Amendment proposed: No. 7, page 4, line 9, leave out
'a person acting on behalf of a loan purchaser'
and insert 'the Student Loans Company'.— [Mr . Hayes .]
The House proceeded to a Division:—
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I beg to move, That the Bill be now read the Third time.
We have had a thoughtful debate today, as we did in Committee. I thank the members of that Committee for the constructive way in which they contributed at that stage. The Bill has enjoyed a good measure of consensus about its basic principles, with wide agreement that it is right for the Government to consider how the growing student loan book is managed so as to ensure good value for money and sound management of public finances.
It is accepted across the House that a sales programme for student loans is appropriate, provided that it yields good value for money and that the position of borrowers is not affected. Those two issues are the Government's policy objectives in proposing that we embark on a sales programme. During the course of the debate, hon. Members rightly sought to satisfy themselves that the Bill allows us to ensure that the proposed sales will meet those specific objectives. We have taken the view that the small number of amendments proposed should not be accepted, but we acknowledge that the intention behind them has been to ensure that the aims that we have set out for the programme of sales come to fruition.
I shall now reiterate the key commitments that I emphasised when we embarked on our consideration of the Bill in November. The terms and conditions for all loans will, as now, be governed by regulations scrutinised by this House. I confirm that there will be no adverse change for borrowers, whether their loans are sold or retained, and I hope that that gives some further reassurance to my hon. Friends the Members for Hayes and Harlington (John McDonnell) and for Nottingham, South (Alan Simpson).
The borrowers' experience will not change and the collection and administration systems will be the same, whether or not a loan has been sold. The Bill contains the provisions that we need to ensure that the enduring protection for borrowers is secured. All transactions will be subject to a rigorous assessment that good value for money is being achieved—a matter that has been the subject of much discussion, both in Committee and in today's debate.
Some hon. Members have asked whether material for testing value for money should be included in, or appended to, the Bill. As I have said, I do not believe that that can be done: it would be irresponsible to put in the public domain in advance of a transaction any details of the Government's assessment of what price would constitute good value for money, as that would undermine the competitive process. In any event, such an assessment would be different for each sale in what is a long-term programme, as the characteristics of each portfolio to be sold are unlikely to be identical.
What principles govern the value-for-money assessment, and what issues will be considered? I explained the Government's approach on Second Reading, and I am happy to do so again today.
Part of the value-for-money assessment will involve the gathering of full and clear market information, and weighing the value of keeping the loans in the public sector on the balance sheet of the Department for Innovation, Universities and Skills. That process will help us to compare bids for selling the loans against the value of holding them. Assessing those values will require various estimates of the level of repayments to be made by borrowers, stretching far into the future.
In addition, we will estimate the rate at which graduates will repay their loans, and the number of loans that will have to be written off because, for example, the people who have taken them out have become permanently disabled. Those projections will have to be based on assumptions and estimates, so it is clear that they have a built-in degree of risk. In assessing value for money, we will also have to take into account the value of transferring that risk from the public sector to the person who buys the loan. That is not something that lends itself to precise quantification, so the assessment will have to consider a range of values based on differing assumptions and estimates of risk.
That is only one part of the value-for-money assessment. The other elements include ensuring that a sale is competitive, that it takes place under normal market conditions, that potential bidders have enough information to make informed bids, and that there is a genuine transfer of risk from Government to purchasers.
We are making a clear commitment that sales will take place only where good value for money can be assured. It will be for the Government of the day to make a judgment about value for money for each proposed transaction. Some elements involved in that judgment may alter over time, for example as market conditions change and as the experience from earlier sales is built on. As I have said repeatedly, the judgments will be open to parliamentary scrutiny in the usual way. The Government will report to the House after each sale transaction, and no doubt the National Audit Office will report to the Public Accounts Committee on the programme of sales as a whole.
The debate on the Bill has been a constructive but rather technical discussion of how we can ensure that the programme of sales can proceed. It has also dealt with how we can fulfil our commitment that borrowers will notice no effect. I hope that I have been able to explain more fully how the Bill will achieve the Government's widely accepted policy objectives. No one should doubt our commitment to working in a thorough way to ensure that the sales programme is a success for borrowers, the Government and the taxpayer alike.
