IFS: students £1,000 worse off as cost-of-living crisis hits hard

Higher-than-forecast inflation leaves gaping hole in amount of maintenance support available for students

November 30, 2022
Business woman holding an empty wallet, she hasn't money
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Students in England are likely to be hit even harder by cost-of-living pressures than first thought, with the poorest now predicted to be up to £1,000 worse off.

Analysis by the Institute for Fiscal Studies (IFS) estimates that there will be an extra cut of £250 beyond previous predictions because of inflation rising at a higher rate than economists’ initial forecasts.

In its latest economic and fiscal outlook, the UK’s Office for Budget Responsibility predicted that RPIX inflation – which is used to adjust the value of student maintenance loans – would peak at 11 per cent in the last quarter of 2022, but the value of the loan was increased in line with the predicted level of inflation of 2.3 per cent that was forecast in November 2020.

The IFS says this means that students are considerably worse off than their peers who studied in 2020-21.

“These cuts arise because inflation has recently been much higher than forecast, and maintenance support is adjusted with forecast rather than actual inflation,” the IFS says.

It calls for changes in the way the support is calculated in order to avoid more cuts. “Importantly, there is no mechanism in place for these cuts due to forecast errors ever to be corrected,” the thinktank adds.

“While others are benefiting from extra government support, students have been left in the cold,” Kate Ogden, the IFS’ senior research economist, said.

“Merely because of errors in inflation forecasts, the poorest students will be more than £1,000 worse off this academic year than in 2020-21. This could lead to significant hardship for many this winter.”

Universities have increasingly been forced to step in to help students cope with the rising cost of living, with some institutions offering one-off payments to help them pay their bills.

Sector bodies have repeatedly called for more government support for students, but ministers have so far resisted pressure to increase funding or introduce any new measures.

Speaking in the House of Commons on 28 November, Gillian Keegan, the education secretary, said her department would continue to work with the Office for Students to provide support for those who were struggling via the £261 million student premium fund.

She praised universities for doing a “fantastic job” of making additional support available and urged students to speak to their institutions about the help they offer, but she stopped short of committing to any further action.

The IFS says correcting the fall in maintenance loan entitlements “will be less expensive for the taxpayer than it may at first appear”, calculating that restoring maintenance loan entitlements this academic year to the same real value they had in 2020-21 would cost £900 million for the cohort starting university in 2022.

Ben Waltmann, another senior research economist at the IFS, said using forecasts to uprate maintenance loans “makes sense” but “having no mechanism to correct errors makes no sense at all”.

“The government should ensure maintenance loans are uprated consistently rather than allowing a large and essentially random reduction in the value of loans to become baked in,” he said.

tom.williams@timeshighereducation.com

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