Government received too little in student loans sell-off, report finds

22 November 2018

The Public Accounts Committee has published its report on sale of student loans.

Key findings

Government's approach to reducing debt runs risk of public assets being sold 'at any price'
Government could have expected to recoup the loans' £1.7 billion sale price in just eight years
There should be more transparency about who is investing in the loans and potentially profiting

Government received too little in return for what it gave up

In 2017 government sold student loans with a face value of £3.5 billion for £1.7 billion, which is a return of only 48p in the £1.

We did not expect government to recover the face value of the loans as repayments rely on people's earnings, which means there is no realistic prospect of them all being repaid in full. But we do expect the Treasury and the Department for Education (the Department) to get the best possible deal on behalf of the taxpayer.

In this case, government received too little in return for what it gave up – its own analysis shows that it could have expected to recoup the £1.7 billion sale price in only eight years. Treasury's focus on reducing its 'public sector net debt' measure is a short-sighted approach which fails to convince us that the deal is the best one for public sector finances in the long term.

The willingness to accept offers from investors if they exceed government's theoretical 'opportunity cost' of holding the assets runs the risk of accepting too low a price. Forecasting future repayments is inherently an inexact science, but it is crucial to determining how much cash the government is prepared to accept now in place of uncertain amounts of cash in the future.

Government has not convinced us that its model of future cash flows provides a good basis for deciding at what price to sell student loans. This is only the first in a series of sales, and as the government has now announced a second sale it must think carefully about whether its modelling is sufficiently developed to do justice to the real long-term value of these public assets.

More transparency about who is investing and profiting from process

Finally, we have concerns about the transparency of the deal. We accept that releasing all the details of the transaction has the potential to weaken the government's hand in negotiations, but it is too easy to fall back on that as an excuse not to reveal information where there appears to be no public interest reason to prevent disclosure. Government should be transparent about who is investing in the loans and potentially profiting from public assets.

Chair's Comment

Meg Hillier MP, Chair of the Committee, said:

"Government will need to learn quickly from the weaknesses of this sale if it is to secure the best deal for taxpayers in future.
When public assets are gone, they're gone – in the case of this first student loans sale, for too little return.
It is troubling that the Government could have expected to recoup the £1.7 billion sale price in just eight years.
Decisions on asset sales must fully consider value for money but I am not convinced that this transaction, with its narrow and short-term objective of reducing public sector net debt, is fully compatible with that principle.
It is not clear how this sale serves to decrease the long-term risk to the public finances, nor if Government's decision to withhold the identity of investors best serves the public interest.
Government must review its approach to evaluating student loans and other assets it has earmarked for sale, and better demonstrate the role such sales play in Government's overall strategy for managing public finances.
As part of this it must ensure decisions affecting transparency around sales are backed by evidence.
The public deserves to know who stands to gain from the sale of public assets."

Further information

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