Enterprise Bill

Part of the debate – in the House of Lords at 7:15 pm on 28 October 2002.

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Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords) 7:15, 28 October 2002

No, my Lords, I do not accept that. I had not finished my response.

Bankrupts risk losing their home. If a bankrupt owns or jointly owns an interest in a property, that interest falls within the bankruptcy estate and the trustee will seek to realise any equity. That can be done up to three years after the bankruptcy, irrespective of discharge. The bankruptcy will also make it very difficult to obtain a mortgage in the future. They could lose their job. The very fact that they are made bankrupt could lead to their dismissal; for example, being bankrupt can lead to one's being excluded from this House.

I do not accept what the noble Lord, Lord Phillips, said about the differences between the theory and what is on the ground. He did not present relevant arguments; but we cannot have that debate across the Chamber now. However, if I accept, for the sake of argument, what he said, that still has nothing to do with the period before discharge. That is the position.

I have been describing the position under current law, and it will not change. We are also retaining the current low exemption levels for assets and ensuring that in a bankruptcy or an individual voluntary arrangement, all of a debtor's assets can be taken into account, including future income. In fact, by introducing income payments agreements, we are providing an out-of-court route that will be quicker and more easily varied than the current system. An individual can enter into an individual voluntary arrangement only with the agreement of the creditors.

We are strengthening the bankruptcy regime to deal with the irresponsible or reckless by introducing the bankruptcy restrictions order regime. I say to the noble Lord, Lord Hunt, that the grounds listed in Schedule 20 for a bankruptcy restriction order, which he says are geared towards business, are not exhaustive; they mean that the courts can consider any misconduct. There are also grounds that could be used by consumers. Subparagraphs (h), (i), (j) and (m) could equally apply to consumers.

If the culpable are under any illusions that they will be able to use bankruptcy as a way to get in, get rid of their debts, and get out, they are mistaken. As I said, bankruptcy restrictions orders will impact on consumer and business bankrupts. The bankruptcy restrictions order regime will mean that instead of experiencing the effects of bankruptcy for three years, as is now the case, they could potentially experience most of those effects for up to 15 years. Those effects will include being unable to incur credit over the prescribed amount—it is currently £250—without disclosing their status and being unable to act as a director of a limited company. The fact of their bankruptcy restrictions order will be recorded on a freely available public register. That will no doubt be reflected on their credit record. Under those circumstances, can anyone seriously believe that bankruptcy is a soft option and that there will be a significant increase in the number of bankruptcies as a result of the changes?

The noble Lord, Lord Hunt, referred to the CEBR research. I do not want to give a full response but I stress that we took that criticism very seriously. Last week, we commissioned independent research into the significant part; that is, section 6 of the CEBR research. We commissioned it from Professor John Van Reenen of the department of economics at University College, London. The professor concluded that,

"the econometric work contained in Section 6 is so seriously flawed that it should not in any way be relied upon to judge the impact of the Enterprise Bill on personal bankruptcies".

I could continue on that theme, but I shall not do so because I believe the point has now been fairly made.

We have heard about the potential cost to the credit industry. We have listened most carefully to what has been said and have considered the wide range of factors that impact on a debtor's decision to enter bankruptcy. In particular, we have listened to the concerns expressed over early discharge. We have taken account of the views expressed both during the consultation and the parliamentary process. We have made changes to the proposed discharge period from the original six months to 12 months. We were only too willing to accept sensible suggestions to improve the bankruptcy proceedings provisions. We did so by way of government amendments.

I repeat: we do not expect all bankrupts to be discharged before the automatic 12-month period. It will happen only in those cases where the bankrupt was not at fault, where he has co-operated with the Official Receiver, where he poses no risk to the public or commercial community, and where all the investigative and administrative matters have been completed. Further, creditors will have the opportunity to object to such early discharge; indeed, we are committed to talking to interested parties on the draft rules. All this serves to convince us that the measures we propose to reduce the discharge period are more than balanced by our proposals for dealing with culpable bankrupts and for ensuring that those who can pay, do pay.

I am sorry that I have taken so long with my response, but clearly we are discussing one of the most important matters associated with this Bill. I turn, finally, to Amendment No. 53. I wish to comment on the way in which we propose to evaluate, monitor, and report on our proceedings. I have sympathy with the concept that new legislation should be monitored and evaluated. In fact, for many years I earned my living by doing just that for government. The Government have a manifesto commitment to more systematic reviews of major pieces of legislation. We are currently considering how best to achieve that aim.

As part of that process, we are committed to reviewing the Enterprise Bill not after three years, as Amendment No. 53 suggests, but within three years of implementation. In paragraph 11.2 of the regulatory impact assessment, we made it clear that the effectiveness of the new legislation will be monitored after it has been in force for a period of three years. I improved on that a short time ago by saying that that would be "within" three years of the Bill's implementation.

Therefore, without any hesitation, I can give the House a commitment that the substance of Amendment No. 53 can and will be implemented without any need for the matter to be on the face of the Bill. Indeed, it could not be on the face of the Bill in the form set out in Amendment No. 53. I am not at all sure that a "rolling study" is the correct definition of what needs to be done. Similarly, I am not at all sure that the matters set out in paragraphs (a) to (c)—with an "and" in between them—are the only considerations that apply. I do not know whether much of the amendment's wording would be appropriate. However, I am sure that we can carry out a review within a period that is no worse than the time-scale proposed in the amendment. That review will cover the points that I know the noble Lord, Lord Hunt, seeks to cover in Amendment No. 53. With that assurance, I hope that none of these amendments will be pursued.