Clause 1 — Sale of student loans

Orders of the Day – in the House of Commons at 2:38 pm on 23rd January 2008.

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Photo of Rob Wilson Rob Wilson Shadow Minister (Education) 2:38 pm, 23rd January 2008

I beg to move amendment No. 5, page 2, line 6, at end insert—

'(4A) Transfer arrangements may not confer on the purchaser the right to alter the repayment terms of sold debts.'.

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

With this it will be convenient to discuss the following amendments: No. 6, page 2, line 11, at end insert—

'(6A) Transfer arrangements may not be made with an organisation underwritten by the Government.'.

No. 11, page 2, line 13, at end insert—

'(8) In advance of entering into transfer arrangements the Secretary of State shall—

(a) examine the prevailing market conditions and ensure that a competitive market for the loans has been generated;

(b) provide the market with full information about the loan book in order that the assets can be efficiently valued;

(c) ensure that there has been a genuine transfer of risk from the public accounts to the private sector; and

(d) assess the proceeds that look likely to be achieved in the transaction, using full and clear market information and a comparison with keeping the loans on the Government books, in terms of both likely income flows and levels of risk.

(9) The Secretary of State shall make a written statement on expenditure incurred in connection with each transfer arrangement.'.

No. 7, clause 5, page 4, line 9, leave out

'a person acting on behalf of a loan purchaser' and insert

'the Student Loans Company'.

No. 8, page 4, line 15, leave out 'another agent' and insert 'the Student Loans Company'.

Photo of Rob Wilson Rob Wilson Shadow Minister (Education)

There are still some unresolved issues raised by hon. Members on Second Reading and in Committee that Conservative Members hope to clarify with our amendments. I am sure that the Minister will do his utmost to help the House by providing the clarity that we all seek.

The amendments have three important objectives: first, they would prevent loan purchasers from altering repayment terms; secondly, they would ensure that Ministers achieve value for money in any sale; and finally, they would strengthen the ability of this House to hold Ministers and the Government to account. That is key, because too much of the Bill is to do with the Minister and the Department saying to Parliament, "Trust us." The Opposition would not be doing our job if we left it at that, so our amendments would add a few checks and balances to the sale of the loan book.

Amendment No. 5 reflects our ongoing concern about a lack of safeguards in the Bill. Clause 1 enables the Secretary of State to sell to a purchaser his rights and obligations relating to student loans and gives details of the rights and obligations that may be transferred if the Secretary of State so wishes. Throughout the Bill's passage, concerns have been expressed about the precise nature of the transfer of those competencies and what it will mean in practice. I know that the Minister shares our concerns, and my hon. Friend Mr. Hayes raised his concerns in detail in Committee. Let me make the point clearly: loan purchasers should not be able to alter the terms of repayment. The Minister entirely accepts that; he said himself, on Second Reading,

"I need to make one precise point clear at this stage. The Government will retain control of regulations, terms and conditions for all loans, and there will be no adverse change for borrowers, whether their loan is sold or retained."—[ Hansard, 22 November 2007; Vol. 467, c. 1391.]

I entirely accept his assurance about the Government's intentions—I am sure that they are entirely honourable—but this is not necessarily about the current Minister or the current Secretary of State; it is about how Ministers may use or interpret those powers in future.

Photo of Angela Watkinson Angela Watkinson Opposition Whip (Commons)

My hon. Friend will understand that when students who already have loans hear about the sale of the loan book they will start to worry about the possible changes in terms and conditions of repayment. It is important that during the course of the debate we are able to secure agreement so that we can reassure not only students with existing loans but those about to take out loans.

Photo of Rob Wilson Rob Wilson Shadow Minister (Education)

My hon. Friend makes a valid point. I hope that in the course of the debate we will get the reassurances that she seeks.

Clause 1 is ambiguous in that respect and needs to be tightened. It empowers Ministers to prevent loan purchasers from changing the terms of repayment, but that is not the same as offering an explicit safeguard against differential terms of repayment. The Minister has repeatedly stated that the Bill will have no material impact on graduates, but that proposition currently rests on the good will of the Government—the "trust us" message that I mentioned. Some would say that that is a pretty precarious safeguard these days. The protections that the Minister has cited are insufficient. There is nothing in the Bill to prevent different arrangements for loan repayments as long as those are made with a Secretary of State's consent. Although the measure enables the Secretary of State to protect student borrowers once loans are sold, a flaw remains—its reliance on optional rather than concrete safeguards. Our amendment would strengthen the Bill by ensuring that the Government's stated intentions are followed without any ambiguity.

