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Sale of Student Loans Bill

We are nearing the end of a bad week in Parliament for the Government. However, at last a Bill has come along that we can describe as reasonably sensible. It will have my support today. I have a circumscribed role in higher education as, first, a member and officer of the all-party university group and, secondly—the Minister and certainly the hon. Member for Brecon and Radnorshire (Mr. Williams) will be interested in this—a relatively newly appointed governor of a Welsh higher education institution. We shall watch that interface with interest. However, given that it is more than a decade since my service as a Higher Education Minister, it is not appropriate for me to debate contentiously or dilate on details of the past. I can say fairly that I floated the idea of doing something along the lines that the Bill suggests and that I have supported the principle of doing so ever since. I welcome the widespread consensus that has been achieved on that. If we consider the reasons for not doing that at the time, it is fair to say that, in the early days of student loans, there was less experience of the repayment compliance. Since then, there has been greater refinement of financial instruments and, perhaps most important, the underlying asset has escalated in value. The asset, allowing for another year’s issue of loans, would now approach roughly £20 billion. That is four or five times the value of a decade ago. Having said that, the Bill is essentially a Treasury measure. It is not about the Department for Innovation, Universities and Skills or about education. It needs assessing for its economic impact and, as several hon. Members who contributed interestingly said, the critical issues are the conditions and timing of any sale that the Treasury makes or drives. There is no more explicit disclaimer of the Department’s involvement than that in paragraph 42 of the explanatory notes, which states:"““No aspect of this Bill will create a material impact on borrowers, higher education institutions or employers.””" If that is the case, one is driven to wonder what on earth the Minister, much as I like and respect him, is doing discussing the Bill. Where is the Treasury, which is in effect controlling the legislation? However, we are pleased to see the Minister here and he explained the Bill very well. The Bill’s primary importance is economic, although there may be secondary implications for students and the sector. It is clear from this week’s events that even if—this would be an impossible task and I do not anticipate that it will take place even in the near future—the Government could sell off, at one gulp and at an early date, all the student loans, the total proceeds would fall below the total amount of current Government lending to Northern Rock. In a sense, things have not gone down the pan, but that is at least the scale of the commitment. It is perfectly proper for Ministers, whether Treasury Ministers or Education Ministers, to say that the sale of a loan as a Government asset—a loan is of course an asset—is an alternative to further Government borrowing. Indeed, doing so may introduce some welcome flexibility in the Government’s financial affairs. I have no difficulty with that. However, my hon. Friends and others are right to say that we are entitled to ask the Minister to give some indication of the deal that his Department has done to recover the proceeds from the Treasury. For example, are we talking about an enhanced capital programme for higher education institutions? If we are, will it be a genuine enhancement of the resources available to higher education or will it merely be a substitute for others that would have been available? Those are general questions about the Bill. There are also some interesting technical questions that are worth probing more in Committee and to which a number of hon. Members have already referred in interventions or speeches. There is an interesting and essential tension between the number and nature of the safeguards available as far as student confidentiality is concerned and the number of players involved. Ministers have rightly fallen back on the overriding guardianship role of the Secretary of State. It is worth noting that the Secretary of State’s obligations are set out clearly in paragraph 15 of the explanatory notes. I should make it clear that those obligations fall on him and are not demitted to individual civil servants, whether senior or junior. One of those obligations is to ensure that correct repayments are taken. A second one is to protect borrowers’ personal data and to make arrangements to allow borrowers to discuss issues that have arisen in the course of their borrowing. Those are entirely proper public functions that sit with the Secretary of State. We cannot have arrangements that are seen to muddy those responsibilities, either within the Department or with regard to the subsequent control of the loans. I mentioned this in an intervention, so I will not speak about it at length, but we know from the history of collateralised debt obligations that loans can easily be, and in fact are likely to be, chopped up and repackaged, and can involve a large number of players, some of whom, even if we know who they are, are likely to be outside the jurisdiction of this country and the Secretary of State. At best, when all those people are involved, sensitive data can leak. Indeed, there will be people looking for that to happen, perhaps in order to relate the names to other credit references that they may have. At worst, the data could be actively abused. At any rate, it is clear that the audit trail is bound to lengthen unless it is controlled. The next issue is the nature of the risk being transferred. In a