Why the student loan sell-off is a terrible deal for taxpayers

For the sake of short-term deficit reduction, the government is giving up a long-term asset.

The great student loan sell-off has begun. After announcing its intention to privatise the £40bn loan book earlier this year, the government has sold a £890m tranche to a private debt collection agency (Erudio Student Loans) for £160m. 

The coalition has presented the move as a pragmatic step that will, in the words of Universities minister David Willetts, "allow us to reduce public debt and maximise the value of one of the government’s assets." But in reality, the reverse is the case. In order to attract a private buyer, ministers have sold the loans at a discount of £730m. While analysts will debate the precise price, it would have been impossible for the government to sell them at a profit. As Martin Wolf explained earlier this year, "no private party has a lower borrowing cost than the government, since the government is the most creditworthy entity in the country. So the value of the student loan book to the government, given its low discount rate, is higher than to any potential private buyer."

Why, then, has the government opted for privatisation? Were the UK, like Greece, compelled to sell its assets to stave off bankruptcy, the move would make sense. But with its independent monetary policy (allowing the Bank of England to create new money), its above-average debt maturity and its growing economy, Britain is in no danger of insolvency. 

The decision, like so much coalition policy, reflects the Conservatives' determination to prioritise short-term deficit reduction over long-term investment (which is what student loans are). While the sale will save the government money today (allowing it to cut debt or taxes), it will cost its successors money tomorrow. But never mind the long-term economic interests of the country, George Osborne and David Cameron have got an election to win. 

Demonstrators chant slogans during a student rally in London on November 21, 2012. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Commons Confidential: Fearing the Wigan warrior

An electoral clash, select committee elections as speed dating, and Ed Miliband’s political convalescence.

Members of Labour’s disconsolate majority, sitting in tight knots in the tearoom as the MP with the best maths skills calculates who will survive and who will die, based on the latest bad poll, observe that Jeremy Corbyn has never been so loyal to the party leadership. The past 13 months, one told me, have been the Islington rebel’s longest spell without voting against Labour. The MP was contradicted by a colleague who argued that, in voting against Trident renewal, Corbyn had defied party policy. There is Labour chatter that an early general election would be a mercy killing if it put the party out of its misery and removed Corbyn next year. In 2020, it is judged, defeat will be inevitable.

The next London mayoral contest is scheduled for the same date as a 2020 election: 7 May. Sadiq Khan’s people whisper that when they mentioned the clash to ministers, they were assured it won’t happen. They are uncertain whether this indicates that the mayoral contest will be moved, or that there will be an early general election. Intriguing.

An unguarded retort from the peer Jim O’Neill seems to confirm that a dispute over the so-called Northern Powerhouse triggered his walkout from the Treasury last month. O’Neill, a fanboy of George Osborne and a former Goldman Sachs chief economist, gave no reason when he quit Theresa May’s government and resigned the Tory whip in the Lords. He joined the dots publicly when the Resolution Foundation’s director, Torsten Bell, queried the northern project. “Are you related to the PM?” shot back the Mancunian O’Neill. It’s the way he tells ’em.

Talk has quietened in Westminster Labour ranks of a formal challenge to Corbyn since this year’s attempt backfired, but the Tories fear Lisa Nandy, should the leader fall under a solar-powered ecotruck selling recycled organic knitwear.

The Wigan warrior is enjoying favourable reviews for her forensic examination of the troubled inquiry into historic child sex abuse. After Nandy put May on the spot, the Tory three-piece suit Alec Shelbrooke was overheard muttering: “I hope she never runs for leader.” Anna Soubry and Nicky Morgan, the Thelma and Louise of Tory opposition to Mayhem, were observed nodding in agreement.

Select committee elections are like speed dating. “Who are you?” inquired Labour’s Kevan Jones (Granite Central)of a stranger seeking his vote. She explained that she was Victoria Borwick, the Tory MP for Kensington, but that didn’t help. “This is the first time you’ve spoken to me,” Jones continued, “so the answer’s no.” The aloof Borwick lost, by the way.

Ed Miliband is joining Labour’s relaunched Tribune Group of MPs to continue his political convalescence. Next stop: the shadow cabinet?

Kevin Maguire is Associate Editor (Politics) on the Daily Mirror and author of our Commons Confidential column on the high politics and low life in Westminster. An award-winning journalist, he is in frequent demand on television and radio and co-authored a book on great parliamentary scandals. He was formerly Chief Reporter on the Guardian and Labour Correspondent on the Daily Telegraph.

This article first appeared in the 27 October 2016 issue of the New Statesman, American Rage