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In the deeds, there is a restriction on brewing beer for commercial purposes. That is quite a common restriction for terraced houses built in the midlands in the 19th century; I saw it several times during the little bit of conveyancing that I did in my former career. Whoever has the benefit of that restrictive covenant will be the heirs and assigns of whoever imposed that covenant—possibly the builder—in about 1888. That family retains an element of control over how my wife and I can or
cannot use our property. However, it would be clear to most lay people—and, I think, to most lawyers, although I am not much of a conveyancer—that the clear ownership of the property had been outwith that family for 120 years. So when I consider the student loan book that might be transferred, it seems to me that, were the word “shall” to be used in clause 3(6), the Office for National Statistics—I do not know all the rules—might not classify this as a prohibition on saying that the debt was off the books.
Shona McIsaac (Cleethorpes) (Lab): My hon. Friend is right; such restrictive covenants exist throughout the country. In the fishing areas where I come from, they restrict such activities as fish curing. Many of the properties involved are leasehold, which further complicates things.
Rob Marris: My hon. Friend is right, although I do not want to get into leaseholds, which would further complicate the matter. In a long lease, ownership of the land has not transferred, but let us leave that aside. My hon. Friend is right indirectly to get me to say what I have not said hitherto: our property is freehold. There is a restriction on our use of it. Someone else has an element of control, to use the Minister’s words, as to what we do with the property. However, everyone would say that we own the property and that the property has been transferred into our names.
Madam Deputy Speaker: I appreciate the example that the hon. Gentleman has given, but we must not stray too far down that route and lose ourselves.
John McDonnell: I assure my hon. Friend that I desperately do not want to get involved in a discussion of my lease.
I should like to make a point to the Minister through my hon. Friend. As the Minister explained in Committee, the rules that are defined relate to control. If a controlling interest of some sort is involved, the loans are still on the Government’s books and there is not a transfer of risk and a privatisation in that sense.
There must be a qualitative judgment; I think that my hon. Friend was getting to that. The Opposition have tabled a clever amendment, which, based on the Minister’s wording originally in Committee, relates to clause 3(6)(a)—that is the qualitative judgment made on control. However, (b) and (c) are therefore not judged qualitatively as having sufficient control and therefore offending against Treasury rules.
The clear issue for many of us, though, is that there should be control. The ingenious Opposition amendment falls between the two stools—there either is or is not control. In my view and that of many others, if there is no control, we will not have sufficient power over the future. If there is control, the issue falls foul, like “shall” in regard to subsection 3(a); it would fall under the guidance of the ONS, as it would be classified as still being under the control of the Government and therefore, under Treasury rules, part of the Government’s expenditure.
Rob Marris:
I will be interested to hear what my hon. Friend the Minister says as to whether severing paragraphs (b) and (c) and putting them under a
mandatory “shall”, but retaining the permissive “may” covering paragraph (a), is sufficient to address any concerns of the ONS or the political concerns of hon. Members.
Stephen Williams: It sounds as though the hon. Gentleman is describing a Quaker clause, which is common in my constituency, whereby there are no pubs on a particular swathe of land because of restrictions put on its sale. He is a lawyer and I am an accountant. He seems to be confusing contract law of restrictive covenants with accountancy law on what can be kept on-balance sheet, which I think is what the Minister is getting at. Does he recognise that he might be going down the wrong avenue?
Rob Marris: I might be; that is one of the things I am attempting to probe with the Minister. Ultimately, of course, accountancy law is still law.
Mr. Hayes: As ever, the hon. Gentleman is making an interesting case. The point made by the hon. Member for Hayes and Harlington (John McDonnell) seems to be the pertinent one. That is why I favour amendment No. 9 over amendment No. 4. If the Minister tells us that paragraphs (b) and (c) cannot be prefixed by “shall”, he will contradict what he said during earlier consideration of the Bill when he explicitly talked about paragraph (a), which is supported by the correspondence to which the hon. Member for Wolverhampton, South-West (Rob Marris) referred.
Rob Marris: As always with this lucid Minister, it will become clear what can and cannot be done and what the consequences of certain courses of action might be. However, I would like him to clarify whether the use of “shall”, as in amendment No. 4, would definitely lead to the ONS making a ruling that the student loan book, when sold, had not moved off the Government’s books, or might lead to it making such a ruling.
Stephen Williams: We are having an interesting debate on the meaning of the word “shall” and whether it has a legal or an accounting effect. We will have to wait to hear what the Minister says. I hope that he has a corporate lawyer at hand with his officials to slip in some definitive advice. In privatisations, there was often provision for a golden share, and it seems the hon. Member for South Holland and The Deepings (Mr. Hayes) and the hon. Member for Hayes and Harlington (John McDonnell) are proposing a golden clause in the contract of sale. That might be a helpful analogy, but we need to wait for what the Minister says, based on the legal advice that I am sure he is in the course of receiving.