sense, that is as long as a piece of string, and whatever risk is being transferred will have to be made explicit to potential purchasers, who will make their own judgment on it. If we consider the old mortgage-style loans, we will remember that there has always been provision for mortality—which, sadly, occurs—and for other non-repayment because the conditions had been fulfilled for writing off the loan after a finite period of years. I have some sympathy with the comments of the hon. Member for Brent, East (Sarah Teather) about this matter. There are now issues about the susceptibility to changes in economic conditions and the potential for default. I hope that the Minister will say something about the experience of active default as opposed to the writing off of a loan under permitted conditions in the existing arrangements. The Minister and I have previously debated the merits or otherwise of the old mortgage-style loans that I used to operate, and I do not want to reopen that debate. I am certainly not saying that we should bring them back now; we move on. However, for borrowers, the terms and obligations attached to those loans were fairly clear. That might not be the case with income-contingent loans, not least because the level of income might not be clear. I say to the Minister—as I would say to his Treasury colleagues if they were supporting him on the Front Bench today—that if one is prepared to take a big enough discount, anything, even a sub-prime mortgage, can be got away at a price, but it will only be a severely discounted one. I believe that the Minister is right to keep his powder dry, despite the blandishments of the Liberal Democrats, about the precise conditions under which he is going to sell. I would be the first to complain if he engaged in a fire sale of this very valuable asset. However, he needs to know what he wants to sell, and purchasers will need to know what they want to buy. This brings me to a further issue. I am sorry if this point is something of a King Charles’s head for me, but I make no apology for repeating it, because I believe that it is important. There is the potential—not the actuality—of a scandal in the making over the question of outstanding student loans that are outside the Secretary of State’s jurisdiction. The Minister has been perfectly reasonable and reassuring in relation to loans within the British envelope. Most people pay PAYE, and most student loans are recovered through Her Majesty’s Revenue and Customs. We understand from what the Minister has said today that, thank goodness, there has been no breach of security in that regard. We accept his assurance and we are pleased about it. However, a significant minority of loans are given to qualifying persons who are not British nationals, including European Union students and those from within the European economic area, and to British nationals who subsequently become resident abroad and do not pay UK income tax. The convenient arrangements involving recovery through the Revenue do not apply in those cases. As I understand it, the Student Loans Company is responsible for the collection of those debts, in accordance with the rules. Incidentally, it is also responsible for any voluntary payments that people might make to wipe off their debts, which is welcome. The Minister should tell the House whether there is a material sign of any differential impact between home graduates, if I may call them that, and those resident overseas. I would not be surprised if there were growing evidence of default by those who have passed outside the range of the Revenue and are now difficult to pursue. Without wishing to make a derogatory remark, I must point out that this is similar to the problems of enforcing judgments against foreign drivers, for example. The Minister needs to take this issue seriously. If word gets out on the street that someone can take out a student loan in the United Kingdom—we are obliged to offer it—but that they do not need to pay it back because they have moved out of the system or because they are a Brit who has moved abroad, in effect to escape from the loan, that would be very bad news. It is derogatory to our own resident students, and it makes less money available for other public purposes in the long term. I hope that the Minister will say something about compliance in the context of foreign-resident, as opposed to home-resident, graduates. This will obviously be a Committee point, but I think we should consider whether purchasers will be obliged to take a proportion of accounts of persons who are resident abroad as part of the package, or whether it is conceivable that a separate package might be offered consisting of persons who are exclusively resident abroad—Student Loans Company cases, rather than Her Majesty’s Revenue and Customs cases. Perhaps the Minister will allow me a hypothetical example which I think is at least worth considering. If a Lithuanian bank felt able to secure a package of loans extended only to Lithuanian nationals who had come to the United Kingdom to study, and then to attack them under Lithuanian debt laws and get a faster rate of return than it would by going through the front door—in other words, the Student Loans Company—that would be a differential and might even attract some concern in Europe. If nothing else, it should be considered whether there is any distinction in practice that makes the position of students either easier or more onerous depending on whether they are resident in the United Kingdom or abroad—whether as an English, or British, national or as a foreign national—that would amount to a loss of that famous and desirable concept, the level playing field. To put it simply, it would not be fair. Although the Bill is narrow, a number of Members have referred to some of the