Clause 3

Debt Relief (Developing Countries) Bill – in a Public Bill Committee at 10:15 am on 9th March 2010.

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Amount recoverable in respect of claim for qualifying debt etc

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

Photo of David Gauke David Gauke Shadow Minister (Treasury)

The first two clauses are about definitions. Clause 3(1) specifies the mechanism that will apply to reduce the amount of recoverable debt. The definition of the relevant proportion is covered by clause 4. One worry about the Bill relates to article 1 of the European convention on human rights. It may be argued that deprivation of possessions are involved or at the very least the control of use of possessions—essentially, property rights are affected. We have touched on the comparison with insolvency procedures and so on. As I said, it is a fair point. However, there is an interesting assessment of the European convention on human rights in the explanatory notes to the Bill. Clearly, it is a matter to which those who drafted and introduced the Bill have given some consideration.

The explanatory notes set out the argument that the measure is not about the deprivation of possessions, but the control of use, because the creditor still has the ability to recover the debt if it is only able to recover an element—not all—of it. That is therefore a control of use rather than deprivation. I do not know whether the hon. Lady can give the Committee further details on that. I do not in any way pretend to be an expert in such matters, but it is clearly an important part of the argument to say that the clause is not contrary to article 1 of the first protocol of the convention. That must be a strong argument.

The Bill is retrospective, and we have discussed the reasons for that. The explanatory notes state:

“Retrospective measures may in principle be compatible with A1P1, although the ECtHR has referred to the need for an ‘obvious and compelling public interest’ for retrospective measures”.

There is no argument about the obvious and compelling public interest in the Bill, although it would be helpful for future legal arguments for the Bill to be given proper scrutiny so that matters can be debated more fully.

One of the points made in response to the Bill and the Treasury consultation is that the compelling public interest applies because the measure will help developing countries. The argument made by some respondents is that such is the narrowness of the Bill that the benefit for developing countries—the sums concerned—is now so small that the compelling nature of the public interest has diminished.

It might be helpful to explore that issue. EMTA—the Emerging Markets Traders Association—has certainly argued that the only debt covered by the Bill is that relating to Liberia, on which there was a judgment at the end of last year, but that is about it. The Government’s impact assessment takes a different view, arguing that HIPCs and potentially eligible HIPCs will benefit by about £145 million in total. We should at least consider the scale of benefit to developing countries. Is it sufficient to say that there is an obvious and compelling public interest in introducing the Bill?

Photo of Tony Baldry Tony Baldry Conservative, Banbury

I have personal knowledge of substantial debts in countries such as Sierra Leone. Much of the issue relates to the question of the jurisdiction in which parties would bring proceedings. A number of debts in Africa have the potential to result in proceedings brought either in South Africa or in this country, so it is difficult to quantify. However, I reassure my hon. Friend that there are substantially more debts simply than those that have been identified in Liberia.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

I am grateful to my hon. Friend for that intervention, partly because he did not call me a Treasury nerd on this occasion—perhaps I am an aspirant Treasury nerd.

I am not necessarily endorsing that interpretation but, given the narrow definitions in the Bill, for reasons recognised in all parts of the Committee, given that liability to pay for goods and services is not dealt with, given that the Bill applies only to those debts that can be enforced in the English courts and given that it is retrospective, as well as the various other points we have debated, some criticism of the Treasury’s original assessment of the numbers involved is noticeable. Those numbers were reduced from some £250 million to £145 million.

One concern is that we cannot simply look at all the various claims, because by definition they tend to be higher than the claimants and creditors would ever achieve. The Committee might be a useful opportunity to flag up the issue of the likely benefits of the Bill for developing countries, so that we can state with confidence the obvious and compelling public interest in such retrospective legislation. I wish to stress that I am not arguing that there is no such interest, but that the Committee is the right opportunity to address that concern. When the Minister responds, would he set out the Treasury’s thinking?

The Treasury acknowledges that quantifying the benefit in such an area is difficult. What about the particular claim that the Bill would address the Liberia matter alone and that nothing much else would apply? That is an interesting point: if it can be refuted, great, but if particular examples of debts that would fall within the regime can be provided, so be it. Such examples would be helpful in answering any arguments made against the Bill under article 1—that there is not the obvious and compelling public interest that the European Court of Human Rights would seek in order to justify retrospective legislation. Subject to those points, we have no particular difficulties with clause 3.

