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Sale of Student Loans Bill

Volume 470: debated on Wednesday 23 January 2008

As amended in the Public Bill Committee, considered.

Clause 1

Sale of student loans

I beg to move amendment No. 5, page 2, line 6, at end insert—

‘(4A) Transfer arrangements may not confer on the purchaser the right to alter the repayment terms of sold debts.’.

With this it will be convenient to discuss the following amendments: No. 6, page 2, line 11, at end insert—

‘(6A) Transfer arrangements may not be made with an organisation underwritten by the Government.’.

No. 11, page 2, line 13, at end insert—

‘(8) In advance of entering into transfer arrangements the Secretary of State shall—

(a) examine the prevailing market conditions and ensure that a competitive market for the loans has been generated;

(b) provide the market with full information about the loan book in order that the assets can be efficiently valued;

(c) ensure that there has been a genuine transfer of risk from the public accounts to the private sector; and

(d) assess the proceeds that look likely to be achieved in the transaction, using full and clear market information and a comparison with keeping the loans on the Government books, in terms of both likely income flows and levels of risk.

(9) The Secretary of State shall make a written statement on expenditure incurred in connection with each transfer arrangement.’.

No. 7, clause 5, page 4, line 9,  leave out

‘a person acting on behalf of a loan purchaser’

and insert

‘the Student Loans Company’.

No. 8, page 4, line 15, leave out ‘another agent’ and insert ‘the Student Loans Company’.

There are still some unresolved issues raised by hon. Members on Second Reading and in Committee that Conservative Members hope to clarify with our amendments. I am sure that the Minister will do his utmost to help the House by providing the clarity that we all seek.

The amendments have three important objectives: first, they would prevent loan purchasers from altering repayment terms; secondly, they would ensure that Ministers achieve value for money in any sale; and finally, they would strengthen the ability of this House to hold Ministers and the Government to account. That is key, because too much of the Bill is to do with the Minister and the Department saying to Parliament, “Trust us.” The Opposition would not be doing our job if we left it at that, so our amendments would add a few checks and balances to the sale of the loan book.

Amendment No. 5 reflects our ongoing concern about a lack of safeguards in the Bill. Clause 1 enables the Secretary of State to sell to a purchaser his rights and obligations relating to student loans and gives details of the rights and obligations that may be transferred if the Secretary of State so wishes. Throughout the Bill’s passage, concerns have been expressed about the precise nature of the transfer of those competencies and what it will mean in practice. I know that the Minister shares our concerns, and my hon. Friend the Member for South Holland and The Deepings (Mr. Hayes) raised his concerns in detail in Committee. Let me make the point clearly: loan purchasers should not be able to alter the terms of repayment. The Minister entirely accepts that; he said himself, on Second Reading,

“I need to make one precise point clear at this stage. The Government will retain control of regulations, terms and conditions for all loans, and there will be no adverse change for borrowers, whether their loan is sold or retained.”—[Official Report, 22 November 2007; Vol. 467, c. 1391.]

I entirely accept his assurance about the Government’s intentions—I am sure that they are entirely honourable—but this is not necessarily about the current Minister or the current Secretary of State; it is about how Ministers may use or interpret those powers in future.

My hon. Friend will understand that when students who already have loans hear about the sale of the loan book they will start to worry about the possible changes in terms and conditions of repayment. It is important that during the course of the debate we are able to secure agreement so that we can reassure not only students with existing loans but those about to take out loans.

My hon. Friend makes a valid point. I hope that in the course of the debate we will get the reassurances that she seeks.

Clause 1 is ambiguous in that respect and needs to be tightened. It empowers Ministers to prevent loan purchasers from changing the terms of repayment, but that is not the same as offering an explicit safeguard against differential terms of repayment. The Minister has repeatedly stated that the Bill will have no material impact on graduates, but that proposition currently rests on the good will of the Government—the “trust us” message that I mentioned. Some would say that that is a pretty precarious safeguard these days. The protections that the Minister has cited are insufficient. There is nothing in the Bill to prevent different arrangements for loan repayments as long as those are made with a Secretary of State’s consent. Although the measure enables the Secretary of State to protect student borrowers once loans are sold, a flaw remains—its reliance on optional rather than concrete safeguards. Our amendment would strengthen the Bill by ensuring that the Government’s stated intentions are followed without any ambiguity.

It would be inappropriate to try to bind the hands of the Minister’s successors in perpetuity, but we in this House have a duty to protect the interests of students and graduates. The amendment tries to strike the difficult balance between limiting risk for graduates and students and maintaining the commercial attractiveness of the loans to a purchaser.

In Committee, the hon. Member for Wolverhampton, South-West (Rob Marris) sought more information and asked significant questions about this matter. His constituency has a large number of students, many of whom are disadvantaged and therefore take out large loans. As an assiduous Member, he seeks to protect those students. If the Minister has time before he comes to the Dispatch Box, he may wish to reread the hon. Gentleman’s remarks in column 47 of the record of the Committee proceedings.

The hon. Gentleman was rightly concerned that paragraph 16 of the explanatory notes says:

“For example, the Government does not intend to grant purchasers the right to alter the repayment terms of sold debts.”

The key words are “does not intend”. It reminds me of the saying, “The road to hell is paved with good intentions.” Merely intending to good without actually doing it has no value, so what is said in the explanatory notes is not a guarantee; it gives students and graduates no reassurance about what may or may not happen in future.

The Minister agrees with us that the purchaser should not be able to alter repayment terms of sold debts, so I am sure that he will accept this very mild and minor amendment. If he does not, perhaps he can explain to the House why he does not want to do so—unless my eloquence has already changed his mind. We can then decide whether we wish to press it further.

Amendment No. 6 deals with a matter that has been discussed in Committee, but not in great depth, and Conservative Members have not been reassured by the Minister’s comments. It is still possible that a body buying part of the student loan book will in time sell it on and that, as a result of that process, the loan will end up in an organisation that is underwritten by Government. The amendment would therefore be an important safeguard.

The main justification that we have heard for the use of ministerial veto over onward sale is to safeguard the interests of students. We can therefore deduce that Ministers would use their powers of veto to protect interest rates or repayment terms. However, alongside students’ interests we must consider the public interest more broadly. The Minister has said that one of the aims of the Bill is to transfer risk to the private sector from the public sector. At present, however, there is nothing in the Bill to prevent loans from ending up, through a process of resale, being underwritten by the public purse. In Committee, the Minister said that the Bill provides tools for the Secretary of State to prevent that, but that is not good enough.

The Bill offers wide-ranging powers to Ministers but has very few checks or balances. As it stands, these assets could be resold to a Northern Rock-style company or an equivalent organisation—the Minister did not deny that in Committee. We must remember that we are talking about public assets worth about £18 billion, and growing. The Government want a portion of the loan book to be transferred to private hands, and our amendment would assist that process. Let me be absolutely clear: transfer arrangements should not be made with an organisation underwritten by the Government. Can the Minister tell the House how he plans to make a cast-iron case that that should not and cannot happen?

Amendments Nos. 7 and 8 relate to the collection of debt. We are anxious to ensure that only the Student Loans Company is authorised to collect debt. The Bill says that “another agent” or

“a person acting on behalf of a loan purchaser”

should be allowed to collect debt, but the amendments would replace those with the Student Loans Company. That is because, as debt is sold and resold, there is a risk that the propriety and suitability of the debt collector may become a matter of concern. The current provision will certainly cause a great deal of anxiety on the part of debtors who are accustomed to debt being collected by the Student Loans Company or by commissioners for Her Majesty’s Revenue and Customs. Our amendments would eliminate those concerns.

Amendment No. 11 is the most controversial in this set of amendments. It is fair to say that Conservative Members have not been sufficiently reassured, either on Second Reading or in Committee, that the taxpayer will get the best possible outcome from the sale of the student loan book. The Bill empowers Ministers to sell off a very valuable public asset—currently worth around £18 billion and due to grow significantly in value over the next few years to as much as £25 billion—but it contains no provisions to ensure that the Government have a duty to get value for money.

Concerns about value for money are widespread and have been voiced by Members in all parts of the House, with the hon. Members for Stoke-on-Trent, South (Mr. Flello) and for Wolverhampton, South-West making telling contributions in Committee. However, we do not wish to tie Ministers’ hands too tightly, as we are well aware that we may inherit the legislation and we understand its importance to future public finances. When we are in government, we may well need to deal with such issues.

Our amendment sets boundaries within which the Minister should operate. They are designed to ensure, first, that a competitive market is generated, thus achieving the best value; secondly, that the market has full and up-to-date information about the loan book for efficient evaluation; thirdly, that there is a genuine transfer of risk away from the public sector to the private sector; fourthly, that the Secretary of State will assess the market value likely to be achieved against keeping the loans on Government books; and finally, that the Secretary of State will keep the House informed of the costs incurred in selling each tranche of the loans to the private sector.

It would be difficult for the public to understand why the Minister would oppose any of those boundaries. Indeed, throughout the various stages of the Bill he has, at one time or another, accepted those points as valid. They are the same value-for-money criteria that were described to the Committee by the director of student finance and strategy, Michael Hipkins. However, such provisions were not included in the Bill. The legislation empowers Ministers to sell off a student loan book currently worth £18 billion, but it provides no clear mechanisms for holding Ministers to account for their actions. We would not be doing our job as legislators if we allowed it to pass with such a huge omission.

How do we ensure that the Government stay focused on getting the best value for the taxpayer, now and in the future? The economic storm clouds have been gathering. The markets are likely to be volatile for at least the next two years and financial institutions are therefore likely to take a very cautious approach. But we also know, as the Minister admitted in Committee, that the Government have £6.3 billion already written into the comprehensive spending review. That money is already allocated to be spent before anyone has signed on the dotted line—nobody has signed a contract. We have a duty to ensure that negotiations, as and when they take place, meet the Minister’s high expectations.

In future, how will a Minister or Secretary of State withstand the Treasury juggernaut as it seeks to force a future sale of student loans to raise a fast buck? Is anyone in this House convinced that any Minister will be able to resist? How can we ensure that true value for money is achieved? In light of difficulties over Northern Rock, general volatility in the credit markets and pressure on public spending, we feel it necessary to set out some safeguard that will protect a Minister from Treasury pressure. It is a sensible precaution and one that the Treasury will not like, of course, but it is certainly in the best interest of this country.

Our amendment would add to the Bill a clear, value-for-money framework to which Ministers must adhere. Do not take my word for it—the basis for the wording is the Minister’s own, taken from Second Reading. I do not intend to read all of his comments out. If our amendment were accepted, the Secretary of State would have to examine the prevailing market conditions and present full information about the loan book to ensure a correct valuation.

The Secretary of State would also have to ensure that there was a genuine transfer of risk to the private sector. That is an extremely important point, the significance of which has grown in recent weeks as the Northern Rock saga has unfolded. The hon. Member for Twickenham (Dr. Cable) encapsulated the point when he described the Government’s dithering as the “nationalisation of risks and losses, combined with the privatisation of gains.”

Indeed, it was excellent.

However, based on what the Minister said in the evidence session, such a transfer will not take place. He may remember that I asked him how student loans would be selected for sale, and he replied,

“we want to engage initially with loans where we can demonstrate a good track record of graduates repaying”.––[Official Report, Sale of Student Loans Public Bill Committee, 4 December 2007; c. 31, Q87.]

In other words, the purchaser will not be taking on a great deal of risk because the best loans will be cherry-picked for them. There will be no random selection, just the crème de la crème of the loans. As the Minister said, only those loans with a demonstrable track record will be sold.

Will the hon. Gentleman be very careful in quoting from Hansard and then inserting his own view? The way he read his description of my comments did not make the distinction clear at all. I made it perfectly clear in the evidence session that individual student loan accounts would not be cherry-picked. There would be a tranche of student loans, with a good track record, evidenceable and demonstrable, of repayment across the board. It is not a matter of individual case by individual case.

I will come to that, because I have reread the exchanges involving the Minister and Mr. Hipkins in Committee on several occasions, and I have two points that I think will answer his questions. First, the position of the Government seemed to alter through the exchange, and secondly, any loan that is high risk will not be put up for sale. That came across clearly during that exchange.

If the most reliable debts are sold off while the more precarious ones remain in public hands, is there really a transfer of risk at all? As with Northern Rock, the Government seem prepared for risk to be nationalised while gain is privatised. That is why it is important to include an assessment of the risks against the income flows in the Bill. It is vital that provisions that hold Ministers now and in the future to account are included in the Bill.

Finally, we are asking that the Secretary of State should also make a written statement to the House on the expenditure incurred in connection with each transfer arrangement. I understand that subsidies will not be paid to loan purchasers this time, so the overall cost of the sale may be comparatively small next to the £6.3 billion income. However, the Bill empowers the Secretary of State to incur expenditure in connection with any sale. It is only fair and reasonable for Ministers to report back to the House regularly on the expenditure incurred by the Government.

The amendments are not wrecking amendments. They are clear safeguards for graduates and taxpayers. There is enormous concern throughout the House about how we achieve value for money through the Bill. I hope that the Minister will agree that the only way to ensure that there is no ambiguity is to include provisions in the Bill. All we are doing is urging the Minister to accept what he has already approved in practice. Our amendments clarify weaknesses in what is otherwise a worthy Bill.

Several changes have occurred in my party in the past few weeks, for reasons that are obvious to everybody. I therefore took no part in the Second Reading debate or in what I am sure were exciting and incisive contributions from the Minister for Lifelong Learning, Further and Higher Education and the Conservative spokesman in Committee. I have only had sight of the amendments today, so if I make any points that have been answered in previous discussions, I apologise.

