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Moved, That the Bill be now read a second time.—(Baroness Morgan of Drefelin.)
4.20 pm
Lord Roberts of Llandudno: My Lords, I appreciate very much what the Minister has said, particularly on the last clause, referring to Wales. The Sale of Student Loans Bill will give the Welsh Assembly the power to sell off the Welsh portion of the student loan book valued at £1.1 billion, which is a small part of the £18.1 billion for the whole scheme. However, any money arising from the sales will go to the Treasury’ Consolidated Fund.
At the moment in Wales, we have the most severe school closure programme that Wales has ever known. Certain local authorities are having to close up to 30 schools. They cannot continue because the pupil numbers are so small. We would not argue that every school should be kept open, but if this £1.1 billion came to the coffers of the Welsh Assembly it could make a massive difference. The school in which David Lloyd George was educated has, at the moment, 80 pupils, yet it is threatened in a clandestine way with closure. If this money could be injected into Welsh education rather than go to the centralised Westminster Consolidated Fund, it would make a massive difference.
In Committee in the other place, Bill Rammell, the Minister responsible for the Bill, admitted that there was no way that any money raised from the sale of Welsh student loans could be earmarked for Wales. If we want the money in Wales, the Welsh Assembly will
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4.23 pm
Baroness Warwick of Undercliffe: My Lords, I want to speak briefly on the Sale of Student Loans Bill. I am delighted that it gives me an opportunity to welcome the Minister to her new position as Parliamentary Under-Secretary at the Department for Innovation, Universities and Skills. I also pay tribute to her predecessor, the noble Lord, Lord Triesman, who even in his relatively short time in the department, was committed to ensuring that the issue of the student experience played a prominent part in the political agenda. I have every confidence that it will continue under the stewardship of the noble Baroness.
This relatively uncontroversial Bill seeks to raise £6 billion for the government coffers from selling parts of the student loan portfolio. It has been done twice before, as my noble friend said, in 1998 and 1999, when loans worth more than £2 billion were sold. I am very much in favour of the Government’s rationale in wishing to transfer this risk to the private sector and, ultimately, reduce this part of the public debt. However, it would be helpful, with the current state of the financial markets, if the Minister could reassure the House whether this is the most appropriate time to make the sale. I was reassured by many of the conditions that the Minister described: the terms under which a sale might be contemplated. However, it would be helpful if she could say whether she has received advice from the financial services sector on the best time to obtain the optimum price.
There is concern, particularly among student groups, that individual student debt is growing. They worry that this is having a negative impact on access to higher education. It is worth reminding the House that the current student support package is one of the best that there has ever been, with a generous bursary package and student loan repayments not starting until a graduate is earning £15,000. While there is of course no room for complacency on access, it is particularly pleasing to see that university applications between 2002 and 2007 have increased by 5.5 per cent from the lowest socio-economic groups. The UCAS application figures for this year, released last Thursday, show an overall 6.7 per cent rise in student applications over the 2007 figures.
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I declare an interest as chief executive of Universities UK. I should like to highlight a report that UUK commissioned from PricewaterhouseCoopers in 2007 on the graduate earnings premium. It illustrated the fact that, over a working life, a graduate is predicted to earn some £160,000 more than someone with two A-levels. It is clearly a sound investment. There is benefit both to the individual and to society at large.
The sale of the loan book leads me to ask a wider question about the financial state of the higher education sector, if the Minister and your Lordships will indulge me for just a further moment. As I said in the House on 8 November 2007, during the debate on the Loyal Address, universities were grateful for the Government’s commitment to the maintenance of the unit of public funding for teaching in the recent spending review. I also welcomed the additional funding for the Higher Education Innovation Fund. However, the financial climate in the higher education sector is increasingly volatile and an investment backlog still exists. The sector needs stability to plan for the future. With that in mind, I ask the Minister whether any further thought has been given to my proposal in the Loyal Address that at least some proportion of the money raised by the sale of student loans would be reinvested in higher education.
