This is a somewhat technical overview of how loans figure in national accounts, headline fiscal statistics (the deficit and the debt), departmental accounts and departmental budgets.
Much of what is in there has been covered on this blog in piecemeal fashion over the last 18 months. It benefits from off-the-record interviews and seeks to shed light on two technical issues: the discount rate and the new budgeting conventions that were introduced retrospectively in 2013/14.
The bottom line is that the accounting and budgeting determines what we mean by the sustainability of the loan scheme in its current form – has BIS been given enough resource to cover projected loan non-repayment? What incentives does it face to control loan outlay and improve graduate repayment levels?
I argue that the new conventions in place mean that BIS will aim to freeze the maximum tuition fee at £9000 for this parliament for the majority of courses at the majority of institutions. In addition, BIS will consider very seriously freezing the repayment threshold at £21 000 after 2016, rather than increasing it in line with average earnings (as has been promised to borrowers).
One further aspect: George Osborne told the CBI last night that we was setting up a new company, a subsidiary of government, to be called UK Government Investments. This would be formed from merging UK Financial Investments and the Shareholder Executive. The latter are/were responsible for attempts to sell the student loans issued to those starting undergraduate study before 2012 (‘pre-2012′ loans or ‘pre-Browne’ loans). Osborne repeated the line that those loans would be sold as they ‘should be in the private sector’. That line needs challenging – the government will likely lose money on any sale and has formalised that by basing its central ‘value for money’ test in a way that would accept a price lower than its value for loans in its accounts.
The new Political Economy Research Center at Goldsmiths has just published my working paper on human capital theory in English higher education. It is a companion piece to another article for PERC that will come out as an e-book relating to the event held there in March, ‘From REcovery to DIScovery – Changing the terms of debate on the economy‘. Both should be read alongside my recent article for London Review of Books on student loan sales and a forthcoming pamphlet for Higher Education Policy Institute on accounting for student loans.
I got to put a question as part of yesterday’s Times Higher Education’s ‘election panel’.
Will the Department for Business, Innovation and Skills have to change the terms for existing borrowers of student loans to balance its budget after 2015? Does your party commit to protecting borrowers’ conditions?
Only two of the four party representatives offered an answer. Greg Clark replied:
The strength of our system is that it is robustly sustainable – as the OECD has confirmed – without any changes in terms being needed.
Now, that’s not a commitment to protecting borrower’s conditions after 2015, but it also sidesteps the issue. It’s a matter of record that the Treasury has set a ‘target’ for BIS to reduce the non-repayment rate on new loans to 36 per cent, from it’s current official figure of 45%.
Without dramatic changes in the graduate labour market, hitting that target in the next parliament would require a Conservative-led government to continue to freeze the maximum tuition fee for the majority of courses (controlling loan outlay) or to freeze the repayment threshold at £21000 in 2017 rather than uprate it in line with earnings (as was originally promised) and thus increasing repayments. And that’s before we consider the overall level of unspecified cuts proposed by David Cameron and George Osborne. Higher Education sits in a department which only benefits from a cash ringfence on research funding.
The OECD comments have become a crutch for Clark, but the official reports from that body have only examined what was in place before 2012. And they haven’t paid any attention to what’s going on in the BIS departmental accounting and budgeting.
In the UK context, ‘Academic Freedom’ as a concept is dominated by the idea that institutions should be free from direct political interference.
The four classic categories are this freedom:
- Freedom to appoint staff
- Freedom to select students (so that Offa can instruct universities to expand their pool of applicants but not task them with changing the results of offers made).
- Freedom to teach (the curriculum is out of bounds to government)
- Freedom to research (invoke “Haldane”!)
This has two consequences:
- The loss of autonomy from partnering with private money – direct or indirect – is poorly sketched or understood and is abstractly – and naively – imagined as a free contract between two private parties (university and funding source);
- The academic freedom of academics is subordinated to the institutional definition. Do the four categories above cascade down to faculty or departmental level? Or are these freedoms the preserve of the executive?
Academic freedom as defended by vice-chancellors and managerial class really means the freedom to act like a business with light regulation, where academics are employees to be instructed and students are customers.
