 House of Commons |
Session 2007 - 08 Publications on the internet General Committee Debates Sale of Student Loans Bill |
Sale of Student Loans Bill |
The Committee consisted of the following Members:Hannah Weston, Celia
Blacklock, Committee Clerks
†
attended the Committee
Public Bill CommitteeTuesday 4 December 2007(Afternoon)[Miss Anne Begg in the Chair]Sale of Student Loans Bill4
pm
The
Chairman:
Before we begin line-by-line scrutiny of the
Bill, I have a few preliminary announcements. As I said this morning,
Members may remove their jackets if they so desire. Could they also
ensure that pagers and mobiles are off, or at least turned to silent? I
should also point out, yet again, that there is a money resolution in
connection with Bill, copies of which are on the Table in front of
us.
Clause 1Sale
of student
loans
The
Minister for Lifelong Learning, Further and Higher Education (Bill
Rammell):
I beg to move amendment No. 1, in
clause 1, page 2, line 4, at
end insert—
‘(4A) Transfer
arrangements shall have effect (and, in particular, a provision
transferring rights or obligations is sufficient to effect the
transfer).’.
I
did not say this morning what a pleasure it is to be under your
chairmanship, Miss Begg. I hope that all members of the Committee
realise that this is a minor and technical amendment. The intention
behind the Bill is to give the Secretary of State the legal power to
transfer his rights in respect of income-contingent student loans. We
have reconsidered the drafting of clause 1 and wish to remove any
potential for it to be construed in the commercial sector in a way that
differs from the policy intent behind the Bill. We want it be
completely clear that the Bill will give effect to transfers in itself,
rather than simply giving the Secretary of State the power to make
sales under general legislation governing contracts.
Although the
Bill as it stands is clear—that is certainly my reading, and it
was the view previously, including on Second Reading—it is
important that potential purchasers in the commercial sector should be
in no doubt as to what it enables the Secretary of State to do. If they
thought that there was any question over whether the transfer would
have legal effect, they would probably reduce their valuation of the
loan portfolio and any securities backed by it, which would clearly
damage our prospects of getting good value for money. It is therefore
appropriate to remove that uncertainty, however slight it might be, to
ensure good value for money for the taxpayer. This technical amendment
will put beyond doubt our intention, which is that the Bill, in itself,
will enable sales of loans that will have legal effect. I hope that
that is uncontroversial and I therefore commend the amendment to the
Committee.
Mr.
John Hayes (South Holland and The Deepings) (Con): What an
immense pleasure it is to serve under your illustrious chairmanship,
Miss
Begg.
The
Minister has made a case for what is essentially a technical change.
However, clause 1 permits the Secretary of State to sell to a purchaser
his rights and obligations relating to student loans, and sensitivities
were expressed on Second Reading and again during the scrutiny that we
enjoyed this morning about the precise nature of that transfer of
competence. In particular, many concerns have been raised about the
impact on students past, future and present, and about commercial
issues relating to the sale and possible subsequent resale.
I entirely
accept the Minister’s assurances about the effect on students
and that his intent is that they should see no difference. I accept
that the process is meant to be transparent and that students should
fully understand what is going on; indeed, they will be written to with
an explanation of the process. I also accept that they will see no
difference, because the circumstances will be identical; indeed, that
has been made clear in the explanatory notes, and in the
Minister’s comments on Second Reading and this
morning.
However,
there is the matter of Ministers’ judgment as to how they use
these powers in practice. For example, there is nothing in the Bill to
prevent different loan repayment arrangements, as long as those
arrangements are made with the Secretary of State’s consent. The
Minister dealt with that this morning and said that if a future
Government took a different view about loans, it might be a matter of
political imperative that the circumstances changed in respect of the
treatment and condition of graduates. Had the Committee been
considering these issues over a longer period, we might have tabled a
probing
amendment.
The
Chairman:
Order. Perhaps I can help the
hon. Gentleman. This is a debate on Government amendment No. 1. I
suspect that his speech should be made during the debate on clause 1
stand part, which I will be
calling.
Mr.
Hayes:
I am grateful for that advice, Miss Begg, which I
had anticipated. This is a short version of the very extensive summary
that I shall be giving in the clause stand part debate, but I take your
point that I need to address my remarks more specifically to the
amendment.
