50 Clause 19, page 13, leave out lines 22 to 24 and insert—
("(g) prescribing requirements or other provisions, whether as to repayment or otherwise, which are for the time being to apply in relation to loans under this section (including requirements or other provisions taking effect during the currency of such loans so as to add to, or otherwise modify, those for the time being applying in relation to the loans);").
§ Lord Whitty
My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 50. In moving the amendment, I shall speak also to Amendments Nos. 51 to 55, 57 to 63, 65, 68, 96, 97, 99 to 111 and 118.
The amendments we have just discussed related to the payment of loans; the ones we are now discussing relate to the repayment. We will be introducing the arrangements from 1998–99 onwards. The arrangements have been widely welcomed as fair and progressive and a great improvement on the current mortgage-style system. Indeed, repayment through the Inland Revenue 140 was subject to widespread support at earlier stages within this House and no less than the noble Lord, Lord Baker, was generous enough to congratulate the Government on succeeding where he had failed in persuading the Inland Revenue and the Chancellor of the day to take on the task of collecting loan repayments.
Repayment of loans through the Inland Revenue has been widely welcomed in all parts of this Chamber. However, there are inevitably problems of repaying through the Inland Revenue. This agreement was reached at a fairly late stage of the proceedings in your Lordships' House and the changes, introduced in another place, try to put flesh on the bones of repayment via the Inland Revenue system.
While income-contingent repayments through the tax system will be fairer and more straightforward for borrowers, the mechanics will in some respects be quite complex. As the details of the system have been worked up in consultation with the Inland Revenue, the Student Loans Company and others, it has become apparent that the Bill needed to be amended in various ways. I should stress that none of these amendments affects the principles of income-contingency to which we are committed, but they are about the technicalities of putting those principles into practice.
Amendment No. 50, and Amendment No. 109 in relation to Scotland, will mean that the terms and conditions relating to the repayment of loans will not be fixed immutably when the loans are first made. Instead, the provisions governing repayment will be set out in annual regulations which will apply to all loans that are outstanding. This is necessary to enable the collection arrangements to be modified from time to time to take account, for instance, of any changes in the operation of the tax system on which those arrangements depend. For example, if the scope of self-assessment was broadened to encompass taxpayers who are currently outside it, revised repayment arrangements would need to be made for those borrowers affected, and those would need to be reflected in the regulations. We would also, of course, expect to raise the repayment threshold over time, for example, to reflect changes in average earnings.
Noble Lords will wish to be aware that it is our intention that the detailed repayment arrangements for loans made this autumn will not be contained in the 1998 loan regulations. Loans will not fall to be collected on an income contingent basis until April 2000 at the earliest and for a relatively small number of students, and the repayment arrangements will be set out fully in the regulations applying at that time, which we expect will be published early in 1999. That will give us time to ensure that the regulations fully reflect the detailed technical work being carried out by the Inland Revenue and Student Loans Company in designing the new administrative arrangements.
This does not mean that students will not know the terms on which they will be taking out loans this autumn. We have already publicised the key elements of the repayment terms widely, and will be publishing 141 a more detailed guide later this summer which will give students all the information they need to know before applying for their loans. We have given careful thought to the best way of getting this important information to students and concluded that a layman's guide, written in plain English and widely disseminated, is of much more use to students than regulations which, by their very nature, tend to be difficult to understand and will contain much material which is irrelevant to students. The regulations will of course be in place well before the first students are actually due to make repayments.
Amendment No. 51 serves a number of purposes. First, along with Amendments Nos. 62 and 105 in relation to Scotland, it allows for a relationship to be established between the student support provisions of this Bill and other legislation governing deductions from income. The amendments will permit other legislation to be amended accordingly.
These amendments are necessary to take account of the fact that students and graduates may be subject to other deductions from their income. For example, a court might impose an attachment of earnings order. At the same time, there is a limit on the total amount that employers may deduct from an employee's income. This is the "protected earnings rate", and is designed to ensure that the employee is left with enough to live on. Where the total deductions payable exceed that limit, it is obviously necessary to determine which should take priority. These amendments enable provision to be made in regulations for determining the priority in these limited circumstances as between student loan repayments and other amounts due from borrowers, via their pay packets.
