Public Accounts Committee - Minutes of EvidenceHC 886

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Oral Evidence

Taken before the Committee of Public Accounts

on Wednesday 11 December 2013

Members present:

Margaret Hodge (Chair)

Mr Richard Bacon

Stephen Barclay

Jackie Doyle-Price

Chris Heaton-Harris

Fiona Mactaggart

Justin Tomlinson


Amyas Morse, Comptroller and Auditor General, Gabrielle Cohen, Assistant Auditor General, Peter Gray, Director, National Audit Office, and Marius Gallaher, Alternate Treasury Officer of Accounts, were in attendance.


Student loan repayments

Examination of Witnesses

Witnesses: Martin Donnelly, Permanent Secretary, Department for Business, Innovation and Skills, Luke Edwards, Deputy Director, OGD Products and Process and Commissioning, HM Revenue and Customs, and Mick Laverty, Chief Executive, Student Loans Company, gave evidence.

Q1 Chair: Welcome to you all. This is quite a complex area, and it is a pretty comprehensive Report. We have been concerned about the student loan asset, as it appears in the whole of Government accounts, for some time. This hearing gives us an opportunity to look at how realistic or otherwise we are about the money they will get in. We want some questions around that, and then we will have some questions on the actual capability and effectiveness of the collection regime. It will be a mixture of the two. We will start on how realistic you are.

Looking at this Report, what tends to come out-I know that it is a hugely difficult area-is that there is a consistent overestimation of repayments and an underestimation of a loss. Do you accept that, Mr Donnelly?

Martin Donnelly: I certainly agree that we found this a difficult area to model accurately so far. I believe that we are getting better at it. Our model has been upgraded for this year. It is currently being validated by PwC. I believe that for the next set of accounts, we should have a more accurate model. But I think you are right to say that it has been difficult, and we are not satisfied with an 8% margin.

Q2 Chair: 8% is how much?

Martin Donnelly: You have an excellent graph on this in the Report.

Q3 Chair: 1% is about £100 million, so it is about £800 million, I assume.

Martin Donnelly: We collected £1.4 billion in English loans last year and £1.7 billion in total across the UK. It is worth adding that the forecast does not affect the amount that we collect; that is an important point. We do need to forecast this, but our collection process-

Q4 Chair: I don’t understand what that means. What does that mean?

Martin Donnelly: As you know, student loans are a contractual arrangement. Our job-we take it seriously across HMRC and the SLC-is to ensure that we get back the maximum amount of money to which we are entitled, treating the students fairly. We do that through the HMRC process or, if they are abroad or elsewhere, through SLC directly.

We are also trying to forecast, against a shifting macro-economic background, how much is likely to be repaid by the number of people in employment over the relevant thresholds and so on. That has been the uncertainty.

Just to say a little bit more about that, if that is helpful, one of the challenges in our model-we worked with Deloitte on this, and we have now moved on again-was that it was proving difficult to extrapolate earnings figures from one year. It was more complex than that, and we have to look at a wider range of historical data and a series of other aspects of the forecast to try to ensure that we are picking up all of the macro uncertainty, as well as individual issues about people in the repayment area.

Q5 Chair: I understand the things that you have to have regard to. I think it does matter what you get in every year. One of my criticisms of you currently is that you don’t set a target to the Student Loans Company of what they should get in every year. I think that is a weakness.

The other reason it all matters is that, if you do not get right the estimate of what students will pay over time, that impacts on public finances over time. It impacts on the RAB charge. If you look at what has happened to the RAB charge for you-the amount of money you think you will never get in-in 2010, you assumed only 28% would not come back, but by 2013, you had got that at 35%. That is a massive change in three years and a massive cost to the public purse. What is your current estimate?

Martin Donnelly: The latest estimate that we have-David Willetts made this public a few weeks ago-is that we are talking of a RAB charge in the area of 35% to 40%.

Q6 Chair: Yes, 35% to 40%-I think it is at the higher. If you look at figures from IPPR who did a study on that, they got to 40%, and so have others. There was another study that put it at 40%. If you have 40% not coming back, do you think that is realistic; 40% of the current money that goes out to students will never be collected?

Martin Donnelly: At the moment, that is at the top end of our estimates, but it is not unrealistic. The RAB charge, as you know, is the difference between the amount of loans paid out in any one year and the net present value of all the future repayments on loans. Most of the cost of the RAB charge-

Q7 Chair: The RAB charge in common language is the current estimate of what you will not get back. In current value terms, it is what you will not get back.

Martin Donnelly: And most of that is due to people not repaying some of what will be overall owed. A lot of that depends in turn on the macro-economic assumptions.

Q8 Chair: I understand that. What is your assumption at the moment about graduate earnings?

Martin Donnelly: I’m not sure I understand.

Q9 Chair: The increase or growth in graduate earnings. That builds in, as you have just said. You will assume what people pay back, depending on what they earn. They have to earn over 21 grand to start paying back and so on. One of the ways in which we will have a more solid estimate of what we are going to get back of this massive £200 billion, or whatever the figure is in here, will be based on the assumption we make about the growth of graduate earnings gross. What is your current assumption?

Martin Donnelly: I can’t give you a precise figure.

Chair: I think I know it; I am just waiting for you to articulate it.

Q10 Justin Tomlinson: I may be able to help. What sort of things could shock that figure either upwards or downwards?

Martin Donnelly: A key part of it is the trend in earnings, which is the range of assumptions-

Chair: What is your view? What figure are you using in your calculation? I think I know. I don’t know how I do and you don’t. I will tell you what it is.

Mr Bacon: We know lots of things you don’t know. The people in your organisation talk to us and they don’t talk to you.

Q11 Chair: I think I got it out of the Report. I think it is 2%. The point I was going to make to you was that the OBR current estimate of the rate of growth of graduate earnings is 1.3%. So that is one of the areas where I think you have an optimistic estimate of how fast graduates are going to increase their earnings so they can start paying back their loans. That gives you an over-optimistic view of what you are going to get back over time. If I am right and it is currently at 2% and the OBR estimate is that graduate earnings will increase only at 1.3%, do you agree with me that you are over-optimistic?

Martin Donnelly: I think it’s a good challenge. I don’t agree because I need to consult our analysts on this. I would say that it is one element; it is not the only one. I don’t believe the OBR take a 20, 25 or 30-year view, which we inevitably have to do, because that is the period over which repayment is going to happen. We also have to look at gender. We will have to take an assumption about drop-out rates, about wider earnings, employment across the economy, how many people move abroad. It is actually a very complex mixture.

Q12 Chair: I understand that, Mr Donnelly. I am just rather surprised that you do not know something that I have picked up.

Amyas Morse: One thing that interests us as we think about this is that, given the much greater volume of people who are going through university and being described as graduates, the assumptions we can make about graduate earnings premium must presumably over time change, as the proportion of graduates goes up. Would you say that? That is not meant to be a difficult question. I do not know if you are considering that in your modelling so far. We would say it might be a helpful thing to consider as you go forward.

Some other countries that have hugely increased the percentage of graduates in their populations have certainly found the graduate premium going down quite markedly. That is inevitably going to happen. If you have a much larger number of institutions being universities rather than other things, you will have a lot of graduates. They will be a big pool, and not that many premium jobs for them to do.

Martin Donnelly: At the margin, that argument must be right. At the same time, the question of the number of people in employment is extremely important. It is not just, or necessarily, mainly the salary level, although that is clearly relevant; it is also for how long they are going to be in employment over the threshold and particularly, but not just, in the case of women, how much time they are likely to take out.

Q13 Chair: The salary level is pretty relevant, because it is income contingent. This is an income-contingent repayment system, and therefore the amount you earn-the more you earn, the more you are likely to pay back and the faster you are likely to pay back-is completely and utterly central.

The reason that I am pursuing all this is that we are building up a long-term debt to the country. This is not a criticism of policy; we have just got to be absolutely clear about what we are doing. The other thing I want to know is, when you decide how much you are not going to get back-your RAB charge-what is your assumption on the percentage of graduates who are women?

Martin Donnelly: I think we had better come back to you with a more detailed analysis-

Q14 Chair: I am amazed that you have not got these figures. I am amazed, because again, Mr Donnelly, we know from here and elsewhere that women-because of the jobs they get, the fact that they earn less and the patterns of their working life-are far less likely to pay back the loans than men are. You have got to know that. We also know that more women are now going to university than men; the percentage is now running at well over 50% women-53% or 54% women to 47% men. I think it is about that. I know it, and I do not know why you don’t know it-you are boss of the Department. That is hugely important in looking at the likely rate. Do you know, Mr Laverty?

Mick Laverty: I’m sorry; I don’t.

Q15 Chair: Jesus! Honestly, I am quite surprised.

Chris Heaton-Harris: He might know!

Chair: I am sorry, I shouldn’t have said that, but I am quite taken aback. That is hugely important just for deciding what the rate is. The whole purpose of this is to try and get a long-term view of what we will get back and therefore take sensible decisions on student numbers, isn’t it? We will come to the student number decision in a minute, but if you are going to carry on increasing student numbers-I welcomed that in the Chancellor’s statement last week-that will have a growing impact on the debt for future generations, which is our concern here.

Martin Donnelly: We will send you a note on how we calculate the RAB charge. Our job is to make sure that we are doing it effectively-

Q16 Chair: Let me just ask you something. You change the RAB charge in-year-I have looked at your accounts of it. You write off more in-year when you change the RAB charge. So how much, in 2011-12 and ’12-13, have you added as a write-off, because if you are not going to collect it, the RAB charge goes up? Do you know that?

