§ 11.58 p.m.
§ Lord Bach
rose to move, That the draft regulations laid before the House on 17th February be approved [11th Report from the Joint Committee].
The noble Lord said: My Lords, these regulations will introduce a new system for the repayment of student loans. They will provide for the collection of repayments through the tax system. The level of repayments will be linked to levels of income.
These regulations are the first dealing with the repayment of student loans to be made under Section 22 of the Teaching and Higher Education Act 1998. They were laid before Parliament on 17th February and have been considered by the Joint Committee on 1060 Statutory Instruments. They were considered by the other place on 8th March. We apologise for the delay in bringing the regulations before the House. Our intention was to have done so towards the end of last year, but the drafting of the regulations raised a number of difficult issues.
The regulations introduce three important changes to the present system of student loan repayment. They bring in, first, a new repayment threshold of £10,000 per year; secondly, a liability to repay 9 per cent of income above that level; and, thirdly, the collection of repayments through the tax system.
Perhaps I may briefly draw the House's attention to the main aspects of the regulations. Part I includes their extension to the United Kingdom, where they confer powers on the Board of the Inland Revenue. Part II contains general provisions, including liability to repay from 6th April after a borrower has completed or left higher education; when loans will be cancelled; and when borrowers will be entitled to a refund of repayments. Part III deals with recovery through self-assessment for tax. Borrowers, who are required for tax reasons to submit a self-assessment tax return, will be liable to repay 9 per cent of total annual income over £10,000, including any taxable unearned income in excess of £2,000. Provisions in that part of the regulations describe also which sources of income will be excluded from that liability.
Part IV covers recovery by employers, which is the main part of the regulations, as most recovery of student loans will be carried out by employers. Loan repayments will be collected and accounted for by employers in the same way as for income tax and national insurance. Deductions will be based on 9 per cent of a borrower's earnings over £192 per week, or £833 per month, which is equivalent to £10,000 per year. Part V gives the Secretary of State powers to recover student loans from borrowers who are not resident in the UK for income tax purposes.
The new arrangements will in time affect large numbers of graduates and employers. We have therefore consulted extensively. An employers group helped the Inland Revenue to identify ways of keeping additional work for employers to a minimum, and with a range of technical issues. My department held a 10-week public consultation. The regulations require employers to undertake a new activity, but the additional work has been kept to a minimum and the effect on employers generally is gradual. A regulatory impact assessment, lodged in the Libraries of both Houses, sets out the impact on employers, as well as the benefits of the new scheme.
We took particular note of the points raised in relation to small businesses and have agreed, importantly, to conduct a review of the impact on small firms after the first year of the scheme. We shall consider any additional help if the impact on small businesses is found to be unduly burdensome. In planning the introduction of the new arrangements, my department and the Inland Revenue have ensured that borrowers and employers have been kept well informed.
1061 The draft regulations before the House will enable the Government to introduce a fairer and more effective system for recovering student loans. It will become an integral part of our new student support system. I beg to move.
Moved, That the draft regulations laid before the House on 17th February be approved [11th Report from the Joint Committee].—(Lord Bach.)
§ Baroness Blatch
My Lords, I thank the Chief Whip, in his absence, for his kind remarks earlier. I hope that the House will forgive me, even at this late hour, if I say that I am somewhat puzzled. First, I agreed to debate these regulations some weeks ago on a Friday. They were pulled, or withdrawn—whatever the word is—because the noble Baroness, Lady Blackstone, could not he present. She is not present this evening, so I find it extraordinary that the debate could not have been carried out on that day as arranged.
Secondly, the Minister has just said that everyone has been kept informed. I might say everyone except myself. As the Shadow Minister for Education in this House, I have not been kept informed at all. Thirdly, I find it absolutely extraordinary that we have just had a statement from the Minister without a single mention of a report which I discovered had been released only by reading about it in a newspaper this morning—the report of the Scottish Fee Support Review. It slipped out yesterday.
