Budget 2024: Real pay for young graduates down by over £1,000 in three years
Graduates in their 20s are earning less in real terms than they were before the 2008 financial crash, and are £1,200 worse off than they were at the start of the pandemic on average, despite recent cuts to national insurance.
Chancellor Jeremy Hunt has teased further national insurance cuts in his upcoming budget, following on from the recent decrease announced in his autumn statement.
It could be welcome news to some who have seen their pay packets squeezed over recent years as a result of the cost of living crisis, though economists have warned tax cuts would be unaffordable and would need to be reversed after an election.
People aged between 22 and 29 are earning less in real terms now than they were in 2002.
This is when factoring in inflation, including rising housing and food costs, over the period.
In 2023 prices, the median salary for a graduate in their 20s is £23,990 after paying taxes and student loan – compared with £25,200 in 2020.
Helen Miller, deputy director of the Institute for Fiscal Studies (IFS), said: “This comes in the context of an ongoing, multi-year freeze to personal tax thresholds.
“By 2027 (the last year of the planned freezes), an employee earning £35,000 will be paying about £440 a year more in direct tax overall as a result of all the changes to income tax and NICs since 2021.
“The government has announced significant tax rises. Regardless of what the chancellor announces in the budget, it is highly likely that this will be the largest tax-raising parliament on record.”
Changes to student loan plans
Student loan repayments are set at 9% of income above the salary threshold, which has been frozen at £27,295 since 2021/22.
Still, a recent graduate on an average income is currently paying around £13 a month towards their student loan, so is it really a big deal?
A big factor in the impact of student debt is not just how much people pay back per month, but how much they pay back over their working lives, and when they started university.
Those who went to university on ‘Plan 2’ higher university fees (£9,000 and above from 2012/13) will pay back almost £20,000 more than the previous ‘Plan 1’ cohort in their lifetime, according to estimates by the IFS.
Those who started in the 2023 academic year or later will be eligible for ‘Plan 5’ student loans, which have different repayment terms.
The threshold will increase in line with the Retail Prices Index (a measure of inflation) instead – meaning it will likely increase more slowly than under the previous policy and more graduates will start paying back their debt sooner.
Under the new system, student debt will only be written off after 40 years rather than 30, meaning many will make repayments for longer, potentially into their 60s.
This particularly affects low to middle earners, who are less likely to have paid off their debt after 30 years.
However, under this new system no borrower will repay more than they borrowed (in real RPI terms) – so the highest earners can expect to repay significantly less than if they had started university in 2022 due to the lower interest rate.
On the other hand, people on lower incomes will end up paying back more.
‘A thundercloud waiting to burst’
Dr Farhana Ghaffar, researcher at the University of East Anglia, has been looking at the impact of the post-2012 loan system on students and young people and interviewed graduates who had been through this system to see how it had affected them.
“The idea was generally that a university degree would set you up for life, so it would set you up for a particular kind of life where you’d be able to have a home, start a family,” she said.
But in exchange for this, students are taking on “enormous” amounts of debt, which can have an emotional impact.
“I think sort of five or six years on, they were constantly worried about the debt that was getting bigger and bigger. And obviously they couldn’t do anything about it.
“They’re not at a stage yet where I think we can kind of talk too much about the long-term impacts. But something that was really striking is it was a future worry.
“You know, ‘when I get a mortgage’ or ‘when I start a family’. Someone described it almost as being like a thundercloud, waiting to burst and they just didn’t know when it would happen.”
Anastasia is a Romanian student at the University of Dundee. Her tuition fees are free because she started studying in Scotland while the UK was part of the EU.
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English students still have to pay to study in Scotland but students from other EU countries could study for free, as Scottish students do.
Anastasia isn’t sure if she would have gone to university at all if she had to pay fees.
She said: “I’d have to take a few months to think about it. And really, really think about it. I don’t think it’s a decision I could make just like that.
“If there was a way of knowing the payments would be acceptable and manageable – even though I probably won’t have a good job right after I graduate – maybe I would do that but very low chances.
But Anastasia knows that decision too could affect her future prospects, saying “[we are] in a world where everybody expects you to have a diploma for anything”.
“There are so many companies out there that will not give you the job even though you’re fully able to give them a wonderful performance, if you don’t have a diploma.”
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Nissan is set to announce a leap in its cost-cutting plans that will see 20,000 jobs go globally, according to reports in Japan.
The carmaker, which employs around 6,000 workers at its sprawling manufacturing operations in Sunderland, had already let it be known last November that 9,000 roles would be going amid weak sales and rising costs.
But Japanese broadcaster NHK said on Monday it expected that total to more than double.
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Nissan, which was yet to comment on the claim, is due to reveal full year results covering the 12 months to March on Tuesday morning.
They are expected to show a net loss of up to £3.8bn due to a series of writedowns on the value of its operations.
They will be the first results Nissan has declared since the appointment of a new chief executive last month.
Ivan Espinosa issued a “significant” downgrade to Nissan’s outlook just three weeks ago.
