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Sale of Student Loans Bill

I have added my name to Amendment No. 6 and 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 vitally important—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. 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. 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.