If we are serious about academic freedom for academics, then institutional governance needs overhauling. But it has to be done by academics. No HE legislation in 2015/16 is going to undo chronic managerialism with its bullying and incompetence.
In it Donnelly, the senior civil servant in BIS, empowers Odgers to deliver the student loan sale once a government decision has been made.
Odgers thereby becomes the Senior Responsible Owner and would presumably appear before the Public Accounts Committee instead of Donnelly were that committee to look into the value for money of a sale.
Odgers objective is to deliver a first sale within nine months of ‘Ministerial decision’. In order to get sale proceeds into the 2015/16 financial year – as per the official projections – Odgers would need to be given the go-ahead in June.
Things could move very quickly after the general election. A different Secretary of State for Business may make a different decision to Vince Cable, who vetoed a loan sale last summer.
A sale though still remains ‘broader government policy’.
For more detail on attempts to sell student loans, see my recent essay for the London Review of Books.
Although the Budget has announced a new consultation of postgraduate funding, perhaps more significant is the large downwards revision to future undergraduate numbers contained in the Office for Budgetary Responsibility’s Economic & Fiscal Outlook.
Student numbers in England were expected to rise this year following the removal of the higher education numbers cap, but have done so by considerably less than expected. The latest data on student numbers and applications indicate a more gradual rise than in the original estimate of the cost of this policy change. We originally assumed that student numbers would rise relatively quickly as excess demand was catered for, but there have only been around 10,000 new entrants this year and applications for next year suggest a similar rise in 2015-16. We therefore assume that student numbers will rise by a further 10,000 in 2016-17, to 375,000, but remain broadly stable thereafter. This would still represent a steadily rising proportion of 18-19 year olds. (The ONS population projections that underpin our forecasts show around a 10 per cent decline in the number of 18 year olds in the population between 2015 and 2020.) The forecast also takes account of new postgraduate loans, the introduction of which was announced in Autumn Statement 2014. (paragraph 4.158)
The 2013 Autumn Statement thought that removing student numbers controls this coming September would reach unmet demand of 60 000 places. The OBR has revised down the projections for new student loan outlay to £16.5bn in 2019/20. In December it thought that £18bn would be going out the door each year, indicating that it thinks there will be 100 -150 000 fewer undergraduate students to fund each year. (New Postgraduate loan uptake is included in that £16.5bn).
The 2015 Budget indicates that ‘progress continues’ on attempts to sell the student loans that were issued to those starting before 2012 (‘pre-2012 loans’). Despite Vince Cable vetoing a sale last summer, it remains government policy. How we interpret ‘government’ – Treasury or Tory – there might be clearer after the Lib Dems get to set out their alternative budget tomorrow.
In the meantime here’s a relevant paragraph from the Office for Budgetary Responsibility’s new Economic & Fiscal Outlook.
At Autumn Statement 2013, the Government announced the intention to sell part of the student loan book, which it expected would raise around £12 billion over five years from 2015-16. This intention was reiterated in Autumn Statement 2014 and has been again in this Budget. The Government has informed us that the sale in 2015-16 remains its firm intention, but that there have been changes in the form of the expected sale relative to that which underpinned our previous forecast assumptions. While the preparations for the sale are still at an early stage and significant uncertainties remain, one implication is that it is likely that a larger quantity of loans would need to be sold to meet the Government’s £12billion central estimate for the proceeds from the sale. The Government has confirmed to us that it intends to proceed on that basis. We have therefore kept the £12 billion over five years in our latest forecast, but have revised up the extent to which future repayments and interest paid to the Exchequer will be reduced. Other things equal, these changes reduce repayments by around £¼ billion on top of the almost £1¼ billion by 2019-20 that had already been factored into our forecast. (paragraph 4.162)
The £2.3bn cash estimated to be raised in 2015/16 would help Osborne’s claim that public debt would be falling as a share of GDP by 2015/16.
There is no indication as yet as to what the new form of sale might be. For my take on efforts so far, see ‘Cash Today’ in the London Review of Books.