Freezing the repayment threshold on student loans “effectively constitutes a tax rise by stealth on graduates with middle earnings”, the Institute for Fiscal Studies (IFS) has said.

In a written statement on Friday, education minister Michelle Donelan announced the salary threshold for student loan repayments in England will be frozen at the current levels of £27,295 per year, £2,274 a month or £524 a week for 2022-23.

But Paul Johnson, director of the IFS, said the moves equates to a real-terms £150 increase in the amount students with loans will have to repay each year.

“That’ll be a 6 or 7% real terms reduction and hence a real terms increase in repayments of c. £150 a year on graduates with student loans,” Mr Johnson tweeted.

He added: “Not an obvious response to ‘cost of living crisis’.”

Labour’s shadow universities minister Matt Western similarly noted: “We have a cost of living crisis made in Downing Street, and whilst Number is in paralysis – (Chancellor) Rishi Sunak is raising taxes on millions of people.

“Labour has a plan to help hard-working families, including cutting VAT on energy bills, saving most households £200, paid for by a windfall tax on North Sea oil and gas producer profits.”

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But Ms Donelan maintained in her statement that “the system provides value for money for all of society at a time of rising costs”.

“It is now more crucial than ever that higher education is underpinned by just and sustainable finance and funding arrangements, and that the system provides value for money for all of society at a time of rising costs,” Ms Donelan wrote.

“This government has already confirmed that we will freeze maximum tuition fee caps again for the 2022/23 academic year, the fifth year in succession that we have held fee caps at current levels.”

Loan repayments for post-graduate students will also be frozen at £21,000 per year, £1,750 a month or £404 a week in 2022-23.

It had been reported that, ahead of his budget, the chancellor was considering recommendations set out in the 2019 Augar review – which said deductions for student loan repayments should be applied once an individual earns £23,000 rather than the current rate of £27,295.

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In October, a former Conservative education secretary called on Rishi Sunak to push ahead with proposals to lower the earning threshold for student loan repayments.

Lord Baker of Dorking, who served as education secretary under Margaret Thatcher, told Sky News he “strongly” supported the proposed reduction as “would-be students should realise the obligation they will be taking on”.

The month before, another former Conservative minister said the earnings threshold should be lowered to tackle the “depressing experience” of student debt rising every year.

Lord Willetts, who oversaw a hike in tuition fees when he was universities minister, said at the time that a higher threshold “particularly upsets” parents of graduates who see their debt increase each year.

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Ben Waltmann, senior research economist at the IFS, said the freeze “effectively constitutes a tax rise by stealth on graduates with middling earnings”.

“Graduates with the lowest earnings do not reach the repayment threshold for student loans so they will be unaffected by the freeze. Those with the highest earnings will pay off their loans either way, so the freeze just means that they will repay their loans quicker,” he said.

“For a graduate earning £30,000, this announcement means that they will pay £113 more towards their student loan in the next tax year than the government had previously said.”

But Nick Hillman, director at the Higher Education Policy Institute, described the move as “sensible”.

“Few students or recent graduates will welcome this announcement but it is sensible because the current system has become out of kilter, with taxpayers paying much more than originally planned.

“It is also, however, a very modest and short-term announcement for just one year, reflecting the continuing failure to respond to the 2019 Augar report properly by setting out a long-term plan.”

Hillary Gyebi-Ababio, NUS vice-president for higher education, added: “We were totally opposed to reducing the salary repayment threshold for student loans.

“We are pleased that the government have U-turned on these plans, which would have retrospectively altered the terms of contracts which have already been signed and targeted those earning lower incomes, in the face of overwhelming student pressure.”

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