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Lord Henley: My Lords, I note my noble friend's protest, and I shall certainly make sure that it is brought to the attention of my noble friend the Chief Whip as well as the usual channels. However, I have to say to my noble friend that what the noble Lord the Opposition Chief Whip said accords exactly with my own understanding of the convention. That is that these matters are offered to the Opposition, and if the Opposition do not wish to take it, that is a matter for them.

I thought that it was worth making some reference to the Statement at the beginning of my speech, partly because we have approximately 25 speakers in the debate, which is on a pretty narrow point, and I had a sneaking suspicion that some of them might want to

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expand their speeches to the more general aspects of higher education. Therefore, I felt that making some reference to that Statement and the fact that most of these matters will be a matter for that committee of inquiry might just possibly--I am an optimist--concentrate the minds of noble Lords and they might confine their remarks to the Bill itself. I certainly intend to confine my remarks to the Bill. I also intend to confine my winding up remarks to the Bill, and do not intend to have a general debate on higher education.

Baroness White: My Lords, some of us have been properly informed of the general tone and range of the Statement made in another place. We have not been left in complete ignorance, and I suppose that the Government have made arrangements for their own members.

Lord Henley: My Lords, I am sure that many noble Lords will have taken the opportunity to go down to another place and listen to the Statement made there. Certainly they will be able to obtain copies of that Statement. I can assure noble Lords that copies of the terms of reference, which are out for consultation, will be made available in the Library. We shall be more than willing to consider comments made by noble Lords.

After that rather delayed start, I intend to confine my remarks to the Bill itself. I trust that other noble Lords will do the same.

The Bill is short and straightforward with a clear and simple objective. That objective is to build further on the current student loan scheme by improving the deal for the student consumer and for the taxpayer. The Bill will do so by enabling students for the first time to take out a subsidised loan from a bank or building society. In place of the Student Loans Company monopoly there will be choice, diversity and competition. Not only that, but the student consumers will also have the benefit of private sector skills and expertise.

For the taxpayer, the private sector will be lending and risking its own rather than public money.

We have consistently given priority to extending choice at all levels of the education system. This was once thought controversial. I suspect that it is even accepted by some noble Lords opposite now. It is easy to see why. It works.

Only choice supported by competition and diversity can raise and maintain standards effectively. This Bill will mean in the short term a better, quicker, convenient, more varied and comprehensive service for student borrowers. In the longer term, as the market develops, it will mean a better loan product tailored to individual needs.

The involvement of the private sector is important for reasons other than choice and competition. The capital investment required in student loans is immense. We estimate that it will be £5 billion by the end of the decade. We want the private sector to be responsible for raising and lending much of that and for bearing most of the risk.

This is sensible in its own right. But it has another advantage. Reducing the size of the public sector and building up the private encourages individual freedom

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while also boosting the economy. Further, personal lending at this level is not a natural activity of Government. We do not have the experience or the expertise. The banks and building societies do. It is their business. It makes sense to make student loans their business as well.

We shall shortly invite those banks and building societies which have expressed an interest to bid for the right to offer subsidised loans. This will be for a period of five years. We envisage selecting up to four private lenders in each of England, Wales, Scotland and Northern Ireland. Students would then be able to choose between the successful bidders for a private loan; or--and I must stress this--they could still choose a public loan from the Student Loans Company.

This is a short Bill. Despite criticism in another place there is nothing sinister in this. The Bill will give us a power to pay subsidy to the private lenders. That subsidy is largely needed so that they can continue to offer loans at preferential terms.

The detailed arrangements will be set out in commercial contracts. We shall ensure that they protect the taxpayers' interest and the normal audit arrangements will apply. The invitation to tender documents will be placed in the Library.

It is striking how closely debate on the Bill in another place--and outside comment--has paralleled debate on the 1990 Act which introduced student loans. Then, as now, opponents focused on the same arguments: the Bill lacked detail; participation would be affected; hardship would be created; and other loans schemes would be better. But paradoxically underpinning all was a complete rejection of the principle of loans.

