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How should the SG count money that has to be paid back? Consistently would be a start.

November 26, 2017

On Wednesday, the Scottish Government issued a press release about its budget settlement for 2018-19, which included this (emphasis added):

Of the additional money the UK Government announced as being added to Scotland’s budget, over half of it – £1.1bn – are financial transactions which the Scottish Government cannot spend on frontline public services, and which have to be repaid to the Treasury.

At FMQs the next day, the First Minister developed this theme (emphasis added)

Let me explain exactly why the Chancellor of the Exchequer’s announcement in the budget yesterday is accurately described as a con, because I was watching. He stood up and said, without qualification, that his budget would deliver an extra £2 billion for Scotland.


Not only is it the case that this money, in the words of the Fraser of Allander institute,  “can’t be used to support day-to-day spending on public services”, it has to be repaid by the Scottish Government to the UK Government.


Although the budget provides some consequentials, more than half of those are financial transactions, which the Scottish Government cannot spend on front-line public services and which have to be repaid to the Treasury.

A little later in the same session, the FM was asked about the student support review which had reported on Monday. She noted (emphasis added):

I do not disagree with Iain Gray about the importance of the issue [the balance between loans and grants], but the level of total student support is now up. The average support per student is now up, more full-time higher education students than ever are receiving support and almost 3,000 additional students qualified for a non-repayable bursary or saw their funding increase last year.

Now, it’s true, as the FM went on to say, that there was a small annual rise in non-repayable funding in 2016-17 (which slightly reversed large cuts made in 2013-14, which she didn’t say).

However, when the SG uses “support” it uses it to mean everything paid to students for their living costs, as grant or loan. Exhibit A in this argument is this news release from 22 August 2012, which announced – “without qualification”, as it were – increases in “support” entirely provided through loans, while forgetting to mention a one-third parallel cut in student grants.  More recently this one described how postgraduate “support” was rising,  referring again only to increases in loans.  Many other examples of this language are scattered in news releases and parliamentary comments. Over the past decade, “support” is only up because of loans (see Footnote 1), which of course have to be repaid (emphasis added).

You’ve probably worked out where this piece is heading.

We are not good at discussing how money that is on loan fits in the public finances. Is it real money we/students should be glad of? Is it not? The Scottish government has just presented an extreme case of contradictory perspectives, in one session of FMQs. But the FM also hinted at the way out.  Funding which includes an element of loan should be described “with qualifications”. Repayable funding is not the same as non-repayable cash, but it is also different from getting nothing (see Footnote 2). Money provided as a loan should be shown separately and acknowledged as a distinctive form of “support”.

So I have some sympathy for the FM’s line that rolling together non-repayable and re-payable support into a single figure is misleading.  I just wish the SG would apply this principle when it talks about the money it gives students.


Footnote 1


Click to access statistics_1617.pdf


Footnote 2: are student loans good or bad?

There’s a place for student loans: they have made it possible to fund a larger system, giving more people opportunities, without large cuts in funding per student for tuition and living costs.  Given the pressure on public services in general, I am doubtful any UK administration could afford to manage without them, or that it would be the right choice to replace them entirely with cash, saving a transformation in the amount of cash governments here have to spend. My argument about recent history in Scotland is that it’s not right for loans, even income-contingent ones,  to land disproportionately on the those who start with least, and that a government which is increasingly reliant on loans for funding students needs to be honest about that. Also, a policy position in which loans for fees are a terrible burden to be avoided at all costs, but the state using loans to help those in most need of help with living costs is a cause for celebration, makes sensible debate of the choices very difficult, while tending to shelter the better-off from debt relative to those from lower incomes.

Footnote 3: write-offs

Outstanding student loan debt is written off, after 35 years at present, if a graduate has earnt too little to have repaid in full by then. I don’t know if any of the “financial transaction” funding in the budget may also be written off in certain circumstances. If not, there’s an argument that the two are not strictly analogous. However, it would not be a great argument. Most student loan in Scotland will be repaid. Also, resting on student loan write-offs in this way exposes a bigger problem with government lines. Write-offs will be much lower in Scotland than England, (a) because amounts borrowed here are less likely to go beyond what graduates will be able to repay in full, and (b) for the time being, the earnings threshold for repayments here is lower, and the write-off period longer.  But Scottish ministers routinely unfavourably compare headline average debt in England with that in Scotland, without explaining that the difference in actual repayments will be less pronounced.



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