Sale of Student Loans Bill

Public Bill Committee, 4 December 2007.

Anne Begg (Labour, Aberdeen South)

Before we begin, I will make a few preliminary announcements taking us through what we are going to do. I am happy for hon. Members to remove their jackets. Will they ensure that their mobile phones and pagers are turned off or switched to silent? I remind the Committee that there is a money resolution in connection with the Bill, copies of which are available in the room. I also remind hon. Members that adequate notice should be given for amendments. As a general rule, I do not intend to call starred amendments.

As we are still in the early days of taking oral evidence in Public Bill Committees, it might help if I briefly explain what is proposed, so that the procedure is clear. First, the Committee will be asked to consider a programme motion, which is on the amendment paper, for which debate is limited to half an hour. We will then proceed to a motion to report written evidence. I am glad that the Minister has just come in as he will propose the motions. They are followed by a motion to permit the Committee to deliberate in private, in advance of the oral evidence session. I hope that we can take all those stages formally.

Assuming that the motion is agreed to, the Committee will move into private session. When we get through the formal part of our proceedings, we will ask the public to withdraw and the Committee will decide how it will ask questions. Once it has deliberated, the witnesses and members of the public can come in. At that stage, the oral evidence session will begin.

If the Committee agrees to the programme motion, we will hear oral evidence first. As there is only one set of witnesses, there has been a discussion, through the usual channels, that if appropriate we will take a 10-minute break and then go into the line-by-line consideration of the Bill as part of this morning’s sitting. That has not happened before in a Public Bill Committee, and it is up to the Committee to agree to it. We have moved rooms to allow us that flexibility, should the Committee so wish. If the Committee does not agree to that, we will move into line-by-line scrutiny in the afternoon sitting. Those are decisions for the Committee.

Bill Rammell (Labour, Harlow)

I beg to move,

That—

(1) the Committee shall (in addition to its first meeting at 10.30 a.m. on Tuesday 4th December) meet—

(a) at 4.00 p.m. on Tuesday 4th December;

(b) at 9.00 a.m. and 1.00 p.m. on Thursday 6th December;

(c) at 10.30 a.m. and 4.00 p.m. on Tuesday 11th December;

(2) the Committee shall hear oral evidence from the Department for Innovation, Universities and Skills on Tuesday 4th December, and the hearing of that evidence shall (so far as not previously concluded) be brought to a conclusion at 1.00 p.m.;

(3) the proceedings on consideration of the Bill in Committee shall (so far as not previously concluded) be brought to a conclusion at 7.00 p.m. on Tuesday 11th December.

I am pleased to move the motion. The Programming Sub-Committee met and agreed the timetable without opposition, and I hope that, on that basis, we can approve it.

Anne Begg (Labour, Aberdeen South)

Copies of any memorandums that the Committee receives will be made available.

Rob Marris (Labour, Wolverhampton South West)

With regard to the wording of the motion, what would be the procedure if, after hearing the witnesses, the Committee wishes to sit in private, perhaps to discuss the evidence? Could we proceed in that way? I am concerned that if we pass the motion, we cannot subsequently sit in private in that sitting after the witnesses have been admitted even if the Committee wishes to do so.

Anne Begg (Labour, Aberdeen South)

My understanding is that the answer is no. Either we will suspend at that stage and move on to line-by-line consideration, or we will come back in the afternoon sitting for line-by-line consideration. It is possible for the Committee to decide to take evidence from more witnesses as the Bill goes through the Committee and to sit in private again then. However, this is a short Bill and we do not have a lot of sittings. Coming back into a private sitting to discuss what happened in the open sitting is not possible. It will be up to hon. Members to debate the issues that are raised during the public oral evidence session.

Anne Begg (Labour, Aberdeen South)

We are now in the open oral evidence session and will hear from representatives of the Department for Innovation, Universities and Skills. I welcome the witnesses. Bill Rammell, would you like to introduce your colleague to the Committee?

Anne Begg (Labour, Aberdeen South)

I remind hon. Members that questions should be within the scope of the Bill.

Rob Flello (Labour, Stoke-on-Trent South)

The issue of the face value of the student loan book is of concern and interest to me. Historically, Governments of all persuasions have not always been as successful as we might have wished in valuing assets that have been sold off, whether one wants to look back to the 1980s or more recently. My concern is about who has valued the student loan book, and how you have made sure that that valuation is robust, so that there is no vested interest in terms of the financial markets knowing that they will ultimately pick up something that will make them a large profit at the expense of the taxpayer. Finally, regarding the future value of the student loan book, how have you projected forward to ensure that its value in future is recognised in this current valuation and that, for future sales, that value is reflected?

Sarah Teather (Liberal Democrat, Brent East)

May I ask a further question on that subject? I wonder whether or not there has been any discussion of the National Audit Office report into QinetiQ and, if there has been, has that informed your deliberations about value for money for the student loan book?

Anne Begg (Labour, Aberdeen South)

I think Rob Wilson has a question that might be slightly out of order in terms of the scope of the Bill. I will not bring him in if it is not within its scope.

Rob Wilson (Conservative, Reading East)

It is subsequent to what the Minister just said. What are the procedures that you have laid down in your Department to ensure that you achieve the best value for money?

John Hayes (Conservative, South Holland and The Deepings)

Further to that question and before I start my series of questions, what mechanisms are in place to test market conditions? As other people asking questions have made clear and as the Minister has said, this matter is partly about track record, but it is also partly about market conditions. It would not be beyond the wit of man to devise a set of circumstances where you could test market conditions by well-established mechanisms. Has that been done?

John Hayes (Conservative, South Holland and The Deepings)

The Minister has spoken of both internal and external advice. Presumably it is reasonable to ask him from where that advice has been sourced. One wants to feel that the Government are taking the best possible expert advice on this matter.

John Hayes (Conservative, South Holland and The Deepings)

So that someone else can get in, I will make this my last question and give respite to the hard-pressed witnesses. The point about advice and experience is presumably that the Government are drawing on precedent. We have the precedent of the sale from 1998 and 1999. What specific lessons were drawn from that? What international comparisons are there? Has this been done elsewhere and what can reasonably be learned from that? The critical thing is that we get best value for money, that we sell at the right time and that the matter is managed as effectively as possible. It would be useful, therefore, to get some feel for what the Government have learned from past experience here and elsewhere.

Sarah Teather (Liberal Democrat, Brent East)

I want to ask some further questions on the answers that you have just given. First, on the point about mortgage-style loans, could you give some indication of the level of discount that was given, which you undertook to do after Second Reading? Secondly, on the point about transferring risk, is not it the case that if a student dies or goes bankrupt, the Government underwrite that risk? To what extent are we really transferring risk to the private sector?

Angela Watkinson (Conservative, Upminster)

I wonder if I could probe a little further on how the figure of £18.1 billion was calculated. Is that the value of current loans plus interest up to the date at which that calculation was made, or is it current and any future loans if they were to run to their full term, bearing in mind the vagaries of the market and other complications? How were comparisons made between the full term value and the possible sale income of the bulk of the loans now? You have already explained how complex those calculations are, but I am not clear what the £18.1 billion represents.

Angela Watkinson (Conservative, Upminster)

Will it be possible to compare the estimated sum that will be realised from the sale, to the value of the loans if they were to run for their full term?

John Hayes (Conservative, South Holland and The Deepings)

While we are on the subject of value, the 2007 Budget report—in paragraph 6.42, from memory—states that the sale will yield some £6 billion. On Second Reading, the Minister used a phrase such as “at the higher end” in relation to that figure. It is a projection for 2010-11. I cannot square that with the current face value of the book. Presumably, you have made projections of how the face value will change over that period. This is a dynamic situation, rather than a static one, so what are those projections? We must have some feel for how the book will change and grow over the period, which will affect the figure of £6 billion, will it not?

John Hayes (Conservative, South Holland and The Deepings)

Hence the use of terms such as “around” and “at the higher end”, which are sufficiently imprecise as not to give away commercially sensitive details. Is that the point?

John Hayes (Conservative, South Holland and The Deepings)

That is precisely the information I was trying to get at. Essentially, the projected value of the book will grow, but the figure of £6.3 billion will remain static. The question is: what percentage of the face value do you sell? Is that where we are? There is a determination to make £6 billion-ish regardless of what percentage we sell.

Rob Wilson (Conservative, Reading East)

Can you give us some sort of guide as to what area you are thinking of in terms of how much you will have to sell to raise the £6.3 billion? I know that you do not want to give any figures, but is there a framework that you are operating within on which you could raise the veil and let us have a quick peep at?

Rob Wilson (Conservative, Reading East)

Would I be right in saying that in the previous sales in 1998 and 1999, you lost about a third of the value? So we would be talking about £9 billion-plus to raise £6 billion if we were to use the previous occasions as examples for this sale.

John Hayes (Conservative, South Holland and The Deepings)

I am much more nervous about this than I was when the questions began. We seem to have arrived at a situation whereby we have a value of an asset that we are going to sell in parts. While there may be a proper consideration in respect of value for money, if we are determined to sell £6.3 billion-worth of loans, we can vary the proportion that we sell to meet that target. That is very risky, is it not, because in a normal sale the value would be set by market conditions? This sale, regardless of market conditions, could be designed to raise £6.3 billion and what will vary is how much of it is sold. That is not a standard transactional relationship. It gives me cause for concern. I wonder what your comments are on that.

John Hayes (Conservative, South Holland and The Deepings)

Value for money measured by empirical, objective independent analysis?

Rob Wilson (Conservative, Reading East)

In that respect, you may find that during the sale process you get some pressure from the Treasury to raise the funds that it requires to fill black holes in the CSR. That pressure may force you into selling the loans at a level at which you are unwilling to sell. How will you stop the Treasury putting pressure on you to do that?

Rob Wilson (Conservative, Reading East)

But if I may, Minister, you have already suggested that £6.3 billion is in the three-year spending plans? If you are therefore also saying that you may or may not raise that money, that immediately leaves a hole in the spending review, because if you do not raise the money, there is a deficit.

Rob Wilson (Conservative, Reading East)

Could I just say, Minister, that I am not that reassured by what you say? In effect, you are saying that the black hole will be dealt with either through cuts in expenditure—I hope that I am correct in saying that—or because you expect to get extra revenue from elsewhere. With the dark economic clouds hanging around, it is highly unlikely that any black hole will be filled with extra revenue from elsewhere. So I return to my main point—

Anne Begg (Labour, Aberdeen South)

Order. May I remind the hon. Gentleman that we must remain within the scope of the Bill? I think that going on to Government spending plans in general is a bit wide. If you would like to narrow your questions to the Minister and not get into the more general point about spending, that would be much appreciated.

Anne Begg (Labour, Aberdeen South)

The same goes for the Minister.

Rob Wilson (Conservative, Reading East)

One of the issues, Miss Begg, is that this is almost a Treasury Bill rather than a further education Bill. Having said that, I think that we can move on, because I have exhausted the line of questioning that you will allow me to make.

Anne Begg (Labour, Aberdeen South)

I think so.

Rob Flello (Labour, Stoke-on-Trent South)

I have a quick supplementary question to the previous question, to try to get some clarity. Are we looking at a capital receipt? You talked about income coming in, but would this sale be a capital receipt to the Department and the Treasury rather than an income receipt, and therefore have implications for that type of sale? I will let you answer that question before I move on to my main question.

