The Dearing report : some funding issues : third report / Education and Employment Committee.

  • Great Britain. Parliament. House of Commons. Education and Employment Committee.
Date:
1997
Catalogue details

Licence: Open Government Licence

Credit: The Dearing report : some funding issues : third report / Education and Employment Committee. Source: Wellcome Collection.

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    Other reasons for such a change 30. Is there any reason for advocating such a change if the “pot of gold” does not exist? We believe there is. It would send a clear signal, to use Dr Robinson’s phrase, that loans to students are an investment in the creation of human capital.°* Borrowing to finance such investment can be regarded as “good” borrowing for that reason, and also because — as discussed above — the Government seems likely to get most of it back over time. The change would not automatically mean that the Government spent more on education, but it would at least give the Government the flexibility to spend more money without exceeding its public expenditure target as expressed by the Control Total.’ We have noted that any additional spending flexibility might not be hypothecated to higher education. However, if Ministers were to exclude the recoverable part of expenditure on student loans from the Public Expenditure Control Total on the grounds that it is investment, and should be treated as such, this could facilitate extra spending on tertiary education without the Government breaching its Public Expenditure Control Total. It could thus deal more effectively with the short-term funding crisis which we discussed above. For these reasons, we recommend that the Government change the treatment of student loans for public expenditure purposes to reflect the fact that such spending is a form of investment, and that much of it will be repaid. The impact of resource accounting 31. During our inquiry witnesses raised the possible impact on the treatment of expenditure on student loans of the Government’s introduction of resource accounting and budgeting. Resource accounting is the form of “accruals” accounting currently used in the private sector and local government, and which the Government is to implement for all public expenditure from 2001-02. Resource accounting differs from the cash accounting basis currently used by the Treasury. Under resource accounting a purchase made will figure in accounts not as a cash amount in a single year (as at present) but as a resource consumed over time. Treasury officials explained its potential impact on the classification of expenditure on student loans: “you would score ... what the real resource cost to the Government is when you make the loan”.** Dr Robinson expanded the point: “What resource accounting does is to look at the net present value of any policy rather than its cash implications, and in this instance the important point about resource accounting is that it would score as spending only that part of the loan which was, if you like, the subsidy element in the spending.”°> Dr Robinson argued that the financing of higher education was “a very suitable test bed” for resource accounting, as it would make clear that borrowing to finance student loans was in fact a matter of borrowing to finance asset acquisition. Using resource accounting would demonstrate to a “sceptical City audience” that such borrowing was not a fiscally irresponsible act.20 32. There is clearly a close relationship between our proposal in paragraph 29 and the possible treatment of student loans under resource accounting. In effect, we are proposing that a form of resource accounting be introduced for expenditure on student loans in advance of its full-scale introduction for the whole of Government spending in 2001-02. >? Appendix i. Of course, as Dr Robinson pointed out, any such decision to borrow and spend more would have to be taken in the light of the prevailing economic climate. (Appendix 17 *0.356: 9Q.255. °° A ppendix 17.
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