4.27 pm
Baroness Sharp of Guildford: My Lords, first, I welcome the Minister to her new role. She has to date answered a number of questions in the House, but this is the first time that she has had a substantive Bill to introduce. I thank her for her comprehensive and careful introduction to the Bill.
We on these Benches would not start from here. There would be no loan book to sell if the Liberal Democrats had been in control because, on the whole, we opposed the idea of top-up fees and the loans necessary for them, although we supported—and continue to support—loans towards maintenance at universities and welcomed the introduction of grants from those from lower-income homes.
Something that worries us, even today, is the size of loans that young people must undertake. Under the old system, maintenance loans amounted to students leaving university with debts in the region of £12,000. When you add to that the £9,000 top-up fees, it means that students are now leaving college with debts of £21,000, repaid on an income-contingent basis. The income threshold is £15,000 and the average graduate salary is currently £21,000, so most of those leaving college will start repaying their loans more or less immediately. On top of this 9 per cent of their earnings repaying their loans, they will also pay income tax at 22 per cent and national insurance at 10 per cent. The effective marginal rate of repayment and tax on our young graduates is therefore 41 per cent: higher than any millionaire pays. That is rather tough on young graduates who are entering a world where prices are rising quite fast and where the cost of living in property terms has risen astonishingly high. It is extremely difficult for these young people. It is not just a matter of repaying over the first two or three years, but over
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We also need to reflect a little on the degree to which we are encouraging people to take on credit, the problems which we have run into with Northern Rock and all the problems of people who have taken on loans that they cannot afford to repay. An interesting study was undertaken by the Rainer foundation looking at the way in which young people treat debt. It found that people today—perhaps this is a good thing—do not worry about getting into debt. If they want something, they go out and spend on their credit cards and repay later. However, we can worry a little about the degree to which in this current consumerist society we are encouraging young people to spend now and pay later. Encouraging students to get into debt reinforces the idea of not worrying about getting into debt. However, we have moved down that track.
The Minister began by celebrating the fact that we have more students in higher education than ever before. She is right, and we, too, celebrate the fact that lots of students are coming into higher education. However, she should be a little careful about trumpeting the success of the top-up fee regime before we know what impact it will have. Only last week, we had a report from the Sutton Trust showing that, as regards the relative proportions of students from different income groups, there is a smaller proportion of students from lower socio-economic groups and there is real worry about taking on debt among some of those groups. Particularly if we are going to take the cap off top-up fees, have much higher fees and therefore much higher loans, we must think about that. So, while I join the Minister in celebrating, we have to be a little careful.
We are now confronted by a situation in which the Government have decided that we are going down the route of loans. They are lending students considerable sums of money, which are going directly into the universities. The sums that have already been leant by the Treasury have gone into the universities: the fees have been paid for the students, and the students have incurred debts. The Treasury is now confronted by the repayments, which will be collected through the PAYE system by Her Majesty’s Revenue and Customs, and will be an income stream for the Treasury over the years. The Bill suggests that that future income stream for the Treasury should be sold off now to translate it into present day assets to be used to pay off the national debt. As I understand it, the current situation is that the payments on the loans are not revenue but are treated under the resource accounting mechanism as capital. Therefore, at the moment, the increased loans are currently sitting in the national debt. As I said, we have a backlog of £18 billion which is growing by more than £4 billion a year. What was £18 billion in 2004 is £21 billion now, will be 25 billion next year, and so forth. It will be a considerable amount of government debt.
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The great advantage of selling it all off is that it transfers it from sitting in the national debt into money that the Government can put to paying off the national debt. One feels that there are two advantages to the Government. They have made a great deal about transferring the risk, which I will come back to in a moment, but on the other hand, they have kept rather quiet about the advantage to them of paying off bits of the national debt and the fact that they have already broken their golden rule by their current handling of the economy. This helps to balance the books a little better over the course of the Comprehensive Spending Review period 2008-11. The hope is that they will sell off enough loans to pay off in the region of £6.2 billion of that debt. To raise £6.2 billion, they will probably have to sell off in the region of £8 billion to £9 billion of debt.
