HL Deb 19 June 1989 vol 509 cc34-42

4.38 p.m.

Viscount Davidson

My Lords, with the leave of the House I shall repeat a Statement made in another place by my right honourable friend the Secretary of State for Education and Science.

"With permission, Mr. Speaker, I wish to make a Statement about the arrangements for administering top-up loans for students.

"The House will recall that I announced on 9th November the Government's proposals for introducing non-means-tested top-up loans. I said that from 1990, in addition to their grant, all home students in full-time higher education, except postgraduates, will be eligible for a top-up loan averaging over £400 in a full year. I explained that this will be offered at a real interest rate of zero and that repayments will be deferred when a graduate's income is low.

"In that Statement I made clear the Government's view that the top-up loan scheme would be best administered by the financial institutions. The scheme will of course be subject to the necessary legislation and, as I told the House, the Government will bring forward a short Bill to provide legislative authority for the scheme. I am glad to be able to tell the House that, following discussion with representatives of the Committee of London and Scottish Bankers, a scheme has been designed which is agreed to be a cost-effective and feasible means of introducing top-up loans in September 1990 as planned.

"Under this scheme there will be a private sector loan administrator, in the form of a company established and wholly owned by participating financial institutions, under contract to the Government. Participation in this company will be open to a wide range of financial institutions. It is clear from my discussions with members of the Committee of London and Scottish Bankers that—subject to the satisfactory outcome of the contractual negotiations—a sufficient number of financial institutions will wish to participate from the outset to ensure that the company will be viable.

"Under these arrangements, students who wish to benefit from top-up loans will obtain a certificate of entitlement from their university, polytechnic or college. These certificates can be presented to the branches of the banks and other financial institutions which own that company, or to the company itself, who will make the resources available to the student and maintain a record of the transaction. The Government will fund the company for the administrative costs of the scheme, and, of course, for the loans themselves.

"The Government have carefully considered the repayment system, in the light of the responses to the top-up loans White Paper. We have concluded that repayment should be on the basis of equal amounts, adjusted annually for inflation, being repaid over a standard period. The obligation to repay will be deferred when a graduate's income falls below given levels in relation to average national income. Deferment will be arranged with the company on the basis of self-certification of income and subject to audit. In order to minimise any default on repayments, there will be a financial incentive under which the company will earn a proportion of its fee through securing a high repayment rate.

"The Government will meet the costs of detailed preparatory work by the Committee of London and Scottish Bankers and by the company in the period from now onwards. Parliamentary approval will be sought in an additional supplementary estimate to be presented shortly. We shall start immediate negotiations with the interested financial institutions in order to conclude a contract to cover the operation of the scheme and this will of course be conditional on the Royal Assent to the Act. The range of costs indicated in the preparatory work is from £8.3 million to £11.5 million for start-up costs and £10.4 million to £14 million for annual operating costs. I am glad to say that these are many times smaller than the amounts I have been reading about in the press over the last few months.

"Mr Speaker, it is right that this scheme should be administered in the private sector. Our financial institutions possess skills in information and banking systems which are not readily available in the public sector. I am satisfied that these arrangements offer an efficient scheme and good value for money. I commend them to the House."

My Lords, that concludes the Statement.

4.42 p.m.

Lord Peston

My Lords, perhaps I may thank the noble Viscount for repeating the Statement which I am sure all noble Lords found most interesting. Before asking him a number of questions perhaps I may say that I am not proposing at this moment to debate the loan scheme per se. Noble Lords are aware of my criticisms of the scheme and I am aware of the Government's basis for their support of it. We shall have other opportunities on which to debate the scheme; I hope that this afternoon we can concentrate simply on clarifying the Statement itself and the administration of the scheme. With that end in view, I have a number of questions.

I start with the statement that the top-up loan will average £400 in a full year. Will the noble Viscount confirm the statement in the White Paper that it was the Government's intention that the loan facility would be increased every year until it was equal to the value of the grant, and the parental contribution taken together? In other words, the £400 a year is simply the opening sum which will rise through time. Is that still the case?

I notice that the intention is to introduce the top-up loan scheme in September 1990. I take it therefore that your Lordships can certainly expect a statement in the Queen's Speech that the Bill will be going forward. However, just to make absolutely certain, can the noble Viscount assure us that the Government have no intention of trying to introduce a short Bill in this Session of Parliament on the assumption that we have some spare space? I have to tell him that I believe we do not.

