Clause
101
Administration
orders
Mr.
Newmark:
I beg to move amendment No. 163, in
clause 101, page 66, line 13, after
‘may’, insert
‘subject to the discretion of the
court’.
The
Chairman:
With this it will be convenient to discuss the
following amendments:
No. 164, in
clause 101, page 66, line 15, after
‘may’, insert
‘subject to the discretion of the
court’.
No.
167, in clause 101, page 66, leave out
lines 30to
32.
No. 165, in
clause 101, page 66, line 30, after
‘may’, insert
‘subject to the discretion of the
court’.
No.
166, in
clause 101, page 66, line 33, after
‘may’, insert
‘subject to the discretion of the
court’.
Mr.
Newmark:
Once again, we have quite a few points to go
through, but I will try and be brief. If I have any questions for the
Minister later, I will also try to brief, as I appreciate that time is
pressing.
In seeking
to move our amendments Nos. 163 to 167, we are looking at the repayment
requirement that can be imposed on debtors who are placed under an
administrative order by a county court. To be clear to the Minister,
this is a probing amendment. We are trying to establish who is in
control of determining the repayment requirement imposed on debtors. My
concern with the clause is that there seems to be two sources of
authority when it comes to determining the requirement. First is the
implied discretion of the court making the order—I emphasise
implied. Second is the regulations to be made in due course by the Lord
Chancellor.
Amendments
Nos. 163 to 166 seek to make the discretion of the court explicit, not
implicit. Amendment No. 163 specifically gives the court discretion
over whether the debtor must pay scheduled debts in full or to some
other extent. AmendmentNo. 164 would ensure that the court has
discretion over arrangements made in respect of several different
creditors. That is vital because only the court is in the proper
position to be aware of special circumstances that may affect the
treatment of different creditors; meaningful guidance would be
difficult to offer simply by regulation. Amendment No. 165 makes it
clear that the court has discretion over ordinary payments other than
by instalment, when there are appropriate circumstances. Amendment No.
166 tackles the rather ominous stipulation that
the
“repayment
requirement may include provision in addition to any that is required
or permitted by this
section.”
The amendment
stipulates that any such inclusion is also at the court’s
discretion and cannot spring, like a jack-in-the-box, from regulations
that are yet to
appear.
At the very
least, the clause must distinguish more clearly between what the court
may make a condition of an administrative order, at its discretion, and
what it must do, as required by the regulations. Administration orders
will be used by vulnerable people in difficult circumstances. I believe
that the clause, as drafted, will sow the seeds for conflict between
proper judicial discretion and administrative prescription. I should
like the Minister’s assurance that no such conflict is
anticipated. The amendment is thus just a probing
amendment.
2
pm
Amendment No.
167 is an attempt to clarify what the Government intend by the
stipulation that repayments should be made by instalment. I am not sure
that we share a common definition of an instalment. Proposed new
section 112E(10) of the County Courts Act 1984 will provide for
repayments
“to be made
by other means”
including
lump sums, in addition to instalments. That is not necessarily a
sinister suggestion, and I can see the intention behind it. If a debtor
has a meagre income stream but access to a lump sum, the lump sum
should be available for use in settling the debt. However, it is
not clear to me that subsection (10) is necessary for the achievement of
that objective, and I believe that it would be better to omit
it. The repayment
requirement is based on payment by instalments, but instalments are, to
my mind, merely sums of money provided at agreed times in part
settlement of a debt. It is perfectly conceivable for one large initial
instalment to be followed by several smaller, regular instalments.
Indeed, that is common practice in credit agreements that I have seen,
whenthe first sum represents a deposit or when there is an
agreed scope to vary instalments depending on an individual’s
circumstances. Credit card debt is predicated entirely on the principle
that payments are regular but that the amounts vary depending on the
debtor’s available resources. They are still instalments in
settlement of a debt. It would therefore be in the spirit of an
instalment plan for the court to require one or more lump sums followed
by smaller regular payments based on surplus income.
It seems to me rather
complicated and potentially confusing to tell a debtor, “Here is
your initial instalment plan, but the court may still ask you for
additional lump sums on top of that.” I should welcome the
Minister’s comments on whether an instalment plan, within the
normal meaning of the phrase, is capable of achieving what the
Government intend, without the inclusion of new subsection
(10).