Amendment No. 10, tabled by the hon. Member for South Holland and The Deepings, would prohibit transfers to another person outside the jurisdiction of the Secretary of State. When I read the amendment, I wondered what that meant. The hon. Gentleman suggested, as did Labour Members, that it might mean a break-up of the loan book, and perhaps sales offshore as well. Is there a contradiction between that amendment and amendment No. 11, which sought a full market test for the sale of the loan book, and which I agreed with? If certain people are excluded just because they happen to be outside the jurisdiction of
the Secretary of State or of our banking laws or any other laws, would that undermine the concept of value for the taxpayer that the Conservatives sought to achieve?
Mr. Hayes: To clarify for the benefit of the House and the hon. Gentleman, we clearly need to ensure value for money. I am not a lawyer or an accountant, but I was a business man. Buying and selling and getting value for money in doing so does not mean that one buys and sells to absolutely anyone, regardless of the consequences.
4.30 pm
Stephen Williams: I thank the hon. Gentleman for that intervention, but I am not sure whether it clarifies the purpose of his amendment. As a business man, I am sure that he relied on the advice of both lawyers and accountants to achieve good value for his business.
I hope that we shall get some clarification as to the purpose of the amendment. Is it to prevent sales of the loan book offshore? I am not sure that I agree with that or that I see the dangers implied, although I had some sympathy with the statement that there may be data protection issues for graduates if the loans were broken up. On the other hand, as long as the conduit for their payments and for advice and correspondence remained the Student Loans Company, which was the subject of amendment No. 7, that protection might remain in place. Earlier, the Minister said that that was the case, and I assume that is why amendment No. 7 was not pressed to a Division. Again, clarification would be welcome.
Mr. Hayes: There are other issues, such as debt collection, that we have debated previously, and they may be debated again when the Bill goes to the other House. There are all sorts of things relating to who handles the debt that might affect the welfare and circumstances of the debtor. Ownership is important in those terms as well.
Stephen Williams: I thank the hon. Gentleman for that clarification. I am drawing my remarks to a close, and I have to wait for clarification from the Minister as to the definition of “shall”.
Rob Marris: The hon. Gentleman will correct me if I am wrong, but I understood him to say that he was not overly concerned about offshoring and was not sure what the concerns were. My concerns relate not only to the data protection issues to which the hon. Gentleman referred, but to the potential loss of tax revenue to the United Kingdom. With Mapeley, the outcome is that a load of Treasury buildings are now owned by a company in Bermuda that does not pay UK taxes. I am worried that something similar will happen in this case. That would mean a loss of revenue from profits made by a financial institution offshore—by which I mean outside the European Union—that is not getting taxed. We lose.
Stephen Williams:
I thank the hon. Gentleman for that intervention. The purpose of my remarks was to get clarification of the amendments’ meaning. The hon. Gentleman has participated in the scrutiny of many
Finance Bills, so he will know that such transactions could well be the subject of anti-avoidance rules—or they certainly should be. The transaction in question happened several years ago. A Finance Bill is probably the correct place to ensure that an abuse of the sale of a Government asset does not take place. None the less, I was only seeking clarification and I look forward to hearing what the Minister has to say.
Alan Simpson: It is difficult for someone who is not a lawyer or an accountant to speak in this part of the debate. For the record, I would like to make it clear that I am in favour of amendment No. 4 in principle, and in favour of amendments Nos. 9 and 10 and the strengthening of protection that is built into the Bill. It is perfectly legitimate to seek to include protections against the breaking up of the loans package, the transfer of loans outside the jurisdiction of the Secretary of State, or multiple purchases.
Northern Rock has been mentioned. Experience of the financial collapse in the United States has made us suddenly aware of the complex world of debt sales in which packages of debts are broken up. Good debt is mixed with bad debt, and when the system collapses, all debt goes down the pan. The question for the House is how do we protect those who have taken out debts—people who would be exposed if everything did go pear-shaped? That is a perfectly legitimate question. My difficulty is with the legal significance of the words “shall” and “may”, and whether it makes any difference to the transfer of undertaking if a change is made in the opening line of clause 3(6), or between subsection (6)(a) and (b). I ask the Secretary of State to clarify that.
Rob Marris: He is not Secretary of State yet.
Alan Simpson: I mean the Minister.
During earlier exchanges, I thought that I was clear about the matter when the Minister’s comments in Committee were read out. In the light of those comments, amendments Nos. 9 and 10 appeared appropriate, as they would give precisely the sort of protection that the House sought, without compromising Treasury rules about what amounts to a transfer of undertakings.
In principle, I oppose the sale of student debt—full stop.
John McDonnell: I should like to define my position because I do not want my hon. Friend to misunderstand. I wish to replace “may” with “shall” because I want future sales to take place by way of the Secretary of State’s consent. Otherwise, there is no long-term assurance or security. I recognise the ingenuity of the Opposition amendments. If they gave us that control, it would satisfy me but fall foul of Treasury rules. They therefore fall between two stools. I humbly say that my amendment is simpler and clearer and that the Government should accede to it. If they did, we would all get the security that we want.
Alan Simpson: I agree with my hon. Friend but I am not sure whether the technical argument is that the amendment would preclude the whole process happening. Some of us may argue that that would be no bad thing, but I am trying to explore the next level of protection.
