I beg to move amendment No. 455, in page 171, leave out line 33 and insert—

'(a) in the case of an individual whose bankruptcy arises from the closure of a business or trade established or operated by that

individual, one year beginning with the date on which the bankruptcy commences; and

(b) in cases not falling within subsection 1(a):

(i) where a certificate for the summary administration of the bankrupt's estate has been issued and is not revoked before the bankrupt's discharge, two years beginning with the date on which the bankruptcy commences; and

(ii) in any other case, three years beginning with the date on which the bankruptcy commences'.

With this it will be convenient to take the following amendments: No. 44, in page 171, line 33, leave out 'one year' and insert 'two years'.

No. 430, in page 171, leave out lines 34 to 37.

No. 519, in page 171, leave out lines 34 to 41.

No. 520, in page 172, leave out lines 10 and 11.

The clause is extremely important, and we need a pretty detailed stand part debate when we have disposed of the amendments to pull together some broad issues in this part of the Bill and, I hope, to save time on debates on later clauses.

I apologise for suggesting earlier that, whatever else would interest and delight us in the final part of the Bill, there was nothing political in it. I have considered the personal insolvency provisions more carefully, talked about them at length and received substantial briefing from a variety of organisations such as the Consumer Credit Trade Association, and it is plain that there might be plenty of politics in the proposals.

If the provisions go ahead as the Government envisage them, there will be not only massive practical problems, but a major redistributive effect, especially if we follow the path of places such as the United States of America, Hong Kong and—dare I say it—Scotland, where similar changes to bankruptcy practice have had such an effect. On clause stand part, I hope that you will allow us to develop those arguments, Mr. Conway, as they are causing enormous concern in the credit and banking industries. The provisions are likely to have significant effects on those borrowing money as well.

It may help if I sketch out the three broad issues that need to be covered in this and subsequent clauses on the new personal insolvency regime. The first is principle, on which there is a divide between the Government and us as to whether it is outdated and unacceptable for an element of stigma to be attached to people engaged in personal insolvency. We shall return to the more philosophical aspects of that in detail.

The second issue is effect in the real world. Plenty of evidence from other countries in similar situations seems to confirm the strong feeling that the law of unintended consequences will kick in with a vengeance if we are not careful.

The third issue is resources, which we again want to consider in detail in a more general debate. However, I flag it up because it has specific reference to the clause. If we are considering a regime in which the majority of bankrupts will come out of bankruptcy within a year at most, and in some cases much more quickly, apart from the exceptions where a special bankruptcy

restrictions order is made, will the resources, let alone the time, be available to investigate those cases fully? Will there be a rubber-stamp system, in which people's assets and ability to pay back their creditors are not gone into in any depth? Some American states take the idea to its extreme, and people can come in and out of bankruptcy within 28 days. That strikes us as phenomenal, but we need to probe further on exactly how the Minister thinks that the provisions will work.

I want to take up some general points that were made about the amendments, but if you will permit me, Mr. Conway, I shall deal with them later in more depth. Amendment No. 455 tries to deal with a central problem. Unlike the law in some countries, English law treats business and consumer bankruptcies in more or less the same way. The Bill will not change that. Its declared aim is to encourage enterprise, but we have a slight suspicion that Ministers do not understand the meaning of the word, or how it operates, and they certainly do not understand the effect that the Bill will have on the business community. We would have had precious little to say during our many enjoyable sittings were it not for the business community's legitimate and deep-seated concerns about many of its aspects, of which this is one example.

If we accept the premise that the Bill is designed to make bankruptcy a more attractive option for entrepreneurs, it seems, at least in theory, that there can be no objection to limiting its effects to those people. Of course, the effect on consumer bankrupts will be much more serious not only for them, but for the economy as a whole because of the likely expansion of insolvency as a result of this part of the Bill.

We cannot see how a sharp increase in consumer bankruptcies can possibly be good for business. Indeed, we would have thought that the opposite is true. It is a basic tenet of business that customers should pay for what they receive in goods and services, which is why amendment No. 455 would limit the new fast-track approach to business bankruptcies. If the justification for the Bill is that it should encourage entrepreneurs to take risks, to try, to fail honourably and then to try again and eventually get it right—we have problems with some of that premise, but I shall return to it in a moment—why not build that into the Bill? That is what we suggest.

I want to look in much more detail at the American experience. Much of the Bill is based on superficial ideas of what happens in the United States of America. We know that the right hon. Member for Hartlepool (Mr. Mandelson) went to the States and came back with impressions about how such provisions could be transported to the UK. Indeed, we know that the Chancellor, whom I believe to be responsible for much of the Bill, has a narrow and often misconceived admiration for what happens in the USA.

We believe that the Bill will have a different effect if we are not careful about its drafting. Speaking of the right hon. Gentleman, I am sure that the Committee shares my shock and horror that no less a personage than the Deputy Prime Minister has been overheard

saying that Hartlepool is the only place in the country to be represented by two monkeys. I hope that the press made up that story.

I do not claim that the drafting of amendment No. 455 cannot be improved. It is a probing amendment, but it draws a sharp distinction between consumer and business bankruptcies. Amendment No. 44 takes a rather broad-brush approach by changing the period of one year to two. It reflects our worry over whether the resources will be available, even for the current number of bankruptcies each year, let alone the likely increase, to make proper inquiries.

Amendment No. 430 is designed to limit the period to a year and no less. We take the view, and many practitioners agree, that a set period is desirable, as it will prevent variations in practice, procedure and resources from causing variations among different official receivers' offices. It is not a seamless service—even the Under-Secretary would not claim that—and different offices are under different pressures. Hon. Members will have found that from their experience of constituents' problems. If the discharge period is to be limited, let us make it 12 months.

Another issue raised by the practitioners, particularly PricewaterhouseCoopers, is that an early discharge may inhibit a private sector trustee when applying for an income payments order. Such an application must be made before discharge. As trustees are rarely in office within two months, and often not within three, there is little time to make the necessary inquiries, instruct solicitors and make the application.

There is also a worry that variations between official receivers' offices may lead to windfalls being available to creditors in some cases, while others remain with the discharged bankrupt in similar cases elsewhere. It is possible to envisage a situation in which a person in a business—perhaps authorship—with enormous variations in income knows that they are due to receive a large sum a year or two down the line. They could go in and out of bankruptcy, avoiding problems with previous creditors, and then receive that income scot free. That would certainly be possible without a thorough investigation of such a bankruptcy.

Official receivers, again as PricewaterhouseCoopers point out, will take on additional responsibilities, particularly bankruptcy restrictions orders and individual voluntary arrangements, which we shall discuss in more detail later. However, it is unlikely, unless the Under-Secretary has good news for us, that significant additional resources will be available, and compiling reports on early discharge will be an additional burden. With an automatic 12-month discharge, that reporting function will be unnecessary, as it is under existing legislation. In the past few months, I have asked a series of written questions about the pressures on the official receivers under the existing system. We might discuss that later.

Amendments Nos. 519 and 520 have a similar thrust—they are designed to establish a fixed period of 12 months. If we are to go down that route, we should

at least have a minimum period for people coming out of bankruptcy. It will be quite tight, based on experience under the existing arrangements, for all such cases to be investigated thoroughly within the 12 months. There will be an understandable temptation for what appear to be simple, straightforward cases to be rushed through and discharged quickly. A sensible approach to allocating resources by individual official receivers' offices will achieve that, but what appears to be simple and straightforward may not be so. On clause stand part, we want to discuss in detail the practical experience of other countries.

The amendments are just the start of the debate on this area of personal insolvency, and I shall be fascinated to hear the Under-Secretary's response.

Like my hon. Friend the Member for Eastbourne, I plan to say a lot more about the aspects of principle that are at stake when we debate clause stand part. I feel discomfort at the idea that bankrupts will be able to get off as quickly as within a year. Representations that we have received, including recent ones from the National Association of Citizens Advice Bureaux, imply that because people get into debt they should have an easy route to bankruptcy. That is an uncomfortable state of affairs. Several such proposals appear in clause 258, which we shall discuss in more detail later. However, in so far as individuals find themselves in great debt and paying high rates of interest to moneylenders, that is a matter for the laws on usury rather than those dealing with bankruptcy.