The Minister described this as a technical Bill and it is certainly complicated. That is not to say, however, that its provisions are not significant to a very large number of people and that they do not have political ramifications. The Bill is in line with Conservative intentions to move the student loan book to the private sector, but those intentions are not without qualification. Throughout—both during the Bill's consideration and earlier—we have made it clear that the transfer from the public sector to the private sector cannot be made unless proper safeguards are in place to protect both the public interest and borrowers.
I have no doubt—this point has been made previously, but it warrants reamplification—about the Minister's intention or integrity. However, when we pass legislation in the House, it is vital that we detach that legislation from the characteristics or strengths of any particular Minister, because we do not know who the Minister might be in a year or two. Of course, in the happy eventuality of our winning the next election and my becoming the Minister, these matters will be in even more secure hands than they are now. However, we cannot rely on that happy eventuality, which is precisely why thus far and, I hope, in the other place, there has been and will be a determination to ensure that those safeguards are in place.
That brings me to the three or four central points that I want to make on Third Reading. The first is to reprise the argument about value for money. When giving oral evidence in Committee, the Minister said:
"Clearly, the Bill gives us enabling powers to undertake value-for-money assessments over a long period of time...we have said within the forthcoming three-year comprehensive spending review that we are looking to make sales to the tune of £6.3 billion. Having said that, if we do not judge that the market conditions are appropriate for those sales and we do not think that we will get value for money, those sales will not go ahead." ——[Official Report, Sale of Student Loans Public Bill Committee,
This seems to contain a paradox, possibly even a dilemma. The circumstance could arise in which the Treasury says, "Where is our £6.3 billion?", but the market conditions and prevailing circumstances are not ideal for a sale. When the provision is set out for a three-year period, it is a bit rich to argue that if the circumstances are not right, one will ignore that and delay the implementation of the Bill to an indefinite future date. I cannot really believe that the Minister thinks that is likely. Just to be sure, Opposition Members have tabled amendments to make it clear for his benefit—he should see this not as a harpoon but as a lifeline—what the value-for-money criteria are and to place them securely in the Bill.
The Minister will argue, and no doubt has argued, that such a provision would be too inflexible and that it is dangerous to write into a Bill things that are, by their very nature, dynamic—in which case, why did he not come before the House and offer an alternative? He could have appended the value-for-money criteria to the Bill or guaranteed to provide it in guidance. He could have suggested that it would at least be made public. We hear that there is a value-for-money framework, which must include criteria, because the Minister has said so repeatedly on Second Reading, in Committee and again today. However, no one is allowed to see it. If there is such a framework, the debtors, the public and certainly the House have a right to know what it is, and it should be securely attached to the Bill in some form or another.
That brings me to my second point. We need to know something about the value of the loan book. My hon. Friend Mr. Wilson, in a remarkably eloquent speech, spoke about an assessment of the value—it is a changing value—of the loan book measured against the Government's determination to make £6.3 billion. Without, I hope, being impertinent, I suggest that the target of £6.3 billion might be achieved regardless of the true value of the loan book unless we are absolutely secure about the systematic criteria for the sale.
At the end of the financial year 2006-07, the student loan book was valued at about £8.1 billion. Perhaps the Minister will at some stage tell us of any subsequent valuations that are made, and say what the projected valuation of the loan book is for the next two or three years. Those figures should be readily available to the Department, because it can project based on information that is in the Government's hands. From that, we could draw conclusions about what portion of the book would need to be sold to achieve the £6.3 billion target.
We should consider the question of what parts of the book would be sold first. The Minister said that some parts of the loan book were more attractive than others. That is a perfectly plausible argument. He says that where there is an established record of repayment there is more security, in the eyes of a prospective purchaser. He further argues that the situation changes over time, because as people become established repayers, they become a better risk—a surer bet. My question to the Minister is: does that mean that the less attractive parts of the loan book are the bits that will stay with the Government? If we unload the most attractive, valuable bits first, are we not left, at the end, with the least attractive, least valuable bits? That does not seem to shift risk from the public to the private sector; it seems to shift benefit to the private sector, and retain risk in the public sector. We need to be absolutely sure how the book will be split up, how judgments will be made on what is sold and when, and what proportion of the book the Minister anticipates is likely to be sold over the next three years.
