Lords Chamber

House of Lords

Tuesday, 19 February 2008.

The House met at half-past two: the LORD SPEAKER on the Woolsack.

Prayers—Read by the Lord Bishop of Liverpool.

Royal Assent

The Lord Speaker (Baroness Hayman)
My Lords, I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified her Royal Assent to the European Communities (Finance) Act.

Nuclear Energy: Proliferation

14:36:00

Lord Jenkin of Roding
asked Her Majesty’s Government:

What support from other countries there has been for the United Kingdom’s proposal for a uranium enrichment bond as a means of tackling the proliferation risks arising from the worldwide growth in civil nuclear power.

The Minister of State, Foreign and Commonwealth Office (Lord Malloch-Brown)
My Lords, there is widespread support for the development of a viable regime of multilateral nuclear approaches, of which assurances of supply are an integral part. We have approached about 20 countries that are considering developing nuclear energy. Many have shown interest in the UK proposal for an enrichment bond. We have also received support from the IAEA. We are now building support for our proposal through bilateral and multilateral channels, including within the IAEA, and will co-host an international conference in April to engage with potential recipient and supplier countries.

Lord Jenkin of Roding
My Lords, I am grateful for that Answer, which demonstrates some progress on the matter. However, it is over a year since I asked a similar Question in the House and very little has actually happened. This is enormously important, as I think the noble Lord recognises. In 2006, the Government put their proposal for a uranium enrichment bond to the general conference of the IAEA. Can we be assured that that proposal is still on the table as one of those to be considered, or has it been overtaken by more recent proposals? We are trying with all these things to ensure that there is control against proliferation of nuclear energy. Instead of a continual process of new proposals, it is time that decisions were taken.

Lord Malloch-Brown
My Lords, I sympathise with the noble Lord’s impatience on this, as it is an enormously important priority. I am glad to say that in April there will be an international meeting, co-hosted by us, Germany and the Netherlands, which we have invited countries interested in this issue to attend. We are assured that the IAEA will, later in the year, give its opinion on the 10 proposals that exist, which we hope will allow decisions to be made and implementation to begin.

Viscount Waverley
My Lords, I declare that I have been following a proposal to the Jordanian Government by Rio Tinto, a British organisation. Does a nuclear co-operation agreement exist with Jordan? If not, given the close relationship between our two countries, not least in security matters, is it not appropriate that we should propose one to His Majesty and work on it with immediate effect?

Lord Malloch-Brown
My Lords, the noble Lord is correct: Jordan is a reliable ally on this as on so many things. We are certainly looking at the possibility of such an agreement. I know that the noble Lord is concerned that countries such as France and Russia may be ahead of us in this regard. We do not think so. Technical issues confront us all and it would be much easier to deal with these issues within an IAEA-approved formula, but I can assure him that British companies will not be at a disadvantage.

Baroness Williams of Crosby
My Lords, in light of the large number of proposals now being made for new civil nuclear power stations, not least in the developing world, does the Minister agree that it is vital, as the noble Lord, Lord Jenkin, implied, that there should be an international architecture capable of providing controls over that civil nuclear energy so that it will not be diverted to nuclear weapons purposes? Are the United Kingdom Government prepared to support the necessary strengthening of the staff and finances of the IAEA so that the agency can be part of such a new international architecture?

Lord Malloch-Brown
My Lords, the noble Baroness is completely correct that the rise of nuclear energy, driven by environmental and climate change concerns, is transforming this from a narrow security issue to one where whole new challenges are thrown up as the world turns to nuclear energy. Like her, I see the strengthening of the IAEA as probably the best mechanism for providing a suitable environment of safeguards and checks. However, that may well need to occur in the context of a renewal of the nuclear non-proliferation treaty, which at the moment suffers from a loss of authority in many respects.

Lord Campbell of Alloway
My Lords, my noble friend asked whether the proposal was still on the table. Is it still on the table—yes or no?

Lord Malloch-Brown
My Lords, let me perhaps make it simpler—yes.

Baroness Symons of Vernham Dean
My Lords, I was pleased to hear the Minister say that there is to be a multilateral conference or meeting on this in a couple of months. Will that be strictly a Government-to-Government meeting or will the private sector be invited? Will other multilateral organisations also be present?

Lord Malloch-Brown
My Lords, I will need to get back to my noble friend on exactly who is invited, but we want the broadest support possible, as we see it as preparing the ground for our proposal to triumph at the subsequent IAEA deliberations. Therefore, I suspect that any suggestions on wider attendance will be well received.

Lord Wallace of Saltaire
My Lords, I am happy to hear the Minister say that Germany and the Netherlands are co-hosting this conference. Can we be assured that other members of the EU have given it their active support and that Japan and, above all, the United States actively support this approach?

Lord Malloch-Brown
Yes, my Lords, but, as I said, there are 10 proposals. For example, the United States is very interested in a lower-grade uranium enrichment bank as an alternative proposal. We need to sort this out and have one or two proposals, either alone or combined, to become the path down which the whole international community can proceed in agreement.

Bank Holidays

14:43:00

Lord Foulkes of Cumnock
asked Her Majesty’s Government:

Whether they will consider introducing a new bank holiday in the United Kingdom.

The Minister of State, Foreign and Commonwealth Office & Department for Business, Enterprise and Regulatory Reform (Lord Jones of Birmingham)
My Lords, the department receives representations on this issue from time to time. However, the present pattern of bank holidays in the UK is well established and accepted, and the Government have no current plans to change the arrangements.

Lord Foulkes of Cumnock
My Lords, I am very disappointed in my honourable friend’s reply.

Noble Lords
Noble friend.

Lord Foulkes of Cumnock
He is honourable as well but noble in this context. Is he aware that, while England has only eight bank holidays and Scotland has eight and a half—if you count the half-hearted St Andrew’s Day holiday introduced by the SNP—the European Union average is 11? Is he also aware that that is why more than a million people have signed two petitions—one arranged by Thomas Cook and the other on the Downing Street website, of which he should take particular notice? Therefore, will he or one of his colleagues agree to meet a deputation from the campaign involving the Fabian Society, the IPPR, the TUC and voluntary organisations which are campaigning for an extra bank holiday because there is a clear and growing demand for it?

Lord Jones of Birmingham
My Lords, I assure my noble friend Lord Foulkes that I will arrange for all those people to come and meet either me or one of my colleagues. Secondly, be careful what you wish for; you just might get it. Germany, for instance, has more bank holidays than Britain, but if they fall on a weekend you lose them; whereas in Britain you get them on the following Monday. Be careful what you wish for; you just might get it. There is a £2.5 billion loss to the public and private sectors in this country for every bank holiday.

Lord Trefgarne
My Lords, is the noble Lord aware that both he and his noble friend have recently breached Standing Orders? Since the noble Lord, Lord Jones, has famously not joined the Labour Party, the noble Lord, Lord Foulkes, is not his noble friend, and nor is he his.

Lord Jones of Birmingham
My Lords, who my friends are is my business.

Lord Elystan-Morgan
My Lords, would the Minister be surprised in any way to hear that, in the event of further consideration being given to the question of national holidays, there would be strong feeling in Wales that there is a just and proper claim in regard to St David’s Day? It would be nothing more than courtesy, chivalry and justice to acknowledge that.

Lord Jones of Birmingham
My Lords, Scotland is allowed to have St Andrew’s Day, but it loses a bank holiday from the British calendar; it does not get it in addition. At the end of the day, if we saw another bank holiday, I would love it to be a British bank holiday.

Lord Razzall
My Lords, if the Minister is going to meet the noble Lord, Lord Foulkes, and his merry band of brothers to discuss holidays, now that the half-term holiday seems to be compulsory for middle class parents, let alone for Members of your Lordships’ House, would this not be an opportunity also to see whether the Government can encourage steps to rationalise the timing of half-term holidays, bearing in mind the disruption that seems to go on for weeks in the spring, summer and autumn, largely because half-term holidays never seem to be the same for any one parent?

Lord Jones of Birmingham
My Lords, I thank the noble Lord, Lord Razzall, for that. Last week, during the Recess, I visited seven American cities in seven days banging the drum for British business, so I do not understand mid-term Recess.

Lord Hamilton of Epsom
My Lords, does the Minister think that the dismal economic performance of continental Europe might be attributed to the fact that it has more bank holidays than we do?

Lord Jones of Birmingham
My Lords, given that we are the most successful economy in the whole of Europe, the noble Lord is probably right.

Lord Tyler
My Lords, given the Minister’s comment on St David’s Day, will he in all equity look at the case for Cornwall to have its St Piran’s Day bank holiday?

Lord Jones of Birmingham
My Lords, if Cornwall has one, so should Birmingham. I might have been in a different place five minutes ago, but I said that I was not in favour of different parts of the United Kingdom having separate bank holidays. I do not want the economy to have the cost of £2.5 billion every time for more, but if there were to be more, let them be British.

Earl Ferrers
My Lords, is the noble Lord aware that his original Answer will give a great deal of pleasure to many people, not least for the fact that it shows that the Government can at least make one right decision?

Lord Jones of Birmingham
Yes, my Lords.

Baroness Prosser
My Lords, does the Minister accept that the point made by the noble Lord on the Liberal Democrat Benches regarding the spread of half-term holidays is very serious, because it impinges on the ability of working mothers to attend their employment which, as the noble Lord will know, is hugely important to the economy and businesses of this country?

Lord Jones of Birmingham
My Lords, as my noble friend rightly states—I would add a further gloss—one reason why we have the most successful economy in the whole of Europe is that we have the most flexible labour market in the whole of Europe. One reason for that is that we have family-friendly policies and at last, under this Government, we recognise that you get more things out of more people if you allow them a work/life balance. At the end of the day, if we take that forward with a view to the regularisation of mid-term breaks, that will be for my ministerial colleagues in the education department, not UK Trade & Investment, that I am proud to lead.

Lord Butler of Brockwell
My Lords, is not St Patrick’s Day a bank holiday in Northern Ireland? Can the Minister explain why St Patrick is favoured over St David, St Andrew and, indeed, St George?

Lord Jones of Birmingham
My Lords, yes, the noble Lord is right—Northern Ireland has two more bank holidays than Scotland, Wales or England; and, no, I cannot explain it.

Lord Pilkington of Oxenford
My Lords, is the Minister prepared to deplore the Protestant Reformation in that in the Catholic Middle Ages we had many more holidays?

Lord Jones of Birmingham
My Lords, as we in this nation were responsible for the first industrial revolution and we are putting up an incredibly good show about dealing with the second commercial revolution, what we did in the Middle Ages and what we do now just defy comparison.

Lord Brooke of Sutton Mandeville
My Lords, bearing in mind events in Newcastle, is it entirely timely for the banks to have another day off?

Lord Jones of Birmingham
My Lords, I think it is time that we referred to these holidays as “public holidays”.

The Earl of Glasgow
My Lords, would the Minister please consider helping the tourism industry to extend the season by considering having a public holiday at the end of October—maybe associated with Halloween or All Saints’ Day?

Lord Jones of Birmingham
My Lords, the tourism industry is a serious player in the British economy. It puts some £6.5 billion to £7 billion a year into the economy and employs about 2.5 million people, a lot of whom have come into the world of work for the first time. It is a fabulous entry place for young people and its importance as an industry is not properly recognised. If we created a public holiday on the shoulder of the year in October or November—it is a time that many people make representations to have one—perhaps we should make due reference, as the Prime Minister has, to those who laid down their lives in so many wars so that we could be free. Perhaps we ought to be celebrating Trafalgar Day; at least that was a British victory.

EU: Farming Support

14:52:00

Lord Dykes
asked Her Majesty’s Government:

Whether they will discuss further financial reforms of the European Union farming support system at forthcoming meetings with the Governments of Germany and France.

