'No black hole in student finance,' insists Vince Cable as Labour claims too few students will repay their loans

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Vince Cable has claimed Labour is creating an "imaginary black hole" in his department's budget after concerns were raised over a £600 million shortfall.

The Business Secretary was challenged to explain how universities, scientists and colleges would be protected while he attempts to cope with fewer students than expected repaying their loans.

Mr Cable insisted it was an "absurd misunderstanding" by the Opposition of the method of forecasting how much cash will be repaid from student loans.

A National Audit Office (NAO) report revealed last year that the Government does not have enough information about 368,000 former students who have a total debt remaining of around £5.3 billion.

The Commons Public Accounts Committee last month suggested the Government was underestimating the value of student loans that will never be paid back.

It reported the total value of outstanding student loans was forecast to quadruple from £46 billion to around £200 billion by 2042 in today's prices, after the move to triple tuition fees to a maximum of £9,000 a year.

According to Government forecasts, around 35 per cent to 40 per cent of this will never be repaid. Under the reforms, student loans are now written off after 30 years.

Shadow business secretary Chuka Umunna questioned why Mr Cable had said the Department for Business, Innovation and Skills was on track to deliver against its spending review settlement, while the NAO said there were significant uncertainties relating to its assets.

He told Mr Cable: "I refer to the billions of pounds worth of student loans. Subsequent to the publication of those accounts, the NAO published a report which revealed that because ministers have dramatically overestimated the number of graduates who will be able to repay the loans to pay for your higher tuition fees, you have in effect blown a hole in the department's budget.

"In fact, the [House of Commons] library estimates they will now have to find an extra £600 million a year at least from 2015/16 because of this.

"Can you explain to this House now how you are going to fix this problem without putting the country's scientists, students, universities and colleges under threat?"

Mr Cable replied: "I think this is an absurd misunderstanding of what is called the Rab Charge system, which depends on long-term projections about earnings growth.

"And I can assure you that if the recovery of the economy continues as it is the Rab Charge estimates will be very substantially revised down and this imaginary black hole will very soon disappear."

PA