PAC attacks half price student loan sell-off
The government’s 2017 sale of student loans at 48% of their face value to unnamed private investors has been fiercely criticised by the Public Accounts Committee (PAC), who have called it ‘a short-sighted approach which fails to convince’
22 Nov 2018
The loans, which had a face value of £3.5bn, were sold to private investors for £1.7bn, a return of only 48p in the £1. They comprised 1.2m loans held by more than 410,000 borrowers. The sale was made as part of a government initiative to reduce the scale of public debt.
The committee attacked the decision, saying that the Treasury and the Department for Education (DfE) ‘have not made clear for this transaction decreases the long-term risk to the public finances’. The committee found that even the government’s own analysis ‘suggests that, had it not sold the loans, it would have recouped the £1.7bn in only eight years, and a further £1.6bn over the next 25 years’.
Although the purpose of the sale was to ‘de-risk public finances’, the committee found that the government actually sold the lower-risk loans, which were issued before 2012, and has yet to decide whether to sell the higher-value, higher return (and more risky) loans issued after this period.
The committee did agree that this sale reduced government debt by £1.7bn. However, they found that ‘other measures demonstrate the sale worsens public finances. For example, the sale increases public sector net financial liabilities by £1.8bn, and the impact on the department’s accounts is similarly negative with the 2017–18 accounts recording a loss on the sale of £0.9bn’.
They criticised the ‘narrow focus’ on public sector net debt as a measure of the success of the deal, ‘regardless of the true impact on the public’s finances’. They recommended that the government develop finance objectives that ‘go beyond the simple focus’ of reducing public debt before any more asset sales are concluded.
The committee also found that uncertainty over future repayments undermined the government’s ability to accurately value the student loans it held. The forecasting the government employs attempts to ‘estimate the income of over 410,000 borrowers over a 34-year period’, incorporating long-term macroeconomic trends.
The committee had discovered that the DfE ‘has only one full data-point against which to evaluate the model, so its accuracy is uncertain’. It requested that the DfE provide the committee with updates on how the model has been tested and refined to improve its accuracy and conclusions as to how this could affect the timing of the sale programme.
A lack of transparency was flagged up as being potentially problematic, as the government ‘has not disclosed the identity of the investors as it feels that to do so would negatively affect the demand for this and future sales could put value for money at risk’. The committee found that the government had made ‘no actual assessment of the trade-off, if indeed there is any, between increased transparency and the potential for reducing value for money’.
The first sale of the loans, completed in December 2017, was followed by a second sale in October 2018 of £3.9bn in loans which entered repayment between 2007 and 2009. Total government debt currently stands at £102bn and is expected to reach £473bn by March 2049.
Report by James Bunney