Perhaps
I can ask the Minister a simple question: will he tell us specifically
what rights or obligations will be necessary? Will he confirm, once
again, that the amendment will have no impact on the graduate
population concerned? Perhaps in the clause stand part debate we can
explore one or two of the wider aspects of clause 1, which, as I have
said, have given rise to concerns here and
elsewhere.
Bill
Rammell:
I am happy to give that assurance. The minor
technical amendment that we are considering will have no material
impact on graduates. It is being proposed simply to ensure that the
position that we knew and believed to be the case is absolutely 100 per
cent. clear so that there is no room for doubt. I hope, on that basis,
that the amendment will be agreed by the
Committee.
Amendment
agreed
to.
Question
proposed, That the clause, as amended, stand part of the
Bill.
Mr.
Hayes:
Perhaps I can continue on stand part, as advised,
where I left off a few moments ago, Miss
Begg.
This
matter is a question of how Ministers will use their power in the
future. Of course, it is not appropriate for this Committee, or indeed
this Parliament, to bind its successors in that regard. It might well
be the case that a different Government came to a different view about
student loans generally. Nevertheless, given that this is enabling
legislation—we heard that, in essence, both on Second Reading
and today—it is vital that we put on to the statute book
something that will have relevance for the foreseeable future, because
these matters might not be brought to a head immediately. Indeed, it
might be some years before the loan book is sold.
My judgment about that matter,
and in a sense my judgment about what lies at the heart of this aspect
of the Bill—clauses 1 and 2 set out the essence of the
Bill—leads me to ask how far we can reasonably protect the
interests of students in perpetuity. How far can we limit the possible
risks associated with the Bill without compromising the commercial
attractiveness of the products? That paradox, if I can put it in those
terms, underpinned much of our earlier discussion.
It is clear
that Members are anxious that adequate protection is built into the
Bill. Indeed, the Government moved the simple amendment that we dealt
with a few moments ago for that reason. However, it is equally clear
that the Government cannot build in such protection to a degree that
makes the product unsaleable. The debate that we will have over the
short hours—perhaps days, but certainly not weeks—of this
Committee will focus on that issue.
I am anxious, as I am sure that
the Minister is, to ensure that we have a robust piece of legislation
that protects the interests of all concerned, including the public
interest, while recognising that commerciality means that we cannot tie
up the Bill so tightly that no one would want to buy the product. I
think that that tension needs to be explored in some detail at an early
stage of our consideration.
I would like to say one more
thing at this juncture about the early clauses. There are real doubts
about both the reason for the Bill and its consequent effects. Let me
explain both those points. There seems to be an inherent confusion
about the motive for the Bill. If the motive is to transfer risk, let
us have a frank debate about why and how that will happen. If, on the
other hand, the motive is to realise the value of assets, let us be
frank about that, too. I am not sure that it can reasonably be argued
that the motive is to do both, because if this is to be an attractive
product, it must be advertised—as it has been by the
Minister—as fairly safe and secure, and not a risky thing to
purchase. If it is not a risky thing for a private investor to buy, it
cannot be a terribly risky thing for the state to
own.
If
the motive is realising assets, let us be equally frank. I think that
that is perfectly legitimate, and I have no ideological objection to
that process, to use the Minister’s words. However, if that is
the key objective, it must be underpinned by a secure and robust value
for money framework, as the Minister has described. I am not yet
convinced that we have an absolute assurance in these early clauses
that value for money can be guaranteed, given the vagaries of
Government policy and the changes that take place in ministerial
offices—not that we are expecting the Minister to change; we
want him here in perpetuity, at least until he is cast out at the
election.
Mr.
Rob Wilson (Reading, East) (Con): My hon. Friend makes a
very interesting point about whether the Bill is about transferring
risk or realising assets. Is he aware that in the Financial
Times on 15 March, it was suggested that the Prime Minister and
Chancellor were using the Bill to sell off public assets to keep the
national debt below 40 per
cent.?
Mr.
Hayes:
I struggle, because I am an
innocent in a world of cynics. I always tend to think the best of
people. My hon. Friend is a businessman of some esteem and has the sort
of sharp mind that those of us who are mere romantics can only envy.