If the job cuts report is true, it would amount to a 15% reduction in the company’s worldwide workforce.
New models of the Nissan Juke being assembled at the Sunderland plant. Pic:PA
It is not known if the Sunderland production facilities form part of any planned job cuts or production reductions, of up to 20%, that were reported.
Nissan has, on several occasions since Brexit, called the plant’s future into question before proceeding with investment plans.
It has invested £2bn in Sunderland since 2023 alone.
The company secured UK government money this year for a new electric powertrain manufacturing facility in Sunderland.
But a senior Nissan executive, Alan Johnson, warned more aid was needed just last month, arguing that the UK was “not a competitive place” to build cars.
Nissan, like rivals, is facing challenges on many fronts.
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US-UK trade deal ‘isn’t worth the paper it’s written on’
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US trade tariffs of 25% on all car imports has exacerbated pressure on its supply chain and sales.
The latter has been struggling due to weaker-than-anticipated electric car uptake.
But the vast majority of its cars made in the UK will be subject to a tariff of just 10% after the UK-US trade deal agreed last week.
It does not currently send Sunderland-made cars to the United States. Most are for export to Europe and the domestic UK market.
The US and China have agreed to slash trade tariffs on each other, a move Donald Trump has said was part of a “total reset” in relations.
The president said the 90-day truce followed “very friendly” talks between the two sides in Switzerland over the weekend and those discussions would continue..
“China was being hurt very badly. They were closing up factories they were having a lot of unrest and they were very happy to do something with us”, he told reporters at the White House.
The breakthrough was announced early on Monday – to the delight of fincial markets – by the leader of the US delegation, treasury secretary Scott Bessent.
US trade representative Jamieson Greer confirmed so-called reciprocal tariffs were now at 10% each.
In real terms, it meant the US is reducing its 145% tariff to 30% on Chinese goods. A tariff of 20% had been implemented on China when President Donald Trump took office, over what his administration said was a failure to stop illegal drugs entering the US.
China has agreed to reduce its 125% retaliatory tariffs to 10% on US goods.
Sector-specific tariffs, such as the 25% tax on cars, aluminium and steel, remain in place.
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Tariffs, taxes on imports of more than 100%, had been imposed on both sides. China was the only country exempt from a 90-day pause on the “retaliatory” tariffs above the base 10% levies applied by America.
Major retailers had been warning Mr Trump of empty shelves as US importers pause shipments.
Mr Bessent said after a weekend of negotiations in Switzerland, the countries had a mechanism for continued talks.
It’s the second major trade announcement made by the US in the last week, after a deal was secured with the UK on Thursday.
The move signals a willingness from the Americans to make deals on tariffs.
Why Trump blinked in US-China trade war
Of all the fronts in Donald Trump’s trade war, none was as dramatic and economically threatening as the sky-high tariffs he imposed on China.
There are a couple of reasons: first, because China is and was the single biggest importer of goods into the US and, second, because of the sheer height of the tariffs imposed by the White House in recent months.
In short, tariffs of over 100% were tantamount to a total embargo on goods coming from the United States’ main trading partner.
That would have had enormous economic implications, not just for the US but every other country around the world (these are the world’s biggest and second-biggest economies, after all).
So the truce announced on Monday by treasury secretary Scott Bessent is undoubtedly a very big deal indeed.
Welcomed news
The news was received positively by Asian stock markets on Monday as major indexes were up.
In China, the Shanghai Composite stock index rose 0.8%, the Shenzhen Component gained 1.7%, and Hong Kong’s Hang Seng index was up nearly 3%.
In countries across Asia, benchmark stock indexes also rose. Korea’s Kospi grew 1.1%, Japan’s Nikkei was up 0.8%, while India’s Nifty 50 index of most valuable companies gained more than 3%.
US stocks rose sharply at the open.
The S&P 500 and tech-heavy Nasdaq saw their biggest leaps in more than a month, rising almost 3% and 4% respectively.
The market rally was visible in Europe too.
The dollar – hit in recent weeks by US recession speculation – was up more than a cent versus the pound while oil prices also rallied. Brent crude, the international benchmark, was 3.5% higher at $66 a barrel.
What next?
When asked by journalists about what the US wanted to see from China in the 90s, Mr Bessent said, “As long as there is good faith effort, engagement and constructive dialogue, then we will keep moving forward.”
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Explained: The US-UK trade deal
The UK came to the front of the line for deals, Mr Bessent added, “as our oldest ally”.
Switzerland had also moved to the “front of the queue”, he said, while the EU has been slower.
As with the other counties subject to 90-day pauses, a permanent deal will need to be reached, but confidence across the world is likely to have been boosted.
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Businesses now need a clear timetable and roadmap for future negotiations under the newly announced economic and trade consultation mechanism, said Andrew Wilson, the deputy secretary general of the International Chamber of Commerce.
“The credibility of that process for resolving underlying frictions in the Sino-US economic relationship will be mission-critical in terms of restoring business confidence.”
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