It is almost as if we are in a Catch-22 position. Those who have read the novel will recall a character called Major Major, whom one could get in to see only when he was out. If he was in, he was occupied, but if he was out, people were free to go and discuss whatever they liked with him. If the Minister says that including “shall” at any stage would compromise the transfer, and Treasury rules, we are embarking on a process that cannot offer any guarantees of protection in the new world of risk in which we are being invited to make rules. It leaves the process extraordinarily dubious on moral and practical grounds.
If we cannot build in the protections, we should not embark on a process that increases, rather than reduces, the risk of exposure. My preference is for amendment No. 4, which grants the “shall” protection to the whole clause. However, if the word “shall” were inserted after subsection (6)(a), would the transfer remain legal?
Bill Rammell: The debate is important. First, let me deal with the comments of the hon. Members for Bristol, West (Stephen Williams) and for South Holland and The Deepings (Mr. Hayes) about data security. The subject was debated at length in Committee, but, given that the concern has been raised again, it is important for the record to make it clear that there have been no breaches of data protection protocols in student loan administration. We are certain that no data have gone missing. Personal data are exchanged between the Student Loans Company and owners of sold, mortgage-style loans electronically, using a secure virtual private network or VPN. That VPN is facilitated using an internet protocol secure encrypted tunnel. As hon. Members who take an interest in such issues know, that method of data sharing is considered robust by industry standards.
In future, as we plan to require purchasers of income-contingent repayment loans to use the SLC to administer and enforce the sold loans, loan account data will not need to be transferred to the purchasers for day-to-day purposes. In the event of purchasers requiring access to data—for audit purposes, for example, as was mentioned in Committee—the method of data transfer would again be secure and encrypted. I hope that that provides the reassurance that was sought.
The intention of the amendments in the group is to ensure that borrowers continue to be protected in the event of the onward sale of student loans. I genuinely share hon. Members’ determination to ensure that the protection for borrowers that we put in place must still hold good after any onward sale—were I not assured of that, I would not be putting forward these arguments today—so that the graduate can continue to experience no difference in treatment.
Let me turn to the points that my hon. Friend the Member for Hayes and Harlington (John McDonnell) raised. As I made clear in Committee, the motivation for the legislation is not ideological; rather, the Bill is about the transfer of risk between the public and the private sector. It is about securing for the public sector—for the Government and the taxpayer—greater certainty about the income that we get from loans. That will generate a receipt that can be used for a variety of public spending purposes.
I should like also to address my hon. Friend’s comments about student bursaries. The student finance system cannot, in any shape or form, be described as not working, especially if we bear it in mind that applications for university this year are up in England by more than 6 per cent. and that the proportion of students from lower socio-economic groups applying is up too.
John McDonnell: We can talk about bursaries elsewhere, but the information that we have today is that 20 per cent. of bursaries in the Russell group of universities are not being used. That needs to be investigated, because those resources could be used to bring poorer students into higher education.
Bill Rammell: I certainly agree that all institutions need to communicate and market their bursary systems effectively. I urge my hon. Friend to study the Office for Fair Access report in detail, because it does not quite say what some pieces in the press suggest it does; rather, it says that the bursary system is working effectively. However, we are conscious of the need to ensure that the student financial support system is as effective as possible. I hope that my hon. Friend will support the changes that we announced to the student financial support system, starting from this September. We are significantly increasing the proportion of students who will receive non-repayable grants, so that eventually two thirds of students will receive such grants.
John McDonnell: Of course. I opposed the abolition of grants in the first place, and the amount of grant currently being awarded is a pittance in comparison with what some of us gained when we went to university. I therefore support the change in principle and will work with my hon. Friend to increase the amount and improve the system.
Bill Rammell: We are in danger of being diverted. The difference between when my hon. Friend and I went to university and now is that an absolute minority of the population used to be offered that opportunity—whereas in this day and age, we are talking about a mass system of higher education, in which there must be a balance of contributions from both the state and the individual who receives and is able to repay as a postgraduate on a fair basis, but with the additional support that comes from student grants.
Let me return to the substance of the amendments. I stress at the outset that once the loans are sold to a special purpose company and securitised, we expect it to be a rare occurrence—I would go so far as to say a very rare occurrence—that the loans will be sold on, because the sole purpose of the special purpose company will be to hold and receive income from them. The main market relating to sold student loans will be in financial instruments issued by the owners of the loans.
The loans sold in 1998 and 1999 were sold to major banks, in particular NatWest and Deutsche bank, which then created special purpose vehicles—thesis and honours—that hold the loans and issue the bonds. I understand that ownership of those loans has not been transferred, although there is an ongoing market in such bonds. However, in any sale the purchaser would
expect to have the right to sell the asset. That is part and parcel of ownership. The Bill will therefore enable the SPV to make onward sales of the loans if so desired, even though that is unlikely.
Clause 3 makes such onward sales possible and provides for the repayment system functions to get the appropriate repayments to the current owner of the loans. It also provides very important protections so that the Government can ensure that borrowers experience no difference in treatment following a sale.
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