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.

Photo: Getty Images
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Why are boundary changes bad for Labour?

New boundaries, a smaller House of Commons and the shift to individual electoral registration all tilt the electoral battlefield further towards the Conservatives. Why?

The government has confirmed it will push ahead with plans to reduce the House of Commons to 600 seats from 650.  Why is that such bad news for the Labour Party? 

The damage is twofold. The switch to individual electoral registration will hurt Labour more than its rivals. . Constituency boundaries in Britain are drawn on registered electors, not by population - the average seat has around 70,000 voters but a population of 90,000, although there are significant variations within that. On the whole, at present, Labour MPs tend to have seats with fewer voters than their Conservative counterparts. These changes were halted by the Liberal Democrats in the coalition years but are now back on course.

The new, 600-member constituencies will all but eliminate those variations on mainland Britain, although the Isle of Wight, and the Scottish island constituencies will remain special cases. The net effect will be to reduce the number of Labour seats - and to make the remaining seats more marginal. (Of the 50 seats that would have been eradicated had the 2013 review taken place, 35 were held by Labour, including deputy leader Tom Watson's seat of West Bromwich East.)

Why will Labour seats become more marginal? For the most part, as seats expand, they will take on increasing numbers of suburban and rural voters, who tend to vote Conservative. The city of Leicester is a good example: currently the city sends three Labour MPs to Westminster, each with large majorities. Under boundary changes, all three could become more marginal as they take on more wards from the surrounding county. Liz Kendall's Leicester West seat is likely to have a particularly large influx of Tory voters, turning the seat - a Labour stronghold since 1945 - into a marginal. 

The pattern is fairly consistent throughout the United Kingdom - Labour safe seats either vanishing or becoming marginal or even Tory seats. On Merseyside, three seats - Frank Field's Birkenhead, a Labour seat since 1950, and two marginal Labour held seats, Wirral South and Wirral West - will become two: a safe Labour seat, and a safe Conservative seat on the Wirral. Lillian Greenwood, the Shadow Transport Secretary, would see her Nottingham seat take more of the Nottinghamshire countryside, becoming a Conservative-held marginal. 

The traffic - at least in the 2013 review - was not entirely one-way. Jane Ellison, the Tory MP for Battersea, would find herself fighting a seat with a notional Labour majority of just under 3,000, as opposed to her current majority of close to 8,000. 

But the net effect of the boundary review and the shrinking of the size of the House of Commons would be to the advantage of the Conservatives. If the 2015 election had been held using the 2013 boundaries, the Tories would have a majority of 22 – and Labour would have just 216 seats against 232 now.

It may be, however, that Labour dodges a bullet – because while the boundary changes would have given the Conservatives a bigger majority, they would have significantly fewer MPs – down to 311 from 330, a loss of 19 members of Parliament. Although the whips are attempting to steady the nerves of backbenchers about the potential loss of their seats, that the number of Conservative MPs who face involuntary retirement due to boundary changes is bigger than the party’s parliamentary majority may force a U-Turn.

That said, Labour’s relatively weak electoral showing may calm jittery Tory MPs. Two months into Ed Miliband’s leadership, Labour averaged 39 per cent in the polls. They got 31 per cent of the vote in 2015. Two months into Tony Blair’s leadership, Labour were on 53 per cent of the vote. They got 43 per cent of the vote. A month and a half into Jeremy Corbyn’s leadership, Labour is on 31 per cent of the vote.  A Blair-style drop of ten points would see the Tories net 388 seats under the new boundaries, with Labour on 131. A smaller Miliband-style drop would give the Conservatives 364, and leave Labour with 153 MPs.  

On Labour’s current trajectory, Tory MPs who lose out due to boundary changes may feel comfortable in their chances of picking up a seat elsewhere. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog. He usually writes about politics.