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Clause 3(6) provides three options for methods by which the Secretary of State can be a party to onward sales, ensuring that the Government have the flexibility, which is important, to provide protection for borrowers in future sales contracts. The Bill enables a long-term programme of sales, so we need to ensure that it gives us the options that we may require to achieve our aim of protecting borrowers, as transactions and contractual arrangements are likely to evolve over time.
As I explained in Committee, clause 3(6)(a) is an option that we may want to use in future contracts. It would require the Secretary of States explicit consent for any onward sale of transferred loans. That option is rightly included in the Bill, in case future legal circumstances make such a provision appropriate. At the moment, however, we cannot include such a provision in sales contracts, because, under the current classification rules, the Government would not achieve a full transfer of ownership if the Secretary of State retained control over the loans in that way. Resources would therefore not be released for sustainable investment on the Governments priorities, negating one of the central purposes of the sales programme.
John McDonnell: The reality is that the resources would still be received, but they would be beyond the Treasury books. They would still be available. On what grounds, on what basis and in what circumstances would the Secretary of State intervene to require his or her permission, approval or consent?
Bill Rammell: I will address that issue, but we are seeking through one of a number of options a mechanism to secure the Secretary of States interest that secures the graduates and the repayer of the loans interest. That is critical to ensuring that the terms and conditions for the repayer are not changed.
Bill Rammell: It is an option that we may want to exercise in future if the ONS rules change. We could then use that mechanism as opposed to other mechanisms that can secure the Secretary of States interest. I will describe how that would work.
I also want to address the comments of my hon. Friend the Member for Wolverhampton, South-West (Rob Marris). In Committee, he raised the issue of whether the use of the word would would mean that the ONS might, or definitely would, classify such matters
Let me be clear on the issue. The decision will always be one for the ONS, but the Government and I are confident that a statement as stark as, You cannot sell the loans on without the Secretary of States say-so, would, under the current classification rules, trigger a decision that it was not a true sale. That is our judgment, and we want to keep that option in case of a future change in the classification rules.
Clause 3(6)(b) and (c), which are addressed by the amendment, provide two legal ways of achieving the same end: to ensure that the Secretary of State can enforce the terms of the original contract against future purchasers. That might include provisions that, for example, purchasers must continue to administer loans though the Student Loans Company, or that borrowers continue to have access to a mediator in the event of dispute. Clause 3(6)(b) would achieve that end through contractual novation, which effectively means substituting the subsequent purchaser for the original purchaser in the contract with the Secretary of State. Clause 3(6)(c) would allow the Secretary of State automatically to be a party to any subsequent sales contract, so that he would be able to enforce its terms. It is important that we retain both those options so that we can use whichever is most appropriate at the time of a sale, bearing in mind the long-term nature of the intended sales process. I do not want to restrict our hand at this stage if, in the longer term, that would compromise the Secretary of States interests and those of the borrower.
Mr. Hayes: Things are becoming clearer by the moment. In answer to the intervention by the hon. Member for Hayes and Harlington (John McDonnell), the Minister effectively said, in respect of clause 3(6)(a), that may means wont. In respect of clause 3(6)(b) and (c), he is now saying that he wants to add or or either. If we were to add shall, either and or, presumably he would be happy. Why will the Government not do that?
I understand amendment No. 9 to be intended to make it mandatory to follow one or other of the alternative approaches, although as drafted, it would make both mandatory, which makes no sense. We think it likely that one or other of those mechanisms will be appropriate, but it would not be right to make it mandatory to use one or other of them, as another contractual device to achieve the same end might be more appropriate, or become so in the future. For that reason, I cannot accept amendment No. 9.
In that case, we only need to add either, or and a suffix that says something like or an equivalent vehicle to achieve the same purpose. This is a straightforward matter, yet we seem to be dancing on the head of a pin here. The Government are saying that they agree with us, and they are more than capable of wording an amendment of their own that
would satisfy the House and the intentions of my amendments and that tabled by the hon. Member for Hayes and Harlington.
Bill Rammell: The only problem with that proposition is that that is not what is on the Order Paper. It is not what the hon. Gentleman tabled in his amendment. At first take, however, his proposal strikes me as being potentially reasonable. If his party were to table such an amendment in another place, we would certainly consider it.
John McDonnell: May I be clear, then, that if shall were used in regard to clause 3(6)(b) and (c), it would not offend against Treasury rules or ONS classifications, and that the proceeds would not therefore count as being on the Treasury books? May I also ascertain that, at the same time, such a provision would not give the same protection as would be provided by the use of shall in regard to paragraph (a), which would require the Secretary of States consent?
Bill Rammell: Depending on the circumstances, all the options secure the Secretary of Statesand therefore the repayersinterests. With regard to the use of shall in respect of clause 3(6)(b) and (c), that is a judgment for the ONS. My understanding, based on advice, is that that would not contravene ONS rules.
