Jack Rankin will move the motion, and the Minister will respond. I remind other Members that they may make a speech only with prior permission from the Member in charge of the debate and from the Minister. No Members have indicated to me that they wish to speak, but Members may try to intervene on the mover of the motion and, indeed, the Minister. As is the convention in a 30-minute debate, there will not be an opportunity for the Member in charge to wind up.
That this House has considered the impact of the Autumn Budget 2025 on graduates.
It is a pleasure to serve under your chairmanship, Mr Turner. I thank the Minister for taking time from his busy schedule to attend the debate today. I will start by painting a picture of two graduates at two different points in their lives—both taxed to death. Let us start with Nick, now 30. He has done all the right things. He got his GCSEs and A-levels, went to a Russell Group university, secured a place on a decent graduate scheme—in London and the south-east perhaps—and has even got himself a lovely girlfriend. Yet Labour’s most recent Budget will see his student loan repayments increase. His rent will go up. He will end up paying more tax because of the freeze on income tax thresholds. At work, his company is making redundancies and blaming rising employer’s national insurance. He cannot buy a house. His finances are pushed to the edge every month, yet a family on his road receiving benefits seem to enjoy the same quality of life without ever leaving the house.
The Centre for Social Justice found that someone would need pre-tax earnings of £71,000 a year to match the disposable income of a family with three children and receiving benefits. Even if Nick earns more, as a headline figure, than someone on benefits, he faces so many extra costs—for commuting, council tax, rent and suits for work—that his disposable income will end up being very similar to, if not less than, that of someone who sits at home. In my view, Nick has every right to feel aggrieved. Writing in the Telegraph at the weekend, I estimated that a young person earning £40,000 a year and renting in my constituency is left with less than £500 a month in disposable income after reasonable expenses.
Then there is Henry, or Henrietta—a high earner, not rich yet—who is perhaps slightly older, and might have excelled working in engineering or a tech start-up. Yes, they may have more disposable income, but often they are still far from financially free. We are seeing a bubble in the data for younger professionals earning just under £100,000, because crossing that threshold, for a parent of two, could well mean a £20,000 tax hit due to the high income child benefit charge and the withdrawal of child support.
I commend the hon. Gentleman for bringing this debate to the House. The plan 2 student loan repayment threshold was frozen until 2030 under new announcements in the Budget. That means that graduates begin repaying sooner, but it is also almost like a hidden tax on career incomes, whereby students will pay more over their working life even if their earnings stay the same. Does he agree that for many students, who could be paying up to £40,000 in student debt, there could be a significant impact on their early month-to-month salary, which could put people off attending university and pursuing their academic dreams?
I intend to get to the implications of plan 2 loans—both the freeze in the threshold for repayment and the freezing of the interest rates in a falling-interest-rates environment. I think the hon. Gentleman will find in the Budget papers that that raises about as much money as the mansion tax does, for example. I think that is deeply unfair.
More broadly, what is the incentive structure here? Are we not punishing some of our most productive people? Of course many people across the country have it worse, but the point is that Nick, Henry or Henrietta should not have to apologise for striving and being ambitious. After all, it is their tax money that is used to prop up the welfare state, whether that involves benefits, pensions or housing illegal migrants. But they are the lucky ones; we now have about 1 million young people not in work, education or training. Worse still, we have 400,000 graduates claiming out-of-work benefits.
I hear from graduates in my constituency who have applied for hundreds of jobs but get rejected or hear nothing at all. At the end of 2024, the Institute of Student Employers found that, on average, organisations were receiving 140 applications per job.
With research indicating that up to three quarters of higher education providers could be in deficit by 2025-26, and with plans being drawn up for course closures and staff cuts, does the hon. Member agree that there is an onus on the Government to act so that we secure a richly educated generation of UK graduates, and not simply the educated rich?
I am not sure that I agree 100% with the hon. Member. I suspect that, in this country, we are sending too many people to university, and we should have a higher focus on higher quality courses and courses that add economic value, while investing some of the money saved in apprenticeships. But I take the hon. Member’s point, which he makes well.
There are hundreds of people, like Nick, who have done everything the right way—just as the system told them to—but who are not seeing the results in their lives. We have a huge disenfranchised cohort of young people, ranging from Gen Zers who have just graduated to millennial young professionals who are trying to get on and start a family.
I am afraid that many are now voting with their feet. In the last year to March, 176,000 people aged 16 to 34 left Britain. Net migration may be down, but that is only because young Brits are fleeing the country under this Government. This is a national crisis, and it is really a question about the future of our country. If young people do not think they can thrive, they will not put down roots and have families, and there will be no next generation to fund the pensions and public services of the future that we will all rely on.
