Nope, he’s still not got it, has he?

That is why I have always said writing off student debt and PFI are key, if only the start. Both could be done. But the symbolism is essential.

There’re two problems with writing off PFI debt.

One is that much of it isn’t in fact debt at all. It’s ongoing operation and maintenance costs. Which still have to be paid whoever’s pockets the money comes from.

The other is rather more important. Spudda is, as we know, the guy who insists that we could get all that private pension money, lots and lots of corporate cash as well, funding public sector projects like housing greenery and so on through a national investment bank or the like.

Government’s going to get a lot of investment in such schemes if it has just written off the debts from the last set of such private money into public investment schemes, isn’t it?

41 comments on “Nope, he’s still not got it, has he?

  1. I don’t think in Spud World there would be any great deal of choice about investing in what Spud whats to be invested in, your money will be co-opted like it or not. Your pension fund would be taken over by the State and ‘invested’ for your benefit, your savings account likewise (‘No-one needs savings of more than £10,000 comrade, all accounts with more than this will be taken by the State and credited with State Bonds instead’).

  2. In SpudWorld if people won’t invest willingly then the Curajus Stait will just force them to.

  3. He also doesn’t seem to understand that a pension investment should make a return, or at least not depreciate.

    He’s never proposed a mechanism by which any of these public projects he loves so much would generate a return, and I suppose e.g. in the case of building insulation that return coming from increased rent from the tenants would be anathema.

    And if the government paid a coupon price on the “investments”, he doesn’t seem to grasp that it’s just plain vanilla public sector borrowing through a slightly complex mechanism.

  4. Government’s going to get a lot of investment in such schemes if it has just written off the debts from the last set of such private money into public investment schemes, isn’t it?

    I think you are assuming that he believes there will be a “give and take” mechanism. Personally I believe he favours a “take and take” mechanism.

  5. Also, by “writing off debts” in the context of PFI he means stealing, right? Since it’s the govt who’s the debtor, right?

    With student loans it’s different – the Govt owns the student loans debt, but writing them off will be vastly unfair to those who have paid more money off, unless he plans a big reimbursement.

  6. I don’t know much about how a PFI contract works; I’d have thought things like fitting a blind would be charged as time + materials + overhead. How do they justify the extreme examples given?

    Even that quote raised an eyebrow in the public sector, which really is saying something.

  7. As I never tire of saying, our primary school gets humongous quotes for building work, applies for the funds and gets the money. It’s not a pfi school, so the problem is more mentality than anything else.

  8. “writing them off will be vastly unfair to those who have paid more money off”

    Candidly, those who have paid off student debt are obviously well paid and therefore have no need of any sympathy.

  9. Actually thinking about it the Tories are missing a trick – they should rebrand ‘Student Loans’ into what they really are, a Graduate Tax.

    The should ‘write off’ all the debts, put a tax on all the graduates who had the debt instead, and direct some of the revenue to the holders of the student debt (or borrow the money to buy the debt and use the revenue to pay the interest on the borrowings). Hey presto, no student debt!

  10. @Jim – indeed, the way the loans are set up is indeed a time-limited graduate tax.

    Which is probably why talk of a graduate tax on top has died out (long may it remain so).

  11. Graduate tax?

    At least currently I might either pay off my debt or 25 years pass by. GT means I’m never rid of it.

    I remember countless times during 2010-11 having to argue with dim labour moderates that the current arrangements were preferable to their horrible tax idea.

  12. “Isn’t there a fair bit of piss-taking in those ongoing costs though? For example the school being charged £8,154 for the fitting of a single blind in one of its rooms.”

    Well, no. The school would have been charged £8,154 over the term of their remaining contract for a blind being fitted and installed and working. If some kid pulls it off and breaks/steals it, they replace it. If it stops working properly, they replace it. It probably includes some sort of clause about putting a new one in every year or two.

    I’m not saying there isn’t good margins in this stuff, although I bet they do the same thing as software companies – you get the contract by bidding low, at cost, then make a profit on the add-ons.

  13. The thing with a *proper* graduate tax, which is not time-limited, is that it creates massive disparities between people who went to uni in the UK and those who went elsewhere.