On Amendment No. 455 I would like to know whose interests the Minister regards as being best served by a fixed discharge period. Surely, it is a matter of fact rather than of law as to when a bankrupt has satisfied various requirements in order to be discharged. A one-year period is too short, for reasons of resourcing and practicality that have already been discussed. Moreover, as I have said, it is a matter of fact, and a fixed limit—which will no doubt become a target limit—will place administrators under pressure to rush things through more quickly than they should. That would be to the detriment of creditors, who deserve our protection as well as individuals seeking to rely on new bankruptcy rules.

I understand the DTI's point of view and its desire to be clear and certain about these matters. However, personal bankruptcies can be very complicated or very simple. It may be that the bankruptcy can be sorted out in a matter of months, particularly if friends of the bankrupt are able to lend money and allow for the bankruptcy to be discharged in a short period of time, but each bankruptcy is a matter of fact and trying to use a 12-month limit as a template is not the right way to proceed. What is the Under-Secretary's thinking on the matter?

I am concerned about the Government's new approach to bankruptcy as embodied in the clause. I understand that it is necessary to find ways to encourage people to take risks. However, increased rewards are often available to those who take risks. That is a balance,

about which people have to make a decision. I have seen so many people ruined not once or twice but three or four times by people who have been bankrupt, escaped from the provisions and learned no lessons, except how to become a better criminal and find new ways of swindling people out of their hard-earned cash. I am concerned that we are not sending out the desired message—that we are encouraging enterprise and innovation and that we recognise that they are the lifeblood of the country—but a message that allows people to say, ''Here is a new escape clause from my responsibilities towards those with whom I have done business.'' I am exceedingly concerned.

To an extent, I share the scepticism of the hon. Member for Eastbourne of politicians, particularly Labour politicians, going to the USA, seeing something that looks superficially good but is embedded in a particular nation's business culture and believing that it can be transposed into a different culture and country. Very often, the exchange of ideas brings improvements that would not otherwise have been possible. However, I have to repeat that, in my 10 years of advising small businesses, I have met an awful lot of people who, if they are not crooks, love being on the brink and pitting their wits against not only the people with whom they do business but the system, creating loopholes through which to escape from their difficulties.

I will treat the amendments as probing amendments, but they bring out a flavour that is necessary to this debate and of which we must take note. People may remember the case of Freddie Laker, which perhaps brought bankruptcy into disrepute with the general public. He crashed his aeroplane company—sorry for the metaphor—and walked away, and was running another aeroplane company in a few days. That was on the corporate side, but he was the individual concerned. Would he be considered reckless under the new regulations? The thousands of travellers who lost their money certainly felt that he was.

As I have said, I am worried that we are giving the receiver the power to decide what is reckless. I am not sure whether we know what the ground rules are; the Under-Secretary must tell us how we will determine what is reckless and what is entrepreneurship that should be applauded. As the hon. Member for Eastbourne said, we need to know what arrangements there will be for dealing with what will undoubtedly be the greater number of people processed through the courts as a result of the 12-month rule. We need the answers to those questions.

To underline my point, I should say that, as a Labour Member of Parliament, I remain deeply suspicious of people who often get into trouble, not because they cannot avoid it, but because they do not take proper precautions. To take a simple example, a person's business might be doing very well with one or two customers, but he may fail to take out appropriate insurance. If one of the people with whom he deals goes down the pan and cannot pay him, there will be a ripple effect, and he will be unable to pay others. That will be because he ignored the opportunity to take out

cover, insurance and bonds, and did not run his business properly.

An awful lot of people who run small businesses should not be allowed anywhere near them. John Harvey-Jones was quizzed about the difference between American and British culture. The interviewer said, ''Sir John, you're aware that almost every city, town and small village in America runs an MBA course. If this country wants to play catch-up, should we not make similar provisions to enable people to go on courses and understand much more about their businesses so that they do not get into so much trouble?'' John Harvey-Jones was a trouble-shooter; people might remember the television show. He replied, ''I've been going round this country looking at small businesses, and I'd be pleased if people in some of them could even read a balance sheet, let alone do an MBA.''

We seem to be ignoring the education that is required to run a business. Let us consider other countries. The French, for example, will not let people join the chamber of commerce unless those responsible are satisfied that applicants can run a business properly. Other countries have similar restrictions, but we think that people can somehow simply start a business, and to hell with knowing anything about it. We think that they can simply muddle through as amateurs, but an awful lot of them get hurt.

We may be doing so inadvertently, but I cannot help but think that we are sending the wrong message on bankruptcy for individuals. If we are going to tell people, ''It's not always your fault, so let's get you cleared up and back on the road,'' we should also tell them at least to try to take some advice before starting a business. That might avoid the tragedies that often result.

I did not intend to contribute to this part of the debate, but I have been emboldened by the speeches of the hon. Member for Wolverhampton, North-East (Mr. Purchase) and of Conservative Members.

I well recall the issue being discussed on Second Reading, when the Under-Secretary said that the Government wanted to remove the stigma from bankruptcy. Thinking out loud, I asked what was wrong with stigma, and was accused by colleagues of being excessively Presbyterian. We all have our own backgrounds and bring our own baggage to issues, and I can think of worse insults that might be slung at me.

I have profound reservations about the clause, which stem from the same genesis as those I have already expressed. I recognise that its purpose is to strike a balance, and I take the Under-Secretary's point that we need to encourage enterprise, but I am not convinced that the bankruptcy proposals achieve that. Enterprise must be encouraged all round.

Other members of the Committee have made the observation, with which even I cannot argue, that my constituency does not contain many large public limited companies. I have a particular concern for small businesses, which are often left most damaged by business failures—as the hon. Member for Wolverhampton, North-East implied—because they

are least able to absorb losses. I see nothing in the Bill to comfort small businesses, which may run on a modest and conservative model and are uninterested in taking big risks; they are the ones that suffer most.

I share the concerns expressed about the practical implications of the measures. Clearly, a significant rise will occur in the number of cases processed. What measures will be implemented to ensure that the structure proposed is workable, even if it is undesirable? A new bankruptcy structure with whose philosophy people have reservations will be completely discredited if it does not work efficiently.

My final point may not be necessary, but in the current climate it is best to err on the side of caution. I referred to small businesses in my constituency, and I should inform the Committee that my wife is setting up a small business as part of a veterinary practice in Kirkwall.

I am grateful to hon. Members for their wide-ranging comments on the amendments. I shall do my best to respond to them, although I may have to repeat some of my remarks during the clause stand part debate if it turns out to be a long one. It will be difficult to reply to hon. Members' comments without making general points about the amendments.

The hon. Member for Orkney and Shetland, with his Presbyterian instincts, picked out the word stigma. The fundamental point is whether that principle is appropriate in relation to bankruptcy, as the hon. Member for Eastbourne said. I should remind hon. Members that we are talking about personal insolvency, as it is easy to forget that that is a fundamental tenet of the argument.

I agree with the hon. Member for Orkney and Shetland that we are trying to achieve a better balance between those who are stigmatised for good reason, because there are those who should be stigmatised—by the way, I do not have a problem with the word stigma either—and those who are stigmatised despite their bankruptcy being no fault of their own. We are not trying to do away with the idea of stigma, as my hon. Friend the Member for Wolverhampton, North-East suggested; we are trying to ensure that the stigma attached to bankruptcy restrictions orders relates only to those who are reckless bankrupts. Tighter provision exists under the bankruptcy restrictions orders, which I will discuss in more detail in a moment.

Does the Under-Secretary have a very rough idea—what the Americans would call a ballpark figure—of what percentage of personal insolvencies will involve bankruptcy restriction orders once the Bill becomes law?

I do not have an estimate to hand, and I am not sure that we could produce one, but hon. Members should bear in mind that in looking at the new arrangements, the official receiver and the courts will make decisions about who is reckless, and that will be a matter for the courts rather than for anyone else.

