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Changes to how student loans are accounted adds £12bn to UK budget deficit

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Statisticians have changed the way student loans are accounted for, resulting in an extra £12bn being added to the UK’s annual budget deficit.

The Office of National Statistics (ONS) said the design of the system meant much of the loans taken out are never paid back.

As a result, it said it was splitting student loans into two parts – financial assets and government expenditure.

David Bailey, head of public sector division at the ONS, said the move “properly reflects the true picture of government spending” as future write-offs will now be counted as government spending.

It is a landmark shift from the current system where loans do not count as government spending while interest payments are counted as income – even though many graduates will never pay all the interest back as they do not earn enough to do so.

The Treasury said the change would not affect students, who will still be able to get loans.

However, the Resolution Foundation think tank’s Matt Whittaker said it would affect the government’s approach to financing education “by making more explicit where the costs of the system lie”.

The change means this year’s deficit, which had been recorded at £25.5bn, will rise to £37.5bn.

Jonathan Athow,ONS deputy national statistician for economic statistics, said: “To ensure our treatment of student loans better reflects the way the system works in practice, we will split the government’s student loan payments into a portion that will be repaid and is therefore genuine government lending and a portion that is not expected to be repaid, which will be treated as government spending.

“When coming to this decision, we consulted widely with many other countries and international bodies to ensure that our figures remain internationally comparable.”

According to official figures, the value of outstanding student loans at the end of March this year was £105bn.

“This is a technical accounting decision by the independent ONS,” said a government spokesman.

“It does not affect students, who can still access loans to help with tuition fees and the cost of living and which they will only start repaying when they are earning above £25,000.”

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