Finally, let me turn to amendment No. 10. I have already said that we think it unlikely that the loans themselves will be sold on. However, we have to allow purchasers to sell them. We cannot exert substantial control over such matters, since to do so would mean that the transaction would not constitute a sale. We cannot have it both ways. Once we have sold an asset, it belongs to someone else, so we cannot decide whether it is sold again or whether a subsequent purchaser will be resident in England and Wales. Indeed, any obligation to confine ownership to an organisation in England and Wales would contravene European Union law, as the Conservatives are aware. That is why it is so important to understand that we are not in the first place giving purchasers the right to change terms and conditions of the loans. What we are selling is the right to repayments of principal and interest outstanding on the loans. That is the borrowers primary protection. Clause 3 also gives the Secretary of State the options that he needs to ensure compliance with any protections that are included in the sales contract.
Mr. Hayes: It seems to me that the Minister is moving towards a position that has been articulated across the House. For the sake of clarity, let me say that I shall not press amendment No. 9, given that, as the Minister acknowledged, it might be framed differently in the other place to make it more acceptable and to do the job better.
To conclude, I am confident that the Bill as drafted provides the Government with appropriate and necessary flexibility to protect borrowers in the event of an onward sale and I am happy to go on the record once again to commit the Government to achieving such protection for all transfer arrangements. On that basis, I hope that the amendment will be withdrawn.
John McDonnell: I am grateful for the Ministers assurances, but I have to say that what he has suggested falls between two stools and does not give me satisfaction about the security of a Secretary of States consent. If it did, it would offend against Treasury rules, so it would not be feasible in terms of how the Government would calculate what is on the Treasury books. If the two other paragraphs in the clause are amended in the other place, they will not provide the same security; if they did, they too would fail to comply with Treasury rules. My hon. Friend the Member for Nottingham, South (Alan Simpson) has already mentioned Catch-22, and we are in a Catch-22 situation here.
Mr. Hayes: I am not sure that the hon. Gentleman is right about that. Far be it from me to speak for the Minister, but I believe that when he described the Treasury rules, he was absolutely clear that he was dealing with paragraph (a), not paragraphs (b) and (c).
John McDonnell: Let me be very clear. The Minister has said that his advice from the Office for National Statistics was that paragraph (a) would be classified at present as falling against Treasury rules in giving too much control to the Government. He has also said that paragraphs (b) and (c) fall against my criteria because they give insufficient control to the Government. That is the Catch-22. I shall not press the amendment, but having heard expressions of the Governments good will in the Ministers response, let us hope that the matter can be resolved in the other place on the basis of some of the suggestions in the amendments that we have debated today. I beg to ask leave to withdraw the amendment.
in respect of that default by that borrower.
I would like a quick walk round the block on these amendments, if I may put it that way. The amendments relate to clause 4(3) and they are not designed to bring about substantive changes to the Bill, but to clarify its wording. As I read clause 4(3), it allows reimbursement to loan purchasers of some of their costsbidding costs, for examplea practice that has become fairly common in recent years. The Government often struggle to get people to bid on private finance initiative contracts because due diligence can cost tens of millions of pounds, so in order to encourage a range
of bids, prospective bidders sometimes get their expenses met by the Government. That is what I thought the subsection meant, and I did not think that it was a good idea to reimburse bidders. Amendments Nos. 1, 2 and 3 were designed to re-focus what it meant in the light of our debates in Committee.
Since the Public Bill Committee sitting of 4 December, I have had an opportunity to look at section 22(5)(f) of the Teaching and Higher Education Act 1998, which is mentioned in clause 4(3). I think that I now understand what subsection (3) actually means, but I would like the Minister to clarify the cross-reference to section 22(5)(f) of the 1998 Act. If my first understanding of clause 4(3) was faulty, it is perfectly possible that my second understanding of it is also faulty. That is why I would like some clarification from the Minister before deciding whether to press my amendments.
reimbursement of costs or expenses incurred by a loan purchaser
sympathetic to the framing of that amendment, but I need to look at it in detail. If I can be reassured that it would not have an unintended consequence, I will be happy to accept it on Report. [Official Report, Sale of Student Loans Public Bill Committee, 4 December 2007; c. 64.]
My hon. Friend has said that neither the Bill nor the explanatory notes explicitly specify that the reimbursement described in clause 4(3) refers to amounts payable by a borrower. That is true, but as I think my hon. Friend accepts, the point is made explicitly in the Act to which the subsection refers. Section 22(5)(f) of the Teaching and Higher Education Act 1998 allows the Secretary of State to make regulations enabling the recovery of specified costs and expenses from the borrower incurred in recovering the outstanding balance of the loan. The wording of the existing legislation refers explicitly to borrowers. Clause 4(3) therefore simply enables those regulations to provide for the reimbursement that currently applies to the Secretary of State to be made to the purchaser of sold loans.
On that basisand I have discussed this with my hon. FriendI genuinely believe that the amendment is unnecessary. However, I should be more than happy to amend the explanatory notes to make the meaning and effect of the subsection clearer. That was really the issue at the start of the debate, and I hope that on that basis my hon. Friend will be reassured.
Rob Marris: Such are the little victories of Back Benchers! I do not get to amend a Bill, but my hon. Friend the Minister has generously agreed to amend the explanatory notes before it goes to the other place.
a person acting on behalf of a loan purchaser
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