There was considerable discussion of the issue of resale, both today and previously. Members on both sides of the House expressed concerns about the possibility of debt being collateralised, broken into parts and sold to the highest bidder. The Minister assures me, and the House, that he thinks that that is unlikely, but the provisions of the Bill explicitly make it possible. Once again, he is on the horns of a dilemma: he dare not build in protection against resale, because that would make the product less attractive but, as a matter of public interest, he has to assure Members of the House that if debt were resold to an agency or body outside the Secretary of State's jurisdiction, or about whom we had the most severe reservations, there would not be a risk to borrowers or the wider public. That is a difficult circle to square, and I am not sure that the Minister did it convincingly today. There must be adequate protection, both for borrowers and from the point of view of the public interest. That is why we tabled amendments to attempt to ensure that resale was dealt with sufficiently, and in the most appropriate way.
In a similar vein, the collection of debt has been considered, although we did not debate the issue at length on Report. I think it is unacceptable to lose control over who collects the debt. The Bill suggests that an agent appointed by a purchaser could have control of debt collection. We need to be stricter in how we deal with the issue of debt collection. I think that the other place might take that view, too, but it is not for me to anticipate its standpoint. If there is one thing that will cause alarm and anxiety among current debtors and potential future borrowers, it is the idea that their debt might be collected by an inappropriate agency, so I am a little disappointed that the Government did not make further concessions on the issue of debt collection. I suspect that that is because, once again, it might make the sale unattractive to a potential purchaser, but when it comes to debt collection—a sensitive matter—we need to be sure who will be involved in the process. The Student Loans Company seems the most appropriate body to deal with these matters. Surely it could be written into the Bill.
When challenged on those matters during the witness session of the Public Bill Committee, Michael Hipkins, the Minister's adviser, who was a witness to the Committee, said:
"The point in terms of legislating for the long term is that the Student Loans Company might not exist in the long term, so there needs to be flexibility in the Bill to specify collection by whomever the Secretary of State would like".
But the Bill does not say that. It refers to an agent appointed by a purchaser, not to someone whom the Secretary of State would like or not like. In addition, the Minister, clarifying his position, said that the Government
"have no plans to do away with the Student Loans Company" —— [Official Report, Sale of Student Loans Public Bill Committee,
On the one hand we are told that we cannot name the Student Loans Company because it might go, and on the other we are told that it will not go, at least for the foreseeable future. Next we are told that the Secretary of State will be able to choose the agency that collects debt; then we are told in the Bill that he will not be able to choose who collects debt. That aspect of the Bill needs to be clarified by Ministers in the course of its progress.
We have had serious consideration with a diligent Minister, who seems to have listened to arguments and, as I said earlier, acted with professionalism and generosity. The Bill is technical, but its real significance should not be masked by its technicalities and complexities. It is about moving a substantial amount of money from the public to the private sector. It affects the lives of many millions of our countrymen—many of the people whom we represent. It is important that the House insist on appropriate safeguards, both in the public interest and in their interest.
Although the Opposition will not seek to divide the House on Third Reading, I hope that when the matter is considered in the other place, some of the arguments rehearsed in Committee and again on Report not just from the Opposition Front Bench, but from other parts of the House, are made once again, listened to and taken on board by the Government.
In response to the Minister's assertion that there is consensus about the Bill and the student loans system, I do not wish to disillusion him or to undermine our admiration for his powers of persuasion, but some of us do not support student loans, or the Government's legislative proposal, because it further embeds the student loans system.
