Treasury loan book calculations ‘omit £1.7 billion’

The Treasury’s stated plan to fund expansion in student places by the sale of loans omits £1.7 billion in lost repayments arising from the sell off.

December 11, 2013

Andrew McGettigan, author of The Great University Gamble, who spotted the omission, claimed on his blog that the Treasury’s “back of the envelope calculations missed basic facts about financial assets”.

The Treasury said the omission of the lost graduate repayments from its calculations was “for reasons of commercial sensitivity” (the government is yet to agree any sale of the loans).

However, the development is likely to increase fears among some in the sector that the expansion policy is not been properly financed.

In last week’s Autumn Statement, the Treasury outlined plans to finance the abolition of student number controls by 2015-16 – creating an estimated 60,000 extra student places a year – by the sale of pre-2012, income-contingent student loans.

The expansion will cost £2 billion a year by 2018-19, the Treasury estimates.

But the sale of loans means not just income from the sale of the asset, but also lost income from future graduate repayments.

Dr McGettigan suggested on his blog that the Autumn Statement documents showed the Treasury had “forgotten that if you sell part of the loan book you will lose the graduate repayments that are now going to the purchaser”.

He noted a passage in a report from the government’s Office for Budgetary Responsibility, published immediately after the Autumn Statement. “Selling the loan book reduces repayments over the latter years of our medium-term forecast, by just under £1 billion in 2018-19, and beyond, whereas removing the numbers cap increases forecast outlays by around £2 billion by 2018-19,” says the OBR.

Dr McGettigan said the omission of lost repayments meant that the Treasury’s sums needed to be revised downwards by a total of £1.7 billion in the three years to 2018-19.

The Treasury responded last night in a statement.

“Consistent with the OBR’s approach and for reasons of commercial sensitivity, table 2.5 in the Autumn Statement did not specify a figure for lower repayments, however these figures are fully consolidated into the calculation of Public Sector Net Debt,” a spokesman said.

“The government has always been clear that selling the student loan book would obviously reduce the income received from repayments. Even when the OBR’s estimate of lower repayments are included, the sale of loans more than finances the cost of new, additional loans over the scorecard period.”

But Dr McGettigan rejected that explanation, questioning why the lost graduate repayments were deemed “commercially sensitive” but the loan sale proceeds were not. He said the Treasury’s calculations need “urgent revision”.

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