It would be inappropriate to try to bind the hands of the Minister's successors in perpetuity, but we in this House have a duty to protect the interests of students and graduates. The amendment tries to strike the difficult balance between limiting risk for graduates and students and maintaining the commercial attractiveness of the loans to a purchaser.

In Committee, Rob Marris sought more information and asked significant questions about this matter. His constituency has a large number of students, many of whom are disadvantaged and therefore take out large loans. As an assiduous Member, he seeks to protect those students. If the Minister has time before he comes to the Dispatch Box, he may wish to reread the hon. Gentleman's remarks in column 47 of the record of the Committee proceedings.

The hon. Gentleman was rightly concerned that paragraph 16 of the explanatory notes says:

"For example, the Government does not intend to grant purchasers the right to alter the repayment terms of sold debts."

The key words are "does not intend". It reminds me of the saying, "The road to hell is paved with good intentions." Merely intending to good without actually doing it has no value, so what is said in the explanatory notes is not a guarantee; it gives students and graduates no reassurance about what may or may not happen in future.

The Minister agrees with us that the purchaser should not be able to alter repayment terms of sold debts, so I am sure that he will accept this very mild and minor amendment. If he does not, perhaps he can explain to the House why he does not want to do so—unless my eloquence has already changed his mind. We can then decide whether we wish to press it further.

Amendment No. 6 deals with a matter that has been discussed in Committee, but not in great depth, and Conservative Members have not been reassured by the Minister's comments. It is still possible that a body buying part of the student loan book will in time sell it on and that, as a result of that process, the loan will end up in an organisation that is underwritten by Government. The amendment would therefore be an important safeguard.

The main justification that we have heard for the use of ministerial veto over onward sale is to safeguard the interests of students. We can therefore deduce that Ministers would use their powers of veto to protect interest rates or repayment terms. However, alongside students' interests we must consider the public interest more broadly. The Minister has said that one of the aims of the Bill is to transfer risk to the private sector from the public sector. At present, however, there is nothing in the Bill to prevent loans from ending up, through a process of resale, being underwritten by the public purse. In Committee, the Minister said that the Bill provides tools for the Secretary of State to prevent that, but that is not good enough.

The Bill offers wide-ranging powers to Ministers but has very few checks or balances. As it stands, these assets could be resold to a Northern Rock-style company or an equivalent organisation—the Minister did not deny that in Committee. We must remember that we are talking about public assets worth about £18 billion, and growing. The Government want a portion of the loan book to be transferred to private hands, and our amendment would assist that process. Let me be absolutely clear: transfer arrangements should not be made with an organisation underwritten by the Government. Can the Minister tell the House how he plans to make a cast-iron case that that should not and cannot happen?

Amendments Nos. 7 and 8 relate to the collection of debt. We are anxious to ensure that only the Student Loans Company is authorised to collect debt. The Bill says that "another agent" or

"a person acting on behalf of a loan purchaser" should be allowed to collect debt, but the amendments would replace those with the Student Loans Company. That is because, as debt is sold and resold, there is a risk that the propriety and suitability of the debt collector may become a matter of concern. The current provision will certainly cause a great deal of anxiety on the part of debtors who are accustomed to debt being collected by the Student Loans Company or by commissioners for Her Majesty's Revenue and Customs. Our amendments would eliminate those concerns.

Amendment No. 11 is the most controversial in this set of amendments. It is fair to say that Conservative Members have not been sufficiently reassured, either on Second Reading or in Committee, that the taxpayer will get the best possible outcome from the sale of the student loan book. The Bill empowers Ministers to sell off a very valuable public asset—currently worth around £18 billion and due to grow significantly in value over the next few years to as much as £25 billion—but it contains no provisions to ensure that the Government have a duty to get value for money.

Concerns about value for money are widespread and have been voiced by Members in all parts of the House, with the hon. Members for Stoke-on-Trent, South (Mr. Flello) and for Wolverhampton, South-West making telling contributions in Committee. However, we do not wish to tie Ministers' hands too tightly, as we are well aware that we may inherit the legislation and we understand its importance to future public finances. When we are in government, we may well need to deal with such issues.

Our amendment sets boundaries within which the Minister should operate. They are designed to ensure, first, that a competitive market is generated, thus achieving the best value; secondly, that the market has full and up-to-date information about the loan book for efficient evaluation; thirdly, that there is a genuine transfer of risk away from the public sector to the private sector; fourthly, that the Secretary of State will assess the market value likely to be achieved against keeping the loans on Government books; and finally, that the Secretary of State will keep the House informed of the costs incurred in selling each tranche of the loans to the private sector.