In principle, the notion of translating debt into assets is not one that we object to from these Benches. The Government intend to create this special purpose vehicle, which will securitise that debt. As I understand it, they will transfer a tranche of loans to that special purpose vehicle and the vehicle will act as some specialist corporate bond issuers act: it will issue bonds reflecting different elements of risk. Some will be very low-risk bonds, some will be high-risk bonds and the interest attached to the different bonds will reflect the amount of risk underlying them. If the Government are successful in making that transfer to the special purpose vehicle, they will carry on doing that. As the Minister said, this is an enabling Bill. They will not stop at selling off £6 billion; in subsequent CSR periods, more money will be transferred by that mechanism. There is for the Government a continuing potential stream of income from selling off those loans to pay off part of the national debt.
A number of issues arise from that process. They have been discussed at some length in the other place where, to some extent, answers have been given, but we in this House would like to look at them ourselves as the Bill proceeds. The first issue is the conditions for repayment. The Government promise that the conditions for borrowers will not change, that they will be totally unaffected, but that is not written into the Bill; it is written into regulations and regulations can change. We have some worries that borrowers could be confronted by considerably changed repayment requirements because the regulations have changed. Arguably, it would be more satisfactory if that were written into the Bill, rather than just in regulation.
The second issue is that of value for money. The Minister said that only if the sales represent good value for money will they go through. How can we judge value for money here? Ministers have been asked to give an estimate of how much discount will have to be given to sell off the loans. We want to sell off £6 billion-worth of loans and there is a loan book of £18 billion. In order to sell off the loans, some sort of discount will have to be given to encourage other people to take them up. Ministers are very coy about this because they do not wish to give away to the market what they think the market might pay, but how can Parliament judge whether the loans are value for money if it does not know what rate of discount is to be given? One is caught in a conundrum. The only
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A third issue poses some problems. How risky is the sale? Mr Rammell, the Higher Education Minister in the other place, repeatedly made the point that the loans are rather low risk—the risk of default is not very high—because they are being collected through the PAYE system by Her Majesty’s Revenue and Customs. However, there is the knotty problem of what happens to the loans that are going to European students, because every European student has the right to the same loans as every English student. The problem is arising now because the loans have increased markedly in the past few years, but how far Her Majesty’s Revenue and Customs—perhaps I should say the Student Loans Company, because it will have to chase these people if they default—will actually be able to chase up European students is something of a moot point. However, that is a different issue.
As I understand it, the Government are going to sell off tranches of the student loan book. It was implied in the discussions in the other place that, when they sell off these tranches, the tranche of loans to good repayers will be sold off first. It was certainly implied in the discussions in Committee and on Report that these tranches would be sold off according to risk. You can see that there is probably not much difficulty in selling off the good risks, but does this mean that the bad risks will not be sold off? If the bad risks are not going to be sold off, is there any transfer of risk at all? Does not the public sector retain the risk? If it is not possible to sell off the high-risk loans, the public sector will retain them, so what is the transfer of risk? Is there really a transfer of risk? We must look at this in some detail and try to discover precisely how the sales are to be made, whether there is to be a sale of all risks, whether it is up to that special purpose vehicle to distinguish between the high risks and the low risks, or whether the special purpose vehicle will take only the better risks. As I say, the public sector will be left bearing the risk.
Then there is the transfer of data. Because loans are being transferred, data about who is paying back the loans, although anonymised, must also be transferred. We are told very firmly that the transfer of data will be secure and encrypted, but we know that the people who are collecting all these data are Her Majesty’s Revenue and Customs. What happened in November? Her Majesty’s Revenue and Customs sent by ordinary mail two unencrypted CDs containing the details of 25 million families receiving child benefit, and the disks were lost. So far as we know, they have still not been found. Can we trust Her Majesty’s Revenue and
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Lastly, on the selling-on of loans, we are told that only in exceptional circumstances is it expected that this special purpose vehicle will be sold on. Nevertheless, it can be sold on. It was suggested in the other place that one of the purchasers of the special purpose vehicle might have been Northern Rock. Who would have ended up meeting the bill? Once again, it might have been the public sector. Is there any control over who might buy it? What about overseas companies? Do the regulations restricting the terms on which these loans and so forth can be made apply to offshore companies based in Monaco or somewhere like that?
