The Minister for Regional Growth and Local Government (Luke Hall)

- Hansard -

Copy Link

- - Excerpts

I beg to move, That the Bill be read a Second time.

The Bill contains two halves: first, a measure that changes the valuation assumptions that are applied when making business rate determinations in the light of covid-19; and secondly, a measure that will provide for the disqualification of unfit directors of dissolved companies. I will start with the first measure before moving on to the second.

The pandemic has presented significant challenges for businesses in all sectors. Our response has been of a similarly unprecedented scale, with more than £280 billion provided throughout the pandemic to protect millions of jobs and businesses. In this year’s Budget, the Chancellor announced an extra £65 billion of support for 2020-21 and 2021-22. The support we have provided for businesses included 100% business rate relief for all eligible retail, hospitality, leisure and military properties for 2020-21, at a cost of £10 billion. Combined with those eligible for small business rate relief, this means that more than half of ratepayers in England will have paid no rates in 2020-21.

At this year’s Budget, we confirmed a further three-month extension to the full 100% business rate relief for retail, hospitality and leisure businesses, followed by a further nine-month period of relief at 66% subject to the cash cap, at a further cost of £6 billion. That takes the total level of support provided to businesses by Government through relief from business rates since the start of the pandemic to over £16 billion.

That is an important context for the Bill, because as well as helping businesses through the pandemic, it is also important that we support local government with the critical role it has in supporting our communities. A vital part of that is the income that it receives from business rates, so while it is necessary to provide rates relief to businesses, it is important that we do so in a way that is targeted and that ensures that those who can still contribute continue to pay this tax.

With that in mind, clause 1 is concerned with how rateable values should be assessed during the pandemic. A business rates bill is calculated by multiplying the rateable value of the property by the multiplier, or the tax rate, and then applying the reliefs. The rateable value of a property is therefore, broadly speaking, its annual rental value at a set valuation date, which in the current rating list is 1 April 2015. All rateable values should therefore reflect annual rental values at 1 April 2015. This provides a consistent tax base for all businesses.

Of course, it is necessary to update the tax base, which is done at regular revaluations undertaken by the Valuation Office Agency. The next revaluation was originally scheduled for 1 April 2021, based on values at 1 April 2019, but last year we took the step of postponing it to 1 April 2023 to ensure that it better reflected the impact of the pandemic; Parliament approved that change by passing the Non-Domestic Rating (Lists) Act 2021. The Act received cross-party support, for which we were extremely grateful.

Outside those general revaluations, a ratepayer can still submit a challenge to the VOA on their property’s rateable value between revaluations for a number of reasons, such as to correct factual errors or reflect a material change in circumstances. If not satisfied with the outcome of the challenge, the ratepayer can appeal the VOA’s decision to the valuation tribunal. It has been an established principle of the business rates system that a material change in circumstances challenge can be made on the basis of a physical change to a property or its locality. For example, a successful MCC challenge could be made following the partial demolition of a property, or significant roadworks near a property that might affect its value.

However, following the pandemic, the VOA received high numbers of MCC challenges seeking a reduction in rateable value to reflect the impact of the pandemic. Of course, the MCC legislation, as first set out in the Local Government Finance Act 1988, was not designed with covid-19 in mind, and the MCC system has never been used in response to economy-wide impacts or shocks. It has therefore become necessary to clarify, as clause 1 does, the treatment of covid-19 in assessing rateable values.

We have been clear that relying on the MCC system to help businesses that need further support in the light of the pandemic is not the right mechanism. It would mean significant taxpayer support going to businesses with properties such as offices, many of which might be able to operate normally throughout the pandemic, at a time when we have provided significant support to those most affected.

For example, the workforce of a consultancy firm based in central London that was previously entirely office-based is likely to have been working largely from home since the start of the pandemic, but the business itself may have continued to operate throughout. Under the business rates appeal regime, it could have argued that its office space had undergone a material change of circumstances due to the reduced occupancy.

If that business’s appeal had been successful, it would have been awarded a business rates reduction, but it would not have been right for it to have a reduced tax liability on that basis, given that it had not actually suffered an economic impact. Relying on the MCC system to support businesses would also mean resolving disputes through the courts, which could take years and create additional uncertainty both for businesses and for local government, which relies on income from business rates to deliver vital local services.

The Bill will therefore ensure that the coronavirus and the restrictions put in place in response to it cannot be used as the basis for a successful MCC challenge or appeal. It will ensure that changes to the physical state of a property can continue to be reflected in rateable values as and when they occur, irrespective of whether they are a result of the coronavirus, but that the general impact of the pandemic on the property market will not be reflected until the next revaluation in 2023. Until then, all rateable values will continue to be based on the property market as at 1 April 2015. This approach is supported by the Public Accounts Committee, which has welcomed the financial certainty that such a measure gives to councils.

Clause 1 applies in England. Business rates policy is fully devolved, so whether the same legislation is necessary in Wales, Scotland or Northern Ireland is a matter for their respective Governments, but we have been working closely with the devolved Administrations regarding the Bill. Although the law in Wales is similar to that in England, different legislation applies in Scotland and Northern Ireland. Of course, the impact of the coronavirus may have been different, so whether the devolved Administrations choose to follow the measures set out in clause 1 will depend on the individual circumstances and choices made in those countries.

We have also supported businesses. We have put £16 billion of support into business rates for the pandemic, and we have announced a relief worth an additional £1.5 billion for ratepayers impacted by the pandemic who have not been able to access business rate reliefs. These new reliefs will be administered by local authorities and will be distributed according to which sectors have suffered the most economically, rather than on the basis of temporary falls in property value. This will ensure that support is provided to businesses in England in the fastest and fairest way possible, and we will continue to work with and support councils and local government to enable ratepayers to apply for the new reliefs as soon as possible.

The second part of the Bill deals with the abuse of the process whereby companies are removed from the register and dissolved. The large majority of company directors are responsible, passionate about their businesses and diligent. They act as effective stewards of the companies to which they are appointed, and I pay tribute to the directors who make such a valuable contribution to our economy and who have fought so hard over the past year to ensure their company’s survival, preserving the jobs and livelihoods of so many within their business and beyond.

Unfortunately there are exceptions, and the business community and the wider public must be protected from those individuals who abuse the privilege of limited liability. Those directors who act recklessly, irresponsibly or even criminally should expect to have to answer for their conduct. That means expecting to have their conduct investigated and, if they had done wrong, facing the possibility of being disqualified from acting as a company director for up to 15 years, depending on the severity of their misconduct. Disqualification protects the public from the actions of those who have demonstrated they are unfit to hold the position of a director of a company, and acts as a deterrent to reckless or culpable behaviour.

Evidence to support disqualification action comes from the investigation of companies and the conduct of their directors. The Secretary of State for Business, Energy and Industrial Strategy may investigate live companies through the powers contained in the Companies Act 1985, and also the conduct of the directors of insolvent companies through similar powers in the Insolvency Act 1986 and the Company Directors Disqualification Act 1986. If such investigations reveal evidence that a director’s conduct has fallen below the standards expected of someone in their position, a period of disqualification can be sought, either through a court application or through an under- taking given by the person to the Secretary of State. A period of disqualification protects the business community and the wider public by preventing the person from acting in the promotion, formation or management of a limited company. Breach of a disqualification order is a criminal offence, and an extremely serious matter.

As things stand, though, there is a loophole in the disqualification regime that some irresponsible directors have been able to exploit. It concerns the situation where a company has been dissolved without entering insolvency proceedings. Dissolution should not be used as an alternative to insolvency proceedings, but there is evidence that some directors have been using the process both as a way of fraudulently dodging the payment of company debts and of avoiding insolvency proceedings and the scrutiny of their behaviour that comes with that.