Amendment No. 5 would provide that purchasers have no right to alter the repayment terms of any debts that are sold. That is a worthwhile condition to include in the Bill. Protection should obviously be in place for graduates for all their repayment terms—the threshold at which they begin, the rate at which they pay and the period over which they make the repayments. Only hon. Members, through the democratic process, should alter those conditions in future. We are therefore happy to support the amendment.

Amendment No. 6 refers to transfer arrangements, and would provide that they are not made to an organisation underwritten by the Government. When I read the bald phrasing of the amendment, I wondered to what the hon. Member for Reading, East (Mr. Wilson) was alluding—the Export Credits Guarantee Department or another organisation that the Government might underwrite. It was in fact an attempt to inject a further discussion about Northern Rock into parliamentary proceedings. Of course, the leader of the Conservative party has for several weeks been trying to steal my deputy leader’s thunder on that during Prime Minister’s Question Time. Leaving that aside, the amendment is logical. If we are considering a genuine sale of the loan book, there should also be genuine transfer of risk. There should be no danger of the risk becoming circular and travelling back to the Government and the taxpayer if the loan book were purchased by an organisation that had, now or in future, a direct connection to the Treasury or another part of Government.

Amendment No. 11, which, like two others in the group, would amend clause 1, would provide that the Secretary of State must ensure that he has examined the prevailing market conditions and that competitive conditions have been generated for the sale of the debt. That seems common sense. I am prepared to accuse the Government of many things, but I am sure that they would not wilfully sell off £6 billion of debt—if that is the true figure—at a substantial discount that would cause them to be examined by the National Audit Office and the new Comptroller and Auditor General, whom we discussed earlier.

The amendment would also provide that full information would be placed in the market. Again, I doubt that anyone would buy a chunk of Government debt if full information were not put in the marketplace. I should like an assurance from the Minister that normal due diligence procedures will apply and that full information will be provided to anyone who contemplates buying up to £6 billion of a current Government asset. Of course, there should be genuine transfer of risk. Finally, we obviously support the test of whether selling off the loan book, compared with keeping it in the state-controlled Student Loans Company, constitutes genuine value for money for the taxpayer.

Like me, the hon. Member for Reading, East got interested in politics in the 1980s—I believe that we were in the same party at that point.

I find it ironic that Conservative Front Benchers have tabled the amendments, whatever political perspective the hon. Gentleman supported in the 1980s. In all its privatisations in the 1980s and 1990s, the Conservative party did not necessarily guarantee full value for money for the taxpayer—[Interruption.] The hon. Gentleman looks sceptical—let me give the example of the Royal Ordnance sell-off or even the railway sell-off.

Order. Let me remind hon. Members of the rules of procedure. If hon. Members wish to make a comment, I am sure that they will do it in the usual way, through intervention.

I shall move on, having made those points. We agree that there should be a statement of the costs of selling the loan book.

The final two amendments in the group would insert “the Student Loans Company” in the Bill instead of the unspecified person who may act for whoever purchases the loan book. We are prepared to support that because it gives comfort and certainty to students or graduates to know that, when they repay their debt, they are dealing with a consistent agent for collecting it and that the information and conditions are transparent.

The amendments raise some important points, which I hope that the Minister will tackle. I believe that my concerns fit the same pattern.

They begin from the same question: who, in their right mind, would want to buy someone else’s debt? Why would they want to do that?

Indeed. The obvious answer is that it would be done for foolish or speculative reasons or on the calculated basis that the purchasers would make money. For most of us, if we try to move our debts around, we do so to avoid or reduce costs. People do that when they reschedule their mortgages or move their credit card debts between different companies. However, in the context of the transfer of student loans, we are offering the prospect of transferring those debts from the public sector—the Government—to the private sector, which must envisage opportunities to make money out of the process.

We, as the Government, have a duty to protect students who have entered into debt in the first place. The guarantees and protections of the students and the taxpayers, of whose interests we must take account, must be clearly bolted in position. My current difficulty is that I cannot see those belt-and-braces protections. It is clear from the comments so far that prospective purchasers cannot hope to make money through taking on increased risk because, as Opposition Members made clear, there will be some selection in the process to minimise the risk. It will be hard to justify the notion of selling the debts below value on the grounds that a risk element will be built into the calculation.

On the first tranche of student loan sales, the then Minister, my hon. Friend the Member for Leeds, East (Mr. Mudie), conceded that the loans had been undervalued. He said in response to a question on 9 March 1999:

“The estimated cost to the Government of selling these loans will therefore be in the region of £85-£100 million or 25-30 % above the cost of keeping loans in the public sector over the lifetime of the portfolio.”—[Official Report, 9 March 1999; Vol. 327, c.106W.]

That estimate was made of the increase in cost of transferring the loans from the Government to the private sector. It would be a somewhat strange and curious transaction if we sought to make those transfers at a cost, rather than at a benefit. I am therefore looking to the Minister to clarify the fact that we will not expose people to predictable additional costs to themselves, or to losses as taxpayers, through the three most obvious ways in which people can make money from the transaction.

The first way in which the banks could make money would simply be to do nothing, if the debts of the student loans are transferred at below their real asset values. The banks could then just sit on the debts, which will appreciate, because at some point they will be realised at their true market price. The second way would be to sell the debt at a higher price to another bank, so that the selling bank would make an immediate profit and the buyer would take on the cost of the risk. Again, that would happen only if we as a Government sold the debt at a below-par valuation.

The third way of making a considerable gain out of the process would be to have the ability to increase the interest rates being charged on the loans. That would transfer the risk to the students who had entered into those loans, at what they thought were guaranteed and defined interest rates. Failing to lock in a binding obligation to adhere to the original terms would leave the debts open to quite an attractive speculative purchase on the part of the banks, which would know that we as Government might walk away not only from the management of the loans, but from the protections that were attached to them, in terms of interest rate guarantees.

If the House fails to put in place those guarantees, we risk creating a huge potential to discredit the student loans system as a whole, because those who enter into those loan agreements need to be able to do so in the belief that what we say the terms of the loan are will indeed be the strictly adhered-to terms of that loan. If people believe that those terms are only the opening gambit and that they could in future face serious increases in the cost of servicing those loans, either they will be saddled with huge debts that they might not be able to service or the prospect of such increases will act as a deterrent against people taking on those loans and accessing the university system in the first place.

Not for the first time in the 20 years in which I have known the hon. Gentleman and exchanged ideas with him, he is making a great deal of sense. He is making a case for including a series of criteria in the Bill that would limit the Government’s capacity to jeopardise either the public interest or, as he has so eloquently argued, the interests of those taking out the loans.

I am indeed making precisely that case. That is why I am inviting the Minister to give the House an undertaking that precisely those guarantees will be written into the Bill. The issue is not the integrity of the existing Minister, with whom I have no dispute and on whom I cast no doubts; rather, such an undertaking would be a recognition not only that ministerial appointments are, at best, something of a magic roundabout and that people’s tenure is limited, but that Governments change. Unless the terms are set out clearly in the Bill, it would be impossible to prevent someone else from intervening in the parliamentary process and, as an act of political whim, completely rewriting the script.

The hon. Gentleman is making some powerful points about guaranteeing the terms and conditions of student loans. Does he agree that currently under-represented groups whom we would wish to attend college—perhaps from low-income families—would be additionally cautious and therefore seek to ensure that they did not take on loans with open-ended conditions and repayments that could escalate to levels that involved them in debt collection?

That is an important and serious point. I happen to have grown up on a different planet, where I went to university only because I could do so on a full student grant. Had my family been required to entertain the notion of taking out loans to go to university, they probably would not have done so. However, they certainly would not have entered into any loan agreements that included the prospect of the terms being spun away from them, by being changed in the middle of the repayment period.

Perhaps my hon. Friend has covered this point and I have missed it, but if I take out a loan from bank A, which then sells it to bank B, bank B cannot change the terms of the agreement unless the original agreement with bank A contained within it a provision enabling the creditor—now bank B, formerly bank A—to change those terms. Is my hon. Friend saying that the agreements that individual students have entered into with the Student Loans Company, via the Government, already contain such variation clauses? If there are no such variation clauses within those agreements, his fears will not be realised.

That is an important point. My answer is that as I read through the provisions in the Bill, it was not clear to me that such a legally binding lock was in place. If there is any ambiguity in the process, there is nothing wrong in putting those belt-and-braces locks in place—in fact, it would be irresponsible of the House not to do so. Those provisions would include specific arrangements covering variations of the terms of the loan, which would include interest rates.

Those are the points that I wanted to make. I hope that the Minister will take this opportunity to respond to them.

I am more than pleased to respond to this group of amendments, which covers transfer and collection arrangements after sales have been made. Let me start with the comments that my hon. Friend the Member for Nottingham, South (Alan Simpson) made. As a lifelong Tottenham Hotspur supporter who is in a very good mood today, I hope that his team does well this evening and that we meet at Wembley on 24 February.

My hon. Friend asked me who would seek to purchase the loans. We made it clear throughout the Committee stage that we believe that there will be a keen appetite for the loans in the private sector. The market will bid to purchase loans at a price that represents good value for money. A wide range of investors will be interested in buying the loans, because—we explored this issue at length in Committee—they are a new asset class that will enable investors to diversify their portfolios and meet specific investor needs. If they undertake that course of action, investors will receive the benefit of sustained income over a long period of time from a group of borrowers who, taken as a whole, are considered to be low risk.

My hon. Friend also raised the issue of changing the terms and conditions—this was more than adequately dealt with in the intervention that my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) made. Let me be explicitly clear: as I said on Second Reading and throughout the Committee stage, there will be no different treatment of borrowers and debtors, whether their debt is owned by the Government or by the private sector. It is, of course, open to any future Government to change the terms and conditions; but they would have to do that equally for the loans that were owned by the Government as for those owned by the private sector, so there is no issue of unequal treatment.

The hon. Member for Reading, East (Mr. Wilson) started by saying that there was enormous concern across the House on the issue. I have been a Member of the House for only 10 and a half years, but in my experience the presence in the Chamber of representatives on the three Front Benches and six or seven other MPs does not constitute enormous concern. As was demonstrated in Committee, there is a broad consensus on the issues. It is right, however, that we respond to any concerns put forward.

I fully agree with the intention behind amendment No. 5. As I stated unequivocally throughout the Bill’s passage, purchasers of loans will not be able to change the repayment terms. As is the case today, terms and conditions for all loans will be governed by the regulations scrutinised by the House. That is the explicit effect in statute, if the Bill is passed, of clause 4(1).

The regulations that govern the terms and conditions on the repayment of student loans are made under section 22 of the Teaching and Higher Education Act 1998. In terms of scrutiny, which was one of the issues raised by the hon. Member for Reading, East, those regulations are subject to approval by Parliament under the negative procedure. Any new regulations with which the Government come forward would similarly be subject to such scrutiny. To that extent, amendment No. 5 is unnecessary, and I ask him to withdraw it.

Amendment No. 6 would include a specific restriction on organisations to which sales can be made. As time goes by, that will be classified as the Northern Rock amendment, and it has much more to do with the Conservative party’s irresponsible desire to make political hay out of the current Northern Rock situation than with real concerns about the Bill. The drafting does not make clear precisely how the target for the restriction would be defined. I reiterate that we do not expect that any financial institution would want to own the loans itself, as was made abundantly clear throughout Committee. It is therefore highly likely that the loans would be sold to a special purpose company and that ownership would stay with that organisation. Therefore, it is not straightforward to see how the restriction might be applied.

Another difficulty is that the restriction would apply to onward sales as much as to initial sales, by virtue of clause 3(2). Government cannot exert substantial control over onward sales. If the proposed restriction on onward sales were included in a sales contract, the transaction would not constitute a sale. Under the current Office for National Statistics rules for classifying public and private debt, we would not see a transference of risk from public to private sector, and a capital receipt would not be available for reinvestment across Government public spending.

On amendment No. 11, let me respond to the hon. Gentleman’s comments about the Red Book estimate of £6.3 billion of income from the sale of student loans over the coming three-year comprehensive spending review period. As I was at pains to make clear throughout Committee, that figure is not set in tablets of stone. If market conditions do not allow for it—although I believe that they will—and we are not able to demonstrate value for money, the sale would not go ahead.

As Members on both sides of the House have said, there is no doubt about the Minister’s integrity. We know, however, that the Government’s estimates are set in stone. The Treasury has made it clear in the comprehensive spending review that it anticipates that income. If the sale does not go ahead, where will it find the money from?

I urge the hon. Gentleman to look to his own house before he casts stones and implies that there are black holes in the Government’s spending plan. The income receipts in the Treasury Red Book are always based on estimates. As I made clear in Committee, if the environment is not appropriate and we cannot demonstrate value for money, the sale will not go ahead.

Amendment No. 11 refers to the overall value-for-money framework. All transactions will be subject to a rigorous value-for-money assessment. I fully agree with the amendment’s description of the key features of that assessment; it would be odd and perverse if I did not, as I was at pains to read those very words into the record on Second Reading. As I have clearly set out the principles for the record, the amendment is unnecessary.

I note that hon. Members heeded my remarks at earlier stages that we could not sensibly include in the Bill any details of the Government’s assessment of what price would constitute good value for money. That would reveal our hand in advance of the competitive sale of the loans. Just as we cannot put those details in the Bill, we should not try to translate the principles of our value-for-money approach into a set of statutory tests, as is proposed in amendment No. 11. Principles are not precise enough to serve that function, and we would not want to establish an exclusive list of such tests at the start of a long-term programme of sales.

