Double debt bombshell of Cable’s HE reforms

The OBR yesterday showed that the Higher Education reforms will increase net debt by £13bn. The findings contradict Vince Cable's claims that the policy switch was motivated by the "current economic climate".

Implementing the Browne review will add £13bn to net debt

Our guest writer is Andrew Harding who blogs at 2me2you.

Analysis by Left Foot Forward and on my 2me2you blog has shown previously that the implementation of the Browne review is driven more by ideology than a need to reduce “national debt [in the] national interest“. The BBC has been virtually alone in the mainstream media in reporting that “University fees reforms ‘will not save money’“.

Now the Office for Budget Responsibility have confirmed what many outside the mainstream media have long thought: that the shortfall in higher education funding over this parliament cannot possibly be met by the outcome of the Browne Review’s recommendations. In particular, the immediate cut to funding and the retrospective repayments mean an increase in net debt from 2012-13.

The OBR findings directly contradict Vince Cable’s remarks that the Liberal Democrat’s policy switch was dictated by a need to bring down costs. Responding to the publication of the Browne Review on October 12th, the Business Secretary said:

“My own party consistently opposed graduate contributions, but in the current economic climate we accept that the policy is simply no longer feasible.”

The OBR yesterday stated that:

“The Spending Review announced a £2.9 billion real terms cut in overall funding for higher education by 2014-15, with direct grants substituted for higher fees funded by increased loans to students. This proposal will therefore increase the value of the loans that the Government makes to students to fund tuition fees. Such loans are classified in the public finances as a financial transaction.

“The additional cash needed to fund the loans, net of repayments, increases the Government’s cash requirement (CGNCR) in any year and adds to the stock of public sector net debt (PSND), which is measured on a cash basis. However, financial transactions do not score directly in accrued measures of the deficit such as net borrowing, because the Government’s overall net liability position has not changed. For the November forecast the OBR has scrutinised and certified estimates of the additional loans that have been produced by the Department for Business, Innovation and Skills (BIS) for England. As the table shows, the impact on the CGNCR is estimated to reach £5.6 billion by 2015-16, cumulatively adding £13 billion to [Public Sector Net Debt] over the forecast period.”

Not many can reasonably suggest that graduates should make no contribution to their studies whatsoever. However, the shift in burden to the graduate paying the majority is by any reasonable standard unconscionable. It is a stark reminder that the government is passing the burden for a forward thinking and progressive society on to those citizens that can afford it. So much for the big society, perhaps “there is no such thing as society” after all.

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  • Jana

    Page 51 of the Browne Review:

    “Government will need to fill this funding gap [for a graduate tax] in every year until 2041-42. The cost of replacing fees is ca. £3bn a year. If there is to be more investment in higher education – as our proposals foresee – then the bill for Government is even higher. This means that rather than contributing to deficit reduction, higher education will squeeze out spending elsewhere.

    In order to overcome this difficulty, we have considered hypothecating a graduate tax to the sector in order to allow universities to raise private sector finance against future tax receipts. The costs of raising finance will be high. Some estimates suggest the private sector may pay as little as 25%
    of the value of future tax receipts due to the slow build-up over time of the receipts and uncertainty about the amount. It is also likely that such a sale would be considered a tax securitisation, which the Office of National Statistics would classify as Government debt. Hence, even on this model, there would be upward pressure on the deficit from the graduate tax until 2041-42.”

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  • Prof Colin Pritchard

    Take the 3 key Coalition `reforms’ together and “follow the money” (Morse). Health reforms will encourage further infiltration of the private sector as when you’re seriously ill, you’ll pay anyhting, so there are vast profits to be made, as in the US, from ill-health; reducing tenure in council housing will be a boon for private landlords at the crude end of the market and school and university reforms, will cost the more afluent taxpayer less as in any progressive tax system [which hardly defines that of the UK] the more affluent conribute to opportunities off the less affluent, which undermines the potential student from average backgrounds. In the nation has allowed the `robber barons’ to take over but sadly the likes of Blair, Hoon, Hodge, Mandelson etc have sold out to the multi-nationals, who already virtually `own’ the US congress.

  • Mr. Sensible

    Julian, true the previous government did set up the review. So what? Just because you set up a review, you don’t necesarily have to abide by all its reckomendations. And I think this government changed the context in which it was operating with its cuts to teaching budgets.

    I read in yesterday morning’s Guardian that a study in to the government’s proposals:
    “… claims that the changes – which will also see state funding for university teaching cut by 80% by 2014-15 – will leave taxpayers worse off because the government will have to borrow more to fund higher loans and pick up a bigger bill for debts that are written off after 30 years. Write-off costs are likely to rise from 27.5p in the pound to at least 36p, it estimates.”

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  • Judy Dickinson

    Can anyone tell me what the revenue per annum will be from the 50% tax on incomes over £150,000? How far would this go to finance the proposed level of £6,000 per annum student fee?

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