Skip to content

“Logical flow-throughs” – is expansion funded by a sale? (redux)

Plashing Vole has shared some correspondence with Wolverhampton MP, Paul Uppal, relating to higher education and student loans. Uppal is David Willetts’s parliamentary private secretary, which makes one particular paragraph extremely interesting.

Regarding the proposed programme of student loan sales, Uppal writes:

Current market conditions are favourable and BIS advisors have confirmed there is potential interest from a range of buyers in investing in the loan book. This has informed the estimates of potential proceeds of approximately £12 billion over a five year period. It has been calculated that the additional outline of loans for the expansion of students numbers over the forecast period will be more than financed by proceeds from pre-2012 loan sales. If the sale of the loan book does not go ahead or does not provide the expected receipts, The Treasury will need to consider the impact on public sector net debt. This will be a wider consideration of the state of the public finances, but will include the affordability of higher student numbers.

You might want to compare the final sentences with what was recorded at the BIS Committee in January with Willetts in attendance as a witness and a senior civil servant from his department answering here:

Q113   Chair: Can I get it clear?  You are saying that the Treasury has agreed to underwrite this policy [expansion of student undergraduate numbers] irrespective of the sale of the student loan book.

Matthew Hilton: It would be fair to say that the Treasury do intend to underwrite this policy. If there is a shock to their expected budgets that changes some of the planning that they have in hand, we would have to sit down and talk to them, as would any Department; but there is no logical flow through from a decision on the loan book [sale] to a decision on the expansion of HE budgets.

Chair: So that could considerably alter Treasury expenditure projections. …

It’s obviously all hedged and garbled, but doesn’t Uppal’s statement about the ‘affordability of higher student numbers’, and its reconsideration in light of a weak sale or no sale, contradict the idea that ‘there is no logical flow through from a decision on the loan book to a decision on the expansion of HE budgets’?

 

 

Recent overviews of English HE

Three recent overviews of English HE that may help new readers or those who want updates on what has happened since The Great University Gamble was published a year ago.

For the Australian publication, Arena (March 2014):

‘Financialising the University’

For the LSE blog ‘British Politics and Policy’ (31 March 2014)

‘Privatisation and Private Finance in HE’

For Discover Society (February 2014)

Managerialism, Democracy and the new Political Economy of UK Higher Education’

 

 

 

… and costs of putting together sale of student loans

the same document shows a separate reserve claim (cash against Resource AME this time) to cover ‘Increase in costs of student loan debt sale

it comes to £15.877million. Expensive work.

The costs of revisions to estimated repayments for existing loans

Tucked away on page 201 of the Supplementary Estimates 2013-14 is the first indication of the impact of revisions to estimates on student loan repayments.

BIS applied to Treasury and Parliament for an additional £5.455billion allocation to its Departmental Expenditure Limit (in ‘non-cash’) to cover new lower values for the loans already issued (that sit on the department’s books). In the previous three years to 2012/13 inclusive, similar claims were made for a total of £7billion.

Corrected

That £5bn figure will be used to cover downwards revisions to the valuations of loans issued before this financial year (2013/14). If we leave aside the question of the value of repayments (c.£1.8bn according to the OBR) and interest on outstanding balances (1.5% for the majority of loans), what this means is that the loans thought to be worth £31bn (on a face value of £46bn) last year may now be revised down to £26bn.

We will get the audited accounts some time in the summer.

Further down the document we can see that £0.495billion was needed for a new student loan provision in ‘resource AME’. This is to cover the revaluation of loans issued in 2013/14 against their ‘target RAB’. (See previous post on the new accounting conventions).

The ‘cost’ of lower estimates for graduate repayments is therefore £6billion today.

 

 

Beyond the RAB

I recommend the post over at wonkhe by Gavan Conlon of London Economics.

He flags up two issues that have received relatively little attention in the debates about the new 45% figure for estimated losses on student loans.

  1. The student body has changed (fewer part-time students) and there has been a loss of economic efficiency in the system (less is being done with more outlay).
  2. Numbers are growing at private providers – here we have very little idea about the return to the taxpayer for subsidizing ‘sub-degree’ courses such as HNCs and HNDs.

I have covered the second point on here: most recently this post on the rate of growth and consequent scale of private sector government funding today.

