Education (Student Loans) Bill

HL Deb 25 March 1996 vol 570 cc1504-32

5.13 p.m.

Consideration of amendments on Report resumed on Clause 1.

Lord Morris of Castle Morris moved Amendment No. 3:

Page 1, line 15, at end insert—

("( ) This section is subject to section (Commencement) below.").

The noble Lord said: My Lords, in moving Amendment No. 3, I will speak also, if I may, to Amendment No. 9, if only to cover the inevitable susurrus of the exiters.

I am sorry to have to revisit this issue, which we debated (albeit briefly) in Committee. At Committee stage I promised the noble Lord the Minister that I would read most carefully what he had said in his characteristically brisk and efficient fashion. I have done so; and I have to say that in the cold light of a Peak District Saturday morning and in the pristine print of the official record, his arguments seem to me slightly less convincing than when he performed them orally.

He began by saying: we are not here to discuss Dearing this evening".—[Official Report, 12/3/96; col. 829.] That was true, but utterly irrelevant, because no one had offered to discuss Dearing's recommendations since there are none to discuss. But it is relevant and important to acknowledge the imminent existence of the Dearing Committee and its terms of reference. We cannot ignore it; and we would be wise to plan in advance to make its work easier rather than harder. Why should we not?

The Minister went on to take up my point about the constituency to which the Bill would apply, and the difficulties faced by part-time, postgraduate and FE students. He agreed that the Bill does not address them, and added that, the 1990 Act does just that".—[col. 829.]

He added:

"we could extend provisions for student loans … However … it would have major implications for public expenditure".—[col. 829]

We—

Lord Henley

My Lords, I wonder if I might just assist the noble Lord. I think I misled the House briefly on the last occasion, and then corrected myself later on. We could not extend it to FE students by means of the 1990 Act. We could cover the other groups that the noble Lord mentioned.

Lord Morris of Castle Morris

My Lords, I am grateful to the noble Lord for making that correction. He did in fact say both of those things, one a little later than the other.

We had taken on board the assurances he gave about those groups of students. Indeed, we had realised it; it had occurred to us. But it does not answer our questions as to why the Bill should not allow some or all of those students to take out private sector loans. How much would it cost? Would not postgraduates be a much better bet for banks than undergraduates? I hope the Minister may be able to elucidate this problem a little.

He then asserted confidently that the Dearing Committee will need, to take into account … our intention"— (by that I take it that he means the Government's intention) — to introduce private finance into the loans scheme".—[Official Report, 12/3/96; col. 830.] Indeed, it will. But will it not also need to take into account the Opposition's implacable opposition to this Bill as it stands? Looking at the opinion polls, will the Dearing Committee not need to give at least as much weight to the Opposition's case as to the Government's?

I am quite unable to accept the Minister's statement: I do not believe that it would be in the students' interests to delay implementation of the Bill".—[col. 830.] By what right is he a better judge of the students' interests than they themselves are? They approve of the delay. They would prefer to see the Bill withdrawn. They would like the Government to scrap it. They have said so; and they have threatened to boycott any bank that goes along with it. Is the Minister really saying that they do not know what is best for them and that, "Daddy knows best what is good for you, my child. Just sit there and accept it quietly"? It is to give the Minister a final chance to think again about these matters that we bring this amendment back today. I hope he will take the opportunity. I beg to move.

5.15 p.m.

Lord Tope

My Lords, briefly, I support these amendments. The case was made very well by the noble Lord, Lord Beloff, in speaking to an earlier amendment. It may well be that the Bill itself should not have come forward. But, as it happens, the announcement of the Dearing inquiry coincided with the Second Reading debate in this House.

I hope, as the noble Lord, Lord Morris of Castle Morris, just said, that now the Minister has had time to reflect he will recognise that it seems quite absurd to be setting up a far-reaching inquiry such as the Dearing inquiry, and at the same time extending a scheme which many on all sides of this House, and certainly very many in the student world, believe to he deeply flawed.

The very least we should do is allow Dearing to carry out his investigations and make his recommendations to us. Then we should be given time to consider those recommendations in so far as they apply to the financing of students. Only then should we consider whether or not it is appropriate to go ahead with the provisions of the Bill. We made clear earlier our view on whether or not it is ever likely to be appropriate to go ahead with the provisions of the Bill. But at the very least, we should await the outcome of the Dearing recommendations, and not extend the present scheme at the very time when Dearing is looking into just these matters.

Lord Henley

My Lords, the amendment offers nothing more than further delay to the benefits of the Bill to both students and taxpayers. It has nothing—dare I say it to the noble Lord, Lord Morris of Castle Morris?—to do with extensions to part-time students, postgraduates or whatever. I shall say a word or two about that towards the end of my remarks. Quite simply, the amendment prevents students and the taxpayer from receiving these benefits until at least 1998–99. That cannot be justified.

I made our position clear at Committee stage on a similar amendment. That was read in the cold light of a Peak District morning by the noble Lord, Lord Morris of Castle Morris. I take more interesting reading, I am afraid, to the cold light of the Peak District. But let us leave the matter there. As I said on that occasion, the Dearing inquiry into higher education will need to take account, as we made clear, of our intention to introduce private financing of loans. But I do not believe that there is any case for delaying the Bill while the inquiry proceeds. Our proposals were first put forward when the review of higher education was already under way and already under way within our department. To that extent the announcement of the committee of inquiry does not change our position.

The inquiry's conclusions will inevitably take some time to implement, particularly if legislation is required. I do not believe that it would be in students' interests—I add that, following the Bill, those students will have a choice between the private sector and the Student Loans Company—to delay the implementation until the end of the inquiry.

As noble Lords are aware, the Bill has a very limited effect. It will not alter the eligibility criteria or broaden the scope of the 1990 Act. But neither will it prevent the Dearing inquiry from looking at those issues. Indeed, the department looks afresh at relevant issues each year in considering whether to make changes to the Education (Student Loans) Regulations, changes that could bring in coverage of more people, delay repayments or whatever.

We have not yet signed any contracts. I expect that the inquiry will be a matter of interest to those with whom we shall negotiate—the private lenders. Before any contracts are signed there will be detailed discussions with them. Whatever happens, we shall meet our obligations in full.

During Committee stage in another place, we announced that the implementation of the twin-track was to be delayed until 1997. We did that because the banks and building societies were concerned that they would be unable to get schemes up and running by the next academic year. I believe that further delay could not possibly be justified.

The noble Lord spoke about extending the benefits of the student loans Act to part-timers, postgraduates or whatever. As he made clear, we could do that by means of the 1990 Act. He asked whether I could quantify the cost of extending those benefits of the 1990 Act, should we extend them, to this particular Bill, which in due course will, I hope, become the 1996 Act. I find it rather difficult, if not impossible, to quantify the cost. It would depend very much on the assumptions about which postgraduates took out loans, for how much and for how long. Obviously they would be significant. We already have various means of support for postgraduates, for example, career development loans and other assistance can be provided for others.

The basic point is that the powers are there in the 1990 Act to extend to those classes that I mentioned earlier. Obviously, should it be necessary we could do so, just as we could make alterations to the length of the repayment period or whatever. I hope that that explanation—I appreciate, not in the cold light of a Peak District morning—is sufficient for the noble Lord. I hope that on this occasion he will feel able to withdraw his amendment.

Lord Morris of Castle Morris

My Lords, I am grateful to the noble Lord for that reply. I was fortified and convinced by the wise words of the noble Lord, Lord Tope, especially when he prayed in aid the words of the noble Lord, Lord Beloff. I am sorry not to see the noble Lord in his place because I wish to say how, on this occasion as on many others, I find myself totally in agreement with what he said about universities and students and all that is therein.

Sadly, I am unimpressed by the reply that the Minister was able to give. It is simply a fact that the banks are not and have not been interested in the Bill and students are not in any ugly rush to demand the minimum piece of choice which this would force before them. On this occasion, the Minister was not able to offer us a single crumb of comfort or indeed to move any way towards the purpose of the amendment. So I have no alternative but to ask the House to express an opinion on it.

5.24 p.m.

On Question, Whether the said amendment (No. 3) shall be agreed to?

Their Lordships divided: Contents, 79; Not-Contents, 122.

Division No 1
contents
Ackner, L.	Dean of Thornton-le-Fylde, B.
Allen of Abbeydale, L.	Diamond, L.
Ashley of Stoke, L.	Donaldson of Kingsbridge, L.
Avebury, L.	Donoughue, L.
Barnett, L.	Dormand of Easington, L.
Beloff, L.	Dubs, L.
Berkeley, L.	Elis-Thomas, L.
Blease, L.	Ezra, L.
Blyth, L.	Falkender, B.
Borrie, L.	Farrington of Ribbleton, B.
Bruce of Donington, L.	Gallacher, L.
Carter, L.	Gladwin of Clee, L.
Castle of Blackburn, B.	Grey, E.
Chalfont, L.	Hanworth, V.
Charteris of Amisfield, L.	Harris of Greenwich, L.
Cledwyn of Penrhos, L.	Haskel, L.
Cocks of Hartcliffe, L.	Hayman, B.
David, B.	Healey, L.

