Report stage in the Lords
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- moved Amendment No. 1:
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Baroness Sharp of GuildfordLiberal Democrat- Quote
- My Lords, I thank the Minister for bringing forward this amendment. It is a small amendment, but we were worried that students, on hearing that their loans had been sold on to some anonymous special purpose vehicle—perhaps called Granite or something like that—would worry that the terms of their loan might change. The assurance that the Secretary of State will write to inform them of precisely what has happened to the loan in terms of selling on and to give them assurance that the terms on which the loans were granted will not be changed is extremely important.
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Baroness VermaConservative- Quote
- My Lords, we on these Benches also welcome the concession from the Minister. We understand that it might have been the intention of the Government to inform students all along; yet, as happens all too often these days, much of what should be plain in the Bill is omitted and is left to ministerial commands and secondary legislation. Thus, it is welcome to hear the Minister bravely bucking this trend and putting a requirement to notify students in the Bill. On Question, amendment agreed to.
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- Baroness VermaConservative
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- moved Amendment No. 2:
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- Baroness Sharp of GuildfordLiberal Democrat
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- 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.
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Baroness Morgan of DrefelinLabour- Quote
- My Lords, I hope I can offer the noble Baronesses, Lady Verma and Lady Sharp, some concrete encouragement, in my few remarks here, that we should have a fruitful discussion at Third Reading on this matter. As we have heard, the amendment sets out the principles of how to ensure good value for money in any loan sale. The Government are wholeheartedly behind these reasons and endorse them. Indeed, they closely follow the principles that we have placed on the record during earlier stages of the Bill as central to our approach to loan sales. At this stage, however, we need to resist the amendment, and I shall take a few moments to explain that apparent paradox. For each sale of student loans there will be a rigorous assessment of value for money. There is no question of a fire sale or of the Government not being prepared to wait. With regard to any continuation of the current market turbulence, as I said in Committee, so far as that turbulence translates into poor value for money of any sales of student loans, we would of course not go ahead with a sale at that time. I stress that again for the record. Let me be clear: for the sale of student loans, there will be a rigorous assessment of value for money. If Ministers and the departmental accounting officer judge that a sale at any given time does not represent good value for money, it will not go ahead. That follows the required procedure used in every public sector organisation. We have set out the principles of our approach to value for money. I appreciate the concerns of the noble Baroness, Lady Sharp. We are talking about extremely large sums of money and I recognise the House’s concerns about the order of magnitude here, but our view is that these principles should not be translated into a set of statutory tests to be passed in advance of a sale. We think it is right for that judgment to be exercised by the accounting officer and the Government of the day, and for Parliament subsequently to scrutinise that judgment. If, in contrast, we create a set of legal tests to be met before a sale could be deemed lawful, we risk taking that decision away from the accounting officer and Government and taking away the security that Parliament will have to scrutinise the terms of that sale. The amendment would significantly increase the level of uncertainty about the sales process for purchasers, something that will undermine the drive for value for money. Purchasers may feel uncertain about the prospect of a judge examining the particular considerations surrounding the sale, finding that the tests had not been set and potentially striking down the sale. Any such uncertainty could deter the purchasers or affect the price they would pay. Far from guaranteeing good value for money, which we are all aiming to achieve, the test in Amendment No. 2 could work against that aim. It would also undermine the responsibility of the accounting officer, which underpins current procedures for protecting public funds from misuse, but I reiterate that we are completely at one on the thrust of what the amendment is trying to achieve. Over the long-term programme of sales, we envisage that the Government will be able to draw on the expertise of the National Audit Office evaluation and continuing parliamentary scrutiny to ensure the best possible approach to obtaining good value for money. Establishing a set of tests in primary legislation at the outset—
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- Baroness Sharp of GuildfordLiberal Democrat
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- My Lords, does the Minister not agree that on that basis it might be quite sensible, since the securitisation process is new because the previous set of student loans that were sold off were mortgage-style loans and were sold en bloc, to start off with a smaller sale rather than a larger one?
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- Baroness Morgan of DrefelinLabour
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- My Lords, as the size of the student loan book grows, there will be tranches. I do not want to compromise any potential sale by saying what size a sale might be, but I understand the noble Baroness’s concerns. We are talking about a long-term programme in which a number of sales would take place. We would learn as the sales programmes went forward.
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- Baroness Sharp of GuildfordLiberal Democrat
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- My Lords, as I understand it, the programme is for £3.4 billion of sales this financial year, £1.4 billion the next and £1.1 billion the year after that. It would seem sensible to reverse the order and go for £1.1 billion this year to see how it goes and to have the National Audit Office say, “OK, this is a good process”.
