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Sale of Students Loans Bill

My Lords, I have put my name to this amendment because we on these Benches also believe that it is vital that the Government secure value for money in the sale of these loans and live up to their promises to do so. As I mentioned in Committee, we are talking not of the odd million but of the odd billion. The hope is that we can sell forward part of the current portfolio of student loans and raise, as the noble Baroness, Lady Verma, has mentioned, some £3.4 billion this year. It would not be a bad sale, but what we are losing is not a matter of £10 million, £20 million or £30 million, although during Question Time today the Government said that it was impossible to find £30 million to provide fruit for children in nursery schools. Here we are talking about possibly making a bad sale and losing hundreds of millions, and it is therefore a vital issue. We should also be clear about what the alternative is. If the Government do not sell on the portfolio of student loans, or parts of it, they would retain the portfolio for themselves, which, as the noble Baroness, Lady Verma, said, is a major financial asset in their hands. As a result of holding this portfolio, they secure a steady and increasing stream of payments which can help to fund government expenditures in future. They are straightforward repayments. They are not high risk because the repayments are gathered up through the PAYE system by Her Majesty’s Revenue and Customs. The Government have lent money today and will receive a stream of repayments in the future. That is the alternative to selling on the portfolio. Securitisation, or selling on the portfolio, would mean that instead of receiving a flow of income over time, the Government would take the money today as a lump sum which reflects that future stream of income. The term used is ““present value””, which is the sum that, if invested today at going rates of interest, would yield a specific stream of income over time. Any present value, therefore, involves an implicit rate of discount. I am not positive but I believe that the Treasury’s present rate of discount used in public sector low-risk calculations is in the region of 6 per cent. Any implicit discount higher than this reflects the additional risk factors that come into the calculation. In judging value for money, we are asking whether the implicit rate of discount achieved in the sale is realistic, given the risk. Subsection (8)(d) of the amendment states that the Secretary of State shall, "““assess the proceeds that look likely to be achieved in the transaction using full and clear market information and a comparison with keeping the loans on the Government books, in terms of both likely income flows and levels of risk””." It seeks that the comparison should be made and that the Secretary of State should ensure that the income likely to be achieved is a better option than keeping the loans on the Government’s books. It is important to recognise that it is not impossible to keep the loans on the Government’s books and that that may be a better option, certainly in the short term, than selling them off. This is very much the point the noble Baroness, Lady Verma, made. Given the state of the market at the moment and the cynicism about the processes of securitisation, quite frankly, what the Government can achieve will not be worth while. The rate of discount gives a much higher value to these risk factors than should be implicit. Securing value for money is about making a judgment about whether you are likely to achieve a rate of discount which is fairly close to the one used by the Treasury or whether the market is offering a rate of discount which at the moment would be regarded as unrealistic. I come back to the fact that we are talking not about the odd million but about hundreds of millions of pounds. Having discussed the matter at some length with the Minister and the Bill team, I recognise that some elements of the amendment pose some problems for the Government. For example, it is not necessarily easy to ensure, as proposed new subsection (8)(a) requires, a competitive market for loans. The Minister might find preferable wording such as ““the Secretary of State should satisfy himself that there is a competitive market for loans””. I believe that the Minister is thinking about bringing forward a government amendment. Our proposal makes clear the kind of amendment that we on both sides of the Opposition want to see the Government bring forward. Given the principles the Government laid down about how they would secure value for money, we believe that this is a perfectly reasonable amendment.