Retained EU Law (Revocation and Reform) Bill (First sitting)
Tuesday 8th November 2022
(2 years ago)
Public Bill CommitteesRead Full debate Retained EU Law (Revocation and Reform) Act 2023 View all Retained EU Law (Revocation and Reform) Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 8 November 2022 - (8 Nov 2022)
The Chair
Colleagues, welcome to this interesting Committee, as we get stuck into this important Bill. We are now sitting in public and the proceedings are being broadcast. I have taken my jacket off, so feel free to disrobe in any way that you feel is appropriate. I have a few preliminary announcements. Hansard colleagues would be grateful if Members could email their speaking notes, if they exist, to hansardnotes@parliament.uk. When I was first elected, we never had to say such things, as we did not have emails. Please switch electronic devices to silent. Tea and coffee are not allowed during sittings. Date Time Witness Tuesday 8 November Until no later than 9.50 am Sir Stephen Laws KCB KC Tuesday 8 November Until no later than 10.25 am Professor Catherine Barnard, Professor of European & Employment Law, University of Cambridge; Professor Alison Young; Sir David Williams, Professor of Public Law, University of Cambridge Tuesday 8 November Until no later than 10.55 am Tom Sharpe KC, One Essex Court; Martin Howe KC, 8 New Square Tuesday 8 November Until no later than 11.25 am The Bar Council; Eleonor Duhs, Bates Wells Tuesday 8 November Until no later than 2.35 pm Sir Richard Aikens, Brick Court Chambers; Barnabas Reynolds, Shearman and Sterling; Jack Williams, Monckton Chambers Tuesday 8 November Until no later than 3.05 pm Sir Jonathan Jones KC, Linklaters; Hansard Society Tuesday 8 November Until no later than 3.35 pm Trades Union Congress; Unison Tuesday 8 November Until no later than 4.20 pm Green Alliance; Wildlife & Countryside Link; Unchecked UK; RSPCA Tuesday 8 November Until no later than 4.40 pm The Scottish Government Tuesday 8 November Until no later than 5.10 pm Law Society of Scotland; Charles Whitmore, Research Associate, Cardiff University; Dr Viviane Gravey, Senior Lecturer, Queen’s University Belfast
We will first consider the programme motion on the amendment paper. We will then consider a motion to enable the reporting of written evidence for publication and, if we need to, a motion to allow us to deliberate in private about our questions before the oral evidence session. In view of the time available, I hope that we can take those matters without debate. I call the Minister to move formally the programme motion in her name, which was discussed yesterday by the Programming Sub-Committee for the Bill.
Ordered,
That—
(1) the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 8 November) meet—
(a) at 2.00 pm on Tuesday 8 November;
(b) at 9.25 am and 2.00 pm on Tuesday 22 November;
(c) at 11.30 am and 2.00 pm on Thursday 24 November;
(d) at 9.25 am and 2.00 pm on Tuesday 29 November;
(2) the Committee shall hear oral evidence in accordance with the following Table:
(3) proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 to 10, Schedule 1, Clauses 11 to 20, Schedules 2 and 3, Clauses 21 to 23, new Clauses, new Schedules, remaining proceedings on the Bill;
(4) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Tuesday 29 November. —(Ms Ghani.)
The Chair
The Committee will therefore proceed to line-by-line consideration of the Bill on Tuesday 22 November at 9.25 am.
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Ms Ghani.)
The Chair
Copies of written evidence that the Committee receive will be made available in the Committee Room and circulated to Members by email.
The next motion relates to deliberating in private. We may not need to move this motion, colleagues. My suggestion is that I will start every panel by turning to the Labour lead to ask the first questions. We will then go across the Committee. Indicate to me if you wish to ask a question to the particular witness, bearing in mind that the knives are absolute; we have 15 or 20 minutes, or whatever, with each group of witnesses, and we cannot go beyond that.
It would be helpful, if you are asking a question, and if there is more than one witness at the time—particularly if we have witnesses on Zoom and witnesses in person—to indicate who in particular you would like to answer the question, or whether you would like them all to answer. That would be quite helpful, but you will probably forget that after about 10 minutes. Are we happy to proceed on that basis without going into a private session to agree how we will ask the questions? If everyone is happy, that is that.
This is a serious moment, colleagues. Before we start hearing from the witnesses, do any Members wish to make a declaration of interests in connection with the Bill? No. In that case, we will now hear oral evidence from Sir Stephen Laws, former First Parliamentary Counsel, who is waiting patiently for us on Zoom. Before calling the first Member to ask a question, I remind all Members that questions should be limited to matters within the scope of the Bill, and we must stick to the timings in the programme motion that the Committee has agreed. For the first witness, we have until 9.50 am.
Examination of Witness
Sir Stephen Laws KCB KC gave evidence.
The Chair
Will the witness please introduce himself for the record?
Sir Stephen Laws: My name is Stephen Laws. I was First Parliamentary Counsel from 2006 until 2012. Before that, I had been a career drafter and civil servant since 1975. I am now a senior research fellow at Policy Exchange.
Justin Madders (Ellesmere Port and Neston) (Lab)
Q
Sir Stephen Laws: Yes, I think it is. The ideal for the law is that all law can be found from easily accessible sources and relied on to mean what it says without being qualified by complex, obscure or general glosses, or involving complex historical research to find out whether it is valid. The Bill, by removing everything that is subject to those disadvantages—because the ideal is not the situation at the moment for retained EU law—is an important step towards securing that the ideal is achieved, by forcing the decisions to be made about how this law can be properly integrated into UK law quickly. Things will only get worse if that does not happen.
Retained EU law is imprecise because it has been removed from the context needed to make sense of it. That will get worse because the sources become of historical interest only, and the methodologies in the UK system for dealing with EU law will become lost knowledge and of historical interest only. The law will become obscure. The Bill is a useful way to force things to become better.
Justin Madders
Q
Sir Stephen Laws: The way in which it is scrutinised is a matter for Parliament to work out. It is not something that you would expect to be wholly within the Bill. When deciding what parliamentary scrutiny there should be, it is important to decide what parliamentary scrutiny is for. There is a sort of myth that Parliament should treat itself as the author of legislation and should look at every line, and that legislation for which Parliament has not looked at every line has not been properly written. That is an unrealistic position.
Parliament is a political filter for legislation. It is important that it should identify the bits of legislation that are politically salient, and that it should provide an incentive for technical quality. The first can be achieved, as was the case with the legislation under the European Union (Withdrawal) Act 2018, by having a really rigorous system of triaging subordinate legislation made under the Bill to ensure that Parliament picks up the things that are politically salient. The second is achieved in practice already right across the board by random sampling; what keeps drafters keeping the quality of their drafting up is not that Parliament will look at every line, but the fact that they do not know which lines Parliament will look at, so they have to get them all right.
The Bill establishes the conventional methods of scrutiny, but they need to be backed up by a parliamentary process decided by Parliament and not set out in legislation, because, as we have learned in the last six years, if you put provisions about parliamentary procedure in legislation, you find yourself in the courts. That is not where the processes of Parliament should be.
Justin Madders
Q
Sir Stephen Laws: By the support given to the parliamentary Committees that look at legislation, and perhaps by asking the Government to make sure that their plans for legislation are exposed first, so that Parliament has an opportunity to look at the plans and say, “Well, if that’s what you’re going to do, those are the things that we want to look at in particular.”
Justin Madders
Q
Sir Stephen Laws: Yes, I would, because they have not told you what they aim to do with all this legislation that is going to be repealed. I suggest that you ask them to do that as the process proceeds.
The Chair
I have a feeling that that might happen.
Sir Stephen Laws: Yes, I thought that it might happen too.
The Minister for Science and Investment Security (Ms Nusrat Ghani)
Q
Sir Stephen Laws: Yes, it is. EU law applied in a situation where we are not in the EU is quite difficult to work out. The provisions of the 2018 Act are extremely complex; they are glossed. A lot of the EU law was made in the context of trying to harmonise across Europe. When you are trying to work out what it means, you want to know what it is for, and what a lot of it was for is not now relevant. It is not about harmonising rules across Europe; it is about applying rules in a domestic context.
Ms Ghani
Q
Sir Stephen Laws: On the whole, yes. I have some reservations, because there are respects in which the Bill contains worrying aspects through which it might be possible for inertia to reassert itself, and for the status quo to become the default for what replaces it. My experience of all legal change is that it is most effective when it is ratcheted—when people do not have the option of saying, “Oh well, we will exercise this power to keep things the way they were.” That needs to be watched carefully and, if possible, legislatively discouraged.
Ms Ghani
Q
Sir Stephen Laws: Yes, it does. The major difference between the way the UK traditionally legislates and the way the EU—and indeed lots of other countries—legislate is that under a parliamentary system the Government take responsibility for the effect and quality of the law. That means that when law is made, it is made to do something that people have agreed on. Very often, law made in Europe—in different languages as well—was a matter of agreeing words, irrespective of what the words achieved. If you could agree on the words, that was the best that you could hope for; that may happen very occasionally in my experience, and very rarely indeed in the UK. In the UK people agree on the substance, so you know what the law does. Retaining all this law that was there because it was a compromise on words is making life difficult for those people who have to use it.
Peter Grant (Glenrothes) (SNP)
Q
Sir Stephen Laws: Well, most of the law that this relates to—certainly the early clauses about subordinate legislation—is not law that Parliament made; it is law that Parliament enacted or approved because it had to. The law that will be made under the Bill will be made by a Government accountable to Parliament. The powers in the Bill are equivalent in some ways to the power under section 2(2) of the European Communities Act 1972, but in that case there was no choice about the substance of how you exercised the power; the argument was all about the means. Under this Bill, Parliament will have an opportunity to look at the substance as well as the means.
Peter Grant
Q
Sir Stephen Laws: Yes, but that does not mean that Parliament agreed to the substance of the legislation—nor, in some cases, did the Minister. They are all part of compromises. In the end, the European law had to be enacted because it was European law.
Peter Grant
Q
Sir Stephen Laws: There were mechanisms to feed in the UK view, but the UK view did not necessarily have to prevail.
Peter Grant
Q
Sir Stephen Laws: Frankly, that is not a question that I have prepared for, so I cannot say much. What I can say about the Good Friday agreement is that I am not sure that the protocol is relevant, because the law by which the protocol applies is the law of the things that are not retained just because we were carrying over the old law, which is what this Bill is mainly about. I am sorry; I have not looked specifically at the Northern Ireland aspects of the Bill.
Mr David Jones (Clwyd West) (Con)
Q
Sir Stephen Laws: Yes, I do. I think that that is part of the confusion. If we are going to work out what the law means, it is important that the system for retained EU law should fit the system that we have for all other law, which is that the latest views of Parliament should count.
Alex Sobel (Leeds North West) (Lab/Co-op)
Q
Sir Stephen Laws: I did not intend to imply that every one of the laws that will disappear needs to be replaced. A rational approach is to say that everything will cease to have effect unless we replace or retain it. There is a fallacy around legal reform that was criticised by Cass Sunstein, the American jurist and adviser to President Obama, which is that the law is very fond of the status quo: the law thinks that if we know the law already, changing or removing it must be less clear. I think that the status quo is something that needs to be justified just as much as any proposal for change needs to be justified.
We have had six years to look at all this law and to decide what of it is so valuable that we need to keep it. If people are now not able to defend specific bits of the status quo that they think are important, it is likely that they never will be able to. People will keep relying on the fact that it is the law already and must be clearer than a change, but to say that we should not change law because change is always more uncertain than keeping things the way they are is an argument against all legislation. We might as well wind up Parliament all together if we are to pursue that argument.
Alex Sobel
Q
Sir Stephen Laws: I think you need to be concerned about it, but first, you have to exclude from the equation the idea that law becomes uncertain just because you are changing it; that is an argument against changing the law altogether. Secondly, you have to recognise that most law, but not all, is about either imposing duties on people to do things, or imposing duties on people not to do things. It is quite clear that repealing a law does not bring about anything that did not exist before. You do not, by removing a prohibition, require people to do what was previously prohibited; nor do you, by removing a duty, forbid people from doing what they were previously under a duty to do. For most purposes, if a law disappears, people can carry on behaving exactly as they did before until they see a good reason not to. It is just that they are not required to undertake that duty, or are no longer subject to a duty not to do something different. I am not sure that as much lack of clarity is produced by removing a whole load of law as is being suggested.
Alex Sobel
Q
Sir Stephen Laws: I do not think so, because as I have said, people have had six years to look at this law and see how much of it they think is important. Another year does not seem an unreasonable period in which to finalise their views on these things.
Saqib Bhatti (Meriden) (Con)
Q
Sir Stephen Laws: Yes, because it removes a whole load of law that was enacted under a system that qualified parliamentary sovereignty by imposing obligations on the Government and, indirectly, Parliament, to produce particular forms of law. The Bill replaces that with a system in which all new law will be subject to questions, as to substance and form, in a parliamentary forum.
Saqib Bhatti
Q
Sir Stephen Laws: I do not think I can add much to what I said before: there is a great volume of law here; a great volume of law was produced under section 2(2) of the European Communities Act 1972 and, indeed, under the 2018 Act. It is important that Parliament develops a sensible system of scrutiny, so that it can do its job of questioning and legitimising matters that are politically salient, and providing a robust system of random sampling, so as to make sure that the quality of legislation is maintained.
The Chair
There is time for one quick question, if anyone is bursting to ask one. Ah! I call Stella Creasy.
Stella Creasy (Walthamstow) (Lab/Co-op)
Q
The Chair
You have 30 seconds, Sir Stephen.
Sir Stephen Laws: It is possible to underestimate the influence Parliament has, even if the procedures are relatively formal. In the last six years, we have seen that Governments who try to do things that do not have the approval of Parliament get themselves into a lot of trouble. By now, they have probably learned the lesson—indeed, I think they have always known the lesson— that Governments do not propose things to Parliament that they know Parliament will not, in the end, want to agree to.
The Chair
Thank you. That is a high note on which to finish, Sir Stephen. Thank you for the clarity of your evidence.
Examination of Witnesses
Professor Catherine Barnard and Professor Alison Young gave evidence.
The Chair
We will move on to oral evidence from Professor Catherine Barnard, professor of European and employment law at the University of Cambridge, and Professor Alison Young, Sir David Williams professor of public law at the University of Cambridge. Both witnesses are joining us via the magic of modern technology. For this session, colleagues, we have until 10.25 am. Could the witnesses please introduce themselves for the record? Professor Barnard, would you like to go first?
Professor Barnard: Thank you very much for the invitation. My name is Catherine Barnard. I am professor of EU and employment law at the University of Cambridge, and a deputy director of UK in a Changing Europe.
Professor Young: I am Professor Alison Young. I am the Sir David Williams professor of public law at the University of Cambridge, and a fellow of Robinson College, Cambridge.
The Chair
Thank you for being with us. We have a plethora of questions for you. The first is from Justin Madders.
Justin Madders
Q
Professor Barnard: Thank you for that question. No, we have not. UK in a Changing Europe is trying to track the changes to retained EU law, but as we have seen from the Financial Times reports this morning, the National Archives has worked with Government and found an extra 1,400 pieces of retained EU law that the Government did not seem to know about until about last week, so it looks like there are about 3,800 pieces of law. If they found an extra 1,400 pieces after the extensive work that Government had done before that, it makes you wonder whether other things are out there. This is the issue with the sunset being the default position. As a default, it will turn off all retained EU law, even if the Government are unaware of what that retained EU law actually is.
Justin Madders
Q
Professor Barnard: On the first point, listing the provisions that will be turned off avoids those bits of legislation that we do not know about—that is, they have not been found, despite an exhaustive search, including by the National Archives—being accidentally turned off, and our not knowing that they have been turned off until they become an issue down the line in some sort of litigation. One way of avoiding error is to have a list of legislation—it looks like 3,800 pieces of legislation have been identified—and to say, “This is the legislation that is potentially subject to the sunset.” If you list all those in the statute, it avoids the problem of the missed bits being caught up by the sunset.
Once you have done all that, you can say, “Right, we should consult on those bits of legislation.” I am not in any way advocating, as Stephen Laws suggested, being in stasis and doing nothing—quite the contrary. One of the reasons for Brexit was to think about how we can have laws that are more suitable for the United Kingdom. The trouble is that this slash-and-burn technique means that proper consideration is not given to what a future rulebook might look like.
Justin Madders
Q
Professor Barnard: Absolutely. I am in no way advocating for no change—quite the contrary. However, the trouble is that the rather brutal approach envisaged by the sunset clause, and the lack of clarity about how the delay process in clauses 1(2) and 2 will work, will generate huge amounts of uncertainty for users. Unlike Stephen Laws, I would say that these laws cover things as fundamental as gas equipment safety and food safety—what goes into food and the listing of foods. These are things that people absolutely take for granted. The idea that manufacturers will carry on respecting the law even when they are no longer required to because the laws have been simply turned off is, I am afraid, for the birds. All businesses need to try to cut costs, and they will not necessarily comply with high standards in the absence of legislation telling them to do so.
The Chair
Professor Young, did you want to add anything?
Professor Young: To confirm what Professor Barnard was saying, it is important to recognise that although we have had six years to think about which laws to keep and which to remove, we have to put that against a backdrop of those not having been six usual years. We have also had to deal with covid, which generated lots of difficulties, and we are now dealing with energy crises and austerity. I fully accept that there is a need to think about which laws we retain and which laws we change, and that we need a period in which to think about that, but you have to recognise that there are other things on the legislative agenda that might make it difficult to have a complete list of all of them.
I agree that having a list of those laws that we have found will increase legal certainty. It would then also always be possible, once others are found, for the Government to enact regulations and say, “These regulations will be subject to the sunset,” or “These will be subject to a different sunset.” That would give us much more clarity, while still enabling us to change laws to build on the advantages brought by Brexit.
Ms Ghani
Q
“alien to the UK constitutional system”.
As a creation of the Court of Justice of the European Union, it
“sits uncomfortably with established constitutional principles”
in the UK now that we have left the EU. Is it inappropriate for a non-EU country to still have instances where EU law takes precedence over its law?
Professor Barnard: Thank you for that question, Minister. Yes, at first sight, it looks rather unusual to have the notion of supremacy of EU law. You are absolutely right that it was a creation of the Court of Justice. That said, the 2018 Act essentially gave a parliamentary imprimatur to the principle of the supremacy of EU law in respect of retained EU law. Supremacy comes with quite a lot of baggage attached. Thinking about what supremacy means, it is essentially a conflict-of-laws rule—we have loads of them in the legal system. Where there is a potential conflict between two blocks of rules, a conflict-of-laws rule says which one will prevail in which circumstances.
The 2018 Act says very clearly that, in respect of pre-Brexit UK-retained EU law, if there is a conflict with EU law, EU law will prevail for the time being. However, there is absolutely nothing to stop Parliament legislating to reverse that in the future. The purpose of the 2018 Act was to ensure clarity, legal certainty and continuity. You have continuity with the snapshot approach taken by the 2018 Act. If you turn it off, which, of course, a sovereign Parliament is absolutely free to do, there will still be issues about how to manage conflicts between the rules. Indeed, the Bill makes provision for the supremacy provision to be turned back on if a Department decides it is necessary in its particular area.
Ms Ghani
Q
Professor Young: Thank you, Minister. It is a matter of recognising that EU law tends to be drafted by setting out the purposes that it is meant to achieve in certain circumstances. Directives have a different format from regulations; they set out the aims and purposes, and allow member states discretion in how to implement them, which is why so much of retained EU law is secondary legislation that was enacted by the UK to implement particular provisions of directives. In that sense, it tends to be drafted in a slightly different style. You also have to recognise that its main aim was harmonisation, so that might influence how it was drafted.
While the UK was a member of the European Union, we got used to understanding how EU law was drafted, and to interpreting it in line with background EU law principles, including the general principles of EU law. Obviously, one of the things this Bill will do is switch that off. You then have to think about how, without those general principles, we will interpret any of the retained EU law that becomes assimilated or is retained by regulations. We might have to think about not just retaining particular provisions through regulations, but whether we need to add elements to amend them or make them clear, so that we have a fuller understanding of how they are meant to apply in certain circumstances.
Peter Grant
Q
Professor Barnard: The simple answer is no; I am completely unaware of any precedent for this. Of course, that does not mean that we cannot try to adopt this approach, but we need to be extremely mindful of the associated risks. That is one of the reasons why we have proposed carving out areas, such as environment and social policy, that are already subject to obligations under the trade and co-operation agreement. That will ensure that we do not accidently turn them off but not turn them back on again through the powers in clauses 1(2), 2 or 12 to 15, and so will ensure that we are not subject to the trade and co-operation agreement’s dispute resolution mechanisms, which may result in tariffs being imposed on us.
Peter Grant
Professor Young, I saw you nodding. Is there anything you want to add? Do you agree with Professor Barnard?
Professor Young: I agree. I too am unaware of any process that has tried to make such a big change to so many laws in such a short period. That is why it could impose so many practical problems. In most systems, when you have a change of legal system or regime, there is this element of what we did originally, which maintains legal certainty by retaining the old provisions. Then, step by step, in what we often call a sector-specific approach, there is a detailed assessment of whether we should keep those laws or change them. As far as I am aware, this is quite a novel way of doing this with such a large amount of law.
Peter Grant
Q
Professor Young: It is not necessarily that I am reluctant to change or am concerned about change. We need to think about what this is asking against the backdrop of what we are aiming for in the Bill. You have to recognise that the difficulties of uncertainty will be not for lawyers, but for those trying to carry out business. Those carrying out business and trade need legal certainty, so that they have an understanding of the rules, now and going forward. As for the elements and problems of uncertainty, we do not necessarily think that things will be uncertain because they are changing; the issue is that those carrying out business will not necessarily be 100% sure whether things will be retained in the long term. If so, how they will be retained? Has everything that might be revoked been listed? They are not 100% sure whether it has been revoked or not.
Other provisions in the Bill might further that uncertainty. For example, under the Bill, legal officers can refer an issue to the court if they think that a decision should have changed the interpretation of a particular piece of retained or assimilated EU law but did not. That can happen after the agreement has been included and the decision has been made by the parties. You might think, “Well, the Bill says that is not a problem because it won’t affect the result between the parties,” but you have to recognise that others in the legal system will have seen that case, and that interpretation of the law, and will have perhaps planned their business on that basis. They will suddenly find that there is a reference to the court that might change how the law is interpreted or what it means.
That is why we are concerned about certainty. We are concerned about the consequences for those carrying out trade, because they need legal certainty to plan their business activities.
Peter Grant
Q
Professor Barnard: I would just say that the business of legal academia is forever to be making proposals to change the law, to try and improve it in some way. The idea that lawyers are hostile to change is just not correct. The way in which the legal system has worked and has run successfully over the decades is on the basis of incremental change rather than this really quite remarkable slash and burn approach proposed by the sunset clause.
Stella Creasy
Q
It would be quite helpful to know, with the extra 1,400, who has drawn the short straw? Are they all in one particular Department or across the Departments? A previous witness claimed that there would be adequate parliamentary scrutiny, and if Parliament did not like what Ministers were doing, it would intervene. What would this process mean for our ability to influence the content produced as a result of the Bill?
Professor Barnard: On the first point, as you rightly point out, there are provisions in the Bill to allow Ministers, by regulations, to keep retained EU law, which will eventually be called assimilated law, but what is not at all clear is the process by which the Minister decides to engage in that process. Remember, if the Minister decides to sit on his or her hands, the default kicks in, which is that those all those provisions will go. In reality, we understand that Government Departments have a reasonable idea of the law in their area, and civil servants will need to go through that law statutory instrument by statutory instrument.
There is a real issue about capacity in Government Departments. Jacob Rees-Mogg himself said that his own Department for Business, Energy and Industrial Strategy had identified that it needed 400 civil servants to be working on the 300 or so pieces of legislation that had then been identified. Presumably, now they have discovered an extra 1,400 that number will increase. It is a huge amount of civil service time. The issue is even more acute in the Department for Environment, Food and Rural Affairs, which is the Department most affected by retained EU law. The question is, what is the internal process? Even if the Secretary of State in DEFRA decides that he or she wants to retain all the legislation because it is so important in different forms, what happens? Does it go to the Cabinet? Is there some sort of star chamber that looks at what is being proposed by the Departments? We know none of that, and we know none of the detail about whether there will be any consultation with external stakeholders, which is particularly important in the field of agriculture, where a large number of stakeholders are affected.
Stella Creasy
Professor Young, do you want to add anything?
Professor Young: We also have to think about how ministerial Departments will liaise with each other, because those different Departments might be looking at the same statutory instrument that might regulate bits that fall within the ambit of their respective Departments. Something will also be required in Government to keep track of that and to work out what the process should be.
With regard to parliamentary scrutiny, under the Bill the default position would be the negative resolution procedure. Obviously, there are some exceptions, for example, if a measure is used to modify primary legislation, to create a power to enact subordinate legislation or to create a criminal offence in certain circumstances. There is an ability to bump that up to the affirmative resolution procedure, but it will be very difficult for Parliament necessarily to keep track of all this, because so much is coming through. As I am sure you are all aware, it is very difficult for either of the Houses to actually pass a resolution to say that they disagree with a particular provision. Because of the demands on parliamentary time, it will be even more difficult when you have so many provisions coming through. Although there is a process for parliamentary oversight, it will be difficult in the timeframe to ensure that that oversight can be exercised in a manner that enables Parliament properly to scrutinise the measures as they come through.
