RAB rise spells trouble for sector, critics warn

Hepi director predicts more cuts over higher student loan costs

February 14, 2013

Taxpayers face a higher bill for the new student loans system after the government revised its costs forecast, prompting one critic to claim that universities could suffer further cuts as a result.

With the new system of £9,000 fees halfway through its first year of operation, the government has revised upwards its estimate of the portion of the total loan outlay that will never be repaid by graduates because of subsidies and write-offs.

This portion of the outlay is known as the resource accounting and budgeting (RAB) charge.

David Willetts, the universities and science minister, told MPs last month that the government’s estimate of the RAB charge had risen from 32 per cent to 34 per cent, a change which he said amounted to “approximately £200 million per year”.

The change came in response to the Office for Budget Responsibility’s downward revision of its wage growth forecasts - which would mean more graduates remaining for longer below the £21,000 threshold at which student loan repayments begin.

The level of the RAB charge is important for the Department for Business, Innovation and Skills because it is the only part of the student loan outlay that appears on its books as orthodox public spending and thus counts towards the UK budget deficit.

“This latest upward revision has been forced on the department, and we are confident others will follow,” said Bahram Bekhradnia, director of the Higher Education Policy Institute, which has previously warned that the government has understated the public cost of the new system.

Mr Bekhradnia added that BIS is still basing its calculations on an assumed mean average of wage increases, rather than a median average that takes account of the variation between high-earning and low-earning groups.

“It is convenient for it to do so as it raises the assumed repayments,” he said.

Mr Bekhradnia also warned that the Treasury may “insist” that BIS stay within its budget.

“In that case it will have to reduce costs…by cutting back on other parts of the HE budget,” he said.

Elements that could be targeted for retrenchment include the Higher Education Funding Council for England grant, research funding, student numbers or the student loan subsidy (a move that would increase costs to students), Mr Bekhradnia added.

Shabana Mahmood, Labour’s shadow minister for universities and science, said that “students and universities should be very worried about just how high [Mr Willetts] will ultimately admit the RAB charge to really be”.

She added that the minister should “come clean about his failure to properly calculate the cost of his fees policy…he needs to be honest about how he intends to pay for these mistakes”.

A BIS spokeswoman said that the £200 million a year estimate would appear in the BIS accounts from the 2015-16 financial year.

However, since “the actual cash impact (in terms of lower repayments) is spread over a longer period…it does not follow that we would need to make savings to cover the full…£200 million in the year the loans were paid out”, she added.


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