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7.15 pm
Those are just some examples of what we think might result from the proposed changes, across the board. There are a number of possible ways of dealing with them. We have suggested amendments involving a minimum bankruptcy period of a year, for example. There would, of course, be a full investigation in each case. One solution, however, would be a separation between business and consumer debtors.
Amendments Nos. 411 and 412, concerning income payments orders, are strongly supported by the CBI—which, indeed, proposed them in the first place—and are supported particularly by CBI members in the consumer finance industry. They specify a maximum of three years for the duration of an income payments order or income payments agreement. There is no clear or sensible objective reason for the limitation, says the CBI, which thinks that the duration is best left to the court's discretion. Why should an extraneous limit be placed on the period? The CBI says that the amendments are driven by the simple rule that when a debtor can pay, he should pay.
The Minister has talked a great deal about striking a balance, but I think we are in danger of shifting the balance dramatically between debtor and creditor. As I have said, we should not think just about the consumer credit industry, although naturally there will be consequences: if the number of bankruptcies and uncollected debts rises, banks and other lending institutions wil have to make adjustments accordingly, and it will become more difficult for the very people who find it hardest to raise money to obtain credit. As I have said, however, we should always remember the creditors who are not lending institutions—friends and family, for instance, who would suffer far more proportionally than such institutions if someone were unable or unwilling to pay debts.
I make no apology for raising again issues that were raised in Committee. We do not think that the Government have taken them seriously enough.
Dr. Pugh: The debate has been dogged by the tendency of many people to regard bankrupts as a homogeneous group. The thrust of the Bill is that they are not. Some people lose money through no fault of their own—for instance, the thousands of victims of the Wall street crash. Not all of them were foolish; many were just downright unfortunate. It has been said that we should distinguish between the reckless, the foolish, the careless and the negligent, but of course there are many shades of grey.
If we look at the whole picture, we see that there is a simple view throughout the House—that, from the moral point of view, not everyone merits the same treatment. What has dogged both sides today, however, is the question whether it is possible to distinguish between the categories. The hon. Member for Eastbourne (Mr. Waterson), indeed, asked whether we should differentiate. Was it worth while? I should have thought that the Tory answer would be no—that there should be no distinction between those who are bankrupt through no fault of their own and those who have lost their money, and other people's money, through negligence of one kind or another. It has been argued that there would be practical difficulties and dangerous consequences and that it would not be worth the candle—that the benefits of better enterprise and greater social justice that the Act was meant to ensure would not outweigh the snags.
The argument of the hon. Member for Eastbourne was reasonably consistent with that, in that he seemed to suggest that differentiation was not possible, but now he is arguing that it is possible to differentiate the consumer bankrupt and the business bankrupt. That differentiation is apparently practical, worth while, in line with the overall objectives of the legislation and not dangerous. He has effectively reversed his arguments.
A consistent view, which the Minister may be tempted to take, is that it is certainly possible to distinguish between bankrupts. If we can differentiate those who have been reckless and those who have been unfortunate in pursuing a business enterprise, it is surely not beyond the wit of man to differentiate those whose bankruptcy is largely the effect of bad consumer spending patterns and those who have suffered from unfortunate business dealing. It would certainly be legitimate for the Minister to consider whether the amendment is worth pursuing.
Miss Melanie Johnson: We tabled Government amendment No. 371 in response to points made by the hon. Member for Cities of London and Westminster (Mr. Field) in Committee. It extends slightly the grounds for courts to consider hearing a bankruptcy restriction order application. It takes on board the point about ensuring that the BRO regime has similar grounds to those for wrongful trading for limited companies in section 214 of the Insolvency Act 1986. I hope that the House will support it.
Amendments Nos. 411 and 412 are designed to ensure that an income payments order or agreement can run for any period, potentially until all the bankrupt's liabilities are discharged. I said in Committee—I have heard nothing
today to change this view—that it is right for bankrupts who are able to make contributions from their income to be required to do so, but setting a three-year limit to the agreement recognises that there must be a balance between the benefits brought to the creditors and the rehabilitation of the individual bankrupt. Currently, IPOs tend to run until discharge—about three years—and it would hardly be fair or consistent with the Government's aim of helping bankrupts to make a fresh start if we imposed a far more stringent regime, as could be the case under the amendments.The provisions in the Bill make it clear that the Government support the principle of "can pay, should pay" for bankrupts. The amendments could result in IPOs and IPAs lasting longer than is reasonable. If the intention is to ensure that bankrupts with a high potential future income—for example, those in the professions—make payments to the estate, the amendments are misguided, because they could make all bankrupts entering into IPOs or IPAs subject to the longer time scale. If a debtor wants to make payments for a period beyond the three years provided for in clauses 253 and 254, it would be more appropriate to use the individual voluntary arrangement regime, which would allow flexibility in setting out a programme of payments that is acceptable to the creditors.
Amendment No. 85 was debated at length in Committee, and again today. I remain unconvinced of the case for drawing a distinction between business and consumer bankruptcies for the purposes of discharge. It has been suggested that without such a distinction there is likely to be an increase in bankruptcies brought about by a headlong rush of consumers seeking to take advantage of some perceived easy ride. There is no reason to believe that consumers would act in that way. Bankruptcy is not an easy option, and in some respects the new regime makes it more rather than less severe.
As my hon. Friend the Member for Hemel Hempstead (Mr. McWalter) said, there is a difference here. In particular, the proposals contain no changes to the assets that will be included in the estate on the making of a bankruptcy order and they do not shorten the period over which the bankrupt is liable to make payments out of income. The proposals make it easier for the trustee to ensure that the bankrupt makes payments out of future income by introducing income payments agreements. Consumers who behave recklessly or dishonestly run the risk of being subject to a bankruptcy restriction order for a longer period than the current discharge period and may damage their credit rating. I do not think that the majority of consumers are as short-sighted as some Opposition Members would have us believe.
The hon. Member for Eastbourne briefly regaled us with the position in the United States, but the comparison with the US is not a valid one. There are many differences between our proposals and the US regime. In the US, there is no real concept of a discharge period and individuals can opt either for an asset-based regime under chapter 7 or for an income-based regime under chapter 13, depending on their circumstances and what would be better for them. There is no investigation to speak of in the US. Our proposals do not allow debtors to choose the option that suits them best. If they can pay, they should pay. We also provide for proper investigation into misconduct and for effective sanctions where necessary. For those reasons, we do not think that bankruptcies here will reach levels equivalent to those in the US. There are significant differences.
We believe that the aim of reducing bankruptcy should apply to the majority of bankrupts, regardless of whether they are in business, where no misconduct or criminal behaviour has been identified. People can have bad luck in their personal lives—the unexpected loss of a job or the breakdown of a personal relationship can often lead to financial problems. The advice agencies all say that those are major reasons why people find themselves in that position. Such people are as entitled to a fresh start as a business person would be under parallel circumstances. It would not be fair or equitable to stigmatise them through a tougher regime.
Dr. Pugh: Although we may not want to distinguish in moral terms, surely the object of the Bill is to make business bankruptcy less of a problem, rather than to deal with consumer bankruptcy. There is a distinction. When the Bill was conceived, there was no thought of making it easier for people to overspend.
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