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“regulations or arrangements may provide for...collection by a person acting on behalf of a loan purchaser”.
Will the Minister clarify whether there is any intention to involve anyone else, besides the Student Loans Company, in the collection of repayments? If there is not, I am not entirely clear why that provision has been included.
It would also be useful if the Minister told the House whether any assessment had been made of the likely purchaser of the loans. He made it clear that there is a market. He has also told the House this afternoon that the Government have taken expert advice on the subject, as one would expect. I would also expect him to give the House some feel for the sort of organisation that might purchase the book. Where are those organisations located? Are they overseas companies, international companies or domestic organisations? What is their track record? Who is likely to be involved? He does not have to stray into the area of commercial sensitivities, which would jeopardise the sale, to give us some reassurance about how he thinks things might work out.
Mr. Hayes: I am happy to give way to my hon. Friend, who is doubtless about to anticipate my summation.
Mr. Boswell: I doubt that very much, but I am grateful to my hon. Friend for giving way. Does he think that there are legitimate concerns about the possibility of secondary, or indeed tertiary, sales to indeterminate groups of people? Drawing an analogy with the collateralised debt obligations, for example, there is a real possibility that, however much the Secretary of State wishes to protect students, control of the loan book will be lost to persons unknown and highly divergent from the ones to whom it was originally sold.
Mr. Hayes: My hon. Friend is right: the book is likely to be sold on. That is the nature of this kind of business. The absolute assurance that the House seeks is that nothing is likely to occur that will jeopardise the circumstances of students or institutions of higher education. It would be difficult for any Minister, of any party, to predict how the situation might pan out. The book could be sold on over a period of years. However, allowing for that difficulty, some feel for the sort of advice that the Government have been given, some understanding of the projections they have made, and some estimate of how they expect matters to be concluded, is the least the House deserves. The House will certainly want that, both today and during our further scrutiny of the Bill.
As the Minister will appreciate, another issue on which there is widespread public concern is data protection. We had a useful exchange on that earlier. Clause 6 extends previous legislation to allow data about borrowers that is held by Her Majesty’s Revenue and Customs to be passed to loan purchasers, or potential purchasers. The Bill makes it clear that where information is shared with potential purchasers for the purpose of considering the purchase, details must be anonymised, but of course recent difficulties were about not theory, but practice. It may be necessary for the Minister to reflect on events and consider those details once again. I do not expect him to come up with an answer off the cuff today, but we might usefully consider the issue during the passage of the Bill.
In the light of recent events, I would not be surprised if we came to a conclusion that was agreeable to Members across the House to strengthen protection. That would be helpful to Government, to the House, and to people affected by the legislation. It is our intention to scrutinise closely that aspect of the Bill and, if necessary, to propose amendments, if we feel that data protection is not adequately dealt with in the measures before the House. I do not want to stray into further discussion on the loss, disclosed by the Chancellor, of the details of 25 million benefit recipients. We had a word about it earlier, and it is unfair to rub salt in the wounds; I would be the last person to do that. However, I know that the Minister will have heard the story with horror, knowing that he was coming before the House today to debate the issue before us. He will be very sensitive about it, so I expect him to offer the House and the public reassurance that he will tighten the provisions of the Bill, in the same spirit as that in which I offered to assist. We have a history of working together on legislation to best effect.
On the proceeds of the sale—a matter raised by the hon. Member for Harrogate and Knaresborough—there are no provisions in the Bill for the hypothecation of proceeds for reinvestment in higher education. We
can therefore assume that the receipts will swell the Consolidated Fund, as the Minister confirmed that in reply to an intervention. I am certain that he will today wish to pledge to the House that higher education will get its fair share of the windfall. He would not be sticking up for his brief and defending those over whom he has stewardship if he did not do that. I would like to hear him make that firm commitment before the end of today’s proceedings.
