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Sale of Student Loans Bill

I begin by reassuring my hon. Friend the Member for Hayes and Harlington (John McDonnell) that there is a consensus in this House—certainly between us—that the shift from grants to loans was undesirable, and that the plan to shift loans from being public debts to private ones, which are somehow seen as more morally virtuous, is not acceptable. We are at one. He can rest secure as part of that consensus. However, it is important to recognise that important concessions have been made during the debate. I do not think anyone in the House needs the Minister to repeat the reassurances he has already given. Some important amendments were moved and debated this afternoon, and I am hopeful and confident that when they are reconsidered in another place, many of the points on which we were reassured by the Minister will be discussed. I shall focus on two points. First, at some stage, this House ought to consider Treasury rules—what is permitted and what is not. It seems perverse to me that we have moved to a position where debt is morally virtuous if it is in the private sector rather than the public sector. That shift has taken place on a much larger canvas in society. We in this House are obsessed with the control of public debt, but we have turned a completely blind eye to the escalation of private debt that ultimately has thrown the economy into a severe crisis. I hope that we all recognise that the Government are a more competent borrower than any of us are individually. They can borrow at rates that none of us could. We ought to consider why we adhere to rules that make a debt virtuous simply because it disappears off the Government's balance sheet. Enron tried to work in the same way and got into an horrendous mess. There is a case for philosophically considering how we honestly address the levels of debt and the management of debt in society. Secondly, an inequality and an injustice is embedded in the system. It would have been tackled by an amendment tabled by my hon. Friend the Member for Hayes and Harlington, but unfortunately, we were not able to debate it. It dealt with the interest charges relating to student debt. They are supposed to be inflation-only debts, but we almost ended up in an ““Animal Farm”” situation where some measures of inflation are more equal than others—and some measures are more manageable than others. I am talking about the benchmark measurement against which inflation is judged as it is applied to student debt. That has a crucial impact on the management of debt for the individuals involved, and the scale of it is about £20 billion. In the next 10 years, that debt will amount to about £55 billion—a figure ominously similar to the undertakings given to guarantee Northern Rock's survival. Those affected by the repayment of that debt are critically influenced by the calculation of inflation. The Government measure for the calculation of inflation has been the retail prices index. That is a snapshot measure, taken in March, which judges the rate of inflation that is taken into account for student debt repayments. Last March, the rate doubled from 2.4 per cent. to 4.8 per cent. This was the subject of a huge number of complaints from students and graduates who are repaying debts. They pointed out that the Government use a number of different measures for inflation. The Prime Minister legitimately claims that inflation in the UK is 2 per cent. The consumer prices index measures it at just over 2 per cent. That is the benchmark against which the Government judge what is affordable for public sector pay increases. It leaves many students in a terribly anomalous position. I tried to get the figures for students who, on graduation, move into some form of public sector employment. The latest figures that I could get were for 2005-06. In that year, more than 120,000 graduates went into public sector employment and carried with them their student loan debts. Since then, they have repaid the debts at the rate defined by the retail prices index, but their pay increases have been defined against the benchmark of the consumer prices index. Those 120,000 graduates—more than half the university graduates in the UK—find themselves in a position whereby the charges on their debt repayments increased at twice the rate of the inflation that was recognised in their pay settlements. That injustice built into the process has been a constant source of grievance. I hope that the Government will take the opportunity when the Bill is introduced in another place to examine a mechanism that gives us a single benchmark measure. We must all live with what is judged to be the rate of inflation. However, it cannot be fair—I have yet to hear an argument that it is fair—to use one measure of inflation to judge the rate at which students repay and another, lower rate to determine the basis on which they are paid. It would help the House and the process enormously if we used a consistent measure, given that more than half the graduates who leave university are affected by the problem. We should at least have a consistent and equitable measure.