Graduates are the canary in the coalmine for a failing welfare system
The welfare state is a Ponzi scheme that’s dependent on an ever shrinking cohort of taxpayers, says Anne Strickland
Discussion about student loan unfairness has dominated the headlines over the last month, after a freeze in the repayment thresholds led to a backlash about the student loan system in general. With fiscal drag pulling more graduates into repaying some of what they owe and high interest rates ensuring that graduates pay for longer before clearing their balances, it is understandable that young people are beginning to wake up to the unaffordability of the deal to which they signed up.
But the real problem with the student loan system isn’t the changes made in the recent Budget. It’s Tony Blair’s target for 50 per cent of the population to go to university coming home to roost, alongside dubious degrees for overseas students who will overstay their visa and not repay their loans. Higher education entry rates jumped from 25 per cent in 2006 to 38 per cent in 2021. Mission accomplished: 49 per cent of state school pupils now start university by age 25. But no-one planned for what happens when you lend money to people who can’t pay it back, with an economy awash with graduates expecting a highly paid job that never materialised.
Only 20-35 per cent of graduates on Plan 2 loans will ever repay their debt fully. The rest will get their debts written off after 30 years, leaving taxpayers to pick up the bill. A shrinking group of high earners will subsidise the majority who can’t pay back what they borrowed.
With student debt ballooning from £270bn today to a projected £500bn by the late 2040s, Britain faces its first major reckoning with the mathematics of modern welfare spending.
This is Britain’s fiscal model: a successful few carry the cost for everyone else. We’ve built a country where 53 per cent of households are net recipients of the state. Student loans are just the canary in the coal mine – the welfare system is a Ponzi scheme.
Consider the scale of what’s to come. Our public debt is approaching £3 trillion, public sector pension liabilities add on another £2 trillion that make the student debt look like loose change. State pensions face the same mathematics as student loans: fewer people paying in, more people taking out.
In 1948 when the basic state pension was introduced, there were around five workers per pensioner. Now there are around three workers per pensioner. By 2050, that ratio will drop further to 2:1. The NHS faces the same demographic crunch while politicians promise ever-expanding services to an ageing population.
The pyramid will collapse
Every system depends on the same shrinking set of taxpayers. The pyramid will eventually collapse but not before the state has tried to bleed these high earners dry.
And instead of confronting this reality, what does the government do? Double down on the delusion. Along comes the war in Iran; energy prices spike and predictably, politicians start demanding bailouts and price controls. Rachel Reeves talks about “looking at options” for household support. MPs queue up to declare it “wouldn’t be fair” for ordinary people to face higher bills from geopolitical shocks.
This is how countries become bankrupt. Every problem needs taxpayers’ money, every shock gets socialised, every bill gets passed onto someone else. We’re already borrowing money to pay the interest on previous borrowing. The furlough scheme, the energy price guarantees, cost of living payments – each were sold as temporary crisis responses but actually represented a permanent addiction to deficit spending and fiscal irresponsibility.
The student loan crisis shows what happens when governments promise what they can’t deliver: massive write-offs funded by whoever’s left and productive. The same mathematics apply everywhere – pensions, healthcare, energy bills all depend on the same overtaxed cohort.
That canary in the coal mine has stopped singing. Either we start saying no to demands we can’t afford, or we watch the productive people that the state has relied on stop bothering or simply leave.
Anne Strickland is a researcher at the Taxpayers’ Alliance