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Baroness Blackstone: This is a wrecking amendment in that it would effectively pre-empt the competitive bidding process which will determine the subsidy structure. Such a cap would render the scheme unworkable and do nothing to foster the public-private partnerships that we are, as a new government, now seeking to develop.
We are committed to working within the spending plans of the previous government for the next two years. That includes achieving the same level of receipts as they planned from loan debt sales. To achieve those sales we will need to pay a level of subsidy which, of course, while as low as possible, has to prove sufficiently attractive to the private sector so that it becomes involved in the bidding process. These loans are not made on commercial terms and subsequently cannot as a result be sold on a normal commercial basis either. An arbitrary cap on the amount of subsidy payable tied to the face value of loans and without consideration of such factors as the length of time it will take to recover the debt and the administrative costs involved would cause great difficulties for the bidders and act as a disincentive to participation in the sale.
The very generous deferment terms offered mean that many loans will live for a very long time. They are not usually written off until 25 years have elapsed. In many cases a subsidy amounting to 25 per cent. of the face value of loans will be payable well before repayment is completed. That would leave a heavy and unacceptable burden on the debt purchaser who would have to continue to hold the loans on his books and administer them without any recompense. That is an unattractive scenario which would adversely affect the level of bids if they were forthcoming.
We are now entering a crucial stage of the debt sale. The shortlisted bidders have exactly a month to make their firm bids. As I explained, they have a number of factors to weigh up in assessing the level of subsidy to bid for. In those circumstances, it would clearly not be sensible for the Government to do business with our
As the noble Lord recognised--I am grateful for it--we cannot say what the level of subsidy will be until the competition has finished. But perhaps I may reassure him. It is a strong competition and we will accept the very best bid we can possibly get. The noble Lord should understand that the existing scheme is heavily subsidised. There would still be a cost to the taxpayer even if we retained the loans. We are changing one subsidy scheme for another and also transferring significant risk to the private sector while doing so.
The noble Lord, Lord Tope, referred to the 1996 Act and to an amendment which the Labour Party put forward in both Houses while in opposition. The 1996 Act had nothing to do with the measures we are seeking to introduce in this Bill. The 1996 Act sought to introduce a twin-track approach to student loans--a system of private sector loans held by banks and like institutions running alongside the current public sector loan scheme administered by the Student Loans Company. That proved an unattractive proposition. The financial institutions showed little interest in it and the then government had to admit as much. We were concerned that they would, in pursuing this rather misconceived policy, attempt to buy interest in it by offering an excessively generous subsidy package. That was why we sought to restrict the subsidy arrangements on that occasion.
Following what my noble friend Lord Davies of Oldham said, perhaps I may explain that we are putting in place a totally new system of financial support for students entering higher education from 1998-99. This requires new legislation; for example, to provide for income contingent loans collected through the Inland Revenue. The loans being sold have been made on a different basis under existing legislation, and the Education (Student Loans) Bill is needed to enable the debt sales to take place under that legislation.
The Teaching and Higher Education Bill allows for the repeal of the loans Bill, once enacted, along with the remainder of the existing loans legislation. Transitional provisions will be put in place to ensure that mortgage-style loans can continue to be issued to current students until their courses are complete. Repayment of loans taken out under the old legislation will continue to be collected in the same way as now. Both debt purchasers and the position of borrowers will therefore be protected. However, there will come a time when new loans are no longer being made under that legislation because all the students to whom it applied have left the system. It is a matter of good legislative practice that the relevant Acts should be totally repealed at that point. The current Bill provides for that to happen.
Loan agreements which were governed by the 1990 Act will of course continue to be binding on both parties once that Act is repealed. There will be provisions to ensure that the Secretary of State continues to have power to pay subsidies to the private sector in respect of the loans they have purchased. The purpose of the
As I said, the two sets of legislation are quite separate and will run parallel until the last student eligible for the current mortgage-style loan has left the system. I hope that that has clarified matters for the Committee.
But, as my noble friend Lord Davies of Oldham also rightly said, the circumstances of the legislation before us today are entirely different to the 1996 Act. We have short-listed four contenders for the debt sale. A total of seven major financial institutions are involved because in some cases a consortia is bidding. Several others were willing to bid but had to be excluded because they were not sufficiently competitive. There is no need for the sort of restriction set out in the amendment. The competitive tension we have created will, I believe, have produced the very best possible deal. Therefore, I ask the Committee to reject the amendment.
Baroness Blatch: Before she sits down and indeed before the noble Lord, Lord Tope, will the noble Baroness clarify the matter yet again for me? I am most grateful to the noble Baroness for the letter explaining the precise time when the legislation will be repealed and the reason for proceeding separately from the other Bill. I am not sure, however, that that is consistent with what the noble Baroness just said. If the Bill is to be repealed, as the noble Baroness said, with the coming into play of the Teaching and Higher Education Bill, where precisely in legislation is the protection both for the way in which the lending body operates, and its obligations under the law, and the protection for the borrower--that is to say, the student--during both the interregnum and the period which will continue for some years beyond the life of this Bill when the borrower will have an obligation to repay the loan?
Baroness Blackstone: I am grateful to the noble Baroness, Lady Blatch, for her question. As I understand it, although the Bill before us will be repealed, certain elements in it remain in place until the very last student on a mortgage-style loan scheme of the kind that exists at present, has gone right through the system. Therefore, the protection will remain in place in the legislation for all those students under the existing scheme. That is also a protection for those who are bidding for this particular debt sale. I hope that that makes the matter clearer.
Baroness Blatch: It is probably more my fault than the fault of the noble Baroness. If the Act is to be repealed, then it can only be repealed in part if measures within it are to remain. Can the noble Baroness say which parts of the Act will remain on the statute book? The particular measure in the new Teaching and Higher Education Bill repeals the whole of the Act and not just part of it. Therefore, where in legislation will the protection lie?
Baroness Blatch: I promise that this is the last time that I shall raise this particular point. The measure in the Teaching and Higher Education Bill is to repeal the whole of the Act. If some of it is to remain in place on the statute book, then there needs to be an amendment to the Teaching and Higher Education Bill, otherwise I am missing something.
Baroness Blackstone: I am not sure that that is the case. I believe that there is something called transitional arrangements. There is something which stays in place, which makes it absolutely clear to existing borrowers and any purchaser of the student loan debt that the legislation will be in place to protect them. I shall write to the noble Baroness on the matter.
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