Luke Hall

- Hansard -

Copy Link

- - Excerpts

I thank my hon. Friend for that point. He is an expert on these matters in this House, and I look forward to working with him as we deliver the Bill.

When a company is dissolved, the only way the conduct of its former directors can be scrutinised is if it is restored to the register, which is a costly process involving court proceedings. The Insolvency Service regularly receives complaints about the conduct of directors when a company has been dissolved, and many such complaints relate to the use of dissolution to dump the debts of one company, only for a new company to start up in the same business, often with the same directors and the same employees, and often even working out of the same premises. The debts dumped in this way are often large tax debts, awards made by employment tribunals or sometimes even debts owed directly to consumers.

The provisions in this Bill will close the loophole and allow the Secretary of State for Business, Energy and Industrial Strategy to investigate the conduct of former directors of dissolved companies and, where public interest criteria are met, to take action to have them disqualified from acting as a company director.

We consulted on this measure back in 2018 and it received a warm welcome from stakeholders. It has now become extremely important that we get it on to the statute book, so that it can support the business community and the wider economy in recovering from the impact of the pandemic.

This new power to investigate and seek disqualification of former directors of dissolved companies forms part of a package of counter-fraud measures seeking to target any fraudulent behaviour relating to bounce back loan schemes through the abuse of the dissolution process and to ensure the responsible use of public funds. Retrospective provisions in the Bill will mean that, when the new provision becomes law, conduct that is happening right now will become subject to investigation and could be used to support future disqualification proceedings even if the company is dissolved.

The Bill fulfils the Government’s commitment to introducing two important measures: it will make changes to the business rate appeals system and provide for the tackling of abuses associated with the process whereby companies are removed from the register and dissolved. These are two distinct areas of policy, but our approach is consistent. We will ensure the continued operation of a coherent framework, deliver certainty, support businesses to thrive, and allow councils to plan for their finances with confidence and continue to deliver the first-class services on which our communities rely. I commend the Bill to the House.

The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)

- View Speech - Hansard -

Copy Link

- - Excerpts

This is a Bill of two halves, considering that the football is on at the moment, and the contributions that we have heard from Members throughout the House attest to the importance of each of them. I am grateful to my hon. Friend the Minister for Regional Growth and Local Government for opening these proceedings by setting out the context and the background of both elements of the Bill. I am also grateful to all the Members in all parts of the House who have participated in the debate. The points that have been raised are really important and I am glad to have the opportunity to respond, first on business rates and then on the measures relating to the disqualification of unfit directors of dissolved companies.

The House has today supported the point made by hon. Friend that the pandemic has unquestionably had a significant impact on ratepayers. This impact has been felt particularly by those in the retail, hospitality and leisure sectors, but also by many other businesses that sit elsewhere in the wider economy. That is why since April 2020 the Government have provided £16 billion of business rates relief targeted at ratepayers in the retail, hospitality and leisure sectors. As announced on 25 March, the Government intend that this will be supplemented by an additional £1.5 billion of relief to be made available to ratepayers who have not been able to benefit from the reliefs already put in place throughout the pandemic. Taken together, that represents an unprecedented package of support that reflects the unique impact of the pandemic on our economy.

These unprecedented circumstances have also tested other aspects of the business rates system, which was created long before covid-19 and was not designed with pandemics in mind. The material change of circumstances process is designed to be used in cases such as localised roadworks. Market-wide economic changes such as those arising from a pandemic can and should be considered only at a comprehensive business rates revaluation. Arguing material change of circumstances cases through the courts could result in years of uncertainty and is unnecessary where we can, as we are doing now, amend the law to ensure that it meets its original intention.

Paul Scully

- View Speech - Hansard -

Copy Link

- - Excerpts

A lot of messages can go out and have gone out over the past year so that we can flex in our ability to work with businesses. I think I can boil down my relatively long job title to “Minister for unintended consequences”. We are always trying to make sure that we can flex and get clear messages out to businesses. The hon. Lady makes an interesting point. We have heard a lot about the £1.5 billion and when the guidance will be out. Clearly that is dependent on the passage of this Bill, but we want to make sure that we can work with the LGA and councils to give the clearest guidance so that they can get the money out as quickly as possible. The argument made by Members on both sides of the House is countered by the fact that by not having to go through so many appeals we can speed up the process and get the money out within weeks rather than, in certain cases, if we had to go through the entire process, years. That is why we can provide certainty to local authorities, which rely on income from business rates to fund their vital local services. It is on that basis that the Public Accounts Committee has welcomed the approach taken by the Government in the Bill.

Members have raised questions relating to when ratepayers will be able to benefit from the £1.5 billion relief that was announced on 25 March. We will work with all areas of local government to deliver the new relief scheme as soon as possible, once the Bill is passed, so that local authorities can set up their local relief scheme. The allocation of the £1.5 billion among local authorities will be made according to which sectors have suffered most economically rather than on the basis of temporary falls in individual property values. That will ensure that the support is provided to businesses in the fastest and the fairest way possible.

Paul Scully

- Hansard -

Copy Link

- - Excerpts

The answer is as soon as possible, once this Bill has passed. I am looking forward to working with the hon. Lady in Committee to make sure that we can work through this as quickly as possible. Clearly, work will be done in consultation and conversation with the LGA and local councils to ensure that we can get comprehensive guidance in place. That is how we have been working over the past 14 months with local authorities on the other grant schemes.

Let me briefly cover a couple of quick points. The hon. Member for Manchester, Withington (Jeff Smith) asked whether there will be a blanket ban on MCCs. I can absolutely confirm that there is no blanket ban. On airports, it is a core principle of the business rates system that a material change of circumstances should be used between rate revaluations, so the drop in demand for airports in light of the pandemic is exactly the sort of market-wide economic change affecting property values that can and should only be considered at revaluation. We have been supporting airports with their fixed costs over the past year from the airport and ground operations support scheme. In his recent Budget, the Chancellor announced a further six months of support up to the equivalent of their business rates liability for the first half of the 2021-22 financial year, subject to certain conditions, and a cap per claimant of £4 million.

Paul Scully

- Hansard -

Copy Link

- - Excerpts

I will not give way, but I will happily come back to the hon. Lady if I have not answered her question. I do want to get through a few areas.

Let me quickly turn to the disqualification of directors of dissolved companies. The issue of insolvency funding came up a few times. Clearly, we will be working with the Insolvency Service to ensure that it has the resources to do its job. It employs its finite resources to the maximum effect by prioritising cases in which there has been most harm to the public and the wider marketplace. Clearly, its resources are not limitless.

The hon. Member for Strangford (Jim Shannon) asked about insolvencies. Actually, the number of insolvencies has been at a 40-year low over the past few months because, effectively, in many areas, the economy has been held in stasis. That is why it is so important that, having put £352 billion-worth of support into the economy, we now have 352 billion reasons why we have to get the next bit right—why we have to help shape the recovery through these mitigations. We need to make sure that we continue to flex and continue to extend the support. That is why furlough carries on until September and why we have ensured that the winding-up proceedings have been extended for another nine months as well, so that we can get conversations going with landlords and tenants. It is so, so important to continue these measures.

I am glad that we have had broad support for the measures. In terms of compensation, directors can obviously be held personally liable for debt, and where there are breaches, there is disqualification.

