Clause 39 - Effect of bankruptcy
Higher Education Bill
2:30 pm
Mr Phil Willis (Shadow Secretary of State for Education and Skills, Education & Skills; Harrogate and Knaresborough, Liberal Democrat)
A discharged bankrupt can become an MP, but, as always, the hon. Gentleman makes a serious point, and we may return to it.
There is a pragmatic issue to address, but there is also a fundamental principle. In 2002, following the Teaching and Higher Education Act 1998, the Insolvency Service considered whether students should be allowed to file for bankruptcy. It decided that students should have all their debts written off if they filed for bankruptcy. Sections 251 and 252 of the Enterprise Act 2002 abolished Crown preference for the Inland Revenue and Customs and Excise by not allowing them to be preferential creditors for either company or individual bankruptcies. It is important that the Minister addresses that specific point.
The 2002 Act was not taken lightly by the Government, and the philosophy behind it was that bankruptcy should not be seen as a damning indictment of an individual's ability or business prospects but, as the Americans see it, as part of a journey. The 2002 Act made it clear that the traditional Crown preference for the Inland Revenue and Customs and Excise should be set aside. The Government did that not only for British law, but to come into line with much of European and worldwide law. Australia is often cited as an example of where the new student loan and top-up fee system has been successfully introduced. A significant number of its students have very high debts, and many file for bankruptcy, but the Australian state has been deliberately excluded from being a preferential creditor.
What is the justification for suddenly taking students out of the bankruptcy arena? They are being told that if they file for bankruptcy in future, they will have to retain any debt to the Student Loans Company
and carry it forward to when they are discharged from bankruptcy. They will not have to take forward other debts, even those owed to people who were forced into bankruptcy as a result, something which often happens with small companies that have several unsecured loans. Will the Minister respond to that important issue?
The Government seem to be viewing students through the eyes of the right hon. Member for Barking, who is now the Minister for Children. She believes that students will leave university owing money to the Student Loans Company, file for bankruptcy in a cavalier fashion, go off round the world for a couple of years and eventually come back when all will be well. I do not believe that that is true, but it also belies the fact that the sort of debts that students will have in future will stay with them for a significant number of years.
All members of the Committee would accept that young graduates are unlikely to stay in the same job or career over the 25 years that their debt would stay with them. They are likely to move about. They are also far more likely to be self-employed than any other group of graduates in the history of our university system. It might be 10 years after they leave university, when they have started a business or been part of a business that they get into financial difficulties and want to file for bankruptcy. Are we saying that when people in their mid-30s get into that position and file for bankruptcy, they should be left with a significant debt to the Student Loans Company as a preferential creditor? That is fundamentally wrong.
My final point concerns the student debt portfolio itself. In 1997, when the Labour Government came into office, they inherited from their predecessors a provision to sell the student debt portfolio into the private sector. Hon. Members will know that one of the first pieces of legislation that the Government had to put forward was a Bill to sell the debt. It was unsuccessful, but it was part and parcel of Government policy to do that. It may be Government policy in future to sell all or part of the student debt portfolio into the private sector. In those circumstances, would a private bank that had bought the debt from the Government be a preferential creditor under the Bill? If so, it would put it in a very different situation to any other debt of any other individual or any other company in the United Kingdom. They are serious issues and I hope that the Minister can respond.