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House of Lords

Thursday, 4th March 1999.

The House met at three of the clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Bristol.): The LORD CHANCELLOR on the Woolsack.

Student Debt

Lord Tope asked Her Majesty's Government:

    Whether the current and future levels of student debt are having harmful effects on the health of university students.

The Minister of State, Department for Education and Employment (Baroness Blackstone): My Lords, for new students we have introduced student loans with income-contingent repayments. Repayments will be fairer because they will be based on the graduate's income. They will be easier because for most graduates, they will be collected with income tax and national insurance contributions. The interest charged is linked to the rate of inflation, not to commercial rates. The sum repaid will be broadly the same in real terms as that borrowed. There is no reason for any borrower to be worried about the terms of these loans.

Lord Tope: My Lords, I am grateful to the Minister for that reply. It may well be that in years to come the situation will improve. Has the Minister studied the research recently published by Dr. Ron Roberts and others of the Department of Psychology at the University of Westminster and the Imperial College of Science, Technology and Medicine which established a very clear link between poor mental health and student debt? Does the Minister agree that the evidence that they produced was quite alarming? If she has not already done so, will she ask her department to take a close look at the current situation?

Baroness Blackstone: My Lords, I am grateful to the noble Lord, Lord Tope, for referring to the study by Dr. Roberts, which I have seen. Unfortunately, for a variety of different methodological reasons, one must be very careful about jumping to conclusions on this research. The sample was very small and the research was undertaken at only two universities. In some cases the conclusions are based upon a very small number of replies--as few as 13--and the comparisons made with the general population are not really valid because in many cases they go right back to 1987. I do not believe that the study adequately attributes stress and poor health to financial problems; it does not really make the links. However, that does not mean that the Government should not be very careful to look at the impact of the new arrangements. My department has asked for research based on a very large sample--2,000 full-time and 1,000 part-time students--to be undertaken this summer. We shall be reporting on that study next spring.

Lord Pilkington of Oxenford: My Lords, does the department have any evidence of students who have

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student loans suffering disadvantage in getting a mortgage? I have heard that sometimes banks refuse to give mortgages in those circumstances.

Baroness Blackstone: My Lords, I have no evidence of that, but I would be concerned if the income of a student otherwise justified the grant of a mortgage. If the noble Lord can give me any information about that, I should be very happy to take it up.

Baroness Maddock: My Lords, I am very interested in the reply that the Minister gave to my noble friend. Those of us who sat through the debates on the Teaching and Higher Education Bill asked for many assurances that the Government would keep an eye on what happened to students. It is obvious to many of us that there is increasing evidence that for students day-to-day living is becoming a problem. Can the Minister give the House further assurances that any research that the department carries out will be robust? Further, can she provide a timetable to indicate how that fits into any reviews or promises made during the passage of the Teaching and Higher Education Bill?

Baroness Blackstone: My Lords, the survey is part of the commitment that I made when that Bill was passing through your Lordships' House. I said that the effects of the new arrangements would be monitored, and the student income and expenditure survey to be carried out this summer is part of that. It will certainly be robust and will look at all aspects of students' living costs, including the way in which they spend money. We shall certainly want to look at any health problems experienced by students.

Lord Annan: My Lords, does the noble Baroness understand that it is a great reassurance to hear that a really critical study of such evidence, as has been produced by the University of Westminster, has been carried out? Not all research that comes out of universities into these problems is necessarily trustworthy.

Baroness Blackstone: My Lords, I am very glad to be reminded by the noble Lord, Lord Annan, that not all research is valid and reliable.

Lord Hayhoe: My Lords, does the noble Baroness accept that a significant number of families in this country regard with repugnance getting into debt and that for many its avoidance is an old-fashioned virtue? Will she ensure that the current research takes that into account when the findings, to which we shall look forward, are published?

Baroness Blackstone: My Lords, I shall certainly ensure that that is taken into account. I do not believe that there is any evidence that, since the Student Loans Scheme was introduced under the government of which the noble Lord was a member, there has been a fall-off in the number of students who apply to go to university. It is interesting that in the five years following the

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introduction of the loans scheme there was an increase in applications, in particular from students of low income backgrounds.

Baroness Blatch: My Lords, does the noble Baroness agree that the vulnerable time for students is as they come to the end of their first year, having had to borrow the whole of their maintenance and pay all or part of their tuition fees? They then have to borrow again for their second and third years. It is at that stage that they may consider that the level of debt is too great and therefore they should not continue with their studies. Will that be taken into account in any survey that is carried out?

Baroness Blackstone: My Lords, the Government would be very concerned if any student gave up his or her studies because of financial problems. We shall be looking into the different points at which, during a student's experience at university or college of higher education, it appears that there is a greater likelihood of dropping out of courses. There are many different reasons why students drop out; financial problems is only one of them.

Pension Schemes: Reduction in Interest Rates

3.8 p.m.

Baroness Castle of Blackburn asked Her Majesty's Government:

    What will be the effect on the level of pensions available under money purchase funded pension schemes as a result of the recent reduction in interest rates from 7½ to 5½ per cent.

The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham): My Lords, the overall impact on pension income of the recent reduction in interest rates over the period of retirement is difficult to assess. However, all pensioners and pension funds will benefit from a strong economy with consistently low inflation.

Baroness Castle of Blackburn: Is the Minister aware that we are all in favour of low interest rates and low inflation? However, did my noble friend read the leading article in the Observer of a fortnight ago which pointed out that the combination of economic benefits had drastic implications for pensions policy, particularly that based on encouraging money purchase schemes? Is my noble friend aware that the benefits to which she referred are little compensation to pensioners like the gentleman from Andover who wrote to me to point out that annuity rates had halved in the past 10 years and that his life's savings of £100,000 would today buy an annuity worth only £4,500? Will she not therefore agree with the Observer, which states that the whole

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assumption on which current pensions policy, which encourages money purchase funded schemes, is based, ought to be and will have to be rethought completely?

Baroness Hollis of Heigham: My Lords, my noble friend quotes a letter, which I have not seen, in which somebody states that annuity rates have halved in the past decade. A decade ago, inflation was at 14 per cent. and annuity rates were at 15 per cent. I believe that my noble friend underestimates the impact of inflation on pensioner savings. For example, during the entire period of the previous government, inflation was at 6.6 per cent. Under the present Government it is now 2.4 per cent. A £1,000 annuity under an inflation rate of 6.6 per cent. would halve in a decade and be worth just over £500. But if inflation is at 2.4 to 2.5 per cent., that £1,000 annuity would be worth £800 over a decade. That is what matters to pensioners.

Lord Mackie of Benshie: My Lords, is the Minister aware that with his £100,000 a person must buy an annuity, thereby committing his capital? He would be far better to rely on interest rates and trust to his judgment?


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