wider policy contexts. As we are lucky enough to have an Education Minister present, I think it reasonable to make a few brief comments of that kind. There are major long-term issues in the Bill, for all that it is Treasury-driven and will be Treasury-directed, which relate to the real world of students and, indirectly, to the health of higher education institutions and the overall health of the sector. As my hon. Friend the Member for Havant (Mr. Willetts) has said in the past, once the Department has settled down after its initial separation from the other education Department, it needs to make an early start on appraising the impacts of the present fee regime ahead of the 2009 review. In fairness, the Minister has quoted figures for recruitment which will be relevant to that, and which I welcome. As a whole, the present position is encouraging. The Conservatives, too, are interested—certainly I am interested—in access for people who, although they are from disadvantaged backgrounds, have the same potential as, or even greater potential than, some of their counterparts. We need to discover whether there are differential impacts, not just according to social class or income but relating to the pattern of offers among part-timers and mature students. The other day I went to talk to a group of sixth-formers. I was a little disappointed when someone who seemed bright enough to qualify for university said very definitely, ““I am not going.”” When I asked,, Would you mind telling me why?””, the reply was, ““I am worried about debt.”” That was a one-off—it may have been the word on the street, and it may not be typical of students collectively—but it is depressing nevertheless. The Minister may be aware—it has featured in earlier debates—of my concern about the cumulative effect on marginal tax rates of income tax—perhaps even paid by quite junior people at higher rates—national insurance contributions and student loan repayments. I can never remember what the acronym is supposed to stand for, but some social scientists have referred to members of the so-called iPod generation, who incur, in effect, a marginal tax rate of over 50 per cent. at a very young age, which I think is worrying. That also plays into wider issues to do with life profile and life chances. People who are repaying onerous student loans might at the same time be founding households or thinking for the first time about taking out a mortgage—and, as we all know, they ought to be thinking about their pension, too, when there is a chance that compound interest will give them a worthwhile pension. In saying that, I do not seek to subvert anything the Minister has done. A good job was done collectively in Committee on proposed higher education legislation in getting a better student package. I am happy in some respects about that. We cannot anticipate the review, but we should emphasise that it is important and that it is about sustaining access and at least controlling the burdens on graduates even if they have a better future income stream. There are questions to do not only with the conventional model of higher education students, but also with part-time and mature students. I will not today open up the issue of payments through higher education institutions for qualifications of equivalent or lower quality, although that is a concern of mine—about which I have written to the Secretary of State—because of some of the impacts on some institutions and types of study. There is also the whole area of comparison with further education. The Minister was not quite right when he said that nobody has ever helped in that area before, because career development loans have been available for many years. In a sense, they are a private sector risk—a managed and reduced risk. However, the scale of the commitment to CDLs pales in comparison with the size of the student loan book. Part-timers at higher education institutions have, at last, been able to avail themselves of loans in certain circumstances, which is welcome, but some recent work has come to my attention through City and Guilds—the Minister might have seen it, too—confirming my long-standing belief that FE is left standing in terms of student support, however great its economic contribution might be. I hope that that will be addressed, and that the Minister will take those disparities seriously. As I move on in my parliamentary career, I can reflect as well as—I hope—look forward. It is a strange fact that the Education Act 1962 marks the beginning of the concept of the student support package and the mandatory award. I was an undergraduate at that time. Since then, the whole body of measures has gathered barnacles, accretions, qualifications, embellishments, derogations and further advantages. Let me give a simple example: it was not until approximately 1990 that the first student loans were added to supplement the grants package, and Ministers have now brought back the grants package to supplement the loans. The concept of an entitlement, or mandatory award, attached to a first course of undergraduate study at a higher education institution has, however, persisted; but the time is fast approaching for us to take a fresh look not only at student finances, although that is important, but at the whole of the financing of post-compulsory education at higher and further education level and also embracing training and the important and growing area of continuing professional development. None of that is included in the Bill, as it is a technical, enabling Bill, which is all right as far as it goes—at least we hope that there is none of that, and that such changes to the system might only have crept in inadvertently. The issues we are discussing are serious and deep, however, and we will have to address and tackle them before too long.