We will want, rightly, to build on the experience of sales transactions and, for example, any evaluations by the National Audit Office. The value-for-money judgment on each transaction will, however, be open to parliamentary scrutiny in the usual way. I am more than happy to put it on the record that the Government will report to the House after each and every sales transaction. No doubt the National Audit Office will also report to the Public Accounts Committee on the sales programmes. A robust value-for-money framework is in place, along with adequate scrutiny procedures to ensure that it works.

This point might relate to value for money, but I want to take the Minister back to his helpful response to the earlier point about the assurances required on future control of the loan regime. He referred to clause 4(1), which refers to the loan regulations. My understanding of the loan regulations is that they will cover the overall regime, the basis on which the loans are developed, the percentage rate of charge, and perhaps the value-for-money issues. In relation to clause 4(4), he assured the House that any changes in the regime would be subject to the negative procedure. Will he provide some clarity—not necessarily today, although he might get inspiration from elsewhere during the debate, or he might write to me—on clause 4(4):

“Amendments of loan regulations may have effect in respect of transferred loans”?

How will those loan regulations be scrutinised, and perhaps amended, by the House? Will they be subject to the affirmative or negative procedure? In what way will they come before the House? They will establish the overall regime in terms of the nature of the loans and perhaps in terms of value for money.

Let me state this for the record; then if I need to follow it up with statements to other hon. Members, I will do so. The loan regulations that we establish through the negative resolution procedure in the House will apply equally to debt owned by the public sector and by the private sector. That is the fundamental reassurance: the graduate repaying their student loan will notice no difference whatever in the terms and conditions involved. Indeed, apart from receiving a letter from the Student Loans Company when the sale initially takes place, they are unlikely to notice any difference as, according to the requirements that we have set out, we will expect the SLC to continue to collect on behalf of the owner of the debt, whether that is the Government or a private sector owner.

The value-for-money judgment on each transaction will, of course, be open to parliamentary scrutiny. Amendment No. 7 refers specifically to the Student Loans Company. Its effect would be that only the SLC and Her Majesty’s Revenue and Customs would be able to be involved in collection activity on sold loans. Amendment No. 8 seeks to ensure that only the Secretary of State or the SLC could make payment of sums due to a loan purchaser—whether as principal, interest or penalty—to that purchaser. In so far as the hon. Gentleman’s intention is to ensure that the SLC continues to fulfil its pivotal functions for all loans, I fully agree with the sentiment that gave rise to the amendment. The Government fully intend that the SLC will remain the administrator for all loans, whether sold or retained. The Bill, as drafted, allows the Government to insist that purchasers administer loans in this way through the contracts that we enter into with them.

The SLC is a private limited company, but not a statutory body. There are several technical reasons why it would be problematic to name on the face of the Bill an organisation of this sort. The drafting would have to cater for the possibility of the company’s ceasing to exist—even though that is an unlikely eventuality—and so would have to provide a wider definition rather than simply referring to the SLC. For that reason, I do not believe that the amendment works.

Are we to understand from what the Minister is saying about the collection of defaulted loans that there will never be any involvement by unregulated bailiff companies? There is a lot of anecdotal evidence at the moment about unprofessional and bad behaviour. If the collection of unpaid loans is not regulated, there could be unpleasant consequences for young people who are simply struggling to pay their bills.

There are clear procedures and guidelines in respect of the powers available to the Student Loans Company to follow up and search out debt that has not been repaid. Those restrictions will apply to the SLC, whether it is administering that debt on behalf of the public sector or the private sector.

The current drafting will also enable us to cater for any future overall change in the administration of the student loans system. Although no such change is envisaged, we must bear it in mind that the Bill will enable a long-term programme. I am happy to emphasise again for the record that it is the Government’s firm intention for the SLC to continue in its current role for all loans. I hope that, with those reassurances, the hon. Member for Reading, East will feel able to withdraw his amendment.

We have had a fairly brief, but good, debate. Some of the contributions, including that of the hon. Member for Nottingham, South (Alan Simpson), were extremely good. I listened carefully to what the Minister said in response to my amendments, and I appreciate the patient way in which he has dealt with the many questions on the Bill from both sides of the House throughout this whole process. I am happy to accept his assurances on amendment No. 5. It appears that there will be sufficient parliamentary scrutiny, which was a key factor in my tabling that amendment. I am also happy to accept his assurances on amendments Nos. 6 and 8—I hope that I have got those numbers right.

I do not feel, however, that the Minister has made a compelling case against our attempt to improve the Bill in other respects. On amendment No. 7, I am not reassured that, 10 or 20 years down the track, another agent or person acting on behalf of a loan purchaser will give sufficient reassurance to those who have taken out loans. His response on amendment No. 11 was also insufficiently robust. I listened carefully to what the Minister said about it and although his intentions may be noble—I do not doubt his integrity for a second—it is not only a matter of his viewpoint, as other Ministers will succeed him. As the hon. Member for Nottingham, South said, the ministerial merry-go-round does indeed go round and round, so where the Minister sits today may not be where he sits in a month’s or a year’s time. It is therefore important to have some guarantee built into the Bill.

The Minister also failed to reassure me about the Treasury’s power in this respect. If £6.3 billion is bound up in the comprehensive spending review at a time when black clouds are gathering and the income from taxation may not be as high as the Chancellor hopes for, and given the increase in the power and influence of the Treasury in recent years, it may well push very hard to raise money through the sale of the loans. That may not offer the best value for money outcome for the country. I am not therefore going to press amendments Nos. 5, 6 or 8, but with your permission, Madam Deputy Speaker, I intend to divide the House on amendments Nos. 7 and 11.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: No. 11, page 2, line 13, at end insert—

‘(8) In advance of entering into transfer arrangements the Secretary of State shall—

(a) examine the prevailing market conditions and ensure that a competitive market for the loans has been generated;

(b) provide the market with full information about the loan book in order that the assets can be efficiently valued;

(c) ensure that there has been a genuine transfer of risk from the public accounts to the private sector; and

(d) assess the proceeds that look likely to be achieved in the transaction, using full and clear market information and a comparison with keeping the loans on the Government books, in terms of both likely income flows and levels of risk.

(9) The Secretary of State shall make a written statement on expenditure incurred in connection with each transfer arrangement.’.—[Mr. Rob Wilson.]

Question put, That the amendment be made:—

Clause 3

Onward sales

With this it will be convenient to discuss the following amendments:

No. 9, page 3, line 24, at end insert—

‘(6A) Transfer arrangements shall—’.

No. 10, page 3, line 29, at end insert—

‘(d) include provision to prohibit transfers to another person outside the jurisdiction of the Secretary of State;

(e) prohibit the making of further transfer arrangements under which rights in respect of student loans are transferred to multiple purchasers.’.

Amendment No. 4 stands in my name, and I see that amendment No. 9 is virtually the same as it—it would certainly have the same effect. I was not privileged to be a member of the Public Bill Committee, so—[Interruption.]

When I get to my feet I usually speed the rush out of the Chamber, so it was surprising that those hon. Members delayed.

I was not a member of the Public Bill Committee, so I come to this debate as a humble seeker of the truth. I want to focus on the issue of onward sales. During the debate we have received helpful assurances that provide some security, in particular for people who have taken out a student loan but also for the Government in respect of the long-term future of student loans. However, the issue of onward sales remains a matter of concern and does not yet offer us the security that is required.

I welcome any correction if I have got this wrong, but I understand that the process from here on in is that a financial adviser will be appointed—I am not sure whether that has happened yet, but the last indication was that it would be Rothschild—a special purpose vehicle will be established, the sale will take place and the Government will pocket a sum. The loans will be protected, as my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) has mentioned, by the contract on the loan itself and by the assurances given today by the Minister that the regime will be protected by, at least, a report to the House and the use of the negative procedure of the House. That still means that the Government will be able to vary things at a future date—I hope that such a variance will be beneficial when the rate applied at the moment is examined—and they still have the opportunity to go in a different direction. The argument is that this system will offer value for money via the terms of the sale and the contract that will then be issued by the purchaser.

Our anxieties are about onward sales. We live in a complex financial market and financial system, where we experience a range of what can only be described as “exotic financial instruments”. They are complex, and in being so, they are increasingly precarious. So, a difficulty over regulation has emerged, as a result of which market conditions have become exceptionally difficult. In some instances, it would be difficult to envisage a purchaser of the loans, given the current market instability.

I do not want to dwell too much on Northern Rock, but the Bank of England, the Financial Services Authority and the Government charter have all been unable to control Northern Rock and to ensure predictable certainty. That has thrown up a number of regulation issues that the Government have responded to by undertaking reviews that may lead to reform. In that uncertain climate, the Minister rightly made it clear on Second Reading and in Committee that there was a perceived need for protection for all parties in the future. That protection certainly needs to be given to those who have taken out loans. For most people, a student loan will probably be one of the biggest loans that they will take out in their lives alongside their mortgage, their car loan—and, if membership rates keep increasing, their loan for membership of the Labour party.

It is vital that we secure the future financial arrangements beyond the initial sale. The positive decision on the initial sale will be made by the Secretary of State. Amendment No. 4 would ensure that an onward sale would require the same level of ministerial consent. The amendment would mean that the Secretary of State’s consent “shall” rather than “may” be required. If it were accepted, the Bill would require that “transfer arrangements shall”, rather than may,

“prohibit the making of further transfer arrangements without the Secretary of State’s consent”.

In Committee, the Minister said in response to that suggestion that it was doubtful whether there would be a sell-on given the experience in the past decade of the first tranche of sales. I believe that the world has changed, and it is changing rapidly. New financial mechanisms are evolving almost daily to enable swifter sell-ons in a variety of forms.

The Minister also said that there was no need to require the Secretary of State’s consent because clause 3(6)(b) and (c) would provide satisfactory protection. However, it is uncertain whether those paragraphs would require the involvement of the Secretary of State. The Bill states:

“Transfer arrangements may…require further transfer arrangements to be effected by way of novation or other arrangements”

or they may

“include provision by virtue of which the Secretary of State is automatically a party”.

The word used is still “may”, and so the Secretary of State’s involvement is still discretionary.

The crux of the matter emerged in Committee. The problem with the inclusion of the word “shall” rather than “may”—that is, a requirement for the Secretary of State’s consent—is a result of the Treasury accountancy rules. In Committee, the Minister said that the inclusion of the word “shall” would prohibit the onward sale of loans as the risk would not be transferred from the public to the private sector so the result would not be full privatisation. The argument is that the word “shall” would mean that income received as a result of the sale would appear on the Treasury’s books.

In Committee, that discussion prompted a debate about motivation. What is the motivation for the sale? Is it to raise funds? Yes. Is it to increase value for money in the management of the funds or, as my hon. Friend the Member for Wolverhampton, South-West asked in Committee, is it ideological—that is, political?

It is clear that funds will be raised, but the anxiety is that they will not be hypothecated—that is, that they will not be dedicated to funding higher education, for example, or to increasing maintenance grants for students. The National Union of Students has advised us today that the bursary schemes are failing to assist poorer students, and that there is concern that any funds raised will not be used in education.

If the Government’s motivation is to achieve value for money—and my hon. Friend the Member for Nottingham, South (Alan Simpson) has explained some of the costs incurred in the past—it is doubtful that the measure will succeed. Many people believe that the public sector can manage these matters better than the private sector, and that any risks that might exist would be discounted in the sale price. That leads me to doubt that value for money is the Government’s aim, and to believe that the motivation is ideological and political.

I believe that the Prime Minister and the Chancellor want to get the money involved off the Treasury books and to keep public sector debt below 40 per cent. of national income. The Government’s refusal to use the word “shall” rather than “may” shows that they believe that requiring the Secretary of State’s consent to the onward sale of the loans would undermine privatisation and ensure that income from the sale would appear on the Government’s books.

My contention is that the Bill undermines the future protection of the Government, the taxpayer and those who have taken out student loans. It is based on an ideological and political desire not to offend against Treasury rules and to ensure that borrowing does not go above 40 per cent. of national income.

However, such rules are not unbreakable: as we have seen with Northern Rock, they can go out of the window when there is a need to protect people who have invested in, or borrowed from, a particular institution. Amendment No. 4 would ensure that the same protection that has been extended to Northern Rock’s borrowers and savers is extended to the Government, the taxpayer and those with student loans if those loans are sold on.

In part, the amendment reflects the debate that took place in Committee. I hope that the Minister can give us some further assurance about the onward sale of student loans, as the taxpayer and those who have taken out such loans need more security in that regard.

The amendments are simple but necessary. They would clarify the Government’s position, defend the interests of those with debt, and maintain rigorous and appropriate accountability.

I am delighted to follow the hon. Member for Hayes and Harlington (John McDonnell), whose amendment No. 4 is very similar to the Opposition’s amendment No. 10. There is an anxiety among hon. Members of all parties to ensure that the interests of the taxpayer and of those who have taken on a debt are protected. We can achieve that by making the wording of the Bill as tight as possible, even though we accept the Minister’s good will and good intentions. Indeed, I should like to take this opportunity to say that he has handled this Bill with his customary professionalism and generosity.

Amendments Nos. 4 and 9 would require the Secretary of State to be party to onward sale arrangements, and they would also ensure that he was automatically a party to further transfer arrangements. On Second Reading and in Committee, concerns were expressed by hon. Members of all parties about the resale of the debt. I shall say a little more about that, as both amendments apply specifically to those circumstances.

