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The fact remains, however, that we want to be absolutely certain that the terms and conditions will be identical whether the students are paying their
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- “the Secretary of State has the power, if backed by Parliament, to alter the terms and conditions of access to student loans.—[Official Report, Commons, 4/12/07; col. 48).
The important part of that sentence is, “if backed by Parliament”. However, if the Bill is passed and the loans are sold, will it be easier for the terms and conditions to change? Will it take only the consent of the Secretary of State to alter the conditions if the loans are sold, whereas at the moment it requires parliamentary scrutiny? Will the noble Baroness assure us that if there is any danger of the terms and conditions changing, the changes to the terms of sold loans will be subject to as rigorous parliamentary scrutiny as a change to government loans? Our amendment would put this in the Bill. Would it be acceptable to have some sort of parliamentary mechanism mentioned in the Bill, should changes be considered?
Further, does the Minister accept the amendment that organisations underwritten by Her Majesty’s Government will not qualify to be purchasers? Is she willing to give a guarantee that that will not occur, although it may seem unlikely? By way of clarification, can the Minister comment on the recent articles and news items in which it was reported that students were overpaying their loans and that there was no one to check with the Student Loans Company if and when they had been paid, or indeed what amounts were outstanding? The payments went to HMRC and remained in that department for a year. Surely that would cause chaos if this persisted after loans were sold. This seems to be a potential pitfall that could adversely affect students to a very large degree. It seems that during the year that the money was kept with HMRC, the Student Loans Company had no access to information to forward to students inquiring about the status of their loans. Indeed, the Student Loans Company itself did not have the information. Will the Minister say how this situation will be remedied urgently and whether, if students have overpaid, the Government will be paying lost interest to those students?
Baroness Morgan of Drefelin: I shall start with the last point first. The student loans payments are collected through HMRC alongside the process of the collection of tax. From time to time there are cases of overpayment, which the Student Loans Company investigates, and corrections are made. I reassure the noble Baroness on the role of parliamentary scrutiny and the regulations. The role of regulations in determining the repayment terms and conditions of student loans will continue, as will parliamentary scrutiny. That is the Bill’s intention.
This group covers amendments about the form the sales transaction itself will take. As we have heard, Amendments Nos. 2 and 3 concern whether a loan purchaser will be able to change the terms and conditions of the loans. I fully agree with the intention behind the amendments. It is a central tenet in our policy in
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By virtue of Clause 4, terms and conditions for all loans will, as now, be governed by the regulations and scrutinised by Parliament. The loan document also contains a very few minor contractual arrangements, to which the noble Baroness, Lady Sharp, referred on Second Reading, which are not derived from the regulations. These residual terms, however, contain none directly concerned with the terms of repayment. As with any contract, it will not be open to the purchaser unilaterally to change the terms even in respect of these. That would be possible only with the agreement of each borrower. The protection envisaged by Amendments Nos. 2 and 3 is already in place. They simply restate something that is already the case in law.
I am happy to give the Committee a clear assurance, as my honourable friend the Minister of State for Lifelong Learning, Further and Higher Education has done in another place, that purchasers will not have the right to alter a borrower’s terms and conditions and that regulations will continue to apply. Some minor amendments to the loan documents might be possible but could be made only with the agreement of each individual borrower. We do not expect that purchasers would wish to do this, or that there would be any benefit to them. On that basis I hope that the noble Baroness will withdraw her amendment.
Amendment No. 4 would place a duty on the Secretary of State to contact borrowers whose loans had been sold. I welcome the opportunity to set out clearly our position on communication with borrowers about sales. The Bill makes provision for the sale of student loans without prior notice to the borrower. We believe that that is justified because the borrower will experience no adverse effect as a result of the loan being sold under the protections that we are putting in place. It is common practice for loans underlying a financial asset to be sold on without notice to borrowers.