Stella Creasy
Q
Professor Young: Exactly.
Stella Creasy
In your opinion, then, the ability of parliamentarians, as opposed to Ministers, to influence what laws come next, if they are enacted at all, is limited. Can you suggest, or are there examples from your experience, how parliamentary scrutiny could be strengthened in this Bill?
Professor Young: Obviously we have elements that we saw under the European Union (Withdrawal) Act 2018, which allowed for aspects of enhanced scrutiny in certain circumstances as well as the ability to exercise the affirmative resolution procedures. There can be procedures that you can use whereby you put forward drafts of delegated legislation and allow parliamentarians to scrutinise them. Obviously it is difficult to set that up and to have the time to do so.
I think we need to think about two issues. First, we need to think about what is the appropriate procedure that enables parliamentarians to have adequate scrutiny and we also need to think about how we ensure that parliamentarians have sufficient time to perform that scrutiny. That is why you accurately quoted the information relating to the last time that either the House of Commons or the House of Lords voted against a particular resolution. Perhaps that shows the very great difficulty of actually achieving the time to get that on the parliamentary agenda.
Stella Creasy
Q
Professor Young: Yes.
Stella Creasy
Q
Professor Young: That’s it; absolutely. The only way perhaps to get around that would be to ensure that different departmental Select Committees could go away and look at the area of their law, and perhaps write reports to propose that there should be changes or provisions should be retained or revoked. Obviously, that would only be a report and not necessarily something that a Minister would have to follow in any way, shape or form.
Professor Barnard: If I may just put a footnote to your questions, of course if Parliament did decide to vote by resolution against a statutory instrument, that risks running out of time. Therefore the default kicks in and the sunset kicks in, so you lose a measure all together.
Alex Sobel
Q
Professor Barnard: The Financial Times reports, and indeed the Mail on Sunday report, which is where the story about the extra 1,400 pieces originated, just talk about 1,400 pieces; they do not talk about the fields in which they fall. By definition, however, given that DEFRA already has the largest group of retained EU laws—it is about 500 and something—DEFRA is very likely to be affected by the discovery of an extra 1,400 pieces.
On your question about the Northern Ireland legislation, as you know, annex 2 of the Northern Ireland protocol lists all the areas of EU law that will continue to apply in respect of Northern Ireland on a dynamic basis. Clause 1(5) of the Bill contains a rather general and ill-defined carve-out for Northern Ireland legislation, but it is not clear because, as you will be aware, the Northern Ireland Protocol Bill is also going through Parliament at the moment, which will turn off a large amount of the EU legislation that applies in respect of Northern Ireland—all the annex 2 legislation. Other bits of legislation still apply, particularly in the field of equality law and social policy, but you have this generic and rather vague exclusion in respect of Northern Ireland in clause 1(5).
Professor Young: I have nothing to add.
Alex Sobel
Q
Professor Young: I agree that it is a real danger, because obviously a business takes business-based decisions. If a particular regulation that was perhaps making you not as competitive disappears, you might find ways of not following the old regulation because it might give you a competitive advantage in certain situations. We need to think about this against the backdrop of the United Kingdom Internal Market Act 2020, which provides that, if a good can be marketed in one component part of the United Kingdom, it can be marketed in any other component part of the United Kingdom. That will also incentivise what we call a race to the bottom—the idea that you will have a competitive advantage if you are not following other regulatory burdens that might make your good less competitive. If you are aware that you do not have to follow that, not only will you decide not to do so, which might give you a competitive advantage, but it might put others at a disadvantage across the 2020 Act. You can sell your good across the UK because you are adhering to a lower element, and it is lawful to sell it in one component part. I think that there is a real risk that people will not follow the former rules and regulations.
Professor Barnard: I think Sir Stephen Laws takes a very benign view of human and indeed business nature. If there is an opportunity to save costs by not complying with rules, businesses will take it. The only thing I would add to that is that businesses that are doing most of their trade with the EU will still be required to comply with EU rules, otherwise they will not be able to sell their products on to the EU market. Business that are part of supply chains that feed into the EU market will still have to comply with EU rules. Perhaps he is right there that there might be voluntary compliance, but it is actually market-induced compliance rather than absolute voluntary compliance.
Stella Creasy
Q
Professor Young: The problem with that particular provision is that it is that element of not reducing burdens, which includes elements of administrative inconvenience, as well as obstacles to trade or innovations or obstacles to efficiency, productivity or profitability. The difficulty is what would or would not be increasing burdens in these circumstances. On the one hand, you are right; this is incentivising a reduction in these burdens and the potential follow-on we would see is a reduction in standards, particularly because it is looking at obstacles to trade or obstacles to efficiency, productivity and profitability. Another way of potentially reading it is to say that if I take a number of earlier burdens, turn them into one burden with a higher standard, that is also not increasing the burden. The difficulty is that the clause could be quite ambiguous, which could, in some senses, perhaps alleviate some of the risk that that might incentivise towards removing burdens. However, that is going to leave these particular measures open to potential legal challenges because people will argue “This has increased my burden in these circumstances.” That, in turn, could add to legal uncertainty.
Stella Creasy
Q
Professor Barnard: Yes, you are absolutely right. That is one of the reasons we proposed carving out, for example, environmental law and employment law, because those are the two areas that are subject to the so-called level playing field provisions in the trade and co-operation agreement. We are free to lower our standards—that is our choice—but if we do and, depending on the provision, that materially affects trade between the UK and the EU, the EU can start the dispute mechanism in the TCA. In respect of the so-called rebalancing dimension in the level playing field, the retaliation is brutal, quick and immediate.
Justin Madders
Q
The Chair
Professor Young, you look like you are about to burst forth.
Professor Young: Sorry, I could not quite hear who you were asking. It would be for the Minister to decide, when they are deciding to make a regulation, whether they do or do not think it will or will not increase a burden. There is a possibility for the Minister to make a statement, but there is no requirement to do so, and it will be up to parliamentarians when they see that particular measure to scrutinise it. If you think it imposes a burden and you are concerned about it, you could use the negative resolution procedure to vote against it.
The Chair
Professor Barnard, did you want to add anything in 20 seconds?
Professor Barnard: No, I agree.
The Chair
Thank you very much, both of you, for the clarity of your evidence. We are now moving on to our next group of witnesses. Thank you to those from Cambridge.
Examination of Witnesses
Martin Howe KC and Tom Sharpe KC gave evidence.
The Chair
We are now moving on to hear more evidence in person, from Martin Howe KC of 8 New Square chambers and Tom Sharpe KC of 1 Essex Court chambers. In this session, we have until 10.55. Please introduce yourselves for the record; Martin, would you like to go first?
Martin Howe: I am a practising King’s Counsel, principally in the field of intellectual property law, and formerly European Union law, mainly in the field of free movement of goods and services—cross-border freedom to trade. That is my professional background. I became chairman of a group called Lawyers for Britain, which was set up during the referendum campaign to campaign among the legal profession for a leave vote. I wish we had been able to wind it all up—job done—but we still exist and I am still the chairman.
Tom Sharpe: I am Tom Sharpe, King’s Counsel. I spent too long as an Oxford don, but I have been in practice for quite a long time. The nature of my teaching at Oxford and my practice was heavily European law, which I now put in the semi-past tense. I have appeared in the European Court quite a few times. The central core of my practice has always been the regulatory area—competition law and state aids—but I have done quite a lot of judicial review work, attempting to overturn EU regulations and misapplied and misadopted directives. I, too, am a member of the Lawyers for Britain group, and Martin and I made submissions in Miller 1 and Miller 2.
Justin Madders
Q
Justin Madders
I am indeed. It is the best type.
Tom Sharpe: The honest answer is no. However, your excellent House of Commons research paper does indeed advert to this and describes the justification, which I have forgotten.
Justin Madders
Q
Tom Sharpe: Slightly different between case law and—
Justin Madders
Yes.
Tom Sharpe: Shall I kick off? I know that Martin has some fairly strong views on this. What the Department is trying to do here is to provide some illustrative guidance as to the reasons why people can depart. They could have done nothing and left it open to the court, which would have been unsatisfactory. By and large, judges, like all of us, need some help and guidance. As to the differences, the justification is the TuneIn case, Martin, is it not?
Martin Howe: Warner against TuneIn, yes.
Tom Sharpe: Why don’t you pick this up? It is your area.
Martin Howe: One feature of the 2018 Act, as you know, is that it made European Court judgments continue to be binding after exit in the interpretation of retained EU law. I would have preferred to see them just as persuasive authority from the beginning, but that is what the Act said. It gave only a very tiny exception, allowing the Supreme Court and the High Court of Justiciary in Scotland to depart, but only in circumstances where they would depart from their own previous decisions. It was extremely narrow. That was slightly widened by a statutory instrument under the 2020 Act, which expanded that to the Court of Appeal, the Inner House of the Court of Session in Scotland and the Court of Appeal of Northern Ireland, but it still had a very narrow test. I do not think, even if you got rid of all these restrictions, that the judiciary would actually make very many changes to or departures from legislation.
That comes out from the TuneIn case, in which the Court of Appeal considered a very unsatisfactory area of jurisprudence by the Court of Justice—a very technical area on communication to the public in copyright cases—and did not feel that it wanted to depart from that law, basically because it thought that to do that you have to almost legislate to fill in what you are replacing the judgments with. Judges are naturally reluctant to do that. My view of these provisions is that they are helpful. They slightly widen the circumstances in which there can be a departure, but are unlikely to make much practical difference. They will mean very few cases that see actual departures.
Tom Sharpe: May I add a supplementary? In answer to your specific question, clearly, the case law, which is the second provision in clause 4, is much broader. All sorts of case law is affected, and some would say infected, by European principles. What this is simply doing is inviting Parliament to say that the breadth of review can be triggered by any impact or any influence. It is really very broad—“determined or influenced by”. I think that is the justification for it, and I think it is sound. What is the point of having an imperfect means by which higher courts can be seized of these matters if they are important enough to go up to the higher courts?
Ms Ghani
Q
Tom Sharpe: It is not the right time at all. This should have been started in 2016, and certainly the dashboard—the process of creation—should have happened then. When—or if and when—this is enacted, it will be, what, six years since the referendum? That is a very long time; it will probably be seven years when the Lords get hold of it. It seems to me that the promises that were made in the referendum and the obligations owed to those who voted for Brexit, which in turn, of course, were repeated in the 2019 election, have to be redeemed. It seems to me that it is appropriate for that to be done, and to be done by a means whereby good faith can be applied—that is to say, a balance between speed and comprehension, balancing the requirements of Government in order to get the legislation on the statute book with the interests of Parliament and the interests of stakeholders. It seems to me, as a general rule, that this is actually what it does.
Ms Ghani
Q
Martin Howe: I think the Bill is desperately needed. The flaw with the 2018 Act is that it was clearly necessary to preserve what is now retained EU law on an interim basis until it could be reviewed and either kept or replaced or modified, but what was not necessary was making it impossible to change most of it except by Act of Parliament, which is what the 2018 Act did, and also to import a whole load of EU law doctrines on top of the legislation. It was all said to be for the purposes of legal certainty. In my view, it does not add to legal certainty; it generates legal uncertainties and allows vague things to be argued.
I have had a look to see what progress has so far been made in changing the vast body of EU retained law. There is one important Bill going through the Commons now, the Financial Services and Markets Bill, which would deal with that field, where we put in place our domestic policy choices.
There are also two further Bills that I have identified. One dealt with the Vnuk case, which was a case in the European Court that interpreted the motor insurance directive—in my view, misinterpreted it—to say that it applied to off-road vehicles, so things such as farm tractors would be compulsorily insured. That has now been corrected in our law, but only via a private Member’s Bill, which became an Act in April when the Government lent parliamentary time to the Bill. I think that the Government estimates are that it would have cost £2 billion per year—mainly to farmers, I suppose.
The other Bill, which is actually more important, is on the gene editing matter, where the European Court, in the case between the French peasants collective and the French Government, decided that the genetically modified organisms directive covered gene editing. Now, gene editing is a different technique from genetic modification. There is a lot of criticism of that judgment. It was completely unexpected and had very damaging effects, particularly on the life sciences industry in this country. That is subject to correction by a Bill that has just finished its Commons stages and has gone to the Lords.
Those are just two interpretations of two bits of EU law. That shows the complete impossibility of performing this exercise by primary legislation, and therefore how essential it is to have the statutory instrument power in the Bill. It is important to appreciate that the statutory instrument power does not apply to primary legislation, so Acts of Parliament that were passed in compliance with EU obligations are not within scope; only the secondary legislation is covered.
Ms Ghani
Q
Martin Howe: Well, it does. It is comparable to the parliamentary scrutiny that section 2(2) of the European Communities Act 1972 allowed when most of these measures were introduced.
Ms Ghani
Q
Tom Sharpe: I see the Bill as a framework Bill. Of course, it gives Ministers and Departments very considerable powers—powers of proposal, as you know, to amend, revoke or replace existing legislation.
As Martin has just said, an Act of Parliament, which was probably passed—if I may say so respectfully—before many of you were born, provided an enabling power to enact legislation of some quite sweeping character. Despite all the things that law students learned about how Parliament needed to approve legislation, not one single regulation—this is one of the bits we are discussing—has ever been debated, approved or amended by the House of Commons or Parliament. That is a striking statement, but it is absolutely true. We were forbidden, in law, to debate or amend such legislation. I suspect you all know that, but it does not hurt to be reminded.
As for the directives, of course they, too, were approved by Parliament—or, more accurately, not disapproved—but the power of Parliament was utterly residual because the objective of a directive had to be observed. If it was not, the UK would be subject to proceedings from Brussels—and it was, on occasion, but not as often as many other countries.
We are now debating a system of revocation, amendment and replacement, and giving it far more formality than we gave the creation of the laws themselves. That ought to give us pause for thought. That is the background. As far as parliamentary scrutiny is concerned, yes, most of it will be subject to negative resolution, and it is easy to make what I will disrespectfully call a good debating point about the times when statutory instruments have fallen under the negative procedure. But here, we are dealing with a sea change. We are dealing with masses of legislation, as we know, all of which will be subject to significant scrutiny within the House of Commons by parliamentarians and by the press. It seems to me that those issues have to be given notice. There is also the sifting procedure that we adverted to earlier, which I think could be quite a powerful brake on Ministers’ discretion.
Peter Grant
Q
Tom Sharpe: Where do we start?
Martin Howe: I am concerned by the attitude taken by the Bar Council. As a subscribing member, I fear that it is trespassing rather too far into political issues. Unfortunately, I think there is a sort of small “c” conservative lawyer’s mentality, which has led over time to various things, such as counsel saying in the “Lady Chatterley’s Lover” trial, “Members of the jury, would you allow your wives or your servants to read this book?” Since so many members of the Bar are imbued with the system of working with European Union law—it is all part of their practice and the way they operate—there is a natural mental attitude towards keeping it. I do not think that reflects the necessities of the democratic process following the referendum result.
Peter Grant
Q
Tom Sharpe: It is our trade union, and it does not speak on my behalf on this political matter, very obviously, and it should not have done that. I think there is a broad issue here. If you look at the criticism of the Bill by the Bar Council and by members working with it—the Hansard Society, which got a mention, and various leading members of the Bar whom I know very well; they are my friends and I respect them—the dominant theme is one of extreme pessimism. That is to say that if we have a mendacious Government, a supine Parliament and a lazy and ignorant press, all sorts of things can happen. Now, I do not think that is true. I have far more respect for this House, and even for Ministers and the press. If Ministers are getting out of hand, they will be put in check. If they are not, the judiciary has a role in reviewing the exercise of these powers. We can ignore the judiciary in this context, but it has an important residual role.
We can call it benign or naive, but I do not think that is right. I think that by and large the House of Commons does a pretty good job, and I see no reason at all why it will not continue to do so in relation to this important Bill.
Peter Grant
Q
To go back to the comments you made earlier about the difference between primary and secondary legislation, when was the last time Parliament amended a piece of secondary legislation?
Martin Howe: It does not. The procedure is a yes/no procedure either by affirmative resolution, in which case there has to be a positive vote or it fails; or by negative resolution, in which case, unless it is prayed against and there is a vote against it, it stands.
Peter Grant
Q
Martin Howe: Indeed. By its nature, there is much less opportunity than with a Bill, which you go through line by line, but all the legislation that is within the scope of the Bill to be potentially corrected, changed or left out by secondary legislation was introduced by secondary legislation. The primary legislation is not covered by the powers.
Tom Sharpe: Remember what we are discussing. I think it is very unlikely that there will be a wholesale slash and burn—to use the academic term that we heard earlier—of all EU retained legislation or assimilated legislation; a good deal of it will remain. I do not recognise the gloomy picture of businesspeople clawing their way to the bottom. I understand the theory, but in the course of a year I advise dozens of CEOs and chairmen, and not one has said: “We have a terrific opportunity to make extra money out of the consumer.”
What is missing here is public scrutiny and reputation, and we have to be balanced and less shrill about this: not everything will change; not everything will change at once; and some things will be changed—in particular under clause 15(3) where, respectfully, the real issues arise for parliamentary scrutiny. There, as you heard, some will be determined by affirmative resolution and others will go through the sifting procedure, which requires the Minister to come to Parliament to justify the choice of a negative procedure. You will have an opportunity to deal with that.
Stella Creasy
Q
Martin Howe: The argument I was putting forward was for a practical way to speed up the process. Frankly, it was a suggestion that I floated, a possible—
Stella Creasy
Q
Martin Howe: What I was then proposing was not so much a scrutiny mechanism as a sort of motor to get the process going—
Stella Creasy
Q
Martin Howe: No, because the main thing—the important thing—is to get the job done. What I am disappointed about is that I published a paper in July 2016, a month after the referendum, arguing that we should start a systematic process of review of European Union laws. I naively suggested that that would be with a view to revising what we needed to revise by the time of exit two and a half years later—
Stella Creasy
Q
Martin Howe: No. I was naive to think that the process of revision would be started. I share Tom’s view that it would have been better had this process been started earlier, but it does need to be done.
Stella Creasy
Q
Martin Howe: Well, it is a matter for Parliament as to what you press Ministers on with regards to their plans and intentions.
Stella Creasy
Q
Martin Howe: To be clear, I was not suggesting that they be retained in the long term. Those areas need revising and converting into coherent UK-based law. Elements of EU law should not be retained into the indefinite future.
Stella Creasy
Q
Martin Howe: Sorry, I have not changed my mind on the relationship between retained EU treaty law and other EU law. The point is that that should be converted into domestic law, but our domestic legal system can cope with the question of precedence of one law over the other. I have never been in favour of indefinite retention.
The Chair
Stella, you have asked a lot of questions. We are moving on, and we will come back to you if there is time.
Mr Marcus Fysh (Yeovil) (Con)
Q
Tom Sharpe: The general point is very well made, if I may say so. It seems to me that that type of exercise—that kind of inclusive thinking about making the country more efficient and getting rid of silly regulations—would be valid even if we were not dealing with the Bill.
One of the problems with the Bill is that it is a framework Bill, and I can see a quite compelling case for eliminating some of the opacity that surrounds the Government’s intentions. It is early days, and the Bill is just a Bill. I do not think it would be enhanced by Ministers detailing in fine print exactly what is to be done, but there is a case for some ministerial guidance as to where the priorities should lie.
As for doing away with dud regulation, I find it amusing to read the submissions to Government. This is an important point about consultation. My understanding is that there have been thousands of responses to the dashboard—I think I am right in that. That is an element of public consultation. It is amusing to me to see that so many bodies that campaigned remorselessly against some of the EU legislation that we had no control over now resolutely do their best to try to preserve it. With a little more honesty, they would have been more compelling, I think.
Mr Fysh
Q
Martin Howe: That is helpful and it sounds like a good idea. Whether it ought to be spelled out in the Bill is a different question, because there needs to be a certain amount of flexibility over these processes. Certainly, involving outsiders in looking at these issues, as opposed to doing it as a purely internal measure within Departments, strikes me as beneficial.
The Chair
Gentlemen, thank you for your evidence. Our time is now up. Thank you once again for being with us.
Examination of Witnesses
Mark Fenhalls KC, George Peretz KC and Eleonor Duhs gave evidence.
The Chair
We will move on to our final group of witnesses for this morning. Of course, we have a long afternoon ahead of us. We will now hear oral evidence from Mark Fenhalls KC, chair of the Bar Council. I wonder whether he was listening to the previous panels.
Mark Fenhalls: I was listening, Chair.
The Chair
Excellent.
Mark Fenhalls: I am very much looking forward to trying to do my best.
The Chair
I am sure you will do a great job. George Peretz KC of the Bar Council’s working group on retained EU law is joining us via Zoom. We also have Eleonor Duhs, partner and head of data privacy at Bates Wells, here in person—I hope that was the correct pronunciation of your name.
Eleonor Duhs: It was, yes.
The Chair
For this session we have until 11.25 am. George Peretz is not here yet, but if he does appear we will ask him questions as well. We turn to Justin Madders to start.
Justin Madders
Q
Mark Fenhalls: There is nothing but risk. I will tell you one brief anecdote to illustrate this point. Last week I was at an international conference, working with the Ministry of Justice on selling legal services overseas, and talking to lawyers and Bar leaders from around the world. They asked me what this country’s intentions were around its laws following the departure from the European Union. I explained that I have no difficulty with change; change is a necessary thing. We all hope there is a sunlit upland where we can find better or fewer rules and regulations in the future. But when I explained about the inherent uncertainty and risks around this, they all looked and me in horror and said, “Why would we do any business with the UK”—until 2024 on the current timescales—“if we don’t know what the rules and regulations are going to be around all these issues?” There is a tremendous problem with this Bill, which was described by previous witnesses as a “framework Bill”, because we do not know what Ministers are going to do and Parliament does not have the opportunity to take control of the process or scrutinise it.
In our judgment, the Government should take the approach referred to in relation to the Financial Services and Markets Bill, where it looks as though considered, measured changes are being put forward, and there is an undertaking not to change the rules and regulations without consultation with the sector. We cannot understand why financial services are the subject of such a responsible, measured approach, which does not seem to apply to consumer protection, cosmetic and household cleaning product safety, water and air standards, and so forth. If the Government could take the same measured response, sector by sector, that would be a more sensible and less risky way to proceed.
Justin Madders
Q
Mark Fenhalls: I am no expert in how much civil service time exists, but I would be astonished if it were remotely possible to cover but a fraction of this. I do not know why it is set up as anything other than a political problem. The reality is that this is our law. It was passed over four decades of membership while we were a part of the European Union. The previous witnesses may not like the process of scrutiny that existed, but we were part of that. We had MEPs and a Parliament that dealt with that. There was a democratic process, like it or not.
We now have a different democratic process, but these laws are part of our laws, which our businesses operate by and which provide protection to our citizens. If I may say so, I think Parliament has a responsibility not to import uncertainty and change without showing there is something better—and certainly not by just having the power to let the laws lapse.
Eleonor Duhs: Perhaps I could add something on the timeframes. In order to get the statute book ready for Brexit, which was in some ways a much more simple task than this, it took over two years and over 600 pieces of legislation. The reason I say it was a simpler task is that we were essentially making the statute book work without the co-operation framework of the EU. We were taking out references to the European Commission and replacing them with “Secretary of State”—that sort of thing. That was a much simpler task than what we have here, and that took over two and a half years.
A lot of areas also have several pieces of amending legislation. In data protection, which is the field that I work in, there are at least three pieces of legislation that amended and then re-amended the statute book—just to get it ready, from a technical perspective, for Brexit. There may be huge policy changes under this legislation, and the end of 2023 is simply not a realistic timeframe for the process.
Justin Madders
I see that George Peretz has joined us. I do not know whether he wanted to respond to any of the questions first of all.
The Chair
Yes, Mr Peretz, welcome. Did you hear the questions that were asked?
George Peretz: I had a slight technical hitch in joining. I was going to make a point about the effect of the sunset clause. Stephen Laws made the point that law reform is necessary and it happens, and one should not get stuck in defending the status quo. But there is every difference between a Government saying, “Here is the existing law, we propose to replace it with legislation, and here is the text of the proposed reform,” which is the normal process of law reform, and what is happening here. The Government are effectively saying to business and the wider world, “All of this law is open to change; we cannot tell you whether we will keep any of it. Some of it may just disappear, it may be replaced, and we cannot yet tell you what the replacement is. All of this is going to happen in 18 months.” That inevitably produces an enormous amount of uncertainty, and that is uncertainty above and beyond the inevitable uncertainty of law reform.
Justin Madders
Q
Mark Fenhalls: I am not privy to any of that correspondence; I cannot help with that. I do not know whether either Ms Duhs or Mr Peretz is familiar with it.
Eleonor Duhs indicated dissent.
Ms Ghani
Q
Mark Fenhalls: I am sorry if you think I am going on about it. All I am doing is saying that there was a democratic process, which we were party to for several decades: we were members of the European Union, and we followed the lawful processes. We now have this body of law, which Parliament owns, and we are all looking for an opportunity for Parliament to say, “Let’s now take advantage of our departure from the European Union, put aside the conflict of the past and work out a better way.” We are all delighted by that. None of us is hostile to change. We just want change in a measured and balanced way, so that we know what the alternatives are.