Hilton of Eggardon, B.	Nicol, B.
Hollis of Heigham, B.	Oliver of Aylmerton, L.
Howie of Troon, L.	Park of Monmouth, B.
Ilchester, E	Peston, L.
Jay of Paddington, B.	Peyton of Yeovil, L.
Jenkins of Putney, L.	Prys-Davies, L.
Kilbracken, L.	Rea, L.
Kirkwood, L	Redesdale, L.
Laing of Dunphail, L.	Richard, L.
Lauderdale, E	Sainsbury, L.
Lester of Herne Hill, L.	Seear, B.
Lockwood, B.	Serota, B.
Lovell-Davis, L.	Sharples, B.
McCarthy, L.	Shaughnessy, L.
McIntosh of Haringey, L.	Shepherd, L.
Mackie of Benshie, L.	Stoddart of Swindon, L.
McNair, L.	Strabolgi, L.
Mallalieu, B.	Taverne, L.
Mason of Barnsley, L.	Taylor of Blackburn, L.
Mayhew, L.	Thomson of Monifieth, L.
Merlyn-Rees, L.	Tope, L. [Teller.]
Merrivale, L.	Tordoff, L.
Milner of Leeds, L.	Turner of Camden, B.
Molloy, L.	Wallace of Saltaire, L.
Monkswell, L.	Wedderburn of Charlton, L.
Moore of Wolvercote, L.	White, B.
Morris of Castle Morris, L. [Teller.]	Williams of Elvel, L.
	Williams of Mostyn, L.
Murray of Epping Forest, L.	Winchilsea and Nottingham, E.
Nelson, E.	Winston, L.
NOT-CONTENTS
Aberdare, L.	Gerard, L.
Addison, V.	Goschen, V.
Ailesbury, M.	Granard, E.
Alexander of Tunis, E.	Gray of Contin, L.
Allenby of Megiddo, V.	Haig, E.
Belhaven and Stenton, L.	Hailsham of Saint Marylebone, L.
Blaker, L.	Halsbury, E.
Blatch, B.	Hamilton of Dalzell, L.
Bledisloe, V.	Harding of Petherton, L.
Boardman, L.	Hayhoe, L.
Boyd-Carpenter, L.	Hayter, L.
Brabazon of Tara, L.	Henley, L.
Brougham and Vaux, L.	HolmPatrick, L.
Cadman, L.	Howe, E.
Campbell of Alloway, L.	Hylton-Foster, B.
Campbell of Croy, L.	Inglewood, L.
Carnock, L.	Jenkin of Roding, L.
Chelmsford, V.	Johnston of Rockport, L.
Chesham, L. [Teller.]	Kimball, L.
Chorley, L	Kintore, E.
Clanwilliam, E.	Kitchener, E.
Cockfield, L.	Knollys, V.
Constantine of Stanmore, L.	Lane of Horsell, L.
Courtown, E.	Lindsay, E
Cranborne, V. [Lord Privy Seal.]	Long, V. [Teller.]
Crawshaw, L.	Lucas, L.
Cuckney, L.	Lyell, L.
Cullen of Ashbourne, L.	McConnell, L.
Cumberlege, B.	Mackay of Ardbrecknish, L.
Davidson, V.	Mackay of Clashfern, L. [Lord Chancellor.]
De Freyne, L.
Dean of Harptree, L.	Mackay of Drumadoon, L.
Denham, L	Manton, L.
Derwent, L.	Mersey, V.
Dixon-Smith, L.	Miller of Hendon, B.
Elibank, L.	Milverton, L.
Ellenborough, L.	Mountevans, L.
Elles, B.	Moyne, L.
Elliott of Morpeth, L.	Munster, E.
Forbes, L.	Murton of Lindisfarne, L.
Fraser of Kilmorack, L.	Noel-Buxton, L.
Gage, V.	Norrie, L.
Gainford, L.	O'Cathain, B.
Oppenheim-Barnes, B.	Strange, B.
Orkney, E.	Strathclyde, L.
Oxfuird, V.	Sudeley, L.
Pearson of Rannoch, L.	Swinfen, L.
Pender, L.	Tebbit, L.
Pilkington of Oxenford, L.	Terrington, L.
Plummer of St. Marylebone, L.	Teviot, L.
Rankeillour, L.	Thomas of Gwydir, L.
Rawlings, B.	Tollemache, L.
Rees, L.	Trefgarne, L.
Renton, L.	Trumpington, B.
Romney, E.	Vivian, L.
St. Davids, V.	Westbury, L.
Seccombe, B.	Whitelaw, V.
Shaw of Northstead, L.	Willoughby de Broke, L.
Skidelsky, L.	Wise, L.
Stanley of Alderley, L.	Young, B.

Resolved in the negative, and amendment disagreed to accordingly.

Division No. 2
CONTENTS
Ashley of Stoke, L.	Hanworth, V.
Beaumont of Whitley, L.	Harris of Greenwich, L.
Berkeley, L.	Haskel, L.
Blackstone, B.	Hayman, B.
Blease, L.	Healey, L.
Borrie, L.	Hilton of Eggardon, B.
Brooks of Tremorfa, L.	Hollis of Heigham, B.
Castle of Blackburn, B.	Holme of Cheltenham, L.
Cledwyn of Penrhos, L.	Howie of Troon, L.
Cocks of Hartcliffe, L.	Hughes, L.
David, B.	Irvine of Lairg, L.
Dean of Thornton-le-Fylde, B.	Jay of Paddington, B.
Diamond, L.	Jenkins of Putney, L.
Donaldson of Kingsbridge, L.	Kennet, L.
Donoughue, L.	Kilbracken, L.
Dormand of Easington, L.	Kirkwood, L.
Dubs, L.	Lester of Herne Hill, L.
Falkender, B.	Lockwood, B.
Farrington of Ribbleton, B.	Longford, E.
Fitt, L.	Lovell-Davis, L.
Gallacher, L.	McCarthy, L.
Gladwin of Clee, L.	McIntosh of Haringey, L.
Gregson, L.	Mackie of Benshie, L.
Grey, E.	McNair, L.

Mallalieu, B.	Seear, B.
Mason of Barnsley, L.	Sefton of Garston, L.
Merlyn-Rees, L.	Serota, B.
Milner of Leeds, L.	Shepherd, L.
Mishcon, L.	Smith of Gilmorehill, B.
Molloy, L.	Stoddart of Swindon, L.
Monkswell, L.	Strabolgi, L.
Morris of Castle Morris, L. [Teller]	Thomson of Monifieth, L.
	Tope, L. [Teller]
Murray of Epping Forest, L.	Tordoff, L.
Nicol, B.	Turner of Camden, B.
Prys-Davies, L.	Wedderburn of Charlton, L.
Rea, L.	White, B.
Redesdale, L.	Williams of Elvel, L.
Richard, L.	Williams of Mostyn, L.
Ripon, Bp.	Winchilsea and Nottingham, E.
NOT-CONTENTS
Abinger, L	HolmPatrick, L.
Addison, V.	Inglewood, L.
Alexander of Tunis, E.	Jenkin of Roding, L.
Ashbourne, L.	Johnston of Rockport, L.
Astor of Hever, L.	Kimball, L.
Belhaven and Stenton, L.	King of Wartnaby, L.
Blaker, L.	Laing of Dunphail, L.
Blatch, B.	Lane of Horsell, L.
Blyth, L.	Lauderdale, E.
Bowness, L.	Lawrence, L.
Boyd-Carpenter, L.	Leigh, L.
Brabazon of Tara, L.	Lindsay, E
Brigstocke, B.	Lucas, L.
Brookes, L.	Lyell, L.
Brougham and Vaux, L.	Lytton, E.
Butterworth, L.	McConnell, L.
Cadman, L.	Mackay of Ardbrecknish, L.
Caldecote, V.	Mackay of Clashfern, L. [Lord Chancellor.]
Campbell of Croy, L.
Carnock, L.	Mackay of Drumadoon, L.
Chelmsford, Bp.	Marlesford, L.
Chesham, L. [Teller.]	Massereene and Ferrard, V.
Clanwilliam, E.	Merrivale, L.
Clark of Kempston, L.	Mersey, V.
Colwyn, L.	Miller of Hendon, B.
Courtown, E.	Milverton, L.
Craig of Radley, L.	Monk Bretton, L.
Cranborne, V. [Lord Privy Seal.]	Mountevans, L.
Crickhowell, L.	Moyne, L.
Cumberlege, B.	Munster, E.
Davidson, V.	Murton of Lindisfame, L.
Dean of Harptree, L.	Northesk, E.
Denham, L.	Oppenheim-Barnes, B.
Dilhorne, V.	Orr-Ewing, L.
Dixon-Smith, L.	Pearson of Rannoch, L.
Dundonald, E.	Pender, L.
Elibank, L.	Peyton of Yeovil, L.
Ellenborough, L.	Pilkington of Oxenford, L.
Elles, B.	Plummer of St. Marylebone, L.
Elliott of Morpeth, L.	Rankeillour, L.
Elton, L.	Rawlings, B.
Ferrers, E.	Rees, L.
Goschen, V.	Rennell, L.
Granard, E.	Renton, L.
Gray of Contin, L.	Renwick, L.
Greenway, L.	Romney, E.
Haig, E.	St. Davids, V.
Hailsham of Saint Marylebone, L.	Saltoun of Abernethy, Ly.
Hamilton of Dalzell, L.	Seccombe, B.
Harding of Petherton, L.	Sharples, B.
Harlech, L	Shaw of Northstead, L.
Harmsworth, L.	Strange, B.
Harrowby, E.	Strathclyde, L. [Teller.]
Hayhoe, L.	Sudeley, L.
Henley, L.	Tebbit, L.
Hertford, M.	Teviot, L.
Holderness, L.	Thomas of Gwydir, L.