On a daily basis I receive missives from the Department for Education and Employment, glossy brochures—usually with a foreword from the Secretary of State—photographs, illustrative drawings and massive supporting press releases. However, interestingly the Quigley report, which we have debated many times and asked when it is likely to be published, came out without a single press release, in an absolutely plain cover, with not a photograph in sight and absolutely no notification to me as the chief Opposition spokesman on this issue.
I notice that the Liberal Democratic Benches are completely empty for such an important subject.
This matter is not only highly controversial, but has also been the subject of votes in this House. Votes have been won by this House when the matter has gone backwards and forwards between the two Houses; and yet the Government have seen fit not to give any publicity, as far as this House is concerned, in relation to this order, other than to lay it down technically yesterday.
The recommendation completely vindicates the stand that we took on the issue of the Scottish anomaly. The Government have not only lost this battle, but they have decided to concede it. When did that happen? When did the Secretary of State take that decision? They say that the Scottish Executive has also conceded the battle. When?
If this report was produced only yesterday, when did the meetings take place; who decided the outcome; and who was informed about them? I understand that the Secretary of State for Education and Employment, David Blunkett, welcomes the publication of the 1062 report that looks into the fees for students from England, Wales and Northern Ireland who, in their fourth year, study in Scotland. The Quigley report recommends that Scotland should meet the cost of exempting such students from paying tuition fees in that year. The Scottish Executive has accepted that recommendation; and Mr Blunkett welcomes the report and congratulates George Quigley and other members of the committee on their thorough examination of all the relevant issues. Although the Government accept the recommendations addressed to them in the report, there has been not a word from the Minister tonight about that.
The report has been somewhat overtaken as the anomaly has changed in that Scottish students in Scotland will not pay fees at all. They will have no obligation to pay fees up front, but when they have completed their degrees and are earning above a determined threshold, they will make a graduate contribution. So a completely different system and a completely new anomaly now exists.
It would be helpful to know exactly where the order fits into the report that has been laid, totally unannounced, before the House and the effect of the changes that have taken place in Scotland which create yet another anomaly between Scottish students and English, Welsh and Northern Ireland students. Is the concession whereby Scottish students in Scotland do not pay tuition fees, other than a graduate contribution when they have completed their degrees, enjoyed by EU students, but not by English, Welsh and Northern Ireland students, or is that concession exclusive to Scotland? If that is the case, why has it not been extended to EU students when the original concession was deemed to be a legal obligation that had to be extended to such students?
Given the short notice that I have had in regard to these orders, I find it extraordinary that the order states that it will come into force on 1st April. I am told that the DfEE was unaware of that—it had thought the date would be in the middle of April—and that it forgot to tell us until less than 48 hours ago that it had decided to go ahead with these regulations now as they come into force on Saturday.
I am sure that the noble Lord will agree that they are shatteringly complex. There are six or seven A4 pages of fairly close type just explaining the order, let alone reading the legalese of it. The Bill itself was passed in 1998. The orders were laid before Parliament in February 1999, which is more than a year ago. These matters should have been discussed weeks ago, as they were in the Commons. But, as I said, the Minister pulled out simply because the noble Baroness was unable to be here. Yet suddenly, in extremely indecent haste, we have to deal with this order past midnight on a Thursday night.
I now deal with some of the detail of the Bill. The noble Lord may not be familiar with it because he was not party to the detailed discussions on it. We still regard the threshold of £10,000 as being very low indeed. For someone with that income it represents 20 per cent which they would be ordered to repay. It 1063 would be helpful to know from the Minister what is the present average national wage and the degree to which £10,000 falls below it. My understanding is that the debt is cancelled at the age of 65 and not, as previously, as the age of 50 or after 25 years. The marginal tax rate, for example, for a person earning £15,000 a year will be considerable. It would be helpful to know in percentage terms what that would be.
The noble Lord said that there had been a great deal of consultation with employers and that the impact on them would be minimal. We have not seen joined up government in the past three years from this Government. Each department is putting burdens on the employer. Family tax credits and so many other benefit systems are for the employer to sort out and no one else. This measure is just one more burden on the employer.