That system has brought about an average debt of £15,000 for most students, which on average they take 13 years to pay off. The Minister's response was that the system had enabled a larger number of people to pursue a university education. My view, and that of many of my colleagues, is that in the fifth richest country in the world we should be able to afford to pay people proper maintenance grants to enable them to access university education on the scale that the Government envisage—50 per cent. of young people. To drive people into debt in this way not only burdens them with that debt, but undermines their enjoyment of the education that they receive while they are at university.
Apart from consolidating the student loans system even further, the Bill causes other anxieties. We know from the Red Book that it is envisaged that the Bill will raise £6.3 billion, but nowhere in the Bill does that sum become hypothecated to funding education; it could go elsewhere. If we are to sell off an educational asset that has been brought in as a result of the educational provision that we make for our students, that money should be used for higher education.
As is shown by some of the information that we have heard today, which I accept the Minister contests, the bursary system is not working as effectively as it should. We could use the money from the sale to increase maintenance grants at the same time—to improve provision overall.
The Bill allows the Secretary of State to retain control over the interest charges levelled against students who take out student loans, but it does not address the key issue—the bizarre situation of the Government's using so many different measures of inflation and interest rates to charge against loans. We use the consumer prices index, currently at 2 per cent., to award wages but the retail prices index to determine how much we levy on the burden of loans. I regret that the legislation did not address that matter.
I am not convinced that we have enhanced the Secretary of State's role within the system to give us in the long term the security that we have sought today. I am thinking particularly about onward sales, which are one of our key anxieties. If it is important to secure the detailed involvement and approval of the Secretary of State on the initial sale, it is even more important that we secure his involvement on onward sales. That might offend against Treasury rules, but as was mentioned earlier, when it comes to Northern Rock and other matters, Treasury rules seem to fly out of the window.
I hope that further safeguards will be applied in the other place and that we then debate them here to provide the maximum long-term security—not only for those who take out and rely on student loans, but for the taxpayer as well.
The hon. Gentleman was not entirely satisfied with the Minister's assurance about what he might do in respect of accepting amendments in the other place. However, will the hon. Gentleman invite the Minister to reaffirm that willingness to consider the issue of onward sales and the Secretary of State's involvement in them?
The hon. Gentleman need have no fear that I shall not pursue the matter in my comradely dialogue with the Minister. Others will as well, because the issue is significant.
There has been reference to other privatisations. We referred to the Mapeley incidents, and I had thought that we had learned lessons about whom we sell public assets to and about the requirements for detailed scrutiny and the Secretary of State's accountability for sales of public assets. In the current state of the market, the Government will do well to achieve the money they estimate they will get from the proposed sale. At the moment, the market is so rocky and there is so much insecurity; we face credit crunches, particularly in the housing market, and we may face a downturn and recession.
I caution the Government to consider seriously whether the coming 12 months is the right time even to launch the asset sale proposal. I would welcome a Government commitment that 12 months after any action on the sale, we would receive a full report that could be debated, inform future measures on the privatisation of public assets and help us to decide whether we are achieving value for money. I have considerable doubts about whether we got value for money on the first transfer of sales in the late '90s, and I certainly doubt whether we will from this sale.
I want to leave the Minister with no illusions. I oppose the legislation and the student loans system. However, I am convinced that at some point, the Government—just as they have moved in the past two years on the restoration of some maintenance grants—will return to the happy position of a full maintenance grant system, and that we will be able to abolish student loans in the long term.
It has been my duty on behalf of my party to carry the baton round the final lap of the debates on the Bill. I missed its Second Reading and Committee stage because I had a different responsibility at the time. I thank my hon. Friend Sarah Teather for her work during the earlier stages of the Bill.
We have had a good discussion involving lawyers, accountants, business men and Back Benchers being mildly critical of their Government. We have also had an interesting discussion about the effect on balance sheet accounting of "shall" rather than "may". It is a shame that we must now leave it to the other place to sort out an acceptable wording. Throughout, we have all been trying to achieve safeguards for students, value for money for the taxpayer, and transparency.
