ACCA (the Association of Chartered Certified Accountants) believe a change in how student loans are recorded will produce a more accurate view of the public sector’s financial position, but warns the change must also be supported by the government adopting a sustainable approach to fiscal policy.
The ONS (Office for National Statistics) has reviewed the treatment of student loans in the UK government’s accounts, and today released its findings.
Under the current system, student loans follow standard international statistical guidelines – a where public sector cash assets are converted to an equivalently-valued loan asset.
Today’s ONS ruling now means student loans will be split into a portion that is genuine government lending and a portion that is government spending. It aims to better reflect the proportion of student loans that will not repaid.
Consequently, Chancellor Philip Hammond’s expected £74 billion October budget windfall from 2018-19 to 2022-23 could be largely eliminated by these changes. They are expected to be introduced in the government’s autumn 2019 accounts in September.
It will also increase the government’s budget deficit since student loan debt write-offs that would have taken place in 2040 and beyond will, instead, be reflected as government spending now. Early estimates suggest the change could potentially add £12 billion to the deficit.
It comes as the government finds itself at a crossroads in deciding whether to pursue fiscal prudence by adhering to their Charter for Budget Responsibility, which aims to return public finances to balance by the mid-2020s, or to hold fast to their spending commitments from the Brexit deal dividend.
Alex Metcalfe, ACCA's head of public sector policy, says the change gives a clearer picture of the public sector’s finances, but warned that the government must adopt a sustainable approach to its fiscal policy in order to ensure future generations don’t face a large sum of unaccounted for debt. These changes will also support the government’s review of the student finance system, which is planned to report early next year.
He said: ‘The changes announced by the ONS provide a more accurate and transparent view of the government’s financial position in relation to the student loan book.
‘Governments must also prioritise sustainable fiscal policy, in order to not overburden future generations with unaccounted for debt. The government should note this change in meeting its fiscal policy objectives.
‘The changes to the ONS treatment of student loans will support a more prudent, transparent and long-term policy-making approach.’
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