The Minister of State, Department for Environment, Food and Rural Affairs (Lord Rooker)
My Lords, yes. The Government will be having a number of detailed discussions about reform of the European Union common agricultural policy with France, Germany, other member states and the European Commission as part of this year’s CAP health check.

Lord Dykes
My Lords, has the Minister noticed that, even in those two countries with their traditional views, the feeling is growing among opinion-formers that the old-fashioned subsidy system will fade away by 2013 and that a new modern system of support needs to be put in place? Is the Minister optimistic that the combination of not driving farmers into mass penury but ensuring that the countryside is properly looked after is manageable within any future solution?

Lord Rooker
Yes, my Lords. I am even more confident after yesterday, when I attended the European Union Agriculture Council on behalf of the Government and spoke with all 26 member states and the Commission on the future of the health check. By the end of May we will have a document relating to the health check of the CAP on which we can consult well in advance of future reforms. The meeting was very optimistic; there was a little backsliding—some people want to turn the clock back—but by and large the benefit of decoupling production and subsidies, while maintaining a vibrant countryside and a landscape within the European Union, was a view that everyone shared.

Lord Teverson
My Lords, at the centenary dinner of the NFU last night, the Prime Minister used the phrase, “the food security challenge”, which is the first time that the Government have used that phrase to raise that issue. Does the Minister consider that Europe will now start to concentrate on this area of future food security, or does he believe that it is just a transitory concern for agriculture?

Lord Rooker
My Lords, I cannot comment in detail. I was working for Britain in Brussels yesterday and was not at last night’s NFU dinner, which I regret I had to miss. I have not seen a transcript of what the Prime Minister said, although I understand from my visit to the NFU centenary conference this morning that his speech was incredibly warmly received. Food security is an issue but it does not mean what some people think—that is, that we as taxpayers pay for production targets if they are not met. It means ensuring that we are self-sufficient but within a world market for food. This issue will not go away; it is very important because the world’s population is growing. There is a big debate about the technologies that will be used to produce food, let alone the water that will be needed.

Lord Willoughby de Broke
My Lords, does the Minister not agree with the conclusion of the European Select Committee in a paper produced, I think, two years ago that agricultural policy would be better repatriated to member states than being left with the European Union?

Lord Rooker
My Lords, I do not know about that document but I do not agree with its conclusion, and nor do the Government. I do not think that that is what people wish. We have benefited enormously from being a member of the European Union and there will always be a CAP of some kind within the EU. It will vary, and it is changing enormously now with the decoupling of payments from subsidies to stop the wine lakes and food mountains so that public money is better used. The way that the CAP is organised at present does not make good use of public money, which is partly what the health check and future reforms are intended to remedy.

Lord Taylor of Holbeach
My Lords, I am sure that the Minister will agree that these are changing times for British agriculture. Notwithstanding the health check, what sort of changes in the administration and determination of farm support are likely to be consequent upon the Lisbon treaty?

Lord Rooker
My Lords, to be honest, I want to avoid that at present because I do not have an answer. The point is that we are dealing with the health check and the consequences of the 2003 reforms, which decoupled payments and brought in the single farm payment, and we are trying to operate that at present. With regard to future reforms, as I said, we will receive a document from the Commission about the health check at the end of May, I think, and there will be a 12-week period of consultation on it. During their presidency, the French are committed to bringing the health check to a conclusion before the end of the year so that it does not get mixed up with other changes, such as co-determination, which will come about as a result of the changes being made in the way that the European Union is governed.

Lord Mackie of Benshie
My Lords, what is the Government’s view of the production and consumption of food in the world? For example, in some cases the price of grain has nearly doubled this year. There is a shortage, which looks as though it will continue, and therefore some stability is needed because it is probable that better prices will continue to be seen.

Lord Rooker
My Lords, that may be so but this morning a speaker at the NFU conference drew attention to a book published some 10 years ago that asked what would happen if China could not feed itself. That is a possibility, and therefore, as the noble Lord said, the push for production and these prices may be sustained. That could change the face of the organisation of food production in the world, and, as I emphasised, change the technologies used for that food production with a growing population. I am not going to refer to “cheap food” and so on. It is better that people stay close to the market but it must be a genuine and not a manipulated market.

Lord Stoddart of Swindon
My Lords, according to Treasury figures, membership of the CAP costs every family in this country £18 per week. Might it not be better if we followed New Zealand and Australia, repatriated the CAP and had a free market in agriculture?

Lord Rooker
My Lords, my answer to my noble friend—I still consider him to be that—is the same as the one that I gave earlier. While we are in the EU, there will always be a common agricultural policy of some kind. However, he is right that the average cost of the CAP to an EU family of four is around €950 a year. Only €20 of that is spent as EU money on targeted environmental programmes. In other words, we are paying out money for the wrong thing. Whether the amount of money stays the same is not the issue, but we are not paying out enough for environmental programmes and therefore there has to be a change. Of course, the CAP takes up some 40 per cent of the total EU budget for one industry and that is quite unacceptable.

Lord Marlesford
My Lords, does the Minister agree that one of the biggest wastes of food—almost an immoral waste—is the growing of food crops for fuel?

Lord Rooker
No, my Lords, I do not accept that. If you talk to farmers in East Anglia who grow sugar beet, which is now going into the first biofuel plant in the country, you would see that that is not so. However, digging up land that is primary forest to grow biofuels does not make sense. The use of biofuels is not a clear-cut issue. That is something for a future debate.

Legal Aid

15:00:00

Lord Thomas of Gresford
My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest as an advocate in criminal courts.

The Question was as follows:

To ask Her Majesty’s Government, following their consultation on an amendment to the Criminal Defence Service (Funding) Order 2007, what steps they will take to reform criminal legal aid.

The Parliamentary Under-Secretary of State, Ministry of Justice (Lord Hunt of Kings Heath)
My Lords, the recent consultation with the General Council of the Bar and the Law Society on a proposed amendment to the Criminal Defence Service (Funding) Order 2007 closed yesterday. The proposed amendment would allow solicitors to instruct non-contracted advocates in very high-cost criminal cases, in certain circumstances. We are currently considering the responses to that consultation and will make our views known soon.

Lord Thomas of Gresford
My Lords, I am grateful to the Minister for that reply. He will be aware that on 18 January last, the Legal Services Commission offered contracts to barristers at hourly and daily rates which would barely pay chambers expenses and which would also demand access by LSC officials to the working diaries of practitioners who signed the contracts in order to monitor their entire professional practice. Does he not realise that those terms are completely unacceptable to any experienced barrister; that the paying of peanuts by the hour or by the day perversely encourages utter inefficiency in the preparation and conduct of cases, as the noble Lord, Lord Carter of Coles, recognised in his report; and that the amendments that he proposes in the order are bound to lead to a third-class system of legal aid for people who need first-class legal advice?

Lord Hunt of Kings Heath
No, my Lords, I do not accept that. I certainly do not accept that they will lead to third-class legal advice. There is no reason why the new system will not continue to ensure that barristers of quality take part in the very high-cost cases involved. The new scheme that will be introduced is designed to give greater control over costs and greater monitoring of what goes on, which is entirely appropriate. Essentially, we are talking about public sector procurement. Given the huge amount of money that this country spends on legal aid, it is essential to ensure that it is spent as wisely as possible.

Baroness Falkner of Margravine
My Lords, does the Minister recall that he wrote an article on 10 January in the Guardian, stating:

“We are moving away from paying legal aid practitioners by the hour—which has contributed to escalating costs and encouraged inefficiency—and towards paying by the job done”?
 

If that is the case, and if that principle is good enough for civil cases, how can he justify taking the position that he takes for criminal cases, where one would have thought that defendants would need better advice rather than worse?

Lord Hunt of Kings Heath
My Lords, I do not accept that under the new system defendants will get worse advice. That does not follow at all. I point out to noble Lords that this country spends £2 billion on legal aid—far more than almost any other country in the world. On the rate per hour, the noble Baroness is right that in much of the changes that are taking place in legal aid funding there is a move away from paying by the hour. However, for the very high-cost cases, we are bringing in much more of a case management system which allows representatives of the Legal Services Commission to meet defence teams on a regular basis in advance so that there is a clear understanding of the likely work to be undertaken and the costs. That is effective case management.

Lord Henley
My Lords, if the advice is to be offered by unqualified people who, according to the report in today’s Times, have admitted they are unqualified for half the work they will be asked to do, how will they offer a better service to their clients?

Lord Hunt of Kings Heath
My Lords, there are two different issues here. The case cited in the main by the Times article this morning is about a provision in the Criminal Justice and Immigration Bill which is currently—not speedily—making its way through your Lordships’ House. That applies to criminal proceedings in the magistrates’ courts. It is rather different from the high-cost cases to which the Legal Services Commission is determined that quality barristers will be appointed.

Lord Thomas of Gresford
My Lords, how many of these quality barristers have signed the contract that the Legal Services Commission is putting forward? The Minister must know that it is just uneconomical for any barrister with any practice to sign the contracts at the rates now being proffered.

Lord Hunt of Kings Heath
My Lords, I am tempted to cite the top 10 barristers’ earnings from legal aid last year, ranging from £663,000 to £957,000 per year. I know that that is not always typical of all barristers. The fact is that there has been a huge increase in the number of lawyers practising at the Bar and a big increase in the amount of money going to legal aid. The reduction in fees of about 10 per cent will save about £5 million. That is not a huge amount. At the same time, there was an agreement with the Bar Council that led to an extra £29 million being put into a graduated fee structure going to members of the Bar. The noble Lord is not representing the effective position.

Lord Inglewood
My Lords, is the Minister satisfied with the quality of legal advice provided on legal aid for those who need it?

Lord Hunt of Kings Heath
My Lords, I cannot comment on the advice given by every lawyer to every client. I am satisfied that the structure in place is the best one to ensure that the huge amount of money put into legal aid is spent wisely, and that the other changes that have been made ensure that, overall, people get a good service from the legal profession in this country; I pay tribute to the Bar Council, the Law Society and the regulatory bodies. The excellent overall quality of the legal profession is one reason why this country can export so many of those services.

Health and Social Care Bill

15:07:00

Brought from the Commons; read a first time, and ordered to be printed.

Business of the House: Standing Order 47

15:08:00

The Lord President of the Council (Baroness Ashton of Upholland)
rose to move, That Standing Order 47 (No two stages of a Bill to be taken on one day) be dispensed with tomorrow to allow any Banking (Special Provisions) Bill brought from the Commons to be read a first time and a second time that day; and that it be dispensed with on 21 February to allow any such Bill to be taken through its remaining stages that day.

The noble Baroness said: My Lords, as my noble friend the Chief Whip explained to the House yesterday, the usual channels propose that the Banking (Special Provisions) Bill should receive its Second Reading tomorrow, with the Committee and remaining stages on Thursday. The Business of the House Motion is needed to allow this to happen.

I take this opportunity to remind noble Lords that the speakers list for Second Reading is already open, and that the Lords Public Bill Office is willing to accept provisional amendments to the Bill based on the Commons print. I beg to move.

Moved, That Standing Order 47 (No two stages of a Bill to be taken on one day) be dispensed with tomorrow to allow any Banking (Special Provisions) Bill brought from the Commons to be read a first time and a second time that day; and that it be dispensed with on 21 February to allow any such Bill to be taken through its remaining stages that day.—(Baroness Ashton of Upholland.)

Lord Strathclyde
My Lords, I thank the Leader of the House for having moved this important but most unusual Motion, which has been agreed through the usual channels because of the exceptional circumstances facing the Northern Rock bank. However, can she confirm that, during the passage of the Bill over the next two days, there will be sufficient time between different stages for amendments to be taken? Secondly, can she confirm that Thursday’s business, for balloted debates, has been lost, and that the Government will come forward with a proposal for a balloted debate day to take place as soon as possible?

