Hopes of Pounds 1bn loan windfall

TREASURY officials signalled a potentially historic change to public accounting this week that could make universities a Pounds 1 billion available from student loans.

Senior officials from the Treasury and the Office for National Statistics told the Commons education and employment committee on Wednesday that they may accept accountancy manoeuvres to free money for higher education investment without adding significantly to government spending.

Peter Kane, from the Treasury education, training and employment team, said: "We are reviewing the position in relation to student loans and we do not have a closed mind on the issue."

Mr Kane, Allen Ritchie, Treasury head of general expenditure and statistics, and Jeff Golland, head of the ONS public sector branch, were asked to respond to accounting proposals put to the committee by Bill Robinson, director of top consulancy firm, London Economics.

Dr Robinson, a former Treasury official and a senior adviser to the Dearing committee, said it was feasible to move to a public accounting system that recognised that government spending to fund student loans was recoverable and therefore not spending in the true sense of the word.

This accounting shuffle would enable the government to borrow perhaps Pounds 2 billion from the private sector, but to avoid lumping all of that amount on to public spending. The government could therefore avoid the deficit problems associated with soaring expenditure.

Dr Robinson said that a secure repayment system for graduates, tied to income tax or National Insurance, would allow the government to count this as "good" spending. Because the money is almost guaranteed to be repaid, it could be stripped from the public spending totals.

Calculations by Nick Barr and Iain Crawford, from the London School of Economics, who proposed the original idea, show that if Pounds 2 billion was borrowed then it would be possible, conservatively, to guarantee repayment of half.

The remaining Pounds 1 billion would have to be added to the public expenditure because it is potentially non-recoverable. This amount would comprise cash the government would have to set aside for repayment defaulters and to subsidise the interest rate graduates would pay.

Dr Robinson said: "If the political decision is taken then I am sure that the accounting devices can be found."