Vera
Baird:
I compliment the hon. Gentleman on his analysis.
Our view is that there is no need to insert the
phrase
“subject to the
discretion of the
court”
because the power
is entirely permissive. The word “may” is sufficient to
allow the court to exercise all its discretion in making the decision.
I assure him, if that is his concern, that administration orders will
be made on a case by case basis, and on no other, wholly with regard to
individual circumstances.
Amendment No. 167 would indeed
exclude the new section 112E(10), which would allow the court to
decide, taking account of individual circumstances, whether it would be
appropriate for the debtor to make a lump sum or other kind of payment
in addition to normal instalments. Apart from the perhaps semantic
point—I do not mean that as a criticism—about what is an
instalment and what is a lump sum, I have not, I am afraid, fully
understood what in the subsection is worrying the hon. Gentleman, so if
I do not deal with the root of his worries I know that you,
Mr. Bercow, will allow him to return to the
matter.
The provision
is there because in addition to a normal instalment order, a debtor
might somehow get some more money—from a bonus or a windfall,
for example, or by disposing of assets—and it may become
appropriate for the court to make an additional order. Instalment is
intended to mean a constant series of similar instalments, although
they can be variable. That is all that the clause is about; there is
nothing sinisterin it.
I hope that I have reassured
the hon. Gentleman, but he can come back to me if he still has concerns
that I have not dealt with.
Mr.
Newmark:
I thank the Minister for dealing with my
concerns. I especially appreciate her point about the importance of
reflecting an individual’s circumstances, and I hope that the
Government’s proposals will deal with that matter.
I think that the Minister has
clarified for me the flexibility of what is being proposed: that there
is an ability to vary instalments. I was concerned because the amount
of an instalment and the pattern in which it is paid are usually of a
fixed nature. Normal ways of repaying debts can vary. Lump sums can be
paid upfront or at the back end, and the amounts themselves can vary at
every stage during the instalment plan. If the Minister is giving me an
assurance on the proposal I will not press the amendment to a Division,
but I ask her to reaffirm that I have understood what she
said.
Vera
Baird:
One would expect that instalments would be ordered
to be regular, although I can understand what the hon. Gentleman is
saying. If, after paying instalments of £10 a week for six
months, the person concerned was in work again and the creditor wanted
the instalment to be increased from that point, it would none the less
still be an instalment. However, what is proposed is merely the
ability, if some money falls into the hands of the debtor, for the
court not to be tied to the instalment provision but to facilitate its
being flexible, and notwithstanding the instalments, to be able to
order a lump sum to be paid, or a lump sum instead of the rest of the
instalments. The proposalis about flexibility, which, as the
hon. Gentleman perceived, is
important.
Mr.
Newmark:
Once again, I thank the Minister for clarifying
that point. I beg to ask leave to withdraw the amendment.
Amendment, by leave,
withdrawn.
Mr.
Newmark:
I beg to move amendment No. 168, in
clause 101, page 67, line 27, after
‘interest’, insert
‘above the Bank of England base
rate’.
This is
a probing amendment on a very sensitive issue, which aims to establish
whether it is equitable for creditors to charge interest on debts
scheduled under an administration order if the rate of interest is kept
at the Bank of England’s rate. The principle in play in the
clause, and throughout this part of the Bill, is the need to strike an
adequate balance between the obligations of the debtors and the rights
of creditors.
Although much of our recent
discussion has been about protecting the obligations, and even the
needs, of debtors, we must respect the fact that creditors have rights,
and recognise the legitimate expectations of creditors who have acted
responsibly, by allowing all creditors to charge some interest on debts
that are scheduled to administration orders.
It is right that the debtor
should be given shelter by the court from punitive rates of interest
and charges when they get into difficulties. Hon. Members have heard
some of the heart-stopping statistics on personal debt, especially in
the aftermath of Farepak’s collapse, when home credit providers
aggressively targeted those who had lost out.
It is easy to see the potential
of the debt trap when reputable store cards can charge consumers
interest rates of around 30 per cent. On a rate of just 25 per cent.,
it would take 12 years to pay off a £1,000 debt by making
minimum payments and would eventually cost over twice the original sum
borrowed. At the more aggressive end of the home credit market, which
we looked at in the Treasury Committee, it is now impossible for a
debtor to clear their debt once they get into difficulty. But allowing
interest rates that do not exceed the bank’s base rate would be
a compromise that also protected creditors’ rights. I hope that
doing so would also be in line with a general principle that judgment
debts do carry
interest.