The effect of the Bill—I was thinking about it as I listened to the previous speakers—feels a bit like the uncertainty and the uncosted promises made by the former Chancellor, which so disrupted the bond market. [Interruption.] You asked the question, Minister. The difference between that and the Bill is that we are being told to trust Ministers to see what will happen, and we have no idea what they will do. We have no idea what is being left or what will be changed. There is conflict between current Bills before Parliament, such as the Levelling-up and Regeneration Bill, and the Bill we are discussing, and we do not know how the Government propose to address it.
Peter Grant
Q
Mark Fenhalls: I am not a parliamentarian or a politician. The short answer to that is that I do not know, but I do know that every single stakeholder and lawyer I have spoken to—who are simply thinking about their clients’ business interests and the rights of the people involved—wants to know what the alternative proposals are before they take a view. The difficulty with this Bill is not change, because change in itself is fine; it is the fact that we do not know what the proposals will be. We have suggested what we suggested in our submission and we have put in fall-back positions saying that if the Bill is to proceed, we should put in place scrutiny measures or duties on Ministers to come to the House and say, “This is what we propose to do,” and not run the risk, for example, of the sunset causing us to crash into the wall at the end of next year.
Peter Grant
For the record, there are two lawyers sitting behind you who quite clearly do not share the view that you just expressed about the various lawyers you have spoken to. Some of us think that lawyers argue with lawyers all of the time; that is what they are there for.
The Chair
Before we continue, I think Mr Peretz wanted to come in on that point.
George Peretz: I wanted to come in in response to the Minister’s question about section 2(2) of the European Communities Act 1972. There are two points here. One is the point, developed by Martin Howe, that it considerably underestimates the degree of democratic scrutiny that EU law actually had, particularly in the European Parliament and on the reform of EU law. It also understates the mechanisms that Parliament had to scrutinise how Ministers acted in the Council of Ministers.
I suppose one is getting slightly political here, but perhaps the more important point is that one of the arguments for Brexit, as I understood it, was that it would strengthen democratic accountability for legislation. It is slightly disappointing that the argument put forward for the Bill is sometimes, “Well, the EU was undemocratic in this, so you cannot complain that this is equally undemocratic.” We can do rather better than that.
Peter Grant
Q
Eleonor Duhs: I would still have some concerns, because the end of 2026 is not far away and that is what people are saying would perhaps be the revised timeframe.
There are some really significant things in this Bill in terms of changing the way in which the law works. I will give an example from data protection law. Clause 4 would change the relationship between retained EU law and domestic law. To show what that might mean in practice, I will give the example of a conflict between the UK general data protection regulations and the Data Protection Act 2018. This is not addressed by the provisions that Mr Madders asked about; that is simply about how data protection legislation as a whole interacts with the domestic statute book and is not overridden by it. In a conflict between the UK GDPR and the Data Protection Act 2018, if we remove the principle of supremacy, for example—which is what the Bill seeks to do—we could end up reducing data protection standards in the UK. That could cost UK businesses up to £1.6 billion and significantly increase red tape, so this is really important.
Last year there was a case called the Open Rights Group case, which was to do with exemptions in the 2018 Act that were overly broad. The Court of Appeal said that the UK GDPR had precedence—so this was decided under the retained principle of the supremacy of EU law—and that the provision in the 2018 Act was unlawful. If we had not had that retention of the principle of supremacy of EU law, and had had this new section 5(A2), the 2018 Act would have had precedence and the broader exemption would have applied, which would have reduced rights in the UK.
Why is it helpful for rights in the UK to remain as they were before? Because our current standard of protection of personal data has been deemed by the EU to be essentially equivalent to their standards of protection. That allows a data adequacy decision and, at the moment, the free flow of data between the EU and the UK. If we did not have that—if we lost data adequacy, which could happen under proposed new section 5(A2) in clause 4—UK businesses would have to spend time putting in place contracts and would have to do transfer risk assessments.
The New Economics Foundation and University College London wrote a paper entitled “The cost of data inadequacy”, which they published in November 2020. It stated that losing the free flow of data could cost UK businesses up to £1.6 billion in extra red tape, and it would have other economic implications, including a reduction in UK-EU trade, especially digital trade; reduced domestic and international investment in the UK; and the relocation of business functions, infrastructure and personnel outside the UK. So the Bill could have really significant implications for trade.
Peter Grant
Q
George Peretz: The short time is clearly a concern given the enormous work that will need to be done both in Whitehall and by Parliament if it intends to scrutinise any of this properly within a very short timeframe. A lot of this law is very important, a lot is very complicated, and quite a lot of it is both, so one should not underestimate the resource implications. Obviously, if you have a longer timeframe—until 2026, say—that resource could be spread over a longer period, and perhaps more efficiently.
There are other, wider concerns about the Bill and how it amends the application of some EU rules to retained EU law as it continues to operate, and about Ministers’ power to revoke and replace. Those are separate from the sunset clause concerns, but the sunset clause does interrelate with the question of Minister’s powers. One of the problems with the effectiveness of parliamentary scrutiny is that although one hears that Parliament has powers—in some cases via the negative or affirmative resolution procedures—the background against which it is being asked to approve legislation means that if it votes against that legislation, the sunset clause will apply and regulations disappear completely, rather weakening Parliament’s ability to do anything.
To take an example, if Ministers decided to keep the working time rules but rewrite them to make them less favourable to employees, and came up with the new regulations in November 2023, those rewritten regulations would probably be introduced under the affirmative procedure. However, when the House of Commons voted on them, Ministers would say, “You may not like these revised regulations very much, but if you do not vote for them, the alternative is that we will not have any regulations at all.” That weakens Parliament’s ability to control the exercise of ministerial power.
Alex Sobel
Q
“A plan…to review or repeal all EU laws on the UK statute book by the end of 2023 has suffered another setback after the discovery of 1,400 additional pieces of legislation.”
We were aware of 2,100 pieces of legislation, but that is another 1,400, so we are now seemingly aware of 3,500, with a sunset clause at the end of 2023. Is that the end of it? Will it be 3,500 pieces of legislation or could there be more? How are we going to find and define all these pieces of legislation so that we know what law we are acting under? You have just described qualitatively how pieces of legislation will fall under the negative resolution procedure because they are going to be sunset-claused out. Quantitively, where do you think we are going to end up by December 2023?
George Peretz: One does not know. On your point about the legislation being discovered, like you I have read the story in the Financial Times. I do not know the background to it, but we drew attention in the Bar Council paper to the risk of things simply being forgotten. As that story shows, that is not a hypothetical risk. That is one reason why we suggested as a possible amendment to the Bill that the Government add a schedule that simply lists all the regulations that are going to be affected and if it is not on the list, it does not fall. It is very difficult to see the argument against that. Presumably, the Government want to know what is being repealed. One does not want to repeal things one does not know about. What would be the good of not evaluating the risk? It is very difficult to see why there would be an objection to listing everything out. Then everyone would know precisely what goes and what stays. That was one suggestion we put forward.
It is very undesirable to have the sunset clause—for all the work that is going to have to be done to be done effectively with a gun pointed at everybody’s head saying, “Unless you’ve done all this analysis within a very restricted time period, the rules will fall.” There is just endless room for mistakes.
One of the points we discovered when we were rewriting a lot of EU rules for the purposes of the withdrawal Act—which Eleanor knows very well about and can speak about in more detail—was that, as the legislation was being rewritten, it was discovered that there were problems with it. If we look down any of the lists of amended rules, as one might experience in practice, one normally finds that over the 2018 and 2019 period there were frequent amendments. As one version was done, it was found that there was a problem with it or something needed to be added, and another amendment was made. There just is not time within the process of this Bill for that amendment process.
There is also a technical problem. It is not clear that there is the power once a regulation has been rewritten for Ministers then to say, “Oh dear—we realise that this regulation contains the following defects; we would quite like to amend it now.” I am not actually sure that the Bill contains a power for Ministers to do that. That is a bit of a problem.
Mark Fenhalls: I agree with what George just said. You will know far better than we do the stresses and strains on you as individual constituency MPs attempting to deal with those issues, and what in truth MPs can do as individuals scrutinising material like this. Ministers will know how pressured their civil servants are. I know from my dealings with civil servants how afraid they are of the possible forthcoming cuts. It is very difficult as an outsider to contemplate how the civil service can begin to cope with an assessment of what all this law involves.
The concluding point would be that if you have the list that George spoke to, that is a foundation for a proper ministerial division of responsibility as to who is doing what—which regulations affect which ministries and therefore what should our plan be? By the time we get through the end of next year, we might have dealt with financial services, perhaps, and with regeneration and levelling up, perhaps, because that covers environment and habitat and planning, but with that list and that firm foundation, you can make sensible evidence-based decisions about what to do. The frightening thing about the FT story—again, I know nothing about where it has come from—is the thought as to the unintended consequences, which nobody can possibly want, of not knowing what is out there. That is why, in a sense, a framework Bill is so flawed in its approach, because we do not know what we are dealing with.
The Chair
I have three questions to get in before 11.25 am, so let us have quick questions and quick answers, please.
Mr Fysh
Q
Mark Fenhalls: That is a political accusation that could not be more unfair. That is not the case at all. The short answer to your question is no. Parliament, rather than Ministers, should be making the decisions. That is the democratic point, if I were to engage with you on a democratic level. It does not matter what I did or did not want; I have said to you, and I mean it, that I have no difficulty with change—absolutely none whatsoever.
The Chair
Marcus, you have asked a question and now you are interrupting Mr Fenhalls. Let him finish.
Mark Fenhalls: I want it to happen on the basis of evidence and with better proposals coming. What I do not want is to be lost in a world of uncertainty when we do not know what is coming, because, out of uncertainty, clients and people will stop doing business and they will not know where we stand.
Mr Jones
Q
Eleonor Duhs: Retained EU law is domestic law. We domesticated the statute book, and we did that to provide certainty for businesses, for individuals, for the Government and for users of the law, so that they would know what the law was. That was a policy of maximum certainty. Of course, it is now for Parliament—this was in the White Paper on the European Union (Withdrawal) Act 2018—to look at the law and to decide how it should change. We should absolutely make the most of the opportunities that we have, but it must be done in a thoughtful way. It must not be done in a rush and in a way that gives rise to legal uncertainty, because this is our domestic statute book and it needs to work for all of us. It needs high standards, it needs to enable trade and it needs to be the best post-Brexit outcome that we could have.
George Peretz: I can add something to that. It is slightly unfortunate that the EU withdrawal Act chose to continue what was called the principle of supremacy of EU law, because it is something of a misnomer. As Professor Barnard explained, it is actually a conflict-of-laws rule that gives priority to retained EU law over pre-Brexit statutes. You have to remember that pre-Brexit statutes were passed by Parliament, or made by Ministers, against an understood background that EU law was supreme, so you could say that when Parliament passed a pre-Brexit statute, it expected that statute to be inferior to EU law. It was the sea in which we were all swimming at that point, so I do not accept that there is anything constitutionally objectionable about having the conflict-of-laws rule.
Before you change the conflict-of-laws rule, you also have to think very carefully about its effect. One of the disappointments I have is that nobody in the Government or outside has produced any analysis at all of the concrete effect of removing the conflict-of-laws rule. I have likened it to pushing a very large button that says, “We do not know what happens if you push this button.” That is not a wise legislative technique.
Stella Creasy
Q
All the lawyers have talked this morning about the approach of working with businesses and whether a regulatory burden could be created, which clause 15(5) is designed to avoid. We do not have any business witnesses coming forward, but we have heard that businesses are talking about risk being a drag on growth. Can you give us some examples of where you have worked with businesses with legal uncertainty? You have all talked about uncertainty, but can you explain what it could do to your clients?
The Chair
I am afraid we have 40 seconds left.
Mark Fenhalls: In 10 seconds, an organisation such as TheCityUK, which represents a range of financial services, accountancy, law and consultancy firms, will tell you that all its international clients are saying, “We don’t know what the rules are going to be; therefore, we are troubled.” There are business organisations out there from which you may choose to try to take evidence, and they may be useful to the Committee.
Eleonor Duhs: That is exactly what I am hearing too. They want to invest, but you cannot invest if you do not know what the law is going to be.
George Peretz: This is not my area of practice, but colleagues of mine at the Bar have made that point. If you are involved in a large development project—
The Chair
Forgive me, Mr Peretz, but I have to cut you off because we have reached 11.25 am. It is an existing law that we have to honour. Thank you to our three excellent witnesses. We appreciate your time and thank you for being here in person and for contributing online. Colleagues, we will meet again at two o’clock this afternoon for more fun.
Economic Crime and Corporate Transparency Bill (Ninth sitting)
Tuesday 8th November 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 View all Economic Crime and Corporate Transparency Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 8 November 2022 - (8 Nov 2022)
The Committee divided: - Ayes: 7 / Noes: 8 - Question accordingly negatived.
The Committee divided: - Ayes: 7 / Noes: 8 - Question accordingly negatived.
The Chair
Before we begin, I have a few preliminary reminders for the Committee. Please switch electronic devices to silent. No food or drink is permitted except the water provided.
Clause 65
Exemption from identity verification: national security grounds
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
I beg to move amendment 9, in clause 65, page 55, line 3, at end insert
“and section 167M(2) does not impose any obligation on a company in relation to the person”.
This amendment ensures that where a company director is exempt on national security grounds etc from being a person whose ID is verified, the company can also be relieved from the obligation to ensure that the director is ID verified.
The Chair
With this it will be convenient to discuss amendment 101, in clause 65, page 55, line 22, at end insert—
“(4) The Secretary of State must report any use of the identity verification exemption on national security grounds as provided for by this section to the Intelligence and Security Committee of Parliament. Each report—
(a) made under subsection (4) must include the name of the person and company exempt from identity verification.
(b) must include the Secretary of State’s reason for granting exemption on national security grounds.”
This amendment would place a requirement on the Secretary of State to report any use of the identity verification exemption on national security grounds to the Intelligence and Security Committee.
Kevin Hollinrake
It is a pleasure to serve with you in the Chair, Ms Bardell.
Amendment 9 is a technical amendment. Clause 65 enables the Secretary of State to exempt a person from identity verification requirements by written notice, if necessary in the interests of national security or to prevent or detect serious crime. The consequence of someone being subject to such a written notice is that they will not be obliged to observe certain rules. For example, an unverified individual benefiting from an exemption will not need to refrain from acting as a director and will not be liable for an offence for acting as such.
The amendment clarifies that companies whose directors are exempt from the prohibition to act when unverified are relieved of their duty to ensure that such a director has their identity verified. Therefore, they will not be criminally liable for failing to comply with that duty in relation to the exempted person. Relieving companies of the duty meets the original policy intention and is a logical consequence of the exemption granted to individuals on these grounds. I hope that my explanation has provided further clarity on why that is needed.
On amendment 101, any proposed use of the national security exemption in clause 65 will be carefully considered by the Secretary of State. A duty to report to Parliament’s Intelligence and Security Committee on the use of that exemption is unnecessary. The ISC’s oversight functions are clearly set out in the Justice and Security Act 2013 and the accompanying memorandum of understanding. It is inappropriate to include a specific oversight role for the ISC in relation to the deployment of this exemption. The amendment is therefore not necessary, and I ask hon. Members not to press it.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship, Ms Bardell. I thank the Minister for his opening remarks. I recognise that clause 65 gives the Secretary of State the power to provide written notice to exempt someone from identity requirements if necessary in the interests of national security or for preventing or detecting crime. The Opposition recognises the importance of protecting national security, but the Minister will know from previous debates that we seek greater clarity about where exemptions may be granted, and the transparency and accountability around the use of those powers. The Government have tabled amendment 9, which is consequential to clause 65. If the clause is agreed to, the amendment makes sense.
Amendment 101, which my hon. Friend the Member for Aberavon and I tabled, comes back to scrutiny of the use of the exemption powers. I will probably say a few times today that the title of the Bill includes is the Economic Crime and Corporate Transparency Bill. Where there are questions about a potential lack of or reduced transparency and possible serious impacts, there should be accountability, even from the Secretary of State. We live in a democracy where the Government should be and are accountable for actions of the Secretary of State.
The amendment simply states that there should be a process by which any use of the identity verification exemption on national security grounds provided by the clause should be subject to some scrutiny. The Minister may have better ideas on how to deal with that question if the Intelligence and Security Committee is not the right place. We have used the ISC because it is a parliamentary Committee that deals with national security matters, is on Privy Council terms, and will have the confidence of Parliament and the Government in reviewing these matters and raising any questions. All the amendment does is provide scrutiny for the exemption process by referring a report to the Intelligence and Security Committee, which ensures that the information remains privileged and not publicly accessible. If the Minister is, as he intimated, unable to support the amendment, I urge him to give us confidence about how he would provide assurances.
Kevin Hollinrake
Perhaps I could give the hon. Lady some examples of the kinds of individuals the exemption might apply to. We expect the exemption to be used on very rare occasions, for individuals including, but not limited to, those working for the UK intelligence community or law enforcement agencies. She should bear in mind that the Secretary of State is introducing the provisions. I hope that she will be reassured that the powers will be used sparingly but wisely.
Seema Malhotra
I thank the Minister for his intervention. The issue is not what we assume and hope might happen, but having some checks and balances on the use of powers. It is part of our responsibility on the Committee to think that through.
Dame Margaret Hodge (Barking) (Lab)
That is always the case. Perhaps the Minister will reflect that Usmanov was a case in point. He exploited an exemption to hide some of the information around his ownership. It is worth all of us reflecting on that. Obviously the provision has to be there for good people, but it may become yet another opportunity for bad people. The Usmanov case was a classic one. I think Fedotov was another, if my memory serves me right. Apologies if I have this wrong, but Fedotov was another one who managed to get an exemption in some way. If these things are not done properly, and are not then properly monitored, they can go wrong.
Seema Malhotra
I thank my right hon. Friend for highlighting an important case in point.
Kevin Hollinrake
May I speak to that case very quickly? The Usmanov case was entirely different. A Secretary of State did not introduce legislation providing for a Russian oligarch to move, in that case, billions of pounds-worth of assets to his sister, I think. What we are talking about here is the Secretary of State using a power to remove somebody whose identity is sensitive from a public register—not allowing an oligarch to subvert the regulations.
Dame Margaret Hodge
I think the Minister is right about Usmanov, but on Fedotov I think it was something different. I cannot quite remember the details, but he managed to use an exemption to hide his identity. We raised it last week, and I think that officials were going to come back with a response. They may not have had time to read the letter yet, but that is more the case that one would think of.
The Chair
Order. For the benefit of those following our proceedings, I remind Members of the flow of debate: the Minister will respond to the shadow spokesperson, and the right hon. Member for Barking will have an opportunity to intervene on him then.
Seema Malhotra
Thank you, Ms Bardell. I thank my right hon. Friend for her intervention. To wrap up my remarks on this point, the Minister makes a valid point in relation to the types of cases and the circumstances under which people might be given exemptions, identified on national security grounds. My right hon. Friend makes a good point as well about where things might come through the system inadvertently. That is partly why we have checks and balances.
I take the Minister’s point about individuals who may be working for the intelligence and security community, but he could give us some reassurance by saying that every single Secretary of State in whose hands this power lies in future will consider every case carefully so we need have no cause for concern about that, given the transparency and accountability. We set up systems such that there are ways in which the decisions of Secretaries of State and Ministers have controls, checks and balances around them.
In circumstances in which a Secretary of State might say that a name is too secret to divulge, even knowing whether there has been use of the power—the number of times used and the categories for which it has been used—could still be important information. For example, what if suddenly in future the Secretary of State was determining 10 a month—I am not saying that they would? The Minister and I have no idea who the Secretary of State might be in five or 10 years’ time, so we have no idea whether there might be an abuse of the power. However, sometimes even having the number can be a red flag, because ordinarily we might expect one every three months, so why do we have five a month coming through?
There are therefore ways in which we can have such controls without putting someone’s identity or security—or the nation’s security—at risk. Having some controls over those powers is a big and important theme of the report. I ask the Minister to consider that and to say: “Look, we will consider whether we can have, without it being too onerous a job, some mechanism for controls and reporting on use of the powers, such as through Privy Council routes.” I would then be happy not to press my amendment.
Kevin Hollinrake
I am happy to reflect on that and have further discussion. As the hon. Lady and other Members know, I am keen for Parliament to have scrutiny of any measures that we introduce. We will take it away to consider.
Seema Malhotra
I appreciate the opportunity. I therefore will not press amendment 10.
Amendment 9 agreed to.
Clause 65, as amended, ordered to stand part of the Bill.
Clause 66
Allocation of unique identifiers
Seema Malhotra
I beg to move amendment 102, in clause 66, page 55, line 36, leave out “power” and insert “a duty”.
This amendment would ensure that all directors would be issued with a unique director identifier to be used for all their directorships regardless of whether they or an ACSP form the company.
The Chair
With this it will be convenient to discuss amendment 103, in clause 66, page 55, line 37, at end insert—
“which the registrar must make publicly available on the registrar’s website”.
This amendment would make all unique director identifiers available on the registrar’s website.
Seema Malhotra
The clause expands the existing powers of the Secretary of State to allocate individuals who have had their identity verified with unique identifiers, which are reference numbers used by the registrar to help to identify people. That is of course a welcome step but, following an earlier debate in Committee, there are three key issues that we touched on which I want to explore further: can we have confirmation, first, that each director will have a unique identifier; secondly, that that will be public, whether published as it is or in proxy form, so something is searchable as a unique identifier published for a director; and, thirdly, that all directorships for one person will be searchable under their unique ID?
Amendments 102 and 103 were tabled by my hon. Friend the Member for Aberavon and me. We first made reference to them in the debate on the SNP’s amendments 68 to 70 to schedule 2. Our amendments would amend clause 66. Amendment 102 would ensure that all directors would be issued with a unique director identifier to be used for all their directorships, regardless of whether they or a member of the Association of Corporate Service Providers forms the company, and regardless of other factors. It explicitly seeks to amend the legislation to make it a duty to give a unique ID, not a power. It is possible that the drafting of my amendment does not fully do that, based on this being underlying legislation as well, but that is certainly our intention. The Minister has previously said that he expects that a unique identifier will be given to all directors for all their directorships, but I do not fully understand whether the Minister is guaranteeing that.
Amendment 103 would make those unique IDs publicly available on the registrar’s website, allowing for greater transparency for the general public. Thom Townsend of Open Ownership said that we need to
“think long and hard about how we are using an identity, once verified, persistently in a lifelong way. Australia, New Zealand and India issue unique identifiers to directors—and, in Australia’s case, to beneficial owners—for life, which makes the investigation process much more straightforward.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 62, Q133.]
These amendments, I believe, do just what Mr Townsend recommends: provide unique identifiers, so that any investigation process can be much more straightforward.
I want to go into this issue a little further in light of the Minister’s previous comments. Section 1082 of the Companies Act 2006 states:
“The Secretary of State may make provision for the use…of reference numbers (‘unique identifiers’)”
It is a power, rather than a duty, and the amendments to section 1082 of the Companies Act contained in clause 66 would not change that. The Minister has said that the SNP amendments that we previously debated
“will be redundant once the expanded power under section 1082 is exercised”.––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 3 November 2022; c. 250.]
However, I cannot see where the Bill states that those amendments will effectively be redundant when it comes into force, so I would be grateful if he could come back on that point.
The explanatory notes say that the reason for unique identifiers not being publicly available is “to protect personal information” and to guard against
“the fraudulent use of unique identifiers.”
None of us wants to see the fraudulent use of unique identifiers, and I do take that point, if the argument is about whether those specific unique identifiers are the only solution to this issue. Sometimes, it depends on how unique identifiers are used: if they are used as part of log-on information or something like that, you could argue that there is potential for fraudulent use, but they could also be identifiers that do not really pose any kind of security or other risk to personal information. What we need, if we cut all the way through this, is a reference that would allow someone to link already public information to a single individual.
If having a public unique identifier were a problem for any reason, depending on how the new Companies House systems are put together and what that unique identifier gives access to, there could be other, very easy ways to achieve the same result. I might suggest different options, such as a function allowing people to check what other offices someone held. That already exists on the Charity Commission website, for example, where we can look up trustees of a charity and see what other trusteeships they hold—the entries are linked, and that link is done for the reader. Companies House already seems to try to do that, but cannot do it properly because it does not have the data to link people who are directors of different companies. For example, that is why, as I think the hon. Member for Glasgow Central noted, she had one appointment that came up three times—or was it the other way around?
Seema Malhotra
Right, her name is registered three times, rather than having one entry noting that she has three directorships. With identity verification and the issuance of unique identifiers, Companies House will know exactly how many directorships an individual has. Companies House may plan to update pages showing people’s total directorships once it issues unique identifiers, but that certainly is not clear.
An alternative is to have some form of proxy ID, which is becoming increasingly common. That is a unique ID linked to the director’s unique ID, which can keep the director’s ID itself private, but has a unique public identifier that is searchable and uniquely linked to the underlying identifier. That happens increasingly for email addresses, for example, when someone may not want their email address to be public, so a pseudo or proxy address is created so that the one that someone might publicly enter and others might publicly see is not the underlying email address, but is uniquely linked to it. There are ways in which technology can be used simply and easily. That is not a high-cost option and it can be built in to have what we need for public purposes—a unique identifier for a director that links all their directorships, if published, and is searchable.
I hope that those constructive suggestions and the way we laid out our reply when the Minister asked in a previous debate what we were not fully happy with in clause 66 mean that things are perhaps clearer. I look forward to the Minister’s response.