Photo of John Hemming John Hemming Liberal Democrat, Birmingham, Yardley 10:30 am, 9th March 2010

Perhaps I see things from a different perspective. Let us say that we have an insolvent country that cannot pay all its debts and we do not want any creditor to be preferred, and let us assume for a moment that the Bill will have sufficient force and that people will not jurisdiction-shop and go somewhere else to enforce the debt. In principle, we are saying that insolvent countries cannot pay all the debts. It is in the interest of all creditors to get paid their poundage, and we are saying that that should be fair and no creditor should be preferred. I do not see that as retrospective, because that is current—the current situation is that it cannot pay its debts. Yes, that interferes with contracts, but not to the extent that the contract is enforceable. Creditors can get their money paid only because there is an agreement to have a poundage. I do not see the difficulty.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

I do not disagree with the hon. Gentleman. To be fair, the word “retrospective” is used in the explanatory notes. I do not think there is an argument that the provision is explicitly designed to be retrospective —for the reasons we debated, and rightly so. I do not disagree with his point that the situation is the equivalent of an insolvency arrangement.

Photo of John Hemming John Hemming Liberal Democrat, Birmingham, Yardley

I thank the hon. Gentleman for that. I am looking at page 9 and I accept that that is how the measure is perceived here, whereas I see it as an insolvency procedure for a country.

Photo of Michael Connarty Michael Connarty Chair, European Scrutiny Committee, Chair, European Scrutiny Committee

I respect entirely the probing nature of the comments made by the hon. Member for South-West Hertfordshire. This issue is at the heart of the Bill and it is where the overarching public interest is clearly focused. Jubilee Scotland, the Justice and Peace Scotland movement and the Fairtrade movement all see the Bill as a small but significant step. It is about fairness and being against predatory behaviour in the market. It is against selfishness, and there is all-party agreement on it. That is why, although the Bill is a small step and there are some questions about its effect, I hope that in future, it will be built on and not washed away, with people saying, “That is the job finished”. The Bill is the beginning of a rearrangement of what happens to countries when they fall into deep debt and are exploited for predatory reasons.

I will make a sectarian party comment here. The latest person who declared herself for the Conservative party in Scotland, a lady who runs the Scottish fashion show, said that she wants to support the Conservative party because she wants the UK to be more selfish. I intend to send her the speech made by the hon. Member for South-West Hertfordshire on Second Reading, because clearly, Governments over the period and of all ilks realise that we are not about being selfish: the UK is about building on a generous view of what we do when countries fall into deep debt.

Photo of Michael Connarty Michael Connarty Chair, European Scrutiny Committee, Chair, European Scrutiny Committee

Not at the moment. I do not mind if the hon. Gentleman wants to make comments, but I do not want to take too much time.

The hon. Member for South-West Hertfordshire put the problem down to bad management by Governments, but let us be frank: having talked to people who are concerned about this issue, I have always felt that it is 200 years of exploitation by the developed world that has reduced most of these countries to their level of indebtedness. We have exploited their resources, and at one point stole their people to use them as slaves. Let us not kid ourselves—most of their indebtedness has arisen because we have taken their wealth and given them nothing in return. We are not just being generous; we are also dealing with our own conscience.

Photo of Tim Boswell Tim Boswell Conservative, Daventry

In seeking to intervene on the hon. Gentleman I was, if anything, about to reinforce his point. I, too, think that this is in our long-term national interest. The existence of depressed, poor countries that can find no relief from their long-term situation is not a satisfactory state of affairs. I would not have risen to speak were it not for the fact that I ought to declare an interest as a member of the Parliamentary Assembly of the Council of Europe, which, in a sense, is the guardian of the European convention.

I have a couple of general and one or two specific remarks to make. I am no lawyer, although, as it happens, I have a daughter who is a human rights lawyer and takes an interest in the convention. I find the European approach interesting. First—we should get this point on the record, and I say this as a Conservative—we are  talking about not the convention but article 1 of the protocol to the convention. Property rights are, in a sense, subordinate—I am not suggesting they would be in a judgment—to other, perhaps more serious issues such as murder, torture and the rights of prisoners and of family life, which are convention rights. That may say something about hierarchy.

My second point is that, looking at the European convention, which I do quite often, I find it striking how it is understood that there are clashes. There is no absolute way of resolving an issue according to some principle, because there are clashes here between the rights of predators and the laws of contract: the prudential virtues of the laws of contract on the one hand; and, on the other, the situation in which some developing countries find themselves. So it is not unfamiliar to people in European jurisprudence to be saying, “We have to try to sort out these relative pressures”.

I wish to commend the Treasury for once. One normally gets a peremptory certificate from a Minister, but here we have a full explanatory memorandum following consultation in which the issue is seriously agonised about and explained in a way that I find very reassuring. We come back to the point that there is an overriding public interest. It is in our public interest, as well as that of developing countries, to get this issue sorted out in a fair, orderly and equitable manner between the various creditors, as the hon. Member for Birmingham, Yardley said. I am comfortable with that approach.

