River Wissey Lovell Fuller


July 2011

Ron expressed his views on Student Loans and Climate Change

Student Loans

It is generally accepted that a student who is unable to receive financial assistance from parents will need to borrow at least £43,000 during the course of a three year programme. (There are grants of up to £3250/year for those from families with an income below £25,000, so that those students will have a debt of nearer £33,000). Interest will be charged at 3% above inflation. At the time of writing, inflation in the form of RPI is running at 5.3% and, despite claims by the Bank of England, it seems unlikely to me that it will fall very much in the near future. (The decision to print money to overcome the problems caused by the banking collapse has resulted in a fall in the value of the pound and that combined with the rising prices of oil, gas and commodities are likely to keep inflation high for some time to come.) Because interest will accrue from the end of the first year and assuming a uniform rate of borrowing with constant inflation, the student is likely to leave university with a total debt of over £50,000.

When students leave university and get a job (assuming there is a job to be had) they will be required to pay back the loan provided their salary is above £21,000. The rate at which they pay back is to be at 9% of the amount above the £21,000 base line. Thus, for a graduate earning £30,000 the pay pack rate will be 9% of £9,000 i.e. £810, with the current rate of inflation, interest on the loan will be 8.3% of £50,000, that is £4150, in other words their debt will have increased by £3340. The next year the debt will increase further because the interest on the loan is increasing much faster than they are required to repay. As long as inflation stays anywhere near its present level there will be no possibility of reducing the size of the debt until the salary is very high. Not even when their salary is in excess of £41,000, and the pay back rate increases to 12%, will there be any chance of starting to repay the capital, and it could be several years before that stage is reached, all the time the debt will be increasing. (Even if the inflation rate falls to 2% the interest charged would be 5% and on £50,000 that is £2500, only when the salary reaches £48,000 would the pay back rate exceed the interest.) The overall result is that the ex-student is likely to be in debt for very many years and the total amount that they pay will be greatly in excess of the initial loan of £43,000, perhaps as much as £120,000. There is, of course, a cut off after 30years so that, provided they have kept up their payments for 30years, the remaining debt will be written off. By that time, however, they will have paid a great deal of money and are likely to be in their fifties. Of course, it is likely that inflation will lead to an inflation in salaries, nevertheless it is clear that for some students the debt is likely to be a crippling burden for a large part of their life, enough to greatly impair their chances of buying a house and building a home. In the end it seems likely that many ex-students will have their outstanding debts written off and the burden will fall on the government (or rather the tax-payer) of the day. Quite possibly the amount that has to be written off could exceed the original loan and it would have been better all round if the government had supported the student from the start.

Any would-be student from an ordinary family is very likely to be deterred from attempting a university course and the nation may be denied the opportunity to exploit much of its native talent. (If the nation is to obtain the best scientists, engineers, doctors and other highly skilled people that we need there does seem to be a case for ensuring that would-be students on these courses are not deterred by financial worries, no doubt any proposal for preferential treatment would produce howls of protest from some quarters.) Those whose parents are able to support them, those fortunate enough to obtain a generous bursary and those fortunate enough to go straight into a very highly paid job, will profit most from a university course. The rest may find their university course of dubious financial advantage, it cannot be regarded as fair.

Another aspect of the whole business is that the government, because of its AAA, rating can borrow money internationally at very low rates, for them to lend money to the students at a much higher rate is profiteering at the expense of those students who do succeed in paying off their debt. If banks are to loan the money they will be the ones profiting because they will be on to a sure fire winner, they will be receiving a good return on their money with a 'no risk' investment since the government will be committed to pay off any outstanding amount at the end.

Wishful Thinking?

Chris Huhne, The Climate Change Secretary, recently announced that ministers had accepted proposals by the Committee on Climate Change to introduce a law requiring reductions in carbon emissions to 50% of 1990 levels by 2027, just 16years from now. This will make the UK the first country in the world to set a legally binding commitment.

It is incredible that a government should even contemplate such an action without any clear idea on how such a reduction could be obtained. Even more incredible because the Green Bank set up by the government to provide funds for renewable energy projects is prevented from borrowing money until 2015 and, in recent months the government has cut funds for solar power and other clean energy projects. Furthemore the Treasury, in its concern for the economic recovery, has tended to operate against carbon reduction by negotiating favourable deals for high energy consuming industries such as steel. (No doubt the Treasury was influenced by the argument that "It will do nothing to help global carbon reduction if an industry in the UK closes down and moves to Poland.") Any plans to reduce energy consumption by increasing taxes will hurt the poor and encourage industries to locate oversees where energy costs are lower

The Carbon Budget said that 60% of cars should be electric by 2030. The motor industry's most optimistic projections are nowhere near this figure so I'm not sure where all these cars will come from. The practical limitations on the use of electric cars have been mentioned before in these columns and I am sure they will limit the take up, furthermore, as I have also said before in these columns electric cars do not reduce carbon emissions. First it is necessary to produce electricity by non-carbon producing means, all that a major switch to electric cars would do is greatly increase the demand for electricity.

The Carbon Budget also proposed that, over the same period, 25% of houses should have gas boilers replaced by heat pumps, a laudable aim perhaps, but that would represent a huge engineering programme and considerable cost to those households. It would reduce CO2 emissions but it too would increase the demand for electricity.

At the same time we need to renew much of our electricity generation equipment. Last winter 50% of our electricity was produced by coal burning power stations and it is proposed to close all of these stations within the next 20years. Is the aim to replace half of our electricity generation with non-CO2 producing plant in 20years? Over the last ten years we have built many hundreds of windmills, but that has not been enough to produce 5% of our electricity. Nuclear power is likely to be the principal source of carbon free energy in the foreseeable future, unfortunately all but one of our existing nuclear power stations are either closed down or will be closed down soon. To date nuclear power has produced between 20% and 25% of our power requirements, so, it would seem, the government expects us to be able to replace that 20% and the 50% produced by coal within the next 17years. The creation of new wind farms and the siting of new power stations will lead to a requirement for a major restructuring of our transmission grid along with a new very complex and sophisticated contol system.

The other big hopes for future energy generation, wave power, tidal power and carbon capture from fossil fuelled stations are still in an experimental stage and it is still not known how practical or economically viable they may prove to be.

Bearing in mind the cost, the planning and lead times for new power sations (especially nuclear), electricty pylons etc, it all seems a quite ridiculous target, not to mention the engineering challenge, an engineering challenge on a scale never before seen in peace time.

I am not sure why our government would set such ambitious targets and risk damaging our already shaky economy, especially since our contribution to global CO2 is no more than 2%. Neither do I understand why our government would want to be the first in the world to make the achievement of CO2 reductions a legal requirement. I really do not understad the logic in creating a law requiring a government to meet a target. What happens if they break the law? Is the Prime Minister of the day to be prosecuted? It would be more fair, I thnk, if the idiots responsible for creating the law were prosecuted. Unfortunately I think it unlikely that I will be around in 2030 to see what does happen.

Ron Watts

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