The hon. Member for Eastbourne is picking his expressions from across the Atlantic while chiding us for slavishly following the United States. I want to lay a myth to rest. Our bankruptcy proposals reflect the clear need to modernise the bankruptcy regime in the United Kingdom. In doing so, we have tried to strike the balance to which the hon. Member for Orkney and Shetland referred, between the interests of bankrupts and their creditors. We looked at the situation in several countries, not only in the US, and we aimed to retain those aspects of the bankruptcy regime in this country that we believe work well. The basic position is that if bankrupts can pay, they should pay. That is not currently the case in the US, where the existing regime contributed to the problems that they are experiencing.

I believe that changes are taking place in the USA that represent a convergence towards the position in the UK. I entirely refute the allegations made by the hon. Member for Eastbourne that we are slavishly following the US and taking the route that has led to problems there. We accept that there are problems in the US and are not adopting the same regime. If anything, they are moving towards the position here.

Amendment No. 455 would draw a distinction, as the hon. Member for Eastbourne said, between business and consumer bankrupts, by proposing that the reduced discharge period should apply only to business bankrupts. In the light of that, my hon. Friend the Member for Wolverhampton, North-East should reflect on how far he shares the views of Opposition Members in certain respects. The remainder would be left with the existing provisions and, therefore, would not benefit from any reduction in stigma or early financial rehabilitation. I am not sure why the hon. Member for Eastbourne tabled the amendment, which relies on a clear understanding of the distinction between consumer and business, because although he mentioned the distinction several times, he did not give any real definition. A sharp distinction cannot be drawn. It is impossible to disentangle debts that someone may have incurred ''as a consumer'' from those that they acquired in a business capacity.

With respect, the Under-Secretary is over-complicating the obvious. It is perfectly clear from the first subsection of the amendment that the provision simply relates to the case of a bankruptcy that

''arises from the closure of a business or trade established or operated by that individual''.

That seems to draw a workable and clear distinction.

Whatever legal provisions are made and whatever regulations exist, those who want to subvert them will find ways around them. If a distinction of this ilk is made, somebody wishing to load things on to either the business or the consumer side of their dealings could easily take on debts that related to one part of their activity but represent them as relating to the other. In that arena, there is no easy way to make the distinction. An individual could be made bankrupt for reasons unconnected with his business or there could be a combination of business and personal indebtedness. It is often difficult, if not

well nigh impossible, to pinpoint whether the cause of the bankruptcy was the failure of the business and, therefore, to which category of bankrupt the person might belong were one to operate with that kind of distinction in mind.

Business bankrupts have consumer debts as well. The failure could be entirely due to the level of consumer debts; the business might be profitable. There is no logical reason why a business person should be given a shorter discharge period than a consumer bankrupt with smaller debts who is bankrupt because he has lost his job. That is unfair. The treatment of bankrupts, whether business or consumer, should be the same where the conduct leading to the bankruptcy is similarly culpable. That is why the Bill introduces the bankruptcy restrictions orders to differentiate between bankrupts—both business and consumer—whose conduct differs. Those who have behaved in a reasonable way are considered to be bad-luck bankrupts while those who have behaved recklessly should be subject to BROs. That is much fairer than the arbitrary distinction that the amendment proposes. For those reasons, I urge the Committee to resist the amendment.

Amendment No. 44 seeks to replace the proposed 12-month discharge period with one of two years. The discharge period is set at one year in order to reduce the stigma of bankruptcy and to encourage entrepreneurs to start new businesses, or to restart in cases in which they failed through no fault of their own. In most cases, the official receiver will have reached an initial view about a bankrupt's conduct within eight to 12 weeks of a bankruptcy order, when a report is sent to creditors. If the creditors contact the official receiver with further information, they normally do so shortly after receipt of that report. That allows sufficient time for further investigation. Information that is received after 12 months can be used to support criminal prosecution. The legislation will allow for a bankruptcy restriction order after 12 months by leave of the court.

We do not expect all bankrupts to be discharged before the 12-month period expires. That will only happen if the bankrupt co-operates fully with the official receiver and if matters raised by the creditors are investigated to the satisfaction of the Insolvency Service. If the grounds are not satisfied, the discharge period will stay at 12 months. Again, we are not talking about reckless bankrupts. There will be the tougher regime of the BROs, with the process that I have outlined, for bankrupts whose conduct has been reckless, irresponsible or otherwise culpable and, as bankrupts, they will have restrictions of between two and 15 years placed on them. I reassure my hon. Friend the Member for Wolverhampton, North-East that the difference between the two regimes is very important. The second, the BROs, reflects the seriousness of reckless bankruptcy.

I do not want to harass the Minister, but it is exceedingly important to know what we mean by reckless and not reckless behaviour. In my experience, people who understand the nature of their business and take care over understanding how it is doing make arrangements to wind up the business

long before bankruptcy is on the horizon to ensure that they will not be left with creditors. Experience is important; some academic understanding of bankruptcy is no substitute for what happens to small businesses on the ground.

I appreciate my hon. Friend's points. I reassure him that matters are dealt with not by someone with a purely academic understanding of bankruptcy, but by official receivers who deal with such things all the time.

Earlier bankruptcy would be a key factor taken into account when deciding whether an application for a bankruptcy restriction order should be made. Serial bankruptcy is likely to raise issues immediately. It is much more likely, although not inevitable, that under such circumstances the bankrupt will find themselves subject to a BRO.

I shall return to a couple of earlier points raised by my hon. Friend the Member for Wolverhampton, North-East. First, the recklessness of Freddie Laker would now be tackled by the regime for company director disqualification, which gives substantial periods—I believe it is up to 15 years—for the disqualification of directors. That would be a different way of tackling a serious issue.

My hon. Friend also raised the question of multiple bankrupts, which we are addressing from a number of angles. Little can be done through the present regime to tackle those who abuse creditors except for prosecution, which, as my hon. Friend will appreciate, comes with a high standard of proof. The BRO regime will solve the very problem of which he talks, as the civil procedure will enable effective action to be taken against people on a lower standard of proof. There will be new ways to tackle problems, which I agree are serious and need tackling.

The court will decide whether an order should be made on the facts of the case. It will take specific account of the fact that the bankrupt may have been bankrupted more than once. For company director disqualification, case law will develop over time and previous judgments will provide guidance on what constitutes culpability, and on the length of orders. That approach has received wide-ranging support. In its response to the White Paper, the CBI commented:

''The grounds should not be over-prescriptive. The court should be left with sufficient discretion to make a judgement upon the known circumstances.''

The hon. Member for Eastbourne made wide-ranging remarks about our understanding of enterprise and support for the Bill. Its main measures have received support from all sorts of business organisations, including the CBI, the British Chambers of Commerce and the Federation of Small Businesses.

On amendment No. 44, in the majority of bankruptcies most administrative work is completed within the 12-month period in the Bill. In any case, the ability to realise assets is not affected by discharge.

On amendment No. 44, for the majority of bankruptcies, most administrative work is completed

in the 12-month period proposed in the Bill, and the ability to realise assets is not affected by discharge. The Bill implements bankruptcy restrictions orders to deal with rogues and could impose restrictions for up to 15 years. Furthermore, the ability to suspend the discharge period for those bankrupts who do not co-operate with the official receiver or trustee will remain, as will most of the existing criminal offences. There will be no lightening of the context in which the measures are being introduced, so going bankrupt under the new proposals will not be an easy option and will be no more attractive to rogues than the current regime. Indeed, I believe that it will be less attractive to them. However, some people become bankrupt through no fault of their own, and we believe that a distinction that has never existed in this country should now be made.

Amendments Nos. 430 and 519 would remove the possibility of discharge from bankruptcy earlier than one year from the date of the order. Amendment No. 519 would also remove the right of the official receiver or trustee to apply for suspension of discharge in cases of non-surrender and non-co-operation of bankrupts in the proceedings. I assume that hon. Members intended line 1 on page 172 to be omitted, otherwise paragraph (b) of new section 279(3) would be cast adrift with no purpose. In any event, we do not support the amendments. Our policy is to move from a ''one size fits all'' regime to one in which the discharge period reflects the circumstances of the case. The amendments go in the other direction and would recreate a ''one size fits all'' approach.