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- Baroness Morgan of DrefelinLabour
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- My Lords, I do not want to prejudice the work of the sales arrangers, but those estimates were put together some time ago for the Comprehensive Spending Review under different conditions. It is not reasonable to say anything other than that the sales arrangers and the accounting officer in the department are committed to value for money, which involves thinking carefully about how the programme is structured and not just about sales as one-off items. It is a programme of sales. How we conduct the first sale will be important in terms of how the market responds. I appreciate the noble Baroness’s point. The figures that she quoted are estimates; they are not targets or commitments. Over the long-term programme of sales, we envisage the Government being able to draw on expert advice and continuing parliamentary scrutiny to ensure the best possible approach to obtaining good value for money. Establishing a set of tests in primary legislation at the outset would deny the Government the flexibility to learn from the experience of the unfolding programme of sales. I am happy to reiterate that the Government will report to Parliament after each sales transaction. If placing a commitment to that effect in the Bill in any way mitigates the concerns of the noble Baroness, Lady Verma, I am prepared to consider further whether the Government could bring forward an appropriate amendment at Third Reading. I hope that we will continue to discuss this important matter. On the basis of that commitment to consider it further, I hope that the noble Baroness will withdraw her amendment.
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- Baroness VermaConservative
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- My Lords, I thank the Minister, although I remain cynical about the pressure that the Treasury will use to ensure that the sale goes ahead. I cannot see how a value-for-money framework that ensures that certain conditions are in place will create uncertainty in the market. The noble Baroness, Lady Sharp, eloquently pointed out that the amounts of money involved are not small. Her suggestion of a smaller sale would probably jeopardise the Treasury’s demands for much needed funds. However, if the climate is not right, the sale should not go ahead. There seems to be an urgency to get the agreement through. I urge the Minister to consider my amendment, but, for the moment, I beg leave to withdraw it. Amendment, by leave, withdrawn.
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- Baroness Morgan of DrefelinLabour
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- moved Amendment No. 3:
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- 18:00
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- Baroness Sharp of GuildfordLiberal Democrat
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- 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.
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- Baroness VermaConservative
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- My Lords, this is a crucial amendment. It was debated at length in Grand Committee and we are still hoping for further assurances in the Chamber. I agree with the noble Baroness, Lady Sharp, that it is a wide amendment and does not really answer or cover many of the points that we raised in Grand Committee. The Minister said that the original motivation for laying these amendments was, “creating certainty for potential purchasers”.—[Official Report, 8/5/08; col. GC 198.] My understanding is that it allows the Government a wider scope to append conditions to the sale to make certain that purchasers do not have too much unquantifiable risk in the form of a future Government. It seems that the necessity of these amendments was oversight; that is, the first mechanism that was designed to give this certainty to investors was a programme that allowed for compensation should any changes be made. This, according to the Minister, was insufficient to give investors certainty. Can she confirm that this assessment—that the compensation package might mean that the loan book was less attractive—was provided by Deutsche Bank? Other discussions revealed another issue that did not seem to preoccupy the Government; namely, whether the Office for National Statistics was able to classify the sale as a genuine sale and a legitimate transfer of risk given that Eurostat is reviewing its guidance. Surely this creates a substantial element of uncertainty. We understand that this guidance often changes. However, if this amendment is really about ensuring increased certainty by allowing for other channels to be considered, does it not make sense to wait until Eurostat has finished revising its guidance? Surely that would enable a clearer picture to emerge of what it is necessary to do to ensure value for money. These amendments bring home the point that the Bill is a rushed job. If the Government’s intentions are as pure as they claim, why are they rushing through a Bill when the jury is still out on one of its primary mechanisms? Are they legislating for failure? Is the Treasury so desperate for the cash that it does not want to make a decision based on all the best information about the nature of the sale? Although we sympathise with the need to do what it takes to get value for money, this confusion remains a serious worry. Obviously, we will have to wait for precise figures to emerge when a sale is imminent, although we do not know when that will be. All the facts seem to point to a bad result. To cover up for badly managed funds, the Government are planning to sell loans in the worst credit market in history without the benefit of knowing where the goalposts lie. This does not seem to be a situation in which the taxpayer will win. Let us be clear: a newspaper headline that read, “Government get good deal on loans in bad markets”, would be utterly unacceptable. The point about this enormous asset is that ensuring value for money must not constitute the best course in a bad bunch but the best possible course of action. If the markets seem unwilling to recover, has the Minister considered delaying the sale by, say, two years or so? It is important that she should explain the likelihood of the Government abandoning the sale. Value for money for the taxpayer should be deemed an absolute value in our calculations. I sincerely hope that, during the Government’s efforts to ensure that we get it, economists will do the work, not press officers. Telling the public that the loans were sold to protect the taxpayers’ interest when the Government might have been able to get a much better deal had they waited would be tantamount to dishonesty. If uncertainty remains in the classification that makes these amendments necessary, why not wait until that uncertainty can be banished and the taxpayer would be better off?
