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There has been reference to other privatisations. We referred to the Mapeley incidents, and I had thought that we had learned lessons about whom we sell public assets to and about the requirements for detailed scrutiny
and the Secretary of States accountability for sales of public assets. In the current state of the market, the Government will do well to achieve the money they estimate they will get from the proposed sale. At the moment, the market is so rocky and there is so much insecurity; we face credit crunches, particularly in the housing market, and we may face a downturn and recession.
I caution the Government to consider seriously whether the coming 12 months is the right time even to launch the asset sale proposal. I would welcome a Government commitment that 12 months after any action on the sale, we would receive a full report that could be debated, inform future measures on the privatisation of public assets and help us to decide whether we are achieving value for money. I have considerable doubts about whether we got value for money on the first transfer of sales in the late 90s, and I certainly doubt whether we will from this sale.
I want to leave the Minister with no illusions. I oppose the legislation and the student loans system. However, I am convinced that at some point, the Governmentjust as they have moved in the past two years on the restoration of some maintenance grantswill return to the happy position of a full maintenance grant system, and that we will be able to abolish student loans in the long term.
Stephen Williams: It has been my duty on behalf of my party to carry the baton round the final lap of the debates on the Bill. I missed its Second Reading and Committee stage because I had a different responsibility at the time. I thank my hon. Friend the Member for Brent, East (Sarah Teather) for her work during the earlier stages of the Bill.
We have had a good discussion involving lawyers, accountants, business men and Back Benchers being mildly critical of their Government. We have also had an interesting discussion about the effect on balance sheet accounting of shall rather than may. It is a shame that we must now leave it to the other place to sort out an acceptable wording. Throughout, we have all been trying to achieve safeguards for students, value for money for the taxpayer, and transparency.
This is a small and technical Bill, but it involves a huge amount of money for the Government. It raises in excess of £6 billion to be allocated over the current comprehensive spending review period, so it could release £2 billion a year. I hope that higher education might see the lions share of that significant injection into the Treasurys coffers. The Government have made significant investment, in some cases through off- balance sheet financing, in the secondary school and further education estates, but there is an opportunity also to make further investment in the higher education estate, where some of the teaching facilities are perhaps not as good as youngsters now leaving school and college are accustomed to in their pre-18 learning experience. Higher education needs the investment to ensure that its teaching facilities match their expectations.
Debt is a very significant area of concern for students, as the hon. Member for South Holland and The Deepings (Mr. Hayes) rightly said, and that is reflected in the
most recent attitude report, The Student Experience Report 2007 put together by UNITE, the national private sector provider of accommodation that has its headquarters in Bristol. It showed that 74 per cent. of students currently have their borrowings from the Student Loans Company, but many of them have to take out secondary sources of finance as well, such that 41 per cent. also have a bank overdraft, 16 per cent. have outstanding credit card loans, 7 per cent. have a personal loan, and many others have second credit cards or store cards, or finance their university living expenses through unpaid utility bills.
Part of the problem is that the maximum amount by which students can benefit from the Student Loans Company is set at an unrealistic level. I was staggered to find that to live in my choice of hall of residence, or any other hall of residence, at Bristol university today would require the vast bulk of the maximum amount that the Government would allow me to borrow on cheap credit terms from the Student Loans Company, leaving me with only about £200 to buy my weekday lunches and to finance the purchasing of textbooks and the refreshments that are an essential part of the student living experience.
We need a fundamental review of how students living costs are financed for the three years or more that they are undergraduates at university. The UNITE report showed that 38 per cent. of students who were first years last year, when the report was put together, were already seriously concerned about their levels of debt. Serious research needs to be done about the fear of debt, which is even greater among students from lower socio-economic backgrounds, and the effect that it has on drop-out rates in higher education. The Government are to have a full-scale review of the financing of higher education next year, and I hope that that review will include a serious look at how students finance themselves through higher education, so that we can ensure that the burden of debt does not drive people out of it and undermine the Governments otherwise laudable agenda for widening participation.