There are at
least two perspectives on this issue. The first would be to say that
creditors are lucky to receive any repayments at all and leave it at
that, but the alternative is to admit that creditors should have the
right to levy reasonable interest until the debt has been redeemed,
even if the rate is substantially lower than the one previously agreed
with the debtor. I should therefore be grateful if the Minister could
tell us whether this issue was considered in her consultation and
whether she might be prepared to revisit it
now.
Vera
Baird:
The amendment would allow creditorsto
receive some payment by way of interest, while governing the amount of
interest so that it could not be punitive. The point is to stop
interest being charged once an order comes into force. A debtor at that
stage needs an end point and to start to be rehabilitated. That is our
thinking and why we have made the provision in the new section 112H(2)
under this clause, indicating that no more fees, charges or interest
may be charged while the order is in place.
The idea is to get the maximum
repayment available from the debtor so that the total debt or the
largest possible proportion of it will be paid back within the maximum
period of five years. The orders have an end point. There is no
mechanism to extend the endpoint. It is intended to be a
finite solution. If interest were added—this would present
certain technical problems—there is a danger that the total debt
could go beyond the maximum limits set in the regulations, which may be
about £15,000. In that circumstance the court would have to
revoke the order. That element of uncertainty is undesirable
too.
The other point
is that we consulted about adding interest at this stage and
ascertained that the general view was that we were taking the right
approach and that it was good to offer an end point and then work to
rehabilitation and to leave interest out of the equation from then on.
I hope that the hon. Gentleman can be persuaded to withdraw the
amendment.
Mr.
Newmark:
I am encouraged by some of the points that the
Minister made. However, I have another scenario to put to her which
might help to clarify my argument. The first scenario involves an
individual who owed £5,000, of which he could afford to repay
only £3,000. A deal would be struck that was effectively below
par value of that debt—par being £5,000 and the
discounted amount being £3,000. Clearly he would not have the
wherewithal to pay any interest. The point that the Minister makes is
absolutely right.
In a different scenario in
which, let us say, the amount is again £5,000, but the
individual’s earning capability is such that a negotiation is
struck enabling him to pay back the full amount at par value but over a
period, common sense tells me that there is an ability to pay some
interest. Assuming that interest rates remain as they
are—reasonably low—the amount that would accumulate at
base bank rate on the par value of the debt would not reach the sort of
amount that it would, for example, on a credit card.
I am trying to differentiate
between a negotiation on a figure that is below par value—the
£3,000 example in which the person does not have the wherewithal
to repay the full amount—and the £5,000 par value
example, in which the person clearly has the ability to pay everything
back, but in which the Minister seems to be suggesting that he is
unable to pay any interest at all to somebody who has lent him that
money in good
faith.
2.15
pm
Vera
Baird:
I appreciate the difference between the two
scenarios, but in this part of the Bill we are considering somebody who
has got himself into debt and is helpless to get out of it on his
own.
Mr.
Bellingham:
On that point, I have just been looking at
remedies other than bankruptcy. It strikes me is that we are
considering not just people who have got into debt through gross
irresponsibility or who have built up a huge amount of debt on credit
cards, but a small minority of sophisticated business people who have
got themselves into debt and who do not want to go bankrupt. They are
looking for remedies other than bankruptcy to sort out their debts,
andthey might have received credit from other private
individuals. Should there not be a way of
distinguishing between banks and finance companies that
offercredit, and individuals who provide it for other
individuals? In the latter case, there might be an argument for them to
receive some interest on the credit that they have made
available.
Vera
Baird:
I can see the scenario to which the hon. Gentleman
refers. However, here we are trying to deal with people whose debts
have overwhelmed them, whatever category he wants to put them in. They
are taking a fairly significant step for the present and the future in
entering, through the courts, into an order of the kind that we are
considering. All the way up to that point interest will have run on the
loan, on the judgment debt and so on. Only when that is clear will that
person be able to engage the court to save him from his predicament,
and then the interest will stop running. By then, it will be a finite
problem; the point will be to get rid of the debt. It seems to us that,
given that he will be a long way down the road at that point, it will
be appropriate to stop the interest running on—the creditor will
have received it all the way until then—and to concentrate on
rehabilitating the debtor and getting the debt paid off as quickly as
possible. I invite the hon. Gentleman to agree that that is a very
reasonable way in which to see the matter.