We do not expect all bankrupts to be discharged before the automatic 12-month period. That will happen only in a straightforward case when the bankrupt co-operates with the official receiver and any matters raised by creditors are investigated to the satisfaction of the Insolvency Service. The period will remain at 12 months if those grounds are not satisfied. There is no merit in preventing bankrupts who failed through no fault of their own from getting through the process as quickly as possible. That will be a factor, but only a factor, in encouraging potential entrepreneurs to restart or to start up in business and to secure their financial rehabilitation. I accept the point made by my hon. Friend the Member for Wolverhampton, North-East that many other issues to do with people's fitness to run a business must be taken into consideration.

When the administrative work on a case has been concluded, and if there are no issues of public protection, it is difficult to see any advantages or any purpose to the amendments other than a punitive one. Specifically on amendment No. 519, no purpose would be served by removing the ability to suspend a bankrupt's discharge. It is an extremely effective sanction against those who decide to ignore their obligations, so I am not sure why that was suggested. Indeed, the purpose of subsection (3) is to extend the power to enable a trustee to make a suspension application without having to refer it to the official receiver, as he does under the current regime.

Amendment No. 520 would remove the discharge cross-reference in new section 279(6)(b), the purpose of which is to help the reader when reading the section. The amendment may be consequential to another amendment, but if it is not, one is left wondering what would happen to someone who is subject to a criminal bankruptcy order and discharged by application under section 280.

I may not have gone through all the points of general principle, but I want to respond to a point on which the hon. Member for Eastbourne commented specifically on compiling reports on early discharge and whether that is an additional burden on the official receiver. The official receiver already reports to creditors in every case, and we hope that in the majority of cases the notice to which the hon. Gentleman referred will be combined with those reports. I reassure him about the nature of the process and how it would be incorporated into existing processes. There may be other more general issues of principle to which we will come during the stand part debate.

As the Under-Secretary rightly says, there are various points of principle that I do not want to labour now because we will come to them during the stand part debate. However, some matters in her reply still concern me. She is reluctant to give us any estimate either of the percentage of cases where a bankruptcy restrictions order might be thought appropriate, or of the proportion of bankrupts who would come out of bankruptcy in less than 12 months. I know that it is difficult to come up with an accurate percentage, but how on earth do the Government form a judgment on resources for official receivers' offices without at least a vague idea of those proportions?

On a point of information, the excellent résumé of the Bill by the Library points to a parliamentary answer suggesting that the estimate of bankrupts who are culpable is between 7 and 12 per cent. That was based on the official receiver having prima facie evidence of criminal acts.

That is very helpful, and I recall that estimate being bandied about. It is a mystery to me how it was arrived at. As I think the hon. Gentleman pointed out, it is based on criminality, but that is not what we are talking about.

The Under-Secretary has a fond notion, which I think is a massive problem with the clause, that there are two rather simple categories: culpable and non-culpable bankrupts. They are, first, the bad-luck bankrupts, who through no fault of their own, or even an inability to foresee what might happen as the hon. Gentleman suggested, find themselves facing insolvency, and, secondly, the bad guys—the rogues or the reckless. Those are difficult definitions; much of our debate will be sterile because we do not know how those definitions are to be given flesh in practice.

I made a point on Second Reading, to which we will come in more detail, that there are actually at least three categories. There are the rogues or the reckless, the bad-luck bankrupts, as the Under-Secretary calls them, and what I call the pathological optimists, who get up every morning fully intending to make the

world a better place, and are not crooked in any sense, just wildly incompetent. They leave as much of a trail of devastation behind them as the Maxwells or the Lakers. Those distinctions are difficult to make. The Under-Secretary went to some length, showing a certain sensitivity, to deny the US provenance of the changes and suggested that somehow a convergence with the US was going on. We shall consider that in more detail.

I simply do not accept what the Under-Secretary says about the problems of defining business versus consumer bankrupts. There will be marginal cases, but it seems to me that someone cannot make up the fact that they have been in business simply as a way of getting into the other category. The only real justification, the whole case for the clause, is to encourage entrepreneurs, although I do it a disservice by summarising it quite that shortly. There is absolutely no place in the legislation for helping people with what are primarily consumer-debt bankruptcies.

The only difference between myself and the Under-Secretary is the problem of definition. If she does not like the way in which we, or the Consumer Credit Association, have defined things, let her Department bring the battery of intellect that it has at its disposal to work on the issue. It is not a question of principle that divides us; it is simply a matter or practical drafting. On that basis, I shall be happy to seek leave to withdraw the amendment.

The Under-Secretary claims business support for the proposals, but I am afraid that in debate on clause stand part and later clauses such support will become less obvious, as there are real concerns about the provisions and major alarm bells ringing throughout the credit and banking industries. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

As I said earlier, it will be convenient for the Committee to have a fairly substantial stand part debate on the clause, enabling us to return to the general points that the Under-Secretary touched on in her reply to the previous group of amendments, and to foresee and deal with some of the major philosophical issues that crop up throughout this final substantial part of the Bill.

We have to take as our starting point the Government's avowed intention. The avowed intention of the provisions is to encourage risk taking, entrepreneurship and enterprise in the British economy. It is right to say that some people might fail any number of times, for perfectly genuine reasons, although let us be clear that they will leave creditors. The one thing that all the bankrupts will have in common is that they will leave people behind who will be owed money. They will often be large organisations, such as banks, but if they lose money on one loan, they might be unable to offer a loan to someone else further down the road. I shall discuss some of the evidence from such organisations later.

Small businesses can also be involved, as the hon. Member for Orkney and Shetland pointed out. If a small business goes bust in his constituency, the main losers, apart from individuals, will be other small businesses. There will be a knock-on, or domino, effect.

Another point of principle is whether there should be stigma. We Catholics know about stigma—or stigmata—as much as the Calvinists among us. At the end of the day, the lenders of last resort for many individuals and small business men are their family and friends. They are often the people who try to bail them out when matters become desperate and who end up out of pocket. Whatever the reason for bankruptcy, whatever the blameworthiness or otherwise and luck or bad luck of the bankrupts, there will always be people left to pick up the tab. Those people might be very close to the individual concerned.

If the Tory party is anything, it is the party of business, the free market and industry, and we recognise that people sometimes have to fail first. There are any number of highly successful business men around the world who did not succeed in their first, or even their second or third, venture. We understand that. Someone once said that failure is an orphan and success has many fathers. Everyone is happy and smiling, particularly the bank manager, when matters are going well, but successful businesses are often built up by men and women who have been honed by the problems of coming through a past failed business venture.

We want to develop three basic issues in some detail. One is the question of principle—whether there should be stigma and who the losers are in such situations. Secondly, what are the effects in the real world? Are we going to end up with a rogues charter, with limited examination of many bankruptcies? Thirdly, are the resources going to be available to deal with them?

I have had a submission from the Bankruptcy Association—I do not know whether other hon. Members have had it too. It seems to be one of the organisations that do not feel that their views have been sought or taken much account of. I am not sure what qualifies one to be a member of the Bankruptcy Association, but we shall glide over that issue. It makes a couple of points that, from the briefings that I have seen, I do not think anyone else has made. They are two issues that were previously mooted, but that did not appear in the legislation.

One of those issues is the idea of financial counselling for bankrupts. I should be interested to hear what the Under-Secretary has to say on that. I shall pick out one or two points from the National Association of Citizens Advice Bureaux briefing in a moment, although we all know of the massive burden that falls on local citizens advice bureaux and the enormous shift that they have had to make in their own arrangements and resources, certainly in my time as a Member of Parliament, to deal effectively with debt counselling. As I recall, there was a suggestion that such advice be provided on a more reliable and comprehensive basis, instead of simply from people such as those working for citizen advice bureaux.

The other issue that has disappeared from the Bill—again I should be interested to know why—is the protection of a proportion of the equity in a family home.

