ONS change to student loan accounting adds £12bn to deficit

The Office for National Statistics (ONS) is to change the way in which it accounts for student loans, in response to calls from the Treasury committee that these should be treated as spending, in a move which will add around £12bn to the current deficit this year

Currently, in the National Accounts, student loans are treated as government lending. However, the ONS points out that the Treasury committee and others have highlighted that the design of the system means much of this student loan debt will never be repaid, and is therefore written off by the government.

The ONS said that as the UK’s higher education funding system is unlike most other countries, it has not been easy to find an international precedent for how to treat the system.

However, after deliberation, it has been decided to split the government’s student loan payments into a portion that is genuine government lending and a portion that is government spending. The lending element will be calculated based on expected future repayments.

The remainder, which is not expected to be repaid, will be treated as government spending. This will be treated as capital spending, as this can be thought of as the government effectively cancelling a portion of the loan at issuance, which is treated as capital spending under international standards.

This change has no impact on the overall level of government debt, the ONS says, but will increase the government’s budget deficit, because student loan debt write-offs that would have taken place in 2040 and beyond will be reflected as government spending now.

The Office for Budget Responsibility (OBR) has published some initial estimates for the impact on government deficit, suggesting the new approach will lead to the deficit being increased by approximately 0.6 percentage points of GDP a year, which equates to around £12bn in the current year.

The ONS says it will work to calculate the exact impact and implement the necessary changes in our published figures. However, estimating levels of future expected loan repayments could take some time. It plans to implement fully the decision announced today in the government’s accounts in the autumn of 2019.

Jonathan Athow, ONS deputy national statistician for economic statistics, said: ‘To ensure our treatment of student loans better reflects the way the system works in practice we will split the government’s student loan payments into a portion that will be repaid and is therefore genuine government lending and a portion that is not expected to be repaid, which will be treated as government spending.

‘When coming to this decision we consulted widely with many other countries and international bodies to ensure that our figures remain internationally comparable.’

Commenting on the ONS decision Nicky Morgan, chair of the Treasury select committee, said: 'As the Treasury Committee concluded in its report on student loans, the current accounting rules allow the Government to spend billions of pounds of public money without any negative impact on its deficit target at all.

'Today’s announcement from the ONS, which will improve transparency of the public finances, is welcome.Ensuring that Government spending is properly recorded allows it to be properly scrutinised.'

ONS information on new treatment of student loans in the national accounts is here

Report by Pat Sweet

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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