have identified by the date that this Act comes into force.
It is a great pleasure to serve under your chairmanship, Mr. Chope. This is the first time I have served on a Committee considering a private Members Bill, butnotwithstanding that it is a new experience for youI am sure you will guide me as necessary.
The amendment relates to a specific aspect of the meaning of qualifying debt under the clause. I shall make broader remarks about the definition in our stand part debate and set out briefly what I hope to achieve during this mornings proceedings. The amendment is narrow. It relates to which countries fall within the definition of qualifying debt. Essentially, the regime focuses on heavily indebted poor countries falling within the HIPC initiative, but it is also extended to include potentially eligible initiative countries. I tabled the amendment to obtain clarification of the provision. Under subsection (6),
Potentially eligible Initiative country means a country
(b) in respect of which decision point has not been reached.
I was not entirely clear when reading the provision whether it included simply those potentially eligible initiative countries identified at that point, or subsequently.
I am seeking to clarify whether the Bill already does what the right hon. Gentleman suggests. If I develop my point, perhaps I can also deal with his intervention more fully. The words
potentially eligible for debt relief under the initiative suggests that it is not a cut-off point, although I note that the explanatory notes to the Bill refer to
countries that have been identified, which suggests that it is a cut-off point. They go on to state:
Five countries currently fall into this country.
The word currently suggests that the position could change, and that it is not a cut-off point. It is fair to raise such an issue because the general thinking behind the Bill and the clause is to ensure that it is retrospective. There are good reasons for that, which we shall debate in a moment or so. The intention is to say, Here are particular debts that will, at the date of commencement, fall within the regime set out in the Bill and to which the debt reduction mechanisms will apply.
Subsection (11) states:
If the terms of the Initiative are amended after commencement in such a way as to change a relevant eligibility condition, this Act has effect as if they had not been so amended.
The intention is largely to say, This is where we are now; this has happened in the past; these particular loans are effectors.
There is a considerable attempt to provide certainty regarding where the Bill actually applies. It could be understood to mean thatin the case of subsequent changes of facts in a given area, such as a country becoming potentially eligibledebts not currently affected by the Bill would become so affected. That may be an incorrect way of interpreting it, but my intention in tabling the amendment is to seek clarity on that point.
I agree with my right hon. Friend the Member for Manchester, Gorton, in that I am sure the amendment is well intentioned, but in fact the subsection refers to a potentially eligible Initiative country, not debt. I have just read a book about someone who followed in the footsteps of David Livingstone across the Democratic Republic of the Congo. At one time it had 11,000 kilometres of motorway, and now it has 1,100 kilometres of passable roads. So a country that at the moment seems quite secure after the ravages of war could end up, like the DRC, unable to pay back the debts it currently has. Given that the provision focuses on the country, to say that nothing could be considered for the country in question in future would be entirely wrong.
I take that point and I am grateful to the hon. Gentleman for acknowledging that the amendment is well intentioned, as was his intervention. I do not want to get into one of the broader debates just yet. However, one of the issues that the Treasurys consultation paper has tried to wrestle withand which the Government and the hon. Member for Northampton, North acknowledged in her thoughtful speeches on Second Readingis that we do not want to pursue a policy that means that the costs and interest rates that developing countries will have to pay will go up because of a risk premium. There is a carefully calibrated argument to address that issue. The Governments consultation paper and the Bill have addressed it by providing some certainty, essentially looking backwards and saying, These particular debts are covered. I do not want to labour this pointI want to let the hon. Lady proceedmy purpose is simply to provide some certainty on what the thinking is and what the wording means.
For very good constituency reasons, some of us were not present at the debate on Second Reading. It would help the Committee if we had an understandingor if my hon. Friend gave us an understandingof what the casus belli are today. What are the differences, if any, between my hon. Friend and the supporters of the Bill? What are the outstanding issues that he thinks we need to press? Otherwise, it is a bit of a secret garden, consisting of Treasury nerds, that some of us might like to feel we could take part in.
