LONDON (AFX) – Another sell-off of the UK’s student loans system would make it more likely Chancellor of the Exchequer Gordon Brown will meet his rule relating to government debt, but paradoxically, any sale could push borrowing higher, analysts said.
A report in this morning’s Financial Times revealed that Brown is planning to announce the sale of part of the government’s student loan book, estimated at around 16 bln stg, in next Wednesday’s budget.
This would not be the first time that Brown has sold part of the student loans book. He sold some 4 bln stg worth of debt between 1997-1999.
Analysts reckon that Brown may look to sell off another 10 bln stg chunk of the debt, which is likely to be used to reduce net debt in the same way as the 20 bln stg revenues generated in 2000 from the 3G spectrum sale.
‘This will help Brown to meet his sustainable investment rule, which stipulates that net debt must average less than 40 pct of GDP over the cycle,’ said Jonathan Loynes, chief UK economist at Capital Economics.
‘On Brown’s existing forecasts, the level of debt gets pretty close to the 40 pct ceiling over the next few years and the addition of some of the government’s off-balance sheet liabilities could break the ceiling,’ he added.
Though any revenues would reduce debt, they would have no comparable impact on borrowing, Loynes said, as government loans to students are not included in the main public sector net borrowing (PSNB) measure of borrowing.
In fact, the sale could actually push borrowing up, he explained, especially if Brown uses part of the proceeds to fund extra spending on education, which would raise PSNB and current borrowing.
‘And second, the sale of the loans will reduce the future stream of interest payments from students to the government,’ he added.
One area in which the sale would have a more significant impact is on government financing, as the proceeds from the sale would reduce the cash measure of central government borrowing and the required level of gilt sales.
However, Loynes said any impact would be negligible as the Debt Management Office is planning some 60 bln stg worth of gilt sales next year.
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