Trumpington, B.	Whitelaw, V.
Ullswater, V.	Wilcox, B.
	Willoughby de Broke, L.
Vivian, L.	Wise, L.
Wade of Chorlton, L.	Young, B.

Resolved in the negative, and amendment disagreed to accordingly.

5.33 p.m.

Lord Morris of Castle Morris moved Amendment No. 4:

After Clause 1, insert the following new clause—

LEVEL OF SUBSIDY

(". The subsidy paid in respect of each private sector student loan to any person in pursuance of arrangements under this Act shall not exceed the amount required by that person to reimburse the cost of—

1. (a) any administration relating to the loan; and
2. (b) the difference between the interest rate agreed with the eligible student receiving the loan and the rate of interest which the bank would otherwise have charged.").

The noble Lord said: My Lords, if there is one thing in this Bill on which we are all agreed it is that the subsidy is at the heart and centre of the Bill—indeed, it is probably the only thing on which we agree. I need not apologise unduly therefore for returning to it with a fresh suggestion for improving the Bill's vagueness on the subject and making it a bit more comprehensible to the students who may be affected and the banks who still could, theoretically, be induced to compete for it—though as the days go by that seems to be an increasingly unlikely possibility.

The Minister was correct in saying in his reply at Committee stage that the 10 per cent. figure we then proposed was more of a "probe" than a "proposition". However, it failed to elicit much useful information from the Minister and the whole matter remains shrouded in what seems to us to be unnecessary secrecy. The Minister failed completely to answer several points made by my noble friend Lord Desai. I should like to give him the opportunity today to repair that omission and I shall speak for a little longer than may otherwise be tolerable in order to give him time to make a few notes and, if necessary, refresh his memory on what my noble friend said.

In an attempt to help him in that respect, I can tell him that my noble friend asked why the Government were not proposing long-term loans so that insurance companies and others who made actuarial calculations would be the more willing to participate. There was no reply. My noble friend pointed out that the banks, would like a high subsidy but I reiterate that there is no economic case for such a subsidy".—[Official Report, 12/3/96; col. 742.] Can the Minister explain to us now the economic case for whatever subsidy is agreed? Further, my noble friend suggested the merits of a long-term loan which could be deductible from the national insurance surcharge. Why is that not a preferable option to one which requires so substantial a subsidy to succeed, even though we have no idea what that subsidy will look like?

The Minister has been kind enough to write to me on the subject of a subsidy since the Committee stage. I am grateful for his attempt to clarify the concept and its workings. Unfortunately, his letter—which I read most carefully—raises more new problems than it solves of the old ones. He begins by saying that, The purpose of the subsidy is not to persuade private lenders to lend money". When I read that, I felt like Macbeth as he entered after discovering the body of Duncan and said: Confusion now hath made his masterpiece". The purpose of the subsidy is not to persuade private lenders to lend money", In the most obvious sense of those words it is. The subsidy is there to persuade them to lend money because, if they were not provided with a subsidy, they would be unlikely to lend any money. But, as I thought about it, revolved it, turned the sentence over in my mind and considered it in relation to the next sentence, I began to see a glimmer of light on what may be in the Minister's mind. He went on: It is to enable them to lend their own money"— "their own money"; I do not see how they can lend anybody else's money— on the preferential terms which are central to the loans scheme, whether public or private, to student borrowers with little credit history". There at least we surface and light shines. On these Benches we have been concerned to protect the creditworthiness of students, though so far with little success. The letter goes on to state, the subsidy level which the financial institutions will set out in their tenders to reflect the benefits to them of getting privileged access to this market". If we ask the question, "What is in it for the banks?", the answer is the benefits of, privileged access to this market".

I should like the Minister even now to explain to us what exactly those "benefits" are which by this subsidy may be obtained and which would not be obtainable without the subsidy. Banks have been lending to students for a long time. Why should this subsidy, whatever its level may be, make such an enormous difference that banks or anybody else will want to take it up?

A few more difficult terms are introduced in that paragraph. The Minister says: Obviously, the form and level of subsidy which we offer to the private lenders may differ from the resources which we currently provide for the Student Loans Company". I do not understand what is meant by the distinction between "form" and "level". What does it mean? A subsidy is a subsidy. It can only, so far as I know, mean money. But the noble Lord talks here of the "form and level" of the subsidy. I should be grateful for an explanation of the difference between "form" and "level" in terms of subsidy and how those two terms relate to the resources which we currently provide for the Student Loans Company. What are those resources apart from financial resources—apart from money?

The noble Lord then says one thing which I found very helpful: We are in the process of testing the market and if none of the bids are acceptable we shall not proceed". The word "are" might be replaced in that sentence by "is" since the subject is singular and that might add a pleasing touch of literacy to it. But I get the point. It is a welcome reassurance. Not so the next sentence: But we have no intention of setting out our reserve price". We have never asked anyone to set out a reserve price. We would be perfectly satisfied with some indication of an order of magnitude. What kind of sum are we talking about? I find it difficult to believe that that is too much to ask.

I was grateful for the clear description in the letter of the flexibility permitted to the banks or other financial houses, though I do not approve of it, for the letter says: The private lenders will have the flexibility, with the agreement of the borrower, to charge interest at a rate below that set out in the regulations governing public loans, with a corresponding reduction in the repayment period". Good; I understand that. It is what we have all believed along the way in any case. But it is good to have it thus set down and spoken out. It does, of course, favour the rich against the poor and to that extent we find it less than totally acceptable. But I am at least grateful for the clarity.

Apart from that, the Minister's letter obfuscated as much as it clarified to my grammarian's mind and so I felt that we were obliged to come back with this amendment which seeks to establish a clear and fair basis for the subsidy and to remove the totally unacceptable element of latitancy and secrecy from it. I beg to move.

Lord Henley

My Lords, for upsetting the distinguished grammarian I can only unreservedly apologise to the House. It is one of the dangers of serving in the Department for Education and Employment that one has to examine one's letters and one's speeches with much greater care than is perhaps the case with the slightly more robust approach taken, for example, in the Ministry of Defence or other departments I could mention.

I have a degree of sympathy for the principle behind the amendment, not that I think the noble Lord specifically spoke to the amendment as such. I suspect that to some extent it was a further probing amendment. As I made clear in my letter—I hope that this will not cause the noble Lord the confusion that he said it caused him—we shall not be paying subsidy to the private lenders simply in order that they may lend money. They can do that perfectly well without our help. We are paying subsidy to the private lenders—those private lenders who sign up—so that they can offer loans on similar preferential terms to those offered by the Student Loans Company. It is as simple as that.

They are already in the position where they can lend money to students or to whomsoever they so wish. We are paying subsidy so that they can do it on similar terms to those offered by the SLC. They are like the fishmongers, mentioned by my noble friend Lord Beloff on a number of occasions, who are not just selling fish but are selling it at special offer prices. I am concerned, just as this amendment is concerned, to ensure that the benefits of subsidy will go to the student borrowers themselves. But those same special terms mean that the subsidy arrangements will be somewhat more complicated than the amendment envisages.

The subsidy will need to take into account the fact that owing to the special deferment arrangements lenders will be expected to service unprofitable loans for long periods. Lenders may have to wait a long time for loans to be paid off and they can begin to treat borrowers as ordinary profitable customers. There is also a risk attached to lending, not least where the lending is to students with very little credit history. Those are all factors which may be taken into account when the financial institutions are putting together their bids.

As to the noble Lord's worries about "form" and "level" of subsidy, I should have thought that the words there are perfectly clear. The "level" of subsidy the noble Lord understands; "form" might mean, for example, the manner in which it was paid—whether it was paid all at once or spread out over the year, or whatever. But it is up to the financial institutions themselves to put together fair bids and then to negotiate with the department. But I can reassure the noble Lord, as I think I have done on a number of occasions, that we will only accept bids which offer a cost-effective deal for the taxpayer and which offer real choice for the student.

