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“Transfer arrangements may...require further transfer arrangements to be effected by way of novation or other arrangements”
“include provision by virtue of which the Secretary of State is automatically a party”.
The word used is still “may”, and so the Secretary of State’s involvement is still discretionary.
The crux of the matter emerged in Committee. The problem with the inclusion of the word “shall” rather than “may”—that is, a requirement for the Secretary of State’s consent—is a result of the Treasury accountancy rules. In Committee, the Minister said that the inclusion of the word “shall” would prohibit the onward sale of loans as the risk would not be transferred from the public to the private sector so the result would not be full privatisation. The argument is that the word “shall” would mean that income received as a result of the sale would appear on the Treasury’s books.
In Committee, that discussion prompted a debate about motivation. What is the motivation for the sale? Is it to raise funds? Yes. Is it to increase value for money in the management of the funds or, as my hon. Friend the Member for Wolverhampton, South-West asked in Committee, is it ideological—that is, political?
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It is clear that funds will be raised, but the anxiety is that they will not be hypothecated—that is, that they will not be dedicated to funding higher education, for example, or to increasing maintenance grants for
students. The National Union of Students has advised us today that the bursary schemes are failing to assist poorer students, and that there is concern that any funds raised will not be used in education.
If the Government’s motivation is to achieve value for money—and my hon. Friend the Member for Nottingham, South (Alan Simpson) has explained some of the costs incurred in the past—it is doubtful that the measure will succeed. Many people believe that the public sector can manage these matters better than the private sector, and that any risks that might exist would be discounted in the sale price. That leads me to doubt that value for money is the Government’s aim, and to believe that the motivation is ideological and political.
I believe that the Prime Minister and the Chancellor want to get the money involved off the Treasury books and to keep public sector debt below 40 per cent. of national income. The Government’s refusal to use the word “shall” rather than “may” shows that they believe that requiring the Secretary of State’s consent to the onward sale of the loans would undermine privatisation and ensure that income from the sale would appear on the Government’s books.
My contention is that the Bill undermines the future protection of the Government, the taxpayer and those who have taken out student loans. It is based on an ideological and political desire not to offend against Treasury rules and to ensure that borrowing does not go above 40 per cent. of national income.
However, such rules are not unbreakable: as we have seen with Northern Rock, they can go out of the window when there is a need to protect people who have invested in, or borrowed from, a particular institution. Amendment No. 4 would ensure that the same protection that has been extended to Northern Rock’s borrowers and savers is extended to the Government, the taxpayer and those with student loans if those loans are sold on.
In part, the amendment reflects the debate that took place in Committee. I hope that the Minister can give us some further assurance about the onward sale of student loans, as the taxpayer and those who have taken out such loans need more security in that regard.
Mr. Hayes: The amendments are simple but necessary. They would clarify the Government’s position, defend the interests of those with debt, and maintain rigorous and appropriate accountability.
I am delighted to follow the hon. Member for Hayes and Harlington (John McDonnell), whose amendment No. 4 is very similar to the Opposition’s amendment No. 10. There is an anxiety among hon. Members of all parties to ensure that the interests of the taxpayer and of those who have taken on a debt are protected. We can achieve that by making the wording of the Bill as tight as possible, even though we accept the Minister’s good will and good intentions. Indeed, I should like to take this opportunity to say that he has handled this Bill with his customary professionalism and generosity.
Amendments Nos. 4 and 9 would require the Secretary of State to be party to onward sale arrangements, and they would also ensure that he was automatically a party to further transfer arrangements. On Second Reading and in Committee, concerns were expressed by hon.
Members of all parties about the resale of the debt. I shall say a little more about that, as both amendments apply specifically to those circumstances.
Clause 3 gives the purchaser of a loan the right to sell it on to another buyer, subject to any limits on that right specified in the terms of the original sales contract with the Secretary of State. Although those who purchased the debt have a clear right to sell on the loans—one suspects they would not be able to buy them in the first instance unless that right is made clear—I think the whole House will agree that it is important that we have appropriate safeguards in place.
There are legitimate concerns about collateralised debt, and they were raised eloquently on Second Reading. History has taught us that loans can easily be repackaged and, in the end, involve a large number of different purchasers, some of whom, if they are known at all, could be outside the jurisdiction of the Secretary of State. Various scenarios were described in earlier considerations of the Bill. They include the horrific possibility of a loan or part of a loan book being purchased by an organisation underwritten by Government, by an offshore company or by an organisation in a distant place that would be outside the jurisdiction of the Secretary of State and therefore not subject to the important checks and balances that are to be written into the initial sale as part of the sales contract.
