Skip to main content

Student Loans

Volume 164: debated on Thursday 21 December 1989

The text on this page has been created from Hansard archive content, it may contain typographical errors.

With permission, Mr. Speaker, I would like to make a statement on the administration of student loans.

I reported to the House yesterday—at the earliest opportunity—the background to the decision of the participating financial institutions to withdraw from the Student Loans Company. I indicated then that I would be happy to make a statement today. The main points are as follows.

The objectives, principles and framework of the scheme as outlined in the Education (Student Loans) Bill remain completely unchanged. I regret the banks' withdrawal, but it affects neither the policy nor the Bill.

As I announced yesterday, arrangements are now being made for the Student Loans Company to pass into Government ownership. This will ensure that the preparations for the scheme can continue smoothly. A great deal of the preparatory work already undertaken is relevant to the new approach. The banks have agreed to contribute £0·5 million to these preparatory costs.

The new approach may even be a cheaper option. It has always been the case that the Government would fund the administration of the scheme as well as the loans. We were prepared to pay a fee to the financial institutions to secure the benefits of their branch networks for students.

The main result of the institutions' decision will be less easy access to loans for students. I would have preferred them to have that convenience, but the essential point is that nothing in the decision of the institutions alters either the Bill or the analysis behind it. The Bill will continue on course.

The Secretary of State says that he regrets the banks' withdrawal. So do all those who are faced with backruptcy. The Secretary of State mocks himself as well as the House if he thinks that anyone will believe his ludicrous claim that the banks' withdrawal "alters nothing". Does he not understand that the banks' administration of the scheme was absolutely central to its operation, to Government policy and to their commendation of the scheme to the House on 20 October and again on 5 December 1989? Why else did he say:

"I believe that it was right that … the administration should be handled by the financial sector"—[Official Report, 20 October 1989; Vol. 158, c. 381.]
Can the Secretary of State point to any time or occasion when he has hinted or suggested that, in place of a scheme run by the banks, there should be a scheme operated by a nationalised corporation, as it now will be?

Given the total change in the nature of the scheme since Second Reading, the Secretary of State shows contemptible disregard for the House and for the democratic process in his determination to use the wide arbitrary powers in the Bill to railroad through an entirely new scheme without proper scrutiny by Parliament and without its authority.

Will the Secretary of State say when he, the Under-Secretary and the officials in his Department first got wind that the banks might pull out of the administration of the scheme? That is absolutely critical. Was it prior knowledge that the scheme might well collapse that lay behind the Secretary of State's refusal to serve on the Standing Committee and instead to leave the Under-Secretary hanging in the wind? Can the Secretary of State explain why the Standing Committee has been left pursuing the charade of debating a scheme for a week and a half when, at some stage in the past 10 days, he certainly knew that it would not go ahead?

Will the people employed by the Student Loans Company be civil servants? What will happen to the chief executive of that company? That job was advertised at £55,000 with a car—twice the salary of a Nobel prize-winning professor at a British university.

Will the Secretary of State say categorically that the scheme will be fully in operation by September 1990?

Is the Secretary of State aware that answers to my hon. Friend the Member for Oxford, East (Mr. Smith) on Monday of this week showed that, even before the latest debacle, the cost of this ludicrous scheme had risen to £2·17 billion over the next 20 years, over and above the cost of grants? Why will the Secretary of State not use that sum—more than £2,000 million—to improve the grant system, and really help those students who are most in need?

The student loan scheme, like the poll tax, was the invention of the right hon. Member for Mole Valley (Mr. Baker), who is now chairman of the Conservative party—a man with an unrivalled record for leaving messes for others to clear up. There will be little sympathy for the Secretary of State if he does not admit in public what we all know that he concedes in private—that this loan scheme is fundamentally flawed and has now been utterly torpedoed by the banks.

Yesterday's decision was a victory for the Labour party and the student movement. The Secretary of State should recognise defeat and withdraw the Bill now.

I shall endeavour to answer as many of the hon. Gentleman's questions as possible. He has been way off the mark on every score. He has completely misunderstood the role of the banks in relation to the Bill, and has grossly exaggerated that role. I think that I can demolish every point he has made. I apologise, Mr. Speaker, for the length of time that I may take, but I have been asked a lot of questions.