That feeling of disillusionment has not come around by accident. I would not pretend to the Minister, who gives as good as he gets, that my party delivered in some of these areas, particularly in house building and the intergenerational compact, but the past two Budgets have made things demonstrably worse.
The increase to employer’s national insurance in the first Budget created a freeze on hiring, and saw vacancies down and unemployment up. The Office for Budget Responsibility has shown that this could cost almost 50,000 jobs, and stats out today show that unemployment has risen to 5.1%. Increasing the national minimum wage has an impact on hiring and it further squeezes those on middle incomes. It could mean that baristas and shop assistants are dragged into paying back their student loans despite seeing no benefit from the so-called graduate premium.
It is always a pleasure to serve under you in the Chair, Mr Turner. I congratulate the hon. Member for Windsor (Jack Rankin) on securing this important debate. Budget discussions, which there have been lots of in the past month, tend to focus on economic statistics, GDP and borrowing. Those are very important, but they can sound abstract. What ultimately matters is what happens to people, including young people, and their wages and bills, the firms they work for and the public services they rely on.
I welcome the hon. Member’s focus on young people and what is happening to their wages, homes and student finance, as well as apprenticeships actually, which he did not touch on much. I also welcome his honesty about a number of the trends and policies put in place by the previous Government. I would add to his critique of the previous Government the 40% fall in youth apprenticeship numbers, which has had a real effect on the volume of routes available to young people.
Across all the fronts that he mentioned, the Government are supporting graduates and, for that matter, non-graduates. I know he would agree that the most important thing we can do for them is to make sure our economy overall is strong, because in the end, that is what provides graduate opportunities. He will be aware that Britain outperformed the growth forecast this year, with growth upgraded from 1% to 1.5%. Lots of things in the long run matter to economic growth, but raising Britain’s investment levels is high up the list. That is why public investment is up by £120 billion and why we place so much emphasis on the old-fashioned idea of actually getting things built in this country. He raised the issue of housing, which I will return to shortly. We have also seen real wages rise more in the first year of this Government than in the first 10 years of the Conservative Government, but there is a lot further to go, and the Budget does go further.
Let me touch on some of the areas that the hon. Member mentioned. On the microeconomic policy side, Britain is already the best place to start a business in Europe. That can be seen clearly in all the statistics, but it needs to be the best place to scale up a business and for a business to stay. That is exactly what we dealt with in the Budget, with tax breaks to make it easier to grow and keep attracting capital and workers. In the long run, that is what creates more graduate jobs, which he rightly focused on.
12:00 am
Sitting suspended.
At this year’s Budget, the Government raised £26 billion on the backs of working people. If the Minister will not take it from me, maybe he will take it from the Resolution Foundation, which found that a worker on £35,000 a year will be £1,400 poorer because of the freeze. It also raised concerns about the negative impact of increasing the minimum wage on levels of employment.
The most directly damaging policy is the latest changes to student loans, which have largely gone under the radar. Freezing the threshold for repayment will mean that as graduates’ starting salaries increase with inflation, they will end up paying more and earlier. There are also the perverse disincentives whereby those on plan 2 loans who earn more than £50,270 per year will pay a higher interest rate of 6% RPI—retail prices index—plus 3%. This means that they will have to earn up to £65,000 before they start paying off the actual loan, rather than simply the interest accumulating on it. They are being punished for success. That interest rate freeze, in an environment where rates are falling, is unjustifiable. Even the New Statesman has been critical of the grad tax, making the point that it will raise roughly the same amount as the mansion tax. Do the Government really see graduate workers as rich or as having the broadest shoulders? They are not being asked to chip in; they are being bled out. Moreover, the Minister and I may have different political perspectives, but an idiot he is not. He knows that national insurance for landlords will be passed straight on to rents, walloping exactly the same people.
All those choices will affect recent graduates: the Intergenerational Foundation estimate that they will pay an extra £24,500 on average as a result of this year’s Budget. But young people everywhere still want what young people everywhere have always wanted—the chance to own a home, start a family, be productive and get on in life.
I want to articulate a centre-right approach where we reform welfare, saving £23 billion, and cut anti-growth taxes such as stamp duty to galvanise the housing market. I have also been pushing for the liberalisation of planning reform and a bonfire of regulation to give young people a future to believe in.
In the light of that, I have several questions to put to the Minister on behalf of all the Nicks, Henrys and Henriettas out there. What message does it send to graduates when their taxes and student loan repayments increase while those on benefits get more? How can the Government explain record low house building in London while some on benefits live in council properties in London worth more than £2 million? What would he say to the young people who are considering leaving these shores because they do not feel that they can get on in life, buy a home and start a family here in Britain? And what risks does he perceive in the impact of the anti-graduate approach on future productivity, and really, the future financial stability of this country?