Paul Scully

- Hansard -

Copy Link

- - Excerpts

I take the hon. Gentleman’s point. Let me just answer a couple of his points. He talked about corporate governance and audit reform. That is something that we will legislate on as soon as parliamentary time allows. He referenced a Minister saying that we would adhere to standards that we thought that we could get away with. No, that is absolutely not the case. I did not hear that comment, but I suspect what the Minister said and meant was that we are accountable to the electorate. When I heard about that comment, I thought about my own constituency where I know at least one High Court judge, an insolvency practitioner, lawyers, forensic accountants, civil servants—I have them in my own Department never mind my constituency—and journalists and, boy, will they hold me to account at the ballot box, in my local media and in the national media should it be appropriate to do so. That is that standard to which we expect to work as a Government. I am glad that he also mentioned phoenixing, because this will strengthen the phoenixing legislation as well.

I have noted the helpful contributions made by Members across the House, and I am looking forward to working with colleagues in Committee to make sure that we can get this really important legislation for both of these measures through. The scrutiny that has been provided today is, as always, greatly appreciated. I look forward to discussing this Bill with Members throughout its passage, and I commend it to the House.

The Minister for Regional Growth and Local Government (Luke Hall)

- Hansard -

Copy Link

- - Excerpts

Q Thank you both for your evidence this afternoon. You clearly both have a wealth of experience, so it is really useful to hear your thoughts. What has your experience been of how the scope and extent of MCC claims have evolved over recent years? Could you talk us through the changing landscape of using this type of appeal over the past few years?

David Magor: When this legislation was introduced, you saw various significant events that triggered MCC changes. When you are looking for things that are similar to covid, you perhaps look at the crash of 2008 and things like foot and mouth disease. These are factors that are taken into account when you are looking at the broad picture. The covid situation, as we all know, is quite unique. The normal material change of circumstance is an essential part of the overall evaluation process. You need to reflect the changes in communities and in the environment, such as buildings being demolished or empty and so on—the material changes that happen in every neighbourhood from day to day. There are roadworks and 101 different things. Those have been dealt with very adequately by the Valuation Office Agency. The agents, on behalf of ratepayers, put in the challenges under the new challenge and appeal process, and it has worked very effectively. It has ensured that the distribution of the rate is as fair as it can be when you have got a five-year cycle of revaluations.

The special circumstances that come to mind are the crash in 2008 and foot and mouth disease. It worked quite adequately but, of course, it was nowhere near on the scale of covid, and the impact of covid on the economic wellbeing of communities.

Adrian Blaylock: The only thing I would add is the position since the end of March 2020. From 1 April 2017 to 31 March 2020, just short of 160,000 MCCs were lodged against the 2017 rating list. By the end of June, that had grown to just over 300,000, so had almost doubled in that three-month period. By the end of March 2021, 568,000 MCCs had been lodged with the Valuation Office Agency. There has been a significant increase, and it is fair to say a good proportion of those will be related to the pandemic.

Luke Hall

- Hansard -

Copy Link

- - Excerpts

Q A lot of the early feedback we received suggested the potential scale of the appeals was causing concern in local government. We started to hear talk from local government about potential savings to frontline services that would need to be made. Could you tell us your experience of the way local government started to approach that potential task, and whether that started to impact on budgeting and forecasts for councils in setting their budgets?

David Magor: Since the introduction of the rates retention scheme, local authorities have had to forecast the impact of changes in the valuation list from year to year when preparing their budgets. You started with 50% retention, and moved to pilot schemes of 75% and 100%. When you have a rates retention scheme that works in that way, if you make a mistake in forecasting the reduction in value, you will significantly affect the finances of the local authority and the budgeting process.

Every chief financial officer has to make a forecast of the impact of a change. They would have to make a provision against that forecast and, of course, provisions prevent you from spending money, because you are providing for an event that is likely to happen. Certainly, as far as forecasting for the 50% rates retention scheme was concerned, every time you looked at your rateable value and the changes in that over the forthcoming year, you were conscious that any forecast you made, 50% of that reduction in value would fall on your budget.

That was the way the retention scheme worked, and it created a great deal of concern because chief financial officers were making very significant provisions. As I said, making provisions curtails the local authority’s ability to spend. Elected members quite rightly get very concerned about that. Then the MCC checks and challenges came in, with the checks first. As Adrian said, the enormous number of checks has now reached half a million, and the challenges emanating from those are well in excess of 100,000. You are talking about a massive impact on the valuation resources of the list. Local authorities have to make provision for that.

Through this Bill you would remove that risk and, as the Chair said, transfer it to central Government, because you would fund it through a relief scheme. The real problem is whether the relief will be sufficient to meet the needs of the ratepayers who are expecting a reduction in rateable value.

Adrian Blaylock: That is right. The risk and the responsibility of a local authority to set aside sufficient funds to cover any potential losses to the rating list could be significant. If I can just give you some indication of where we were: at the end of 2019-20, local government had just short of £3 billion sat in provisions for alterations of lists and appeals. This is all pre-covid. This is nothing to do with the pandemic, just essential changes to the rating list. Every year, they have to forecast what they think they will lose in the forthcoming year and there is roughly £1 billion a year being added to that pot, regardless of covid. So the potential loss on top of those normal everyday changes to the rating list—well, I would not like to think what would happen to local government finances if it went ahead. You would need a significant level of provision to be able to carry that. We have already seen local authorities applying to MHCLG for capitalisation directions because they are struggling to pay the day-to-day costs of running their services. How many more authorities would need to go down that route if that is where we get to? That is what concerns me.

Luke Hall

- Hansard -

Copy Link

- - Excerpts

Q Thank you for your evidence: I know the LGA conference is happening today. Can you think back and tell us when the LGA first heard about the potential scale of losses through MCC challenges and appeals? What was the reaction of local government at that time? What issues were they raising with you and how widespread was the concern? What time did it start to build up?

Sarah Pickup: Gosh, it is really hard to recollect precisely; so much has gone on in the last year. It was probably about a year ago; it may be slightly less. There was a lot of discussion at the point when the Valuation Office Agency started to discuss how it might address these appeals. I think there might have been some leaks in the press. That is when the discussion started to come to the fore a bit more, because there were some quite substantial proposals around the adjustments to valuations that might go forward. I think there was an attempt to address this on a uniform basis, rather than deal with every appeal and address it individually. We have gone from there to this scheme which approaches the issue differently, probably more straightforwardly and in a more timely way, certainly in the short term.

The anxieties around appeals are ever present and this was just an addition to the pre-existing issue about businesses’ ability to put in appeals right up through a rating list with no time limit on it. The check, challenge, appeal process has made a difference to that, but we have not yet seen the end result of the number of appeals from the 2017 list, because the time window has not closed yet.

Luke Hall

- Hansard -

Copy Link

- - Excerpts

Q It would be interesting to hear your view, from a local government perspective, on exactly why the LGA thinks that ruling out MCC appeals for councils provides extra certainty—I think that is what the LGA has said—and how big a difference that has made to councils and their planning of their finances.

Sarah Pickup: There is a greater degree of certainty, because they do not face a period of time of not knowing whether an appeal will be successful or not, nor the extent of that success, and therefore having to make additional provisions on their balance sheet. Instead, they have a scheme to operate that offers them resources to provide discretionary funds to local businesses, which is welcome. As we have said, there is still some uncertainty in relation to what the guidance says and whether the scheme delivers what businesses expect, and whether, if not, there is either a pressure on the council to fund beyond the resources that have been made available, or a pressure because businesses cannot manage without the relief that they had been expecting, and therefore some businesses start to fail.

