Vince Cable, the LibDem minister whose remit includes UK
student finance, is apparently having cold feet about the plan to
privatise the student loan book. Which is good news, because if ever there was
an example of a policy designed to lose money for the public sector (or, as
they say in the media, cost the taxpayer more), it was this.
As I explained in this post, if a public asset that generates income
is privatised, the public gains the sale value, but loses a stream of future
income. The ‘debt burden’ need not be reduced, because although future taxes
will fall because there is less debt to pay interest on, they will rise because
the government has also lost a future income stream.
With assets like the Royal Mail, we can debate endlessly whether
the asset will become more or less efficient under private ownership. If it is
more efficient, and therefore profitable, under private ownership, the private
sector might be prepared to pay more for it, and so the public sector (and
society) is better off selling it – unless
of course the government sells it at below its market price! However in the
case of the student loan book, it is pretty clear that privatisation is a bad
deal for the public sector for two reasons.
First, as Martin Wolf has pointed out, the revenues from student loan
repayments are very long term, and pretty uncertain. Any private sector firm
that might buy this book is likely to discount these revenues quite highly, and
so will not be prepared to pay the government enough to compensate the
government for the lost revenue. Second, as Alasdair Smith points out, the main efficiency issue is
collecting the loan repayments. Here the government has clear advantages over
the private sector, because loan repayments are linked to income, and the
government has all the information on people’s income, and an existing system
for collecting money based on income.
So selling the student loan book is an almost certain way of
increasing the ‘debt burden’ on current and future generations. As Alasdair
Smith reports, George Osborne justified the sale by saying that it helped the
government with a ‘cash flow issue’. As Alasdair rightly says, the government
does not have cash flow issues. This kind of ludicrous policy either comes from
ideological fundamentalism (the government shouldn’t own assets) or the need to
meet ridiculously tough deficit targets. Whichever
it is, every UK citizen loses money as a result.
George Osborne is hardly the first finance minister to play
tricks like this, so how do we stop future governments from doing the same? I’m
glad to see more journalists, like
Chris Cook, making the points I make here. However it would be better still if
an independent body, set up by the government to calculate its future fiscal
position, was charged with a statutory duty to make these points. At present
the OBR does not have that duty, and it feels naturally reluctant to go beyond
its remit and pick fights with the government. However, if it became more of a
public watchdog, with a remit to flag government proposals that appeared to
lose money for the public sector in the long term, that might just stop future
governments doing this kind of thing.
