Draft Charging Orders (Orders For Sale: Financial Thresholds) Regulations 2012
The Committee consisted of the following Members:
† Alexander, Heidi (Lewisham East) (Lab)
† Burns, Conor (Bournemouth West) (Con)
† Colvile, Oliver (Plymouth, Sutton and Devonport) (Con)
† Dowd, Jim (Lewisham West and Penge) (Lab)
† Duddridge, James (Rochford and Southend East) (Con)
† Evennett, Mr David (Lord Commissioner of Her Majesty's Treasury)
† Grant, Mrs Helen (Parliamentary Under-Secretary of State for Justice)
† Hemming, John (Birmingham, Yardley) (LD)
† Hillier, Meg (Hackney South and Shoreditch) (Lab/Co-op)
† Leslie, Charlotte (Bristol North West) (Con)
Love, Mr Andrew (Edmonton) (Lab/Co-op)
† McFadden, Mr Pat (Wolverhampton South East) (Lab)
† Moon, Mrs Madeleine (Bridgend) (Lab)
† Neill, Robert (Bromley and Chislehurst) (Con)
Paisley, Ian (North Antrim) (DUP)
† Rogerson, Dan (North Cornwall) (LD)
† Scott, Mr Lee (Ilford North) (Con)
† Slaughter, Mr Andy (Hammersmith) (Lab)
Neil Caulfield, Committee Clerk
† attended the Committee
First Delegated Legislation Committee
Thursday 10 January 2013
[Andrew Rosindell in the Chair]
Draft Charging Orders (Orders For Sale: Financial Thresholds) Regulations 2012
11.30 am
The Parliamentary Under-Secretary of State for Justice (Mrs Helen Grant): I beg to move,
That the Committee has considered the Draft Charging Orders (Orders for Sale: Financial Thresholds) Regulations 2012.
It is a great pleasure to serve under your chairmanship today, Mr Rosindell. The purpose of the draft regulations is to introduce a financial threshold of £1,000 for the enforcement of charging orders by an order for sale where the charging order is made to secure the payment of money owed under an agreement that is a regulated agreement under the Consumer Credit Act 1974. A charging order made in such cases may not be enforced by way of an order for sale where the amount owing, including interest, is less than £1,000. Before setting out further details about the draft regulations and why the Government are taking this action, I will briefly provide some background on charging orders and orders for sale.
When creditors have not received payment for a court judgment, they may apply to the court to enforce the judgment. They have several enforcement options open to them, including applying for a charging order on the debtor’s property or asset. It needs to be remembered that although the majority of charging orders are made against property, the provisions also cover land, stocks or shares.
While the charging order secures the debt, it does not lead to the repayment of the debt until the debtor sells the asset. The creditor may also choose to pursue other enforcement options or to make a further, separate application for an order for sale. Such an application requests the court’s permission to enforce the existing charging order by ordering the sale of the property or other asset either immediately or at some point in the future if a suspended order is made.
Both the application for a charging order and the further application for an order for sale are always listed for hearing before a judge, and so are subject to case-by-case judicial discretion and case law. In each case, the judge will consider, among other things, the proportionality of the debt as set against each of the parties’ assets and commitments; whether, in the case of the property in question, it is the primary residence of the debtor, a secondary residence or a commercial property; who else may reside within the property, such as children; the balance of rights between the creditor and the debtor; and whether the debtor should be granted additional time to pay, resulting in a suspended order being made.
Under the existing arrangements, evidence shows that only a small proportion of charging orders—0.5%—result in an order for sale, and some of those may be suspended orders. That is, in part, due to the fact that the process for applying for and calculating potential equity in and administering the sale of the debtor’s
property is economically risky for creditors. Together with the case-by-case judicial discretion, that means it is very rare indeed for debtors to lose their homes.With that background in mind, I turn to the reason for the draft regulations. Although debtors rarely lose their homes, it is important for the Government to ensure that all appropriate safeguards are in place to ensure that that does not happen as a result of what might have been relatively small, unsecured borrowing. The coalition commitment to introduce a threshold for orders for sale applications reflects that. It is also essential, however, that protection for debtors is balanced against the rights of creditors. The Government believe that responsible creditors who are owed money and who have gained a judgment in court have the right to enforce that judgment. Without effective enforcement, we risk jeopardising the authority of the court and public confidence in the justice system, as well as a negative impact on the economy if lenders are not confident that they can recoup money that is rightly owed to them.