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- Baroness Morgan of DrefelinLabour
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- My Lords, I thank both noble Baronesses for their contributions to this thought-provoking debate. I stress that the rationale behind these amendments is very much about creating a process for the sale of the student loans book that will be long-lasting and sufficiently flexible to meet the Government’s needs both in the near future and for some years ahead. I do not wish to speculate on how many months or years the first sale of the student loans portfolio might take under the Bill if it is enacted as it would be inappropriate for me to do so. However, the noble Baroness, Lady Verma, is right to be concerned about Eurostat and the review of the guidance. Eurostat is reviewing its guidance, but it may periodically conduct other reviews. So even if we await the outcome of this review, there could be others. That is why the sales arrangers—Deutsche Bank—have advised that it would be appropriate for us to have the possibility of reducing the uncertainty around the sales process, to promote value for money and have the prospect of making the undertakings. I understand the concerns of the noble Baroness, Lady Sharp, in principle, but we need to remember that the Government are responsible for policy around student finance. If the Government were to make undertakings to fix the terms and conditions for a student loan that was sold, and if in the future a Government wished to look at the financial circumstances of the cohort of students with sold student loans, there would be many instruments for them to use to do so. Remember that they are not commercial loans but loans providing students with funding, which they then repay in real terms at the same level at which they originally borrowed. The provisions are not unreasonable for a loan so taken out. We are talking about a government process for making it possible for students to take the considerable benefits that a higher education offers and make the most of them. I stress for the noble Baroness that, should a future Government wish to make the financial circumstances of students with sold loans more favourable, many instruments would be open to them to do so, looking at the whole of the student finance and benefit system and whatever other ideas might be at their disposal. We are talking about the potential for undertakings specifically for sold loans, not for unsold loans. However, we are also talking about Amendment No. 6, which is important. It seeks to ensure that borrowers will not be in a worse position as a consequence of their loan being sold. That is not just about loans being made following undertakings, but about all loans sold. Given the clarifications and commitments that we have made regarding value for money and future options for government, I hope very much that noble Lords will support the amendments. We are ensuring that no student will be adversely affected as a result of their loan being sold, through this group of amendments. I hope that the House will support that. On Question, amendment agreed to. Clause 3 [Onward sales]:
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- Baroness Morgan of DrefelinLabour
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- moved Amendment No. 4:
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- Baroness Morgan of DrefelinLabour
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- moved Amendment No. 5:
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- Baroness VermaConservative
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- My Lords, my understanding of the amendment is that it would make the Secretary of State party to all onward sales, and I am grateful to the noble Baroness for explaining that. She noted that in the “extremely unlikely” event of an onward sale, the vehicle would change. But in the most unlikely contingencies lurk the most unlikely problems. What would happen if an attempt to purchase the loans was made by a power outside the Secretary of State’s jurisdiction? Would that be banned? Would a potential purchaser have to understand that his onward sale capacity would be restricted to this country? The amendment makes the Secretary of State party only to onward sales. Presumably this would not give him or her any power to influence such a decision. Essentially the question which must be addressed is to what degree the amendment would restrict the potential of onward transfers. On the one hand, there seems to be the need for a considerable amount of restriction or we risk the loans escaping the Secretary of State’s jurisdiction. On the other hand, will this not be used as a bargaining chip to drive down the price? We on this side of the House think that there need to be a fuller explanation of the mechanisms that will ensure this extra control and the likely impact on the nature and price of the sale.
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- Baroness Sharp of GuildfordLiberal Democrat
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- My Lords, from these Benches we are pleased to see this amendment. We supported the official Opposition in their previous amendments but, on the whole, we do not share their objections. We feel that this is an adequate amendment.
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- Baroness Morgan of DrefelinLabour
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- My Lords, perhaps I may make one point in response to the questions of the noble Baroness, Lady Verma. We need to remember that the whole benefit to the special purpose vehicle of owning student loans is the receipt of revenue from HMRC. Therein lay the Secretary of State’s most important lever to ensure that the contracts are honoured and fulfilled. I have said several times that it is extremely unlikely that there would be onward sales, but I appreciate the noble Baroness’ concern to have reassurance. We need to be clear that a contract is in place and that all sides are contributing to it. The Government’s most important contributions are the revenues. That is what the process of securitisation is about. If another party were not to honour its commitments, there is the other side to it: the payment of revenue from the student loan book which would be balanced against that failure. On Question, amendment agreed to. Clause 4 [Loan regulations]:
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- Baroness Morgan of DrefelinLabour
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- moved Amendment No. 6:
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