HC Deb 09 March 1999 vol 327 cc101-2W
Ms Lawrence

To ask the Chancellor of the Exchequer if he will make a statement on the Government's policy on the second student loan debt sale; and what assessment he has made of the costs. [76048]

Mr. Milburn

I welcome the successful second sale of student loan debt of around £lbn announced today, Official Report, House of Lords, columns 20–21, by my noble friend the Minister for Education and Employment.

My right hon. Friend the Chancellor of the Exchequer explained the Government's approach to the student loan debt sales to the House on 10 July 1997, Official Report, columns 607–08. The overriding policy considerations which determined that approach were as follows.

The Government are committed to the development of a wide range of public-private partnerships which involve a transfer of risk to the private sector. As with the first sale, this sale will shift much of the default risk to the private sector, which has much more experience in dealing with such risks. The sales will also enable the markets to establish a clearer understanding of student loans and could in future encourage financial institutions to play a more direct role in the provision of student support.

In addition, the Government were elected on the basis of a manifesto pledge to work within the spending plans already announced for 1997–98 and 1998–99. This, and our other economic pledges on inflation and taxes, were designed to create the conditions for economic stability and a platform for sustained growth. Going ahead with both student loan debt sales has played a critical role in enabling us to keep this pledge.

These overriding objectives were paramount in the decision to proceed with the first and second debt sales.

The Government accept that the sales will result in the payment of subsidies to purchasers of the loan debt, much of which flows from our commitment to preserve the existing favourable terms for borrowers. We accept that the level of subsidy will vary from year to year in the light of economic conditions, including movement in interest rates, and that it will vary between the sales, as each is based on a separate competition.

The extra cost of selling loan debt under the first sale compared with the cost of retaining the loans was calculated at £50m-£60m, in accordance with the guidance in the Green Book, "Appraisal and Evaluation in Central Government", published by my Department. Using the same methodology, the additional costs of the second sale will be £85m-£100m. The difference between the two costs reflects changing circumstances at the time of the two sales, including market conditions and the maturity of the portfolio of loans sold. A strong competition was run and the most competitive bid has been accepted. We have therefore achieved the most competitive outcome consistent with our policy objectives.