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Sale of Student Loans Bill

I shall start by addressing Amendments Nos. 10 and 17 and then come back to Amendments Nos. 15 and 16, which stand in my name. Government Amendment No. 10 is important because it provides for the Secretary of State to give undertakings which are enforceable by law and in law that bind his successors to a particular course of action. We recognise how difficult it may be in present circumstances of the money markets to persuade buyers to buy tranches of these student loans. As the Minister explains, they must give these undertakings to give greater certainty about future payment conditions. As things stand, the Bill provides for the Secretary of State to compensate any purchaser should changes arise, such as raising the repayment threshold or altering the repayment rate. Should the Government decide to change either of those, it is provided within the Bill that the Government shall compensate the purchaser for any such changes that they introduce. The advice received from Deutsche Bank as the adviser to the Government about sales within the next year or so was that the mechanism for giving compensation was not enough and that such changes would raise unquantifiable uncertainties for the purchaser. Hence the advice was that the Bill needed to incorporate the ability for the Secretary of State to give some firm undertakings not to, for example, raise the repayment threshold or alter the repayment rate. Our reservations about these undertakings come mainly because we are unhappy about the degree to which they tie the hands of future Governments. Let us take the repayment rate. Given that it is paid through the PAYE system to Her Majesty’s Revenue and Customs, it amounts de facto to a form of graduate tax to be paid by young graduates. Indeed, many of those advocating loans and repayments in our debates on the Higher Education Bill talked about this system being a form of graduate tax. I remember a long discussion with Nick Barr from the London School of Economics, who was the author of these ideas. He said, ““Margaret, you’ve got to realise that it amounts to a form of graduate tax””. Be that as it may, we know that very many young graduates these days are finding life extremely tough. Most of them earn more than £15,000 and so are above the threshold at which one starts repaying loans, but many are not earning much more than £25,000. On those earnings, they have to pay not only income tax—which I admit has gone down from 22 per cent to 20 per cent, but it is still only a 2 per cent reduction—national insurance of 10 per cent and then, on top of that, the 9 per cent repayment of their graduate loan. Many of these young graduates, earning quite probably between £20,000 and £25,000, are hitting a marginal rate of tax of 41 per cent, which is higher than we charge millionaires. The problem with these undertakings is that, should a future Government wish to introduce different repayment rates to make it easier for young graduates, many of whom are also in the housing market and face problems of trying to get mortgages and so forth, they tie the hands of future Governments in relation to the loans that have been sold off. I presume that they do not tie their hands in relation to new tranches of loan because there would be specific undertakings in relation to each of them. I do not doubt that the Minister will recognise that, as with the PFI deals, one is talking long term; one is talking 25 years. It is very unlikely that the Government will not change within the next 25 years and the hands of future Governments will be tied. The Minister spoke about giving future Governments flexibility to secure best value, but the Bill also provides a very inflexible instrument and gives them very little choice. This raises an issue of principle. I have discussed it at some length with my Treasury team and we are agreed that we are not happy with the provisions as they stand. Amendments Nos. 15 and 16 are minor amendments, which seek clarification. It might have been better to have spoken to them earlier with the second group of amendments, since they pick up the issue that I raised then; namely, the difference between loan regulations and loan arrangements. I am grateful to the Minister for having clarified that. It is clear in Clause 1(4)(b) that the loan purchaser inherits a repayment regime laid down by loan regulations or arrangements for those issues which cannot be covered by them. It struck me that there might be issues of substance there which it would be necessary to allow for in any amendments to loan regulations. However, I accept the Minister’s point. This is not a substantive amendment in any sense. However, we on these Benches are not happy with the commitment to undertakings as proposed by Amendment No. 10.