    Is the UK going to charge a German immigrant who went to Heidelberg the UK graduate tax? Or a UK citizen who went to Delft before returning?

    What about foreign students who then leave again to live in Foreign? Or are you going to keep them paying fees up-front? Yes? OK, so why can’t a UK resident just pay them up-front then and not be taxed for the rest of his life?

    The implementation would be an absolute nightmare to balance all that out in a way that wasn’t blatantly discriminatory.

  14. @BiND

    Indeed.

    Because I’m a geeky twat, I did a kinda primitive Excel sheet to calculate how many years it would take to break even on a 3 year degree with 27k fees and how much could have been earned if the 3 years had been spent working at n times minimum wage (starting at 1x minimum wage for under 21’s). It’s quite a big grid, and relates the payback time to what the imputed increase in annual salary is due to the degree. It also doesn’t include debt interest.

    Some of the numbers of years are very large…

    And of course it presumes that your degree *does* get you a higher salary.

    Every school leaver should be exposed to such a grid, but they won’t be.

  15. Can anyone recommend to me a source describing how people with only modest capital can move it offshore to safe havens? I’m thinking more Switzerland than the Cayman Islands, but all tips gratefully received.

  16. @Dearieme

    For Switzerland best thing to do would be to turn up in person and open an account at PostFinance (the post office bank). They seem to still be still open to non-CH-resident Brits having accounts.

    Their internet banking portal is not bad, and they offer a trading platform and various fund products.

  17. I paid my loan off in 7 years. I got a contracting job, and just shovelled money at the SLC to do so.

    I did this because I had a ferocious row with them, and offered to pay it off sooner. They were so horrified by this proposal, I became more determined to do it.

    In In end, they owed me 400, as they’d taken an extra payment, and we’re going bit tardy returning it. I then wrote to them telling them I was charging them the same terms they applied to late payments anf interest owing.

    Got the whole sum demanded within 14 days.

  18. @John Square – I had mine paid off in about 4 years. The incompetence of them though – would ring up once a month and make a credit card payment (like I’d trust them with a direct debit). Sometimes I’d have to ring them up a second or third time to get a payment confirmation out of them.

    When the time came for the final payment, I asked them for the account balance, “and how much would you like to pay Mr. Abacab?” “all of it please” “yeah, but what amount?” “err, that one that you just told me” “ok ….” so we did the credit card thang. “And you’ll send me a letter confirming that you’ve received the payment and that we’re done, the loan is paid off” “Of course sir”.

    Could they get that right? Like feck. A few days later I got confirmation of the payment made. Nothing confirming the loan was done. On the phone again, struggled to get the chappie to understand what had happened and that the loan was done. “Oh yes, alright, we can do that”.

    Finally. Couldn’t wait to be done with them.

    Frankly, if they’d have been more competent I might not have made the effort to pay it down quickly, wouldn’t have blitzed the last bit of the loan, and they’d have had more money off of me.

    My sister was making payments through PAYE and she overpaid by thousands (they kept taking it from her salary even when it was done). Becase tax codes and junk. Took her *ages* to get it put right – they wanted her to sort it out at the end of the tax year with her tax return (which she wouldn’t normally have to file).

  19. “The thing with a *proper* graduate tax, which is not time-limited, is that it creates massive disparities between people who went to uni in the UK and those who went elsewhere.

    Is the UK going to charge a German immigrant who went to Heidelberg the UK graduate tax? Or a UK citizen who went to Delft before returning?

    What about foreign students who then leave again to live in Foreign? Or are you going to keep them paying fees up-front? Yes? OK, so why can’t a UK resident just pay them up-front then and not be taxed for the rest of his life?”

    Its easy – you either pay the cost of your course yourself in cash, and finance that cash however you like, or you get a ‘free’ education and pay the graduate tax. So if mater and pater are loaded they can pay the fees, proper ones mind, what the course actually costs, not the pretend cost of student loans. Non UK citizens won’t qualify for the free education+graduate tax, they’ll have to pay full fees.

