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Baroness Blackstone moved Amendment No. 47:

Page 11, line 37, leave out ("a loan") and insert ("loans").

The noble Baroness said: My Lords, in moving Amendment No. 47, I shall also speak to Amendments Nos. 48, 49, 53 and 68.

I announced at Second Reading that the Government would be seeking an amendment to limit the rate of interest that can be charged on loans. My noble friend Lord Whitty reiterated the Government's intention in Committee. I am pleased to be able to move these amendments, which will have the effect of ensuring that the rate of interest charged will be no more than is necessary to maintain the value of loans in real terms. This is consistent with the provisions contained in the current Education (Student Loans) Act, and will mean in practice that the rate of interest charged will be equivalent to the rate of inflation.

I alluded at Second Reading to certain technical difficulties which delayed the bringing forward of this amendment. Members of your Lordships' House might find it helpful if I explain what these difficulties are, and why these amendments take the form which they do.

The difficulties to which I alluded relate to the way in which repayments are credited to borrowers' accounts and in particular the timing of that. For students in employment, repayments will be deducted at source from graduates' salaries by their employers and passed on to the Inland Revenue. The Inland Revenue will then remit these payments on to the Student Loans Company, which will be responsible for crediting individual borrowers' accounts. There are likely to be time lags between each stage of this process. Moreover, there will be separate repayment arrangements for graduates who are self-employed, as their repayments will be calculated as part of the self-assessment procedure and deducted as lump sums accordingly. Of course specific provision will also need to be made for the small proportion of borrowers who will be for any reason outside the UK tax system.

Under the current scheme, interest is accrued on borrowers' accounts on a day-to-day basis. This will be impracticable under the new arrangements, since the Student Loans Company will not know immediately when repayments are made through the tax system.

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Instead, interest will be credited retrospectively, only after repayments have been remitted to the company and credited to individual borrowers' accounts. In order to compensate for the delays that are inherent in the collection mechanism, we envisage that regulations will specify the dates on which repayments will be deemed to have been made or received. Interest will be accrued as if the repayments had been made or received on those dates. This will help to ensure that all graduates are treated equitably, regardless of whether they are in employment, are self-employed or are outside the UK tax system altogether.

Amendments Nos. 47, 48, 49 and 53 cover the position in England and Wales, while Amendment No. 68 inserts the equivalent provisions in Clause 21 dealing with Scotland. Taken together, this group of amendments provides the reassurance on interest rates that many Members of your Lordships' House and others have been seeking. I beg to move.

Earl Russell: My Lords, I thank the noble Baroness for these amendments, which meet an assurance she gave to me in Committee. I am satisfied with them, I am happy and I am delighted to welcome them.

On Question, amendment agreed to.

Baroness Blackstone moved Amendment No. 48:

Page 11, line 38, leave out ("any such loan to bear interest at such rates") and insert ("such loans to bear compound interest at such rates, and calculated in such manner,").

On Question, amendment agreed to.

Baroness Blackstone moved Amendment No. 49:

Page 11, line 46, at end insert--
("(3A) In relation to loans under this section--
(a) the rates prescribed by regulations made in pursuance of subsection (3)(a) shall be no higher than those which the Secretary of State is satisfied are required to maintain the value in real terms of the outstanding amounts of such loans; and
(b) such regulations may make provision, for the purpose of calculating the interest to be borne by such loans, for repayments by borrowers to be treated as having been made or received on such date or dates as may be prescribed by the regulations.").

On Question, amendment agreed to.

Baroness Blatch moved Amendment No. 50:

Page 12, line 30, at end insert--
("( ) The Secretary of State shall ensure that, in any regulations made under this section in relation to any eligible student for any prescribed purpose for any academic year--
(a) the maximum amount of any loan made available to that student is no greater than half the prescribed cost of maintenance for such a student for that purpose for that year, and
(b) provision continues to be made for maintenance grants to be payable to such a student, subject to--
(i) a maximum amount of half the prescribed cost of maintenance, and
(ii) assessment of any contributions applicable in his case.").

