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ONS Decisions: Student Loans

Volume 651: debated on Tuesday 18 December 2018

(Urgent Question): To ask the Chief Secretary to the Treasury to make a statement on the ONS decision on the treatment of student fees and maintenance loans in the Government’s accounts, and its implications for the public finances.

After its review of the treatment of student loans and Government finances, the Office for National Statistics has decided that some of the spending on student loans will be included in the deficit when the money is first lent to students. This is a technical accounting decision by the ONS, whose independence we support and whose diligence we commend. It is for the independent Office for Budget Responsibility to decide how to reflect this decision in future forecasts, but the ONS has made it clear that there is a lot to decide before the numbers are finalised.

This decision does not affect students’ ability to receive or repay loans. They can still get access to money to help with fees and the cost of living, and they will only start repayments when they are earning £25,000. Moreover, this decision does not have any implications for public debt, as the data and forecasts already include the impact of student loans, including repayments.

The Government make decisions on taxes and spending at Budgets, and the OBR judges whether the Government have met their targets. At the recent Budget, the OBR forecast for headroom was higher than the estimate of the impact of the student loans accounting change. The recent Budget also showed that the Government are meeting their fiscal rules with room to spare, and that debt is beginning its first sustained fall in a generation. This Government are committed to keeping taxes low and investing in Britain’s future.

I thank the Chief Secretary for that reply.

The Treasury Committee welcomes the ONS decision, which is in line with our recommendations, but this is more than a little embarrassing for the Government. The OBR estimates that yesterday’s decision adds £12 billion to the deficit, but even the OBR’s method of calculating the sum does not appear entirely consistent with the ONS decision. Can the Chief Secretary therefore tell us what the right figure is, or has the Government’s creative accounting become so creative that it has left even the Chief Secretary bamboozled?

Can the Chief Secretary at least tell us what the fiscal impact will be? Will there be any impact on departmental budgets or on the devolved nations? What does it mean for the Government’s predisposition for selling the student loan book for a song? Does that policy still make sense? Indeed, did it ever make any sense? Vice-Chancellors are understandably worried that yesterday’s decision will lead to a reduction in funding available to our universities.

Given that the Chief Secretary says this is effectively a matter of accounting, rather than cash flows, does she agree with Paul Johnson at the Institute for Fiscal Studies that

“IF it was right to aim for zero deficit on old definition THEN it is right to aim for £17bn deficit on new definition”?

Will she confirm that the Government will now revise their fiscal targets in the spring statement, or does she expect students and universities to pay the price for the Government’s accounting trickery and meaningless fiscal targets? Only a matter of weeks ago at the autumn Budget, the Chancellor boasted,

“Fiscal Phil says, ‘Fiscal Rules OK’”—[Official Report, 29 October 2018; Vol. 648, c. 655.]

He looks a bit silly now, doesn’t he?

Where does this leave the Augar review on post-18 education? Can the Chief Secretary assure the House today that the Augar review will focus on further and higher education policy aims first and foremost, and not on how to design a student loans system that is attractive due to its accounting features?

The ONS decision yesterday makes the case for real reform of our higher education system more compelling. Instead of tinkering around the edges, flirting with cuts in fees that would benefit the richest graduates and cuts in places that would only hurt the poorest students, is it not time for real reform: a system that is publicly funded and genuinely free at the point of use?

I have been very clear in my response that this is fundamentally an accounting decision. It does not affect our decisions on higher education policies. The bodies that we are talking about—the ONS and the OBR—are independent bodies. It is right that the Government do not make decisions on how to treat these figures in our national statistics—they are made by independent bodies, and we fully respect that. The ONS is going to be working out more details. It would therefore be completely wrong for me, outside a fiscal event, to comment on the precise implications for the public finances.

I can reassure Members across the House that we will do the right thing by students, and we have done the right thing by students. We have a record number of students in our universities. We rightly have a system where students contribute to their degrees, which deliver them higher future earnings and greater prospects in later life.

It is a bit of a cheek hearing all this from Labour Members, whose party promised in the 2017 general election that it would write off all the student loan book and then—surprise, surprise—said after the election that it would not any more. I think it is a bit of a joke that Labour Members are coming to this House and trying to give us lectures about student finance.

The hon. Member for Ilford North (Wes Streeting) is right to say that the Treasury Committee covered this in our report to the House published earlier this year, but the Chief Secretary is right to say that the decision does not affect any financial help that students now, or students starting in September or beyond, will get. Does she agree that this is actually a debate about political scrutiny of the deficit, which is an important figure at every fiscal event, and that the change will give a truer picture of what is happening with the deficit?

My right hon. Friend, the Chair of the Treasury Committee, is correct. Ultimately, this is about making sure that our independent bodies are giving us advice about how our public finances should be presented in order to give the best possible picture. That is completely independent from our decisions about what is best for students. The fact is that this decision does not affect cash flows; it affects the presentation of accounts. We should not conflate that with the very right and proper debates we are having about making sure that our students have a finance system that supports them.