The Statement refers to a private sector loan administrator. Can the Government tell us any more at all about what sort of person they have in mind as this loan administrator? Am I right in assuming that the person will be completely independent? Has any thought been given to the loan administrator being assisted by an advisory committee? Will there be a role for any kind of ombusdman character who could intervene in connection with the administration of the loan?

The Statement is rather vague about the participation of what is referred to as: a wide range of financial institutions". The noble Viscount referred to "a sufficient number". Is he able to tell us more precisely how many is "a sufficient number"? Is he able to tell us at this point the names of any of the institutions which have agreed to take part? Alternatively, if he is not, I take it that he will be in a position some time to tell us the names of some of the institutions.

Regarding the scheme, according to the Statement, the Government will fund the administrative costs and the loans themselves. Will the noble Viscount confirm that both those sums will appear in the accounts as public expenditure? On the administration of the loan, the Statement referred to a standard period. Have we any idea yet how long the standard period is, or any idea of its range or anything of that sort?

Reference is made to default, and there will be an incentive to the new company to earn some of its fee through securing a high repayment rate. Have the Government given any thought to harassment of graduates with a view to repayment? Are the Government aware that in other countries where such schemes exist, default is on a large scale but, more importantly, default occurs in graduates who originate from so-called lower socio-economic groups? Is it not therefore a serious matter that a private sector company might disproportionately harass such people? Have the Government given any thought to the repayment of loans from graduates who emigrate? What will happen there? Who will bear the costs of default? Will the Government bear them rather than the company?

Further, the Statement says that the sums of money are lower than those which one or two expert commentators have suggested might arise. Will the Secretary of State make publicly available the basis of his calculations that end up with these apparently very low figures? In other words, can it be explained to us how this range of figures has been arrived at?

My last question is this. Is the Government's commitment to these figures, or is it to whatever the costs will turn out to be, no matter what they are? In other words, the figures are illustrative, but what the Government are determined to do is to have the loan scheme, no matter what the costs are.

Earl Russell

My Lords, I thank the noble Viscount for the Statement. I welcome the deferment for graduates on low incomes. On the zero real interest rate, perhaps the noble Viscount will confirm that at present that means a nominal interest rate of 8.3 per cent. I wish to ask the noble Viscount also about the reference to "a short Bill". Perhaps I may express the hope that it will not be a Bill consisting entirely of framework, but that there will be an opportunity for the House to discuss the details of the scheme which may need a good deal of scrutiny.

I should like also to ask about the remark in paragraph 4 that the Statement is: subject to the satisfactory outcome of the contractual negotiations". I wish to know what negotiations are still in progress. How far does this Statement represent an agreement between the Government and the banks? How far does it represent a unilateral statement about negotiations still in progress? I also wish to ask about the figures for costs given in paragraph 7 of the Statement. The Statement refers to the range of costs indicated in the preparatory work. The Statement does not say whose preparatory work is involved.

Like the noble Lord, Lord Peston, I am very interested in the basis of these figures. I particularly wish to know whether the figures for the cost of administration are accepted by the banks, or whether the figures are still a matter of dispute. I note the phrase about them being much lower than the figures that we have read in the papers. I know the noble Viscount does not believe everything he reads in the papers. However, in the Independent today a figure (which is said to originate from Price Waterhouse) is mentioned, of £150 million a year for the cost of administration, and £130 million a year for the cost of bad debts. This is a somewhat extreme discrepancy. However, I should be very interested in some examination of how such a discrepancy can have arisen. We may need to think further about this aspect. It follows from this that I should like to know whether the figures given on page 43 of the White Paper, which indicate that there will be a net reduction on the public sector borrowing requirement by the year 2002, still stand. If those figures are to be changed, precisely what kind of revision is needed?

Finally, I wish to know whether, with the costs of administration fully calculated, this scheme will result in a net decrease in public expenditure. If it is not to result in a net decrease in public expenditure, I wish to know precisely why the Government are justifying its introduction. Is it simply because it is for the good of the students' souls?

Viscount Davidson

My Lords, I have been asked more questions from the noble Lord and the noble Earl speaking from the Opposition Front Benches than I have been asked in all the time I have been here. I am most grateful for their responses to the Statement. However, as regards my responses to their questions, they may not be so grateful, although I shall do my best. I am grateful to both the noble Earl and the noble Lord for saying that they did not want to use the time for asking questions on the Statement in discussing the principle of top-up loans. We shall have opportunities to do that on other occasions.