Martin Donnelly: We will give you some figures on the additional contingency that we asked for from the Treasury in relation to changes-

Q17 Chair: How much have you actually put in? You have to put it into your expenditure for the year. In 2011-12 and 2012-13, you made different judgments about how much students would pay back, which means that you had to add into your accounts-it probably comes as an impairment-the money that you did not think you would collect.

Martin Donnelly: We have got those figures, but I do not have them immediately to hand, so we will send them to you. May I make one point about-

Chair: I’m pretty shocked at that, Mr Donnelly.

Martin Donnelly: May I make one point about those impairments? They were related in particular to the macro-economic environment. When we thought that growth was going to be lower and inflation potentially higher, that had a major impact on the RAB charge. That was what we were taking account of in the change.

Q18 Chair: I can understand why it happened. I agree with that. Graduate earnings did not rise as fast as we thought, fewer graduates were in graduate jobs-they were taking lower jobs-and more graduates were unemployed. I completely understand why we are there, but I am shocked that you do not know, because, Mr Donnelly, if you had to make in-year an impairment-I could not quite understand the figures, but I think it is well over £1 billion-you had to find savings elsewhere in your budget, didn’t you?

Martin Donnelly: Not in the way that the RAB charge plays into BIS spending. We have got an agreement with the Treasury as to how we deal with that over a very long period because, by its nature, the RAB charge is going to change from year to year, depending on these macro-economic forecasts. It is not sensible to change actual cash spending to take account of that, because you are looking at two very different things.

Q19 Chair: In your report and accounts, there is a policy write-off impairment value. I think that is well over £1 billion.

Martin Donnelly: But that is not near cash in terms of the impact on our actual spend.

Q20 Chair: You have to find it elsewhere to make your own books balance. You have to find cuts elsewhere. The amount is somewhere in the region of £1.3 billion, as I read your accounts.

Martin Donnelly: But that is not a cut in our actual spending on an annual basis because we are talking about a potential charge over a 30-year period.

Q21 Chair: It’s writing off, in the year, counts in your DEL and therefore if you are going to make your books balance. I am sure I am right about this, aren’t I?

Amyas Morse: Provisionally.

Martin Donnelly: Yes, it’s a provision, but it’s-

Q22 Chair: They don’t have to find alternative cuts to make their books balance.

Amyas Morse: Well, no. This is the difference between cash accounting and accruals accounting. What they are doing is putting in an additional provision every year against the debt.

Q23 Chair: It is an impairment provision.

Amyas Morse: It is an impairment provision. They are making a provision effectively.

Q24 Chair: Oh dear! Okay, so you don’t quite know how much. Let me ask you something about the student numbers. We are taking an extra 60,000 students over time. That is the commitment in the autumn statement. Have you any idea of what the assessment is of the sort of people they are going to take in and what they will pay off against the loans, as it will all be funded through loans? Have you made an assumption there?

Martin Donnelly: The autumn statement commitment is to lift the cap from 2015-16. There was a further commitment to add 30,000 places before then. That will fit within our funding provision. In terms of repayment rates, we will have to look at where those places go and fit them into our model in the usual way.

Q25 Chair: How are you going to fund it?

Martin Donnelly: On the longer-term issue of lifting the cap, the Treasury announcement related in the first instance to potential sales from the future loan book. Obviously, if that works, it will fund-

Q26 Chair: What will it fund? The loans?

Martin Donnelly: The sale of parts of the post-2012 loan book was announced-

Q27 Chair: And will fund what?

Martin Donnelly: It is designed to fund the impact of lifting the cap on student numbers from 2015-16.

Q28 Chair: It will fund the loans. Will it fund the teaching grant, and will it fund the increase in the RAB charge?

Martin Donnelly: It has to be able to fund all of those.

Q29 Chair: Will it fund the loans, the teaching grant and the extra RAB charge-that is, the extra loss from the fact that, as we know, people won’t pay back the loans?

Martin Donnelly: The first requirement is to be able to pay for the additional payments to students in terms of tuition and maintenance-

Q30 Chair: Yes, that’s the loans. But you also have to increase the teaching grant.

Mick Laverty: I want to make a clarification. The teaching grant disappears if the loans increase because the loans are replacing the teaching grant, so the learner is being funded-

Q31 Chair: Not all of it-not entirely. They replace some of it, not all of it.

Martin Donnelly: Overwhelmingly-

Q32 Chair: There is still some teaching grant that has to come from the BIS budget. It is not true that loans replace it entirely. I seem to know more about this budget. Maybe it is because I have a responsibility for it.

Martin Donnelly: Outside a specific area of additional funding for STEM teaching-we recognise that the additional marginal costs of teaching subjects such as engineering require additional payment, which is funded-what Mick says is right: we are running down the overall teaching grant and are paying through the student loans.

Q33 Chair: I understand that there is less. Some of the funding for the teaching grant comes out of loans but some still comes from the BIS basic budget. What I want to know is this: I understood that the Chancellor is intending to fund the increase in loans through selling the loan book, so does selling it cover the remainder of the funding of the teaching grant and does it cover the additional RAB charge that will inevitably come with extra students-the additional loss that we will incur from the fact that, as we know, at least 40% of that money will not come back?

Martin Donnelly: The announcement that was made-

Q34 Chair: Just a yes or no, Mr Donnelly. Will it cover it?

Martin Donnelly: The announcement was made in broad terms and we therefore have to bottom out all of this, but it made clear that it was aimed at funding the additional cost of those students. The points that you make are all part of that additional cost.

Q35 Chair: So will it, or won’t it?

Martin Donnelly: From my perspective, the answer is yes, in order to make sure that we have covered the full additional cost of those students.

Q36 Chair: I think you’ll find the answer is no, but if you want to amend the answer that you have just given us in writing later, that would be better than getting the wrong answer in the long term.

There are various things I want to know about the student numbers, but one is that if you are funding them out of the sale of the student loan book, my understanding from the Chancellor’s statement is that that will cover you for five years, but it leaves you with £720 million extra cost at the end of that. How are you anticipating that it will be funded after that time?

Martin Donnelly: Well, as you have made clear, all these are very long-term commitments. As we all know, we do not run our public finances on that length, so this would be a charge we would need to take account of going forward in our negotiations with the Treasury around BIS budgets.

Q37 Chair: We are in a period where it is unlikely that public expenditure is going to grow, even in five years’ time, and you are suddenly going to find an extra £720 million in five years. If you have sold the loan book at a price to simply cover the loans in the short term, in five years time you will have to find the money elsewhere.

Martin Donnelly: Well, there will have to be policy decisions by Ministers about the future funding.

Chair: It’s not policy-there’s no more money around.

Q38 Mr Bacon: Can I just ask about the sale of the student loan book? Following the Chancellor’s announcement the other day, is the proposition that certain tranches or segments of the student loan book be sold and others not be sold? Or is it the whole thing? Or what?

Martin Donnelly: We’re still working on the details, so my answer is provisional, and we will come back to you if I inadvertently get this wrong.

Mr Bacon: You mean as opposed to advertently getting it wrong? You surely wouldn’t do that, Mr Donnelly.

Martin Donnelly: I surely would not do that, and I wouldn’t be very good at it anyway. The plan is to take the whole thing and sell it as a financial asset on the basis, and only on the basis, that it is more value for money, because the market is looking for that type of asset at present. So we would not be differentiating.

Q39 Mr Bacon: I am sure that markets like buying loans and getting repayments from them-that is a very common thing; that is why the gilt market works, never mind the private sector loan market. One thing that any person buying your loan book is going to want to know is what it is worth, and it is not clear to me that you know what it is worth yet.

Martin Donnelly: That’s one reason why we-

Mr Bacon: Is that right? Instead of going on to make a sentence that involves a reason, could you just clarify whether I am right or not?

Martin Donnelly: We need to be as specific as we can about the value. It is complicated; that is why we are seeking to upgrade our model.

Q40 Mr Bacon: So how far away are you from producing a prospectus for someone who wants to buy the loan book in which you can say, "And therefore, because of x, y, z, p, q and r, and a, b and c, we can see that the reasonable range for a buyer-depending on what is going on in markets at the time-will be between seven and 10," or whatever the metric you are using is? How far away are you from being able to produce a prospectus for potential buyers?

Martin Donnelly: We are some months away from that.

Q41 Mr Bacon: So are you expecting to make the sale during 2014?

Martin Donnelly: Well, it depends on whether we think, as we go through the detail, that it is value for money. If we do, then yes, we have a provisional goal of looking at 2014.

Q42 Mr Bacon: So it may turn out that, if you decide that it’s not value for money, you just do not do it at all.

Martin Donnelly: Correct.

Q43 Mr Bacon: Can I clarify something else? I have just found this on the internet, so goodness knows it may be wrong, but apparently all student loan agreements carry the following clause, which looks like it is lifted from somewhere, so is probably correct: "You must agree to repay your loan in line with the regulations that apply at the time the repayments are due and as they are amended. The regulations may be replaced by later regulations." The narrative on the website goes on to say: "As such, students ‘are told to sign an open-ended loan agreement where the interest rates and term of repayment can change, at any moment in time, at the whim of government, without the need to [pass] legislation.’" Is that correct? Is that a fair summary of the current position?

Martin Donnelly: The Government does have the ability to change certain terms of the loan, including, for example, the level of indexation. I don’t know, Mick, whether we always require secondary legislation or the way we would have to do that.

Mick Laverty: I am not sure, but I don’t believe we do.

Q44 Mr Bacon: No, the implication is that you must repay it in line with the regulations that apply at the time that the repayments are due and that those regulations may be amended and then you would be obliged to follow the new amended regulations. That is correct, isn’t it? The existing structure provides for that without having to come back and do a piece of delegated legislation and get a statutory instrument or anything like that. Is that correct?

Mick Laverty: That’s correct.