This is not creative accountancy; this is fantasy accounting from the Government. The shadow Chief Secretary talks about Labour’s policy—[Hon. Members: “You’re the shadow Chief Secretary.”] Well, that is not very far away. The Chief Secretary can try to make up Labour’s policies on the hoof. She might make her own up on the hoof, but she should not make up ours on the hoof.

The ONS announcement ends the fiscal illusion that kept student debt off the Government’s books. This is not technical, and it blows a potential £12 billion hole in the Chancellor’s spending plans. At the last Budget, the Institute for Fiscal Studies warned the Chancellor that he was gambling with the public finances, and it seems that he has lost the bet: a reckless Chancellor bluffing his way through Budgets in a desperate attempt to keep his party together while the country is led to ruin and uncertainty.

This change raises a number of serious questions that the Minister must now answer, and has not answered. First, what impact will the additional £12 billion have on the Treasury’s ability to meet the fiscal targets that the Government set out most recently? Or will it mean that the Government have to abandon their fiscal rules yet again, for the umpteenth time? Secondly, will the Chief Secretary guarantee—she has not yet—that students and universities will not be adversely affected by this change? Thirdly, can the Government guarantee that no cap on student numbers will be introduced?

Finally, does this not pose a major challenge to the entire system of student finance which the Government have not only maintained but exacerbated with a trebling of fees—a system that creates a mountain of debt, placed first on the backs of students and now on the Government’s books when students are unable to pay? Would it not be better to adopt Labour’s policy of free university education, as set out in our manifesto—a very popular manifesto—and grey book, which invests in the future of our country by investing in the future of our young people, rather than giving billions of pounds of tax cuts to large corporations?

I find it extraordinary that we are being lectured on debt by a party that wants to add half a trillion pounds to our national debt. As I said in my earlier answer, we would still meet our fiscal targets on both the debt and the deficit with the numbers that the ONS currently estimates, but it is very premature to have this discussion when the ONS has not given the detailed figures.

I am willing to respond to the hon. Gentleman’s question about whether we will give a guarantee that this will not affect students—absolutely we will. The Augar review is being conducted on the basis of what is best for students. The fact is that we have one of the best higher education systems in the world, of which we should be rightly proud. We have a record number of students attending university and a record number of students from low-income backgrounds attending university, thanks to our policy.

The hon. Gentleman has to answer this question: is it really right that people who do not go to university and generally earn lower sums of money should subsidise those who do go to university and go on to earn more in later life? We can see the result when that happens—it is what has happened in Scotland. Places end up getting rationed, and higher education ends up not getting enough income.

The House might be gridlocked on Brexit, but it does not need to be gridlocked on more ambitious reform of the higher education finance system. That is what young people want to see. I urge my right hon. Friend to look at the changes that young people want, which are the introduction of maintenance grants and reform of the student finance system away from student debt and towards a graduate contribution, making it better value for money and more progressive—not less progressive, as Labour suggests—so that young people who get the most financially out of going to university pay the most for the chance to go there.

My right hon. Friend clearly spent a lot of time working on that when she was Education Secretary, and I commend her on her contribution to that debate. I am pleased to welcome to the Front Bench the new Universities Minister, my hon. Friend the Member for Kingswood (Chris Skidmore), who is leading the work on the Augar review. As Chief Secretary to the Treasury, I am concerned to ensure that we get good value for money and that our universities are properly funded. I am closely involved in supporting the Augar review, as are my colleagues at the Department for Education.

The Chief Secretary clearly has not read the UCAS figures, which show that more Scottish young people than ever before are accessing a place in higher education, including more from a deprived background than ever before.

This ruling does not come as any surprise. We already know that England has the highest tuition fees in the industrialised world. It confirms what we have been saying for a long time—this is not saving public money in the long run. This Government remind us regularly of how economically brilliant they are, but we can clearly see that they have been shifting their fiscal responsibilities on to a Government 30 years in the future. The real issue is that these short-term accountancy gains are won off the back of our young people. Average student debt in England is more than £50,000, and continuing to charge fees of more than £9,000 per annum is morally wrong. Since we know that three quarters of student loans will be written off eventually, will the Government follow Scotland’s lead and slash student fees or, better still, abolish them completely?

What assurances can the Chief Secretary give to students trying to pay off debt with spiralling interest rates that the interest on student loans will be capped at a far lower level? For those young people who currently have debts with no possibility of repayment, will this Government do the right thing and write off the portion of debt that will never be repaid, and write it off now?

The reality is that fewer students from disadvantaged backgrounds as a proportion are going to university in Scotland. The SNP Government have not only failed with the higher education system; they are also getting worse results for literacy and numeracy in primary schools. I suggest that the hon. Lady goes back to her colleagues in Scotland and starts looking at some of the reforms that have taken place across the rest of the UK, to see what could be learned.