However, he might be right that there will come a time when,
notwithstanding the assurances that we were given about value for
money, somebody in government—it could be the Chancellor, or
even the Prime Minister himself—will say, “Where can we
raise a bit of dosh? I know, we have this enabling legislation.
Let’s bang out the student loan book. We won’t get much
of a price for it, but it’s better than
nothing.”
Mr.
Gordon Marsden (Blackpool, South) (Lab): The hon.
Gentleman is making his point with his customary alacrity and,
certainly, some humour. If we are going into the fire sale area of
ancient history, we could perhaps relate some rather difficult examples
for his party. However, I will not stray down that
course.
Surely
it is perfectly possible to have a prudent approach on the overall
conduct of Government finance. Is it reasonable that a priority for the
Government’s time and effort is keeping something like student
loans in the public sector when there is a perfectly good and robustly
tested mechanism for transferring that risk to the private
sector?
Mr.
Hayes:
The hon. Gentleman is right. It is possible to
square that circle. While these things are juxtaposed, I do not think
that they are necessarily mutually exclusive. It is entirely possible
for the Government to be prudent, yet to take decisions that enable the
private sector to handle aspects of public policy. The Government
acting as a facilitator is a well established model in Westminster and
in local authorities, with which I know he is
familiar.
4.15
pm
For
the protection of the public interest, and of Ministers, it seems
important that the value-for-money framework should be well established
and well understood and should attract a degree of
non-partisan—one might say bipartisan or perhaps even
tripartisan—support. I have a feeling, as a result of this
morning’s scrutiny more than anything else, that we have to be
even clearer about that to ensure that the marriage between prudence
and appropriate lateral thinking on how the Government should handle
their affairs, as described by the hon. Member for Blackpool, South, is
made.
Will the
Minister find a way to frame the protection of public interest and the
value-for-money approach in a way that is entirely convincing? I
suggested that it could be appended to the Bill—I do not take a
definitive view on whether it should be on the face of the Bill or
expressed in guidance. However, we need more than we have. The Minister
is right: he mentioned it on Second Reading, it is in Hansard,
and he will mention it again today. However, as Ministers and policies
change, it would be useful to have something on value for money that is
set in stone. That was certainly the sense of this morning’s
discussions.
The other
issue with the early clauses was explored in some detail, and we will
no doubt return to it in our debate on clause 3. It is the question of
how far the Secretary of State should intervene, for how long and in
what circumstances. We talked at length about the Secretary of
State’s power. This morning we began to test how permissive that
power was. We questioned the Minister and tried to identify the
circumstances in which the Secretary of State might feel that it was
reasonable to intervene in a transaction subsequent to the initial
sale. People were concerned about subsequent sales and how far the
Secretary of State might intervene.
Clause 1 is about the principle
of the first sale, and clause 2 goes into a little more detail along
with clause 3. When the Minister sums up clause 1, will he speak a
little about how the initial contract for the sale of the product might
be sufficiently flexible as to have use beyond that first sale? In
other words, would the Government sell the loan book in part, making it
absolutely clear in the contract what the purchaser could and could not
do subsequently? We know that there will be restrictions on what the
purchaser can do in respect of those of the graduate population who are
borrowers.
We are
rather less clear about what the purchaser can do in commercial terms.
Can they resell the loans? How can they resell them? In what
circumstances? How will that resale affect the other considerations
that we talked about—the collection of debt, the circumstances
of the loans, and the robustness and reliability of the system? Should
that not be dealt with up front, as we consider clause 1, and in the
first contract? If I were buying the product, I would want to know on
what terms I was doing so. If I were selling it, as a Government, I
would want to know on what terms I was selling it and what might happen
further down the line. It seems to me that the issue of resale will
come back time and again as we consider the Bill. There are worries to
consider.
Sarah
Teather (Brent, East) (LD): I must confess that I am
learning as I go along, and I suspect that I am not the only person in
the Committee in that position. I understand from our sitting this
morning that what happens to the bonds is a little irrelevant; the
issue is what will happen to the special purpose vehicle and the extent
to which that can be sold on. That is where we will need to focus our
scrutiny later in Committee.
