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.

Photo: Getty
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Are the Conservatives getting ready to learn to love the EEA?

You can see the shape of the deal that the right would accept. 

In an early morning address aimed half reassuring the markets and half at salvaging his own legacy, George Osborne set out the government’s stall.

The difficulty was that the two halves were hard to reconcile. Talk of “fixing the roof” and getting Britain’s finances in control, an established part of Treasury setpieces under Osborne, are usually merely wrong. With the prospect of further downgrades in Britain’s credit rating and thus its ability to borrow cheaply, the £1.6 trillion that Britain still owes and the country’s deficit in day-to-day spending, they acquired a fresh layer of black humour. It made for uneasy listening.

But more importantly, it offered further signs of what post-Brexit deal the Conservatives will attempt to strike. Boris Johnson, the frontrunner for the Conservative leadership, set out the deal he wants in his Telegraph column: British access to the single market, free movement of British workers within the European Union but border control for workers from the EU within Britain.

There is no chance of that deal – in fact, reading Johnson’s Telegraph column called to mind the exasperated response that Arsene Wenger, manager of Arsenal and a supporter of a Remain vote, gave upon hearing that one of his players wanted to move to Real Madrid: “It's like you wanting to marry Miss World and she doesn't want you, what can I do about it? I can try to help you, but if she does not want to marry you what can I do?”

But Osborne, who has yet to rule out a bid for the top job and confirmed his intention to serve in the post-Cameron government, hinted at the deal that seems most likely – or, at least, the most optimistic: one that keeps Britain in the single market and therefore protects Britain’s financial services and manufacturing sectors.

For the Conservatives, you can see how such a deal might not prove electorally disastrous – it would allow them to maintain the idea with its own voters that they had voted for greater “sovereignty” while maintaining their easy continental holidays, au pairs and access to the Erasmus scheme.  They might be able to secure a few votes from relieved supporters of Remain who backed the Liberal Democrats or Labour at the last election – but, in any case, you can see how a deal of that kind would be sellable to their coalition of the vote. For Johnson, further disillusionment and anger among the voters of Sunderland, Hull and so on are a price that a Tory government can happily pay – and indeed, has, during both of the Conservatives’ recent long stays in government from 1951 to 1964 and from 1979 to 1997.

It feels unlikely that it will be a price that those Labour voters who backed a Leave vote – or the ethnic and social minorities that may take the blame – can happily pay.  

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.