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Sale of Student Loans Bill

That calls into question whether that purchaser wants to be part of the securitisation process. If it does not want to be part of it, we will not be able to accommodate it. Returning to the amendment tabled by the noble Baroness, Lady Verma, the principles are not precise enough to serve the function of a set of tests that must be met before a transaction can go ahead, although we agree with them. Decisions on value for money will always be matters of judgment that are rightly taken by the Government of the day. While it is right that after any sale there should be scrutiny of how the Government have addressed the principles we have set out, it is not sensible to attempt to turn these principles into specific legal tests. There will be a sales programme going forward, and we expect that there will be scrutiny as each sale happens. We are all in agreement, for example, that a competitive market must be generated, but there is an element of subjectivity in any such assessment. I do not believe that we should create a process whereby there could be the prospect of having to prove beyond challenge that a test on such matters of judgment has been met before proceeding with a transaction. The issues simply do not lend themselves to that approach. We envisage a long-term programme of sales and the value-for-money judgment on each transaction will, of course, be open to parliamentary scrutiny in the usual way. I am happy to reiterate for the record that the Government will report to Parliament after each sales transaction and the National Audit Office will, no doubt, report to the Committee of Public Accounts on this sales programme. The continuing scrutiny will be most valuable in helping the Government to ensure good value for money in the long term. We certainly would not want to establish an exclusive list of tests at the start of a long-term programme of sales. We will want to be able to build on the experience of sales transactions—for example, using any evaluations by the National Audit Office. Such an approach could be prevented by this amendment. I hope that I have come some way to reassuring the noble Baronesses that we are very committed to the principle of value for money. I turn to the perhaps tongue-in-cheek amendment of the noble Baroness, Lady Sharp, but it was a matter to which we gave proper consideration. Amendment No. 7 proposes a competitive procedure for conducting the sale of student loans and seeks to ensure maximum value for money for the taxpayer. I am sure that that is what she was driving at. If all future loan sales were to be conducted by way of an auction, I would have no difficulty in welcoming this amendment. In those circumstances, I think that we would be looking for rather more then three different bids and would certainly want to ensure that there was no collusion between bidders. However, the Bill is intended to enable a long-term programme of sales, and I do not think that the proposed amendment will work for the full range of possible ways that a sale might be undertaken. In particular, it will not work for the model we are planning to employ for the first sale: sale by securitisation. I indicated in debate on the previous group of amendments that in making a sale the Government do not expect that any financial institution would want to own the loans. Our current plans are, therefore, that the loans will be securitised. This is a process by which a special purpose company is created to issue bonds which trade in the financial markets. Those bonds are backed by the income received from the student loan repayments. The special purpose company buys the portfolio of student loans from the Government, and the price it pays is based on the finance it can raise from the sale of bonds. It is important to note that real competition is built into this process. Rather than comparing three or more bids from potential purchasers of the loans to achieve the best price, the Government’s income from the sale depends on a market in which investors at large will be bidding to buy bonds. It will be important to ensure that there is a genuinely competitive market for the bonds. This is a judgment that the Government of the day, drawing on professional advice, will have to make for each sale in this long-term programme of sales we have been talking about. A key element of that will be to ensure that there is sufficient information available about the loan portfolio for investors to be able to model how the loans might perform. That comes back to the discussions we had earlier about the importance of the anonymised data. Securitisation can help maximise value for money by widening the potential range of investors. Different investors will be interested in different tranches of securities that will have differing levels of risk and return. Pension funds and banks, for example, may want the relatively secure investment of the triple-A bonds, whereas other investors, such as fund managers, may prefer the relatively greater risks but higher returns of the lower tranches. It is also possible to interest a much wider range of investors in purchasing tradable securities than in purchasing a package of loans outright because investors know that they can sell those liquid securities in the markets, should they wish to do so. It is possible that a future Government may decide that, in the particular economic circumstances of the time, they can get the best value for money from a sale by auction rather than by securitisation. In that situation, a Government would, of course, ensure that a competitive process takes place. I would not like to attempt to foresee all possible future circumstances, but I would expect that process to include substantially more than three competing bids. Although it may have been a tongue-in-cheek amendment, I can assure the noble Baroness that we take all amendments very seriously. I hope that with the discussion we have had the noble Baroness will consider withdrawing her amendment.