Q45 Mr Bacon: Okay. Fine, I am just checking. So if you were then to sell the book, what freedom would somebody buying the book have? That is not you the Government as the person who is owed the money, but the person who now owns the book, it having been purchased by them? What freedom would they have to alter the terms and conditions after they had bought the book? Would they have any freedom at all?

Martin Donnelly: The plan would be to sell tranches of the loans and the terms-this is an issue that we need to be clear about as we go through the preparatory process-would be set. So the point about the people buying the loans is that they would not have a say in what those terms were. But the question of what we have to say about what we would be prepared to commit to do or not to do is one of the issues that is in the value-for-money calculation we have to make.

Q46 Mr Bacon: Yes, I understand that. But the moment you sell a particular tranche of debt, the terms and conditions upon which it is sold are set in stone. They are crystallised and the buyer of that debt buys them on those terms and that is it; they cannot change them. Correct?

Martin Donnelly: We have to be clear about what those terms are, yes.

Q47 Mr Bacon: Sorry, am I correct in what I just said? You were shaking and nodding, and that does not get recorded in the transcript. Can we just be clear that the person buying the debt buys it on set terms and conditions that cannot subsequently be changed by the new owner of the debt? Is that correct?

Martin Donnelly: Yes.

Mr Bacon: Okay. Thank you.

Amyas Morse: I am curious to know why someone would buy this and then what they would do. If somebody buys a tranche of debt, will they be able to approach some of the borrowers and offer them the chance to make an early payment to commute the debt completely? That might make a lot of sense from a commercial point of view.

Mr Bacon: Yes.

Martin Donnelly: I can’t give you any more detail because we have not done the work.

Amyas Morse: I realise that.

Martin Donnelly: But my expectation is that we will work on the basis that they take this on given terms and that the student borrowers who are, after all, very important in this and those repaying as ex-students will not notice the difference in terms of who owns the loan book.

Q48 Mr Bacon: But let me pursue this for one more second. Let us imagine a student loan repayer who has not got a job for the time being or has missed a payment or two for some reason and has breached the terms and conditions. That presumably could trigger certain events in the small print. It is possible that the new owner of the debt might decide to sell the debt on to somebody else, perhaps a debt collector. It is possible, depending on the terms and conditions and the small print, that the person who has bought the debt finds it is not very good because the student seems to be out of work quite a lot of the time and the payments are not routine and regular. So they want to get shot of it, and they sell it to somebody else, perhaps at a deep discount. Are there circumstances where, if they did that and sold it at a discount, the student borrower could be told that they had a legal obligation to pay the debt to this new person and that the total they now owed-say it had been £27,000-would be half that, but they had to pay it by next Tuesday? Is that the sort of risk that these students could suddenly find themselves under?

Martin Donnelly: No. We are looking at a financing operation here.

Mick Laverty: I wonder whether I could provide some clarity. The working assumption is that it will use the same model as we used for the mortgage-style loans. So when the mortgage-style loans were sold, the terms and conditions for a student were fixed, and they were fixed at no detriment to the student. To answer the point made earlier, if the buyer of that loan subsequently decided to cut a deal with the student to get a payment and commute some of the loan, that was entirely up to them. The working assumption is that the ICR loans would do the same. A student will be protected and that protection will last if the loan is sold on. That is the working assumption.

Q49 Chair: Okay. Let me move from that specifically student interest to the taxpayer interest on the sale of loans. The two previous sales, probably under the previous Government, had to be subsidised, did they not? There was a subsidy.

Martin Donnelly: In the previous repayment of the mortgage-style student loan tranche?

Q50 Chair: In the mortgage style, there was a subsidy, was there not?

Martin Donnelly: Yes. That is correct.

Q51 Chair: Thank you. So it cost the taxpayer to offload the loan. How does that help the taxpayer? You have just sold another tranche of the mortgage style.

Martin Donnelly: Yes, we have sold the final 17%.

Q52 Chair: For how much?

Martin Donnelly: For £160 million.

Q53 Chair: And what was the book value?

Mick Laverty: The face value was £890 million.

Q54 Chair: So how does that represent value for money?

Martin Donnelly: It represents value for money because we went through a very transparent process of seeking competing bids for this loan book.

Q55 Chair: No, forget about the bids. If we are selling for £160 million something that is worth £890 million, how does that represent value for money? I am sure the process was completely above board; we will ask about that in a minute. But how does getting rid of that for £160 million-short-term money into the bank, with a book value of £890 million-represent value for money? Explain it to me.

Martin Donnelly: Because the book value does not represent the actual value. What we had were the last distressed loans of the large portfolio.

Q56 Chair: On your own RAB thing of 35%, you would not be expecting to knock off £730 million out of £890 million.

Martin Donnelly: You cannot apply it in that context.

Mick Laverty: Perhaps I can help. This was the third tranche of the loans book-the final tranche. It was the distressed loans that were 13 years or older. They were in arrears and in deferment. We modelled the whole process and had a figure in our heads. If we achieved a sale value over that figure, it would represent value for money.

Q57 Chair: How do you work that out, given all we have talked about, about how much money you think you will get back?

Chris Heaton-Harris: No, it is easy to work out, but why is it worth over £800 million on your book, when you obviously knew it was going to be worth a lot less?

Martin Donnelly: The nominal value had not been written down.

Q58 Mr Bacon: The £890 million represented the money that you had shovelled out the door?

Martin Donnelly: Yes.

Q59 Mr Bacon: You may dispute the use of the word "shovelled", but it was my old favourite, COTD-cash out the door. That was the money that had gone out.

Martin Donnelly: Yes.

Q60 Chair: Does the company to which you sold-Erudio-have the power to change the terms of the loans?

Mick Laverty: No. The terms of the loans are fixed at the point of sale.

Q61 Chair: How many bidders did you have?

Mick Laverty: Ten.

Q62 Chair: What were the subsidies involved in that deal?

Martin Donnelly: There were no subsidies involved.

Q63 Justin Tomlinson: This is the oldest part of the debt, so in effect this will include a lot of people who are lost in the system and never going to pay. To be fair, it is also from the time when people were not necessarily paying out of PAYE. This was the voluntary contributions, wasn’t it?

Mick Laverty: That is correct. This is the rump of the loans book. The last bulk MS loans were issued in 2000.

Sitting suspended for a Division in the House.

On resuming-

Q64 Chair: We are going to move on.

Just to get clear, I am pretty insistent that you give us better data on RAB charge; it impacts on the debt to the taxpayer-the amount that is written off over time-so it is really important. I am surprised, I have to say, Mr Donnelly, that you have come unprepared for that. I also want you to be clear to me that when you change the RAB charge in-year, and therefore change the amount that you think you will get back in-year, or the amount you have to write off, that does not impact on your budget. I just do not believe that to be true.

Martin Donnelly: It is true and I will happily send you a note, because it is something that we have been discussing with the Treasury. As you will understand, the size of change caused by quite small differences in macro-economic assumptions would have a massive impact on our day-to-day budget, and you simply cannot run a budget like that. So we have agreed a way of handling that with the Treasury.

Chair: You had better do me a note.

Q65 Mr Bacon: On that point, can I then be clear? If it did not have an impact on the amount of money you had available to spend in any particular year, so that, for example, the Chair would be wrong to be concerned that you might have to cut FE or something else in-year, is it none the less true that, if you had net less money to spend, at some point, in a future budget-while you cannot do budgets that way in-year, in the long term you must-it would, in the long term, reduce the money you had available for other things? Is that correct?

Martin Donnelly: Yes. The approach we are moving towards-just to be clear about this, to be helpful-is that we are talking about a 30-year period. We have to make sure, in best accounting practice, that over that period we are correctly amortising the RAB charge. What is not sensible is to allow massive one-year fluctuations to affect particular year payments. That is the system that we are moving towards.

Q66 Chair: I have to say that you have changed the RAB charges very quickly, because your way of estimating is so poor.

Can I just go back? We were talking about selling the student loan debt. You said to us that you thought it was value for money, although I am left rather bewildered on that. Can I just get this clear? If we were to sell the income-contingent loan debt, I am right in saying that the money is collected back from those who owe it, through HMRC, isn’t it?

Luke Edwards: Yes. Correct. A large proportion.

Q67 Chair: Right. So where will the incentive be for anybody to buy a loan, if the only way in which they can recoup the money, except for foreign students-no doubt, we will come to foreign students, or students living abroad-where is the incentive in the system to purchase a loan, if the only way you get your money back is through HMRC, over which you have no control?

Martin Donnelly: It is going to depend on the interest rate that is offered. The question then will be-

Q68 Chair: Interest rate offered to whom?

Mr Bacon: You mean the price at which you sell the loan book.

Martin Donnelly: Exactly.

Q69 Mr Bacon: The question-we were talking about this a minute ago-is, if you sell the loan book, but there is this income-contingent stuff within it-

Chair: Only income-contingent.

Mr Bacon: The repayments occur through HMRC. First, let us get one thing clear. Is it true that the loans having been sold, the repayments, when they occurred-because the income contingency threshold had been met or breached, so to speak, so that the payments became due and liable-would take place to HMRC, so the new owner of that bit of loan would then have to go to HMRC to get repayment of those amounts? Is that correct?

Luke Edwards: No, it is not entirely correct. We will continue to collect the repayments. We would then pass that money to BIS and BIS would operate an arrangement with the purchaser of the loan to pass-

Q70 Chair: But the graduate would pay through HMRC?

Luke Edwards: The student would pay through pay-as-you-earn.

Q71 Mr Bacon: It would still be HMRC, so the new owner of the loan book would have to go to BIS, then BIS would have to go to HMRC and say: "Dear HMRC, can you give us this money, so that we in BIS can give it to X, Y and Z owner of the loan?" Is that correct?