Clause 3 gives the purchaser of a loan the right to sell it on to another buyer, subject to any limits on that right specified in the terms of the original sales contract with the Secretary of State. Although those who purchased the debt have a clear right to sell on the loans—one suspects they would not be able to buy them in the first instance unless that right is made clear—I think the whole House will agree that it is important that we have appropriate safeguards in place.

There are legitimate concerns about collateralised debt, and they were raised eloquently on Second Reading. History has taught us that loans can easily be repackaged and, in the end, involve a large number of different purchasers, some of whom, if they are known at all, could be outside the jurisdiction of the Secretary of State. Various scenarios were described in earlier considerations of the Bill. They include the horrific possibility of a loan or part of a loan book being purchased by an organisation underwritten by Government, by an offshore company or by an organisation in a distant place that would be outside the jurisdiction of the Secretary of State and therefore not subject to the important checks and balances that are to be written into the initial sale as part of the sales contract.

I am delighted to give way to the hon. Gentleman, who spoke so eloquently on Second Reading and in Committee.

I am grateful to the hon. Gentleman, who is presenting his case with his usual aplomb, as did the Minister.

Amendment No. 10 would introduce a new subsection (6) of paragraph (d) in clause 3 that would

“include provision to prohibit transfers to another person outside the jurisdiction of the Secretary of State”.

Can the hon. Gentleman say a little more about what the phrase “outside the jurisdiction” means in that context? In particular, is he seeking to address the fear that I expressed in Committee that we could have another Mapeley-type situation and that the debts could end up offshore? Or is he looking at a wider interpretation of the phrase?

I will come to amendment No. 10 in a moment, and I will endeavour to address that point. As the hon. Gentleman knows, I have already mentioned the risk of offshore organisations buying part of the debt. The picture that we fear may emerge is of the book being broken up into small parts. That is normal practice when purchasing and reselling debt. He is right to point out, as he has done before, that control is likely to be increasingly difficult to maintain as that process occurs. However, as I said, I will deal specifically with amendment No. 10 a little later.

I do not want to dwell on the Government’s continuing misfortunes; this is not the time or place to do that. Although the misfortunes have been profound and have caused real fears and difficulties across the country and have hurt some of the most vulnerable people represented by Members of the House, it is not appropriate to dwell on them here. However, it is certainly true that there are concerns about the leakage of data. Given the number of actors likely to be involved, there is surely an increased likelihood of a sensitive data leak. Unless strict safeguards are implemented, the audit trail could become complicated and possibly unreliable.

In Committee, the Minister explained that “may” rather than “shall”—this is the nub of the amendments that I and the hon. Member for Hayes and Harlington have tabled—was used in clause 3 in respect of the Secretary of State’s involvement in transfer arrangements because, for accounting purposes, the debt would otherwise not be considered to have left the Government’s books. Essentially, he argued that the word “may” appeared in the Bill for administrative reasons rather than as a matter of principle. He conceded that the safeguards that I have called for were important, but felt that, as the principal motive for the Bill was the transfer of risk from the public to the private sector, it was important in accounting terms that the debt should be seen to have shifted.

There are those cynics—I am not saying I am one of them—who think that the principal purpose of the Bill is to get some dosh to fund the Government’s plans. There is nothing wrong with that, but there are those who feel that that might take priority over other considerations, such as the welfare of debtors or the public interest, as my hon. Friend the Member for Reading, East (Mr. Wilson) pointed out. I will not add my voice to those that put forward that cynical analysis, except to say that I have some sympathy with those who expressed a sceptical view about the Government’s intentions.

I do not mean to insult the hon. Member for Hayes and Harlington in any way, but he missed a critical point: when the Minister for Lifelong Learning, Further and Higher Education clarified the position, he made it clear that the stipulation relating to accounting practices that I mentioned applied only to clause 3(6)(a), which refers to arrangements that

“prohibit the making of further transfer arrangements without the Secretary of State’s consent”.

For the sake of clarity, let me quote the Minister’s precise words:

“Were we to insert the word ‘shall’ in respect of paragraph (a) so that in all circumstances we would have to prohibit the making of further transfer arrangements without the consent of the Secretary of State, it would contravene the rules of classification and it could not be classified as a transfer from public to private sector debt.”

In respect of paragraphs (b) and (c), it is therefore quite clear that there is no administrative bar to changing the Bill.

For the record, when I asked the Minister why paragraphs (b) and (c) were grouped with (a), he said that he was

“always happy to consider constructive proposals.”––[Official Report, Sale of Student Loans Public Bill Committee, 4 December 2007; c. 62-63.]

Well, amendment no. 9, which is in my name and the names of my hon. Friends, is just such a constructive proposal. It would separate paragraph (a) from paragraphs (b) and (c). It is clear, at least from what the Minister said during the Bill’s earlier stages, that we could satisfy accounting rules while building in the additional safeguard that has been called for so eloquently by the hon. Member for Hayes and Harlington, by other Members on both sides of the Chamber and by the official Opposition. Our amendment is constructive as it would ensure ministerial involvement in onward sales, and would reassure the House and all those with student debts. It is on a matter of public interest, and we all seek to ensure that the Bill is in the public interest.

Having heard the intervention of the hon. Member for Wolverhampton, South-West (Rob Marris), I turn now to amendment No. 10, which would prohibit onward sale outside the jurisdiction of the Secretary of State. It would ensure that when student loans were broken up, creating the real doubts that I mentioned, the public’s or debtors’ interests were not jeopardised. I took on board his remarks about offshore companies; they certainly would fall into the category I described, but there are other circumstances in which the resale of the book might jeopardise debtors’ interests or the public interest. He is an eminent lawyer, so he might care to contribute on the subject, either now or later. I see that he is nodding, so we can expect some sagacious remarks from him on the subject.

Through amendment No. 10, I hope to express my anxiety about ensuring that the Minister’s assurances on the Secretary of State’s powers to protect interests at a later stage of the process are meaningful. The amendment is very much in the spirit of what the hon. Member for Wolverhampton, South-West and I said in the Bill’s earlier stages. I have no doubt about the intentions of the Secretary of State and the Minister, but if the debt were sold to a place—I use the term in the broadest sense—outside the Secretary of State’s jurisdiction, it would be hard to guarantee that protection. Amendment No. 10 would therefore be a useful addition to the Bill, and would increase popular confidence in the Bill’s efficacy.

My hon. Friend the Member for Daventry (Mr. Boswell), who always comments on these matters with both experience and insight, quoted the example of a hypothetical Lithuanian bank securing a package of loans. I made it clear then that I have nothing against Lithuania, but one can see what he was getting at. There would be real worries among existing and potential debtors if they thought that the loan book would be broken up and spread across the globe.

I hope that we might divide on amendment No. 9. As the hon. Member for Hayes and Harlington led on this group of amendments, it is his privilege to make his own decision, but that is ours.

On at least three occasions in the Public Bill Committee, the Minister was clear about “shall” and “may” and the Government’s position on that. I shall quote from column 62 of our deliberations in Committee on 4 December, where my hon. Friend said:

“My clear understanding is that were we to insert the word ‘shall’ in clause 3(6)(a), that would make us unable to classify the debt as a transfer from the public to the private sector. However, there are other protections available to us in clause 3(6)(b) and (c) to enable us, through the contract, to protect the interests of the graduate.”

I shall break that down into two parts.

To me, the easier and less intricate part, if I may put it that way, is in the second half of the quote that I just read out, where the Minister, as he had earlier in that debate in Committee, referred to “other protections”. The other protections in clause 3(6)(b) and (c) in the Bill as drafted—in contradistinction to the Bill as it would be, were the amendments to pass—or, as the Minister also described them, the

“other tools at our disposal”—[Official Report, Sale of Student Loans Public Bill Committee , 4 December 2007; c. 61-62.]

come under the permissive rather than mandatory rubric of the first line of clause 6, which contains the phrase

“transfer arrangements may”.

The permissive word “may”, rather than the mandatory word “shall”, covers (a), (b) and (c), so I should like a little clarification from my hon. Friend the Minister as to how those other protections would not be potentially weakened, just as the protection in clause 3(6)(a) is arguably weakened, because they are all under the umbrella of “may” rather than “shall”.

To me, the more intricate point, which unfortunately leads us to another “shall” and “may”, is the clarification that my hon. Friend issued to members of the Committee, sending them a copy of the letter that he wrote on 12 December to the Chair of the Committee, my hon. Friend the Member for Aberdeen, South (Miss Begg), for the benefit of all members of the Committee. He stated on page 2 of his letter:

“The most important factors in deciding the classification are whether there has been a real transfer of risk and control to the private sector. Under the current classification rules, using Clause 3(6)(a) would provide evidence that the Secretary of State had retained an element of control over the loans in the event of onward sale, and would affect ONS’s decision to classify the loans as having been sold.”

I want to probe that a little further with my hon. Friend, which I shall do in a moment by way of an example. It is not clear to me whether the word “would” in the phrase

“would affect ONS’s decision to classify the loans as having been sold”

is a permissive or a mandatory word—that is, whether the ONS definitely would say, “‘Shall’ means that the Government have control, therefore the loans do not go off the public books” or whether the ONS might so classify it if the House decided to use the word “shall” rather than “may” in clause 3(6). The wording in the Minister’s letter relates to retaining an element of control.

My partner and I have lived in the same house for 23 years—bear with me on this for a moment, if you would, Madam Deputy Speaker. The house was built in about 1888. We bought it from another married couple, who had bought it from the Roman Catholic archdiocese of Birmingham. It had inherited the house from somebody who had owned it for a number of years; I know nothing about the chain leading back to 1888.

In the deeds, there is a restriction on brewing beer for commercial purposes. That is quite a common restriction for terraced houses built in the midlands in the 19th century; I saw it several times during the little bit of conveyancing that I did in my former career. Whoever has the benefit of that restrictive covenant will be the heirs and assigns of whoever imposed that covenant—possibly the builder—in about 1888. That family retains an element of control over how my wife and I can or cannot use our property. However, it would be clear to most lay people—and, I think, to most lawyers, although I am not much of a conveyancer—that the clear ownership of the property had been outwith that family for 120 years. So when I consider the student loan book that might be transferred, it seems to me that, were the word “shall” to be used in clause 3(6), the Office for National Statistics—I do not know all the rules—might not classify this as a prohibition on saying that the debt was off the books.

My hon. Friend is right; such restrictive covenants exist throughout the country. In the fishing areas where I come from, they restrict such activities as fish curing. Many of the properties involved are leasehold, which further complicates things.

My hon. Friend is right, although I do not want to get into leaseholds, which would further complicate the matter. In a long lease, ownership of the land has not transferred, but let us leave that aside. My hon. Friend is right indirectly to get me to say what I have not said hitherto: our property is freehold. There is a restriction on our use of it. Someone else has an element of control, to use the Minister’s words, as to what we do with the property. However, everyone would say that we own the property and that the property has been transferred into our names.

I appreciate the example that the hon. Gentleman has given, but we must not stray too far down that route and lose ourselves.

I assure my hon. Friend that I desperately do not want to get involved in a discussion of my lease.

I should like to make a point to the Minister through my hon. Friend. As the Minister explained in Committee, the rules that are defined relate to control. If a controlling interest of some sort is involved, the loans are still on the Government’s books and there is not a transfer of risk and a privatisation in that sense.

There must be a qualitative judgment; I think that my hon. Friend was getting to that. The Opposition have tabled a clever amendment, which, based on the Minister’s wording originally in Committee, relates to clause 3(6)(a)—that is the qualitative judgment made on control. However, (b) and (c) are therefore not judged qualitatively as having sufficient control and therefore offending against Treasury rules.

The clear issue for many of us, though, is that there should be control. The ingenious Opposition amendment falls between the two stools—there either is or is not control. In my view and that of many others, if there is no control, we will not have sufficient power over the future. If there is control, the issue falls foul, like “shall” in regard to subsection 3(a); it would fall under the guidance of the ONS, as it would be classified as still being under the control of the Government and therefore, under Treasury rules, part of the Government’s expenditure.

I will be interested to hear what my hon. Friend the Minister says as to whether severing paragraphs (b) and (c) and putting them under a mandatory “shall”, but retaining the permissive “may” covering paragraph (a), is sufficient to address any concerns of the ONS or the political concerns of hon. Members.

It sounds as though the hon. Gentleman is describing a Quaker clause, which is common in my constituency, whereby there are no pubs on a particular swathe of land because of restrictions put on its sale. He is a lawyer and I am an accountant. He seems to be confusing contract law of restrictive covenants with accountancy law on what can be kept on-balance sheet, which I think is what the Minister is getting at. Does he recognise that he might be going down the wrong avenue?

I might be; that is one of the things I am attempting to probe with the Minister. Ultimately, of course, accountancy law is still law.

As ever, the hon. Gentleman is making an interesting case. The point made by the hon. Member for Hayes and Harlington (John McDonnell) seems to be the pertinent one. That is why I favour amendment No. 9 over amendment No. 4. If the Minister tells us that paragraphs (b) and (c) cannot be prefixed by “shall”, he will contradict what he said during earlier consideration of the Bill when he explicitly talked about paragraph (a), which is supported by the correspondence to which the hon. Member for Wolverhampton, South-West (Rob Marris) referred.