This is a small and technical Bill, but it involves a huge amount of money for the Government. It raises in excess of £6 billion to be allocated over the current comprehensive spending review period, so it could release £2 billion a year. I hope that higher education might see the lion's share of that significant injection into the Treasury's coffers. The Government have made significant investment, in some cases through off- balance sheet financing, in the secondary school and further education estates, but there is an opportunity also to make further investment in the higher education estate, where some of the teaching facilities are perhaps not as good as youngsters now leaving school and college are accustomed to in their pre-18 learning experience. Higher education needs the investment to ensure that its teaching facilities match their expectations.
Debt is a very significant area of concern for students, as Mr. Hayes rightly said, and that is reflected in the most recent attitude report, "The Student Experience Report 2007" put together by UNITE, the national private sector provider of accommodation that has its headquarters in Bristol. It showed that 74 per cent. of students currently have their borrowings from the Student Loans Company, but many of them have to take out secondary sources of finance as well, such that 41 per cent. also have a bank overdraft, 16 per cent. have outstanding credit card loans, 7 per cent. have a personal loan, and many others have second credit cards or store cards, or finance their university living expenses through unpaid utility bills.
Part of the problem is that the maximum amount by which students can benefit from the Student Loans Company is set at an unrealistic level. I was staggered to find that to live in my choice of hall of residence, or any other hall of residence, at Bristol university today would require the vast bulk of the maximum amount that the Government would allow me to borrow on cheap credit terms from the Student Loans Company, leaving me with only about £200 to buy my weekday lunches and to finance the purchasing of textbooks and the refreshments that are an essential part of the student living experience.
We need a fundamental review of how students' living costs are financed for the three years or more that they are undergraduates at university. The UNITE report showed that 38 per cent. of students who were first years last year, when the report was put together, were already seriously concerned about their levels of debt. Serious research needs to be done about the fear of debt, which is even greater among students from lower socio-economic backgrounds, and the effect that it has on drop-out rates in higher education. The Government are to have a full-scale review of the financing of higher education next year, and I hope that that review will include a serious look at how students finance themselves through higher education, so that we can ensure that the burden of debt does not drive people out of it and undermine the Government's otherwise laudable agenda for widening participation.
I begin by reassuring my hon. Friend John McDonnell that there is a consensus in this House—certainly between us—that the shift from grants to loans was undesirable, and that the plan to shift loans from being public debts to private ones, which are somehow seen as more morally virtuous, is not acceptable. We are at one. He can rest secure as part of that consensus. However, it is important to recognise that important concessions have been made during the debate. I do not think anyone in the House needs the Minister to repeat the reassurances he has already given. Some important amendments were moved and debated this afternoon, and I am hopeful and confident that when they are reconsidered in another place, many of the points on which we were reassured by the Minister will be discussed.
I shall focus on two points. First, at some stage, this House ought to consider Treasury rules—what is permitted and what is not. It seems perverse to me that we have moved to a position where debt is morally virtuous if it is in the private sector rather than the public sector. That shift has taken place on a much larger canvas in society. We in this House are obsessed with the control of public debt, but we have turned a completely blind eye to the escalation of private debt that ultimately has thrown the economy into a severe crisis. I hope that we all recognise that the Government are a more competent borrower than any of us are individually. They can borrow at rates that none of us could. We ought to consider why we adhere to rules that make a debt virtuous simply because it disappears off the Government's balance sheet. Enron tried to work in the same way and got into an horrendous mess. There is a case for philosophically considering how we honestly address the levels of debt and the management of debt in society.
Secondly, an inequality and an injustice is embedded in the system. It would have been tackled by an amendment tabled by my hon. Friend the Member for Hayes and Harlington, but unfortunately, we were not able to debate it. It dealt with the interest charges relating to student debt. They are supposed to be inflation-only debts, but we have almost ended up in an "Animal Farm" situation, where some measures of inflation are more equal than others—and some measures are more manageable than others. I am talking about the benchmark measurement against which inflation is judged as it is applied to student debt. That has a crucial impact on the management of debt for the individuals involved, and the scale of it is about £20 billion. In the next 10 years, that debt will amount to about £55 billion—a figure ominously similar to the undertakings given to guarantee Northern Rock's survival. Those affected by the repayment of that debt are critically influenced by the calculation of inflation.