The noble Lord also asked whether we might not consider making use of the national insurance scheme to repay student loans. Others have suggested making use of the tax system. These matters have been considered on a number of occasions and other countries have pursued similar lines. However, I have to say that there are considerable complications in making use of the national insurance system that would not necessarily bring about the simplicities which the noble Lord desires. The Student Loans Company and what we are suggesting—the extension to the banks—keep matters relatively simple. But, as always, I can give an assurance that Dearing—Dearing Mark III, if we can call it that—will be addressing or can address these matters as the inquiry feels fit.

The private lenders will naturally want a return on their money and that will be reflected in their tenders. As I have emphasised, we shall not sign any contracts unless we are convinced that they will realise the full benefits to the students and the full benefits to the taxpayer of private sector involvement, and those full benefits cost effectively. Again I repeat—the noble Lord repeated it for me but I repeat it again—that if we are not convinced of this we shall not sign contracts. The private lender subsidies will be settled on the basis of competitive tenders. We have, as noble Lords will know, a number of financial institutions which are interested. I expect those tenders to take into account the long-term benefits to them as financial institutions of being selected for subsidised loans to the students.

I hope I have dealt with most of the points put by the noble Lord but I shall certainly look carefully at what he has had to say and particularly at some of the points made in my letter of 19th March to which he referred.

Certainly, I should be more than happy to have a further discussion with the noble Lord on these matters between now and Third Reading should he so wish. However, as regards the amendment itself, I do not believe it is necessarily a practical way forward and I hope therefore that he will withdraw it.

5.45 p.m.

Lord Morris of Castle Morris

My Lords, I am grateful to the Minister for what he has said and for answering a selection of my questions. The distinction which he draws between "form" and "level" in his letter still puzzles me and I find the distinction which the Minister makes between the two terms pleasingly poetic. We shall come to the question of the repayment mechanism later but I am grateful to him for opening it out at this stage. I shall ponder what he says when other noble Lords are speaking to other amendments and return to it in its proper place. His offer of discussions is a welcome one to me. If, after I have had the opportunity tomorrow to read in Hansard what everyone has said, I feel it is necessary to ask for a half hour of his time, I am grateful that I shall not be turned away. With that said, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Morris of Castle Morris moved Amendment No. 5:

After Clause 1 insert the following new clause—

REFUSAL OF STUDENT LOAN NOT REFUSAL OF CREDIT

(". A refusal to an eligible student of a private sector student loan shall not be regarded as a refusal of credit for any purpose and may not be required to be declared in any other application for credit.").

The noble Lord said: My Lords, when we discussed the whole matter of creditworthiness in relation to this Bill at Committee stage, my noble friend Lord Williams of Mostyn (whose forensic skills have no superior and few rivals) succeeded in eliciting from the Minister clarifications and concessions which we found helpful. Chief among them was the answer to my noble friend's question as to whether a student who had been refused a private loan and then applied for a Student Loans Company loan would be obliged to report the refusal in his SLC application. The Minister said: I do not see that there would be any obligation to report to the Student Loans Company the fact that the student had been refused a loan elsewhere". That is clear, unequivocal, welcome, helpful and, indeed, goes a little beyond what was requested.

I hope that the Minister will not be offended by our seemingly insatiable appetite for further and further concessions over and above what he has already given, but the words of this amendment are precise: may not be required to be declared in any other application for credit". That is not just to the Student Loans Company but "any other application for credit".

We are pursuing this because students must now apply for loans and any refusal of credit is an extremely serious and continuous handicap long after they have ceased to be students. It can last for the rest of their lives. The student refused credit may find that the remembrance of it is grievous unto him or her and that the burden of it is intolerable. Once to be refused credit may be to carry that for the rest of one's financial life. The student may well say, with Coleridge's Ancient Mariner, Instead of a Cross the Albatross About my neck was hung". I beg to move.

Lord Williams of Mostyn

My Lords, perhaps I may simply add a syllable or two. The real mischief here—and putting one's eye to Amendment No. 7—is that if there is no obligation to give a reason for refusal, serious unfairness may result which has in effect a financial penal consequence for the rest of the student's adult life. A refusal of a loan may well be made on non-financial grounds. If that were so, without the obligation for giving a reason for refusal, injustice could creep in. The loan might be refused, for instance, because the lending institution does not seek to support a particular discipline. It might come to the reasoned view that there was a superabundance of professors of English literature around and about the place and it might not want to fund any more. It might think, for instance, that the wage levels in the intended profession were too low, and the institution did not want to lend on that basis. It might ask someone what they have in mind as regards future employment. The institution might think that the prospects are very poor. A student who said, for instance, that he was hoping to become a Conservative Member of Parliament might well be refused a loan on the basis that his employment prospects were dismal in the extreme for the next 10 years or so.

It is important that a student who is obliged, as the noble Lord, Lord Morris of Castle Morris, said, to look for loan facilities should not be penalised in later life and particularly—if I may repeat again at the risk of tedium—if no reason is required to be given. Therefore, there cannot be a safeguard for the student, and that is capable of doing him or her an injustice for a very long time.

Lord Tope

My Lords, the case for this amendment has been well made. Anxiety was expressed at earlier stages in the consideration of the Bill about the probable, certainly possible, effect on creditworthiness of students in their future life. This amendment addresses the point very well, particularly the proposal that it: may not be required to be declared in any other application for credit". That is the nub of it. On that basis I am happy to support this amendment.

Baroness Farrington of Ribbleton

My Lords, there is one further point that I would like to put to the Minister for his consideration and that is the fact that at the end of the course the student may be caught between the devil and the deep blue sea. If the student is unable to ascertain why a loan has been refused, or if the reason has nothing to do with his or her personal creditworthiness but rather the course, as has been said, were the student to fail to declare that fact, unless he is legally exempt from having to do so, on some future occasion the student could be accused of fraud. For example, I think of someone joining the police force who takes a degree in a subject such as philosophy which the private sector loan arrangement authority decides is not relevant to a career. The student then applies to join the police. Such a student should be exempt from having to declare that a loan has been refused because there is no doubt that a lack of creditworthiness may influence the opportunity to get a job, let alone the ability to raise credit, for example, for a mortgage.

Lord Henley

My Lords, as the House will recall, I resisted a similar amendment at Committee stage, putting forward what I believed to be very good reasons. I am still not persuaded of the need for such an amendment.

It would have serious and, I believe, impractical implications beyond the student loans scheme. The proposal seeks to regulate not only the private lenders of student loans but private lenders of every kind. They would obviously be affected by the first part of the amendment; namely, A refusal to an eligible student of a private sector student loan shall not be regarded as a refusal of credit". In other words, it would have to be taken into account. The amendment seeks to allow a student who has been turned down for a loan from a private lender to withhold that information whenever he applies for a loan in future. I understand the concern put forward by various noble Lords about students who may be turned down, for whatever reason, for loans from private lenders that they may find it hard to get badly needed credit in future to buy a house, a car or whatever. However, financial institutions, whether lending money to students or house buyers, must be allowed commercial freedom in their decisions. We could not possibly require a bank or a building society, when considering an application for a mortgage, to make a special exemption for an applicant because he was refused a student loan by another institution.

Further, I do not believe that we should assume that future prospective lenders will be greatly interested in knowing that an applicant was refused a student loan in the past—perhaps many years in the past—and perhaps for a reason which, as noble Lords have said, is not a good one. They all have their own methods of assessing applications and their own different, commercial preferences. It is misleading to attribute too much weight to past information. I do not believe that the banks or building societies themselves are that short-sighted.

Further, I remind the House that the refusal of a student loan from a private sector institution is not the last word. There is always the absolute right, which I have mentioned on a number of occasions and which I repeat today, for that individual student to go to the Student Loans Company. Therefore, there will always be the availability of a loan for the student if he or she complies in all other ways. Therefore, I hope that the noble Lord will feel that his amendment is not necessary and will withdraw it on this occasion.

Lord Morris of Castle Morris

My Lords, we know full well that the private sector loan is not the position of last resort and that a student can always go to the SLC to get his or her loan. But that is surely not the point. Here we are talking not about that question but about what happens if a student is refused a loan. Does that count as credit and, if so, is that going to appear on every computer in the land and work against that student for the rest of his or her life? The proposed new clause would cost nothing. It would encourage students to apply and it would give them a bit more hope if they were applying to a bank, knowing that if they were turned down that would be an end of it and it would not be a permanent stain on their character, as it were.

We put this amendment forward in no destructive sense whatever; we genuinely believe that it will improve the Bill. But it appears that the Minister is still not persuaded. I find his arguments on thus amendment even weaker than those on most of the matters that he has opposed so far. Nevertheless, much though I would welcome the opportunity to divide the House on this amendment, I am unlikely to command a vast amount of support. Therefore, at this time, and without any prejudice towards bringing the matter back at a later stage, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

6 p.m.