Rob Flello (Labour, Stoke-on-Trent South)

To return to my previous line of questioning, there is a concern in some quarters that, when Government assets are sold—certainly, when one goes back 20 years—the financial markets, for example the merchant banks, had two attempts to make some money: one was in the form of additional profit from an asset that was perhaps sold at undervalue; the other was that they could make money from the advice that they gave and by presenting the asset to market. Can you give me some information about what proportion of the value of the sale you anticipate having to pay out in costs to make that sale? Indeed, can you give me some information about the costs of the advice that you are receiving from the independent advisers? Furthermore, how are you testing those costs to ensure that they really are value for money and that the taxpayer is not bearing a disproportionate cost as against any other person putting something to market?

Rob Flello (Labour, Stoke-on-Trent South)

Given that there are not hundreds and hundreds of merchant banks out there that would be able to put this type of package together, what research are you doing—I appreciate that there have not been many examples of this process in the past—to ensure that this sale is comparable to other sales that have been put through the merchant banks?

Rob Marris (Labour, Wolverhampton South West)

What assurances can you give on future interest rates on these loans?

Rob Marris (Labour, Wolverhampton South West)

But, the loan purchaser would be bound in that regard.

Rob Marris (Labour, Wolverhampton South West)

Is not the loan purchaser therefore going to be buying a bit of a pig in a poke, because you are not surrendering the power to change the loan rules retrospectively? You are specifically keeping that power, so they will be buying into a bit of an unknown. For example, a future Government could whack the threshold up to earnings of £30,000 a year.

Rob Marris (Labour, Wolverhampton South West)

What steps will you take to avoid the scandal that we had with many of the early private finance initiative contracts, where the contractors made the big money, not by delivering the service or the goods directly, but by rebundling it and selling it on when interest rates changed? Huge amounts of money were made by the private sector at the expense of the taxpayer, simply by refinancing after the PFI had been signed off.

Rob Marris (Labour, Wolverhampton South West)

I appreciate that, but many of the propositions that you just advanced are precisely those that were advanced for PFI, when many of us pointed out these sorts of difficulties. Sadly, those difficulties came to pass. Windfall profits were made, particularly on early PFI contracts, to the point where in later PFI contracts there was a kind of clawback on refinancing windfall profits. I am asking whether, to whomsoever you sell, you are going to put some kind of windfall clawback in your sale agreements, in the event that the loan purchaser, in a fast-changing marketplace, makes a windfall profit through some sort of loan refinancing, just as happened with PFI.

Rob Marris (Labour, Wolverhampton South West)

With respect Minister, I suggest that you should go back to your financial advisors, because you can transfer the risk on a one-way bet so that, if things start to fall apart, the loan purchaser will bear the cost, and if there is a windfall profit through refinancing, the Government can claw back some of the profit. If you have that kind of one-way bet, of course there will be a price to pay; the sale proceeds will be lower because it will be riskier for the loans purchaser. However, you can have precisely the kind of arrangement that we have under current PFI, whereby if things go belly-up, the PFI contractor has the problem, and if the contractor refinances and gets a windfall, the taxpayer will get some of the money back. I respectfully suggest that you go back to your advisors on that. If they are telling you that you cannot go down that route because it would not be transfer of risk, I suggest that they are wrong.

Anne Begg (Labour, Aberdeen South)

A number of hon. Members want to come in.

John Hayes (Conservative, South Holland and The Deepings)

I want to follow up on a number of the points raised by Mr. Marris. I wonder whether you might have considered placing those value-for-money criteria, which you assure us are robust, on the face of the Bill. It seems to me that a repeating theme in the questions that have been asked so far, and the absolute essence of this, is ensuring value for money from the public perspective. Given your stated determination, I wonder whether we ought to be clearer about that up front. You are right, of course, that other agencies will check—you mentioned the National Audit Office and others will no doubt scrutinise and monitor it—but I wonder whether that ought to be on the face of the Bill. Did you consider that and would you consider it?

John Hayes (Conservative, South Holland and The Deepings)

Further to the previous questions, the advice that you received on that will have included advice on the likely resale of the debt. All the information that I have gleaned is that the debt is likely to be resold in parts or in whole, as is normal practice. What estimate have you made of the likelihood of that and what implications does it have for the sale?

John Hayes (Conservative, South Holland and The Deepings)

Would the prohibition, or the partial prohibition, on resale be so injurious to the prospects of making the original deal that it would be unacceptable?

John Hayes (Conservative, South Holland and The Deepings)

Presumably, that is because of the sensitivity of the product. We are dealing with a product that collectively can be spoken of in the commercial terms we are using today, but that individually matters a great deal to the people who take out the loans, in terms of things such as collection and ongoing security. Is that the purpose of the protection?

Nadine Dorries (Conservative, Mid Bedfordshire)

Yesterday afternoon I had the pleasure of attending the graduation ceremony at Newcastle university. I notice that clause 1(4)(d) enables

“the Secretary of State to require a loan purchaser to make specified arrangements in connection with the administration of loans”.

It surprised me yesterday how many of the students, six months after graduating, had not yet found employment. The statistics show that many take up to a year to do so.

Using that provision, would it not be a good idea for the Secretary of State to instruct the loan companies to provide some kind of respite gap for new graduates, because while they are waiting to find employment, their student loan is still clocking up interest? Would it not be a good point at which to recognise that graduates are taking longer to find employment? As this sale is going through at the moment should we not put in some kind of provision to make things slightly easier for students?

Anne Begg (Labour, Aberdeen South)

We are moving into the dangerous territory of student finance. Remember to remain within the scope of the Bill.

Nadine Dorries (Conservative, Mid Bedfordshire)

Clause 1(4)(d) provides the Secretary of State with the powers to instruct the loan company. I thought that it would be an ideal instrument to use. On the five-year repayment freeze, would interest continue to clock up over those five years?

Nadine Dorries (Conservative, Mid Bedfordshire)

But would the interest continue to accrue?

Anne Begg (Labour, Aberdeen South)

Again, we are getting away from the scope of the Bill.

Rob Flello (Labour, Stoke-on-Trent South)

I want to pick up on some of the points that my hon. Friend Rob Marris raised. I echo what he said about having a clause that ensured that there was a windfall back to the taxpayer if anything was sold on.

My question relates to the transfer of risk. Perhaps I misunderstood or misheard, but you talked earlier about a contract clause being in place whereby if the threshold was increased, there would be some compensation back to a purchaser. That does not strike me as being a complete transfer of risk if there is something in there that means that the taxpayer can be tapped up for extra money or a compensation payment if the threshold is increased. Given that there is not a complete transfer of risk, why is there not something coming back the other way to ensure that if there is a windfall, a compensatory payment is made the other way?

Rob Flello (Labour, Stoke-on-Trent South)

So effectively, all the potential for future profit is transferred, but with less risk.

Sarah Teather (Liberal Democrat, Brent East)

Picking up on the points that the Minister began to talk about with regard to onward sales, could he explain that in a little more detail? I suspect that not every member of the Committee understands all the terms that were used. Can he explain what restrictions the Government intend to place on onward sales? The Bill is a little vague—it uses the word “may”. When would the Secretary of State’s prohibitions kick in? Would that refer only to the onward sales of the special purpose vehicle, or would any of those restrictions apply to the onward sale of bonds? Earlier, we discussed the terms and conditions for borrowers; how will the Government ensure that when the debt is sold on those terms and conditions would always remain the same for the borrower?

Sarah Teather (Liberal Democrat, Brent East)

I am not sure that the Minister has answered my question. I asked what criteria would mean that the Government would bring that prohibition in on further sales. What are the reasons that would cause the Minister to say that we are going to prohibit further sales? I was asking him to explain the relationship with the special purpose vehicle and whether it is only with that that those prohibitions would kick in.

Sarah Teather (Liberal Democrat, Brent East)

You could give us some indication.

Angela Watkinson (Conservative, Upminster)

I want to pursue this line of questioning a little further. Will the Minister confirm that the terms and conditions attached to the sale of the first tranche of loans will be standard to the sale of future tranches, and that they will not be open to negotiation with different purchasers?

Rob Marris (Labour, Wolverhampton South West)

On that very issue, I will speak about the arrangements of the declaration in clause 3(6). I am attracted to the spirit of “shall” rather than “may” applying to clause 3(6)(a); namely:

“(6) Transfer arrangements shall—

(a) prohibit the making of further transfer arrangements without the Secretary of State’s consent”.

I understand that, regarding the other two limbs of that subsection, you may wish to have “may” rather than “shall”, but I would suggest that the Minister take another look at having a mandatory for clause 3(6)(a).

Rob Marris (Labour, Wolverhampton South West)

I will not go much further on this matter, because I do not want to pre-empt the debate that we may have if the amendment becomes un-starred and is selected. However, I would again urge my hon. Friend the Minister to take another look at decoupling clause 3(6)(a) from subsections (6)(b) and (c), and at having a mandatory for the former and a permissive for the latter two.

Rob Marris (Labour, Wolverhampton South West)

Forgive me, but is the purpose to transfer assets to the private sector or to raise money for the Government? I do not elide the two, as you appear to be doing. I quite understand the desire to raise current capital for the Government through a sale, but that is a separate issue, albeit connected, from the issue to which you refer. Which is the driving force of the Bill: raising money or transferring assets to the private sector?

Rob Marris (Labour, Wolverhampton South West)

Therefore, one is a kind of income argument and one is, in fact, an ideological argument. I understand your position.

John Hayes (Conservative, South Holland and The Deepings)

Four or five questions arise from the exchanges that have taken place. Is the reason for the sale essentially to transfer risk, or is it about realising the financial benefit from the sale of the asset?

John Hayes (Conservative, South Holland and The Deepings)

Therefore, it is about both realising the value of the asset and transferring the risk. The Minister, however, has made it clear that the risk is very low, which makes the sale attractive. We were told that the sale is attractive because we know where people are, they have a good record of repayment and the actuarial issues that the Minister talked about—death, disease and disability—are entirely predictable. Therefore, this is a low-risk product for the private purchaser, but we are selling it because it is a high-risk product for the Government? Is that correct?

John Hayes (Conservative, South Holland and The Deepings)

I understand that. The significance of value for money and the need to be clear about the framework for ensuring it is the repeated theme emerging from these questions. Perhaps we will discuss that later when we scrutinise the Bill in more detail. Are the Government being advised by Rothschild’s, as they were last time?

John Hayes (Conservative, South Holland and The Deepings)

Okay. Presumably, for that reason, there is no clear advice on the cost of the sale.

John Hayes (Conservative, South Holland and The Deepings)

What is the estimate of the cost of the sale? Obviously, the revenue will be the value realised in the sale minus the cost, but we have been given no estimate of the cost.

John Hayes (Conservative, South Holland and The Deepings)

I am sorry to interrogate you about this, but there must be some notional view of the likely cost of the sale. For example, the Minister talked about setting up a vehicle to ensure that the matter is dealt with in the most appropriate way, for some of the reasons that we are debating. Surely, there must be some notional feel for what the cost of the sale will be.

John Hayes (Conservative, South Holland and The Deepings)

I am sorry, but I do not buy that at all. That is perfectly true in terms of the value of the asset: it is absolutely right that you want to be, to some extent, commercially sensitive about the value and the likely price that would be paid for the asset. However, that has no relevance to making an estimate about what it will cost you to sell the asset, because whatever it costs you to sell it, the people who bid for it will pay—I do not mean the cost of the product, but the cost of the sale.

John Hayes (Conservative, South Holland and The Deepings)

Yes. The cost to you—the organisational cost, the setting up cost and the marketing cost. All of those things will have a cost. Obtaining advice has a cost. You said you have taken advice and will continue to do so from a number of sources; you said that you will establish a mechanism for selling the product, and you said that you will market the product. All of those things have costs and they may be very substantial costs; they may not be substantial compared with the sum of £18 billion, but they are certainly not insubstantial in relation to our scrutinising this matter with proper diligence.