It is not just a question of taking this matter in isolation and saying that it will not impact very much on employers. It would be very helpful to know what the combined burden from all the Bills passing through Parliament will mean to employers. Has there been a costing and, if so, what is it? Has there been a financial appraisal? I have not seen one. When I was asked to take these orders at short notice I asked whether I could receive all related material. I have received nothing but the orders, other than picking up the Quigley report on my own.
If employers need not know the size of an employee's loan, how will the employer know when to cease taking payments from an ex-student? It is extraordinary that an employer need not know the extent of the loan. It would be helpful to know how the employer is expected to second guess that.
When this matter was discussed in another place the honourable gentleman, Mr Wicks, referred to the Inland Revenue, which would send a notice to employers to inform them that they have an employee who has a student loan and when repayments should start. What system will be used by the Inland Revenue to know where a student is working? For example, there are addresses and names. Many students have similar names. They do not always return to the home address. Frequently, they go to another address in another part of the country. What will be the system for keeping tabs on those students when they move away? Will it be the job of the Inland Revenue, the local authority, the ex-institution or a government department? How will that work?
Out of interest, will the £10,000 threshold for repayment be uprated for inflation as time passes? It would also be helpful if the noble Lord were able to explain how the two different systems—the Scottish and the English systems—will be dealt with by the Inland Revenue. Scotland is not charging fees for its students. It is charging a graduate contribution that will be paid when the student has completed a degree. Yet in England fees will be paid on an annual basis, including for the fourth year. So those are two completely different systems and yet we have a UK-wide Inland Revenue system which will have to operate separately and differently for different 1064 students. As we know, there are Scottish students who live in England and Scottish students who live in Scotland, and they will be treated differently.
Again, the noble Lord made no reference at all to the fact that we have the Bill as it is passed as an Act; we have the Act as it will be changed by the Quigley Report, because we now know that the Scottish Executive agreed it and the Secretary of State agreed it; and we also have the changed situation as a result of the recent Scottish Parliament decision.
Postgraduate students were referred to again by Mr. Wicks. The information he gave is interesting in relation to postgraduate courses. A postgraduate teacher-trainee does not pay fees. The UK Government exempted postgraduate teacher-trainees from paying for what would be their fourth year; they do their degree in three years and for the year in which they do their PGCE they will not be paying fees at all. What does the reference mean therefore when it says that PGCE students will be exempt from fees? They are already exempt from fees.
Yet another announcement that was made this morning by the Secretary of State for Education—again to Radio 4 in the morning but not to Parliament—was that postgraduate students in their fourth year doing their teacher-training year are to be given a grant of £6,000, and an extra £4,000 if at the end of that time they become employed in a school. I will point out an anomaly which I regard as grossly unfair. In this country there are around 24,000 schools, almost 20,000 of which are primary schools. Predominantly, the teachers who teach in our primary schools do four-year Bachelor of Education courses. The postgraduate courses are mainly taken by those people who go into secondary school teaching. Is it fair that the bulk of the teachers who teach in United Kingdom schools, and certainly in English, Welsh and Northern Ireland schools, will receive no relief for their fourth year, yet their fellow teachers who teach in secondary schools and do a fourth-year PGCE will not only be exempt from paying fees, but will have a grant of £6,000 followed by another grant of £4,000 if and when they receive a teaching job? I regard that as pretty unfair and extremely anomalous for our primary school teachers.
I understand that penalties levied by the Inland Revenue will be pretty severe. Given the complexity of the system—I have never seen anything quite so complex—it is possible that there will be students who default on their repayments simply because they do not understand the system. We know that there will also be those who can pay but wilfully will not pay. It is important that some sensitivity is exercised by the Inland Revenue and local authorities when considering the degree of wilfulness in terms of defaulting on repayment. When the system is in full swing it will affect up to 1 million students, almost all employers and almost all families. It is extremely important, therefore, that that issue is addressed. The Government are talking about a slow start and a slow build-up; but each year it will grow quite quickly.