It is an acceptable parliamentary expression. As far as this intervention is concerned, may I remind the Committee that we are considering a very narrow amendment? During the intermission, perhaps the hon. Member for Banbury might like to look at the Hansard report of Second Reading to bring himself up to date.
I am grateful to my hon. Friend the Member for Banbury for that intervention. I will not try your patience, Mr. Chope. As I said earlier, I wanted to deal with the questions that arise from this provision, but perhaps it would be more appropriate to do so in the stand part debate.
Is not the issue simply that one sets aside contracts at ones peril, and that it is important that, although there is the real-world issue of the burden of debt, which needs to be relievedeveryone in the Committee wants to address that; indeed, it is why we are hereit needs to be done in a precisely defined way that is not likely to give rise to trouble or to compensating commercial premiums in the future?
I am grateful to my hon. Friend, who sets out the issue very well. There is no casus belli. I hope we will be able to work constructively, as we did on Second Reading, and proceed with the Bill in that spirit.
The intention, as my hon. Friend points out, is to ensure that the Bill is appropriately calibrated so that it will address the legitimate concerns of developing countries and assist them. There is no sympathy in the Committee for vulture fundsthe intention is to help developing countries. However, in doing so, we must be careful and not make developing countries pay a risk premium on borrowing in the future, which will have a detrimental effect. That is a concern that we all recognise, which is why we want to calibrate the measures appropriately, and hence my entering now into some of the arguments I was going to raise in the stand part debate.
Amendment 1 is a probing amendment. The general approach in the Bill is to look back and enable us to identify a narrowly defined set of debts to which the Bill will apply, but there appears to be an exception. One reading of the Bill suggests that a country could become eligible and at that point, debts that were entered into before the legislations commencement, but which could not currently be identified because we do not necessarily know which countries will become eligible, would suddenly fall within that jurisdiction. I am not sure that, in the great scheme of things, the consequences of that would be particularly terrible, because we would be talking about debts incurred in the past. However, the clauses wording is not entirely clear, and if the hon. Lady could provide some clarity, that would be of service to the Committee.
I am sorry, but I cannot agree with the amendment if it is pushed to a vote. The clause is about identifying countries to which the Bill, which is effectively a form of creditors voluntary arrangement whereby everyone will get the same poundage, will apply. More complex issues that relate to how enforceable the Bill will bethe issue is an international one, and the Bill will only affect the UKs jurisdictionare for later. Logically, if we are to have a creditors voluntary arrangement whereby everyone gets a poundage, all creditors should get the same poundage. That should apply to all countries where that process occurs.
It is a great pleasure to serve under your chairmanship, Mr. Chope. I know that, given your interest in the Bill, all the issues will be aired and debated. I welcome the amendment, which is important. This is an historic Billit is the first to deal with this issue, which is a concern in a number of countries. We have an opportunity to get the Bill through by the end of this Parliament. Given the time constraints, it is important that the issues are aired and that people are clear about the Bills purpose.
The Bill has to provide for the orderly management of debt. There is a need for consistency and certainty, which is important for developing countries economic management and the risk premium they might face in the future. Therefore, having clarity on which countries are in and which are out is important.
The principle here is that the scheme as it was agreed by the World Bank is what should apply. If the scheme varies at some date, this legislation will not. The legislation is based on the 2004 ring-fencing of the HIPC initiative, so there is no question of revisiting the matter and including new countries, to a pointI will explain that more fully. Repeated assurances have been given, and the hon. Member for South-West Hertfordshire knows, that the measure applies not to future, but to historic, debt. That is because the HIPC process manages the debts of heavily indebted poor countries, so that they can start with a clean sheet and manage their economies in the future. If they take on further debt, they can do so on reasonable terms, and not be subject to the vagaries of misfortune to which they have been in the past.
