Sale of ICR loans – plans confirmed

This morning, Danny Alexander, Chief Secretary to the Treasury, addressed the House of Commons. He set out the government’s investment plans for 2015 to 2020 as a complement to the day before’s Spending Round (which set departmental expenditure budgets for 2015/16).

He confirmed that the government intends to proceed with the sale of student loans issued to those who started higher education between 1998 and 2011.

…we will take action to sell off £15 billion worth of public assets by 2020. £10billion of that money will come from corporate and financial assets like the student loan book. And the other £5 billion will come from land and property.

Mr Speaker, government is the custodian of the taxpayers’ assets. When we no longer need them, we should sell them back at a fair price – not act like a compulsive hoarder.

No doubt the ‘hoarding’ analogy wasn’t meant to extend to student loans. But as has been discussed elsewhere (the latest being my appearance on the Keiser Report), any such sale will make a long-run loss for the government as they will be forced to subsidise any purchase.

The justification is found in the more detailed report accompanying Alexander’s statement, Investing in Britain’s Future.

6.11 The Spending Round therefore sets out the Government’s plans to go even further, setting an ambitious target for central government to deliver at least £15 billion of asset sales between 2015 and 2020. This will comprise at least £5 billion of land and property to support growth and drive efficiency, and at least £10 billion of corporate and financial assets, which will contribute to the Government’s aim to reduce public sector net debt, including proceeds from the pre-Browne Income Contingent Repayment student loan book.

This plan is consistent with what we have previously revealed about the Rothschild recommendations on how to best ‘monetise’ student debt – although the planned start date has been moved back by two years.

Those who have been following recent debates on the wonkhe website will see that the main justification is that such a sale would ‘reduce public sector net debt’.

There is no further detail as yet. The question is: how will such a sale be structured?

For more information on the background to sale, see my recent book. For discussion of Rothschild’s recommendations – changing the interest rate terms for graduates or ‘synthetically’ reproducing such a change – see my piece for False Economy.

Update

David Willetts ruled out the option of changing the interest rate terms for graduates in a parliamentary response last night:

The Government received proposals in 2011 from its advisers that the cap on interest rates on student loans should be removed as part of a possible sale of the loan book. The Government rejected these proposals.

The ‘Synthetic Hedge’ has not been ruled out as yet.