Student loan shake-up puts £12bn hole in public finances

Dec 17, 2018 by

National deficit increases after ONS says student loans count as government spending

Philip Hammond is facing a £12bn hole in the public finances this year after changes to the way student loans are treated on the government’s books, reflecting that many will never be repaid.

In a stroke of the pen from the Office for National Statistics, student loans will now be treated as part financial asset in the national accounts, because some will be repaid, while part will be classified as government expenditure, as some loans will never be paid back in full.

It said it would result in the budget deficit – the annual gap between government income and expenditure – increasing by about 0.6 percentage points of GDP a year, which equates to about £12bn in the current financial year.

The changes are bad news for the chancellor because they wipe out all of the windfall from a better performance in the public finances this year handed to him by the Office for Budget Responsibility.

It could also have significant implications for the review of university funding in England led by Philip Augar, which is due to report early in the new year and is considering whether to cut tuition fees from £9,250 per year.

Hammond was warned by the Institute for Fiscal Studies during the autumn budget that he had gambled with the UK’s public finances, with the influential tax and spending thinktank suggesting the windfall could quickly be reversed.

The switch from the ONS reflects the fact that wholesale changes have been made to university finance in recent years, including the vast expansion of tuition fees and higher repayment thresholds for students once they begin earning. The total value of student debt has ballooned in recent years as a consequence.

Source: Student loan shake-up puts £12bn hole in public finances | UK news | The Guardian

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