The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)

- Hansard -

Copy Link

- - Excerpts

Q I am here with my corporate governance hat on, but I am also Minister for Consumers. The issues that you raise about scams are really important, and it is really important that we continue to address that. We just had Scams Awareness Week; we have been raising awareness so that people do not get involved, but it is also important that we make sure that institutions and networks are addressed in these sort of ways.

It is interesting: you talked about the amendment, which actually asks for a single report in a year. Clearly, we want to be managing the situation and making sure that it is effective. In terms of the time that you are looking at, obviously that does not negate the ability for criminal action to be taken; it is to restore directors.

I really want to focus on the Bill itself, and the focus within that and what we are doing positively to try to tackle some of these issues—including on phoenixing, which you started off talking about. I know you talked about lots of other things, and other things that we can be doing and are doing, but do you agree that the Bill adds an extra weapon to tackle phoenixing itself?

Andrew Agathangelou: I certainly do. As I said earlier, it is a significant, valuable, worthwhile step in the right direction. My plea—forgive me; I guess I am repeating myself here—is that we look at the whole ecosystem. For example, why on earth are we not including fraud and so on in the online safety Bill? I know that is another topic, but can you see how, from my point of view, these are all interconnected issues—this is all the ecosystem?

I guess I am saying that Parliament can take one of two views here. You can either deal with this tactical, ad hoc Bill, which is of course worthwhile, in isolation of everything else. However, for goodness’ sake, please do not do that; actually look at the bigger picture here—the interconnected matrices of other issues that Parliament ought to be grabbing by the scruff of the neck and finally sorting out.

Paul Scully

- Hansard -

Copy Link

- - Excerpts

I appreciate that. If you look at corporate governance and Companies House reform and all these issues, and indeed at the online harms Bill, I am sure you will have plenty of opportunity to comment on that. As I say, this deals with one specific issue because of the impetus now. That is all I wanted to raise.

Luke Hall

- Hansard -

Copy Link

- - Excerpts

Q We are clearly moved to give 100% rate relief to many businesses with a £16 billion pot. Of course, I understand that some of the businesses you work with and represent will have been disappointed about where the line was drawn, so to speak. I just wonder, notwithstanding the point you made earlier in answer to the question about guidance, whether there is anything you would like local authorities to start thinking about as they start to draw up their own guidance schemes in response to some of the early challenges that have been faced by some of the businesses you will be working with.

Kate Nicholls: We would urge local authorities to work with us to identify themselves where the areas of greatest need are. One of the things that has frustrated a lot of our businesses is that there is a central message from Government, and it is not necessarily interpreted on the ground as fluidly as Government might have hoped. When you look at some of the local authority areas, we have had businesses that are clearly designed to be captured and covered by the support mechanisms that are available, but local authorities have often taken the view that if it is not directly specified in guidance and it is not a named company or a named type of business, they are precluded from using their discretion and being able to provide support to those businesses. That is the frustration that our businesses have had on the ground going forward.

It would be helpful if local authorities could be a bit more permissive in identifying the businesses that they know are hurting at a local level, rather than applying a prescriptive approach that says, “If your name’s not down, you’re not coming in,” or “Here’s a tick, you are covered.” That would help immeasurably in those businesses that tend to fall between the cracks because they are not clearcut: if you are a coach operator, are you a tourist business or are you not? A local authority should be able to understand its local area and know which ones are and therefore need to be helped, and which ones actually managed okay. Those are the kinds of areas in which we would like local authorities to use their own discretion, not wait to be told specifically by Government that they can help those businesses.

Paul Scully

- Hansard -

Copy Link

- - Excerpts

Q Briefly, with my hospitality Minister hat on, and following on from that question, Kate, you will remember that Minister Huddleston and I wrote to local authorities asking them to use their additional restrictions grant before they access their top-up. Have you seen any evidence of any local authorities responding to that, either by giving more money to businesses on their books or by widening the base to fill some of the cracks that you are highlighting?

Kate Nicholls: There are a few notable exceptions, but you can measure on the fingers of fewer than two hands the local authorities and businesses we have been able to help that have had a positive response to that request. All too often, the response has been that the grants that we are talking about are closed, there is no more money, and they will get back in touch with the businesses if more money becomes available.

It is incredibly frustrating that you have this disconnect at a central level. We hear what is being pledged, and we hear and understand the work that is being done by Ministers to communicate to those local authorities, but the operators on the ground just get a “No”. Some local authorities have been more creative than others, and some have been more proactive than others, but generally speaking it has been a long, slow process, and it has been very difficult to get money out of the local authorities for the businesses that desperately need it. It has been too slow in being processed. We know, because of the work we are doing we are doing at a central Government level, that it is there and has been made available; it is just not cascading out.

Paul Scully

- Hansard -

Copy Link

- - Excerpts

Q To expand on a few of those areas, starting with the three-year time limit to file a disqualification application, the Insolvency Service or the Secretary of State can already examine historic conduct, but they have three years to file the application for disqualification. Can you expand a bit on what you meant about the court process, which presumably comes afterwards?

Duncan Swift: What I was explaining about the timeline was that for the office holder—whether it be the Insolvency Service or the official receiver as liquidator, or the Insolvency Service coming in to pull together a picture of the company’s financial dealings and the director’s conduct in the course of those dealings—it takes time. In the first phase in particular, it can take two years to get a reasonably complete picture before one can be confident of putting forward an application to court, either for a recovery of assets or, I would have thought, the disqualification of a director in circumstances where that individual may well be using the proceeds of such activities to defend their position, as well as seeking to confuse it to defend against the likelihood of such claims being brought against them.

Paul Scully

- Hansard -

Copy Link

- - Excerpts

Q We talked a little about compensation orders earlier, which already exist for insolvent companies. This legislation would effectively extend them to dissolved companies, so that compensation can affect all creditors— individual and classes of creditors. A lot of the stuff you talked about at the beginning related to a wider piece of work that you would like to see on Insolvency Service reform and corporate governance. However, do you find the fact that we are bringing compensation orders within the realm of dissolved companies of benefit to—

Duncan Swift: Forgive me, but my understanding and experience of compensation orders is that they are brought on behalf of a single creditor or a few creditors. I suggest a more comprehensive approach: that the insolvency process that already exists is applied, and if a dissolved company is found to be insolvent, it is readily restored to the register and put through the insolvency process. That will have two consequences: a full investigation by the office holder, who in the first instance of the compulsory liquidation is the official receiver of the directors’ conduct; and for that process to recover such assets that are available for the benefit of all creditors of that company, not only a few.

Paul Scully

- Hansard -

Copy Link

- - Excerpts

Q Okay. The other issue I want to clarify is the resource issue that we started off talking about. In some of the conversations that we had with earlier panellists, we were talking about the public interest test and the prioritisation of the cases that were most likely to get a result, frankly. Is it purely a resource issue that you are raising? Is it one of those that is not working as well? Are you saying that the filters may be wrong within those tests? Could you expand on that?

Duncan Swift: All I can go on is the statistics issued by the Insolvency Service on disqualification orders or undertakings from directors for misconduct relative to the total number of corporate insolvencies per annum, and the member feedback that R3 receives. At an anecdotal level, members report that they have submitted serious adverse conduct reports against individuals, only to find that no action has been taken against said individuals by the Insolvency Service. We are not told why. Clearly there is a threshold.

Coming back to the statistics, it would appear that the Insolvency Service is consistently—year in, year out, irrespective of fluctuations in the total number of corporate insolvencies—disqualifying about 1,200 individuals per annum. That suggests to me that there is a resource issue. I am not in a position to ask the Insolvency Service whether that is the case, but that is what it feels like.

