Sale of Student Loans: Regulation

Philip Hollobone Excerpts

Tuesday 7th March 2017 Westminster Hall

[Mr Philip Hollobone (in the Chair)]

Would those not staying for the half-hour debate on the regulation of the sale of student loans please be kind enough to leave quickly and quietly? This debate can last until 5.3 pm.

[Mr Jim Cunningham (Coventry South) (Lab)]

I beg to move,

That this House has considered regulation of the sale of student loans.

It is a pleasure to serve under your chairmanship, Mr Hollobone. I think this is the first time I have been involved in a debate when you have been in the Chair. On your past record, I know that you will be fair and lenient.

I have two universities in my constituency, Coventry University and the University of Warwick. I have come across Members who have attended the University of Warwick, and some who have attended Coventry University. Many students at those universities have expressed concern to me regarding the sale of student loans. It is possible that to a certain extent, the Government are heaping more debt on students that they can ill afford, against a background of further education budgets receiving a 27% cut. The education allowance and the bursaries for midwifery have been abolished. Those things raise questions about the Government’s real intentions regarding skills, whether in the national health service or manufacturing.

On 6 February, the Government announced plans to sell off student loans taken out between 2002 and 2006. Conservative Governments have previously tried to introduce that policy, but they have never been successful. Indeed, the former Business Secretary, Vince Cable, scrapped the move in 2014, saying that it would not help the aim of reducing Government debt. Why are the present Government continuing to pursue the policy? With the sale of Royal Mail, we have seen how difficult it can be to achieve value for taxpayers. It could be argued that the taxpayer lost out in past privatisations. It can be controversial if the price paid seems too low, with short-term profit put ahead of the public interest. If the student loans are expected to be profitable, why are the Government not keeping them and helping the taxpayer?

The market has little experience of buying such debt, and it will be priced conservatively. It is therefore questionable whether value for money can be achieved. It has been widely acknowledged that the Government will make a loss on the sale. The price the loans are sold for is expected to be lower than the face value. It has been described by the Financial Times economic correspondent, Martin Wolf, as “economic illiteracy”. As I said, I have two universities in my constituency, so I am very concerned about the proposal, as are the students.

--- Later in debate ---

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

rose—

[Mr Philip Hollobone (in the Chair)]

Order. Mr Bailey, are you wishing to speak? Do you have the permission of the Minister and the proposer of the motion to do so?

[Mr Bailey]

I do, Mr Hollobone. I apologise—I was under the impression that you knew.

[Mr Philip Hollobone (in the Chair)]

There has been some confusion. I am delighted that you are able to speak, Mr Bailey. We must allow the Minister at least 15 minutes to reply, so if you could, temper your remarks accordingly.

[Mr Bailey]

Thank you, Mr Hollobone. It is a pleasure to serve under your chairmanship. I congratulate my hon. Friend the Member for Coventry South (Mr Cunningham) on securing the debate, and I thank him and the Minister for allowing me to make a short contribution.

I wanted to contribute because I was Chair of the Select Committee on Business, Innovation and Skills in 2014 when it examined the Government’s proposals on this issue, which were mooted by the then Business Secretary. The Committee’s report posed a number of questions and made a number of assertions, which are as relevant now as then. Arising at least in part from the Select Committee’s contribution to the debate, the sale was subsequently withdrawn as the then Minister said he did not consider it to be value for money. The basis on which he made that observation is probably as relevant to this sale as it was to that previous attempt.

I would like to pose a number of questions to the Minister about the sale. I understand that the structure of the sale will be different from the previous one—it is not a whole loan sale going to a single investor, but is to be packaged up in the form of bonds. That is what I read in the Financial Times of 7 February. It seems to me that that process will redistribute the risk involved in the sale from a particular company to the bondholders. In view of that, I wonder whether the discount that the Government will give will have to be even greater to attract would-be bondholders to buy.

The arguments about discounts and the potential revenue to the Government were highlighted by a number of academics, and Rothschild, prior to the previous sale. The basic problem is that the dividend stream—the revenue stream—is now determined as 0.25% plus 1%, and of course the retail prices index is running at 3% and is projected to be between 3% and 3.2% in the next three years. It will be difficult to persuade any investors to invest when the return will be less than the rate of inflation.

Rothschild said that the Government would have to give some sort of “synthetic hedge” in order to attract purchasers of the debt. The crucial underlying paradox that comes with marketing the debt underlines the value for money principles that we should be looking for in such a sale. Rothschild estimated that it would realise only £2 billion of the £12 billion that the Government projected—ironically, I see that they are projecting £12 billion on this occasion. If the calculations were done, I suspect that that may well be scaled down to the sort of figure that Rothschild projected before.

Is the Minister prepared to guarantee that the current loan terms will not be changed as a result of the loans being privatised? What are the estimates of future income that the Government would have if this loan book were not sold? What sort of discount would be offered, and what would the total revenue be if they were sold under the processes that appear to be outlined at the moment? Finally, given that Government projections can be wrong—heaven forbid—what processes will be put in place to evaluate the Government’s approach and ensure that there is value for money for the taxpayer?