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9.59 am
Mr. David Gauke (South-West Hertfordshire) (Con): It is a pleasure to speak on Second Reading of the Bill. I add my words to those of the hon. Member for Hazel Grove (Andrew Stunell) in wishing the hon. Member for Denton and Reddish (Andrew Gwynne) well, and I congratulate the hon. Member for Northampton, North (Ms Keeble) on her long-standing interest in the matter and on presenting the Bill so effectively this morning. She is absolutely right that there is a cross-party consensus and real concern about debt. We believe that the Bill is extremely well intended and addresses an important issue, and we are grateful for the opportunity to examine it closely to see what we can do about the problem. In our view it should have an opportunity to go to Committee, and we hope that it will have a fair wind, to use the words of the hon. Member for Hazel Grove.
I should explain the Conservative party's long-standing interest in debt relief. I know that there is consensus on the matter, but it is worth pointing out that our interest has long existed. In 1988, the Conservative Government negotiated the Toronto agreement to reduce debt payments by a third, and in 1990 they negotiated the Trinidad terms to reduce them by two thirds. In 1996, my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), as Chancellor of the Exchequer, was much involved in the heavily indebted countries initiative to write down debts by 80 per cent. In the course of those initiatives, the Conservative Government unilaterally wrote off virtually all Britain's aid loans- £1.2 billion-worth, which was the single biggest contribution to easing the debt crisis. I pay tribute to the current Government, too, for their work in building on that, and there is consensus on supporting debt relief.
It is perhaps worth my saying a word or two about why we believe that debt relief is so important. I make a comparison with what happens in market economies, in which individuals and companies can write off bad debts and start again. Countries cannot do that in the same way. Their debts cannot be written off automatically through bankruptcy or a voluntary liquidation regime, so they remain. They are incurred by impoverished countries, usually as a consequence of corrupt and incompetent rulers, but repaid by the population, who are both blameless and impoverished.
It would be interesting if the Economic Secretary could say something about the Government's position on sovereign debt work-out mechanisms. I know that they were raised at the Doha financing for development conference in November and December 2008, at which there was an attempt to find a fair mechanism for developing countries that could not repay their debts. I would be interested to know what the Secretary of State for International Development has done to pursue that matter.
Individuals and companies in this country have a mechanism by which, subject to preferential treatment for particular entities, the pain can be shared among all their creditors, who each get a proportion of the debt repaid to them. Developing countries do not have that mechanism. Some creditors may voluntarily waive their rights, as certain countries have done. As the hon. Member for Northampton, North pointed out, a substantial number of commercial lenders have also done so. However, others continue to claim repayment of debt that cannot be afforded, and as I have said, there is no liquidation or administration procedure available. In many respects, one could describe the Bill as attempting to find such a mechanism, to prevent creditors that refuse to participate from benefiting from a free ride. I say that because countries could not repay any of their outstanding creditors without the steps taken by some of them to waive a substantial proportion of the debt. We need fairness for creditors, whether Governments or commercial lenders, who have taken a view that they will not pursue the full amount, which makes available funds that the more ruthless creditors can pursue.
A central point is the effect that the Bill would have on developing countries. The hon. Lady mentioned Liberia, which is topical given the judgment at the end of last year and given that it featured heavily in the "Newsnight" report on the matter last night. It is clearly grossly unfair on the people of such a country, who are deeply impoverished, to find a substantial part of their Government's budget taken up in repaying aid over which they had no control and no say. That is at the heart of the Bill, and we share the concerns that drive it. We will support its Second Reading today.
Although there is cross-party consensus, that should not prevent the House from examining various points in the Bill closely. The responses to the Treasury's consultation document raise a number of important points that we should consider with due care and attention. That is why it is proper that we have Committee stage, and I hope that the Government will be able to find time to ensure that that happens.
