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.