English pol­icy de­bate re­shaped by loans shift

Treat­ing stu­dent loan write-offs as spend­ing, not lend­ing, re­sets pol­i­cy­mak­ing. John Mor­gan re­ports

THE (Times Higher Education) - - FRONT PAGE -

Changes to the ac­count­ing treat­ment of stu­dent loans in the UK could trans­form higher ed­u­ca­tion pol­i­cy­mak­ing, po­ten­tially mak­ing the Labour Party’s plan to abol­ish tu­ition fees in Eng­land seem “a lot less ex­pen­sive”, and bring­ing far greater Trea­sury scru­tiny of “who’s go­ing to uni­ver­sity and what cour­ses they are do­ing”.

A de­ci­sion by the Of­fice for Na­tional Sta­tis­tics to treat stu­dent loan write- offs as gov­ern­ment spend­ing, rather than lend­ing, “will sud­denly bring all the long-run costs of stu­dent loans to the very fore­front of pol­i­cy­mak­ing”, said Jack Brit­ton, a se­nior re­search econ­o­mist at the In­sti­tute for Fis­cal Stud­ies.

The ONS de­ci­sion un­rav­els an ac­count­ing sys­tem that meant stu­dent loans did not add to the deficit at all when they were is­sued – and thus un­rav­els the logic driv­ing sec­tor pol­i­cy­mak­ing since the tre­bling of tu­ition fees in 2012. The de­ci­sion, which would add £12 bil­lion to the deficit in the cur­rent year, also has ma­jor im­pli­ca­tions for the gov­ern­ment’s on­go­ing re­view of post-18 ed­u­ca­tion led by Philip Au­gar, de­layed to take ac­count of the ONS’ de­ci­sion, as well as the gov­ern­ment’s wider aim to elim­i­nate the deficit.

Gor­don Mars­den, Labour’s shadow higher ed­u­ca­tion min­is­ter, said that the ONS de­ci­sion “fi­nally ex­poses the sort of sta­tis­ti­cal con trick” that for­mer chan­cel­lor Ge­orge Os­borne and other min­is­ters “per­pet­u­ated when tu­ition fees were tre­bled” in Eng­land un­der the Con­ser­va­tive-led coali­tion gov­ern­ment in 2012.

And it “im­mea­sur­ably strength­ens the case” for Labour’s pol­icy of “mov­ing away from loans and mov­ing back to grants”, he added.

Labour’s pol­icy to abol­ish fees in Eng­land had been costed at about £11 bil­lion, in com­par­i­son with the £9,250 sys­tem un­der the sta­tus quo ac­count­ing treat­ment. But the rel­a­tive cost of Labour’s pol­icy could now be more than halved by the ONS de­ci­sion, some sug­gest.

The ONS mounted a re­view of the treat­ment of stu­dent loans in gov­ern­ment ac­counts af­ter two par­lia­men­tary com­mit­tees raised con- cerns about “fis­cal il­lu­sions” cre­ated by the cur­rent sys­tem.

Un­der the sys­tem that the ONS has cho­sen, sched­uled for im­ple­men­ta­tion in au­tumn 2019, the por­tion of the loan out­lay that the gov­ern­ment does not ex­pect to be re­paid will be recorded as spend­ing, adding to the deficit. The re­main­der of the out­lay will be classed as loans.

The IFS’ Dr Brit­ton told Times Higher Ed­u­ca­tion: “A lot of the pol­icy changes that have hap­pened since 2011 have, I think, been in­flu­enced by the fact that stu­dent loan wri­te­offs don’t count un­til 30 years down

the line, in terms of the deficit.”

He high­lighted not just the tre­bling of fees but the abo­li­tion of main­te­nance grants, re­placed by loans in 2016.

But af­ter the ONS de­ci­sion, “re­plac­ing loans that the gov­ern­ment ex­pects to write off any­way with grants be­comes very ap­peal­ing”, he added.

The IFS says in its pub­lished ver­dict on the ONS de­ci­sion that it now be­comes “su­per­fi­cially more at­trac­tive to re­duce fees or abol­ish them al­to­gether (as Labour pro­posed in its 2017 gen­eral elec­tion man­i­festo)… or to re­strict stu­dent num­bers”.

Dr Brit­ton said of Labour’s fees pledge that “sud­denly that pol­icy is a hell of a lot less ex­pen­sive”.

But he also said: “More gen­er­ally, the Trea­sury is go­ing to be putting the sec­tor un­der a lot more scru­tiny than they were be­fore.”

The “re­moval of stu­dent num­ber caps” and the ab­sence of “reg­u­la­tion on who uni­ver­si­ties can ad­mit” have “been al­lowed be­cause of the rel­a­tively loose ac­count­ing treat­ment” of higher ed­u­ca­tion fund­ing, Dr Brit­ton ar­gued.

“Now that adding more stu­dents will add more cost to the deficit, I think the Trea­sury is go­ing to be look­ing more closely at who’s go­ing to uni­ver­sity and what cour­ses they are do­ing,” he con­tin­ued.

The fact that the por­tion of loans not re­paid by grad­u­ates now adds to the deficit would mean that data on grad­u­ate earn­ings by sub­ject and uni­ver­sity, on which the IFS has been work­ing, are “go­ing to get a lot more scru­tiny”, he added.

On more im­me­di­ate po­ten­tial im­pact, Andy West­wood, pro­fes­sor of gov­ern­ment prac­tice at the Uni­ver­sity of Manch­ester, said: “In one bound, Au­gar is a lit­tle bit more free… The cur­rent sys­tem now ap­pears much more ex­pen­sive in the short term and about as ex­pen­sive as other op­tions he will have been mulling over – in­clud­ing var­i­ous grants for part-time [study] and Level 4 and 5 [be­low de­gree level].”

But he cau­tioned that the change will “also bring pres­sures to bring the deficit im­pact down” and the re­view “might be pres­sured into re­duc­ing [loan re­pay­ment] thresh­olds and ex­tend­ing re­pay­ment terms as well as cut­ting fees”.

Flipped Of­fice for Na­tional Sta­tis­tics’ de­ci­sion re­sponds to par­lia­men­tary com­mit­tees’ con­cerns about the cur­rent scheme’s ‘fis­cal il­lu­sions’

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