My honourable friend the Minister of State for Lifelong Learning, Further and Higher Education has given a commitment in another place that we would write to all borrowers whose loans had been sold to let them know. That is picking up the concerns raised by the noble Baronesses about expectations—perhaps fuelled by media coverage. The noble Baroness, Lady Sharp, proposed that this commitment be placed in the Bill, and I am happy to take the matter away and consider whether it is possible to bring something forward on Report.
Amendment No. 5seeks to include a specific restriction about organisations to which sales can be made. In embarking on a programme of loan sales, the Government are aiming to manage a growing public asset efficiently and to secure good value for money for the taxpayer. We believe that, in reality, the restriction proposed would work against these aims.
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We do not expect that any financial institution would want to own the loans itself, but that the loans would be sold to a legally separate special purpose company. It is not straightforward to see how the restriction might be applied. It is not clear, for example, whether the restriction is intended to apply only to the legal title of the loans, or whether it would also apply to bonds backed by the income from the loans. Nor is it clear from the amendment exactly how the target for this restriction would be defined, although I understand the noble Baroness’s concerns.
A further difficulty is that the proposed restriction would apply to onward sales as much as to initial sales by virtue of Clause 3(2). Onward sales from the special purpose company are unlikely in practice. However, once the Government have sold an asset, they have transferred ownership and cannot exert substantial control over to whom the purchaser could then sell that asset. If this restriction on onward sales were included in a sales contract, then the independent Office for National Statistics would be likely to rule that the transaction did not constitute a true sale. The noble Baroness knows that that is a key prerequisite to achieving this programme of sales. That would mean that the loans would remain on the Government’s books, and would not make funds available for investment in other priorities. The amendment would therefore have the opposite effect to what I assume it aims to achieve; that is, to ensure good value for money and a transfer of risk away from the public sector.
The Bill contains the necessary provisions to ensure that borrowers are fully protected no matter who owns the loans, and no matter whether it is an initial sale or an onward sale. We will cover that issue further when we reach amendments on Clause 3 on onward sales.
I do not believe that this proposal is necessary. It applies to an extremely unlikely combination of circumstances, although I accept it is always helpful to look at all possible circumstances. Furthermore, my view is that it would not be possible to draft a provision with sufficient clarity to achieve its purpose without introducing issues of interpretation and possible impact on the marketability of bonds, particularly with regard to what I was saying about the classification of sales. We will consider further the question of contacting borrowers on the sale and I have explained why I hope that the noble Baroness will consider withdrawing her amendment.
Baroness Verma: I thank the Minister for her response. I am still unsure about purchases that may be underwritten by the Government. I will go away, read in Hansard what has been said and mull over it carefully.
Baroness Sharp of Guildford: I am very grateful to the Minister for her reply. I am particularly delighted that she will take away Amendment No. 4 and think further about it. It would be good to get that in the Bill.
It seems to me that the reassurance given to borrowers under Amendment No. 4 is less important than the reassurance in Amendments Nos. 2 and 3.
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There is a great fear that when a loan is sold on to a commercial purchaser, they will seek to maximise the benefit that they might get out of it. If we need to reassure borrowers, this is the big issue that they will be worried about. Information is a not unimportant issue. It is appropriate that the Government should tell borrowers what has happened to their loans, but it is more important that reassurance that the terms of repayment will not be altered by the purchaser is incorporated in the Bill. I urge the Minister perhaps to think more about that.
Baroness Morgan of Drefelin: The Bill does not allow the Government to transfer power to amend terms and conditions. The amendment of terms and conditions will be done only by regulations that are scrutinised by Parliament. It is not that we do not want to extend protection, but that that protection is already in the Bill.
Baroness Sharp of Guildford: It is not on the face of the Bill. Therefore, the borrowers might be worried. The Teaching and Higher Education Act 1998 is, I think, appropriate here.
There is no point in pursuing this now. Again, I shall read carefully what the Minister has said and think more about these things. Perhaps the noble Baroness, Lady Verma, and I can confer on whether we feel that it is worth while pursuing this matter on Report. For the moment, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 3 to 5 not moved.]
