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Student loan change adds £12bn to deficit | Student loan change adds £12bn to deficit |
(35 minutes later) | |
A change in how student loans are recorded in the public finances will add £12bn to the deficit, after an Office for National Statistics ruling. | A change in how student loans are recorded in the public finances will add £12bn to the deficit, after an Office for National Statistics ruling. |
The amount expected not to be repaid, which could be 45% of lending, will be reclassified as public spending. | The amount expected not to be repaid, which could be 45% of lending, will be reclassified as public spending. |
Student loans will now significantly push up the UK's deficit - providing an incentive to reduce tuition fees. | |
The government said the change would be taken into account by the tuition fees review, due to report early next year. | The government said the change would be taken into account by the tuition fees review, due to report early next year. |
The decision by the statistics agency tackles an anomaly in which the cost of lending to students, to cover fees and maintenance, has been missing from the public finances. | |
Nicky Morgan, chair of the Treasury select committee and former education secretary, welcomed the ruling - saying the current loans system lacked scrutiny when the government could "spend billions of pounds of public money without any negative impact on its deficit target". | Nicky Morgan, chair of the Treasury select committee and former education secretary, welcomed the ruling - saying the current loans system lacked scrutiny when the government could "spend billions of pounds of public money without any negative impact on its deficit target". |
The independent economics think-tank, the Institute for Fiscal Studies, says making the government account for the real cost of the fees system, in which 70% of students will not fully re-pay, would bring public finances in line "more closely with economic reality". | |
Cut fees to cut deficit? | |
Labour's shadow education secretary, Angela Rayner, said it proved the "student loans system is a fiscal illusion which flatters the government's record". | |
But Tim Bradshaw, chief executive of the Russell Group of universities, said: "Ministers may now be tempted to cut university funding because it will look better for the deficit, but good policy shouldn't be dictated by accounting rules." | |
Nick Hillman, director of the Higher Education Policy Institute, said the "180-degree flip" will seem "embarrassing for policymakers". | Nick Hillman, director of the Higher Education Policy Institute, said the "180-degree flip" will seem "embarrassing for policymakers". |
But he warned it could mean less funding for students as they "suddenly look much more costly to current taxpayers". | But he warned it could mean less funding for students as they "suddenly look much more costly to current taxpayers". |
Almost half of the value of student lending is expected to be written off - and this will now have to be reclassified as spending, which the ONS says will push up the deficit by an anticipated £12bn. | |
By 2023-24, it would add £17bn to the deficit, says the Institute for Fiscal Studies. | By 2023-24, it would add £17bn to the deficit, says the Institute for Fiscal Studies. |
'Fiscal illusion' | 'Fiscal illusion' |
It will end an arrangement accused of being a "fiscal illusion" by the House of Lords economic affairs committee, which warned that it was concealing the real cost of tuition fees. | It will end an arrangement accused of being a "fiscal illusion" by the House of Lords economic affairs committee, which warned that it was concealing the real cost of tuition fees. |
The Lords committee forecast that not counting the cost of loans until they were written off after 30 years would create a trillion pound gap in the public finances in the decades ahead. | The Lords committee forecast that not counting the cost of loans until they were written off after 30 years would create a trillion pound gap in the public finances in the decades ahead. |
This technical change could have major implications for the current review of university finance in England - which is considering whether to cut fees from £9,250 per year. | This technical change could have major implications for the current review of university finance in England - which is considering whether to cut fees from £9,250 per year. |
Higher levels of tuition fees require higher levels of lending - which will now show up as billions more on the deficit. | Higher levels of tuition fees require higher levels of lending - which will now show up as billions more on the deficit. |
This will provide an incentive for the government to reduce the level of tuition fees, allowing them to limit the negative impact on the deficit. | This will provide an incentive for the government to reduce the level of tuition fees, allowing them to limit the negative impact on the deficit. |
The change applies to loans to students across the UK, but most of this will be accounted for by lending to students in England. | The change applies to loans to students across the UK, but most of this will be accounted for by lending to students in England. |
Much of university funding in England is now through tuition fees - and if fees were cut there would be questions about whether there would be a return to more direct funding. | Much of university funding in England is now through tuition fees - and if fees were cut there would be questions about whether there would be a return to more direct funding. |
Alistair Jarvis, chief executive of Universities UK, warned against "knee-jerk reactions" to the ONS ruling which could cut spending on students or limit student numbers. | Alistair Jarvis, chief executive of Universities UK, warned against "knee-jerk reactions" to the ONS ruling which could cut spending on students or limit student numbers. |
"It is essential that universities are properly and sustainably funded to ensure students receive the high quality university experience they rightly expect," he said. | "It is essential that universities are properly and sustainably funded to ensure students receive the high quality university experience they rightly expect," he said. |