Debt Relief (Developing Countries) Act 2010 (Permanent Effect) Order 2011

Lord Roberts of Llandudno Excerpts

Tuesday 17th May 2011 Grand Committee

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, the draft order before us today makes permanent the effect of the Debt Relief (Developing Countries) Act 2010. Perhaps it will assist the Grand Committee if I briefly explain the background to this order.

The Debt Relief (Developing Countries) Act 2010 prevents creditors of heavily indebted poor countries—the so-called HIPCs—recovering in UK courts an amount of debt in excess of that consistent with the HIPC initiative. The 2010 Act contains a sunset clause, which means that it will expire on 7 June 2011 unless an order is made to extend it. The Government support the order for two reasons. First, making the 2010 Act permanent will help achieve our aims for international development. Secondly, evidence suggests that the 2010 Act has had some benefit on HIPCs and no evidence has been found of unintended adverse effects.

The Government are committed to debt relief for the poorest countries. The coalition programme for government states that the coalition will accelerate the process of relieving HIPCs of their debt and review what action can be taken against vulture funds.

The HIPC initiative aims to ensure that no poor country faces a debt burden it cannot manage. Multilateral, bilateral and commercial creditors are all expected to provide the debt relief required to restore external debt sustainability to HIPCs. The majority of creditors provide debt relief consistent with the HIPC initiative. The 2010 Act tackles the problem of the small minority of commercial creditors that free-ride on the relief, litigating and recovering the full value of their debts plus accumulated interest and any associated charges owed to them. This behaviour is inequitable and economically inefficient. The resources implicitly siphoned off by such creditors include the debt cancellation and development assistance funded by UK taxpayers.

The sunset clause was added to the Act because there was a degree of uncertainty about the impact of the legislation. This inclusion was important given the lack of parliamentary time to scrutinise the Bill when it was passed last year and the lack of available evidence at that time about its likely impacts. I should pay tribute at this point to the noble Baroness, Lady Quin, for her sponsorship of the Bill last year. I am delighted to be opposed by her for the first time this afternoon—although I hope that her opposition will not run to opposing the draft order before us. I am grateful to her for indicating that it will not.

It is important that we have had, and have taken, the opportunity to assess the impact of the Act. The Government have consulted a wide range of organisations, including many of those that contributed to the 2009 public consultation—representatives of the international financial institutions, HIPC country Governments, the financial services sector, lawyers and civil society. There is no information to suggest that the Act has adversely affected the availability and cost of lending to HIPCs or other low-income countries. The tightly defined and limited scope of the legislation seems to have prevented this. Additionally, no evidence has been presented to the Government to suggest that the legislation has had an adverse impact on the UK as a centre for financial services or that it has resulted in changes in the choice of law and jurisdiction for financial contracts. However, evidence suggests that the 2010 Act has benefited HIPCs. This is illustrated by the recent case of Liberia.

In June 2010, Liberia received substantial debt relief under the HIPC initiative, including 100 per cent cancellation from the UK. Most of its commercial creditors also provided debt relief, assisted by a buy-back operation of commercial debt under the World Bank’s debt reduction facility in April 2009. In November 2009, the High Court gave judgment for $20 million against Liberia in a claim brought by two commercial creditors that had not participated in the debt buy-back operation. This allowed them to seek to enforce full repayment in the UK of an amount that was then equivalent to about 5 per cent of Liberia’s national budget. However, one year later, by which time the 2010 Act was in place, the two remaining commercial creditors agreed to a second World Bank debt buy-back operation. Consequently, Liberia will have to pay back only 3 per cent of the amount owed—an amount consistent with the HIPC initiative. It seems clear that the 2010 Act was one factor that prompted this settlement.

The order that we are debating makes permanent the effect of the Debt Relief (Developing Countries) Act 2010. Making the legislation permanent will help to achieve the Government’s aims for international development. As I explained, the 2010 Act has already been shown to have had a positive impact on HIPCs, preventing the diversion of resources provided through debt relief, which are intended to support development and poverty reduction; and no evidence has been found that it has had unintended adverse effects on low-income countries or on the UK. I therefore commend it to the Committee.

[Lord Roberts of Llandudno]

My Lords, it is a pleasure for me on behalf of the Liberal Democrats to welcome the order and to thank those whose foresight brought it about. The Debt Relief (Developing Countries) Act 2010 had a sunset clause, as we have heard, which is now removed. The Act will become permanent, as it should.

In the original discussion on the 2010 Act, it was noted that it was a victory over the “vultures”—the private companies that bought bad debts and then demanded interest that ensnared poor countries in even greater poverty. They lost the battle; I am delighted about that. I will give one example. Donegal International bought $15 million-worth of Zambia’s debt for $3.3 million. It then demanded $55 million in the United Kingdom courts. It was eventually awarded $15.5 million. Even that was a profit of $12 million. However, this now will end. I pay tribute to the Jubilee Debt Campaign and to the churches, which all gave tremendous support for this debt relief step. The end of the sunset clause is in many ways the beginning of removing the threat from heavily indebted poor countries. Now possibly they will be able to breathe a little more freely and more hopefully. Once again I say that we are delighted to support the order.