Rob Marris: Will the hon. Gentleman give way?
Mr. Hayes: I am delighted to give way to the hon. Gentleman, who spoke so eloquently on Second Reading and in Committee.
Rob Marris: I am grateful to the hon. Gentleman, who is presenting his case with his usual aplomb, as did the Minister.
Amendment No. 10 would introduce a new subsection (6) of paragraph (d) in clause 3 that would
“include provision to prohibit transfers to another person outside the jurisdiction of the Secretary of State”.
Can the hon. Gentleman say a little more about what the phrase “outside the jurisdiction” means in that context? In particular, is he seeking to address the fear that I expressed in Committee that we could have another Mapeley-type situation and that the debts could end up offshore? Or is he looking at a wider interpretation of the phrase?
Mr. Hayes: I will come to amendment No. 10 in a moment, and I will endeavour to address that point. As the hon. Gentleman knows, I have already mentioned the risk of offshore organisations buying part of the debt. The picture that we fear may emerge is of the book being broken up into small parts. That is normal practice when purchasing and reselling debt. He is right to point out, as he has done before, that control is likely to be increasingly difficult to maintain as that process occurs. However, as I said, I will deal specifically with amendment No. 10 a little later.
I do not want to dwell on the Government’s continuing misfortunes; this is not the time or place to do that. Although the misfortunes have been profound and have caused real fears and difficulties across the country and have hurt some of the most vulnerable people represented by Members of the House, it is not appropriate to dwell
on them here. However, it is certainly true that there are concerns about the leakage of data. Given the number of actors likely to be involved, there is surely an increased likelihood of a sensitive data leak. Unless strict safeguards are implemented, the audit trail could become complicated and possibly unreliable.
In Committee, the Minister explained that “may” rather than “shall”—this is the nub of the amendments that I and the hon. Member for Hayes and Harlington have tabled—was used in clause 3 in respect of the Secretary of State’s involvement in transfer arrangements because, for accounting purposes, the debt would otherwise not be considered to have left the Government’s books. Essentially, he argued that the word “may” appeared in the Bill for administrative reasons rather than as a matter of principle. He conceded that the safeguards that I have called for were important, but felt that, as the principal motive for the Bill was the transfer of risk from the public to the private sector, it was important in accounting terms that the debt should be seen to have shifted.
There are those cynics—I am not saying I am one of them—who think that the principal purpose of the Bill is to get some dosh to fund the Government’s plans. There is nothing wrong with that, but there are those who feel that that might take priority over other considerations, such as the welfare of debtors or the public interest, as my hon. Friend the Member for Reading, East (Mr. Wilson) pointed out. I will not add my voice to those that put forward that cynical analysis, except to say that I have some sympathy with those who expressed a sceptical view about the Government’s intentions.
I do not mean to insult the hon. Member for Hayes and Harlington in any way, but he missed a critical point: when the Minister for Lifelong Learning, Further and Higher Education clarified the position, he made it clear that the stipulation relating to accounting practices that I mentioned applied only to clause 3(6)(a), which refers to arrangements that
“prohibit the making of further transfer arrangements without the Secretary of State’s consent”.
For the sake of clarity, let me quote the Minister’s precise words:
“Were we to insert the word ‘shall’ in respect of paragraph (a) so that in all circumstances we would have to prohibit the making of further transfer arrangements without the consent of the Secretary of State, it would contravene the rules of classification and it could not be classified as a transfer from public to private sector debt.”
In respect of paragraphs (b) and (c), it is therefore quite clear that there is no administrative bar to changing the Bill.
For the record, when I asked the Minister why paragraphs (b) and (c) were grouped with (a), he said that he was
“always happy to consider constructive proposals.” ——[Official Report, Sale of Student Loans Public Bill Committee, 4 December 2007; c. 62-63 .]
Well, amendment no. 9, which is in my name and the names of my hon. Friends, is just such a constructive proposal. It would separate paragraph (a) from paragraphs (b) and (c). It is clear, at least from what the Minister said during the Bill’s earlier stages, that we could satisfy accounting rules while building in the additional safeguard that has been called for so eloquently by the hon.
Member for Hayes and Harlington, by other Members on both sides of the Chamber and by the official Opposition. Our amendment is constructive as it would ensure ministerial involvement in onward sales, and would reassure the House and all those with student debts. It is on a matter of public interest, and we all seek to ensure that the Bill is in the public interest.
