Mr. Harry Barnes (North-East Derbyshire): The Bill still contains elements of universal stigma and does not attempt to make distinctions. If we ever reach clauses 254 and 255 on disqualification of people entering the House or becoming councillors, we will see that a generalised stigma still operates.
Mr. Field: The hon. Gentleman is obviously not one of the perennial optimists referred to by my hon. Friend the Member for Eastbourne. I hope that we will reach those clauses at some point today.
Stigma remains and should remain an important part of going bankrupt, although individuals should not be prevented from setting up businesses again. Several hon. Members have made the distinction between entrepreneurs—by their nature, such people are risk takers, if sensible risk takers, one hopes—who find that their business goes under, and individuals who might try to use bankruptcy to get out of debts and difficulties. After bankruptcy, we disbar people from becoming Members of Parliament and local councillors, directing a business or acquiring fresh start-up capital. Equally, when there is full disclosure, such individuals should be able to clear the slate at some point.
One has to consider which entrepreneurs think about failure when they set up. I know from my experience that there is a lot of hope and excitement when one sets a business up. I accept that a small minority of serial bankrupts probably set up deliberately to rip the public off, but the great majority set up with genuine optimism and excitement about the first mailshot, the move into new premises and coming up with ideas. However, anyone who has set up a business knows that they have a two or three-page business plan with lots of figures, but that the figures cascade within a couple of months. Almost inevitably, the facts disprove what is put in place initially.
Mr. Purchase: The hon. Gentleman's reference to cascading figures is such an important point. In deciding on bad luck, does he agree that the honest, straightforward and competent business person would know that when insufficient money was generated by a business to meet its existing creditors—when debts exceeded assets—action should be taken immediately? If that action cannot resolve the situation, the honourable and proper position is to go into liquidation at that point. To lose one's own money is fair enough, but to lose someone else's money by taking credit when one has no hope of paying it back has nothing to do with bad luck; it is incompetence and a lack of care for those with whom one is dealing.
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Mr. Field: To a large extent, I accept what the hon. Gentleman has said. However, people who are, perhaps, in their first business venture are less aware of the ebbs and flows of the business cycle and of the importance of maintaining cash flow. I have found as a Member of Parliament—I am sure that others have done so—that a large number of relatively young and inexperienced people set up businesses. Although I take on board the hon. Gentleman's points, my experience is that business plans show cascading figures that become meaningless within three to six months, even for relatively successful businesses. Some areas of business do much better than expected and others do not move forward; we are considering shades of grey. I would worry if we were to point the finger at optimistic, young businesses that go under quickly and to categorise them as ''good'' or ''bad''.
Mr. Waterson: Does my hon. Friend accept that the young entrepreneurs of whom he speaks—many of whom have been so good for our economy—are the sort of people I mentioned who rely on guarantees, or even loans, from their immediate family and friends, who then become the main losers when they go into bankruptcy?
Mr. Field: Again, my hon. Friend makes a valid point. Many such businesses will be small businesses and might go under with relatively small debts—tens of thousands of pounds, perhaps—most of which will be covered by personal guarantees, many of them from friends and parents. They will come, largely, outside the confines of provisions such as these. However, I am concerned that the Government's thinking is leading to the concept of personal responsibility being undermined.
My hon. Friend the Member for Eastbourne went into some detail in relation to credit and I should like to touch upon that in a moment. I accept that we are talking at the margins. The proposals do not represent an enormously radical change; it would be wrong to overstate that. Nevertheless, the Government's mindset will, to a large extent, undermine personal responsibility. Some of the representations that we have heard from consumer bodies make me fear that debtors will be allowed to walk into bankruptcy as an escape from their debts rather than appreciating that they have a responsibility. I should be most concerned if there were a view that, somehow, the provisions of the Bill allowed people to be rewarded for evading their debts.
