Veto of student loan sale raises fears of unfunded expansion

Vince Cable’s claim to have called off the sale of student loans has prompted fears that the expansion of student numbers is now unfunded, presaging potential cuts for other higher education spending.

MPs on the Business, Innovation and Skills committee added to concerns about the funding for the policy in a highly critical report on the student loans system on 22 July, which called for “clarification from the department whether the removal of the cap is dependent on the sale of the loan book”.

There are fears that the existing Department of Business, Innovation and Skills budget, which covers areas such as research, widening participation and high-cost subjects, may have to bear the extra burden.

George Osborne, the chancellor, announced the abolition of student number controls from 2015-16 in December’s Autumn Statement, preceded by an extra 30,000 places in 2014-15. “The new loans will be financed by selling the old student loan book, allowing thousands more to achieve their potential,” he told MPs at the time.

The government had said the sale of pre-2012 loans would raise £12 billion, but the BIS committee says internal government estimates are as low as £1 billion-£2 billion. The cost of expansion between now and 2018-19 is estimated at £5.5 billion, the committee states.

Last weekend, Mr Cable, the business secretary, told Liberal Democrat activists from the Social Liberal Forum that “recent evidence” suggested there would be no benefit to government debt from selling the loans. “Given there is no longer any public benefit, [Deputy Prime Minister] Nick Clegg and I have agreed not to proceed with the sale.”

A BIS statement reacting to his comments, which did not emerge until Monday evening after reported “emergency meetings” in the department, suggested that the first intended sale was planned by March 2016 – in other words, after next year’s general election. That might suggest that Mr Cable cannot halt the policy anyway.

Sources close to Mr Osborne have also briefed the national press that the link between student loan sales and expansion funding was only ever “rhetorical” and Matthew Hilton, director of higher education in the BIS, told MPs in January that the Treasury had agreed to “underwrite” the expansion regardless of any sale.

However, Mr Cable’s comments have still intensified questions over the policy’s funding.

Steve Smith, vice-chancellor of the University of Exeter and former Universities UK president, said: “We need to know how the expansion is going to be paid for. It is not enough for it to be underwritten, if underwritten means [the cost] will come out of other bits of the BIS budget.”

Emran Mian, director of the Social Market Foundation thinktank, who was lead civil servant on the Browne Review, said he could “understand the worry” about funding for the policy, but the “costs of expansion are already accounted for in the Autumn Statement through to 2015-16. After that, it’s true we don’t know what happens, but then nor does any other area of public spending.”

john.morgan@tsleducation.com