Have Members of Parliament heard of inflation? Do they know that the Bank of England is given by the Government a ‘symmetrical’ target for inflation of 2 ½% (before Brown’s Economic Disaster, at least)?
Members of Parliament have devised for themselves a system of expenses reimbursement which provides for the payment of interest (only) on mortgages. Nominal interest is paid.
But in a time of inflation – and we don’t just happen to live in such a time, we live in such a time by design, by the express instruction of the Government – nominal interest rates serve to compensate lenders for the erosion in the value of the debt (inflation). The arithmetic is, as closely as matters here, that 2 ½ % is inflation and the rest real interest.
Student loans are not subject to real interest, but to a nominal interest rate which is calculated to retain the real value of the debt. The rate is at present 0%, but that is a feature of the Brown Disaster, hopefully a transient one; it is presently 0% because inflation is presently 0%, and it will return to the Bank of England target rate fairly soon.
See? Government may arrange that inflation skips along at 2 ½ %, but it does not allow those borrowing from it to trouser inflationary gains out of their borrowing. Graduates who don’t earn £15,000 a year – and there are going to be hundreds of thousands of them in the coming years – will have outstanding student debts over decades. Erosion of your debt at 2 ½ % a year wears down about 30 % over the first ten years; more than half over 20 years. And we couldn’t have that. These people must be made to pay every penny.
But it is different for Honourable Members of Parliament. When they borrow money, their expenses system treats the whole nominal interest rate as interest. What MPs knew when they passed law on student loans, they forgot when they devised their own incomes. They are getting their capital repaid by the taxpayer, at the rate of about 2 ½ % (in normal times). For a Brown, or Cameron, or Osborne, or Darling – lifers in safe seats – there are decades over which the capital values of their mortgage debts can erode. Cameron has reportedly a £350,000 mortgage on his second home. Nice one, Dave! When you repay the loan after, oh, 20 years, most of its value will have evaporated: a gain of £175,000+, a sizeable amount for many other people.