John Hayes (Conservative, South Holland and The Deepings)

That is most helpful. With your indulgence, Miss Begg, can I just pursue this issue of resale? It is not inconceivable that, if the product is resold, it will be resold to a body or organisation underwritten by the Government. I accept that the Minister says that that is unlikely, but it could happen. For example, I hate to raise the name, to the embarrassment of the Minister, but the asset could be resold to Northern Rock, could it not? There is nothing to stop that happening. If the sale is restricted by the means that are in the Bill, as I understand it, there is nothing to stop the asset being sold to an organisation that is underwritten by the Government.

John Hayes (Conservative, South Holland and The Deepings)

Yes, but the nub of what I thought that you said earlier when answering questions from Labour Members was that the principal reason for that veto was to protect the interests of those graduates who were party to this process. Therefore, the reason that you would have ongoing involvement was to ensure some of the things that you were questioned about earlier—the way that debt would be collected, the interest rate, and so on. I was not aware that the Secretary of State’s involvement was to prohibit certain commercial decisions.

What I am describing is a set of commercial circumstances in which a purchaser might choose to resell and would do so, presumably, according to market conditions. Are you now saying that the Secretary of State would have ongoing powers to stipulate to whom the asset may—or may not—be resold?

John Hayes (Conservative, South Holland and The Deepings)

I use Northern Rock as an example only because it springs to mind.

John Hayes (Conservative, South Holland and The Deepings)

But it could be any organisation that was underwritten or supported by or had some involvement from Government. Any number of commercial organisations have a relationship with Government that might make resale inappropriate or certainly undesirable—not from the student’s perspective, although that may also be true, but from the Government’s perspective, as a matter of public policy. It seems to me that you will have a reasonable amount of control over the first sale of the product, but whether you will have any significant control over some of the subsequent commercial activities, which might in the end be unhelpful from a public interest perspective, bears further scrutiny. You must have considered that in detail.

John Hayes (Conservative, South Holland and The Deepings)

Absolutely. So it is robust and the Secretary of State will exercise, on advice of course, a commercial judgment—not simply a judgment about the protection of graduates, but a judgment about whether a particular resale is appropriate in the public interest?

Anne Begg (Labour, Aberdeen South)

May I move us on to questions on disclosure of information?

Gordon Marsden (Labour, Blackpool South)

Minister, on Second Reading you said:

“HMRC has temporarily suspended its data sharing operations with the SLC in respect of student loans”.

Could you tell us what the current status of that process is?

Gordon Marsden (Labour, Blackpool South)

Have you any idea when that mechanism may be resumed?

Gordon Marsden (Labour, Blackpool South)

Fine. I am grateful for that and for the robust repetition of what you said on Second Reading. However, recent events inevitably raise the question whether provisions for data protection in the Bill, which obviously was drafted before the particular problems that we have had, remain sufficiently robust. Therefore, I wanted to ask you on that front whether you have reviewed the provisions for data protection in the Bill, what additional measures you have considered, and what conclusions you have come to as to whether additional measures are necessary.

Gordon Marsden (Labour, Blackpool South)

That is understood, but you will also understand that the Committee, in scrutinising the Bill, wants to probe a little further into what the hypothetical situation for robustness might be when the Bill is finally enacted.

I am going to press you further on the issue of encryption. I do not need to go over this, but encryption was a key issue in the problems that took place with the missing personal data on child benefit. I want, therefore, to ask you two specific questions, although I do not want to bamboozle those of us who might not be as technically literate in such matters as others. First, is the level of encryption envisaged for data protection in respect of student loans similar to that which should have applied in the case of Her Majesty’s Revenue and Customs and the missing personal data relating to child benefit? Secondly, at what level within your Department—or the Department that will eventually supervise data protection and its potential transferral—will that encryption be supervised? I appreciate that you may not be able to be specific on those matters today; I do not know whether Mr. Hipkins can help us further on that.

Gordon Marsden (Labour, Blackpool South)

That is extremely helpful. The detail is helpful. I am sure that those who are more technically literate than I am will peruse some of those details carefully. I am sorry to have to refer back to the HMRC case but, of course, it is the case on which the questions are now being focused. You will recall that one of the problems—I do not want to prejudge the outcome of any inquiry—was that it was alleged that the material was sent unencrypted by a junior official. Of course, that raises the question of the level at which encryption will be authorised and supervised. That is one question that I want to press with Mr. Hipkins.

Gordon Marsden (Labour, Blackpool South)

At what civil service grade would that authorisation be given?

Gordon Marsden (Labour, Blackpool South)

That is helpful. May I move on to discuss some of the issues relating to the release of data to potential purchasers? I know that you have touched on this, but just to clarify the issue for the Committee, could you tell us what sort of data you intend to release to potential purchasers?

Gordon Marsden (Labour, Blackpool South)

In drawing up the contract with the SLC, what procedures are in place to obtain students’ consent for the release of information, anonymised or otherwise?

Gordon Marsden (Labour, Blackpool South)

Just to be clear, are students implicitly to understand when they sign the contract that the data may be used individually for audit purposes and collectively on an anonymised basis, or is that explicitly stated in the contract that they sign?

Gordon Marsden (Labour, Blackpool South)

It would be helpful to me and, I suspect, the Committee if we could be provided with that information at some stage. The only reason I am being pedantic is that concerns will be raised, rightly or wrongly, about consent as we move into the private sector, and it is important for the Committee to know precisely what situation pertains. Would it be possible for you to give us that information?

Gordon Marsden (Labour, Blackpool South)

We have had some discussion about the implications of selling on loan material, and I appreciate that you, Minister, have said that, in your opinion, those implications are likely to be less than has been suggested, for the various reasons that you have given. Nevertheless, the issue may arise. If the situation were such that there was a significant selling on of debt, where does that leave us in terms of the people who buy the debt being obliged to observe whatever protections and safeguards you have originally specified to the original purchasers?

Gordon Marsden (Labour, Blackpool South)

To be absolutely clear for the purposes of the Committee, the fact that there may arise a situation, to use that phrase, where an initial sale of a student loan chunk is subsequently outsourced to another organisation, that will not affect the original requirements in terms of data protection that were placed on the original purchaser.

Sarah Teather (Liberal Democrat, Brent East)

I think that the Minister has answered our questions, but I will just get him to clarify, to make sure that I have completely understood. Can he say that no individual data will be passed on if the graduate defaults on their loan payment—that no individual data will be passed from HMRC or the Student Loans Company to the owner of the debt?

Sarah Teather (Liberal Democrat, Brent East)

And there will not be? Are we clear that the data protection legislation ensures that that is the case?

John Hayes (Conservative, South Holland and The Deepings)

We know from the history of collateralised debt obligations that they are frequently sold on and broken into parts. It is possible that that may mean that the product is sold overseas to companies beyond UK jurisdiction. Has the Minister given that any consideration, and if so what conclusions has he come to?

John Hayes (Conservative, South Holland and The Deepings)

Was any of the debt that was sold in 1998-99 sold on?

John Hayes (Conservative, South Holland and The Deepings)

Have we got a clear idea about what happened to the debt? Are you saying that the purchaser still owns the whole of that debt?

John Hayes (Conservative, South Holland and The Deepings)

Would it be useful to the Committee for the Minister to come back with some details on that? That would, presumably, reassure us, or indeed frighten us, about what might happen in this case—hopefully, the former rather than the latter.

John Hayes (Conservative, South Holland and The Deepings)

Are those terms and conditions absolutely legally binding on the initial purchaser and subsequent purchase in respect of the anonymising of data?

John Hayes (Conservative, South Holland and The Deepings)

Again, for the benefit of the simple souls on the Committee such as myself how will the data be anonymised? I do not understand what form it will take. It might be useful to have a feel for how that happens. Speaking as a former businessman, if I were to buy a product I would want to know a fair bit about it, not only for audit purposes, although I appreciate that point, but also to value it from the perspective of a potential purchaser. There would have to be some exposure to make an assessment of risk.

John Hayes (Conservative, South Holland and The Deepings)

My wife had a letter from the Government this morning, stating that her personal details had been cast to the four winds. You will understand a certain sensitivity on my part and that of my family in this respect.

Further to the questions that were asked by Mr. Marsden, one appreciates that the contract will be tight in the way that the Minister has described and that there will further obligations on purchasers in the event of a resale. However, what kind of consideration has been given to the compatibility of systems, which was the cause of recent problems? We use fairly primitive means of communication because no other means are available to us. Any data that is transferred by less than secure mechanisms regardless of intent can go astray. Have any lessons be learned, as Mr. Marsden asked?

John Hayes (Conservative, South Holland and The Deepings)

Will that will include an audit trail in respect of onward sale of debt?

John Hayes (Conservative, South Holland and The Deepings)

An area that we have not explored is the timetable and the scale of the sale. We understand that the debt will be sold in portions. That was made clear both in the original statement of intent in the Budget and in the debate on the Bill, but we do not have a clear indication of the likely size of those portions or the anticipated timetable. Although I appreciate that none of that is set in stone, I assume that the Minister has reached some initial conclusions, following advice that he has received.

John Hayes (Conservative, South Holland and The Deepings)

We understand that the debt will be sold in chunks. What size will the chunks be, and over what time do you expect the sale to take place? Is 2010 a firm date and will the debt be sold in three chunks over that period, or will bits be sold off on a monthly basis? How will the sale work?

John Hayes (Conservative, South Holland and The Deepings)

We have done so, but what we have not explored is where we go from there.

John Hayes (Conservative, South Holland and The Deepings)

Beyond the initial sale.

John Hayes (Conservative, South Holland and The Deepings)

The original intention stated in the Budget was that the Government would raise £6 billion by the end of 2010-11. The exact quotation says “around” £6 billion, rather than at the higher end. The higher end came in on Second Reading, I think. That suggests, does it not, that we are only going to sell one chunk until 2010-11—the first part of the sale? Is that still the case?

John Hayes (Conservative, South Holland and The Deepings)

So in fact, if we have in place a robust value for money framework, we might not sell anything by 2010-11, or if the market conditions are such that we feel it is desirable to offer more of the loan book, we might sell more than that first portion. The Government’s plans in that regard are entirely flexible and the Bill will enable legislation to give those plans life. Is that fair?

John Hayes (Conservative, South Holland and The Deepings)

Returning to the value for money framework, I pushed the Minister earlier on whether that might form part of the Bill itself, or at least part of guidance. We have returned to it time and time again this morning, and it is critical to the essence of the Bill and the determination of all Members to get the best possible outcome. Will it be in guidance? How can the value for money framework be absolutely enshrined in further considerations? You will understand that people more sceptical than me will argue that with substantial, £24.2 billion public sector borrowing—£6.7 billion up on last year—there will be a temptation to cash in. I have no doubts about the Minister’s integrity in that regard, but a value for money framework would give him the extra security of knowing that he was protected from the ravages of the Treasury.

John Hayes (Conservative, South Holland and The Deepings)

That kind of approach would apply to any Government at any time, and we would all suffer from similar pressures in those circumstances. Given that the Minister set out the framework in Hansard on Second Reading and has emphasised it strongly today—I have no doubt that he will do so ad nauseam as the Committee’s proceedings continue—why not append it to the Bill, at the very least in the form of guidance? I do not understand the objection to that.

John Hayes (Conservative, South Holland and The Deepings)

I do not want to be unnecessarily partisan, but one thinks of QinetiQ and of the sale of the gold reserves. At the end of the day, it is understandable that people are nervous about Governments per se—I will be entirely even-handed about this—when it comes to realising the value of assets. Anything more that we can do to be absolutely certain is desirable from a public interest perspective.