Baroness Ashton of Upholland
My Lords, I am grateful to the noble Lord. I can confirm that there will be time for amendments. I say to the noble and right reverend Lord, Lord Harries, and the noble Lords, Lord Patel and Lord Mitchell, that I am extremely sorry that we have had to move their debates and legislation. Although we have made no decisions yet, we will be in discussion to make sure that we try to satisfy what I feel will be your Lordships’ wishes to find time to get those debates back on the Order Paper as soon as possible.

On Question, Motion agreed to.

Channel Tunnel Rail Link (Supplementary Provisions) Bill

15:11:00

Lord Bassam of Brighton
My Lords, I beg to move that this Bill be now read a second time. The Channel Tunnel Rail Link, High Speed 1, is now open, on time and within budget. Passengers can now travel the 68 miles from St Pancras to the tunnel at up to 186 mph. They can go from London to Paris in two hours and 15 minutes, and from London to Brussels in 1 hour and 51 minutes. For commuters living in Kent, journey times will be slashed from December 2009, with a new fleet of trains. The company that built the rail link, London and Continental Railways—LCR—estimates that the project will generate an additional £10 billion of private sector regeneration investment along its route. Management of construction has been a tremendous success. That, in part, is down to the structure in place: the corporate structure, the contracting structure and the roles played by all stakeholders—LCR, the Government and a range of other partners. However, managing a construction project is not the same as managing an operational railway. The Bill makes a small number of changes to support a restructuring and make sure the future structure is as effective as the existing one.

I shall digress into some of the history behind the current discussions. In 1996, London and Continental Railways won a contract to design, build and finance the Channel Tunnel Rail Link and to own and operate the UK arm of the Eurostar joint venture. LCR also acquired brownfield development land around Kings Cross and Stratford. The first part of the High Speed 1 line opened in 2003 and the second section opened, to much celebration, in November last year. The project’s original financing plan depended largely on borrowing against Eurostar revenues, but even before construction began it became clear that, with Eurostar passenger numbers falling below the earlier estimates, those plans would not give lenders sufficient security. To make sure the project was completed, the Government and LCR agreed a comprehensive restructuring exercise to secure the project’s future. Subsequently, the National Audit Office concluded that the restructuring was well thought out and helped to maintain private sector discipline over cost. The arrangements put in place have now proved their effectiveness, with the project being completed on time and within budget. The new railway is now fully open as planned, with Eurostar services successfully moving from Waterloo to St Pancras International. Work to allow domestic services to access the redundant platform 20 at Waterloo is expected to be complete by December this year.

Government support will always be needed to fund major rail projects, but given the investment made by taxpayers, we now need to get the best possible return. In 2006, the board of LCR and the Secretary of State agreed to undertake a joint programme of work to evaluate potential restructuring options. The objective of that work was to identify and implement a future structure for the company that was both affordable and maximised value for taxpayers. What is planned is a separation of LCR’s three different businesses: the infrastructure, including the track and stations; the land interests; and the UK stake in Eurostar. Ultimately, as the Secretary of State said last year, we anticipate that there will be an open, competitive process for any sale to secure best value for the taxpayer. Outside the Bill, a number of regulatory approvals must be granted, but if the timetable proceeds as we anticipate, the most significant sale—that of the rail infrastructure—is likely to take place in 2009.

The Bill itself, although short, is the first visible step in the restructuring work package. One of the key drivers for the Bill was to remove the uncertainty that existed in some quarters as to whether the Secretary of State was able to provide financial support in the operational phase of the railway. Any uncertainty over those legal and regulatory powers could jeopardise the Government's ability to get the best price. Due diligence on behalf of a potential purchaser of the railway could raise concerns about the legal or regulatory powers supporting the project's revenues and financing. That might in turn lead to a reduced bid from investors, or might deter others from bidding at all.

The Bill's first clause confirms that the Secretary of State's powers in the Railways Act 2005 to provide financial assistance can be applied in relation to High Speed 1 and the train services that run on it. The second and third clauses change existing provisions in relation to the regulation of the line. Although High Speed 1 is not subject to periodic price reviews by the Office of Rail Regulation under the Railways Act 1993, the ORR is the appellate body responsible for deciding disputes that may arise in relation to access to and charges for HS1. Clause 4 allows the Office of Rail Regulation to charge a fee for the costs it reasonably incurs in carrying out its functions in relation to HS1. The Bill also amends the statutory definition of “development agreement” in the Channel Tunnel Rail Link Act 1996 to include “operation”.

We are now starting to see the full extent of the CTRL project's value to the UK taxpayer. The financial receipts from any sales are likely to be significant but the benefits of the rail link are wider than any financial transactions. LCR estimates that the new line is facilitating £10 billion in private investment for regeneration along its route. For example, Kings Cross Central is a 27-hectare former goods yard which will house new-build homes and reused warehouses, shops, offices and significant leisure facilities. Taxpayers will receive an agreed proportion of the proceeds from this development. In Stratford, a 13-million square foot development including a new station, shopping centre and accommodation for athletes will support the successful staging of the Olympic Games in 2012.

Journey times to the Continent have been cut by at least 40 minutes compared with before High Speed 1 was built, and through tickets are now available from regional stations across Britain. More than that, local people in Kent will experience significant reductions in journey times to London from 2009, with travel to Folkestone and Canterbury estimated at around an hour.

The brand new fleet of Class 395 Hitachi trains will also be used to deliver the high-speed Javelin service during the 2012 Olympics, travelling from St Pancras to Stratford in seven minutes.

The Bill sets in motion a restructuring package which will optimise value for money for taxpayers and put the railway on a firm financial footing for the future. In those terms, I commend it to the House.

Moved, That the Bill be now read a second time.—(Lord Bassam of Brighton.)

15:18:00

Lord Hanningfield
My Lords, I am grateful to speak on a Bill which, although short in length, has the potential to have far-reaching implications. The Channel Tunnel Rail Link opened in its entirety late last year amid much fanfare, with the newly refurbished St Pancras station the crowning glory of the achievement. Yet still more is expected, with 40 per cent of the rebranded High Speed 1 line reserved for commuter services between Kent and London, as the Minister just said. That alone has huge potential significantly to change the commuting lives of many into the capital from 2009.

It was the 1996 Act that permitted the construction of all that, with the regeneration potential of the line crucial to the decision-making process in the preconstruction phase. In that regard, the opening of Stratford International station is eagerly awaited to fulfil completely the promise of the line for the 2012 Olympics and beyond—again, as the Minister just said.

We are faced with a Bill that makes minor changes to the underlying legislation, with the objective of providing an optimal environment in which to restructure the rail link into three sustainable constituent businesses. The ostensible aim is to secure the best value for taxpayers when these elements are sold. Before the minutiae of the Bill are explored, it is important to mention how pertinent solid and effective legislation is to the rail link. It is evident that the end product that we can admire today is in many ways the result of the vital rescue package that was required soon after the Act was passed. The vastly over-optimistic passenger forecasts—again, as the Minister said—which were integral to London and Continental Railways’ bid, undermined the overall purpose of the 1996 Act. The House is currently considering the Crossrail project, and I hope that lessons can be learnt when we deal with grand transport projects as hybrid Bills.

Clause 1 introduces no new provisions; rather, it simply clarifies a point that could suffer from ambiguity. However, the Government think it necessary to restate,

“for the avoidance of doubt”,

as they say in the Explanatory Memorandum, that the Secretary of State may fund High Speed 1 and the trains that operate on it. We are told that this is necessary to secure the best price during bidding. I do not quite understand that. I understand that the Railways Act 2005 allows funding for any part of the rail network, including High Speed 1. I therefore see the benefits of domestic services on the line being subsidised in the same way as the rest of the network under Network Rail, but surely the 2005 Act covers that.

Moreover, from reading Hansard from another place, I understand that, aside from domestic service subsidies, the intention is not to fund the line in any regard, and to provide only short-term support for Eurostar (UK) Limited. If this is the case, why cannot the clause be tightened to reflect this intention? The answer so far has been that doing so would preclude offering historic support to Eurostar in the short term. If the ultimate aim is to make Eurostar financially sustainable in the long term, why cannot this be written into the Bill? We shall have to explore this in Committee. Perhaps a drafting that excluded the direct subsidising of non-domestic services, exempting any historical support, would suffice. An acknowledgment in the Bill that the intention is to subsidise only in the short term, during a potentially volatile period, would provide reassurance. The wording of the clause is already rather unusual, so adding this caveat would not prove to be too exceptional. As I said, I am sure that we will explore this further in Committee.

Clause 2 removes further the power of the Office of Rail Regulation to approve access contracts for High Speed 1. The 1996 Act provided for domestic train operating companies on the line to be immune to the normal procedure in the Railways Act 1993. Instead, the development agreement requires the Secretary of State to oversee access contracts. This is the case for all the line, except, importantly, where High Speed 1 crosses any part of the national rail network and where the ORR still oversees access contracts. The Bill removes these exceptions and any potential duplication between the two regulatory regimes. I certainly see the benefit of avoiding dual regulation. I understand that High Speed 1 is a new asset and is therefore not subject to the economic regulation and the reviewed access charges of the rest of the national network, but are there any other advantages in creating a regulatory exception for this line? One possible advantage is that international services could be required to make full use of the High Speed 1 asset.

There has been much discussion in another place of imposing terms on operators to stop at the new Stratford International station, which will be very well connected to different parts of the national rail network. I live in the east of England, and I very much support that.

I understand that international operators are on open-access contracts. Having looked at the consultation documents regarding the charging framework, it seems that the charging regime will be priced so as to not discourage the use of intermediate stations. Can the Government do anything else to help ensure that the full potential of the asset is realised? As the Minister said, the regeneration potential of the line was key to the routing, which I hope will continue to be borne in mind when thinking about international lines.

On Clause 3, the 1996 Act gives an “overriding duty” to the ORR,

“to exercise his regulatory functions in such a manner as not to impede the performance of any development agreement”.

The Bill proposes to remove the sections of this clause which pertain to the construction of High Speed 1, which are now irrelevant, but seeks to retain the development agreement as the rail regulator’s overriding consideration. The example used in another place of why this is still necessary is to prevent train operators running to the Channel Tunnel on the domestic network and undermining the purpose of High Speed 1 as a result. Is that likely? Are there any other convincing reasons why this clause should be retained and priority of attention given to High Speed 1 over other parts of the rail network? I understand that the line is rather different from the rest of the rail network, but are there commercial benefits to treating it in a different manner?

The final substantive clause allows the Office of Rail Regulation to charge fees for its duties. As mentioned, the ORR’s duties are much less than those that it holds over the national network. The clause is in place if and when the need for the ORR to get involved becomes apparent. I understand that an example of such a scenario could be during a dispute between a rail operator and the line owners. The ORR also has health and safety duties. Would it be possible to make a charge for these, or are they excluded along with the competition aspects of the regulation? I was pleased to see that this clause was modified sensibly in another place to ensure that any charges represent costs reasonably incurred, which provides a degree of objectivity to any charge imposed.

This is a very complicated, technical Bill and I have tried to highlight some of the questions about which we are concerned. But there are several other issues which, although are not explicitly covered in this amending Bill, relate directly to the Channel Tunnel Rail Link. Waterloo International station ceased to operate Eurostar services when St Pancras took over and has five platforms vacant as a result. I understand and have read all the arguments against facilitating their usage in the short term. However, there was plenty of time in the interim period for the Government to address, or at least acknowledge, some of those issues. Instead, we are now faced with the prospect of major works on the crossover at Clapham Junction and on the heavily congested throat of Waterloo station, and for South West Trains to acquire further rolling stock before any benefits can be realised. The cost of mothballing the platforms is not insignificant at £500,000 a year.

Of course, the original intention was for international services to run from Waterloo and St. Pancras stations, a decision which was overturned rather late in the process. Why were the reasons against this not thought through in the first instance? Perhaps we would be in a more optimistic position than being able to offer only platform 20 for conversion in the near future. Given that the Waterloo situation is a direct result of the Eurostar legacy, would it be possible to use some of the money raised from the sale of High Speed 1 to address the issues at Waterloo and make one of the busiest stations in the country more useable?