It would be difficult for the public to understand why the Minister would oppose any of those boundaries. Indeed, throughout the various stages of the Bill he has, at one time or another, accepted those points as valid. They are the same value-for-money criteria that were described to the Committee by the director of student finance and strategy, Michael Hipkins. However, such provisions were not included in the Bill. The legislation empowers Ministers to sell off a student loan book currently worth £18 billion, but it provides no clear mechanisms for holding Ministers to account for their actions. We would not be doing our job as legislators if we allowed it to pass with such a huge omission.

How do we ensure that the Government stay focused on getting the best value for the taxpayer, now and in the future? The economic storm clouds have been gathering. The markets are likely to be volatile for at least the next two years and financial institutions are therefore likely to take a very cautious approach. But we also know, as the Minister admitted in Committee, that the Government have £6.3 billion already written into the comprehensive spending review. That money is already allocated to be spent before anyone has signed on the dotted line—nobody has signed a contract. We have a duty to ensure that negotiations, as and when they take place, meet the Minister's high expectations.

In future, how will a Minister or Secretary of State withstand the Treasury juggernaut as it seeks to force a future sale of student loans to raise a fast buck? Is anyone in this House convinced that any Minister will be able to resist? How can we ensure that true value for money is achieved? In light of difficulties over Northern Rock, general volatility in the credit markets and pressure on public spending, we feel it necessary to set out some safeguard that will protect a Minister from Treasury pressure. It is a sensible precaution and one that the Treasury will not like, of course, but it is certainly in the best interest of this country.

Our amendment would add to the Bill a clear, value-for-money framework to which Ministers must adhere. Do not take my word for it—the basis for the wording is the Minister's own, taken from Second Reading. I do not intend to read all of his comments out. If our amendment were accepted, the Secretary of State would have to examine the prevailing market conditions and present full information about the loan book to ensure a correct valuation.

The Secretary of State would also have to ensure that there was a genuine transfer of risk to the private sector. That is an extremely important point, the significance of which has grown in recent weeks as the Northern Rock saga has unfolded. Dr. Cable encapsulated the point when he described the Government's dithering as the "nationalisation of risks and losses, combined with the privatisation of gains."

Photo of Rob Wilson Rob Wilson Shadow Minister (Education)

Indeed, it was excellent.

However, based on what the Minister said in the evidence session, such a transfer will not take place. He may remember that I asked him how student loans would be selected for sale, and he replied,

"we want to engage initially with loans where we can demonstrate a good track record of graduates repaying". ——[Official Report, Sale of Student Loans Public Bill Committee, 4 December 2007; c. 31, Q87.]

In other words, the purchaser will not be taking on a great deal of risk because the best loans will be cherry-picked for them. There will be no random selection, just the crème de la crème of the loans. As the Minister said, only those loans with a demonstrable track record will be sold.

Photo of Bill Rammell Bill Rammell Minister of State (Lifelong Learning, Further and Higher Education), Department for Innovation, Universities and Skills

Will the hon. Gentleman be very careful in quoting from Hansard and then inserting his own view? The way he read his description of my comments did not make the distinction clear at all. I made it perfectly clear in the evidence session that individual student loan accounts would not be cherry-picked. There would be a tranche of student loans, with a good track record, evidenceable and demonstrable, of repayment across the board. It is not a matter of individual case by individual case.

Photo of Rob Wilson Rob Wilson Shadow Minister (Education)

I will come to that, because I have reread the exchanges involving the Minister and Mr. Hipkins in Committee on several occasions, and I have two points that I think will answer his questions. First, the position of the Government seemed to alter through the exchange, and secondly, any loan that is high risk will not be put up for sale. That came across clearly during that exchange.

If the most reliable debts are sold off while the more precarious ones remain in public hands, is there really a transfer of risk at all? As with Northern Rock, the Government seem prepared for risk to be nationalised while gain is privatised. That is why it is important to include an assessment of the risks against the income flows in the Bill. It is vital that provisions that hold Ministers now and in the future to account are included in the Bill.

Finally, we are asking that the Secretary of State should also make a written statement to the House on the expenditure incurred in connection with each transfer arrangement. I understand that subsidies will not be paid to loan purchasers this time, so the overall cost of the sale may be comparatively small next to the £6.3 billion income. However, the Bill empowers the Secretary of State to incur expenditure in connection with any sale. It is only fair and reasonable for Ministers to report back to the House regularly on the expenditure incurred by the Government.

