Clause 5

Part of Debt Relief (Developing Countries) Bill – in a Public Bill Committee at 10:45 am on 9th March 2010.

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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

Unfortunately, I am not in a position to give the hon. Member for South-West Hertfordshire the breakdown he was asking for. If anything comes my way, I will let him know. [Interruption.] Actually, I can give a little illumination. Our estimate is that if clause 5 was removed, the benefit would be reduced by a third. It is of that order of magnitude—substantial, as he thought.

However, having legislation that affects cases where a court has already given judgment rightly raises some important issues. It is not something that should be done lightly or often—it needs to be considered carefully. Here, there is a compelling case for doing so on three grounds, which the hon. Gentleman touched on. First, there is $1.2 billion-worth of HIPC debts worldwide on which judgments have already been made or action is continuing. Other creditors can theoretically go to court before any legislation comes into effect to get judgments on those debts, which would then be excluded from the legislation. Creditors would be able to enforce those debts in UK courts against the assets of poor countries, disrupting trade and investment, which would clearly be inconsistent with the aims of the legislation.

Secondly, excluding judgments would not be economically logical. The purpose of the legislation as a whole is to limit repayment of otherwise valid debts to the level the debtor can afford to repay.

The question that follows is whether to exclude some kinds of debts, such as judgment debts, which would, in effect, be treating them more favourably. I do not think there is a strong argument for doing that; it is logical to treat them equally. The judgment will have been reached on the validity of the debt, rather than on the debtor’s capacity for repayment. The hon. Member for Birmingham, Yardley is right to highlight the strong similarities with insolvency law, which provides for a fair and orderly restructuring in situations in which creditors’ claims in total exceed the capacity for repayment. As he says, in insolvency law, a debt on which there is already a judgment is not, in general, treated more favourably—that is, to be repaid at the expense of other debts. The same effect should apply in this legislation, as the hon. Gentleman suggested.

Thirdly, excluding judgment debt would considerably reduce the effectiveness of the legislation. Around a third of the value transferred to creditors would be at  stake. If we accept the reasons for enacting this legislation in general, it is important that the judgments be included. Although I recognise the seriousness of this issue, we should include judgments and this clause should stand part of the Bill.