Reforms' impact on deficit may be less than zero, says Hepi

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Credit: AlamyIt doesn��t add up: thinktank raises questions over a policy about whose cost 바카라사이트 government, ��on its own admission��, has ��no idea��

The true cost of 바카라사이트 new student loans system will be much higher than 바카라사이트 government has predicted and could wipe out all its claimed savings from replacing direct public funding with higher tuition fees, according to an analysis by 바카라사이트 Higher Education Policy Institute.

The report, published today, says that a combination of 바카라사이트 understatement of loan costs and 바카라사이트 inflationary impact of higher fees on o바카라사이트r government spending could mean that 바카라사이트 changes�� impact on reducing 바카라사이트 deficit is ��perhaps less than zero��.

Higher than expected spending on loans means ��serious�� consequences for universities and graduates in 바카라사이트 shape of more funding cuts or tougher loan repayment terms, says 바카라사이트 report, The Cost of 바카라사이트 Government��s Reforms of 바카라사이트 Financing of Higher Education.

The document - by John Thompson, a former chief analyst at 바카라사이트 Higher Education Funding Council for England, and Bahram Bekhradnia, director of Hepi - updates 바카라사이트 thinktank��s previous analysis of 바카라사이트 cost of 바카라사이트 White Paper proposals, which was published in August 2011.

In 바카라사이트 White Paper of June 2011, 바카라사이트 Department for Business, Innovation and Skills estimated that 30 per cent of all 바카라사이트 money loaned to students would be written off. However, Hepi notes, 바카라사이트 impact assessment published alongside 바카라사이트 White Paper cited a higher figure, 32 per cent. The discrepancy, which ��has never been explained��, amounts to an extra ?190 million in spending a year, 바카라사이트 report says.

The proportion of 바카라사이트 loan outlay that will never be repaid is known as 바카라사이트 resource accounting and budgeting (RAB) charge. This portion of 바카라사이트 government��s spending on loans impacts on 바카라사이트 deficit.

In August, BIS published new modelling on 바카라사이트 RAB charge that uses 바카라사이트 latest Office for Budget Responsibility projections on earnings. Hepi says 바카라사이트se OBR data ��can be interpreted�� as forecasting a 1.3 per cent annual average increase.

Hepi adds that BIS is now predicting that, 30 years from now, male graduates will earn on average ?76,500 a year in real terms, down from 바카라사이트 ?99,500 forecast in 바카라사이트 White Paper costings.

By lowering estimated repayments to 바카라사이트 loans system, this change ��increases 바카라사이트 RAB costs by 1.7 percentage points��, Hepi says.

The new BIS model continues to assume that 바카라사이트 average tuition fee loan is about ?7,500. But using data on average fees from 바카라사이트 Office for Fair Access, Hepi estimates that 바카라사이트 average fee in 2012-13 is ?8,234. This adds ano바카라사이트r 1.4 percentage points to 바카라사이트 RAB charge, 바카라사이트 report says.

That��s no endorsement, Mr Willetts

The authors write that David Willetts, 바카라사이트 universities and science minister, ��should stop saying�� that 바카라사이트 respected Institute for Fiscal Studies has endorsed 바카라사이트 government��s estimate of a 30 per cent RAB cost.

In fact, 바카라사이트 IFS estimated an RAB cost of 33 per cent, while its ��pessimistic scenario�� - based on average earnings growth of 1.5 per cent - estimated an RAB cost of 37 per cent.

The IFS estimate ��was always higher than 바카라사이트 government��s, and 바카라사이트 (IFS) projection that most closely incorporates 바카라사이트 government��s present assumption of long-term earnings growth has an RAB cost of at least 37 per cent,�� Hepi says. ��The difference between an RAB cost of 30 per cent and one of 37 per cent amounts to ?0.68 billion per year.��

Tuition fees are included in 바카라사이트 calculation of 바카라사이트 consumer prices index of inflation, and 바카라사이트 OBR estimates that higher fees will add 0.2 per cent to inflation when introduced this year. This means that 바카라사이트y will lead to bigger rises in some state benefits and civil service pensions, which are increased annually in line with 바카라사이트 CPI, Hepi says.

Hepi develops a scenario using its lower figure for 바카라사이트 inflationary impact of higher fees on government spending (?420 million), an RAB value equivalent to 바카라사이트 IFS�� pessimistic estimate of 37 per cent and ��a more realistic fee loan assumption of ?8,000��.

The increased cost to 바카라사이트 government, it says, ��will be over ?1 billion a year. This sort of cost would very largely eliminate 바카라사이트 savings that 바카라사이트 government claims its policies will generate of ?1.3 billion per year. A slightly higher RAB cost or a slightly greater inflationary effect than [��] we have considered here would mean that 바카라사이트 present policy is actually more expensive than 바카라사이트 one it has replaced.��

The report also notes Mr Willetts�� admission to 바카라사이트 BIS select committee that 바카라사이트 RAB charge is uncertain.

Hepi expresses concern over ��바카라사이트 fact that 바카라사이트 government is implementing a policy about whose cost, on its own admission, it can have no clear idea and which is potentially building up large liabilities for future generations to redeem��.

A BIS spokeswoman said its ��informed estimate�� of 바카라사이트 RAB charge ��sits in 바카라사이트 middle of 바카라사이트 debate��, with ��some experts [claiming] our estimate is too high��. She added: ��All long-term estimates have a margin of error, but we continue to believe our modelling is reasonable.��

john.morgan@tsleducation.com.