Student loan change adds?12bn to deficit" width="976" height="549">
A change in how student loans are recorded in the public finances will add
The decision by the statistics agency tackles an anomaly in which the cost of lending to students has been missing from the public finances.The independent economics think-tank, the Institute for Fiscal Studies, says it would bring the public finances in line "more closely with economic reality".
Cut fees to cut deficit?
Nicky Morgan, chair of the Treasury select committee and former education secretary, welcomed the ruling - saying the current loans system lacked scrutiny when the government could "spend billions of pounds of public money without any negative impact on its deficit target".Nick Hillman, director of the Higher Education Policy Institute, said the "180-degree flip" will seem "embarrassing for policymakers".
But he warned it could mean less funding for students as they "suddenly look much more costly to current taxpayers".Almost half of student lending is expected to be written off - and this will now have to be reclassified as spending, which the ONS says will push up the deficit by an anticipated ?12bn.By 2023-24, it would add ?17bn to the deficit, says the Institute for Fiscal Studies.
'Fiscal illusion'
It will end an arrangement accused of being a "fiscal illusion" by the House of Lords economic affairs committee, which warned that it was concealing the real cost of tuition fees.The Lords committee forecast that not counting the cost of loans until they were written off after 30 years would create a trillion pound gap in the public finances in the decades ahead.
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This technical change could have major implications for the current review of university finance in England - which is considering whether to cut fees from ?9,250 per year.Higher levels of tuition fees require higher levels of lending - which will now show up as billions more on the deficit.This will provide an incentive for the government to reduce the level of tuition fees, allowing them to limit the negative impact on the deficit.The change applies to loans to students across the UK, but most of this will be accounted for by lending to students in England.Much of university funding in England is now through tuition fees - and if fees were cut there would be questions about whether there would be a return to more direct funding.Alistair Jarvis, chief executive of Universities UK, warned against "knee-jerk reactions" to the ONS ruling which could cut spending on students or limit student numbers."It is essential that universities are properly and sustainably funded to ensure students receive the high quality university experience they rightly expect," he said.
Tuition fees
Universities in the UK
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