International services on High Speed 1 are subject to open-access contracts, and I would very much like to see a degree of competition on the line. Will the Minister be able to comment on the likelihood and feasibility of competing services being launched, and on whether on the French side of the Channel Tunnel there is sufficient free capacity? It is all very well describing contracts as “open-access” but is a degree of competition possible in reality?

In High Speed 1, we finally have an asset we can be proud of, with the benefits for passengers and regeneration potential enormous. We need to ensure that this Bill is sufficiently well drafted for High Speed 1 to continue in this vein. As I have said, this is a very technical Bill and I have tried to put forward some of the problems. For those reasons I look forward to being involved as the Bill progresses through the House.

15:29:00

Lord Bradshaw
My Lords, we understand why it is necessary to confirm that the Secretary of State is empowered to fund the continuing operation of the Channel Tunnel Rail Link so that trains may run after construction and to remove any confusion which may exist, and to which the Minister referred, as to whether the state has the power to finance domestic operations as well as international trains. I believe it has been suggested that lawyers have found issues to raise which may be expensive to resolve without this legislation.

As we understand it, there are four separate businesses: the property business, with which we need not concern ourselves; the high-speed link itself, which is an infrastructure business; Eurostar, which is an unincorporated business owned by the three Governments; and the domestic trains, where the Secretary of State has already purchased 40 per cent of their capacity and which are due to commence operations shortly. High Speed 1 will own the infrastructure, so my first question is who might that be? That is, who will the Government sell it to? It could be sold to Network Rail, which could raise the money by selling bonds, enjoying as it does the advantage of those bonds being backed by the Government and probably able to borrow money more cheaply than anybody else. It could be bought by Eurotunnel, which has the incentive to tackle both its own costs and those on the high-speed line itself, which are too high. It could be bought by SNCF because we know that certain continental operators have a taste, shall we say, for British assets. That was reflected recently in the acquisition of both Cheltenham Rail and EWS by Deutsche Bahn. And of course it could be acquired by a body such as Macquarie or Ferrovial. They would probably require higher returns and might or might not pay more. Will the Minister confirm whether my interpretation that these bodies form the target market is correct?

At present, the charges for using the Channel Tunnel Rail Link are something over £2,000 per train, and I believe that that is somewhere close to the market price, the point at which you get more people using the service and therefore more revenue. If you charge more, fewer people will use it and there will be less revenue. Are these charges likely to be increased, and who would give consent to any increases that might be introduced? Alternatively, will there be no cap, and will there be a right of appeal about the charges being levied? If there is an appeal, who will it be made to?

I turn to freight and open access passenger operators. What charges will they be subject to, and will they be open to appeal? At the moment on British Rail, an open access freight operator pays only marginal costs, and the same is true for an open access passenger operator. Who would hear an appeal against the level of charges, and would the charges be subject to European law?

Is it the intention to sell the debt attached to the high-speed line with the assets themselves, or would the removal of the guarantee by the Government, which has been given to the operator of High Speed 1, offer it more freedom? If the Government were to offer some sort of cover for the debt, would it make the operator more or less free? What effect do the Government think this will have on the price realised from the sale? What underlies this Bill is the fact that the Government want as much money as they can get. The words are slightly more elegant than that, but basically they are out to get the biggest bang for their buck that they can.

Will the Government commit themselves to a review of the restrictions imposed by the Intergovernmental Commission on the Channel Tunnel? Why are these restrictions drawn in such an onerous fashion? For example, the latest intercity express of German railways can go through tunnels in the Alps which are much longer than the Channel Tunnel but it cannot come through the Channel Tunnel itself. These restrictions, I believe, originate in a treaty, but treaties may be rescinded by the consent of both parties. How close is the intergovernmental commission to being a restraint on trade? If the Swiss can allow trains to go through their tunnels, or the Danes and the Swedes can allow trains to go over their bridges, is this intergovernmental commission a restraint on trade? If so, is it bordering on the illegal? How do the present financial arrangements fit in with the review of state aid for infrastructure which I understand the European Union is currently considering?

There are many more questions but the basic one is whether it is the intention of government to see that the Channel Tunnel Rail Link is used to the maximum extent possible so that more people benefit and carbon dioxide emissions from aircraft are reduced to the minimum. This is an asset which the taxpayers of this country have purchased and I think that given a vote—which I suppose they are every five years—the taxpayers would say, “The most important thing is that more of us are able to afford to go on these trains and to use them—and, by the way, to reduce the carbon footprint”.

Does this desirable aim—which I believe most people would think is good—conflict with the Government’s obvious desire to secure the highest sale price? Is this the basic reason for paragraph 11 of the Explanatory Notes—which I recognise are not part of the Bill—which states that the purpose of Clause 2,

“is to ensure that all access contracts in relation to the CTRL should be outside regulation by the ORR under the 1993 Act”?

We on these Benches remain suspicious of any legislation which gives a regulatory oversight to the Secretary of State. That is not independent oversight but regulatory oversight—in this case to the vendor of the assets. We remember the recent history of the railways and wish to see nothing enacted which could lead to assets which have been largely financed by the state being placed in other hands. This could lead to a rundown in the condition of the assets—as occurred with Railtrack, with its slack standards and maintenance holidays—and a lading of the system with an immense amount of gearing in the form of debt raised against the optimistic hope of future revenue streams.

I turn now to the issue of the extension of the high-speed line to many other parts. The noble Lord, Lord Hanningfield, mentioned the platforms at Waterloo; I cast my eyes somewhere above that and think of all the people in the north of England who paid the taxes to build this line and do not have any access to it. I realise that “hypothecation” is not a word that is accepted by the Government, but they could do a great deal to satisfy many people in this country if they could find it in themselves to announce at the same time that they are at least going to plan an extension of the high-speed line to go elsewhere.

Will the Government say what attitude they would adopt towards open-access operators seeking to enter the domestic market? They were obviously very dismayed, as was GNER and indeed was I, by the entry of Grand Central on to the east coast main line. But if they wish to exclude the possibility of an open- access operator coming into the domestic market, would it not be more honest to put a clause in the Bill that precluded it, rather than relying on some arm-twisting of the Rail Regulator in the form of a lunchtime directive passed by the Secretary of State or some shenanigans behind the arras while nothing appears in writing, which chairmen and chief officers of nationalised industries have often been subject to?

We want to know the Government’s real intentions in presenting the Bill, and why the overriding duty of the Rail Regulator to exercise his functions should differ from those that apply to Network Rail as a whole.

15:40:00

The Earl of Mar and Kellie
My Lords, at two pages, the Bill looks very innocuous and—with the help of the Explanatory Notes—simple, straightforward and an aid to the sale of the Channel Tunnel Rail Link, or High Speed 1. There is the restriction on the removal of obstructions to the high-price sale, as well as several clarifications about future conditions on the lines and the role of the Office of Rail Regulation.

Ultimately, I need to ask if the Bill will lead to the best sale possible. I suspect that that does not mean the highest price but the best use of the railway in the future and the greatest advance in rail-for-air substitution. I hope the Minister will confirm that the aim of the sale is to ensure that High Speed 1—and, by implication, the Channel Tunnel—is used by a dramatic increase in all types of trains; that is, Eurostar, the Kent high-speed Hitachi Javelin commuter trains, other open access operators, freight trains and other international train operators, including Deutsche Bahn. The track access charge must be lower and the financial gearing must therefore not be too high, thereby diverting track access money to repay interest charges and thus not keeping the infrastructure in tip-top order.

I suspect that the decision to keep High Speed 1 out of the Network Rail network is correct, to enable more European trains to use it. Buried on page 2 of the Explanatory Notes is the use of High Speed 1 as the new name for the Channel Tunnel Rail Link. That implies more than one high-speed line; to have called it “the high-speed line” would not have done so. The new high-speed network must be announced soon to give hope to those who live in the north, Scotland, Wales and the west who have contributed taxes towards it, a point that has been well made before. I am pleased that National Express East Coast, among others, is now offering through fares to Lille, Paris and Brussels; for example, Edinburgh to Paris costs £89. However, passengers still have to hump their bags over to St Pancras from Kings Cross. I ask the Government to announce the commitment to develop such a high-speed network very soon.

In his remarks, the Minister reminded us that this railway was built on time and on budget. That is very good, and it contrasts rather well with the railway at the foot of my garden that proved to have rather more historic and uncharted mine workings underneath it than had been previously expected. That had a substantial effect on the budget of the Stirling-Alloa-Kincardine railway.

I was interested to hear that the rail sale is likely to be in 2009. The question is the definition of best value.

The noble Lord, Lord Hanningfield, also saw how important it is to maximise the use of the line, stressing the need for Stratford International station. He also raised an interesting query about the opportunity for services from the ordinary Network Rail network to access the Channel Tunnel. I look forward to an answer to that, because services from other parts of Kent in particular might find that convenient.

My noble friend Lord Bradshaw asked how wide the range of purchasers might be, whether the track access charge will remain at around £2,000 per train, who would regulate it and within which jurisdiction. Answering that may be quite difficult.

We on these Benches and, I suspect, elsewhere will watch with interest whether the outcome of the legislation will be a high-speed railway that is very well used or one which it is very expensive to operate. If it proves to be the latter, it will be a grave mistake from the perspective of both the public and the environment. People need to travel and to trade. The less of the earth’s resources that are used up in doing so, so much the better. I look forward to Grand Committee.

15:46:00

Lord Bassam of Brighton
My Lords, I predicted that this would be a slightly lonely debate and that there would not be too many of us involved in it. Despite that, I have enjoyed the contributions of noble Lords opposite, who have asked a range of interesting questions and made some valuable points as part of our continued discussion and debate about our nation’s rail network. I suppose that hidden among those questions and comments was a broad welcome for the Bill—at least that is how I interpreted them until I heard the noble Lord, Lord Bradshaw, say that he was a little suspicious. Suspicion was probably the general tenor of the comments and questions. I do not anticipate a lengthy Committee stage, but I am certain that noble Lords will seek to flesh out some of the issues to which they have referred during today’s short discussion and debate.

I shall in due course deal with as many of the questions that have been raised as I can. I certainly agree with the noble Lord, Lord Hanningfield, that we have an asset of which we can proud. He prefaced that by saying “finally”, but, in general, our railway network is an asset of which we should be proud—and we should be proud of this rail link in particular. Although it went through a slightly difficult phase after the passing of the 1996 Act, our Government when they came to power put together a very successful rescue package which has underpinned the development of High Speed 1 and enabled us to reach today’s position of being able to look forward to a well managed package of sales and ensure a successful future for, and running of, the Channel Tunnel Rail Link.

As I observed at the outset, and other noble Lords have since reflected, the Bill has only five clauses. It does not trigger the restructuring of LCR, and its provisions, I think we can all agree, are technical and limited in scope. The Bill confirms that the Secretary of State can continue to provide financial support to the rail link, and the train services that run on it. This is not a new power; it simply clarifies what was already the Government’s interpretation of existing legislation. As the noble Lord, Lord Bradshaw, said, we are tidying it up for the benefit of removing doubt. 

The Bill tidies up existing provisions in relation to the regulation of the railway. It also gives the Office of Rail Regulation the ability to make a reasonable charge for any new functions that it may carry out in relation to High Speed 1. It changes the definition of “development agreement” in the Channel Tunnel Rail Link Act 1996 to make it more relevant to the context of an operational railway today. As I have already reflected, the Bill is only a first step in the process of restructuring the Channel Tunnel Rail Link project. The link has already delivered reductions in journey times for international services with similar cuts in local travelling times secured. As I have said on several occasions previously, the project is driving regeneration in priority areas across a wide stretch of the country. Noble Lords anticipated that in some of the points that they made.