Following extensive public consultation, we intend to introduce a £1,000 financial threshold, as set out in the draft order. Although this differs from the £25,000 threshold set out in the coalition agreement, it was concluded to be the most appropriate level at which the necessary balance between the rights of the debtor and the rights of the creditor could be most fairly and effectively struck. Although stakeholder opinion was predictably split decisively between creditors and debtors, there were other groups that also held strong opinions—such as the legal profession and the judiciary—including that there should be no threshold at all. A number of arguments against a high financial threshold, or even a threshold at any level, were given.
With a high threshold, such as £25,000, there is a risk that creditors may seek to recover their debt by initiating bankruptcy proceedings as an alternative to enforcement. That would be a much more draconian outcome for debtors than an order for sale. As hon. Members may be aware, bankruptcy often results in debtors losing their homes, whereas the protections that are already in place within the enforcement system will continue to be in place if the draft order is approved and protect most debtors from actually losing their homes. A high threshold may also mean that creditors may be less likely to risk providing unsecured credit if it is seen as a more difficult option to recover. That would reduce the availability and increase the cost of unsecured lending, which can be a valuable and much-needed source of credit for many individuals.
It is also important to remember that when we talk about creditors that does not just mean large organisations; it also means individuals and small businesses, who may be impacted by a high threshold, as debts below £25,000 may represent a significant proportion of their commitments and assets, making it important that they can recover the debt where possible. That brings me back to judicial discretion. As I described earlier, it already provides a great deal of protection for debtors, yet balances that against the needs of creditors. Reponses to the consultation indicated that there were significant dangers that the introduction of a threshold, especially a very high threshold, would restrict such discretion in individual cases. We do not want all these issues to be unintended consequences of introducing a threshold, and so a low threshold of £1,000 was seen as a proportionate response. It maintains
the flexibility of discretion, yet ensures that those with a lower level of debt are protected from applications for sale.In conclusion, the Government’s commitment to provide protection to debtors holds strong. We believe that the implementation of these regulations will deliver protection without disproportionate effect on the successful recovery of debts by responsible creditors. We have taken all stakeholders’ opinions into consideration and tailored our approach to ensure that we are introducing the most appropriate threshold level. I therefore commend the draft order to the Committee.
The Chair: I call Heidi Alexander—no, I beg your pardon: the shadow Minister.
11.38 am
Mr Andy Slaughter (Hammersmith) (Lab): I can see that the Opposition Whip is champing at the bit to speak on this, so I will keep my comments brief so that she has her opportunity. It is a pleasure to serve under your chairmanship, Mr Rosindell. I am afraid it is not a pleasure to have to contemplate these regulations, which are a betrayal of what is in the coalition agreement. We will be voting against them, and I would invite Government Members, on that basis alone and when they have heard what I have to say, to join us in doing so.
It should not be a surprise to find out that yet another pledge in the coalition agreement is not being honoured, given what we have seen this week with the relaunch, and the failed relaunch and the re-relaunch, and so on. However, this betrayal is particularly pernicious. On page 12 of the coalition agreement, it says:
“We will provide more protection against aggressive bailiffs and unreasonable charging orders, ensure that courts have the power to insist that repossession is always a last resort, and ban orders for sale on unsecured debts of less than £25,000.”
That was the commitment. I understand that the excuse for reneging on that is that soundings have been taken. I will come on to what those soundings actually say in a moment.
These regulations are not just a modification of what is in the agreement; they are a complete nullification of it. That is the evidence of the Government’s own impact assessment, which says that
“a threshold set at £1,000 is expected to impact upon very few orders for sale”.
Even that is mincing words: if one looks later in the impact assessment, at paragraph 2.9, a study of orders for sale in 2007-08 shows that, of the representative sample, 9% were awarded for sums above £25,000, whereas below £1,000 the figure was 0%. The change to the pledged threshold means we go from encompassing perhaps 90% of orders for sale to encompassing zero—to having no effect whatever. Effectively, we are all wasting our time; there is no purpose in our being here because the Government’s proposal takes us nowhere down the road.
At paragraph 2.12, the impact assessment says:
“It can be seen that in general relatively more orders for sale are awarded at higher debt values. This is in line with a number of the respondents to the consultation who indicated that it would not be worth applying for an order for sale for sums less than £10,000, due to the costs involved of administering the sale.”