Paul Scully

- Hansard -

Copy Link

- - Excerpts

Q That is interesting—thank you very much. Obviously, we consulted on this back in 2018, but there is a particular compulsion to do this now, to tackle the most egregious cases of fraud involving the financial support given by the taxpayer throughout the pandemic. Presumably you welcome that, and therefore the drive to get this measure—albeit that it is not as wide as you would like—through now?

Duncan Swift: Yes. As I said at the start, this is a step in the right direction, but unfortunately it does not go far enough.

Paul Scully

- Hansard -

Copy Link

- - Excerpts

Q Sure, but going back to the numbers—I know that it is anecdotal so it is difficult to tell—what sort of deterrent effect do you think this will have?

Duncan Swift: I repeat: it is a step in the right direction, but it is not enough. Individuals who would choose to abuse the benefits of directorship of limited liability companies are not dissuaded by the prospect of being disqualified—that is my experience and that of the members of R3. A more significant deterrent is that they are not only disqualified but the ill-gotten gains of said actions that led to their disqualification are required to be repaid and recovered for the benefit of those who have suffered as a consequence of those actions. If that also includes criminal liability, so much the better; I am sure that will add to the weight of the deterrent. They are far less likely to do it if they can see the routes to the gains that they obtain from such behaviour being readily recoverable.

The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)

- Hansard -

Copy Link

- - Excerpts

Q It is good to see you again, Stephen. That is an interesting point about the retrospective nature of the measure, given what you were saying about businesses taking on more debt throughout the pandemic. Obviously, the insolvency practitioners will work through things, as you have rightly said, in order of public interest. What do you think they may look to do to give lenders confidence, by approaching the pandemic response finance first?

Stephen Pegge: Clearly, when lenders are undertaking a credit assessment, they will consider both the willingness to repay and the ability to repay, the probability of default and the loss in the event of default. All those could potentially be, and I would say probably at the margin, factors that could be influenced by the use of dissolution as a means of avoiding liability.

Quite clearly, it is very difficult for a company that has been struck off the register to make payments under a loan, so there will be the avoidance of debt in those circumstances. Given that currently there is time and cost involved in restoring a company to the register, the ability then to take this action against directors after the event both to deter and, if the activity should still carry on, to investigate and take action against directors in a more timely and cost-effective way should reduce the ultimate losses to creditors. I think there has been an estimate that creditors could be saved around £1 billion as a result of this measure, which would be significant in terms of credit assessments.

The net effect is the ability to provide more finance with less time having to be spent on assessment up front, on better terms, and in circumstances that should help the recovery. However, I will emphasise, Minister, that this is only one factor and it is all operating at the margin. Nevertheless, it is certainly something that during the past year has become a matter of concern, especially in relation to bounce back loans.

Paul Scully

- Hansard -

Copy Link

- - Excerpts

Q It is a complicated scene, as you say, and this is only one part of it. I think you are, therefore, suggesting that strengthening the regime in this way will give further confidence to lenders, and especially SME companies within the supply chains.

Stephen Pegge: Yes, exactly. It will, therefore, be possible to focus more time and support on those who deserve the finance, without the distraction of those who are abusing the process.

Paul Scully

- Hansard -

Copy Link

- - Excerpts

Q Finally, what effect do you think there would be on lending if this regime did not come into place or the loophole were not closed? Would there be a chilling effect?

Stephen Pegge: As you say, it is a matter of a chilling effect. It is one other factor that would weigh on finance providers’ minds when making lending decisions. This is a crucial time for lenders to provide finance. If you look at the latest Bank of England figures, for May, which were published last week, some £7 billion of new lending was provided to SMEs.

Latest surveys suggest that high proportions of loan applications are being sanctioned—something like 85%—and we want that to continue. The expectation that this sort of loophole is being closed should build confidence. It will ensure that there is discouragement of bad actors, so that it does not grow out of proportion, which we fear might otherwise be the case.

Paul Scully

- Hansard -

Copy Link

- - Excerpts

Q Thank you for giving evidence, Mr Kerr. Can you talk a little bit more about the deterrent that you spoke about? How much of an impact do you think the measure, and especially the threat of disqualification, will have on providing the necessary deterrence?

David Kerr: The current disqualification provisions act as a deterrent to some extent, because directors know that, in respect of every company that goes into an insolvent liquidation or administration, there will be some inquiry. There is an obligation on the insolvency practitioner to carry out a certain amount of inquiry into the conduct of the directors of those companies and make a report in each of those cases to the Insolvency Service on their conduct. The provisions do not provide for the same report. It will have to be triggered by something else, whether that is a creditor complaint or other information, but it will provide the opportunity for the service to make the same inquiry.

Paul Scully

- Hansard -

Copy Link

- - Excerpts

Q You talked earlier about the public interest test and prioritisation. Obviously, we are trying to strengthen the enforcement regime to deal with the most egregious cases of fraud in relation to the financial support that the taxpayer has given throughout the pandemic. In your experience, has the insolvency practice been prioritising this work? As well as having the public interest test, or threshold, has it prioritised approaching the most serious cases at the earliest stage?

David Kerr: Do you mean the work of the Insolvency Service?

Paul Scully

- Hansard -

Copy Link

- - Excerpts

Yes. We are talking about Insolvency Service resources. We would have expected the Insolvency Service to prioritise the work that it does on the most egregious cases, and that would indeed be how we would anticipate it moving forward. Have you seen that first hand?

David Kerr: This may not be a direct answer to your question, but the concern of the creditor community might be that, if this provision were used almost exclusively for the purposes of pursuing bounce back loan fraud, perhaps it would not have the wider benefit that could come from it. Perhaps that has to be the emphasis in the short term, but in the long run—it is a provision that was considered worthy of introducing back in 2018, before covid came along—one would hope that it will be of broader use.

Quite how the service will prioritise its limited resources and decide which cases to look at is a matter for it to work out once it gets the powers. One would hope that the cases that come to its attention through the insolvency practitioners’ reports will receive equal attention and that it will not be to the detriment of those cases that these other cases are being pursued.

Paul Scully

- Hansard -

Copy Link

- - Excerpts

Q We heard a little bit in the earlier panel about phoenixing. Do you think this measure will help to combat that malpractice, where one company is shut down and dissolved and another takes its place, with the same directors, doing the same business from the same premises with the same staff?

David Kerr: That can happen, whether it is through an insolvency process or a dissolution. To the extent that it has happened through dissolution, the measure plugs that gap, because it is gives the same investigative powers to the Insolvency Service. It comes back to the deterrent point that you made previously. If the service is seen to be taking action in these cases and publicising the fact that it has done so, that will, one would have thought, have a deterrent effect.

Paul Scully

- Hansard -

Copy Link

- - Excerpts

Q Finally, in terms of your role in credit management, what do you think this will do for the confidence of lenders and supply chains, in particular SMEs in those supply chains?

David Kerr: Generally, if the system is seen to be working well and those who abuse it are brought to account, then it helps enhance the confidence of those engaged in providing credit, whether it is through loans, trade credit or anything else. In that sense, it is a welcome provision that, if resourced and used as intended, should have the desired effect.

Paul Scully

- Hansard -

Copy Link

- - Excerpts

Q I have just two brief questions, because you opened up and summarised well. The point about funding has come up quite a lot, and I wonder if you could expand on some of your comments. You talked about the public interest test and the prioritisation of the Insolvency Service’s cases, so that it would look at the bigger, most egregious issues first. Obviously, with the number of cases you are talking about, it would also presumably look at the ones where there is a realistic likelihood of a successful outcome, rather just investigating every case.