The hon. Gentleman's first point was that the banks were central to the scheme, and that I had said so in my speech on 20 October. My speech covered many columns of Hansard, and the reference to the banks took a very few lines. That shows that it was not central to the argument, and I did not say that it was. I challenge him to find that anywhere. I said that I believed that it was right that administration should be handled by the financial sector, and I gave the reasons:
"They can provide a quicker and more personal service. They have skill in handling personal loans. They have experience in advising individuals on financial matters and they have nationwide branch networks."—[Official Report, 20 October 1989; Vol. 158, c. 381.]
That is what I have said throughout the debate. To say that that is central to the scheme is utterly ludicrous.

The hon. Gentleman then said that the Student Loans Company would now become a national corporation. As he well knows, throughout the discussions on student loans it has been made absolutely clear that the Government—that is, the taxpayer—will fund the loans and the administration of the scheme. The Government were to fund the whole cost of student loans and were to pay an extra fee to the banks for the convenience of using their branch networks. That has not changed. There is no change in the funding, so it is ludicrous to describe this as a major change. [Interruption.] I wish that the hon. Gentleman would allow me to answer his questions in sequence. His argument does not run. The whole scheme is being funded by the Government. We were prepared to pay extra to the banks for the convenience of using their branch network, which was designed to be for the convenience of students to enable them to get easy acces to loans.

The hon. Gentleman said that I had shown disregard for Parliament, but I have made two major speeches in the past two months and I reported to the House yesterday the moment I knew of the banks' decision.

The hon. Gentleman knows from debates on the Bill that the powers it provides are not arbitrary. The Bill follows precisely the way in which the original student grants scheme was drawn up and legislated for. He knows that the advantage of not having all the precise details and mechanics of the scheme spelt out is that we then have the flexibility necessary to change them by secondary legislation. Nor is it true that the Bill is in any sense affected because it allows the Government to own the Student Loans Company, as is clear from paragraph 3(1) of schedule 2.

The hon. Gentleman talked of proper scrutiny of the Bill in the House. He knows that it has a lengthy schedule that covers many of the details of the scheme, the criteria and eligibility. The fact that the Opposition have tabled a rather large number of amendments, which they are perfectly entitled to do, shows that this is not a short, arbitrary Bill. Rather it shows that there is enormous scope for discussion of all the details.

The hon. Gentleman asked when I was informed that the banks had come to the view that, if Lloyds did not participate in the scheme, they would pull out. I was informed of that at lunch time on Monday and I saw the relevant people as quickly as I could. I was informed on Wednesday that that decision would be made because it was not until Wednesday that I was able to see the chairman of Lloyds. There has not been any wasting of the Committee's time. As this aspect of the scheme is not crucial to the Bill in any sense, it does not in any way affect the Committee's discussions about the Bill on Tuesday.

The hon. Gentleman talked about my refusal to serve on the Standing Committee. He must know that that is the most utter nonsense. No Labour Education Secretary served on any Standing Committee throughout the time of the last Labour Government. He knows that that was the rule throughout the 1970s and the 1980s. His is the most trivial point and shows his general approach to the Bill.

As for staff—

I was asked a great many questions and I am doing the hon. Member for Blackburn (Mr. Straw) the courtesy of answering them. It is obvious that the hon. Member for Bolsover (Mr. Skinner) does not want to hear the answers because he knows that they are knocking the points made by the hon. Member for Blackburn out of the window.

It is obviously intended that the Government should operate the staff of the Students Loans Company. The position of the chief executive has still to be discussed. There are a number of details here, and I suggest that we make a statement to the Standing Committe the moment they are resolved. It remains our intention for one scheme to be fully operational in the autumn of 1990.

The hon. Gentleman knows very well from debates that we have already had in the House about costs that the choice is between a mix of grants and loans during the 1990s and into the 21st century, and grants alone. The hon. Gentleman says that he will rely on grants alone. He knows that that would be a much more expensive operation for parents and taxpayers and that the loans system is a much better deal for them. It is entirely reasonable that, as happens in most other countries, students should be asked to make a modest contribution to their maintenance—only their maintenance—while they are at university because taxpayers with a lower income than students will have for most of their working lives would otherwise be asked to bear an increasing burden in the form of the cost of students maintenance. It is entirely reasonable to ask students to make a contribution. The crucial point is that the Bill has 177 lines, a lot of amendments are being tabled in Committee, but not one line is altered by the banks' decision.

In view of the scandal over the student loans scheme, would it not be the right and honourable course for the Minster with responsibility for higher education, who has been responsible for the Bill throughout, to resign?