Lord Morris of Castle Morris moved Amendment No. 6:

After Clause 1, insert the following new clause—

INDEPENDENT ASSESSOR

(". The Secretary of State shall establish an independent assessor to investigate and adjudicate upon disputes between an eligible student and any person by whom private sector student loans are made.").

The noble Lord said: My Lords, the purpose of this amendment is to extend the power of an independent assessor to the private loans company which is now proposed. In Schedule 2(3)(5), the Education (Student Loans) Act 1990 provided for an independent person, the assessor, to investigate and report on disputes between borrowers or intending borrowers and the body making the loans. Only complaints which are not resolved by the Students Loans Company or which are not replied to within three months can be referred to the assessor.

The Bill as it stands will not, as far as I can see, extend that provision to the new private loans scheme. There will be no independent mechanism for resolving disputes in the new scheme. That may well deter students from applying and it gives the lender what we consider to be an unnecessary power. The amendment would therefore work to the benefit of the Government because it would not deter students from at least attempting to get a loan from a bank or whatever body they are dealing with.

It is important that there should be an independent mechanism for dealing with disputes that cannot be resolved through the usual complaints procedures, because students may very well be in their final year at school when they have to go through the process of starting negotiations about a loan. It means that young persons of the age of 17 or thereabouts will be involved in negotiating what for them will probably be the first step of their financial lives and to say to them, "caveat emptor" seems to us to be rather more harsh than is necessary.

The Bill would be improved by the appointment of an independent assessor to give aid and comfort in such situations. The role of the assessor will be particularly important in the new private scheme in disputes between intending borrowers and lenders. Students who, for one reason or another, are refused loans by private sector lenders will benefit from an independent mechanism for complaint if they feel that they have been unfairly treated. At Report stage in another place, Mr. Stephen Byers argued that although there is a banking ombudsman, his terms of reference prevent him being involved in commenting on a bank's commercial judgment about lending. We have taken on board what the Minister said at previous stages about what the ombudsman can and cannot do, but I think that it is still true to say that he cannot comment on a bank's commercial judgment when lending. We feel that someone should have that power. Surely the lack of such a power disables the ombudsman and seriously weakens his powers.

It is true that the number of complaints not resolved by the Students Loans Company and referred to the assessor has been relatively small. In 1993 a customer survey commissioned by the Student Loans Company found that less than 5 per cent. were aware of the company's complaints procedure. In response to those findings the company took steps to publicise its complaints procedure in its customer service policy and annual report.

However, there has come into my possession—I found it on my desk; I do not know how it got there but I do not think that the Minister kindly placed it on my desk—the 13th report of the Committee of Public Accounts, entitled The Operations of the Student Loans Company Ltd. Browsing quietly through it, I find these words in subsection (vii) of paragraph 4 on the main conclusions and recommendations: We are surprised that up to the end of the 1994/95 academic year, only eight complaints had been referred to the independent Assessor, despite the widespread difficulties experienced by students. We note that a customer survey has suggested that there is only a limited awareness by borrowers of the Company's complaints procedure. We recommend that efforts should continue to publicise the complaints procedure more widely". Surely students opting for the new private scheme—if it ever comes into being and if there ever are any—should receive the same protection as already exists for students and graduates who have loans from the public sector scheme. I beg to move.

Lord Henley

My Lords, again, I believe that this is an unnecessary amendment. I assume that the noble Lord is seeking to create another independent assessor, similar to the independent assessor for the Student Loans Company, to offer assistance with loans taken out with private sector institutions.

I think that I have made it clear, in speaking to a similar amendment at an earlier stage—colleagues have made it clear in another place when dealing with other amendments—that there is no need for the establishment of an additional complaints procedure to cover private sector lenders. The Banking and Building Societies Ombudsmen are already there to do just that job. I see no point in wasting the taxpayer's money simply to duplicate them.

Officials in my department have spoken to the Banking Ombudsman. They have learnt first-hand, and reported to me, what powers he does and does not have. He has emphasised to my officials that he sees absolutely no reason why complaints about loans from banks under the twin-track scheme should not be within his remit.

The ombudsman will look into any personal complaint of substance about a bank's business. That is how wide-ranging his powers are. In particular, he has assured us that he will always look into a complaint about a loan rejection if the complainant has some evidence to back up his complaint. Any student with a genuine complaint will have that evidence. The ombudsman can demand from a lender whatever information he needs in order to make a decision about the complaint, including, in the case of a loan rejection, supporting evidence for the lender's original refusal. If the lender refuses to give him any of this information, he is forced to assume that they had insufficient evidence to refuse the loan in the first place and his recommendation would thus be in the customer's favour.

I believe that the ombudsman will offer an independent safeguard of exactly the sort which the noble Lord requires for private sector applicants and borrowers, and one which all the major high street banks and building societies, which fund the ombudsman schemes, are fully signed up to. Therefore, I believe that the amendment is unnecessary and I hope that the noble Lord will find it possible to withdraw it.

Lord Morris of Castle Morris

My Lords, yes, I shall. That is the best reply that I have had from the Minister during our several hours of debate. The Minister has given us some information. He has taken the trouble to rouse his officials and to get them out, asking the ombudsman exactly what he does. The Minister has put on the record exactly what we have been asking for all along. I would have been happy to be assured that we could have either a new assessor or the extended powers of the assessors of the Student Loans Company. As far as I was able to jot them down, the Minister's words that the ombudsman will look into any complaint, that he can demand information from any lender, and that he can take action if he is not satisfied go a very long way towards giving me what I want. I cannot think that I could want any more. I am grateful to the Minister and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Tope moved Amendment No. 7:

After Clause 1, insert the following new clause—

STATEMENT OF REASONS

(". The Secretary of State shall require any person to whom subsidy is to be paid who refuses to make a private sector student loan to an eligible student to provide the student with a statement of reasons for the refusal.").

The noble Lord said: My Lords, the statement which the Minister has just made helps considerably with this amendment, but I should like to press and probe him a little further. The amendment seeks to provide that the student, the borrower, should be given the reasons for the refusal. A similar amendment was moved in Committee by the noble Lord, Lord Morris of Castle Morris, in response to which the Minister said: It would be quite wrong to impose particular rules on how private companies should deal with loan applications … They must be free to reject applications; and they must be free to decide what to tell such applicants".—[Official Report, 12/3/96; cols. 791–2.] I am not sure that I accept that such companies "must be free". We have talked much in previous debates and in this debate about possible effects on creditworthiness. I think that it is desirable to require lenders to give to applicants a simple statement of their reasons for refusal. I do not think that request would be too onerous for the lenders.

I turn now to the position of the ombudsman, which the Minister helpfully clarified and elucidated. I believe that I heard him say just now—perhaps he will clarify this when he replies—and he said in Committee that the ombudsman will look into complaints about an institution's refusal to offer a loan provided that the complainant has a piece of evidence of substance that the institution acted unfairly or illegally with regard to the granting of a loan. I believe that the Minister referred just now to a complaint having to be one "of substance". While one does not wish to encourage frivolous complaints, one is bound to ask how a complainant can establish whether or not his complaint has substance if he has been given no reason for the refusal of his application.

I believe that it would be entirely consistent if the Minister went a little further in the assurances just given and agreed that in the first place applicants, not just the ombudsman, should be given such a statement so that before they made their complaints to the ombudsman they could judge whether or not they had complaints of substance. The ombudsman could then decide whether or not to take the matter on from there.

In moving the amendment, I remind the noble Lord, Lord Morris of Castle Morris, that this matter can be taken just a little further. One can ask for a little more. I look forward to receiving the Minister's assurances. I beg to move.

Lord Williams of Mostyn

My Lords, I believe that the noble Lord, Lord Tope's, arguments are correct. There is no reason in principle why commercial lenders should not be subject to some discipline other than that of the bare marketplace. In a large number of different activities commercial organisations have to do just that—for instance, in terms of how they treat the disabled who apply for employment or who work for them.

More fundamentally, this money comes in part from public funds. If the Government are committed to openness and transparency, there can be no sensible reason why, if a student has the bitter blow of a refusal of a private sector student loan, he or she should not know the reason for it. There are many reasons for that. First, if the lender who has to come to a decision is obliged to give reasons, the mere fact that reasons have to be given normally improves the decision-making process. Secondly, since this is in part public money (by virtue of the subsidy component) it should be seen to be dealt with in an open and appropriate way. Thirdly, a student is entitled as of right to know why he or she has been turned down. Fourthly, to underline what the noble Lord, Lord Tope, has said, without knowing the reason for the refusal the student is wholly disabled from mounting a sensible appeal.

Baroness Farrington of Ribbleton

My Lords, I speak in support of the amendment. I should like to ask the Minister how the Government seek to resolve the conflict between their replies on many occasions, which indicate that commercial judgment is at the heart of this legislation, and the oft repeated reply that it is a matter of student choice. This amendment will ensure that, where students are deprived of that choice by a decision, the reason for it is open and clear to those students concerned.

