Student Loans Company

Lord Stevenson of Balmacara Excerpts

Wednesday 1st May 2019 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, this is a very quick-fire debate. It covers a lot of ground, but I am afraid we are all coming from roughly the same position, so I will try not to elaborate too much on points already made. There is, however, a real need for the Minister to give serious answers to some of the questions raised.

There seem to be three main issues in play here. The question of whether an injustice has been done to the former chief executive of the SLC is part of a wider package of concerns about the overall function and performance of this body. As my noble friend Lord Mendelsohn says, it is sadly not an uncommon story in bodies spun out from previously internally organised functions: when they become independent and have to negotiate their own commercial and policy paths, tensions that were perhaps hidden in the department or under a departmental heading become more exposed. There will be issues that are very familiar to this House from our various discussions about the performance of bodies established to deliver services over that period.

However, as the noble Baroness, Lady Garden, just said, the catalogue of activity and problems in the SLC that she read out would be hard to imagine, let alone recognise as a reality. The constant year-on-year mistakes, errors and judgments that have proved not to be correct and financially impact on individual students might not be large in number, but it would be devastating if every single one hit them. When they did not receive the funding they were promised, or were overcharged in their repayments, they felt betrayed by the system they had put their trust into. They, their parents and others involved in the process of the decision to go to university, very often for the first time in a family, get squashed in the incompetency perpetrated on them through the system. It does not seem right.

I hope the answer to the question the noble Baroness asked about the announced review into the SLC, which seems to have disappeared, can be revealed. When it was announced, my colleague in another place, Gordon Marsden, said that the dismal track record and the problems ventilated about the individual staff do not seem to limit the possible scope of the review to just the SLC. It also needs to have some concern for ministerial oversight and internal governance. Can the Minister confirm that that will be included in the discussion?

The overall list of errors and misjudgments relating to the SLC, which, as I said, affect individuals, also have a cost in terms of the taxpayer’s potential returns. Will he also confirm that some effort will be given to providing information about the totality of the costs involved in that arrangement and the evidence behind it? Will he also confirm that the Commons Public Accounts Committee, which has fiercely criticised the Government for selling off part of the loan book—a point I shall come back to—will also receive a full response so that it can continue to monitor the work that has been going on?

The second point is about the current system of student loans: what is it? What is actually happening on the ground here? The two elements about that both concern the ridiculously small amount of money raised by the previous sale. The Government raised about £1.7 billion, according to the NAO, in a sale of the student loans of more than 400,000 borrowers that became eligible for repayment between 2002 and 2006, but the outstanding face value is £3.5 billion. This was picked up by both previous speakers and is the subject of a separate report.

The points that have not been raised and which need to be added to the list of matters that I hope the noble Viscount will respond to are those raised by the NAO later in its findings. They are not specifically about the amounts but about the impact. The Government have, in essence, been selling,

“an uncertain stream of future repayments”,

in return for “a lump sum”. That is not an uncommon commercial activity, but the NAO continues:

“If government chooses to change repayment terms in future or makes specific mistakes in administering the loans it will need to compensate investors”.


There is a hidden additional cost. Will the Minister confirm that? If so, will he give some indication of what the provisional amount of money set aside to cover it is?

The second point, which is more of a policy issue than a practical one, is that that sale is about reducing a headline figure of the amount of public debt. We understand the motivation behind that. Generating £1.7 billion is, of course, not an inconsiderable amount of money and I am not trying to argue against it, but simply reducing headline debt as a measure of public sector net debt does not take into account, the NAO says,

“the loss of future receipts from student loan repayments”,

which could in fact go up, because, as the noble Baroness said, this is based on a figure related to RPI—very unfairly, because RPI is a measure no longer used in any other part of government that I am aware of. It should be more directly related to CPI. It is a rather high rate of return. If the judgment is made only on the cash taken, are the Government not also in danger of losing out on future receipts from increases that they might have had from 3% plus RPI? Again, can the Minister confirm that and give us an estimate of what the provisional figure of loss is in that scenario?

Moving on to the broader questions raised by both previous speakers on what the scheme is actually doing, the Minister is well aware of my long-held view that this is the wrong system for financing. I would not go as far as the Liberal Democrats by having free provision—although that is an attractive prospect in terms of the savings and the organisational structures, which are rarely costed in. The Labour Party’s previous policy was for a co-payment system. We accept that this is probably the right solution, but the balance is completely wrong. The idea that in some senses it continues to be a market economy in which the student is able to pick and mix between the various options available from the courses and the various institutions is simply a fiction.

We hope that the Augar review, when looking at this, takes into account the broader question of what the system is best able to do. It seems to have been delayed yet again, but when it does report, I very much hope it takes into account the idea that there should be a mixed economy operating in higher education, and that there should be some payment from the benefits that will come directly to the individual undertaking the course, which must be proportionate to the overall cost to the system.