Dr Tribe: In some writing on this point in relation to Carillion, I suggested the reason that the Insolvency Service might be looking at a large public limited company to bring these mechanisms to bear is because that is a pretty well known, massive liquidation, which has lots of Government contracts linked to it and taxpayer money bound up in its activities. You can see why it would perhaps be appropriate, much as with previous well-known disqualifications, for the Insolvency Service to bring the action or the proceedings if the relevant public interest tests are met. That is because it helps with the agenda of sending out the appropriate messages to the commercial community that you should use corporate vehicles and corporate forms in an appropriate way, and that you should live up to your duties in an appropriate way generally, as well as facing some of the consequences if you misuse the form and harm creditors and other stakeholders.

On the prioritisation point, you could go for good messaging, in the sense of prioritising cases. I suppose that the problem with the bounce back loan scheme and this dissolution issue that we are dealing with is that, as I think one of the previous questions hinted at, the volume of cases could be so great that with prioritisation you will need to have quite a large group of civil servants working on the issue.

As for the question of how likely it is that we might get a result in a case, and therefore whether we should bring proceedings, we have seen recently that once the Insolvency Service’s tests are met, it is wholly appropriate that it should bring these proceedings, even if in due course the result is not what it thought or what its specialist advisers—the QCs and so on who have advised it—would have predicted. Hopefully, the money will be well spent in bringing proceedings, but sometimes we do not get the result for factual reasons, basically.

Paul Scully

- Hansard -

Copy Link

- - Excerpts

Q I have a final question. You mentioned Carillion, which you wrote about and studied. Within Carillion and a number of other cases—Carillion is an interesting one, because there are a lot of supply chains in there—as I asked previous panel members, what extra confidence does plugging these loopholes bring to small and medium-sized enterprises?

Dr Tribe: Carillion, because it is a large plc, has messaging on the plc side of our regime, thinking about how directors behave in relation to those types of companies. This perhaps goes back to Mr Grant’s question about group structures—do not use group structures in a way that is problematic. That will be interesting to monitor on what is a live case; I do not want to mull on the facts of that case too closely.

Sorry, what was the second part of your question?

Paul Scully

- Hansard -

Copy Link

- - Excerpts

Q It was about the fact that Carillion obviously has a large supply chain within it, and you have been dealing with and writing about cases with complex supply chains. What confidence can this measure to close that loophole give to SMEs in particular?

Dr Tribe: Thanks for that clarification. If we can ensure that any vehicle that is used in any form of creditor relationship with different entities has an individual put-off effect by going down this dissolution route that we have identified, it will hopefully increase confidence in the way people use the corporate form. The more loopholes we can close down that have caused us to think the form is being used inappropriately, the better.

Unfortunately, phoenixing, as we have discussed, has been going on for literally decades, and perhaps in the future we might be back here again with some other problem that has arisen because of nefarious activity.

The Minister for Regional Growth and Local Government (Luke Hall)

- Hansard -

Copy Link

- - Excerpts

It is a pleasure to serve under your chairmanship, Ms Rees. The Bill before the Committee is one of two halves. The first half is a measure that changes the valuation assumptions applied when making business rates determinations in the light of the pandemic. The provisions that will implement the measure are contained entirely within the first clause.

In order to understand clause 1, I will briefly take us back to the Local Government Finance Act 1988, which requires business rates to be calculated from rateable values that, broadly speaking, represent annual rental values. Those values are updated at regular general revaluations. Earlier this year, we were extremely grateful for the cross-party support for the passing of the Non-Domestic Rating (Lists) Act 2021, which sets out the date of the next revaluation on 1 April 2023, based on a valuation date of 1 April 2021. That means that future business rates bills will reflect the impact of the pandemic on the commercial property market.

Outside general revaluations, rateable values can be altered only to correct an inaccuracy or to reflect a material change of circumstance, such as a physical change to a property or locality. For example, a successful material change in circumstances challenge might be made on the basis of significant roadworks in a property’s immediate area. The material change in circumstances legislation itself, which is set out in the 1988 Act, was not designed with pandemics or coronavirus in mind, and the material change in circumstances system was not intended to be used in response to matters with economy-wide impacts. Relying on the MCC system, rather than on targeted business rates reliefs, is not in line with the original intention of the law and would not be the right approach to take to support businesses that have been impacted during the pandemic. Clause 1 of the Bill therefore clarifies that the impact of the coronavirus pandemic, and the Government’s response to it, should be reflected at the next general revaluation on 1 April 2023.

Business rates are devolved, so clause 1 applies to England. Decisions on whether to take similar steps in Wales, Scotland and Northern Ireland are for the respective Governments to make. I understand that in Northern Ireland the matter is still under consideration. The Scottish Government have recently announced that they agree with our position that it is not appropriate to use the MCC appeals system in relation to covid-19 or related restrictions. Yesterday, the Welsh Government announced that they also agree with our position, and set out their intention to seek to include provisions covering Wales in the Bill. We will work closely with the Welsh Government on this, and I will keep Members, including those on the Opposition Front Bench, updated on any amendments to the Bill that might be required. I am glad to say that the largely cross-party support that we have received for this measure is now spreading to cross-territorial support.

As I said on Second Reading, the measures in clause 1 do not mean that we have not provided significant support to businesses during the pandemic; there has been a £16 billion package of support for business rates. We have also announced £1.5 billion in relief to be targeted at ratepayers who have not already benefited from support linked to business rates. The additional business rates relief will be administered by councils, and my Department will continue to work closely with local government to enable ratepayers to apply for the support as soon as possible, subject to the passing of the Bill.

New clause 2 would require an assessment of the effectiveness of the provisions in clause 1 to be made within one year of Royal Assent. It would require the Secretary of State’s assessment to consider

“the interaction of the provisions with other law and policy relating to coronavirus support for business and business rates”,

as well as the Government’s overall package of support for businesses impacted by the pandemic. We completely understand hon. Members’ concern to ensure that the business rates system is kept under review.

The objective of the Bill, which is to ensure that successful MCC appeals cannot be made on the basis of the pandemic or the Government’s response to it, will be met as soon as the Bill is enacted, so I can certainly assure the Committee that there will be no need to monitor the implementation of any changes to the rating list or any new practices by the Valuation Office Agency once the Bill is passed. That is simply because the VOA has not, to date, been amending the rating list to reflect covid-19. I hope the Committee will see that new clause 2 is therefore unnecessary.

I appreciate, however, that interest extends beyond the provisions in the Bill to the design of the wider business rates system. This matter will therefore be considered as part of the fundamental review of business rates, which is currently being carried out by the Chancellor. We published the consultation earlier this month to set out proposals for moving to a system of three-yearly evaluations. As part of ensuring the sustainability of that three-yearly cycle, we are reviewing the MCC system. It is clear from our need to bring forward this piece of legislation that the MCC system has not worked as expected in this instance.

I can certainly assure the Committee that we will be looking more generally at the MCC rules as we see how they can be improved to avoid this type of situation arising again. We will work with the VOA, stakeholders and, I hope, our Opposition colleagues to understand how we can improve the system and track and monitor its operation. We absolutely monitor and track changes to the business rates yield through our regular returns from local government. The VOA publishes regular statistics on the rating list and, of course, keeps us fully informed of activity on the rating list. I am confident we can find a sustainable system that we can monitor effectively and that will stand the test of time.

Luke Hall

- Hansard -

Copy Link

- - Excerpts

I thank the hon. Gentlemen for the constructive way in which he has held this discussion and raised legitimate points, especially following the sittings on Tuesday, which I thought were useful and informative. I will try to address all those points.