I should also like the Minister to explain how students may defend themselves on a future occasion. Given that the Government have refused to allow students to refrain from giving information on future occasions when they apply for jobs, mortgages or further credit at other stages in their careers, how can they defend themselves if they are not given details of the reasons for the refusal? That would be the only defence that students would have to protect them from a lifetime of possible discrimination by other credit facilitators, and those other fields as well.

6.15 p.m.

Lord Henley

My Lords, I deal first with the question of student choice. I do not accept the argument of the noble Baroness that there is any discrepancy in the case that we have put forward. I take a similar situation. Students have a choice about which university they go to. That is obviously dependent on the choice that the universities or institutions make about the students. The choice can never be total. Similarly, the student has a choice about going to one or more private sector institutions for a student loan. If he or she fails there, as a last resort there will be the choice of going hack to the Student Loans Company.

I should like to deal with the point that the noble Lord, Lord Tope, made about the ombudsman and his worries, echoed to some extent by the noble Lord, Lord Williams, that students had to produce evidence for their complaints. The noble Lord quoted my words at Committee stage. I cannot remember my precise words, but this afternoon the words that I have used are "the complainant has some evidence to hack up his complaint". The noble Lord, Lord Williams, says that if no reason is given the student can have no evidence. I do not accept that that is the case. For instance, there may be evidence of the application being treated in a frivolous manner by the institution. The mere lack of written reasons provided by the bank does not mean that it is impossible for the individual to produce any evidence to make his case to the ombudsman. Having said that, I am grateful that the noble Lord, Lord Tope, with the noble Lord, Lord Morris of Castle Morris, recognises the advantages of the banking ombudsman's writ running here and the fact that it deals with the earlier problem.

The case advanced by noble Lords opposite as to our reasons why student applicants should not be given this information is not valid. That is not our argument. We say that this must be very much a matter for private lenders to decide. They are the ones who, in the main, risk their own money. They must be free to reject applications and decide what to tell such applicants. What we want is the normal lending arrangement between the lender and borrower. That, rather than extensive regulation, is the best way to get the benefits of the improved service standards that will flow from private sector involvement. I said that in the main they were lending their own money. Noble Lords opposite have said that we are talking about public money in subsidy. But the money risked on loan will be largely that of private lenders. The best safeguards for students lie in the operation of choice in a diverse and competitive market. Student borrowers will have a choice. If they have concerns similar to those of the noble Lords, they can always take out public loans through the Student Loans Company.

Lastly, I reiterate that private lenders will not commit themselves to the twin-track approach unless they are keen to be major lenders to students. Therefore, they will be committed to ensuring that they get a large share of that market. I do not believe that they will achieve that by being over-selective or secretive in their dealings with student applicants. Therefore, I believe that it would be unreasonable and unnecessary to place on private lenders the restrictions in the new clause. I hope that the noble Lord will feel able to withdraw his amendment.

Lord Morris of Castle Morris

My Lords, can the Minister explain how a student can go to the ombudsman with a complaint if he does not know why his loan has been refused?

Lord Henley

My Lords, I made that perfectly clear. I do not believe that it is absolutely necessary to have written evidence from the institution to make that complaint. There are other forms of evidence which will be available, such as the attitude of the institution. That evidence may be sufficient for the student to take the complaint to the ombudsman.

Lord Tope

My Lords, the Minister said that lenders must be free to decide whether to accept or reject loan applications. Nobody disputes that. What we are saying is that they must give a reason if they reject the application. I believe that the noble Lord, Lord Williams of Mostyn, is right. Usually, decisions are better made if those who make them know that they will have to justify them in public. Therefore, the fact that they have to give a simple statement of reasons for refusal is likely to lead to better considered decisions.

I return to the point that noble Lords have been pressing. How does an applicant apply to the ombudsman and prove that he has a substantial case? It may be that the bank manager was rude to the applicant when he went to see him; it may be that he had to stand in a queue for a long time; it may be any number of those reasons, but, as the Minister said, if the institutions are keen to make loans, that is probably unlikely, and, frankly, rather frivolous. If we are asking people to feel that they may put a case to the ombudsman, to say that they will have no written reason and will need no written reason, is not good enough. We have not had a sufficient answer to this. The Minister has not justified why there should not be a written reason. Indeed the case for having a written reason when making a submission to the ombudsman is overpowering. We shall need to consider this matter further, but, in the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Tope moved Amendment No. 8:

After Clause 1, insert the following new clause—

ASSESSMENT CRITERIA

(". No subsidy may be paid by the Secretary of State under subsection 1(1A) of the Education (Student Loans) Act 1990 unless the Secretary of State is satisfied that the person by whom the private sector student loan will be made has ensured that the assessment criteria to be used in assessing applications by eligible students do not include consideration of the applicant's course of study or the institution he attends.").

The noble Lord said: My Lords, this is another what is termed "cherry picking" amendment. It bears some resemblance to an amendment with which we dealt in Committee. We are trying to ensure that, when choosing a course and an institution at which to take that course, a student should determine that solely upon academic merit, individual choice, and vocational merit, and should not be put into the position of having to give any consideration as to whether the course or institution would prove creditworthy for a private sector student loan. That is the essence of the amendment.

In Committee, and previously, the Minister has said that the tender document seeks from prospective private lenders details of their policies and processes for considering applications, and asks for an estimate of the proportion of applicants they might reject.

I hope that the Minister will assure us today that when they look seriously at those tender documents, as he has assured us they will, and we accept that they will, they will ensure that there is no possibility of any discrimination or decisions being based upon disapproval of a type of course or upon a judgment about the merits or otherwise of a particular learning institution. That is what the amendment seeks to address. I beg to move.

Lord Morris of Castle Morris

My Lords, it is a pleasure to support the noble Lord, Lord Tope, in the amendment, especially as he has supported me so stoutly in many another I trust that he will feel able to do so for the rest of the Bill, and, indeed, many a Bill hereafter.

I have read and re-read what the Minister had to say on this question when we discussed it in Committee in—I must agree with the noble Lord, Lord Tope—very much the same terms as those in which we have brought it back. The Minister spoke at 8.45 p.m. Perhaps he, and we, and all of us, were becoming rather tired, but I am bound to say that sadly it was not, in my view, the very best reply that he gave in Committee. I hope that he will be able to improve on his performance today. He said—I paraphrase—that there was little that he could add to his previous responses. He said that bank managers were honourable persons; that lawyers were also good fellows; and that the Dearing terms of reference were a matter for a another occasion; and, then, getting to the point, that the Government had asked prospective private lenders for—both the noble Lord, Lord Tope, and I seem to have noticed this—details of their policies and processes for considering applications and an estimate of what proportion of applicants they thought that they might reject. That is not good enough, nor is it true.

Bankers are in a tough, harsh, unforgiving, competitive business these days. No longer is your typical bank manager a wise, experienced, mellow and beneficent pipe-smoking patriarchal sort of a fellow. She is more likely to be a smart and street-wise lady under stern instructions from head office to jerk up the percentage profit this year, otherwise she will be out on her ear. Banks have changed. So far as I can see, they seem to have changed a great deal since the Minister last went into one.

My noble friend Lord Ponsonby of Shulbrede, who has the advantage of being younger than most Of us, exemplified that point, and the point that the amendment strives to make, when he told us that when he was taking his postgraduate degree in petroleum engineering he was regularly harassed—he used the word "harassed"—by his bank with offers of more and more complicated loans: "Take out another loan—any kind of conditions you like. Petroleum engineers are bound to be important fellows before very long, and these people are worth having on our books". He said in Committee that banks make such calculations, and I believe him. He is right. They have to.

A student of fine art, or a student from a former polytechnic whose excellence has not yet been fully established—I have chosen that phrase with great care to avoid trouble from half the country's universities—may well seem less attractive a prospect than my noble friend Lord Ponsonby of Shulbrede, for a wide variety of reasons.

Private institutions need no protection or defence. The private individual (the young student) needs both. That is why I strongly support the amendment.

Baroness Farrington of Ribbleton

My Lords, first, perhaps I may ask the House to note that in my experience the most usual bank manager is still male, and not female. I can only assume that female bank managers have all gone to the Principality, and that circumstances there are different.

There is a great deal of prejudice about the types of course that students take at university. The employment potential of people on arts courses may be misunderstood. It is unlikely that a bank manager in a part of the country where a particular course is not available will know the details, for example, of courses in technical illustration and the possibility of a 100 per cent. placement in employment.

The second point upon which I would ask the Minister to comment is that one of his government's Secretaries of State in the early 1980s—a person for whom I had great respect on many occasions—once made a statement about there being no need to provide so many sociology and psychology courses. The Secretary of State had to correct that misunderstanding when it was explained to him that psychology was essential if people wanted to become the educational psychologists who would be needed in ever-increasing numbers to implement the Government's special educational needs legislation. That is a type of prejudice.