1065 The next issue relates to overseas students. Some overseas students will be UK-resident students who, at the end of their degree course, go and work abroad; there will then be the overseas students who come into our UK universities and at the end of their courses return to their country of origin. Given that only a small section in Part V of today's order mentions overseas students, it would be helpful to know the mechanism used to trace such students. At col. 7 of the Standing Committee's deliberations of 8th March, Mr. Wicks stated:To help ensure compliance, a borrower who does not supply evidence of income may be liable to repayments based on a notional income, set at twice UK national average earnings".I have already asked the Minister what are the national average earnings. It seems to me that twice that level will represent a very sizeable income to deem to be notional. It will affect many students who simply disappear from this country and go abroad. Are they to be set a notional income and will this debt pile up behind them?
I understand that practically the first task students must complete before they go abroad is to inform the Inland Revenue that they are going abroad. I do not know if any noble Lords present have had a son or daughter prepare to leave the country, but I certainly have. My son left to undertake research in Japan. I know that the last thing on his mind was to let the Inland Revenue know what he was doing. He was much more preoccupied with the practical business of moving from the UK to another country. If he had forgotten to inform the Inland Revenue, what would be the penalty?
How will the payments be managed? How will they be enforced if these people simply disappear into the ether in other countries? What about European Union students? Although they reside in more neighbourly countries, how will they be traced?
A number of questions were asked of the Minister in another place, but they were not answered for lack of time. I shall ask them now because the Government have had a long time to think about the matter and I have no doubt that they have all the answers. If a student works in a foreign regime that is subject to a double taxation agreement, would the deduction of a loan repayment be regarded as a payment and reduce his net income?
Perhaps I may also refer to part-time and seasonal earnings. A student's income could fall below the £10,000 threshold in the course of a year. In that case, if he could produce a self-assessment form, could he reclaim some of the loan repayments he had already made? If not, his income might be reduced to an unacceptably low level. How will the repayments of self-employed students be calculated? Furthermore, how will they be phased? Their income may fall under Schedule B, which is taxed in the current year, or under Schedule E, which covers income from a trade and is taxed in the preceding year. Which will be used to calculate the deduction? Can the Minister confirm whether the £10,000 income will be upgraded each year in respect of average earnings?
1066 Will the cut-off point for freedom from debt at pensionable age be set at 60 for women and 65 for men, or is it to be set at 65 for both? In paragraph 15(6) relating to capital receipts, will the unearned income under £2,000 that is to be disallowed include capital receipts? Paragraph 36 of the order covering deduction for employers makes it clear that an attachment of earnings order for income tax is a priority, but what will happen if an attachment of earnings order for income tax is already in place as well as one for another purpose? I am thinking of payments to the Child Support Agency, for example. What priority will be given to the loan? Whatever happened to phase 3 of the plans to sell the student loans portfolio? What are the most up-to-date drop-out rates from our universities?
The noble Lord will by now have guessed that not only am I pretty dissatisfied at having to respond to these orders at such late notice—given the reason that the noble Baroness could not be present on a previous occasion—but I am also extremely angry that we have had to undertake our own detective work to sort out Quigley and understand what it says. We have had to discover the information the Secretary of State had already decided not to give out in a press release, when almost anything that happens at the DfEE is released to the press. I have to say that if the department has good news to tell, one gets it quickly. However, if it is bad news it is hidden under a stone.
§ Lord Glentoran
My Lords, I want to wear my Northern Ireland hat. I attended the debate about the fees. None of the Unionist Peers is able to be present. I am sure that they knew nothing about the Quigley report and probably knew little about the measure that we are discussing.
The Quigley report was published on 29th March, some 24 hours ago. Perhaps I should declare an interest in as much as Sir George Quigley is a personal friend of mine. The Quigley report contains a number of recommendations. Recommendation 3 concerns Northern Ireland. It recommends,that Northern Ireland should consider how best to ensure that its students are not disadvantaged by the deficiency of higher education places in the province".It clearly makes the point that Northern Ireland students will be disadvantaged in this respect. As I understand the position, the Secretary of State has accepted that recommendation, has done a U-turn, and is now agreeing to some fee concessions. I want to be told whether Recommendation 3 in the Quigley report still applies or whether it has been covered in the announcement of the Secretary of State earlier today, or, rather, yesterday, as we are now into Friday.