The citizens advice bureaux have produced some good briefings, which I shall not go into at enormous length. I have referred to the debt advice service that they provide. They welcome what they call the emphasis on ''rehabilitation of debtors''. They make the point about the affordability of bankruptcy, which I hope we shall debate under new clause 9 if we have time. For now, I simply flag up the fact that the citizens advice bureaux say that many of their clients for whom bankruptcy would be a practical option cannot afford to go bankrupt because they cannot afford to pay the deposit to the Insolvency Service. They helpfully set out in considerable detail the sorts of problems that they face week in, week out, in providing debt counselling to many thousands of people.

Like other organisations, particularly consumer organisations, the citizens advice bureaux broadly support what the Government are trying to do. However, there is another side to their views: despite all the consultation and everything else that is purported to have taken place, I was struck by the strong views about the effects of the proposals that were expressed in some of the briefings that I and other hon. Members have seen.

The Finance and Leasing Association, which represents 25-plus per cent. of all the fixed capital investment in the United Kingdom and 28 per cent. of all the consumer credit, tells me:

''We wholly support the Government's aim of encouraging enterprise in the UK.''

Fine so far, but the association has considerable reservations about the reduction in the period for automatic discharge as set out in the clause, saying that it

''will mean it is viewed as a soft option.''

That is worrying. The Under-Secretary of State has not said so in terms, but if one reads between the lines, it is clear that what is envisaged is bankruptcy more or less without stigma, except for the rogues and the wreckers.

There are some parts that the Government cannot reach, as it were, and I have a shrewd suspicion that whatever we pass in the Bill, in Orkney and Shetland there will still be stigma involved in personal insolvency. In other parts of the cappuccino economy, that stigma may have largely vanished—who knows? Attitudes are sometimes slow to change, but let us be clear that in this clause as in the rest of this part of the Bill, the aim is to change people's attitudes as much as anything else. We are attempting to change the perception of personal insolvency in this country. Before even considering the practical consequences of the Bill, we must consider whether that is what we want to achieve and whether it is worth achieving.

Representations from the Finance and Leasing Association show that its members are not happy bunnies. On 31 January this year, the Association's director general, Mr. Martin Hall, met the Under-Secretary of State, which I am sure was a great pleasure for both of them,. The association says that

''despite receiving an undertaking that the Minister would try and encourage greater dialogue between the Bill Team and industry we were not even able to facilitate a meeting with the Team. I believe that the 'deluge' of briefing papers shows that we were not alone.''

That is worrying, given the association's massive responsibility for business and consumer lending in our economy.

A partner at PricewaterhouseCoopers, Mr. Patrick Boyden, made the obvious point that

''most bankruptcies are the result of consumer credit, not failed enterprises.''

Worried that reducing the stigma might encourage people to take on the wrong sort of financial risk, he said:

''Warning should be heeded from America, where a more friendly attitude towards consumer debt has led to a bankruptcy rate which is about 10 times the rate in the UK in relation to population.''

He went on to make a more chilling point that suggests what dangerous waters we might be entering. A survey in March revealed that almost half of first-time house buyers planned to borrow the cash needed for their mortgage deposits. I did not know that one could borrow a deposit, but presumably there are people out there are who are prepared to lend the money. If that figure is accurate, it is worrying, because it means that people are getting seriously over-extended in our very bullish property market.

I shall not delay the Committee, but I could cite statistics about people who do not simply borrow their deposits, but re-mortgage their properties, not to build a garage or something like that, but to improve their personal finances and pay off some of their consumer debts. That is a worrying trend. Against the background of sharply increasing consumer debt and much-increased borrowing of both mortgages and deposits to buy homes, the experience and advice of the consumer credit industry is important.

There seems to be clear blue water between the Opposition and the Government on that issue. The Under-Secretary of State would prefer us to focus on Scotland or Hong Kong, but I shall stick with America, where there is a political divide on bankruptcy. The Democrats are supportive of easier bankruptcy, while the Republicans regard it as a redistributive remedy that they oppose as anti-business and out of control. It is constructive to consider the American experience, although the Under-Secretary of State does not think so.

The hon. Gentleman seemed to suggest earlier that it was not at all useful to consider that example.

There is a world of difference between considering the American experience and following it. I am merely trying to show where we might end up if we follow the Government's agenda, and America is a good place to look in that respect.

The USA has fewer small business bankruptcies than the United Kingdom, therefore our regime is already more supportive than America's of risk taking. Most of the 1.5 million bankruptcies a year in the USA are nothing to do with business but involve consumers wiping out unwanted personal debt. For that reason, the Government must find a way of distinguishing consumer debt bankruptcies and business bankruptcies.

There is a potential for redistribution; if house prices collapse or falter, the provisions could allow debtors to wipe out any unsecured mortgage overhang. The credit community has expressed concern about student loans, as students could use the law to wipe out loans from commercial lenders, leaving them to start out their careers unburdened by debt. That idea would be very attractive to the students, but lenders would have to reconsider their lending policy if it were acted on.

If the effect were to restrict the supply of credit in the economy, as the Consumer Credit Association suggested, there may be even more bankruptcies as a result. Most such organisations predict that obtaining credit will become more cumbersome and that wholly unsecured credit will become a thing of the past.

I am trying to find my way through the hon. Gentleman's contradictory statements. He seemed to argue a moment ago that consumer credit was too freely available, but now he argues that it will not be freely enough available.

Unusually, the Under-Secretary of State is not paying attention. I am describing the position that may be created by the new laws contained in the Bill. Consumer credit might become more restrictive in terms of both its availability and the conditions that are applied. The Consumer Credit Association says:

''wholly unsecured credit could become a thing of the past. In other words, lenders will increasingly ask for security or for a guarantor.''

So the sort of people whom the Government are trying to benefit might be worse off under the Bill, because they are less likely to have assets or know people who are in a position to guarantee their borrowings.

I am reliably informed that another feature of the US market is that, as a result of the US approach to bankruptcy, a whole new sector of predatory lenders has sprung up to service the marginalised group who cannot get credit anywhere else. Most commentators would agree that notions of responsibility in the USA have been eroded simply by the ease with which bankruptcy can occur. It has also been estimated that the average American family pays $400 a year for the cost of bankruptcy across the US economy.

There is another practical issue. As the Under-Secretary of State will know, credit reference agencies tend to keep their records on consumers and their credit ratings for six years. If, as part of the Bill, the Government aim to make it easier for consumers and businesspeople to go in and out of bankruptcy, does the hon. Lady accept that a consumer with a bankruptcy record is unlikely to be able to get credit even if they come out of bankruptcy within 12 months or 2 months or whatever period? She wants to

rehabilitate those who have become bankrupt, for whatever reason, but does she accept that under the current credit system the Bill might have no such effect for many individuals?

Does the hon. Gentleman share my view that any local bank manager with any business experience would be highly suspicious of a bankrupt coming after 12 months to borrow more money or to set up any kind of business? Would not that manager take a very deep breath before committing any further funds? That underlines the point that the 12-month period will be a dead letter.

One of the consumer credit industry's concerns is that the Government have not forgotten about that problem but intend to deal with it in a different way. Do the Government intend to change the system through the Information Commissioner, so that it is a matter of changing data protection law? How, if at all, is the question of credit records to be dealt with?

I referred to some examples of people trying to evade their responsibilities. Has the Under-Secretary of State seen the April edition of Credit Today? I gather that it contains a detailed investigation of the possible student bankruptcy scenario. In America, bankruptcy has become a regular device for allowing people to take advantage of private health care. They go bankrupt so that they do not have to pay their dues.

Another issue that the Consumer Credit Association has raised before in relation to the Bill is that in the regulatory impact assessment the Government say that the changes would not have a significant effect. However, I do not see how the Under-Secretary of State can argue with the assertion that a clear result of this legislation must be more bankruptcies, whatever tag we apply to them. As far as I can see, no assessment or allowance has been made for that significant increase and the extra cost.

