The UK government’s higher education reforms could increase the national debt by between £50bn and £100bn by 2032, according to a new report released by the Intergenerational Foundation (IF).
The report, entitled False Accounting? Why the Government’s Higher Education Reforms Don’t Add Up, demonstrates that the coalition's claim that its changes to the sector would save £1bn a year is unreliable.
First, the accounting convention used by the government allows it to present the long-run losses on student loans as estimates, which may have been too low; financing higher student loans requires higher government borrowing.
Higher tuition fees will have an inflationary impact, increasing CPI by 0.2 percentage points in the final quarter of 2012-2013. The following two years will see a similar impact, leading to an overall increase of around 0.6 percentage points.
State pensions, tax credits and other benefits paid by the Department of Work and Pensions (DWP) are index-linked to CPI, which is used to calculate their annual increase.
The report also argues that the impact of higher tuition fees could add £2.2bn to the social security budget by 2016, at a time when the Chancellor has just announced that he wants to see cuts worth £10bn.
There would, therefore, be no overall deficit saving from the new higher education funding regime. The Department for Business, Innovation and Skills (BIS) may save approximately £1bn per year but DWP loses £2bn, leading to an overall increase to expenditure of £1bn.
The Office of Budget Responsibility (OBR) estimates that 32 per cent of the net present value of loans may have to be written off, leaving future governments and taxpayers to resolve any shortfall between the estimates used and the actual repayments that materialise.
Andrew McGettigan, author of the report, said:
It cannot be made any clearer: higher education reforms are a shambles. Vague savings, more instability, a debt bubble, increasing inflation, increasing benefits for the wrong generation, all point to incompetence at best, alternatives motives at worst. The coalition must come clean and respond publicly to IF’s findings.
Liam Burns, NUS president, said:
By switching university funding from spending to lending, ministers hoped to perform a sleight of hand that would protect teaching but reduce the deficit but this transparent accounting trick has created a crisis of instability in universities. There is a compelling case against policy decisions that at best look ill-scrutinised and rushed and at worst negligent and reckless.
Angus Hanton, co-founder of IF, said:
Despite what has been promised, there is likely to be no saving to public-sector finances. Current students will become increasingly indebted with decreasing protection and older generations will benefit from an inflationary and unexpected benefit windfall from younger and future generations.