Mr.
Newmark:
I thank the Minister for addressing my concerns
about the rights of creditors and answering the question put by my hon.
Friend the Member for North-West Norfolk on a sensitive issue. I hear
what she says and I beg to ask leave to withdraw the
amendment.
Amendment, by leave,
withdrawn.
Mr.
Newmark:
I beg to move amendment No. 169, in
clause 101, page 70, line 13, leave
out ‘2006’ and insert
‘2007’.
I
am not sure whether I am being pedantic or whether there is a clerical
error here. I believe that the date should be 2007 and not 2006. If the
Minister could correct me on that, I would appreciate
it.
Vera
Baird:
I think that the Government could rightly be
accused of optimism on this point. I understand that what happens is
that it will be updated anyway when the Act is printed, but I am
grateful for the
prompt.
Chairman:
I am not sure that procedurally the Minister is correct, but in any
event, my understanding is that if the hon. Gentleman wishes to press
the amendment, it can be pressed, and I must put it to the Committee
for its
verdict.
Mr.
Newmark:
I wish to press the
amendment.
Vera
Baird:
I am overwhelmed with delight to be able to accept
it. There are those behind me who wanted to vote, but I will control
them.
Chairman:
As the Minister has accepted the amendment, no vote is required,
but I still need to put the
question.
Amendment
agreed
to.
Mr.
Newmark:
On that minor victory, I should almost like to
retire, but I shall press
on.
I beg to move
amendment No. 170, in clause 101, page 76, leave out lines 4 to
17.
The amendment
concerns the calculation of a debtor’s qualifying debts for the
purposes of seeking them through an administration order. I am
concerned that this seems a rather abstruse business. Regulations will
be prescribed as to the maximum sum that a debtor can earn and still be
subject to administration order. I accept the need for a figure to be
set, but I hope that the Minister will help with why the calculation of
qualifying debts is envisaged to be so complex that it cannot be left
to a county court.
Qualifying debts are all debts
that have arisen before the date of the calculation, and it is already
abundantly clear that the debtor cannot pay off any business debts. Can
the Minister explain the complexities that necessitate further
regulations on this subject? Can she also explain why the new section
112AD(3) is worded as it
is:
“Regulations
must make further provision about how the total amount of a
debtor’s qualifying debt is to be calculated.”?
That is very strong. It suggests that the
Government have already given this some significant thought, and if so,
can we see the draft regulations, if the Minister actually has issued
them?
Mr.
Bellingham:
I endorse what my hon. Friend has just said.
One of the things that told me a little in looking at proposed new
section 112 AD, headed “Calculating the debtor’s
qualifying debts”, is, as he pointed out, subsections (3) and
(4), where the text talks about the regulations making further
regulation and about how the total amount of qualifying debts has been
calculated. Under subsection (4), regulations “may” make
provision. I should like the Minister to explain why they
“must” in subsection (3), but not in subsection (4). Why
is there a difference? Why is one subsection more powerful and stronger
than the other? As my hon. Friend mentioned with regard to the
regulations, the Government—with respect—have had a long
time to get the Bill right. It has been a long time coming and we have
had a series of publications, with a Green Paper and a White Paper, and
a huge amount of consultation with all the different
sectors.
As far as I
am aware, the only part of the Bill that came as a bit of a
surprise—the hon. Member for North Southwark and Bermondsey
alluded to this—is part 6, which relates to works of art. The
Government have had a huge amount of time to get the structure and
detail absolutely spot on in relation to debt management and relief,
and things such as administration orders. I will press the Minister
further: we hear of future regulations, but surely we ought to know now
exactly what the position is
now.
Vera
Baird:
The amendment would remove the means of calculating
a debt as qualifying debt, which is a vital component of the new
scheme: we need to know what the debtor owes. It would also stop the
court taking account of debts arising before the order was made but not
yet due for repayment—for example, debts under a deferred credit
scheme. We oppose the amendment because it would not allow provision to
be made for the court to add up his indebtedness, so the court would
not be able to make a decision on whether an administration order is
the best method of assistance available to
him.