Secondly, and most importantly, unless the Government have some control over the system, through grants and aid to institutions, there is a real danger that the Secretary of State will not have the political power to manage and organise the structure in the most efficient way, which must be against the public good. In that situation, one hopes very much that the figures which have been bouncing around—reducing the maximum fee from £9,000 to nearer £6,000—have some merit. Presumably they would not have leaked if there was not some serious work being done on that. What is needed—I hope the Minister will take this away and think about it—is a much broader and deeper understanding of what the system should be, to maximise the benefit not just to individual students but to the economy as a whole. By holding control through payment, the present structure is too focused on regulation and not focused enough on growth and support of the sector. We need to think of how best to allow the higher education system to realise the good ambitions of the industrial strategy, and the need it poses for high-quality graduates and postgraduates to come out of a system that has some alignment to the broad economic goals of the UK. Without that, I do not see how the system can operate.

Thirdly, we have seen the Government preside over a situation in which part-time higher education has collapsed and is no longer a viable and important part of our higher education system. This is a tragedy. The noble Baroness made all the points that I would have made on this. The figures are absolutely astonishing. A 54% reduction in part-time students from a peak of almost 590,000 in 2008-09 is disastrous. There have to be multiple routes for individuals who wish to pursue higher education that fit their circumstances and the way they plan their lives. For years, almost for decades, this country has been at the forefront in providing that sort of mixed economy: those who want to go straight from school to university can do so; those who wish to take time out and earn a little or do something else and then go to university can do so; those who want to learn while they earn can do so. However, that is no longer the case. Major institutions such as the Open University are facing bankruptcy simply because of a perverse, market-orientated philosophy that requires students wanting to better themselves to take out additional grants at the most inappropriate time in their lives—when they are trying to save for a mortgage or educate and support their children. It is just bonkers. I hope very much that, within the overall scheme of policy-making, my points can be taken on board, but the most important is this one—about part-time students.

[Viscount Younger of Leckie (Con)]

My Lords, I am very pleased to respond to this Question for Short Debate. Very short it certainly has been, but with three weighty speeches—so far. I thank the noble Lord, Lord Mendelsohn, for raising this important issue.

This is a good opportunity to reiterate the raison d’être of the Student Loans Company and to look at its challenges, but also to touch on those aspects that we feel are going well. However, let me be clear that the SLC and the Government recognise that it will need to continue to change and improve, not least in the area of digital interaction with its customers, so that it is prepared not just for the next academic year but, looking ahead, for five or 10 years. In a way, this may turn out to be a rather lordly SWOT analysis of the SLC.

Let me take a step back and remind the House of the background of the SLC. To some extent the noble Lord, Lord Mendelsohn, has stolen some of my speech. There have been huge changes in the scale of the operations of the SLC since it was set up in 1989. In its first full year of operation in 1990-91, the SLC had 82 staff. Today, it has more than 3,000 staff, based across three sites in Glasgow, Darlington and Llandudno Junction. In 1990-91, it had only one product: a UK-wide mortgage-style maintenance loan, with an average loan-per-student value of just £390. Today, it offers its customers a range of 25 student finance products, customised to their needs. In 1990-91, it paid out loans to 180,000 customers. By 2017-18, that had increased tenfold as it paid loans and grants to 1,800,000 customers. The cumulative effect of these changes means that the SLC is now the equivalent size and complexity of a medium-sized retail bank, as the noble Lord, Lord Mendelsohn, said. It receives more than 6 million telephone calls every year.

The SLC is continually evolving and improving, as indeed it should, and continues to deliver good and valued service to its more than 8 million customers, 96% of whom are based in the UK. Since the 2011-12 financial year, the SLC has seen its customer base increase by 62% and the value of its loan book increase by 158%. The SLC has also continued to deliver new student finance products for its shareholders; by its shareholders I mean taxpayers, administered by the Governments of England, Scotland and Wales and of course the Administration, pro tem, of Northern Ireland.

These new products have, for example, allowed students to access funding for postgraduate study. They have allowed part-time students to access maintenance loans, reflecting the importance the Government place on part-time study. We are reminded once again of the 50th anniversary of the Open University this year. From this year, students will also be able to apply to access funding for new, two-year accelerated degree courses. This goes a little way to help with our promotion of lifelong learning, which was quite rightly raised by the noble Baroness, Lady Garden. The SLC has played a part in allowing young people from disadvantaged backgrounds to access funding to allow them to fulfil their potential. By 2018, 18 year-olds from disadvantaged backgrounds were, proportionally, 52% more likely to enter full-time higher education than in 2009. This must be a good thing.