Our decision to arrange for student loan repayments to be deducted at source through the tax system, as recommended by the Dearing Committee, will inevitably have an impact on other legislation governing deductions from income. These amendments would accordingly permit other legislation to be amended, through regulations, to take account of the impact of loan repayments. At the same time, these amendments would allow income from student loans or grants to be taken into account when calculating a person's total income for the purpose of making some other deduction.
Amendment No. 51, along with Amendment No. 96 for Scotland, would allow payments of hardship loans to students to be made by higher education institutions rather than the Student Loans Company. My honourable friend made clear when this amendment was debated in Committee in another place that no decision had at that point been taken about the appropriate method of payment of these loans. In the event, we have now decided that the payments should be made by the SLC at least in the first year. However, this amendment leaves open the possibility of taking a different approach in the future if experience suggests that that would be desirable.
Amendment No. 51, along with Amendment No. 111 for Scotland, will have the effect of enabling the Secretary of State to put in place appeals mechanisms where functions have not been transferred or delegated under the new provisions which we will be discussing 142 later but are imposed under regulations; for example, where they are undertaken by employers. I hope Members of your Lordships' House will agree that these provisions offer borrowers full protection against any potential maladministration of the scheme by whoever it might be.
Amendments Nos. 54, 55, 65 and 108 put a cap on the maximum rate of interest that may be charged on loans. Members of your Lordships' House will be aware that we have already made explicit provision in the Bill to ensure that the rate of interest charged will be no more than is necessary to maintain the value of loans in real terms. This will be achieved by linking the interest rate to the RPI. These amendments leave that provision in place. I can therefore give an absolute assurance to the House that no borrower will have to repay, in real terms, any more than he or she borrowed.
It is necessary, however, to make this small technical change to the Bill to ensure that, in addition, the interest rate remains below the level specified for exemption from regulations under the Consumer Credit Act. It is an established principle—reflected in the EC directive—that loans which have low interest rates and are not available to the general public should be exempt from the consumer credit provisions which govern other kinds of loans. It is clear that the new income-contingent loans meet those general requirements. The interest rate is well below normal commercial rates and eligibility is circumscribed by regulations. However, because the general criteria for exemption are described in terms of a relationship to bank base rates rather than the RPI, there is a relatively low risk that at some point in the future the interest rate on student loans might for brief periods exceed the specified limit for exemption.
This amendment will remove that risk by providing that the interest rate, while generally tracking the RPI, cannot at any point rise higher than the limit set out in the Consumer Credit (Exempt Agreements) Order. I trust that noble Lords are clear about this. The effect is that borrowers will pay interest either at the level of the RPI or at the level specified in the exempt agreements order if that is lower. There is therefore no question of the interest rate rising above the RPI.
Amendments Nos. 52 and 107 for Scotland deal with a different kind of interest provision. They will allow the Secretary of State to pay interest on refunds of loan repayments in the event that borrowers overpay. The Bill must provide for borrowers to be compensated in this way if overpayments have been significant. The details of the circumstances in which interest would be payable will be set out in regulations in due course.
Amendments Nos. 60 and 102 ensure that provision can be made for the imposition of penalties on borrowers, or those persons required to make deductions from borrowers' pay, in the event of default. These amendments provide for the imposition of interest and penalties on borrowers who fail to make repayments which are due or provide information when required to do so. They also provide the means to impose penalties on those charged with making deductions from the borrower's salary where they wilfully or negligently fail to carry out those obligations. It is necessary to have the power to recover public money which might be lost 143 as a result of wilful default. These provisions will have no effect on those employers and borrowers who meet their obligations.
The precise penalties which apply will be set out in regulations, but we envisage that they will not exceed those which apply in the event of non-payment of income tax or national insurance contributions. For employers, this might mean the imposition of a penalty in the event that they failed to make deductions from the borrower's salary or to transmit payments to the Inland Revenue. For borrowers, interest would be charged on any outstanding repayments, and in the event of persistent default further surcharges might be applied on which interest would also be charged. I should stress that the charging of interest is not intended to be punitive but is necessary to cover the losses to public funds. Similarly, any penalties are intended to be no higher than is necessary to discourage the sorts of wilful or negligent default I have described.