I shall try to work through as many of the points as I can that were raised by noble Lords, as that will help to clear the ground for Committee. The noble Lord, Lord Hanningfield, raised the issue about the legal uncertainty in Clause 1, which I have dealt with in part. A fuller answer is perhaps due. We take the view that when two pieces of legislation potentially speak to the same issue, there can be confusion as to what Parliament intended. The Department for Transport and LCR have identified that it is not clear from a literal reading of the CTRL Act whether the Secretary of State’s ability to provide financial support to the High Speed 1 railway applies in the operational phase, when, for example, he or she would wish to provide financial support to a domestic service franchisee. The impact of any uncertainty over the legal and regulatory powers could be binary, in that due diligence on behalf of the purchaser or financer of the railway could identify a flaw in legal or regulatory powers supporting the project’s revenues and financing. That might lead to a position in which reduced bids from some potential investors in HS1 could deter others from bidding at all. Of course, we would not want that situation to arise because that could compromise securing best value for money.

The noble Lord also asked whether Clause 1 allowed for Eurostar services in the UK to be subsidised and how that might affect the access charge loan and the guaranteed rolling stock leases. Clause 1 gives the Secretary of State the same commercial flexibility to support HS1 as she has for the national rail network, including flexibility to subsidise international operators in the same way as we currently support domestic franchise operators. It would also allow the Secretary of State to support Eurostar through the access charge loan or by continuing to guarantee rolling stock leases if the Secretary of State chose to go down that route. However, it is the Government’s objective to reduce international operators’ reliance on public support, so we do not intend to subsidise international services through a franchise or any similar arrangement.

The noble Lord, Lord Hanningfield, understandably made a plea for services to stop at Stratford. I would expect that of him, given his keen advocacy of all things Essex. No doubt he sees Stratford as the gateway to Essex—and I might be with him on that particular point. I certainly understand what the noble Lord said about the access charging regime in that context. Ultimately, it is an issue for Eurostar as to whether it sees a value in services stopping in Stratford. Domestic services will call at Stratford from December 2009 and Eurostar expects to call there as soon as high quality road and public transport links are in place for all customers. There is no planning requirement to prevent Eurostar trains stopping at Stratford but there is a planning requirement that the international station cannot open until the travelator is operational. It is expected that the planning authority will accept the new DLR extension and new access from the eastern side of Stratford International station to the regional station instead. Eurostar will want to take full account of those issues and points and weigh up the issues surrounding the commercial benefit to it.

The noble Lord also made some observations about the appropriateness of the Secretary of State to maintain some regulatory powers over High Speed 1 and the Office of Rail Regulation in relation to access. He asked what the respective roles were for the ORR and the Secretary of State on High Speed 1. It is important that there is clarity over commercial points before any sale process starts. Issues such as the level of access charges will remain with the Government as they affect the value that the Government will recoup on their investment in HS1.

Under the development agreement, the Secretary of State oversees access contracts between the HS1 infrastructure operator and train operating companies for HS1 track and stations. Under the Railways Infrastructure (Access and Management) Regulations 2005, the Secretary of State is also responsible for setting a framework for HS1 access charges and ensuring that the charges comply with the requirements of those regulations.

The Office of Rail Regulation is the appeal body under the 2005 regulations in relation to disputes over HS1 access or charges, a point also raised by the noble Lord, Lord Bradshaw. I was also asked about the Office of Rail Regulation's overriding duty and whether it would impact on the development agreement. That raises the question of whether the Office of Rail Regulation should give precedence to the development agreement. As we see it, the overriding duty of the Office of Rail Regulation is not to impede the development agreement and that is obviously an existing one.

The circumstances in which one might expect the ORR to take this overriding duty into account would be, for example, if a train operator wanted to start running competing international services to those on HS1 using the main domestic rail network. Another example might be if HS1 were blocked because of engineering works or some other disruption on the line and HS1 services needed to use the domestic rail network—or vice versa, if domestic rail lines were blocked and HS1’s were needed. The overarching duty gives any potential purchaser of HS1 comfort that its interest will be taken into account when the Office of Rail Regulation is taking regulatory decisions in relation to the national rail network which could affect the operation of HS1. In overall terms, it should protect value.

The noble Lord, Lord Hanningfield, also asked about how the Office of Rail Regulation's safety functions will be funded. The ORR’s safety functions are funded through the safety levy payable by all train operators, and that levy is made under health and safety regulations.

The noble Lord also raised the issue of the planned use of Waterloo and St Pancras and asked why that was dropped. This is obviously a complex issue, but after the revision of revenue forecasts was made in 1998, Eurostar reviewed whether it should operate one or two terminals in London. Eurostar concluded that operating from two terminals would require the operation of two international stations, two depots and two sets of station staff, engineers, security personnel and so forth. It would require the development of a timetable for two sets of journey times into London. Eurostar thought that that was confusing, especially for continental travellers faced with trains to and from two stations. The cost of operating two terminals was financially prohibitive against the marginal revenue benefits and, in November 2004, Eurostar announced that it would move its London operations in their entirety to St Pancras and cease services from Waterloo.

The noble Lord also asked about the likelihood of competition on the line. That is obviously a matter for commercial operators to agree with the owners of the railway. The Secretary of State will put in place a framework to ensure that all access charges allow for open access and fair competition.

The noble Lord, Lord Bradshaw, asked about appeal rights and I have already dealt with that. The noble Lord also raised the prospect of potential buyers and gave us a menu from which we might wish to choose including Railtrack, Eurotunnel, SNCF, Deutsche Bahn, Macquarie and others. It was a fair list and I do not want to comment on the relative merits of each because it would be quite wrong of me to do so. HS1 is a valuable new asset. There are many potential purchasers. The noble Lord gave us a list. We want to see an open and transparent competitive process. The new line will not be sold automatically to Network Rail although it is a potential bidder, as was speculated. As I said, we want to ensure an open and competitive bidding process. Network Rail will be able to bid on the same basis as anyone else.

Lord Bradshaw
My Lords, the noble Lord talks about an open and competitive bidding process as is the case with franchises let for domestic services in this country. However, it does not take account of the wider benefits and seems to many of us to be driven by who bids the highest price, not by who promises the best service and pleases the customers. Price is not the only criterion that I should like to see taken into account.

Lord Bassam of Brighton
My Lords, the noble Lord sells the argument a bit short. I do not want to open up a bigger discussion about franchising generally but in short the franchising process has to meet certain specifications. That is one of the plus points of competitive bidding. Clearly, we want to see a high threshold in standards of service and I am sure that will be secured through that process.

The noble Earl, Lord Mar and Kellie, said this should not be just about money. Of course, it should not be just about money but we as a Government have to secure best value. By securing best value we secure in the longer term a better level of investment in the rail network as a whole. I think that is well understood by noble Lords.

I ought to set out the Government’s view on whether we should develop High Speed 2 because all speakers referred to that. Last summer’s White Paper set out our immediate priority for the future of the main line network; namely, to increase capacity by somewhere in excess of 20 per cent. Our view was that this could be met through a range of options, including road or rail. A high-speed line is, of course, one of the options available. It is far too early to talk about firm plans but we will need to look at this along with other issues in our next plan for the railways in 2012. Therefore, we do not rule it in and we do not rule it out. I certainly understand the case that has been made but we have to prioritise and the present priority is to ensure that we have adequate capacity across the whole of the network. The delivery of High Speed 2 may well be part of that. Of course, we have to consider cost and the potential benefits to passengers of having another high-speed line and these things have to be balanced. The White Paper estimates that the cost of such a scheme could be between £10 and £30 billion. That money might not then be available for other key critical improvements to the network as a whole. The case is obviously one for the future.

The noble Lord, Lord Bradshaw, asked an interesting question about a domestic open access operator. The access and management regulations give main operators a right of access. Therefore, the Government cannot stop domestic open access operators seeking access to HS1, nor would we want to because it may well have benefits. The noble Earl, Lord Mar and Kellie, suggested using access charging to encourage use of the line. What was proposed when LCR’s subsidiaries consulted on access charges would have seen a significant reduction in charges for international services. The Government believe that they should be set at a level that will allow new operators to run services in the future.

I think I have covered most of the main points on which noble Lords sought clarification. I shall have a careful look at Hansard to judge whether I have missed anything. If I have I shall write to noble Lords and circulate that letter to the three noble Lords who contributed to this short debate. I look forward to a constructive Committee stage, and I hope that the Bill will find full favour with your Lordships’ House.

We have a high-speed rail link of which, as the noble Lord, Lord Hanningfield, said, we should be proud. It is a train service that links this country to Europe at a speed of 186 mph at its best. St Pancras has been transformed, and with the introduction of through ticketing it is now possible to travel from the north of England to the Continent without negotiating the rigours of the Underground. That means, in my terms, taxpayers benefiting across the nation. We have a regeneration investment estimated at £10 billion, which will be used to improve priority areas in the south-east. On top of all those benefits, we also have the opportunity to gain a tangible financial return on the taxpayers’ investment. That is a political menu to which we should all be able to sign up.

Through restructuring, we will secure the long-term future of the Channel Tunnel Rail Link project, which has delivered and will continue to deliver real benefits for the country. In those terms, I commend the Channel Tunnel Rail Link (Supplementary Provisions) Bill to your Lordships’ House.

On Question, Bill read a second time, and committed to a Grand Committee.

Sale of Student Loans Bill

16:07:00

The Parliamentary Under-Secretary of State, Department for Innovation, Universities and Skills (Baroness Morgan of Drefelin)
My Lords, I beg to move that this Bill be now read a second time. Participation in higher education in this country is at its highest level ever. This has been brought about through the hard work of all involved in the sector, increased public investment and the systematic breaking down of financial barriers to higher education. Alongside reintroduced non-repayable government grants and non-repayable bursaries from higher education institutions, we have developed a system of student loans that means that no one need be deterred on financial grounds from fulfilling their potential through higher education.

Income-contingent repayment loans are now available for maintenance and tuition fees. No home full-time undergraduate studying for their first degree has to pay tuition fees as they study. Repayments are made after the borrower has left higher education and are directly linked to the individual’s earnings, with collection through payroll deduction alongside tax and national insurance. Repayments are related to the size of the pay packet, not the size of the loan. This makes them quite different from the old mortgage-style student loans that were sold in 1998 and 1999 for a total of £2 billion. The loans are not commercial loans. The low interest rate, linked to inflation, means that graduates pay back no more in real terms than they borrowed.

We are rightly proud of our record of breaking down the financial barriers to education and widening participation. We are confident that participation in higher education will continue to grow and that the number and proportion of students from lower socio-economic groups will continue to rise. We have sought to support that further, with additional changes to the student finance system announced last year. But growth in participation brings an interesting challenge; as student numbers have grown, so too has the Government’s student loan book. The English income-contingent loan book was valued at £17 billion at the end of financial year 2006-07, and it is set to exceed £50 billion within 10 years. This projected growth makes it all the more important to consider carefully how best to manage this large public asset. That is what this Bill addresses.

In the 2007 Budget, the Government announced their intention to begin a programme of sales of income-contingent repayment student loans. We believe that ownership of the loans would be best placed in the private sector. Transferring ownership of large parts of the loan book will reduce the risk of holding loans on the Government’s balance sheet. The Government anticipate receipts from the proposed sales during the Comprehensive Spending Review period of £6.3 billion. This is a forecast, not a commitment. We are committed to the student loans sale programme, but only if any sale represents good value for money and the market conditions are right.

We have two guiding policy principles in developing this sales programme. First, there should be no adverse impact on borrowers. Terms and conditions for all loans will, as now, be governed by regulations scrutinised by Parliament. The borrowers’ experience will not alter and the collection and administration systems will be the same whether or not one’s loan has been sold. This Bill contains the provisions that we need to ensure that this enduring protection for borrowers is secured. Secondly, any transaction must yield good value for money. Ministers and departmental accounting officers alike must ensure good value for money in all that they do. This responsibility is at the forefront of our minds as we prepare the sales programme.