The Government measure for the calculation of inflation has been the retail prices index. That is a snapshot measure, taken in March, which judges the rate of inflation that is taken into account for student debt repayments. Last March, the rate doubled from 2.4 per cent. to 4.8 per cent. This was the subject of a huge number of complaints from students and graduates who are repaying debts. They pointed out that the Government use a number of different measures for inflation. The Prime Minister legitimately claims that inflation in the UK is 2 per cent. The consumer prices index measures it at just over 2 per cent. That is the benchmark against which the Government judge what is affordable for public sector pay increases. It leaves many students in a terribly anomalous position.
I tried to get the figures for students who, on graduation, move into some form of public sector employment. The latest figures that I could get were for 2005-06. In that year, more than 120,000 graduates went into public sector employment and carried with them their student loan debts. Since then, they have repaid the debts at the rate defined by the retail prices index, but their pay increases have been defined against the benchmark of the consumer prices index. Those 120,000 graduates—more than half the university graduates in the UK—find themselves in a position whereby the charges on their debt repayments increased at twice the rate of the inflation that was recognised in their pay settlements. That injustice built into the process has been a constant source of grievance.
I hope that the Government will take the opportunity when the Bill is introduced in another place to examine a mechanism that gives us a single benchmark measure. We must all live with what is judged to be the rate of inflation. However, it cannot be fair—I have yet to hear an argument that it is fair—to use one measure of inflation to judge the rate at which students repay and another, lower rate to determine the basis on which they are paid. It would help the House and the process enormously if we used a consistent measure, given that more than half the graduates who leave university are affected by the problem. We should at least have a consistent and equitable measure.
I would like to say a little about the effects of the Bill on young people in low-income families because I was alarmed to learn that 18 per cent. of the population of my constituency have NVQ level 4 or above, compared with a national average of 27 per cent. and an average of 30 per cent. in the south-east. When I speak to young people in my constituency, I tend to get a stock response that they are worried about being saddled with excessive debt, which they have no realistic chance of repaying. A more fundamental problem is that they do not view higher education as worth the expense. That is not helped by press reports about the sparsity of well-paid graduate jobs. Although I support the principle that those who benefit from higher education should shoulder some of the cost, the statistics on participation rates in my constituency seem to represent a huge waste of talent. It worries me that the financial barriers to further education are still not being broken down rapidly enough.
I want to raise the potential for a new commercial owner of the student loans portfolio to increase interest rates on that asset to market rates, instead of maintaining the current subsidised inflation-linked rate, once the portfolio of student loans has ceased to be a public asset and been transferred to the private sector. We have all read in the newspapers about the impending credit crunch in the financial markets, which will bring the deteriorating availability of credit for companies and households and the increasing cost of borrowing throughout the economy. Clearly, the financial organisation to which the student loan portfolio will ultimately be sold as a result of the Bill expects to make a profit from the assets, and I wonder whether there will be a temptation in the current lending environment for it to boost interest rates on student loans to market rates once it has assumed economic ownership.
With the London inter-bank rate at around 6 per cent. and the interest rate on student loans at 4.5 per cent.—a differential that, according to estimates by Professor Nicholas Barr of the London School of Economics, equates to a subsidy of about £1.2 billion a year—I wonder how any commercial organisation can agree indefinitely to offer loans at more than a full percentage point below the rate in the wholesale financial markets. The risk is that students will at some point face commercial rates on their student loans. A rise in interest rates of 2 per cent. to bring the terms on student loans in line with those attainable in the broader financial markets could equate to an extra £300 a year in interest charges on the average debt of £15,000.
Finally, I should like to talk briefly about publicity schemes for low-income households. The Government claim that they want a participation rate of about 50 per cent. by 2010, but given the low rates of participation in further education in my constituency, I wonder whether more investigation is needed of the accessibility and visibility of the information on bursaries for students from low-income households. If we aspire to a fully meritocratic society, in which the financial circumstances of a person's parents are no barrier to educational opportunity, and if the perceived cost of university or further education is dissuading many from attending, should we not analyse whether more needs to be done to publicise the financial assistance schemes that might be available to those on low incomes?