Mr.
Hayes:
That is a fair point and, in a sense, the
Minister’s reassurances are built around that vehicle. Again, I
think that we assume a shared support for the principle behind the
Bill, which was established in the debate on Second Reading. We are now
talking about the mechanics of the sale. Parliament is at its best when
we look at the details of something that we do not fundamentally
disagree about, because we can get rid of some of the partisan debate
and move on to serious
scrutiny.
Bluntly, the
problem is that, typically, one would expect that when a large debt is
sold or purchased it would be broken into parts and resold. That
frequently happens with the sale of debts. The Minister feels that that
will not happen in this case. Indeed, he painted a picture of the
special purpose vehicle for the sale that almost prohibited that
eventuality—it did not prohibit
it legally, but made it less attractive, one might say. In those
circumstances, it might well be less attractive to buy the debt. If a
potential purchaser is unable to resell it, that will affect both their
likelihood to buy it and the price that they are prepared to pay. That
is what I meant about striking a balance between protection and
commercial viability. I want the Minister to be absolutely clear about
it. He has obviously taken advice on the
matter.
It is clear
that the vehicle that he has described is designed to minimise risk for
the public interest and for the graduate population, but how does the
Minister expect that to interact with commercial viability when it is
marketed? Will it be marketed as something that is difficult to resell,
or that cannot be resold, or will it be marketed in an altogether more
permissive way? I began to get a picture of that this morning, but I
have yet to be fully convinced about how it might work out in
practice.
My
final point on the clause is a reprise of the question of the Secretary
of State’s capacity to intervene in those kinds of commercial
matters. There is no question that the Secretary of State is given
powers by the clause; the word “may” rather than
“will” is used a lot, as we will debate later.
Notwithstanding that, it is not clear how far those powers are designed
to intervene in commercial decisions. Are the powers designed solely to
prevent anything untoward from happening as it is perfectly proper that
they should be? Or are they powers that are likely to be exercised,
that the Government expect to be exercised, and that will be exercised
if the Government are unhappy about some of the commercial
circumstances? For example, the book might be sold in parts, in the way
that I described—notwithstanding the hon. Lady’s caveat,
which I appreciate—and there may be concerns about to whom it
was being sold. Would the book disappear abroad? Would we have any
concerns if it did? We might not, but let us at least have that debate.
I would like it to be clear in this and subsequent parts of the Bill to
what extent the Secretary of State is likely to intervene in some of
the commercial questions, rather than merely intervening to protect the
interests of graduates, important though they
are.
There are a
number of questions on which I would appreciate clarification. First, I
will pick up on the hon. Gentleman’s point about the purpose of
the clause. It would be very helpful if the Minister would lay out,
either now or at some stage during the Committee, which risks are being
transferred and which the Government are taking in a public and
transparent way for the organisation that is buying
it.
For
example, this morning we discussed that the Government are continuing
to take the risk of underwriting the debt if a graduate were to die, go
bankrupt, or fail to pay off their loan before the age of 60.
Presumably, that risk is accounted for in the sale, so the purchaser
would be aware that the Government were continuing to take it. I
presume that the Government have analysed exactly which risks they are
transferring, and it would be helpful to understand what those are. Do
the Government intend to hold a share in the special purpose vehicle or
will it be sold on in its entirety? Will they continue to have any
interest in it?
The debate on value for money
dealt with the extent to which we will realise the net current value of
the loans. Why have the Government decided to sell £6
billion-worth of loans in one go, instead of testing the market by,
perhaps, first selling smaller amounts? The hon. Member for
Wolverhampton, South-West spoke about private finance initiative deals
and the potential for large windfalls. If we sold loans in smaller
chunks, which is possible with such financial products, we could see
what happens with onward sales and whether initial estimates were
correct. Why have the Government decided not to do
that?
Finally,
on clause 1(4)(c),
what
“warranties or
indemnities or other obligations”
does the Minister envisage with respect
to a
sale?
Rob
Marris (Wolverhampton, South-West) (Lab):
It is a pleasure to serve under your
chairmanship, Miss Begg. I have a particular interest in this
Bill: the university of Wolverhampton is the most accessible mainstream
university in the United Kingdom with the fifth highest number of
students. Owing to that accessibility, it has a lot of poor students
taking out loans.
