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Sale of Students Loans Bill

My Lords, in Committee I indicated the unease on these Benches at the terms of this amendment. The Government propose the amendment because of advice from Deutsche Bank, their current arranger for the sale of loans later this year, on the mechanism for compensating any change in regulations as set out in Clause 2(4). The Bill states: "““Transfer arrangements may include provision for the Secretary of State to pay compensation to the loan purchaser to reflect regulations under section 186 of the Education Act 2002 … (reduction of balances, &c.) … in connection with amendments of loan regulators, or … in other specified circumstances””." The question is whether that provision is sufficient should there be changes in the loan regulations. At present the loan regulations are set. They require that, for example, the threshold for repayment is £15,000. The Government have made it clear that from 2010 that threshold for repayment will rise with the RPI. They also set repayments after the threshold at a marginal rate of 9 per cent of income. Our main objection to these amendments is that they tie the hands of any future Government should they wish to change the terms of the repayments. Obviously, the 9 per cent rate of repayment required under the Bill affects a large number of people. The aim is that 50 per cent of the age cohort shall now go to university. Therefore, 50 per cent of young persons will in future be paying back their student loans. As we remarked in Committee, if one aggregates income tax, national insurance and the repayment of student loans, one finds that young people earning £20,000 to £22,000 per year are paying a higher marginal rate of tax than millionaires in this country. It is tough on them in current circumstances, when they are struggling to get into the property market, and a future Government may wish to change those terms in order to make life less tough. In discussions with the Minister, it has been made clear that, if the Government were to make changes in such things, those changes would apply only to that block of loans sold. That was reiterated in Committee, when the Minister said: "““We need to be clear that we are referring to making undertakings about the loans that are sold. For sold loans, it would not be possible for terms and conditions to change in the middle of their repayments””." This implies that it would be impossible for any future Government to make it easier for those who already have student loans. On the other hand, it would be possible for them to make changes for those getting student loans from that time onwards; they could change the terms of student loans because those purchasing them would know what those changes in terms were. I was slightly concerned because the Minister also talked about, "““including our commitment to ensure that students whose loans have been sold are not treated less favourably. We need to be clear that future Governments could still change eligibility and entitlement for new loans; for example, the levels of grant and loan, and the income thresholds””." However, she had said earlier that, "““we are making specific provision that future changes in loan regulations will apply to sold loans as well as to unsold loans””.—[Official Report, 8/5/08; cols. GC 193-98.]" A degree of clarification is perhaps needed, but I am probably right in assuming that, if regulations were changed, that could apply to future loans but not past loans. We see that in itself as a difficulty. Two further difficulties have been raised. The first is the question of classification, involving Eurostat and the Office for National Statistics. How far does simply offering compensation change the terms on which the Government seek to make the sale? Also, is it the case that the Government are not actually selling the loan on because, if they are prepared to offer compensation in this way, it stays on the government books? It is of course important for the Government that, by selling on the student loans, the loans should not remain part of the national debt. Our attitude on these Benches, since we do not have that much sympathy with the amendment anyhow, is to some extent ““Tant pis!””. However, that does not help the Government much. Our final objection to the amendment is that its terms are so wide-ranging. It says, for example: "““Transfer arrangements may include undertakings by the Secretary of State about the power to make loan regulations; in particular—""(a) the Secretary of State may undertake to exercise the power so as to achieve a specified result,""(b) the Secretary of State may undertake not to exercise the power so as to achieve a specified result,""(c) the Secretary of State may undertake to follow, or not to follow, a specified procedure in connection with the power””." That is so wide-ranging that we must ask whether we want to give the Government these powers. We object to the amendment on those three grounds.