Alan Simpson: I begin by reassuring my hon. Friend the Member for Hayes and Harlington (John McDonnell) that there is a consensus in this Housecertainly between usthat the shift from grants to loans was undesirable, and that the plan to shift loans from being public debts to private ones, which are somehow seen as more morally virtuous, is not acceptable. We are at one. He can rest secure as part of that consensus. However, it is important to recognise that important concessions have been made during the debate. I do not think anyone in the House needs the Minister to repeat the reassurances he has already given. Some important amendments were moved and debated this afternoon, and I am hopeful and confident that when they are reconsidered in another place, many of the points on which we were reassured by the Minister will be discussed.
I shall focus on two points. First, at some stage, this House ought to consider Treasury ruleswhat is permitted and what is not. It seems perverse to me that we have moved to a position where debt is morally virtuous if it is in the private sector rather than the public sector. That shift has taken place on a much larger canvas in
society. We in this House are obsessed with the control of public debt, but we have turned a completely blind eye to the escalation of private debt that ultimately has thrown the economy into a severe crisis. I hope that we all recognise that the Government are a more competent borrower than any of us are individually. They can borrow at rates that none of us could. We ought to consider why we adhere to rules that make a debt virtuous simply because it disappears off the Governments balance sheet. Enron tried to work in the same way and got into an horrendous mess. There is a case for philosophically considering how we honestly address the levels of debt and the management of debt in society.
Secondly, an inequality and an injustice is embedded in the system. It would have been tackled by an amendment tabled by my hon. Friend the Member for Hayes and Harlington, but unfortunately, we were not able to debate it. It dealt with the interest charges relating to student debt. They are supposed to be inflation-only debts, but we have almost ended up in an Animal Farm situation, where some measures of inflation are more equal than othersand some measures are more manageable than others. I am talking about the benchmark measurement against which inflation is judged as it is applied to student debt. That has a crucial impact on the management of debt for the individuals involved, and the scale of it is about £20 billion. In the next 10 years, that debt will amount to about £55 billiona figure ominously similar to the undertakings given to guarantee Northern Rocks survival. Those affected by the repayment of that debt are critically influenced by the calculation of inflation.
The Government measure for the calculation of inflation has been the retail prices index. That is a snapshot measure, taken in March, which judges the rate of inflation that is taken into account for student debt repayments. Last March, the rate doubled from 2.4 per cent. to 4.8 per cent. This was the subject of a huge number of complaints from students and graduates who are repaying debts. They pointed out that the Government use a number of different measures for inflation. The Prime Minister legitimately claims that inflation in the UK is 2 per cent. The consumer prices index measures it at just over 2 per cent. That is the benchmark against which the Government judge what is affordable for public sector pay increases. It leaves many students in a terribly anomalous position.
I tried to get the figures for students who, on graduation, move into some form of public sector employment. The latest figures that I could get were for 2005-06. In that year, more than 120,000 graduates went into public sector employment and carried with them their student loan debts. Since then, they have repaid the debts at the rate defined by the retail prices index, but their pay increases have been defined against the benchmark of the consumer prices index. Those 120,000 graduatesmore than half the university graduates in the UKfind themselves in a position whereby the charges on their debt repayments increased at twice the rate of the inflation that was recognised in their pay settlements. That injustice built into the process has been a constant source of grievance.
I hope that the Government will take the opportunity when the Bill is introduced in another place to examine a mechanism that gives us a single benchmark measure. We must all live with what is judged to be the rate of inflation. However, it cannot be fairI have yet to hear an argument that it is fairto use one measure of inflation to judge the rate at which students repay and another, lower rate to determine the basis on which they are paid. It would help the House and the process enormously if we used a consistent measure, given that more than half the graduates who leave university are affected by the problem. We should at least have a consistent and equitable measure.
Mr. Adam Holloway (Gravesham) (Con): I would like to say a little about the effects of the Bill on young people in low-income families because I was alarmed to learn that 18 per cent. of the population of my constituency have NVQ level 4 or above, compared with a national average of 27 per cent. and an average of 30 per cent. in the south-east. When I speak to young people in my constituency, I tend to get a stock response that they are worried about being saddled with excessive debt, which they have no realistic chance of repaying. A more fundamental problem is that they do not view higher education as worth the expense. That is not helped by press reports about the sparsity of well-paid graduate jobs. Although I support the principle that those who benefit from higher education should shoulder some of the cost, the statistics on participation rates in my constituency seem to represent a huge waste of talent. It worries me that the financial barriers to further education are still not being broken down rapidly enough.
