HL Deb 16 December 1997 vol 584 cc503-10

3.5 p.m.

The Minister of State, Department for Education and Employment (Baroness Blackstone)

My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, That the House do now resolve itself into Committee.—(Baroness Blackstone.)

On Question, Motion agreed to.

House in Committee accordingly.

[The CHAIRMAN OF COMMITTEES in the Chair.]

Clause 1 [Transfer of public sector student loans to the private sector]:

Lord Tope moved Amendment No. 1: Page 1, line 20, at end insert— ("(3A) The amounts that may be paid by the Secretary of State under subsection (3) shall not exceed one quarter of the amount of the original loans assigned under subsection (I).").

The noble Lord said: I shall not delay the Committee for too long with this amendment. I do not propose to repeat a Second Reading speech, though many of the points I made there are particularly pertinent to this amendment.

It is a simple amendment, but an important one to which reference was made at Second Reading and I make no apology for returning to it now, as I said I would. The Bill as it stands allows the Secretary of State to pay any subsidy he likes in respect of the sale of a loan portfolio. My amendment seeks to limit the subsidy to one quarter of the loan.

I suspect that my amendment will be familiar to the Minister because it is similar to an amendment moved by Mr. Stephen Byers, when he was in Opposition, during the passage of the 1995 Education (Student Loans) Bill. I believe he sought similarly to limit the amount of subsidy to one quarter. In moving that amendment in 1995 in Standing Committee B he said, The Bill does not restrict the amount of subsidy that could be made available to private sector institutions. We should not give private sector bodies a blank cheque. The Bill should contain some restriction to limit the amount of taxpayers' money that will be given to private sector institutions as an incentive—some might say bribe—to become part of the scheme".—[Official Report. Commons, Standing Committee B, 19/12/95; col. 93.]

I understand that the circumstances of this Bill are different from those of the 1995 Bill, but in my view the principle remains exactly the same. We should not allow a blank cheque. At our Second Reading debate on 2nd December the Minister said, we cannot reveal anything about the extent of the subsidy. After all, a commercial transaction is taking place and it would be quite wrong to reveal what the subsidy might be until those negotiations have been completed and the winner of the bidding process has been announced".—[Official Report, 2/12/97; col. 1277.]

I understand and accept that, and I am not seeking to press the Minister to say what the subsidy will be. We are seeking to put a limit on the amount of that subsidy so that it cannot be a blank cheque. If the scheme is running as successfully as we hope and are led to believe, then putting a limit of 25 per cent. on the amount of subsidy cannot be a problem. A subsidy of more than 25 per cent. will be a matter of real concern to Members of the Committee. That is something that we should know about.

That is the purpose of my simple amendment. It is not to restrict the hands of the Government or the Secretary of State in their negotiations; indeed, it could be said that it should strengthen their hands because bidders would know that there was a limit beyond which the Secretary of State was not permitted to go.

I hope, but with no great expectation, that the Minister will feel able to agree to the amendment. I look forward to hearing her comments and response. I stress that I am not expecting her to announce the extent of the subsidy, but merely to accept that it cannot be a blank cheque. There must be a limit on it; and that limit should be 25 per cent., as was proposed by her own party when in Opposition. I beg to move.

Lord Davies of Oldham

The mover of the amendment has already reflected the problem with regard to his case. He referred to a similar amendment having been moved in 1995 at the time of the Education (Student Loans) Bill's progress through the other place. The difference is quite clear. What was then being presented was a proposal with regard to the book on student loans against the background that privatising the loans would bring resources to the Government for higher education. The difference today is that we are working against a very tight schedule. What the Dearing Committee identified, and what vice-chancellors identified long before the Dearing Committee reported, was the parlous state of resources in higher education. Indeed, in the past six to eight weeks we have had a number of debates on higher education in which these matters have been brought sharply to the attention of the House.