Angela Watkinson (Conservative, Upminster)

I am sorry to press even further on this specific point, but the term, “value for money” is to a degree a subjective one. Will the Minister help by explaining just how one does the calculation of the bottom line, below which a sale would not proceed because it would be judged not to provide value for money?

Rob Wilson (Conservative, Reading East)

Following on from the questions of my two hon. Friends, I wonder if I might tease out a little more information and perhaps fill a few gaps. I know that the Minister has been here for a couple of hours now, so he is probably beginning to feel a bit tired.

Rob Wilson (Conservative, Reading East)

I want to ask the Minister how the Government will go about selecting the loans that will be sold. Is there a selection process? Is it going to be random? Will you look at selling high-risk groups first or the low-risk groups first? How exactly are you going to do it?

Rob Wilson (Conservative, Reading East)

Are you saying that you will sell the low-risk loans first?

Rob Wilson (Conservative, Reading East)

That would suggest that you expect there to be diminishing returns as you sell one tranche after another.

Rob Wilson (Conservative, Reading East)

Presumably, if you sell the ones with a track record first, as you go through the loans—

Rob Wilson (Conservative, Reading East)

But one of the reasons for selling the loans and getting them off the Government’s books is to move the risk to the private sector. From what you say, it sounds as if we will be left with the biggest risks still on our books. That does not sound like a fantastic deal for the taxpayer.

Rob Wilson (Conservative, Reading East)

But you are still going to sell the ones with the best track record, which will be the lowest risks to the purchaser.

Rob Wilson (Conservative, Reading East)

I am not clear about this, so let us go back over it. You will be selling loans first that have a track record and which, therefore, will be a low risk to the purchaser. That is what you said, Minister. However, subsequently, I feel that Mr. Hipkins has backtracked.

Rob Wilson (Conservative, Reading East)

If you know that there are high-risk loans and you have information about them, are you going to try to sell those loans?

Rob Wilson (Conservative, Reading East)

If somebody has a sporadic level of repayment of their loan and it is therefore regarded as a higher risk for a potential purchaser, will you try to sell such a loan in the tranches that you sell off?

Rob Wilson (Conservative, Reading East)

No, but people can have a good or a bad track record of repaying. You will have gathered the information on both of those categories. I am trying to get at how you intend to include both of those in the sale process and when.

Rob Wilson (Conservative, Reading East)

I will move on, although we might have to return to that issue at some point in the next few days. Will graduates be informed when their loan is sold on?

Rob Wilson (Conservative, Reading East)

Have you seen any rise in the number of individual voluntary arrangements being made by graduates who have taken out these loans?

Rob Wilson (Conservative, Reading East)

Do you expect those numbers to increase at all? Can you give a rough estimate as to how big an increase there has been?

Rob Wilson (Conservative, Reading East)

Are you at all worried about student organisations advising graduates that they may want to go along the IVA route if there is a particular Government policy that they do not like with regard to the sale of these loans?

Rob Wilson (Conservative, Reading East)

I have one final question, which returns to the issue of value for money and the concerns that have been expressed by a number of hon. Members. There are various tranches to each sale. Can you give us an assurance that there will be a report in the House about the value for money achieved which will be independently looked at and commented on by the National Audit Office?

Rob Marris (Labour, Wolverhampton South West)

Rather more prosaically I want to return to clause 4(3) and the loan regulations which, as I understand, say that a Secretary of State can pay the bidding costs of a loan purchaser. Is that what it is designed to say? I am not sure why it is in the Bill.

The reason I raise the matter now, rather than during the course of the Bill, is because I thought that we might have a debate to clarify it a little. If it says what I think it does, then I have reservations about it. I wanted an explanation on it, but I may have misinterpreted its import.I see the Minister scratching his head, so I will carry on. It seems to say that the Secretary of State can reimburse the successful bidder for their bidding costs because of the high cost of bidding, for example on PFI contracts, although we are not going to rehearse that discussion again. However, in recent years it has happened that the Government will, on occasion, reimburse the bidding costs for a PFI contract for those bidders who are not successful. Clause 4(3) does not say that.

John Hayes (Conservative, South Holland and The Deepings)

I did not hear the detail of that, it was too soft.

Rob Marris (Labour, Wolverhampton South West)

I understand it now. It might have helped if that explanation had been in the explanatory notes—I cannot find it in there—and if the second line of the subsection had referred to reimbursement by the borrower of the costs or expenses incurred. It appears maladroitly worded, but I now understand what it means.

Sarah Teather (Liberal Democrat, Brent East)

In the absence of my colleague Mark Williams, I should like to ask about Wales. What representations has the Minister received from Welsh Ministers on the Bill? Was consideration given to providing a framework, rather than the mirror powers in the Bill?

Sarah Teather (Liberal Democrat, Brent East)

Have there been discussions with the Welsh Assembly?

Sarah Teather (Liberal Democrat, Brent East)

What estimate has been made of the value of the student loan book in Wales? If the asset is sold on, will the proceeds be made available to the Welsh Assembly, or will they come to the Treasury?

John Hayes (Conservative, South Holland and The Deepings)

I have just two or three final questions. Will the Minister confirm that there is no intention to involve anyone else besides the Student Loans Company in the collection of repayments?

John Hayes (Conservative, South Holland and The Deepings)

Why is that not in the Bill?

John Hayes (Conservative, South Holland and The Deepings)

But in respect of loan regulation, clause 5(2) of the Bill states:

“In particular, regulations or arrangements may provide for—

(a) collection by a person acting on behalf of a loan purchaser”.

Thus, not only is the thing that the Minister has assured us of not in the Bill; the opposite is in the Bill.

John Hayes (Conservative, South Holland and The Deepings)

Is accountability to the Student Loans Company, not the loan purchaser?

John Hayes (Conservative, South Holland and The Deepings)

Time prohibits further exploration of that, but there is another, related issue. As hon. Members will know, British students’ repayments are currently made through deduction of wages by Her Majesty’s Revenue and Customs, but overseas students are dealt with by the Student Loans Company. What is the record of default and repayment in respect of debts administered by the Student Loans Company, compared with those administered by Her Majesty’s Revenue and Customs?

John Hayes (Conservative, South Holland and The Deepings)

Given the greater challenges associated with that, which the Minister has recognised and is dealing with, will that part of the debt be attractive to purchasers? If I were selling or buying the debt, I would not touch it with a bargepole.

John Hayes (Conservative, South Holland and The Deepings)

Given the chronology that the Minister discussed in relation to questions asked by one of my hon. Friends, it is unlikely that that portion of the facebook will be sold at the outset. It simply would not have a track record of repayment. It would not be sufficiently proven to be an attractive part of the sale.

John Hayes (Conservative, South Holland and The Deepings)

So the answer is that we have yet to discover quite how it will work out, but we are determined to put in robust mechanisms to ensure that it works out properly and that it is unlikely to form an early part of any transaction involving the debt.

John Hayes (Conservative, South Holland and The Deepings)

Moving swiftly from overseas to the Principality of Wales, what representations has the Minister received about the way in which the Bill extends the powers of the Welsh Assembly? I am particularly sensitive about the matter, given our earlier worries about Wales under different legislation. I have put that as euphemistically as I can.

John Hayes (Conservative, South Holland and The Deepings)

I am grateful. Thank you, Minister.

Anne Begg (Labour, Aberdeen South)

Are there any more questions?

Further consideration adjourned.—[Mr. Michael Foster.]

Anne Begg (Labour, Aberdeen South)

Before we begin line-by-line scrutiny of the Bill, I have a few preliminary announcements. As I said this morning, Members may remove their jackets if they so desire. Could they also ensure that pagers and mobiles are off, or at least turned to silent? I should also point out, yet again, that there is a money resolution in connection with Bill, copies of which are on the Table in front of us.

Clause 1

Bill Rammell (Labour, Harlow)

I beg to move amendment No. 1, in clause 1, page 2, line 4, at end insert—

‘(4A) Transfer arrangements shall have effect (and, in particular, a provision transferring rights or obligations is sufficient to effect the transfer).’.

I did not say this morning what a pleasure it is to be under your chairmanship, Miss Begg. I hope that all members of the Committee realise that this is a minor and technical amendment. The intention behind the Bill is to give the Secretary of State the legal power to transfer his rights in respect of income-contingent student loans. We have reconsidered the drafting of clause 1 and wish to remove any potential for it to be construed in the commercial sector in a way that differs from the policy intent behind the Bill. We want it be completely clear that the Bill will give effect to transfers in itself, rather than simply giving the Secretary of State the power to make sales under general legislation governing contracts.

Although the Bill as it stands is clear—that is certainly my reading, and it was the view previously, including on Second Reading—it is important that potential purchasers in the commercial sector should be in no doubt as to what it enables the Secretary of State to do. If they thought that there was any question over whether the transfer would have legal effect, they would probably reduce their valuation of the loan portfolio and any securities backed by it, which would clearly damage our prospects of getting good value for money. It is therefore appropriate to remove that uncertainty, however slight it might be, to ensure good value for money for the taxpayer. This technical amendment will put beyond doubt our intention, which is that the Bill, in itself, will enable sales of loans that will have legal effect. I hope that that is uncontroversial and I therefore commend the amendment to the Committee.

John Hayes (Conservative, South Holland and The Deepings)

What an immense pleasure it is to serve under your illustrious chairmanship, Miss Begg.

The Minister has made a case for what is essentially a technical change. However, clause 1 permits the Secretary of State to sell to a purchaser his rights and obligations relating to student loans, and sensitivities were expressed on Second Reading and again during the scrutiny that we enjoyed this morning about the precise nature of that transfer of competence. In particular, many concerns have been raised about the impact on students past, future and present, and about commercial issues relating to the sale and possible subsequent resale.

I entirely accept the Minister’s assurances about the effect on students and that his intent is that they should see no difference. I accept that the process is meant to be transparent and that students should fully understand what is going on; indeed, they will be written to with an explanation of the process. I also accept that they will see no difference, because the circumstances will be identical; indeed, that has been made clear in the explanatory notes, and in the Minister’s comments on Second Reading and this morning.

However, there is the matter of Ministers’ judgment as to how they use these powers in practice. For example, there is nothing in the Bill to prevent different loan repayment arrangements, as long as those arrangements are made with the Secretary of State’s consent. The Minister dealt with that this morning and said that if a future Government took a different view about loans, it might be a matter of political imperative that the circumstances changed in respect of the treatment and condition of graduates. Had the Committee been considering these issues over a longer period, we might have tabled a probing amendment.

Anne Begg (Labour, Aberdeen South)

Order. Perhaps I can help the hon. Gentleman. This is a debate on Government amendment No. 1. I suspect that his speech should be made during the debate on clause 1 stand part, which I will be calling.

John Hayes (Conservative, South Holland and The Deepings)

I am grateful for that advice, Miss Begg, which I had anticipated. This is a short version of the very extensive summary that I shall be giving in the clause stand part debate, but I take your point that I need to address my remarks more specifically to the amendment.

Perhaps I can ask the Minister a simple question: will he tell us specifically what rights or obligations will be necessary? Will he confirm, once again, that the amendment will have no impact on the graduate population concerned? Perhaps in the clause stand part debate we can explore one or two of the wider aspects of clause 1, which, as I have said, have given rise to concerns here and elsewhere.

