Help for student loan debt Great Britain

July 5, 2017
Students take part in a
Two-bedroom flats a steal

“I CAN’T imagine it not being there, ” says Kathy Daly, a resident of north London for 64 years, reflecting the feelings of many living around Holloway prison. This summer, the largest women’s prison in western Europe, first built in 1852, will close, to make way for new homes.

The move is part of a bigger drive to sell off government assets. In its spending review in November, the government encouraged departments to find land and property to vacate and sell, with the aim of raising around £5 billion ($7 billion) up to 2020. Financial and corporate assets are also being flogged to the private sector: this financial year the Office for Budget Responsibility (OBR), the government’s independent forecaster, thinks the Treasury will raise £30 billion from selling assets like shares in Lloyds Banking Group and Royal Bank of Scotland—which were bought during the financial crisis in 2008 and 2009—and Royal Mail, with an extra £47 billion expected over the next five years. These asset sales will provide cash that George Osborne, the chancellor, can use to pay down public debt, which swelled from 37% of GDP in 2007 to 83% this year.

Selling off state assets can benefit society, if private owners can whip them into better shape. The decision also rests on the difference between the returns to the asset and the government’s own borrowing costs; there is less urgency in paying down public debt while interest rates are so low. Any big improvement in the public finances will usually be largely illusory; debt might drop, but selling will swap a future flow of income for up-front cash. The government balance-sheet will be restructured, not necessarily improved.

In November the government boasted that the land released by departments could free up space for 161, 000 new homes, spurring economic growth. The proceeds from selling older prisons will be ploughed back into building nine shiny new ones, which the government hopes will save £80m in running costs each year. The newer prisons will be in cheaper locations; some women in Holloway prison will be relocated to a prison in Sutton, a south-western suburb, where a two-bedroom flat costs £300, 000, compared with £600, 000 in Holloway. But rows are already brewing; sometimes public services add extra social value by being located in prime spots; some worry about moving prisoners far from their families. And there are questions over how many affordable homes will be built on the Holloway site. Ms Daly is not keen on the idea of luxury flats beyond the means of local residents.

Language used by senior members of the government indicates that there might be more to gain than just a leaner state. In a leaked letter to the county council in his local constituency, the prime minister, David Cameron, complained that local services were being cut without considering “savings” that could be made in the form of asset sales. In his leaked response, the council leader echoed the words of economists before and since, that “capital income cannot be used to support revenue costs—it is neither legal, nor sustainable, in the long term since they are one-off receipts”.

Although some dispute whether the government is right to be selling its land, few would argue for holding on to the bank shares for ever. Buying the assets was meant to preserve financial stability, but now things are calmer the case for owning them has weakened. The government is keen to get the most from the sales. After market turmoil, on January 28th Mr Osborne announced that he would delay the sale of a tranche of Lloyds shares.

Cynics suspect that the chancellor is interested in more than maximising value. One of his fiscal targets is to have debt falling as a share of GDP in every year after 2015–16, but in December the OBR pointed out that this year he would only achieve this because of planned asset sales. And it also pointed out that offering some of the shares at a discount (not to mention giving away some shares in Royal Mail) actually worsens the public finances.

In some cases the struggle to achieve good value for money has prevented a quick sale. The government announced its plans to sell the student-loan book back in 2013. Currently the OBR predicts that investors would give the government around £12 billion in exchange for student-loan repayments, worth around £1.5 billion each year by 2020–21. It is unclear how much extra value could be squeezed from the asset by a private buyer, though a spokesman for the Department for Business, Innovation and Skills said unfavourable market conditions were the main reason for the delay.

One worry is that the government will get a poor deal as it unloads treasures onto the private sector. An internal government evaluation of its stake in Eurostar priced it at £305m, and then saw it sold for nearly double that. The Treasury has since set up bodies to manage such sales.

Source: www.economist.com
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