Luke Edwards: Yes, we operate under a system whereby we pass the payments to BIS.

Q72 Mr Bacon: So the new owner of the loan now has to contend not just with somebody who owes them money, but they have to talk to BIS knowing that BIS then has to talk to HMRC in the hope that they actually answer the phone. My experience is this doesn’t always happen, but maybe you have a special line inside Government that I do not know about. Let’s just say that this works. You still have the problem that the buyer of the loan has to contend with two Government Departments in addition to the person who owes them money. That is correct, isn’t it?

Luke Edwards: This is obviously in development, but the intention is that there will be a master-server type arrangement. There would only be one interface for the purchaser.

Q73 Chair: But they have no control themselves. The point is, as Richard just said, whether there is an interface with BIS or with HMRC doesn’t really matter. If you buy that loan, you are still dependant on UK-based graduates and getting the money through HMRC. You do not go direct to those graduates.

Mick Laverty: Chair, that is correct. That is a big positive. It is a very efficient way of collecting the money. There will be no buyer who could come up with a system that can collect graduate loans more efficiently than the tax system. That is a big bonus.

Q74 Chair: But what is the value-for-money benefit to the taxpayer of selling the loan, beyond the short-term benefit on the whole-Government accounts? What is the value for money benefit to the taxpayer?

Mick Laverty: That would depend on exactly how much is paid for the loan. The Government will have an estimate of what the loan is worth and a buyer might offer more or less.

Q75 Chair: But if you are a private company buying the loan, the interest rates you have to pay will be higher than the ones that we pay as a Government, won’t it? You will have to pay more to have that loan on your books, simply because they borrow at a higher rate than we do.

Mick Laverty: It would depend on how much you pay for the loan book.

Q76 Chair: There are two things: one, you cannot get more in than Government would, because you are all getting it via HMRC, except for from foreign students-I accept that. Two, if you are buying it as a private company, you pay higher interest rates than you do as a Government, so the only way you make money is by Government actually undercutting the true worth of that loan book and therefore losing money on it. I cannot see the value-for-money case for Government. The only thing I can see is you get a short-term benefit on your accounts for the next year or so.

Martin Donnelly: We clearly would not be justified in selling on that basis, because any sale has to represent value for money for the taxpayer. We cannot be more specific about this because we are still doing the work on this, including with the commercial sector, but the issue here is whether there are borrowers out there to whom a very long-term loan book asset of this sort, which is relatively rare, is attractive in commercial terms.

Q77 Chair: Mr Donnelly, you are not listening to me. I can see that there is a short-term gain to Government in cutting the net public debt. I cannot see that there is any proper value. The private company or consortium, whoever it is, will have to pay more in interest rates-they will have to, while we get all our interests rates cheaper-and they won’t have control over the speed at which they can get the money back, because it is all done by HMRC, except for foreign students.

Martin Donnelly: If buyers are not prepared to pay a price which is value for money for the taxpayer, the sale will not take place.

Amyas Morse: It is just conceivable that there could be a difference. The reason for that is this. Setting aside all the other problems, what somebody is buying in this case is a stream of cash over a period of time. If they believe that the interest rate will move up, and it may go up, then the opportunity cost of the relative value of having a stream of cash will go up in the marketplace. I am sorry, I am not trying to be smart. I am just trying to say to you that it is possible that a commercial buyer will value it in a very different way from how Government will, but they will still expect to get it at a heavy discount. As I listen to this, it is not completely inconceivable that a commercial buyer could have a different valuation. You do not have to have a mirror-image valuation between Government as a seller and a commercial buyer, because they might think of this as having speculative value.

Chair: I cannot see where the speculation comes in, because they are buying a debt that has the interest rate set in its terms.

Amyas Morse: I understand that; I am just saying that it is possible to buy future cash flow discounted at whatever level and put a certain value on it depending on what the market rate for borrowing or raising cash is and you can speculate on whether that will move up or down.

Q78 Chair: It seems to me that we are selling a long-term asset to fund the short-term commitment of the increase in student numbers and saddling future generations with a huge debt. That is what is happening, which is why we think "Whole of Government Accounts" is such an important document. Your evidence today has given me absolutely no comfort that that is not what is happening.

Martin Donnelly: I cannot be any clearer than I have been about our application of the value-for-money test.

Q79 Mr Bacon: It is quite possible that if the value-for-money test is not met, the student loan book would not be sold.

Martin Donnelly: Correct.

Q80 Mr Bacon: Just to reiterate, because you did refer to this earlier, you expect that at some point during next year you will be in a position to offer a proper prospectus for the loan book, the work having been done and, assuming that the value-for-money test has been met, to offer it for sale and to find buyers.

Martin Donnelly: We are working towards that. There are still some decisions to be taken, including by Ministers, but getting through the value-for-money test is absolutely key and necessary.

Mr Bacon: Lots of people out there like long-term assets and long-term income streams: pension funds, insurance companies and all kinds of people. What it all boils down to is the price and the quality of what you get.

Q81 Chair: And does the price reflect value for money for the taxpayer?

Mick Laverty: You will not know for certain whether it is value for money until you get the bids in. We will have an idea of what constitutes value for money, but that decision cannot be taken until the bid has come in.

Q82 Chair: But the value for money is not just about ensuring that public debt levels are lower, is it?

Mr Bacon: Mr Laverty, I am sorry, I did not quite follow that. Could you say it again?

Mick Laverty: We will have an idea of what the book is worth and we will have an idea that if a bid comes in above that valuation that it constitutes value for money. Until we have a bid that comes in above that level, we will not know whether it is worth proceeding with the sale. So you will have an idea of what it is.

Q83 Chair: Determine value for money-are you looking at the loan book or what getting it off our books does to the national debt?

Mick Laverty: You would have a value-for-money test of the loans book that was being sold-

Q84 Chair: Full stop?

Mick Laverty: Yes, you would value the loans book and say, "This is what we think it is worth." If we get a bit above that-

Q85 Mr Bacon: You make it sound as if as long as bids come in at a particular price, ergo, by definition, value for money will have been achieved. But that depends where you set your benchmark. Ultimately, many transactions do not occur in the marketplace because there are not enough bidders and suppliers at the same price. Transactions occur only when supply and demand meet. It is not the case that because you have issued some arbitrary number and then said, "Ooh look, there are three bids above it" that that is definitely value for money. That is what we saw with PFI and the public sector comparator, which the National Audit Office described as pseudo-scientific mumbo-jumbo. How are we to take an informed view on whether the arbitrary number that you have come up with-above which these bids have come in-is, to use your words, "value for money", or whether it has any sound basis?

Mick Laverty: We would have a value for money report independently signed off.

Chair: We look forward to your calculation.

Q86 Mr Bacon: Would you make it public?

Mick Laverty: Not to potential bidders.

Q87 Mr Bacon: No, no you would not. So we would find out afterwards that they had come in 1p over what you deemed was value for money and that would be all right, yes? I am not being funny.

Martin Donnelly: In the case of this financial asset, we will need to work through very carefully what value for money would look like. I am sure that we will have further discussions on the subject.

Q88 Chair: We will indeed. I have two further questions before we go on to how you are collecting at the moment. Why did you scrap the Deloitte work on producing a better forecasting model?

Martin Donnelly: That goes back to your first challenge about the forecasting issues and problems that we have had, Chair. We had a model up until 2010 that is not really valid any more for the new system of loans. We knew that we had to do more work, not least to prepare the ground for a possible sale of the loan book. We went out to competition and got Deloitte in, which built something called the HERO model; I do not know why it is called that.

Chair: Higher education something or other.

Martin Donnelly: Yes, but I could not work out the second bit. That appeared to be working better, and to be a step forward, but it was not perfect; there turned out to be issues, in particular to do with how it forecast earnings.

Q89 Chair: What was wrong with it? You have spent a lot of money. Why did you scrap it?

Martin Donnelly: It was better than what went before, but it was not good enough. In particular, it turned out, as we got more data in, that we were not getting earnings growth forecast sufficiently accurately.

Q90 Chair: Were they more optimistic about earnings growth than you were? I just want to know why you scrapped it. You spent nearly £100,000 on the second one; why did we scrap it?

Martin Donnelly: We moved on to trying to improve it, because it was not producing an accurate enough answer. We did some further work with their analysts, which we paid for, and we decided on the basis of that that we would take the work in-house, building on the improvements made, and come up with our own model, which we are now having externally validated by PwC, will use for the year ahead, and hope and expect to produce more accurate outcomes. We will also have more data to work on.

Q91 Chair: Okay, so their model was rubbish, and in particular they had not done good work on earnings growth forecasts, from what you have said. Did you pay them for it?

Martin Donnelly: No, it was not rubbish, and we did pay them for it, but it was not fully accurate, and there was an error to do with the way they had disinflated earnings figures going back a year. It was a rather technical issue. It was not immediately apparent; over time, it became more apparent. It was also clear that with the additional information we had, we could do a better job, so that is what we have been doing: building on the good bits of the previous model. We have decided that the best and most cost-effective approach is to do that in-house and get it externally validated.

Q92 Chair: It sounds to me, from what you have said, like they made a mistake in their calculations.

Martin Donnelly: They made one mistake.

Q93 Chair: They were not very good. You are better off in-house, but we ended up paying them £100,000.

Martin Donnelly: They helped us to get to where we are, but it was not a perfect model, no.

Q94 Mr Bacon: Can you characterise, briefly, the difficulty in understanding or getting right the earnings data?

Martin Donnelly: I think one of the issues-I will speak under the control of my colleagues here-was that when somebody who has just graduated goes on to a higher pay level, how reliably can you extrapolate from that to lifetime earnings? Might they not earn a bit more for one, two or five years, and then go on to a lower earning stream? This is obviously sensitive to wider macro-economic assumptions: will they become unemployed? How will the labour market do?