Retaining the loans in the public accounts exposes the Government to the risks surrounding the repayment of very large amounts of money—tens of billions of pounds. The Government have made forecasts of how quickly the income-contingent repayments will be made. But by the very nature of a system that is fully sensitive to changes in each individual’s earnings over time, we cannot be certain how quickly that money will come back to the taxpayer. It is not usual for government business to remain exposed to large amounts of debt-related risk and we believe that the private sector can take on and manage those risks. Having commissioned expert advice from the financial sector, we believe that there will be an appetite in the market for assets backed by the loan repayments.

All transactions in which loans are sold will be subject to a rigorous assessment that we are achieving good value for money. The assessment will ensure that the sale is competitive and takes place under the right market conditions, that potential bidders have enough information to make informed bids, and that there is a genuine transfer of risk from the Government to the purchasers. There will be a comparison made of the proceeds to be achieved from selling the loans against the value of retaining them on the Government’s books, taking account of the risks involved.

We should be clear that the assessment will be a matter of judgment for the Government of the day for each proposed transaction. My honourable friend the Minister for Lifelong Learning, Further and Higher Education has already made a commitment in the other place that the Government will report to Parliament after each sale. The National Audit Office will scrutinise the sales and has already signalled that it may report to the Public Accounts Committee on this sales programme.

We must bear in mind that this Bill is designed to enable a long-term programme. We expect student loan sales to become a regular feature of the student finance system. The precise way in which sales might be carried out may vary over time. Our current approach to proposed sales is different from the approach to sales made 10 years ago due to the way in which markets operate having evolved. In the same way, a Government in 10 or 20 years might well want to design sales in a different way again to secure good value for money in the markets of that time.

Therefore, the Bill needs to support sales arrangements more broadly than the particular way that we are planning to conduct the initial sales. It may, however, be useful to noble Lords if I explain our current approach to the sales transaction. In making a sale, the Government would not expect any financial institution to want to own the loans on its balance sheet. Therefore, our current plans are that the loans will be securitised. This is a process by which a special purpose company, or SPV, is created to issue bonds, which purchasers can trade in the financial markets. Those bonds are backed by income received from the student loan repayments of the portfolio, not by repayment of particular individual loans. A much wider range of investors will be more interested in purchasing tradable bonds than in buying a package of loans outright, because they will know that they can sell these bonds in the markets if they want to.

Structuring the loan portfolio into different bonds will attract a wide range of investors and maximise its value. Different investors will be interested in different types of bonds with different risks and return profiles. Pension funds and banks, for example, may want the relatively secure investment of AAA bonds, whereas other investors, such as fund managers, may prefer the relatively greater risks but higher returns of less secure bonds. As a result, the Government believe that there will be a keen appetite for these assets in the private sector at a price that will yield good value for money. Following a procurement competition, we recently appointed the sales arranger to prepare for the potential sales in 2008-09 for the Government on this basis and to arrange sales following the Bill’s Royal Assent.

Once the loans are sold and securitised, we expect them to be sold on very rarely, if ever, because owning the loans is the central purpose of the special purpose vehicle. The Government will decide on the portfolio of loans to be sold in any given transaction. We need to be sure—this is particularly important—that the loans that we offer for sale are of a type where there is sufficient information for the market to be able to price them properly, otherwise there will be no prospect of obtaining good value for money. This might mean, for example, selecting for sale loans of a certain maturity so that borrowers will have been out of university for a sufficient period to be generally connected with the repayment system through HM Revenue and Customs. We will not be selecting on the basis of the characteristics of individual loans, such as salary levels or what subjects have been studied, and loan purchasers will have no say in which loans are available for them to buy.

I give existing and future borrowers this reassurance. Purchasers of loans will not be able to charge a different rate of interest, change the income threshold for repayments or use a borrower’s personal details for any purpose other than managing the loan. Purchasers of bonds backed by the loans will have no direct relationship with borrowers, the Student Loans Company or the Government. Their interest will be solely in the income which the bonds can provide.

I now turn briefly to the individual clauses of the Bill. It is not a long Bill so I shall take the time to do so. Clause 1 allows the Government to sell the loans, while retaining the power to require that purchasers administer the loans in a way that meets our requirements. Clause 2 concerns various provisions that can be included in sales contracts. Clause 3 enables onward sales and deals with provisions relating to such transactions.

Clause 4 enables regulations to refer to purchasers and to continue to govern loans when they are sold. Clauses 5 and 6 enable the flows of money and information needed for the current repayment system to operate for sold loans as well as retained loans. Clause 7 is a declaratory statement explicitly confirming an existing understanding that all income-contingent student loans are exempt from the terms of the Consumer Credit Act 1974 because their characteristics differ substantially from commercial loans. Clause 8 provides powers for the Welsh Ministers, in respect of Wales, which are equivalent to those which the Bill proposes for the Secretary of State in relation to England.

The last time this House considered student loans it was a matter of some controversy. By contrast, I believe that this short and mainly technical enabling Bill is quite different. Its provisions have no relation to future decisions on broader student finance policy and have no impact on how students obtain financial support for their time in higher education. Rather, it enables the Government to manage efficiently a large and growing public asset. I commend the Bill to the House.

Moved, That the Bill be now read a second time.—(Baroness Morgan of Drefelin.)

16:20:00

Lord Roberts of Llandudno
My Lords, I appreciate very much what the Minister has said, particularly on the last clause, referring to Wales. The Sale of Student Loans Bill will give the Welsh Assembly the power to sell off the Welsh portion of the student loan book valued at £1.1 billion, which is a small part of the £18.1 billion for the whole scheme. However, any money arising from the sales will go to the Treasury’s Consolidated Fund.

At the moment in Wales, we have the most severe school closure programme that Wales has ever known. Certain local authorities are having to close up to 30 schools. They cannot continue because the pupil numbers are so small. We would not argue that every school should be kept open, but if this £1.1 billion came to the coffers of the Welsh Assembly it could make a massive difference. The school in which David Lloyd George was educated has, at the moment, 80 pupils, yet it is threatened in a clandestine way with closure. If this money could be injected into Welsh education rather than go to the centralised Westminster Consolidated Fund, it would make a massive difference.

In Committee in the other place, Bill Rammell, the Minister responsible for the Bill, admitted that there was no way that any money raised from the sale of Welsh student loans could be earmarked for Wales. If we want the money in Wales, the Welsh Assembly will have to go cap in hand to the Westminster Government to ask whether it can have its own money. If the Bill provides an opportunity for the Assembly Government to raise money, it makes sense for it to spend the money in the way that it wishes. The fact that Wales would not necessarily see a penny of any revenue raised will provide a strong incentive for Welsh Ministers to do nothing, even if they think that selling off the loan book would provide better value. The Welsh Assembly Government may very well choose not to use its new powers, but I do not understand why, if it does, the money has to stay in London. Speaking as a Welshman to a Minister who is also from Wales, I suggest that devolution means trusting the Assembly to deliver policies that will make a difference to Wales. Once again, unfortunately, the Westminster Government are clutching tightly at the purse strings. I urge the Government to think again on this matter.

16:23:00

Baroness Warwick of Undercliffe
My Lords, I want to speak briefly on the Sale of Student Loans Bill. I am delighted that it gives me an opportunity to welcome the Minister to her new position as Parliamentary Under-Secretary at the Department for Innovation, Universities and Skills. I also pay tribute to her predecessor, the noble Lord, Lord Triesman, who even in his relatively short time in the department was committed to ensuring that the issue of the student experience played a prominent part in the political agenda. I have every confidence that it will continue under the stewardship of the noble Baroness.

This relatively uncontroversial Bill seeks to raise £6 billion for the government coffers from selling parts of the student loan portfolio. It has been done twice before, as my noble friend said, in 1998 and 1999, when loans worth more than £2 billion were sold. I am very much in favour of the Government’s rationale in wishing to transfer this risk to the private sector and, ultimately, reduce this part of the public debt. However, it would be helpful, with the current state of the financial markets, if the Minister could reassure the House whether this is the most appropriate time to make the sale. I was reassured by many of the conditions that the Minister described— the terms under which a sale might be contemplated. However, it would be helpful if she could say whether she has received advice from the financial services sector on the best time to obtain the optimum price.

There is concern, particularly among student groups, that individual student debt is growing. They worry that this is having a negative impact on access to higher education. It is worth reminding the House that the current student support package is one of the best that there has ever been, with a generous bursary package and student loan repayments not starting until a graduate is earning £15,000. While there is of course no room for complacency on access, it is particularly pleasing to see that university applications between 2002 and 2007 have increased by 5.5 per cent from the lowest socio-economic groups. The UCAS application figures for this year, released last Thursday, show an overall 6.7 per cent rise in student applications over the 2007 figures.

I declare an interest as chief executive of Universities UK. I should like to highlight a report that UUK commissioned from PricewaterhouseCoopers in 2007 on the graduate earnings premium. It illustrated the fact that, over a working life, a graduate is predicted to earn some £160,000 more than someone with two A-levels. It is clearly a sound investment. There is benefit both to the individual and to society at large.

The sale of the loan book leads me to ask a wider question about the financial state of the higher education sector, if the Minister and your Lordships will indulge me for just a further moment. As I said in the House on 8 November 2007, during the debate on the Loyal Address, universities were grateful for the Government’s commitment to the maintenance of the unit of public funding for teaching in the recent spending review. I also welcomed the additional funding for the Higher Education Innovation Fund. However, the financial climate in the higher education sector is increasingly volatile and an investment backlog still exists. The sector needs stability to plan for the future. With that in mind, I ask the Minister whether any further thought has been given to my proposal in the Loyal Address that at least some proportion of the money raised by the sale of student loans would be reinvested in higher education.

16:27:00

Baroness Sharp of Guildford
My Lords, first, I welcome the Minister to her new role. She has to date answered a number of questions in the House, but this is the first time that she has had a substantive Bill to introduce. I thank her for her comprehensive and careful introduction to the Bill.

We on these Benches would not start from here. There would be no loan book to sell if the Liberal Democrats had been in control because, on the whole, we opposed the idea of top-up fees and the loans necessary for them, although we supported—and continue to support—loans towards maintenance at universities and welcomed the introduction of grants for those from lower-income homes.

Something that worries us, even today, is the size of loans that young people must undertake. Under the old system, maintenance loans amounted to students leaving university with debts in the region of £12,000. When you add to that the £9,000 top-up fees, it means that students are now leaving college with debts of £21,000, repaid on an income-contingent basis. The income threshold is £15,000 and the average graduate salary is currently £21,000, so most of those leaving college will start repaying their loans more or less immediately. On top of this 9 per cent of their earnings repaying their loans, they will also pay income tax at 22 per cent and national insurance at 10 per cent. The effective marginal rate of repayment and tax on our young graduates is therefore 41 per cent: higher than any millionaire pays. That is rather tough on young graduates who are entering a world where prices are rising quite fast and where the cost of living in property terms has risen astonishingly high. It is extremely difficult for these young people. It is not just a matter of repaying over the first two or three years, but over 15 years. Unless they move rapidly to earning £50,000 a year, they will be repaying out of earnings of £20,000, £25,000 or £30,000 at a rate of 41 per cent of income: out of every £100 of income, they will have only £60. It is a very tough world for these young people. This whole repayment business is tough.

We also need to reflect a little on the degree to which we are encouraging people to take on credit, the problems which we have run into with Northern Rock and all the problems of people who have taken on loans that they cannot afford to repay. An interesting study was undertaken by the Rainer foundation looking at the way in which young people treat debt. It found that people today—perhaps this is a good thing—do not worry about getting into debt. If they want something, they go out and spend on their credit cards and repay later. However, we can worry a little about the degree to which in this current consumerist society we are encouraging young people to spend now and pay later. Encouraging students to get into debt reinforces the idea of not worrying about getting into debt. However, we have moved down that track.