The hon. Gentleman has clearly not listened to a word I have said. This is a very small administrative part of the total scheme. The crucial point is that we asked the banks to operate the scheme because that was better for students. Using the banks' branch network would give them immediate access on campuses. That is the only change. That is why I regret what the banks have done. It is not in the interests of students. We shall now have to consider how, operating the scheme in a somewhat different way, we can get as good access as possible, but it will not be as good as using the banks' branch network.

Will my right hon. Friend make it absolutely clear again that the highly irresponsible action of the joint clearing banks—not co-operating with Government policy and the Government's scheme and giving way to pressure from the National Union of Students—will not be allowed to undermine Government policy? Will he also make it clear that the clearing banks' decision to give way when just one of them would not co-operate with the scheme makes them seem like a lot of lemmings running over a cliff? Will he therefore consider the possibility of ensuring that student grants should be encashable only at banks which co-operate with the Government's scheme and at which students have bank accounts? Then the lemmings might dash back up the cliff to try to co-operate with the Government.

I made it clear at column 189 of the Official Report of the Second Reading debate that we never asked the banks to express an opinion for or against the loans scheme because that was a decision for Government and Parliament. I said that I thought it right to ask the banks to assist in the administration on a contractual basis because they have a branch network and that that was for the convenience of students. It is on that basis that they came in. It is for the banks to say what made them change their minds. I regret that they have withdrawn because I do not believe that withdrawal is for the benefit of students. I can assure my hon. Friend that this decision will in no way change the policy or the Government's position on it.

Is my right hon. Friend aware that I am a reluctant supporter of student top-up loans, agreeing with Polonius who said:

"Neither a borrower, nor a lender be"?
I have, however, to take account of a letter and a telephone call I received this morning from constituents, and other comments I have received during half term, that they have still not received their maintenance grant from Ealing council, which is Labour controlled—

They are therefore forced to borrow at high interest rates. Loans are essential for them. I therefore support my right hon. Friend's scheme. Will he seek the early privatisation of the Government loans facility that he is setting up?

I have already expressed in the House my regret that Ealing has been so slow at providing grants for students. I regret that the loan scheme will not now have the banks' branch network, which would have provided immediate access to the loans scheme. I shall devise as good an alternative as I can to ensure that what happens in Ealing does not happen with the loans scheme.

Will the Secretary of State be a bit more generous and congratulate the banks, particularly Lloyds, Clydesdale bank and the Bank of Scotland, on refusing to take part in what they have called a political act and their integrity in so doing? Will he join his Under-Secretary of State in congratulating the students on fighting an excellent campaign, using the Government's own tactics—consumer power?

Will the Secretary of State answer the question that he has not yet answered—how much taxpayers' money has so far been wasted on this futile venture? Will he now explain how a nationalised state-run loans system is compatible with Tory philosophy, how it will secure the adequate delivery of hundreds of thousands of student loans and whether it has the support of anyone but some of his Back Benchers? Will he take the advice of the chairman of the Committee of Vice-Chancellors and Principals this morning—that the Government should have a radical rethink—and, during Christmas, reflect carefully, throw away the poisoned chalice left to him by his predecessor and announce that the Bill is dead when we come back in the new year?

Of course not. The hon. Gentleman has clearly not been listening. I have made it absolutely clear that this does not affect the Bill at all. I believe it is clear from responses that I have received—

—and opinion polls I have seen that there is strong support for the Bill among many parents and a lot of taxpayers. As people realise the significance of it, I believe that there will be many more supporters of it. Clearly the hon. Gentleman was not listening to me.

I answered the point about the costs, which so far amount to about £1 million. A good deal of that relates to work that is valuable and necessary for the continuation of the scheme and therefore that money is not aborted. Some of the money has been involved in the preparatory arrangements for the bank branch networks and that is why the banks have said that they will make a contribution of £500,000 which is 50 per cent. of the total cost. There has been no loss to the scheme or to the taxpayer as a result of those arrangements.

I am surprised that the hon. Member for Southwark and Bermondsey has completely misunderstood the scheme because he is a member of the Standing Committee. He should understand that the scheme has always been a national scheme effectively controlled by the state. The intention has always been that it should be financed in total by the taxpayer. The only aspect in which it was operating through the private sector was in the sense that we have asked the banks to assist us in the administration because of the benefits that were evident from their branch networks. We asked the banks to act as agents for one part of the administration of the scheme, and that is all. Apart from that, we are talking about a Government-financed scheme. That was always the case and will continue to be so.

