HM Treasury and the Department for Education have been criticised by MPs for failing to get best value for the nation in selling off £3.5bn to private investors last year.
Members of parliament’s Public Accounts Committee said the 2017 sale of a package of student loans had raised just £1.7bn – a return of just 48 pence in the pound, and had raised a figure the government could have expected to recoup in just eight years.
The committee said that while forecasting the level of future repayments was “inherently an inexact science”, it was a crucial measure for determining how much cash the government was prepared to accept against future repayments.
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The PAC report said the nation had £102bn in student loans on the books as of March this year, and that the figure was expected to grow to £473bn by 2049. However, the government only expects 55-60% of the loans to be repaid because some recipients will never earn enough to have to do so.
The government has targeted the sale of £12bn of student debt by 2022 as part of a strategy to “de-risk” the public finances. However loans will continue to be administered by HM Revenue and Customs, via the Student Loans Company.
MPs said there was a focus in the Treasury on reducing its “public sector net-debt” (PSND) measure that was “short-sighted” and left them unconvinced that last year’s student loans sell-off was the best long-term deal for public finances.
The PAC said the Treasury’s own analysis had shown that it could have expected to recoup the £1.7bn sale price in only eight years and that its willingness to accept offers from investors if they exceed a theoretical “opportunity cost” of holding the assets risked accepting too low a price.
It said a narrow focus on reducing PSND as a measure of success often made sales look positive at any price, regardless of the true impact on public finances. The report said the sale of Eurostar and former Northern Rock assets fell into the same category.
Committee members added that there had been too little transparency in relation to last year’s deal and that there had been no public interest reason to withhold details of who was investing in the loans and potentially profiting from public assets.
Committee chair Meg Hillier said the government needed to learn quickly from the weaknesses of the sale if it was to secure the best deal for taxpayers in future – and ministers announced last month that that more sales of grouped student loans were planned.
“When public assets are gone, they’re gone – in the case of this first student loans sale, for too little return,” she said.
“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.”
Hillier called on the government to review its approach to evaluating student loans and other assets earmarked for sale to “better demonstrate” the role such sales could play in the government’s overall strategy for managing public finances.
Last month universities minister Sam Gyimah told parliament the government was planning sell a second chunk of student loans with a face value of £3.9bn and which related to loans that entered repayment between 2007 and 2009.
He said the government was “proceeding on the basis that there is a reasonable prospect of achieving value for money” and that a sale would only complete “subject to market conditions and a final value for money assessment”.
In response to the PAC report, a government spokesperson said ministers were “confident” that good value for money had been achieved for taxpayers with the first sale of loans.
“As the National Audit Office has found, we received more for the loans than the value to government of retaining them, further strengthening the public finances,” they said.
The NAO's report on the sale, published in July, said the government had sold the loans at the upper end of its estimate of how much the market was willing to pay. However, it also estimated that the sale had cost the government £604m in lost revenues from future loan repayments, and criticised a discrepancy between how the Treasury and the DfE estimated the value of loans, which it said reduced reansparency and increased the risk of selling assets too cheaply.
The government spokesperson added: “Student loans are designed so that borrowers only repay when they can afford to – this gives more people the chance to go to university and get on in life, but, as the Public Accounts Committee recognises in its report, this also means many students will never fully pay back their loans.”
They said the government would issues a full response “in due course”.