Student Loans Agreement

Valerie Vaz Excerpts

Monday 18th July 2016 Westminster Hall

[Helen Jones (Warrington North) (Lab)]

I beg to move,

That this House has considered e-petition 131167 relating to changes to the student loans agreement.

It is a pleasure to serve under your chairmanship, Mr Pritchard, this afternoon. It may come as a surprise to some people that we are debating this issue in July 2016, as the decision was taken last autumn, but the reason is very simple: it took students some time to realise what decision the Government had made. Those of us who have been in the House for a while know that whenever the former Chancellor spoke, it was wise not just to listen to what he said, whether that was in the autumn statement or the Budget, but to look at the small print. And so it was last year: buried on page 126 of the Budget papers was the Government’s decision to freeze the repayment threshold for student loans at £21,000. Not unreasonably, it took students some time to realise what was happening. That decision was and is a real breach of faith on the Government’s part.

This is the second Parliament in succession in which students have been massively let down. Under the coalition, the Liberal Democrats promised to freeze, or in some cases abolish, tuition fees—as usual with the Liberal Democrats, it depended which part of the country people were in—and then the Government trebled them. This time, when the Government introduced the new student loans system, they promised that the threshold for making repayments would be updated from April 2017 in line with average earnings, but then they chose to freeze it until at least April 2021. The worst thing about that decision is that it is retrospective, so that students who took out a loan at the beginning of this process—let us remember that some of them were only 18 when they did so—have found the conditions of that loan changed, without any right of appeal or recourse to any other relief. People have said, quite rightly, that in a commercial organisation that would not be allowed, but it seems that the Government are not prepared to adhere to the standards that they impose on others.

Why have they done it? The late and fairly unlamented Department for Business, Innovation and Skills, which had some claim to being probably the most unskilled Department in Whitehall, said in 2015:

“We consulted on freezing the repayment threshold”.

So it did. The problem was that the responses were overwhelmingly against a freeze: 84% of respondents were against freezing the threshold and only 5% were in favour. When a Government conduct such a consultation, get a massive thumbs-down and still go ahead, we know that they are on very shaky ground, so we have to dig a little deeper to find out what was really going on. The answer is in another announcement from the Department:

“This increases the financial commitment of borrowers to repaying their loans.”

It added that it expected such a move to generate an extra

“£3.2 billion over the lifetime of the loans”.

There we have it. The Government were not getting enough money in, so they resorted to that rather underhand tactic to get more. There are two simple reasons why they are not getting enough money. First, they have failed to create enough highly skilled jobs in the economy, so many graduates are working in low-paid, low-skilled jobs, often in insecure unemployment, like many other people in the country. In fact, so committed are the Government to the notion of insecurity and low pay in employment that it was possible for them to have a candidate for the leadership of their own party, the right hon. Member for South Northamptonshire (Andrea Leadsom), who wanted to get rid of all restrictions on small firms—that was before she was given the revolver and the bottle of whisky. In 2012, she said:

“I envisage there being absolutely no regulation whatsoever—no minimum wage, no maternity or paternity rights, no unfair dismissal rights, no pension rights—for the smallest companies”.—[Official Report, 10 May 2012; Vol. 545, c. 209.]

It is not surprising that the Government have failed to create more skilled jobs. In fact, the Higher Education Statistics Agency pointed out last year that a third of graduates were working in low-skilled jobs six months after they graduated and that more than 16,700 graduates were unemployed. They worked as cleaners, office juniors and road sweepers. I am old enough to remember when graduates and students used to take those jobs in their holidays, or sometimes even in the summer after they had finished studying, while they looked for a permanent job and somewhere to live. We were told at the time that it was character-building for us, and it made us realise how lucky we were. Well, the luck has run out for many of today’s graduates. They are not doing those jobs for a few weeks; they are doing them for months, sometimes years, without reaching the level of wages that mean they can pay back their loans. No wonder the system is in chaos.