I should like briefly to sum up the debate and to refer first to the previous speech, by Mr. Holloway. There is an expression, "It's a bit rich," and his contribution was extraordinarily rich. The commercial rate of interest that he described was exactly that which was put forward in his party's manifesto at the previous general election. Had a Conservative Government been elected, I have no doubt that he would now be supporting that policy. During the Committee stage, I asked whether that was still the Opposition's policy, and I understand that it is. I am most emphatically against a commercial rate of interest, so if the hon. Gentleman wants to apply pressure on the issue, he needs to talk to those on his own Front Bench.
The hon. Gentleman also asked what we should say to students who do not aspire to continue into higher education. I think that we should tell them the facts. We certainly should not exaggerate or use terms such as "excessive debt". Under the postgraduate system of repayment that the Government have established, no student repays a penny until they are in work and earning more than £15,000 a year. On the average graduate starting salary of £18,000 a year, the repayments are as little as £5.19 a week. Those facts, along with the facts on the substantial graduate earnings premium—the average graduate will earn, net of tax, £100,000 more than someone with just two A-levels over the course of a working life—and all the other benefits of a higher education, should be at the centre of the arguments that the hon. Gentleman ought to be putting to his constituents.
Mr. Hayes, who leads for the Opposition, asked for reassurance and expressed concerns about the value-for-money framework. I have said on many occasions during the passage of the Bill that the value-for-money framework that I have read into the record is rigorous and robust. I have been wondering during this debate whether similar value-for-money frameworks were in place when much more substantial asset sales of public utilities took place in the 1980s. I do not recall that being the case.
The hon. Gentleman asked me about the projected valuation of the student loan book. We estimate that the valuation will be £21 billion next year—up from the current £18.1 billion—and £25 billion the following year. He also asked about the selection of the loans for sale, as did Mr. Wilson. I want to nail this issue, because it is important—I made these points in Committee, but I will repeat them now.
From the outset, we will seek to offer for sale all those loans that we can sensibly expect purchasers to be able to value properly. We will be guided by the financial sector experts whom we are procuring to help us to prepare and execute the transactions. For initial sales, that might mean selecting for sale loans that are, for example, sufficiently connected with the repayment system through Her Majesty's Revenue and Customs. Over time, as the repayment history of the loan book lengthens, potential purchasers will be able to model with confidence the value of an increasingly high proportion of the loans. In contradiction of what the hon. Member for Reading, East said, we will explicitly not select loans for sale based on the individual characteristics of loans or borrowers, but just by category, such as being in the repayment phase.
There is some confusion about that in Hansard. At column 31, the Minister says of the picking of loans:
"It will not be on a random basis."
At column 32, however, Michael Hipkins, his director of strategy, says:
"we expect a random draw from the loan book." ——[Official Report, Sale of Student Loans Public Bill Committee,
The Minister can understand how we can be confused if his own director of strategy is confused.
That is not the case. If the hon. Gentleman reads the record carefully, he will see that the matter was made abundantly clear. When we talk about a random draw, we are talking in terms of the type of loan, not about picking and choosing between individual loans. It is important to make that clear.
The hon. Member for South Holland and The Deepings expressed a number of concerns about collection methods. Let me be explicitly clear. It is not, and will not be, for the purchaser to specify collection methods. Clause 1(4)(d) says explicitly that the Secretary of State may require the purchaser
"to make specified arrangements in connection with the administration of loans".
In response to the comments by my hon. Friend John McDonnell, let me assure him categorically that I have no illusions: I am clear that he disagrees with me and the Government on this issue. I hope that he will accept, however, that it is a legitimate disagreement. There is a respectable left redistributive argument in favour of the system of student finance and fees that we have created. That is not his view, but others on the left take that view.