Bill Rammell (Labour, Harlow)

I am happy to give that assurance. The minor technical amendment that we are considering will have no material impact on graduates. It is being proposed simply to ensure that the position that we knew and believed to be the case is absolutely 100 per cent. clear so that there is no room for doubt. I hope, on that basis, that the amendment will be agreed by the Committee.

John Hayes (Conservative, South Holland and The Deepings)

Perhaps I can continue on stand part, as advised, where I left off a few moments ago, Miss Begg.

This matter is a question of how Ministers will use their power in the future. Of course, it is not appropriate for this Committee, or indeed this Parliament, to bind its successors in that regard. It might well be the case that a different Government came to a different view about student loans generally. Nevertheless, given that this is enabling legislation—we heard that, in essence, both on Second Reading and today—it is vital that we put on to the statute book something that will have relevance for the foreseeable future, because these matters might not be brought to a head immediately. Indeed, it might be some years before the loan book is sold.

My judgment about that matter, and in a sense my judgment about what lies at the heart of this aspect of the Bill—clauses 1 and 2 set out the essence of the Bill—leads me to ask how far we can reasonably protect the interests of students in perpetuity. How far can we limit the possible risks associated with the Bill without compromising the commercial attractiveness of the products? That paradox, if I can put it in those terms, underpinned much of our earlier discussion.

It is clear that Members are anxious that adequate protection is built into the Bill. Indeed, the Government moved the simple amendment that we dealt with a few moments ago for that reason. However, it is equally clear that the Government cannot build in such protection to a degree that makes the product unsaleable. The debate that we will have over the short hours—perhaps days, but certainly not weeks—of this Committee will focus on that issue.

I am anxious, as I am sure that the Minister is, to ensure that we have a robust piece of legislation that protects the interests of all concerned, including the public interest, while recognising that commerciality means that we cannot tie up the Bill so tightly that no one would want to buy the product. I think that that tension needs to be explored in some detail at an early stage of our consideration.

I would like to say one more thing at this juncture about the early clauses. There are real doubts about both the reason for the Bill and its consequent effects. Let me explain both those points. There seems to be an inherent confusion about the motive for the Bill. If the motive is to transfer risk, let us have a frank debate about why and how that will happen. If, on the other hand, the motive is to realise the value of assets, let us be frank about that, too. I am not sure that it can reasonably be argued that the motive is to do both, because if this is to be an attractive product, it must be advertised—as it has been by the Minister—as fairly safe and secure, and not a risky thing to purchase. If it is not a risky thing for a private investor to buy, it cannot be a terribly risky thing for the state to own.

If the motive is realising assets, let us be equally frank. I think that that is perfectly legitimate, and I have no ideological objection to that process, to use the Minister’s words. However, if that is the key objective, it must be underpinned by a secure and robust value for money framework, as the Minister has described. I am not yet convinced that we have an absolute assurance in these early clauses that value for money can be guaranteed, given the vagaries of Government policy and the changes that take place in ministerial offices—not that we are expecting the Minister to change; we want him here in perpetuity, at least until he is cast out at the election.

Rob Wilson (Conservative, Reading East)

My hon. Friend makes a very interesting point about whether the Bill is about transferring risk or realising assets. Is he aware that in the Financial Times on 15 March, it was suggested that the Prime Minister and Chancellor were using the Bill to sell off public assets to keep the national debt below 40 per cent.?

John Hayes (Conservative, South Holland and The Deepings)

I struggle, because I am an innocent in a world of cynics. I always tend to think the best of people. My hon. Friend is a businessman of some esteem and has the sort of sharp mind that those of us who are mere romantics can only envy. However, he might be right that there will come a time when, notwithstanding the assurances that we were given about value for money, somebody in government—it could be the Chancellor, or even the Prime Minister himself—will say, “Where can we raise a bit of dosh? I know, we have this enabling legislation. Let’s bang out the student loan book. We won’t get much of a price for it, but it’s better than nothing.”

Gordon Marsden (Labour, Blackpool South)

The hon. Gentleman is making his point with his customary alacrity and, certainly, some humour. If we are going into the fire sale area of ancient history, we could perhaps relate some rather difficult examples for his party. However, I will not stray down that course.

Surely it is perfectly possible to have a prudent approach on the overall conduct of Government finance. Is it reasonable that a priority for the Government’s time and effort is keeping something like student loans in the public sector when there is a perfectly good and robustly tested mechanism for transferring that risk to the private sector?

John Hayes (Conservative, South Holland and The Deepings)

The hon. Gentleman is right. It is possible to square that circle. While these things are juxtaposed, I do not think that they are necessarily mutually exclusive. It is entirely possible for the Government to be prudent, yet to take decisions that enable the private sector to handle aspects of public policy. The Government acting as a facilitator is a well established model in Westminster and in local authorities, with which I know he is familiar.

For the protection of the public interest, and of Ministers, it seems important that the value-for-money framework should be well established and well understood and should attract a degree of non-partisan—one might say bipartisan or perhaps even tripartisan—support. I have a feeling, as a result of this morning’s scrutiny more than anything else, that we have to be even clearer about that to ensure that the marriage between prudence and appropriate lateral thinking on how the Government should handle their affairs, as described by the hon. Member for Blackpool, South, is made.

Will the Minister find a way to frame the protection of public interest and the value-for-money approach in a way that is entirely convincing? I suggested that it could be appended to the Bill—I do not take a definitive view on whether it should be on the face of the Bill or expressed in guidance. However, we need more than we have. The Minister is right: he mentioned it on Second Reading, it is in Hansard, and he will mention it again today. However, as Ministers and policies change, it would be useful to have something on value for money that is set in stone. That was certainly the sense of this morning’s discussions.

The other issue with the early clauses was explored in some detail, and we will no doubt return to it in our debate on clause 3. It is the question of how far the Secretary of State should intervene, for how long and in what circumstances. We talked at length about the Secretary of State’s power. This morning we began to test how permissive that power was. We questioned the Minister and tried to identify the circumstances in which the Secretary of State might feel that it was reasonable to intervene in a transaction subsequent to the initial sale. People were concerned about subsequent sales and how far the Secretary of State might intervene.

Clause 1 is about the principle of the first sale, and clause 2 goes into a little more detail along with clause 3. When the Minister sums up clause 1, will he speak a little about how the initial contract for the sale of the product might be sufficiently flexible as to have use beyond that first sale? In other words, would the Government sell the loan book in part, making it absolutely clear in the contract what the purchaser could and could not do subsequently? We know that there will be restrictions on what the purchaser can do in respect of those of the graduate population who are borrowers.

We are rather less clear about what the purchaser can do in commercial terms. Can they resell the loans? How can they resell them? In what circumstances? How will that resale affect the other considerations that we talked about—the collection of debt, the circumstances of the loans, and the robustness and reliability of the system? Should that not be dealt with up front, as we consider clause 1, and in the first contract? If I were buying the product, I would want to know on what terms I was doing so. If I were selling it, as a Government, I would want to know on what terms I was selling it and what might happen further down the line. It seems to me that the issue of resale will come back time and again as we consider the Bill. There are worries to consider.

Sarah Teather (Liberal Democrat, Brent East)

I must confess that I am learning as I go along, and I suspect that I am not the only person in the Committee in that position. I understand from our sitting this morning that what happens to the bonds is a little irrelevant; the issue is what will happen to the special purpose vehicle and the extent to which that can be sold on. That is where we will need to focus our scrutiny later in Committee.

John Hayes (Conservative, South Holland and The Deepings)

That is a fair point and, in a sense, the Minister’s reassurances are built around that vehicle. Again, I think that we assume a shared support for the principle behind the Bill, which was established in the debate on Second Reading. We are now talking about the mechanics of the sale. Parliament is at its best when we look at the details of something that we do not fundamentally disagree about, because we can get rid of some of the partisan debate and move on to serious scrutiny.

Bluntly, the problem is that, typically, one would expect that when a large debt is sold or purchased it would be broken into parts and resold. That frequently happens with the sale of debts. The Minister feels that that will not happen in this case. Indeed, he painted a picture of the special purpose vehicle for the sale that almost prohibited that eventuality—it did not prohibit it legally, but made it less attractive, one might say. In those circumstances, it might well be less attractive to buy the debt. If a potential purchaser is unable to resell it, that will affect both their likelihood to buy it and the price that they are prepared to pay. That is what I meant about striking a balance between protection and commercial viability. I want the Minister to be absolutely clear about it. He has obviously taken advice on the matter.

It is clear that the vehicle that he has described is designed to minimise risk for the public interest and for the graduate population, but how does the Minister expect that to interact with commercial viability when it is marketed? Will it be marketed as something that is difficult to resell, or that cannot be resold, or will it be marketed in an altogether more permissive way? I began to get a picture of that this morning, but I have yet to be fully convinced about how it might work out in practice.

My final point on the clause is a reprise of the question of the Secretary of State’s capacity to intervene in those kinds of commercial matters. There is no question that the Secretary of State is given powers by the clause; the word “may” rather than “will” is used a lot, as we will debate later. Notwithstanding that, it is not clear how far those powers are designed to intervene in commercial decisions. Are the powers designed solely to prevent anything untoward from happening as it is perfectly proper that they should be? Or are they powers that are likely to be exercised, that the Government expect to be exercised, and that will be exercised if the Government are unhappy about some of the commercial circumstances? For example, the book might be sold in parts, in the way that I described—notwithstanding the hon. Lady’s caveat, which I appreciate—and there may be concerns about to whom it was being sold. Would the book disappear abroad? Would we have any concerns if it did? We might not, but let us at least have that debate. I would like it to be clear in this and subsequent parts of the Bill to what extent the Secretary of State is likely to intervene in some of the commercial questions, rather than merely intervening to protect the interests of graduates, important though they are.

Sarah Teather (Liberal Democrat, Brent East)

I welcome you to the Chair, Miss Begg.

There are a number of questions on which I would appreciate clarification. First, I will pick up on the hon. Gentleman’s point about the purpose of the clause. It would be very helpful if the Minister would lay out, either now or at some stage during the Committee, which risks are being transferred and which the Government are taking in a public and transparent way for the organisation that is buying it.

For example, this morning we discussed that the Government are continuing to take the risk of underwriting the debt if a graduate were to die, go bankrupt, or fail to pay off their loan before the age of 60. Presumably, that risk is accounted for in the sale, so the purchaser would be aware that the Government were continuing to take it. I presume that the Government have analysed exactly which risks they are transferring, and it would be helpful to understand what those are. Do the Government intend to hold a share in the special purpose vehicle or will it be sold on in its entirety? Will they continue to have any interest in it?

The debate on value for money dealt with the extent to which we will realise the net current value of the loans. Why have the Government decided to sell £6 billion-worth of loans in one go, instead of testing the market by, perhaps, first selling smaller amounts? The hon. Member for Wolverhampton, South-West spoke about private finance initiative deals and the potential for large windfalls. If we sold loans in smaller chunks, which is possible with such financial products, we could see what happens with onward sales and whether initial estimates were correct. Why have the Government decided not to do that?

Finally, on clause 1(4)(c), what

“warranties or indemnities or other obligations”

does the Minister envisage with respect to a sale?

Rob Marris (Labour, Wolverhampton South West)

It is a pleasure to serve under your chairmanship, Miss Begg. I have a particular interest in this Bill: the university of Wolverhampton is the most accessible mainstream university in the United Kingdom with the fifth highest number of students. Owing to that accessibility, it has a lot of poor students taking out loans.

Will the Minister provide further details on “transfer arrangements”? That term seems to be very broad, even though the Bill contains some qualifications of it. What is the mechanism and role, if any, for Parliament in the scrutiny of such arrangements? As I read the Bill, that will not be done through statutory instruments, but will be a commercial decision taken by the Department. Ultimately, of course, it would be for the National Audit Office to investigate and for the Public Accounts Committee to examine. However, will he say a little more about parliamentary scrutiny?

