By Calum Paton
A chorus of cheers rose up from the green benches behind Kwasi Kwarteng as he proposed a new budget that signalled a radical volte-face from the last decade of Conservative policy. Conservatives celebrated what appeared to be a marked return to Thatcherite conservatism purported by London’s think tanks. And across the chamber, Labour MPs chortled at the open goal handed to them, one which Ian Dunt described as the ‘longest suicide note since Michael Foot.’ But the mini-budget will receive little adulation from young graduates, who still bear the highest tax burdens of any demographic — leaving them far from the Thatcherite vision upon which the new government is moulding itself.
“Let me give you my vision,” Thatcher said: “A man’s right to work as he will, to spend what he earns, to own property, to have the state as servant and not as master. These are the British inheritance.” That was her objective — 45 years ago — for a renewed Britain, two years before she came to power. But today, despite Kwarteng’s supposedly-Thatcherite mini-budget, her vision of a home-owning nation is a mere pipe dream for most young graduates.
Before Kwarteng’s mini-budget, the situation for young graduates was dire. The national insurance rise contained in ex-Chancellor Rishi Sunak’s last budget left the marginal tax rate at more than 42% for graduates earning between £27,250 and £50,000. For graduates earning over £50,000, it jumps to a ridiculous 52%. Kwarteng reversed this rise — a good start — but for young people trying to break into the housing market, this is not enough.
Kwarteng offered two more major policies that could help young people. He cut Stamp Duty by doubling the threshold at which it is payable, and he imposed a 1% cut in the lowest rate of income tax. But he could have — and should have — done more.
The average UK house price is £304,867, and in London — where most graduates live and work — the average is £537,920. With the Help to Buy scheme ending in a matter of weeks, first-time buyers will need to gather a 10% deposit. To afford a home on the lower end of the London market, young graduates would need a deposit in the region of £40,000. As high rental prices can take up approximately 50% of the average graduate’s income, there is little income left to save.
Kwarteng’s announcements made a good start on supply-side reform to increase the housing stock in London. Encouraging building through Stamp Duty cuts and new ‘Investment Zones’, alongside establishing a new Planning Bill in the coming months, could help correct the long-term market issues. However, it doesn’t tackle the immediate barrier facing graduates; building a deposit remains almost impossible.
An extension of Help to Buy, which ends in early 2023, would have been a good start. But it would not have been enough. The scheme enables first-time buyers to apply for a mortgage with less in savings (only 5% deposit instead of 10%), but it burdens young people with more government debt in the form of an equity loan — and even a 5% deposit is unachievable for many.
Ultimately, the main thing that could help young graduates is to let them keep more of their money. Student loan repayments make up around 9% of the tax burden of young graduates, and although repayment of student loans (which works effectively as a graduate tax) fairly reflects the potential long-term earning advantage it provides, the actual burden this places on young people is far too high. Tax cuts were needed further down the tax pyramid.
A graduate earning £25,000 (just short of the average graduate salary) will have an effective marginal tax rate of 40%, just two per cent below the rate for those earning over £150,000 — a group far more likely to already own their own homes.
Even worse, graduates earning over £50,000 are paying the highest marginal tax rate of any group across the country at 51%. Non-graduates earning the equivalent salary have a marginal tax rate in the region of 32% following this budget — a more manageable amount, but still high.
For anyone in these brackets, the idea of being able to place enough income into savings towards a deposit is laughable. It is no wonder that the average age of first-time home ownership is now 34 nationally, 6 years higher than it was in 2007.
High-salaried graduates from working-class or lower middle-class backgrounds — those without large amounts of intergenerational wealth — should be able to afford a home through their salary. Obtaining a good education and transforming your earnings potential was at the heart of the Thatcherite model. Yet, young graduates on an income that exceeds £50,000 have a marginal tax rate almost 10% higher than those who make over £150,000 who graduated before 2009, prior to the increase in tuition fees.
Thatcher’s vision of a home-owning nation remains a pipe dream for most young people. Kwasi Kwarteng’s mini-budget is a start, but to achieve a sustainable, growing economy, young people must be allowed to keep more of their own money.
Calum Paton is a History and Politics graduate from the University of Warwick. He is currently studying law in London and is the Managing Director of political education non-profit, The Speaker. @paton_calum
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