Taking that practical point on board, if there was going to be a variation from the undertaking in the coalition agreement, the Government should, at the very least, have looked at a more realistic level, of something like £10,000. Can the Minister explain more fully why she feels it is possible to overturn the coalition agreement completely, and why, if the Government were going to do that, they did not at least come back with a level of around £10,000, which might have affected 40% to 60% of orders for sale, rather than none at all?
There is a great deal of anger about the issue. It is not often that one gets a number of briefings from lobby groups. In this case, they have come primarily from Citizens Advice, which has rightly run a great campaign on behalf of its clients on this issue over many years, and also from organisations such as StepChange, a debt charity that has been lobbying on behalf of the people it sees every day. Those organisations are very angry, because what they see in the regulations is a betrayal: the regulations side with lending organisations, loan companies, banks and those people who would like to have additional weapons in their armoury to recover debts, and against those who may be in financial difficulties.
I will not take up the Committee’s time by reading out case histories, as Members can look at the briefings and see for themselves, but typically they are cases of people who fall on hard times: people who are suddenly diagnosed with very serious illnesses, or fall into temporary periods of unemployment, and therefore perhaps miss one or two payments. They fully communicate with their lenders and undertake to restore the balance when they can, yet the lenders—not just fly-by-night companies or dodgy lenders, but major banks—want nothing to do with those efforts and simply enforce the loan by an order for sale.
Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op): Does my hon. Friend agree that one reason why some of my constituents, and no doubt some of his, get into debt is the pernicious effect of continuous payment orders? That issue is often masked in the debate about high interest rates, but because it is impossible to cancel the payments that they are making, many people find that they are in debt without knowing. Will he comment about the impact of that on this issue?
Mr Slaughter: I am just coming on to the issue of the balancing act between creditors and debtors. Clearly, there has to be a balancing act. That is what the Minister says is happening here, but that is absolutely not the case: this is a completely one-sided decision, which puts all the weapons in the armoury of the creditor and none in the armoury of the person who has accepted the loan.
John Hemming (Birmingham, Yardley) (LD): How would the shadow Minister respond to the point that, alternatively, creditors will simply apply for bankruptcy, which would end up worse for the debtors?
Mr Slaughter: I am coming on to that after I have dealt with the points on continuous payments. If the hon. Gentleman bears with me for a moment, I will get there.
To finish my point, the issue for individuals who are subject to charging orders and then orders for sale on unsecured loans is that, yes, perhaps in relatively few cases they will end up losing the asset—the asset is almost always their home, in the same way as it is in a mortgage repossession—but in many more cases, it is used to put undue pressure on them to find money that they do not have. Usually the only sources for that are unlawful lenders or payday lenders or other firms of that kind. That pushes people more into debt and more into extremis at exactly the point in their life when they are least able to bear that.
The issue of continuous payments is interesting. I do not want to disguise that these proposals had a long gestation. They initially go back to 2003 and sections 93 and 94 of the Tribunals, Courts and Enforcement Act 2007. The then Labour Government envisaged a balancing act. While creditors would have been given more powers by way of being able to bring forward charging orders before the debtor had even got into debt, that was to be balanced by these provisions, which would give protection to the debtor. As it happened, the previous Government originally decided not to implement either of those measures. Then this Government went ahead with the first set and implemented it unilaterally in October 2012, while it was still proposing to bring forward these provisions. We already have the ability—I am sure the Minister will confirm this—for creditors to bring forward charging orders at any point, but we do not have commensurate protection for debtors. That is the balancing act that the Minister should have done.
The defence that the Minister puts forward is that there was the “Solving disputes in the county courts” consultation, which the Government responded to in February 2012. That is already in great disrepute, however, because with that consultation the Government decided they would do nothing about increasing small claims limits for personal injury and housing disrepair. They have now suddenly decided that they have already changed their mind. In other words, consultation documents are useful to the Government only if they say what they want them to say.
The answers to one question in the consultation are particularly confusing. On the question whether the threshold should be £1,000, £5,000, £10,000, £15,000 or £25,000, the largest single number of respondents—16—said £25,000. Only nine said £1,000. If one took the mean, it would be somewhere between those two figures, around the £10,000 mark. The Government have said that it was difficult to analyse the consultation, because some people did not answer the question how the Government wanted them to or because answers had to be conflated, so they have somehow concluded that £1,000 is the appropriate level, even though very few respondents said that. The respondents were, of course, primarily lending institutions and, as the Minister said, there is an absolute split between creditor and debtor organisations, but the creditor organisations tend to have the most firepower and the most vested interests in putting these matters forward.