Q95 Mr Bacon: There is also whether you have a global crunch, or whether 5% or 43% of the population are graduates. These are all very well-known things, aren’t they?

Chair: The OBR does this work.

Mr Bacon: The economy has changed a great deal. Presumably, if you took data from, say, the 1980s, you could get fairly large samples that would predict lifetime earnings, or at least earnings over a 20-year slug, fairly reliably, couldn’t you? Are you saying that that has become a lot more difficult?

Martin Donnelly: I think it has become more complicated. I do not think the analysts have found that going back 20 years helps that much. You need to look at the behaviour of people now-people who are in the system-how they respond to the incentives that we provide, and how the labour market in 2012, ’13 and ’14 is working.

Q96 Mr Bacon: Is it so different from the typical behaviour, if there was such a thing, 20 years ago? Is behaviour much more varied than it was? Is it much less predictable than it was a few decades, or a generation, ago?

Martin Donnelly: I am not sure that I have sufficient expertise to answer that question reliably, but my impression is yes.

Q97 Mr Bacon: People know that if they go above a certain income threshold-ker-bang!-they start paying their loan back. Is it your impression that there has been created, for some-people other than those earning such a significant amount of money that it is not a huge payment that they will notice-an incentive to keep on studying, do another degree, travel, or do other things that make sure that they do not breach the repayment threshold in a way that was not previously true?

Martin Donnelly: On the evidence I am aware of, the answer to that is no. The issue is more about their absolute income level and how stable that is going forward. But you do raise a very important point, which you raised earlier, Chair: we don’t yet know how, particularly, women’s behaviour is likely to be impacted by the marginal cost of student loans when it comes to deciding to go back to work part time or full time, or whatever. That is certainly one of the uncertainties in the system that we need to learn more about.

Q98 Chair: You do know. We do know that most women will not, over their lifetime, pay back the full student loan, because of the pattern of their working lives and because of the discrimination against women in salary levels-there is a wage gap. We do know, Mr Donnelly; we do know, and OBR knows, or makes perfectly sensible estimates about increase in graduate earnings. So you have got the data there and I still do not understand.

I will just ask one more question, and then we will come to what you are doing at the moment. In looking at the expansion of students, can we think a bit about the private institutions? It is thought that quite a lot will go to them. The number of students on HND and HNC courses at private institutions started in 2011-12 at 13,000, went up in 2012-13 to 30,000-a massive increase-and I am told that this year, ’13-’14, it is up to 40,000. Am I right about that figure?

Martin Donnelly: That is the latest estimate that I have heard.

Q99 Chair: And 40% of their students are EU non-UK. So with this expansion of student numbers, the likelihood of that going to students who are in things like the private institutions or the non-Russell Group HE institutions, and the likelihood of them being EU because the institutions will want to get the money in, is higher, isn’t it? So the likelihood of the debt never being repaid is also higher, isn’t it?

Martin Donnelly: It is going to be more challenging to collect debt from overseas, yes, and we will come on to that point. It is a challenge to make sure that we do so more effectively, and we have systems that are helping us to do that.

Q100 Chair: The question I am really asking is this. With the removal of the cap and getting more students in, they are likely to go to the more modern universities and the private institutions, and these are institutions that, to get their numbers, are likely to bring in some EU students, from whom it is more difficult to collect the debt. Is that true or not true?

Martin Donnelly: Can I make two points? Tell me if you think I am not answering your question. The first one is, we have been concerned by the very rapid growth in a small number of private providers of EU students, particularly at HND level, and we have taken steps to apply very rigorous checks and anti-fraud processes that Mick can talk about. We are also making clear that unless we are satisfied with the quality of the courses being provided, we will not necessarily move to open admission. So if there are issues about a college not providing quality education-and the QAA is reviewing all courses in the course of this year-then they should not assume that they will be able to take on as many students as they wish. Because the issue that you raise is one that does concern us, yes.

Mick Laverty: Could I add that alternative providers are not designated per se; it is the individual courses at individual sites that are designated as being sufficiently high quality to receive student finances. Colleges per se are not designated.

Q101 Chair: So they will not all just be allowed to increase their numbers?

Martin Donnelly: Not if we have concerns.

Q102 Chair: And what are you particularly doing about the private institutions, where there appears to be an issue, as you have accepted? What action are you taking there?

Martin Donnelly: Do you want to say something about what we are doing on EU students?

Mick Laverty: We have currently suspended all payments to what we call A2 applicants-that is students or applicants from Romania or Bulgaria-to what are termed alternative providers. That applies to about 7,500 students. We did that specifically because we were picking up in our analytic work at the Student Loans Company quite high incidences of those applicants at alternative providers. When we did some sample testing, we were not satisfied that all of them were passing the residency requirements, so working with our partners in BIS, we suspended payments and we are literally going through every single application on a case by case basis to make sure that they comply with the residency requirements of being resident in the UK for the three years prior to study.

As we sit here today, we have completed 35% of that exercise, so we have reviewed 2,635 individual cases and cleared 839-11% of the overall total. We think that, out of the ones we have looked at so far, 92 cases-1.2% of the overall total-are ineligible. That process is continuing on a daily basis. No one will receive another payment until their application has been thoroughly scrutinised and they have been cleared as being eligible. For those who are deemed to be ineligible, we will seek to recoup the money from them as individuals or from the alternative provider in the case of tuition fee loans.

Q103 Stephen Barclay: Do you regard withholding information or providing false data on a loan form as fraud, or would you regard that as error?

Mick Laverty: I would regard it as fraud, and I think the Student Loans Company would regard it as fraud.

Q104 Stephen Barclay: So you can confirm that that would be categorised as fraud in terms of your figures?

Mick Laverty: I believe so.

Q105 Stephen Barclay: Okay. Can you clarify how you define the distinction between error and fraud?

Mick Laverty: I think fraud is knowingly not providing information or falsely providing information. I think error is inadvertently or mistakenly providing information.

Q106 Stephen Barclay: Say again-it "is inadvertently or mistakenly" providing information?

Mick Laverty: That would be my definition for error, yes.

Q107 Stephen Barclay: Just to be absolutely clear, if someone, for example, mis-states their parents’ income, that would be classed as fraud?

Mick Laverty: I think that would depend. I can think of a couple of instances where it may well not be. For example, the definition of household income for student loan purposes is different from the definition of household income for tax-HMRC-purposes. The latter can be a lower figure: if the individual ran their own business and that business made a loss in the preceding tax year, it can be offset against the current year’s income. That is a technical area and we get quite a lot of instances where people genuinely and sincerely state their household income, but when we verify it with HMRC it is incorrectly stated. That is a very complicated area where, I believe, the vast majority of people do that inadvertently.

Q108 Stephen Barclay: So you think that most cases where people mis-state their parents’ income, notwithstanding the definition you just gave the Committee a moment ago, you regard that simply as an error.

Mick Laverty: No, I didn’t say that.

Q109 Stephen Barclay: Well, I thought you just did. I thought you said that in many cases it is a complex calculation and therefore people make mistakes.

Mick Laverty: The definition of household income is a complex situation, and I have given you an example of where we typically get the most mistakes being made. The difference with HMRC-

Q110 Stephen Barclay: Let me give you perhaps an easier example. Are there any instances where someone would falsely state whether their parents are together or have split up, where you would categorise that as an error?

Mick Laverty: No, I think that is unlikely.

Q111 Stephen Barclay: Unlikely, there may be, are there any?

Mick Laverty: I can’t give that sort of an answer. It is a case by case situation.

Q112 Stephen Barclay: Is it?

Mick Laverty: Yes.

Q113 Stephen Barclay: Would not someone filling out a loan form be expected to know whether their parents are together or have split?

Mick Laverty: Yes, if you put it like that, they would be expected to.

Q114 Stephen Barclay: So, to be clear, in all those cases, if anyone got that wrong it would be categorised as fraud.

Mick Laverty: Yes, I think it probably would be.

Q115 Stephen Barclay: Can you name any bank where getting information such as household income incorrect on a loan form would not be treated as fraud?

Mick Laverty: I am sorry I cannot, no.

Q116 Stephen Barclay: Why would you apply a different test to every bank in terms of assessing the integrity of information provided?

Mick Laverty: Our maintenance loans are means-tested and it is incumbent on the individual to provide accurate information. If they do not provide accurate information, that can be classed as fraud.

Q117 Stephen Barclay: Would you accept that there is a difference in the way that you assess fraud compared with how any FTSE 100 financial institution would assess fraud?

Mick Laverty: I am not sure that I know the answer to that question.

Q118 Stephen Barclay: Is it not a material issue as to how you categorise fraud? I am trying to understand why you have a different assessment of fraud compared with FTSE 100 companies.

Mick Laverty: I think it is fair to say that I need to go back and get you a clearer definition. I have given you my view of how I think it is, but I need to give you a more precise definition.

Q119 Stephen Barclay: To clarify the amount of money that we are dealing with, how much money paid out that you do not expect to recover would you categorise as fraud, and how much as error?

Mick Laverty: I do not have the precise figures for error, but the prevented fraud figure for 2012-13 was something like 0.18%, and the error rate was hovering around 1%.

Q120 Stephen Barclay: That makes it look very small. On March 2013 figures, we are talking about a £15 billion write-off. Of that £15 billion, how much would be categorised as fraud and how much as error in cash terms?

Mick Laverty: I am sorry, I do not know what figures you are referring to.

Q121 Stephen Barclay: Paragraph 1.8 of the Report. At March 2013, the total value of outstanding loans was £46 billion. BIS expects £31 billion to be repaid. How much of the £15 billion shortfall is fraud and how much is error?

