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BIS still has to find £450million of savings for 2015-16

July 9, 2015

Despite the enormity of yesterday’s budget announcement, it transpires that BIS still has to locate £450m of cuts in this financial year (2015-16).

The abolition of maintenance grants for new starters in 2016/17 will ultimately take from annual expenditure an amount close to £1.6bn per year. This reduces the current measure of the deficit by the same amount despite the replacement of grants by an equivalent amount of maintenance loans. This leads to the cumulative saving announced in the Budget document – £2.5bn by 2020/21.

Osborne cited a figure of £3bn per year, but this relates estimates of the cost of a new commitment outlined by Jo Johnson earlier this month: Cameron has stipulated that new freedoms for universities to recruit must see ‘double the proportion of disadvantaged young people entering higher education by 2020 from 2009 levels’.

That is, maintenance grants are currently means-tested so having more students from less wealth-off families would see an increase in maintenance grant. This was taken to be ‘unsustainable’. The OBR models annual loan issuance to increase by £3bn to compensate.

Loan issuance for the whole of the UK looks set to clear £20bn per annum by 2020, while repaymenys languish somewhere around £2.5bn. Despite the ‘deficit saving’, these large shortfalls will add significant upwards pressure to the public debt until repayments improve. Freezing the repayment threshold for all those with loans who started after 2011 would improve repayments more quickly. It’s these cashflows and the impact they have on public debt which concern the Treasury rather than the specific ‘RAB’ attached to each year’s issue of new loans. BIS was already under pressure to improve loan ‘performance’ and it’s not yet clear how to assess the impact on its future budgets. We’ll only have enough information when the Autumn spending review comes around. The Treasury is very happy to switch grant expenditure to loans, but it is still very concerned about the impact of loans on the future ‘UK debt pathway’ (see the eary sections of yesterday’s Budget on ‘the long-term debt challenge’).

But back to the £450m cuts. A BIS spokesperson told Times Higher Education 

“We are continuing to work on how to implement the £450 million savings, across BIS budgets, announced by the chancellor on 4 June; on higher education we will ask Hefce [the Higher Education Funding Council for England] to implement funding reductions in a way that does not undermine the viability of institutions.”

It is hard to see the remaining teaching grant for STEM subjects being affected, but Student Opportunity Funds may go with Hefce/BIS seeking to have universities cover more of those costs from fee income.

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