Allowing that
assessment to be made of the debtor’s true indebtedness could
result in his being directed to a better way forward than the
administration scheme, so it is imperative to allow the court to advise
and direct the debtor in any way that is most advantageous to
him.
“Must”
and “may” in subsections (3) and (4) are there for the
following reasons: subsection (3) is about the total amount of the
debtor’s qualifying debt, so it is imperative that the system of
administration orders functions, and that it is clear and certain what
a qualifying debt is. It must be clear what his total is. It is
imperative that there are regulations set out that point to a fixed sum
when his personal circumstances are considered.
My guess is that it is less
important to work outhow the amount of a particular qualifying
debt is calculated. Flexibility about that can adequately be reflected
in rules that we are likely—though not
obliged—to make. If we do not make it compulsory to have
regulations on how the total qualifying debt is calculated, people will
not be able to ascertain with certainty what it is. It is important
that that regulatory power is there and that we can direct it to
happen. We will consult on all this, as we have on everything
else. In paragraphs
275 and 276 of the policy statement, with which Opposition Members are
quite familiar, we have set out the Government’s current
thinking on this. We do not have regulations ready yet, because we want
to consult, and I cannot say exactly when they willbe ready,
but hon. Gentlemen can see that the document—I do not know
whether they have
it—says:
“To
ensure that the reformed scheme meets its objectives, the court will
take into account all the debtor’s existing qualifying debts for
the purposes of meeting the prescribed maximum, regardless of whether
or not a debt is due at the time of the calculation. This enables the
court to consider the impact of deferred debts that will become due
during the lifetime of the order and avoid the need to revoke an order
where such a debt will cause the total debt to exceed the prescribed
maximum”.
It then
reiterates that the Lord Chancellor
is
“to make provision
about how the total amount of the debtor’s qualifying debts are
to be calculated to ensure that a standard approach is
taken”.
That is the point
that I have tried to set
out.
Mr.
Tobias Ellwood (Bournemouth, East) (Con): My hon. Friend
the Member for North-West Norfolk mentioned the amount of consultation
that has preceded our debate. I believe, if I recall correctly, that
when we discussed the first part of the Bill, on tribunals, the
Minister mentioned that there would be a consultation period in the
autumn. Will that focus purely on that part of the Bill or will it
cover the aspects that we are discussing
now?
Vera
Baird:
There will be a whole raft of overlapping
consultation processes, but there would not be any significant point in
linking this one with the oneabout tribunals. We obviously
want the regulations to come into force as early as possible, because
the administration order provision is not of much use unless we know
exactly how the qualifying debt will be calculated. The political will
to get the regulations ready is definitely there, but we want to ensure
that we have all the appropriate consultations. As the hon. Gentleman
correctly recalled, it is intended that the consultation on tribunals
will take place in the autumn, and this one will start in the summer,
as we want to get it under way
quickly.
2.30
pm
Simon
Hughes:
I have one comment—not on the regulations
timetable but on the amounts criteria. As the Minister and other hon.
Members know well, the simpler and the more aligned are the amounts
that qualify or disqualify people for something—in the present
case, the debts are taken into account—the easier it is for
advisers, including people in citizens advice
bureaux.
Will any
parallel scales, tables or precedents beused? Amounts are
easier to comprehend if they are expressed in round figures and
multiples of 5,000, if they remain the same for a while and if any
change is well publicised and regular. This part of the Bill is
good, and I want it to work in the most user-friendly way and with least
complication for the people whouse
it.
Vera
Baird:
I do not know whether tables can be replicated for
use in relation to the present provisions. Obviously, there is a wealth
of experience among precisely such bodies as the citizens advice
bureaux, and we shall want to tap into that when we assemble the new
system for helping people out of debt.
On the timetable, I hope that I
have made it clear that the tribunal consultation will be in the
autumn. We shall consult on the regulations that are the subject of our
current discussion in the summer.
Mr.
Ellwood:
I am sorry to press the Minister, but there
remains concern among all Conservative Members. There has been
significant consultation in the lead-up to the Bill. However, we
identify with the spirit of opinion that has been expressed on how the
various aspects of the Bill—on tribunals, courts and
enforcement—should be implemented when it becomes an Act. If
there is a consultation period after enactment, it could significantly
change the direction of the new legislation from that for which support
has been expressed in our debate. There has been enough consultation;
more of it would put the cart before the horse. When the Bill leaves
Parliament, there should be enough direction that yet further
consultation is not
required.