There are two issues on the potentially eligible countries about which I think the hon. Gentleman is concerned, and which need some clarification. The HIPC initiative was ring-fenced in 2004, and if circumstances change after that it is a whole different ball game. There are some countries that might have been completely closed but might have been eligible for the HIPC initiative at the 2004 point, based on information that has come to light. The example that springs most to mind is Afghanistan, which, on the 2004 figures, qualified for the initiative. I imagine that Zimbabwe is the only country anyone can think of that is currently a closed society in which information is not known, that might be included on 2004 data. I suspect that if there was a big debate here about finding a proper way to manage Zimbabwes historic debts, people would accept that if we looked at the 2004 data and it applied, the country would go into a set process.
The only other possible circumstance would be a country that currently does not exist but for which there is data, and it is clear that on the 2004 data it would have qualified. Perhaps the only such country that one can think of is southern Sudan, and people would accept that, given the circumstancesdepending on what happens, as there will be a referendum therethat might also be appropriate. It is not a matter of saying, however, that we will have a 2008 or 2009 cut-off point. The data that are used to determine whether a country is a HIPC were ring-fenced in 2004 and are therefore not open to variation. That provides a consistent and coherent way of dealing with the debts of a closed list of 45 countries, as set out in the explanatory notes.
The pre-decision point countries are well known: Comoros Islands, Eritrea, Kyrgyz Republic, Somalia and Sudan. We have a defined list of countries, historic debts and an agreed process, which has been scrutinised nationally and internationally. All that therefore provides the certainly that the hon. Gentleman seeks and the assurance that the measure will not spread to any list of countries drawn up on any criteria. The process is clearly defined, and that certainty will help to ensure that the money markets see that it is consistent and not whimsical. I hope that that also deals with the concerns about the risk premiums, and that the hon. Gentleman will withdraw his amendment.
I am grateful to the hon. Lady for her remarks. She has clarified the intention behind the wording of subsection (6). I accept that other countries, not currently on the list of eligibility for the HIPC initiative, may be added, and she set out the very limited circumstances in which that might happen. As I may have mentioned in my earlier remarks, amendment 1 was probing, to seek clarity on that point. Having achieved that clarity, I beg to ask leave to withdraw the amendment.
May I suggest to the hon. Member for Northampton, North, who is promoting the Bill, that she might want to consider adding 2004 to the Bill at a later stage? The year appears once, by chance, in clause 7. The issue raised by my hon. Friend the Member for South-West Hertfordshire might not be immediately obvious to many people but, given that those involved in providing future loans might have their attention drawn to the Bill, if and when it is enacted, we ought to make it clear that there is a time limit to which it can go back. That would be a little mark of safety, and it would be helpful if it is possible to do that with a bit of imagination later in the parliamentary procedure.
Secondly, subsection (11) states:
If the terms of the Initiative are amended after commencement in such a way as to change a relevant eligibility condition, this Act has effect as if they had not been so amended.
The impact of that on everyone is not immediately clear. Explanation or modification later on might be useful.
I am grateful for my hon. Friends comments.
Clause 1 is at the heart of the Bill because it concerns the definition of a qualifying debt. Getting the definition right is vital, a point that we touched on in the last debate. The hon. Member for Northampton, North was absolutely right to make that point. Criticisms about the definition of qualifying debt come from two directions. Some argue that the clause is too narrow and that the focus is on HIPCs. Why should we not apply the Bill to developing countries as a whole? Why should we not apply it to other regimes in which debt reduction has been negotiated? Does the Bill go far enough? No doubt at some point in the course of the morning we shall debate the impacts of the Bill, including the benefits arising for developing countries, which some will argue are unduly modest.
The counter-argument, which was put in a number of responses to the Treasury consultation and some of which was quoted on Second Reading, is that if we interfere in contractual rights we run a risk of undermining confidence in the sanctity of contracts. Lenders will become wary of lending to developing countriesperhaps HIPCs specificallybecause of the risk of being caught up not so much in the Bill as in future legislation using the Bill as a precedent.
