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That leads me to wonder how the sales of the debts are selected. I had thought that there would be blocks of debt rather than individual debts. Might not the debt being sold turn out to be that of graduates with a good
record of repayments rather than those with a patchier record? I do not think we want to find ourselves in a Northern Rock-like position in which the good debt is privatised and the no-so-good debt remains on the Government’s books.
Mr. Hayes: I suspect that that is exactly what will happen. The debts of those with a secure record of repayment will be by far the most appropriate to sell first, because they will be the most attractive.
Stephen Williams: I am glad we agree on that.
The insertion of the phrase “aim to” suggests that the Government cannot be sure that they can determine whether borrowers will be adversely affected by either the sale of their individual debt or their inclusion in a block of debt that has been sold. It implies that they cannot be too precise about the conditions. I think that the hon. Member for South Holland and The Deepings (Mr. Hayes) was right to probe the intention of the insertion of the words “aim to”, and I look forward to hearing the Minister’s justification of it.
Bill Rammell: We have had a constructive debate. First, let me confirm that the proposition in Lords amendment No. 10 was always the Government’s intention, and that this is a minor drafting amendment. We have throughout the passage of the Bill also made clear our current intention that the Student Loans Company will take on the responsibility of the ongoing relationship with the borrower, and that it will take the “reasonable steps” to inform all affected borrowers on behalf of the Secretary of State. On the point about the importance of clarity in that relationship, and the need not to create a multiple set of relationships, we need to be clear that the SLC will carry out that function, and that we do not expect onward sales to take place. Under amendment No. 4, there is the further proposition that the initial loan purchaser will also be obliged to “take reasonable steps” to let borrowers know that their loan has been sold. That is there as a belt-and-braces response, but I do not envisage that way forward as ever being necessary.
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The hon. Member for Reading, East (Mr. Wilson) asked what is meant by taking “reasonable steps”. We would expect a letter to be written to each affected borrower at the current address held by the SLC. That is an appropriate response because, importantly, borrowers are under an obligation to keep the SLC informed of their up-to-date address—a fact that is relevant to a point made by the hon. Member for Bristol, West (Stephen Williams).
Stephen Williams: What is the Minister’s assessment of the current state of the SLC database? For how many borrowers is it sure that it holds an accurate and up-to-date address?
Bill Rammell:
I cannot give an off-the-cuff response, but the hon. Gentleman has asked me several written parliamentary questions on this subject, and if he looks at the record he will see that we are getting substantial income flows to the SLC, and we would not be doing so
unless we had a good set of addresses for graduates who have gone through the system. I hope that reassures him.
Mr. Rob Wilson: I seek the reassurance that there will be no cross-checking of graduates’ addresses through Her Majesty’s Revenue and Customs.
Bill Rammell: There are very clear arrangements for the transfer of data between the SLC and HMRC, which I set out in detail in Committee; significant reassurance was given on that issue then, and I reiterate it here.
Let me now turn to the amendment tabled by the hon. Member for South Holland and The Deepings (Mr. Hayes) to Lords amendment No. 8. As I have said, throughout the passage of the Bill it has been a key Government commitment that the borrower will not be disadvantaged as a result of any sale. It must be appreciated that we are dealing with a complex and technical regime that interacts with the tax system, and where there are a large number of moving parts there may occasionally be unintended consequences, which we would, of course, seek to rectify as soon as we became aware of them. Given that set of circumstances, it would be wrong to render changes unlawful because of a possible minor or technical infringement that it had been impossible to predict. I want to stress that amendment No. 8 does not give Ministers scope to weaken their commitment to the borrower. Under the duty it puts in place, no Minister could knowingly make an amendment to the regulations to the detriment of a borrower whose loan had been sold.
Mr. John Redwood (Wokingham) (Con): Is the Minister saying that there will be compensation from Government funds if the borrower is inadvertently worse off?