Paragraph 16 of the explanatory notes, which deals with clause 1, states:

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

That appears admirable. However, as far as I can see it—I am always open to correction—that is not in the Bill. Why is it not? I am seeking reassurance for those who have taken out loans or might do so in the future.

Clause 1(4)(f) refers to

“specifying consequences of the breach of a provision of the transfer arrangements.”

Will the Minister give one or two examples of what penalties might be included should a loan purchaser breach the provisions of the transfer arrangements?

Finally, clause 1(3) states:

“Transfer arrangements may relate to...some or all of the Secretary of State’s rights.”

Will the Minister say a little more about what rights might not be transferred? The implication of that wording is that some will be transferred but that others might not. Will he elucidate on that?

Bill Rammell (Labour, Harlow)

I shall try and respond to a number of the points made.

I repeat to the hon. Member for South Holland and The Deepings a point that I have made a number of times, but which is important to state again for the record: the terms and conditions will be exactly the same whether the graduate repays their loan to the Government or to the private sector. I welcome the fact that he accepted my reassurances on that matter.

The hon. Gentleman implied that there are concerns about the Secretary of State’s powers under the Bill. However, let me be clear: the Secretary of State has the power today, if backed by Parliament, to alter the terms and conditions of access to student loans.

I made a point at the general election about the policy of the official Opposition—I believe that is still their policy. They wished to charge a commercial rate of interest on student loans, instead of no real rate of interest, which continues to be the Government’s policy. If a Conservative Government were elected, they would be free to introduce legislation and empower the Secretary of State to alter terms and conditions. That would be the case even without the Bill, because the power on terms and conditions resides with the Secretary of State, whether the loans are owned by the Government or by the private sector.

The hon. Member for South Holland and The Deepings asked about the ability to protect the graduate. It is through the measures in the Bill and through the contractual process that we can afford protections to the graduate. I gave instances this morning of how we will ensure that it is the Student Loans Company that carries out the administration on behalf of any private sector interest and how we will ensure that there is access to the same independent assessor, where there are problems, as is the case in respect of Government debt.

Rob Wilson (Conservative, Reading East)

The explanatory notes state that, under clause 1, the Secretary of State can sell “part of a loan”—for example, 40 per cent. That could lead to there being two owners of the loan: the Student Loans Company and a third party. How would protection of the individual work in that situation?

Bill Rammell (Labour, Harlow)

We are not anticipating that part of a student loan will be sold to the private sector and part will remain with the Government. Nevertheless, whether someone’s debt is owned by the Government or by the private sector, exactly the same terms and conditions will apply and they will be governed by regulations passed in the House.

The hon. Member for South Holland and The Deepings said that he had serious doubts about the reason for introducing the Bill, and questioned whether it was about the transference of risk or about an up-front income stream for the Government. I said this morning—and I repeat—that it is about both those objectives. On his point about risk, it is certainly the case, looking forward, that having the ongoing income stream from student loans on the Government’s books entails a degree of risk that ideally we would not wish to be on the Government’s accounts. Because the private sector operates with that degree of ongoing risk, it would not be a problem for it to engage with that. That is not inconsistent with the sale being an attractive investment opportunity from the perspective of private sector investors.

The hon. Gentleman made a point about value for money. For the record, I reiterate what I said this morning. A robust value for money framework is in place, and although we have made an estimate of the proceeds that we anticipate gaining from the sales during the next three years, that is not set in tablets of stone. If the value for money framework is not met, the sales will not go ahead.

The hon. Gentleman asked whether the sales were not intended just to help the Chancellor of the Exchequer meet the fiscal rules. That is certainly not the case. The proposed sales represent the continuation in principle of the policy to sell student loans that began in 1997 although, interestingly, it was undertaken using plans drawn up by the previous Administration. It is also the case that the disposal of surplus assets is a key part of the present Government’s drive to improve the efficiency of their asset base. Asset sales are certainly not a short-term measure to shore up the fiscal position; rather, they are a vital part of our wider aim to take a longer-term, more strategic approach to asset management across the board in government, as recommended by the Lyons review.

John Hayes (Conservative, South Holland and The Deepings)

I just want to be clear about the value for money framework, which the Minister says is well established and robust. What legislative shape will it take, and will it be part of the Bill? Will it be included in a supporting memorandum to the Bill or in guidance? Exactly how will it find its way into the legislative framework?

Bill Rammell (Labour, Harlow)

Again for the record—I have made this comment a number of times now—I do not believe that the framework needs to be in the Bill. I read into Hansard last week the criteria by which we will establish value for money. The Government are responsible for proceeding with the sales, but the National Audit Office has rightly said that during the first tranche of sales, it will undertake an investigation. I am confident that we will be able to stand up to that value for money assessment. There will then be a report to the Public Accounts Committee. That process will give the arrangements the rigour and robustness that Members would expect.

The hon. Member for South Holland and The Deepings made a point about the reselling of the special purpose vehicle. It is important to make it clear that based upon advice, my strong view is that the loans or the SPV are unlikely to be sold on. If we consider mortgage-style loans, for example, that has not occurred in almost 10 years with the previous sales, so there is no track record of the SPV being sold on in that way. We looked at the issue of windfall gains this morning, and I shall make the point clear, having considered the issue in further detail. The refinancing gains, which my hon. Friend the Member for Wolverhampton, South-West mentioned this morning, are not analogous to windfall gains for the purposes of allowing clawback in the event of the onward sale of student loans. The 2002 private finance initiative refinancing code allows for a 50:50 share of refinancing gains, should private sector partners, during a project, be able to refinance it on more favourable terms than was originally the case. For example, once a building is completed, the risks may be reduced and the financier can provide more favourable loans. However, the key distinction is that no transfer of assets is involved. Conversely, for the sale of student loans, we believe that we will achieve best value for money by fully transferring the controlling risks associated with the loans to the private sector, thus not retaining clawback rights over windfall gains in the event of an onward sale of the SPV, which in any case, we regard as unlikely.

The hon. Member for Brent, East asked why we did not start with a tranche of sales smaller than £6.3 billion. Again, that figure is an estimate of the proceeds that we anticipate receiving during the coming three financial years. We have broken the figure down, and in the first year, we anticipate receiving £3.4 billion. However, that income sum is not set in tablets of stone. If the market conditions are not correct and we do not believe that sufficient information is available to investors to enable us to achieve value for money, the sales will not take place.

Sarah Teather (Liberal Democrat, Brent East)

That was not quite my question. I asked why the Government wanted to do it all in one go. Why not sell a smaller amount first, and test the market to see what happens to the onward sales and whether we achieve the correct value for money? Why do it all in one chunk?

Bill Rammell (Labour, Harlow)

With respect, that is what we are doing. The student loan sum is £18.1 billion, and we do not plan to sell it all off. We are taking a prudent approach to the proceeds that we reasonably estimate we can achieve from the sale in the coming years, but the figure is not set in tablets of stone. If we do not believe we can demonstrate value for money, the sale will not go ahead.

My hon. Friend the Member for Wolverhampton, South-West asked an important question about the penalties in subsection (4)(f). They will be determined in detail in relation to each sale’s contract. For example, they might include compensation to a borrower if there is any breach in terms. This is an enabling Bill, and it is important that we retain the flexibility to deal with all eventualities.

John Hayes (Conservative, South Holland and The Deepings)

I sense that the Minister is about to reach his exciting climax, but I want to return to the cost of sale. The stand part debate, which is about fundamentals, is the best time to deal with that. This morning, I asked about the cost of the sale. I did not mean the value of the product being sold, but the cost of the process of sale. The Minister said that he would make the Committee aware of the costs that have been incurred so far, and that he would give us an estimate of the likely costs of the process. Will he bring that figure to the Committee during our consideration of the Bill or shortly thereafter, and will he place it in the Library?

Bill Rammell (Labour, Harlow)

I shall certainly do so. As I said to the hon. Gentleman last week, his definition of “exciting” is somewhat different from mine. I gave that commitment, and I hope to be able to provide the figure by the end of our proceedings today. If I cannot do so, I shall write to members of the Committee and place the figure in the Library.

Sarah Teather (Liberal Democrat, Brent East)

The Minister did not answer two of my questions. I asked only four and kept them brief, so I hope that he will answer them all. I asked him what

“warranties or indemnities or other obligations”

he envisaged making under the clause and whether he would put before the Committee an analysis of which risks he intended to keep and which he thought he would transfer.

Bill Rammell (Labour, Harlow)

I shall set out in detail the warranties and indemnities when I write to members of the Committee. As for the question of which risks we are transferring, I set out this morning the range of factors on which investors will base their judgment of risk when deciding how much money to bid for loans. That will be assessed in the value for money framework, and I am confident that we can demonstrate value for money.

Sarah Teather (Liberal Democrat, Brent East)

I cannot believe that the Minister’s Department has not analysed which risks will be transferred, because the transfer of risk is the whole premise of the Bill. If the Minister does not have the information now, perhaps he could undertake to write to us.

Bill Rammell (Labour, Harlow)

I can do so, but—I may be wrong—I think that it is fairly straightforward. If the debt is transferred from the Government to the private sector, a range of factors must be taken into account to determine how much of the money, if it remained with the public sector, would eventually come back to the Government. That is the risk that we are transferring, and I set out the risk factors this morning: the number of graduates in employment and earning more than £15,000 a year; the number who die before their debt is paid off; and the number who become permanently disabled. The purchaser of a debt will make a judgment on a range of factors before making their bid. Similarly, the Government will make a judgment, measuring a bid against the value for money framework. I believe that, in those circumstances, we will be able to demonstrate that we have achieved value for money and allow the sale to go ahead.

Sarah Teather (Liberal Democrat, Brent East)

The Minister mentioned something else this morning that I did not know—the Government will underwrite a loan if a graduate becomes permanently disabled. That is a risk that the Government will keep. I want a list of which risks the Government are keeping and which they are transferring. I am sure that that analysis has been done.

Bill Rammell (Labour, Harlow)

I think that this is a genuine misunderstanding. I shall happily put the matter on record by writing to members of the Committee, but the Government would not retain that risk; permanent disability is one risk factor that is taken into account in the sale. I shall happily write to the hon. Lady and set that out the position.

John Hayes (Conservative, South Holland and The Deepings)

I am extremely grateful to the Minister. As ever, he is being generous, and I am reluctant to drag out his peroration with a series of Wagnerian peaks and troughs. However, there are two matters that we must consider. First, to support a point made by the hon. Member for Brent, East, rights and obligations—those are the words that she used—must be sufficient to effect a transfer. To amplify her point, what are those rights and obligations? Secondly, the Minister has said that the quantification of risk involves a fairly straightforward series of actuarial calculations. If those calculations are in the public domain, can they be collated for our scrutiny? If they are not in the public domain, but will be made available to potential purchasers as he suggests, it does not seem unreasonable that we, too, should know what they are.

Bill Rammell (Labour, Harlow)

No, it is not. I thought that we debated that this morning. For the record—I am happy to follow this up in writing—assessing the value of the loan book requires a number of projections of the repayments that borrowers will make far into the future. We estimate the rate at which graduates will repay and the number of loans written off—for example, when borrowers become permanently disabled. Because such projections must be based on assumptions and estimates, a degree of risk is built in. Those risks are transferred to the private sector with sale. I hope that, with those clarifications, we can agree that the clause should stand part of the Bill.

