Danny Alexander confirms: the student loan book will be privatised

Off the book borrowing of the worst kind.

Danny Alexander, the Chief Secretary to the Treasury, has confirmed that the Government will be privatising student loans as part of a plan to raise £15bn from sales of public assets, in order to boost investment.

Speaking to the Commons today, he said:

We will take action to sell off £15 billion worth of public assets by 2020.

£10billion of that money will come from corporate and financial assets like the student loan book.

And the other £5 billion will come from land and property.

Mr Speaker, government is the custodian of the taxpayers’ assets.

When we no longer need them, we should sell them back at a fair price – not act like a compulsive hoarder.

The sale is not expected to be finalised until 2015, two years later than originally planned.

In order to get a decent amount for the loan book, the government is expected to offer sweeteners to whoever purchases it. The most extreme of these would be the proposal, revealed earlier this month, to lift the cap on interest paid by people who took out loans between 1998 and 2012.

That change would increase the revenue for whoever owned the loan book in 20 to 30 years time, because people who would otherwise have paid their loans off will still owe money. But it won't do anything for the government's balance sheet today – unless the government sells the book to a private company for a lump sum, which is exactly what it plans to do.

Another sweetener proposed has been what is called a "synthetic hedge". That would involve artificially replicating the change, by promising whoever buys the student loans that they will be paid the difference between the actual cash flow and the estimated cash flow which would have been received without the cap. It's fairer – because it spreads the cost throughout all taxpayers, rather than lumping it on young graduates – but it's also far more cowardly. Crucially, because the government would't have to pay any extra cash flow now, it won't have to work out where that extra revenue comes from. That's a difficulty it gets to offload onto a future government.

Whatever happens, a sweetener of sorts will have to be offered. Student loans are a classic example of an asset which is worth far more to the government than any private entity: a revenue stream spread over decades, with a high degree of variability in the value of the repayments.

For an organisation, like the UK state, which can borrow at record-low interest rates for decades on end, selling it off at a discount to secure a cash lump sum now is terrible financial management. It is as though they had decided borrowing to invest was a good thing, but they'd rather pay higher interest rates than they have to in order to keep it off the books. Surely not…

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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BHS is Theresa May’s big chance to reform capitalism – she’d better take it

Almost everyone is disgusted by the tale of BHS. 

Back in 2013, Theresa May gave a speech that might yet prove significant. In it, she declared: “Believing in free markets doesn’t mean we believe that anything goes.”

Capitalism wasn’t perfect, she continued: 

“Where it’s manifestly failing, where it’s losing public support, where it’s not helping to provide opportunity for all, we have to reform it.”

Three years on and just days into her premiership, May has the chance to be a reformist, thanks to one hell of an example of failing capitalism – BHS. 

The report from the Work and Pensions select committee was damning. Philip Green, the business tycoon, bought BHS and took more out than he put in. In a difficult environment, and without new investment, it began to bleed money. Green’s prize became a liability, and by 2014 he was desperate to get rid of it. He found a willing buyer, Paul Sutton, but the buyer had previously been convicted of fraud. So he sold it to Sutton’s former driver instead, for a quid. Yes, you read that right. He sold it to a crook’s driver for a quid.

This might all sound like a ludicrous but entertaining deal, if it wasn’t for the thousands of hapless BHS workers involved. One year later, the business collapsed, along with their job prospects. Not only that, but Green’s lack of attention to the pension fund meant their dreams of a comfortable retirement were now in jeopardy. 

The report called BHS “the unacceptable face of capitalism”. It concluded: 

"The truth is that a large proportion of those who have got rich or richer off the back of BHS are to blame. Sir Philip Green, Dominic Chappell and their respective directors, advisers and hangers-on are all culpable. 

“The tragedy is that those who have lost out are the ordinary employees and pensioners.”

May appears to agree. Her spokeswoman told journalists the PM would “look carefully” at policies to tackle “corporate irresponsibility”. 

She should take the opportunity.

Attempts to reshape capitalism are almost always blunted in practice. Corporations can make threats of their own. Think of Google’s sweetheart tax deals, banks’ excessive pay. Each time politicians tried to clamp down, there were threats of moving overseas. If the economy weakens in response to Brexit, the power to call the shots should tip more towards these companies. 

But this time, there will be few defenders of the BHS approach.

Firstly, the report's revelations about corporate governance damage many well-known brands, which are tarnished by association. Financial services firms will be just as keen as the public to avoid another BHS. Simon Walker, director general of the Institute of Directors, said that the circumstances of the collapse of BHS were “a blight on the reputation of British business”.

Secondly, the pensions issue will not go away. Neglected by Green until it was too late, the £571m hole in the BHS pension finances is extreme. But Tom McPhail from pensions firm Hargreaves Lansdown has warned there are thousands of other defined benefit schemes struggling with deficits. In the light of BHS, May has an opportunity to take an otherwise dusty issue – protections for workplace pensions - and place it top of the agenda. 

Thirdly, the BHS scandal is wreathed in the kind of opaque company structures loathed by voters on the left and right alike. The report found the Green family used private, offshore companies to direct the flow of money away from BHS, which made it in turn hard to investigate. The report stated: “These arrangements were designed to reduce tax bills. They have also had the effect of reducing levels of corporate transparency.”

BHS may have failed as a company, but its demise has succeeded in uniting the left and right. Trade unionists want more protection for workers; City boys are worried about their reputation; patriots mourn the death of a proud British company. May has a mandate to clean up capitalism - she should seize it.