No doubt some of those arguments will shortly be put forward. Let me make two points now. First, those arguments were misplaced then. There is no hard evidence to support them. They are misplaced now. Secondly, we were right then about the principle of student loans. We are right now about the principle of this Bill. Opponents, I hope, will again come round to see that we are right.

This should not be a controversial Bill. It has no downsides for anyone--student or taxpayer. It enables us to test the market for a realistic development of our successful loans scheme. There are valuable opportunities here for the private sector and for students. I trust that they will take them up.

I commend the Bill to your Lordships' House.

Moved, That the Bill be now read a second time.--(Lord Henley.)

6.26 p.m.

Lord Morris of Castle Morris: My Lords, the House should be grateful to the Minister for introducing the Bill. I wish to congratulate him on the very professional way in which he has done what seemed to me a rather tricky job.

We have heard with a sense of enormous relief and release, (as my honourable friend emphasised in another place) from the Secretary of State this afternoon of the setting up of a committee under Sir Ron Dearing to

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examine the whole of higher education, and all our thinking on this Bill--to which I shall confine myself--has been transmogrified by the new gleam of hope that it may quite possibly never reach the statute book. But even when asked by my honourable friend the Member for Sheffield Brightside, the Secretary of State did not offer to withdraw the Bill, or give any prognostications of its future. So we must perforce proceed to consider it, even though the debate now, and perhaps later, will resemble nothing more than the morbid anatomy of a dead duck.

There are three questions that we must ask. Where did the Bill come from? Do we need it? Will it work? To begin at the beginning: where does it come from? Did students call for this Bill? No. Did vice-chancellors rise up and demand this Bill? No. Did the banks and building societies cry out for it? Certainly not. Did even the gurus, spin doctors and think-tank warriors of the Conservative Party recommend it? Quite the contrary, as I shall demonstrate. Whence came it, then, and where was it conceived? It was begotten by the Chancellor of the Exchequer, upon the Treasury, and it was brought forth in panic.

This Bill was inspired by the Chancellor's pre-Budget scurrying to find room for tax cuts. Ministers were attracted to the proposal because they believed it would remove some £1.8 billion from the PSBR, including £100 million in the first year of the scheme's operation. Those sums have already gone out of the window. The Government's eagerness to have the scheme in place for the autumn, and therefore to rush this Bill through Parliament, was based on a false premise: they naively believed that the banks would jump at it. Will they never learn? When the banks were consulted before the Student Loans Bill 1990, the noble Earl, Lord Caithness said:

    "We saw some advantage in making the expertise and the branch network of banks available to help with administration of the scheme, but the banks decided that there was no commercial benefit for them".
They said it in 1990; and they have said it again. The chief executive of the Midland Bank, in a letter to the President of the NUS made it absolutely clear. He said:

    "We were unable to resolve a number of concerns on such issues as administrative complexity, risk identification, profitability and customer reaction. We therefore advised the government that we did not wish to be invited to join the current formal bidding process".
He spoke for many others when he said that. I hope that Sir Ron Dearing will not be impenetrable to the trumpet blast of truth from the banks and building societies. And yet the Bill ground its way through the procedures of the House of Commons until on 14th December the Minister of State had to announce, only two days after rejecting an amendment to delay implementation by a year, that it would be best all round if he delayed implementation by 12 months--and after today, probably by another 12 months. He told the Standing Committee that that was because the financial institutions needed time to adjust their information technology and because there was merger activity in the building society sector. My Lords, if you will believe that, you will believe anything.

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Since then it has all gone horribly quiet. When he announced the delay, the Minister promised a new timetable for the tendering process "probably in the next few weeks". On 9th January, he said:

    "We expect expressions of interest by the end of January and bids by Easter".
At Report stage, on 17th January, he told the Commons:

    "I believe it proper that we should now aim at the period of tendering, invitation and finalisation of contracts ending at the mid-point of 1996".--[Official Report, Commons, 17/1/96; col. 811.]
Yet there is still no sign of a revised tender document. This does not suggest that the Minister's life is being made a misery by the constant interruptions of bankers knocking on his door.