The amendments are not wrecking amendments. They are clear safeguards for graduates and taxpayers. There is enormous concern throughout the House about how we achieve value for money through the Bill. I hope that the Minister will agree that the only way to ensure that there is no ambiguity is to include provisions in the Bill. All we are doing is urging the Minister to accept what he has already approved in practice. Our amendments clarify weaknesses in what is otherwise a worthy Bill.

Photo of Stephen Williams Stephen Williams Shadow Secretary of State (Innovation, Universities and Skills)

Several changes have occurred in my party in the past few weeks, for reasons that are obvious to everybody. I therefore took no part in the Second Reading debate or in what I am sure were exciting and incisive contributions from the Minister for Lifelong Learning, Further and Higher Education and the Conservative spokesman in Committee. I have only had sight of the amendments today, so if I make any points that have been answered in previous discussions, I apologise.

Amendment No. 5 would provide that purchasers have no right to alter the repayment terms of any debts that are sold. That is a worthwhile condition to include in the Bill. Protection should obviously be in place for graduates for all their repayment terms—the threshold at which they begin, the rate at which they pay and the period over which they make the repayments. Only hon. Members, through the democratic process, should alter those conditions in future. We are therefore happy to support the amendment.

Amendment No. 6 refers to transfer arrangements, and would provide that they are not made to an organisation underwritten by the Government. When I read the bald phrasing of the amendment, I wondered to what Mr. Wilson was alluding—the Export Credits Guarantee Department or another organisation that the Government might underwrite. It was in fact an attempt to inject a further discussion about Northern Rock into parliamentary proceedings. Of course, the leader of the Conservative party has for several weeks been trying to steal my deputy leader's thunder on that during Prime Minister's Question Time. Leaving that aside, the amendment is logical. If we are considering a genuine sale of the loan book, there should also be genuine transfer of risk. There should be no danger of the risk becoming circular and travelling back to the Government and the taxpayer if the loan book were purchased by an organisation that had, now or in future, a direct connection to the Treasury or another part of Government.

Amendment No. 11, which, like two others in the group, would amend clause 1, would provide that the Secretary of State must ensure that he has examined the prevailing market conditions and that competitive conditions have been generated for the sale of the debt. That seems common sense. I am prepared to accuse the Government of many things, but I am sure that they would not wilfully sell off £6 billion of debt—if that is the true figure—at a substantial discount that would cause them to be examined by the National Audit Office and the new Comptroller and Auditor General, whom we discussed earlier.

The amendment would also provide that full information would be placed in the market. Again, I doubt that anyone would buy a chunk of Government debt if full information were not put in the marketplace. I should like an assurance from the Minister that normal due diligence procedures will apply and that full information will be provided to anyone who contemplates buying up to £6 billion of a current Government asset. Of course, there should be genuine transfer of risk. Finally, we obviously support the test of whether selling off the loan book, compared with keeping it in the state-controlled Student Loans Company, constitutes genuine value for money for the taxpayer.

Like me, the hon. Member for Reading, East got interested in politics in the 1980s—I believe that we were in the same party at that point.

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. May we please have order in the debate?

Photo of Stephen Williams Stephen Williams Shadow Secretary of State (Innovation, Universities and Skills)

I find it ironic that Conservative Front Benchers have tabled the amendments, whatever political perspective the hon. Gentleman supported in the 1980s. In all its privatisations in the 1980s and 1990s, the Conservative party did not necessarily guarantee full value for money for the taxpayer— [ Interruption. ] The hon. Gentleman looks sceptical—let me give the example of the Royal Ordnance sell-off or even the railway sell-off.

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. Let me remind hon. Members of the rules of procedure. If hon. Members wish to make a comment, I am sure that they will do it in the usual way, through intervention.

Photo of Stephen Williams Stephen Williams Shadow Secretary of State (Innovation, Universities and Skills)

I shall move on, having made those points. We agree that there should be a statement of the costs of selling the loan book.

The final two amendments in the group would insert "the Student Loans Company" in the Bill instead of the unspecified person who may act for whoever purchases the loan book. We are prepared to support that because it gives comfort and certainty to students or graduates to know that, when they repay their debt, they are dealing with a consistent agent for collecting it and that the information and conditions are transparent.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

The amendments raise some important points, which I hope that the Minister will tackle. I believe that my concerns fit the same pattern.

They begin from the same question: who, in their right mind, would want to buy someone else's debt? Why would they want to do that?

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

Indeed. The obvious answer is that it would be done for foolish or speculative reasons or on the calculated basis that the purchasers would make money. For most of us, if we try to move our debts around, we do so to avoid or reduce costs. People do that when they reschedule their mortgages or move their credit card debts between different companies. However, in the context of the transfer of student loans, we are offering the prospect of transferring those debts from the public sector—the Government—to the private sector, which must envisage opportunities to make money out of the process.