Mick Laverty: I do not know the answer to that. The difference between those figures is the current RAB charge estimate.

Q122 Stephen Barclay: It is just that your ability to recover money would be severely compromised if it was paid out on false pretences, wouldn’t it?

Mick Laverty: Yes.

Q123 Stephen Barclay: Would you accept the criticism that before 2010, fraud controls were very lax?

Mick Laverty: I was not working at the Student Loans Company in 2010, so I am sorry, I could not comment.

Q124 Stephen Barclay: But you have come in to assess the controls as they are today in forming that view, and the Department is here to answer for the Department’s record. Would you take the view that fraud controls were very lax?

Mick Laverty: I would say that since I started at the organisation we have got better, and the importance of fraud and the investment and effort that we put into our fraud work has increased.

Q125 Stephen Barclay: The reason I ask is that in reply to a parliamentary question from me in May your Minister said that they were very lax. In fact, if you look at the figure in terms of counter-fraud activity, in one year the savings went from £2 million to £15 million, which is quite a dramatic change. A moment ago, Mr Donnelly said that you have rigorous fraud controls. You highlighted the areas of abuse, such as Bulgaria, Romania-A2. You are having trouble recovering money from students who have disappeared overseas, yet your Minister is saying that money was paid out without good fraud controls. Is it not the case that a significant proportion of the book, if it was paid out fraudulently, would be impossible to recover?

Mick Laverty: If you take the current situation with the Romanian and Bulgarian students, as I was just discussing, at the moment we think, from the 7,500 applications that we are reviewing, 1.2%-that is 92 applications-are ineligible.

Q126 Stephen Barclay: You are answering for the wrong time period. I am saying that money was paid out previously, which today we are seeking to recover, and where we are sending text messages to people who surprisingly do not respond, might that not be because they claimed their money fraudulently in the first place?

Mick Laverty: That is possible.

Q127 Stephen Barclay: But you have no idea how many people that is.

Mick Laverty: I can tell you the number of people who are repaying their loans, who are not due to repay their loans and who are in arrears, but in terms of known frauds, I cannot.

Q128 Stephen Barclay: But in terms of assessing how much money we will have to write off, the likelihood is that the more that was paid out fraudulently, the more we will have to write off. That is correct, is it not?

Mick Laverty: Well, we can reclaim tuition fee loans paid out fraudulently from the institution they were paid to, so what you say is partly correct. Maintenance loans and grants, if they are paid out fraudulently, become very difficult to claim back.

Q129 Stephen Barclay: Fine. That, in essence, is a cut to those institutions. They will be left to pick up the tab.

Mick Laverty: They will be left to repay us if the loan has been paid out fraudulently, yes.

Q130 Stephen Barclay: And these are institutions that you fund.

Mick Laverty: These are institutions that the learner funds, because the learner borrows the money from us.

Stephen Barclay: Through a different part of the Department.

Q131 Mr Bacon: I have one follow-up to Mr Barclay. When the application has been completed, presumably one signs and dates it at the end. Does one attest, in so signing it, to the accuracy of the information?

Mick Laverty: Yes.

Q132 Mr Bacon: In the way that you would when you are filling out an income tax return.

Mick Laverty: Yes.

Q133 Mr Bacon: I do not know the criminal law in this area, but when you fill out an income tax return, it not only requires you to attest that it is accurate, but it warns you that you are committing a criminal offence if it is inaccurate. Does the application form warn you in the same way that to complete the form inaccurately-for example, to assert that your parents are together when they are split up, or vice versa-is a criminal offence?

Mick Laverty: I do not know if it actually says "criminal offence", but it does warn you that it is an offence to knowingly put information that is wrong into the form.

Q134 Mr Bacon: It does.

Mick Laverty: I do not know if it uses the words "criminal offence".

Q135 Mr Bacon: I thought you were saying that you knew that it used the word "offence", but that you did not know whether it used "criminal offence". That was not what you were saying.

Mick Laverty: I do not know the precise wording. It is something around not knowingly providing inaccurate information. I am sorry, but I do not know the precise wording.

Q136 Mr Bacon: But there is a warning in there.

Mick Laverty: There is a warning in there.

Q137 Mr Bacon: Perhaps you can just send us a note with the text. I would like to know whether it is a criminal or civil offence. If it is not a criminal offence, presumably it very easily could be.

Mick Laverty: Yes, I will do that.

Mr Bacon: Even if it does not say it is a criminal offence, it is hard to think that it would not be a criminal offence under existing law.

Stephen Barclay: It is obtaining money under false pretences. It is misstating information on which you are getting a payment. That is why I find it quite remarkable that you are booking this as an error, when any financial institution would regard it as fraud.

Q138 Mr Bacon: Can you send us a copy of the application form as it is now, not as you will change it in future, following this exchange?

Mick Laverty: Yes, of course.

Q139 Chair: Can we move to figures 6 and 7, which relate to how you are performing? The first thing we want to say is that 97.54% of individuals who owe you money are in a so-called "repayment channel". That is right, is it not, under your definition?

Mick Laverty: Yes, it’s 98.4%.

Q140 Chair: What the Report does, and what we want to pick up on, is that there are people in there who could hardly be said to be repaying. We will go through it, a little bit at a time. At the top of figure 6, it states that there are 437,600 people, most of whom have had the loan cancelled or have repaid. Why are they in a repayment channel if they are out of it?

Mick Laverty: It gives a complete picture of the overall performance of the book.

Q141 Chair: It does not. I do not know what proportion of those are fully repaid, but they cannot be in a repayment channel if their loan has been cancelled or they are not paying any more. You cannot call it a repayment channel if they are not paying.

Mick Laverty: The definition of repayment channel essentially means people behaving exactly as you would expect, whether that is having repaid their loan, paying their loan or not being due to repay their loan.

Q142 Chair: I am sorry, I do not mean to laugh at you, but it is just daft. You have either had your loan cancelled or you have actually paid, but you are classified, so that your stats look great, as being in a repayment channel. It is just daft.

Mick Laverty: We are classifying them on the basis of the BIS definition of "repayment channel" that we are working with.

Q143 Chair: Okay. I think it is daft. You are telling me that that is how you have classified them, and I understand how you have classified them, but they are not in a repayment channel. Let me do the next one: past tax record and the 368,000 that we have there. Those people may have paid once. Page 22, paragraph 2.8 is your reference in the Report. There seems to be no evidence or justification for classifying them as repaying. They may have paid once. You know nothing about them: 43% of them have not worked for a year, 94,000 have been out of work for two years, yet you put them in the repayment channel, which looks as if they are complying. How on earth do you justify that?

Mick Laverty: Chair, that is a very dynamic group of individuals.

Q144 Chair: So dynamic that 94,000 of them have been out of work for two years or more.

Mick Laverty: People move in and out of that categorisation all the time. At the point the study was done, 31 March, there were 368,000 individuals we classify as "found"-that is a tax record but no employment record. At the end of October that group had reduced to 219,000. A net reduction of 149,000 had moved into employment. By the end of November that 368,000 was reduced even further to 195,000. So at the end of eight months, that 368,000 had reduced by 47%, as people moved in and out of employment. That is a net reduction. It is a very dynamic group.

Q145 Chair: And no new people moved into it.

Mick Laverty: That is a net reduction of 47%.

Q146 Chair: The figure I have from the Report is that 94,000 have been out of work for two years or more-that does not seem a big flowing-and 43% have no employment record for over a year and have provided no information.

Mick Laverty: There was a lesser movement in that group. Within the overall 368,000, 157,000 had been in no employment for a year or more, but at the end of November that group of 157,000 had reduced by 42,000-a net reduction of 27%. Again, movement in that group was not as big as the overall movement, which was 47%. However, it again shows that that is a dynamic group of individuals.

Q147 Justin Tomlinson: On this point, we have real-time information coming in. I know you do not expect it to be totally up and running until 2017. Presumably using the "dynamic" phase of these people as they dip in and out of work will help you massively, because as they dip into work they will make some payment, even if it is only a relatively short-term payment. Have you any estimate of the difference that will make?

Luke Edwards: Real-time information does not directly impact on these figures. At HMRC, we monthly-check the employment status of the individuals in that group. We pick them up as and when they move in and out of employment and automatically send that information across to SLC. You are right of course that real-time information does have significant scope to improve collection of student loans. However, we do not think there is a strong application in that particular example.

Q148 Chair: Could I ask you a question? There are 2,924 million in the repayment channel according to the Report. How many of those are currently paying today?

Mick Laverty: I think it says in figure 6 that it is 1.157 million.

Q149 Chair: Yes. You have said that it is dynamic and it changes. I am asking what the figure is today.

Mick Laverty: I am sorry I have not got that figure.

Q150 Chair: You had the figure on the 368,000 but you have not got the overall figure. You have come deeply unprepared today, you guys. I am quite taken aback. Is it likely to have moved a lot? The way I looked at this, I thought this is a ridiculous categorisation, because out the 2.9 million-plus you have in repayment-which, for me, common sense means they are repaying-you have got just under 40% actually repaying, according to figure 6. I think if you want to give an accurate reflection of what you are doing it would be better to have that stat as being repaying, rather than the 2.9 million-your 97%. You have no idea whether the 1.1 million is up, down or the same.

Mick Laverty: No, I am sorry, I haven’t. I could get that figure very easily but I have not got it today.

Q151 Stephen Barclay: Further to the questions on fraud, can I check whether you tell DWP of all cases where someone has tried to make a false, fraudulent claim?

Mick Laverty: We work very closely with DWP, but I don’t know whether we tell them of every single claim. I hope and imagine that we do, but I can check for you.