I have two questions, the first of which concerns forums, and perhaps the hon. Member for Northampton, North will come back to it. If my constituency neighbour, my hon. Friend the Member for Banbury, is right, there are many potential debts that might come to our courts. There is always the danger of forum shopping—of people going somewhere else if they think they will get a better deal. Can we have an appraisal from the Bill’s promoters as to whether that is likely? If that happens, in a sense it will devalue the Bill and create potentially awkward international anomalies.

My second point may be contrary—I am merely reflecting—but I would like the promoters’ response. Let us make a comparison with the historic position of, say, Chinese Boxer debt or pre-Russian revolution bonds. I hasten to say I do not own nice share certificates or stock certificates, but if I happened to be the owner of some of that ancient and completely useless sovereign debt, I would have two choices—or I might have had two choices if I were lucky. One is to be paid off something by a country that wishes to re-establish its credit rating and be able to service debts in future. If it says, “We’ll give you something”, I could assent to that debt. On the other hand, if I decided to hold out, or liked the stock certificate better, I could as an individual stay non-assented to that debt and I would still have my full entitlement. According to the term of art used in the explanatory memorandum for the right to sign for debt, I would not have anything in my hands because it would not be paid, but I could still in principle claim the whole lot and I could be in either the assented or non-assented category. I wonder whether the hon. Member for Northampton, North will reflect on that. If that situation existed it would further untidy the position, in that I am sure it would be better for the country in question to be able to know exactly where it stood with all the creditors involved with it.

My basic view is that we should be taking this on the chin as the right thing to do. There are difficult, complex and detailed issues that need to be thought about intensively to get the final outcome resolved, but I would not in any sense wish them to devalue the need to get on with things and seek a common haircut for all holders of debt. At the moment in the real world, that debt cannot be serviced or discharged. It is doing more damage than good to the international economy.

Photo of Peter Bottomley Peter Bottomley Conservative, Worthing West

I ask the promoters to consider—not necessarily today—two minor points. Subsections (4) and (6) start with the word “but”. I was brought up to believe that any sentence that starts with the word “but” is not needed. I do not think it is a condition. If one reads “the amount recoverable is limited”, does it mean the same as with the “but” added? If the “but” has no purpose, there is no point in taking it out and no point in putting it in the first place.

A more serious point relates to a possible ambiguity in line 30, which states that

“the amount recoverable under a compromise agreement is limited to the amount that would be recoverable”.

Does that mean “limited to” as a ceiling, or is it limited to a precise amount? It is unclear.

Photo of Stephen Timms Stephen Timms Parliamentary Under-Secretary (Department for Business, Innovation and Skills) (Digital Britain) (also HM Treasury), Financial Secretary (HM Treasury) (also in the Department for Business, Innovation and Skills)

Let me comment on a couple of questions that have been raised about the Government’s perspective, the first of which concerned compatibility with the Human Rights Act 1998 and European legislation. I am grateful to the hon. Member for Daventry for commending the Treasury on this occasion. The explanatory notes outline the Government’s view that the Bill is compatible with the European convention on human rights. It reduces the recoverability of debts in line with the HIPC initiative. The reduction, in our view, is not a deprivation of property but a control of use. The European Court of Human Rights has found there to be a deprivation only where there is a total practical or legal extinction of the rights of ownership. Under the Bill’s provisions, the creditors will still retain an asset of some economic value. Although the face value of the debts will be considerably reduced by the Bill, their current market value is likely to be much lower than their face value. We consider that control of use to be justified in the interests of promoting fairness among creditors and promoting the development of poor countries. My hon. Friend the Member for Linlithgow and East Falkirk set out the moral case for doing that.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

The Minister has highlighted the Treasury’s view that the reduction is a control of use rather than a deprivation of possessions. What would be the significance if it was a deprivation of possessions, and why is it important that it is a control of use?

Photo of Stephen Timms Stephen Timms Parliamentary Under-Secretary (Department for Business, Innovation and Skills) (Digital Britain) (also HM Treasury), Financial Secretary (HM Treasury) (also in the Department for Business, Innovation and Skills)

It is an important distinction in order to secure that the Bill is compatible with the Human Rights Act. The hon. Member for Daventry referred to compatibility with article 1 of the protocol to the European convention on human rights. The measure is proportionate for compelling public policy reasons. It promotes fairness among creditors and the development of poor countries. Creditors that enforce their debts for the full face value divert resources that are intended for development, including debt relief and international aid provided by the UK Government.

Is this worth doing and is it, ultimately, a substantial measure? Of course, it is true that, compared with overall financial flows, the amounts we are talking about are small. For the countries involved, however, they are significant. The case of Liberia has been mentioned, and the amount involved is reported to represent 5 per cent. of its Government’s annual revenue. That will have a huge impact on that country. The World Bank survey reports other active cases that are larger still. I think that every member of the Committee agrees that the threat of any resources being diverted to vulture funds, away from a country where almost half the population live on under a dollar a day, is very serious. That concern is shared on both sides of the Committee.

