Responsabilidad ética

1_{From £4.5 billion in 2009/10 to just over £1 billion in 2015/16.}

2_{Office for Budget Responsibility (OBR), Fiscal Sustainability Report, July 2014, p.178.} 3_{Andrew McGettigan, ‘Cash Today’, London Review of Books, 5 March 2015.}

4_{Department for Business, Innovation and Skills (BIS), Annual Report and Accounts 2012-13, 2013,}

p.102.

5_{Voluntary repayments may also be made.}

6_{For a discussion of the change to loan accounting, see The National Committee of Inquiry into Higher}

Education, Higher Education in the learning society, 1997, pp.326-327.

7_{If the government receives a fair price for the loans, it will have swapped cash today for an equivalent}

stream of future payments. In the long run, repayment receipts have been sold to a private investor. In the short term, the sale proceeds can be used to reduce debt or fund other activities.

8_{OBR, Fiscal Sustainability Report, 2014, Table 3.11 shows PSND at 54 per cent of GDP in 2033/34.} 9_{Personal communication, 7 July 2014.}

10_{Nicholas Macpherson, ‘The Treasury View: a Testament of Experience’, 15 January 2014}

(https://www.gov.uk/government/speeches/speech-by-the-permanent-secretary-to-the- treasury-the-treasury-view-a-testament-of-experience).

11_{The OBR notes that debt has increased by 150 per cent since the crash but the low level of interest}

rates means that interest payments have only increased by 75 per cent.

12_{For more detail, see Andrew McGettigan, ‘Cash Today’, London Review of Books, 5 March 2015.} 13_{‘We want to find a solution that will manage all current and future ICR loans on an ongoing basis}

(unlike the one-off sales of the late 1990s).’ BIS, Higher Education: Students at the Heart of the System, 2011, §1.41.

14_{John Morgan, ‘Academy’s fat cats “too smart” to attack Labour’s £6,000 fees policy’, Times Higher}

Education, 16 October 2014.

15_{Hansard, 8 January 2015, col. 446.}

16_{This chapter offers a simplified overview of departmental budgeting and accounting for loans. For}

more detail, see HMT, Consolidated budgeting guidance 2015 to 2016, 2015.

17_{David Willetts, ‘£6k tuition fees will not work’, Times Higher Education, 18 September 2014.} 18_{BIS, Consultation on Support for Postgraduate Study, March 2015, p.14.}

19_{OBR, Fiscal Sustainability Report2014 §B19.}

20_{Financial Reporting Advisory Board (FRAB), ‘Update on discount rates set at 30 November 2013’,}

FRAB 119/06, 13 December 2013.

21_{‘Student loans are held at amortised cost. This involves the gross value of the loans issued being}

discounted to net present value using the effective interest rate. The effective interest rate for student loans is RPI plus 2.2%, which is the Treasury discount rate. The Treasury has directed the Core Department to use this rate for student loans as this is the Government’s long term cost of borrowing.’ BIS, Annual Report and Accounts 2011-12, 2012, p.166.

22_{A payment received in five years time would be discounted by dividing the estimated cash amount}

by ((1+RPI/100)*(1.022)) five times.

23_{Before that, the rate was lowered to 3.5% from 6% above RPI in 2003. So there were two reductions}

in the space of three years.

24_{Written evidence submitted by Neil Shephard to the BIS Select Committee}

(http://data.parliament.uk/WrittenEvidence/CommitteeEvidence.svc/EvidenceDocument/Business, %20Innovation%20and%20Skills/Student%20Loans/written/4849.html).

25_{OBR, Fiscal Sustainability Report, 2014, §B17.} 26_{Hansard, 8 January 2015, col. 428.}

27_{Financial Reporting Advisory Board (FRAB), ‘Update on discount rates set at 30 November 2013’,}

FRAB 119/06, 13 December 2013, §4.

28_{HMT, Consolidated Budgeting Guidance 2014 to 2015, 2014, §8.20.} 29_{HMT, Consolidated Budgeting Guidance 2014 to 2015, 2014, §1.43.}

30_{The specific discount rate used for the ‘value for money’ test begins with the rate of RPI plus 3.5}

per cent. One percentage point is subtracted to remove the ‘catastrophe risk’ factor built in to this rate. A market-based risk premium is then added back in to reflect the ‘endogenous risk costs’ of student loans. HM Treasury, Value for Money and the valuation of public sector assets, July 2008.

31_{For more detail, see Andrew McGettigan, ‘Cash Today’, London Review of Books, 5 March 2015.} 32_{Rumours in higher education suggest that were the discounted estimate of non-repayment to pass}

50 per cent then student loans would be reclassified as normal expenditure rather than ‘policy lending’. I have confirmed with the Office for National Statistics that this is not the case.

33_{Hansard, 8 January 2015, col. 427.}

34_{AME is used to manage spending on volatile items and is not within departmental control (other}

examples are welfare and pensions). There are no allocations, the facility is designed to absorb excess unplanned resource in demand-led budgets.

35_{In previous years, BIS estimated that £1.5 billion of in-year impairments could be attributed to}

low bank base rates, which resulted in interest on pre-2012 loan balances accruing at less than RPI. That impairment is now included under ‘amortisation’ and the issue does not affect post-2012 loans.

36_{BIS, 2013-14 Annual report and accounts, p. 88.}

37_{Andrew McGettigan, ‘BIS blew its budget, and now the entire higher education sector will have to}

pay’, Guardian, 22 November 2013 (http://www.theguardian.com/commentisfree/2013/ nov/22/bis-budget-higher-education-sector-cuts).

38_{http://andrewmcgettigan.org/2014/03/23/changes-in-201415-for-the-budgeting-of-student-}

loans/

39_{HM Treasury, Consolidated Budgeting Guidance, 2014-15, §8.19.}

40_{Note that the revisions to the RAB charge needed must be related to changes in forecasting. If, for}

example, higher levels of loans are issued than expected then BIS would need a separate negotiation over the provision of additional resource through the DEL provision.

41_{Another option would be to consider the creditworthiness of individuals and institutions using}

performance data on repayments.

42_{Matthew Hilton, ‘Politicians: please don’t screw it up’, wonkhe, 16 January 2015}

(http://wonkhe.com/blogs/politicians-please-dont-screw-it-up/).

43_{Martin Lewis, ‘A deliberate threat to govt’, moneysavingexpert.com, 9 January 2015}

(http://blog.moneysavingexpert.com/2015/01/09/a-deliberate-threat-to-the-government-u- turn-on-the-21000-student-loan-repayment-threshold-i-will-organise-mass-protest/).

Trustees

Professor Sir Ivor Crewe (Chair) Dame Sandra Burslem Professor Sir Peter Scott

Advisory Board

Professor Janet Beer

Professor Sir David Eastwood Professor Dame Julia Goodfellow

Professor David Maguire Dr Ruth Thompson

Professor Dame Helen Wallace

Partners

BPP University Ellucian Elsevier HEFCE

Higher Education Academy Jisc

Kaplan

Mills & Reeve LLP Pearson

Times Higher Education UPP Group Limited

Wiley

President

student finance, to any sale of the student loan book and even to the size of the UK’s debt. This paper seeks to explain the accounting and

budgeting of student loans in the interests of better policymaking.

HEPI was established in 2002 to influence the higher education debate with evidence. We are UK-wide, independent and non-partisan.

May 2015 • ISBN 978-1-905315-28-4 Higher Education Policy Institute 99 Banbury Road, Oxford OX2 6JX Tel: 01865 284450 • www.hepi.ac.uk