Alison Thewliss
I support the excellent amendments tabled by the hon. Member for Feltham and Heston. It is incredibly important that clarification is given through the register, for a number of reasons. A unique identifier that follows a person through their whole life as a company director is important. I mentioned before that I appear in the register three separate times. It would make sense for that to be consolidated in one entry so that people could see the course of that.
The identifier should go through all of the directorships that people have. We know—it has been raised previously in Committee—that some directors have many hundreds, or even thousands, of directorships to their name. It seems sensible to have clarity to ensure that they are the same person. A name such as mine is reasonably unusual—it is quite easy to find—but if a John Smith is on the register, it is much more difficult to establish that they are the right John Smith, the one who is the director of a company. Therefore the identifier becomes all the more important, particularly if that person changes their name. If Jane Smith becomes Jane Jones through marriage, it becomes more difficult to chase her through the register. It would therefore make sense, particularly for women, who are most likely to change their name, but also for other people who may change their names for a variety of reasons—perfectly honest ones, or, in some cases, to divert attention from their previous directorships, perhaps, or any previous misbehaviour—that that person’s ID should follow them around. Anybody doing due diligence on that person as a director could then find them on the register quite easily.
That goes to the point made by my hon. Friend the Member for Paisley and Renfrewshire North about phoenixing. If a company director has been involved in many phoenix companies, it would make sense for people to know that, and to know that they might well carry out that behaviour in future. It would enhance the clarity of the register against such fraud and poor behaviour. The example that the hon. Member for Feltham and Heston gave, of the Charity Commission register, was a good and relevant one, because it is about somebody’s appropriateness and that wider sense of understanding somebody’s behaviour through the register.
It is very important to make the change from “power” to “duty”. A person can have the power to do lots of things, but if they have no obligation to do them, that is quite a different scenario. Lots of the issues that the Companies House register has got itself into are down to those duties not having existed. It is important that those duties exist, and that we set them down in the Bill. I am not hugely confident that what we are talking about will happen if the duties and responsibilities are not set down in law. Future Ministers may decide not to bother with them. I am sure that the Minister would; future Ministers might not.
It is incredibly important that we do everything we can to make the Bill as tight as possible, and that we take all precautions against the abuse of the register. We must get rid of those abuses. We must make a better register, and better legislation, to ensure the integrity of the register in the future.
Kevin Hollinrake
I think that we are trying to achieve the same thing, just in different ways. We discussed this issue at length in previous sittings. Companies House is already actively working on unique identifiers. It is not credible to think that, having legislated for them, we will not implement them. A basic principle of the Bill is to be able properly to link individuals on the Companies House register, so that company directors have a better experience and so that it is easier for the public to identify the connection between directors, including persons of significant control, and companies.
Dame Margaret Hodge
I accept that great progress has been made in the Bill, but addresses and personal details are also important. We know the way in which addresses are exploited: people put 3,000 companies into one address. That is relevant information that Companies House needs to have.
Kevin Hollinrake
Addresses are not covered by the amendment, although we discussed the verification of addresses at length the other day. We think we have struck a fair balance in terms of a company address. The shadow Minister seems to be saying that she wants the unique identifier to be searchable; we think that the person’s name should be public and searchable. I did not quite understand her point about people hiding their email addresses or names, and searching by unique identifier, rather than the other way around. We think that the searchable entity should be the person’s name, and the Bill would then make it easier to see the connections between a director’s name and the different companies with which that person is connected.
Seema Malhotra
The example was given of the number of John Smiths there might be. There might even be a number of Seema Malhotras, but I do not know that there are as many.
Seema Malhotra
I think I found three. For the most part, the Minister’s arguments are very strong, but he is on very weak ground here. Is he seriously saying that if someone genuinely wants to see Mr John Smith’s directorships, they will have to spend three hours going through all the John Smiths? Would that be enough time to de-duplicate and link the right ones together? That is crazy. There is a much simpler solution. It would do the job, and bring us in line with other countries.
Kevin Hollinrake
I am not aware of the countries to which the hon. Lady refers. How would someone know the unique identifier so as to be able to search by that record? What someone will recognise is the name of the person, whether it is Usmanov or another name. That is likely to be the search term that people use, so we think that, for the public view, the most important link is the name. That would also have some implications in terms of potential fraud.
The unique identifier is there to do exactly what the hon. Lady and the hon. Member for Glasgow Central want it to do: it creates a connection behind the scenes, in Companies House, so that a simple search can reveal the connection between a person and all the different companies. That is how it works: we search by the names. We think that is the best way around. She wants to search by the unique identifier.
Seema Malhotra
May I kindly suggest that the Minister ask his officials more about how the unique IDs that are used in Australia, New Zealand and India are working, and whether there is something we might learn from them? If he has not been briefed on that already, it might be a useful step for him to take.
On the Minister’s second point, he is absolutely right that we usually start with a name. We might start with “Mr Kevin Hollinrake, Thirsk and Malton”, but we would then find his unique identifier and be able to use it to link him with the hundreds of other entries for Kevin Hollinrakes—perhaps some of them even live in Feltham and Heston—and see whether they are the same person.
If the Minister is unclear about what I referred to as a proxy identifier, I am happy to take that offline. It is a simple measure used for security reasons, and it is basically like having a “known as” name. Everyone might know the Minister by a nickname, but people will always be able to identify him, because the unique identifier is linked solely to the underlying email address or ID. It is not publicly the same, but it is uniquely linked, so that someone who uses one will access the data of the other.
Kevin Hollinrake
I am happy to look at the international examples that the hon. Lady mentions, and at the generic name issue. I think that is a fair point, and I have already asked officials to look at how that might work in the case of John Smith and the like. I have just done a quick search on one of my previous co-directors, Harry Hill, who has quite a generic name. If we put in “Harry Hill, Hunters, Companies House” it brings up the Harry Hill that is associated with me, not another Harry Hill. There are simple ways to make connections involving names such as John Smith. I will come back to the hon. Lady with an answer on that if I can.
We do not think that changing the power to a duty would have the desired effect of obliging people to have unique identifiers in the first place. That will be achieved by mandatory provisions including the regulations under the power contained in section 1082 of the Companies Act.
Seema Malhotra
I would appreciate it if the Minister came back to me on that point, because I am not clear that section 1082 of the Companies Act, as amended by the Bill, will achieve what he thinks it will. I want a clear answer about whether all directors will have a unique identifier under the new regime. That is question No. 1, and everything else follows from that.
Kevin Hollinrake
Yes, they will. That is exactly what the Bill provides. It is a mandatory provision, including the regulations under the power contained in section 1082 of the Companies Act. Those two things combined will ensure that Companies House provides a unique identifier for every company director and for every person of significant control. I think that is what the hon. Lady hopes to achieve.
Let me turn to amendment 103. Unique identifiers will be a tool to help Companies House to link an individual’s verified identity across multiple roles and company associations. For example, if an individual is a director for company A and also a person with significant control for company B, Companies House will be able better to link those appointments using the unique identifier. The identifiers should not be made public, in our view. Their purpose is to allow the person who is assigned the identifier to communicate securely and privately with Companies House. Making the unique identifiers public would, in our view, compromise their use, because they could be appropriated and misused by anyone looking at the register, including potentially to commit identify fraud and other crimes. However, Companies House will be making changes to how members of the public view the register, enabled by unique identifiers, so it will be possible accurately to see connections between individuals and entities, including how many companies an individual is a director of, or how many companies a person has significant control over. On that basis, I hope hon. Members will withdraw their amendment.
Seema Malhotra
I thank the Minister for his remarks. The matter is so important that we will want to push the amendment to a vote. It may be that what the Minister has just said on Companies House’s intentions resolves some of the issues in the end. What has been stated will happen, but we need to go further to be clear about when and how that will happen.
Question put, That the amendment be made.
Kevin Hollinrake
I beg to move amendment 10, in clause 67, page 56, line 3, after “subsection (1)” insert “—
(a) in the words before paragraph (a), after ‘not’ insert ‘, so far as it forms part of the register,’;
(b) ”.
This amendment spells out that section 1087 of the Companies Act 2006 is only concerned with information on the register of companies.
Kevin Hollinrake
Clause 67 amends section 1087 of the Companies Act 2006 to extend the list of registered material unavailable for public inspection to include
“any statement delivered to the registrar”
to confirm compliance with identity verification requirements, which means that statements delivered to the registrar concerning identity verification will stay private, protecting personal and sensitive information. Government amendment 10 clarifies that section 1087 is only about withholding from public inspection the portion of the registrar’s records concerning companies. Other provisions elsewhere in legislation provide for the withholding from public inspection of the portion of the registrar’s record pertaining to other entities, such as limited liability partnerships and limited partnerships.
Seema Malhotra
We have very few remarks to make. As the Minister has outlined, clause 67 amends the Companies Act to extend the list of material unavailable for public inspection to include
“any statement delivered to the registrar”
under the provisions listed. I make the general comment that we want to have greater clarity on this matter so that we do not inadvertently find ourselves, through the legislation, in a situation whereby director, shareholder or officer information becomes hidden for all the reasons outlined in the Bill. The clue is in the name—it is about corporate transparency. I am making a broad point about concerns of reducing transparency when we are here to increase it.
Amendment 10 agreed to.
Clause 67, as amended, ordered to stand part of the Bill.
Clause 68
Requirements for administrative restoration
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
New clause 45—Striking off a company: identity verification—
“(1) The Companies Act 2006 is amended as follows.
(2) After section 1003 (striking off on application by company) insert—
‘1003A Striking off on application by company: identity verification
Before striking off a company under section 1003, the registrar must first, in the case of each individual named as a director of the company—
(a) confirm that the individual’s identity is verified (see section 1110A), or
(b) confirm that the individual falls within any exemption specified in regulations made under section 12(2A)(b).’”
This new clause would extend directors’ Identity Verification requirements to dissolving a company in addition to registering a company.
New clause 46—Application for administrative restoration to the register—
“In section 1024 of the Companies Act 2006 (application for administrative restoration to the register), for subsection (3) substitute—
‘(3) An application under this section may only be made by a former director, former member, former creditor or former liquidator of the company.’”
This new clause would make it possible for a creditor or liquidator to apply to restore a company administratively.
Kevin Hollinrake
Clause 68 amends section 1025 of the Companies Act 2006 to require that outstanding fines or financial penalties must have been paid for a company that has been previously struck off to be restored to the register. I thank the hon. Members for Feltham and Heston and for Aberavon for new clauses 45 and 46.
First, new clause 45 seeks to ensure that before striking off a company, the registrar must check whether the named directors have had their identities verified or do not need to do so because are they are exempt. Secondly, there are two routes by which a dissolved company can be restored to the register: one is an administrative process involving application to the registrar; the other involves applying to the court to order restoration. New clause 46 would expand the categories of persons who can use the administrative route by allowing former creditors and former liquidators to apply to the registrar for a dissolved company to be restored to the register. At present, only former directors or members of the company can apply to the registrar. Creditors of the company at the time of its striking off or dissolution and former liquidators currently have access to the court application route under section 1029 of the Companies Act 2006.
While I appreciate that in comparison to the administrative route, the court route is more cumbersome and potentially costly, it exists for a reason. Where a creditor seeks restoration in an effort to prove a debt outstanding from a company, the court is best placed to determine the validity of the case. Opening the administrative restoration route to creditors would place the registrar in the position of having to judge the legitimacy of a creditor’s interest in a company. That is not and should not be the role of a registrar.
However, liquidators are a matter of public record and in many cases might be the official receiver. I appreciate that there may be instances where their interests in restoring a company might be in the wider interest of others, including potential creditors, and that there may be a case for giving them access to the less cumbersome administrative process. On the basis of our undertaking to consider the matter further, I shall be grateful if hon. Members do not press the new clause.
Although driven by good intentions, we believe that new clause 45 is unnecessary. As the Committee has heard, ID verification requirements will apply to all new and existing registered company directors, as well as to people with significant control and those delivering documents to the registrar. That means that directors and beneficial owners already on the register prior to the reforms coming into force will be covered by the ID verification requirements, although they will have a transition period within which to become compliant.
Directors of companies applying for strike-off under section 1003 of the Companies Act 2006 will therefore not evade verifying their identity before their company is struck off without exposing themselves to criminal liability. Crucially, anyone delivering an application to strike off a company to the registrar will also have to verify their identity. I hope that that explanation is appropriate, and provides such reassurance that hon. Members will consider not pressing the new clauses.
Stephen Kinnock (Aberavon) (Lab)
It is a pleasure to serve under your chairship, Ms Bardell.
Clause 68 makes welcome changes to the Companies Act and should make it easier to enforce penalties imposed in response to criminal breaches under it. The circumstances under which an application can be made for a company struck off the register to be restored to it are set out in section 1025 of the Companies Act. Clause 68 amends section 1025 to make it clear that, as a prerequisite for any such application, any outstanding fines imposed on the applicant and relevant company directors in relation to a criminal offence under the Companies Act must be paid in full. That is a positive step toward increasing levels of compliance with companies legislation in the UK.
The Minister may wish to clarify one point in relation to company directors convicted of criminal offences. In previous sittings, the Committee discussed the grounds on which someone can be disqualified from serving as a company director under the Company Directors Disqualification Act 1986 and subsequent amendments. They include the disqualification of individuals guilty of persistent breaches of companies legislation. That appears to leave the door open for someone to serve as a director, even if they have committed a criminal breach of the legislation, provided they have not done so on multiple separate occasions.
Will the Minister tell us whether the Government considered extending the criteria so that anyone with even a single criminal conviction related to companies legislation would be prohibited from serving as a director again? Does he believe that it might send a stronger message were the Government to adopt a zero-tolerance approach to these kinds of crimes? I hope that he will come back on that point. It has some relation to new clauses 45 and 46, and I look forward to the remarks of my hon. Friend the Member for Feltham and Heston on them.
Clause 69 establishes—
The Chair
Order. We are not there yet. The hon. Member is getting a little ahead of himself.
Stephen Kinnock
I am getting a bit excited. Sorry, Ms Bardell. I will leave it at that.
Seema Malhotra
I am grateful for the opportunity to speak to new clauses 45 and 46, following the remarks of my hon. Friend the Member for Aberavon. He and the Minister highlighted how clause 68 amends the Companies Act and provides that outstanding penalties will need to be paid by applicants or directors for a full strike-off. If I am correct, section 1025, which the clause amends, is about applications for administrative restoration by a former director or member—a shareholder—whereas a creditor would use a separate process under section 1029 to restore a company to the register. That is not being amended by the Bill and does not require payment of outstanding fines.
Kevin Hollinrake
As I said in my remarks, anyone delivering an application to strike off a company to the registrar would have to verify their identity. I do not see how that is not clear.
Seema Malhotra
I thank the Minister for that intervention. If he means that the aims of the new clause are already included in the proposed operation of the system, that is helpful clarification.
Currently, when companies are struck off the Companies House register, very little is done to check whether fraud has occurred and, in turn, that means that there are few repercussions for the directors of those companies. On average, 400,000 companies are struck off the register each year, so perhaps the Minister could go one step further and clarify whether such ID verification will apply to all directors of companies that are struck off. How will that happen if there are no unique identifiers? If wrongful actions are committed, will the proposed regime go one step further to ensure that red flags and investigations into possible misconduct or fraudulent activity will ensue? At the moment, unscrupulous directors are likely to misappropriate the strike-off process to avoid scrutiny and to rack up debts or to sell company assets ahead of the company dissolution, effectively absconding with the proceeds. Our new clause does not just call for a check on IDs but for red flags in the system to alert authorities to possible fraudulent activity that should be subject to further investigation. The Minister may want to respond to that suggestion later.
As I have outlined, creditors may seek to apply through the courts for a company to be restored, albeit under different legislation. New clause 46 would enable a creditor or a liquidator to apply to restore a company administratively. I believe it would be helpful to the Minister’s considerations to outline our intentions. The introduction of director identity verification may go some way to deterring directors from registering multiple companies fraudulently, but in the case of companies already struck off the register, there is limited opportunity to hold directors accountable for their wrongful actions and for returns to their companies’ creditors.
Members of the insolvency and restructuring trade body, R3, report that director disqualifications have little or no effect on fraudulent directors. It is absolutely shocking that the system has been allowed to continue in that way. There is little or no effect on fraudulent directors, and seriously rogue directors will often go on to commit repeat frauds despite being disqualified.
Those directors who have been disqualified may continue to operate behind the scenes as de facto directors, shadow directors or advisers to a company. We are trying to close some of those options, but there are all sorts of ways in which those who want to get around the system can do so if determined. Hence the need for the legislation to be more belt and braces.
A much more significant deterrent occurs when the company is put through an insolvency process and directors are held to account for the assets that have been misappropriated. If a company has been dissolved and automatically struck off the Companies House register—the company therefore no longer exists, in effect—that process can only take place if the company is first restored. However, if a company’s former creditors or liquidators at the time of the company’s striking off or dissolution wish to apply to restore the company, they must do so through the court.
The court process can clearly deter creditors as it is sometimes a complex procedure, in part due to the costs, which are typically £1,500 to £3,000, and in part due to the huge amount of time involved, which can be 12 to 18 months. Businesses are busy, creditors are busy, and the extra strain has to be weighed up against the cost of doing it. We have to have a solution. I am glad that the Minister has intimated that there ought to be a basis for what I think he described as a “less cumbersome” process. I agree. I hope that we will see some proposals, perhaps in Committee. It would be helpful to strike while the iron is hot.
Directors are all too easily able to create a significant barrier to the investigation of their conduct. Indeed, data from Companies House shows that only 2% of dissolved companies are put through a process to restore them to the register each year. I do not have the data on the number of creditors who might do so were it a less cumbersome process, but I think we can all agree that it would be far more than 2%. Certainly the research suggests that.
Under section 1024 of the Companies Act, former directors or members of a company can apply to restore a company administratively, avoiding a court process. However, that is not an option for a former liquidator or creditor of a company. New clause 46 would amend section 1024 so that a former creditor or liquidator could apply to restore a company administratively, without the need for a potentially lengthy and costly application to court. That would make it simpler for a company to be put through an insolvency process so that the company’s directors can be held to account for the assets that have been misappropriated and incur liability for their actions. Returns to creditors could then be made.
I hope that the Minister will, in his reflections, consider the wording of new clause 46. It might help him on the way to finding a simple solution. There is a real issue here. In the interests of fairness to businesses and creditors that do the right thing but are treated unfairly, it should not be so hard to bring to account those who had clearly planned to be struck off, more quickly, cheaply and easily.
Kevin Hollinrake
On the hon. Lady’s legitimacy argument, as I said, we can understand that there might be a case about liquidators. We have committed to look at that. It is much more difficult in the case of creditors’ interests. She talked about the misappropriation of funds, but it is not the registrar’s position—the registrar is not deemed capable—to determine whether that is the case. I do not see how a creditor’s interests can be decided on by the registrar. However, I commit to us looking at the liquidator element.
On the issues the hon. Lady has mentioned with respect to Companies House and new clause 45, the requirements under the objective at the start of the Bill make it clear that the registrar’s responsibility is to minimise unlawful activities. On whether a striking-off in certain circumstances is a red flag, there will be a number of ways in which that can be determined, either through automated processes or by human intervention. It is not realistic for the registrar to determine fraud, but it is definitely within her capability to determine whether there is a red flag around fraud. We expect the registrar to put those measures in place; in fact, there is a requirement for her to do that under objective 4— minimise unlawful activities.
We have had debates at length in previous sittings on whether we should dictate to the registrar how she should do that, with myriad conditions and circumstances involved and discussion as to what constitutes a red flag. On this side of the Committee, we believe that we should leave it to Companies House to determine how the registrar minimises unlawful activities and what constitutes a red flag. That, of course, will be shared with relevant enforcement agencies.
Seema Malhotra
I know the Minister is not intending to, and I would not want him to, misrepresent our position, but the difference between our views is generally whether there should be greater tools and provision in legislation to give the registrar teeth that might be helpful in her work. The Minister is right that it would not be for the registrar to determine fraud, but that there should be a red flag system whereby the registrar is uniquely in a position to be able to determine that.
Kevin Hollinrake
We are in total agreement—violent agreement—which is great.
The hon. Lady made a point about shadow directors. There are all kinds of ways in which a nefarious individual can influence the behaviour of a company, for which we cannot possibly legislate. There is no such thing as, and no legal status of, a shadow director. Therefore, how would we ban somebody from being one? We have to operate within the boundaries of the law. That is what we feel, and we have reached a fair balance here. I hope the hon. Lady will not press her new clauses to a vote later in the proceedings.
Question put and agreed to.
Clause 68 accordingly ordered to stand part of the Bill.
Clause 69
Delivery of documents: identity verification etc
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
The clause introduces identity verification requirements for individuals delivering documents to the registrar. It also requires that when an individual acts on behalf of another, they must confirm that they have the authority to do so. That will enable the registrar to reject documents unless they are accompanied by a true statement that the identity of the individual filing the document is verified and that the person filing the document is authorised to file.
An individual who delivers a document to the registrar on their own behalf must have their identity verified, and the document must be accompanied by a statement confirming their verified status. If an individual is exempt from identity verification requirements under the clause, they must provide a statement to that effect when delivering a document. Documents delivered on behalf of another person must be accompanied by a statement that the filer is authorised to do so. A document delivered by an employee of an authorised corporate service provider must additionally confirm that they are acting in the course of their employment.
Ensuring that individuals are identity verified before they can deliver documents to the registrar and that they are permitted to do so provides greater accountability because the documents will be traceable back to a verified identity.
Clause 70 creates a prohibition on delivery of documents to the registrar by disqualified persons. Clause 71 enables the registrar to reject documents that have been delivered by people who are not within the categories permitted to file documents under clauses 69 and 70.
Stephen Kinnock
Clause 69 establishes a requirement for anyone delivering documents to the registrar to have their identity verified, subject to certain exemptions, which may be set out in secondary legislation. However, it is not clear in what circumstances the Government might consider an exemption appropriate. The requirement for any exemption to be set out in secondary legislation subject to the affirmative procedure is welcome, because it enables the relevant changes to be scrutinised by Parliament. Nevertheless, it would be helpful if the Minister could provide an indication of what sort of exemptions might be expected.
Clauses 70 and 71 relate to the delivery of documents to the registrar. Clause 70 stipulates that disqualified individuals may not deliver documents on either their own or someone else’s behalf. As set out in the clauses, individuals delivering documents to the registrar will be required to make a series of statements confirming that they are not subject to any disqualification under companies legislation.
Kevin Hollinrake
The hon. Gentleman asked me for examples of exemptions. We expect exemptions to be used rarely, but examples might include Government Departments, local authorities and international organisations where the identity and accountability of the organisation delivering the information carries little risk.
Stephen Kinnock
I thank the Minister for that clarification. Assessing the meaning of “carrying little risk” is a subjective thought process, but he is right that not everything can be micromanaged in this process. We will probably never get absolute clarity on these issues, but it will be important that Parliament scrutinises the way in which exemptions are implemented so that we get to know what “little risk” means through their implementation. It will also be important for Ministers to keep a close eye on the risk management processes that need to be implemented. As the Minister rightly said, legislation without good implementation is not worth the paper it is written on.
In previous debates, this Committee has discussed issues involving the verification of information provided to Companies House and the enforcement of criminal penalties for those who fail to comply with requirements to provide truthful information. These clauses raise similar questions. For instance, could the Minister explain what actions the registrar will be able to take to verify that, if somebody delivering documents states that they are not acting on behalf of a disqualified individual, that is a true and accurate statement?
The clauses also relate to issues discussed by the Committee on authorised corporate service providers. We all want this Bill to make it much more difficult for the people who own or control companies to hide their identities behind layers of secrecy, which often take the form of corporate service providers or other individuals acting on behalf of those in control. It would be helpful if the Minister could provide more detail about how the Government plan to protect the system against abuse, particularly by third parties acting on behalf of criminal clients. Could he tell us, for instance, whether the Government have considered introducing a more proactive licensing system for corporate service providers—as is used by some other jurisdictions, including Jersey—and what assessment the Government have made of whether the Bill provides adequate safeguards against the submission of false statements to the registrar?
Kevin Hollinrake
I think the hon. Gentleman asked me to address two points. First, he asked how we will ensure that the documents filed are accurate. That goes back to the risk-based approach that the registrar should take on potential red flags and other such matters. Obviously, that role fits into the registrar’s wider objectives of ensuring that the information is accurate and minimising unlawful activity. It is a red-flag approach in terms of systemised and human intervention.
The hon. Gentleman’s second, wider point was on the penalties for false filing, which are up to two years in jail. I think most people will consider that to be a decent deterrent against abuse of the system.
Stephen Kinnock
I thank the Minister for that clarification. Does he have a view on the question of a more proactive licensing system for corporate service providers, along the lines of what is done in Jersey? Have the Government made any assessment of whether the Bill provides adequate safeguards against the submission of false statements to the registrar, particularly by corporate service providers?
Kevin Hollinrake
I fully recognise the concerns expressed across the Committee about our oversight of corporate service providers. As I say, we should not mix up the many bone fide companies and household name accountants and lawyers, but clearly there are concerns, for example about some company formation agents. We need to ensure that the system that supervises money laundering is much more effective—we know there are deficiencies. The Treasury is looking at that right now. It will report and say exactly what it will do to beef up the system and make sure it is more fit for purpose. I am taking a keen interest in that. I am just as keen as the hon. Gentleman and other Members that the system properly identifies people with shortcomings and identifies wrongdoing, and that we build a much better system of money laundering supervision.