Baroness Verma moved Amendment No. 6:
(a) examine the prevailing market conditions and ensure that a competitive market for the loans has been generated;(b) provide the market with full information about the loan book in order that the assets can be efficiently valued;(c) ensure that there has been a genuine transer of risk from the public accounts to the private sector;(d) assess the proceeds that look likely to be achieved in the transaction using full and clear market information and a comparison with keeping the loans on the Government books, in terms of both likely income flows and levels of risk;(e) make a written statement on expenditure incurred in connection with each transfer arrangement.”The noble Baroness said: I understand that this is an enabling Bill and that there is no specific timetable for the use of its powers. However, timing is all-important.
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We are very concerned that there does not seem to be any mechanism to ensure that we get value for money for the sale. While ministerial assurances go some way, we strongly feel that there needs to be provision in the Bill that guarantees proper investigation of market conditions, as well as adequate disclosure of information, so that loans can be valued efficiently. It is essential that loans generate the appropriate amount of income for the Treasury.
Let me be frank. There seems to be nothing in this Bill to stop the Secretary of State selling off parts of the student loan book hastily, just to plug a few holes in a leaky budget. I should like the Government to be upfront about their intentions. Of course, I expect that the Minister will assure me that the Government intend to do their best to realise value for money on these assets, but is that good enough? It would go a very long way to assuage some cynical feelings if the Minister gave a firm commitment that they will not be sold off without the most thorough examinations of market conditions and an assurance that the sale fetches the best possible price that can be achieved.
This price should be the best possible in general terms, not the best in a bad time. The priority for the sale should be achieving value for money, not plugging holes in a mismanaged Treasury. Achieving value for money can come only when there is no time pressure to capitalise on the loan book. There is genuine worry that in order to raise extra revenue, the Government might too hastily sell off the loan book, and thus not get as much as could have been achieved had they been more prudent. I think the Minister will completely understand this scepticism. Thus, will she explain whether there is an expected timetable for sales, what is their volume and what analysis has been conducted about the current state of debt markets and the commercial viability of loans in such a market? Has there been a report from the Treasury on these matters? It would be interesting if she were willing to give me her analysis of the current debt markets and the relationship to the commercial viability of the loans.
With the collapse of sub-prime debt affecting credit products with much higher ratings in concert with the pressing need for increased liquidity in the market, does the Minister not agree that getting value for money seems unlikely in the present climate? What general economic factors and broad market trends generally bolster debt sales? Are the Government willing to wait for a recovery in the debt markets? What would signify such a recovery?
Essentially, we need transparent and open value-for-money criteria. Indeed, some of the words we used in this amendment came from the undertakings by Bill Rammell in another place; thus we sincerely hope that this amendment will find support on the Government Benches. I beg to move.
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Baroness Sharp of Guildford: I have added my name to Amendment No. 6. Amendment No. 7, which is in this group, is tabled in my name. The noble Baroness, Lady Verma, made much of the proposed timing of the sale. I was somewhat alarmed to receive on 4 April a letter from the Minister setting out the proposed government amendments. In the first paragraph, she indicated that the Government had appointed Deutsche Bank to help them prepare for student loan sales in 2008-09. In other words, the Government are thinking of selling part of the student loan portfolio imminently at a time when the market is, it would seem, not at its best. I echo the remarks of the noble Baroness, Lady Verma. It is very important that the Government are not rushed into this. The money markets are in considerable disarray. Indeed, it is possible that the Government will find that there will be very little take-up for securitisation and onward sale of these loans, other than at a very poor price, for that very reason.
This is a core issue in our debate on the Bill. The Government are confronted by a dilemma, or perhaps I should say Parliament is confronted by a dilemma because it is important that Parliament, in its role of holding the Executive to account, should make sure that we get value for money from such sales. How can we judge value for money unless we know in advance what sort of discount the Government expect to give in order to sell on these loans? Yet to reveal the expected rate of discount would be to reveal to potential purchasers the Government’s negotiating hand on these sales. On Report, the Minster in the other place noted in his response that,
- “we could not sensibly include in the Bill any details of the Government’s assessment of what price would constitute good value for money. That would reveal our hand in advance of the competitive sale of the loans”.—[Official Report, Commons, 23/1/08; col. 1548.]
