The highly respected IFS today delivered a stinging verdict on the financing behind the government’s move to abolish the cap on student numbers, announced by the chancellor, George Osborne, in his autumn statement yesterday.
The Treasury’s autumn statement document says: “This expansion is affordable within a reducing level of public sector net borrowing as a result of the reforms to higher education finance the government has enacted.
“The additional outlay of loans over the forecast period will be more than financed by proceeds from the sale of the pre-reform income-contingent student loan book. Taking the two together, public sector net debt by 2018-19 will be lower as a result.”
However, Paul Johnson, the director of the IFS, questioned the policy at a briefing today, noting that selling the pre-2012 income-contingent loans would mean reduced income from repayments for the government in the future.
“This may work in the near-term fiscal numbers, but economically it makes little sense,” he said.
“Selling the loan book will be broadly fiscally neutral in the long run, bringing in more money now at the expense of less money later on. Lifting the cap on numbers will cost money every year.”
Carl Emmerson, deputy director of the IFS, said that scrapping the cap on student numbers will increase the “long run cost to the public finances of student loans”.
He noted the Treasury’s projected cost for the policy of £700 million a year to cover the additional spending on the subsidised interest rate and the proportion of loans written off.
Mr Emmerson said that financing the loans by selling the old student loan book was “economically nonsense as selling an asset for what it is worth does not strengthen the public finances”.