The Government now need to make progress very rapidly. In fact, the noble Lord helpfully pointed out that the Teaching and Higher Education Bill, which is currently before the House, contains provisions to repeal the Education (Student Loans) Bill in its entirety by the end of this Session. That is how tight the timetable is. Against that background, the Government's hands should not be tied in negotiating with the private interests involved. We are well aware of the fact that the extent of private interests is not overwhelming. The previous government's attempts and the proposals in their Bill foundered because there were no takers for the stated course. The position is now transformed as a result of the Government's longer term proposals with regard to student finance. The Government are now involved in negotiations which will release significant sums of money to higher education immediately. There is no other easy way in which resources can be released within the timescale education needs.

I therefore suggest that the Government should be given freedom to negotiate their position without constraint. What the Government want to do is to strike a bargain that is of most benefit to public finances and higher education. The resuscitation of an amendment, which was moved in the other place by a member of my party in different circumstances, ought not now to be included as a conditioning factor with regard to the process.

Baroness Blackstone

This is a wrecking amendment in that it would effectively pre-empt the competitive bidding process which will determine the subsidy structure. Such a cap would render the scheme unworkable and do nothing to foster the public-private partnerships that we are, as a new government, now seeking to develop.

We are committed to working within the spending plans of the previous government for the next two years. That includes achieving the same level of receipts as they planned from loan debt sales. To achieve those sales we will need to pay a level of subsidy which, of course, while as low as possible, has to prove sufficiently attractive to the private sector so that it becomes involved in the bidding process. These loans are not made on commercial terms and subsequently cannot as a result be sold on a normal commercial basis either. An arbitrary cap on the amount of subsidy payable tied to the face value of loans and without consideration of such factors as the length of time it will take to recover the debt and the administrative costs involved would cause great difficulties for the bidders and act as a disincentive to participation in the sale.

The very generous deferment terms offered mean that many loans will live for a very long time. They are not usually written off until 25 years have elapsed. In many cases a subsidy amounting to 25 per cent. of the face value of loans will be payable well before repayment is completed. That would leave a heavy and unacceptable burden on the debt purchaser who would have to continue to hold the loans on his books and administer them without any recompense. That is an unattractive scenario which would adversely affect the level of bids if they were forthcoming.

We are now entering a crucial stage of the debt sale. The shortlisted bidders have exactly a month to make their firm bids. As I explained, they have a number of factors to weigh up in assessing the level of subsidy to bid for. In those circumstances, it would clearly not be sensible for the Government to do business with our hand already revealed. That would be the position if the subsidy position were put on the face of the Bill as the noble Lord, Lord Tope, has suggested.

As the noble Lord recognised—I am grateful for it—we cannot say what the level of subsidy will be until the competition has finished. But perhaps I may reassure him. It is a strong competition and we will accept the very best bid we can possibly get. The noble Lord should understand that the existing scheme is heavily subsidised. There would still be a cost to the taxpayer even if we retained the loans. We are changing one subsidy scheme for another and also transferring significant risk to the private sector while doing so.

The noble Lord, Lord Tope, referred to the 1996 Act and to an amendment which the Labour Party put forward in both Houses while in opposition. The 1996 Act had nothing to do with the measures we are seeking to introduce in this Bill. The 1996 Act sought to introduce a twin-track approach to student loans—a system of private sector loans held by banks and like institutions running alongside the current public sector loan scheme administered by the Student Loans Company. That proved an unattractive proposition. The financial institutions showed little interest in it and the then government had to admit as much. We were concerned that they would, in pursuing this rather misconceived policy, attempt to buy interest in it by offering an excessively generous subsidy package. That was why we sought to restrict the subsidy arrangements on that occasion.

Following what my noble friend Lord Davies of Oldham said, perhaps I may explain that we are putting in place a totally new system of financial support for students entering higher education from 1998-99. This requires new legislation; for example, to provide for income contingent loans collected through the Inland Revenue. The loans being sold have been made on a different basis under existing legislation, and the Education (Student Loans) Bill is needed to enable the debt sales to take place under that legislation.