Regarding the Bill, I cannot say very much about it. However, I can tell the noble Lord that his question whether it will be introduced in this Session is clearly a hypothetical one. I shall try to answer as many questions as I can. Those I do not answer—as I could not take them all down—will be answered in writing.

The noble Lord, Lord Peston, asked about the value of the loan. That will be increased over time until it equals a grant. The loan administrator is to be a company formed by the banks, and there will be appeal machinery. I cannot say at this stage which banks will take part—that is for them to announce. The administration costs will be accounted for publicly. The repayment period will be five to 10 years, depending on circumstances.

As regards default, one of the big advantages of using the banks to run this scheme is that they have more expertise in recovering debts than any other institution. As for emigrants, they will still owe the debt, wherever they are. However, the default cost will be taken by the Government. The cost figures, which both the noble Earl and the noble Lord asked about, derive from a feasibility study that the banks commissioned.

The noble Earl, Lord Russell, asked me four questions. The first one concerned the Bill. I cannot speculate in advance of the Queen's Speech. The House will of course have an opportunity of debating any legislation.

On the subject of contractual negotiation, the banks have indicated their willingness in principle to administer the loan scheme, but that is subject to detailed agreement on the terms. The cost figure quoted comes from the feasibility study which was undertaken for the banks by independent consultants. Concerning the effect on the PSBR, the White Paper did not estimate administrative costs. These have to be added to the figures in Annex E; but I can say that they are greatly outweighed by the savings to the taxpayer. The noble Lord, Lord Peston, asked about the figures of cost. They are illustrative, and the Government are committed to introducing the scheme.

Lord Kilmarnock

My Lords, on behalf of my noble friends on this Bench, I also wish to thank the noble Viscount for repeating the Statement. He need not worry that I shall subject him to a similar barrage of questions. The noble Lord, Lord Peston, was quite right to say that this is not the occasion to debate the merits or demerits of the scheme, although we on these Benches feel strongly that a graduate tax, which was the scheme that was also approved by the vice-chancellors, would have been a great deal fairer and a great deal simpler and cheaper to administer.

However, that is not the point that is being discussed this afternoon.

I wish the noble Viscount to clarify a matter in paragraph 6 of the Statement. In that paragraph we are told that: the obligation to repay will be deferred when a graduate's income falls below given levels in relation to average national income". Will the noble Viscount tell us what level the Government have selected? There was speculation in the Sunday Telegraph yesterday that the level would be 85 per cent. of national average income. Is that the percentage that the Government are going for? If that is the case, I suggest that it is extremely low, given that the average graduate tends to earn through life something like 110 per cent. of average national income. To start at a level of 85 per cent. would in effect, to use a colloquial expression, clobber those who wish to enter low paid but valuable social professions like teaching and social work. This is an important point, and I should be grateful if the noble Viscount could clarify that.

Finally, if the Government are determined to go ahead with the scheme, will they undertake to monitor it against the age participation rate, and to consider swiftly something different if numbers do not increase as Mr. Baker professes to want? After all, he has committed himself to doubling the student population. That is an aim that we all applaud, although we are not happy that this is exactly the right way to go about that.

Mr. Robert Jackson, in a recent interview with the education correspondent of the Independent, stated that: by the latter part of the next decade, student loans will make it possible to increase considerably the supply of higher education. If not 'I will come on bended knee (to apologise) whatever I am doing then.'.". We do not know what Mr. Robert Jackson will be doing in the mid-1990s. If he is not in the administration—we think that is unlikely—that comment will not help very much. To back up Mr. Jackson's undertaking, will the Government commit themselves to monitoring student figures? If those figures are not going in the direction which the Secretary of State and everyone else wants, will the Government come back with a more feasible scheme?

Viscount Davidson

My Lords, I do not think the noble Lord would expect me to comment on his last few sentences. However, on the repayment threshold, the White Paper suggested a level of 85 per cent. of average income. That still needs consideration, and has not yet been settled. However, I am quite sure my right honourable friend will take note of everything that has been said.

5 p.m.

Lord Beloff

My Lords, I remind the noble Viscount, with respect, that when the scheme was originally announced to this House, I pointed out that it was a very outline affair in which the collaboration of the financial institutions had not been attained. I further pointed out that it was not possible to discuss the merits of the details of the scheme until we knew the financial figures involved. Now we are treated to another Statement which again leaves these questions unanswered, because this is only an agreement on principle. It is still subject to the contract. Until we know whether or not the financial institutions are satisfied with what they are offered, the scheme cannot be considered as a concrete scheme which universities are in a position to discuss with their prospective students in the light of the remarks made by the noble Lord, Lord Kilmarnock.