Bill Rammell: If there is a technical infringement that puts the borrower in a worse position, the Government will have to respond; in those circumstances, they will have to make clear their commitment to borrowers. However, the key point is that under the duty this amendment puts in place, no Minister could knowingly amend the regulations to the detriment of a borrower whose loan had been sold.
Let me now turn to the purpose of the wording.
Mr. Hayes: I shall intervene before the hon. Gentleman moves on, as he might want to amend what he is about to say. It seems to me that the argument he is developing is that the obligation will be to ensure that the Government’s intent was appropriate. What we are concerned about is the outcome. The intent might well be appropriate but if the outcome was detrimental to borrowers, the Government’s intentions would not be of much comfort, would they?
Bill Rammell:
In those circumstances, the Government would have to respond very quickly and put that right. In dealing with this amendment, I asked officials to envisage for me the circumstances that might pertain in such a situation. We find it very difficult to envisage such a situation and to identify the problems that might occur. However, this is a belt-and-braces response that makes it clear that there would be a responsibility on the Government, in those unforeseen circumstances, to put the situation right, but the purpose of the wording
is simply to ensure that if any unintended consequence of an amendment to regulations had such an effect, the repayment regime would remain lawful pending correction of the unintended error, which would clearly be a responsibility for Government. Otherwise, there is a risk of potentially important aspects of the intended and proper repayment regime being rendered unlawful because of minor errors. That would not be in anyone’s interests.
Although the Government’s commitment to the borrower is clear, in this context, we consider the proposed amendment to the amendment to be too inflexible to work. Having listened to the concerns expressed, and responded on the parliamentary record to them, I now hope that the Opposition will not press their amendment.
Mr. Hayes: I beg to move amendment (a) to the Lords amendment.
Mr. Deputy Speaker: With this it will be convenient to consider Lords amendment No. 3, Lords amendment No. 7, amendment (a) thereto, and Lords amendments Nos. 11 to 16.
Mr. Hayes: Perhaps I might start by again echoing the spirit evoked by the hon. Member for Bristol, West (Stephen Williams), who leads for the Liberal Democrats, and indeed by the Minister: a determination to ensure that the Bill does what it is supposed to, but, equally, to proceed in a spirit of co-operation wherever possible. I will not say collaboration, but there certainly should be co-operation—and to that end, both in this place and the other place, the official Opposition have done their best to improve the Bill.
It is in that spirit that I speak to the amendment that stands in my name, and that represents the Opposition’s position on Lords amendment No. 2, which was introduced by the Government. It was a significant addition to the Bill and is therefore worthy of detailed scrutiny here. By its nature, it has not been discussed here until now, and I think we might say unusually so. Although it is of course the Government’s privilege—indeed right—to move amendments in the Lords, to do so in such a fundamental way is unusual; I say no more than that.
The amendment that we are seeking to amend is about transfer arrangements, particularly undertakings by the Secretary of State about the power to make loan regulations. As you will see, Mr. Deputy Speaker, the amendment goes into some particulars, although I will not discuss them exhaustively. Our amendment is designed to leave out paragraph (a) of the Government amendment that speeds its way here from the Lords, because the powers granted by that amendment are very permissive and wide-ranging. I shall detail the explanatory notes, if I might, Mr. Deputy Speaker, because it is important:
“Lords Amendment 2 would enable the Secretary of State to include in the sales contract with a purchaser undertakings about the exercise of the power to make loan regulations (which include terms and conditions of student loans). Such amendments to the
loan regulations would have effect in relation to sold and unsold loans. The intention of the amendment is to reduce the uncertainty about changes which the Secretary of State could make to the terms and conditions of the loans.”
