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Student Loan Books

Volume 793: debated on Thursday 11 October 2018


My Lords, with the leave of the House, I will repeat a Statement made in the other place by my honourable friend the Minister for Universities, Science, Research and Innovation. The Statement is as follows:

“Mr Speaker, I would like to explain to the House the rationale for the sale of the student loan book and make some important points. First, this sale will categorically not result in private investors setting the terms or operating the collection of repayments. Loans in scope will continue to be serviced by Her Majesty’s Revenue & Customs and the Student Loans Company on the same basis as equivalent unsold loans. Investors will have no right to change any of the current loan arrangements or to directly contact borrowers. Furthermore, the Government’s policies towards student finance and higher education are not being altered by this sale. These older loans, whose borrowers benefited from lower tuition fees as well as lower interest rates, are not in the scope of the current review of post-18 education and funding.

I am clear that this sale represents an opportunity for the Government to guarantee money up front today rather than fluctuate in uncertain payments over a longer period of time. This allows the Government to invest in other policies with greater socioeconomic and social returns. We would only proceed with the sale if the market conditions remain favourable and a final value for money assessment is positive”.

My Lords, I thank the Minister for repeating the Statement. I have to say, it contains rather less detail than the announcement headed “Government Asset Sale” that appeared on the website yesterday evening.

I listened to Mr Gyimah’s exchange today with my colleague Angela Rayner, the shadow Secretary of State. Unfortunately, he dodged all of her questions on the valuation of the loans the Government are selling. He simply confirmed that the Government would forgo the 25-year revenue stream in favour of a one-off receipt. I hope that the Minister will be more forthcoming. Will he tell noble Lords whether the Government have identified a minimum amount to be raised—that is, an amount at which they will decide that the sale would simply not be financially viable? Previously, the Government have said that they will raise £12 billion by selling off these loans, but will the Minister tell us the total value of the loans that will need to be sold to achieve this? Will he also explain how the apparently random figure of £12 billion was calculated? Mr Gyimah said that he would share the range of estimates with Back-Bench Members in another place. Is the Minister in a position to confirm that this information will also be shared with Members of your Lordships’ House?

The Government have said that the revenue from selling off student loans now will enable them to invest in vital public services today. We all know that the Treasury has the final say on specifically where this windfall will go, but surely most, if not all, of it should be reinvested in the education budget; goodness knows there is a need for it.

I will mention just two areas. First, the schools budget is in such a dire state that last week, 2,000 head teachers—yes, head teachers, no less—demonstrated outside 10 Downing Street to highlight their predicament. As we heard in Oral Questions today, that led to the Schools Minister issuing misleading statistics to cover up the true position on schools funding. Secondly, further education has suffered dreadfully over the past two decades, losing more funding than any other education sector. Next week, we will see a lobby on Parliament by colleges and their staff in an attempt to highlight and begin to redress the funding cuts they have endured. Those are just two areas of education in vital need of additional funding. The £12 billion that the Government say they will raise would go a long way to filling those gaps. What effort will the Minister and his colleagues make to ensure that a major chunk of the proceeds from the second sale of the student loan book will return to the education budget?

I thank the noble Lord for his questions. The detail in the WMS that we issued yesterday was pretty comprehensive, but perhaps I can help the noble Lord by adding a few things.

Yesterday, we announced the start of the process for the second of these sales. It relates to the selection of loans that became eligible for repayment between 2007 and 2009. They have a face value of £3.9 billion but, for commercial reasons, we cannot disclose what the Government think the retention value is, particularly as we are pursuing this programme of sales. I am sure that the noble Lord will understand. He will know that the Government received cash proceeds of £1.7 billion from the first sale of the student loans and the reduction in the PSND.

Another question the noble Lord raised concerned the proceeds that will be received by the Treasury. Yes, they go to the Treasury and it is up to the Treasury to decide how to spend them. I cannot confirm whether those funds will go to the DfE.