Will the
Minister provide further details on “transfer
arrangements”? That term seems to be very broad, even though the
Bill contains some qualifications of it. What is the mechanism and
role, if any, for Parliament in the scrutiny of such
arrangements? As I read the Bill, that will not be done through
statutory instruments, but will be a commercial decision taken by the
Department. Ultimately, of course, it would be for the National Audit
Office to investigate and for the Public Accounts Committee to examine.
However, will he say a little more about parliamentary
scrutiny?
Paragraph 16
of the explanatory notes, which deals with clause 1,
states:
“For
example, the Government does not intend to grant purchasers the right
to alter the repayment terms of sold
debts.”
That appears
admirable. However, as far as I can see it—I am always open to
correction—that is not in the Bill. Why is it not? I am seeking
reassurance for those who have taken out loans or might do so in the
future.
Clause 1(4)(f)
refers to
“specifying
consequences of the breach of a provision of the transfer
arrangements.”
Will the
Minister give one or two examples of what penalties might be included
should a loan purchaser breach the provisions of the transfer
arrangements?
Finally,
clause 1(3)
states:
“Transfer
arrangements may relate to...some or all of the Secretary of
State’s
rights.”
Will the
Minister say a little more about what rights might not be transferred?
The implication of that wording is that some will be transferred but
that others might not. Will he elucidate on
that?
I repeat to the
hon. Member for South Holland and The Deepings a point that I have made
a number of times, but which is important to state again for the
record: the terms and conditions will be exactly the same whether the
graduate repays their loan to the Government or to the private sector.
I welcome the fact that he accepted my reassurances on that
matter.
The hon. Gentleman implied that
there are concerns about the Secretary of State’s powers under
the Bill. However, let me be clear: the Secretary of State has the
power today, if backed by Parliament, to alter the terms and conditions
of access to student
loans.
4.30
pm
I
made a point at the general election about the policy of the official
Opposition—I believe that is still their policy. They wished to
charge a commercial rate of interest on student loans, instead of no
real rate of interest, which continues to be the Government’s
policy. If a Conservative Government were elected, they would be free
to introduce legislation and empower the Secretary of State to alter
terms and conditions. That would be the case even without the Bill,
because the power on terms and conditions resides with the Secretary of
State, whether the loans are owned by the Government or by the private
sector.
The
hon. Member for South Holland and The Deepings asked about the ability
to protect the graduate. It is through the measures in the Bill and
through the contractual process that we can afford protections to the
graduate. I gave instances this morning of how we will ensure that it
is the Student Loans Company that carries out the administration on
behalf of any private sector interest and how we will ensure that there
is access to the same independent assessor, where there are problems,
as is the case in respect of Government
debt.
Mr.
Wilson:
The explanatory notes state that, under clause 1,
the Secretary of State can sell “part of a
loan”—for example, 40 per cent. That could lead to there
being two owners of the loan: the Student Loans Company and a third
party. How would protection of the individual work in that
situation?
Bill
Rammell:
We are not anticipating that
part of a student loan will be sold to the private sector and part will
remain with the Government. Nevertheless, whether someone’s debt
is owned by the Government or by the private sector, exactly the same
terms and conditions will apply and they will be governed by
regulations passed in the
House.
The hon. Member
for South Holland and The Deepings said that he had serious doubts
about the reason for introducing the Bill, and questioned whether it
was about the transference of risk or about an up-front income stream
for the Government. I said this morning—and I repeat—that
it is about both those objectives. On his point about risk, it is
certainly the case, looking forward, that having the ongoing income
stream from student loans on the Government’s books entails a
degree of risk that ideally we would not wish to be on the
Government’s accounts. Because the private sector operates with
that degree of ongoing risk, it would not be a problem for it to engage
with that. That is not inconsistent with the sale being an attractive
investment opportunity from the perspective of private sector
investors.
The
hon. Gentleman made a point about value for money. For the record, I
reiterate what I said this morning. A robust value for money framework
is in place, and although we have made an estimate of the proceeds that
we anticipate gaining from the sales during
the next three years, that is not set in tablets of stone. If the value
for money framework is not met, the sales will not go
ahead.