The question of certainty—to whom, and about what—is of great importance when considering the amendment, which has already been subject to considerable debate in the Lords. Members present will have read with some care the record of that debate, but what they may not have been privy to is some of the correspondence surrounding this matter. In a letter to Baroness Vermer dated 4 April, Baroness Morgan, who leads for the Government in the Lords on these matters, indicated that the amendment was principally about value for money. Following discussions with the Government’s adviser on the loan book sale, Deutsche Bank, she argues that it has become necessary for the Government to think again about the precise nature of the likely sale and its circumstances. She says in the letter:
“Because we are legislating for a long-term programme of sales”—
the Minister, indeed all the Government Front Benchers, have made it clear that this is enabling legislation, and we understand that these sales may take place over a considerable period—
“and want to ensure sales achieve good value for money we think we ought to have at our disposal more than one way in which investors can be given confidence that a change in the terms and conditions of repaying the loans will not affect the value of the asset they have bought.”
Let me put that into rather clearer terms for the benefit of the House and, indeed, the record. The gist of it is this. If potential purchasers of part of the loan book were able to suggest that they were buying an unquantified risk, they might well drive the price down, and they might do so in circumstances in which they felt that the Secretary of State could change the loan terms, even though they had bought the product. It is perfectly acceptable for the Government to say, following advice, that that would make the whole process untenable, and that a potential purchaser would—if I may put it in the terms sometimes used in these circumstances—have the Government’s hand twisted up behind their collective back. No salesman wants to be in that situation, and in these terms the Minister is indeed the salesman for the Government, trying to sell the loan book at the best possible price. That is certainly in the interest of taxpayers.
However, having made the judgment that that was perfectly arguable and would justify the kind of amendment that the Government have tabled, Ministers indicated in subsequent discussions in the Lords that the reason for their amendment was rather different. They actually indicated that the amendment concerns the uncertain status of the loan book after sale and whether it would be counted as sold by the Office for National Statistics. In other words, on the one hand we were being told that this is a necessary change to facilitate the best commercial relationship with potential purchasers—to secure the best deal, if I might put it that way—and on the other, we were being told that it is a technical requirement to ensure that the asset had been shifted, so far as the ONS was concerned, from the public to the private sector. In the Lords Committee debate, Baroness Morgan stated:
“We do not want to put future Governments in a position where the only means they have to address the issue of future policy change became something that, under future rules, led to
the transaction not counting as a true sale. We know that this is a real risk, as the classification rules have changed significantly since the previous sales of student loans a decade ago and we would not now be able to sell student loans in the way we did then.”—[ Official Report, House of Lords, 8 May 2008; Vol. 701, c. 192.]
So I think it fair to say that there is some confusion about the advice that Ministers received from the sales arranger, their adviser Deutsche Bank. Did that advice also concern whether a transaction would count as a true sale or was there separate advice from a separate source that sponsored—encouraged—the Government to construct and propose their amendment? Was the advice only about value for money, an issue to which I shall return in relation to Lords amendment No. 7?
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The fact that the sales arranger thought it possible that the terms of the sale needed to be revised raises some questions, particularly in the current financial climate, about whether a good value deal can be secured, especially for the first sale. The essence of my point is to discover which is the more important to the Government: is it, as we have now been led to understand, the technical change that they claim that they have to make to satisfy the ONS—that position is perfectly feasible and supportable—or is it, as we were first led to believe, that the Government fear that they will not be able to sell the loan book, in part or as a whole, at an attractive price unless they make the product altogether more agreeable from the perspective of potential purchasers? If that is the reason driving the Government, the spectre—I do not want to be alarmist in any way, because that is not in my character—of the loan book being sold off at a price that would not be in taxpayers’ interests, at a time that would not be optimal and in a fashion that would not be agreeable to this House or to those whom we represent begins to hover over our otherwise agreeable proceedings.
