Student loan shake-up puts £12bn hole in public finances

According to The Guardian, National deficit increases after ONS says student loans count as government spending.

Philip Hammond is facing a £12bn hole in the public finances this year after changes to the way student loans are treated on the government’s books, reflecting that many will never be repaid.

In a stroke of the pen from the Office for National Statistics, student loans will now be treated as part financial asset in the national accounts, because some will be repaid, while part will be classified as government expenditure, as some loans will never be paid back in full.

The changes are bad news for the chancellor because they wipe out all of the windfall from a better performance in the public finances this year handed to him by the Office for Budget Responsibility.

Hammond was warned by the Institute for Fiscal Studies at the autumn budget that he had gambled with the UK’s public finances, with the influential tax and spending thinktank suggesting the windfall could quickly be reversed.

The changes are likely to be significant for the public finances in the run-up to Brexit because the chancellor has earmarked additional government borrowing in reserve to handle a damaging no-deal scenario.

Analysis from the Resolution Foundation thinktank estimates that the overall impact from the latest changes will add about £72bn to government borrowing by 2022-23.

Read more here Student loan shake-up puts £12bn hole in public finances 

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