I would like the Minister to speak in a little more detail, with full technical embellishments, about the position regarding Wales. He has a bit of a record—not a happy one, it has to be said—when it comes to dealing with legislation relating to Wales. Some of us remember the Further Education and Training Bill. It will worry him to hear that I have already received representations about the aspects of the Bill relating to Wales, on matters that were mentioned by the hon. Member for Brecon and Radnorshire (Mr. Williams). We need to be assured that those matters have been taken fully into account. Again, we will want to scrutinise that in some detail in Committee. As the Minister will recall, procedural concerns were raised with regard to the extension of powers to the Welsh Assembly when we discussed the Further Education and Training Act 2007; that was when we last faced each other in discussions on legislation.
This is the second time in the space of a few weeks that I have faced the Minister on an occasion when he has felt obliged to adopt Conservative ideas. The first occasion was when, in a damascene conversion, he accepted Conservative arguments about the Learning and Skills Council’s intervention powers in further education colleges. Once again today, a Conservative idea is being embraced by the Minister. It is often suggested that imitation is the sincerest form of flattery, but as Adlai Stevenson once said, “Flattery is all right so long as you don’t inhale”.
3.20 pm
Mr. Austin Mitchell (Great Grimsby) (Lab): The Minister will not face much dissent and argument today. It is not as if the House is rising against him. It is clear that the Opposition spokesman, the hon. Member for South Holland and The Deepings (Mr. Hayes), who expressed his support for the Bill at some length, if I may say so—in fact, I would suggest to him that he record his speeches on a CD and pop them in the post—did not say that the Bill would be opposed. I wait with excitement to hear what the Liberal Democrat spokesperson, the hon. Member for Brent, East (Sarah Teather), will tell us, if she survives long enough to make a speech—I was coughing in sympathy at one stage.
The Bill is not contentious, but I have one or two criticisms that I shall put on the record. First, we are putting a lot of bundled debt, whether that is called collateralised debt obligations or structured investment vehicles, on to a market already saturated with such debt vehicles, which were the major cause of the problems that the markets began to face in August and are still facing. The market is choked up with bundled debt which is not immediately saleable. As soon as there is a credit squeeze or restriction, the Gadarene instinct of hedge fund managers to get out is impossible to realise. In the States, therefore, funds have closed down and there have been problems in this country with that debt.
The Government intend to put a massive dollop of debt—£18 billion—on to a market in such a state. It is not a good time to sell. The Minister said that he has had advice that it is saleable and will be well supported by the markets, but that reflects the self-interest of those who give the advice, who are mainly people connected with the markets, who want to see them expanded and used. I am worried on that account.
If the debt is sold on, there is no restriction in the Bill, as far as I can see, on the purchaser selling it on to someone else. Where will the student loan fund end up?
Adam Afriyie (Windsor) (Con): There is concern on that point and questions need to be answered. Financial debts are sold on the markets. Risks are sold on in markets. As it moves around the market, there is a possibility that the risk may end up within an institution that is underwritten or guaranteed by Government. It could have ended up on the books of Northern Rock, for example, in which case the taxpayer would be underwriting it. The hon. Gentleman raises an extremely important point.
Mr. Mitchell: I am grateful for the intervention. It is possible not only that the debt will end up in the assets of a fund or organisation supported by Government, but that it will end up in the assets of a fund that is on the verge of collapse. A Government permission should be necessary for the transfer of the debt once it gets on to the market, because we cannot be sure where it will end up.
Secondly, the measure is based purely on ideology and doctrine, according to which public debt is a bad thing and private debt is a marvellous thing. It is clear that financial markets object to public borrowing because they want the privatisation of all borrowing, as well as the privatisation of credit creation, which has happened to a large extent. There is no reason why the money should not stay on the public books. The only argument that the Government put is that it reduces the public sector borrowing requirement, but that effect is purely presentational. In the main, I would argue that public borrowing is good and private borrowing is often bad; the private debt situation has produced an enormous escalation of asset and house prices, while public debt and borrowing has produced investment and economic growth, and allowed the Government to steer the economy forward.