The Teaching and Higher Education Bill allows for the repeal of the loans Bill, once enacted, along with the remainder of the existing loans legislation. Transitional provisions will be put in place to ensure that mortgage-style loans can continue to be issued to current students until their courses are complete. Repayment of loans taken out under the old legislation will continue to be collected in the same way as now. Both debt purchasers and the position of borrowers will therefore be protected. However, there will come a time when new loans are no longer being made under that legislation because all the students to whom it applied have left the system. It is a matter of good legislative practice that the relevant Acts should be totally repealed at that point. The current Bill provides for that to happen.

Loan agreements which were governed by the 1990 Act will of course continue to be binding on both parties once that Act is repealed. There will be provisions to ensure that the Secretary of State continues to have power to pay subsidies to the private sector in respect of the loans they have purchased. The purpose of the Teaching and Higher Eduction Bill is to put in place a new system of income-contingent loans for entrance to higher education from 1998-99 onwards. Those students will not be affected by the provisions of the Bill being considered today because their loans will not be governed by the existing student loans legislation.

As I said, the two sets of legislation are quite separate and will run parallel until the last student eligible for the current mortgage-style loan has left the system. I hope that that has clarified matters for the Committee.

But, as my noble friend Lord Davies of Oldham also rightly said, the circumstances of the legislation before us today are entirely different to the 1996 Act. We have short-listed four contenders for the debt sale. A total of seven major financial institutions are involved because in some cases a consortia is bidding. Several others were willing to bid but had to be excluded because they were not sufficiently competitive. There is no need for the sort of restriction set out in the amendment. The competitive tension we have created will, I believe, have produced the very best possible deal. Therefore, I ask the Committee to reject the amendment.

Baroness Blatch

Before she sits down and indeed before the noble Lord, Lord Tope, will the noble Baroness clarify the matter yet again for me? I am most grateful to the noble Baroness for the letter explaining the precise time when the legislation will be repealed and the reason for proceeding separately from the other Bill. I am not sure, however, that that is consistent with what the noble Baroness just said. If the Bill is to be repealed, as the noble Baroness said, with the coming into play of the Teaching and Higher Education Bill, where precisely in legislation is the protection both for the way in which the lending body operates, and its obligations under the law, and the protection for the borrower—that is to say, the student—during both the interregnum and the period which will continue for some years beyond the life of this Bill when the borrower will have an obligation to repay the loan?

Baroness Blackstone

I am grateful to the noble Baroness, Lady Blatch, for her question. As I understand it, although the Bill before us will be repealed, certain elements in it remain in place until the very last student on a mortgage-style loan scheme of the kind that exists at present, has gone right through the system. Therefore, the protection will remain in place in the legislation for all those students under the existing scheme. That is also a protection for those who are bidding for this particular debt sale. I hope that that makes the matter clearer.

Baroness Blatch

It is probably more my fault than the fault of the noble Baroness. If the Act is to be repealed, then it can only be repealed in part if measures within it are to remain. Can the noble Baroness say which parts of the Act will remain on the statute book? The particular measure in the new Teaching and Higher Education Bill repeals the whole of the Act and not just part of it. Therefore, where in legislation will the protection lie?

Baroness Blackstone

I am very sorry, but I do not believe that I can give the noble Baroness a clearer answer in terms of exactly which clauses will remain. I cannot tell the noble Baroness which of the clauses will continue to provide the protection. Perhaps I may write to her about it and clarify the situation. It is a somewhat technical piece of legislation and I want to be absolutely sure that I get it right rather than guess at it now. I believe that I know which part it is, but I do not want to cause confusion.

Baroness Blatch

I promise that this is the last time that I shall raise this particular point. The measure in the Teaching and Higher Education Bill is to repeal the whole of the Act. If some of it is to remain in place on the statute book, then there needs to be an amendment to the Teaching and Higher Education Bill. otherwise I am missing something.