The
hon. Gentleman asked whether the sales were not intended just to help
the Chancellor of the Exchequer meet the fiscal rules. That is
certainly not the case. The proposed sales represent the continuation
in principle of the policy to sell student loans that began in 1997
although, interestingly, it was undertaken using plans drawn up by the
previous Administration. It is also the case that the disposal of
surplus assets is a key part of the present Government’s drive
to improve the efficiency of their asset base. Asset sales are
certainly not a short-term measure to shore up the fiscal position;
rather, they are a vital part of our wider aim to take a longer-term,
more strategic approach to asset management across the board in
government, as recommended by the Lyons
review.
Mr.
Hayes:
I just want to be clear about the
value for money framework, which the Minister says is well established
and robust. What legislative shape will it take, and will it be part of
the Bill? Will it be included in a supporting memorandum to the Bill or
in guidance? Exactly how will it find its way into the legislative
framework?
Bill
Rammell:
Again for the record—I have made this
comment a number of times now—I do not believe that the
framework needs to be in the Bill. I read into Hansard last week
the criteria by which we will establish value for money. The Government
are responsible for proceeding with the sales, but the National Audit
Office has rightly said that during the first tranche of sales, it will
undertake an investigation. I am confident that we will be able to
stand up to that value for money assessment. There will then be a
report to the Public Accounts Committee. That process will give the
arrangements the rigour and robustness that Members would
expect.
The hon.
Member for South Holland and The Deepings made a point about the
reselling of the special purpose vehicle. It is important to make it
clear that based upon advice, my strong view is that the loans or the
SPV are unlikely to be sold on. If we consider mortgage-style loans,
for example, that has not occurred in almost 10 years with the previous
sales, so there is no track record of the SPV being sold on in that
way. We looked at the issue of windfall gains this morning, and I shall
make the point clear, having considered the issue in further detail.
The refinancing gains, which my hon. Friend the Member for
Wolverhampton, South-West mentioned this morning, are not analogous to
windfall gains for the purposes of allowing clawback in the event of
the onward sale of student loans. The 2002 private finance initiative
refinancing code allows for a 50:50 share of refinancing gains, should
private sector partners, during a project, be able to refinance it on
more favourable terms than was originally the case. For example, once a
building is completed, the risks may be reduced and the financier can
provide more favourable loans. However, the key distinction is that no
transfer of assets is involved. Conversely, for the sale of student
loans, we believe that we will achieve best value for money by fully
transferring
the controlling risks associated with the loans to the private sector,
thus not retaining clawback rights over windfall gains in the event of
an onward sale of the SPV, which in any case, we regard as
unlikely.
The hon.
Member for Brent, East asked why we did not start with a tranche of
sales smaller than £6.3 billion. Again, that figure is
an estimate of the proceeds that we anticipate receiving during the
coming three financial years. We have broken the figure down, and in
the first year, we anticipate receiving £3.4 billion. However,
that income sum is not set in tablets of stone. If the market
conditions are not correct and we do not believe that sufficient
information is available to investors to enable us to achieve value for
money, the sales will not take place.
Sarah
Teather:
That was not quite my question. I asked why the
Government wanted to do it all in one go. Why not sell a smaller amount
first, and test the market to see what happens to the onward sales and
whether we achieve the correct value for money? Why do it all in one
chunk?
Bill
Rammell:
With respect, that is what we are doing. The
student loan sum is £18.1 billion, and we do not plan to sell it
all off. We are taking a prudent approach to the proceeds that we
reasonably estimate we can achieve from the sale in the coming years,
but the figure is not set in tablets of stone. If we do not believe we
can demonstrate value for money, the sale will not go ahead.
My hon.
Friend the Member for Wolverhampton, South-West asked an important
question about the penalties in subsection (4)(f). They will be
determined in detail in relation to each sale’s contract. For
example, they might include compensation to a borrower if there is any
breach in terms. This is an enabling Bill, and it is important that we
retain the flexibility to deal with all
eventualities.
Mr.