However, the Government must have felt that Pelion was being piled upon Ossa when, earlier this very month, the Conservative Political Centre published the report of the CPC National Policy Group on Higher Education, entitled The Future of Britain's Universities. It is a serious and deeply researched report. It takes a wide view and it proposes many sensible developments in matters like diversity and easier access, and university funding. We in the Labour Party have read it carefully, with interest and profit. I commend it to any of your Lordships who may not have secured a copy as a powerful contribution to the debate, from the Conservative side.

We were particularly interested in its proposals for funding students which are to be found on pages 15 to 19. We read:

    "Increased student hardship, combined with the current loan scheme, is proving a deterrent to entering university".
Not my words, but the words of the Conservative report.

    "The Policy Group believes that the present loan scheme should be replaced, as soon as possible, by a more effective system".
The report offers what it regards as a superior model to the "mortgage repayment system":

    "an income contingent loan repayment scheme--is not based on fixed equal payments, but on varying amounts, based on a given percentage of income above an agreed minimum level. Repayments can, therefore, be spread over a much longer period of time, say 20 years, requiring smaller repayments in the early years, thus lessening any deterrent to going on to higher education. Such schemes are best 'piggy-backed' on national income tax or national insurance schemes, as this minimises both the cost of administration, and the default rates. It is relevant to note that both the US and Canada are beginning to use income tax in attempts to recover defaulted loans".
Not my words, but the words of a Conservative Party think-tank report. It bears remarkable similarities to the scheme preferred by the CVCP, approved by the NUS and proved to be successful in the schemes introduced in New Zealand and Australia so long ago as 1989. It is precisely the sort of scheme we in the Labour Party have been urging the Government to adopt. The letter attacking the ICL system from the Department for Education and Employment to the CVCP, dated 15th February, came my way. I read it and it is, at the very best, a feeble attempt at a miserable rejoinder and I believe that it has left the vice-chancellors profoundly unimpressed by the case it tries to make. At all events, it is clear that the Bill comes from nowhere but the Treasury and that all responsible bodies, right across the

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political spectrum, regard it as unnecessary because a better alternative, tested in the Antipodes, is staring us in the face.

My second question--"Do we need this Bill?"--is answered by the same evidence. We do not need it because we can do better. But we do need to be clear about the principles on which any fair scheme for student funding should be judged. I hope that the Dearing committee will be encouraged to think long and hard about the principles underlying student funding so as to avoid the specious seduction of a Treasury-inspired scheme.

The Labour Party has been engaged for some time on a consultative exercise on the subject and I commend the four clear principles on which we have worked to the Government, to Sir Ron and to your Lordships' House. They are these. First, the student funding system should encourage access to higher education for people from all social backgrounds. Secondly, it should protect and enhance the quality of higher education. Thirdly, it should not discriminate between different types of student. Those studying part-time and students over the age of 50 have needs as great as and sometimes greater than younger or full-time students--to say nothing of students in further education. Fourthly, it must be fair both to students and to the taxpayer. It must therefore be an efficient and progressive system and one which eliminates the present blight of student hardship.

On that fourth principle, may I point out that subsidising private lenders to the tune of £1,500 per loan--an estimate which Ministers have pointedly failed to deny--is clearly neither fair to taxpayers, nor efficient. The noble Lord, Lord Beloff, made the point during a debate in 1989 in words that have rung down the decade. He said:

    "A fishmonger sells fish; that is his business. A banker lends money, that is his business. One does not have to bribe a fishmonger to sell fish but apparently the government have to bribe the banks to lend money. Could we get further into absurdity?"
His words are as true now as they were then.

The Bill, as we have it before us, unimproved by any of the amendments so clearly put and so cogently argued at the Standing Committee of another place, is unnecessary and irrelevant to the needs of students. It has been so overtaken by the flood of events consequent upon the Budget as to make it outdated and bypassed by this afternoon's events and the Statement by the Secretary of State which makes it quite clear that responsibility for the present crisis in higher education rests firmly with the Government.

