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Miss Melanie Johnson: May I make it clear that we have already debated and accepted amendments Nos. 134 and 137, which remove the Secretary of State's right to be paid in priority to any preferential claims lodged in insolvency proceedings by former employees, which is what these amendments also seek to achieve?
Mr. Waterson: I am looking at the response from the hon. Lady's fellow Minister in Committee, and he seemed not to accept those amendments, and to insist that the Secretary of State should be able to step into a former employee's shoes.
Miss Johnson: Perhaps I can clarify this. Amendment No. 137 was taken on Thursday, and amendment No. 134 was in an earlier group. Both amendments have the same effect as amendments Nos. 83 and 84. We said that we would reconsider the issues, so I therefore believe that these amendments are no longer necessary.
Mr. Waterson: I am grateful to the Minister for that response. I shall immediately turn, on a sixpence, and express my pleasure and surprise in equal measure that the Government have accepted the argument. They were certainly fighting a doughty rearguard action on it in Committee, although I exempt the hon. Lady from any blame for that. It is extremely good news that, yet again, common sense has prevailed. I can only put that down to the detailed and energetic scrutiny that the official Opposition have applied to the Bill. It would, therefore, be quite churlish of me not to seek leave to withdraw the amendments—
Madam Deputy Speaker: Order. The hon. Gentleman has not formally moved the amendments, so need not formally withdraw them.
Mr. Mark Field: I wonder whether I might be able to say a few words on these amendments?
Madam Deputy Speaker: I think, from what the hon. Member for Eastbourne (Mr. Waterson) was saying, that he has not moved the amendment formally, so it would be inappropriate to make any comments.
Clause 246
Amendment made: No. 98, in page 172, leave out lines 32 to 34.—[Mr. Pearson.]
Clause 250
Mr. Waterson: I beg to move amendment No. 85, in page 174, leave out line 12 and insert—
'(a) in the case of an individual whose bankruptcy arises from the closure of a business or trade established or operated by that individual, one year beginning with the date on which the bankruptcy commences; and
(b) in cases not falling within subsection 1(a):
(i) where a certificate for the summary administration of the bankrupt's estate has been issued and is not revoked before the bankrupt's discharge, two years beginning with the date on which the bankruptcy commences; and
(ii) in any other case, three years beginning with the date on which the bankruptcy commences'.
Madam Deputy Speaker: With this it will be convenient to discuss the following: Amendment No. 86, in page 174, leave out lines 13 to 16.
Amendment No. 87, in schedule 20, page 292, line 32, after "knew", insert—
'or ought to have known'.
Amendment No. 88, in clause 252, page 175, leave out lines 18 and 19.
Amendment No. 411, in clause 253, page 175, line 38, leave out from beginning to end of line 2 on page 176 and insert—
'(6) An incomes payment order must specify the period during which it is to have effect which period may end after the discharge of the bankrupt.'.
Amendment No. 412, in clause 254, page 176, leave out lines 30 to 34 and insert—
'(5) An income payments agreement must specify the period during which it is to have effect which period may end after the discharge of the bankrupt.'.
Mr. Waterson: No doubt the Minister will intervene if any of these amendments have already been accepted by the Government, although I somehow doubt that that is the case. I shall speak mainly to amendments Nos. 85 and 86. Government Amendment No. 371 and our amendment No. 87 are basically identical, which seems to suggest another acceptance by the Government of our ideas.
Miss Melanie Johnson: In the spirit of my regularly helping the hon. Gentleman, I can confirm that that is the case.
Mr. Waterson: Splendid. Even I managed to notice that. Our amendment No. 88 basically repeats what is in amendment No. 86. I shall deal with amendments Nos. 411 and 412 later.
We touched on the distinction between business and consumer bankruptcies—a term which does not exist in the Bill—in Committee, but it is sufficiently important to
return to it on Report. In Committee, the Minister rejected our amendment seeking separate discharge periods for business and consumer bankrupts, saying that it was impossible to disentangle business and consumer debts. The experience in the USA, when the rules were changed in a similar fashion, was that there was an explosion in the number of consumer bankruptcies—people who had run up too many credit card debts, or whatever—and a slight reduction in the number of strictly corporate insolvencies. We take the view, as does the Consumer Credit Association, among others, that it would make enormous sense to try to find a way of separating out the two, so that we can test the Government's intentions.We are told that the reasoning behind the Bill is to encourage a culture of entrepreneurial activity and risk taking. The difficulty with that is that, whatever the result might be in the corporate sector, all the changes in the rules would have to apply in equal measure to personal, consumer-type bankruptcies. If, however, we could apply a longer period of time to the duration of individual bankruptcies—with all the consequences that would follow—and single out the very sector that the Government are trying to help, that is, corporate bankruptcies, presumably we should be doing everyone a service.