    Then as for a) foreign graduates working in the UK – this is a Good Thing, we’re getting the benefit of education paid for by someone else, b) UK graduates working abroad – if they leave the UK permanently (under same tax rules on domicile etc) then they get off scot free, but if they ever come back they’ll owe all the graduate tax they’ve not paid while away. So most people would voluntarily pay the grad tax while working abroad to cover them if they ever wanted to return.

    Anything that discourages people from going to university has to be a good thing as far as I’m concerned.

  20. @abacab
    “Because I’m a geeky twat, I did a kinda primitive Excel sheet to calculate how many years it would take to break even on a 3 year degree with 27k fees and how much could have been earned if the 3 years had been spent working at n times minimum wage (starting at 1x minimum wage for under 21’s). It’s quite a big grid, and relates the payback time to what the imputed increase in annual salary is due to the degree. It also doesn’t include debt interest.”
    Interesting idea.

  21. @abacab

    For Switzerland best thing to do would be to turn up in person and open an account at PostFinance

    I tried that in the early 90’s and was shown the door. They’d changed the rules the previous year (or so), such that there was a requirement to be a Swiss resident.

    I was offered a “numbered account”, but had to decline as I was unable to provide the minimum amount required (a lot 🙂 )

    Maybe its changed again.

    To answer @DearieMe… Don’t know about online resources, but I opened a straightforward pension account (just like any other UK one) in Gibraltar. I need to pop back sometime and convert into a SIP or something. I’ll find the name of the company if you’re interested.

  22. Austria. Or Portugal actually. Not actually offshore for tax purposes but banking secrecy is pretty fierce.

  23. BiS,

    Well, no. The school would have been charged £8,154 over the term of their remaining contract for a blind being fitted and installed and working. If some kid pulls it off and breaks/steals it, they replace it. If it stops working properly, they replace it. It probably includes some sort of clause about putting a new one in every year or two.

    I get that they’re providing the service of a blind, not just the product. But it still doesn’t add up to £8,154.

    Here’s another example:

    Such charges are not unusual. Tim Gilson, the head at Malmesbury School, in Wiltshire, said: “We had some benching put in the canteen, just along one wall, about 20 yards. We have to pay about £40 a month for the facilities management cost of that bench, on top of the cost of putting that bench in and all the materials. It’s a monthly charge that continues for the length of the contract.”

    With 13 years left on his school’s PFI contract, the secondary will be charged £6,240 just for the management of the bench.

    Surely it would be cheaper to have an in-house handyman?

  24. Does your spreadsheet include different post-graduate salaries? I went to Uni in the 1980s and have never had an income high enough to be liable to pay today’s graduate-tax-with-another-name.

  25. @jgh – no, it’s quite primitive – the final grid is:

    X-axis: “delta” salary (i.e. extra salary due to degree)
    Y-axis: cost of degree (£27k plus opportunity cost of not working part time for 3 years at various multipliers of NMW).

    The grid is filled with the number of years for break-even. Which is an underestimate since it doesn’t include interest, tax, student loan repayments or anything like that.

  26. Forgiveness of student debt in exchange for anti-socialist activity. Snowflakes excluded of course.

    But imagine if everybody in the UK was rung up by a phone canvasser to say “Excuse me Sir/Madam, are you aware that socialism has murdered 150 million human beings in the previous 100 years? Are you aware that Hitler acknowledged his debt to socialism and Mussolini was for 20 years the golden boy of Italian marxism? That Hitler and Uncle Joe Stalin were allies until the 22nd of June 1941?. And that the soviets actively helped the Nazis up to that date?” and on and on and on.

    That would be worth unloading some debt for. And put a huge dent in Jezza’s bullshit.

  27. I did a simple spreadsheet – couldn’t work out how to get the graph functions. Shows that on median income you’re paying a penny on top of your income tax to pay off your loan (and after 40 years 3/4 of it is wiped off the slate) – isn’t that LibDem policy? Penny on income tax to pay for education? And this targets it at those who have benefited from it. And the top 10% at 80 grand pay 7%. Isn’t that what lefties want? People on higher incomes pay a higher pecentage of their income in tax?