My third question was: "Will it work?" The answer is equally clear and I shall list only a few of its deficiencies and leave the expounding of others to my noble friends. First, the Bill, Ministers tell us, is designed to increase the choice available to students. It will not suddenly provide them with more money for food or books and it will not relieve the problems caused by the student loans system's repayment mechanism. But it will provide students with a choice between having the logo of the Student Loans Company or the logo of a bank or building society on their loan

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application forms. It is nothing more. Ministers will have to forgive students if they receive news of that liberation with only modified rapture.

The real choice the Bill would provide is the right of financial institutions to choose those students who seem most likely to be profitable customers later in life, leaving those rejected to be dealt with by the Student Loans Company. The SLC would have no choice but to see its unit costs pushed up and its ability to forecast demand--already identified as a problem by the National Audit Office--diminished even further.

The Bill will not work unless it offers students a higher degree of security. Students taking out private loans would fall outside the protection of the independent loans assessor. The Minster of State tried to assure the Standing Committee in another place that they could turn to the banking ombudsman for help. Unfortunately, he had failed to read the ombudsman's terms of reference, which preclude him from such involvement. This House will therefore need to examine further the need for a proper appeals mechanism, and how we might give some protection to the privacy of loan applicants.

Vice-chancellors have also pointed out that the Bill perpetuates the anomaly which means that their institutions are paid less for certifying students' eligibility for loans than the system costs them to administer. They have been unhappy enough about subsidising the Student Loans Company: they will be even more unhappy if, while being forced to charge new students £300 each, they are made to subsidise profit-making concerns. Without their co-operation the Bill might prove difficult to administer. But, above all, it will not work without the willing co-operation of the banks. And, despite all inducements, there is no sign of this yet.

It will be difficult, at Committee stage, for us to put forward amendments to improve this Bill to any great extent. It is ideologically and implacably based on the wrong premise. The income contingent loan repayment scheme is simply better than this mortage repayment model. Every serious commentator agrees about that. The Government should have realised, after rushing the 1990 Bill through and watching the disastrous start of the Student Loans Company, which Sir Eric Ash had to rescue, that they were backing the wrong horse. But no. In the panic to reduce the PSBR they forced this miserable measure on us. If it goes through, it will be a failure. My advice to the Government, in the light of the announcement by the Secretary of State this afternoon, is, even at this late stage, withdraw it. Scrap it. Take the advice of the good old English proverb: if at first you don't succeed--give up!

6.40 p.m.

Lord Tope: My Lords, it is always a daunting prospect to follow the noble Lord, Lord Morris of Castle Morris. On this occasion it is even more so, since the noble Lord made, so much more eloquently than I could, many of the points that I intended to make. Like the noble Lord, I congratulate the Minister on his deft handling of the opening reference to the Statement in

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another place this afternoon. He had anticipated that much of our debate would perhaps be based around that Statement. Noble Lords may see it as some incentive if, by putting 20 or more names on the list of speakers, we can provoke the Government into setting up a long overdue committee of inquiry. The Opposition at least may wish to consider that tactic further. I do not intend to fall too far into that trap.

We welcome the committee of inquiry, not least because it is at last a recognition by the Government that something needs to be done about higher education and the funding crisis that it faces. Our concern is that the proposed committee of inquiry is not due to report until the summer of 1997 when there is a crisis that needs urgent and immediate action. Frankly, it cannot wait until the summer of 1997 (or in reality some time after that) when the inquiry report has been properly considered. For all those reasons, while welcoming the inquiry and the light that is now to be shone onto this major and important area, we regret that it may well mean the cancellation or postponement of much-needed action.

I agree with the CVCP that the Bill is "an irrelevant distraction". The comment was made on the basis that the measure does nothing to address the funding crisis in higher education or the problems of student poverty. The committee pointed out that with increasing numbers of students and a reducing amount of funding in real terms there has been an actual reduction of 28 per cent. per student in recent years. That problem needs addressing urgently; the Bill does nothing whatever to address it.

There is already a one-year postponement, for reasons mentioned by the noble Lord, Lord Morris, in the implementation of these proposals should the Bill be enacted. And the committee of inquiry will take a further 15 months to report. If the Bill was an irrelevant distraction before today, it is even more so now.