On funding, the £1.5 billion comes on top of a significant package of business rates support: £16 billion of relief over two years for the retail, hospitality, leisure and nursery ratepayers most affected by the pandemic. The new scheme will be targeted at the sectors that are most affected by covid-19 but have not benefited from that type of business rates support. It will enable councils to award relief to businesses that they consider to have been most affected, using their local knowledge, contacts and systems for determining who will be eligible. Councils will ultimately be responsible for decisions on the award of the relief. The crux of the issue is that it is about ensuring that relief is targeted at the businesses most affected by covid-19 and providing certainty for ratepayers and councils—it is not about saving money. It is never easy to draw the line, but we think that this strikes the right balance between supporting ratepayers and maintaining a tax base that continues to fund vital services in local government, which are more important than they ever have been.

On the point about airports, it is a core principle of the business rates system that MCC challenges should be used between revaluations to address issues of a discrete geographic, sectoral or temporal nature. The drop in demand for airports in the light of the pandemic is exactly the sort of market-wide economic change affecting property values that should be considered only at revaluations. Airports have received significant support for their fixed costs during this period from the airport and ground operations support scheme, and the Chancellor announced in his recent Budget a further six months’ support up to the equivalent of their business rate liabilities for the first half of 2021, subject to certain conditions under the £4 million cap.

The hon. Gentleman asked when the guidance for councils would be published. As we heard earlier this week, we absolutely recognise the importance of getting the guidance published as soon as we can. We want to do that, and I will clarify one of the points that was raised on Tuesday. We have shared the draft guidance with the LGA, officers from the Chartered Institute of Public Finance and Accountancy, and the Institute of Revenues Rating and Valuation. We are now discussing the parameters of the scheme with them in order to help shape the final document, so I offer the Committee some reassurance on that. We have done that in parallel here, to try to ensure that we can get it published as quickly as we can. We will absolutely be working with local government to help ratepayers apply for the new relief as soon as they can once the Bill has passed and they have set up their schemes.

Luke Hall

- Hansard -

Copy Link

- - Excerpts

I thank the hon. Gentleman for that intervention. The point is that we are still working on the final points in the guidance. The LGA made the point that it desperately wants to be involved in the drawing up of the guidance and in setting the framework and parameters. That is what we are doing and going through now. As soon as we are ready to do that, of course that is what we will do. We are as keen as everybody for the support to be available to local authorities, so as soon as the Bill has passed, we will ensure that we get the support out to councils and businesses as soon as we can. It is a point that has been well made by the Opposition and by people who contributed written evidence and who participated in the session earlier this week and the Second Reading debate, so we are acutely aware of that point.

Another temporal question was raised on Tuesday that the hon. Gentleman asked me to clarify today—whether the legislation will prevent councils from awarding rate relief after the end of September. I want to offer some reassurance on that, and I will perhaps do so in writing after the Committee as well, just to provide some more detail. There is a requirement in primary legislation that certain decisions on the use of a discretionary rate relief scheme must be made by a local authority by the end of the September following the year in question. For the year 2021, that deadline is fast approaching. Given the scrutiny that a Bill of this nature deserves, we do not expect councils to be in a position to award the whole £1.5 billion relief scheme in respect of liabilities for 2020-21. Instead, we can simply ensure that the scheme will apply to 2021-22 liabilities, and local authorities have over a year until the deadline for that period. Ratepayers will still be receiving rate relief, which councils can award on the basis of how ratepayers have been affected by covid-19, but it will be against their liability for this year rather than last year, so we can still ensure that ratepayers quickly receive support against their rates bill once the Bill receives Royal Assent. As that is a slightly technical point, perhaps I will put that in writing before Report, so that it can be scrutinised properly by the Opposition and we can discuss the point further.

I appreciate that concerns have been raised about VOA funding. I agree that the Bill will help the VOA to focus on delivering its important functions, such as the wider 2023 revaluation. The Treasury is working closely with the VOA and HMRC to understand the resourcing requirements. We have provided the VOA with £22 million to update its IT systems, enabling it to become more flexible, more efficient and more resilient, and we have provided £31 million to support the revaluation in 2023. Of course, we will continue to assess the VOA’s funding in the spending review as well.

The hon. Gentleman rightly highlighted the pressures on local government and the new burdens that the Bill could create. It is right that when the Government ask councils to deliver new activity we consider new burdens. I assure the Committee that we will work closely with local government to consider, and assess the funding of, any new burdens in the administration of the relief as they arise. We have tried to do that in good faith throughout the pandemic, and will continue to ensure that that is the case.

I thank the hon. Gentleman again for his contribution. I am happy to try to clarify any further points that he wants to raise between now and Report. I look forward to continuing discussions throughout the passage of the Bill.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2

Unfit directors of dissolved companies: Great Britain

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

Luke Hall

- Hansard -

Copy Link

- - Excerpts

I am grateful to the Committee for its useful input in the discussion so far. I welcome the opportunity to talk further about our insolvency regime, which is an international leader on speed and efficiency, returns to creditors and cost. A strong insolvency regime must be backed up by efficient and robust enforcement to tackle wrongdoing, and the UK has a first-class regime to deal with regulatory breaches, whether through criminal proceedings or disqualifying individuals who have shown themselves unfit to act in the management of a limited company.

It will not escape the Committee’s notice that the Company Directors Disqualification Act 1986 contains provisions that allow disqualification proceedings to be sought in live companies and in insolvent companies but not in dissolved companies. That is a loophole that has been exploited by unscrupulous company directors, and we heard many examples of that earlier in the week. For example, we have seen many instances where a company is dissolved in order to dump debts, such as those owed to the taxman or employment tribunal awards, only for a new company to pop up, running with the same directors in the same building, sometimes even with the same staff.

The process of allowing one company with debts to drop off the register and starting a new company without the burden of debt is sometimes known as phoenixism. We heard many worrying examples of that earlier this week and on Second Reading. We are therefore seeking to increase the scope of the CDDA to make it possible to challenge director misconduct, even where a company has been struck off the register and dissolved. The clause amends various sections of the CDDA, which will improve the enforcement regime by applying investigation and disqualification processes to former directors of dissolved companies.

On the whole, the amendments apply similar processes and standards to those cases as already exist for disqualification of directors of insolvent companies. That includes the option for a former director of a dissolved company to provide a disqualification undertaking to the Secretary of State rather than face court proceedings. Clause 2(2) amends section 6 of the CDDA to give a power to the court to make a disqualification order on the application of the Secretary of State where it is satisfied that a person was a company director of a dissolved company, and that their conduct makes them unfit to be concerned in the management of a limited company. It also clarifies which court has jurisdiction to make an order for the winding up of the company.

Clause 2(3) amends section 7 of the CDDA. It sets out that, where an application for a disqualification order against a former director of a dissolved company is made, it must be before the end of the three years, starting with the date of dissolution of the company. That mirrors the situation for insolvent companies, where a disqualification order must be made within three years of the date of insolvency. Clause 2(3) also makes an important amendment to section 7(4) of the CDDA to expand the power of the Secretary of State to investigate director conduct in dissolved companies. The outcome of such investigations will provide the evidence for disqualification proceedings and establish that public interest criteria are met.