  28. Thanks for the advice, abacab, Justin, Tim.

    “Not actually offshore for tax purposes but banking secrecy is pretty fierce.” I’m less interested in avoiding tax than in avoiding confiscation.

  29. Having worked in the unit that deals with PFI and formally reviewed a few of them I have a fair knowledge of their working. And abacab is exactly right. The gov is the debtor, so ‘ forgiveness’ would effectively be the government defaulting on the debt (although the debt is typically held by one of the consortium partners, structured in different ways, and the payments to service it are covered in the management charge) .

    Not sure how well the UK gov unilaterally breaking a contract and effectively defaulting on a debt would go. I assume Greece in its darkest hours of the eurozone crisis would be the place to start.

  30. Andy, I’ve worked on a few.

    The government can terminate these contracts early without default by the Operator, but there are some mind numbing procedures and rules – plus a hefty termination fee which for the Operator can be ‘fill your boots’ time.

    It can be done but doesn’t come cheap.

  31. Wiping out the student debt would not be unfair to those who have paid. They simply get to not pay any more, same as anyone else.
    I don’t see paying my student debt off or even at all as something that is going to happen.
    Had a couple of statements this month from student loans, I owe about £22k. My earnings last year are about £14k too low to pay a penny towards the loan automatically and there’s no advantage to me paying some off by choice.
    Still its nice of them to send me a statement, gives me a warm feeling about all this free money.

  32. and of course some sort of agency would be needed to oversee this diversion of pension funds to ensure that the companies are following the new rules. This agency would need a well paid head – step forward the infinite monkey. ( my new name for his spudness)

  33. abacab,

    “Also, by “writing off debts” in the context of PFI he means stealing, right? Since it’s the govt who’s the debtor, right?”

    Good point. In my sleepy, slightly hungover, State this morning I naively assumed it was normal Spud laziness and he really meant buy out the contract. On reflection in the cold light of day you’re right.

    And of course being Spud there are no second order effects where no company or country will enter in to contracts with us without there being massive up front payments and the rest of the value of the contract being held in escrow.

  34. @abacab. I taught a few lectures of a course on finance at Southampton Uni for engineering and civil engineering students a looong time ago. Discounted present value stuff. Used the cost of being a student as a worked example and showed how flexing assumptions could make it suck or be brilliant. Eye opener for many when they saw what needed to be true in order to make it payback, and that was in the 90’s…

    I simply can’t see how it is productive to get all these grads with crap degrees and zero work skills coming out with debt and hug expectations. If they were at work they would build skills and do as well but as we have so many grads we have to ask for degrees, even for our bloody office admin staff. Mad mad mad.

  35. ” all these grads with crap degrees and zero work skills coming out with debt and hug expectations”

    I know its a typo, but a rather good comment on the snowflake generation too I thought……………..

  36. Speaking of expectations saw on a forum past few days a bloke who wanted to buy a business, £200k. Its a post office and general store in Birmingham with turnover of £265k.
    Wanted to borrow the entire £200k from the bank. Or if not then try and do a buy for nothing upfront and pay the seller the £200k over time from the profits.
    19 years old and unemployed. Got quite defensive and ranted on about how bad the other people were for making negative comments.
    Not sure he could see the major problems. Pretty sure you guys can when all you have is that basic information. Ranted about why is it so hard to buy a business, it was pointed out he was buying a job.
    Entitled? Quite possibly.
    Didn’t have the heart to tell him can start a business with a hundred quid.

  37. @Martin – yeah, that’s pretty obvious. Bank isn’t going to lend to a 19 year old with no experience and whose ability to pay back the loan will be contingent on the success of the project, and buying it on “hire purchase” effectively from the current owners with nothing down is the same risk profile.

    Not surprised he couldn’t take it over. It would, at the very least, require an investor who could supervise the project closely to ensure that Mr. ne ne ne ne nineteen doesn’t reduce the profits by paying himself too much, or doesn’t run it into the ground by being crap.

  38. @Adrian

    Indeed, famously Northumbria NHS trust bought itself out (I remember the contracts I worked on had formulae for calculating this). But that’s not what he’s talking about in the post, he’s talking about writing off the debt as though the government own it.

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