Chancellor announces £450m BIS budget cut for this year

George Osborne has today announced £4.5bn of ‘new measures to bring down public debt this year‘.

Business, Innovation & Skills – responsible for further and higher education – has been instructed to save £450m and must make savings in those two areas.

The relevant budgetary measures for BIS is currently somewhere in the region of £13bn, so the cut represents roughly 3.5% of overall planned spending. BIS will be keen to achieve this without touching the cash ring-fence for research.

So where can savings be found? Well, tellingly we had a dress rehearsal for this eventuality in late 2013, when BIS faced a ‘major fiscal challenge’ that was only averted when the Treasury introduced new budgeting conventions for student loans. This allowed unexpectedly high projected losses on new loans to be ‘smoothed’ over the next decades.

I wrote a short blog for the Guardian on where the axe was going to fall back then. It is still relevant.

The most likely candidate for emergency savings on this scale is to convert maintenance grants to loans. This changes grant expenditure (spending that counts towards the deficit) into new loan issues which are classed differently in the accounts (and do not count towards the deficit).

Back in 2013/14, it was thought that by reducing the grant allowance by £1000 per student per year, BIS could save £350million annually. This figure would likely be higher now given the explosion in students studying at private colleges (who proprtionately receive higher levels of grant).

This would be an ‘administrative’ matter that could be achieved without primary legislation but would involve reversing announcements made in February about academic year 2015/16 (starting in September).

One final point. It might be worth noting that no mention was made of student loan sales today. The further sale of Royal Mail was prominent and land sales were also mentioned. The loan sale programme was announced for 2015/16 commenceent in March’s Budget. It proved to be a vexed programme for the coalition. Although it was reported that Osborne promised a loan sale this year at his recent CBI speech, no reference to that appears on the Treasury’s official transcript.

Update

Technical point – if BIS has to find £450m savings so as to help reduce public sector net debt, rather than the deficit, then switch from grants to loans wouldn’t be sufficient as the borrowing used to create loans contributes to the debt. If we are to interpret this strictly as debt reduction measures, then things get trickier for BIS (assuming no loan sale is as yet indicated).