Photo of Tim Boswell Tim Boswell Conservative, Daventry

Has the Treasury given any thought to the alternative of offering the creditors expropriation at the current market value of the debts, and then paying the appropriate compensation? Would that be an alternative approach? Would it be dearer or cheaper, and would it be equally compatible with the European convention on human rights?

Photo of Stephen Timms Stephen Timms Parliamentary Under-Secretary (Department for Business, Innovation and Skills) (Digital Britain) (also HM Treasury), Financial Secretary (HM Treasury) (also in the Department for Business, Innovation and Skills) 10:45 am, 9th March 2010

The World Bank’s debt reduction facility helps settle the commercial debts of HIPCs on terms that are compatible with the HIPC initiative. It negotiates buy-backs at the deeply discounted rates consistent with the initiative by using funding from donors, including the UK, to purchase and then cancel debts from commercial creditors that choose to participate. In the case of Liberia, last year’s operation bought back 97.5 per cent. of eligible debt, with a full value of $1.2 billion, for just 3 per cent. of that value. Of course, we cannot be absolutely sure about what will happen because of secrecy on the part of the commercial players involved. There is bound to be some uncertainty about the number of cases that will come forward, but the Bill prevents creditors from taking action against the HIPCs to get full value.

Last year’s World Bank survey of HIPC Governments reported 14 active or unresolved law suits by commercial creditors worldwide, with a total value of $1.2 billion. Active law suits are reported against, among others, Ethiopia, Uganda, Sierra Leone—mentioned by the hon. Member for Banbury—and the Democratic Republic of Congo. The survey has reported 54 cases since 2002, about a fifth of which have been brought in the UK, and new cases continue to arise.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

I am, again, grateful to the Minister for giving way with his characteristic generosity. First, what would he say to the argument that is sometimes made that using surveys of litigation can be an inaccurate way of measuring claims, because by their very nature claimants tend to have an optimistic assessment of their claim? They claim for as large an amount as possible. Court judgments tend to reduce the claim as a matter of course, and there is the whole issue of enforcement. Some argue, therefore, that trying to assess the benefit for developing countries on the basis of a survey is not a reliable methodology. What is the Minister’s response to that? Secondly, what trends are there in the number of claims being made? He mentioned the 54 claims. Is there a reduction in the number, or is it increasing? What is the trend in the enforcement of the claims?

Photo of Stephen Timms Stephen Timms Parliamentary Under-Secretary (Department for Business, Innovation and Skills) (Digital Britain) (also HM Treasury), Financial Secretary (HM Treasury) (also in the Department for Business, Innovation and Skills)

I certainly accept, as I have already indicated, that there is a degree of uncertainty—that is inevitable. One cannot give absolutely definitive figures. We have set out our best valuation in the impact assessment, which is that the Bill will prevent £145 million from being transferred from heavily indebted poor countries to litigating creditors through free-riding. While acknowledging the uncertainty, I think that that is as good an estimate as one can make. We can, however, be certain that the Bill will prevent the minority of commercial creditors that litigate and extract repayment in excess of that permitted under the HIPC initiative from using UK laws or courts to do so. That is an aim that I think the whole Committee shares, and that the Bill will fulfil.

Photo of Sally Keeble Sally Keeble Labour, Northampton North

I think that most people have had their questions about insolvency arrangements, the management of the debt and the arrangements for orderly wind-down answered, and my right hon. Friend the Member for East Ham dealt with the human rights issues, so there is absolutely no point in my covering those matters. I just point out that the calculation of what are sustainable debts for the countries has already been agreed, and is set down in the explanatory notes.

In addition, we talked earlier about the fair treatment of different types of debt, and I point out that some of the commercial creditors have already behaved properly, going through the process and writing off the debt. The issue is about dealing with different classes of debt equally. On the point raised by the hon. Member for Worthing, West, the HIPC amount is a ceiling, and if parties agree to less than that amount, they can recover only the lesser amount.

Other hon. Members, including my hon. Friend the Member for Linlithgow and East Falkirk, made the case about the obvious and compelling circumstances. It rests with some of the countries—and here I mention the steps taken by the British taxpayer—to underwrite some of the costs. Looking at the list of countries, we see that one of them is Haiti. We must ask whether there are obvious and compelling circumstances for Haiti that require the kind of management of debt that we are talking about. In most cases, things are being done perfectly properly. However, a country in such circumstances should not be prey to a fund that suddenly decides to hit it for the full amount of repayment of debt.

Question put and agreed to.

Clause 3 accordingly ordered to stand part of the Bill.

Clause 4 ordered to stand part of the Bill.