The hon. Gentleman mentioned licensing. Let us see what the Treasury review says and then we can make judgment. In terms of oversight of the money laundering supervision system, I am as concerned as he is and as keen to make sure that that system is fit for purpose.
Stephen Kinnock
I thank the Minister for that clarification. Will he assure us that he will encourage his colleagues at the Treasury to consider the option of a licensing system within the terms of reference of the review?
Kevin Hollinrake
I am keen to make sure that the system works, whether by licensing or by some other means. There are lots of different options for what might be described as a system that is fit for purpose. Of course, in common with all Members of this House, we are keen to avoid unnecessary bureaucracy, but nevertheless we want a system that works and that we have faith in, so, in my view, all options should be on the table.
Alison Thewliss
I have a small query and seek clarification from the Minister. In clause 69(3), proposed new section 1067A(2) states:
“An individual may not deliver documents to the registrar on behalf of another person unless—
(a) the individual’s identity is verified”.
Will the identity of those entitled to deliver documents be added to the register, and will they have to be separately verified? I am not clear on the mechanism.
Kevin Hollinrake
Will the hon. Lady ask the question again? I did not quite get it.
Alison Thewliss
Yes, of course. I understand that if someone is delivering documents on behalf of themselves, there will be a check to see whether they are verified, but if someone is delivering documents on behalf of somebody else, the Bill seems to say that they also need to be verified. Is that subject to a separate verification list? That person would not be registering to be a company director in their own right; they would be delivering the documents to register somebody else, so is there now going to be a separate list for that?
Kevin Hollinrake
I think I have understood the hon. Lady’s question. Clearly, all directors and company service providers need to have their identity verified too. If that is what the hon. Lady is referring to, that is absolutely contained in the provisions of the Bill.
Dame Margaret Hodge
I was very interested in what the Minister said about ensuring that the authorised company service providers should be checked and supervised properly. It is really important to ensure that all the details of the individuals on the register can be found with certainty. However, we are all struggling with how to do that in quickest, most cost-efficient and effective way. Does the Minister agree that a suitable mechanism should be presented on Report—unless he would like to suggest one now—that does not waste time, keeps within the timeframe, does not require massive additional resources and enables swift action to be taken? I love the Treasury, but we should do this without having to wait for a Treasury review or reorganisation. Does he accept that that might be a way forward? We all want the same thing, and if we do not get this right there could be a huge flaw in the system we are establishing.
Kevin Hollinrake
We are on the same page about ensuring that the system is fit for purpose. It is difficult for me to do a review when the Treasury itself is doing one and is probably better placed than I am to do it, given its wider understanding of the system.
Kevin Hollinrake
Perhaps it might not be as ambitious as me, but it certainly has access to detailed information and the resources to properly conduct the review. The Treasury should be allowed to do that job.
I think that we are all on the same page. I am absolutely committed to ensuring that the system is fit for purpose. It is not a case of just getting the Bill passed; we need to ensure its implementation, as I have said many times in the House and in Committee.
Liam Byrne
I am sorry to intervene, but the Minister provokes me. A point to take away is that we are now bedevilled by a real problem in this country: responsibility for policing this area is divided between the Minister, the Treasury, the Foreign, Commonwealth and Development Office and the Bank of England. At the moment, as the Foreign Affairs Committee has said repeatedly, there is not an effective gearbox for joining those things together. If one of the Minister’s legacies could be to fix that problem, he would be cheered from all sides.
Kevin Hollinrake
God forbid that the Government work in silos, whoever is in power, but they do tend to do so at times. I am on the same page as the right hon. Gentleman and other Committee members that we must have a joined-up approach right across Government. The systems of supervision of money laundering must be fit for purpose, tight, verified and checked, and the people who do not do it right must be held to account. We must ensure that we get that right, and I am fully committed to that.
Question put and agreed to.
Clause 69 accordingly ordered to stand part of the Bill.
Clauses 70 and 71 ordered to stand part of the Bill.
Clause 72
Delivery of documents by electronic means
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
I hope that the clauses are pretty uncontroversial, but let us see. Companies House systems are already enabled to receive digital account submissions. The clauses will help Companies House to become a fully digital organisation by 2025.
Clause 72 transfers the power to require delivery by electronic means from the Secretary of State to the registrar. Filing information digitally is easier, quicker and more secure for filers. The information can be more easily checked for accuracy and compliance, and is less likely to be rejected for basic errors or omissions. That increases transparency. Suspicious activity can be better identified, contributing to our efforts to detect and prevent economic crime.
Clause 73 will require companies to deliver to the registrar a copy of a court order confirming their share capital reduction, rather than the original document itself. Clause 74 does the same in respect of a declaration of solvency. Clause 75 gives the registrar an administrative power to specify, in registrar’s rules, where documents must be delivered together.
Requiring companies to file component parts together will make it easier for Companies House to check that companies are meeting their filing obligations. It will also reduce unnecessary errors. Where filings are made that do not meet the requirements, they can be rejected, helping to improve the integrity of information on the register.
Stephen Kinnock
The main purpose of clause 72 is to make it easier for future changes to registrar’s rules to be made by the registrar directly, rather than through the Secretary of State. The Government’s intention is to facilitate the electronic delivery of documents. Using quicker, more efficient electronic systems for delivery should play an important role in wider plans for the transformation of Companies House and the service it provides.
With that in mind, could the Minister say a bit more about how the provisions fit into the ongoing Companies House transformation programme, particularly in relation to the planned new IT system? When might the fully electronic system for the submission and processing of documents submitted to the registrar be in place? We would be grateful for the Minister’s comments, particularly about timing.
Kevin Hollinrake
Companies House already has the capability to accept documents filed digitally—89% of companies already do that. Therefore, it is not an IT development requirement; it is just a requirement for companies to file documents digitally rather than using paper. It puts the onus on the companies rather than on Companies House itself.
In relation to authenticity, we are again back to the red-flag approach. Companies House has a requirement, an objective, to oversee the integrity of the register. There is definitely a risk-based approach to that. The aim is to try to put the red flags in place to ensure that we are identifying documents that are not authentic. Also, there are penalties for false filing of documents, which I think we went through previously.
Alison Thewliss
I have a brief point on a technical issue. It was flagged in evidence that some documents submitted electronically or posted on the Companies House website in electronic format were image files rather than searchable documents. I wonder what consideration the Minister has given to mandating the type of files that can be filed electronically, because it would make sense to accept them in a format that can then be searched online.
Kevin Hollinrake
The hon. Lady makes a good point. I do not know the detail behind that, but I am happy to go away and look at that for her.
Question put and agreed to.
Clause 72 accordingly ordered to stand part of the Bill.
Clauses 73 to 75 ordered to stand part of the Bill.
Clause 76
Power to reject documents for inconsistencies
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Clauses 76 to 79 support the Bill’s overarching ambition to broaden the powers of the registrar to maintain the integrity of the register. Clause 76 provides a new power to reject documents for discrepancies. Currently, the registrar must accept documents if they have been properly delivered—that is, they meet the requirements as to their contents, form, authentication and manner of delivery, and the other requirements listed in section 1072 of the Companies Act 2006.
Documents containing information that is at odds with information that the registrar holds may none the less meet “proper delivery” requirements in their own right. If so, they must be placed on the register despite the apparent inconsistency. This clause cures that problem by enabling the registrar to reject a document if it appears to be inconsistent with other information that is held by or available to the registrar. The power is available if, due to the inconsistency, the registrar has reasonable grounds to doubt whether the document complies with the requirements as to its contents.
Dame Margaret Hodge
This is a question to aid understanding. This provision sets out the duties of the registrar in relation to documents, but the documents will actually be checked by the company service providers, will they not? That will be outsourced to those providers. I might be wrong—the Minister is looking puzzled—but that is the case if I read the situation correctly. Therefore, is this provision suggesting that there will be a check at Companies House on the work that the company service providers do? Perhaps the Minister can say a little about how that will be implemented. I thought that all that was to be pushed out to the company service providers.
Kevin Hollinrake
Not at all—quite the opposite. Companies House has a requirement to oversee the integrity of the register, and the clause states exactly that. If the registrar feels there is an error that she is not happy with in the document, or it is inconsistent, she can reject the document whether it is filed by a company service provider or by a director of the company.
Dame Margaret Hodge
For complete clarity, there will be a risk-based system of checks on documents provided as a mechanism for ensuring the accuracy of the documents that are submitted.
Kevin Hollinrake
Absolutely. That is exactly how we expect it to operate.
Once the registrar refuses the document, it will be treated as not having been delivered. Under clause 77, the Companies Act 2006 allows the registrar, upon receipt of an instruction from someone else and only with the relevant company’s or other body’s consent, to correct a document at the pre-registration stage if it appears to be incomplete or internally inconsistent. That power was useful when more companies filed on paper, as informally correcting material was easier than rejecting a document and waiting for it to be refiled. However, in the digital world, filings can now be rejected, returned to the filer and then refiled within minutes. There is no longer a need to informally correct a document pre-registration. Clause 77 therefore removes that power, which also encourages accuracy in filing by removing the expectation that a document can be informally corrected.
Clause 78 reduces the period of time for which the registrar must keep originals of documents that have been delivered in hard copy from three years to two years. Once that period has passed, the original documents can be destroyed as long as the information they contain has been recorded. The retention period that was previously reviewed was reduced from 10 years to three years when the Companies Act 2006 replaced the 1989 Act. The number of requests for the retrieval of filings has decreased further and steadily since then due to declining paper filings, improved image capture processes and increased confidence in digital records. It is therefore right to reduce the retention period again. The information in the documents will still of course be available electronically to users as appropriate.
Clause 79 amends the period for which the registrars in each UK jurisdiction must maintain certain records available for public inspection. The records in view are those concerning dissolved companies, including certain information regarding PSCs of dissolved companies, overseas companies that have ceased to have any UK connection, and overseas credit and financial institutions that have ceased to be required to file accounts with the registrar. The clause provides that those records can be moved to the Public Record Office two years after the relevant date of dissolution or cessation.
Dame Margaret Hodge
May I ask a question on that? It is relevant to later amendments. I do not know whether the Minister or his officials can help, but can Companies House stop a request for dissolution?
Dame Margaret Hodge
I think it can. I have tried to find its powers and cannot find them. The great example is the Savaro one. It was the UK-based company that owned the warehouse where the fire took place in Lebanon. It tried to dissolve the company, but I think the Minister intervened. I have looked up Savaro and it does still exist. It is quite important if we have a dirty company that wants to rush away. Do we have powers to dissolve it?
Kevin Hollinrake
I am happy to raise that with officials and come back to the right hon. Lady. [Interruption.] There is some flapping about right there, as I speak.
Kevin Hollinrake
Yes, the registrar can decline an application if it does not satisfy the requirements—[Interruption.]
The Chair
Order. If Members could refrain from shouting across the room, out of respect to our colleagues at Hansard and those watching proceedings, that would be greatly appreciated.
Kevin Hollinrake
The clause also provides that the registrar need not make these records available for public inspection 20 years after those dates.
Seema Malhotra
I will speak to clauses 76 to 79. I thank the Minister for his comments. He has outlined that clause 76 would amend the Companies Act 2006 to give the registrar the power to reject documents that are not consistent with information held by the registrar and that give the registrar reasonable grounds to doubt whether the document complies with Companies House requirements.
A document that is refused under this power is treated as not having been delivered. These clauses will apply to all documents filed with the Companies House registrar. Such documents could include the annual confirmation statement—formerly the annual return—the annual accounts, forms appointing or terminating directorships, applications to register a charge or the filing of changes to the articles of association. The broad list can be found on the Government website under the postal forms that a limited company can file with Companies House.
Clause 76 is a welcome measure that should help Companies House transition from passive administrator to active agent as regards the information submitted to it. Will the Minister expand on how the registrar will be alerted when inconsistent documents are submitted? Have there been discussions with the registrar about the process by which inconsistencies will be checked? The Government may be considering a risk-based approach such as automatic flagging, but it would be helpful to clarify how the system is likely to work and be implemented.
I was searching the legislation to see if there was any deadline for rejection by which Companies House will confirm the rejection of a document. I cannot see a timeline specified, but I would be grateful if the Minister could correct me if that is wrong. In the Bill as drafted, a rejected document is treated as never having been delivered. Could the Minister clarify that? It suggests to me—though it is not fully clear—that companies could be submitting information in good faith, maybe just before a deadline, but could be fined for missing a deadline if the document was subsequently rejected. It would be helpful to know whether Companies House will be working to a deadline to confirm or reject a document that has inconsistencies. If there will be, what might that mean for companies that submitted documentation in good faith, and what will happen with the resubmission of any documentation?
I have no particular comments on clause 77, but I have a question about clause 78 and the preservation of original documents. The Minister is right that our confidence in digital technology and digital records has improved significantly. Can the Minister clarify what needs to be kept in hard copy for two years? Does that refer to all the records that we have discussed? I am not clear about how that sits alongside options for electronic storage of original documents that had been certified by the registrar. There are some other mentions of certification in the Bill, so it would be useful to understand that. I do not have any other concerns or questions on that point.
Kevin Hollinrake
How can we consistently tackle inconsistency in the documentation? We are back to the red flags issue. It is up to Companies House to determine the circumstances in which something would have a red flag, in that it was incorrect. It is not impossible for the Committee to do Companies House’s job for it in terms of how it determines what might constitute a red flag, but I have every confidence that Companies House will determine that appropriately. Again, that is assisted by the requirement that when people file information that is clearly, patently and deliberately wrong, there are penalties for false filing.
As for deadlines, I do not think there is any deadline that the registrar has to adhere to for when determining something to be inconsistent or wrong. The document can be rejected and companies can expect that rejection to be speedy in the majority of cases. The registrar has discretion not to reject an inconsistent document if she feels it is not materially inconsistent. Those are points of detail that can probably be left to Companies House.
Seema Malhotra
I thank the Minister for his response. What he said about points of detail is true to some extent, but not fully true as regards what the provisions could mean for companies that have submitted information in good faith before a deadline. If documents are rejected after the deadline, it could result in the company being considered to have not submitted documents. There seems to be a slightly grey area. Would companies be fined for missing deadlines, or would they be given, in the case of a significant document, a short period of, say, seven days to resubmit it with corrections, without facing a penalty? It could be seen as a late submission. We just want a fair process in instances when genuine mistakes are made.
Kevin Hollinrake
So do I, and I would expect the registrar to use her judgment when determining whether something has been inappropriately filed. We would not expect a fine to be issued if it is not the company’s fault that it has missed a deadline, as in the situation that the hon. Lady describes. There is a wider requirement for any registrar to act reasonably in that regard.
Question put and agreed to.
Clause 76 accordingly ordered to stand part of the Bill.
Clause 77 to 79 ordered to stand part of the Bill.
Clause 80
Power to require additional information
Kevin Hollinrake
I beg to move amendment 11, in clause 80, page 63, line 2, at end insert—
“(vi) section 28 or 29 of the Limited Partnerships Act 1907;”.
This amendment spells out that statements made by a person in response to a requirement under section 1092A of the Companies Act 2006 can be used in criminal proceedings for the false statement offences under the Limited Partnerships Act 1907.
Amendment 11 reinforces the legal framework to maximise the prospects of truthful and accurate information being delivered to the registrar. The general rule is that fairness requires that a person who is compelled on pain of criminal sanctions to provide information to the authorities should not be prosecuted if the information they are forced to supply is incriminating. Proposed new section 1092C(1) of the Companies Act 2006, inserted by clause 80, ensures that that fairness requirement is met in relation to uses by the registrar under the new power in proposed new section 1092A to compel a person to provide her with information for the purposes of her being able to determine whether filing obligations have been met.
However, the privilege against self-incrimination is not absolute. As is the case elsewhere in the statute book, the Bill includes exceptions. A person compelled to provide information is not immune from prosecution for offences that prohibit the giving of false, misleading or deceptive statements. Proposed new section 1092C(2) provides for that exception. The amendment adds the two proposed new “false statements” sections that clause 129 of the Bill inserts into the Limited Partnerships Act 1907 to the list in proposed new section 1092C(2). That ensures that when the registrar compels a person to provide information under her new power to determine whether filing obligations concerning limited partnerships have been met, the person cannot claim privilege against self-incrimination if the information they are compelled to deliver reveals that they have submitted a false filing. I trust the Committee will agree that this is a well-considered amendment.
Seema Malhotra
We do not have extensive remarks. As the Minister has outlined, the clause introduces a new power for the registrar to require information to determine whether someone has met the requirements on document delivery. Failure to comply without a reasonable excuse would be a criminal offence.
The Chair
To clarify, we are debating Government amendment 11 to clause 80. Is that the amendment the hon. Lady is focusing on?
Seema Malhotra
Yes. Thank you, Chair. I was just speaking briefly to clause 80. The amendment spells out that statements made by a person in response to that requirement can be used in criminal proceedings on those false statements, and we support that.
Amendment 11 agreed to.
Kevin Hollinrake
I beg to move amendment 12, in clause 80, page 63, line 14, leave out subsection (5).
This amendment is consequential on NC17.
The Chair
With this it will be convenient to discuss the following:
Government new clause 16—Material unavailable for public inspection: verification information.
Government new clause 17—Material unavailable for public inspection.
Government new clause 18—Protection of information.
Government amendments 49, 40 and 39.
Kevin Hollinrake
These amendments relate to the register of overseas entities introduced by virtue of part 1 of the Economic Crime (Transparency and Enforcement) Act 2022. The new clauses mirror equivalent sections in the Companies Act 2006 as amended by part 1 of the Bill, which we have already debated. They will ensure consistency between the two Acts.
The amendments will ensure that the public register contains only information that it is necessary to display, and that certain information including email addresses is not made publicly available, because of the risk that that could facilitate identity theft or other fraud. New clause 16 will ensure that personal information supplied in connection with the verification process for the register of overseas entities can be appropriately protected from public inspection. It is right to ensure that certain personal information, including email addresses, is not made publicly available because of the risk that that could facilitate identity theft or other fraud.
Dame Margaret Hodge
Again, I am really asking for information. It would be interesting to learn whether the Minister knows how many overseas entities have been registered since the enactment of the 2022 Act. It could still end up being unclear who the real beneficial owner was of an overseas entity. If someone went to an overseas entity to find out who owns One Hyde Park, and it said that the owner was a British Virgin Islands company, would the owner of that company be shown?
Kevin Hollinrake
That does not directly relate to this amendment, but I will get back to the right hon. Lady on that point in a separate conversation. Details such as the name and company of the person verifying the information submitted by an overseas entity to the register will continue to be publicly visible; it is not our intention to change that.
New clause 17 replaces sections 22 to 24 of the ECTE Act with proposed new sections 22 and 23. As with new clause 16, new clause 17 adds to the list of information that the registrar must not make available for public inspection, to help prevent the abuse of such information. That includes categories of information that were never intended to be made available for public inspection, but were missed during the expedited passage of the ECTE Act through Parliament, such as the email address of an overseas entity. New clause 17 also includes new categories of information that an overseas entity will be required to provide as a result of other amendments that are being introduced by the Bill, including the title number of land that an overseas entity owns, and documents provided to the registrar under her new power to require further information. New clause 17’s insertion of new section 23 also means that the registrar can disclose protected information about trusts, date of birth and residential address only in two scenarios.
Amendments 12, 39, 40 and 49 are consequential on new clause 17. Under the amendments, the registrar need not retain material that must not be made available for public inspection longer than appears reasonably necessary to her for the purposes for which the material was delivered to her.
I will say to the right hon. Member for Barking that there have been over 3,000 registrations on the register of overseas entities since it was established on 1 August 2022. It is right to ensure that the public register of material concerning overseas entities contains only information that is necessary to display, and that certain information, including email addresses, is not made publicly available for the reasons that I have stated. It is also right to amend the Companies Act 2006 in a way that mirrors amendments made in the Bill, so that there is consistency between the two Acts.
Seema Malhotra
In the time that we have had, it has been difficult to go through exactly what all the new clauses and amendments mean for what is and is not hidden information. We may come back to this issue, so I will not oppose the measures today. New clause 16 confers a power to make regulations about identity verification.
Kevin Hollinrake
Protected information includes protected date of birth information, which means information as to the day of the month—but not the month of the year—on which the registered beneficial owner or managing officer of an overseas entity was born. It also includes protected residential information, which means information as to the usual residential address of an individual who is a registered beneficial owner or managing officer, and protected trust information, which means the required information about a trust.
Seema Malhotra
I thank the Minister for his clarification. He did set out a little of that when he spoke to the new clauses. Given the speed with which we are going through the Bill, it is sometimes a little hard to keep track of what has been added, and whether there are any other consequences from that. I am not saying that there are consequences, but it feels as though a lot of Government amendments have come forward. I am not necessarily objecting to those before us today, but as a matter of principle, we need to go through provisions to check whether the devil is in the detail; after all, as I have said, the Bill has “Corporate Transparency” in its title.
Kevin Hollinrake
We will debate the overseas entities register in more detail in part 3, so there might be a good opportunity for further debate then.
Seema Malhotra
That would be welcome. New clause 18 grants the Secretary of State the power to make regulations as they see fit, in order to protect material on the register. Further scrutiny will be required on what could happen in future, and the circumstances in which that power might be needed.
The perception may have been that we had opposing positions on some aspects of the Secretary of State’s powers, but we now find ourselves coming a little closer together. We are debating the Bill, which largely has cross-party support, in good faith, but there are many little ways in which things could get changed, without those changes being subject to full debate in the House. It is important that we debate that further during proceedings on the Bill. I repeat that I want to ensure that there is no devil in the detail. I appreciate the Minister committing to return to the issue in part 3, when we will have a chance to look at the matter in slightly more detail.
Dame Margaret Hodge
There was a report in The Guardian yesterday on an organisation called Wealth Chain Project. Its analysis showed that 138,000 residential and commercial properties in England and Wales are owned by offshore companies. We have managed to get 3,000 so far, so there is a heck of a lot—
Kevin Hollinrake
There is not a direct correlation between the two, because one overseas entity might own many UK properties.
Dame Margaret Hodge
Ah, that is a valid point, and I think the article deals with it. Some entities will own more than a few properties, but—sorry, I am just looking to see whether the article does make that point. The article demonstrates the enormous importance of Executive action. That is why the Opposition feel strongly that action should take place; there is no point in just putting legislation in place. There is a desire to monitor that action, and toughen up the provision to ensure that the action happens. I hope that the Minister bears that in mind. No matter how many entities own more than one property, 3,000 is still a long way from the 138,000, assuming that figure is accurate.
I am getting muddled by all these amendments. Will the Minister or his officials provide us with a list of what information will be on the register? What will we see? If we had that, we could take a view on whether that information is sufficient for all our purposes.
Liam Byrne
It is a pleasure to see you in the Chair, Ms Bardell. I fully appreciate the Government’s need to table amendments—the grind of Committee exposes all kinds of opportunities to improve and strengthen legislation—but this is a good example of the kind of measure that it would have been helpful to see at the beginning of the process, not halfway through, not least because we are all worried about Companies House and its capacity to hunt and root out badness. All of us have in our time, and in our own way, relied on journalists’ investigative capacity to flag bad activity. It is important to the Opposition and, I am sure, the Government, to hear from journalists and investigators on whether the measures that the Minister is introducing jeopardise or constrain their ability to conduct the investigations that they have carried out so admirably over the last few years.
I hope that the Minister will take up the suggestion of my right hon. Friend the Member for Barking and set out very clearly for us what information will be available. The whole Committee would be interested to hear, perhaps informally, from journalists on whether that information will constrain their ability to investigate; we can then decide whether to come back to this issue on Report.
Kevin Hollinrake
On the points raised by the right hon. Member for Barking, as I have said many times in Committee and in the House, implementation is everything. In my business, we used to say, “Ideas are 10 a penny. Execution is everything.” We have to ensure that we follow through on the measure, and that it is properly executed.
We will debate the overseas register at length when we come to part 3, so I ask the right hon. Lady to hold off on any key questions about that. We will try to get the answers that she wants, and will probably have a conversation about the kind of information that she wants to see. The provisions relating to overseas entities are about trying to identify the people who have control over those entities and companies. That is what the legislation is about: understanding who the directors are—for the first time, we will be able to see that properly—and the persons of significant control. They are not just people who own more than 25% of a company, but people who exert control in other ways.
The right hon. Member for Birmingham, Hodge Hill, is right that journalists play a key part in investigation. Many of them spend much of their time analysing databases of all kinds to try to find information that would be useful for law enforcement agencies. We want to ensure that that information is readily available to them, because they play a huge investigative role. We are very keen to ensure that they get the information that they need.
Amendment 12 agreed to.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Retained EU Law (Revocation and Reform) Bill (Second sitting)
Tuesday 8th November 2022
(2 years ago)
Public Bill CommitteesRead Full debate Retained EU Law (Revocation and Reform) Act 2023 View all Retained EU Law (Revocation and Reform) Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 8 November 2022 - (8 Nov 2022)
The Chair
Colleagues, this is just a reminder: we are sitting in public and the proceedings are being broadcast, so best behaviour is required at all times. We will now hear oral evidence from Barney Reynolds, of Shearman & Sterling; Sir Richard Aikens, of Brick Court Chambers; and Jack Williams, of Monckton Chambers. We are delighted to see that all of them are with us in person, and we have until 2.35 pm for this part of the sitting. Could our witnesses begin by introducing themselves for the record, starting with Sir Richard?