The equation of public with bad and private with good is nonsense. There is no reason, ideologically, for such a transfer; there is no reason to sell the asset books. All that does is pretty up the PSBR figures. There is no guarantee that the money coming in—the Minister mentioned £6 billion—will be used for education. The National Union of Students, and the universities, I think, say that the money should go to education. I agree, but it will not—it is just going to general Government funds.
My third point is that the private sector is not buying the debt out of sheer altruism or a love of supporting the student loans programme and getting more people into university. It is doing it for solid commercial reasons, and it will have to be paid. In the current state of the market, it will have to be paid substantially more to take up the debt than it would had the crisis of August onwards not happened. It has to be well paid for the risks.
And there are risks. I remember that when I was a university teacher in New Zealand, there was something called the post-primary student bursary, which gave students who committed themselves to going into teaching a teacher’s wage to go through university. That was a marvellous institution that encouraged people to go to university. However, when the students left university, they disappeared; many went to teach in England to relieve the crisis in education at that time—this was the ’60s. People in raincoats from the education department used to knock on my door and ask whether I knew where student Fred Bloggs was. I knew that Fred Bloggs had gone overseas, but did I know his address? Where did his parents live? Such situations give rise to problems.
Two years ago, I purchased a fantastic palace in Grimsby and ever since I have been plagued with telephone calls from the Student Loans Company asking about the whereabouts of a girl whose name I shall not give. She was in receipt of a student loan and, apparently, absconded. I did not know the woman. She had never lived at the house; at least, nothing on the records of previous owners indicated her name. However, she had taken out a student loan and disappeared. Considerable expenditure will be necessary to trace such people and the private sector will want to be well rewarded. We may be getting money off the public books, but we will have to pay the private sector substantially to handle it.
In passing, I should like to put a query to the Minister. I see from the Directgov website that European students from both the European Union and the European economic area are eligible for student loans if they
“have been living within the EEA and Switzerland for the three years immediately before the start of the course”.
The explanatory notes to the Bill discuss the recovery of
“student loans made to borrowers domiciled in England (and those studying in England but based overseas) at the time the loan was taken out.”
If there are problems, overseas students will be difficult to trace, assuming that they have gone back to their EU country; Turkish, Swiss and Norwegian students are also going to be eligible. All that will impose an extra cost. How will that be financed? When it takes over the loan book, will the private sector toughen up on all that, and what kind of charges will it impose on the Government for providing the services to trace people?
Finally, I come to my main point, which relates to anxieties to which I am sure the Minister will respond. There is the issue of the terms of the student loans. We sensibly geared the interest rate to the retail price index as we do not want massive interest charges. That gearing has reduced the interest payable on loans throughout the long period of low inflation under this Government; indeed, it has reduced it substantially on the interest rates payable in the early 1990s under the Conservatives.
However, inflation has gone up, although not because of anything that students have done—it is all due to utility prices. The interest rate is now 4.8 per cent.—double last year’s 2.4 per cent. I have had calls from parents in Grimsby warning me about this and saying that it will have a disastrous effect on their daughter’s or son’s finances. Assuming that a student loan averages £15,000, they will be paying £720 a year, or £60 a month, in
interest before they even begin to pay off any of the debt. That will be a monstrous burden for people starting out in life; they will start life’s race with a ball and chain on their foot. I hate to think of the prospect of a student who marries a student, with two student loans merged as a double burden on that household.
This burden is completely unacceptable, and it is likely to get bigger. It will put people off taking out student loans and be a burden on those with loans who are starting out in life and might want to take out a mortgage, buy furniture or a car, or want to contract other debt. We have a debt-burdened society, and we are asking students to start out in it with a big debt already trailing behind them. It is not recoverable under the tribunals and enforcement legislation that we passed in the summer. That will become a political problem for my Government.