I believe that the Secretary of State said that the fee concessions for fourth year students will apply for those starting in 2001. That makes no sense whatever. It is quite ridiculous. I believe that the position in Scotland has changed anyway and there are now to be no fees in Scottish universities. What will the fee structure for Northern Ireland students comprise for the first three years? I can see absolutely no conceivable reason whatsoever why this concession should not apply to those who joined Scottish 1067 universities in 1998, 1999 or 2000. Why should they be disadvantaged? This is total and utter government rubbish! I see no reason why students in Northern Ireland and elsewhere who are subject to the ridiculous law that was passed—on which a U-turn is now being done—should suffer.
I want absolute clarification of the position for students in Northern Ireland. What fees will they pay for the first three years? What will be the concessions? Why should students who joined Scottish universities in 1998, 1999 and 2000 be disadvantaged in this way?
§ Lord Bach
My Lords, I am grateful to other noble Lords who have spoken in this debate. I remind noble Lords that today we are discussing student loan repayments; we are not discussing tuition fees. Although it is, of course, legitimate to broaden the debate, I am sure the House will forgive me if I concentrate on—
§ Lord Bach
My Lords, perhaps I may just finish my first point before I am interrupted. I hope that the House will forgive me if at this hour of the night I concentrate on what we are supposed to be discussing; namely, student loan repayment regulations. But before I do so, I remind the noble Baroness, Lady Blatch, that when she criticises by implication the Minister for not being present when she was available two weeks ago, the Minister was in Lisbon on government business. I was not on government business but I was not available. That must have been the reason that this measure was not discussed on that day.
Having said that, I echo the words of my noble friend the Chief Whip in thanking the Opposition and particularly the noble Baroness for her courtesy in agreeing to discuss these measures tonight. I apologise to her for the lateness of the hour at which they are being debated. However, I hope that she will consider that any criticism she made of my noble friend the Minister was misplaced in this context. I see that she wishes to interrupt.
§ Baroness Blatch
My Lords, I wish to raise two issues on both of those points. First of all, the noble Lord reminds us that we are talking about repayments and therefore chides us slightly for talking about fees. It is some of the fees that are being repaid. It is what students borrow—that is, fees and maintenance grants—that they have to repay. One cannot talk about repayments unless one talks about the source of the borrowing.
Secondly, I did not schedule the Friday we are discussing. The Government Whips Office did so on the basis of the Minister being present. That was not my fault. The matter was then withdrawn because the Minister was not there. It clearly stated on the face of the order that the matter should be dealt with by 1st 1068 April, in which case it should have been rescheduled fairly quickly after the cancellation of the business that day.
§ Lord Bach
My Lords, I am grateful to the noble Baroness. We do not want to go any further over spilt milk. However, I insist that what we are talking about are loans which students have taken out for maintenance. The issue that has been raised at considerable length concerns tuition fees—and I cannot see the relevance of tuition fees to this particular order.
Let me try to answer briefly some of the questions that have been raised. I am astonished by the noble Baroness's attack so far as concerns the Quigley report. As I understand it, there was a Written Answer yesterday in the Hansards of both this House and the other place which dealt with the Quigley report. I hasten to say—I am sure the noble Baroness will agree—that it is an excellent report, which we welcome. Sir George and his committee have done a thorough job. No doubt the next time that the noble Lord, Lord Glentoran, sees Sir George he also will congratulate him on a job well done in looking at the issue of whether students from England, Wales and Northern Ireland studying in Scotland should continue to make a contribution to their tuition fees in their fourth year.
