Charity: fee sums do not add up

Finance reforms will cause inflation and add to UK indebtedness, study says. John Morgan reports

May 17, 2012

The new student loan system will add up to £100 billion to the UK's debt over the next 20 years, while the inflationary impact of higher fees could also mean there is "no overall deficit saving".

That is the argument put forward by a report on the government's new fees and funding system, commissioned by the Intergenerational Foundation, which bills itself as "a politically independent charity that promotes the interests of younger and future generations in British policymaking".

David Willetts, the universities and science minister, has said that changes to higher education funding were "necessary to reduce the deficit".

But the report, published on 17 May and titled False Accounting? Why the Government's Higher Education Reforms Don't Add Up, says the upheaval in the sector "cannot be justified on 'fiscal' or 'austerity' grounds".

The report, compiled by Andrew McGettigan, a researcher on higher education, says that by cutting the annual block grant to universities by £3 billion, the government will reduce the deficit - measured as the difference between public expenditure and income - by around £1 billion a year.

However, at the same time the rise in tuition fees will push up inflation, and therefore add £2.2 billion to the cost of pensions and benefits by 2016, which are linked to the cost of living.

Meanwhile, the cost of borrowing to create the loans - which is treated differently from spending under government accounting rules - will add to the UK's public sector net debt.

Dr McGettigan says the government's independent forecaster - the Office for Budget Responsibility - used a low estimate on the take-up of loans and ignored the inflationary impact of higher fees.

"It is therefore reasonable to indicate that the likely impact on net debt could peak at between £50 billion and £100 billion," he says.

Dr McGettigan warns that this or future governments may sell the student loan book because of the volatility of the scheme and to cut the debt. But to make the book more attractive to private buyers, the state may have to toughen the terms of future loans or even "exact higher repayments" from existing borrowers.

The report calls on the government to restore some of the block grant so as to lower fees and argues that "no sale of the loan book should proceed without discussion in Parliament on the terms of any deals".

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