Section 8ZA of the CDDA allows for the disqualification of a person where they have exerted influence over another person who has been disqualified as a result of their conduct as a director of an insolvent company. If the court is satisfied that the disqualified person acted under the instructions of another person, it may also disqualify that person on an application made by the Secretary of State under section 8ZB. Clause 2(4) and (5) amend those sections of the CDDA so that a similar application may be made by the Secretary of State where a former director of a dissolved company has been disqualified but acted under the instructions of another person. Again, that mirrors the current position with regard to disqualification in insolvent companies.

Luke Hall

- Hansard -

Copy Link

- - Excerpts

I again thank the Opposition for the constructive way in which they have approached this useful discussion throughout the passage of the Bill. I am grateful for the contributions on new clauses 1 and 3, which would require the Secretary of State to make reports every three months to Parliament on the number of directors investigated and disqualified under the provisions in the Bill, and to report their effectiveness after one year.

I reassure the Committee that the Insolvency Service routinely produces insolvency statistics, covering company insolvencies in the UK and individual insolvencies in England and Wales, as well as some of the underlying data alongside that. These are published online, available to everybody, every three months. At the start of the pandemic, the Insolvency Service undertook to provisionally add experimental monthly data releases concerning insolvency numbers. In this way, the statistics could act as an indicator on the pandemic’s impact on insolvencies.

As well as the quarterly releases of insolvency statistics, information about the Insolvency Service’s enforcement activities is published and updated monthly. This data includes the number of companies wound up in the public interest and the number of disqualification orders and undertakings, broken down by the relevant section of the CDDA under which they were sought. Information on the length of the periods of disqualification is included and there is an annual report on the nature of the misconduct being alleged.

Luke Hall

- Hansard -

Copy Link

- - Excerpts

I thank the hon. Gentleman for his powerful contribution; he is extremely well informed on these matters. I thank him also for his support and take into account his comments on the three-year limit. I am grateful for that.

The Government are certainly not pretending that the work stops here. However, the Bill is a positive step forward in the right direction and it is taking action. I will raise the points the hon. Gentleman has made today with the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Sutton and Cheam.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.

Clause 3 ordered to stand part of the Bill.

Clause 4

Extent, commencement and short title

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

Luke Hall

- Hansard -

Copy Link

- - Excerpts

The clause covers technical areas such as the Bill’s territorial extent, the commencement and the short title. Clause 4(1) sets out that the business rates measure relating to material changes of circumstance in clause 1 extends to England and Wales. However, the application of clause 1 is to England, meaning that in effect it applies only to England. As I said earlier, the Welsh Government yesterday announced their intention to include in the Bill provisions applying to Wales. We will work closely with them on that and take the necessary steps.

Clause 4(2) confirms that the extent of the directors disqualification measure is the same as for the provisions being amended, which means that clause 2 extends to Great Britain and clause 3 to Northern Ireland. The effect is that the measure extends to the whole UK.

Luke Hall

- Hansard -

Copy Link

- - Excerpts

I thank the hon. Gentleman. That is why we are so keen that we work at pace with the LGA and others to make sure that the guidance is in the right place to distribute so that we can get the support out as quickly as possible.

Question put and agreed to.

Clause 4 accordingly ordered to stand part of the Bill.

Luke Hall

- Hansard -

Copy Link

- - Excerpts

I put on record my thanks to the Committee, the Clerks of the Committee for their work, the Opposition for being so constructive, and all hon. Members. I also thank the Opposition for wishing me a very happy birthday. If I am honest with myself, I have never had this many people at one of my birthdays, so it is an absolute pleasure. I thank the Committee for its work in the consideration of this important Bill.

Question put and agreed to.

Bill accordingly to be reported, without amendment.

The Minister for Regional Growth and Local Government (Luke Hall)

- Hansard -

Copy Link

- - Excerpts

I welcome the contribution from the hon. Member for Manchester, Withington (Jeff Smith). I shall start by responding to new clause 1, tabled by the hon. Member for Feltham and Heston (Seema Malhotra) and the hon. Gentleman. I am grateful to him for his constructive words and the way in which he has approached the debate.

The new clause would require the Secretary of State to report to Parliament on the number of directors investigated and disqualified under the new provisions in the Bill every three months from the date that the Act is passed. I am grateful to hon. Members for the opportunity to confirm to the House that statistical reporting is routinely undertaken by the Insolvency Service. Regular three-monthly releases cover company insolvencies across the whole UK as well as individual insolvencies in England and Wales. The releases also contain underlying data and are published and available online to everybody.

As well as that, since the start of the pandemic, the Insolvency Service has been publishing experimental monthly releases of data concerning insolvency numbers. This was so that the statistics could act as an indicator of the impact of the pandemic on insolvencies. It may be of particular interest to hon. Members that the Insolvency Service also releases monthly updates about its enforcement activities. This information includes not only the number of companies wound up in the public interest, but the number of disqualification orders and undertakings broken down by the relevant section of the Company Directors Disqualification Act 1986, under which they were sought. Going forward, these numbers will include any orders or undertakings obtained as a result of this new provision. The reports also include information on lengths of periods of disqualification. Furthermore, there is an annual report on the nature of the misconduct being alleged.

I hope that the hon. Gentleman is reassured that a large amount of information is already provided that can be accessed easily through a quick online search and that future reports of enforcement outcomes will include any disqualifications made against former directors of dissolved companies. I would be grateful to him for withdrawing his new clause.

Let me just add one last point. The hon. Gentleman also mentioned the new burdens on councils. I somewhat couched my answer the last time we spoke about it, so I just want to put on record that we will absolutely be meeting the new burdens cost, including the associated administrative and IT costs.

Luke Hall

- Hansard -

Copy Link

- - Excerpts

I beg to move, That the Bill be now read the Third time.

It is a pleasure to lead this two-part Bill on Third Reading after a series of constructive debates and scrutiny sessions. The contributions of Members from across the House have underlined the importance of these business rates and insolvency measures being on the statute book and will stand the Bill in good stead as it passes to the other place.

The business rates element of the Bill is a sensible measure that will mean that the application of the material change of circumstances process meets the law’s original intention. The MCC process is designed to be used in cases such as localised roadworks, not in response to market-wide economic changes. The passage of the Bill would ensure that this continues to be the case. Instead of business rates bills potentially being reduced following lengthy appeals processes, ratepayers will instead be able to benefit from a £1.5 billion relief package to be targeted at those businesses that have not benefited from the support linked to business rates during the pandemic.

The relief will be available as soon as possible once the Bill has passed and local authorities have set up their local schemes. This approach has been welcomed by the Public Accounts Committee and will be mirrored by the Scottish and Welsh Governments. That means that this measure has wide support, both in respect of the English business rates system and across the other nations of the UK, where ratings are a devolved matter.

Similarly, we have also seen widespread support for the second measure, which brings the conduct of former directors of dissolved companies into scope for investigation and potential disqualification proceedings. This measure is a valuable addition that will be an important tool to help to combat bounce back loan fraud and to deter others from acting in breach of their duties as company directors. I am pleased that the measure will apply across the United Kingdom, protecting our businesses and increasing confidence in doing business in all four nations.

I am grateful for the contribution of all Members throughout the Bill’s earlier passage and today. I thank them for the attention that they have paid to the Bill. I am particularly grateful to the shadow Ministers, the hon. Members for Manchester, Withington (Jeff Smith) and for Feltham and Heston (Seema Malhotra), for their constructive scrutiny of the Bill.

Finally, I thank the Clerks of the House and my excellent Bill team at the Ministry of Housing, Communities and Local Government, who have supported us in steering this piece of important legislation through the House. This important Bill speaks to the Government’s commitment to maintaining sensible and fair rating and director disqualification regimes, and I am pleased to have supported it in its passage so far. I commend it to the House.