As always with this lucid Minister, it will become clear what can and cannot be done and what the consequences of certain courses of action might be. However, I would like him to clarify whether the use of “shall”, as in amendment No. 4, would definitely lead to the ONS making a ruling that the student loan book, when sold, had not moved off the Government’s books, or might lead to it making such a ruling.

We are having an interesting debate on the meaning of the word “shall” and whether it has a legal or an accounting effect. We will have to wait to hear what the Minister says. I hope that he has a corporate lawyer at hand with his officials to slip in some definitive advice. In privatisations, there was often provision for a golden share, and it seems the hon. Member for South Holland and The Deepings (Mr. Hayes) and the hon. Member for Hayes and Harlington (John McDonnell) are proposing a golden clause in the contract of sale. That might be a helpful analogy, but we need to wait for what the Minister says, based on the legal advice that I am sure he is in the course of receiving.

Amendment No. 10, tabled by the hon. Member for South Holland and The Deepings, would prohibit transfers to another person outside the jurisdiction of the Secretary of State. When I read the amendment, I wondered what that meant. The hon. Gentleman suggested, as did Labour Members, that it might mean a break-up of the loan book, and perhaps sales offshore as well. Is there a contradiction between that amendment and amendment No. 11, which sought a full market test for the sale of the loan book, and which I agreed with? If certain people are excluded just because they happen to be outside the jurisdiction of the Secretary of State or of our banking laws or any other laws, would that undermine the concept of value for the taxpayer that the Conservatives sought to achieve?

To clarify for the benefit of the House and the hon. Gentleman, we clearly need to ensure value for money. I am not a lawyer or an accountant, but I was a business man. Buying and selling and getting value for money in doing so does not mean that one buys and sells to absolutely anyone, regardless of the consequences.

I thank the hon. Gentleman for that intervention, but I am not sure whether it clarifies the purpose of his amendment. As a business man, I am sure that he relied on the advice of both lawyers and accountants to achieve good value for his business.

I hope that we shall get some clarification as to the purpose of the amendment. Is it to prevent sales of the loan book offshore? I am not sure that I agree with that or that I see the dangers implied, although I had some sympathy with the statement that there may be data protection issues for graduates if the loans were broken up. On the other hand, as long as the conduit for their payments and for advice and correspondence remained the Student Loans Company, which was the subject of amendment No. 7, that protection might remain in place. Earlier, the Minister said that that was the case, and I assume that is why amendment No. 7 was not pressed to a Division. Again, clarification would be welcome.

There are other issues, such as debt collection, that we have debated previously, and they may be debated again when the Bill goes to the other House. There are all sorts of things relating to who handles the debt that might affect the welfare and circumstances of the debtor. Ownership is important in those terms as well.

I thank the hon. Gentleman for that clarification. I am drawing my remarks to a close, and I have to wait for clarification from the Minister as to the definition of “shall”.

The hon. Gentleman will correct me if I am wrong, but I understood him to say that he was not overly concerned about offshoring and was not sure what the concerns were. My concerns relate not only to the data protection issues to which the hon. Gentleman referred, but to the potential loss of tax revenue to the United Kingdom. With Mapeley, the outcome is that a load of Treasury buildings are now owned by a company in Bermuda that does not pay UK taxes. I am worried that something similar will happen in this case. That would mean a loss of revenue from profits made by a financial institution offshore—by which I mean outside the European Union—that is not getting taxed. We lose.

I thank the hon. Gentleman for that intervention. The purpose of my remarks was to get clarification of the amendments’ meaning. The hon. Gentleman has participated in the scrutiny of many Finance Bills, so he will know that such transactions could well be the subject of anti-avoidance rules—or they certainly should be. The transaction in question happened several years ago. A Finance Bill is probably the correct place to ensure that an abuse of the sale of a Government asset does not take place. None the less, I was only seeking clarification and I look forward to hearing what the Minister has to say.

It is difficult for someone who is not a lawyer or an accountant to speak in this part of the debate. For the record, I would like to make it clear that I am in favour of amendment No. 4 in principle, and in favour of amendments Nos. 9 and 10 and the strengthening of protection that is built into the Bill. It is perfectly legitimate to seek to include protections against the breaking up of the loans package, the transfer of loans outside the jurisdiction of the Secretary of State, or multiple purchases.

Northern Rock has been mentioned. Experience of the financial collapse in the United States has made us suddenly aware of the complex world of debt sales in which packages of debts are broken up. Good debt is mixed with bad debt, and when the system collapses, all debt goes down the pan. The question for the House is how do we protect those who have taken out debts—people who would be exposed if everything did go pear-shaped? That is a perfectly legitimate question. My difficulty is with the legal significance of the words “shall” and “may”, and whether it makes any difference to the transfer of undertaking if a change is made in the opening line of clause 3(6), or between subsection (6)(a) and (b). I ask the Secretary of State to clarify that.

I mean the Minister.

During earlier exchanges, I thought that I was clear about the matter when the Minister’s comments in Committee were read out. In the light of those comments, amendments Nos. 9 and 10 appeared appropriate, as they would give precisely the sort of protection that the House sought, without compromising Treasury rules about what amounts to a transfer of undertakings.

In principle, I oppose the sale of student debt—full stop.

I should like to define my position because I do not want my hon. Friend to misunderstand. I wish to replace “may” with “shall” because I want future sales to take place by way of the Secretary of State’s consent. Otherwise, there is no long-term assurance or security. I recognise the ingenuity of the Opposition amendments. If they gave us that control, it would satisfy me but fall foul of Treasury rules. They therefore fall between two stools. I humbly say that my amendment is simpler and clearer and that the Government should accede to it. If they did, we would all get the security that we want.

I agree with my hon. Friend but I am not sure whether the technical argument is that the amendment would preclude the whole process happening. Some of us may argue that that would be no bad thing, but I am trying to explore the next level of protection.

It is almost as if we are in a Catch-22 position. Those who have read the novel will recall a character called Major Major, whom one could get in to see only when he was out. If he was in, he was occupied, but if he was out, people were free to go and discuss whatever they liked with him. If the Minister says that including “shall” at any stage would compromise the transfer, and Treasury rules, we are embarking on a process that cannot offer any guarantees of protection in the new world of risk in which we are being invited to make rules. It leaves the process extraordinarily dubious on moral and practical grounds.

If we cannot build in the protections, we should not embark on a process that increases, rather than reduces, the risk of exposure. My preference is for amendment No. 4, which grants the “shall” protection to the whole clause. However, if the word “shall” were inserted after subsection (6)(a), would the transfer remain legal?

The debate is important. First, let me deal with the comments of the hon. Members for Bristol, West (Stephen Williams) and for South Holland and The Deepings (Mr. Hayes) about data security. The subject was debated at length in Committee, but, given that the concern has been raised again, it is important for the record to make it clear that there have been no breaches of data protection protocols in student loan administration. We are certain that no data have gone missing. Personal data are exchanged between the Student Loans Company and owners of sold, mortgage-style loans electronically, using a secure virtual private network or VPN. That VPN is facilitated using an internet protocol secure encrypted tunnel. As hon. Members who take an interest in such issues know, that method of data sharing is considered robust by industry standards.

In future, as we plan to require purchasers of income-contingent repayment loans to use the SLC to administer and enforce the sold loans, loan account data will not need to be transferred to the purchasers for day-to-day purposes. In the event of purchasers requiring access to data—for audit purposes, for example, as was mentioned in Committee—the method of data transfer would again be secure and encrypted. I hope that that provides the reassurance that was sought.

The intention of the amendments in the group is to ensure that borrowers continue to be protected in the event of the onward sale of student loans. I genuinely share hon. Members’ determination to ensure that the protection for borrowers that we put in place must still hold good after any onward sale—were I not assured of that, I would not be putting forward these arguments today—so that the graduate can continue to experience no difference in treatment.

Let me turn to the points that my hon. Friend the Member for Hayes and Harlington (John McDonnell) raised. As I made clear in Committee, the motivation for the legislation is not ideological; rather, the Bill is about the transfer of risk between the public and the private sector. It is about securing for the public sector—for the Government and the taxpayer—greater certainty about the income that we get from loans. That will generate a receipt that can be used for a variety of public spending purposes.

I should like also to address my hon. Friend’s comments about student bursaries. The student finance system cannot, in any shape or form, be described as not working, especially if we bear it in mind that applications for university this year are up in England by more than 6 per cent. and that the proportion of students from lower socio-economic groups applying is up too.

We can talk about bursaries elsewhere, but the information that we have today is that 20 per cent. of bursaries in the Russell group of universities are not being used. That needs to be investigated, because those resources could be used to bring poorer students into higher education.

I certainly agree that all institutions need to communicate and market their bursary systems effectively. I urge my hon. Friend to study the Office for Fair Access report in detail, because it does not quite say what some pieces in the press suggest it does; rather, it says that the bursary system is working effectively. However, we are conscious of the need to ensure that the student financial support system is as effective as possible. I hope that my hon. Friend will support the changes that we announced to the student financial support system, starting from this September. We are significantly increasing the proportion of students who will receive non-repayable grants, so that eventually two thirds of students will receive such grants.

Of course. I opposed the abolition of grants in the first place, and the amount of grant currently being awarded is a pittance in comparison with what some of us gained when we went to university. I therefore support the change in principle and will work with my hon. Friend to increase the amount and improve the system.

We are in danger of being diverted. The difference between when my hon. Friend and I went to university and now is that an absolute minority of the population used to be offered that opportunity—whereas in this day and age, we are talking about a mass system of higher education, in which there must be a balance of contributions from both the state and the individual who receives and is able to repay as a postgraduate on a fair basis, but with the additional support that comes from student grants.

Let me return to the substance of the amendments. I stress at the outset that once the loans are sold to a special purpose company and securitised, we expect it to be a rare occurrence—I would go so far as to say a very rare occurrence—that the loans will be sold on, because the sole purpose of the special purpose company will be to hold and receive income from them. The main market relating to sold student loans will be in financial instruments issued by the owners of the loans.

The loans sold in 1998 and 1999 were sold to major banks, in particular NatWest and Deutsche bank, which then created special purpose vehicles—thesis and honours—that hold the loans and issue the bonds. I understand that ownership of those loans has not been transferred, although there is an ongoing market in such bonds. However, in any sale the purchaser would expect to have the right to sell the asset. That is part and parcel of ownership. The Bill will therefore enable the SPV to make onward sales of the loans if so desired, even though that is unlikely.

Clause 3 makes such onward sales possible and provides for the repayment system functions to get the appropriate repayments to the current owner of the loans. It also provides very important protections so that the Government can ensure that borrowers experience no difference in treatment following a sale.

Clause 3(6) provides three options for methods by which the Secretary of State can be a party to onward sales, ensuring that the Government have the flexibility, which is important, to provide protection for borrowers in future sales contracts. The Bill enables a long-term programme of sales, so we need to ensure that it gives us the options that we may require to achieve our aim of protecting borrowers, as transactions and contractual arrangements are likely to evolve over time.

As I explained in Committee, clause 3(6)(a) is an option that we may want to use in future contracts. It would require the Secretary of State’s explicit consent for any onward sale of transferred loans. That option is rightly included in the Bill, in case future legal circumstances make such a provision appropriate. At the moment, however, we cannot include such a provision in sales contracts, because, under the current classification rules, the Government would not achieve a full transfer of ownership if the Secretary of State retained control over the loans in that way. Resources would therefore not be released for sustainable investment on the Government’s priorities, negating one of the central purposes of the sales programme.

The reality is that the resources would still be received, but they would be beyond the Treasury books. They would still be available. On what grounds, on what basis and in what circumstances would the Secretary of State intervene to require his or her permission, approval or consent?

I will address that issue, but we are seeking through one of a number of options a mechanism to secure the Secretary of State’s interest that secures the graduate’s and the repayer of the loan’s interest. That is critical to ensuring that the terms and conditions for the repayer are not changed.

I just asked a simple question: what would trigger the exercise of the power to demand the Secretary of State’s consent?

It is an option that we may want to exercise in future if the ONS rules change. We could then use that mechanism as opposed to other mechanisms that can secure the Secretary of State’s interest. I will describe how that would work.

I also want to address the comments of my hon. Friend the Member for Wolverhampton, South-West (Rob Marris). In Committee, he raised the issue of whether the use of the word “would” would mean that the ONS might, or definitely would, classify such matters—

I note my hon. Friend’s comments from a sedentary position.

Let me be clear on the issue. The decision will always be one for the ONS, but the Government and I are confident that a statement as stark as, “You cannot sell the loans on without the Secretary of State’s say-so,” would, under the current classification rules, trigger a decision that it was not a true sale. That is our judgment, and we want to keep that option in case of a future change in the classification rules.

Clause 3(6)(b) and (c), which are addressed by the amendment, provide two legal ways of achieving the same end: to ensure that the Secretary of State can enforce the terms of the original contract against future purchasers. That might include provisions that, for example, purchasers must continue to administer loans though the Student Loans Company, or that borrowers continue to have access to a mediator in the event of dispute. Clause 3(6)(b) would achieve that end through contractual novation, which effectively means substituting the subsequent purchaser for the original purchaser in the contract with the Secretary of State. Clause 3(6)(c) would allow the Secretary of State automatically to be a party to any subsequent sales contract, so that he would be able to enforce its terms. It is important that we retain both those options so that we can use whichever is most appropriate at the time of a sale, bearing in mind the long-term nature of the intended sales process. I do not want to restrict our hand at this stage if, in the longer term, that would compromise the Secretary of State’s interests and those of the borrower.