We ought to debate such matters intelligently, to ensure that we calibrate the proposals correctly. I thank the hon. Member for Northampton, North for how she has consistently conducted the debate, ensuring that we do not fall into oversimplifying the matter and dismiss such concerns but that we address them. I am sure that no one in Committee would in any way want to jeopardise the long-term ability of developing countries to borrow at affordable, sustainable and sensible levels. Consequently, I shall ask the hon. Lady a number of questions and, in responding, she can set out why those who are concerned about the Bill should be reassured.
First, why should the Bill be focused on heavily indebted poor countries and on them alone? Why not include all creditors to developing countries? Why is the focus on loans entered into before the commencement of the Bill? Why is the Bill essentially retrospective legislation, applying to contracts entered into in the past, but does not apply going forward? We understand why, but it would be helpful to the Committee if the hon. Lady could set that out. We have already touched on why potentially eligible countries are included. If she is in a position to provide some breakdown of the benefits, and whether they will apply to countries falling within the existing HIPC initiative or those potentially eligible for the initiative, that might be helpful. She has already touched on the issue, to be fair, but perhaps she could add a word or two about why subsections (11) and (12) mean that any amendments to the initiative will not change the nature of the Billadditional debt will not be liable to be treated as falling under the Bill as a consequence of any changes.
Essentially, I seek as much reassurance as possible from the hon. Lady that the Bill is a one-off. I do not say that because of the concern about the position of developing countries going awayfar from itbut the Treasury consultation response recognised that if we focus on narrowly defined areas, if we look backwards at debt already entered into and if we restrict the effect of the Bill to specific countries, the more we provide reassurance that we shall not come back in the future and produce another Bill, although well intentioned and undoubtedly with support from some organisations outside this place, that could have an impact on the attractiveness of lending to developing countries. We all seek to achieve that balance, which is finely calibrated. We should use the opportunity of the stand part debate to ensure that all sides recognise that we must be careful.
Comment from the Minister, setting out his views, will also be welcome, so that all sides recognise that we need to focus narrowly, to ensure that we are serving the best interests of developing countries and not engaging in gesture politics, which could do harm. The Bill is not about that, but we need to put on record that we are thinking the issues through and that we recognise the dangers that exist.
The essence of the Bill, as discussed earlier, concerns a country being unable to pay its debts because its income is too low. An individual would have some form of bankruptcy arrangement and, effectively, we are dealing with countries in such a positiontheir exports are so low that they cannot pay.
We cannot get away from the fact that in future, lenders will take into account countries ability to repay debt when loaning funds to them. I think that that is a healthy situation. Having a situation where lenders hold out massive quantities of money to developing countries, some of which find their way into Swiss bank accounts and do not do the country any good whatsoever, is not helpful for developing countries. Within all that, there are factorsfor example, the Bill will only affect UK jurisdiction, so debts enforceable in other jurisdictions remain enforceable there anyway. It is an issue that requires international rather than UK resolution.
There is also a question about whether it is appropriate to have corporate entities controlled by the Government included within the Bill, as opposed to sovereign debt. The nature of sovereign debt is particularly different. If one looks at the history of Haiti and how sovereign debt has caused problems there over centuries, and the fact that most debt disappears into peoples estates when they die, one can see that that particular type of debt hangs on. Again, we are interfering with contractsthere is no question about that. However, bankruptcy arrangements interfere with contracts, so it is with precedent.
The hon. Gentleman is making a good point, and I say that not only because I also made that point on Second Reading. There is no equivalent of insolvency procedures for a country. Interfering with contractual rights is something that, by and large, we do not believe in doing in this country. However, we recognise that there are times when we have to do so in a case of bankrupt individuals and insolvent companies. He is making a helpful point; those are the narrow circumstances in which interfering with contractual rights can be accepted.
