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Public Services for All > Published by Will Straw, October 12th 2010 at 12:30 pm

Bankers fare better than public servants under Browne plans

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Graduates who choose a public service career over the City will be worse hit by Lord Browne’s proposals. Although those on lower incomes will pay back a smaller proportion of their loans, graduates in top paying jobs will end up making smaller contributions than students on middle incomes.

The Browne review recommends scrapping interest free loans and introducing a market rate of interest worth 2.2 per cent. Under the current arrangement, the average student debt of £13,500 over a three year course remains £13,500 in real terms if left unpaid. But under Lord Browne’s plans, the compound interest paid over the 30 year period will almost double the value of the debt. Average debt is expected to rise to £30,000 – over 30 years, the value of the loan if no contributions are made will be £57,630.

Lord-BrowneIn practice, no individual will pay back that figure since annual payments are capped at 9 per cent of earnings above £21,000.

Nonetheless, some career paths will result in higher contributions than others due to the market rates on the loans. Once again it is the middle who will get squeezed:

- A teacher starting on £20,000 with a salary rise of £1,000 every year will pay back £39,150 over 30 years;

- A ‘fast track’ civil servant starting on £25,000 with a salary rise of £1,000 every year will make £44,600 £47,500 in contributions over 30 years;

- A blue chip business trainee starting on £40,000 with a salary rise of £2,000 every year will pay back £31,700 £35,400 over just 12 years; and

- A banker starting on £60,000 with a salary rise of £3,000 every year will pay back just £27,900 £33,000 over seven years.

The result is that while students choosing career paths which pay under the national average will do relatively well from the arrangements, graduates in the middle will fare worse than those who choose lucrative careers in business or finance.

NB: I’ve just spotted that my model excluded the final year payments for those earners who were able to pay off the principal before the 30 year period ended. The spreadsheet can be downloaded here for anyone who wants to play around with their own numbers. The central point, however, still stands.

An earlier version of this piece appeared online automatically before our calculations were complete.

  • http://twitter.com/dogandbone1/status/27129576759 digby

    RT @leftfootfwd: Bankers fare better than public servants under Browne plans http://bit.ly/dcn69F

  • http://twitter.com/paulseery/status/27129667411 Paul Seery

    RT @leftfootfwd: Bankers fare better than public servants under Browne plans http://bit.ly/dcn69F

  • http://twitter.com/catnamedeaster/status/27129699912 Fran

    RT @leftfootfwd: Bankers fare better than public servants under Browne plans http://bit.ly/dcn69F

  • http://twitter.com/goodoldmj/status/27129752754 Martin Johnston

    this headline won't shock you RT @leftfootfwd: Bankers fare better than public servants under Browne plans http://bit.ly/dcn69F

  • http://twitter.com/typejunky/status/27129774519 Nick Stone

    RT @leftfootfwd: Bankers fare better than public servants under Browne plans http://bit.ly/dcn69F

  • http://twitter.com/rosiecosy/status/27129936323 Rosie

    RT @leftfootfwd: Bankers fare better than public servants under Browne plans http://bit.ly/dcn69F

  • http://twitter.com/pennyb/status/27129938009 Penny B

    RT @leftfootfwd: Bankers fare better than public servants under Browne plans http://bit.ly/dcn69F

  • http://twitter.com/chuzzlit/status/27130078515 Alison Charlton

    RT @leftfootfwd: Bankers fare better than public servants under Browne plans http://bit.ly/dcn69F

  • http://twitter.com/missekawasaki/status/27130264134 Emily Kawasaki

    RT @leftfootfwd: Bankers fare better than public servants under Browne plans http://bit.ly/dcn69F

  • http://twitter.com/shamikdas/status/27130367517 Shamik Das

    Bankers fare better than public servants under Browne plans http://bit.ly/dcn69F – @wdjstraw crunches the numbers on @leftfootfwd

  • http://twitter.com/westernshores/status/27130549897 Pen

    RT @leftfootfwd: Bankers fare better than public servants under Browne plans http://bit.ly/dcn69F

  • http://twitter.com/masterofmuh/status/27131030775 Chris Black

    RT: @leftfootfwd Bankers fare better than public servants under Browne plans http://bit.ly/dcn69F

  • http://twitter.com/facewizardr/status/27131367312 michael angelo

    Bankers fare better than public servants under Browne plans | Left … http://bit.ly/dn4IPG

  • http://twitter.com/leonieleonie/status/27131904326 leonie

    Bankers fare better than public servants under Browne plans | Left Foot Forward http://t.co/BrJNixR << Fair? Really?