Things are becoming clearer by the moment. In answer to the intervention by the hon. Member for Hayes and Harlington (John McDonnell), the Minister effectively said, in respect of clause 3(6)(a), that “may” means “won’t”. In respect of clause 3(6)(b) and (c), he is now saying that he wants to add “or” or “either”. If we were to add “shall”, “either” and “or”, presumably he would be happy. Why will the Government not do that?

Happiness does not come that easily in these matters. I want to retain flexibility for future circumstances. I shall explain what I mean by that.

I understand amendment No. 9 to be intended to make it mandatory to follow one or other of the alternative approaches, although as drafted, it would make both mandatory, which makes no sense. We think it likely that one or other of those mechanisms will be appropriate, but it would not be right to make it mandatory to use one or other of them, as another contractual device to achieve the same end might be more appropriate, or become so in the future. For that reason, I cannot accept amendment No. 9.

In that case, we only need to add “either”, “or” and a suffix that says something like “or an equivalent vehicle to achieve the same purpose”. This is a straightforward matter, yet we seem to be dancing on the head of a pin here. The Government are saying that they agree with us, and they are more than capable of wording an amendment of their own that would satisfy the House and the intentions of my amendments and that tabled by the hon. Member for Hayes and Harlington.

The only problem with that proposition is that that is not what is on the Order Paper. It is not what the hon. Gentleman tabled in his amendment. At first take, however, his proposal strikes me as being potentially reasonable. If his party were to table such an amendment in another place, we would certainly consider it.

May I be clear, then, that if “shall” were used in regard to clause 3(6)(b) and (c), it would not offend against Treasury rules or ONS classifications, and that the proceeds would not therefore count as being on the Treasury books? May I also ascertain that, at the same time, such a provision would not give the same protection as would be provided by the use of “shall” in regard to paragraph (a), which would require the Secretary of State’s consent?

Depending on the circumstances, all the options secure the Secretary of State’s—and therefore the repayer’s—interests. With regard to the use of “shall” in respect of clause 3(6)(b) and (c), that is a judgment for the ONS. My understanding, based on advice, is that that would not contravene ONS rules.

So the provision would not contain the element of control that I am seeking in relation to clause 3(6)(a)?

I think it does. Each of the options is an option to secure the Secretary of State’s interest over the longer term. I think that I have made that clear.

Finally, let me turn to amendment No. 10. I have already said that we think it unlikely that the loans themselves will be sold on. However, we have to allow purchasers to sell them. We cannot exert substantial control over such matters, since to do so would mean that the transaction would not constitute a sale. We cannot have it both ways. Once we have sold an asset, it belongs to someone else, so we cannot decide whether it is sold again or whether a subsequent purchaser will be resident in England and Wales. Indeed, any obligation to confine ownership to an organisation in England and Wales would contravene European Union law, as the Conservatives are aware. That is why it is so important to understand that we are not in the first place giving purchasers the right to change terms and conditions of the loans. What we are selling is the right to repayments of principal and interest outstanding on the loans. That is the borrowers’ primary protection. Clause 3 also gives the Secretary of State the options that he needs to ensure compliance with any protections that are included in the sales contract.

It seems to me that the Minister is moving towards a position that has been articulated across the House. For the sake of clarity, let me say that I shall not press amendment No. 9, given that, as the Minister acknowledged, it might be framed differently in the other place to make it more acceptable and to do the job better.

I am grateful.

To conclude, I am confident that the Bill as drafted provides the Government with appropriate and necessary flexibility to protect borrowers in the event of an onward sale and I am happy to go on the record once again to commit the Government to achieving such protection for all transfer arrangements. On that basis, I hope that the amendment will be withdrawn.

I am grateful for the Minister’s assurances, but I have to say that what he has suggested falls between two stools and does not give me satisfaction about the security of a Secretary of State’s consent. If it did, it would offend against Treasury rules, so it would not be feasible in terms of how the Government would calculate what is on the Treasury books. If the two other paragraphs in the clause are amended in the other place, they will not provide the same security; if they did, they too would fail to comply with Treasury rules. My hon. Friend the Member for Nottingham, South (Alan Simpson) has already mentioned Catch-22, and we are in a Catch-22 situation here.

I am not sure that the hon. Gentleman is right about that. Far be it from me to speak for the Minister, but I believe that when he described the Treasury rules, he was absolutely clear that he was dealing with paragraph (a), not paragraphs (b) and (c).

Let me be very clear. The Minister has said that his advice from the Office for National Statistics was that paragraph (a) would be classified at present as falling against Treasury rules in giving too much control to the Government. He has also said that paragraphs (b) and (c) fall against my criteria because they give insufficient control to the Government. That is the Catch-22. I shall not press the amendment, but having heard expressions of the Government’s good will in the Minister’s response, let us hope that the matter can be resolved in the other place on the basis of some of the suggestions in the amendments that we have debated today. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4

Loan regulations

I beg to move amendment No. 1, in page 3, line 42, after ‘reimbursement’, insert ‘by a defaulting borrower’.

With this it will be convenient to discuss the following amendments: No. 2, page 3, line 42, after second ‘of’, insert ‘the reasonable’.

No. 3, page 3, line 43, at end insert

‘in respect of that default by that borrower’.

I would like a quick walk round the block on these amendments, if I may put it that way. The amendments relate to clause 4(3) and they are not designed to bring about substantive changes to the Bill, but to clarify its wording. As I read clause 4(3), it allows reimbursement to loan purchasers of some of their costs—bidding costs, for example—a practice that has become fairly common in recent years. The Government often struggle to get people to bid on private finance initiative contracts because due diligence can cost tens of millions of pounds, so in order to encourage a range of bids, prospective bidders sometimes get their expenses met by the Government. That is what I thought the subsection meant, and I did not think that it was a good idea to reimburse bidders. Amendments Nos. 1, 2 and 3 were designed to re-focus what it meant in the light of our debates in Committee.

Since the Public Bill Committee sitting of 4 December, I have had an opportunity to look at section 22(5)(f) of the Teaching and Higher Education Act 1998, which is mentioned in clause 4(3). I think that I now understand what subsection (3) actually means, but I would like the Minister to clarify the cross-reference to section 22(5)(f) of the 1998 Act. If my first understanding of clause 4(3) was faulty, it is perfectly possible that my second understanding of it is also faulty. That is why I would like some clarification from the Minister before deciding whether to press my amendments.

As he said, the hon. Gentleman raised these matters earlier. His amendments make clear that

“reimbursement of costs or expenses incurred by a loan purchaser”

refers to costs in respect of a defaulting borrower.

I remind the Minister, who may not have the material to hand, that in Committee in response to the sentiments expressed by the hon. Gentleman, he said that he was

“sympathetic to the framing of that amendment, but I need to look at it in detail. If I can be reassured that it would not have an unintended consequence, I will be happy to accept it on Report.”––[Official Report, Sale of Student Loans Public Bill Committee, 4 December 2007; c. 64.]

My advice is that it will not have unintended consequences. I hope the Minister’s will be the same, in which event we can accept what strikes me as a very sensible set of suggestions.

As my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) is aware, I had an opportunity to discuss this issue with him between the Committee stage and Report.

My hon. Friend has said that neither the Bill nor the explanatory notes explicitly specify that the reimbursement described in clause 4(3) refers to amounts payable by a borrower. That is true, but as I think my hon. Friend accepts, the point is made explicitly in the Act to which the subsection refers. Section 22(5)(f) of the Teaching and Higher Education Act 1998 allows the Secretary of State to make regulations enabling the recovery of specified costs and expenses from the borrower incurred in recovering the outstanding balance of the loan. The wording of the existing legislation refers explicitly to borrowers. Clause 4(3) therefore simply enables those regulations to provide for the reimbursement that currently applies to the Secretary of State to be made to the purchaser of sold loans.

On that basis—and I have discussed this with my hon. Friend—I genuinely believe that the amendment is unnecessary. However, I should be more than happy to amend the explanatory notes to make the meaning and effect of the subsection clearer. That was really the issue at the start of the debate, and I hope that on that basis my hon. Friend will be reassured.

Such are the little victories of Back Benchers! I do not get to amend a Bill, but my hon. Friend the Minister has generously agreed to amend the explanatory notes before it goes to the other place.

On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 5


Amendment proposed: No. 7, page 4, line 9, leave out

‘a person acting on behalf of a loan purchaser’

and insert ‘the Student Loans Company’.—[Mr. Hayes.]

The House proceeded to a Division:—

Order for Third Reading read.

I beg to move, That the Bill be now read the Third time.

We have had a thoughtful debate today, as we did in Committee. I thank the members of that Committee for the constructive way in which they contributed at that stage. The Bill has enjoyed a good measure of consensus about its basic principles, with wide agreement that it is right for the Government to consider how the growing student loan book is managed so as to ensure good value for money and sound management of public finances.

It is accepted across the House that a sales programme for student loans is appropriate, provided that it yields good value for money and that the position of borrowers is not affected. Those two issues are the Government’s policy objectives in proposing that we embark on a sales programme. During the course of the debate, hon. Members rightly sought to satisfy themselves that the Bill allows us to ensure that the proposed sales will meet those specific objectives. We have taken the view that the small number of amendments proposed should not be accepted, but we acknowledge that the intention behind them has been to ensure that the aims that we have set out for the programme of sales come to fruition.

I shall now reiterate the key commitments that I emphasised when we embarked on our consideration of the Bill in November. The terms and conditions for all loans will, as now, be governed by regulations scrutinised by this House. I confirm that there will be no adverse change for borrowers, whether their loans are sold or retained, and I hope that that gives some further reassurance to my hon. Friends the Members for Hayes and Harlington (John McDonnell) and for Nottingham, South (Alan Simpson).

The borrowers’ experience will not change and the collection and administration systems will be the same, whether or not a loan has been sold. The Bill contains the provisions that we need to ensure that the enduring protection for borrowers is secured. All transactions will be subject to a rigorous assessment that good value for money is being achieved—a matter that has been the subject of much discussion, both in Committee and in today’s debate.

Some hon. Members have asked whether material for testing value for money should be included in, or appended to, the Bill. As I have said, I do not believe that that can be done: it would be irresponsible to put in the public domain in advance of a transaction any details of the Government’s assessment of what price would constitute good value for money, as that would undermine the competitive process. In any event, such an assessment would be different for each sale in what is a long-term programme, as the characteristics of each portfolio to be sold are unlikely to be identical.

What principles govern the value-for-money assessment, and what issues will be considered? I explained the Government’s approach on Second Reading, and I am happy to do so again today.

Part of the value-for-money assessment will involve the gathering of full and clear market information, and weighing the value of keeping the loans in the public sector on the balance sheet of the Department for Innovation, Universities and Skills. That process will help us to compare bids for selling the loans against the value of holding them. Assessing those values will require various estimates of the level of repayments to be made by borrowers, stretching far into the future.

In addition, we will estimate the rate at which graduates will repay their loans, and the number of loans that will have to be written off because, for example, the people who have taken them out have become permanently disabled. Those projections will have to be based on assumptions and estimates, so it is clear that they have a built-in degree of risk. In assessing value for money, we will also have to take into account the value of transferring that risk from the public sector to the person who buys the loan. That is not something that lends itself to precise quantification, so the assessment will have to consider a range of values based on differing assumptions and estimates of risk.

That is only one part of the value-for-money assessment. The other elements include ensuring that a sale is competitive, that it takes place under normal market conditions, that potential bidders have enough information to make informed bids, and that there is a genuine transfer of risk from Government to purchasers.

We are making a clear commitment that sales will take place only where good value for money can be assured. It will be for the Government of the day to make a judgment about value for money for each proposed transaction. Some elements involved in that judgment may alter over time, for example as market conditions change and as the experience from earlier sales is built on. As I have said repeatedly, the judgments will be open to parliamentary scrutiny in the usual way. The Government will report to the House after each sale transaction, and no doubt the National Audit Office will report to the Public Accounts Committee on the programme of sales as a whole.

The debate on the Bill has been a constructive but rather technical discussion of how we can ensure that the programme of sales can proceed. It has also dealt with how we can fulfil our commitment that borrowers will notice no effect. I hope that I have been able to explain more fully how the Bill will achieve the Government’s widely accepted policy objectives. No one should doubt our commitment to working in a thorough way to ensure that the sales programme is a success for borrowers, the Government and the taxpayer alike.

The Minister described this as a technical Bill and it is certainly complicated. That is not to say, however, that its provisions are not significant to a very large number of people and that they do not have political ramifications. The Bill is in line with Conservative intentions to move the student loan book to the private sector, but those intentions are not without qualification. Throughout—both during the Bill’s consideration and earlier—we have made it clear that the transfer from the public sector to the private sector cannot be made unless proper safeguards are in place to protect both the public interest and borrowers.

I have no doubt—this point has been made previously, but it warrants reamplification—about the Minister’s intention or integrity. However, when we pass legislation in the House, it is vital that we detach that legislation from the characteristics or strengths of any particular Minister, because we do not know who the Minister might be in a year or two. Of course, in the happy eventuality of our winning the next election and my becoming the Minister, these matters will be in even more secure hands than they are now. However, we cannot rely on that happy eventuality, which is precisely why thus far and, I hope, in the other place, there has been and will be a determination to ensure that those safeguards are in place.

