Autumn Budget 2017: AAT calls on more to be done on student loans to stop spiraling debt levels 

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This Sunday marks one month to go until the first Autumn Budget since 1996. With prime minister, Theresa May using the recent Conservative Party Conference to announce amends to student loans, AAT (Association of Accounting Technicians) is calling on the Chancellor for more to be done in this area, as well as simplifying the Individual Savings Account (ISA) regime, changing how Stamp Duty is administered, and improving the Apprenticeship Levy.

More needed to ease pressure on graduates

The recent announcement that the Government is to freeze tuition fees at £9,250 and lift the income level that triggers loan repayments to £25,000 is obviously helpful, but no-one should be under any false impression that graduates have suddenly had a heavy burden lifted from their shoulders.

Taking an example of a graduate on a generous starting wage of £41,000, the annual interest applied to their debt is currently 6.1 per cent, which means many will not complete their payments within 30 years (after which time the remaining loan is written off). Assuming their salary kept pace with current inflation and rose by three per cent each year – after 30 years they would have paid a whopping £118,853, but would still have an outstanding debt of over £17,000.

Once the income level above which students will need to start making repayments rises to £25,000, and assuming the same example as above, that same graduate would have an outstanding debt of nearly £48,000 at the end of their 30 year repayment schedule:

Size of initial loanInterest added (annual)Start of income level for repaymentsTotal loan repayment over 30 yearsSize of remaining loan after 30 years
£50,0006.1 per cent£21,000 (current)£118,853£17,138
£50,0006.1 per cent£25,000 (from April 2018)£108,053£47,872

Mark Farrar, Chief Executive, AAT said: “University provides many people with a great start in life, but at current levels, students really need to ask themselves whether they really wish to get into such debt so early in their lives or plan for large financial commitments such as getting onto the property ladder or saving for a pension. Likewise, with so much student debt likely to ultimately be written off over the coming years, will future Governments be able to fund the gap?” 

Simplify ISA savings

The introduction of more and more ISAs is becoming increasingly confusing, and  the original objectives of several existing ISAs are not being met. For example, stocks and shares ISAs were supposed to encourage those without shares to invest in this way, but they are almost exclusively used by people who would buy shares anyway.

Farrar said: “There is now an ISA for every day of the week, including Lifetime ISAs, stocks and shares ISAs, and cash ISAs, meaning unnecessary complexity, bureaucracy and confusion for consumers.

“The original objectives of each ISA need to be reviewed, no new ISAs should be created and serious thought must be given to returning to a tax-free savings landscape that offers one or two simple ISAs which merge the most important benefits and discard any unnecessary complexity. ISA standardisation would make both their availability and features more widely understood, be more effective in encouraging saving, and also have the advantage of being more easily administered.”

Stamp Duty switch

AAT is also calling on Stamp Duty to be switched to residential property sellers instead of residential property buyers.

In recent weeks there has been an increasing number of calls to scrap Stamp Duty. AAT does not support these calls, given the tax raises in excess of £11bn per annum and to scrap it would leave a sizeable hole in the public finances. However, the current Stamp Duty regime adds a significant burden to both homeowners seeking to move and to first-time buyers trying to get on the housing ladder. In most instances these prospective homebuyers must pay a deposit, solicitors fees, surveyors fees and the tax as immediate, upfront costs.

Farrar said: “The current Stamp Duty regime stunts mobility, impacting on employment and productivity. It is also likely reducing the supply of new homes – adding to Britain’s housing affordability crisis.

“Switching liability to the seller will help more people get on the property ladder, help those moving up the property ladder, increase the amount of house purchases whilst maintaining the substantial multi-billion-pound revenue for the exchequer. It will also have a positive impact on the ability to pay because it will mean that people moving up the ladder would be paying duty on the lower-priced house that they are selling, not the higher-price one they are buying.”

Promote skills through improving the Apprenticeship Levy

The Government’s commitment to three million apprenticeship starts by 2020 should be welcomed, if supported by a focus on timely completions and overall quality. However, skills will be promoted more by renaming the Apprenticeship Levy as the Skills Levy, and for levy monies to be able to be spent on high quality traineeships and other forms of training that will benefit individuals, employers and the economy. Last year AAT surveyed MPs across all parties on this issue and found that 65% support its suggestion that the levy should be developed to allow funding for skills other than apprenticeships.

Farrar added: “The UK’s skills needs extend well beyond the scope of apprenticeships, and it is important to ensure the introduction of the levy ultimately recognises the varying requirements of different sectors and is aligned with industrial strategy.

Increasing the flexibility of the levy would foster improved productivity across the whole workforce, deliver greater value for money and yet have no significant revenue implications for the Exchequer.”

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