Sir Richard Aikens: Good afternoon. My name is Richard Aikens. I started my professional career as a barrister in commercial chambers. After 25 years, I became a judge of the High Court, where I sat, among other places, in the commercial court. I then went to the Court of Appeal. I gave that up in 2015. I now work as an arbitrator in international arbitrations. I teach law at King’s College London and Queen Mary University of London. I am also involved in writing and editing textbooks, most recently the latest edition of “Dicey, Morris & Collins on the Conflict of Laws”, where of course issues concerning EU law and the subsequent part it might play are important.
Barney Reynolds: Hello. I am Barney Reynolds, partner at the international law firm Shearman & Sterling, where I am head of financial institutions—about half the firm’s business—and the financial regulatory group. I practise in UK and EU regulation and associated areas. I led a team, of about 50 people, that drafted the laws and regulations for Abu Dhabi Global Market, which is a new financial centre in Abu Dhabi. It is now in operation, with about 20,000 people and 4,000 companies, and is based entirely on the English law, UK regulatory model. I have been helping other Governments look at adopting our model—in fact, without the EU bits—as well.
Jack Williams: Good afternoon. I am Jack Williams. I am a barrister at Monckton Chambers. Prior to entering practice, I taught constitutional law at Brasenose College, Oxford University. I have written and spoken a lot about the legal implications of Brexit as a matter of domestic law.
Justin Madders (Ellesmere Port and Neston) (Lab)
Q
Jack Williams: I am happy to begin if that is okay with the other panel members. Clause 7 obviously has a number of different aspects to it. If I may, I will start with the departing from retained EU and domestic case law aspects, before turning to the domestic reference procedure, because I think the implications of both are significant.
The first is essentially a nudge to the courts—a gentle nudge but a nudge none the less—in order to encourage greater departure from retained case law. It achieves that by essentially modifying the test for when certain courts—the Court of Appeal upwards, generally speaking —may depart from retained case law, and it does so by listing three particular factors. As a normal matter of statutory interpretation, when certain factors are listed, they are to be given greater significance and weight. Each of those factors in its own terms is encouraging departure. What you do not see there, for example, which was very clear in the House of Lords practice direction, which this is moving away from, is whether it is right to depart from case law, based on legal certainty grounds and taking into account that change in case law by judges necessarily is different from changes that the politicians and Parliament bring into force prospectively. That has implications for certainty, because one does not know what cases the judges may or may not apply, but also for something that has not been discussed this morning: the separation of powers. This puts an awful lot of policy decisions in the hands of judges.
Justin Madders
Q
Jack Williams: It does dictate what matters are litigated and which arguments parties run, particularly because litigators and our clients will have a number of different options going forward. Does one wait and see how the first-tier judge deploys the retained case law and whether one can convince them to depart from it directly by distinguishing it, so that one is not actually changing the law but departing from the EU principle? Or does one ask now for a reference at first instance stage, which would add in delay and costs, and go off the Court of Appeal, for example, to argue whether that case should remain the law or not? This raises a number of strategic questions that I am sure we will debate in this session.
Sir Richard Aikens: I agree with everything that Jack Williams has said, but, in my experience at least, it is likely that judges will take a very conservative view on the question of deciding whether to depart from retained EU case law, and an even more conservative view about departing from retained domestic case law, which is itself based on what was European case law as applied by judges in the United Kingdom. That is just the nature of the judicial animal: he or she is very conservative and, as Jack Williams said, they will be very reluctant to tread into areas that might be seen as policy or more political. Such departures would obviously have to take account of the statutory considerations that are set out in clause 7(3) and (4), but even when taking them into account, I suspect that judges will be very reluctant to change things—we will see.
On the other aspect, I wonder whether getting a reference to a higher court will be of any practical use at all because of the delay and expense. Unless you have two parties for whom money is no object, money is a very big consideration, especially in civil matters—these are all civil matters—in which, in the vast majority of cases, you do not have anything such as legal aid. The prospect of something going to a higher court and then perhaps coming back again is not something that parties will consider lightly. I really wonder whether it is a practical proposition.
The Chair
Do you want to come in on that question, Mr Reynolds?
Barney Reynolds: The provision is drafted in a very limiting and narrow way. It gives three examples of things that the court should have regard to when considering whether to depart from EU case law, and those three are pretty extreme instances. The first is that you are not banned. The second is a change in circumstances, but it is possible to make a departure under our system anyway if there is a change in circumstances. And the third is if we think that the retention of the EU case law decisions begin to affect adversely the development of our law. Again, that is pretty narrow. I do not think that the Bill as drafted is going to have a dramatic effect. In fact, I would even consider going further in the text by adding to those examples.
It seems to me that—this is true of the Bill as a whole—there is a tension here between lawyers wanting legal certainty, continuity and so on, which is all perfectly justifiable, and the fact that we are going through a constitutional change and need to effect that change. India has taken until only recently to get rid of its version of the Companies Act 1948, but that is a fellow common law country. We are moving from an alien legal system to our own, and our methods are different. The sooner we get on with it, the better.
That transition—this is just in the context of case law, and the same goes with the provisions—inevitably involves some element of change and some element of legal uncertainty. But I think our lawyers will coalesce with the judges around revised interpretations of provisions very quickly. I observe that, in terms of expanding the provision in clause 7(3), for instance, one of the key methods of interpretation that the EU adopts is its own version of the purposive method of interpretation, which of course—
Stella Creasy (Walthamstow) (Lab/Co-op)
It is hard to hear you. I wonder whether it is because you are between two microphones. I am sorry.
Barney Reynolds: One of the EU’s methods of interpretation is its version of the purposive method of interpretation, which we also have—we look at Hansard and so on when things are not entirely clear—but it is very limited in its use here. We basically go on the meanings of the words on the page, whereas in the EU, the purposive method, which they leap to pretty quickly in the courts, involves trying to work out the intentions of the legislators behind provisions. In the EU context, that includes ever closer union and various other purposes that are alien to our country and our system—as it now is, at the very least.
As I say, it seems to me that the sooner we get on with it, the better. Clause 7(3) is pretty anodyne. I would consider expanding it, and I would not get too troubled by the fact that moving from A to B—that is, where we are now to where we want to get to—potentially involves some element of legal uncertainty that would not otherwise arise. If we wanted perfect legal certainty, we would do nothing.
Justin Madders
Q
Sir Richard Aikens: It is difficult to say. I cannot give you express examples, of course, and I am concerned only with the process, rather than any particular provisions that might be tested. Here, after all, we are looking at the issue of what the case law says, and how the case law has interpreted any particular EU regulation, directive and so on. It may be rather more limited, but as soon as you get into litigation, there are costs. We cannot get away from that.
The Minister for Science and Investment Security (Ms Nusrat Ghani)
Q
Barney Reynolds: I think it will be beneficial as soon as we get through the process. Our system delivers greater legal certainty, which business craves, than the code-based method that we are coming out of, which has swept through our law in a number of areas, including my practice area, financial services law, which is almost all from the EU. I see it day to day. When we come out the other side—how quickly we get through is up to us—I think we will get those benefits.
The transition will probably involve some element of uncertainty arising from that, inasmuch as reinterpreting provisions interpreted using these EU techniques under our system, or wondering whether a judge is going to retain some of that element of interpretation or move completely to our own method, is unclear at the very beginning. I think that very quickly, after a few early court cases, we will get certainty on that. In fact—it is very interesting to hear Sir Richard talk—I think that the judges themselves will do their absolute utmost to make sure that legal certainty is there through the transition, and I would trust that process to work well. I have no real concerns even about the transition. Yes, there could be things that go wrong. If we try to craft it so that there is no conceivable possibility of something turning out in an unexpected way, we will deny ourselves the benefits that I have mentioned.
Ms Ghani
Q
Sir Richard Aikens: May I start a bit further back? We are now in a situation where there is no EU law as such that affects this state, the UK. Everything we have here is, by definition, UK law. The question that has to be addressed is how you deal with that UK law, given its origin and the way it was treated and the way it was interpreted by the EU court, in particular. The whole of this Bill is an attempt to produce a process that enables what is now UK law to be dealt with, as I understand it, in a manner that is consistent with all other aspects of UK law.
Having set that as the objective, it is inevitable that you are going to have some problems on the way. The way in which this has been done means that the timescale is very short. To my mind, it is an almost impossible task to have the whole process done by the end of 2023. Frankly—you will say that I am pessimistic, perhaps too much so—I doubt whether it could be done by the end of 2026.
Given all that, it is inevitable that, because the process is almost entirely by secondary legislation, you are going to get challenges because people will think, rightly or wrongly, “That is a political matter, not a legal one”, or that the changes are not in accordance with the law or not in accordance with due process. I think that the way this has been fashioned is actually an invitation to litigation and an invitation to controversy. It may well mean that there are going to be challenges, because people feel that they have lost rights and that they are disadvantaged, and the manner in which it will have been done is through a short form of secondary legislation, which is not what you might imagine is the normal way of dealing with some of the big issues that have to be dealt with, such as workers’ rights, environmental issues and so on. This is a very difficult process.
Jack Williams: In response to that question, may I add that the outcome of the Bill may well be to preserve rights, but it is an absolute “may” and is entirely in the gift of Ministers. The Bill does not preserve rights or give any safeguards for that outcome to be achieved. That may be the outcome, but that is in the gift of Ministers. That is because the Bill sets one on an irreversible train track that leads to a cliff edge, and Parliament has not built in any breaks or stops on the train track to save or preserve those rights.
I have full faith in Ministers. I am sure that they want to do good for their constituents and to maintain rights. I love the fact that they are coming out and saying those words, but they are only words—it is not in the legislation. There is no legal protection for those rights in the Bill.
Barney Reynolds: I am not sure what the alternative would be. The Bill gives the system as a whole, as it were, the opportunity to execute on a shift that cannot be prescribed in advance, given the unprecedented volume and complexity. I have some limited relevant experience—I mentioned creating a system in Abu Dhabi—but one can go quickly. The main work there took 18 months, and I think that with the right size team we could go even quicker.
I note that in the Bill, the deadline is not in truth the end of 2023, because there are various ways under the switching back on powers in clause 13(6), (7) and (8), to allow even sunsetted provisions to be reinstated before mid-2026. In effect, there is a quick rush to do the main job, and an ability to tidy up things before mid-2026, which seems to be sensible.
You can choose different deadlines; you can debate all of these things. My basic point is that I am not sure quite how else one could do it if you actually want to get it done in any realistic timetable. Obviously, behind and above all that, Parliament will itself need to decide how, through a joint Committee, your Committee, or some other Committee, it wishes to oversee the process. That is a completely separate matter from the Bill.
Stella Creasy
Q
Perhaps Abu Dhabi, as part of an authoritarian state, is not the best example for us democrats of how we might wish to proceed. I wonder if you could talk a little bit more about some of the barriers created in the Bill for judges because of the lack of parliamentary scrutiny, and if there are other examples of legislation that you have seen that may offer us a way forward. Perhaps we start with Jack, as you look most interested by the question, then go across the panel.
Jack Williams: It is extraordinarily difficult to think of ways that the Bill tells judges exactly how and how not to do things. Ironically, one of the ways that the Brexit legislation is going is to codify almost into a civil system exactly how judges should interpret certain matters. The roles of the court are only in clause 7 provisions, which say in their own terms that they may have regard to certain things, but do not give a definitive list. Those that are listed are nudging towards departure, as I said earlier.
I do not think there is anything in the Bill that gives judges the power to preserve or save certain rights. What I would say is that it puts them in a very tricky political position because they will be asked to depart from case law and make all sorts of policy decisions. That is slightly ironic when a lot of the political discussions over the past few years have been to save judges from stepping into the political arena.
I very much agree with Sir Richard that the outcome of the Bill is to generate litigation, because the vast majority of the laws that come out of it will be secondary laws, which are susceptible to challenge. One will be arguing, for example in relation to clause 15, whether the similar objectives were being met by regulations that replaced the earlier retained EU law, and whether that has been met by the new rules. That is an incredibly difficult task, and one that could end up in lots of litigation. I think that we will end up with a lot more cases on those sorts of issues.
Sir Richard Aikens: I agree with what Jack said. As I read clause 7(7), the factors that the court must have regard to are not exclusive. In other words, they can have regard to other factors as well, which Parliament has not identified and has left to the judges to decide whether they might be relevant. So I would like to make two points. First, this is not exclusive, and it may well be that, in future cases, appeal courts will introduce other factors, maybe on a case-by-case basis, which are only relevant to that particular case, but there may be a development of more general factors, which, once you get that at a Court of Appeal or above level, will then tend to be repeated thereafter.
The second point, as has been made by both my colleagues already, is that EU case law necessarily involves a consideration of the way that the Court of Justice of the European Union looks at regulations and its previous case law. In my view, the CJEU is a much more active court in terms of both interpretation of EU instruments, to use the phrase that is in the Bill, and its previous case law. It tends to develop principles derived from both instruments and case law in a rather more positive way than the UK courts do. I can only speak for the English courts, of course.
The problem, therefore, that the judges are going to have to deal with is: do they carry on with that approach, as in the case law of the EU, or do they somehow retreat from that? Although they have got these factors here that are laid out, they do not really deal with that aspect at all. That, again, puts the judges in a difficult position, because they have not got the guidance from Parliament. They have got this body of law—the acquis of the retained EU case law—but do not really know quite how to push it on, or not push it on. I think it will make life quite difficult for the judges.
Jack Williams: As a footnote to that, on the Court of Appeal for the reference procedure, the Court will not even have decided facts, so it is quite ironic that what is being imported with the national reference procedure is like the preliminary reference procedure under EU law at the moment where you ask a court a legal question—an abstract legal question here—on whether to depart from retained case law. And yet, very unlike common law reasoning, one would not actually have a judgment from below with a factual position working out how the case law is applying to a certain set of facts, so it is even harder for the judges, because you are asking them a pure abstract question: should we depart as a matter of law from that EU case law without understanding the full factual matrix? That is very unlike common law reasoning where you incrementally grow and apply to the facts.
The Chair
Order. I have three colleagues bursting to get in and we have only about seven minutes left, so short answers to short questions, please.
Barney Reynolds: In short, I am not suggesting we follow another country. The court interpretation provision is unprecedented. Abu Dhabi created something from scratch. It was not a transition from what they have got, which was based on the French-Egyptian model, to the common law model. We should do our own thing that works for the UK, and using our methods. I agree with that.
I agree with my colleagues on the uncertainties that can potentially arise. As a lawyer, I think we need to be very careful about those. I am concerned with them. My solution is to expand clause 7 and the list of things that should be borne in mind in order to execute an adroit shift to our common law method in a way that does not involve interpretation too much. I do not think you can remove the necessity for judges to exercise interpretative powers to execute the shift. Ultimately, this shift involves trusting the judiciary, which I do. I am fine doing that, and I do not think that there is a shortcut or a way in which we can box people in so they cannot use any discretion and nevertheless get to the same place. We have to trust people to do it.
Mr David Jones (Clwyd West) (Con)
Q
Sir Richard Aikens: You start from the fact that supremacy no longer exists unless it is retained by UK law. Half speaking as a lawyer, but I suppose half speaking as a commentator, I do not myself see why there should be any part of our UK law that is regarded as more supreme than another, unless specifically identified by Parliament as being necessary for some reason. In many other countries, there is the principle of the constitution, which is inevitably supreme and cannot be crossed; we do not have that and have never had that in our law, except perhaps in very specific circumstances.
In general, therefore, I would say that the whole idea of supremacy should be done away with, unless there is some specific reason in specific areas of law why it is necessary to retain it. For my part, I cannot think of anything that immediately comes to mind that is not already dealt with in our law—I am thinking in particular of human rights.
Alex Sobel (Leeds North West) (Lab/Co-op)
Q
Jack Williams: I would start by not necessarily having what George Peretz KC calls the gun to your head, so that by the end you do not have time to scrutinise, because if you did take the time to scrutinise it, you might be left with the choice on the last day of what is there or nothing at all. That is obviously a difficult position for Parliament to be put into, having to save its own law somehow without a set procedure.
A direct answer to your question, however, is more scrutiny from Committees. One can imagine, for example, a Committee that was set up specifically to analyse all the changes that are coming to certain practice areas, with consultation and independent experts assisting—much like this Committee format. There is also the legislative reform order super-affirmative procedure, which builds and bakes in consultation and I think extra time in the process—the downside is exactly that last point, which is that it leads to delay. If you have a cliff edge of 2023, it is not particularly suitable, but it might give some ideas for inspiration. It is under a 2006 Act, but I think it has been used fewer than 50 times, precisely because it takes so much time and involves so much scrutiny—but if you are looking for an example.
Mr Marcus Fysh (Yeovil) (Con)
Q
Barney Reynolds: Yes, I think we should look at reinstating the Interpretation Act 1978, which spells out the UK method of interpretation. That would mean all lawyers could understand what existing EU provisions will mean on the basis of the words on the page, with very limited delving beyond that, and would probably lead to greater certainty than trying to move slowly from one to the other, case by case.
The Chair
Thank you. I am afraid our time has run out, and we are under strict time limits. I thank all three of you for your expert evidence. It has been very helpful for the Committee.
Examination of Witnesses
Sir Jonathan Jones KC and Dr Ruth Fox gave evidence.
The Chair
We move on to more experts. We have with us in person Sir Jonathan Jones KC, former Treasury Solicitor, and Dr Ruth Fox. Please take your seats. We have until 3.05 pm for this session. Please could the witnesses introduce themselves for the record?
Dr Fox: I am Ruth Fox. I am director of the Hansard Society. For transparency, the Hansard Society is leading a review of delegated legislation, on which we have a cross-party advisory group that will be reporting shortly. Sir Jonathan is a member of that advisory group.
Sir Jonathan Jones: Good afternoon. I am Jonathan Jones. I am a consultant with a law firm Linklaters and I was previously Treasury Solicitor.
The Chair
Thank you. We will start, as usual, with our shadow spokesman, Justin Madders.
Justin Madders
Q
Dr Fox: The fundamental concern we have, as you have heard from other witnesses, is with the sunset clause and its cliff-edge nature. It is also the fact that Ministers will decide which pieces of retained EU law will expire at the end of next year and Parliament will not have any oversight of what falls away. It has been variously described as being turned off, but that implies that it might be turned on again at a later date. It cannot; it will fall away and expire.
The concern is there could be pieces of retained EU law that have been missed. We have heard today that there is a possibility that a significant proportion of retained EU law has been missed from the Government’s dashboard, so we do not know exactly what the scope of retained EU law is. If pieces of legislation have not been identified and saved by the expiry date, they will fall away and we may have regulatory gaps. That is a significant concern for Parliament’s oversight of the regulatory landscape going forward. That is our primary concern: the cliff-edge nature of the sunset clause and the fact that the Government’s objectives, in our view, could be done in a different and less risky way.
Justin Madders
Q
Dr Fox: There were provisions in the European Union (Withdrawal) Act providing additional consultation periods for proposed instruments under the Act. They ensured additional oversight for Parliament. Although the Government are proposing to remove those provisions, that is not a major concern for us because the Government are, frankly, right that there has not been much tangible benefit to that process, because parliamentarians have not used those oversight provisions. For example, when statutory instruments have been laid for pre-consultation for 28 days, parliamentarians have not looked at them. They have not raised issues about them and a Committee has not looked at them.
The House of Lords has done marginally better. Its Secondary Legislation Scrutiny Committee has looked at the instruments, but the Commons has not. It is hard to argue that they need to be retained. There have been problems with them from a civil service perspective because it is complex to determine which of the consultation and oversight provisions apply to the instrument in front of them. Mistakes have been made and they have had to withdraw instruments and lay them again. I do not have a major concern about that, but there are broader scrutiny issues in terms of sifting in the legislative and regulatory reform order process.
Justin Madders
Q
Dr Fox: You are inviting me to give away the Hansard Society’s review proposals before we have published them! We all know that the delegated legislation scrutiny process is, at various points, inadequate for everybody concerned. Ministers spend a lot of time attending delegated legislation Committees, carving out significant time in their diaries. You all spend time in those Committees and feel that they are not necessarily a constructive form of scrutiny and oversight. There are lots of problems with the process.
The triage system applied to European Union (Withdrawal) Act orders was a technical sifting of instruments. Those who participated in European statutory instrument Committees found that it was a useful exercise but a very technical and legal process. We feel that that could be widened and expanded. There is no reason why sifting could not apply to all the instruments laid under the Bill rather than just to those laid under three specific clauses. That would have implications for parliamentary time and management, but it could be a way of improving scrutiny. We would certainly extend sifting to clause 16, for example, which is quite an extensive power that is not sunsetted. Those are possible ways to improve scrutiny.
Ms Ghani
Q
Dr Fox and Sir Jonathan, you are not comfortable with what the Bill proposes, but I get the feeling that you are probably just not comfortable that we are trying stop EU law continuing to sit on the UK statute books for ever without us having any power to amend it. Is that the case, or do you see a time in the future when it would be appropriate to move EU laws off the UK statute books? I will come to you first, Dr Fox.
Dr Fox: I reject that. I am up for change and quite embrace it. This was the purpose of Brexit, was it not? We should therefore get on with it. I do not object to your objectives; I object to the particular nature of the process and procedure by which you are proposing to achieve them, which is unduly risky.
If, for example, you do not find a regulation or a piece of retained EU law and so do not deal with it by next December, it will fall away. You cannot know the implications of that if you do not know about, and have not dealt with, the existence of the regulation—that is my concern. As I set out in our written evidence, I think you could achieve your objectives, and indeed my objectives, in a different way.
Sir Jonathan Jones: I agree with that. Plainly, I have no objection to Parliament changing any law it wants, be it former EU law or any other law. I am sure that the EU law that we inherited when we left the EU is a mixed bag, and that some of it is ripe for review and change.
Like Dr Fox, the difficulty I have with the Bill is twofold. First, it creates a huge amount of uncertainty as to what the law will actually be by the end of 2023 or thereafter, because there are no policy parameters on what might change, what might stay or what might fall away. That is quite aside from the risk you have heard about—that some law might fall away simply by accident, because it has been missed, which creates a huge amount of uncertainty for users of the law.
The second issue that I have difficulty with is the lack of scrutiny—an issue that I know you keep coming back to and that Dr Fox touched on—by Parliament itself of the process. In the Bill, Parliament is not being invited to consider particular policy areas or particular changes to the law; it is simply signing off on a principle and a process, and I would say that the principle and process carry with them all that legal risk as to what the outcome will be. Those are the difficulties that I have. It is not a difficulty with Parliament being able to change any law it wants, including former EU law, whenever it wants to; it is the process being followed that I have difficulty with.
Stella Creasy
Q
I say that as someone who this week received something I had never, ever received before—I wonder, Dr Fox, whether you can advise me if this is common: a ministerial correction to an answer to a written question. The written question was to the Department for Environment, Food and Rural Affairs about the application of the legislation to the Avian Influenza and Influenza of Avian Origin in Mammals (England) (No 2) Order 2006. Originally, Ministers told me that the order was not made under section 2 of the European Communities Act 1972 and therefore did not fall within the scope of clause 1 of the Bill, but they issued me with a ministerial correction to admit that it did. Have there been other instances of Ministers not knowing the consequences of their legislation? What impact do you think that has on our ability to scrutinise legislation as parliamentarians?
Dr Fox: I cannot give you a number, but I am sure that there have been corrections of that kind. We also see that in respect of statutory instruments, where instruments have to be withdrawn and re-laid because of errors.
Clearly, one of our problems is that the complexity of law now, and the layering of regulations on regulations, coupled with inadequate scrutiny procedures, makes the whole scrutiny process incredibly difficult. Another problem is that the breadth of the powers in Bills which enable Ministers to take action, but do not define on the face of the Bill the limits and scope of that action, are very broadly drawn. That makes scrutiny incredibly difficult.
We also have amendment of legislation going through both Houses, and that adds layers of complexity. Particularly in the House of Lords, Members seek to introduce scrutiny constraints of the kind we have talked about in respect of the European Union (Withdrawal) Act. That is just additional complexity, which then hits civil servants trying to work out which powers they should be laying instruments under, and which scrutiny measures apply. For people who have to interpret and implement the law, it becomes ever more difficult.
I hope that one aspect of the review process would be to simplify some of those areas, with things like consolidation and so on, to help the process. However, given the scope and scale, I do not think that can be done by December of next year.
Stella Creasy
Q
Sir Jonathan Jones: I am not in the civil service, as you know; I am on the other side, advising clients about what the effect of the Bill will be on their businesses and so on. This was always going to be a very complicated exercise, including for the civil service. We are leaving one legal order and, in one sense, we are out of it—we are free—but the legal constitutional consequences of that were always going to be very complicated, because we had this huge body of law that over decades had been integrated into UK law. We were not keeping a running tally throughout that time of the laws that we might one day want to change, because they had come from a particular source. They were enmeshed it all sorts of different ways with UK law.
As soon as we left, we had to begin the process set out in the European Union (Withdrawal) Act 2018, which was about identifying what retained EU law needed to be changed in order for it to work operationally and technically. That was the process that was done with the 2018 Act, and it involved, as I think you have heard, many hundreds of sets of regulations to cure deficiencies in the language of that legislation. That was complicated enough, and it is possible that things were missed. There are certainly examples of some changes having to be made multiple times because they were not got right the first time.
