RSS Feed

  1. Well most people seem to regard to new student fees regime of up to £9,000 per year as a bad deal for the students, however a quick look at the mechanics of the arrangement prove that the debt is still probably the best form of debt anyone is offered in their lives.

    The central idea is that the loan is repaid when after graduation the student gets a job and pay the loan back as a form of an additional tax on earning, like a PAYE payment. The maths however mean that is a full loan is taken out then the loan is likely to not be paid in full by the end of the term of the loan, unless you are lucky enough to get a very good job. Let us assume that the student takes out a loan of the full amount of the tuition loan, ie £27,000 (3 X £9,000).

    The graduate then obtains a job at the average salary of £25,000 from the age of 22 to 50 year old when the loan term ends and the amount is written off. As the rate is 9% of wages over the amount of £21,000 they would pay £360 per year (£25,000 less £21,000 X 9%). Over the 28 years of making the payments only £10,080 is repaid. With the loan plus compound interest of say 3% over the period the amount owed is now £61,774 (27,000X(1.03 power 28)) a repayment of £10,080 means the total written off by the goverment would be approximately £51,694. 

    The conclusion is that unless the scheme changes or you have an adversion to debt it is usually always goin to be worthwhile to take out the debt, so parents paying their offsprings fees out of familial duty may simply be a poor financial choice. Whether or not these loans represent good value for the tax payers is of course another question entirely. 

  2. Well finally the budget has been announced for the next tax year, beginning in the main from April 2013, and it looks like the main two changes are a typical coalition attempt to satify the two competing factions, and as in any committee decision everyone got a bit of what they wanted and nobody ended up being really happy. The conservatives ended up with a reduction of 5% in the income tax rates over £150,000 and the Liberal Democrats got a rise in the personal allowances for people within the age group of 16 to 65 to £9,025 from April 2013. There was also good news for companies as the corporation tax rate drops immediately (well in April 2012) to just 24%. The expected cut to child benefit has also been altered to make the benefit still available to those who earn under £60,000, a much greater amount than the £40,000 proposed.

    The cost of these measures will however be taken by pensioners next year and home buyers from midnight tonight, with a massive 15% stamp duty on 'non natural persons' or companies making sales. Stamp duty will be rising for the small number of homes sold for over £2 million to 7% from 5% from next year, when 'non natural persons' will become elligible for stamp duty being payable for the property seller. Other methods of purchasing homes and reducing the stamp duty payable by for example splitting the property into the chattel items being sold like furniture and the structure of the home have not being changed. It is therefore still possible to split a home into a sale of the 'chattels' for £30,000 and 'property' for £125,000 and pay no stamp duty on the £155,000 which would be payable on a home above £125,000 now that the £250,000 first time buyer limit has diappeared.

    Most of the costs to recoup will come from the additon of a limit to the tax relief on payments like pension contributions, reductions in the level of personal allowances for those over 65 and increased tax on achohol and cigarettes. The limit on tax reliefs means that if a person earns a salary of £100,000 and decides they wanted to pay £60,000 into their pension scheme voluntary moving their marginal income tax rate to the 22% rate instead of 40% then £10,000 would be disregarded, and 40% would be payable on this £10,000 amount. People over 65 will get their allowances frozen at the £10,500 for those between 65 and 75, and £10,660 for those aged over 75. This is still however significantly higher than the rate given for those under 65 at £8,105 in the coming tax year, so they can't grumble too much (they do vote though). Hardest hit as usual are the smokers, who get a 5% over inflation whack. Yep thanks George (cough)