The Pauper Paradox

We live in paradoxical times, when the news is full of gloom about inflation and the cost of living, a war rages in Europe, and volatile fuel prices threaten our established way of life.

There’s one paradox. Climate change presents a bigger threat to our way of life, and skyrocketing gas and oil prices have had more effect in reducing fossil fuel consumption than any well-intentioned initiative from the Government. There’s nothing good about Putin’s megalomaniac war, but it has lit a proverbial fire under the drive to develop greener sources of energy.

Another paradox is the bizarre imbalance between corporate profitability and personal poverty. Most of us mere mortals are feeling the pinch just now, with rising rent, food and transport bills. Inflation has reached double digits for the first time in at least 30 years.

Despite this – or perhaps because of it – corporate profitability remains strong. Many firms including those in our sector are reporting better results than ever. Revenues are up, as are dividends for shareholders and bonuses for senior managers.

How the heck have they managed that when there’s a recession going on? The answer is disturbing. They are taking money from laboratory scientists. Not all scientists. Mainly from the lowest paid, the recent graduates. The ones who can least afford it.

You’d think a position that requires a university degree, which in turn involves incurring a huge debt, must pay enough to begin reducing that debt

Imagine a hypothetical Company X, which makes a range of successful products and, despite the ‘challenging’ business environment of the present time, mid-pandemic and post-Brexit, is trading profitably. It employs a number of graduate-level laboratory scientists to do vital work in quality control and product development. The basic requirement for the job is a relevant university degree.

If those graduates are Scottish or Welsh, or have a rich family, they might enter the world of laboratory work with little or no debt beyond what’s on their credit card.

But if they are unlucky enough to be English and working class, that vital degree will have left them with an outstanding student loan the size of a mortgage, perhaps £50,000.

That debt is repayable in instalments once the scientist begins earning more than the repayment threshold. Until then, it attracts compound interest of 6.3 per cent annually. Cheaper than a credit card but not a mortgage, and it is not negotiable.

In other words, a student debt of £50,000 at graduation increases by about £3,150 every year. But that’s okay, because these graduate scientists have a career position with a successful company.

You’d think a position that requires a university degree, which in turn involves incurring a huge debt, must pay enough to begin reducing that debt. Here’s the kicker: the threshold for student debt repayment is currently £27,295. Anyone earning less does not make payments. They keep all of their post-tax salary, but their debt grows.

Company X pays its graduate scientists less than £27,295, because (it says) that’s the market rate. It also pays its shareholders a reliable dividend which never goes down, because that’s how it maintains market confidence. And it pays its senior managers hefty bonuses, because somebody earning £100k plus must be feeling the pinch in these straitened times.

Rich shareholders and rich managers get richer, while graduate scientists get poorer and deeper in debt.

Paradox? It’s a flipping scandal.