  • http://twitter.com/zwaaaa/status/27133010487 Ali Cummings

    RT @leftfootfwd: Bankers fare better than public servants under Browne plans http://bit.ly/dcn69F

  • http://twitter.com/greg_sheppard/status/27133822665 Greg Sheppard
  • http://twitter.com/beckycharlwood/status/27134316738 Rebecca Charlwood

    RT @leftfootfwd: Bankers fare better than public servants under Browne plans http://bit.ly/dcn69F

  • http://twitter.com/cwallace91/status/27135043080 Chris Wallace

    RT @leftfootfwd: Bankers fare better than public servants under Browne plans http://bit.ly/dn4IPG

  • JoshC

    “Graduates who choose a public service career over the City will be worse hit by Lord Browne’s proposals.”

    By the time the people who will be affected by this graduate there won’t be a public service…

  • http://twitter.com/lee_dent/status/27135612096 Lee Dent

    RT @typejunky: RT @leftfootfwd: Bankers fare better than public servants under Browne plans http://bit.ly/dcn69F

  • http://twitter.com/mr_pukeko/status/27135632252 Matt Jeffs

    RT @leftfootfwd: Bankers fare better than public servants under Browne plans http://bit.ly/dcn69F

  • Anon E Mouse

    Will – You completely miss the point – the bankers pay more in general taxation. There is already a graduate tax, it’s called PAYE…

  • http://twitter.com/red_sfandy/status/27136664263 Andy Bean

    RT @leftfootfwd: Bankers fare better than public servants under Browne plans http://bit.ly/dcn69F

  • http://twitter.com/goldsmithsucu/status/27136927378 Goldsmiths UCU

    RT @leftfootfwd: Bankers fare better than public servants under Browne plans http://bit.ly/dcn69F

  • http://brightgreenscotland.org Alasdair

    Hi, this is a really important point, which I’d planned to calculate myself, but you beat me to it.

    Could you run through your methodology, though? I calculated broadly similar but not exactly the same figures.

    Thanks.

  • http://twitter.com/frickinlasers/status/27138666856 ksloyan

    RT @leftfootfwd: Bankers fare better than public servants under Browne plans http://bit.ly/dcn69F

  • http://www.liberal-vision.org/2010/10/12/three-cheers-for-the-browne-review/ Liberal Vision » Blog Archive » Three cheers for the Browne review

    [...] from those who haven’t read it, or are wedded to unworkable and regressive systems like the graduate tax or pure state funding. From this corner we hope the government adopt the proposal in full, as an [...]

  • http://twitter.com/essexwomble/status/27145551413 Paul Jeater

    RT @leftfootfwd: Bankers fare better than public servants under Browne plans http://bit.ly/dn4IPG

  • http://brightgreenscotland.org Alasdair

    Just to be pedantic for a moment, for no particularly good reason, your 25K+1 calculation takes payments from the previous years wages each year. So the first two years both repay £360 (9% of £25,000-£21,000), rather than £360 then £450, for example. Over the course of the 30 years, that means you’ve calculated they pay ~£3000 more (the real repayment figure being just over £44,000). Which I suppose shows the cumulative effect of a year’s wage freeze. Something we should remember in the current climate.

    Of course, the figures are all rough and the basic point that if you can pay back quicker you pay much less remains just as true, and as important, whatever assumptions you take.

  • Matt

    Anon E Mouse – Actually, I think you completely miss the point. What bankers may or may not pay in income tax is irrelevant. The point is that their university education should not be cheaper than that of others who find themselves on less lucrative career paths (quite the opposite, if anything). As Will accurately demonstrates, it will be. And that is wrong.

  • http://www.taxresearch.org.uk/Blog/2010/10/12/bankers-will-fare-better-than-public-servants-under-browne-university-funding-plans/ Tax Research UK » Bankers will fare better than public servants under Browne university funding plans

    [...] See Left Foot Forward for the details [...]

