Coalition in ‘complete confusion’ over RAB, says Labour

Labour have accused the coalition of “complete confusion” after Vince Cable said the write-off estimate on student loans will be revised downwards.

March 7, 2014

The business secretary’s comments in the House of Commons yesterday appear to contradict recent remarks by his departmental colleague David Willetts, who said the write-off estimate would be revised upwards because of lower than expected graduate earnings.

Chuka Umunna, the shadow business secretary, said on Twitter that Mr Cable’s comments showed “complete confusion”, accusing him of “having his head stuck in the sand on the unsustainability of his student financing framework”.

The government’s rising estimates of the Resource Accounting and Budgeting (RAB) charge on its new student loans have provoked fears over the true cost of the £9,000 system. After starting with an initial RAB estimate of around 30 per cent, the government now says that 40 per cent of loan outlay will never be repaid by graduates.

Mr Umunna noted that the National Audit Office says in the Department for Business Innovation and Skills 2012-13 annual report that “a considerable degree of uncertainty remains over the recoverable amounts of the loans issued”.

The shadow business secretary added that “because ministers have dramatically overestimated the number of graduates who will be able to repay the loans to pay for the Secretary of State’s [Mr Cable’s] higher tuition fees, he has, in effect, blown a hole in the department’s budget.

“In fact, the [House of Commons] Library estimates that from 2015-16 an extra £600 million a year will have to be found. Will the Secretary of State now explain how he will fix the problem without putting under threat the country’s scientists, students, universities and colleges?”

Mr Cable replied: “This is an absurd misunderstanding of what is called the resource accounting and budgeting – RAB - charge system, which depends on long-term predictions of earnings growth.”

He added that “if the recovery of the economy continues as it is, the RAB charge estimates will be substantially revised down and the imaginary black hole will very soon disappear”.

However, that appears to differ from the account given by Mr Willetts, the universities and science minister, in an appearance before MPs on the BIS committee in January.

When asked whether the RAB charge could in future rise to the “high 40s” or 50 per cent, Mr Willetts said: “I don’t want to speculate…I don’t think the process of revising the RAB charge is suddenly going to stop.”

He said there were “more factors at work which will increase the RAB charge”, noting that “people on low earnings are more likely to be on low earnings for longer…than was assumed in the original modelling”.

Liam Byrne, Labour’s shadow minister for universities, science and skills said on Twitter yesterday: “David Willetts said student loan write-offs could hit 50%. Today Vince Cable says it will fall. They’re all over the place.”

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