On the bankruptcy point, the level for applying for bankruptcy—this must have been the case for decades, rather than years—is £750. I remember when I was in practice that, in exactly the same way as orders for sale
are used, that level was used as a lever for trying to enforce a debt by putting undue pressure on a debtor by threatening bankruptcy. If that is the problem, why should we not look at raising that threshold, rather than using it as an excuse for having a low threshold?John Hemming: The point of these orders is to introduce some threshold at all. If the hon. Gentleman votes against them, he is voting against having any threshold.
Mr Slaughter: Given what Lord McNally said while having a hissy fit in relation to the fatal motion that the Lords passed—he said, and it appears to be the Government policy, that if the Opposition vote against any proposal of the Government, the Government can determine what the Opposition meant by it—that sounds rather totalitarian to me, if the hon. Gentleman does not mind my saying so. I suggest that he listen to what I am saying. Our argument is—I do not know whether the hon. Gentleman stands by the coalition in this respect; I know that he has independent views of his own—that this is nonsense. This proposal has literally no effect, so I can answer his question in two ways. First, voting against this proposal does not change matters, because it will not make any difference whatever to people being persecuted by unreasonable lenders, but in any event the purpose of our voting against it is to ask the Government to take it away and come back with something that is of practical effect and is reasonable in that way, so please do not put words in my mouth.
Robert Neill (Bromley and Chislehurst) (Con): I understand the hon. Gentleman’s point and I can assure him that when I practised, I never practised in this field, and I hope that if I practise again, I never practise in this field, because it is far too technical; but surely the logic of what he is saying is that there should be an alignment between any threshold, if there is one, for charging orders and the threshold for bankruptcy, whatever those thresholds may be at any time. As we are introducing a threshold, is it not sensible to introduce it at a level that is pretty close to the existing level for bankruptcy? If, as a result of consultations, there is a future change in the threshold for bankruptcy, perhaps his point about adjusting this threshold would be sensible, but at the moment there is a threshold for bankruptcy at £750, and does it not make sense to keep the threshold that is introduced in this case at that level or thereabouts?
Mr Slaughter: The hon. Gentleman is in moral peril. I do not want to leave him with the idea that we should make one bad law because another bad law already exists. I am saying that if we want to have a realistic level in this case, it may be £25,000 or it may be something else, but it certainly is not £1,000. People are justifying that by saying, “There are other, even more draconian measures that one could take.”
Another justification that the Government give is that if the level is too low, debts will simply be sold on to rather more unscrupulous companies that buy up debts. Again, that is a big problem, not just in this respect but in many respects. Let us address that problem. Let us not hide behind what is happening in this case.
One other thing that the Government are hiding behind is judicial discretion. Unlike the Government, I have a lot of time for judicial discretion. I sat through the entirety of the Legal Aid, Sentencing and Punishment
of Offenders Bill proceedings, including Committee, and watched the Government constantly, as they increasingly do, interfere in major respects with judicial discretion. We now find that the fall in prison places is in large part due to the fact that the hands of the courts are tied in respect of remand. Minimum sentences, maximum sentences and mandatory sentences are increasingly used by the Government, so I will not take any lessons on judicial discretion from them.The sole reason for this disgraceful betrayal of one of the few good things in the coalition agreement is that once again the Government have been lobbied by their friends in the financial sector, as they are always, whether by banks, insurers or other financial companies, and they have decided that things should be done in their interests.
John Hemming: The Whip said to me, “Could you do this DL Committee because it won’t be contentious?” Then I suddenly find that it is one of the most contentious DL Committees that I have ever been on. But in reading the papers during the sitting, it is blatantly obvious that if we increase the threshold to £25,000 without making any changes to bankruptcy, many vulnerable people will face bankruptcy who would not otherwise face bankruptcy, and that would be worse for them. It is therefore very obvious to me—I accept that to some extent I am independent-minded—that it would be wrong to increase the threshold to £25,000 without at the same time doing something about bankruptcy. It was the late Sir Richard Knowles who said, “You should look at the words to work out what you mean by voting on a particular Committee.”
