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ONS decision imminent on student loan treatment

December 3, 2018

Here are my slides from my recent talk at wonkfest.

wonkhe nov 2018 fiscal illusions & ONS review

The talk was given on the day that the Office for National Statistics announced that Monday 17 December would be the day when it announces its decision on the new treatment of student loans in the national accounts. All indications are that we will get a new system and we might therefore be able to wave goodbye to “fiscal illusions”. ONS has alerted us to the fact that it expects to take a year to implement the new convention. As I joked on the day, this shortens the odds on a 2019 General Election, since the Chancellor will get to use his current deficit figures until the new convention comes in – and then they are likely to be exploded.

The slides include some assessment by the Office for Budgetary Responsibility for the deficit impacts of different alternatives. They do not though assess “Option 2” – treating loan repayments first as repayments of principal, rather than interest. My penultimate slides offer an assessment of Option 2 using OBR figures.

Option 2 has less impact on the deficit in 2023-24 than the OBR’s other alternatives, but it still comes in at £8billion. By 2023-24, that adds nearly 50% to the deficit.

The accounting treatment doesn’t change the cost of student loans, only the presentation of that cost. But the government’s fiscal mandate targets such headline figures to the detriment of sound economic policy.

If you do find the slides helpful, please consider donating.

More detail on fiscal illusions can be found here.

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