Until now, British society has regarded bankruptcy as a serious matter. That was underlined 20-odd years ago in the Cork report. Society has a genuine interest in ensuring that the reasons for bankruptcies are investigated in detail and that the availability of assets is investigated at the same time. The Consumer Credit Association states:

''The Bill looks set to sweep this away. It risks creating a 'rubber stamping' process which is completely closed to external challenge.''

That is a fair comment, because under clause 245, the Official Receiver apparently has an unfettered right to decide whether or not to investigate. It seems, however, that the Official Receiver is wholly unaccountable and is the only one who can decide whether to apply for an income payments order. Once the bankrupt is discharged, which could be within weeks or only a few months, no such order can be applied for.

The Consumer Credit Association states:

''The implications of all this are clear. If there is a massive rise in bankruptcies, the way is being paved for reduced scrutiny of each case.''

The credit industry raises other concerns of a similar nature. I have already said that of the 1.5 million bankruptcies in the United States in 2001, about 97 per cent. were consumer bankruptcies. They do not seem to have a problem in distinguishing between consumer and business bankruptcies. It is clear that relaxation of the US bankruptcy laws in the late 1970s led to an explosion of personal insolvency, from 300,000 a year in 1980 to 1.5 million now, at a total cost of $40 billion. If the Under-Secretary does not like the US experience, we could consider Hong Kong. In 1997, the year before Hong Kong insolvency laws were liberalised, 639 bankruptcy orders were made; in 2001, there were 9,151; a massive increase. Again, I hesitate to trespass into Scottish bankruptcy law, but when that changed in 1985, bankruptcy grew sharply and, by 1993, cases were running at about 14,000 a year.

To sum up, the changes—the reduced period, what we believe will be reduced scrutiny and the limited number of bankrupts who will be subject to penalty or stigma beyond the period of a year or less—will have the following effects. First, they will undermine the concept of personal responsibility. Secondly, they will reward those who choose not to repay their debts, which will increase the cost of credit and the difficulty of obtaining credit for those honest people who need loans. Thirdly, if the US experience is relevant, they will encourage a new, more aggressive and more predatory type of lender, whose job it will be to service those who are marginalised by the changes and who are perhaps least able to afford the Bill's likely effects in the real world.

That is a massive charge sheet from an industry that, according to the Under-Secretary, was squared before we started our consideration of the Bill. I do not think that it was. A lot of people are worried about its effect not only on their businesses, but on individuals.

Order. Before I call the next speaker, I must point out that I have allowed the debate on clause 245 to be more wide-ranging in the expectation that debates on subsequent clauses will not be as broad.

My hon. Friend the Member for Eastbourne has gone into great detail and all Opposition Members would agree with the points that he raised. I want to touch on some other issues. Much has been made of the issue of stigma. As I recall, the White Paper said that it hoped to strike

''a balance between a fairer deal for the responsible majority and a more stringent regime against the minority who abuse their creditors and the public''.

That goes to the centre of one of our concerns, which is that the Government's view of the insolvency procedure is rather simplistic, as was articulated by my hon. Friend. They envisage innocent bankrupts, who find themselves in that position solely through the misfortune of the market. The hon. Member for Wolverhampton, North-East referred to people who find their business going rather well, notwithstanding insurance issues about key suppliers or debtors who go bust and leave them in great difficulty. To a large

extent, if not entirely, such people are blameless for the circumstances in which they find themselves. Alternately, the Government envisage some people with business interests who go under being largely to blame, for whatever reason. Perhaps they have cut corners in the past and will continue to do so in future.

To my view, that is a simplistic way to consider bankruptcy. In reality, it is not black and white. There are shades of grey, and within those we must ensure that any changes in law do not act to the detriment of individuals involved.

The Bill still contains elements of universal stigma and does not attempt to make distinctions. If we ever reach clauses 254 and 255 on disqualification of people entering the House or becoming councillors, we will see that a generalised stigma still operates.

The hon. Gentleman is obviously not one of the perennial optimists referred to by my hon. Friend the Member for Eastbourne. I hope that we will reach those clauses at some point today.

Stigma remains and should remain an important part of going bankrupt, although individuals should not be prevented from setting up businesses again. Several hon. Members have made the distinction between entrepreneurs—by their nature, such people are risk takers, if sensible risk takers, one hopes—who find that their business goes under, and individuals who might try to use bankruptcy to get out of debts and difficulties. After bankruptcy, we disbar people from becoming Members of Parliament and local councillors, directing a business or acquiring fresh start-up capital. Equally, when there is full disclosure, such individuals should be able to clear the slate at some point.

One has to consider which entrepreneurs think about failure when they set up. I know from my experience that there is a lot of hope and excitement when one sets a business up. I accept that a small minority of serial bankrupts probably set up deliberately to rip the public off, but the great majority set up with genuine optimism and excitement about the first mailshot, the move into new premises and coming up with ideas. However, anyone who has set up a business knows that they have a two or three-page business plan with lots of figures, but that the figures cascade within a couple of months. Almost inevitably, the facts disprove what is put in place initially.

The hon. Gentleman's reference to cascading figures is such an important point. In deciding on bad luck, does he agree that the honest, straightforward and competent business person would know that when insufficient money was generated by a business to meet its existing creditors—when debts exceeded assets—action should be taken immediately? If that action cannot resolve the situation, the honourable and proper position is to go into liquidation at that point. To lose one's own money is fair enough, but to lose someone else's money by taking credit when one has no hope of paying it back has nothing to do with bad luck; it is incompetence and a lack of care for those with whom one is dealing.

To a large extent, I accept what the hon. Gentleman has said. However, people who are, perhaps, in their first business venture are less aware of the ebbs and flows of the business cycle and of the importance of maintaining cash flow. I have found as a Member of Parliament—I am sure that others have done so—that a large number of relatively young and inexperienced people set up businesses. Although I take on board the hon. Gentleman's points, my experience is that business plans show cascading figures that become meaningless within three to six months, even for relatively successful businesses. Some areas of business do much better than expected and others do not move forward; we are considering shades of grey. I would worry if we were to point the finger at optimistic, young businesses that go under quickly and to categorise them as ''good'' or ''bad''.

Does my hon. Friend accept that the young entrepreneurs of whom he speaks—many of whom have been so good for our economy—are the sort of people I mentioned who rely on guarantees, or even loans, from their immediate family and friends, who then become the main losers when they go into bankruptcy?

Again, my hon. Friend makes a valid point. Many such businesses will be small businesses and might go under with relatively small debts—tens of thousands of pounds, perhaps—most of which will be covered by personal guarantees, many of them from friends and parents. They will come, largely, outside the confines of provisions such as these. However, I am concerned that the Government's thinking is leading to the concept of personal responsibility being undermined.

My hon. Friend the Member for Eastbourne went into some detail in relation to credit and I should like to touch upon that in a moment. I accept that we are talking at the margins. The proposals do not represent an enormously radical change; it would be wrong to overstate that. Nevertheless, the Government's mindset will, to a large extent, undermine personal responsibility. Some of the representations that we have heard from consumer bodies make me fear that debtors will be allowed to walk into bankruptcy as an escape from their debts rather than appreciating that they have a responsibility. I should be most concerned if there were a view that, somehow, the provisions of the Bill allowed people to be rewarded for evading their debts.

The measure will affect the real world, albeit probably at the margins. For example, the credit industry is understandably concerned that it is too relaxed. We could speak at length about property. My fear is not that the housing market will necessarily collapse rapidly—it might not—but that many who have come to it in recent years think that the inflation rate push of the past will continue into the future. If we are to have a sustainable, low-inflation economy, such as the one that we have had for the past decade, it could be that what are now significant loans will remain significant in the long term. Formerly, people took out 25-year mortgages for, perhaps, £30,000—which was a large sum at the time but is now insignificant by comparison with the value of their

property. Now, fundamental changes in the structure of the property market might lead to substantial problems in the medium term.

I am worried that our approach to credit is too relaxed and that the Bill and economic changes may lead to the pendulum swinging quite sharply, producing a tighter squeeze at the other end; that is not desirable. Tied businesses such as banking and leasing are concerned that the measure will be symptomatic of a change in mentality; banks and lending organisations may be to blame for some of the increased and loose credit at present, but they will be under great pressure if smaller concerns can walk away from their debts with minimum difficulty. In the long term, therefore, credit may be tightened, a by-product of which, unfortunately, is that a proportion of people will be almost beyond the pale in respect of lending. The risk is that those who will benefit most from these provisions will be loan sharks, who will be delighted that our fears will be realised.

