insurance should be lower?

Won't that hurt our wonderful public services?
18. (Original post by Duncan Idaho)
why do you want to pay an 'additional income tax'?

turkeys voting for christmas comes to mind
I suppose the difference between the people on this thread and you is that we aren't greedy and pay our way for the privileged opportunities in society so we don't put those less fortunate out of pocket.

Some of us don't want to hoard wealth like the bankers and are happy to contribute back to society when society has helped us to have a more comfortable standard of living.

19. (Original post by Budgie)
It's not like any other kind of debt. It's more like paying an additional income tax. It can't be foreclosed, and you can't fall behind on payments. If you earn £25,000, repayments would be £6.92 / week. Your income would be equivalent to if you earned £24,640. Hardly crippling!

Those who want 'free education' seem to think that the state is some kind of external money tree. We'd still end up paying for it through income tax. Presumably, the left would want this done in a progressive way. In that case, the burden of the bill would fall on high earners, most of whom will be graduates.

This is a very similar in distributive terms to what will happen under Browne. Most of the burden for paying for all higher education will fall on high earning graduates.
Not strictly true, the repayments come out of net pay, not gross. Accordingly your £25,000 first gets reduced by National Insurance, then by Income Tax. You will also soon have compulsory pension deductions as the state second pension ceases and you have to make contributions. (phase in from 2012) Once these are deducted your 9% of £4,000 (25,000-21,000), £360 is deducted. I doubt this will service the interest on the debt, so at least it will stay static at what it was as if contribution due does not cover interest, the interest is reduced I understand.

For info tax will be circa £3,705 NI circa £2,121 if say 2010/2011 tax year bands used. Of course NI rate goes from 11%-12% in 2011/2012, albeit thresholds change. The new pension scheme is to be phased in, dependant upon employer size, with circa minimum 4% employee contributions (unless employer has acceptable scheme, however chances are 4% will be lower than required employer scheme contribution, usually circa 6%) This means further £1,000 from your £25,000.

So in Summary Gross £25,000 less tax £3,705, less NI £2,121 less min pension £1,000 = take home £18,174. From this you pay your £360 loan repayment, leaving £17,814 for you to live on, £1,484.50 per month.

It would not be that bad if you knew the £1,000 a year to the pension scheme would be enough, after all your employer will contribute 3% and the government 1%. Sadly an 8% contribution to a money purchase scheme for your whole working life is unlikely to give you, even including the state pension, an income in retirement of 2/3 final salary, the level we all aspire towards but few reach.

You will note the state has received in one way or another £7,186 of your £25,000, of course it has also charged your employer National Insurance of circa £2,468 and of course his 3% contribution on the pension of £750, so the actual cost to him of your employment is £28,218 (25,000+2,468+750), you get £17,814, state gets £10,404.

Of course once your gross hits above circa £45,000 the marginal rates are 40% income tax, 1% NI, 9% student loans and 4% pension (Unless it has an upper limit, I will have to check this) So marginal rate on your employment 54% deduction, plus employer still paying 12.8% on the top as NIER, possibly 3% pension (if no upper limit, see above) so for every extra £1,000 on your gross pay the state gets 54% by deduction and 15.8% from your employer, total 69.8% of your marginal gross pay.

For whose benefit will you all be working?
20. (Original post by DJKL)
Not strictly true, the repayments come out of net pay, not gross.
Eh?

It comes out of gross pay (as you have worked though the rest of your spiel)

If it came out of net pay then it would be based on the amount you earn after tax/NI/pension contributions.

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