We are not necessarily suggesting that these amendments represent the best provisions that can be achieved. It is certainly open to the parliamentary draftsmen to come up with something better. The model that the Consumer Credit Association has put forward, which we are happy to adopt, contains proposals that
- "the debtor states, in the bankruptcy application form, if he is in business;
making a false or misleading statement would be an offence;
creditors have a right to challenge the debtor's statement. Most would be able to do so on the basis of information in their own customer databases;
if so challenged, the debtor must produce evidence that he was in business. Even those who have not kept formal accounts should be able to do so, by producing, for example, an appointment book or purchase receipts or tax return."
- "On that basis, there would be no need to disentangle individual debts. Anyone in business would benefit from the shorter discharge period, whether or not they also have consumer debts. But the credit industry would also have the important safeguard of being able to challenge those applicants whom it believes are not genuinely running a business. In this way, those looking to abuse the system . . . could be deterred."
I want to ask the Minister two or three specific questions, given that, for these purposes, we accept the Government's basic premise, which is that the aim of these far-reaching changes in insolvency law is to encourage entrepreneurs to go out, start a business and take the risk of it failing through no fault of their own.
Is the Minister prepared to accept the amendments as they stand, or to return with amendments of her own? Will she at least indicate her view on the principle? If not, will she consider returning with proposals if, as we predict, there is an explosion in the number of consumers,
rather than businesses, seeking bankruptcy? Does she accept as a matter of principle that people with only consumer debts should not be able to benefit from the short discharge period enjoyed by entrepreneurs—for the straightforward reason that the only purpose of that is to encourage entrepreneurs to take risks? If she believes that those with only consumer debts should also enjoy the shorter discharge period, what benefits does she think that will bring to the economy and, indeed, to consumers?In Committee, it was argued that there was no solid or practical way of distinguishing between business and consumer debtors. In consultation with the consumer credit industry, we have come up with what we consider to be a reasonably watertight solution, but we need to know not just the Minister's problems with the drafting of the amendment but whether she has any problem with the principle.
Amendment No. 86 also returns to an argument we had in Committee, but it too is extremely important. The aim is to ensure that the official receiver conducts a proper investigation in the case of each bankrupt. Without that there would be a real risk of, in effect, rubber-stamping of bankruptcies—first because the period involved could be much shorter even than 12 months, and secondly because we can expect an explosion in the number of cases to be considered.
According to PricewaterhouseCoopers,
- "Warnings should be heeded from America, where a more friendly attitude towards consumer debt has led to a bankruptcy rate which is about 10 times the rate in the UK in relation to population"—
I do not want to go into too much detail, but I think that the Government are still in denial over important points of principle. We raised three of them in Committee. First, should stigma be attached to personal bankruptcy? Secondly, what would the effects in the real world be? Would we end up with a rogues' charter? Thirdly, would resources be available to deal with those effects? We feel that the best way of testing what the Government are really trying to do is to offer them a straightforward, practical way of distinguishing between business and consumer debtors.
We have received representations from MBNA Europe Bank Ltd, which represents more than 13 per cent. of the UK credit card market and has more than £6 billion in outstanding loans. It is very concerned about the experience of the United States, and how it would apply here. It says
- "In the US . . . it requires on average 33 debtors who pay their debts to cover the cost of one debtor that defaults. In practice, personal insolvency costs every US household $400 per annum in higher prices for goods and services".
- "will be a minimum of an additional 15-20 per cent. increase on existing bankruptcy levels"
We heard all the arguments in Committee about the likely effect not only on the industry but on borrowers. We discussed whether it would be more difficult for people to borrow money, and whether—as happened in the United States—we would see the emergence of a predatory part of the lending industry, preying on people
who could obtain no credit anywhere else, charging high levels of interest and generally making those people's circumstances much worse in the long run.My hon. Friend the Member for Cities of London and Westminster (Mr. Field) mentioned student loans. An article in the April edition of Credit Today states:
- "Government plans to introduce commercial rate loans for better off students may be shelved because of fears the debt would be uncollectable".
- "told Credit Today: 'We will be putting plans out for consultation later in the year. We are aware that if a student is declared bankrupt they will not have to pay back their student loan and are looking at the impact this might have for student loan legislation . . .
Borrowers who entered higher education prior to 1998 will be able to escape repayments by making themselves bankrupt . . . credit manager of Cornwall County Council, which processes student loan applications, claims students will have nothing to lose by going bankrupt because few are homeowners.
'I am concerned the student loans system would become so open to abuse it becomes impossible and this would herald a return to the grant system which would be administered by us in local government,' he said."
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