We, as the Government, have a duty to protect students who have entered into debt in the first place. The guarantees and protections of the students and the taxpayers, of whose interests we must take account, must be clearly bolted in position. My current difficulty is that I cannot see those belt-and-braces protections. It is clear from the comments so far that prospective purchasers cannot hope to make money through taking on increased risk because, as Opposition Members made clear, there will be some selection in the process to minimise the risk. It will be hard to justify the notion of selling the debts below value on the grounds that a risk element will be built into the calculation.

On the first tranche of student loan sales, the then Minister, my hon. Friend Mr. Mudie, conceded that the loans had been undervalued. He said in response to a question on 9 March 1999:

"The estimated cost to the Government of selling these loans will therefore be in the region of £85-£100 million or 25-30 % above the cost of keeping loans in the public sector over the lifetime of the portfolio."—[ Hansard, 9 March 1999; Vol. 327, c.106W.]

That estimate was made of the increase in cost of transferring the loans from the Government to the private sector. It would be a somewhat strange and curious transaction if we sought to make those transfers at a cost, rather than at a benefit. I am therefore looking to the Minister to clarify the fact that we will not expose people to predictable additional costs to themselves, or to losses as taxpayers, through the three most obvious ways in which people can make money from the transaction.

The first way in which the banks could make money would simply be to do nothing, if the debts of the student loans are transferred at below their real asset values. The banks could then just sit on the debts, which will appreciate, because at some point they will be realised at their true market price. The second way would be to sell the debt at a higher price to another bank, so that the selling bank would make an immediate profit and the buyer would take on the cost of the risk. Again, that would happen only if we as a Government sold the debt at a below-par valuation.

The third way of making a considerable gain out of the process would be to have the ability to increase the interest rates being charged on the loans. That would transfer the risk to the students who had entered into those loans, at what they thought were guaranteed and defined interest rates. Failing to lock in a binding obligation to adhere to the original terms would leave the debts open to quite an attractive speculative purchase on the part of the banks, which would know that we as Government might walk away not only from the management of the loans, but from the protections that were attached to them, in terms of interest rate guarantees.

If the House fails to put in place those guarantees, we risk creating a huge potential to discredit the student loans system as a whole, because those who enter into those loan agreements need to be able to do so in the belief that what we say the terms of the loan are will indeed be the strictly adhered-to terms of that loan. If people believe that those terms are only the opening gambit and that they could in future face serious increases in the cost of servicing those loans, either they will be saddled with huge debts that they might not be able to service or the prospect of such increases will act as a deterrent against people taking on those loans and accessing the university system in the first place.

Photo of John Hayes John Hayes Shadow Minister (14-19 Reform and Apprenticeships)

Not for the first time in the 20 years in which I have known the hon. Gentleman and exchanged ideas with him, he is making a great deal of sense. He is making a case for including a series of criteria in the Bill that would limit the Government's capacity to jeopardise either the public interest or, as he has so eloquently argued, the interests of those taking out the loans.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

I am indeed making precisely that case. That is why I am inviting the Minister to give the House an undertaking that precisely those guarantees will be written into the Bill. The issue is not the integrity of the existing Minister, with whom I have no dispute and on whom I cast no doubts; rather, such an undertaking would be a recognition not only that ministerial appointments are, at best, something of a magic roundabout and that people's tenure is limited, but that Governments change. Unless the terms are set out clearly in the Bill, it would be impossible to prevent someone else from intervening in the parliamentary process and, as an act of political whim, completely rewriting the script.

Photo of Angela Watkinson Angela Watkinson Opposition Whip (Commons)

The hon. Gentleman is making some powerful points about guaranteeing the terms and conditions of student loans. Does he agree that currently under-represented groups whom we would wish to attend college—perhaps from low-income families—would be additionally cautious and therefore seek to ensure that they did not take on loans with open-ended conditions and repayments that could escalate to levels that involved them in debt collection?

Photo of Alan Simpson Alan Simpson Labour, Nottingham South 3:15 pm, 23rd January 2008

That is an important and serious point. I happen to have grown up on a different planet, where I went to university only because I could do so on a full student grant. Had my family been required to entertain the notion of taking out loans to go to university, they probably would not have done so. However, they certainly would not have entered into any loan agreements that included the prospect of the terms being spun away from them, by being changed in the middle of the repayment period.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

I will happily give way, but I have been trying to finish for the past few minutes!

