Ministers urged to ditch ‘f lawed’ interest rate for student loans – by their own experts

THE country’s top statistician has put pressure on ministers to scrap the controversial link between student loan repayments and Retail Price Index inflation.

Campaigners say the link penalises both students and commuters, with regulated rail fares also rising each year in line with RPI.

This is because RPI is much higher than the Consumer Prices Index used to calculate increases in benefits, including the state pension.

RPI inflation was 3.5 per cent in June, while CPI was 2.6 per cent.

Yesterday those calling for reforms of student loans and rail fares received the backing of the Office for National Statistics, which calculates inflation every month. ONS director general Jonathan Athow said: ‘We will continue to produce RPI for legacy uses. However, the RPI is a flawed measure of inflation with serious shortcomings and we do not recommend its use.’

The RPI tracks rises in the price of a basket of goods and includes housing costs. It was dropped as a national statistic in 2013 because it exaggerates rises in the cost of living.

The Government and the Bank of England have used CPI as their official measure of inflation since 2003.

However, student loan interest rates are tied to March’s RPI inflation figure, plus 3 per cent. This means that from September students’ loan rate will rise from 4.6 per cent to 6.1 per cent.

Commuters are also worse off because of ministers’ insistence on linking the annual increase in regulated fares with RPI rather than CPI.

In their case, the increase is tied to July’s RPI figure, to be published later this month. This is expected to be between 3.6 and 3.9 per cent.

If this is the case, the cost of a season ticket between Lon-

‘It has serious shortcomings’

don and Birmingham will rise by almost £200 to £10,271.

Labour promised in its general election campaign manifesto to link rail fare rises with CPI instead, claiming this could save commuters hundreds of pounds over the course of this Parliament.

Last night Labour MP John Mann, a former member of the Commons Treasury committee, said: ‘Ministers have been left with little choice after this statement by the ONS. It is simply unfair and untenable to link student loan repayments and rail fare rises to RPI. Rest in peace RPI.’

The intervention from the ONS came as it announced that its preferred measure of inflation – CPIH, or CPI including housing costs – has been formally approved as a national statistic.

Last night the Treasury said it has no plans to cut the link between student loans and rail fares and RPI.

It said it would have to wait until CPIH establishes a ‘reliable track record’ before considering any changes.

Ministers have been under pressure to reduce the debt burden for students after a huge turnout by young people in the general election on June 8 contributed to the Tories losing their overall majority.

Universities minister Jo Johnson suggested last month that student loan interest rates could be slashed. He admitted the system is ‘under review’ amid criticism that it is ‘broken’ and leaving graduates heavily indebted for life.

An Institute for Fiscal Studies report recently concluded that three- quarters of students will probably never pay off their loans in full as their debts are the highest in the developed world.

Downing Street has dismissed the prospect of university fees being scrapped, as Labour has demanded.