There are essentially two big issues to consider, and although the Bill is not contentious, it raises fundamental questions. The fact that there is a consensus is all the more reason to scrutinise it properly. I turn first, because it is perhaps the simplest and quickest argument to summarise, to the fact that the Bill clearly affects contractual rights-that is the intention behind it. By and large, we in this country take a view that contractual rights should be respected. Contracts provide certainty, are part of our tradition and are one of the reasons why English law is a favoured choice of system throughout the world. It has clearly been to the advantage of the UK that we have a system that provides such certainty. Alongside the tradition of respecting the sanctity of contracts, we have the terms of the European convention
on human rights, which of course are now protected by the Human Rights Act 1998. They include the protection of the right to property under article 1 of protocol 1 to the convention.
The Government argue in their response to the consultation document that there are compelling policy reasons why contractual rights should be overridden, and to a large extent I have made the same argument in my remarks, as have other hon. Members. However, we should go into this matter with our eyes open. We should be aware that the Bill would disturb contractual rights, which has certain consequences. The Government say that the ECHR arguments can be overcome because there are compelling policy reasons. I do not dispute that, but it is right that we have an opportunity to debate such reasons in detail.
Andrew Stunell: I am sure the whole House would agree with the hon. Gentleman on the importance of maintaining our historical commitment to the enforcement of honest and fair contracts. However, the honesty and fairness of the contracts is in question-the point put to the House is that the contracts are unfair and lopsided, because one party to them has no power whatever to mediate the process. In that situation, human rights legislation kicks in to protect the powerless.
Mr. Gauke: My point is that the Bill would disturb contractual rights, but the argument is that there are compelling reasons why it is right to do so. The hon. Gentleman articulately sets out that case. I am not disagreeing with him in any way, but merely stating that it is right that we examine the argument closely. I will come back to the essence of what he is saying in a moment, but he has led me to my second point, which Members on both sides of the House and the Government, in their role of developing the legislation, are keen to address.
The central question is whether the measure will benefit developing countries. I am not arguing that it will not, but the argument that there would be certain spillover costs was put by a number of respondents to the Treasury consultation, and it is right to examine it. Essentially, the argument is that the Bill could create uncertainty. There may be a perception that further legislation will restrict creditors' ability to reclaim their debts from heavily indebted poor countries and other developing countries more generally. That would have the consequence either of reducing the number of creditors that are prepared to lend to developing countries, or at the very least of making borrowing more expensive. The Treasury is very conscious of that argument and acknowledges throughout the documents it has produced-the response to the consultation and so on-that debt relief measures could increase risk premiums and make it harder for developing countries to borrow responsibly.
The counter-argument is that the Bill is carefully targeted and calibrated to prevent that in two ways. First, it focuses on historical debt, meaning debt contracted before commencement. No future debt will be affected, so when developing countries attempt to borrow in future, contracts will be unaffected, so there will be no risk premium. Secondly, the Bill is targeted at the public debts of the regimes of HIPCs, not those of all developing countries.
We first need to debate the question whether those qualifications are the right ones. One could approach that in two ways. First, one could argue that the measure is unduly restrictive. Why apply it only to HIPCs?
Ms Keeble: I will come back to that question later, but is there any evidence that the existing cancellation of commercial debt-the £4.5 billion to which I referred-has had any impact on risk premiums for developing countries?
Mr. Gauke: I am not aware that there is. I stress that that argument was not mine, but that of a number of respondents to the consultation. It is not for me to speak for them, but I suspect they would say that there is a difference between a voluntary waiving of rights, and a compulsory waiving of rights brought about by legislation that means essentially that certain debts are unenforceable. There is a distinction, but the hon. Lady might be right to say that debt relief measures so far-she was right to acknowledge the considerable steps taken by commercial lenders in addition to those taken by Governments and international organisations-have substantially reduced the burden on impoverished countries. The Bill might well not affect premiums, but it is right that we explore the matter.
I was saying that the Bill could be criticised for being too prescriptive. Why is it targeted only at the public debts of HIPCs and not those of developing countries more widely? The alternative argument is that the Bill will not do the job because it will create uncertainty for creditors of developing countries, whether HIPCs or otherwise. To be fair, in paragraph 2.30 of its response to the consultation, the Treasury states:
"Predicting the scale of any negative spillovers from legislation is very difficult in advance of legislation."
I am not claiming to know the answer, but given that the Treasury acknowledges uncertainty, we need to examine the arguments closely.