Clause 2

John Hayes (Conservative, South Holland and The Deepings)

I hope that this debate will be rather shorter than our first one. However, it was important—I am grateful for your indulgence, Miss Begg—to deal with fundamental issues respecting the new power at the beginning of our consideration.

My question about clause 2 is straightforward. The clause will grant the Secretary of State flexibility in sales contracts that he thinks are appropriate, in addition to those specifically expressed elsewhere in the Bill. The explanatory notes to clause 2 state:

“The Government intends to require purchasers to use HMRC and the SLC as part of the sales contract.”

If that is the case, why is it not in the Bill? Why are Ministers given flexibility in that regard?

Sarah Teather (Liberal Democrat, Brent East)

I have a couple of questions about subsection (4). If the Government lowered the threshold at which loans could be paid back, the purchaser would get more money than they expected. The subsection will allow the payment of more money as compensation if purchasers get less money as a result of the threshold being raised. What will happen if a future Government do the reverse? Is reverse indemnity written in, or does it only go one way?

On subsection (6), what will happen if borrowers have a dispute? Currently, they must deal with the Student Loans Company. I get an awful lot of complaints that the SLC has failed miserably to stop taking payments after the loan has been paid off. It is quite a common piece of casework in most MPs’ offices. How will the Bill change those arrangements? Will graduates have to deal with the private sector, or will they continue to deal with the SLC? Who is the intermediary mentioned in subsection (6)?

Bill Rammell (Labour, Harlow)

In response to the hon. Gentleman’s question about the flexibility in sales contracts and the notes’ reference to HMRC and the SLC, it will be enforced through the contract, and we do not believe that it needs to be explicit in the Bill. In response to the hon. Lady’s question about the transference of risk if the repayment threshold is lowered, it could be described as a one-way process. The measure is about the transference of risk. It is fairly unlikely, whatever Government are in power—although it cannot be ruled out—that the threshold will be reduced. The process is about encouraging and asking the private sector to take on longer-term risk, and protections must be in place for that to happen.

To return to the question of why HMRC and the SLC are not included in the Bill in this regard, it is possible that student loan repayment systems might change. The legislation is enabling—it is about a longer-term programme, which is why it is important to include such measures in contracts and not in the Bill.

Sarah Teather (Liberal Democrat, Brent East)

The Minister did not answer my question about subsection (6). Whom will graduates deal with in case of a dispute? Given that disputes are quite common, the question is of concern to graduates.

Bill Rammell (Labour, Harlow)

Our intention is that graduates repaying debts to the private sector should be able to deal with the same independent assessor to whom they can refer at the moment in respect of debts to the Government.

The hon. Lady raised a point about complaints that students are overpaying at the end of their term of repayment. If one looks at the evidence, two thirds of the overpayments are of less than £400. That happens because it is difficult to predict exactly when somebody will reach the end of their loan, given the nature of the taxation system through HMRC. However, in response to Ministers, the Student Loans Company is rightly looking at how it can improve the system in the likely final year of repayments. It hopes to communicate directly with the graduate in question to put a stop to the repayments at an earlier stage, so that such overpayments do not take place. I hope that that answers the question.

Clause 3

John Hayes (Conservative, South Holland and The Deepings)

We are flying through the Bill, and I would like to slow things down a little by encouraging a thorough examination of clause 3. Clause 3 is a fundamentally important part of the Bill with regard to resale, which was mentioned this morning and this afternoon as an area of concern. I wish to draw attention to a way in which the Bill might usefully be amended, and perhaps the Government might consider it before Report or elsewhere during the Bill’s passage. This morning we focused on subsection (6) of clause 3—on onward sales—and particularly on line 16 and the phrase “Transfer arrangements may”, which is followed by a series of steps that the Secretary of State can take to limit the circumstances in which transfer might take place. I am not sure why it says “may” and not “will”. The point was dealt with earlier to some degree, but I do not feel that we have had a satisfactory answer.

I have no doubt that the Government are determined to ensure appropriate protection. However, it is unhelpful to leave doubts in the Bill about whether or not the Secretary of State will use those powers. It is useful for the powers to be stated in the legislation, but I want at least to probe why “may” has been used, rather than “will”.

Angela Watkinson (Conservative, Upminster)

The Bill provides for transfer arrangements to be made without the knowledge or consent of borrowers. That is standard practice in these matters. Does my hon. Friend feel that something should be included in the Bill that provides a duty to inform borrowers about the new company to which they are indebted? Although they deal directly with the Student Loans Company, borrowers should still have information on the company that is holding their debt if it is different from the original company.

John Hayes (Conservative, South Holland and The Deepings)

Yes, throughout this part of the Bill there is a need to strengthen the kind of reassurance that my hon. Friend draws our attention to—I suppose linguistically that that should have been “to which she draws our attention”; one does not like to end sentences with prepositions.

My point is about the intent of the Secretary of State. It is about whether we are being slightly too permissive in the way in which we address those issues of assurance, security and certainty, which are necessary if graduates are to feel that their circumstances have, as Minister assured us, remained unchanged by the transfer. Therefore, with respect to clause 3, I wonder about both my own suggestion and that of my hon. Friend.

I think that I would go further. If one looks at line 23, it might be useful for the Government to prohibit transfers to an organisation, body or individual outside the jurisdiction of the United Kingdom. The Minister will have to tell me whether that is legally possible. I have a slight worry that if we are passing into law an arrangement that gives the Secretary of State certain powers to affect ongoing sales, and if that happens to contradict the commercial reality of an ongoing sale to another country, a multinational company, or a body that is outside our jurisdiction, would that have much weight in terms of both the public interest and, more especially, the interests of graduates? I wonder whether we should be less permissive in respect of ongoing sales and whether we should say something about risk, or perhaps about a prohibition on the sale to multiple purchasers, although that is a matter for the Minister to comment on.

I take the point made by the hon. Member for Brent, East that such a move is unlikely, given the assurances that we have had. In respect of ensuring the kind of certainty and security that we all want, the worst case scenario would be for many people to purchase parts of this book all over the globe and for us to feel that we have lost control about what then happens. I guess that the Minister will assure us that that is fanciful and that every step will be taken to ensure that that does not happen. However, there is no mention of the word “prohibit” in the Bill. We have a lot of mays, expectations and hopes, and a fair amount of good will, but we do not really prevent any of those concerns in the Bill. I wonder whether we should be slightly more restrictive about how we deal with this. I raise the points for the sake of proper scrutiny and discussion, but there are legitimate fears about resale in that regard.

Clause 3 specifically gives the purchaser the right to sell the loans to another buyer after the initial sale and, subject to any limits on that right, specifies the powers of the Secretary of State in that regard. Therefore, we are accepting that the resale might take place and that we need to be cautious about that, otherwise we would not have included anything in the Bill about the Secretary of State’s capacity to intervene.

The necessary safeguards are of critical importance, given that history has taught us that loans can be repackaged and can involve a large number of different players, some of whom could be outside the jurisdiction of the Secretary of State. It is appropriate to say another word about the security of data. We do not want to dwell on the Government’s misfortunes because that would be both unkind and unheroic. It is important to point out that the greater the number of people involved in this, and the further the chain moves from its place of origin, the more those doubts will loom large. I think that the safeguards are critical. I am grateful for what the Minister has said both on Second Reading and again today, but this is critically important to clause 3.

On Second Reading, on this very subject, my hon. Friend the Member for Daventry made such a point when he described the hypothetical example of a Lithuanian bank securing a package of loans. Under the current proposals, it seems entirely possible that a foreign bank could purchase part or all of this package, and that would create all kinds of issues regarding their relationship with both the debt and their own local policy, in as much as it contradicted our approach. I have nothing against Lithuania, by the way, and I am sure that my hon. Friend the Member for Daventry has not either.

I also wonder whether we might think about the position of EU students. Again, we had some discussion about that this morning. There is a question of how this will change over time. The Minister accepts—he predicted it—that this is a growing issue. The changes to the entitlement of EU citizens are only just beginning to take effect. Indeed, they will take effect during the course of the sale of this product. Given that we might not sell the book in part or whole for some time—perhaps some years—by the time that it is sold, this will be a matter of even greater significance. We could well be dealing with a larger number of people who are not living in the United Kingdom. There are questions about both the management of this process and the collection of debt. This seems to be the aspect of the Bill on which Minister might want to reaffirm one or two points.

It is important to establish how far the Secretary of State is likely to intervene in any commercial issues associated with the sale. I am sorry to return to this, but it is relevant to the clause—I made the point on clause 1. I am still not clear whether the Secretary of State would intervene if he felt that certain commercial arrangements were not in the interests of the graduate community or the nation. Would he intervene in such circumstances? It says in the clause that he might, or may, but we are not really clear about whether he would. Quite how would he intervene, given that this sale might take place some way down the line? It might not happen in the first six months or the first year. Indeed, we might be talking about events that take place a good time after the original transaction.

I hope that with those points on the clause we have once again highlighted some of our concerns about resale and the way in which the Bill is framed in that respect. I press the Minister once again to look more closely at this to see whether these words might be strengthened so that no one can be in any doubt that the Secretary of State would have not only the power, but the duty, to intervene if the circumstances of resale were unacceptable or inappropriate.

Sarah Teather (Liberal Democrat, Brent East)

I want to pick up on the points that the hon. Gentleman has just made and also our discussion this morning. I was a bit baffled by the reply that changing “may” in subsection (6) to “shall” would completely change the way in which the sale would be recorded on the Government order books. I do not understand that, so will the Minister explain it? Using the word “may” seems to make it perfectly clear that the Government intend to use this power. I cannot see how changing the word to “shall” alters that.

A further answer that was given this morning suggested that the reason that the power was permissive was because circumstances could change and the Government may or may not wish to use that power. Surely if the power is there, it will be written clearly into the Government’s contract with whoever buys the debt. If it is not written into the contract, I cannot see how it can be changed retrospectively, if we suddenly find that circumstances have changed and the Government really want to use it. It would be helpful if the Minister could explain that.

Another question that I asked this morning that was not really answered was about what circumstances would be required for the Government to use any of these powers. I accept that the Minister might wish to use the three powers separately, but could he outline some of the likely circumstances that would trigger the use of the Secretary of State’s powers?

Rob Marris (Labour, Wolverhampton South West)

Following on from the comments of the hon. Member for Brent, East, I understood what the Minister said this morning about the use of the words “may” and “shall”, and whether or not this is on the public accounts. The situation seems strange, but that is the advice that has been given by the experts. The hon. Lady’s point was that if there was no prohibition in the original sale, could a prohibition be retrospectively inserted into the original sale document?

If there was no prohibition in the original sale, company A, having bought from the Government, can sell to company B so that it owns the loan book. Can the Secretary of State insert a prohibition for the future into the arrangements with company B, or is it the case that once the Government have decided, as they might, not to insert that prohibition in the original sale to company A, they cannot insert it later, even if the loan book is sold on down the line to various financial institutions that are perceived by the Government to be dodgier and dodgier?

Does the Secretary of State intend to insert into the transfer arrangements any prior notification clause so that company A, if it considers selling the loan book to company B, must first notify the Secretary of State to give him the opportunity to consider whether to insert a prohibition at that point? Otherwise, if no such protection is built in, company A could buy the loan book and subsequently sell it on to company B, potentially without the Government even knowing. If the Government took a different view of the suitability of company B, they would have missed the opportunity to review whether the arrangements needed to be amended.