Mr Slaughter: I do not know whether the hon. Gentleman was talking to the Committee or to himself and his own conscience at that point, but the answer to what he says is this. If he sees a problem that needs to be addressed, in relation to both this measure and possibly the bankruptcy arrangements as well, the right thing to do is to vote this down now, so that the Government can go away and have a proper think about it and bring us back something that is rather more considered.
I am going to end on that point, but I hope that the Minister, in responding, will put forward a rather better justification of the Government’s case than she did in her opening remarks. I hope that she will explain the dramatic change in policy that led to a threshold of £1,000 rather than £25,000, what effect she thinks that will have on vulnerable people, and why she has gone ahead with the implementation of section 93 of the 2007 Act without the protection that section 94 of that Act envisaged. If she is able to answer all those questions I will be pleasantly surprised. Having thought about the comments that I and my hon. Friends have made, I invite her to consider whether it is appropriate to go ahead with these proposals on such a nugatory level, which will have literally no effect on the behaviour of unscrupulous creditors.
11.56 am
Mrs Grant: It has been an interesting debate. I have listened carefully to the shadow Minister, the hon. Member for Hammersmith, and to other Members on
both sides of the Committee, and I am happy to respond to the points that the shadow Minister has made. He is obviously concerned about the level of the threshold. I am a little surprised by his reluctance, especially bearing in mind that he is a former lawyer, to acknowledge the importance of case law and judicial discretion, which he mentioned, and the small proportion of cases that are converted from charging orders to orders for sale.I am also concerned that the shadow Minister does not seem to give much traction to the serious unintended consequences that I went into in a fair amount of detail and which were supported in interventions by Government Members. I repeat that if the threshold was set at £25,000, there would be an increased use of bankruptcy proceedings; there might well be a reduction in the availability of unsecured credit; and there would be a reduction in judicial discretion. I would also like to emphasise to the shadow Minister that although it is not easy to do, a balance must be struck between protecting vulnerable debtors and legitimate creditors, who in this financial climate are also often quite vulnerable.
Mr Slaughter: I remind the Minister that the £25,000 is her policy; it is not our policy, and I have invited her to look at other figures. If she is attacking that figure, perhaps she would like to say why it was lighted upon in the first place, without blaming the Liberal Democrats, which is normally what happens. The point on discretion has been conceded. If it had not been, there would not be any level at all. Having sorted that out, can we concentrate on what a reasonable level is?
Mrs Grant: We are where we are with regard to what was in the coalition agreement. There was an extensive consultation, however, and we have listened carefully to creditors and debtors. When the shadow Minister was speaking he suggested that the Government might have succumbed to pressure from creditors, and that is certainly not the case. In fact, many in the legal practice and many judges were extremely concerned about a proposed threshold of £25,000 on the basis that it would impact on judicial discretion.
Robert Neill: I agree with my hon. Friend about the linkage between the two thresholds. As I understand it from the impact assessment, the Government have indicated that there will be a consultation in due course regarding the bankruptcy threshold. Am I wrong in thinking that because this is secondary legislation, if, at some point in the future, there was to be a change—I do not know whether there will be one in relation to the threshold—it would be pretty simple to amend the regulation to align the two to prevent the perverse impacts that my hon. Friend the Member for Birmingham, Yardley and I have raised?
Mrs Grant: As always, my hon. Friend makes a sensible and important point. The regulation will be subject to post-implementation review three years after commencement. If it is found to appear unfair or unreasonable, of course we will look at it carefully.
That takes me on to the point made by my hon. Friends the Members for Bromley and Chislehurst and for Birmingham, Yardley, and by the shadow Minister,
about the level of the threshold for bankruptcy. That matter falls firmly within the remit of the Department for Business, Innovation and Skills, not the Ministry of Justice. However, we have been in touch with BIS, and officials have spoken on the issue. They are aware, as we are, that the creditor’s petition debt level has not been increased since 1986. We have now been informed by BIS that it will conduct a consultation, and we will monitor carefully what it does.I think I have covered most of the shadow Minister’s points. In conclusion, I repeat that the instrument is a reasonable one, aiming to provide protection against oppressive pursuit of debt without depriving creditors of a legitimate means of enforcement. I hope that Members will agree that the measure is proportionate and sensible.
The Committee divided: Ayes 10, Noes 6.
AYES
NOES
Question accordingly agreed to.
That the Committee has considered the Draft Charging Orders (Orders for Sale: Financial Thresholds) Regulations 2012.