On the macroeconomic strategy, we aim to support growth by cutting borrowing and inflation. That in turn helps the Bank of England to keep interest rates falling—they have already been cut five times since the election—and that is crucial to give businesses the confidence to invest and to directly cut mortgage bills for millions of Henrys, Henriettas and everybody else, because those with mortgages are disproportionately graduates.
The hon. Member rightly raised the question of assets. He touched on housing but in my day job dealing with pensions, the same thing applies, because the young people he referenced will also be saving for pensions in a very different environment from those who came before them.
Briefly on housing, what are the Government doing? We aim to tackle two things: first, the security of rental accommodation through the Renters’ Rights Act 2025, making sure that if people are renting, whether that is for a temporary period or an extended period, they cannot be evicted at short notice, with no certainty. Secondly, we have to tackle housing costs, and in the long run that means building houses. There is no substitute for that. It means building affordable housing and market housing. The hon. Member mentioned London, where a package of measures has been announced to deal with the building trend over the last few years towards lower building levels than we would like, but we also need to see this around the country. We need to see all enthusiastic MPs not opposing planning permissions when that is their easiest path to take.
On pensions, I will add two things that I think matter for today’s younger generations. The first is the adequacy of the system that they are saving into, largely via defined contribution pension schemes. We have launched the Pensions Commission—I think that has cross-party consensus—to make sure, when we look ahead to 2050, that young people are on course for an adequate retirement. But we also need to address the fact that it is not just the amount of the pension, but the level of risk that younger generations are being asked to bear—in longevity, investment, inflation and other risks. That is exactly what the Pensions Commission is doing.
I agree with most of the comments about young people in the labour market. It is a disgrace that one in eight young people are not in education, employment or training—I think we would all agree about that. Of course, it is a disgrace that we inherited from the Conservatives, as the hon. Member for Windsor is well aware. It is good that the number of NEETs has not continued to rise, but I absolutely agree that it is far too high, and that is on all of us. That is why we have committed to tackling it, not least through a youth guarantee. That needs to continue, as does the work on mental ill health. We have committed to expanding the use of talking therapies in the NHS, delivering an additional 384,000 courses of treatment by 2028-29. There is one thing that I would gently add, in thinking about some of these issues, and mental health is a good example. We must not forget that the long-lasting effects of mental ill health, for example in the labour market, tend to be felt among those with fewer qualifications, even though, on the health side, that affects a very wide range of people.
Turning to tax, we are certainly not hiding from the fact that the Budget asked everybody to make a contribution. The reason for that is simple: people have had enough of failing public services that are not doing the basics, and they know that borrowing levels must be brought down. The hon. Member will know that the Budget reduces borrowing in every single year of the forecast, because spending £1 in every £10 on debt interest rather than on schools and hospitals is already quite enough. The Budget included the freeze on the repayment threshold for plan 2 student loans from April ’27—where the threshold remains above that for other student loans, such as the plan 5 loans.
The hon. Member mentioned some details of the plan 2 rules, which, again—I gently say—were introduced by the Conservatives, who looked to rebalance the system away from having as much taxpayer funding of students in the university system as there had been, with the cost being passed on to individuals. The measures are part of a wider package of reforms, including in relation to higher-value properties, electric vehicles and changes to income tax rates on income from assets. Those are part of the Budget so that we make sure that the wider contributions we are asking for from everybody can be kept to an absolute minimum.
More broadly, there has been a cross-party consensus that a fairer system of university funding will require a lower net contribution to universities from the taxpayer, particularly from taxpayers who did not go to university—I think that the hon. Member still agrees with that. In 2025, 34% of loan debt for full-time plan 2 graduates was forecast not to be repaid, so what we are talking about is still substantive. I agree with him more broadly on the need for other higher-quality qualifications in greater numbers; he will have heard the Prime Minister referring to that in his conference speech earlier this autumn.
We must also not lose sight of something that is still very true, despite the call for more and a wider range of qualifications: graduates still genuinely benefit from higher earnings and higher employment rates. We have talked about NEET numbers, and a degree still provides a very high level of protection against that. That does not mean that we should not continue to focus on ensuring that we get the best value for money for everything that young people go on to do.
It is important that we have a sustainable student finance system, and also one that is fair to students and to the taxpayer. Students will pay nothing back unless they earn above the threshold, as they do now, and no one whose salary remains the same will see their monthly repayments change as the years of the freeze continue. Of course, we will keep the system under review.
I again thank the hon. Member for securing the debate. It is vital that we secure the best possible future for graduates and, I think we all agree, for all young people and the younger generations. We will do that by tackling inflation and making sure that we bring down debt, as well as by ensuring that this is a country where wages and living standards are rising, where people can get things built again and where firms are able to grow. The Budget goes about delivering exactly that.