Lib Dems back Blunkett

PRESSURE is mounting on the Treasury for a change in public accounting rules to release Pounds 1 billion for universities.

Liberal Democrat education spokesman Don Foster has pledged full support to education secretary David Blunkett in his battle with the Treasury to change the rules relating to student loans.

Mr Foster wrote to Mr Blunkett last Friday saying he could count on the support of the Liberal Democrat education and treasury teams. He said he applauded Mr Blunkett's stance.

Mr Blunkett and education department officials are involved in on-going discussions with Gordon Brown and the Treasury over proposals that would allow the government to borrow sufficient money to fund student loans without raising spending or taxes.

Under proposals to move to a resource accounting system, up to half of the estimated Pounds 2 billion the government may have to borrow to fund loans could be discounted from public spending totals. This is because about Pounds 1 billion is almost guaranteed to be repaid and so need not count as spending.

This means Pounds 1 billion could be released for universities which, according to Sir Ron Dearing, require around Pounds 900 million by 2000 in order to implement his recommendations.

Treasury officials say they are keeping an open mind on removing student loans from public spending. A spokesman said: "We are looking at the position of resource accounting although we have conceded nothing yet."

Former Treasury official Bill Robinson, who is director of the consultancy London Economics and was an adviser to the Dearing committee, said: "Everyone in the education world seems to regard the Treasury as having closed minds, but everyone I have spoken to in the Treasury has an open mind on resource accounting. If there is a battle going on then it's at the political level."

* Resource accounting is the term used to describe public accounting that differentiates between spending and returnable public investment. It is based on the fact that while a government will always have to borrow money, it does not always have to spend it.

Student loans would be classified as a returnable investment, which is different from road spending, for example, which never returns the investment directly. Student loans could be removed from the public spending equation. This helps the economy and means taxes do not necessarily have to rise.