Further supplementary memoradum from Dr
Nicholas Barr (SS 13)
WHERE DO THE £800 MILLION APPEAR IN
THE GOVERNMENT ACCOUNTS?
1. Earlier evidence to the Select Committee
argued that raising the interest rate on student loans from the
current zero real rate to the government's cost of borrowing would
save between £700 and £800 million on next year's total
lending to students of £2,500 million.
2. It is important to be clear where that
money appears in the government accounts.
3. The DfES have argued that they are not
aware of any such saving. The figure that appears in the Education
Budget is around £200 million or slightly more, the cost
of student loans write-offsan amount that reflects lending
that will never come back because of low income, early death,
and the like. Apart from a small amount of fraud, the greater
part of this figure should be regarded as social policy spendingit
gives relief to those graduates who do not do well financially
out of their degree and is thus well-targeted. While future policy
changes might reduce this figure somewhat, it is expenditure which,
in the main, contributes to access. This is the only figure of
which the DfES has cognisance, since it appears as a line item
(or several line items) in the Education Budget.
4. The figure of £800 million is an
entirely separate item. It is the cost of the interest subsidyan
item of expenditure separate from and additional to the write-off.
Unlike the write-off, this expenditure is deeply regressiveindeed
is inimical to access.
5. Two points are noteworthy about the £800
It does not appear in the Education
Budget, but is lost in the overall cost of government borrowing.
If it appears anywhere, it is part of the Treasury's internal
accounting. The fact that it does not appear anywhere in the public
accounts does not diminish its importancethis figure represents
The figure is the present value of
what would be saved by charging students the government's cost
of borrowing. In cash flow terms, the savings are small in the
early years, becoming large only later. Since the purpose of raising
the interest rate is to promote access and quality, the extra
resources (or a large fraction of them) should benefit the Education
Budget (a) directly and (b) now. This can be done, but will require
a deal between the Treasury and DfES. As argued in paragraph 39
of my main evidence, one way to accelerate the cash flow is by
selling a further tranche of student debt, which could yield up
to £2 billion.
Dr Nicholas Barr