Amendments Nos. 68 and 118 for Scotland provide for the Inland Revenue to disclose information to the Secretaries of State for Education and Employment and for Scotland, to the Department for Education for Northern Ireland and, by extension, to bodies to which functions are transferred or delegated under this Bill. In practice, this will allow the Inland Revenue to disclose information to the Student Loans Company to which the Secretary of State's functions in relation to loan repayments will be delegated. For example, the Inland Revenue will be able to provide details of repayments made via employers to enable the Student Loans Company to update borrowers' accounts.
These amendments are necessary to allow the Inland Revenue's legal duty of confidentiality to the taxpayer to be set aside in the specific case of information required for the collection of loan repayments. Without it, it would be impossible to collect repayments through the tax system. I hasten to add that the normal requirements of the Data Protection Act will continue to apply in respect of any information which is disclosed under this provision. There is thus no question of general details of a borrower's tax affairs being disclosed.
Finally, this group includes a number of purely technical amendments. Amendments Nos. 53 and 110 for Scotland improve the wording of the Bill to reflect the fact that there will be no deferment, as such, under the new arrangements. Borrowers will not become liable to repay until their income reaches the £10,000 threshold. Amendments Nos. 57, 61, 63, 99, 104 and 106 bring the wording of the Bill into line with the relevant tax legislation and define "employer" for the purposes of this part of the Bill. Amendments Nos. 58 and 100 extend the duty to keep and produce records to persons or bodies other than employers, while Amendments Nos. 59 and 101 make the requirements on borrowers in this respect consistent with those placed on employers. Finally, Amendments Nos. 97 and 103 are purely drafting amendments.
Taken together these amendments will ensure the smooth operation of the new student support repayment arrangements while providing additional protection for borrowers and for the taxpayer.
144 Moved, That the House do agree with the Commons in their Amendment No. 50.—(Lord Whitty.)
§ 4.15 p.m.
§ Baroness Maddock
My Lords, as the Minister said, many of us agree with the principle that students should have loans to help with their costs when they are at university. As the Minister also said, many of us welcome the fact that repayments will be made through the tax system. However, that is where we on these Benches begin to part company with the Government. The explanation we have heard from the Minister shows exactly why we are concerned. The concerns that we had at earlier stages of the Bill still remain.
Our prime concern is about the haste with which this is happening and the problems that that will give the Government—and most of all the problems that that will give the students when they have to deal with these arrangements. When they begin to take out loans they will not really know what they are taking on.
The Minister gave an explanation of what he thinks students will require to know before they take out the loan. But I think that we will be setting an incredibly bad example to our young people if we expect them to enter into this type of agreement when they do not know exactly how it will work out. No one in his right mind takes out a loan without assuming that he has some kind of legal agreement. We are all free to decide whether we read the small print; but at the end of the day there is a legal agreement which we have signed. What status will any agreement that students enter into have if the regulations have not properly been laid before us and if some of the facts are not written down? I hope that the Minister will be able to reassure us on that point. It has been said that the students will be given only what they need to know. I suggest that if one enters into a legal agreement, one needs to have the lot, whether or not one bothers to read it.
No one wants to be held up very much today but we on these Benches want to make it clear that we are not at all happy with what is proposed. If the Government had waited another year before introducing this system it would have been a good deal easier for people all round. It is difficult for students to find out what is happening, but it is even more difficult for local authorities dealing with their queries.
Perhaps I may conclude by illustrating why I think next year will be a bad year. We may have three sets of regulations in operation at the same time. We have been told that the regulations for the repayment of loans are not expected until early 1999; there are regulations for the transition year, which were published three weeks ago; and there is already a scheme up and running. There are three different systems all running at the same time. That illustrates the haste with which the Government are proceeding. I think that they will repent in haste. But worst of all, I feel sorry for the students on the end of this and what may happen to them in the future.
§ Baroness Blatch
My Lords, I support what the noble Baroness has just said. Local authorities up and down 145 the land are very concerned about what is happening. Contrary to what the Minister has continued to say, that the students know what is going on, they do not. Some of us met students only today in this House. They do not know what is going on. I received a letter recently from the noble Baroness about the delay in introducing regulations. That is inexcusable, but it is no more than was predicted on these Benches and on the Liberal Benches at the beginning of the proceedings on the Bill. We said that this was being done too quickly and that the Government should wait one more year to put everything in place in an orderly way so that all those who were affected by the measures in the Bill not only understood them but had a proper legal underpinning for them.