That was complicated enough but at least, if something was missed, the law did not fall away altogether; it could be corrected later. What was being done then was an essentially technical exercise to keep the pre-existing law and to make it work as far as possible, in a way that provided continuity and certainty for users. What we are talking about now is an exercise of a completely different order. This is about changing policy, potentially getting rid of some laws and, in some cases, deciding what replaces them.
This is an immensely more complicated exercise even than the one that has already been done, and the civil service will not have started with a pre-existing list, however authoritative they are trying to make it. There is therefore a risk that as Departments perform an audit, or as the National Archives help with that process, additional laws will be found. There must be a risk that some will be missed altogether. If that is so, again as you have heard, the consequence of the Bill is that the law will fall away altogether on the sunset date, and you will not have the option of making a correction. Ministers, if they wanted to, would have to come back to Parliament with a Bill to replace or change the law. That is the complexity of the exercise.
Mr Fysh
Q
I have two questions. First, how else could you inject such urgency to get this done quickly, other than through what has been proposed? Secondly, we have heard a lot about the permanence of the falling away—this is your contention—of the laws because of the sunset, but is it not the case that in various clauses, such as clause 2(1), and clauses 12 and 13, there are powers for a restatement or reproduction of different things up until 2026 should it become necessary? Is that not an adequate safeguard mechanism should there turn out to be something that the taskforce approach, which should be very competent, has missed?
Dr Fox: On the latter point, yes—there is provision to extend the sunset through, as you say, to 2026, but that applies to the piece of retained EU law that you know about and are saving and assimilating, and that you will then have the option to amend later. The concern is that if you have not identified and saved it, it could fall away and you could then have that problem. There is also the prospect that you end up with a patchwork quilt of sunset dates, because it could be before 2026.
There are issues about at what point in that process, prior to December 2023, the Government would identify what they intend to do, either with the individual pieces of retained EU law or sections of retained EU law, which will introduce uncertainty. What we have proposed is to do that in a slightly different way: that is, take away the cliff edge where everything falls away—unless you choose to save it—and use Parliament as an ally in that process.
I completely understand the concern about internal inertia, particularly in the final two years of a Parliament and in these current socioeconomic conditions, where there are lots of capacity pressures. However, it seems to me that you could use Parliament as an ally by, instead of having cliff edge dates where legislation and law falls away, having dates in the process, possibly linked to your taskforces, where there are statutory reporting requirements to Parliament by Government Ministers and Departments and where Select Committees could be engaged in that process by scrutinising those reports.
You could set out what you want the Government to report on—what are their plans, what is their implementation timetable, what progress are they making, as with the EU withdrawal Act process for the statutory instrument programme; you could engage the National Audit Office in monitoring implementation of that; and you could have reporting. One of the things that wakes up permanent secretaries and others in the civil service is the possibility of having to appear before a departmental Select Committee and report on a lack of progress, or the fact that their plans are failing. Your model of taskforces to ensure consultation, coupled with statutory reporting requirements, through to a deadline of 2026 or 2028—whatever you choose—would be a better approach, because you could still achieve what you want to achieve but reduce the risk of missing something.
The Chair
Thank you. I have got a few more questions to get in before five minutes past. It was the first or second question, Marcus, which perhaps Sir Jonathan could answer, if you can remember it?
Mr Fysh
It was whether there are in fact powers to bring back things that have been sunsetted, such as in clause 13.
Sir Jonathan Jones: The short answer is that the powers to extend and save do not work if an instrument has been missed altogether by the time you get to the sunset date.
Mr Jones
Q
Dr Fox: It will probably not be that dissimilar to what we were talking about in terms of what we went through with the Brexit process. On sifting, the process proposed is that all negative instruments will be laid before the sifting committee in draft form. They would have 10 sitting days to decide whether to upgrade it to the affirmative procedure. The implications for parliamentary time will depend on what their decisions and recommendations are and whether the Government accept them, and therefore whether there has to be a delegated legislation Committee.
So yes, the potential is for an increased number of delegated legislation Committees. The reality is that doing all that before December 2023 is clearly nigh-on impossible; if your deadline is 2026 or 2028 and you smooth it out over time, then it is achievable. Again, it will depend on what the numbers are and what proportion of negative and affirmative instruments there are, depending on what the Government propose to do.
Alex Sobel
Q
Dr Fox: It would depend on what the enhancement was—improvement, but if the improvement implied obstacles to trade or innovation, financial cost or administrative inconvenience, then no, it could not. It is hard to see how the kinds of enhancements that have been talked about—for example, in relation to animal welfare—would not necessarily imply an administrative burden; they therefore could not be done under this provision. That said, my understanding is that the former Secretary of State who was the architect of the Bill took the view that it was not appropriate for imposing new regulations through delegated legislation. That is not a bad thing, but the problem is that the nature of the exercise does not work in that context, because of the cliff edge.
Sir Jonathan Jones: May I add a brief comment? First, the power in clause 15 is undoubtedly very wide, so the Minister has huge discretion in deciding what is appropriate. The test about regulatory burdens is quite a slippery test, not least because the assessment is whether the overall effect of the change is to increase regulatory burden. All sorts of factors might weigh within that burden. It may be that the Minister decides to increase some procedural burden and reduce some other, and makes the assessment that overall the effect is to reduce the burden. Within that, however, could be all sorts of complexity. It is very difficult to predict in the abstract exactly how the power might be used.
Paul Blomfield (Sheffield Central) (Lab)
Q
Sir Jonathan Jones: They will all be doing their best, I have no doubt. The example we have is the one already mentioned, which was the process gone through under the 2018 Act to identify the laws that were going to be carried forward as retained EU law and to work out what changes to those were necessary to make them work. As I said, that was complicated enough, and some things were either missed first time around or needed to be amended more than once, because they were not got right.
I was in the civil service for the first part of that process, and I helped to set it up and saw it happening. Of course civil servants do their best—Government lawyers were drafting like crazy to get the relevant regulations done in time, and by and large I think that did work. I am sure some things were missed, but the consequences for missing something then was not that we had a great gap in the law, but that we would have a technical flaw that later on could be cured. This is of a different order, but I will not repeat myself.
What can I say? They will be doing their best. There must be a risk that things will be missed, and the timescale set for doing this is much tighter than the time that was taken to do the previous exercise, hence the concerns you have heard us express.
The Chair
Thank you very much. I see no further questions, but I think a point of order is about to come.
Justin Madders (Ellesmere Port and Neston) (Lab)
On a point of order, Sir Gary. With reference to the Minister’s clarification earlier in respect of the story about the National Archives, from what she said I understand that that was work commissioned by the Department. I seek your guidance on a process by which the Committee will have the full information about that report and, in particular, on whether more laws will be covered by the ambit of the Bill. The situation is unusual, but a written statement by the Minister or a letter to the Committee might be appropriate as a way ahead.
The Chair
That is not a point of order for the Chair. I know the Minister—a very helpful Minister—will have heard the point, and I am sure something positive will be forthcoming.
The Chair
Nodding is going on. I thank the witnesses for their expertise and advice.
Examination of Witnesses
Tim Sharp and Shantha David gave evidence.
The Chair
Colleagues, we have until 3.35 pm for this session. Will the witnesses please introduce themselves for the record?
Tim Sharp: I am Tim Sharp, senior employment rights officer at the Trades Union Congress, which has 48 affiliated trade unions representing 5.5 million members.
Shantha David: Hello, and thank you for having us here today. I am an employment law solicitor. My name is Shantha David. I am head of legal services at Unison, the public sector trade union, which has 1.3 million members, 75% of which are women.
I have listened to some of the evidence, and there is a lot of discussion around process. I, on behalf of the union, would quite like to talk a little bit about the effect that this Bill will have on employment laws and workers.
The Chair
Thank you. I am sure that some of the questions—perhaps even some of the early questions—will draw that out from you. I call Justin Madders.
Justin Madders
Q
Shantha David: As we know, the Bill in the abstract looks at removing EU-derived laws. What we do not understand is how, if the provisions are sunsetted, that will strip away some very basic employment rights. I thought I would set some of those out.
For example, through EU-derived provision, the UK allows for 20 days of statutory annual leave. That will no longer survive if the provision is sunsetted. There is also protection for eight additional bank holidays, which is derived from the UK but is contained in the working time regulations. It is unclear whether those provisions would go, along with the 20 days of statutory leave, leaving UK citizens with no provision and no statutory annual leave entitlement.
Other typical basic employment rights are things such as the TUPE—transfer of undertakings (protection of employment)—regulations and protections, which I am sure you will know about. Those preserve an employee’s employment where their employment is outsourced or brought back in house, or where an employer’s business is bought out by another. Those employees are protected from dismissal. Their terms and conditions are also protected from being varied because of the transfer. If TUPE legislation goes, those sorts of employees could be sacked with no legal recourse, so it is unclear what would happen to them.
Family-friendly provisions are contained in a variety of different legislation. They are derived from the EU, as well as through Acts of Parliament. It is a tapestry of rights. Basic rights to maternity and paternity leave fall under the Employment Rights Act 1996, but the specifics in terms of the length of leave, who is eligible for that leave and payment of leave comes through EU provisions. Given the lack of information, it is unclear what will survive and what will face the chop.
There are other protections, such as part-time worker regulations and fixed-term regulations, which allow for parity of treatment for those types of workers. Again, those provisions will disappear overnight.
There are other provisions, such as the Equal Pay Act 1970. There are certain facets of that Act that are derived from Europe. Where there is a single source of payment for people’s terms and conditions, an employee can compare themselves with employees at a different establishment. Again, there are cases in the tribunals and courts at the moment dealing with this particular point. Removing the principle of direct effect will mean that these women in particular can no longer rely on the principle of equal pay for work of equal value. These are just some of the rights. There are many more, but we will provide written evidence if that is helpful.
Justin Madders
Q
Shantha David: Yes, the TUPE provisions provide for certain types of service provision changes and protections, particularly for outsourcing and insourcing. These are UK-derived provisions that survived and were potentially updated in the 2014 TUPE regulations. It was interesting at that time because the consultation responses said there was a certain level of certainty in the provisions and to keep making changes was unsettling for businesses. It was businesses that came out most loudly saying, “We all know where we stand at the moment. Let’s leave this piece of legislation alone.” Removing it altogether will create a great deal of uncertainty and take us back to the ’70s and ’80s when we did not know quite what was going on. The effect will be to block up the courts and tribunals, which are already under-resourced. We know of the delays and backlogs in the court system. Trying to rectify and understand how the laws will work if TUPE is removed is very hard.
Justin Madders
Q
Tim Sharp: Following on from what Shantha said, it is clear to us that these rights are not some sort of additional “nice to have” rights, they are crucial ones. They are particularly crucial for low-paid and vulnerable workers, and particularly the protections for part-time workers, for agency workers and for security guards and cleaners who are being transferred from one company to another.
At best, the uncertainty means that more things will be fought out in the courts. If you are a low-paid worker holding together multiple jobs, going through that process is both expensive and more than you can probably cope with. At worst, those rights go completely, so we are really worried about the impact it will have on vulnerable workers in particular. When you talk to business groups, it appears to be bad news for good bosses who want to do the right thing and follow what the law says. It is great news for bad bosses who do not care either way and they will have more freedom to do what they like. We are really worried about the impact of the legislation as it stands.
Ms Ghani
Q
The UK is leading in a number of these aspects. We were the first to introduce two weeks’ paid paternity leave in 2003; the EU has only just legislated for this. We have the highest minimum wage if you compare us to France, Germany and Japan. We are leading on paid bereavement as well. We have far more maternity leave with over a year; the EU has just 14 weeks. In April 2019 we quadrupled the maximum fine for aggravated breaches of workers’ rights, so the assumption that we are somehow going to fall into the 1970s, creating an atmosphere of insecurity, is not healthy.
I am sorry; I will get to the point and ask my question. The Government have stated many times in the past few years that we will not reduce rights and protections as we leave the EU, and the Bill contains powers that enable the Government to preserve and codify the REUL in a way that will incorporate it fully into UK law. What basis is there to be fearful of those rights diminishing? I do not want to hear speculation—we do not have enough time. I want to understand what basis there is.
Shantha David: I do not think this is speculation because, unfortunately, the Tableau does not provide a full list of legislation that is due to go. Without knowing what that is, it is impossible to know what will stay and what will go. It is imperative that the Government produce a list. The Tableau is the most incomprehensible piece of equipment. You have to put in random words to try and identify whether certain pieces of legislation will remain or go. The working time regulations contain the provision for the eight bank holidays. Whether they stay or go will be down to the Government, of course, but at the moment we do not know, and that is the biggest problem. It is the lack of clarity that is causing us the biggest headache.
Also, we are talking about 2,400 or 3,800—whatever the number is—pieces of legislation that are due to be sunsetted within a year. I understand they will simply go away at the end of next year unless something positive is done to replace them. If that is the case, yes, we will lose our rights to the 20 days of minimum annual leave entitlement. Women, who tend to be part-time workers, will not have the protections against dismissal and parity of treatment. And fixed-term workers, who also tend to be female, will not have their protections. Women who want to go back to the workplace and have the same employment and protection will not have that protection. You might think that is conjecture, but without knowing anything else, what else is there?
We need to have a comprehensive list of the legislation that is due to be affected. Once we know that, perhaps then we can be consulted as trade unions, as individuals and as members of the public so that we can have our say on what we want to keep. I do not think the Government intend to simply remove all legislation that assists workers and employees. I cannot imagine that that must be what the Government wish to do, so it would be helpful to have that information in front of us so that we can respond.
Stella Creasy
Q
Tim Sharp: No, we have not had those conversations. We are still in the dark. We are really concerned about the array of rights that have been set out so far today. There are lots of health and safety laws as well and things like protection for pregnant workers—there are lots of protections—but, so far, we do not know. It seems we are taking a shortcut to an unknown destination.
Stella Creasy
Q
Shantha David: Just to clarify, the 20 days are derived from Europe. The additional eight days were because, historically, those eight days were incorporated into the 20 days. To ensure that people had the additional eight days of bank holiday, they were allowed for under UK law, but it is contained within the same piece of legislation, which is where the confusion might arise.
Stella Creasy
Q
Shantha David: I think it is worse than that, actually; we will not have the 20 days at all. We will have the eight days of bank holiday only if they are taken out of the current regulations, presumably, and put somewhere else. If the regulations go altogether, regulation 13A, which talks about the bank holidays, will go with them.
Mr Fysh
Q
Shantha David: It would be helpful, though, if that were in writing. I am grateful for your words, but as a lawyer it would be helpful to have a full list of what is included. If that piece of legislation, say, is sunsetted and introduced at a later date, there will be workers who do not have access to those laws. That is a breach of access to justice as well.
Mr Fysh
That would be a strong incentive for the Government to get it right.
Shantha David: Indeed, but the timing is an issue. There is only just over a year to identify the pieces of legislation, and, as we mentioned, they are a tapestry of rights; we do not know where one right begins and another ends. I recommend the Employment Lawyers Association paper, which sets this out clearly.
Mr Jones
Q
Tim Sharp: We have raised our concerns about the protection of workers’ rights on a number of occasions when there has been speculation in the past, and have received lovely assurances, but I do not think we have met BEIS Ministers—there have been quite a few lately—in recent weeks. We certainly have not had the confirmation on workers’ rights. We have not been told if they are being retained.
Mr Jones
No, can Mr Sharp answer this? He is the person who has had the meeting.
Tim Sharp: We have met BEIS officials as the TUC. Have we asked for assurances? We have asked for information on what is planned on workers’ rights, and we have not been given any information on what is intended.
Mr Jones
Q
Tim Sharp: It would be lovely to think that the Government will retain the rights as they are, but even in this benign scenario—it would be great if it happened—we are still going to have great chaos. Let us say that all the regulations are restated. We still have all the interpretive principles and the case law falling away. It has taken years of litigation to work out what entitlement workers have to carry over sick leave, for example. We do not know what the position might be after this Bill is passed. If you are a worker or a rep in a workplace, you do not want to be going to tribunal and to court to settle all these matters again, which is effectively what this Bill does. You want to be able to have a conversation—
The Chair
I think you have pressed far enough on this, David. I would like to hear from Shantha.
Shantha David: Thank you very much. I am just going to remind Mr Jones that the equality impact assessment does identify that the removal of laws will have a detrimental effect. I am not sure that that is an assurance, because it is not. Beyond that, I do not know what help we have. I do not have access to Ministers in that way. It takes a while to get an answer.
Much like Mr Sharp was saying, the only way to clarify legislation as we go along and to get certainty in the law—we will not have it if provisions are sunsetted—is via litigation. That is something I am able to talk about. Litigation is costly, and pursuing appeals in the Senior Courts will take a long time because of the delays I mentioned. Given that tribunals and lower courts will no longer be bound by retained EU law, there is also the question of how long-established principles of precedent would work, and whether referrals would have to be made from tribunals and lower courts to the Senior Courts, which is what is envisaged in the Bill—either to go to the Courts of Appeal in Scotland, Northern Ireland and England and Wales, or to go directly to the UK Supreme Court. We are not aware—there is nothing mentioned in the paperwork, which is the only thing we have to work on—that that will be resourced in any way. We already know that it takes at least a year to get to the UK Supreme Court. There are only 11 justices. I am unclear as to who will make those decisions around interpretation.
Justin Madders
Q
Shantha David: Absolutely. If it is the Government’s intention not to get rid of workers’ rights and legislation that protects employees, of course it would be a lot simpler to simply set out what is protected.
Stella Creasy
Q
The Chair
Let us not stray too widely into Beecroft, because we are considering this Bill, but an answer would be helpful if it is relevant to this.
Stella Creasy
But it is relevant as an element of employment rights.
Shantha David: The difficulty we have here is the speed at which this thing is happening. It is not about whether you want EU-derived legislation to exist; it is about being able to have a considered view on the employment provisions that exist for workers, and to ensure that employees and employers are not mired in litigation forever and a day. The costs of this are incredible, and I think that is not completely understood. The costs of litigation are profound. If there are to be clear exceptions, and if it is very obvious that certain employment legislation will survive this cull, perhaps that should be specified. That would be very helpful.
Mr Fysh
Q
Shantha David: We would be more than happy to help.
Tim Sharp: Absolutely; trade unions would want to engage in such a process. I am not sure that it would stave off the scenarios we see, as the exact meaning of different rights would still end up being litigated. Even in that scenario—great, we would love to have those conversations, as it is really crucial that workers’ voices are heard, but the Bill will still cause immense confusion and costs to business and workers.
The Chair
Thank you very much indeed for your evidence. We now move on to our next set of witnesses. We will slightly change the language and tone of proceedings, as we will be discussing the environment, which is an ever important issue.
Examination of Witnesses
Ruth Chambers, Dr Richard Benwell, David Bowles and Phoebe Clay gave evidence.
The Chair
Thank you very much to our next set of witnesses. We are starting three minutes early, but we expect a Division at about 4.15 pm. If that is the case, we will try to end our session when the Division bell rings. Will you please all introduce yourself for the record?
Ruth Chambers: Good afternoon. I am Ruth Chambers. I am senior fellow at the Green Alliance, representing the Greener UK coalition of environmental groups.
Dr Benwell: My name is Richard Benwell. I am from Wildlife and Countryside Link, which is a coalition of 67 environmental and animal welfare charities.
David Bowles: I am David Bowles. I am head of public affairs and campaigns at the RSPCA, and I am representing the animal welfare stance.
Phoebe Clay: I am Phoebe Clay. I am co-director of Unchecked UK. We are a non-partisan network of 60 organisations making the case for strong environmental and social protections.
Alex Sobel
Q
Dr Benwell: Thank you so much for the question. Link has given evidence to lots of Bill Committees over the years—I have given evidence to some of the members of this Committee—and I do not think we have ever been moved to say at this stage in a Bill that it should simply be withdrawn. That is our view of the Bill at the moment.
We see the Bill playing out in perhaps one of three scenarios. In the most benign scenario, you could imagine a situation where the whole body of environmental EU retained law is simply restated and moved across on to the UK statute book as assimilated law. Even in that most benign scenario, we see a situation in which Parliament and the civil service have spent huge amounts of time, likely costing millions of pounds, in delivering the shift across. Even more importantly, we see a huge opportunity cost in terms of lost time to actually make environmental improvements. You said, Mr Sobel, that DEFRA has already had some capacity crises, and it is true. All sorts of important DEFRA agendas—the environmental principles, the environmental targets, the river basin management plans—and a whole raft of pieces of vital DEFRA work being proposed by this Government are now extremely delayed, and that would only be made worse by that scenario.
The second scenario is the cliff-edge version of the Bill, where you imagine huge swathes of potentially vital environmental laws falling off the cliff edge at the end of the sunset. I do not think any of us imagine that the Government will knowingly let things like the habitats regulations, the water framework directive or pesticides rules hit the buffer. I do not think anybody thinks that is the intention, but the fact is that we imagine there will be mistakes along the way. If you look at the process following the European Union (Withdrawal) Act 2018, there were lots and lots of wash-up SIs at that point from all the mistakes that were made by DEFRA alone—simply to get through the legislation at that point. With this version, so much more is on the table. Things are likely to be missed. Mistakes are likely to be made.
The third scenario is one of change and ministerial fiat to mess around with things along the way. The delegated powers in the Bill are some of the most extraordinary that I have ever seen. They give Ministers the power to change things almost without scrutiny along the way. The third scenario, and probably the most likely, is that we see elements of law being cherry-picked, either to be taken out or changed over the next 12 months, without any opportunity for people to amend, scrutinise or improve.
All three are really terrifying scenarios, and we can talk about why they come through the Bill later, but our view at the moment as Wildlife and Countryside Link is that the Bill is irredeemable and should be withdrawn.
Alex Sobel
Q
Ruth Chambers: Absolutely, and I endorse what Rich has just said. One other implication of the Bill relates to environmental law and policy making across the rest of the UK. I know we are very much focused on Whitehall today, but how, for example, will this process be conducted in Northern Ireland without a functioning Government? How are stakeholders going to be involved? That is not clear to us. We know that the Department of Agriculture, Environment and Rural Affairs in Northern Ireland has identified 600 pieces of rule that pertain to it as a Department. Again, where is it going to find the capacity to deal with that?
In relation to Scotland, there is an interesting angle, because the Scottish Government have a legal commitment to keeping pace with the EU. What is the interplay between that legal duty and the programme of rule in relation to the Bill and the Scottish Government? We note the concerns raised by Senedd Cymru, the Welsh Parliament, that the Bill risks imposing a regulatory ceiling on ambition and distracting from programmes in Wales. Those are some additional impacts to the ones identified by Richard.
I will come back to DEFRA, which is where we are perhaps more qualified to speak, and look at some numbers for a minute, in case that is of assistance to the Committee. We have heard talk of the previous EU exit statutory instrument programme, which we were involved with. Looking at the numbers of SIs involved in the two years of that programme, there were 108 in 2018 and 161 in 2019. That was a huge undertaking for the Department. As you have just said, it took a lot of resource from outside DEFRA, which put in some really innovative consultative mechanisms to help it to cope with that number of instruments.
By contrast, under this programme, the dashboard shows that DEFRA has 570 published pieces of REUL, but that is not the final number. We understand from the Department that the number is 835 and counting. That is not yet a published figure, and obviously we will need to have it confirmed by the Department, but that is a huge increase. The EU exit SI programme will pale into insignificance when you look at those numbers, which will require resource housed in legal capacity and technical policy capacity, and will require asking the expert stakeholder community as well. There is a lot of work to be done.
The Chair
I just want to intervene before the other witnesses give their answers. This is all very good stuff, but the answers will need to be quite a bit shorter or we will run out of time.
Alex Sobel
Q
David Bowles: I concur with everything that has been said. Two years from now will mark the 50th anniversary of the first ever animal welfare law passed at the EU level. The RSPCA has worked out that since that date in 1974, we have had 44 different animal welfare laws.
I will make one additional point. Obviously, animal welfare plays out very resonantly with the public and, indeed, with the Government. The Johnson Government came in with five different manifesto commitments on animal welfare and a pledge to improve animal welfare. It is quite ironic that the Bill, in Richard’s cliff-edge scenario, could get rid of those 44 pieces of legislation.
An additional issue that I do not think the Committee has looked at is that of devolution, which Ruth touched on. As you are probably aware, the Senedd yesterday put out advice on the legislative consent motion to reject the Bill, which it does not believe is good for the Welsh Government. Curiously enough, although Ministers of the Crown have the chance to delay the Bill’s deadline from 2023 to 2026, that option does not apply to Welsh Ministers.
Most animal welfare legislation is devolved—we have worked out that only 13 of the 44 pieces of legislation are reserved, while the rest are devolved—so it is up to those in Wales to decide what to have in their country, such as the battery hen ban and a vast array of other farm legislation, including on the live transport of animals. They will have all those things only until 2023 because Welsh Ministers have no option to extend that deadline. Only Ministers of the Crown have that option, and that really worries me.
Alex Sobel
Q
Ruth Chambers: All the groups you mentioned would be immensely helpful to the various Departments in identifying and commenting on the body of REUL that belongs to them. The important question is how such consultation should be conducted. For us, it should be hardwired from the outset and conducted in a transparent and structured way. Navigating the complexities and time constraints of consultation will place a huge burden on businesses and civil society. The more that that can be signalled in advance, the easier it will be for us all.