Photo of Rob Marris Rob Marris PPS (Rt Hon Shaun Woodward, Secretary of State), Northern Ireland Office

Perhaps my hon. Friend has covered this point and I have missed it, but if I take out a loan from bank A, which then sells it to bank B, bank B cannot change the terms of the agreement unless the original agreement with bank A contained within it a provision enabling the creditor—now bank B, formerly bank A—to change those terms. Is my hon. Friend saying that the agreements that individual students have entered into with the Student Loans Company, via the Government, already contain such variation clauses? If there are no such variation clauses within those agreements, his fears will not be realised.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

That is an important point. My answer is that as I read through the provisions in the Bill, it was not clear to me that such a legally binding lock was in place. If there is any ambiguity in the process, there is nothing wrong in putting those belt-and-braces locks in place—in fact, it would be irresponsible of the House not to do so. Those provisions would include specific arrangements covering variations of the terms of the loan, which would include interest rates.

Those are the points that I wanted to make. I hope that the Minister will take this opportunity to respond to them.

Photo of Bill Rammell Bill Rammell Minister of State (Lifelong Learning, Further and Higher Education), Department for Innovation, Universities and Skills

I am more than pleased to respond to this group of amendments, which covers transfer and collection arrangements after sales have been made. Let me start with the comments that my hon. Friend Alan Simpson made. As a lifelong Tottenham Hotspur supporter who is in a very good mood today, I hope that his team does well this evening and that we meet at Wembley on 24 February.

My hon. Friend asked me who would seek to purchase the loans. We made it clear throughout the Committee stage that we believe that there will be a keen appetite for the loans in the private sector. The market will bid to purchase loans at a price that represents good value for money. A wide range of investors will be interested in buying the loans, because—we explored this issue at length in Committee—they are a new asset class that will enable investors to diversify their portfolios and meet specific investor needs. If they undertake that course of action, investors will receive the benefit of sustained income over a long period of time from a group of borrowers who, taken as a whole, are considered to be low risk.

My hon. Friend also raised the issue of changing the terms and conditions—this was more than adequately dealt with in the intervention that my hon. Friend Rob Marris made. Let me be explicitly clear: as I said on Second Reading and throughout the Committee stage, there will be no different treatment of borrowers and debtors, whether their debt is owned by the Government or by the private sector. It is, of course, open to any future Government to change the terms and conditions; but they would have to do that equally for the loans that were owned by the Government as for those owned by the private sector, so there is no issue of unequal treatment.

Mr. Wilson started by saying that there was enormous concern across the House on the issue. I have been a Member of the House for only 10 and a half years, but in my experience the presence in the Chamber of representatives on the three Front Benches and six or seven other MPs does not constitute enormous concern. As was demonstrated in Committee, there is a broad consensus on the issues. It is right, however, that we respond to any concerns put forward.

I fully agree with the intention behind amendment No. 5. As I stated unequivocally throughout the Bill's passage, purchasers of loans will not be able to change the repayment terms. As is the case today, terms and conditions for all loans will be governed by the regulations scrutinised by the House. That is the explicit effect in statute, if the Bill is passed, of clause 4(1).

The regulations that govern the terms and conditions on the repayment of student loans are made under section 22 of the Teaching and Higher Education Act 1998. In terms of scrutiny, which was one of the issues raised by the hon. Member for Reading, East, those regulations are subject to approval by Parliament under the negative procedure. Any new regulations with which the Government come forward would similarly be subject to such scrutiny. To that extent, amendment No. 5 is unnecessary, and I ask him to withdraw it.

Amendment No. 6 would include a specific restriction on organisations to which sales can be made. As time goes by, that will be classified as the Northern Rock amendment, and it has much more to do with the Conservative party's irresponsible desire to make political hay out of the current Northern Rock situation than with real concerns about the Bill. The drafting does not make clear precisely how the target for the restriction would be defined. I reiterate that we do not expect that any financial institution would want to own the loans itself, as was made abundantly clear throughout Committee. It is therefore highly likely that the loans would be sold to a special purpose company and that ownership would stay with that organisation. Therefore, it is not straightforward to see how the restriction might be applied.

Another difficulty is that the restriction would apply to onward sales as much as to initial sales, by virtue of clause 3(2). Government cannot exert substantial control over onward sales. If the proposed restriction on onward sales were included in a sales contract, the transaction would not constitute a sale. Under the current Office for National Statistics rules for classifying public and private debt, we would not see a transference of risk from public to private sector, and a capital receipt would not be available for reinvestment across Government public spending.