Can the Minister say that a uniform policy will be applied by institutions, if they change their minds and bid for this type of work; that a student applying in Aberdeen for a psychology course will be treated in the same way as a student applying in Edinburgh, Cardiff or Lancashire? It is important that the policy is clear. Before the Minister says that this is a matter purely of commercial judgment, perhaps I may remind him that, throughout, the Government's statements have been about student choice. What choice is there if, from a basis of ignorance, lack of knowledge or prejudice, someone precludes certain students from access to loans merely because of the type of course they are taking?

6.30 p.m.

Lord Henley

My Lords, I received 10 out of 10 from the noble Lord, Lord Morris of Castle Morris, for one of my earlier answers. However, I expect that the response I gave in Committee at 8.45 p.m. did not receive 10 out of 10 from him but possibly only one or two out of 10. We shall see whether I can improve on that. However, in speaking to the amendment in Committee I had addressed a number of similar amendments and I believed that I should be wasting the Committee's time if I spoke at great length. That is why I opened my innings by saying that I was not sure that there was much more I could add to what I had said earlier in response to other similar amendments. On this occasion I shall try to respond at greater length, this being the only amendment in that group to return.

Perhaps I may make it clear that we neither want nor expect the private lenders to assess applications in the way noble Lords fear. On the contrary, we want to involve the private sector so that all students have opportunities to get the benefits of its expertise in personal lending. But to get these benefits we need to put in place a system which allows the banks and building societies to operate efficiently along normal commercial lines. The instinct of noble Lords opposite to regulate would prevent that.

Secondly, as I said on a number of occasions, the financial institutions will be lending their own money and bearing most of the risk in so doing. In these circumstances, decisions on whether to lend to a particular applicant must be left to them.

We could, of course, require that private lenders accept any application from an eligible student. But that kind of provision would work against the grain of the private sector's approach. It is doubtful whether it would be acceptable to the banks and building societies. And, frankly, we see nothing to be gained by compelling first their involvement and then their acceptance of any eligible application.

Thirdly, while I understand noble Lords' concerns that some students might suffer rejection because of their course or institution, I believe that possibility to be exaggerated. If the banks and building societies tender for the right to offer subsidised loans, they will do so because of the advantages of being in this market in a substantial way. Once in, why should they take a restrictive view of applicants' credit-worthiness? The incentive will be to maximise their share of the market. There will be strong competition. They will be competing against other private lenders. They will also be competing against the Student Loans Company, which will also have a substantial share of the market. The private lenders will have market share to build up and reputations to protect. Why should they want to get involved in this scheme and then court adverse publicity by rejecting a large number of applicants?

As I made clear in Committee, we have asked prospective private lenders to include in their tenders details of their policies and processes for considering applications. We have also asked for an estimate of what proportion of applicants they might reject. I can assure the noble Lord, Lord Tope, that in evaluation of the tenders we shall look carefully at their responses. I can give an assurance that we shall take into account any tenders which appear to be designed to exclude large classes for peculiar reasons. If we are not satisfied that will be a factor in our decision on which tenders to accept.

However, I do not believe that it would be right to follow the policy advocated by the noble Baroness, Lady Farrington, of insisting on a uniform policy for all banks and institutions wherever they are in the country. As I said earlier, that must be a matter for them.

I accept that the amendment is well intentioned but it goes against the grain of what we are trying to achieve with the private sector. Therefore, I hope that the noble Lord will feel able to withdraw it.

Lord Tope

My Lords, I thank the Minister for his assurance, which was welcome. I am not sure that I wish to follow the noble Lord, Lord Morris, in awarding marks, but perhaps six out of 10 would be high. Perhaps the Minister should be awarded five out of 10.

It is not our purpose to regulate the private sector for the sake of doing so or to restrict its responsibilities. In moving the amendments our purpose is to protect students who must find themselves in increasingly vulnerable positions as some form of loan becomes a way of life in higher education.

I am sorry that the Minister did not feel able to go further. I continue to be concerned that if we have no obvious assurance that there will not be discrimination on the basis of course or institution, and if students are given no reason for refusal of an application, we could be heading into a situation in which students are treated unfairly. However, I am grateful for the assurance that the Minister gave in response to my opening comments. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 9 not moved.]

Schedule [Consequential amendments]:

Lord Morris of Castle Morris moved Amendment No. 10:

Page 3, line 21, after ("student",") insert—

("(aa) after sub-paragraph (1)(c) insert—

"(d) make provision for the level of sums paid by the person borrowing in respect of repayment of a loan to be linked to the income of the person borrowing",").

The noble Lord said: My Lords, in Committee my noble friend Lord Desai attempted to encourage discussion about long-term loans versus short-term loans. We have not yet had that discussion. The idea did not commend itself to the Minister nor to his colleagues in government, but it will not go away because it can so easily and often cause hardship. The mortgage style repayments provided for in the Bill mean that graduates must repay loans within a short period at a time when their income will be at its lowest level. Loans from the Student Loans Company must be repaid over 60 months once the student's earnings reach 85 per cent. of the national average. Private sector loans will not differ vastly.

On Second Reading in the other place the Minister of State claimed that the average repayment was £18 a month (Official Report, Commons, 27/11/95; col. 945.). That is based on the repayments being made now by students who took out loans in the early years of the scheme's operation when loans made up a smaller percentage of the total support package. As the loan becomes half of the package in 1996–97 debts and the size of repayments will increase.

Researchers at the University of Northumbria—a university which has established its excellence in many areas and upon whose work we can certainly rely—has estimated that the growth of student loan debt based on the current five-year repayment period will mean that students graduating after a three-year course in 1997 must pay £75 a month. After a four-year course the estimated figure is £100 a month.

That seems to us to be an unnecessarily heavy burden on young people at a crucial period of their financial lives. Can the Minister give us an idea of how much it would cost to ease the burden for people in that position, as described by researchers at the University of Northumbria? If debt is too onerous it brings default. As I said earlier, it is difficult for young people in their final year at school, or in their first year at university when they are probably scared out of their wits that they will fail their first year examinations, to work out what they will honestly be able to afford to repay in several years' time. They have no experience on which to base that estimate. The people whom they will be consulting will be people in the private sector who are legitimately in that business for the sordid motive of private profit. They are not there to help the students in the first instance. They are there to satisfy their shareholders; to do a decent job for the banks; and to make money. The bottom line is private profit. Those people are not giving disinterested advice; and disinterested advice for students in that position is not easily come by.

Default is a real possibility. As at 31st July 1995, 435,000 borrowers were due to make loan repayments, of which 187,000 were granted deferment for a year, and of the 248,000 liable to make payments, 9,000 were in arrears and 35,000 were in default. That is not a brilliant record.

The problems caused by the current mortgage-style repayment scheme are widely recognised, and not simply by noble Lords on all of these Benches on this side of the House. The Minister cannot brush under the carpet the fact that the Conservative Political Centre National Policy Group on Higher Education, to which I referred earlier and on which he congratulated me on having got its statements right and on reading—

Lord Henley

My Lords, I was wondering whether the noble Lord was going to refer to his colleague, Mr. Field.

Lord Morris of Castle Morris

My Lords, no, but I could do. However, the Conservative Political Centre National Policy Group has identified a number of disadvantages with the mortgage loan scheme and has found advantages in an income-contingent loan scheme where repayments can be collected through the national insurance and income tax system. The Minister must realise that one of his principal advisers is very much on our side in this regard. We are not making a party-political point. It just seems simple common sense.

In Committee the Minister said that he had no wish to pre-empt the Dearing inquiry on that issue. But regulations for the existing scheme could easily be changed to allow income-related payments. He does not have to defer the decision to or beyond Dearing, and in any event he cannot have Dearing both ways.

The DFEE has written to the Committee of Vice-Chancellors and Principals listing reasons why alternative repayment schemes are absolutely out of the question, beyond the pale and not possible. I have seen that letter and I am deeply unimpressed by its arguments. They are redolent of a fixed determination not to find a way out of this and not to find any way in which change could be considered.

If the Minister does nothing else as a result of today's discussions, I invite him to think again about this problem and to find a way to meet us on the question of repayment methods, about which students are deeply concerned. If it can be done in other countries, there is no reason why, if the will is there, it cannot be done in the United Kingdom. I beg to move.

Lord Tope

My Lords, I spoke on Second Reading about repayments and I support this amendment. We should be and need to be looking at some form of income-contingent repayment scheme. As I understand it, that is what this amendment seeks to achieve. I commend it to the Minister in the terms in which it was moved by the noble Lord, Lord Morris of Castle Morris.

Baroness Park of Monmouth

My Lords, I should like to repeat what I have said many times, including on Second Reading, about the sound common sense of having an income-contingent repayment system. Among other things, it might actually get back some money for the Treasury, and I sorely doubt whether the present system will achieve that within the next 10 years. That is one point.