I thank the hon. Gentleman for that intervention. We are in agreementwe are effectively dealing with the insolvency of countries, which do not have the revenue. If there is insolvency of countries, we are asking whether the poundage applies to everyone. That is a fair process to resolve a situation. If a country in that situation decides, in the interest of its long-term credit rating, to put particular effort into paying someone, that will be a different issue. However, that is an issue for the countries themselves. The responsibility is always with lenders to consider the ability of the people to whom they are lending funds to pay them back. There have been many problems with people doling out money without considering whether people can pay it back. We see that in the banking crisis that we have had ourselves. To that extent, I am supportive of the Bill, and I should congratulate the hon. Member for Northampton, North on promoting it.
I, too, am delighted to serve under your chairmanship this morning, Mr. Chope. I welcome and applaud the pioneering work of my hon. Friend the Member for Northampton, North over an extended period, recently supported by my hon. Friend the Member for Denton and Reddish (Andrew Gwynne).
I also agree with much of what the hon. Member for South-West Hertfordshire said in his remarks. The Government agree that the Bill should mirror the internationally agreed HIPC initiative, as the clause specifies. The aim is to ensure that all creditors provide debt relief in line with the initiative, as the vast majority of creditors are already doing. I welcome the clarification of the scope and the illumination that has come from the debate on the amendment, which we had a few minutes ago.
I also agree that the Bill should not apply to debts taken on after its commencement, as we do not want to deter new lending to countries. Therefore, it is right to exclude new lending. However, I very much support the clause and hope that we can agree to it.
I will pick up the points that the hon. Member for South-West Hertfordshire made and give some assurances to the hon. Member for Worthing, West. There is a criticism that the Bill is too narrow. Indeed, my original Bill went wider, but that was a different Bill for different purposes. To be honest, if we start to cast the net more widely, we will have problems of definition, and then we will get into issues of uncertainty for countries that might be looking to raise loans, and potential sources of finance might say, Is it going down or up? Might it bump into or bump out of the provisions? In addition, there has not been international discussion about how countries might be treated, and therefore the uncertainty that the hon. Gentleman wants to avoid would be created if we cast the net more widely. As I said, in my previous Bill, we considered different definitions and there were problems with them.
Another important matter is that the Bill has two logics to it. One is about justice for developing countries; the other is about justice for British taxpayers, which gets overlooked a bit. One of the big arguments about this, and why I was interested in including HIPC countries in my original legislation, is that there is a logic that says, Why should British taxpayers pay money to write off debts for developing countries when private, completely uncontrolled vulture funds can swoop in and cream off some of the money? Therefore, it is about different types of debt being treated equitably but also about protecting British taxpayers interest. The HIPC countries have benefited from UK taxpayers funds, so there is a need to ensure that different types of debts are treated equally. That second logic is often overlooked in some of the discussions.
There is also the issue of moral hazard, about which the hon. Member for South-West Hertfordshire is right. It has come more to the fore because of the credit crunch and the banking crisis. The moral hazard of letting people off their debts is why it is so important that the legislation is carefully defined with safeguards so that we cannot suddenly extend the list of countries and extend the debt to others. My right hon. Friend the Financial Secretary has set out why new debts are not included. If we look at the other part of the HIPC initiative, the debt write-offs and the protection against profiteering by vulture funds and others have a quid pro quo, which is that developing countries have to engage in the programmes that are required as part of the HIPC process. That also gives some protection against what otherwise might be seen as the moral hazard of the excuse of private debt.
The Bill is properly targeted, because it deals with the worst cases of indebted countries, it deals with the protection of British taxpayers interests, and it has safeguards against the moral hazard of excuse from debt, which the hon. Member for South-West Hertfordshire identified. I hate to say it, but it is a much better way forward than my original Bill was. It will provide consistency and stability, ensuring that those countries can demonstrate sound governance and that the international process has been fair, sound and consistent. As my right hon. Friend said, if those countries need to take on debts, the international markets will be well disposed towards them.