My Lords, unlike any other loan available in the UK, repayments for a student loan are paid through PAYE and are dependent on how much somebody earns. Given the multiple problems with student loans, as outlined so admirably in the report by the noble Lord, Lord Forsyth, can the Minister say what consideration the Government are giving to reforming student loans into a graduate tax?

The issue of a graduate tax may or may not be included as part of the post-18 review. What we have made clear is that a matter of taxation, or something related to taxation, should not be included in that. On the question concerning the Student Loans Company, the noble Baroness will know that a new permanent appointment has been made to that company and that matters have been taken forward to ensure that it continues to work as well as it can. It is ongoing work.

My Lords, would my noble friend assure me that he will take great care to ensure that my noble friend Lord Forsyth’s admirable report is taken fully into account? Will he also bear in mind the cogent and sensible points made by my noble friend this morning when he talked about the burden of interest?

Indeed, my noble friend is right. My noble friend Lord Forsyth will know that I have taken a keen interest and looked carefully at the report he wrote as chairman of the Economic Affairs Committee. A number of recommendations were made by his committee and we have provided a response. We are taking it very seriously. I hope that reassures my noble friend.

My Lords, given that the sale of student loans in the past has led to considerable loss of revenue, can the Minister tell the House what the long-term fiscal justification for this policy is?

It relates back to the first sale of student loans: the Government take a view as to whether it is right to hold on to the loans or to effect a sale and exchange an uncertain stream of future cash flows for a certain amount today. The Government assess whether we are better off retaining the loans rather than selling them by considering the opportunity cost of not having the money now for other issues. Those decisions are very carefully thought out, and that is the case for this second stage.

My Lords, is it not obvious that this is a piece of fiscal chicanery? My noble friend refers to the decision to sell the phase 1 loan book and to the loans having a face value of £3.5 billion—I think that was the tranche of loans sold at the end of December 2017. They were sold for £1.7 billion, with £1.8 billion written off. Does my noble friend agree with the OBR’s view that the plan to sell £12 billion of plan 1 loans up to 2021 will result in an undiscounted loss to the taxpayer of £28.1 billion?

More importantly, on my noble friend’s point on interest, the Government have been taking credit for the interest which has not been paid and which will be written off 30 years down the line. Given that these loans are going to be sold off to the private sector, with the interest paid to the private sector, why are the Government not adjusting the national accounts to take account of the loans they have taken credit for but which will never be repaid?

I do not agree with the assessment of my noble friend. The figure I have from the OBR is not £28.1 billion but £23 billion. Whatever the figure, a lot of money has been put down. The forecast from the OBR is based on a nominal undiscounted cash projection, and this implies that the £28.1 billion received 30 years from now—or the £23 billion; whichever we agree upon—has the same value as £28.1 billion today, which is not the case. We have to account for inflation. Similarly, the lack of discounting means that none of the risk or uncertainty associated with those cash flows has been captured in the £28.1 billion. We have to discount for the riskiness of the asset. It is a complex issue, which my noble friend will know.

My Lords, is it not clear that the current system is actually costing us quite a lot of money? That seems to be the one thing that is clear. Will the Minister give us some assurance that, if we are looking at this in the future, and are going to discount this money eventually, we might give a slightly more beneficial settlement to current students?

Part of the rationale for looking at a sale now is because market conditions are considered to be right. The money is certain money which comes to the Treasury and can then be used to better effect in other areas, which, as I said earlier, is up to the Treasury to decide.

My Lords, we still have time, and my noble friend did not answer my question. Given that the Government have taken credit for interest payments which have not yet been received in the national accounts, will the national accounts be adjusted to reflect that? Also, does he agree with the OBR assessment that it is not obvious why selling these loans at such a loss is of net benefit to the taxpayer?

There are some further points I can make on my noble friend’s first question. The figure he gave does not take into account the opportunity cost to Government of having the money tied up in loans. My noble friend will know that there are two types of interest rate: the lower rate and the higher rate. I will write to my noble friend with an answer giving him the detail of that.