Vera
Baird:
There cannot be a change of direction. There is
enormously long legal history whereby regulations can fit only within
the framework of an Act and must not be ultra vires, so the regulations
could not take us in a different direction. With respect to the hon.
Gentleman, we need to keep our feet on the ground. We are talking about
how to calculate people’s debt. The legislation contains a
scheme whereby debtors can be helped out of their debt position, and it
is important to scrutinise that scheme properly now. The consultation
on how debts will calculated will come within the ambit of that scheme
and not outside. There will soon be consultation and discussion in the
House.
Mr.
Newmark:
I appreciate the Minister’s explanation
and accept particularly her points about the timetable and ensuring
that debtors can take the most advantageous route. In the absence of
providing the further information that Opposition Members have
requested, I hope that the Minister will give us all time to reflect,
at a later stage, on the points that we have tried to make with the
amendment, which I shall not press to a
vote.
Vera
Baird:
I am not aware of any requested information that I
have not supplied. If the hon. Gentleman sets out what he wants to
know, we will do our best to
comply.
Mr.
Newmark:
My hon. Friend the Member for Bournemouth, East
was seeking some information; I am sure that he will clarify the
matter.
The
Chairman:
Order. We need to know on whom a Member is
intervening.
Mr.
Ellwood:
I think that we are still intervening on the
Minister, are we
not?
The
Chairman:
No; Mr. Brooks Newmark has the floor.
If the hon. Gentleman wishes to intervene at this stage, he might do so
on his hon. Friend. If he waits until his hon. Friend has resumed his
seat and the Minister chooses to rise, he might then have an
opportunity to intervene on her.
Mr.
Newmark:
Thank you, Mr. Bercow. I shall take my
seat again, so that my hon. Friend can clarify the
position.
Mr.
Ellwood:
Will the Minister give us a full description, on
Report, of what the consultation will involve? Who will participate in
it; how long will it be; and what will be its broad nature? I do not
challenge the need to provide an approach that is not exactly
broad-brush—it is detailed—but that requires some
engagement with the various organisations that will use the
legislation. The Minister has twice said that there will be summer and
autumn consultation periods. Who will be invited to participate in
those consultations and what will be their scope? I appreciate that she
might not be able to provide that information now, but it would be
useful on
Report.
Vera
Baird:
I am happy to comply with the hon.
Gentleman’s request. I did not appreciate exactlywhat
he wanted to know, or I would have answered straight away. Normal
Cabinet Office provision for consultations will apply. There will be
three months’ consultation, and it will be made public that a
consultation will take place. I do not doubt that individual
organisations known by the Governmentto have an interest in
the matter will be directly approached for input, but the general
publicity surrounding the consultation will be directed to all relevant
areas in the hope that interested parties will come forward as well.
The consultation will be as comprehensive as possible, because it is
important to get things right. The way to do that is to consult the
maximum number of people with the maximum amount of experience, to
reflect on their responses and to produce an answer to the
House.
The
Chairman:
I think that, before the Minister intervened on
the hon. Member for Braintree, he was signalling that he wished to
withdraw his
amendment.
Mr.
Newmark:
Yes; thank you, Mr. Bercow. I beg to
ask leave to withdraw the
amendment.
Amendment,
by leave,
withdrawn.
Mr.
Newmark:
I beg to move amendment No. 171, in
clause 101, page 76, leave out lines 26 to
28.
The amendment
goes further in attempting to resolve the possible conflict between the
court’s
discretion and the regulations by omitting the need
for regulations altogether. That is desirable for a single reason: I do
not want any district judge to have to tell a debtor that, although he
would like to schedule the debts in a way that is fair, just and
reasonable, the regulations prevent him from doing so. If the court has discretion
over the amount of debt to be repaid and which creditors take priority
under the order, it seems unnecessary to fetter its discretion over the
amounts of the repayments. However, if it is the Government’s
view that the court needs guidance on the calculation of surplus income
and the nature of the instalments, would it not be reasonable also to
offer it guidance on the total sum to be repaid? It seems that the
court is being trusted with some decisions, but not others. I therefore
seek the Minister’s clarification on why that should be so and
what reasoning has been evoked to justify the differing
treatments?