Instead of listening to the braying of Labour Members, will my right hon. Friend remind them who first put this money off the books and into this category of spending? This is no different from what happened with Network Rail, when money was spirited into a different account so that it did not appear in the public finances. Will she take this opportunity to say that it is high time we renamed this money and turned to a graduate tax?

My right hon. Friend is correct; that was done under a previous Labour Government. In fact, that Government also introduced tuition fees, which I supported at the time and continue to support. I probably have more in common with some of the last Labour Government than many Members on the Labour Front Bench today. In those days, the Treasury marked its own homework. We have moved on. We now have the independent OBR, which makes decisions about forecasts, and that is the right approach. We are listening to this accounting advice and will take it on board. It will not affect decisions about how we conduct the Augar review or about student finance.

I am grateful to the Chief Secretary for indicating that this will have no impact on students, but she has conceded that it will have a fiscal impact. Our young people at the moment are worried about the cost of living, the broader economy and the prospect of getting jobs. They would like to see maintenance grants. Can she put in the Library, when she is aware of it, what the fiscal impact will be on young people and their parents?

The fiscal impact of the accounting decision—that is what this is; it does not alter the amount of cash going out the door—will come to light at future Budgets, and all these decisions will be taken in the round. As I have said, the Augar review is being conducted independently of that. It is about what is right for students. Of course we look at issues such as cost of living. Other aspects affect cost of living, including housing, and we are building more new homes to make housing more affordable across the board.

It is fair that students contribute to their higher education—it is fair to the taxpayer and fair to the student—but what is unfair are the high interest rates. Will the Secretary of State for Education and the Chief Secretary to the Treasury look at the huge interest rates on student loans and see whether something can be done?

That issue is being considered by the Augar review, which is properly being led by the Secretary of State for Education, who is sitting beside me. From a Treasury perspective, my role is to ensure that we get good value for money from our public finances and that we are fair and transparent in the way we present things. That is what the OBR and the ONS look at.

Ah, the key there was a reference to the ONS. It would be helpful if colleagues would frame their questions with reference to the Office for National Statistics, because that is the gravamen of the matter.

The fact that the ONS has said that student loans will push up the UK’s deficit undoubtedly provides an incentive to reduce fees, but that could create a huge problem for university funding. I hope the Government will take stock and introduce a new system of student finance that does not rely on loans, massive student debt or punitive interest rates, but gives our universities the stable funding they need to thrive.

The hon. Lady is right that we have well-funded, world-leading universities, and we need to make sure that continues.

Order. Perhaps the right hon. Member for New Forest West (Sir Desmond Swayne) can offer us a reprise of his masterclass on brevity.

In the short term, will the Treasury review the inflation-busting 6.3% rate, and in the longer term will the Government admit that feeble wage growth is at the bottom of this problem?

That is a slightly strange question from the hon. Lady, given we have just seen the highest real wage growth for 10 years coming through our economy.[Official Report, 20 December 2018, Vol. 651, c. 6MC.]

Does my right hon. Friend agree with me that part of the ONS thinking is based on the fact that the amount someone has to earn before they start to repay has been increased very substantially under this Government, saving hundreds of thousands of students £300 or £400 a year? The effect of that, however, is that less of the money is repaid quickly or, indeed, at all.

My right hon. and learned Friend is right to point out that people do not pay back on their student loan until they are earning £25,000.

When I went to university 10 years ago, I was the first member of my family to do so, but because I was from a low-income background, I benefited from bursaries, which supported me through education. Unfortunately, Governments in both Edinburgh and London have cut back bursaries over the past decade, meaning that student loan debt in Scotland is £5 billion this year—up from £1.8 billion 10 years ago, which is a 169% increase—and that the individual debt of a student in Scotland has gone from £5,900 a year to £13,000 a year on average. Do the Government not recognise that such an increase is unsustainable and, reflecting the ONS results, that we have to restore a grant system?

I suggest that the hon. Gentleman look at the results. The fact is that, since 2009, there has been a 68% increase in the number of low-income students going to university.

What the hon. Member for Glasgow North East (Mr Sweeney) conveyed to the House was quite extraordinarily interesting, but most of it did suffer from the notable disadvantage that it did not constitute a question. We got to a question mark very belatedly.

The ONS decision actually reminds us that the education of a large number of university students is funded by the taxpayer. That is welcome for those who come from deprived areas and may not earn the £25,000-plus that we would like. Will the Chief Secretary look at fairness across the system, so that people who do not go to university but want to study and train locally can get the skills and opportunities they need?

Yes, we are looking at that. We are looking across the board at the value for money of Government investment, which is significant in the education system, but also at the impact on individual students.

