George Osborne was speaking “economic nonsense” in his Autumn Statement when he claimed his decision to lift the cap on university places would be financed by the sale of the student loan book, the respected Institute for Fiscal Studies (IFS) think-tank said today.
On Thursday the Chancellor announced that from 2014 the Government would create 30,000 more student places and that the cap would be abolished altogether the following year. He added that the new money that would be required to finance this expansion in the university intake would be financed by selling the student loan book to private investors.
But Paul Johnson, the head of the IFS, said today that “economically it makes little sense” because the sale of the loan book was a one-off boost to revenues whereas lifting the cap on students would create a permanent liability.
“Selling the loan book will be broadly fiscally neutral in the long run, bringing in more money now at the expense of less money later on. Lifting the cap on numbers will cost money every year,” he said.
His colleague Carl Emmerson went further and described the Chancellor’s claim as “nonsense” because “selling an asset for what it is worth does not strengthen the public finances”.
In further bad news for the Government the IFS predicted that average household incomes at the time of the next election in 2015 were likely to be lower than they were in 2010, when the Coalition took office.
Mr Johnson took issue with George Osborne’s claim that household incomes were still rising despite the economic stagnation of recent years pointing out that the statistical index the Chancellor used to back up this claim was “not something with which to measure living standards”.
Labour, by contrast, has claimed, using a different statistical gauge, that the average household is £1,600 a year worse off since 2010.
The IFS did not endorse this figure but Mr Johnson said it was “pretty consistent” with what the think-tank regards as the true picture of what has happened to household incomes between 2009-10 and 2011-12.
Mr Johnson said that while the average household income should start to grow as the economy recovers it “will surely still be below its 2010 level by the time we get to the election in 2015”.
The IFS also said that the fiscal projections in this week’s Autumn Statement implied the pace of cuts to Whitehall spending would rise still further in the next Parliament. The think-tank said departmental spending is projected to fall by 2.3 per cent a year until 2016, and that this would accelerate to 3.7 per cent thereafter until 2019.
The Chancellor presented his Autumn Statement as “fiscally neutral”, meaning that the cost of new spending commitments which include free school meals for all infants – were offset by countervailing measures which would raise new money for the Treasury.
But the IFS cast doubt on this, pointing out that the revenues from Mr Osborne’s tax avoidance clampdown were “inevitably uncertain” and that there are now additional unfunded spending pressures of around £7bn a year from 2015-16.
Labour said the IFS was right to question whether Mr Osborne’s sums added up.