§ Lord Desai
My Lords, what my noble friend said about issuing guidelines for students is probably necessary for everybody. Needless confusion has been created about the simplest loan system there is. The noble Baroness, Lady Maddock, said that there are three regimes being followed and that there is confusion. But every year there are three cohorts of students going to college and they are different. Therefore, no one has to know all three systems. The students know that. I am a great devotee of the income contingent loan system. The beauty of it, once it is made clear, is that it is not like a mortgage or hire purchase. It is flexible, but one has to write down all the rules. Once that message has been put across, perhaps more to local authorities, teachers and politicians rather than to students, then it will be clear that we are adopting one of the easiest systems to cope with. The existing student loan system is much more stringent.
What my noble friend and the Commons amendments are doing is to make the system much more transparent and not only user friendly, but friendly also to the tax authorities. Therefore, we should welcome the scheme. When the system is seen in operation there is no confusion. The income contingent loan is the easiest thing to explain. I hope that my noble friend will take up this idea. Perhaps we should have a one-sheet A4 explanation or maybe 10 or more sheets, if necessary. It is a very simple idea. The beauty of the idea has not been conveyed properly to people.
§ Lord Whitty
My Lords, I am grateful for my noble friend's intervention. His first point is absolutely right. There are always three systems in operation even when moving from one system to another. That is no different from other circumstances. Repayments under the scheme will not start until April 2000 and even then it will apply to a limited number of students. As I said at an earlier stage of this amendment or as regards a previous group of amendments, we intend to spell out in clear English what the students' entitlements are and what the repayment system will be. It is in that form, rather than through regulations, that students will come to understand the system, if they do not know it already.
I do not believe that we can move from one system, which was not providing sufficient resources for universities, to another without moving through the 146 three stages of changing the regulations governing them. I believe that there was universal support for both income contingent repayment and repayments through the Inland Revenue system. All who come into the salaried or other income brackets will have a whole range of tax regulations which they may or may not fully understand but which they will have to comply with.
The Inland Revenue provisions are the simplest way of making repayments. I believe that that is generally accepted. However, tax regimes alter from time to time. There are mistakes under that system both by the payers and the administration itself. They have to be rectified. All the amendments do is allow regulations to be changed when there are changes in the tax regime or something impacts on it. There is provision for compensation or penalties when the system does not work properly and mistakes are made, deliberately or otherwise. That applies in all Inland Revenue collection systems.
We are not inventing a new principle here but simply applying the best method of loan recoupment through the Inland Revenue to the new system. I believe that in practice graduates will find this system a much easier method of repayment than almost any form of loan repayment that existed under the previous regime. I make no apology for the fact that we have to tailor the scheme to the Inland Revenue system. I make no substantive apology for the fact that it has come somewhat late. That was because agreement had not been reached among government departments when the Bill first appeared in this House. At the point we announced that in principle we were going to pay through the Inland Revenue, everyone agreed that that was a good method. These are the consequences, and I believe we should accept them.
§ Lord Whitty
My Lords, do the loans apply against the PSBR? The noble Baroness will have to wait until there is a further announcement in that regard. Clearly, administrative costs are part of public expenditure.
§ Lord Whitty
They do at the moment. As your Lordships will know, the whole question of public sector accounting is now subject to discussion. There may be changes and I cannot pre-empt them.
§ Lord Peston
My Lords, will my noble friend confirm that expenditure on student maintenance is public expenditure? Even the Opposition must remember that from a year ago. It counts on that side of the balance sheet. In due course, when the loans are gradually repaid, they will count on the revenue side of the balance sheet and that will lower the PSBR. Perhaps the noble Baroness will agree with me that we should recast our public sector accounts so that none of this expenditure gets into the PSBR. When one argued that 147 some years ago, what are now the Opposition opposed it vehemently because they lived and died by the concept of the PSBR, which was a mistake.
I also support my noble friend in pointing out that my right honourable friend the Chancellor is working very hard to sort out the public accounts and I hope that we will not have this nonsense in the future.
§ On Question, Motion agreed to.