Exclusive – £1.7billion omission from Sale of Loans impact assessment
Last week’s Autumn Statement announced an expansion of higher education by 60 000 places from 2015/16. Little detail has been available on how that expansion will affect the departmental budget for Business, Innovation and Skills after that first year.
The Statement did however claim that loan outlay for those additional places would be funded from the planned sale of a portion of the student loan ‘book’.
§1.203 This expansion is affordable within a reducing level of public sector net borrowing as a result of the reforms to higher education finance the government has enacted. The additional outlay of loans over the forecast period will be more than financed by proceeds from the sale of the pre-reform income-contingent student loan book. Taking the two together, public sector net debt by 2018-19 will be lower as a result.
The details were presented in the table below taken from page 83 of the Statement.
[Thanks to Jonathan Clifton, IPPR for making this image available online: click to see larger version]
There is however a problem with this table. A significant ‘impact’ has been omitted.
Gross proceeds from the loan sale are shown (£2.3billion per year from 2015/16) but the Treasury has forgotten that if you sell part of the loan book you will lose the graduate repayments that are now going to the purchaser.
As noted on Friday, The Office for Budgetary Responsibility wrote in its Economic and Fiscal Outlook:
§4.145 Selling the loan book reduces repayments over the latter years of our medium-term forecast, by just under £1 billion in 2018-19, and beyond, whereas removing the numbers cap increases forecast outlays by around £2 billion by 2018-19.
OBR have also confirmed to me that for 2016-17, they estimate a resulting downwards revision to repayments of £200million, and £500million for 2017-18.
Leading to a total downwards revision over the three-year period to 2018-19 of £1.7billion.
If you plug those figures into Table 2.5 the impact on ‘total policy decisions’ goes into the red with a loss overall of £570million across the full period shown.
In 2018/19, just focusing on loans, £2.3billion of sale revenues minus £1billion of lost repayment income is a long way short of the £1.93bn needed to provide loans to the additional 180 000 students (3 years of an extra 60000 places).
Of course, you can strip out the Green Investment Bank, Start Up Loans, rent to buy and ‘unlocking large housing sites’ from the above table. You could then argue that strictly speaking the claim made about loans and debt was correct. But PSND is not going to be reduced as a result of this suite of proposals.
I put my questions to the Treasury this morning and they were unable to provide comment by this evening. BIS were unwilling to discuss ‘a Treasury document’ but released a fact sheet this morning:
“… a final decision to go ahead with the sale has not yet been taken. Any decision will require a full assessment of the value for money to the taxpayer of selling the loans against the cost to Government of retaining them.”
So … what to make of it all? And what happens after 2020? The ingenious coup de théâtre of Thursday now seems closer to bad bunko gimmickry.
Update – 11 December
This omission was confirmed by the Treasury. Table 2.5 of the Autumn Statement needs fundamental revision.