Hayes:
I sense that the Minister is about to reach his
exciting climax, but I want to return to the cost of sale. The stand
part debate, which is about fundamentals, is the best time to deal with
that. This morning, I asked about the cost of the sale. I did not mean
the value of the product being sold, but the cost of the process of
sale. The Minister said that he would make the Committee aware of the
costs that have been incurred so far, and that he would give us an
estimate of the likely costs of the process. Will he bring that figure
to the Committee during our consideration of the Bill or shortly
thereafter, and will he place it in the
Library?
Bill
Rammell:
I shall certainly do so. As I said to the hon.
Gentleman last week, his definition of “exciting” is
somewhat different from mine. I gave that commitment, and I hope to be
able to provide the figure by the end of our proceedings today. If I
cannot do so, I shall write to members of the Committee and place the
figure in the
Library.
Sarah
Teather:
The Minister did not answer two of my questions.
I asked only four and kept them brief, so I hope that he will answer
them all. I asked him what
“warranties or indemnities or
other obligations”
he envisaged making under the clause and
whether he would put before the Committee an analysis of which risks he
intended to keep and which he thought he would
transfer.
Bill
Rammell:
I shall set out in detail the warranties and
indemnities when I write to members of the Committee. As for the
question of which risks we are transferring, I set out this morning the
range of factors on which investors will base their judgment of risk
when deciding how much money to bid for loans. That will be assessed in
the value for money framework, and I am confident that we can
demonstrate value for
money.
Sarah
Teather:
I cannot believe that the Minister’s
Department has not analysed which risks will be transferred, because
the transfer of risk is the whole premise of the Bill. If the Minister
does not have the information now, perhaps he could undertake to write
to us.
Bill
Rammell:
I can do so, but—I may
be wrong—I think that it is fairly straightforward. If the debt
is transferred from the Government to the private sector, a range of
factors must be taken into account to determine how much of the money,
if it remained with the public sector, would eventually come back to
the Government. That is the risk that we are transferring, and I set
out the risk factors this morning: the number of graduates in
employment and earning more than £15,000 a year; the number who
die before their debt is paid off; and the number who become
permanently disabled. The purchaser of a debt will make a judgment on a
range of factors before making their bid. Similarly, the Government
will make a judgment, measuring a bid against the value for money
framework. I believe that, in those circumstances, we will be able to
demonstrate that we have achieved value for money and allow the sale to
go
ahead.
Sarah
Teather:
The Minister mentioned
something else this morning that I did not know—the Government
will underwrite a loan if a graduate becomes permanently disabled. That
is a risk that the Government will keep. I want a list of which risks
the Government are keeping and which they are transferring. I am sure
that that analysis has been
done.
Bill
Rammell:
I think that this is a genuine misunderstanding.
I shall happily put the matter on record by writing to members of the
Committee, but the Government would not retain that risk; permanent
disability is one risk factor that is taken into account in the sale. I
shall happily write to the hon. Lady and set that out the
position.
Mr.
Hayes:
I am extremely grateful to the
Minister. As ever, he is being generous, and I am reluctant to drag out
his peroration with a series of Wagnerian peaks and troughs. However,
there are two matters that we must consider. First, to support a point
made by the hon. Member for Brent, East, rights and
obligations—those are the words that she used—must be
sufficient to effect a transfer. To amplify her point, what are those
rights and obligations? Secondly, the Minister has said that the
quantification of risk involves a fairly straightforward series of
actuarial calculations. If those calculations are in the public domain,
can they be collated for our scrutiny? If they are not in the public
domain, but will
be made available to potential purchasers as he suggests, it does not
seem unreasonable that we, too, should know what they
are.
4.45
pm
Bill
Rammell:
No, it is not. I thought that
we debated that this morning. For the record—I am happy to
follow this up in writing—assessing the value of the loan book
requires a number of projections of the repayments that borrowers will
make far into the future. We estimate the rate at which graduates will
repay and the number of loans written off—for example, when
borrowers become permanently disabled. Because such projections must be
based on assumptions and estimates, a degree of risk is built in. Those
risks are transferred to the private sector with sale. I hope that,
with those clarifications, we can agree that the clause should stand
part of the Bill.
Question put and agreed
to.
Clause 1,
as amended,
ordered to stand part of the
Bill.
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