John Hayes (Conservative, South Holland and The Deepings)

That was precisely the point that I was trying to make when I spoke, rather inelegantly, about a chain. Given that the process that the hon. Gentleman has described might take place over many months or years, it is entirely possible that the Government might be unaware. The Bill suggests that the Secretary of State may include provision to make himself automatically a party to any onward sales contracts, but, frankly, if that were to involve a multiplicity of bodies over a considerable period of time, there would be real doubts as to whether he would have that capacity, purely because he would be ignorant of the facts.

Rob Marris (Labour, Wolverhampton South West)

I agree with the hon. Gentleman. I am probing the Government on whether there would be some kind of notification clause, if I can put it like that. With the greatest respect to my hon. Friend the Minister, for whom I have the greatest regard, this is arguably a Treasury Bill, and this is probably the ninth such Committee on which I have sat. People who deal with the Treasury are seared by the experience of Mapeley—that name might mean something to my hon. Friend.

Mapeley bought Government buildings and sold back the lease. Unfortunately, the then Paymaster General was, to put it charitably, not fully informed by her officials as to the identity of Mapeley. There were two Mapeleys. One was called something like Mapeley Holdings UK Ltd and the other was called something like Mapeley Holdings, Bermuda Ltd. Hon. Members can guess which company ended up owning that estate and not paying tax in the UK, which was rather ironic given that the buildings had formerly been owned by Her Majesty’s Revenue and Customs and had been leased back to it. I wonder whether my hon. Friend the Minister can assure me that there will not be any transfer to an offshore financial company that will not be subject to tax in the United Kingdom.

Will thought be given to putting prohibitions in the sale agreement in respect of a further transfer from an onshore company, or company A in my example, to an offshore company—company B—because otherwise the Government will be losing out on tax revenues? If the loan book ended up in the hands of an offshore company—for example, “SLC (Bermuda) Holdings Ltd”—that might ex post facto affect greatly all the value for money calculations that had been made before the process was put in train. One part of the value for money calculations would be the potential corporation tax payments from the purchasing company, as a trading organisation, back to the Government. However, if that trading company, or an ultimate purchaser down the line, were not UK-registered and not paying UK tax, it would somewhat change the equation.

Bill Rammell (Labour, Harlow)

Let me set this out in as up front a way as I can. I hope that I can reassure members of the Committee. It is pertinent to ask how the Government will be sure that an ongoing sale on the part of a special purpose vehicle has taken place, despite the fact that for 10 years we have been operating a special purpose vehicle in respect of mortgage-style student loans and there has been no onward sale. There is no question of the Government being unaware because we will have used, in the initial contract, one or other of the powers under clause 3(6) to ensure legally that we are a party to the onward sales contract. We would expect a notification clause to be part of the contract, and we would ensure that there was. I hope, on that basis, that members of the Committee are reassured.

As for the question asked by the hon. Member for Brent, East, I am not sure, according to the rules of the House, whether I am allowed to acknowledge that I have debated it with my officials. I am sure that Hansard will correct me if I was not supposed to have done so. Were we to say “shall” instead of “may” in clause 3, that would be contrary to the current accounting rules in that the proceeds would not count as a sale and thus release resources to reinvest.

Sarah Teather (Liberal Democrat, Brent East)

Is the Minister willing to publish that advice to the Committee so that we can understand its basis?

Bill Rammell (Labour, Harlow)

I am more than happy to do so. The reason for the proposal, as a possible tool in our tool box, is that the rules governing the classification of Government debt change from time to time. As I said this morning, the rules are different in respect of the mortgage-style student loans, which is why the sale under discussion will be undertaken on a different basis from the basis of the original loans. I will happily write and confirm that.

As for the question asked by the hon. Member for South Holland and The Deepings, we have made matters clear. Our views will be reported in Hansard. As with any commercial sale of debt, it is not normal practice to write to the borrower in advance. However, as soon as a sale has taken place, the Student Loans Company will write to the individual graduates who are affected.

As for sales to bodies outside the United Kingdom, to which the hon. Gentleman referred, there is a track record. Thinking back to asset sales undertaken under the Conservative Government, I do not recall them saying that there ought to be prohibition on the sales of gas and water. The key protections are that borrowers should be protected, that we have sufficient mechanisms in place to give us control, and that loans remain governed by English law.

John Hayes (Conservative, South Holland and The Deepings)

There are two issues. One is the protection of those graduates involved, which is critical in respect of multiple sales and sales that take place outside UK jurisdiction. Indeed, we would not have to build so many caveats into the Bill if that was not a problem; we are giving the Secretary of State additional powers partly to ensure that very protection. The other of my concerns, the effect on the public interest in respect of offshore companies, was raised by the hon. Member for Wolverhampton, South-West. I use the term “outside UK jurisdiction” broadly, but it might include the sort of concerns that he raised. I speak not only about the protection of the graduates concerned but about the public interest. Multiple purchasers in foreign countries and a range of offshore companies—is that the future we want to see for the student loan book?

Bill Rammell (Labour, Harlow)

If we look at the track record, that is not the scenario that we are projecting. It is my understanding that through paragraphs (a), (b) and (c) to clause 3(6), which put a number of tools at our disposal, the Secretary of State will be able to make judgments about the onward sale in order to protect the graduate. That is of fundamental importance. It is clear—for the record—that we have those protections in place.

The hon. Gentleman also raised some questions about data—an issue that was the subject of some debate in Committee this morning. He argued that the greater the number of people involved, the greater the potential for risk. It is important to state, as I did this morning, that for practical purposes personal data will remain with the Student Loans Company, which will act as agents of the purchaser. The bonds will be tradeable in the market, but loans will remain with the special purpose vehicle, which is most unlikely to be sold.

The criminal penalties in respect of the untoward and illegal onward passing of data are significantly increased under the Bill, with a maximum prison sentence of two years. We have a very robust framework.

John Hayes (Conservative, South Holland and The Deepings)

There are two circumstances in which data may need to be made available. The first is in order to tempt a prospective buyer. That would not mean that the data did not need to be anonymised, but enough information would need to be made available to potential purchasers to ensure them of the character of the risk and the value of the product. The second circumstance, which was alluded to this morning, is for audit purposes. Will the Minister explain both circumstances in more detail, so that the Committee can give them full and proper consideration?

Bill Rammell (Labour, Harlow)

I am happy to try to do that. Before a sale takes place, a potential purchaser needs to understand the type of debt being purchased. For example—I think that I used these words this morning—an indication would be given of the graduate income level, age and other such factors, but it would be given on an anonymised basis so that it could not be traced back to individuals. That is an important protection. There would also be a need for information, after sale, for audit purposes. To some extent, audits are undertaken on a sample basis, so a sample of individual personal details would need to be transferred to the special purpose vehicle. However and as I said this morning, that would be undertaken in respect of the existing mortgage-style student loans. That data transfer is undertaken by a protected, encrypted channel, and that would be our intention for the income-contingent loans.

Finally, the hon. Gentleman raised points about other European Union students. I made the point this morning that European Union students have been able to access loans for fees only since 2006, so we are not yet into the repayment phase. There is EC directive 2001, which, crucially, enables us to take action in the UK courts to chase a debt that is in default, and then to have that ruling enforced within the court of the country in which that individual resides.

I believe that that will give us a robust protection over time. We want certainty that, even if a European Union student comes from a country where the cost of living and average income are less than in this country—so that they are probably unlikely to end up earning more than £15,000 a year—the banding system for thresholds will reasonably ensure that people repay, wherever they reside after graduation.

John Hayes (Conservative, South Holland and The Deepings)

This is an important issue, and the reason is that we may not be selling the loan book in the short term. We have all been clear that this may take place over many years, according to market conditions. Given the likely change in the character of the student population, and the changes that the hon. Gentleman has detailed, it would be interesting to know whether he and his Department have done any modelling on the nature of the student population, and the consequent nature of debt. He has indicated that they have, because he started to talk about the circumstances in some of the countries of the EU and their ability to repay loans. That modelling would be critically important to the sales, would it not? If I were a potential purchaser, for example in 2009 or 2010, I would want to be looking at the proportion of people who had taken these loans who live in different parts of the EU. By the way, Miss Begg, when I mention the EU, I expect a thunderclap and a streak of lightning, but we will leave that to one side. I would want to conduct that examination so that I had a reasonable chance of accurately assessing repayment profiles. Is that reasonable? Is that modelling taking place, or has it taken place? If not, should it take place?

Bill Rammell (Labour, Harlow)

The modelling on repayment track record cannot take place.

John Hayes (Conservative, South Holland and The Deepings)

Modelling can.

Bill Rammell (Labour, Harlow)

Well, modelling can, but the repayment track record is not known, because the loans for fees for European Union students started only in 2006. There is, however, a certain amount of good track record for UK citizens who live abroad or who emigrate to other countries—where such records exist and where there are robust repayment systems. With the legal processes that are now in place, which have been achieved only by co-operation with our European partners on repayment mechanisms, I am confident that we can ensure that wherever students reside their loans will be repaid.

Rob Marris (Labour, Wolverhampton South West)

I am not sure that my hon. Friend the Minister had the opportunity to answer my question on prior notification by company A of a proposed sale to company B, and I wonder whether he could deal with that. Let me mention another issue, however. I might have misunderstood what he said. My understanding is that what he said this morning about the word “shall” in clause 3(6) was slightly different from what he said this afternoon. I am in no way suggesting that he is ducking and diving, but I want to be clear.

My understanding this morning was that if the word “shall” replaced the word “may” in clause 3(6), that would mean that the loans would stay on the public account. I understood my hon. Friend as saying that, were we to leave the word “may” in the Bill, and the Secretary of State then inserted a prohibition in the sale agreement under that permissive power, the loans would not go off the public account. If we get the wording one way—“shall”—it means they will not go off the public account; on the other hand, if we leave “may” in the Bill, and the Secretary of State then inserts a prohibition, they also will not go off the public account. If it be the latter case, that would tend to militate against the Secretary of State using the permissive power to insert the prohibition. I would like some idea as to which of those two scenarios might be the case.

Bill Rammell (Labour, Harlow)

I am genuinely not trying to duck and dive. It is not my style to do so. My clear understanding is that, were we to insist upon the use of clause 3(6)(a), that would lead to a reclassification of the debt, and we would not be able to transfer the debt from the public to the private sector. However, the rules on classification may change, which is why, at this stage, we feel it prudent to keep that provision in. We would not want to have to come back and legislate were the rules to change.

Rob Marris indicated assent.

Bill Rammell (Labour, Harlow)

I can see by the nods that I am getting that I have answered my hon. Friend’s question. Even if we were not able to use that provision because the rules of classification had not changed, we have other tools at our disposal to protect the graduate’s interest.

Sarah Teather (Liberal Democrat, Brent East)

That exchange was extremely helpful, but I am still concerned about the point made by the hon. Member for Wolverhampton, South-West. It remains the case that the Government are very unlikely to use this power until such a time as their accounting rules change. That is my understanding of the exchange. Will the Minister clarify that point, and will he tell us whether he has any kind of powers that can prevent the onward sale of the SPV if the Government do not like it?

Bill Rammell (Labour, Harlow)

That is but one tool at our disposal. If we look at the others that are available, we see that we are able to—this is in clause 3(6)(b)—

“require further transfer arrangements to be effected by way of novation or other arrangements to which the Secretary of State is a party”.

I believe that gives the protection that hon. Members are looking for, and I hope that we can agree that the clause should stand part.

John Hayes (Conservative, South Holland and The Deepings)

I do not quite understand the difference, in that case, between subsection (3) and subsection (6). If the hon. Gentleman is saying in response to the point made by the hon. Member for Brent, East—perhaps he wants to revisit this; I think he said subsection 6 but he may have said subsection 3—

The rest of the debate is in Hansard.