Implications of the ONS accounting change and looking ahead to the Post-18 review

Author: Lucy Stanfield, Strategy and External Affairs Lead at FutureLearn

2018 was a turbulent year in UK higher education policy and 2019 looks set to be the same. As we await the much anticipated Post-18 Review, leaks of which have implied that a reduction in student fees may be coming, every day seems to bring fresh Brexit woes for universities, from declining EU student numbers and grave concerns over research collaboration and funding. Whilst much remains unknown, this article explores a technical change from the Office for National Statistics which could have ramifications bigger than it may seem at first glance.

The Office for National Statistics has long promised a review of how student tuition fees and maintenance loans are treated on the national accounts. This review finally arrived as an early Christmas present for HEIs and policy-wonks across the country on the 17th of December.

As Wonkhe put it “nothing has changed but everything is different”; now, the portion of student loans which is not expected to be repaid will be reclassified as Government spending, rather than Government lending. In real terms, this was essentially happening before the ONS ruling. But this is more than just a technical change – instead of the proportion of loans that are never repaid simply being wiped off the accounts, they are now very much alive and kicking on the Governments books. It means that students loans are viewed as a public spend and contribute to the deficit – the Office for Budget Responsibility (OBR) makes an estimate of around £12 billion in fact. Though it is important to note here that the OBR has not used the ONS’ methodology (which is still to be determined) so this figure is very much provisional. The change applies across the UK, but most of this will be accounted for by lending to students in England. This has an impact on how students (and their loans) are viewed by the ‘public’ and provides a huge political incentive to reduce tuition fees; less money loaned equals less contribution to the deficit.

 

So what? Universities:

Funding. In a sentence: this adds more fuel to the fire for the argument that tuition fees should be reduced.

Universities will be worried about funding as the Post-18 Review of Higher Education (due soon) will most likely take this ruling into account in its recommendations (even though the Department for Education will say that a technical change shouldn’t implicate policy). It now seems reasonably likely that tuition fees will be reduced – though in this current political environment its a dangerous game to make predictions. Under the current system most  university funding comes from tuition fees; the concern is that by reducing fees there is either less funding per head or fewer student places. Naturally, universities will argue that both of these things are bad. The usual commentators from Universities UK, MillionPlus, University Alliance, NUS and UCU have urged for the Government to make sure the Post-18 review takes into account all factors when considering tuition fees – not just the size of the deficit.

 

So what? Students:

At first glance this seems both good and bad for students. Good, because of the political impetus to reduce tuition fees. Bad, because they are now seen as a public spend (though, as before, that has in practice always been the case). But the reality is likely to be more negative than positive. Nick Hillman, Director of think tank HEPI, puts it best:

“students are likely to get hit because they suddenly look much more costly to current taxpayers, while the extra income tax they will pay as graduates in the future continues to be ignored. Unless we are careful, we are at risk of sleepwalking into a triple whammy of fewer university places, less funding per student and tougher student loan repayment terms”

There have been calls for grant funding to return. The previous system made large loans look more attractive – because there was a chance they would be repaid and they weren’t on the spending books anyway. With this no longer the case, there is an opportunity for the Government to reinstate grants, in which there is never any repayment assumed. Essentially, if the Government is never going to recoup a loan anyway, why not make it a grant? This would help the Government look good (social mobility, widening participation etc.) and would genuinely be good. Win, win.

This all said, the real implication of this change isn’t the change itself – it’s how other policies end up reacting to it. The Post-18 Review is the big one – and it’s still unknown.

 

Further reading:

Wonkhe and Wonkhe

BBC

ONS Press release

 

Category Research insights

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