2 Mar 1998 : Column 998

The noble Baroness said: My Lords, when the Government solicited support for reducing the maintenance grant, they did not make it clear that maintenance grants would be abolished completely and in one fell swoop; nor that it would be introduced to impact on students who had already selected places at university and college well before the legislation had passed through Parliament; nor that it would be accompanied by the introduction of tuition fees; nor that the proposals would impact disproportionately on students from lower income families.

Students who had opted to take a year out between school and university were accused of being worried about nothing. This was followed by frenzied activity and some back-tracking by the DfEE. Even the criteria which determined which gap-year students were to be exempted from paying fees were subsequently changed because they were in practice unworkable.

Students can be forgiven for feeling let down by these proposals because of the indecent haste with which they were proposed as a supposed response to Dearing. Frankly, they could not have been a considered response to Dearing, first, because there was deliberate leaking of the proposals to the press the weekend before the Dearing Report was produced and, secondly, because there could hardly have been time to read the report, let alone consider its recommendations and findings between the publication of the report and the issuing of the Government's response.

Students will have noted, as indeed many of us did, the words of the Prime Minister on 14th April, only two weeks before the General Election last year, when he declared that the introduction of tuition fees paid for by students were not planned, as indeed did the right honourable Robin Cook who, on 24th April, just one week before the General Election, speaking to students, confirmed that view. Further, in an extraordinary display of ignorance, the Prime Minister on 25th February--only last Wednesday--when speaking to Parliament about student finance said that the Labour Party had accepted the Dearing recommendations. In fact, he said that they had promised that they would specifically abide by the outcome of the Dearing Committee Report, even accusing the Conservatives of not doing so. To put the record straight, we did support the Dearing recommendations; the government of the day did not.

As the noble Baroness knows, the Dearing Committee looked very carefully at the proposition that maintenance grants should be phased out from the 50-50 grants and loans to 100 per cent. loans. After much deliberation, they concluded--and I quote from paragraph 108 of the Dearing Report:

"We would be particularly reluctant to see any reduction in public subsidies being concentrated on students from the poorest families and even more reluctant to see the funding released by this, and more, being used to increase the subsidies for others".

When students are contemplating going to university they do not make the distinction, despite what people say, between tuition fees and maintenance grants. They want to know how much money it is going to cost them. In order to take up a place they will each require approximately £4,000 per year for maintenance plus, for 66 per cent. of them, anyway, some or all of £1,000 for

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tuition fees to be paid up front. For the students from the lowest income families, this will mean that they will have to borrow more than their fellow students who come from higher income families and repay the loan regardless of parental income. It is indefensible that a proposal leaves a student from a lower income family worse off, with a greater burden of debt, than a student from a higher income family. If ever there was a desire to introduce a disincentive for people from lower income backgrounds, especially from families with no tradition of entering university, the Government could not have done better.

We know already that there has been an overall decline in applications for places. The decline is very much more marked in two categories: students in the age bracket 21-24 and students over the age of 24. I would suggest it is the sudden quantum leap in the overall level of borrowing--that is, tuition fees plus maintenance grants--which will act as a deterrent for the students. Maintenance for the lowest income families is by far the greatest part of such borrowing.

My amendment would mean a level playing field for students leaving university, whatever their family background and whatever their future earnings. It has to be the irony of all time that a Labour Government is penalising more heavily lower income families, and I predict that there will be much disquiet in another place on this issue. I beg to move.

6 p.m.

The Earl of Longford: My Lords, I have not troubled the House up till now on this subject, but I should like to say a few words about the abolition of free tuition. If this is the wrong moment, I must be told; but I was informed that it was the best time to say what I want to say, which will not take more than a minute.

I do not like the abolition of free tuition. I have as much vested interest in retaining it, I suppose, as anybody here. I am one of many people who have been university teachers, but I cannot think of many other noble Lords who have had 20 children and grandchildren who have benefited from free tuition. I now have eight children and 12 further great-grandchildren to come. I therefore have a very big vested interest in maintaining tuition fees.

However, if there is only a limited amount of money available for education then the interests of people like myself and many others here must be subordinated to those of the poorer classes--I put it as crudely as that. I do not like it. I would much rather more money was spent on education, and I hope one day it will be. But if money is limited, for whatever reason, I am afraid that, with much reluctance, I must support the proposal.

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