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Orders of the Day
Sale of Student Loans Bill
Mr. Deputy Speaker (Sir Alan Haselhurst): I must draw the House’s attention to the fact that privilege is involved in Lords amendments Nos. 2, 3 and 15. If the House agrees to these amendments, I shall ensure that the appropriate entry is made in the Journal.
Clause 1
5.22 pm
The Minister for Lifelong Learning, Further and Higher Education (Bill Rammell): I beg to move, That this House agrees with the Lords in the said amendment.
Mr. Deputy Speaker: With this, it will be convenient to consider Lords amendments Nos. 4 to 6, 8 and amendment (a) thereto, 9 and 10.
Bill Rammell: Before I start on the detail of the amendments, I should like to place on record my appreciation of the constructive way in which hon. Members have contributed to the development of the Bill. Opposition Members will recognise among the amendments topics that we first discussed in this House, on which further debate followed in another place. The positive engagement across all parties in both Houses, but particularly between the two Front Benches, has helped fundamentally to improve the Bill, which meets our shared aim of providing an effective framework for a continuing programme of loan sales and offering full protection for borrowers.
Mr. John Hayes (South Holland and The Deepings) (Con): May I take this opportunity, even though it is very early in the Minister’s speech, to pay him the compliment of saying that he has dealt with these matters with great professionalism? I am grateful for his kind remarks, but they are also due vice-versa. I entirely endorse his view that the Bill has been improved by that engagement.
Bill Rammell: I thank the hon. Gentleman. One can always sense when constructive engagement has taken place because the Back Benches are empty on both sides of the House, which is what we see today.
I should like to proceed by commenting on the first group of Lords amendments, which relates to the effect of the sale on borrowers. Lords amendments Nos. 1 and 4 cover the notification of sales to borrowers and, as I underlined in Committee, we have always intended to let borrowers know when their loan has been sold. Having listened to the arguments, we have strengthened that intention—in Lords amendment No. 1—into an obligation for the Secretary of State to take reasonable steps to let all affected borrowers know within three months that their loan has been sold.
Lords amendment No. 4 would mean that, in the unlikely event of an onward sale of the legal title to the loans, the initial loan purchaser would be obliged to take reasonable steps to let the borrower know that their loan had been sold on. Lords amendment No. 5 also relates to onward sales. As I said in earlier stages of these proceedings, the borrower’s primary protection in the sales programme lies in the fact that purchasers cannot change the repayment terms, which remain governed by regulations. That is an important protection, but we want the added safeguard that the Secretary of State can enforce any protections contained in the sales contract, including after any onward sale, however unlikely that might be.
The Bill has from the outset enabled the Secretary of State to insist on being a party in some form or other to onward transfers. Having listened to the arguments put by hon. Members here and in the other place, we have made it a requirement in amendment No. 5 for the Secretary of State to ensure in the initial sales contract that he is party to any subsequent contract transferring legal title to the loans.
Amendment No. 6 clarifies how the Bill addresses onward sales, putting it beyond doubt that the provisions of clause 3 relate only to the transfer of legal title of the loans. Without that clarification, potential purchasers and investors may be deterred from participating in loan sales in the mistaken belief that the Secretary of State will need to be a party to all transfers and the onward transfer of equitable rights that can take place in the context of a securitisation. That has never been our intention. Seeking to regulate this division of equitable interests would be unnecessary and unworkable, given the complexity of the structures. Only the legal owner has a relationship with the borrower and the student finance system as servicer, so the Secretary of State only needs to be able to regulate the legal owner’s dealings with the loans.
Amendments Nos. 8 and 9 will mean that, when making or amending the loan regulations or regulations under section 186 of the Education Act 2002, the Secretary of State must seek to ensure that borrowers will not as a consequence of the amendments be in a worse position simply because their loan has been sold. This provision will apply to all changes in regulations after any loans have been sold, not just where an undertaking may have been made. That represents a strengthening of the statement already made on the record that borrowers will not be adversely affected by their loan being sold. It will, I believe, give borrowers confidence that the commitment is intended to stand the test of time.
Finally, amendment No. 10 is a minor drafting improvement, expanding a cross-reference in clause 5(4) into a reference to the whole of clause 2 rather than just clause 2(2). That will indicate more clearly that the transfer arrangements in general may provide for exceptions to the presumption that all moneys relating to sold loans should be paid to the purchaser. Such an exemption could cover, for example, penalties relating to compliance with the tax system.
I am also aware of the Opposition amendment to Lords amendment No. 8, tabled by the hon. Member for South Holland and The Deepings (Mr. Hayes). I know that the Opposition wish to speak to that amendment, so I will respond to what is said about that later.
Overall, the amendments in the group represent valuable strengthening and clarification of how we will ensure that the borrowers’ interests in the loan sale programme are protected. On that basis, I commend the amendments to the House.