The measure will affect the real world, albeit probably at the margins. For example, the credit industry is understandably concerned that it is too relaxed. We could speak at length about property. My fear is not that the housing market will necessarily collapse rapidly—it might not—but that many who have come to it in recent years think that the inflation rate push of the past will continue into the future. If we are to have a sustainable, low-inflation economy, such as the one that we have had for the past decade, it could be that what are now significant loans will remain significant in the long term. Formerly, people took out 25-year mortgages for, perhaps, £30,000—which was a large sum at the time but is now insignificant by comparison with the value of their
Column Number: 650property. Now, fundamental changes in the structure of the property market might lead to substantial problems in the medium term.
I am worried that our approach to credit is too relaxed and that the Bill and economic changes may lead to the pendulum swinging quite sharply, producing a tighter squeeze at the other end; that is not desirable. Tied businesses such as banking and leasing are concerned that the measure will be symptomatic of a change in mentality; banks and lending organisations may be to blame for some of the increased and loose credit at present, but they will be under great pressure if smaller concerns can walk away from their debts with minimum difficulty. In the long term, therefore, credit may be tightened, a by-product of which, unfortunately, is that a proportion of people will be almost beyond the pale in respect of lending. The risk is that those who will benefit most from these provisions will be loan sharks, who will be delighted that our fears will be realised.
Our arguments and discussions are largely at the margins, but we are worried that the pendulum is swinging too much in the wrong direction and it will be a little too easy for individuals to escape from their financial responsibilities.
Mr. Charles Hendry (Wealden): I put on record my interests as shown in the Members' Register.
The Under-Secretary referred to the proposal as if there were a distinction between those who are rogues and those who are not. As my hon. Friend the Member for Cities of London and Westminster said, that is not what we are talking about. We are considering the issue at the margin; we are not looking at people who are crooked but at the extent to which people will be able to resist the temptation to go bankrupt if it is seen as a relatively attractive option.
The hon. Member for Wolverhampton, North-East was right to say that a definition of what is reckless is at the heart of the debate. We need to understand at what point people step over the boundary between what is acceptable behaviour, which has unfortunately resulted in their bankruptcy, and unacceptable behaviour, which has had the same result.
The Under-Secretary is more aware than any of us of the work done by the social exclusion unit in looking at people's access to financial services because she considered it in the Treasury. She will know of the valuable role played by the consumer credit sector. There is anxiety about the level of interest charged by loan sharks, but in some of the poorest parts of society, people borrow money for a holiday, a fridge and so on, which they would not have been able to get from anywhere else. The money is repaid in weekly instalments, usually to a female collector who lives on the same estate. People know exactly how much they will have to pay back; they know that if they are ill, or lose their job, they will still have to pay back the same amount of money, but the time frame will be adjusted to recognise their needs. Such arrangements have an important role in allowing certain groups in our society access to financial services.
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However, my concern is that if the proposal is agreed to, some people will simply decide that it is more convenient to go bankrupt than to pay back their loans. The people who suffer most will not be the companies that make money out of the loans, but their neighbours on the estate who will have to pay a higher rate of interest on their borrowing; thus we enter a vicious cycle. Either more people go bankrupt because they cannot afford the higher rates of interest or, as my hon. Friend the Member for Cities of London and Westminster said, they are driven to the loan sharks, with awful consequences.
My concern is that the proposal will make things easier for people who did not start out thinking, ''I want to go bankrupt,'' but who have mounting debts from credit card and other companies. If the issue is how they juggle their debts, in the end they will come to the conclusion that it would be easier to go bankrupt because it is only for a year or perhaps even less. The people who really suffer will be their neighbours, who will be pushed closer to bankruptcy by having to pay higher interest on their loans.
My hon. Friend the Member for Eastbourne spoke about the problems of student debt. A recent study showed that the average indebtedness of people leaving university is £1,000 higher this year than a year ago. Every time that the amount increases by £1,000, more people, exactly as he said, will feel that it is easier to go bankrupt, so that they can start again with a clean sheet and do not have to repay their debts when they go out into the world.
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