Q152 Stephen Barclay: Wouldn’t sharing with DWP a full list of the names of all the people who have made a fraudulent claim for a student loan be a fairly obvious thing to do?

Mick Laverty: Yes, it would. I do not want to say that we definitely do it, because I do not know for certain that we do. I hope and imagine that we do; I will check.

Q153 Stephen Barclay: I was told that you do not, so you can reassure us that your expectation is that you do.

Mick Laverty: I hope we do. I do not know for certain.

Q154 Stephen Barclay: Why would you not know? Is it not a fairly obvious thing to do? If someone is making a fraudulent claim for a student loan, it is not a leap of the imagination to think that they might also make a fraudulent claim from the benefits system, is it?

Mick Laverty: No, I think that is a fair comment.

Q155 Stephen Barclay: So it would be a reasonable expectation of the Committee that you would tell DWP?

Mick Laverty: I think that is reasonable, yes.

Q156 Stephen Barclay: Would you tell other relevant executive bodies across Government?

Mick Laverty: I think we work closely with lots of bodies across Government-with HMRC, the Home Office and with immigration.

Q157 Stephen Barclay: Indeed. I am not asking whether you work closely. "Closely" could be defined as meetings with relevant Departments on myriad issues. What I am trying to establish is whether you share a list of the names of individuals who have made fraudulent claims against the Student Loans Company with other relevant Departments across Whitehall, and other arm’s length bodies that receive money from the taxpayers’ purse. Do you share a list?

Mick Laverty: I do not know, but I will find out and let you know.

Q158 Chair: Dear, dear. I will ask one final thing and then I have some wind-up questions, because we are not getting very far this afternoon. Can I ask about English borrowers living abroad? Your figure 7 says that there are 56,000 of these people living abroad. My understanding from page 24, paragraph 2.13 of the Report is that three quarters of the overdue payments from this bunch of people have been overdue for between one and four years. Is that right?

Mick Laverty: I think we perhaps have a difference of opinion regarding how it has been calculated.

Chair: I think we have agreed figures here.

Mr Bacon: A difference of opinion with whom? With the National Audit Office?

Mick Laverty: I beg your pardon, did you say a third or three quarters?

Q159 Chair: I said three quarters. I got it from page 24, paragraph 2.13: "Over three-quarters of overdue repayments from income-contingent repayment borrowers living overseas have been overdue for between one and four years".

Mick Laverty: That is correct. I apologise, I was thinking of something else.

Q160 Chair: That is correct. If that is the case, why on earth haven’t you got a strategy that hits them early and sets a target for collecting? Why haven’t you done something about that? In that paragraph, the NAO goes on to say: "Most debt-collecting organisations aim to reduce the proportion of debt that is, for example, over 30 or 90 days old, to prevent old debt from accumulating. This allows them to focus on newer and more collectable debt". Why on earth aren’t you doing the same?

Mick Laverty: I think the starting point is that it is harder to collect the money from students who move overseas, whether they are UK-domiciled or overseas students returning home.

Q161 Chair: How much are we losing? How much have we lost there? There are 56,000 living abroad; how much do they owe? They are UK-domiciled, not EU citizens. How much does that lot owe us in total?

Mick Laverty: I am sorry, I do not know that figure off the top of my head. In terms of what we do, just because it is more difficult to collect the money from them, it does not mean that we do not doggedly go after these individuals.

Chair: Yes, but the trouble is that you are dogged too late. That is the whole point.

Q162 Mr Bacon: Do you send someone over on easyJet, and get them to rent a car and schlep round continental Europe, finding these people and scaring the living daylights out of them by showing them that you still know where they are? Or do you not try that?

Mick Laverty: No, we have a whole series of processes that escalate, right the way up to using overseas debt collection agencies with an overseas presence and local knowledge, which have proved quite successful very recently. We would start off by contacting these people and, if they do not respond, tracing them to make sure we have their correct address. If that does not work, we use various trace techniques to contact the family and friends whom they put on their application when they first apply.

Q163 Chair: Do you have a target for how much to get in?

Mick Laverty: No, we have not got a target.

Q164 Chair: Do you prioritise new debts, rather than old debts?

Mick Laverty: Up until now, we have not been able to prioritise debt in terms of age or value very easily, because our systems are old and cumbersome. It is something we have had to do manually. However, we have absolutely taken on board the recommendation from the NAO that that would be worth doing. We are now doing that manually. The telephony system that we are bringing in in March will allow us to do that. The difficulty we have at the moment is that the telephony system that automatically phones people who are in arrears or owe us money and routes the call to one of our collection team cannot deal with overseas international prefixes and time zone requirements.

Q165 Mr Bacon: You are kidding.

Mick Laverty: I am not kidding.

Q166 Mr Bacon: It doesn’t know about 0049 for Germany or-

Mick Laverty: The technology cannot cope, so people are doing that manually. We are now doing that manually-printing off lists and doing exactly as the NAO recommend.

Chair: Pathetic.

Q167 Mr Bacon: Did you buy this phone system second hand from the Rural Payments Agency, by any chance?

Mick Laverty: No, but I believe it is a very old system that has been in the company for a very long time.

Q168 Chair: Customers cannot go online to see what they owe you. They have to send forms. They cannot submit forms with their employment details online. This is pathetic in today’s age.

Mick Laverty: We are starting a pilot in January where a small number of people will be able to get an online statement.

Q169 Chair: It is pathetic.

Mick Laverty: The technology does not allow it at the moment.

Q170 Chair: Do you know the names of people who owe you money who are abroad? Can you get that on to e-Borders, so they can be identified when they come back to the UK?

Mick Laverty: No.1

Martin Donnelly: There is, I believe, a problem with this, related to the fact that it is a commercial-style debt, and the people at the borders are not allowed to stop people. We are exploring this with the Home Office.

Stephen Barclay: Mr Donnelly, you do not have to stop them. If you put it on e-Borders, you identify that they have come back into the UK. Usually at e-Borders there is an indication of where they are going, and you can contact them when they are here. You do not have to stop them and turn them away at the border. It is about identification, surely.

Q171 Mr Bacon: If you stopped them at the borders, they would not come back; they would soon get around that.

Martin Donnelly: We are very much in touch with the Home Office, DWP, and the Department of Health on how we can pick up on all these routes in.

Q172 Chair: What shocks me is that this is billions of pounds we are talking about-billions and billions of pounds. There are all these very simple things you are not doing. Let me ask about one final thing and then we will finish: EU students. There are 42,000 EU-domiciled borrowers on the loan book; is that right?

Mick Laverty: Yes.

Q173 Chair: How much do they owe?

Mick Laverty: I do not know, off the top of my head.

Q174 Chair: £117 million is the figure I have. How many of those have you not traced? What proportion do you think you are going to get back? What are you doing about that lot?

Mick Laverty: In terms of all borrowers living overseas, we think something like 70% are currently repaying or are not due to repay, so we know the whereabouts of those individuals.

Q175 Chair: "Not due to repay"; I have a great question mark on that, because you do not check that, do you? They tell you. You do not check it.

Mick Laverty: They have to provide evidence of their overseas earnings.

Q176 Chair: What do you mean?

Mick Laverty: Payslips, letters from their employer.

Q177 Chair: Yes, but if they claim to be out of work, how do you check that?

Mick Laverty: We have to have some evidence of how you are being supported overseas. You have to provide some evidence of how you are living and how you are supporting yourself. If you do work, we get evidence of payslips or other information from your employer to say what you are earning, to decide whether you are over or under the threshold for repayment.

Q178 Chair: Go on. How many of these EU-domiciled people are there in arrears, with no information? I can see it on the statistics-7,000. How much do they owe you, that 7,000?

Mick Laverty: I do not know the precise figures.

Q179 Chair: Do you know where the biggest outstanding debt comes from?

Mick Laverty: No.

Chair: I do. Cyprus. Quite interesting.

Chris Heaton-Harris: Can we just ask you questions, Chair?

Q180 Mr Bacon: I respect the fact, Mr Laverty, that you took over a situation that was difficult, and that the organisation has had many problems in the way that it was set up, and things that it has had to deal with. I am sure morale was low after it turned out that the chief executive, your predecessor, was being paid gross of PAYE through a special company, while all the people slogging away in his call centres were paying tax. I understand that you inherited a difficult situation. From your tone, you are obviously making serious efforts at this, but there is an alarming amount of information that you do not appear to have gripped. I notice that you used to be at Advantage West Midlands, which was the regional development agency for that area. We looked at MG Rover a few years ago, and at the money that was paid-and, indeed, not paid-in loans to it. Were you at Advantage West Midlands at that time?

Mick Laverty: I was.

Q181 Mr Bacon: You were. So you know all about the MG Rover stuff.

Mick Laverty: I was not directly involved, but I know some of what happened, yes.

Q182 Mr Bacon: I was just wondering, out of curiosity, because that is where I remember the name from. It seems to me that you have a bit more to do to grip this organisation. Is that fair?

Mick Laverty: No, I think that is not fair. There is a difference between not knowing the information and not having it readily available. I think everything that I have been asked today is readily available.

Q183 Chair: It is quite obvious information, and quite an obvious question. Have the people in the SLC had their pay frozen over a number of years?

Mick Laverty: They have been subject to the same pay restraint that the whole civil service has.

Q184 Chair: But it is appropriate, in these circumstances, for you to award yourself a bonus of £25,600 when your staff have had their pay frozen?

Mick Laverty: I have neither been awarded nor accepted any bonus payments. I categorically have not.

Q185 Chair: I am pleased to hear that. In 2011-12, there was £70 million in overpayments, usually because of a change of circumstances. How much of that have you got back?

Mick Laverty: I do not know the precise figure.