Therefore, the House has a right to be somewhat disappointed. We have had two bites at the cherry. When will the scheme be completed so that we are able to discuss it? When we get the Bill apparently. Will there be an announcement before the presentation of the Bill as to what the arrangements with the financial institutions are? That is vital, because every pound that goes to meet expenses, whether in collection or in dealing with defaulters, is a pound less for educational support. It is subtracted from the sum available for students in higher education. Therefore I think that it is unreasonable not to expect us to press the Government on those points.

Finally I shall take up very briefly a point raised by the noble Lord, Lord Kilmarnock. Are the Government prepared to set out in detail why they believe this to be a more economical scheme than the scheme for recovering loans through the operation of income tax or national insurance—which does not involve these complicated calculations about where people stand in the table of incomes—which has been worked out, unlike this scheme, in the greatest possible detail by economists at the London School of Economics? If that scheme is rejected, can we be told the basis of the figures on which the scheme involving financial institutions is said to be cheaper?

Viscount Davidson

My Lords, I am sorry that my noble friend is not satisfied with the Statement which I have repeated. It is at least an advance on the last one, and I expect that there will be another one in the near future. I am afraid that I am not in a position to answer the questions he has asked.

We have had discussions with a number of banks and other financial institutions. My right honourable friend is clear that there will be substantial interest in participating in the scheme, subject to the negotiation of the final contract. In particular it is clear that major clearing banks will be ready to participate in the scheme. I cannot say which individual banks and other financial institutions will take part in the scheme. As I cannot say that yet, I cannot give any further details. That must be a decision for them, but from assurances given personally to my right honourable friend I am confident of sufficient interest to make the operating company viable.

Lord Grimond

My Lords, this scheme may indeed be an improvement on the last scheme or Statement, but if so it is a very small improvement. I should like to press the noble Viscount on one or two points which have been touched on. Without wishing to debate the merits or de-merits of the graduate tax suggested by the vice-chancellors and others, are we to take it that that has now been totally rejected by the Government? May we also take it that any link with social security has also been totally rejected, whatever its merits or de-merits, and is no longer in the Government's mind?

If that is so can the Minister tell us why post-graduates are still excluded from the scheme? Can he also say whether the costs which he outlined include the profit which he tells us the financial institutions will demand and whether it is entirely in the hands of financial institutions to pursue the defaulters on the loans? Are we handing over the entire management of the loans, including the pursuit of defaulters and the pursuit of those who have gone abroad, to financial institutions? If so, are those costs included in the administrative costs which the Minister mentioned?

Viscount Davidson

My Lords, again I am afraid that I cannot answer the noble Lord—I can now, if I can read the note. The graduate tax/national insurance complex which he mentioned does not bear on all graduates. The whole point of the top-up loan is that it does not involve a means test. The scheme will be simple to operate in that every undergraduate will be able to go with a certificate into any branch of a bank operating the scheme and receive his loan. As the noble Lord said, post-graduates are not affected by the scheme; they continue as now.

Lord Harmar-Nicholls

My Lords, I am in no way critical of the way in which my noble friend presented the Statement, but can he say what is the point of making a Statement at all? It said nothing new; it does not indicate anything which would enable anyone to find out what it is all about. I should have thought that it ought to have been delayed until some agreement had been made with the financial institutions on what is involved, as has come out in the various questions. After paying tribute to my noble friend for the delightful way in which he always reads Statements, I ask him what was the point of making this one if there was nothing new to say?

Viscount Davidson

My Lords, it was a decision by my right honourable friend to make a Statement in another place. The Government offered the opposition parties this Statement and asked them if they wanted it repeated in this House. They said that they wanted it repeated. I have repeated it.

Baroness David

My Lords, is the Minister aware that I share all the misgivings and dissatisfaction that have been expressed from the Benches opposite? Nothing is clear and final. With regard to paragraph 7 of the Statement, which states that the range indicated in the preparatory work is from £8.3 million to £11.5 million for start-up costs and £10.4 million to £14 million for annual operating costs, can the Minister tell us how many students are assumed and by how many students it is expected that figure will increase in years to come?

Viscount Davidson

My Lords, I shall have to write to the noble Baroness on that point. I can assure the House that I shall convey the views expressed in the House this afternoon to my right honourable friend.