Our arguments and discussions are largely at the margins, but we are worried that the pendulum is swinging too much in the wrong direction and it will be a little too easy for individuals to escape from their financial responsibilities.

I put on record my interests as shown in the Members' Register.

The Under-Secretary referred to the proposal as if there were a distinction between those who are rogues and those who are not. As my hon. Friend the Member for Cities of London and Westminster said, that is not what we are talking about. We are considering the issue at the margin; we are not looking at people who are crooked but at the extent to which people will be able to resist the temptation to go bankrupt if it is seen as a relatively attractive option.

The hon. Member for Wolverhampton, North-East was right to say that a definition of what is reckless is at the heart of the debate. We need to understand at what point people step over the boundary between what is acceptable behaviour, which has unfortunately resulted in their bankruptcy, and unacceptable behaviour, which has had the same result.

The Under-Secretary is more aware than any of us of the work done by the social exclusion unit in looking at people's access to financial services because she considered it in the Treasury. She will know of the valuable role played by the consumer credit sector. There is anxiety about the level of interest charged by loan sharks, but in some of the poorest parts of society, people borrow money for a holiday, a fridge and so on, which they would not have been able to get from anywhere else. The money is repaid in weekly instalments, usually to a female collector who lives on the same estate. People know exactly how much they will have to pay back; they know that if they are ill, or lose their job, they will still have to pay back the same amount of money, but the time frame will be adjusted to recognise their needs. Such arrangements have an important role in allowing certain groups in our society access to financial services.

However, my concern is that if the proposal is agreed to, some people will simply decide that it is more convenient to go bankrupt than to pay back their loans. The people who suffer most will not be the companies that make money out of the loans, but their neighbours on the estate who will have to pay a higher rate of interest on their borrowing; thus we enter a vicious cycle. Either more people go bankrupt because they cannot afford the higher rates of interest or, as my hon. Friend the Member for Cities of London and Westminster said, they are driven to the loan sharks, with awful consequences.

My concern is that the proposal will make things easier for people who did not start out thinking, ''I want to go bankrupt,'' but who have mounting debts from credit card and other companies. If the issue is how they juggle their debts, in the end they will come to the conclusion that it would be easier to go bankrupt because it is only for a year or perhaps even less. The people who really suffer will be their neighbours, who will be pushed closer to bankruptcy by having to pay higher interest on their loans.

My hon. Friend the Member for Eastbourne spoke about the problems of student debt. A recent study showed that the average indebtedness of people leaving university is £1,000 higher this year than a year ago. Every time that the amount increases by £1,000, more people, exactly as he said, will feel that it is easier to go bankrupt, so that they can start again with a clean sheet and do not have to repay their debts when they go out into the world.

Given the hon. Gentleman's line of argument about people finding it easier to go bankrupt and the considerable worries about that, why does he support new clause 9, which seems quite an admirable provision, but which would make it easier for people to go bankrupt?

We are trying to make the system fairer rather than easier. The students who will be most affected will be those from less well-off backgrounds. If we consider the level of indebtedness of people leaving university, we see that those from middle class and more wealthy families have the lowest indebtedness. That is not surprising, because their parents are better able to support them.

The people whom we are doing our best to encourage to go to university will end up having to borrow more. They will become more indebted and will be pushed into bankruptcy. We all accept that, for many people, there is a stigma attached to bankruptcy, but it will be directly related to income levels. The people most at risk will not be the crooks, but those from lower-income backgrounds who simply cannot afford to pay their bills.

My hon. Friend the Member for Cities of London and Westminster and I can see that my remarks have had a tremendous effect on both our colleagues, but he will be able to read later how complimentary I have been about the important points that he made. He spoke about the motivation of people who go into business. He said that they do so because they have a

great idea and that it is only later that they discover that 400,000 other people have had the same great idea and it does not work quite so well after all. [Interruption.] I now feel less alone and isolated than I did just a few moments ago. People go into business because they have an idea for a better widget or something else that they believe will make them money. Very few people go into business because they want to go bust or defraud people; they are the minority and they make hard cases.

My hon. Friend the Member for Cities of London and Westminster spoke about optimistic young businesses, but we should recognise that the issue does not concern only them. Sometimes, because of a change of circumstance in the market, circumstances go against people who have run businesses for decades and they end up in the situation that was described so well by the hon. Member for Wolverhampton, North-East.

In the county of East Sussex, where my hon. Friend the Member for Eastbourne and I come from, there is a major business problem with care homes. People may have run care homes for years and met every standard going, but they are now closing at a horrendous rate, because their costs are rising faster than their income the whole time. People face major capital costs to keep up with the new legislation being imposed on them.

Does the hon. Gentleman agree that it is more honourable and fairer to creditors that those care homes close in good time, before their debts overwhelm them?

I was coming to exactly that point. The overwhelming majority of people will consider their situation and say, ''We know where this is going and that in a couple of years we won't be able to continue, so we'll look for a way out.'' For many, selling their business for housing will be an attractive option, in that it will give them a huge amount of capital. Others, however, will say, ''I can run this business for a few more years and still sell it for housing in the end and therefore still get the capital. If someone else loses out in the process, I don't care.'' We should have no truck whatever with those unscrupulous people, but we should not doubt that some will go down that route.

The people who are affected by those bankruptcies will be the small, local suppliers who provide food and cleaning services. Those well-meaning and otherwise thoroughly successful businesses will then be pushed towards the edge of bankruptcy themselves. My concern is that those who are affected most will not be rich people, who can afford to engage the best solicitors and pick up the pieces, but vulnerable people, at the margins. That is why we must be deeply concerned and cautious about the way the Minister is taking us.

I rebut the hon. Member for Cities of London and Westminster's strong and obvious suggestion that personal responsibility is in some way undermined—consciously or unconsciously—by the Bill. The Government believe strongly in individuals taking responsibility for their own affairs.

The Bill's provisions do nothing but strengthen that important link.

I welcome the recent conversion—while we are talking about Catholicism—of the hon. Member for Wealden (Mr. Hendry), and indeed maybe his colleagues, to the cause of financial exclusion. This Government have done much to tackle financial exclusion, which the previous Government for 18 years did nothing but exacerbate.

If the Under-Secretary looks in the Members' Register she will find that I have been a trustee of the Big Issue for about a decade. I was chairman of the all-party group on homelessness. It is scarcely a recent conversion.

I accept the hon. Gentleman's point, but there are wider issues in addition to homelessness here. His party has shown little interest in financial exclusion over many decades, except to exacerbate it.

While I am being difficult with Opposition Members, I remind them that we no longer have interest rates at 15 per cent. Many of their remarks would be relevant if interest rates and inflation were spiralling out of control, but the UK has stability, built by the Chancellor of the Exchequer and the Government's economic policies. We now have record low interest rates and inflation.

I initially put on record that the stability in this country has been built up by business men. The Government have not hindered it as much as many might have feared. Even with the absolute interest rate of 4 per cent, real interest rates remain fairly high. They have an important bearing on debts built up by the very people to whom my hon. Friend the Member for Wealden referred.

Miss Johnson rose—

Order. Before the Under-Secretary speaks, I hope that we will not re-fight the recent general election throughout the course of this clause.

I shall endeavour not to, Mr. Conway. I accept that business is a key generator of prosperity in the UK. That philosophy underpins much of the Bill. But the hon. Gentleman's remarks are undermined by the fact that were economic stability due exclusively to business and nothing to do with Government policy, what happened in the 1990s would be inexplicable. The hon. Gentleman has no account of that, except the one I gave of the difference in economic policy pursued by this and the previous Government.

