Student Loan Books

Lord Forsyth of Drumlean Excerpts

Thursday 11th October 2018 Lords Chamber

[Viscount Younger of Leckie]

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

[Lord Forsyth of Drumlean (Con)]

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

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

[Viscount Younger of Leckie]

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

[Viscount Younger of Leckie]

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

[Lord Forsyth of Drumlean]

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

[Viscount Younger of Leckie]

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