BIS Committee report into Student Loans published

The BIS Commitee has published its report into student loans. Two evidence sessions were held in December and January. I appeared at the first, David Willetts at the second.

Events may have overtaken the findings that do not simply echo the conclusions of the  National Audit Office in November.

At the weekend, Vince Cable announced that he will not authorise a sale of the student loan book. That means that the Committee’s concerns about getting value for money from the putative private sector loan purchasers are rendered academic for the time being. (I am grateful to the committee for the open discussion of the ‘synthetic hedge‘, a financial instrument devised specifically to overcome the interest clause on the income contingent repayment loans issued to those who commenced undergraduate study between 1998 and 2011.)

Cable told Liberal Democrat members:

“The government was considering the sale of student loans on the basis that it would reduce government debt. Recent evidence suggests this will no longer be the case. Given there is no longer any public benefit, Nick Clegg and I have agreed not to proceed with the sale.”

What implications might that decision have for higher education funding? The Committee’s report underscores just how confusing and inconsistent  ministers and the chancellor have been about any link between loan sale proceeds and the promised expansion of undergraduate places. Osborne’s Autumn Statement insisted that the first would pay for the second, though he retreated a few days later to a different claim: that the cash from purchasers would help the expansion through the early years.

In the January evidence session, Matthew Hilton, a civil servant in BIS, told the Committee:

 “It would be fair to say that the Treasury do intend to underwrite this policy. If there is a shock to their expected budgets that changes some of the planning that they have in hand, we would have to sit down and talk to them, as would any Department; but there is no logical flow through from a decision on the loan book to a decision on the expansion of HE budgets.”

Willetts sent a subsequent note insisting that “the announcement on removing the cap on student numbers is fully funded”.  But Willetts’s permanent private secretary told a constituent a few months later that were the sale to fail then these commitments would be reviewed. Apparently sources close to the Chancellor have been insisting that nothing has changed as the loan sale was earmarked to pay down public sector net debt: this shows a marked lack of understanding of the cash streams involved here.

As I said back in December, the Autumn Statement smacked of bad bunko gimmickry. The BIS Committee report stresses that the basics, such as the ability to value the loan book accurately, were not even in place back then.

§42 A common thread in our inquiry and that of the Committee of Public Accounts was the lack of a solid evidence base on the data underlying the student loan-book.

We should note that the Autumn Statement assumed that the equivalent of 65 per cent of loans issued would be repaid; we now have an official estimate of only 55%. On over £10billion of loans per year that’s a shortfall of £1bn. As things stand, we do not know what the immediate consequences for the expansion policy will be as a result of Cable’s stance. Cable spent yesterday afternoon/evening in an emergency meeting.

The department for Business, Innovation & Skills has not been able to provide a statement that would shed light on these matters, only that ‘There are no plans to conduct a sale during this parliament.’ I asked about further work on the sale and whether a tender might be published before the general election but have not yet had a reply.

The Committee offer the following summary:

§78 The Government appears to have committed itself to the sale of the income contingent loans before it has fully assessed the financial viability of such a move.

Quite.

Update

OBR’s Graham Parker at Treasury select confirms Cable’s abandonment of sale of student loan book means loss to govt of £12bn over 5 years.

— Patrick Wintour (@patrickwintour) July 22, 2014

The OBR will amend its fiscal forecasts. New ones without the net loan sale proceeds will appear at the next Autumn Statement (December?).