Mr. Rob Wilson (Reading, East) (Con): It seems quite a long time ago that we were last here debating this Bill. In fact, it was last January. It was such a long time ago that my hon. Friend the Member for South Holland and The Deepings (Mr. Hayes) has advanced another year—in fact, he does so today, so I hope that everyone will join me in wishing him a very happy birthday.
The long time for which the Bill has been in the other place seems to have been extremely well spent, as it appears that there is much for us to agree on today. I think that we can largely welcome what is before us, although, as would be expected of a diligent Opposition, we will wish to explore a few issues in further detail. I hope that I will not detain you for too long, Mr. Deputy Speaker; after all, lengthy periods of detention are Government policy, not Opposition policy, are they not?
Let me deal first with Lords amendments Nos. 1 and 4 together. They were proposed in response to another amendment tabled in the other place by Baroness Sharp. In moving Government amendment No. 1, Baroness Morgan said that it had
“always been our clear intention to let borrowers know when their loans are sold. Having reflected on the argument that it would be better to strengthen that intention into an obligation, we propose Amendment No. 1. The Secretary of State would have to take reasonable steps to let all affected borrowers know that their loans have been sold within three months of the transaction.”—[ Official Report, House of Lords, 2 June 2008; Vol. 707, c. 47.]
Conservative Members have raised these matters on several occasions, so it would be extremely churlish of us not to welcome these amendments. They build the Government’s intention to inform borrowers directly into the Bill, exactly where it should be, and they also give the purchasers of the loan an obligation to do the same. Letting those affected by changes know within three months is appropriate and welcome. However, it would be extremely helpful if the Minister clarified what will constitute “reasonable steps” in those circumstances, both for the Government and indeed for the loan purchasers.
5.30 pm
As the explanatory notes state, amendment No. 5
“would oblige the Secretary of State to ensure that initial sale contracts contain provision for the Secretary of State to be party to any onward sale contract.”
Conservative Members particularly welcome that concession by the Government. The Minister will acknowledge that it follows considerable pressure from us, not least from my hon. Friend the Member for South Holland and The Deepings, who referred to those matters in his opening remarks. Following debate on Second Reading and in Committee about onward sales, Conservative Members tabled an amendment on Report that would have ensured that the Secretary of State would indeed
have to be party to onward sales. A similar amendment was tabled by the hon. Member for Hayes and Harlington (John McDonnell).
As my hon. Friend the Member for South Holland and The Deepings said during the debate back in January:
“There are legitimate concerns about collateralised debt...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.”
The logic of such wisdom from my hon. Friend was so powerful that obviously the Minister could not resist.
Although the Minister expressed the need for flexibility in those matters, he conceded that if an amendment tabled in the other place could be worded in such a way as to ensure that the Secretary of State was party to any onward sale, while maintaining flexibility as to the specific mechanism,
“we would certainly consider it.” .”—[ Official Report, 23 January 2008; Vol. 470, c. 1558, 1570.]
The Minister has been as good as his word and has confirmed that today, so we are satisfied that this is an appropriate concession that fulfils our expectations.
The explanatory notes make it clear, as the Minister did in his opening remarks, that amendment No. 6 is essentially a technical measure. I therefore do not propose to dwell on it and shall move directly to amendment No. 8. I will also speak to amendment No. 9, and to the amendment in the name of my hon. Friend the Member for South Holland and The Deepings.
Let me be frank: our amendment is probing and it aims to tease out a little more reassurance from the Minister. We would like further explanation on the record about how those loans might end up in circumstances in which a particular loan structure changed. The explanatory notes state:
“Lords Amendments 8 and 9 would require the Secretary of State to give consideration to borrowers whose loans have been sold in making or amending loan regulations, and in making or amending regulations under section 186 of the Education Act 2002, so as to”—
“avoid detriment to any such borrower resulting solely from the fact that the loan is sold.”
Essentially, the Secretary of State must make a comparison to ascertain whether a borrower is worse off as a result of any proposed amendment to regulations. That must be compared with no change at all—that is, with what would have been the situation if the loan had never been sold.
Lords amendment No. 8 is specifically concerned with the financial impact on borrowers, about which Conservative Members have expressed unease during previous debates. The Minister said on the record, early on in the process of considering the Bill, that the Government
“want to be able to demonstrate, and for the reality to be, that a graduate repaying their loan finance will see not one iota of difference in the way in which that process is handled, whether their debt is owned by the Government or by the private sector.” ——[Official Report, Sale of Student Loans Public Bill Committee, 4 December 2007; c. 14, Q33.]
Conservative Members—and those with loans, watching avidly on BBC Parliament— will welcome that statement, which is to be commended.