I had a faint hope that this afternoon, given the announcement in another place, the Minister might stand up and withdraw the Bill. I certainly believe that he should have done so. There is still time for that to be done in the closing speech after what I still believe will be a very useful and interesting debate. I hope that in that speech the Minister will address the much wider and extremely important issues of the funding crisis in higher education and student poverty.

Student poverty is well documented. Many Members present will be able to speak of it with greater knowledge and experience than I. Certainly, the increasing stresses on students are well known, as is the drop-out rate among students. Sadly, even the suicide rate among students is increasing. When they are asked about the reasons for stress, financial concerns are overwhelmingly the most quoted single reason. It is not the only reason but overwhelmingly the most quoted. Those reasons are greatest among mature students, yet the Bill does nothing to address the difficulty. Students increasingly have to spend time earning, not learning. The Bill will do nothing to help prevent that.

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The noble Lord, Lord Morris, asked who wanted this Bill. Certainly there was no prior consultation before the announcement of the Bill--a point made by the CVCP. As the noble Lord, Lord Morris, said, it is not wanted by the universities; it is certainly not wanted by students; and, it appears, it is not even wanted by the financial institutions. I am forced to the conclusion that the only people who may have wanted the Bill are those better-off parents who can afford to invest a low-interest student loan to attract a much higher rate of interest. That is not the business we should be in.

If the measure is to go ahead, a number of important questions need to be answered. The noble Lord, Lord Morris, raised many of them. I echo those points and look forward to hearing the answers later this evening. The Minister said that a number of financial institutions had expressed interest in these measures, and that four will eventually be chosen. Will he tell us which are the institutions that have expressed interest? We have certainly heard quite a lot from all the institutions that have not expressed interest, and they have been very clear as to why. I should like to hear about those that are allegedly interested. I want to know whether arrangements to be reached with them will be subject to parliamentary scrutiny. It appears from debates in another place that that is not to be the case. But, surely, any arrangements to be made for dealing with public money should be subject to parliamentary scrutiny. Perhaps the Minister will respond to that point.

Is there to be a publicly stated limit to the subsidy that will be paid to the institutions? Or, as the National Union of Students suggested, will they receive a blank cheque? Reference was made to the fact that postponement of the implementation of the scheme has left a deficit of £100 million in the education budget for this year. How is that deficit to be funded? There is understandable concern in the education sector that it will be funded still within the education budget by making further cuts somewhere else. Will the Minister tell us how the apparent £100 million gap is to be funded? Will he confirm that it will not be funded by cuts elsewhere in the education budget?

Will the Minister tell the House what measures, if any, are to be taken to help with the very real, recognised problems that part-time students, graduate students and the over-50s have in funding? These are all important issues. Yet they are not addressed at all in the Bill and the scheme before us. I hope that in replying the Minister will comment.

I accept, as does my party, that it is reasonable for government at least to consider transferring some debt, and the associated risk, from the PSBR to commercial lending organisations. But it is important that any such a scheme must be equitable for students, and reasonably secure for lenders to be able to offer funding on that basis. The scheme before us today is neither. The present loans system is flawed. Its flaws are well known and well described. It is ludicrous to be transferring that flawed scheme to the private sector. For those reasons, we oppose the Bill.

The criticisms of the Bill are well known. I referred to its limited eligibility. Postgraduates, over-50s and part-time students, who now comprise 28 per cent. of

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the student body, are ignored in the proposals. The arbitrary time limits proposed for repayments will undoubtedly cause hardship. There are inadequate arrangements for repayment.

The scheme is not an equitable or efficient basis for funding student living. It is more costly and less efficient than if done through national insurance or the tax system. There has been mention of experience in New Zealand and Australia. We should certainly examine that scheme. I hope that Sir Ron Dearing's inquiry will do just that. This sort of partial privatisation does nothing to address all the serious shortcomings. As the noble Lord, Lord Morris, said, it simply represents a dogmatic approach and will do nothing to solve the problem.

The Liberal Democrats will tomorrow be announcing the party's proposals for further and higher education. I could not possibly anticipate tonight what is embargoed for 10 o'clock tomorrow morning.

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