Effects of the living wage for Graduates

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As of many concerns I have with the living wage, I would like to examine the effects between the fancy new phrase of the “living wage”, which is replacing the minimum wage and the ‘graduation tax’. Currently, once a graduate leaves University they do not have to pay graduation tax until they are earning £21,000; which is £7,459.20 greater than they would earn on full time minimum wage. Currently, this gives good incentives for young people when choosing whether to go to University or not, as they will not pay anything back until they are earning a decent amount of money.

 

With the budget outlining the forecast of living wage to be £10.20 in 2022 (see details in table 1), this means somebody leaving University at the age of 25 will be paying graduation tax as soon as they start earning, even on full time minimum wage. This would mean a person who has left University and is on the minimum wage would be worse off than someone who has not been to University. With the current projections somebody in 10 years time finishing University and going onto a minimum salary at the age of 25 would find themselves £233.52 worse off than somebody who did not attend University. The person who attended University would also have a student debt of ~£46,000 and 3 years loss of earnings whilst they were studying. All this will be off-putting for a young person who wants to better themselves.

 

Solution: There are many Student Financial reforms needed, however regarding the Graduation tax, for reason above I would like to see the threshold increased and a ‘buffer zone’ created between the living wage and graduation tax threshold. This will reduce any disadvantages that young people may have when thinking about going to University. It will also ensure graduates on the minimum wage are not worse off and it will ensure they are able to make ends meet.

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