Tuesday, 29 July 2014

The money lenders

It does rather seem that David Willetts won’t stop being universities minister. The BBC reports today on the idea, promoted by said former-minister on Newsnight yesterday, that universities take on some of the student loans debt. This will reduce the RAB charge for Treasury (and therefore make student loans more affordable for the public purse) and also make it easier for universities to argue that they could charge higher fees if the Treasury is insulated against the risk.

I was struck by two particular quotes from the BBC write-up.

Here’s the first:

The costs of the debt - currently assumed by officials to be between 30p and 40p in every £1 that it lends - are paid by the Treasury.

The italics are mine.  Did you see the word “assumption”? This is an accounting question, and it’s all about what, today, we think that graduates will be doing in 20-30 years’ time.  Do we really have confidence in these assumptions? On that time horizon we’re almost into personal jet packs, holidays on the moon and ten hour working weeks (I wish!)

And here’s the second:

Cambridge graduates have a 4.3% unemployment rate in the first year out of study; for Staffordshire leavers, it runs at 13.9%.

My italics again. We know about the first year’s outcomes. But we need to know about 20-30 years’ time. Think how much the structure of the economy can change in 20 years. I don’t know for sure what skills are needed then. (Though I would agree that a Cambridge degree probably gives you a head start for reasons other than the quality of education …)

I don’t deny that the Treasury has a real problem to contend with – you can’t ignore or wish away accounting conventions. But to make up long-term policy on the basis of short term economic data seems slightly dangerous to me – like a farmer in Somerset changing from wheat fields to rice paddies on the basis of a rainy week in April.

For a more uplifting take on accounting here’s Monty Python’s money programme (opens in YouTube) …


  1. Another insightful and thought provoking blog, Hugh.

    Having watched Newsnight I was left wondering to what extent this proposal is born of the exceptional having become unexceptional due to a lack of regulation of the current student fees and funding regime. Or, from another perspective, because BIS/the Treasury/Government are looking to shift some of the responsibility for managing a problem they have created and can no longer control to the universities.

    Either way, I can't yet see how this is good for the sector.

  2. In my view the problems stem from the nature of the coalition government. The line about 9k being "exceptional" was a fiction to enable the coalition to pass the bill; but the compromise to get there in the first place meant that the overall package wasn't coherent.