Having heard the intervention of the hon. Member for Wolverhampton, South-West (Rob Marris), I turn now to amendment No. 10, which would prohibit onward sale outside the jurisdiction of the Secretary of State. It would ensure that when student loans were broken up, creating the real doubts that I mentioned, the public’s or debtors’ interests were not jeopardised. I took on board his remarks about offshore companies; they certainly would fall into the category I described, but there are other circumstances in which the resale of the book might jeopardise debtors’ interests or the public interest. He is an eminent lawyer, so he might care to contribute on the subject, either now or later. I see that he is nodding, so we can expect some sagacious remarks from him on the subject.
Through amendment No. 10, I hope to express my anxiety about ensuring that the Minister’s assurances on the Secretary of State’s powers to protect interests at a later stage of the process are meaningful. The amendment is very much in the spirit of what the hon. Member for Wolverhampton, South-West and I said in the Bill’s earlier stages. I have no doubt about the intentions of the Secretary of State and the Minister, but if the debt were sold to a place—I use the term in the broadest sense—outside the Secretary of State’s jurisdiction, it would be hard to guarantee that protection. Amendment No. 10 would therefore be a useful addition to the Bill, and would increase popular confidence in the Bill’s efficacy.
My hon. Friend the Member for Daventry (Mr. Boswell), who always comments on these matters with both experience and insight, quoted the example of a hypothetical Lithuanian bank securing a package of loans. I made it clear then that I have nothing against Lithuania, but one can see what he was getting at. There would be real worries among existing and potential debtors if they thought that the loan book would be broken up and spread across the globe.
I hope that we might divide on amendment No. 9. As the hon. Member for Hayes and Harlington led on this group of amendments, it is his privilege to make his own decision, but that is ours.
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Rob Marris: On at least three occasions in the Public Bill Committee, the Minister was clear about “shall” and “may” and the Government’s position on that. I shall quote from column 62 of our deliberations in Committee on 4 December, where my hon. Friend said:
“My clear understanding is that were we to insert the word ‘shall’ in clause 3(6)(a), that would make us unable to classify the debt as a transfer from the public to the private sector. However, there are other protections available to us in clause 3(6)(b) and (c) to enable us, through the contract, to protect the interests of the graduate.”
I shall break that down into two parts.
To me, the easier and less intricate part, if I may put it that way, is in the second half of the quote that I just read out, where the Minister, as he had earlier in that
debate in Committee, referred to “other protections”. The other protections in clause 3(6)(b) and (c) in the Bill as drafted—in contradistinction to the Bill as it would be, were the amendments to pass—or, as the Minister also described them, the
“other tools at our disposal”—[ Official Report, Sale of Student Loans Public Bill Committee , 4 December 2007; c. 61-62.]
come under the permissive rather than mandatory rubric of the first line of clause 6, which contains the phrase
“transfer arrangements may”.
The permissive word “may”, rather than the mandatory word “shall”, covers (a), (b) and (c), so I should like a little clarification from my hon. Friend the Minister as to how those other protections would not be potentially weakened, just as the protection in clause 3(6)(a) is arguably weakened, because they are all under the umbrella of “may” rather than “shall”.
To me, the more intricate point, which unfortunately leads us to another “shall” and “may”, is the clarification that my hon. Friend issued to members of the Committee, sending them a copy of the letter that he wrote on 12 December to the Chair of the Committee, my hon. Friend the Member for Aberdeen, South (Miss Begg), for the benefit of all members of the Committee. He stated on page 2 of his letter:
“The most important factors in deciding the classification are whether there has been a real transfer of risk and control to the private sector. Under the current classification rules, using Clause 3(6)(a) would provide evidence that the Secretary of State had retained an element of control over the loans in the event of onward sale, and would affect ONS’s decision to classify the loans as having been sold.”
I want to probe that a little further with my hon. Friend, which I shall do in a moment by way of an example. It is not clear to me whether the word “would” in the phrase
“would affect ONS’s decision to classify the loans as having been sold”
is a permissive or a mandatory word—that is, whether the ONS definitely would say, “‘Shall’ means that the Government have control, therefore the loans do not go off the public books” or whether the ONS might so classify it if the House decided to use the word “shall” rather than “may” in clause 3(6). The wording in the Minister’s letter relates to retaining an element of control.
My partner and I have lived in the same house for 23 years—bear with me on this for a moment, if you would, Madam Deputy Speaker. The house was built in about 1888. We bought it from another married couple, who had bought it from the Roman Catholic archdiocese of Birmingham. It had inherited the house from somebody who had owned it for a number of years; I know nothing about the chain leading back to 1888.
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