Is my right hon. Friend aware that it is not certain that an effective mechanism, failing the use of the bank branch network, can be found to disperse and collect loans in time for implementation next summer? Would it not be better therefore to proceed with the enabling Bill but be ready to delay implementation until further thought can be given either to Government guarantees for the banks' money to be loaned or for the use of the Inland Revenue—as happens in Australia—as part of a proper Government-led system?

We have been through this and I have debated the issue with my hon. Friend on many occasions. I have drawn his attention to the difficulties in connection with using the banks' own funds for that purpose and also to what I consider to be the many serious objections to using the Inland Revenue mechanism.

When we considered the various ways in which we could operate the scheme, we gave a great deal of thought to alternatives to the bank branch network. Originally, on balance, we came to the view that it was best to use the bank branch network because of the point that I have made frequently, that it gives students easy access to the loan system. Incidentally, it also gives students the opportunity to discuss their overall financing position with branch managers. Those aspects will be lost as a result of the banks' decision.

As a result of our earlier work with regard to the preparation of the scheme, it will not require too many changes to switch over to the alternative scheme which will probably—and I use the word "probably" advisedly because we will have to take final decisions in due course—in some senses have to operate through the post. The scheme will now be like all the other northern European loans schemes which have been very successful. The administration of our scheme will operate in roughly the same way as they do.

Despite the certain amount of levity with which this matter is being treated, does the Secretary of State accept that it is really very serious? Did an administrative error or a political error in the Secretary of State's Department lead to today's decision? Is it not important that the ombudsman should consider this with the clarity that he used when considering the Barlow Clowes issue, which is, of course, a more serious matter? It is important that we know who is to blame. In previous Administrations and over a longer period, ministerial heads would have rolled for this kind of thing. It is extremely serious for the Secretary of State to make such a statement.

I hope that we will not have another statemen in a year's time telling us that the Student Loans Company has failed. It is important that the Secretary of State spells out who is responsible. Just to nationalise—to use the phrase—is not good enough. We need to know more about it. Today's statement was very serious and it has not been treated in the right manner.

I believe that the levity came entirely from Opposition Members. They were not prepared to listen to my replies, which are very clear in terms of the points raised by the right hon. Member for Morley and Leeds, South (Mr. Rees) and in terms of their perspective.

With regard to the right hon. Gentleman's point about background and responsibility, my predecessor, my right hon. Friend the Member for Mole Valley (Mr. Baker), told the House on 19 June:
"I am glad to be able to tell the House that, following discussions with representatives of the Committee of London and Scottish Bankers, a scheme has been designed which is agreed to be a cost-effective and feasible means of introducing top-up loans in September 1990 as planned."—[Official Report, 19 June 1989; Vol. 155, c. 21.]
Since then, we have held discussions with the banks to draw up the details of the scheme. In November we signed a memorandum of understanding with the banks on the preparatory work and 10 banks came into that. That was clearly the next and very important stage in developments. All the preparatory work has taken place on that basis. The banks have now gone back on that memorandum of understanding and it is for them to say why they have withdrawn.

The Government's position has been entirely clear. All the main arrangements in relation to the student loans scheme, all the principles and key ingredients, have been debated in the House on many occasions. They are contained in the Bill and are being debated in Standing Committee. They are not affected by the banks' decision. The banks have decided that they cannot act as agents for the Government in the way that we had hoped that they would. We have lost the branch network, but nothing else has changed. The Student Loans Company has been set up and we shall now have to run it. We were going to finance it anyway. The main difference is that the students now lose the benefit of the branch network. That is all, and that was the decision of the banks, not the Government's.

Order. I remind the House that we have a series of debates on the motion for the Adjournment of the House today. I will allow questions to continue for another five minutes which will include both Front-Bench Members and then we must move back to the main debates —[HON. MEMBERS: "Oh."] That is all very well, but hon. Members have taken part in the ballot to speak today and have earned a place.

We have heard reference to the experience in other countries. Will my right hon. Friend the Secretary of State accept that Conservative Members can see the advantages, both administratively and otherwise, of a Government-led scheme? Does he accept that the decision that was announced this morning has no bearing on the case for the student loans scheme? In the Standing Committee, the Opposition have totally failed to make any good case against a scheme which will be to the long-term benefit of students in this country and of their parents.