In Committee, we will need to look at a lot of detailed questions. While I look forward to spending some time with the Minister exploring the issues that have been raised, broadly speaking we go along with what the Government propose, but we have those reservations about it.
4.46 pm
Baroness Verma: My Lords, I join in welcoming the Minister to her first Bill in her new role and I look forward to working with her. We on these Benches welcome the principle behind the Bill. I am sure that the Minister is aware that at the previous two general elections the Conservative Party advocated similar proposals. The Bill is in line with Conservative intentions to move the student loan book to the private sector. However, I say that not without qualifications. Many of the questions that I shall ask the Minister have already been asked, but it is wise still to ask them so that she understands the importance we put on them. This transfer from the public sector to the private sector cannot be made unless proper safeguards are in place to protect the public interest and, of course, the interests of students.
I have listened carefully to what the Minister said and to her assurances. However, I should like to concentrate on asking questions about safeguards. I hope that she will offer some strong reassurances to satisfy those somewhat persistent niggles that seem to arise from the Bill. Will she clarify the nature of the sale? Will all borrowers, present and future, be assured that the transfer will not permit information being passed on to any other organisation? Will it be part of the contract or will it be covered by some other parliamentary mechanism, such as guidance or statutory instrument?
In March 2006, the Government published the student income and expenditure survey for 2004-05. The survey found that English domiciled full-time students graduating in the academic year 2004-05 had an average total debt of £7,918. For those students commencing courses after the introduction of variable fees in the years 2006-07, the debt was set to rise to around £15.000. However, the figures from a survey undertaken by NatWest Bank found that graduates
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I am sure the Minister will agree that many people simply do not understand the system of fees, loans and top-up fees, and that this confusion may dissuade them from considering to apply to or even exploring the option of going to universities away from home. While we do not wish to see students amass debts, many are often not aware of what is available to them in the form of bursaries, non-repayable grants and other funds from the Access to Learning Fund. Can the Minister ensure that more is done to make this information more readily available?
It is just and right, as we recognise the need to become a more knowledge-based nation, that our population must be both prepared and able to access higher education. We on these Benches are dedicated to widening access to higher education, and we strongly believe in looking at the different ways people can undertake learning and further studies. But given the uncertain economic times we face—a point alluded to by the noble Baroness, Lady Warwick—can the Minister first give us a strong assurance that the Government will investigate fully, in depth and in detail, the point in time at which to transfer the loan book to the private sector? Secondly, if the Government dither a great deal, as they have in the case of Northern Rock, what safeguards will be in place to control the situation if the purchaser gets into financial difficulties or is involved in undertaking unacceptable practices? With the value of the student loan book at around £18 billion at the end of the financial year 2006-07, the Minister must agree that these are not small sums. Are there any estimates of the value of the loan book for the financial year 2007-08? Can she tell us whether a regulatory impact assessment has been prepared?
Will the Minister also assure the House that concerns would be raised about the possibility of secondary sales to indeterminate groups of people? What safeguards will be put in place to ensure that the purchaser or purchasers are in full compliance with the terms laid out in the sale, and that if the book is to be sold on, that information is made available? The noble Baroness, Lady Sharp, also asked about this. If the information is made available to the Government, will they give instructions that all necessary checks and balances, as well as due diligence, are carried out on the new purchasers before the loan book can be sold on? This is a crucial point that needs to be addressed in detail because if the debt is sold on the open market, as is so often the case, it may end up being sold to an institution that is already underwritten or guaranteed by the Government, like Northern Rock.
Although this is a fairly straightforward Bill, niggling questions keep appearing. How will students who are eligible for loans from the EU be traced? Will a charge be put on those loans, and how do the Government see that being implemented?
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