A third point to stress is that changing estimates of non-repayment on loans affects budget allocations today. BIS’s budget for 2014/15 was set in broad terms in 2010, when the loss on loan repayments was thought to be 30 per cent. The new accounting and budgeting conventions for 2014/15 do not mitigate all the pressure from writing down estimated repayments to the equivalent of 55 per cent. The Treasury has set a ‘target impairment’ of 36% for ‘post-2012′ loans issued in 2013/14 – those alone will therefore require a £20m cut to BIS spending budget for the next 30 years. A slightly larger cut will result from the loans issued in 2014/15 as they too will diverge from that target impairment.

The estimated loss on loans involves projections past 2040, but the accruals convention – resource accounting and budgeting (RAB) – requires an impairment (RAB charge) be set aside today to cover that loss. We are not just bandying around rival projections. The government’s projections get ‘booked’ and have effects on other spending allocations. We still haven’t had an official account of what lay behind the emergency cuts to Hefce’s teaching grants, but changes to the RAB charge and excessive, unplanned private sector expansion are contributing factors.

 

Private provider growth – new figures from Willetts

Back in February, I covered a parliamentary statement from David Willetts on the loan outlay to students at private HE providers. I speculated then on the missing figures for maintenance grants to those students. We have now had revised figures from Willetts which includes grants (which do not have to be repaid and count as cash expenditure).

The estimated costs of support to students at alternative providers are now as follows:

 

£ million
By financial year
2013-14 2014-15 2015-16
(i) Loan outlay (cash) 400 650 600
(ii) Maintenance grantsand allowances 150 250 250

Forecast of expenditure on students at alternative providers remain especially uncertain as we still do not yet know how many students will be paid support in the 2013/14 academic year. All forecasts are based on assumed growth from the 2012/13 baseline.

As Shiv Malik and I write in the Guardian today, this represents astonishing growth. In academic year 2010/11, the first of the Coalition government, only £42million went to students studying at private colleges (£33m in loans and £9million in grants). Four years later, it is expected to hit £900m before dropping back slightly with the impact of the introduction of recruitment controls for private providers this Autumn.

Back in 2011, I wrote a piece for Radical Philosophy on ‘New Providers’ which said:

 Their impact is generally underestimated as it is not appreciated how the government will protect them and support them in the first days of this new era, until they are able to compete.

In Great University Gamble, I pointed to US experience of very rapid growth and suggested it could also happen here. In the four years since 2010/11, we will have seen an increase to private student funding of  2050% according to these new figures.

I underestimated its current astonishing growth rate – which even frightened the government in November. Look back again to that note to the table, ‘Forecast of expenditure on students at alternative providers remain especially uncertain as we still do not yet know how many students will be paid support in the 2013/14 academic year. All forecasts are based on assumed growth from the 2012/13 baseline’.

From the perspective of BIS’s budget, already facing pressures, it is important to point out that maintenance grants are cash expenditure and were underestimated on original projections. In addition, with the estimated loss on loans now at 45 per cent of outlay, there is a £290m loss on the £650m loans to be issued in financial year 2014/15 (with a sizeable part of that going to private colleges directly to cover tuition fees).

The government will therefore hit £0.5billion expenditure (grants + loss on loans) on students at private providers. Many of these colleges are for-profit. The names are unfamiliar to most – you can find a list here of all courses ‘designated for student support’. You can see some of the places operating out of Whitechapel here.

The point to underscore is that big cuts are being made to teaching budgets at established universities to compensate. Some of the ‘major fiscal challenge’ facing BIS is self-inflicted – this policy of ‘diversification’ is a big contributor.

Warwick University Limited – reissue by Spokesman Books & Launch on 31 March

andrewmcgettigan:

Monday evening

Originally posted on Critical Education:

Spokesman Books have reissued  Warwick University Ltd edited by EP Thompson and originally published in 1970.

In February 1970, students occupying the Registry at Warwick University uncovered evidence of secret political surveillance of staff and students. There followed not only fierce debates within the university on issues of governance and democracy, but also a legal battle as the administration tried to stop the press from publishing the documentary evidence, and wider public debate on the purpose and values of university education. Warwick University Ltd will be of great interest to today’s activists, because the conflict at Warwick clearly prefigures current struggles over the subordination of higher education to commercial goals, as well as political surveillance, policing, the use of legal injunctions, press freedom and business corruption. This edition includes a new introduction prepared by some of the original contributors, highlighting the links between then and now

The London launch

Date:…

View original 153 more words

Follow

Get every new post delivered to your Inbox.

Join 197 other followers