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December loan sale lost £1.15billion

April 25, 2019

£1.15billion was lost on the second loan sale in December according to the annual Supplementary Estimates, which itemise the additional budget given to government departments.

The sale raised just under £2billion, but this price was below the valuation of the loans sold in the Department for Education’s accounts. DfE has previously received assurances that the losses on the sale of pre-2012 income contingent loans would not impact on its budget and here we can see that it has been given additional resource AME to cover the sum.

loan loss

A first sale, in December 2017, lost £900million. That means the sale programme has lost over £2billion already, with three planned sales still to go. Current national accounting conventions mean these losses are not recorded against the deficit, but that seems likely to change after Eurostat advised ONS that it’s new accounting treatment should see loan sales dealt with as “capital transfers”.

Elsewhere in the Supplementary Estimates, we can see that DfE has been given over £11.7billion extra resource to bulk up the ring-fenced part of its RDEL budget that is uses to cover the estimated non-repayment on student loans issued in year (which was only £3.9bn for 2018/19). The DfE might not need all of that to cover the ballooning cost of loans, but notes indicate that the RAB charge has been pushed up by 2.5 percentage points because of “adaptations” to the department’s loan model, plus corrections to both overestimated earnings for 2016/17 and underestimated loan outlay the following year. This would take the RAB charge very close to 50%, meaning that the government only expects to receive back the equivalent of half of what it loans out today. We will get a fully picture of this in the summer when DfE’s annual report for April 2018 to March 2019 is published. (Though this might also be the last occasion on which RAB is used for departmental budgeting!)

These revisions to data and modelling also push up the cost of loans already issued, which explains why the supplementary resource is higher than 50% of the loans issued in the year to March.

Note that departmental budgeting and accounting is separate to national accounting and is governed by different conventions and practices.

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