I hope that at the very least, when the Minister returns to the department he will ensure that when the question of support for students is considered by the Dearing Committee, that letter is not taken as the only briefing to the committee on the line to take. I hope that there will be serious examination of all options by the Dearing Committee.

6.45 p.m.

Lord Henley

My Lords, we are going somewhat beyond the Bill in debating income-contingent schemes. As I made clear on another occasion, these are matters which should properly be left to the Dearing Committee.

The system that we have at present is in part income-contingent. It does not begin to bite, as the noble Lord, Lord Morris, put it, until earnings reach 85 per cent. of average earnings, currently £15,204. That figure can be changed by means of order under the 1990 Act. That 85 per cent. figure can be changed by means of regulation under the 1990 Act, as can the time taken to repay. A great deal can be done under the powers provided by the 1990 Act.

The noble Lord, Lord Morris of Castle Morris, quoted my honourable friend in another place as saying that the current average repayment is only some £18. I should have to look at the figures given by the University of Northumbria to see whether that is right. That figure will increase over the years and each year, as the necessary regulations are brought forward, Ministers will have to consider whether the repayment period should be lengthened or whether the level of average earnings should be adjusted upwards and so on. But those matters can be addressed each year.

Introducing a greater degree of income-contingency would introduce unnecessary complexity into the scheme. Having said that, I hope that that is a matter which Sir Ron will look at as part of his inquiry. But it could be time-consuming and labour intensive to check the income of all borrowers. It would also he costly. Either students or taxpayers would have to pay for that.

I should like to pose one or two questions to the noble Lord about his amendment. I should like to know whether noble Lords opposite intend that the amount collected by the scheme should be increased by charging students more or whether they intend that repayments should be reduced and that the taxpayer should pay more. They certainly cannot have both. It is not possible both to reduce the financial burden on students and to increase the amount of money collected by the scheme.

Perhaps the noble Lord intends, as the amendment would allow, that students should pay more than they actually borrowed by means of a graduate tax. I am sure that students would wish to know whether that is the intention of the amendment. Whatever is the case, if noble Lords are advocating a more generous scheme, I should like to know how they propose to fund that and whether that has been included in their spending plans.

I believe that the present scheme achieves an extremely good balance between the costs of higher education both for the taxpayer and the student. Therefore, we intend that the current repayment arrangements will apply to private sector loans. But, as I said, if we believe that the burden on the students is increasing unnecessarily, we have the means to address that problem.

Lord Morris of Castle Morris

My Lords, I am grateful to the Minister for his reply. He referred once again to the 1990 Act and said that the time taken to repay can be varied by that Act. He has said that before, and I agree with him; it could. Why then is it not varied? Here is an opportunity. Why does the Minister not take that opportunity? The least that I should like him to do this evening is to accept the principle that an income-contingent loan is better than the mortgage repayment scheme and to take away the idea and think about it hard. I ask him to consult the officials who advise him so well and come back on Third Reading with further and better particulars and a better idea than the one we have at present.

The Minister asked me what we should do. My answer is the regular one, that we should not be here in the first place. We should not have got ourselves into this fix. If we had been discussing the matter of loans over a period of years, we should not have found ourselves in the position in which the student bodies are entirely against us and where there does not seem to be a bank, building society, finance house or even Shylock the moneylender who will take us seriously and come to our aid.

Repayments could be over a longer period. This is something that we would certainly want to discuss with student bodies and with the Committee of Vice Chancellors and Principals. I notice that the Minister has still not said anything whatever about the virtue of long-term loans versus short-term loans; I can only conclude that it is something he is determined not to have anything to do with. Our point is that a student should be given a choice about the kind of repayment structure he prefers. That is what we would build into any plans we might have for student loans if it appeals to us, and if and when—and especially when, and may it be soon—we come into power. I hope that that will convince the Minister that we on these Benches certainly take the matter extremely seriously and that we have our plans which I am not prepared to divulge in detail at this stage, or over this Dispatch Box, as he will readily understand. He can look forward, concealing his curiosity and his impatience as best he can, to reading what is put forward on these matters by my noble friends and my right honourable friend in the Labour Party's manifesto for the next general election which cannot come too soon. Having said that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Morris of Castle Morris moved Amendment No. 11: Page 3, line 30, leave out from ("above") to ("steps") in line 32 and insert ("shall include provision for defraying in full expenses incurred by institutions at which eligible students are attending courses in respect of").

The noble Lord said: My Lords, I, or we, or all of us, got into a state of mild confusion about this amendment at Committee stage, for which I apologise. I have returned to the matter with the Committee of Vice-Chancellors and Principals between then and now and I hope that I have the facts correctly listed. My understanding is that as originally drafted there was no provision in the Bill for the reimbursement of universities' costs in processing the new private sector loans. In response to CVCP pressure a government amendment was tabled at Committee stage which allowed reimbursement of universities' costs in processing both public and private student loans. That, so far as it went, was welcome.

The amendment before us is designed to ensure that universities are fully reimbursed. Under the existing public sector scheme universities are only partially recompensed for processing loans. The point was powerfully put by the noble Baroness, Lady Park of Monmouth, whom I seem to be complimenting all through the proceedings this evening. However, she seemed to me to make such splendid contributions at Committee stage that I cannot resist doing so. Universities want the duty to reimburse them in full to cover the full costs of processing loans made mandatory rather than permissive. Universities would like to see the Bill amended so that there is, first, a firm duty to meet administration costs and, secondly, an agreement that those costs have to be met in full.

Universities are subsidising the Student Loans Company at present to the tune of some £2 million. As we know from the debate that we had on the capital funding of universities and the cut made in it last year, universities are in no position to do this, and there is no reason why they should. It is entirely unjust and unfair that universities, out of money which comes to them from the Treasury, should be handing money back to the Treasury to do something which the Treasury has compelled them to do in the first place. This is economics gone crazy. They should not have to subsidise private sector financial institutions at all. In their current financial state they simply cannot afford to do so. It would be absolutely the last straw. I beg to move.

Lord Henley

My Lords, the amendment would require the Secretary of State to meet the full administrative costs of the higher education institutions which are responsible for the certification of eligibility for student loans. However, the duty to reimburse an institution for expenses incurred would not allow for the payment of a fixed fee which might well exceed the level of a purely compensatory payment. Institutions would also need to justify their claim for expenses, particularly in the manner proposed in the amendment. The system which the provision in the Bill is designed to preserve is potentially more generous than the one proposed by the amendment.

However, I understand the noble Lord's concern. It was one raised in another place and one which gave rise to government amendments which were accepted during Committee stage. We made clear that it is our intention that higher education institutions should be paid for the work they do certifying eligibility for both public sector and private sector loans. The level of the current fee for the certification of eligibility is a matter for the higher education institutions and the Student Loans Company to determine. It is for the higher education institutions to put their case forward if they think the fee they receive is not sufficient. The HEIs' role in relation to public sector loans will not change; they will continue to be reimbursed by the Student Loans Company. I see no reason to change the fee setting arrangements. I believe that the arrangements ensure a good deal for the taxpayer and a quality service for students.

As far as private sector loans are concerned, it is our intention that higher education institutions should agree with private lenders the terms and fees of any certification work they do. However, we hope that most applications will be handled without specific reference to the higher education institutions. This will mean that the Bill does not create any additional work for them; indeed we expect their workload to decrease. Where such work is required by regulation, we shall ensure that the regulations provide for the payment of fees. That was the reason behind the amendments I brought forward at Committee stage. I believe that these arrangements will complement and enhance the current arrangements for the determination of fees and will ensure that the loans scheme continues to deliver a good deal for both students and the taxpayer.

Lord Morris of Castle Morris

My Lords, before the noble Lord sits down, I am delighted by part of what he said. He said at the very end that where private sector loans involved higher education institutions the latter would receive payment of fees. Does that mean full payment of fees?

Lord Henley

My Lords, as I made clear, the amendment proposed by the noble Lord is defective in the way it refers to expenses. That would create more trouble for the institutions because they would have to itemise the expenses and then justify them. We believe that a fee system is much better. Under the arrangements for the Student Loans Company it is for the higher education institutions and the SLC to negotiate an appropriate level of fees. Where fees are necessary in relation to the private sector, we believe that regulations will be the appropriate way to provide for payment of fees. Fees are the better way forward rather than expenses, which is what the noble Lord's amendment is asking for if he can accept the distinction between the two. Expenses would create a major problem for the higher education institutions, and one I think they would come to regret.

Lord Morris of Castle Morris

My Lords, I am grateful to the noble Lord. The distinction between expenses and fees is one which I shall have to consider, but in so far as the payment of fees means the full payment of fees I am content with what he said which seems to be more or less "yes", or at least a categorical "may be". It is important that we should be as clear as possible and as we are juggling several terms together I reserve the right to come back to the matter at Third Reading when I have read our exchanges carefully in the cold light of dawn. It is rather wet in the Derbyshire Peak District at the moment. I need to be satisfied on this point. In the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.