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Madam Deputy Speaker (Sylvia Heal): Order. May we please have order in the debate?
Stephen Williams: 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.
Madam 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.
Stephen Williams: 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.
Alan Simpson (Nottingham, South) (Lab): 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?
Rob Marris (Wolverhampton, South-West) (Lab): Ask Northern Rock.
Alan Simpson: 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 the Member for Leeds, East (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.”—[ Official Report, 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.
Mr. John Hayes (South Holland and The Deepings) (Con):
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.
Alan Simpson: 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.
Angela Watkinson: 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?
3.15 pm
Alan Simpson: 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.
Rob Marris: Will my hon. Friend give way?
Alan Simpson: I will happily give way, but I have been trying to finish for the past few minutes!
Rob Marris: 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.
Alan Simpson:
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.
Bill Rammell: 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 the Member for Nottingham, South (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 the Member for Wolverhampton, South-West (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.
The hon. Member for Reading, East (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.
Mr. Hayes: 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?
Bill Rammell: 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.
John McDonnell (Hayes and Harlington) (Lab): 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.
Bill Rammell:
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.
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