We believe that the SLC continues to make good progress in delivering its core functions. For example, in 2017-18, it assessed 95.6% of the applications it received for full-time undergraduate study within 20 working days and 99% of them within 30 working days. This was up from 85.6% and 94% respectively in 2011-12. In 2017-18, customer satisfaction for those applying to the SLC was 84.1%, which was up from 70.5% in 2010-11. That is a much improved rate but we and the SLC believe that there is still room for improvement.

Let me now delve into the detail of the governance and operation of the SLC. Importantly, this is at a time when a number of reforms are under way in our higher and further education sectors. Notably, there is a review of post-18 education and funding, which your Lordships have heard me reference on numerous occasions over the past year, and which the Government intend to conclude later this year. This was raised by not only the noble Lord, Lord Stevenson, but the noble Baroness, Lady Garden, and I listened with some interest and care as it allowed them to expound their own policies. That will of course be on the record in Hansard.

The Office for National Statistics review of the classification of the student loan book, with which my noble friend Lord Forsyth and the Economic Affairs Committee that he so ably chairs are most familiar, will alter the way in which student loans are recorded in the national accounts. The noble Baroness, Lady Garden, and the noble Lord, Lord Stevenson, raised the question of RPI and its use. We will consider the interest rates and appropriate use of RPI as part of the Augar review. However, I can assure the House, as I have done previously, that this important change will not affect students and that the SLC stands ready to communicate that message to its customers.

The Government and the devolved Administrations are responsible for the governance and operation of the SLC, which is ultimately accountable to Parliament. The noble Lord, Lord Mendelsohn, talked about the profound operational issues identified by McKinsey five years ago. He also asked for an update on the transformation programme. It is an important point. The Government seriously and thoroughly considered McKinsey’s report, which was made to the then Department for Business, Innovation and Skills. The SLC and the DfE have actively learned the lessons from that report and continue to strengthen and improve the SLC’s governance and performance. I shall give your Lordships an update on the ongoing transformation later on.

The Department for Education is working closely with the SLC to ensure that its governance is robust to deal with the challenges it faces. That is in three specific ways. First, as I announced to the House by way of a Written Statement on 21 November 2018, the Department for Education is currently undertaking an in-depth tailored review of the SLC. The noble Baroness, Lady Garden, and the noble Lord, Lord Stevenson, asked about that. It is a wide-ranging review that the Cabinet Office requires departments to undertake of all their public bodies at least once in the lifetime of a Parliament, and is assessing the governance and control arrangements in place at the SLC to ensure that they are compliant with the recognised principles of good corporate governance and delivering best value for money. The structure, efficiency and effectiveness of the SLC will also be considered.

The noble Lord, Lord Mendelsohn, and the noble Baroness, Lady Garden, spoke about the departure of Steve Lamey. I do not want to say too much about that—that probably echoes the views of the noble Lord—but the NAO undertook a thorough investigation of the DfE’s oversight of the SLC shortly after Steve Lamey was dismissed by it, which goes back to November 2017—some time ago now. That report sets out clearly that Steve Lamey was dismissed by the SLC and that due process was followed by the SLC and the DfE. We are clear that we expect the highest standards of management and leadership consistent with those required for individuals in public life, as set out by the Nolan principles.

[Lord Stevenson of Balmacara]

Tailored reviews are routine, regular and periodic, as the Minister said, and are required by the Cabinet Office for all bodies in scope. Is he implying that this is just an ordinary review, or does it have the hallmarks of the points made by my noble friend Lord Mendelsohn and the noble Baroness, Lady Garden, about the need to pick up the particular train of events that led to the concerns being raised?

I had in my notes to say at the beginning, but I may not have said it—so I am repeating it in case that is so—that I have a son who is in receipt of a loan from the SLC and is currently repaying it.

[Viscount Younger of Leckie]

I think that I can answer the noble Lord’s first point by saying that it is a regular review, but I have no doubt that it will take account of the issues that have cropped up in recent years—I would be very surprised if that was not the case. If it is not the case, I shall certainly write to the noble Lord and clarify that.

The noble Lord, Lord Mendelsohn, spoke about governance shortfalls. As he will know, the SLC is a wholly government-owned company overseen by a board which currently consists of a non-executive chair, five non-executive directors, the chief executive, the deputy chief executive, the CFO and the company secretary. The board ensures that effective corporate governance arrangements are in place and provides assurance on risk management and internal control. There is a little more that I could say but, due to lack of time, I just want to make it clear that these structural arrangements are in place.

However, there is more to it than that, because the Government are confident that the SLC now has a leadership team in place that is equipped for the challenges ahead, under the able leadership of Paula Sussex, whom the noble Lord mentioned. Paula and her team, in conjunction with the DfE, have now begun to implement a wide-ranging, multi-year, multi-million-pound transformation programme. This will transform the way the SLC interacts with its customers, digitising processes and ensuring that the SLC communicates with its users in a way that is familiar to them—online, real-time and available 24/7.