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7.30 pm
Mr. Stephen Byers (Wallsend): We have had an instructive and informative debate. There has been a consensus: all hon. Members recognised that, at least on public policy for student maintenance, there are no easy answers to what are difficult questions. The rest of the debate identified a gulf between the political parties on that issue.
Conservative Members believe that privatisation of the loans system will somehow, as if by magic, remedy the present weaknesses and deficiencies, whereas the Opposition regard the measure as simply tinkering with a failed and discredited system in a cynical attempt to fiddle the public sector borrowing requirement for party political purposes.
Five years ago, when the Education (Student Loans) Bill was before the House, the then Secretary of State for Education and Science, the right hon. Member for South Norfolk, (Mr. MacGregor), said that the aim of the Bill was
After five years of the operation of the student loans system, it has become clear that it provides little fairness for the taxpayer as £1.3 billion of public money remains outstanding on the loan account. The National Audit Office report on the operation of the Student Loans Company, published on 24 November, concluded that
£142 million borrowed from the public purse would not be repaid. Where is the fairness to the taxpayer in that regime?
The 1988 White Paper that led to the introduction of the Education (Student Loans) Act 1990 stated that the spending outlay would not be recovered until the year 2015, when savings would start to be made. That calculation assumed a deferred repayment rate of between 10 and 15 per cent., but the National Audit Office calculated that at 31 March 1995, 45 per cent. of all borrowers had been granted deferment. Given that extremely high rate of deferment, when do the Government believe that net savings will accrue from the student loans system?
It is a great irony that a scheme that costs so much public money is supporting a system that is deeply unpopular with students. The take-up rate of eligible
students is running at 55 per cent. after five years of operation. That is far lower than the Government's original prediction. The loans scheme, coupled with the withdrawal of benefits and successive reductions in the value of the grant, has resulted in many students being pushed into poverty and debt.
The Minister spoke of students swilling beer in college bars--that may be true of the few students whom he meets--but many Opposition Members know that the reality is quite different. The speeches of my hon. Friends the Members for Cardiff, Central (Mr. Jones) and for Glasgow, Maryhill (Mrs. Fyfe) illustrated the nature of student poverty. According to university vice-chancellors, the main reason for the dramatic increase in the student drop-out rate is financial stress. In the latest year for which figures are available, 40,000 students dropped out of their university courses--a 25 per cent. increase on previous years. The Bill needs to be judged against that backdrop.
All those most closely connected with higher education have been strongly critical of the Government's present approach. There is a broad consensus on the need for a fundamental review of student maintenance. The president of the National Union of Students, Jim Murphy, said:
The Bill seeks to allow the private sector to enter the student loans market. In considering that proposal, we must briefly consider the effectiveness and efficiency of the Student Loans Company. As my hon. Friend the Member for Clydebank and Milngavie (Mr. Worthington) said, the Bill will cost jobs in Glasgow, where the unemployment rate is already well above the national average.
Hon. Members will be aware of the deficiencies of the Student Loans Company over the years, but there has been substantial improvement. The National Audit Office report concluded:
Whatever reservations we have about the scheme, it is now clear that the Student Loans Company, in difficult circumstances, is on the right track. Much of the credit for that must go to Sir Eric Ash, who should be congratulated on the way in which he turned the company round.
Throughout the company there is clearly now a commitment to reduce costs, improve efficiency and offer a quality service in the public sector. The problems encountered by the Student Loans Company occurred because of the failings of the previous chief executive, who was recruited from the private sector, but that is the direction in which the Government now wish to proceed.
Why do the Government wish to privatise the student loans system now? When the Bill was published, the Department for Education and Employment issued a press notice stating that the Bill is
Yet there is little evidence--there certainly was none in the Minister's speech--of demand from the private sector to become involved in the making of loans to students.
What we now know, which we did not know before, are the terms that were available to banks in 1989 to encourage them to take part in the scheme. They were drawn up by the consultants, Price Waterhouse. At the time they were not made public because they were regarded as "commercial in confidence". Since then, and since the banks' withdrawal from the scheme, they have been published. They reveal that as part of a package of measures to encourage banks to take part, the Government said that loans would be kept off the balance sheets of participating banks, that start-up and running costs would be recouped in full from the Government--the taxpayer-- and that the scheme would be funded in full by the Government, including any default liability.
That was on offer in 1989, but the banks turned their backs and walked away. What the Minister should tell the House this evening is what is on offer in 1995 to change the approach of the banks, the building societies and the credit institutions. As my hon. Friend the Member for Warrington, South (Mr. Hall) said, referring to the excellent speech by the Conservative peer Lord Beloff, if the fishmonger sells fish, that is his business; if a banker lends money, that is his business. One does not have to bribe a fishmonger to sell fish, but apparently the Government have to bribe the banks to lend money. Could there be greater absurdity? The Minister, in being honest and open with the House this evening, needs to disclose what further absurdities and what bribes will come from the Government.
The measure has little to do with tackling the problems being experienced by students and by the higher education institutions. The Government are setting up a two-tier system--not for students, but for its operators. The Student Loans Company will act as a lender of last resort, covering students who are not deemed to be desirable by the private sector. There will be no choice for students and there will be no diversity for students. The choice will rest with the private sector and the diversity will be in who runs the operation. There will be no benefit to students.
The private sector is in a favourable position, which may be the difference between now and 1989. It will have the Student Loans Company to pick up the pieces. It will be able to pick the cherries--it will offer loans only to students from suitable backgrounds who are no financial risk. If that is coupled with a subsidy from the taxpayer, the Government will hope that many banks will be prepared to say yes.
The Minister should answer the specific points made in the debate. My hon. Friend the Member for West Lancashire (Mr. Pickthall) referred to the possibility of
part-time students being covered by the loans scheme. Will that be so? The hon. Member for Lancaster (Dame E. Kellett-Bowman), in an intervention, asked whether students who interrupt their studies for a responsible reason could benefit from the scheme. We hope to have a answer from the Minister on that point. As my hon. Friend the Member for Morley and Leeds, South (Mr. Gunnell) said, we need to know what savings in the PSBR the Government expect to accrue as a result of the measures in the Bill.
"to share the cost of student maintenance more fairly between the taxpayer, students' parents and students themselves."--[Official Report, 5 December 1989; Vol. 163, c. 174.]
"We want an urgent review of the system of student financial support and proper consultation.".
That statement was supported by the Committee of Vice-Chancellors and Principals. Its chairman, Professor Gareth Roberts, called for
"a fundamental review of the funding of student maintenance".
The committee also
"expressed their disappointment that the Government failed to consult them"
on the proposals before the House.
"Our findings show that many initiatives are now in hand to improve performance. In particular, flaws in the Repeat Application Procedure, which caused the difficulties in 1994, were fully addressed for the re-launch of the initiative in 1995 and, as at 31 October 1995, the revised procedure was operating well. More generally, initiatives have been taken to improve the clarity of business and financial performance reporting and . . . the Company's performance targets have been made more rigorous and precise."
Those of us who make a habit of reading National Audit Office reports can confirm that its conclusion is a strong and positive statement of support for the conduct of the Student Loans Company.
"designed to allow private sector financial institutions to enter the student loans system as major players."
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