Mr. Christopher Chope (Christchurch) (Con): My hon. Friend will obviously have seen the evidence given to the Government consultation by the Alternative Investment Management Association. Does he accept that that association represents practitioners rather than theoreticians, and that we should take seriously its concerns about the provisions?
Mr. Gauke:
It is true that practitioners' responses-across the board-to the Treasury consultation raise concerns, and it is right that the House hears and explores those arguments and takes a view on them. I am also conscious that some respondents-I am not saying that they are right-were of the view that they had not been properly engaged in the process and that there was insufficient consultation at an earlier stage. I would be grateful if the Minister responded to that argument. To what extent did the Treasury engage emerging markets creditors to assess spillover costs? I note that the impact assessment produced by the Treasury does not put a monetised cost on that. The essential argument why it does not make such an assessment, which is set out in paragraph 2.30, is that all arguments put forward for spillover costs are based on markets assuming-or at least contemplating the possibility of-a significantly increased risk that the Government will in future enact legislation different
from that being introduced. It is worth acknowledging, as the hon. Member for Northampton, North rightly said, that this Bill will not cause an increased risk premium, but it could cause concern that a precedent has been set and further measures will be taken.
Andrew Stunell: None of us would dissent from the idea that the legislation should be properly and thoroughly scrutinised in Committee, but can the hon. Gentleman tell us whether his party would support the enactment of legislation broadly along these lines to deal with this particular problem? That is something that the House needs to know, bearing in mind the very short time frame that we have to deal with matters in this Parliament.
Mr. Gauke: We will support the Bill's making progress to Committee today. It is for the Government to provide time for the Committee stage, but we hope that they will provide adequate time for scrutiny. We do not believe that it is right to circumvent the normal parliamentary process when dealing with these important matters because if we get this wrong, it will be the developing countries who suffer. It is not our fault that we are doing this only a few weeks before the end of this Parliament, and if we do not have time to give the Bill proper scrutiny, it is regrettable. However, it is important to do it properly.
Andrew Stunell: I hope that the hon. Gentleman does not mind my pressing him a little. I accept the point that he makes, but he has expressed a wish to be sitting on the other side of the House in three or four months' time, so it would be helpful to know whether, in that case, he would support a Bill in similar terms-subject to discussions in Committee on this Bill-to put it on the statute book without further delay.
Mr. Gauke: We support measures to address this matter, for the reasons that I have been outlining. Questions still need to be answered to ensure that this Bill is the right approach, and I hope that we will be able to resolve those issues in Committee in the next few weeks.
The concern is that the Bill will set a precedent for future legislation, although the Government are clear that that is not the intention. As the hon. Member for Hazel Grove pointed out, we want to be on the other side of the House in a few months' time, and we would want to ensure that any measures that we took were very carefully targeted.
We all have a responsibility to be careful about the language that we use in this debate. Most of us instinctively feel that it is wrong for rich western financial institutions to seek to enforce debts against poor African countries. But I would also make the tough-minded but pragmatic and realistic point that this Bill is rightly carefully targeted and the Government-we support them in this-do not believe that there is a broad principle that rich western financial institutions should never be able to enforce debts against poor African countries.
I hope that that position is supported across the House, because if we ever expressed our views in that way, it could easily be interpreted as suggesting that the Bill could be extended in future. We have to make the realistic point that if we were to accept that broad
principle, financial institutions would not lend to developing countries, and that would be a huge disadvantage and place enormous restrictions on the potential for growth of developing countries. In some quarters, that point may be controversial, but it is right to express it explicitly to provide some reassurance that the Bill is carefully targeted and very restrictive in some respects, and should not undermine confidence in future. It is helpful to the success of the Bill to make that point explicitly and I hope that all parties will agree. I make that point partly in reference to an earlier intervention by the hon. Gentleman.