On amendment No. 11, let me respond to the hon. Gentleman's comments about the Red Book estimate of £6.3 billion of income from the sale of student loans over the coming three-year comprehensive spending review period. As I was at pains to make clear throughout Committee, that figure is not set in tablets of stone. If market conditions do not allow for it—although I believe that they will—and we are not able to demonstrate value for money, the sale would not go ahead.

Photo of John Hayes John Hayes Shadow Minister (14-19 Reform and Apprenticeships)

As Members on both sides of the House have said, there is no doubt about the Minister's integrity. We know, however, that the Government's estimates are set in stone. The Treasury has made it clear in the comprehensive spending review that it anticipates that income. If the sale does not go ahead, where will it find the money from?

Photo of Bill Rammell Bill Rammell Minister of State (Lifelong Learning, Further and Higher Education), Department for Innovation, Universities and Skills

I urge the hon. Gentleman to look to his own house before he casts stones and implies that there are black holes in the Government's spending plan. The income receipts in the Treasury Red Book are always based on estimates. As I made clear in Committee, if the environment is not appropriate and we cannot demonstrate value for money, the sale will not go ahead.

Amendment No. 11 refers to the overall value-for-money framework. All transactions will be subject to a rigorous value-for-money assessment. I fully agree with the amendment's description of the key features of that assessment; it would be odd and perverse if I did not, as I was at pains to read those very words into the record on Second Reading. As I have clearly set out the principles for the record, the amendment is unnecessary.

I note that hon. Members heeded my remarks at earlier stages that we could not sensibly include in the Bill any details of the Government's assessment of what price would constitute good value for money. That would reveal our hand in advance of the competitive sale of the loans. Just as we cannot put those details in the Bill, we should not try to translate the principles of our value-for-money approach into a set of statutory tests, as is proposed in amendment No. 11. Principles are not precise enough to serve that function, and we would not want to establish an exclusive list of such tests at the start of a long-term programme of sales.

We will want, rightly, to build on the experience of sales transactions and, for example, any evaluations by the National Audit Office. The value-for-money judgment on each transaction will, however, be open to parliamentary scrutiny in the usual way. I am more than happy to put it on the record that the Government will report to the House after each and every sales transaction. No doubt the National Audit Office will also report to the Public Accounts Committee on the sales programmes. A robust value-for-money framework is in place, along with adequate scrutiny procedures to ensure that it works.

Photo of John Martin McDonnell John Martin McDonnell Labour, Hayes and Harlington

This point might relate to value for money, but I want to take the Minister back to his helpful response to the earlier point about the assurances required on future control of the loan regime. He referred to clause 4(1), which refers to the loan regulations. My understanding of the loan regulations is that they will cover the overall regime, the basis on which the loans are developed, the percentage rate of charge, and perhaps the value-for-money issues. In relation to clause 4(4), he assured the House that any changes in the regime would be subject to the negative procedure. Will he provide some clarity—not necessarily today, although he might get inspiration from elsewhere during the debate, or he might write to me—on clause 4(4):

"Amendments of loan regulations may have effect in respect of transferred loans"?

How will those loan regulations be scrutinised, and perhaps amended, by the House? Will they be subject to the affirmative or negative procedure? In what way will they come before the House? They will establish the overall regime in terms of the nature of the loans and perhaps in terms of value for money.

Photo of Bill Rammell Bill Rammell Minister of State (Lifelong Learning, Further and Higher Education), Department for Innovation, Universities and Skills

Let me state this for the record; then if I need to follow it up with statements to other hon. Members, I will do so. The loan regulations that we establish through the negative resolution procedure in the House will apply equally to debt owned by the public sector and by the private sector. That is the fundamental reassurance: the graduate repaying their student loan will notice no difference whatever in the terms and conditions involved. Indeed, apart from receiving a letter from the Student Loans Company when the sale initially takes place, they are unlikely to notice any difference as, according to the requirements that we have set out, we will expect the SLC to continue to collect on behalf of the owner of the debt, whether that is the Government or a private sector owner.

The value-for-money judgment on each transaction will, of course, be open to parliamentary scrutiny. Amendment No. 7 refers specifically to the Student Loans Company. Its effect would be that only the SLC and Her Majesty's Revenue and Customs would be able to be involved in collection activity on sold loans. Amendment No. 8 seeks to ensure that only the Secretary of State or the SLC could make payment of sums due to a loan purchaser—whether as principal, interest or penalty—to that purchaser. In so far as the hon. Gentleman's intention is to ensure that the SLC continues to fulfil its pivotal functions for all loans, I fully agree with the sentiment that gave rise to the amendment. The Government fully intend that the SLC will remain the administrator for all loans, whether sold or retained. The Bill, as drafted, allows the Government to insist that purchasers administer loans in this way through the contracts that we enter into with them.

