Students and consumers in line for shock bill hikes – The Telegraph

Education loans to become as expensive as credit cards as RPI inflation hits 7.1pc
Interest rates on student loans could become as expensive as credit cards, after inflation hit its highest level for 30 years. 
Graduates face paying interest rates of more than 10pc next year, while rail tickets, phone contracts, car taxes and duties on flights and cigarettes will also soar. This comes as families face a cost of living crisis with National Insurance rising in April and energy prices soaring.
This is because a number of bills are “inflation-linked”, meaning they are “uprated” each year in line with the rising cost of living, as measured by the Retail Price Index.
This now stands at 7.1pc the highest since 1991, data from the Office for National Statistics showed with economists predicting such a level to be maintained for the next few months.
Student loan interest is set at RPI plus 3pc based on the March figure. If inflation stayed at the current level, graduates earning more than £50,000 a year will be charged interest at a rate of more than 10pc by September, up from 4.5pc today.
Interest would accrue at double the rate it would now, assuming inflation stayed at it current level, according to figures from investment firm AJ Bell. At 4.5pc, a £50,000 earner with £50,000 in loan debt would pay £47,000 in interest and clear their debts in 27 years based on today’s rates.
However, with RPI at 7pc interest would accumulate faster than they could pay it off, meaning they would pay £120,905 before the remaining debt was written off in 30 years’ time leaving them some £24,000 worse off.
Consumers also face significant hikes to their monthly outgoings. The cost of an average phone contract, which typically increases with RPI each year, will rise by around £32 a year to nearly £500.
Rail fares are usually uprated by July’s measure of RPI inflation, which was 3.8pc. It means commuters already face the largest rise in rail fares for a decade. However, the Government has flexibility to set a different price increase, and it still hasn’t revealed its final plans for 2022, meaning tickets could become even more expensive. 
Vehicle excise duty, air passenger duty and tobacco duty will also rise in line with RPI from April.
Meanwhile, state benefits such as Universal Credit and Child Benefit will fail to keep pace with the spiralling costs, as the state chose to uprate these handouts using another, more modern measure of inflation, known as the Consumer Price Index, which is far lower. Unlike RPI, CPI excludes mortgage interest payment data and currently stands at 5.1pc.
Anna Stoughton of consumer site Boring Money said disparity was unfair and that the Government was “having its cake and eating it”. 
"RPI has been discredited as a measure of inflation, but still applies to things like rail fares and mobile contracts, which hit consumers in the pocket. But government spending on things like pensions or child benefit tend to be linked to CPI," she said.
"This is a pretty convenient arrangement but a costly one for consumers. In particular, students with an RPI-linked loans could experience eye-watering rises in their rate of interest if things remain as they are."
A Government spokesman said it eventually planned to use the lower CPI measure for all uprating decisions in future and had already started applying changes using CPI to business rates.
We rely on advertising to help fund our award-winning journalism.
We urge you to turn off your ad blocker for The Telegraph website so that you can continue to access our quality content in the future.
Thank you for your support.
Need help?
Visit our adblocking instructions page.

source

Leave a Comment