That brings me to the three or four central points that I want to make on Third Reading. The first is to reprise the argument about value for money. When giving oral evidence in Committee, the Minister said:

“Clearly, the Bill gives us enabling powers to undertake value-for-money assessments over a long period of time…we have said within the forthcoming three-year comprehensive spending review that we are looking to make sales to the tune of £6.3 billion. Having said that, if we do not judge that the market conditions are appropriate for those sales and we do not think that we will get value for money, those sales will not go ahead.”––[Official Report, Sale of Student Loans Public Bill Committee, 4 December 2007; c. 3, Q1.]

This seems to contain a paradox, possibly even a dilemma. The circumstance could arise in which the Treasury says, “Where is our £6.3 billion?”, but the market conditions and prevailing circumstances are not ideal for a sale. When the provision is set out for a three-year period, it is a bit rich to argue that if the circumstances are not right, one will ignore that and delay the implementation of the Bill to an indefinite future date. I cannot really believe that the Minister thinks that is likely. Just to be sure, Opposition Members have tabled amendments to make it clear for his benefit—he should see this not as a harpoon but as a lifeline—what the value-for-money criteria are and to place them securely in the Bill.

The Minister will argue, and no doubt has argued, that such a provision would be too inflexible and that it is dangerous to write into a Bill things that are, by their very nature, dynamic—in which case, why did he not come before the House and offer an alternative? He could have appended the value-for-money criteria to the Bill or guaranteed to provide it in guidance. He could have suggested that it would at least be made public. We hear that there is a value-for-money framework, which must include criteria, because the Minister has said so repeatedly on Second Reading, in Committee and again today. However, no one is allowed to see it. If there is such a framework, the debtors, the public and certainly the House have a right to know what it is, and it should be securely attached to the Bill in some form or another.

That brings me to my second point. We need to know something about the value of the loan book. My hon. Friend the Member for Reading, East (Mr. Wilson), in a remarkably eloquent speech, spoke about an assessment of the value—it is a changing value—of the loan book measured against the Government’s determination to make £6.3 billion. Without, I hope, being impertinent, I suggest that the target of £6.3 billion might be achieved regardless of the true value of the loan book unless we are absolutely secure about the systematic criteria for the sale.

At the end of the financial year 2006-07, the student loan book was valued at about £8.1 billion. Perhaps the Minister will at some stage tell us of any subsequent valuations that are made, and say what the projected valuation of the loan book is for the next two or three years. Those figures should be readily available to the Department, because it can project based on information that is in the Government’s hands. From that, we could draw conclusions about what portion of the book would need to be sold to achieve the £6.3 billion target.

We should consider the question of what parts of the book would be sold first. The Minister said that some parts of the loan book were more attractive than others. That is a perfectly plausible argument. He says that where there is an established record of repayment there is more security, in the eyes of a prospective purchaser. He further argues that the situation changes over time, because as people become established repayers, they become a better risk—a surer bet. My question to the Minister is: does that mean that the less attractive parts of the loan book are the bits that will stay with the Government? If we unload the most attractive, valuable bits first, are we not left, at the end, with the least attractive, least valuable bits? That does not seem to shift risk from the public to the private sector; it seems to shift benefit to the private sector, and retain risk in the public sector. We need to be absolutely sure how the book will be split up, how judgments will be made on what is sold and when, and what proportion of the book the Minister anticipates is likely to be sold over the next three years.

There was considerable discussion of the issue of resale, both today and previously. Members on both sides of the House expressed concerns about the possibility of debt being collateralised, broken into parts and sold to the highest bidder. The Minister assures me, and the House, that he thinks that that is unlikely, but the provisions of the Bill explicitly make it possible. Once again, he is on the horns of a dilemma: he dare not build in protection against resale, because that would make the product less attractive but, as a matter of public interest, he has to assure Members of the House that if debt were resold to an agency or body outside the Secretary of State’s jurisdiction, or about whom we had the most severe reservations, there would not be a risk to borrowers or the wider public. That is a difficult circle to square, and I am not sure that the Minister did it convincingly today. There must be adequate protection, both for borrowers and from the point of view of the public interest. That is why we tabled amendments to attempt to ensure that resale was dealt with sufficiently, and in the most appropriate way.

In a similar vein, the collection of debt has been considered, although we did not debate the issue at length on Report. I think it is unacceptable to lose control over who collects the debt. The Bill suggests that an agent appointed by a purchaser could have control of debt collection. We need to be stricter in how we deal with the issue of debt collection. I think that the other place might take that view, too, but it is not for me to anticipate its standpoint. If there is one thing that will cause alarm and anxiety among current debtors and potential future borrowers, it is the idea that their debt might be collected by an inappropriate agency, so I am a little disappointed that the Government did not make further concessions on the issue of debt collection. I suspect that that is because, once again, it might make the sale unattractive to a potential purchaser, but when it comes to debt collection—a sensitive matter—we need to be sure who will be involved in the process. The Student Loans Company seems the most appropriate body to deal with these matters. Surely it could be written into the Bill.

When challenged on those matters during the witness session of the Public Bill Committee, Michael Hipkins, the Minister’s adviser, who was a witness to the Committee, said:

“The point in terms of legislating for the long term is that the Student Loans Company might not exist in the long term, so there needs to be flexibility in the Bill to specify collection by whomever the Secretary of State would like”.

But the Bill does not say that. It refers to an agent appointed by a purchaser, not to someone whom the Secretary of State would like or not like. In addition, the Minister, clarifying his position, said that the Government

“have no plans to do away with the Student Loans Company”––[Official Report, Sale of Student Loans Public Bill Committee, 4 December 2007; c. 36, Q107.]

On the one hand we are told that we cannot name the Student Loans Company because it might go, and on the other we are told that it will not go, at least for the foreseeable future. Next we are told that the Secretary of State will be able to choose the agency that collects debt; then we are told in the Bill that he will not be able to choose who collects debt. That aspect of the Bill needs to be clarified by Ministers in the course of its progress.

We have had serious consideration with a diligent Minister, who seems to have listened to arguments and, as I said earlier, acted with professionalism and generosity. The Bill is technical, but its real significance should not be masked by its technicalities and complexities. It is about moving a substantial amount of money from the public to the private sector. It affects the lives of many millions of our countrymen—many of the people whom we represent. It is important that the House insist on appropriate safeguards, both in the public interest and in their interest.

Although the Opposition will not seek to divide the House on Third Reading, I hope that when the matter is considered in the other place, some of the arguments rehearsed in Committee and again on Report not just from the Opposition Front Bench, but from other parts of the House, are made once again, listened to and taken on board by the Government.

In response to the Minister’s assertion that there is consensus about the Bill and the student loans system, I do not wish to disillusion him or to undermine our admiration for his powers of persuasion, but some of us do not support student loans, or the Government’s legislative proposal, because it further embeds the student loans system.

That system has brought about an average debt of £15,000 for most students, which on average they take 13 years to pay off. The Minister’s response was that the system had enabled a larger number of people to pursue a university education. My view, and that of many of my colleagues, is that in the fifth richest country in the world we should be able to afford to pay people proper maintenance grants to enable them to access university education on the scale that the Government envisage—50 per cent. of young people. To drive people into debt in this way not only burdens them with that debt, but undermines their enjoyment of the education that they receive while they are at university.

Apart from consolidating the student loans system even further, the Bill causes other anxieties. We know from the Red Book that it is envisaged that the Bill will raise £6.3 billion, but nowhere in the Bill does that sum become hypothecated to funding education; it could go elsewhere. If we are to sell off an educational asset that has been brought in as a result of the educational provision that we make for our students, that money should be used for higher education.

As is shown by some of the information that we have heard today, which I accept the Minister contests, the bursary system is not working as effectively as it should. We could use the money from the sale to increase maintenance grants at the same time—to improve provision overall.

The Bill allows the Secretary of State to retain control over the interest charges levelled against students who take out student loans, but it does not address the key issue—the bizarre situation of the Government’s using so many different measures of inflation and interest rates to charge against loans. We use the consumer prices index, currently at 2 per cent., to award wages but the retail prices index to determine how much we levy on the burden of loans. I regret that the legislation did not address that matter.

I am not convinced that we have enhanced the Secretary of State’s role within the system to give us in the long term the security that we have sought today. I am thinking particularly about onward sales, which are one of our key anxieties. If it is important to secure the detailed involvement and approval of the Secretary of State on the initial sale, it is even more important that we secure his involvement on onward sales. That might offend against Treasury rules, but as was mentioned earlier, when it comes to Northern Rock and other matters, Treasury rules seem to fly out of the window.

I hope that further safeguards will be applied in the other place and that we then debate them here to provide the maximum long-term security—not only for those who take out and rely on student loans, but for the taxpayer as well.

The hon. Gentleman was not entirely satisfied with the Minister’s assurance about what he might do in respect of accepting amendments in the other place. However, will the hon. Gentleman invite the Minister to reaffirm that willingness to consider the issue of onward sales and the Secretary of State’s involvement in them?

The hon. Gentleman need have no fear that I shall not pursue the matter in my comradely dialogue with the Minister. Others will as well, because the issue is significant.

There has been reference to other privatisations. We referred to the Mapeley incidents, and I had thought that we had learned lessons about whom we sell public assets to and about the requirements for detailed scrutiny and the Secretary of State’s accountability for sales of public assets. In the current state of the market, the Government will do well to achieve the money they estimate they will get from the proposed sale. At the moment, the market is so rocky and there is so much insecurity; we face credit crunches, particularly in the housing market, and we may face a downturn and recession.

I caution the Government to consider seriously whether the coming 12 months is the right time even to launch the asset sale proposal. I would welcome a Government commitment that 12 months after any action on the sale, we would receive a full report that could be debated, inform future measures on the privatisation of public assets and help us to decide whether we are achieving value for money. I have considerable doubts about whether we got value for money on the first transfer of sales in the late ’90s, and I certainly doubt whether we will from this sale.

I want to leave the Minister with no illusions. I oppose the legislation and the student loans system. However, I am convinced that at some point, the Government—just as they have moved in the past two years on the restoration of some maintenance grants—will return to the happy position of a full maintenance grant system, and that we will be able to abolish student loans in the long term.

It has been my duty on behalf of my party to carry the baton round the final lap of the debates on the Bill. I missed its Second Reading and Committee stage because I had a different responsibility at the time. I thank my hon. Friend the Member for Brent, East (Sarah Teather) for her work during the earlier stages of the Bill.

We have had a good discussion involving lawyers, accountants, business men and Back Benchers being mildly critical of their Government. We have also had an interesting discussion about the effect on balance sheet accounting of “shall” rather than “may”. It is a shame that we must now leave it to the other place to sort out an acceptable wording. Throughout, we have all been trying to achieve safeguards for students, value for money for the taxpayer, and transparency.

This is a small and technical Bill, but it involves a huge amount of money for the Government. It raises in excess of £6 billion to be allocated over the current comprehensive spending review period, so it could release £2 billion a year. I hope that higher education might see the lion’s share of that significant injection into the Treasury’s coffers. The Government have made significant investment, in some cases through off- balance sheet financing, in the secondary school and further education estates, but there is an opportunity also to make further investment in the higher education estate, where some of the teaching facilities are perhaps not as good as youngsters now leaving school and college are accustomed to in their pre-18 learning experience. Higher education needs the investment to ensure that its teaching facilities match their expectations.

Debt is a very significant area of concern for students, as the hon. Member for South Holland and The Deepings (Mr. Hayes) rightly said, and that is reflected in the most recent attitude report, “The Student Experience Report 2007” put together by UNITE, the national private sector provider of accommodation that has its headquarters in Bristol. It showed that 74 per cent. of students currently have their borrowings from the Student Loans Company, but many of them have to take out secondary sources of finance as well, such that 41 per cent. also have a bank overdraft, 16 per cent. have outstanding credit card loans, 7 per cent. have a personal loan, and many others have second credit cards or store cards, or finance their university living expenses through unpaid utility bills.

Part of the problem is that the maximum amount by which students can benefit from the Student Loans Company is set at an unrealistic level. I was staggered to find that to live in my choice of hall of residence, or any other hall of residence, at Bristol university today would require the vast bulk of the maximum amount that the Government would allow me to borrow on cheap credit terms from the Student Loans Company, leaving me with only about £200 to buy my weekday lunches and to finance the purchasing of textbooks and the refreshments that are an essential part of the student living experience.

We need a fundamental review of how students’ living costs are financed for the three years or more that they are undergraduates at university. The UNITE report showed that 38 per cent. of students who were first years last year, when the report was put together, were already seriously concerned about their levels of debt. Serious research needs to be done about the fear of debt, which is even greater among students from lower socio-economic backgrounds, and the effect that it has on drop-out rates in higher education. The Government are to have a full-scale review of the financing of higher education next year, and I hope that that review will include a serious look at how students finance themselves through higher education, so that we can ensure that the burden of debt does not drive people out of it and undermine the Government’s otherwise laudable agenda for widening participation.

I begin by reassuring my hon. Friend the Member for Hayes and Harlington (John McDonnell) that there is a consensus in this House—certainly between us—that the shift from grants to loans was undesirable, and that the plan to shift loans from being public debts to private ones, which are somehow seen as more morally virtuous, is not acceptable. We are at one. He can rest secure as part of that consensus. However, it is important to recognise that important concessions have been made during the debate. I do not think anyone in the House needs the Minister to repeat the reassurances he has already given. Some important amendments were moved and debated this afternoon, and I am hopeful and confident that when they are reconsidered in another place, many of the points on which we were reassured by the Minister will be discussed.