The Minister said that it will be up to Government to vary the terms of student loans even after they have been privatised. I am glad to hear that, because they should wipe out the interest charges. I cite the precedent of the New Zealand Labour party, which promised in its 2005 election manifesto to write off interest on student loans, as it now has. The student gets a statement at the end of the year saying that a certain amount of interest is due, but it is written off and does not have to be paid. That was enormously effective and very necessary.
Mr. Willis: Surely, even as a good socialist, the hon. Gentleman is not arguing that students should be given significant amounts of money interest-free by the Treasury so that they can put it on the money market and receive interest. Surely he does not think, even in his wildest dreams, that that is a good idea.
Mr. Mitchell: I take that correction from a fellow socialist. Of course I do not envisage that students will put it on the money market; that is what the Government are doing, not what students will be doing. Students use the loan for living. In the previous generation before student loans existed, most students struggled with enormous overdrafts or credit card debts. I am saying that the burden of debt on students for educational purposes—the prime purpose of these loans is to pay the fees—should be written off, as long as they stay in this country. I do not want to extend it to people who leave this country and work elsewhere having used their degree to put themselves on an international market, as that would make the burden too heavy to bear.
Mr. Mitchell: I am happy to give way to any more criticism from the left.
Mr. Willis: I am trying to help the hon. Gentleman in his hour of need. Clearly there is no point in loaning somebody something for no interest at all; one might as well give the money directly to the university and not charge the fees in the first place.
Mr. Mitchell:
We could certainly do that. I hesitate, as a good West Riding man, to take help from Harrogate in any form—it is usually class-biased, in my view. Money could be paid to the university, but we are
talking about a debt incurred by the student, which they have to bear, and with which they should be helped. Ideally, they should all qualify for means-tested fees, as my generation did. The Government say that we cannot afford that, which is probably true. We cannot afford to finance with grants some 46 per cent. of the population going on to higher education. Only 4 per cent. of my generation did, and we all got grants. I had lots of doubts about kicking away that ladder, but having kicked it away, we have to try to help the students.
Does the hon. Gentleman think that a burden of 4.8 per cent. is acceptable for students to carry? I do not know. I would be interested to hear the views of the Liberal Democrats on that. It is too high and too heavy. Something should be done about it, and I hope that the Government will. I am sorry for the diversion into the realms in which I have just been wandering, but we should think seriously as a Government and as a party about following the New Zealand example and writing off the interest payment for students.
Mr. Gummer: On a point of order, Mr. Deputy Speaker. Are you aware that because the Government have refused to make a statement on the new airport policy, copies of the document that were placed in this House have now run out? People who were not able to question the Minister have sought the document, and there are now none available. Is that really acceptable?
Mr. Deputy Speaker: As I understand it, 40 copies of that document were produced in the Vote Office. Clearly, those have now run out. It is not good enough for it not to be available to Members of Parliament who need it. I am sure that the Department is aware of what has happened, and I trust that it will put matters right as quickly as it possibly can.
3.36 pm
Sarah Teather (Brent, East) (LD): By the looks of this packed House today, the Bill has generated enormous excitement and controversy in all parties. We will support the Bill, but we have a number of reservations that we would like to develop further in Committee, including the matter of how the Bill relates to Wales. I know that my hon. Friend the Member for Brecon and Radnorshire (Mr. Williams) hopes to catch your eye in a few minutes, Mr. Deputy Speaker, to raise that point.
It is worth putting it on the record that my party would not have started from this point. The so-called asset that the Government seek to sell today is the burden of debt that they have imposed on students since they came to office. The total student debt of £18 billion is more than the gross domestic product of Slovenia, believe it or not. It represents a millstone around the neck of each student who has graduated under this Labour Government. The truth is that we do not really know what the implications of the debt will be for a whole cohort of graduates throughout their lives. We have been engaged in what essentially amounts to a giant experiment. We do not know what effect it will have on their career choices, or on their decisions about whether to have a family, get married or buy a home. We will not know that for another 10, or even 15 years, by which stage it will be too late for us to turn back the clock.
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