The Chief Secretary to the Treasury has confirmed that this makes no change to the national debt, so can she confirm that the ONS decision will not lead to a new round of spending cuts?

I have been extremely clear that this is fundamentally an accounting decision. It is not about the reality of the fact that Government debt is being brought back over time, one of our key fiscal targets. The amount the ONS is estimating is, in fact, under our other fiscal target for the deficit. We will do the right thing by students in the Augar review.

Will the Chief Secretary confirm that the ONS decision is based on the fact that these are not loans in the normal sense—an amount people must pay back—but a contribution towards the cost of their education, with the maximum they are required to pay back being based on their income?

My hon. Friend is correct. It is a generous system that does support students, particularly those on a low income, but we have instituted the Augar review to look at how the system could be made even better.

In the light of the ONS decision, can the Chief Secretary tell the House who benefits from the current debt-driven student finance system, because it clearly is not students, taxpayers or the Government?

There is extremely strong evidence that going to university increases people’s earning power, and there is some very helpful new data—the longitudinal education outcomes data—that shows people how much they can expect to earn by studying particular courses.

What proportion of students are not liable for student loan repayments because they do not meet the income threshold?

I think that is probably something my hon. Friend should take up with the Department for Education.

The ONS accounting changes will apply to loans issued by the devolved Governments as well as by the UK Government, so will the Chief Secretary clarify whether these changes will in any way constrain the Welsh Government in the implementation of their higher education policy?

The ONS decision will of course play into the Augar review and the future funding of students in higher education, but I do get sick and tired, every time we discuss this, of hearing the words “young people”. Students are not just young people who are studying full-time and aged 18 to 21. Part-time students have always paid their way and they have very little access to support, while the Open University is suffering really badly because of the current system. May we please have a commitment to ensure that the Augar review and the future funding of students takes care of part-time students and puts them on a level playing field?

When will we have the full details of how this fits in with the Government’s fiscal plans—in the spring statement, the spending review or the autumn Budget next year?

In the spring statement, we would expect to see the revised forecasts. Of course, Government spending plans, which incorporate a huge number of areas and a huge number of Departments, will be announced at the spending review in the Budget.

The ONS has confirmed that this is an accounting trick, which this Government have been happy to use to cover up the true extent of the deficit and the mismanagement of the public finances. If this was in the private sector, the finance director would now be being hauled over the coals. When is the Government’s finance director going to admit that they were wrong, and apologise to both students and the public?

As I have said, the Government no longer mark their own homework on these issues. It is down to the independent OBR to produce that forecast.

The terms of reference for the Augar review say that

“its recommendations must be consistent with the Government’s fiscal policies to reduce the deficit and have debt falling as a percentage of GDP.”

Is it not absolutely clear that this ONS reclassification reduces the resources available to further and higher education?

I have been very clear that this decision, which is fundamentally an accounting decision, will not affect the outcome of the review.

This may be an accounting decision, but it clearly does increase the deficit for the Government. With students paying 6.3% interest, 70% of students never paying the full loan back and almost 50% of the loans never paid back at all, who is the current student finance system working for?

The ONS decision gives the Chief Secretary an opportunity to tell the House and students who may be watching how she can justify the current Government’s policy of charging a lower interest rate for people promoting tax avoidance schemes when they pay their tax late to the Inland Revenue than the whopping 6.3% charged to students.

I cannot pre-empt the Augar review, which is currently taking place, of student finance—it will look at some of the issues the hon. Lady has raised—nor can I pre-empt a future fiscal event. This question is somewhat premature, because the ONS has not yet produced its detailed figures on the issue.

It would seem from the ONS decision that the same sort of mathematical genius has been applied that was applied with Tesconomics a few years ago. Given that 45% of the debt will not be repaid and that a large proportion of the debt is interest, does the Chief Secretary think it is astute and prudent to apply such an extortionate rate of interest—6.3%?

All aspects of student finance are under consideration in the Augar review, but that is a very different issue from how the ONS classifies various accounting decisions within Government. As I have said, the DFE is leading on the Augar review, and it is addressing those issues.

Can the Chief Secretary now answer the question that has been put by my hon. Friend the Member for Ilford North (Wes Streeting), and by my hon. Friend the Member for Bootle (Peter Dowd) on the Front Bench? Can she guarantee that the change in the accounting treatment and the effect on the public finances will not result in a cap on student numbers?

The ONS decision has exposed what many of us have argued since 2010: the Government’s funding system is based on an accounting trick that imposes debt on students and the public purse. The truth is that there is no cost-free way of funding higher education, but the danger is that the Government will respond to the ONS decision by reducing their own liability at the expense of students and universities. Does the Chief Secretary agree that Philip Augar should not be deflected and that we need a comprehensive review of the student funding system that takes account of students from low-income households, part-time and mature students, nurses and midwifery students, and further education?