I shall focus on two points. First, at some stage, this House ought to consider Treasury rules—what is permitted and what is not. It seems perverse to me that we have moved to a position where debt is morally virtuous if it is in the private sector rather than the public sector. That shift has taken place on a much larger canvas in society. We in this House are obsessed with the control of public debt, but we have turned a completely blind eye to the escalation of private debt that ultimately has thrown the economy into a severe crisis. I hope that we all recognise that the Government are a more competent borrower than any of us are individually. They can borrow at rates that none of us could. We ought to consider why we adhere to rules that make a debt virtuous simply because it disappears off the Government’s balance sheet. Enron tried to work in the same way and got into an horrendous mess. There is a case for philosophically considering how we honestly address the levels of debt and the management of debt in society.

Secondly, an inequality and an injustice is embedded in the system. It would have been tackled by an amendment tabled by my hon. Friend the Member for Hayes and Harlington, but unfortunately, we were not able to debate it. It dealt with the interest charges relating to student debt. They are supposed to be inflation-only debts, but we have almost ended up in an “Animal Farm” situation, where some measures of inflation are more equal than others—and some measures are more manageable than others. I am talking about the benchmark measurement against which inflation is judged as it is applied to student debt. That has a crucial impact on the management of debt for the individuals involved, and the scale of it is about £20 billion. In the next 10 years, that debt will amount to about £55 billion—a figure ominously similar to the undertakings given to guarantee Northern Rock’s survival. Those affected by the repayment of that debt are critically influenced by the calculation of inflation.

The Government measure for the calculation of inflation has been the retail prices index. That is a snapshot measure, taken in March, which judges the rate of inflation that is taken into account for student debt repayments. Last March, the rate doubled from 2.4 per cent. to 4.8 per cent. This was the subject of a huge number of complaints from students and graduates who are repaying debts. They pointed out that the Government use a number of different measures for inflation. The Prime Minister legitimately claims that inflation in the UK is 2 per cent. The consumer prices index measures it at just over 2 per cent. That is the benchmark against which the Government judge what is affordable for public sector pay increases. It leaves many students in a terribly anomalous position.

I tried to get the figures for students who, on graduation, move into some form of public sector employment. The latest figures that I could get were for 2005-06. In that year, more than 120,000 graduates went into public sector employment and carried with them their student loan debts. Since then, they have repaid the debts at the rate defined by the retail prices index, but their pay increases have been defined against the benchmark of the consumer prices index. Those 120,000 graduates—more than half the university graduates in the UK—find themselves in a position whereby the charges on their debt repayments increased at twice the rate of the inflation that was recognised in their pay settlements. That injustice built into the process has been a constant source of grievance.

I hope that the Government will take the opportunity when the Bill is introduced in another place to examine a mechanism that gives us a single benchmark measure. We must all live with what is judged to be the rate of inflation. However, it cannot be fair—I have yet to hear an argument that it is fair—to use one measure of inflation to judge the rate at which students repay and another, lower rate to determine the basis on which they are paid. It would help the House and the process enormously if we used a consistent measure, given that more than half the graduates who leave university are affected by the problem. We should at least have a consistent and equitable measure.

I would like to say a little about the effects of the Bill on young people in low-income families because I was alarmed to learn that 18 per cent. of the population of my constituency have NVQ level 4 or above, compared with a national average of 27 per cent. and an average of 30 per cent. in the south-east. When I speak to young people in my constituency, I tend to get a stock response that they are worried about being saddled with excessive debt, which they have no realistic chance of repaying. A more fundamental problem is that they do not view higher education as worth the expense. That is not helped by press reports about the sparsity of well-paid graduate jobs. Although I support the principle that those who benefit from higher education should shoulder some of the cost, the statistics on participation rates in my constituency seem to represent a huge waste of talent. It worries me that the financial barriers to further education are still not being broken down rapidly enough.

I want to raise the potential for a new commercial owner of the student loans portfolio to increase interest rates on that asset to market rates, instead of maintaining the current subsidised inflation-linked rate, once the portfolio of student loans has ceased to be a public asset and been transferred to the private sector. We have all read in the newspapers about the impending credit crunch in the financial markets, which will bring the deteriorating availability of credit for companies and households and the increasing cost of borrowing throughout the economy. Clearly, the financial organisation to which the student loan portfolio will ultimately be sold as a result of the Bill expects to make a profit from the assets, and I wonder whether there will be a temptation in the current lending environment for it to boost interest rates on student loans to market rates once it has assumed economic ownership.

With the London inter-bank rate at around 6 per cent. and the interest rate on student loans at 4.5 per cent.—a differential that, according to estimates by Professor Nicholas Barr of the London School of Economics, equates to a subsidy of about £1.2 billion a year—I wonder how any commercial organisation can agree indefinitely to offer loans at more than a full percentage point below the rate in the wholesale financial markets. The risk is that students will at some point face commercial rates on their student loans. A rise in interest rates of 2 per cent. to bring the terms on student loans in line with those attainable in the broader financial markets could equate to an extra £300 a year in interest charges on the average debt of £15,000.

Finally, I should like to talk briefly about publicity schemes for low-income households. The Government claim that they want a participation rate of about 50 per cent. by 2010, but given the low rates of participation in further education in my constituency, I wonder whether more investigation is needed of the accessibility and visibility of the information on bursaries for students from low-income households. If we aspire to a fully meritocratic society, in which the financial circumstances of a person’s parents are no barrier to educational opportunity, and if the perceived cost of university or further education is dissuading many from attending, should we not analyse whether more needs to be done to publicise the financial assistance schemes that might be available to those on low incomes?

I should like briefly to sum up the debate and to refer first to the previous speech, by the hon. Member for Gravesham (Mr. Holloway). There is an expression, “It’s a bit rich,” and his contribution was extraordinarily rich. The commercial rate of interest that he described was exactly that which was put forward in his party’s manifesto at the previous general election. Had a Conservative Government been elected, I have no doubt that he would now be supporting that policy. During the Committee stage, I asked whether that was still the Opposition’s policy, and I understand that it is. I am most emphatically against a commercial rate of interest, so if the hon. Gentleman wants to apply pressure on the issue, he needs to talk to those on his own Front Bench.

The hon. Gentleman also asked what we should say to students who do not aspire to continue into higher education. I think that we should tell them the facts. We certainly should not exaggerate or use terms such as “excessive debt”. Under the postgraduate system of repayment that the Government have established, no student repays a penny until they are in work and earning more than £15,000 a year. On the average graduate starting salary of £18,000 a year, the repayments are as little as £5.19 a week. Those facts, along with the facts on the substantial graduate earnings premium—the average graduate will earn, net of tax, £100,000 more than someone with just two A-levels over the course of a working life—and all the other benefits of a higher education, should be at the centre of the arguments that the hon. Gentleman ought to be putting to his constituents.

The hon. Member for South Holland and The Deepings (Mr. Hayes), who leads for the Opposition, asked for reassurance and expressed concerns about the value-for-money framework. I have said on many occasions during the passage of the Bill that the value-for-money framework that I have read into the record is rigorous and robust. I have been wondering during this debate whether similar value-for-money frameworks were in place when much more substantial asset sales of public utilities took place in the 1980s. I do not recall that being the case.

The hon. Gentleman asked me about the projected valuation of the student loan book. We estimate that the valuation will be £21 billion next year—up from the current £18.1 billion—and £25 billion the following year. He also asked about the selection of the loans for sale, as did the hon. Member for Reading, East (Mr. Wilson). I want to nail this issue, because it is important—I made these points in Committee, but I will repeat them now.

From the outset, we will seek to offer for sale all those loans that we can sensibly expect purchasers to be able to value properly. We will be guided by the financial sector experts whom we are procuring to help us to prepare and execute the transactions. For initial sales, that might mean selecting for sale loans that are, for example, sufficiently connected with the repayment system through Her Majesty’s Revenue and Customs. Over time, as the repayment history of the loan book lengthens, potential purchasers will be able to model with confidence the value of an increasingly high proportion of the loans. In contradiction of what the hon. Member for Reading, East said, we will explicitly not select loans for sale based on the individual characteristics of loans or borrowers, but just by category, such as being in the repayment phase.

There is some confusion about that in Hansard. At column 31, the Minister says of the picking of loans:

“It will not be on a random basis.”

At column 32, however, Michael Hipkins, his director of strategy, says:

“we expect a random draw from the loan book.”––[Official Report, Sale of Student Loans Public Bill Committee, 4 December 2007; c. 31-32, Q88.]

The Minister can understand how we can be confused if his own director of strategy is confused.

That is not the case. If the hon. Gentleman reads the record carefully, he will see that the matter was made abundantly clear. When we talk about a random draw, we are talking in terms of the type of loan, not about picking and choosing between individual loans. It is important to make that clear.

The hon. Member for South Holland and The Deepings expressed a number of concerns about collection methods. Let me be explicitly clear. It is not, and will not be, for the purchaser to specify collection methods. Clause 1(4)(d) says explicitly that the Secretary of State may require the purchaser

“to make specified arrangements in connection with the administration of loans”.

In response to the comments by my hon. Friend the Member for Hayes and Harlington (John McDonnell), let me assure him categorically that I have no illusions: I am clear that he disagrees with me and the Government on this issue. I hope that he will accept, however, that it is a legitimate disagreement. There is a respectable left redistributive argument in favour of the system of student finance and fees that we have created. That is not his view, but others on the left take that view.

My hon. Friend made a point about hypothecation of the proceeds from the sale of student loans. Let me make it clear that our record of investment in higher education is the best for a generation: it has increased by 23 per cent. in real terms over the past decade. I caution him against arguing for explicit hypothecation. Were we to put forward the argument now that the proceeds from sales must go to the higher education budget, that would create the grounds and circumstances for a future Government, who were not as well disposed towards higher education as we are, to say that higher education expenditure was dependent on loan sales. That would be a dangerous road to go down.

My hon. Friend also said that there should be no real rate of interest. It is important to make it clear that our RPI mechanism means that there is no real rate of interest. I would wish to assure my hon. Friend the Member for Nottingham, South (Alan Simpson), who is no longer in the Chamber, that that RPI rate does go up and down, but for the vast majority of borrowers with income-contingent loans it makes no difference whatever to their monthly repayments, which will continue to be deducted at the rate of 9 per cent. of any income over £15,000 per annum. The interest rate affects only their outstanding loan balance.

My hon. Friend the Member for Nottingham, South (Alan Simpson) and I have received representations from the National Union of Students, which informs us that it has written to the Minister and received no response as yet. It would welcome a meeting with him, and would be pleased if we could arrange that and attend as well. I welcome him to the left in the discussion about the funding of higher education. At some stage, we will also have a welcome discussion about direct taxation. He will have another opportunity to demonstrate his left credentials next week, when I seek to raise the bar on national insurance contributions to pay for such educational achievements.

My hon. Friend will forgive me if I do not commit myself to that at this stage. I meet the National Union of Students regularly, have discussed the issues with it and will do so in future. If he wants to be involved in that, and to talk to me directly about it, I would be happy for him to do so.

The hon. Member for Bristol, West (Stephen Williams), who leads for the Liberal Democrats, managed to produce a complete speech without revealing that, when they had the opportunity to do something about this issue when they were in government in Scotland, the Liberal Democrats supported a postgraduate system of repayment that is no different in principle from the system that we have in England. He also managed to complete his speech without making it clear that the Liberal Democrats have no policy whatever on student fees, because they are reviewing their position. One Liberal Democrat think-tank has actually said that it agrees with the Government’s position. Indeed, it has gone further and said that we should now commit to lifting the cap on tuition fees. That is not a position that I support.

The Minister would not expect me to let him get away with that. Think-tanks can cause problems for all parties. The think-tank that he mentioned is independent of my political party, as are all think-tanks. Yes, we are going through a review. It is a full review of all our higher and further education policies, which will be discussed openly at a conference later this year. My party, unlike the Minister’s, will have a full democratic vote on its future policies.

I was aware that the Liberal Democrats were undertaking a review. One of the most enjoyable experiences that I have had in a long time was reading the transcript of the interview that his predecessor gave to Andrew Neil at the Liberal Democrat conference, in which an attempt was made to explain the gyrations that were taking place over Liberal Democrat policy on higher education. And, for the record, it was a Liberal Democrat think-tank, supported by Liberal Democrats, that supported the Government’s position.

The Minister has not mentioned a point that was raised by a number of hon. Members. On the issue of onward sales, particularly in relation to transfer arrangements, is the Minister absolutely clear that the Secretary of State should be party to those arrangements? Is he determined to put in place changes to the Bill that will allow the Secretary of State to be party to them? Is he also clear that, in respect of onward sales, the loan book will not be sold—in part or whole—to any organisation or body that is offshore or that, in the judgment of the House, would not be an appropriate body to handle these matters?

I can give the hon. Gentleman a fundamental reassurance on ownership. The contracts will be based on English law and will apply to English law. That ought to give a significant degree of reassurance. He will forgive me if I do not rehearse the arguments that we had on Report about the opportunities for the Secretary of State to be associated with the sales. The amendment that the hon. Gentleman tabled today did not directly address the point that he subsequently went on to make, but if an amendment on that point is tabled in another place, I will give it my active consideration.

Finally, I want to reiterate that the proposals are about the sensible management of the public finances. They are not about impacting on the borrower. The Bill will entail no change whatever to the borrower. Whether the borrower’s debt is owned by the public sector or the private sector, they will notice no difference whatever. On that basis, I hope that hon. Members will support the Bill.

Question put and agreed to.

Bill accordingly read the Third time, and passed.