Vera
Baird:
This amendment would remove the power to make
regulations that will allow the Government to prescribe a consistent
approach, across all courts, to the calculation of the amount of
instalments in relation to a debtor’s surplus income.
Consistency is a key feature of the scheme, which received support from
all sides. It is better to have a framework within which the courts can
apply their discretion to an individual set of circumstances, to avoid
an incompatibility between what happensto someone in court
jurisdiction A and what happens to someone in a similar position in
court jurisdiction B.
I am told that creditors are
keen to see an end to the current system in which different courts make
vastly different orders on individual circumstances that are largely
the same. The advice sector also favours a national system that will
ensure a consistent approach to these issues, and one imagines that it
will feel competent and more empowered to advise with a good deal of
certainty.
Therefore,
regulations made under proposed new section 112E(9) of the County
Courts Act 1984 will ensure a consistent approach based on the ability
to pay, probably using a version of the common financial statement,
which is widely accepted across both the credit and the advice sectors
as the most comprehensive and best tool for doing that kind of
assessment. That type of scheme is not appropriate for those with
insufficient surplus income to meet the commitment. The revised scheme
is targeted at those debtors who can afford to make reasonable
repayments up to the five-year term of the
order.
Mr.
Newmark:
Unfortunately, I am a bit of pedant on language.
The Minister used the word “probably” in relation to the
use of the common financial statement. Is there any ambiguity that I
should be concerned about? Is there something else that she is thinking
about or will the system be based on a common financial
statement?
Vera
Baird:
No, the system is part of the regulation-making
process that I have already described to the hon. Member for
Bournemouth, East. The common financial statement commends itself to us
as the appropriate tool, and it is widely used by advice agencies.
However, if somebody has come up with a better tool by June—if
that is when summer starts—we
would be open to the suggestion of using it instead. That is the
direction of our thinking at the moment. It is our preferred tool, but
there will not be much deviation from a tool that is similar to the
common financial statement. Nevertheless, we will leave the options
open until the consultation has been
held.
If
we accepted the amendment, it would prevent the introduction of a
common procedure for determining instalments. Each court would carry on
making its own assessments based on locally devised criteria, which
would add complexity, cost and—overwhelmingly what we do not
want—uncertainty. We therefore urge that the amendment be
withdrawn.
2.45
pm
Mr.
Newmark:
Again, I am encouraged by what the Minister has
said. I understand the need for debtors to pool their obligations on
the basis of a common financial statement. She mentioned other tools
that are available, but I cannot think of any alternative other than a
common financial statement. However, if she wants to leave flexibility
for that open, I probably would not object to it—although I
cannot imagine what it would be. I beg to ask leave to withdraw the
amendment.
Amendment, by leave,
withdrawn.
Question
proposed, That the clause, as amended, stand part of the
Bill.
Simon
Hughes:
I should like to ask a general question about the
clause and this welcome part of the Bill. This is the first clause
stand part debate under this part, which tries to find systems whereby
people with small or medium debts can have them managed in a way that
resolves the problems. There was a helpful introduction in the
explanatory notes, supplied bythe Government to all Committee
members and available through the Vote Office, explaining the
background and the alternatives: administration orders, enforcement
registration orders, debt relief orders and debt management
schemes.
I have two
generic questions about both orders in the clause and their context.
First, on a practical matter, if somebody gets into personal debt, what
is the sequence or process that will determine the alternative route
out of it? Options are available. In the explanatory notes, the
administration orders are described as
a
“scheme for those with
multiple debts totalling no more than £5,000, one of which must
be a judgment
debt.”
There is, as we
will see in a little while, a set of arrangements under what are now
called debt management schemes. The idea is to prevent people from
going into bankruptcy and to try to reach an arrangement that, in many
cases, comes to an end in a year, so that, in that time, matters can be
resolved by agreement and the creditors will accept that they will not
necessarily get all the money to which they are entitled. However, in
return, they will get some of the money and the debtor will honour the
agreement and pay that off.