That explains the reason for our amendment (a). Discussions have taken place on the Floor of the House, in Committee, in the Lords and privately about these matters, but we felt it important to put our concerns on the record in the form of our amendment. Concern was expressed in the Lords about the permissive nature of the Government’s amendment, and I have made reference to that. Our amendment (a) would enable the Minister to give undertakings that are enforceable in law and that bind the hands of his successors. It would enable Ministers not only to give undertakings that the loan regulations will not be changed, but to give undertakings so as to achieve a specific result. Our amendment (a) proposes to remove paragraph (a) from Lord amendment No. 2, but it is essentially a probing amendment, which doubtless comes as a relief to Ministers. It aims to ascertain what undertakings may be made by Ministers in this regard. Could the undertakings have an impact on the threshold for loan repayments or the interest rate for repayments?
My principal concern is, as it has been throughout these proceedings, not only for recipients of student loans, but for taxpayers. We must ensure that we secure best value for money as this asset moves from the public to the private sector.
Mr. Hayes: I am happy to give way to my right hon. Friend, who is a great authority on these things.
Mr. Redwood: There are two ways of securing a more attractive selling price. The first is legitimate: the Government should say that they are not going to intervene in an unhelpful way and give as much certainty as possible to the potential purchasers. I think that that is what they are trying to do, and I am interested in hearing my hon. Friend develop the argument. What would be unacceptable to this House is if the other way were adopted. That would involve allowing the buyers to up the amount of money that they take off the students. The Government are desperately trying to balance those matters, so I would be intrigued to learn whether my hon. Friend has had the benefit of any advice from those acting for the potential vendor as to how one maximises the price within those constraints.
Mr. Hayes: The tension between those two imperatives lies at the heart of the matter. I do not wish to complicate our considerations, but may I also add a third: that the Government are obliged to deal with these things rather more hurriedly than they or the House would wish? They have made it clear—Ministers have been straightforward about this—that they need to sell the loan book pretty quickly, because they factored income from that sale into their spending plans.
My right hon. Friend will know, given his extensive business and City experience, that it is not always wise to sell something at an inappropriate time and it is not always—perhaps never—wise to let potential purchasers know that one is going to do so. That drives the price down, because they then say that the Government have to sell, because if they do not, they will be short of brass. That is what this boils down to. We have a fear about the Lords amendment, so our probing amendment— I reassure the Minister about its nature—aims to ensure that he has the opportunity to clarify, on the record, the nature of the sale that will doubtless ensue as a result of this enabling legislation. My right hon. Friend is right to say that the interests of borrowers and taxpayers have been at the heart of our considerations. We would complain bitterly if, after this period of friendly co-operation, the Government used this legislation at the wrong time and got a lousy deal. If we did not complain in such circumstances, we would not be doing our duty to this House or to taxpayers.
There is a danger that the Government’s Lords amendment will transfer any uncertainty about future repayment terms from potential purchasers of the loan book to borrowers. That would not be a satisfactory outcome. The additional permissiveness at the heart of the amendment may be warranted, but at the very least, we need to know what the Government are thinking, why they are thinking it and who has advised them. I know that the Minister will be anxious to clarify his and the Government’s position at the earliest opportunity.
On Lords amendment No. 3, I should point out that the explanatory notes state:
“Lords Amendment 3 would ensure that the scope of undertakings given by the Secretary of State could extend to regulations under section 186 of the Education Act 2002, as well as to the loan regulations under section 22 of the Teaching and Higher Education Act 1998. Under section 186 of the 2002 Act, the Secretary of State may make regulations enabling the Secretary of State to make repayments on behalf of borrowers, or to reduce or extinguish
the amounts owing by them. The amendment would allow the Secretary of State to make binding promises about how this power would or not be exercised.”
Lords amendment No. 7 would insert a new clause into the Bill. I ought to say at this juncture that I am extremely grateful to the Minister for accepting the representations made to him on this subject. The new clause deals with the kind of reporting that would take place after transfer arrangements have occurred. In essence, the Government are saying that parliamentary scrutiny, which we all want in place, will be ensured by a report, brought to this House, on the arrangements pertaining to the sale. The amendment states:
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