The Government accept the recommendations addressed to the issue. As the noble Baroness reminded us, the Scottish Executive has also accepted the recommendation that it should meet the net costs of the tuition fees of students from England, Wales and Northern Ireland in their fourth year in Scottish universities. The Scottish Executive has accepted the recommendation because, as the committee pointed out, it is the Scottish universities which receive the benefit of those fees and which would suffer if those students were deterred from studying by the extra year's fees. The committee was clear that this was not a matter for the Secretary of State.
I shall move on now to try to answer some of the questions raised by the noble Baroness. The current average national wage is some £21,000 per annum. However, I should point out that the new system we are setting in place by this order is income-based. It is contingent and sensitive. If someone does not obtain or receive £10,000 a year, he or she will not be repaying any loan that they owe. If they fall below £10,000 in the course of a year, they will not have to repay any loan while they remain earning less than £10,000 a year.
Under the old scheme, repayments were over a fixed period and were not income contingent; the amount of the repayments was determined by the size of the loan, not the level of income. That was the previous position. We believe that the advantages of the new scheme are shown by the fact that if the same fixed-term repayments were kept for new loans, a borrower with a loan of £10,000, for example, and an annual income of £20,000 would be repaying £2,000 a year. Under these arrangements that person would be 1069 repaying £900 a year. A liability to repay £2,000 would be reached under our scheme only when earnings exceeded £32,000.
The noble Baroness asked a number of questions arising out of the order being discussed in another place. I suspect that she has not yet seen—there is no reason why she should have—a letter sent to her honourable friend Tim Boswell, MP, from my honourable friend Malcolm Wicks. It deals with a number of the points she raised and I shall make sure that she is sent a copy of the letter forthwith.
Let me deal briefly with the question of students who go abroad. Borrowers outside the UK tax system who fail to give the Student Loans Company the information for which it asks or who do not make repayments may incur penalties. For example, failure to provide information may mean that the company will increase the amount of interest. Noble Lords will know that the amount of interest charged in the normal way is inflation linked. The rate of interest charged on repayments not paid can increase to three times the normal rate of interest. Continuing failure to make repayments may mean that the debt is accelerated, which means that the Student Loans Company can seek a court order for the full repayment of the loan in a single payment. Any problems that we have under this new system will not be new to the Student Loans Company because there have been problems under the old system as well.
I was asked how employers will know when to stop collecting the money. The Inland Revenue will tell them when to stop. I was asked how the Inland Revenue will know when students move. It will use the national insurance card number that former students have. The Inland Revenue and the Student Loans Company monitor that. Of course there will be some minor costs for employers in operating the scheme. But even for the smallest employer we do not believe that the amount will be very great in the scheme of things. We are determined to look again in a year's time to see whether it has been a real burden on business and on employers. If it has, no doubt we will consult and consider what to do about that.
Finally, the current drop-out rate for students is about 18 per cent. That figure has remained fairly consistent for some time.
§ Baroness Blatch
My Lords, before the noble Lord sits down, I asked a great many more questions. I am assuming that I will receive answers in writing to any questions that were not answered by the noble Lord in his response. Do I take it now that in order to receive information I have to look up Hansard each day to see whether something has been produced from the DfEE? That is not consistent with the way in which I have been receiving information from the DfEE. As for the letter—if there is a letter in existence—as I was dealing at such short notice with the regulations, I was told by the Whips' Office that officials would provide me with all relevant information and papers. Those were not forthcoming. I am interested to know that people who are earning £10,000 are to be hounded in this way and that if they default on payments inflation is to be 1070 added at three times the level. I find that a rather severe way to deal with people on such low incomes. But if that is the Government's way with students, so be it.
My noble friend Lord Glentoran has not had an answer to his question about students who started in 1998, 1999 and 2000.
§ Baroness Blatch
No, my Lords. I am saying that the threshold for paying back under our system was 75 per cent of the national average wage, which is a great deal more than £10,000.
§ Lord Glentoran
My Lords, I have not had answers to the questions I asked. I want to know why students from Northern Ireland who started in 1998, 1999 and 2000 should be penalised. Why does this fee exemption start for those who join in 2001?