The Minister began by celebrating the fact that we have more students in higher education than ever before. She is right, and we, too, celebrate the fact that lots of students are coming into higher education. However, she should be a little careful about trumpeting the success of the top-up fee regime before we know what impact it will have. Only last week, we had a report from the Sutton Trust showing that, as regards the relative proportions of students from different income groups, there is a smaller proportion of students from lower socio-economic groups and there is real worry about taking on debt among some of those groups. Particularly if we are going to take the cap off top-up fees, have much higher fees and therefore much higher loans, we must think about that. So, while I join the Minister in celebrating, we have to be a little careful.

We are now confronted by a situation in which the Government have decided that we are going down the route of loans. They are lending students considerable sums of money, which are going directly into the universities. The sums that have already been lent by the Treasury have gone into the universities: the fees have been paid for the students, and the students have incurred debts. The Treasury is now confronted by the repayments, which will be collected through the PAYE system by Her Majesty’s Revenue and Customs, and will be an income stream for the Treasury over the years. The Bill suggests that that future income stream for the Treasury should be sold off now to translate it into present day assets to be used to pay off the national debt. As I understand it, the current situation is that the payments on the loans are not revenue but are treated under the resource accounting mechanism as capital. Therefore, at the moment, the increased loans are currently sitting in the national debt. As I said, we have a backlog of £18 billion which is growing by more than £4 billion a year. What was £18 billion in 2004 is £21 billion now, will be 25 billion next year, and so forth. It will be a considerable amount of government debt.

The great advantage of selling it all off is that it transfers it from sitting in the national debt into money that the Government can put to paying off the national debt. One feels that there are two advantages to the Government. They have made a great deal about transferring the risk, which I will come back to in a moment, but on the other hand, they have kept rather quiet about the advantage to them of paying off bits of the national debt and the fact that they have already broken their golden rule by their current handling of the economy. This helps to balance the books a little better over the course of the Comprehensive Spending Review period 2008-11. The hope is that they will sell off enough loans to pay off in the region of £6.2 billion of that debt. To raise £6.2 billion, they will probably have to sell off in the region of £8 billion to £9 billion of debt.

In principle, the notion of translating debt into assets is not one that we object to from these Benches. The Government intend to create this special purpose vehicle, which will securitise that debt. As I understand it, they will transfer a tranche of loans to that special purpose vehicle and the vehicle will act as some specialist corporate bond issuers act: it will issue bonds reflecting different elements of risk. Some will be very low-risk bonds, some will be high-risk bonds and the interest attached to the different bonds will reflect the amount of risk underlying them. If the Government are successful in making that transfer to the special purpose vehicle, they will carry on doing that. As the Minister said, this is an enabling Bill. They will not stop at selling off £6 billion; in subsequent CSR periods, more money will be transferred by that mechanism. There is for the Government a continuing potential stream of income from selling off those loans to pay off part of the national debt.

A number of issues arise from that process. They have been discussed at some length in the other place where, to some extent, answers have been given, but we in this House would like to look at them ourselves as the Bill proceeds. The first issue is the conditions for repayment. The Government promise that the conditions for borrowers will not change, that they will be totally unaffected, but that is not written into the Bill; it is written into regulations and regulations can change. We have some worries that borrowers could be confronted by considerably changed repayment requirements because the regulations have changed. Arguably, it would be more satisfactory if that were written into the Bill, rather than just in regulation.

The second issue is that of value for money. The Minister said that only if the sales represent good value for money will they go through. How can we judge value for money here? Ministers have been asked to give an estimate of how much discount will have to be given to sell off the loans. We want to sell off £6 billion-worth of loans and there is a loan book of £18 billion. In order to sell off the loans, some sort of discount will have to be given to encourage other people to take them up. Ministers are very coy about this because they do not wish to give away to the market what they think the market might pay, but how can Parliament judge whether the loans are value for money if it does not know what rate of discount is to be given? One is caught in a conundrum. The only way in which we can judge value for money is after the event. Arguably, this is how Parliament acts on these sorts of things. The National Audit Office will undoubtedly audit the sale, and the Public Accounts Committee in the other place will look at it and judge whether we have good value for money, but we know that on occasions the Government have not succeeded in achieving good value for money in their sales. I hear what the Minister says—that we will know whether the sale is good value for money only if it goes ahead—but we cannot judge that because we simply do not know the terms on which the loans will be sold.

A third issue poses some problems. How risky is the sale? Mr Rammell, the Higher Education Minister in the other place, repeatedly made the point that the loans are rather low risk—the risk of default is not very high—because they are being collected through the PAYE system by Her Majesty’s Revenue and Customs. However, there is the knotty problem of what happens to the loans that are going to European students, because every European student has the right to the same loans as every English student. The problem is arising now because the loans have increased markedly in the past few years, but how far Her Majesty’s Revenue and Customs—perhaps I should say the Student Loans Company, because it will have to chase these people if they default—will actually be able to chase up European students is something of a moot point. However, that is a different issue.

As I understand it, the Government are going to sell off tranches of the student loan book. It was implied in the discussions in the other place that, when they sell off these tranches, the tranche of loans to good repayers will be sold off first. It was certainly implied in the discussions in Committee and on Report that these tranches would be sold off according to risk. You can see that there is probably not much difficulty in selling off the good risks, but does this mean that the bad risks will not be sold off? If the bad risks are not going to be sold off, is there any transfer of risk at all? Does not the public sector retain the risk? If it is not possible to sell off the high-risk loans, the public sector will retain them, so what is the transfer of risk? Is there really a transfer of risk? We must look at this in some detail and try to discover precisely how the sales are to be made, whether there is to be a sale of all risks, whether it is up to that special purpose vehicle to distinguish between the high risks and the low risks, or whether the special purpose vehicle will take only the better risks. As I say, the public sector will be left bearing the risk.

Then there is the transfer of data. Because loans are being transferred, data about who is paying back the loans, although anonymised, must also be transferred. We are told very firmly that the transfer of data will be secure and encrypted, but we know that the people who are collecting all these data are Her Majesty’s Revenue and Customs. What happened in November? Her Majesty’s Revenue and Customs sent by ordinary mail two unencrypted CDs containing the details of 25 million families receiving child benefit, and the disks were lost. So far as we know, they have still not been found. Can we trust Her Majesty’s Revenue and Customs to make sure that this data is secure? In this age of stolen identities, will personal information, including information about bank accounts and national insurance numbers, be safe? Will it be transferred or encrypted? Can we trust it? The security of data needs to be looked at.

Lastly, on the selling-on of loans, we are told that only in exceptional circumstances is it expected that this special purpose vehicle will be sold on. Nevertheless, it can be sold on. It was suggested in the other place that one of the purchasers of the special purpose vehicle might have been Northern Rock. Who would have ended up meeting the bill? Once again, it might have been the public sector. Is there any control over who might buy it? What about overseas companies? Do the regulations restricting the terms on which these loans and so forth can be made apply to offshore companies based in Monaco or somewhere like that?

In Committee, we will need to look at a lot of detailed questions. While I look forward to spending some time with the Minister exploring the issues that have been raised, broadly speaking we go along with what the Government propose, but we have those reservations about it.

16:46:00

Baroness Verma
My Lords, I join in welcoming the Minister to her first Bill in her new role and I look forward to working with her. We on these Benches welcome the principle behind the Bill. I am sure that the Minister is aware that at the previous two general elections the Conservative Party advocated similar proposals. The Bill is in line with Conservative intentions to move the student loan book to the private sector. However, I say that not without qualifications. Many of the questions that I shall ask the Minister have already been asked, but it is wise still to ask them so that she understands the importance we put on them. This transfer from the public sector to the private sector cannot be made unless proper safeguards are in place to protect the public interest and, of course, the interests of students.

I have listened carefully to what the Minister said and to her assurances. However, I should like to concentrate on asking questions about safeguards. I hope that she will offer some strong reassurances to satisfy those somewhat persistent niggles that seem to arise from the Bill. Will she clarify the nature of the sale? Will all borrowers, present and future, be assured that the transfer will not permit information being passed on to any other organisation? Will it be part of the contract or will it be covered by some other parliamentary mechanism, such as guidance or statutory instrument?

In March 2006, the Government published the student income and expenditure survey for 2004-05. The survey found that English domiciled full-time students graduating in the academic year 2004-05 had an average total debt of £7,918. For those students commencing courses after the introduction of variable fees in the years 2006-07, the debt was set to rise to around £15.000. However, the figures from a survey undertaken by NatWest Bank found that graduates leaving university in 2006 had on average debts of £13,252, a 5 per cent increase from 2005. We will not know the full impact of variable fees until a review has been carried out. Surely it would be sensible to call for that review now rather than wait until 2009, as a proper review of the situation will need adequate time.

I am sure the Minister will agree that many people simply do not understand the system of fees, loans and top-up fees, and that this confusion may dissuade them from considering applying to or even exploring the option of going to universities away from home. While we do not wish to see students amass debts, many are often not aware of what is available to them in the form of bursaries, non-repayable grants and other funds from the Access to Learning Fund. Can the Minister ensure that more is done to make this information more readily available?

It is just and right, as we recognise the need to become a more knowledge-based nation, that our population must be both prepared and able to access higher education. We on these Benches are dedicated to widening access to higher education, and we strongly believe in looking at the different ways people can undertake learning and further studies. But given the uncertain economic times we face—a point alluded to by the noble Baroness, Lady Warwick—can the Minister first give us a strong assurance that the Government will investigate fully, in depth and in detail, the point in time at which to transfer the loan book to the private sector? Secondly, if the Government dither a great deal, as they have in the case of Northern Rock, what safeguards will be in place to control the situation if the purchaser gets into financial difficulties or is involved in undertaking unacceptable practices? With the value of the student loan book at around £18 billion at the end of the financial year 2006-07, the Minister must agree that these are not small sums. Are there any estimates of the value of the loan book for the financial year 2007-08? Can she tell us whether a regulatory impact assessment has been prepared?

Will the Minister also assure the House that concerns would be raised about the possibility of secondary sales to indeterminate groups of people? What safeguards will be put in place to ensure that the purchaser or purchasers are in full compliance with the terms laid out in the sale, and that if the book is to be sold on, that information is made available? The noble Baroness, Lady Sharp, also asked about this. If the information is made available to the Government, will they give instructions that all necessary checks and balances, as well as due diligence, are carried out on the new purchasers before the loan book can be sold on? This is a crucial point that needs to be addressed in detail because if the debt is sold on the open market, as is so often the case, it may end up being sold to an institution that is already underwritten or guaranteed by the Government, like Northern Rock.

Although this is a fairly straightforward Bill, niggling questions keep appearing. How will students who are eligible for loans from the EU be traced? Will a charge be put on those loans, and how do the Government see that being implemented?

Students will of course be concerned that the level of interest on their loans does not suddenly rise. They have already seen the rate of interest charged on loans rise from 2.4 per cent to 4.8 per cent. Many students are already missing out on the experience of moving away from home to study in order to avoid incurring even higher levels of debt. Can the Minister assure the House that measures will be put in place to prevent the purchasers imposing new levels of interest on loans? Drawing a little more on that point, with economic conditions showing some instability, what can the Minister say about the area of active default?

My honourable friend in another place, Mr Tim Boswell, said at Second Reading that this is essentially a Treasury Bill, a revenue-generating piece of legislation to ease the Government’s economic difficulties. Is it the Government’s intention that moneys raised by the sale of loans will go to the education budget?

Which loans will be selected for sale? What formula are the Government going to use or is it to be a random selection? As the Government are looking to raise £6 billion from the sale, what is the total number of loans to be included in the sale? The Government cut £100 million from higher education dedicated to part-time and mature students. Are the Government persuaded to dedicate part of the sales back to support this important sector?

