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.

Getty
Show Hide image

Could Jeremy Corbyn still be excluded from the leadership race? The High Court will rule today

Labour donor Michael Foster has applied for a judgement. 

If you thought Labour's National Executive Committee's decision to let Jeremy Corbyn automatically run again for leader was the end of it, think again. 

Today, the High Court will decide whether the NEC made the right judgement - or if Corbyn should have been forced to seek nominations from 51 MPs, which would effectively block him from the ballot.

The legal challenge is brought by Michael Foster, a Labour donor and former parliamentary candidate. Corbyn is listed as one of the defendants.

Before the NEC decision, both Corbyn's team and the rebel MPs sought legal advice.

Foster has maintained he is simply seeking the views of experts. 

Nevertheless, he has clashed with Corbyn before. He heckled the Labour leader, whose party has been racked with anti-Semitism scandals, at a Labour Friends of Israel event in September 2015, where he demanded: "Say the word Israel."

But should the judge decide in favour of Foster, would the Labour leadership challenge really be over?

Dr Peter Catterall, a reader in history at Westminster University and a specialist in opposition studies, doesn't think so. He said: "The Labour party is a private institution, so unless they are actually breaking the law, it seems to me it is about how you interpret the rules of the party."

Corbyn's bid to be personally mentioned on the ballot paper was a smart move, he said, and the High Court's decision is unlikely to heal wounds.

 "You have to ask yourself, what is the point of doing this? What does success look like?" he said. "Will it simply reinforce the idea that Mr Corbyn is being made a martyr by people who are out to get him?"