We recognise that this measure needs to be calibrated correctly, and that raises various questions. I have highlighted the two principal restrictions-it only applies to HIPC countries and to debts that have already been entered into, and it is entirely retrospective in that sense-but I have some other questions that I would like the Minister to address if he has an opportunity. The group that attracts most ire-as the hon. Gentleman and the hon. Member for Northampton, North said-is the vulture funds. They are the institutions that have bought up the debt in secondary markets at a low price and then sought to enforce it. This issue was covered on "Newsnight" last night, and I expect that many hon. Members will have seen that. It is worth noting that, according to the impact assessment published by the Treasury, of the £145 million that is identified as being of benefit to the HIPCs that will be affected by this legislation, some £78 million relates to original creditors, not the vulture funds. Assuming that every creditor that is not an original creditor is a vulture fund, that means that £67 million of debt has been bought on the secondary market.
Those who responded to the Treasury consultation unanimously believed that no distinction should be made between original creditors and those who bought the debt on the secondary market, but this issue is worth exploring given that public concern is focused on vulture funds. One can see, morally and ethically, why that is the case, but perhaps the Minister could explain why the Bill does not focus specifically on vulture funds.
The Treasury methodology used to produce the £145 million figure has been criticised. A previous consultation paper produced by the Treasury stated that the amount that the HIPC countries would benefit by was £254 million. There were arguments that that methodology was wrong, out of date and failed to address several points, and the Treasury acknowledges, in the response to the consultation paper, that it
"remains true that any estimate of the effect of this legislation attempts to quantify an intrinsically uncertain process."
That flags up a degree of uncertainty, and I hope that we have an opportunity to explore that point.
I would also like to touch on a question that other hon. Members have mentioned: will other countries follow suit? Our principal concern is the impact on developing countries, but there could be a commercial knock-on effect for the UK, were contracts simply to use a different form of law-for example, New York law. Whether that happens partly depends on what happens in other jurisdictions, so can the Minister shed some light on progress in other countries? We have heard about what is happening in the US, but it would be interesting to know whether the Government can
provide more detail on the likelihood of this legislation coming into effect in the US. That would help the House.
It is important that we get the Bill right. It is an attempt to address an important issue, and everybody wants to reduce the debt that these impoverished countries face. Equally, however, I am sure that nobody here wants to make it harder, or more expensive, for developing countries to raise funds. The legislation is designed to help. We want to ensure that it does, and we wish it well.
10.31 pm
The Economic Secretary to the Treasury (Ian Pearson): I would like to start by putting it on the record that the Government fully support the Debt Relief (Developing Countries) Bill, introduced by my hon. Friend the Member for Denton and Reddish (Andrew Gwynne). He has decided to introduce a serious and worthwhile measure, and I would like to join other hon. Members in expressing my sadness that he could not move the Second Reading in person. I wish him a speedy recovery. I am also grateful to my hon. Friend the Member for Northampton, North (Ms Keeble) for so ably opening the debate in his place. We are fortunate that someone with her expertise and commitment to this issue could do so, and I would like to pay tribute to her work over a considerable period on the issue of debt relief. I also pay tribute to the commitment of my hon. Friend the Member for Denton and Reddish.
Several private Members' Bills this Session have been substantial and constructive pieces of legislation, but I am confident in saying that few, if any, have given the House the opportunity to progress a Bill as beneficial as this one. It was not a hard decision to support a Bill that will protect the debt relief that is vital to the development of the world's poorest countries by preventing it from being exploited and diverted. It will do so efficiently and fairly, respecting legitimate commercial rights, and will ensure that the aid and debt relief funded by UK taxpayers will be used effectively to tackle global poverty. I also welcome the support for the Second Reading from both the Conservative and Liberal Democrat Front-Bench Members. Importantly, the provisions in the Bill are carefully targeted, and I think that both sides of the House recognise that.
I shall explain in more detail our reasons for supporting the Bill. As the House will be aware, several factors led many of the world's poorest countries to build up debts that they had no realistic prospect of fully repaying, and by the 1990s this burden of debt was clearly a barrier to renewed development for those countries. Partial and piecemeal refinancing of their debts had proved insufficient, which is why, in 1996, the heavily indebted poor countries initiative for debt relief was established. HIPC provides a comprehensive framework for the debt relief that all creditors need to provide to reduce eligible countries' debts to sustainable levels. Forty countries with a total population of more than 600 million, but an average income per person of just $530, qualify for the initiative, due to their high level of poverty and unsustainable debts.
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