I have been through many of the questions on the US. I do not think the hon. Member for Eastbourne was listening carefully to what I said, because he reiterated his earlier remarks without taking any account of the fact that I drew on experiences elsewhere of bankruptcy; I did not focus on the US. The US is moving in our direction rather than us moving in its. The hon. Gentleman has failed to take that point on board.

What about Hong Kong?

I do not need to address Hong Kong, about which the hon. Gentleman quoted a statistic.

What about Scotland, then?

I do not understand why the hon. Gentleman feels I need to respond to the question of regimes different from our own.

As the Under-Secretary has provoked me into intervening, there may be something to be learned from the results of other countries liberalising their bankruptcy laws along lines—to avoid another unnecessary argument—not dissimilar to those suggested in the Bill. If she is not happy looking at it in America, which is only a £200 plane fare away, why not look at Scotland?

We looked widely at experiences elsewhere. We are specifically not adopting various aspects of the US regime, for exactly the reasons that the hon. Gentleman suggested. We are keeping the good parts of our provisions. The US is moving more towards us than we are moving towards it. The strengths of the UK systems and the strengths of recent developments are reflected in the Bill.

While I am on the strengths of the system, it is worthwhile quoting the Prince's Trust. In a statement to officials on 26 March it said:

''We particularly support the proposed easing of restrictions on people who have experienced business failure through no fault of their own—for example the provision to reduce bankruptcy restrictions from three years to a maximum of 12 months for this group. We welcome the proposal to distinguish more clearly between those who have made a genuine attempt to succeed in business and those who have become bankrupt through reckless or fraudulent practices.''

The House has strong connections with the trust and so hon. Members will know that it has strongly supported young entrepreneurs who have found it difficult to get funding for their business proposals through traditional means. Many of them have built very successful businesses out of the support that the trust has given them. It is pleasing to have the trust's welcome for the Bill.

I turn now to the question of the difference. Some hon. Members have failed to take any account of schedule 20 in their understanding of the distinction between those who are reckless and those who are not. It lists the grounds for making an order. I will not test the Committee's patience by reading out the relevant paragraphs (a) to (m), but they include such grounds as

''making an excessive pension contribution . . . a failure to supply goods or services that were wholly of partly paid for which gave rise to a claim provable in the bankruptcy . . . trading at a time before commencement of the bankruptcy when the bankrupt knew himself to be unable to pay his debts''.

These are all very relevant considerations. They are not an exhaustive set of reasons but they illustrate the circumstances under which we think recklessness is likely to be shown and to require a BRO.

I can only re-emphasise that bankruptcy is not an easy option. It is bound to remain the last resort. The hon. Member for Wealden suggested that people would somehow declare themselves bankrupt. Bankruptcy involves a court process. People cannot simply decide to be bankrupt one day because they feel like it. It is wrong to think that it is an easy passage.

Some of the stigma that existed in the past will remain even though some of those people should not be stigmatised in that way in the future. Bankrupts who can will have to make contributions from their income. They will still be required to do so under these provisions. Indeed, there will be a strengthening of the income payments order regime to ensure that those payments are made.

There will be a register of BROs, which will help to improve the already sophisticated information kept by credit reference agencies. The distinction between culpable and non-culpable bankrupts should help to produce more informed lending decisions about whether to provide credit. At present, there is little difference.

The hon. Member for Cities of London and Westminster spoke about shades of grey and the issue was picked up by the hon. Member for Wealden. In some cases, it will be easy to distinguish reckless from non-reckless behaviour; schedule 20 enables the courts to do so. Sometimes a strong case will be made that circumstances beyond one's control contribute to a bankruptcy. One reason why people end up with mortgage arrears—the subject greatly exercised Opposition Members in their discussion of the clause—is a breakdown of relationships. It accounts for about a third of arrears. For more than one in five, reduced income is the key factor and for nearly one in five it is unemployment. Almost 10 per cent. of arrears are attributable to ill health.

We would all accept that those examples have nothing to do with culpability, but, in some middling cases, there will be shades of grey. That is why it is for the courts to decide and why we should not constrain their ability to take decisions on the merits of each case. Many members of the Committee have legal backgrounds and know full well that the particular circumstances presented to a court are crucial for taking decisions on the level of culpability.

Although the Bill does not deal with the issue of loan sharks, a major review—the first for 30 years—of consumer credit legislation is currently taking place. We aim to tackle rogue traders through the Bill and through stop now orders, and we aim to tackle loan sharks through the review of consumer credit and measures consequent upon it. That is how we shall deal with loan sharks and those charging vulnerable consumers exorbitant rates of interest.

Ideally, without using the standard civil service word ''shortly'', can the Under-Secretary tell me when the review is likely to be concluded and when concrete proposals on consumer credit will emerge?

We have produced a timetable. I do not have it in front of me, but it is a published document that sets out the various elements. I will gladly give the hon. Gentleman a reference for him to follow it up later.

Will my hon. Friend reassure me that as part of the review of consumer credit legislation, the case of Paragon

Finance, which was taken to the High Court in October and November last year, will be dealt with? Its standard interest rates quadrupled, apparently because the definition of ''extortionate'' in consumer credit legislation is insufficiently rigorous to prevent such activity.

Certainly the definition of extortionate is one of the issues under active consideration in the review. I can reassure my hon. Friend that we have every intention of dealing with the problem that he rightly draws to our attention.

The hon. Member for Orkney and Shetland seems to have left the Committee for this morning, but I am sure that the hon. Member for Southport (Dr. Pugh), who is in his place, will relay this information to him. The individual insolvency provisions will apply only to England and Wales, and it will be a matter for the Scottish Executive and Parliament to decide whether to apply the provisions north of the border.

There are a few general points to make about the question about bankruptcy proposals fuelling consumer bankruptcy in addition to my earlier points about mortgage arrears. The Committee should remember that of more than 11 million mortgage customers in that fund in the UK, only 18,000 were repossessed during 2001, which is only 0.16 per cent. of all mortgages. It is a tiny proportion, and mortgage lending represents 81 per cent. of all consumer lending in the UK.

Conservative Members suggested that the nature of the Bill would encourage the irresponsible use of credit among consumers. In particular, two systems were suggested; a relaxed regime for those in business and no change for those whose bankruptcy is a result of non-business debts. As I mentioned earlier, the current law does not discriminate between business and consumer bankruptcies. People find themselves being made bankrupt through no fault of their own. For those in business, that could be the result of a disproportionate increase in the cost of rent or materials. For those who are not, it could be the result of redundancy, ill health or marital breakdown; the sort of reasons that also lead to problems with mortgages.

As of 31 December 2001, bankruptcy statistics show that there is a split between self-employed bankrupts and the remainder; 43 per cent. were self-employed bankrupts and 56 per cent. were on the non-self-employed or ''consumer'' side. The use of the terms ''business'' and ''consumer'' bankrupts is, as I said, a crude way of expressing the difference. A consumer bankruptcy might apply to some self-employed traders if, for example, they have simply spent more than the income generated by their businesses. Some employees may also have small businesses that they carry on in their spare time.

The bankruptcy restrictions orders cover both consumers and traders and will act as a serious deterrent to the irresponsible. I have already run through the provision concerning the restrictions of between two and 15 years. As we all know, it is not an easy option, and will not become so under our proposals, for someone to take the route into

bankruptcy. Trustees will be entitled to realise the same assets and income as now, and bankrupts who are able to contribute will still be required to do so. In fact, the income payments orders provision, which I mentioned earlier, will extend beyond discharge and run for three years, which is slightly longer than the current norm. The orders will still be advertised and the information will be held in the public domain. There will be a register, and the credit reference agencies will use the information.

The bankruptcy will affect consumers' future ability to obtain further credit and gain access to other goods and services. When a consumer has behaved irresponsibly, it will be probably be some time before lenders are prepared to risk offering credit. Therefore, there is a major disincentive for the majority of consumers. None the less, we believe that it is right to have a differentiation that has not been made before for those who ended up in that position through no fault of their own. It is also right to ensure that there is a different path of treatment, which is speedier and more effective and does not contain the stigma that is rightly appropriate for those who are placed under the BRO regime.

Question put and agreed to.

Clause 245 ordered to stand part of the Bill.