[Baroness Quin]

My Lords, I am very pleased on behalf of the Opposition to welcome the order and to give it our wholehearted support. As the Minister noted, our support is unsurprising given that the Bill that became the Act began as a Private Member’s Bill in another place. It was sponsored by Andrew Gwynne, the Labour MP for Denton and Reddish. The Bill had the support of the Treasury, and both the Minister in the other place and my noble friend Lord Myners in this House spoke strongly in support of it in debates. I pay tribute also to Sally Keeble, the former Member for Northampton North, who worked hard on the Bill in the absence of Andrew Gwynne through illness. I worked closely with her in presenting the Bill in this House. Following the noble Lord, Lord Roberts of Llandudno, I, too, pay tribute to those individuals and bodies outside Parliament who pushed for the legislation and provided material in support of it. In particular, I thank the Jubilee Debt Campaign, which has played a significant role.

Obviously, since I was the Member in this House who took over the Bill when it reached this place, I am glad to be able to welcome it today. I was delighted, although surprised, when it reached the statute book in the wash-up, particularly since it had previously encountered some opposition from Conservative Members in another place. I accept that, as part of the wash-up, it was somewhat frustrating to have to deal with the Bill at breakneck speed. At the time, all of us regretted the fact that we were not able to scrutinise it more effectively. Indeed, those who supported the Bill agreed to facilitate its passage by the inclusion of the sunset clause, which the Minister has mentioned, and which allowed the legislation to be reviewed after a year and thus provided an opportunity for its effects to be evaluated. However, although we accepted the sunset clause at the time, as strong supporters of the Bill we were uneasy that the legislation might cease to have effect after one year. This unease was particularly heightened by the opposition to it on the part of some Members in another place. I am therefore doubly delighted that the Government have decided to bring forward this order which will give permanent effect to the legislation.

At the time, some of the concerns related to unintended consequences and possible adverse effects which the Bill might have. These concerns were expressed to a certain extent by the noble Baroness, Lady Noakes, when she spoke to the Bill on behalf of the then Opposition. She talked about her concern that the Bill would be likely to reduce the availability of private sector involvement in debt for heavily indebted countries in the future, and expressed her concern that it might involve a premium for the risk involved in dealing with those countries, and therefore might be more expensive. I am glad to say that the Treasury and the Government have now assured themselves that these fears have turned out to be unjustified. The example of Liberia, which the Minister quoted to us today, and which his colleague in another place quoted yesterday, is an interesting one because Liberia had been harmed by the operation of vulture funds and it seems that this legislation has had the effect of reducing Liberia’s debt burden in a way which does not seem to have threatened other countries. For that we ought to be very grateful and very pleased indeed.

The Bill, when it came through your Lordships’ House, had strong support from the noble Earl, Lord Sandwich, and others on the Cross Benches, and indeed from the Liberal Democrat Benches, which has been reflected by the noble Lord, Lord Roberts, today. I accept the explanation that the Minister has given us today which sets out the reasons why the Government now wish to make this provision permanent in an Act. It will protect 40 of the world’s poorest countries from the actions of a minority of unscrupulous commercial creditors—although the Minister rightly stressed that it is a minority. It also helps to ensure that the debt relief and development aid provided by the UK and other donor countries, and therefore by our taxpayers, goes to help tackle poverty rather than provide profits for investors. That is something about which we should also express our satisfaction.

Given that the order is part of our overall strategy towards aid and development and of our relationship with some of the poorest countries in the world, the Minister might not be surprised if I allude to the story of the day about the Government’s aid policy—the question mark apparently raised by the Secretary of State for Defence about the Government’s commitment to reaching the aid target of 0.7 per cent of GDP. It would be good to get a very firm commitment from the Minister today that that commitment remains and that there is no slackening or weakening of the position.

Specifically on the order, my honourable friend Chris Leslie also asked about the cost of the consultation and the cost involved in bringing the order forward, to which there was no reply. I therefore wonder whether the Minister can give us an estimate of that. Chris Leslie's point, which I think is fair, was that, given that the measure was initially blocked in another place by Conservative Members, if we had had more discussion on the Bill earlier and allowed the issues to be more fully explored, the sunset clause, the consultation and other costs involved might have been averted.

However, I assure noble Lords that in asking those questions I do not want the Minister or anyone else to be in any doubt about how much we welcome the order. I conclude by once again thanking him and the Government and expressing the Opposition's pleasure that the measure is to become permanent.