Secondly, the Government are failing to get this money in because the whole student loan system itself is in chaos. In 2013, the National Audit Office warned BIS that it was in danger of wasting hundreds of millions of pounds because it did not have enough information on the recipients of its loans. In fact, it had no employment information at all for 368,000 people, so it did not know whether they should be paying back or not. The NAO also said that

“BIS…consistently over-forecasts how much it expects to collect annually”.

Presumably, they were too frightened of the right hon. Member for Tatton (Mr Osborne) to tell him the truth.

At the time, the NAO estimated that a third of loans would not be paid back. The Library forecast a £3.2 billion shortfall, in this Parliament alone, between what the Government expected to collect and what they would actually collect. The former Business, Innovation and Skills Committee went further: in 2014, it suggested that almost half the loans would never be repaid. The Government’s own estimate was that 45% would not be repaid. That is perilously close to the 46.8% threshold at which the Government cease to get back as much as they are paying out.

What did the Government do in response? They did not think, “Well, perhaps the economic model we’re pursuing isn’t quite right.” They did not think to end the chaos in the Department. Instead, they sold off a bit of the student loan book—mostly old loans from the ’90s—and they used this back-door method of collecting more money, adding another flaw to an already flawed system.

Students are clocking up interest at such a rate that it is almost impossible for them to get a grip on what they owe. While they are university, interest is charged at the rate of the retail prices index plus 3%. One student recently posted online his statement from the Student Loans Company, which showed how much interest he was clocking up, sometimes at the rate of £180 each month. For someone earning under £21,000, interest clocks up at the rate of RPI. For someone earning more than that, it is on a sliding scale, so that when they earn £41,000 they are charged interest at the rate of RPI plus 3%.

Two things about that strike me as very interesting. First, the Government use the measure of RPI, when the rest of the time they tell us that the consumer prices index is the correct measure of inflation. They seem to hold two contradictory positions: when they are paying money out to their citizens—in the form of benefits, for example—they say that CPI is the correct measure of inflation, but when they are collecting money, they say that RPI is the correct measure. Holding two contradictory positions at the same time is what George Orwell called “doublethink”. The Government seem to believe in both.

Secondly, by freezing the earnings threshold at £21,000, the Government are ensuring not only that more people are on the wage level at which they start to pay back loans, but that they pay them back with a higher rate of interest. It is a double whammy. Such a piece of chicanery really should not be allowed to go unchallenged. It matters, because it is important that students have faith in the system. Changing that system destroys that faith, particularly among those from the poorest families or those who are the first in their family to go to university.

Let me tell the Minister what it is like to be the first person in a family to go to university—it was like this even under the old grant system. Such a person wants certainty. They calculate to the last penny what they are getting in and what they have to pay out. They want to know that when they leave university, they will get a decent job. That implied promise that if someone went to university, worked hard and got a good degree, they would get a decent job at the end, has now been abandoned.

[Valerie Vaz (Walsall South) (Lab)]

My hon. Friend is absolutely right to choose to introduce the debate on this particular petition. I hope she has more success in getting answers from the Minister than I did in my Adjournment debate on 27 June. She is making a powerful case. According to the Government’s own figures, graduates on a salary between £21,000 and £30,000 will have to pay back £6,100, whereas those on a salary of £40,000 will pay only £400 extra. Those on an even higher salary pay even less. The system disproportionately affects people who are worse off, including women and people from ethnic minorities.

[Helen Jones]

My hon. Friend is right. This system is flawed all the way through. Trying to fix it by making it more flawed is not going to work. Today’s students do not have the assurance, which we had in the past, that they will get a decent job. Many graduates are doing low-paid, low-skilled jobs that are perfectly useful but not commensurate with their qualifications. They often move from job to job, with nothing that could be described as a career. The doors of their chosen professions are frequently closed to them because they cannot afford to do the unpaid internships that are currently the way into many jobs.