I want to raise the potential for a new commercial owner of the student loans portfolio to increase interest rates on that asset to market rates, instead of maintaining the current subsidised inflation-linked rate, once the portfolio of student loans has ceased to be a public asset and been transferred to the private sector. We have all read in the newspapers about the impending credit crunch in the financial markets, which will bring the deteriorating availability of credit for companies and households and the increasing cost of borrowing throughout the economy. Clearly, the financial organisation to which the student loan portfolio will ultimately be sold as a result of the Bill expects to make a profit from the assets, and I wonder whether there will be a temptation in the current lending environment for it to boost interest rates on student loans to market rates once it has assumed economic ownership.
With the London inter-bank rate at around 6 per cent. and the interest rate on student loans at 4.5 per cent.a differential that, according to estimates by Professor Nicholas Barr of the London School of Economics, equates to a subsidy of about £1.2 billion a yearI wonder how any commercial organisation can agree indefinitely to offer loans at more than a full percentage point below the rate in the wholesale financial markets. The risk is that students will at some point face commercial rates on their student loans. A rise in interest rates of 2 per cent. to bring the terms on student loans in line with those attainable in the
broader financial markets could equate to an extra £300 a year in interest charges on the average debt of £15,000.
Finally, I should like to talk briefly about publicity schemes for low-income households. The Government claim that they want a participation rate of about 50 per cent. by 2010, but given the low rates of participation in further education in my constituency, I wonder whether more investigation is needed of the accessibility and visibility of the information on bursaries for students from low-income households. If we aspire to a fully meritocratic society, in which the financial circumstances of a persons parents are no barrier to educational opportunity, and if the perceived cost of university or further education is dissuading many from attending, should we not analyse whether more needs to be done to publicise the financial assistance schemes that might be available to those on low incomes?
Bill Rammell: I should like briefly to sum up the debate and to refer first to the previous speech, by the hon. Member for Gravesham (Mr. Holloway). There is an expression, Its a bit rich, and his contribution was extraordinarily rich. The commercial rate of interest that he described was exactly that which was put forward in his partys manifesto at the previous general election. Had a Conservative Government been elected, I have no doubt that he would now be supporting that policy. During the Committee stage, I asked whether that was still the Oppositions policy, and I understand that it is. I am most emphatically against a commercial rate of interest, so if the hon. Gentleman wants to apply pressure on the issue, he needs to talk to those on his own Front Bench.
The hon. Gentleman also asked what we should say to students who do not aspire to continue into higher education. I think that we should tell them the facts. We certainly should not exaggerate or use terms such as excessive debt. Under the postgraduate system of repayment that the Government have established, no student repays a penny until they are in work and earning more than £15,000 a year. On the average graduate starting salary of £18,000 a year, the repayments are as little as £5.19 a week. Those facts, along with the facts on the substantial graduate earnings premiumthe average graduate will earn, net of tax, £100,000 more than someone with just two A-levels over the course of a working lifeand all the other benefits of a higher education, should be at the centre of the arguments that the hon. Gentleman ought to be putting to his constituents.
The hon. Member for South Holland and The Deepings (Mr. Hayes), who leads for the Opposition, asked for reassurance and expressed concerns about the value-for-money framework. I have said on many occasions during the passage of the Bill that the value-for-money framework that I have read into the record is rigorous and robust. I have been wondering during this debate whether similar value-for-money frameworks were in place when much more substantial asset sales of public utilities took place in the 1980s. I do not recall that being the case.
The hon. Gentleman asked me about the projected valuation of the student loan book. We estimate that the valuation will be £21 billion next yearup from the
current £18.1 billionand £25 billion the following year. He also asked about the selection of the loans for sale, as did the hon. Member for Reading, East (Mr. Wilson). I want to nail this issue, because it is importantI made these points in Committee, but I will repeat them now.