The SLC is a private limited company, but not a statutory body. There are several technical reasons why it would be problematic to name on the face of the Bill an organisation of this sort. The drafting would have to cater for the possibility of the company's ceasing to exist—even though that is an unlikely eventuality—and so would have to provide a wider definition rather than simply referring to the SLC. For that reason, I do not believe that the amendment works.

Photo of Angela Watkinson Angela Watkinson Opposition Whip (Commons) 3:30 pm, 23rd January 2008

Are we to understand from what the Minister is saying about the collection of defaulted loans that there will never be any involvement by unregulated bailiff companies? There is a lot of anecdotal evidence at the moment about unprofessional and bad behaviour. If the collection of unpaid loans is not regulated, there could be unpleasant consequences for young people who are simply struggling to pay their bills.

Photo of Bill Rammell Bill Rammell Minister of State (Lifelong Learning, Further and Higher Education), Department for Innovation, Universities and Skills

There are clear procedures and guidelines in respect of the powers available to the Student Loans Company to follow up and search out debt that has not been repaid. Those restrictions will apply to the SLC, whether it is administering that debt on behalf of the public sector or the private sector.

The current drafting will also enable us to cater for any future overall change in the administration of the student loans system. Although no such change is envisaged, we must bear it in mind that the Bill will enable a long-term programme. I am happy to emphasise again for the record that it is the Government's firm intention for the SLC to continue in its current role for all loans. I hope that, with those reassurances, the hon. Member for Reading, East will feel able to withdraw his amendment.

Photo of Rob Wilson Rob Wilson Shadow Minister (Education)

We have had a fairly brief, but good, debate. Some of the contributions, including that of Alan Simpson, were extremely good. I listened carefully to what the Minister said in response to my amendments, and I appreciate the patient way in which he has dealt with the many questions on the Bill from both sides of the House throughout this whole process. I am happy to accept his assurances on amendment No. 5. It appears that there will be sufficient parliamentary scrutiny, which was a key factor in my tabling that amendment. I am also happy to accept his assurances on amendments Nos. 6 and 8—I hope that I have got those numbers right.

I do not feel, however, that the Minister has made a compelling case against our attempt to improve the Bill in other respects. On amendment No. 7, I am not reassured that, 10 or 20 years down the track, another agent or person acting on behalf of a loan purchaser will give sufficient reassurance to those who have taken out loans. His response on amendment No. 11 was also insufficiently robust. I listened carefully to what the Minister said about it and although his intentions may be noble—I do not doubt his integrity for a second—it is not only a matter of his viewpoint, as other Ministers will succeed him. As the hon. Member for Nottingham, South said, the ministerial merry-go-round does indeed go round and round, so where the Minister sits today may not be where he sits in a month's or a year's time. It is therefore important to have some guarantee built into the Bill.

The Minister also failed to reassure me about the Treasury's power in this respect. If £6.3 billion is bound up in the comprehensive spending review at a time when black clouds are gathering and the income from taxation may not be as high as the Chancellor hopes for, and given the increase in the power and influence of the Treasury in recent years, it may well push very hard to raise money through the sale of the loans. That may not offer the best value for money outcome for the country. I am not therefore going to press amendments Nos. 5, 6 or 8, but with your permission, Madam Deputy Speaker, I intend to divide the House on amendments Nos. 7 and 11.

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. The only amendment before the House at the moment is amendment No. 5.

Photo of Rob Wilson Rob Wilson Shadow Minister (Education)

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: No. 11, page 2, line 13, at end insert—

'(8) In advance of entering into transfer arrangements the Secretary of State shall—

(a) examine the prevailing market conditions and ensure that a competitive market for the loans has been generated;

(b) provide the market with full information about the loan book in order that the assets can be efficiently valued;

(c) ensure that there has been a genuine transfer of risk from the public accounts to the private sector; and

(d) assess the proceeds that look likely to be achieved in the transaction, using full and clear market information and a comparison with keeping the loans on the Government books, in terms of both likely income flows and levels of risk.

(9) The Secretary of State shall make a written statement on expenditure incurred in connection with each transfer arrangement.'.— [Mr. Rob Wilson.]

Question put, That the amendment be made:—

The House divided: Ayes 213, Noes 288.

Division number 52 Orders of the Day — Clause 1 — Sale of student loans

Aye: 213 MPs

No: 288 MPs

Ayes: A-Z by last name


Nos: A-Z by last name


Question accordingly negatived.