Education Bill

My Lords, Clause 72 amends the powers given to the Secretary of State in the Teaching and Higher Education Act 1998 to make regulations setting interest rates for student loans. As the legislation currently stands, Section 22 of the 1998 Act effectively provides that the interest rates set must be no higher than the rate required to maintain the value of the loan in real terms. If no repayments are made, the size of the loan increases in cash terms but remains fixed in value terms. Clause 72 gives the Secretary of State wide and substantial powers to set interest rates, but its intention is to move the policy of the Government away from where it currently is, and from where its independent adviser, the noble Lord, Lord Browne of Madingley, recommended it should stay. It will move us from the position of a zero rate of real interest to one in which the real interest rate would be 3 per cent above RPI. We had a bit of a stushie in Committee about who said what and when about how many graduates are not expected to repay their loans in the future, which is an important issue as it has consequences for the taxpayer. According to the letter I received subsequently from the Minister, I did not misquote senior members of the Government on this issue. However, she went on to explain that the department, "““currently estimate that around 40% of full-time students could have some of their debt written off””." She goes on, however, that this, "““remains an uncertain estimate and if OBR projections of inflation and earnings growth change this autumn, then the figure could change again. In December last year the IFS””—" a widely respected think tank— "““estimated that the proportion could be around 50 per cent and we accept that the true figure could range from 40 per cent to 50 per cent””." So there we have it. Whether it is 40 per cent or 50 per cent or somewhere in between—my fear is that it will be on the higher side—it is a very large sum of money indeed to carry within the national accounts. There are still issues on which we have not had an answer. The Browne report recommended that the interest rate should be set at the rate that the Government themselves can borrow money. What therefore is the justification for the figure of 3 per cent? Why RPI was selected, not CPI? Is the 3 per cent above the RPI rate of interest Sharia compliant? What assessment has the department made of the 10 per cent drop in student applications for 2012, and does it think that the drop is linked in any way to the high fees being charged? I have discussed this issue with the Minister since my original amendment was discussed in Committee, and I am grateful to her for giving me time to go over my concerns. However, I feel very strongly that using RPI instead of CPI is wrong, and taking powers to impose rates of up to 3 percentage points above the RPI is penalising our young people and their families. It will exacerbate social divisions, and it may deter young Muslim applicants. It will generate a high level of individual debt, which will have to be repaid over a period of, say, 25 or 30 years, and is set in the form of a contingent tax liability. A positive real rate of interest will impact in particular on mature students. It is likely to have an adverse impact on female graduates and on men in the bottom decile of earnings. It is setting students off on a lifelong debt habit, and approximately half the loans are going to be written off. I still do not really understand how a policy can be supported when it is basically a tontine of very crude proportions: half those affected by it get their loan commuted to a grant, which then becomes a deadweight charge on the PSBR, simply because they earn too little to trigger any repayments and because they happen to live longer than 30 years after the due repayment date. However, I recognise the pressures on the system and the need to recoup some of the costs. So I offer a late Halloween deal to the Minister: why not have one rate of interest for the period when young people are studying and a different one when they are earning enough to begin repaying what they have borrowed? The change in rate from constant value to a real rate of interest could be tied to the point at which they begin repaying. This is what is set out in my amendment. I hope this version of trick or treat is an attractive proposal for the Government, and I would be grateful if, in the event they cannot accept it tonight, they take it seriously and agree to have further discussions with me about it before Third Reading. I beg to move.