Finally, I should like to touch on the concerns around data protection, an issue which has already been raised. Does the Minister agree that recent revelations of lost data are causing much alarm across the various sectors? It will be equally alarming for students to know that their personal details are to be sold on to a private organisation. What assurances can the Minister give the House of policies and procedures that have been put into place since the Government’s recent difficulties with data going missing or being stolen, and the huge difficulties they face with their IT programmes and systems? I look forward to the Minister’s response.

16:56:00

Baroness Morgan of Drefelin
My Lords, I thank your Lordships for the warm welcome that has been extended to me in my new role. I associate myself very closely with the warm words of tribute to my predecessor, my noble friend Lord Triesman, who played a very important role in championing the question of the Minister for Students. I am delighted to take up his baton in that regard.

The debate has been interesting and important and I am grateful to noble Lords for raising a number of important questions. I hope that I can pick up on them today but, if I do not, I look forward to returning to all the issues raised at the Committee stage. Contributions from all sides of the House have indicated that there is a great deal on which we can all agree. We can all accept that our higher education system is recognised as one of the finest in the world and that we must ensure that such prestige is maintained in the years to come. We are as one in our belief that no potential student should be deterred from applying to university or college because of fears that they will not be able to afford it. There is broad consensus, I believe, that a responsible Government should consider how best to manage large and growing public assets such as the student loan book. It is this latter point that is most relevant when considering the Bill before us today.

The Government do not believe there is a compelling reason to retain ownership of student loans. As I have said, the private sector is best placed to manage these assets and to assume their associated risks. Initiating an ongoing programme of student loan debt will allow us to release vital resources for government priorities and we are sure that it is the best way to proceed. We would engage in such a programme only if we were sure that it could be implemented without a negative effect on the Government’s broader policy commitments to the higher education sector and if its passing would have no impact on the financial provisions for students. The Bill passes both these tests and provides future Governments with the flexibility to conduct sales according to the legal and financial conditions of the day so that transactions represent good value for money.

On the point raised by the noble Lord, Lord Roberts, with regard to powers for Welsh Ministers, as a Welshwoman who is very committed to the devolutionary principle, I feel comfortable in responding to him by saying that, as the responsibility for student loans in Wales has been devolved to Welsh Ministers, it is important that this provision equally applies to Wales. Any decisions on future sales of the Welsh loan book needs to be made in Wales by Welsh Ministers. Clause 8 of the Bill gives them that power. Welsh Ministers are keen to ensure that maximum value for money is achieved for Welsh student loans and that these powers are in place so they can ensure that they do so. The Bill will enable Welsh Ministers to decide when they deem it appropriate to use these powers, bearing in mind the relevant economic and value-for-money considerations.

As in England, money gained from any sale of the Welsh loan book is expected to transfer to the Treasury, as the noble Lord has pointed out, with no direct financial gain for the Welsh bloc. In the same way as for England, that is appropriate as the ongoing repayments from student loans also return to central government now.

I stress that Welsh Ministers may decide that they do not want to leave this loan book risk on their balance sheet. That is a matter for them, and we are giving them the powers to take those decisions at a time that suits them. Again, as in England, it is important to note that any sale of the Welsh loan book will not have an impact on individual borrowers. The loan system will continue to be administered for Welsh students by the Student Loan Company.

The noble Baroness and my noble friend Lady Warwick raised the issue of the use of proceeds—the word “hypothecation” comes to mind. She brought up this question when we discussed the legislative programme and the humble Address. I take this opportunity to stress that the Government have a proud record on higher education funding; there has been a 20 per cent real terms increase in the higher education budget. That contrasts with the 36 per cent real terms cut over the last eight years under the Conservative Government, so I do not accept the lessons being taught by the noble Baroness, Lady Verma, when she refers to a £100 million cut in funding for higher education. We need to be clear on the funding pattern.

We have set challenging targets for the higher education system over the spending review period.

Baroness Verma
My Lords, £100 million was cut from part-time and mature student education under the Minister’s Government. Will she think about persuading them to put back some of the money that has been cut out of that department? We need that funding back for part-time and mature students who may wish to take a second degree.

Baroness Morgan of Drefelin
My Lords, we are referring to the interesting and hotly debated subject of equal or equivalent degrees. The Government are committed to increasing the spending on the support for people taking first degrees. We believe there is an enormous pool of students who have not been to university who should benefit from a priority in government spending. We will have the opportunity to discuss this further. The noble Baroness is smiling and nodding so, with that, I will move on.

I stress that we have set challenging targets for the higher education system over the spending review period and have made a commitment of resources to make those targets achievable. By the 2010-11 period, the real terms increase in public expenditure for higher education since 1997-98 will have exceeded 30 per cent. In establishing the Department for Innovation, Universities and Skills last year, the Prime Minister made clear the importance he attaches to this country developing world-class skills and research bases to help create new products and markets and drive enterprise and efficiency. Commitment to higher education is a key factor and is at the heart of this drive from the Prime Minister. I hope I can assure my noble friend that I and my ministerial colleagues will, as ever, do our utmost to ensure a good and fair outcome from future spending reviews for higher education.

However, we do not have a legitimate claim to hypothecate the proceeds from the student loan programme. I am sure my noble friend will not be surprised to hear me say that. To hypothecate those proceeds is not consistent with the way in which the Government manage public spending, nor is it consistent with the way in which repayments from student loans borrowers currently feed back into the public finances. The ongoing revenue that government receive as graduates repay their student loans goes not to the DIUS budget, but to the Consolidated Fund, as has always been the case. The use of that revenue forms part of overall government decisions on spending across all priorities. However, I reiterate the commitment that my department has made to continuing to promote higher education and to making a case for further spending.

My noble friend Lady Warwick and the noble Baroness, Lady Verma, pressed me on the timing of the sale. The Bill enables a long-term programme of student loan sales, so we need to think about the market conditions over the long run. However, if a continuation of the current market turbulence translated into poor value for money in any sale of student loans, we would not go ahead with the sale at that time. My noble friend asked whether sales will be possible in the financial year 2008-09. We have been advised that they will. Financial markets have suffered significant disruption since the middle of last year and high levels of volatility and uncertainty remain, but there has been some improvement since December. No one can accurately predict the market conditions at a given time, which will naturally vary for different sales. We will closely monitor the market with a view to launching sales at a time when conditions are more stable to help ensure the good value for money that the taxpayer must demand.

The noble Baronesses, Lady Verma and Lady Sharp, pressed the question of value for money and asked how the assessment might be made. I said in my opening speech that it is essential that we compare bids for selling the loans with the value of holding them. Part of the value-for-money assessment will involve gathering full and clear market information alongside assessing the value of keeping the loans on the public balance sheet. Assessing those values requires a number of projections, as the noble Baronesses will understand, estimating the level of repayments that will be made by borrowers far into the future. We will estimate the rate at which graduates will repay and how many loans will be written off because the borrower has become permanently disabled, for example, or passes away. As these projections have to be based on assumptions and estimates, a degree of risk is built into them. In assessing value for money, we will also take into account the value of transferring that risk from the public sector to the entity which buys the loans. That does not lend itself to a precise equation, so the assessment will need to consider a range of values based on different assumptions and estimated risks.

The noble Baroness, Lady Sharp, raised concerns about the overindebtedness of young people. Student loans should not be confused with commercial debt. I appreciate her concern, but student loans are nothing like credit card debt. For example, as the noble Baroness stressed, monthly repayments are made through the tax system and depend on how much the borrower is earning and not on how much they owe. Grants are available for students from low-income and middle-income backgrounds and are being extended to reach two-thirds of students in 2008.

The noble Baroness, Lady Verma, asked about the review of the student finance system. That review will take place in 2009 and its terms of reference have been made public, but there must be time for experience of the current system to be built in and amassed so a proper evaluation can be made. We are also introducing the new concept of a loan repayment holiday for five years, which could be very important for some students who wish to take time off to have children, and so on. However, we should remember that over a lifetime a graduate earns £100,000 more than a person with two A-levels. That brings with it significant benefits, which I can summarise as the underlying principle behind student loans.

Noble Lords raised questions about EU students. That is an interesting point that we shall be happy to return to in Committee. Clause 1 enables the Government to sell student loans, which are due to be repaid to the Secretary of State, as well as maintenance and fee loans made to people domiciled in England when they take out their loan. That includes fee loans to which EU students are entitled, as the noble Baronesses, Lady Sharp and Lady Verma, reminded us. Entitlement to fee loans for EU students was introduced only in 2006, so there are unlikely to be significant numbers entering repayment until 2010 and beyond. But this Bill is designed to enable a long-term programme of loans and there is no reason why those loans should not be considered for sale in future. There are questions of detail around how the Student Loans Company will work, which I shall be happy to go into in Committee—and I shall be happy to ensure that the noble Baroness, Lady Verma, has as much information as she needs to think about those questions, I hope in advance of Committee.

The noble Baroness, Lady Sharp, and others asked about data. The Bill allows sharing of HMRC data only to the extent that it is necessary for potential purchasers fully to understand and value the assets that they are considering buying and to allow sold student loans to be administered effectively. Potential purchasers can receive only anonymised information. As we plan to require purchasers of the loans to use the Student Loans Company to administer and enforce the sold loans, loan account data would not need to be transferred to the purchasers for day-to-day purposes. In the event that purchasers require access to data—for example, for audit purposes—the method and transfer will be secure and encrypted, after the lessons learnt from mistakes made to which noble Lords referred. Purchasers will not be able to access any wider range of personal data and will not be able to use personal data for any purpose other than administering student loans. The Bill extends a criminal sanction on unlawful disclosure of HMRC data, to protect information on student loan borrowers. That is a strong measure. All data-sharing will be in accordance with existing data protection legislation, including the Data Protection Act.

Onward sales have been an issue in another place and noble Lords have raised it again today. Once the loans are sold and securitised, we expect it to be a rare occurrence that the loans will be sold on. A special purpose company will be created to own the loans and receive the income from them; owning the loans will be one of its few purposes. The main market relating to sold student loans will be in the financial instruments—the bonds issued by the owner of the loans. The borrowers’ primary protection will be that terms and conditions of loans cannot be altered by the loan purchaser. That will apply equally to any subsequent purchaser as to the initial purchaser. That is on the question about the interest rates that the noble Baroness, Lady Verma, raised. In so far as the contract for loan sale also incorporates protection of the borrower—for example, in insisting on the same mediation arrangements as are in place for unsold loans—we shall ensure that the protection continues in the unlikely event of subsequent sales.

Clause 3 provides for ways for the Government to ensure that contractual arrangements for onward sales support that policy. That important part of the Bill was discussed at length in another place. I am happy to put on the record that we will ensure that any onward sales contract continues to protect the borrowers fully.

The noble Baroness, Lady Sharp, asked about transferring risk. For loans that are sold, the purchaser will assume all the risks relating to repayment. Our intention is to sell all the loans for which there is sufficient information for the market to price them effectively. Obviously, it is in our interests in this sale to have different types of risk bundled up together in a range of bonds that will be attractive to potential purchasers. As the income contingent system matures, more and more loans will be saleable by that approach. The noble Baroness will be aware that the report to Parliament that my noble friend will make in another place will allow public scrutiny of the sales as they go forward.

Finally, because I will run out of time, the noble Baroness, Lady Verma, asked about the constraints of data. I picked up on that already but I am happy to return to that and other questions in Committee.

I close by thanking all noble Lords who have contributed to this debate. The Bill is rather technical. I want to ensure that we have explained our approach as fully as possible to noble Lords. I shall be placing a short briefing document in the Library and there will be an open briefing tomorrow evening for Peers at 6.30 pm in Room 3—a little advert there. The expert scrutiny provided by your Lordships' House is invaluable and will help to ensure that this legislation sets appropriate foundations for a flexible ongoing programme while providing appropriate protection for borrowers and for the public purse. In that spirit, I look forward to discussing the Bill fully in Committee and I commend the Bill to the House.

On Question, Bill read a second time, and committed to a Grand Committee.

House adjourned at 5.17 pm.