However, Lords amendment No. 8 was tabled in response to concerns that Lords amendment No. 2 to clause 2 might leave borrowers worse off. In moving the amendment in the Lords, Baroness Morgan stated:
“No borrower will be in a worse position for their loan having been sold and, in developing the amendment on undertakings, we have reflected on the importance of borrowers being fully reassured on that fact. That is why Amendment No. 6”—
as it was numbered in the other place—
“will mean that, when amending the regulations, the Secretary of State must seek to ensure that borrowers will not be in a worse position as a consequence of their loan being sold.”—[ Official Report, House of Lords, 2 June 2008; Vol. 702, c. 54.]
We welcome the amendment and the noble Baroness’s comments, but we have some concerns about the effectiveness of her assurance, and that of the Minister, to borrowers.
In particular, we are concerned about the wording of the amendment, which does not appear to be as strong as it could be. Our amendment would give further certainty by leaving out the words “aim to”. We are uncertain what the Secretary of State would achieve by “aiming to” ensure that no borrower whose loan was transferred would be in a worse position. I would appreciate some clarification from the Minister on what exactly is meant by “aim to”. Would it, for example, be possible under the amendment for borrowers to be objectively worse off, so long as the Secretary of State had aimed to prevent that? Having read the certainty in the Minister’s words, and in those of the noble Baroness in the other place, I notice that Lords amendment No. 8 does not give the same level of reassurance and commitment. Why not? Will the Minister explain fully to the House why that was not possible?
I am also keen to learn the legal status of the current wording. What has the Minister been advised about the steps that would have to be taken to ensure that he had fulfilled his duty under the amendment? What advice has he been given about the possible legal interpretation of the amendment if a transfer were subject to judicial review? By removing the words “aim to”, our amendment would give a copper-bottomed guarantee to borrowers that they would not be worse off as a result of their loan being transferred.
Our main concern is for those who hold loans. We want to ensure that the exercise has no detrimental impact on them whatever. I urge the Minister to consider our amendment carefully and to fulfil his and the wider Government’s earlier reassurances to the House.
Finally, on amendment No. 10 to clause 5, the Government have conceded that the original wording in the Bill was not as clear as it should have been. As Baroness Morgan stated in her letter to Baroness Verma, dated 4 April, the amendment clarifies what the Government had always originally intended, and is “a minor drafting change”. That implies that the matter does not need much debate. But will the Minister put it on record that the provision is what the Government always intended, and that it is indeed “a minor drafting change”?
As the Minister has agreed, there is no doubt that the Bill has been much improved by Her Majesty’s Opposition’s thorough inspection and the Lords amendments. Therefore, I thank the Minister and his colleagues for the professional and constructive way in which they have engaged with us.
Stephen Williams (Bristol, West) (LD): May I associate myself with the outbreak of friendly relations between the Government and Conservative Front Benches? All our debates on Department for Innovation, Universities and Skills matters, whether on this Bill, in Question Time or on the speaking circuit outside the Chamber, are conducted in a friendly and well-informed manner.
I welcome Lords amendment No. 1, which was tabled in response to an amendment moved by my colleague Baroness Sharp of Guildford in another place, calling for the borrowers to be included among those who are notified of the change of circumstances and the accompanying information, about which the House will be informed, once a sale has taken place, and for that notification to take place within three months.
Lords amendments Nos. 4, 5 and 6 concern further transfers and onward sales, and stipulate that the Secretary of State should be a party to them to ensure that the Treasury’s interests are safeguarded. They also clarify the fact that the onward sales are of the legal title rather than equitable interest resulting from, for instance, securitisation.
Let me raise again an issue that was raised by me and by others back in January, on Report. I assume that in all these cases the agency that will issue the various notifications on behalf of the Secretary of State will be the Student Loans Company. I do not think we want the borrower to receive multiple notifications about different aspects of his or her accumulated debt from different agencies such as the purchaser of the debt, the Department, the Student Loans Company and, indeed, Her Majesty’s Revenue and Customs. I should welcome the Minister’s comments on how it can be made clear to borrowers what has happened to their loans on graduation.
Mr. Hayes: An audit trail will be necessary. The position could become quite convoluted over time as debts are sold and resold. Good records are important, not just for the borrower but for everyone.
Stephen Williams: I agree that it is important to have accurate records—and also for them not to be lost by anyone. However, we do not want a large number of agencies to have to keep accurate records of the addresses, income and circumstances of borrowers. Once young people graduate and their incomes start rising, they tend to move about a good deal. Certainly that was my experience after I graduated. Retaining the Student Loans Company as the primary agency to continue the relationship with the borrower seems to me to make good sense.
As for Lords amendments Nos. 8, 9 and 10, I was puzzled by the insertion of the phrase “aim to” by the Government, or their draftsmen, in the clause that deals with ensuring that the borrower is not put in an adverse position once his or her debt has been sold on. I am sure that such clauses are always carefully drafted on the basis of good advice from Treasury or other Government draftsmen. No doubt there is a good reason for the Government to “aim to ensure” that graduates are not put in an adverse financial position, rather than to ensure that they are not.
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