Government response Pt 2 – finances
Following on from yesterday’s summary, this post looks at the brief references to financial matters in the government’s formal response to the higher education consultations.
As to loans and their potential sale, another subject I have spent too much time on recently, it would seem we are still no further enlightened than a year ago.
2.1.23. The Government is continuing to examine options for monetising the income contingent repayment (ICR) loan book. We are focusing on the feasibility of selling the existing (pre-Browne) loans, subject to any sale reducing significantly the Government’s risk exposure to the loan book and representing value for money for the tax payer; and to borrowers being no better or worse off as a result of the sale of their loan compared to those whose loans have not been sold. Following the completion of the feasibility work, the Government will decide whether and how to monetise the loan book based on the conditions listed above.
First, note the reference to ‘pre-Browne’ loans. This indicates that the government may have abandoned plans for an ‘ongoing solution’ (viz the White Paper) and is now only considering retrospective sales of income contingent loans issued prior to 2012. (As indicated in my writing on student loans, the new scheme with much higher loans issued may be too volatile to price and therefore sell at this stage).
Second, ‘feasibility work‘ marks a stage further on from the Rothschild report which aimed to propose and assess ‘routes to market’. (Detailed treatment of the Labour government’s attempts to ‘securitise’ the income contingent repayment loans can be found in Part 3 of False Accounting?)
That said, we are still largely in the dark. BIS has refused to respond to FOI requests on the matter, claiming that the provision of any specific information to the public would jeopardize its ‘commercial interests’ in negotiations with potential purchasers.
A subsequent paragraph in the Response announces that the government has now turned its attention to the sale of the final tranche of old ‘mortgage style’ loans. These are only worth £750m and given the subsidies or discounts needed to offload them to a third party, probably not worth the bother. I understand that earlier sales here, from 1998 and 1999, may be under review by the Office for National Statistics as the national accounts are now run under the Eurostats convention which was not in place at the time.
Expect further developments but also consider how loans generate information through repayment patterns. The government and its successors will couple such data with Key Information Sets and other mechanisms.
2.2.12 For example, we have worked with the Office for National Statistics to introduce a new question into the Labour Force Survey which will, in time, allow analysis of long-run earnings outcomes from specific institutions.
Placing education within a system of accounting in this manner is what I have termed, ‘financialisation’, as distinct from privatisation or ‘monetisation’ (Willetts’s favourite, see above).
Here it is the ability to differentiate and monitor specific institutions that is pertinent. That is, it leads to questions such as, ‘Where is the Exchequer value for money in supporting study at this institution given that so little of what is loaned is repaid?’.
This will be by far the most powerful performance metric to hand, since the addition of the £ sign grants a special kind of objectivity to the figures.
In terms of financing, the government also confirmed its belief that the new funding regime will move most English universities outside EU procurement rules on public institutions, since the majority of their revenues streams will now be private, not public.
2.4.11 The agreement between the student and the institution to pay a fee in return for teaching is not public financing. On that basis, we think the shift in funding from grant to loans may mean that more HEIs will fall below the 50% threshold for public funding in future and so be exempt from these regulations.
That is, from this perspective of EU law the majority of universities now become private institutions as a result of the change in funding regime (the 50% threshold was established by the University of Cambridge after legal proceedings).
The public subsidy found in the ‘policy write-offs’ on student loans is explicitly positioned as a ‘subsidy benefiting the student not the institution’.
It is clear that reforms of this nature, when coupled with the new VAT exemptions for commercial providers and shared services, are extremely significant. Yet, they have been carried out with little to no democratic oversight or debate.
A generalised loan and tuition fee system generates radical changes beyond the simple headline figure of fees.