Baroness Blackstone

I am not sure that that is the case. I believe that there is something called transitional arrangements. There is something which stays in place, which makes it absolutely clear to existing borrowers and any purchaser of the student loan debt that the legislation will be in place to protect them. I shall write to the noble Baroness on the matter.

Baroness Carnegy of Lour

Perhaps I may raise another point. I believe I understood the noble Baroness to tell us that there are four bidders short-listed in this exercise. That, of course, is very good news. Can she assure the Committee that there will be proper competition in this deal? Should, say, three bidders fall out and only one remains, what will be the Government's intention? Have they in their own mind set a level above which they cannot subsidise? What have they in mind should there be only one bidder?

Baroness Blackstone

There have been a substantial number of bidders in this competition, far above the four that were short-listed. Some of them put in insufficiently competitive bids. Many of the bids were relatively close. We have short-listed four on the assumption that they will all stay in the competition. None has given any sign of intending to withdraw. I am very confident that they will stay in. I do not believe that we have any need to be concerned or to worry about a situation in which only one bidder is left in the competition. Were that to happen we would have to consider very carefully what steps we ought to take. I am, however, confident that we have four very serious potential bidders for the sale of the student loan debt.

Lord Tope

I believe that we have strayed a little from the purpose of the amendment. Nevertheless, it has been a useful debate. I am grateful to the noble Baroness, Lady Blatch, for raising the point and to the Minister for sending me a copy of her letter to the noble Baroness, which I received shortly before coming into the Chamber. I have not yet had an opportunity to study it. But I remain as confused as—I hope she will forgive me—the noble Baroness, Lady Blatch. I hesitate to suggest that the Minister is in any way confused. I am sure that all will become clear and that she will again send me a copy of the letter of explanation. I recall being perhaps the first to spot that the Teaching and Higher Education Bill repeals the whole of the current Bill that we are considering today. I am still a little confused as to what it all means.

I must return to the subject of the amendment that I have moved. Both the noble Lord, Lord Davies of Oldham, and the Minister referred to the differing circumstances now and in 1995. I think that the most significant difference is one of opposition and of government. I suspect that what is causing the biggest difficulty with regard to the amendment is that in 1995 the Labour Party was in opposition but it is now the Government. I am told—I have yet to find out from personal experience—that things look different from the other side of the Chamber. That is probably the most significant different circumstance.

In moving the amendment, I said that I understood the differences between the previous Bill, now an Act, and this Bill. I must stress, however, that the principle is still the same. We should not be giving, to quote Mr. Byers in 1995, a "blank cheque" to the private sector. There should be some limit on the permitted subsidy. Whether that should be one-quarter, as I am suggesting, or some other figure which the Government might have wished to suggest, I do not know. But it should not be a "blank cheque".

I do not want to stray into another Second Reading debate, but I must take up one point raised by the noble Lord, Lord Davies of Oldham. He rightly said that higher education urgently needs more funds. As we said at Second Reading, this measure will not release funds to higher education. It is already built into the department's expenditure targets. If the sum is not realised, there will be further cuts in higher education or somewhere else in the education budget. The Bill will not produce any more money for higher education—and it is not intended to do so. Whenever it is suggested that that is the case, I, for one, will knock it on the head. I have stressed the reason why, in principle, I do not think that we should give a "blank cheque" and why I believe there should be some restriction on the subsidy.

I had hoped to be a little reassured by the Minister during our discussion. I did not really expect her to accept the amendment, but I had hoped for some reassurance. She has told us—and I accept—that there is strong competition. Therefore, I still wonder why the Government feel that providing for a 25 per cent. limit would be a constraint which would tie their hands and that, as the Minister suggested, this is a wrecking amendment. I do not believe that it is a wrecking amendment; it is certainly not intended to be. I fear that the Government are expecting the subsidy to be significantly greater than 25 per cent. If that were not the case, these provisions could not be seen as tying their hands.

I do not intend to press the amendment to a vote. It would not be proper to do so now. This has been a useful discussion and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 agreed to.

Remaining Clauses and Schedule agreed to.

House resumed: Bill reported without amendment.