I appreciate that. Therefore, the only way in which Parliament can judge value for money is via the scrutiny process of the National Audit Office looking after the sale at what has gone on and taking it through to the Public Accounts Committee. However, such scrutiny is after the event. While recognising that the process of sale envisaged in the Bill will be ongoing and, therefore, that there may be lessons to be learnt from such scrutiny for further sales, nevertheless it can be argued that this is too late. The sums involved are large; we are talking not about the odd million but about billions. It is vital. If mistakes are made, they will involve hundreds of millions of pounds and not just the odd pound here or there.
What is to be done? I agree that the Government cannot reveal their hand in advance, but I do not agree with the Minister when he said, in the same debate that,
- “we should not try to translate the principles of our value-for-money approach into a set of statutory tests ... Principles are not precise enough to serve that function”.—[Official Report, Commons, 23/1/08; col. 1548.]
It is actually quite sensible to set down some principles to be followed, which is precisely what Amendment No. 6 would do. That is why I am backing that amendment.
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Amendment No. 7 should perhaps be considered as an addendum to Amendment No. 6. I confess that I put it down partly with my tongue in my cheek. As the Minister will know, every local authority is required to seek compulsory competitive tendering, and the Government need to be seen to be doing the same. It is therefore necessary that competitive bids are seen to be made on this and that the Government do not just do a deal with a purchaser that makes it known that it would be interested in such a purchase. It has to be seen to be a competitive deal and that there is no collusion. Again, it is clear from recent evidence from the OFT that with local authorities there is frequently collusion in such competitive bidding. It would be necessary for the Secretary of State on an occasion such as this to ensure that there is no collusion between bidders.
Under the same heading of value for money I can raise a further issue, which crops up in relation to this Bill. We have had some discussion of this with the Minister and some clarification from her team about the process by which the loans will be sold on. Nevertheless, there is a real issue about risk transfer. When we discussed with the Minister how these loans would be sold on, it was made clear that because there was no track record and because we were only just beginning to see the repayment of these income-contingent loans—and there are still many students who have outstanding loans on which they have not started to make repayments—in order to sell part of this £22 billion of those loans, they must clearly be packaged up. Those who are already repaying will be put in the basket to be sold on. I can see precisely why that will be the case, and the Minister assured us that they will not just select those with a good track record of repayment. However, there is a downside risk. Loans for which there is a track record of repayment and repayment comes in easily will be put into the basket and sold on as a tranche. But there is a danger that over time the loans for which there is no track record of repayment will be the ones held by the public purse.
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The Minister talked at length in the other place about the need to transfer risk and said that it was not appropriate that the public sector should hold it, and that assets in the public sector should not be seen to be risky. As an economist, I have reservations about that statement, partly because, if one is going to spread risk, the Government are in many senses the authority that should hold it. But if that is the Minister’s attitude, it is very important that the Government do not end up holding the really risky assets. We have no assurance that that is not going to happen. I am concerned that we will not get value for money because we will sell on the good, non-risky debts, and the Government will be left holding that basket of debts that are distinctly risky.
We support Amendment No. 6. It is important. We disagree strongly with the Government and suggest that it is not impossible to write the principles that they enunciated into the Bill.
Baroness Morgan of Drefelin: I feel that I need to congratulate the Committee on anticipating some of the things that I am about to say—it is important to
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As we have heard, this group of amendments covers value for money. The principles behind the approach to value for money set out in Amendment No. 6 are wholeheartedly endorsed by the Government. Indeed, as the noble Baronesses, Lady Verma and Lady Sharp, stressed, my honourable friend the Minister for Higher Education and Lifelong Learning placed them on the record in another place during earlier stages of this Bill.
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