My hon. Friend is entirely right, and that is why Opposition Members have had difficulty in attacking the principles and overall objectives of the scheme. They are trying to make something out of an administrative aspect which is way out of perspective. My hon. Friend was also right about support on the Government Benches for the scheme, as was shown by the fact that the Bill received its Second Reading by a majority of 81.

Does the Secretary of State recognise that this is a great day for students and for higher education? No one believes that the Secretary of State's statement does not severely undermine the loans scheme—no one, that is, except a few right hon. and hon. ostriches on the Conservative Benches. The ability of the Government to offer sweeteners to private organisations is now on the record. However, they have clearly failed to sweeten the banks. Why is that?

The hon. Gentleman has got it completely wrong. There was no question of sweeteners. We offered to pay a fee to the banks for administering—as our agents—one part of the scheme because of the benefit of the bank branch networks. That was all. It was entirely reasonable to pay the banks a fee for doing that because a cost to the banks was involved. I repeat that the Government were to finance the whole scheme and they will continue to do that. There is no major material change of any kind. The hon. Gentleman's remarks were ludicrously out of perspective.

If 20 people leave an average school, why should the 10 who leave early, perhaps to become plumbers or electricians, have to pay the taxes of the 10 who want to go on to university? Why should the Opposition want to perpetuate such privileges?

My hon. Friend is right. Many of the people to whom he referred and the vast bulk of taxpayers will earn a good deal less throughout their working lives than students who get the benefit of higher education. All we are asking students to do is to pay a part of their maintenance through a loan scheme while at university, bearing in mind that the vast majority of them will gain substantial benefits and income thereafter as a result of the investment in their higher education. For those who do not take jobs and for those who have lower incomes than 85 per cent. of the average, we have introduced generous repayment terms. They will not have to repay during those periods, which is more generous than loan schemes in any other country.

In view of the Secretary of State's total failure to answer the questions put to him by Opposition Members, will he confirm the written answers that were given to me by the Under-Secretary of State that the scheme will cost the taxpayer £2·17 billion over and above the cost of grants over the next two decades? First, should that money not be put into grants to improve the grant system and opportunities in education instead of being wasted on this fatally flawed scheme?

Secondly, what mechanisms is the Secretary of State considering for forwarding students' applications to the loans adminstrator? Did I correctly understand him to say that it will probably be through the post? Thirdly, will he answer the question by the hon. Member for Leeds, North-West (Dr. Hampson)? The right hon. Gentleman now faces a desperately tight timescale to try to get the scheme up and running. If he will not dump it altogether, will he seriously consider deferring it for at least a year? Should he not drop the scheme altogether? It is an utter shambles and a farce, which shows great contempt for the House and a lack of concern for higher education.

The hon. Gentleman uses extravagant language. He is making such trivial points that it is a way of hiding their triviality. I have answered all hon. Members' questions, and I will answer the hon. Gentleman's three questions.

Hon. Members have debated the funding point at length both in the Chamber and in Committee. The crucial comparison is between the overall costs, by the end of the decade, of the Government's combination of grants and loans and the Opposition's approach to tackle it through grants alone. As the hon. Gentleman knows, that would be much more expensive to the taxpayer and would be paid for by people whose incomes will often be lower than those of the students when they get jobs. [Interruption.] Of course that is true, because loan repayments will be coming in.

On the hon. Gentleman's second point, I obviously wish to make the means of access for students as satisfactory as I can. I had hoped that it would be done through branch networks. One possibility is that it may have to be done through the post. I will seek ways of making that better, because I want to retain as many benefits as possible that we would have got from the branch networks.

Finally, I did respond to the point of my hon. Friend the Member for Leeds, North-West (Dr. Hampson).

I hope that the hon. Gentleman is not seeking to prolong discussion on the statement. It is a private Members' day.

You, Mr. Speaker, preside over the Second Reading of Bills and the money resolutions. A money resolution must be in order and in accordance with the Bill as presented. From what the Minister said, it is clear that the scheme may be cheaper or it may be dearer. If it is dearer, I ask your Office to check whether the money resolution that was presented on Second Reading is now in order and can incorporate the changes that have been announced by the Secretary of State today.

I clearly heard the Secretary of State say that no amendment will be necessary.

We now return to the Adjournment debate. I must say to the hon. Members for Bournemouth, East (Mr. Atkinson) and for Dunfermline, West (Mr. Douglas) that they should divide the next hour between them—about 28 minutes each.