Q186 Chair: Right. Have you got rid of 0845 numbers, which this Committee found that you were using?

Mick Laverty: No. We are currently reviewing their usage.

Q187 Mr Bacon: What do they cost per minute?

Mick Laverty: From a mobile phone, I think it is around 41p a minute from a mobile; and between 1p and 11p a minute from a landline. Something like that.

Q188 Mr Bacon: Really? It is not cheap, is it?

Mick Laverty: It is not cheap.

Q189 Mr Bacon: Who makes the profit out of that?

Mick Laverty: It is the provider. The Student Loans Company made £78,000 in 2012-13 on 0845 numbers.

Q190 Mr Bacon: The money goes to the provider.

Mick Laverty: It does not come to the Student Loans Company.

Q191 Chair: We were told, Richard, that you made £1 million out of it.

Mick Laverty: Can I clarify that? The NAO study that you received attributed £1 million from 0845 numbers to the Student Loans Company. That is a combination of the £78,000 loss of income-the income we would lose if we changed to 03 numbers-and the £900,000 cost of moving to 03 numbers. We only make £78,000 a year out of 0845 numbers.

Q192 Mr Bacon: You are dealing with students, a notoriously poor group of people, who, at the best of times, struggle and live from hand to mouth. I remember, when I was a student, I worked the whole time. When I first became an undergraduate, I thought, "This is terrific; I will have four or five months’ holiday a year." I worked the whole time-Christmas, Easter, summer-to pay the rent and just to keep going. I remember banging my head against the floor, because I did not know how I was going to pay the electricity bill. Nothing has really changed, in some ways.

You are dealing with this group of people and charging them 41p a minute for phone calls. It is quite a while since we last discussed this. How long does it take to review? I will not call them "vulnerable" in the way that we normally understand the term, although some of these students, we hope, come from backgrounds where people might not have gone to university in the past. Everyone uses mobile phones, particularly in this cohort. A 10-minute call is £4.10; for eight minutes of that, you are waiting, and then you get through to somebody who says, "Sorry, she’s on a course today." This student has suddenly spent £4. That is a meal in the evening. Do you understand how that really matters to students?

Mick Laverty: I do understand this.

Q193 Mr Bacon: So why is it taking so long to do this review? You are a £46 billion organisation, according to this Report-suspiciously close to the £47 billion asset value of the Co-operative Bank, but I had better not go there. Surely to goodness you could afford to set up a situation where people could telephone you without having to forgo an evening meal. It is really that simple. Why does it need a long review?

Mick Laverty: There is a £900,000 cost to that. We will be in discussion with our sponsor Department-

Q194 Chair: How much does it cost?

Mick Laverty: £900,000 is our estimate of changing to the 03 number.

Q195 Chair: So it is £1 million.

Mick Laverty: Yes. The two figures together: £78,000 of income we would lose, and the £900,000 cost of transferring from 0845 to the 03 number.

Q196 Mr Bacon: In other words, you are saying that people telephoning you using normal land lines at normal rates would cost you money. When you say, "It costs us money," you mean income forgone.

Mick Laverty: No. The only income SLC made in 2012/13 from 0845 numbers was £78,000.

Q197 Mr Bacon: I am sorry; is that income forgone in total, including the income forgone for the provider?

Mick Laverty: Yes.2

Q198 Mr Bacon: So when you say "it costs us money," it means that you and the phone provider would not be getting income that you are currently getting.

Mick Laverty: We would not be getting the £78,000 income that we are currently getting.

Q199 Mr Bacon: I have phone numbers for my office that my constituents may telephone, and those numbers appear at the top of my letterhead. There is a phone number for my constituency and one here in Westminster. They are a big item for my annual budget in the constituency. Phones in the Westminster offices of MPs are covered automatically. Those phones are in the system, because it is a big network. In the constituency you have to pay. One of the biggest items that I have to pay out of my relatively small office budget is the phone bill for outgoing calls, and I pay it-obviously we do not pay when people call us. We do not create a system that we can exploit or create some sort of premium that we can share when people call us. If we were to do that, there would be an absolute outcry. I do not understand why you are not outraged, given the group of people with whom you are doing this. Surely it ought to be a pretty swift decision that this is wrong and you shouldn’t do it.

Mick Laverty: We are actively reviewing it at the moment.

Q200 Chair: Is it wrong?

Mick Laverty: I think it probably is wrong, yes.

Q201 Mr Bacon: How long is it going to take before you switch?

Mick Laverty: I hope that we will have something in place for the new financial year.

Q202 Mr Bacon: So next March or April?

Mick Laverty: I would hope so, yes.

Q203 Mr Bacon: When did the review start?

Mick Laverty: Immediately after the NAO Report became known to us.

Mr Bacon: Do you mean this NAO Report or the previous one?

Chair: It was the other one.

Q204 Mr Bacon: What date was the previous one?

Gabrielle Cohen: July 2013.

Q205 Mr Bacon: It is now December 2013, so the review has been going on for five months and it will be another three or four months before, hopefully, you switch in April. Is that what you are expecting?

Chair: Really complicated stuff, isn’t it?

Mick Laverty: I am hoping that we will have something in place for the new financial year.

Q206 Fiona Mactaggart: May I pull you up on a little thing? I am rather confused about what you have been saying on IT access and the way in which loan takers can change their details, give you information, and so on, through the net. Unlike a number of transactions that the Government expect people to do via e-mail and the internet, you are talking about a group of people who are much more likely than the general population to have e-mail and access to computers. They are quite likely to keep an e-mail contact address even when they move. To what extent can they communicate with you in that way? What is your IT strategy?

Mick Laverty: We have severe technology constraints. The systems that the Student Loans Company uses are old and have not been improved for a significant amount of time. They need to change before we have to start collecting the post-Brown income-contingent loans, because, quite simply, we cannot cope with the new product.

That is the bad news. The good news is that, as recently as October, we had a business case signed off by the Treasury, the Cabinet Office and BIS to allow us to make that investment in time, so we are in the process of appointing a supplier to refresh all our IT systems. We will progressively improve our IT capability over the next couple of years. We are making some advances at the moment. Some of our products are partly digital, but a lot of what we do is still a very manual-based system, because that is the system that the Student Loans Company has used for a number of years, and it is the only system that the technology can cope with at the moment.

Q207 Chair: I have three tiny questions, and then I want to draw the session to a close.

First, have you looked at the implications of Scottish independence? Will we face the same problems with Scottish students as we do with EU students? Have you looked at that?

Mick Laverty: Not specifically, no.

Q208 Chair: Mr Donnelly, have we considered privatising the Student Loans Company?

Martin Donnelly: Ministers are content with the status of the Student Loans Company as it is at present, not least for the reason that Mick gave on getting the IT upgrade done smoothly.

Q209 Chair: When will you next consider the cap on fees? That has an impact on the loans.

Martin Donnelly: That would be an issue for Ministers, too. I am not aware of any immediate plans to do so, but we have said that, at some point, there will be a need for another White Paper in that area.

Q210 Mr Bacon: Mr Laverty, what is the total value of the upgrade for which you have just had approval for the business case?

Mick Laverty: We have had approval for £139 million, with an initial cap of £90 million. So we can spend up to £90 million in partnership with BIS, our sponsor Department, and if the cost of the replacement is estimated to go above £90 million, we will have to go back to Treasury.

Q211 Mr Bacon: But you have a potential shoulder or window-I am not sure what the right phrase is-or buffer on top of that of £49 million.

Mick Laverty: Yes.

Q212 Mr Bacon: Proportionately, that is a big uplift. Why would you need such a big contingency?

Mick Laverty: The way you put an investment case together and the system used is that you have to use a certain prescribed level of optimism bias, so the vast majority of that £49 million is optimism bias. We were advised, I think, to use 40% optimism bias. That is not to say that you try to spend up to the amount; it is just that the track record of spending across government suggests that having an optimism bias at that level is a sensible planning assumption.

Q213 Mr Bacon: On the capital programme for FE colleges, which your Department was involved in, actually the attempt was to try to spend up to that amount and well beyond that, but I will take it that you are right in this case. This is a relatively small IT project-that is not to say that it cannot go horribly wrong, because many have-which is basically a computer-telephone integration system, isn’t it? What is it that you are talking about? By the standards of the NHS, it is not a big project, but it is still an enormous amount of money. What is that going on?

Mick Laverty: It is more than an IT replacement project; it is a business transformation project. We could replace the current infrastructure, digitise and automate a lot of what we currently do and you would get a significant benefit-not least, it will be on a safe and secure platform. What we are actually planning to do, working with BIS and the Government Digital Service, is review everything we do end to end and see if we can improve the processes, then digitise and put it on a safe platform.

For example, if you look at the student loan journey, we are considering with BIS and some of our partners whether we could do things like accept electronic signatures and whether there might be a case for applying once for funding, rather than at the start of every academic year. If we can get agreement on those sorts of process improvements, we can make significant benefits over and above the efficiencies that you would make by just introducing a new IT system.

Chair: I will draw this session to a close. I think we need a note from you on all the areas where you have been unable to answer the questions to date, please, as soon as possible. I would also like a note from you updating us on the 0845 review and a note that gives us the details of your IT proposal. I think we will need that.

Mr Bacon: If you spend £11.99 on my book, you will find out why IT projects always go wrong as well.

Martin Donnelly: Chair, may I correct my mis-statement recently about the White Paper? I meant likely legislation. I do not have the right to offer White Papers on behalf of the Government, I apologise.

Chair: Okay. Thank you.

[1] Witness note: We know the names of borrowers who are overseas. No, we do not pass details to e-Borders.

[2] Witness note: The £78,000 is the 2012/13 income to SLC.

Prepared 13th February 2014