From the outset, we will seek to offer for sale all those loans that we can sensibly expect purchasers to be able to value properly. We will be guided by the financial sector experts whom we are procuring to help us to prepare and execute the transactions. For initial sales, that might mean selecting for sale loans that are, for example, sufficiently connected with the repayment system through Her Majestys Revenue and Customs. Over time, as the repayment history of the loan book lengthens, potential purchasers will be able to model with confidence the value of an increasingly high proportion of the loans. In contradiction of what the hon. Member for Reading, East said, we will explicitly not select loans for sale based on the individual characteristics of loans or borrowers, but just by category, such as being in the repayment phase.
It will not be on a random basis.
we expect a random draw from the loan book. [Official Report, Sale of Student Loans Public Bill Committee, 4 December 2007; c. 31-32, Q88.]
Bill Rammell: That is not the case. If the hon. Gentleman reads the record carefully, he will see that the matter was made abundantly clear. When we talk about a random draw, we are talking in terms of the type of loan, not about picking and choosing between individual loans. It is important to make that clear.
The hon. Member for South Holland and The Deepings expressed a number of concerns about collection methods. Let me be explicitly clear. It is not, and will not be, for the purchaser to specify collection methods. Clause 1(4)(d) says explicitly that the Secretary of State may require the purchaser
to make specified arrangements in connection with the administration of loans.
In response to the comments by my hon. Friend the Member for Hayes and Harlington (John McDonnell), let me assure him categorically that I have no illusions: I am clear that he disagrees with me and the Government on this issue. I hope that he will accept, however, that it is a legitimate disagreement. There is a respectable left redistributive argument in favour of the system of student finance and fees that we have created. That is not his view, but others on the left take that view.
My hon. Friend made a point about hypothecation of the proceeds from the sale of student loans. Let me make it clear that our record of investment in higher education is the best for a generation: it has increased by 23 per cent. in real terms over the past decade. I caution him against arguing for explicit hypothecation.
Were we to put forward the argument now that the proceeds from sales must go to the higher education budget, that would create the grounds and circumstances for a future Government, who were not as well disposed towards higher education as we are, to say that higher education expenditure was dependent on loan sales. That would be a dangerous road to go down.
My hon. Friend also said that there should be no real rate of interest. It is important to make it clear that our RPI mechanism means that there is no real rate of interest. I would wish to assure my hon. Friend the Member for Nottingham, South (Alan Simpson), who is no longer in the Chamber, that that RPI rate does go up and down, but for the vast majority of borrowers with income-contingent loans it makes no difference whatever to their monthly repayments, which will continue to be deducted at the rate of 9 per cent. of any income over £15,000 per annum. The interest rate affects only their outstanding loan balance.
John McDonnell: My hon. Friend the Member for Nottingham, South (Alan Simpson) and I have received representations from the National Union of Students, which informs us that it has written to the Minister and received no response as yet. It would welcome a meeting with him, and would be pleased if we could arrange that and attend as well. I welcome him to the left in the discussion about the funding of higher education. At some stage, we will also have a welcome discussion about direct taxation. He will have another opportunity to demonstrate his left credentials next week, when I seek to raise the bar on national insurance contributions to pay for such educational achievements.
Bill Rammell: My hon. Friend will forgive me if I do not commit myself to that at this stage. I meet the National Union of Students regularly, have discussed the issues with it and will do so in future. If he wants to be involved in that, and to talk to me directly about it, I would be happy for him to do so.
The hon. Member for Bristol, West (Stephen Williams), who leads for the Liberal Democrats, managed to produce a complete speech without revealing that, when they had the opportunity to do something about this issue when they were in government in Scotland, the Liberal Democrats supported a postgraduate system of repayment that is no different in principle from the system that we have in England. He also managed to complete his speech without making it clear that the Liberal Democrats have no policy whatever on student fees, because they are reviewing their position. One Liberal Democrat think-tank has actually said that it agrees with the Governments position. Indeed, it has gone further and said that we should now commit to lifting the cap on tuition fees. That is not a position that I support.
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