My hon. Friend made a point about hypothecation of the proceeds from the sale of student loans. Let me make it clear that our record of investment in higher education is the best for a generation: it has increased by 23 per cent. in real terms over the past decade. I caution him against arguing for explicit hypothecation. Were we to put forward the argument now that the proceeds from sales must go to the higher education budget, that would create the grounds and circumstances for a future Government, who were not as well disposed towards higher education as we are, to say that higher education expenditure was dependent on loan sales. That would be a dangerous road to go down.
My hon. Friend also said that there should be no real rate of interest. It is important to make it clear that our RPI mechanism means that there is no real rate of interest. I would wish to assure my hon. Friend Alan Simpson, who is no longer in the Chamber, that that RPI rate does go up and down, but for the vast majority of borrowers with income-contingent loans it makes no difference whatever to their monthly repayments, which will continue to be deducted at the rate of 9 per cent. of any income over £15,000 per annum. The interest rate affects only their outstanding loan balance.
My hon. Friend Alan Simpson and I have received representations from the National Union of Students, which informs us that it has written to the Minister and received no response as yet. It would welcome a meeting with him, and would be pleased if we could arrange that and attend as well. I welcome him to the left in the discussion about the funding of higher education. At some stage, we will also have a welcome discussion about direct taxation. He will have another opportunity to demonstrate his left credentials next week, when I seek to raise the bar on national insurance contributions to pay for such educational achievements.
My hon. Friend will forgive me if I do not commit myself to that at this stage. I meet the National Union of Students regularly, have discussed the issues with it and will do so in future. If he wants to be involved in that, and to talk to me directly about it, I would be happy for him to do so.
Stephen Williams, who leads for the Liberal Democrats, managed to produce a complete speech without revealing that, when they had the opportunity to do something about this issue when they were in government in Scotland, the Liberal Democrats supported a postgraduate system of repayment that is no different in principle from the system that we have in England. He also managed to complete his speech without making it clear that the Liberal Democrats have no policy whatever on student fees, because they are reviewing their position. One Liberal Democrat think-tank has actually said that it agrees with the Government's position. Indeed, it has gone further and said that we should now commit to lifting the cap on tuition fees. That is not a position that I support.
The Minister would not expect me to let him get away with that. Think-tanks can cause problems for all parties. The think-tank that he mentioned is independent of my political party, as are all think-tanks. Yes, we are going through a review. It is a full review of all our higher and further education policies, which will be discussed openly at a conference later this year. My party, unlike the Minister's, will have a full democratic vote on its future policies.
I was aware that the Liberal Democrats were undertaking a review. One of the most enjoyable experiences that I have had in a long time was reading the transcript of the interview that his predecessor gave to Andrew Neil at the Liberal Democrat conference, in which an attempt was made to explain the gyrations that were taking place over Liberal Democrat policy on higher education. And, for the record, it was a Liberal Democrat think-tank, supported by Liberal Democrats, that supported the Government's position.
The Minister has not mentioned a point that was raised by a number of hon. Members. On the issue of onward sales, particularly in relation to transfer arrangements, is the Minister absolutely clear that the Secretary of State should be party to those arrangements? Is he determined to put in place changes to the Bill that will allow the Secretary of State to be party to them? Is he also clear that, in respect of onward sales, the loan book will not be sold—in part or whole—to any organisation or body that is offshore or that, in the judgment of the House, would not be an appropriate body to handle these matters?
I can give the hon. Gentleman a fundamental reassurance on ownership. The contracts will be based on English law and will apply to English law. That ought to give a significant degree of reassurance. He will forgive me if I do not rehearse the arguments that we had on Report about the opportunities for the Secretary of State to be associated with the sales. The amendment that the hon. Gentleman tabled today did not directly address the point that he subsequently went on to make, but if an amendment on that point is tabled in another place, I will give it my active consideration.
Finally, I want to reiterate that the proposals are about the sensible management of the public finances. They are not about impacting on the borrower. The Bill will entail no change whatever to the borrower. Whether the borrower's debt is owned by the public sector or the private sector, they will notice no difference whatever. On that basis, I hope that hon. Members will support the Bill.
Question put and agreed to.
Bill accordingly read the Third time, and passed.