  • http://alexmasterley.blogspot.com Alex

    Except your analysis is nonsense. If interest accrues at a “market rate” on the outstanding balance, then assuming the loan is always paid off, the present value of the payments discounted at a market rate of interest is aleways the same figure, £30,000.

  • http://www.leftfootforward.org/2010/10/why-lord-browne-has-got-his-numbers-wrong/ Why Lord Browne has got his numbers wrong | Left Foot Forward

    [...] the fact that it will need to foot the bill for increased tuition fees in the short term before an unfair and regressive interest rate gradually takes over and students begin to pay back the higher fees. If the economy does not [...]

  • Mark Curry

    Your assumptions are flawed.

    You assume that the graduates all have incurred the same level of indebtedness – this is highly unlikely. High flying bankers are usually recruited from Russell Group/1994 Group Universities – fees there are likely to be significantly higher than elsewhere. (Possibly £8-12K compared with £5-£7 per year elsewhere)

    Also teachers’ starting salary is NOT £20,000 per year it is £21,588 (£27,000 in London) and your annual pay increase of £1,00 per year is pure nonsense.

    http://www.tda.gov.uk/get-into-teaching/salary/starting-salary.aspx

    The alternative is to try being a teacher who is not a graduate or qualified – if you could possibly get a teaching job your starting salary would be £15,817 and could only reach a maximum of £25,016 – that makes an investment in your higher education over 30 years seem imminently sensible and straightforward.

  • http://www.leftfootforward.org/2010/10/look-left-chile-miners-rescue-browne-review-ed-milibands-first-pmqs-and-more/ Look Left – 33 and easy, a new nation emerges blinking into the night | Left Foot Forward

    [...] main story was the long-awaited publication of Lord Browne’s review into higher education. Analysis by Left Foot Forward showed that, under his plans, bankers would fare better than public servants; [...]

  • http://www.leftfootforward.org/2010/10/browne-review-to-cost-taxpayer-more/ Ideological Browne review will end up costing taxpayer more | Left Foot Forward

    [...] Foot Forward has already highlighted the unfairness of the propsals, which will result in bankers faring better than public servants such as teachers. [...]

  • Peter

    Will, big fan of the site, but I have to say I think your sums are quite badly wrong here.

    The major error is not discounting future value to get a net present value. The timescales of the different repayments are the major source of the apparent differences in total repayment, and the results need to be adjusted by a suitable discount rate (say inflation) in order to provide a more meaningful net present value figure.

    By using an NPV calculation, your teacher pays £24k, your fast-streamer would pay c£34k, your blue chip grad c£35.5k, and your banker c£33k. Admittedly still unfair, but far less than your figures suggest.

    This difference is then eroded when you calculate the annual increase in the threshold for repayments, which Browne suggests should be inflation. Modelling inflation at 2%pa over the 30 years, the teacher would pay c£10k, the fast streamer c£20k, the blue chip grad c£36k, and the banker c£33k.

    The proposals certainly throw up some odd figures, but when the safeguards are built in, it looks like (financially at least) those on lower incomes around the threshold will do well, comparatively.

    Of course, that doesn’t factor in the psychological impact on those comparatively lower earners of having a huge debt hanging over them for 30 years. Wonder how easy it will be for them to get on the property ladder after this…

  • http://twitter.com/wdjstraw/status/949182655369216 Will Straw

    @TimGatt Don't get taken in. A banker would do better than a teacher under the plans http://bit.ly/aCtubz

  • http://www.leftfootforward.org/2010/12/ed-miliband-david-cameron-tuition-fees/ Miliband attacks “shoddy” fees scheme | Left Foot Forward

    [...] month, Left Foot Forward showed that bankers would fare better than teachers under the Browne Review, that although those on lower incomes will pay back a smaller [...]

  • http://www.leftfootforward.org/2010/12/five-reasons-to-oppose-the-trebling-of-fees/ Five reasons to oppose the trebling of fees | Left Foot Forward

    [...] according to the IFS, the proposed system to repay tuition fees is “progressive”, bankers will end up paying back less than public sector workers. As the Guardian today points out: “the big picture is that moderate earners will be stung to [...]