The arrangement also seeks to
resolve a real life problem, which is that some people get themselves
into a financial muddle and do not have the financial wherewithal to
sustain the obligations. As we probably
all know from our personal circumstances, it is much easier to manage
one repayment arrangement than many. The people who get into the
biggest difficulty in life are often those who try to juggle repayments
here and there. If
people are being chased, quite properly, by creditors for money that
they are obliged to pay, from whom and where can they seek advice in
the court structure? The matter relates to the context of the court
structure, which will set out the sequence, or the best choice, for
people to follow. Again, that reflects our debate a moment ago; it is
about ensuring that we clog up the courts as little as possible, get as
much agreement as possible and that creditors who are owed money get
it, whenever possible. Above all, however, it is about debtors getting
into as little further difficulty as possible, with all the knock-on
effects and
consequences.
I bridge
that point, on my way to my second question, by reminding Committee
colleagues about figures that we all know. There is now record personal
indebtedness in this country. I have heard in the past few days that
that may just have levelled off. The figure in my head is some
£13 trillion, which is an incredible, almost unimaginable
figure. However, people are willing to consider debt, because of the
amount of mortgage that they can take out—five times their
income—and because of the number of consumer goods that they are
buying. This country is saddled with debt, which is fundamentally
problematical for Britain and not a sign of healthy long-term economic
stability.
Secondly,
in case we agree to this part of the Bill, particularly the part on
debt management schemes, has the Department conducted an assessment of
what that will mean in debt reduction? How many people will be
affected? In the Library research notes and the notes on clauses, I
have been able to find only the following figures. Paragraph 384, under
“Debt Management Schemes” in the departmental explanatory
notes,
says:
“It is
estimated that over 25,000 such debt repayment plans were arranged in
2004 and there are currently around 70,000 active
plans.”
I have not found
an assessment of the likely impact on indebtedness and the number of
people in debt. How many people are expected to be taken out of
indebtedness and out of the courts? It is an important generic issue as
well as a social policy issue.
The measures seem to be a good
idea. They are a welcome part of the Bill, and everybody has been
positive about them, but does research suggest that they will make a
significant or only a small impact? I should be happy to receive any
information that the Minister can give me or point me toward. It would
put the measures in the wider context of helping people get out of the
pressured position of being in debt, which causes people in our
constituencies illness, grief, family breakdown and worse. I hope that
the measures will take some small steps to alleviate
that.
Vera
Baird:
I do not accept the description of a nation saddled
with debt. Debt is important. It is difficult to live life without
substantial debt. I would have to live in a tent if I did not have a
debt called a
mortgage. The Government are worried about, and have taken the new steps
to address, debt that is out of control. Debt is a useful tool when
properly controlled.
We have altered,
extended and changed an existing system of coming to terms with debt.
It is a system of mutual undertakings whereby the debtor agrees that he
or she will pay off a certain amount and, as the hon. Member for North
Southwark and Bermondsey said, is relieved of the management of many
repayments. Creditors acquiesce in having their ability to take further
action restricted so long as the payments are
made.
That is of
course a court-controlled procedure. It will need to go to the courts,
so the options that we have been discussing—mediation,
alternative dispute resolution and so on—will have passed by the
time we get to such a position. There is no doubt that advice is
available. I chronicled its availability a few days ago. Agencies such
as citizens advice bureaux, law centres, solicitors, the Department of
Trade and Industry, financial advisers and advisers financed by the
financial inclusion fund are available, as is outreach to contact
people whose debts are causing them significant stress and difficulty.
One would expect that kind of advice to encourage an individual to come
to court to ask for such assistance. It is not inconceivable that, on
some occasions, the creditor might suggest it, and the individual might
take advice and see the wisdom of
it.
In so far as I can
help the hon. Gentleman, those are likely to be the mechanics of how
the helpful provisions will come into play in a troubled
individual’s life. I cannot give him any significant figures on
how many such schemes we expect to emerge. There is only anecdotal
material at present, and study is ongoing, but he is right that there
are about 25,000 administration orders a year. That must give some
guideline about what is likely to follow from the various versions of
debt management. I cannot say more than there are 25,000 orders a year
now, and that that number may exist in future. I am reflecting on
whether I have answered all that he asked—I think that I
have.
Question put
and agreed
to.
Clause 101,
as amended,
ordered to stand part of the
Bill.
Schedule
16 agreed
to.
Clauses 102
and 103 ordered to stand part of the
Bill.
Schedules
17 to 20 agreed
to.
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