Last time around, the Department put in place a reading room on statutory instruments, for example. That was a helpful vehicle that gave stakeholders of all persuasions some extra time to look at the statutory instruments in question. It was just one mechanism that was put in place, but that sort of thing probably is not sufficient given the scale of the work that we are talking about. The more structured the engagement can be, the better, but it will be a big undertaking. It goes back to clarity on just how many pieces of law we are talking about, so that we know which laws are in scope and which are out of scope.
Alex Sobel
Q
Phoebe Clay: Looking further from that list, one important facet of that process is missing, which is people—the public. This is not an expectation of the public, certainly not during the referendum and certainly not in the past five years. What we have done a lot of is talk to people—your constituents—about their attitudes and what they value in relation to regulations. We find very little appetite for a process of this kind. We have been doing polling consistently over three years; all our polling suggests that a good two thirds of the British public think we should retain or, indeed, strengthen the level of standards that we had as members of the European Union. We find very little evidence that people see Brexit as an opportunity to deregulate—quite the opposite. People want to play to a sense of British standards, of the march of progress towards a better—and more—level of protection. In terms of what we value in the UK, this goes very deep. I would echo what my colleagues have said in relation to transparency and having in place a process whereby there is a level of democratic engagement with the Bill.
Alex Sobel
Q
Dr Benwell: As you say, that order is the main plank of action against invasive species. If we were imagining that the Bill is about reducing costs, far from it. If we were to lose that piece of regulation—the cost of invasive species in the UK on businesses at the moment is already in the billions. I think the sum is about £4 billion per year at the moment for the cost of invasive species on, for example, water companies. That would only multiply if we were to see those regulations lost or weakened. There are several areas where those kinds of rules exist only in retained law. For example, think of air quality threshold standards, or provisions such as the habitats regulations for protecting rare species or for providing the gold standard of protection for habitats. Think of the environmental impact assessment and the strategic environmental assessment rules. In some areas there is overlap, but in each of those areas EU retained law adds a really important element, over and above what existed in domestic law.
In some ways, it is a bonkers distinction. We have the term of “assimilation” in the Bill, as if we are taking something that is currently alien and making it British. It is already UK law; it has been on our statute book for a very long time. It has been assimilated in so far as businesses and people know how to work with it, expect it to operate and feel as if it is part of our law. There are loads of areas where the law can be improved, but simply choosing to tackle this block as if it were a special thing is a bad way to target areas for improvement. We could do much better through consultation, and by doing proper impact assessment of the laws that we know need improvement.
Ms Ghani
Q
My question is for Ruth Chambers. The review of the substance of retained EU law has uncovered more than 500 pieces of retained EU law owned by DEFRA. Many of those pieces of legislation relate to environmental regulations and protections dating back 20 years. Surely there is merit in reviewing the totality of those regulations, as the Bill provides for, to see whether they can be consolidated. Do you agree or disagree?
Ruth Chambers: It is certainly true that the body of retained EU law is ripe for being improved. That is what we would hope the processes of the Bill, or anything else, would lead to. Our concern is that the Bill would, either accidentally or if powers were misused in the future, not lead to those sorts of outcomes. Instead of the processes in the Bill, we would prefer a much more targeted approach that looks at retained EU law, and that picks the areas where the benefits to business are the greatest and environmental outcomes could be maximised, which Minister Trudy Harrison said, in answer to a written question, is DEFRA’s aim for reviewing retained EU law.
We are not opposed to reviewing the law, and we are definitely not opposed to improving it; we just do not think that the processes in the Bill will naturally lead to that outcome, especially when you look at clause 15, which we might have time to talk about. It basically makes the direction of travel of the Bill about deregulation rather than anything else.
Ms Ghani
Q
Ms Phoebe Clay, previously your organisation has accused the Bill of threatening to interrupt the Government’s target to halt the decline of nature in England by 2030. Can you set out how you consider that the Bill could interrupt a legally binding target that has been established by the Environment Act? We have a lot of lawyers this morning, and we want to contrast their evidence with yours.
Phoebe Clay: I think that is an ambitious target, and regulation has to be part of the pursuit of it. As Ruth has just said, the intent in the way that it is expressed at the moment is deregulatory. Our view is that, if that intent is pursued, we will struggle to stay on course with those broader objectives. It is worth stressing that is not just my organisation. Like Richard, we are a coalition. We represent a whole series of organisations across the spectrum, ranging from the Royal Society for the Protection of Birds to women’s institutes and a number of organisations working on worker protections. I guess it is worth underlining that this is not our position as a small coalition, but the position of all the other organisations that have signed up to that.
The Chair
I think it is only fair to give Dr Benwell a chance to come back on the issue of neutrality, very briefly.
The Chair
Q
Dr Benwell: Thanks, Sir Gary. Just to emphasise, we definitely see areas where EU-derived law can be improved, and absolutely share that intention. I could list quite a number for you now. Here I am representing not my personal views but those of the coalition. It is extremely clear from our published materials that the strong view of the environmental sector is that, while we share the intention of improving environmental law, we do not think that this process is the way to achieve it, because of the sunset clause, the deregulatory lock-in and the overly generous delegated powers to Ministers along the way.
Ms Ghani
Q
Phoebe Clay: I guess that we just want the guarantee that those environmental protections will remain in UK statute. At the moment, we do not think that the other providers—
Dr Luke Evans (Bosworth) (Con)
Q
Dr Benwell: No.
Dr Evans
Q
Dr Benwell: I am not sure that is the crucial part of the Bill from an environmental perspective; the crucial part of the Bill from our perspective is that it potentially or inadvertently allows for the loss of large portions of the statute book and for changes to environmental law without scrutiny. It also locks in an old-fashioned view of regulatory costs, seeing cost to business as the only way to judge the costs of regulation.
Dr Evans
Q
Dr Benwell: I do not think that we are the only organisation to have said that. I think that the Bar Council included the suggestion that the Bill should be withdrawn in its evidence. Wildlife and Countryside Link does not speak as a single body; it speaks on behalf of many of our members. The RSPB, for example, has been very clear in saying that the Bill should be withdrawn, as have lots of our members.
The Government might find features of the Bill they could bring forward separately. I think that the question of supremacy is one where we would see some risks in the interpretation of the law, but that is a political choice and, in itself, it is not the bit that we are most worried about. The bits that we are worried about, however, are so deeply ingrained in the fabric of the Bill that we suggest starting again.
On the sunset clauses, if you look at the House of Commons Library interpretation of what a sunset clause should do, it is there to stop emergency powers existing in perpetuity, giving Parliament a chance to review them. The Bill is taking, en bloc, huge amounts of environmental law and saying that they should potentially end within a year; it is a very strange amplification of sunset powers. On delegated legislation, the provisions in clause 15 that suggest Ministers should be able to bring forward alternative provisions without even tethering that to the original purposes of the regulations on offer are extremely broad delegated legislation powers. Another aspect that is deeply ingrained in the Bill is the idea that no alternative provision should be brought forward if it imposes new costs on business or hampers innovation and that sort of thing. That is an old-fashioned mentality that sees the costs to business of implementing regulation as the only view of the point of that regulation. Actually, if you take a deregulatory approach, it does not reduce costs; it simply transfers them from the businesses responsible for delivering them to the public. Those are all part of the weft and warp of the Bill, and that is why we think that the whole thing should go, rather than starting to amend it.
The Chair
That is clear, thank you. I will bring Ruth in on this, and then we will go to Stella Creasy. Ruth, you wanted to come in.
Ruth Chambers: Thank you, Chair. I have two points of clarification to make. First, I confirm that Greener UK as a coalition also wishes the Bill to be paused and withdrawn. That is not inconsistent with our position that we also believe that the body of retained EU law could be improved and that a process could be devised to do so. I feel that there was a little conflation of those two points but, to be absolutely clear, they are not the same thing.
Secondly, Minister, may I come back to your point about environmental targets, the 2030 species recovery target and the relationship with REUL? The relationship is a rather straightforward one: the opportunity costs that will inevitably come with the Department having to review, assimilate and reform such a large body of law. In fact, the Government have already missed their first legal milestone on environmental targets, on 31 October. That is just one example of how this can have a serious impact—because of the sheer deliverability challenges.
Stella Creasy
Q
The Chair
We are all reunited, more or less. Stella has the floor. We will let you know in a moment what the ending time for this witness panel will be; we are still trying to work it out.
Stella Creasy
Q
David Bowles: There are many examples. I mentioned at the beginning of the session that there are 44 different animal welfare laws, but that is my assessment; if you look at the dashboard that the Government have set up, there are 16 that are not on the dashboard but are on my list. That gives you an indication of the uncertainty, although to be fair, the dashboard is one of the most opaque measures of what the Government are doing. It does not seem to be in alphabetical or chronological order, and going through the 570 laws under the Department for Environment, Food and Rural Affairs tab is quite onerous. I think it is uncertain about where it is.
The Bill applies not just to the UK, but to Wales, and probably 31 of 44 laws in my area of animal welfare are devolved. The Senedd and the Scottish Government, who have responsibility for them, are uncertain as well, because they are taking their lead from DEFRA. Yesterday the Welsh Government said they were not minded to work out which laws were devolved, which were not, and which came under retained law. They were going to leave that up to the UK Government. That just fuels the uncertainty.
Stella Creasy
Q
David Bowles: It could create huge uncertainty. Two things need to be worked out. First, what does retained EU law mean? As we saw today from the article in the newspaper, there seem to be more such laws coming forward. Secondly, which are devolved and which are not devolved? There could be a huge discussion about that. The Bill will have huge implications. There is not just the devolution issue, but the common frameworks issue, which is how the three Governments work out how to move forward on specific pieces of legislation. There is also the matter of the United Kingdom Internal Markets Act 2020, which is the legislation that allows free trade within Great Britain. There are huge implications for all those issues.
Stella Creasy
Q
Ruth Chambers: That is a really important question. Clause 15 and how it defines “burden” is one of our biggest concerns about the Bill. If you look at the passage that defines “burden”, it is everything from an administrative inconvenience to something that causes issues to do with profitability. What does it actually mean? It also does not seem to sit readily with the answer that DEFRA Ministers have given, which is that their intention, in reviewing that body of rules, is to improve environmental outcomes. How does that sit with reducing regulatory burdens?
Not many weeks ago, some Government Ministers were suggesting that environmental protections were regulatory burdens and should be removed. That is not the case, we believe, with the current Government and current set of Ministers, but it shows that things can move quite quickly. That is why the Bill needs to be watertight on these issues.
The Chair
Shall we move down the table? Dr Benwell.
Dr Benwell: This is a really problematic part of the Bill because, as has been said, “burden” is defined in purely financial and business terms. It imagines that the small cost that business might incur is not worth it for the environmental benefits that come out the other end. Of course even critical laws, such as the habitats regulations, can be improved. For example, you could define projects and plans better, so that you could take intensive land management in as well. Those are conversations we are actively having with DEFRA, and we want to find ways to do that, but those proposals simply could not be given effect through the Bill because of clause 15, which sort of sets out a deregulatory agenda. Altogether you see a lock-in of deregulation where you might otherwise find improvements. We want to improve the law, but the Bill does not allow us to do that.
David Bowles: I concur with the two previous witnesses. The Government came in with a manifesto commitment to improve animal welfare, and indeed they are looking, hopefully, to get rid of cages for laying hens and pigs, but because we are so uncertain about the status of the conventional ban on battery hens, which was agreed in 1999 and finally came into force in 2012, we do not know if that ban is to be scrapped. The Government are almost looking two ways on the issue, and that worries us.
We need reassurance that there is a transparent process for filtering the 570 DEFRA Bills, and a time period in which to do that. I concur with the other witnesses: we are not against improving legislation; of course we want to do that. We are not saying that the legislation is perfect, but there are a number of caveats, including the time period, the filtering process and the impact on devolution. All of that is so unclear that we need reassurance.
Phoebe Clay: You put your finger on it when you mentioned the word “burden”, Stella. That is a really problematic word from our perspective. If we were to frame the discussion around environmental, social and human protections, the Bill would probably be less problematic. We know that people see the rules as protections, and conceive of them as things that keep them safe, particularly at a time when people are feeling incredibly uncertain and under-protected. Shifting away from the idea that regulations are necessarily burdensome would be a really important step forward.
The Chair
We have until 4.33 pm, slightly to my surprise, so we have another 11 minutes to go. Minister, did you want to come in?
Ms Ghani
Q
David Bowles: indicated assent.
Saqib Bhatti (Meriden) (Con)
Q
Ruth Chambers: It is not, unfortunately. I think you have to see these things in their places. On the Environment Act 2021, you are absolutely right: it was groundbreaking legislation that the Government passed to do many things. It is an enormous Bill, as you know, because you were on the Bill Committee. It sets up the Office for Environmental Protection, and it passed law on resource efficiency and so forth, but in the main, it is new legislation. Part 1 ensured that some protections that we lost after we departed from the EU were put in place—for example, on environmental principles. Other parts are brand new, such as the requirement to set environmental targets.
That is, however, separate from this vast body of law that we are talking about today, which is inherited from the EU. It relates to some of the laws I have just been talking about, but also covers completely different areas—for example, pesticide regulation. The important thing is not to pit one against the other, but to make sure that we have a coherent and functioning statute book, in which primary legislation such as the Environment Act continues to work and to be given priority, and the body of retained EU law is treated with respect and improved in a manner that we can all get on board with. They are part of the same legislative picture, but they are not really in competition with each other.
Saqib Bhatti
Q
Ruth Chambers: It is great to hear you say that, but of course every Act of Parliament is only as good as the pace and vigour with which it is implemented. We mentioned that the first statutory deadline on improvement targets has unfortunately been missed. We very much hope and want to work with the Government to address that legal breach at the earliest opportunity. The Act is full of powers. It gives the Government the option to do a great many things, but of course it is only the Government who can decide to do them. We will support you all the way in putting those powers in place in the most ambitious way, but it is not sufficient to say that the Act is testament to the ambition. It has to be implemented, delivered and resourced.
Saqib Bhatti
Q
Dr Benwell: That is what the legislation enables. I do not have a particular view on that from an environmental perspective.
Saqib Bhatti
Q
Dr Benwell: I do not have an environmental view on that question. I completely understand the political point, and that is for Parliament to decide.
Saqib Bhatti
Q
Dr Benwell: Definitely, and things like the Environment Act are a brilliant sign of progress. The promise in the manifesto to have the most ambitious environmental programme on Earth was excellent, and if we can deliver the species target that is in the Environment Act to halt the decline of species by 2030, that will be the first time in the world any country has set and met a target like that—but it does not operate by itself. Delivery of that Act rests on many of the environmental provisions that are put at stake by this Bill, such as provisions on planning rules, species protection and water protection. They do not live in the Environment Act; the Environment Act builds on them.
There is definitely the chance to do things better, and to bring forward lots of the positive things that the Government have already promised in their environmental programme, but they risk being set back as a result of the amount of time that the Bill will take and the potential for mistakes that this Bill introduces. That is why we are worried about it, not because of any of the principles around sovereignty. That is not a question we have a view on. It is more a matter of the practicality and enormousness of the task in front of us.
Justin Madders
Q
Phoebe Clay: We have asked questions very generically, as you saw in the research that was published in October, and we have asked more specific questions. We find time and again that the majority of the British public opt for strengthening rules, including members of the public who voted to leave the European Union.
We find very little evidence of significant geographical differences. People in the south and north of England, for example, have similar views. Our research has been corroborated by research by others, including by Professor John Curtice after the EU referendum, the Legatum Institute and others, so we can state with a lot of confidence that the British public do not perceive these rules as burdensome. I think there is a real sense that they are protections, including the environmental rules, and there is a general sense that protections are something that we should aspire to, exactly as the Member of Parliament just mentioned. We should be aspiring for stronger standards than we had when we were part of the European Union, rather than weaker ones.
The Chair
That concludes this session. Thank you to our witnesses on our expert panel. We appreciate the evidence that you have given.
Examination of Witness
Angus Robertson MSP gave evidence.
The Chair
We are moving on to Scotland. We will hear via Zoom from Angus Robertson MSP, Cabinet Secretary for the Constitution, External Affairs and Culture in the Scottish Government. This session must end at 4.53 pm. Thank you for joining us, Angus.
Angus Robertson: Thank you for having me, Sir Gary. Hello to erstwhile colleagues.
The Chair
Lovely to have you with us, Angus. The first question will be from the shadow Minister, Justin Madders.
Justin Madders
Q
Angus Robertson: If you do not mind, I was told that I could briefly make a few points at the beginning of the session. If you would indulge me, I might be able to both answer the question and set out some of the concerns of the Scottish Government and, by extension, the Welsh Government—we have the same position.
Thank you for the opportunity to speak to you all. I know you have had a lot of witness sessions today, so thank you for your patience. It will come as no surprise to members of the Committee to learn that the Scottish Government have deeply held, fundamental concerns about the legislation, particularly because of the undermining of devolution. There is concern about the democratic deficit that it exemplifies, and there are concerns, as we heard in the previous session, about the potential deregulatory challenges. We would want amendments brought forward in each of those areas.
Fundamentally, the Bill is the result of Brexit, which was overwhelmingly rejected by people in Scotland and is causing real damage to our economy and our society. The Bill is yet another example of a policy agenda being imposed by the Westminster Government on people in Scotland against their consent.
Let me start with devolution and why that is important. I represent a Government who were elected with a mandate to maintain close regulatory alignment with the European Union and EU standards. I recognise that the UK Government have a different agenda, but the whole point about devolution is to allow diversity, and it would be entirely possible to reconcile the difference in approaches through agreed common frameworks. After the EU referendum, that exact approach was agreed between the devolved Governments and the UK Government, yet the United Kingdom Internal Market 2020 and now this Bill make that near impossible. The Bill would allow UK Government Ministers to act in devolved areas without the consent of Scottish Ministers or the Scottish Parliament; there is no requirement even to consult. The internal market Act is having an insidious and erosive effect on devolution; in contrast, this Bill is a direct assault on devolution.
The second concern is about democratic scrutiny. The Bill grants Ministers, including Scottish Ministers, powers to amend or abandon legislation with minimum democratic scrutiny. Mere inaction or oversight could result in important protections falling from the statute book. Far from the promise of Parliament taking back control through Brexit, the Bill sidelines proper and appropriate parliamentary scrutiny.
Thirdly, on deregulation, the UK Government have said that they want the Bill to “utilise regulatory freedoms” by “lightening their burden” on UK businesses. The businesses here that I hear from are not interested in discarding 47 years’ worth of protections. Businesses, workers, consumers and our environment all benefit from high standards and not from a race to the bottom.
In conclusion, the people of Scotland rejected Brexit by a margin of 24%, and there was a majority for remaining in the European Union in every single local authority area in the country. The more people in Scotland see of Brexit, the less they support it; a panel-based survey this summer found that 63% of people in Scotland would vote to rejoin the European Union. Given that level of support for the EU, I note with some sorrow Labour’s pro-Brexit position alongside the Tories, most recently articulated by Keir Starmer when he was in Scotland at the weekend.
To finish where I started, the Scottish Government are fundamentally opposed to the Bill and have lodged with the Scottish Parliament this very morning a recommendation that consent be withheld. Thank you very much, Sir Gary.
The Chair
Thank you so much for making your position crystal clear. Justin, do you have a follow-up question?
Justin Madders
Q
I wanted to ask specifically about some of the inconsistencies when it comes to the powers available to you vis-à-vis the UK Government. Am I right that you will generally have the power to revoke and amend regulations, but the power to extend the sunset clause is not available to you? Do you know why that distinction has been made?
Angus Robertson: Indeed. It runs contrary to the conversation that I had with the erstwhile Cabinet Minister with responsibility for this, Jacob Rees-Mogg. He was very keen to give me assurances that devolution would not be undermined and that Scottish Ministers in the Scottish Parliament would be able to exercise maximum control to fulfil our democratic mandate: to remain aligned with the European Union.
Different powers are being assigned to UK Government Ministers and Scottish Government Ministers in important respects, and that is problematic for us—as is the point of capacity. I do not know whether you want to come on to that, but it is an absolutely massive challenge given that we are a Government who have a legislative agenda already. If we want to remain aligned with 2,000-plus or, if the Financial Times is to be believed, 3,000-plus pieces of European legislation, many of which are about devolved areas, we are talking about massive displacement activity in our Parliament here in Scotland. That is hugely challenging.
Justin Madders
Q
Angus Robertson: We have begun to do that. I should say that when I asked Jacob Rees-Mogg—as the proposing Minister, you would have thought he might have known—how many pieces of legislation would impact directly on the UK Government but then also on devolved policy areas, he was not able to tell me. We have still not been told the scale of the legislative impact, but it will be very considerable. Consider what is devolved—environment, rural affairs, transport and a whole series of other things. It will necessitate the legal services of the Scottish Government and the Scottish Parliament spending a lot of time dealing with the consequences of this Bill.
The problem could quite easily be solved by the UK Government simply acknowledging that there is no demand for this to happen from either the Scottish or Welsh Governments and simply carving out devolved areas. It would remain on the statute book here. If colleagues down south want to go ahead with that, I leave that up to them. We did not vote for this, and we certainly do not want it to happen, yet our parliamentary process and the way in which Government operates here is going to be deluged by trying to deal with this proposal, to which little to no thought has been given as to how it impacts on the devolved institutions of the United Kingdom.
Ms Ghani
Q
Angus Robertson: The Bill confers significant powers on Scottish Ministers and UK Ministers in devolved areas. Where the powers are exercised by the UK Ministers, no role is afforded to the Scottish Ministers or the Scottish Parliament. In devolved areas, it is the Scottish Parliament that has a democratic mandate to hold Government to account. That is why we have consistently argued that where the UK Government have powers in devolved areas under this Bill, they should need the consent of the Scottish Government, which is of course scrutinised by the Scottish Parliament, in order to exercise those powers.
As it stands, the powers you highlight would allow the UK Government to make broad changes in retained EU law in devolved areas, including revoking and entirely replacing standards that we have inherited from the European Union. This Bill will introduce a massive democratic disconnect. I would hope that colleagues across the parties would realise that this is a huge challenge to the basic understanding of how devolution works.
I would be interested to know, Sir Gary, because we have not yet heard, how this will work now that the Scottish and Welsh Governments have both withheld consent for this legislation. We have the ability through the Sewel convention to say that this, as it stands, is not workable, practical, proportionate, and I could go on—
Ms Ghani
Please don’t; I think the point is crystal clear. So much of this is caught up in legal language. You made it clear that there are some powers that would allow you easily to align yourself to retained EU law. This Bill does not limit the powers given to Scottish Ministers in the European Union (Continuity) (Scotland) Act 2021 to align with EU law in areas of devolved competence. Rather, the Bill will give Scottish Government Ministers further powers to more easily preserve or sunset retained EU law within a devolved competence. These new powers sit alongside those given to Scottish Government Ministers in the 2021 Act. I can fully understand that you have perhaps had some unsatisfactory conversations with Secretaries of State, or not had the assurances you are constantly seeking, but the reality is that you would have far more authority than you are alluding to with regards to control of legislation with this Bill. [Interruption.] Let’s move the conversation on, because we are very short of time. If we follow your argument, there is a concern that the Bill will cause greater divergence between retained EU law in England and Wales and retained EU law in Scotland. Is that conflict a concern for you?
Angus Robertson: With the greatest respect, the point about devolution is that we are able to do things differently in different parts of the United Kingdom. That is the point.
There are two significant problems that I really hope colleagues understand the scale of. We do not wish the proposal to go forward, yet if it does, we are a Government who already have a legislative programme which is going to come under massive pressure over the next years, depending on when the sunsetting arrangements are finalised for, and we are going to have to legislate through primary and secondary legislation to retain alignment with the European Union. That is the first point. I would hope there is an understanding of that.
The second point that I have tried to underline is the ability of UK Government Ministers to, in effect, override the concerns of the Scottish Government. That is much more than a democratic deficit; it is an undermining of the devolution settlement in its entirety. I am sure that some colleagues on the Committee will have looked closely at the workings of the United Kingdom Internal Market Act 2020 and the common frameworks. In effect, they mean that decisions made in the UK Parliament in relation to England are then applied throughout the UK regardless of the view taken by Parliaments in Scotland, Wales or Northern Ireland. I hope colleagues understand the seriousness of the territory we are getting into.
Ms Ghani
Q
Angus Robertson: I am not talking about any laws returning to Westminster; I am talking about UK Government Ministers having the ability, in effect, to legislate in areas that are devolved. That is a totally different thing—
Ms Ghani
Q
Angus Robertson: They can in any area they like—that is the problem. That is the concurrent nature of the powers for UK Ministers and devolved authorities. It is clear to be read: it is a power that can be used. I cannot foresee exactly which Minister would seek to use such a power or for what purpose, but they would have that power. That should surely be a concern for everybody. Is it not?
Peter Grant (Glenrothes) (SNP)
Q
Angus Robertson: Yes.
Peter Grant
Q
Angus Robertson: Yes, it is. I believe the Welsh Government are withholding legislative consent, as are the Scottish Government. If the UK Government are true to the word of the erstwhile Minister with responsibility for this legislation, Jacob Rees-Mogg—when I met him on 28 September he said to me, in terms, that the UK Government would respect the Sewel convention—it is a moot point because they will not proceed. I hope they do not.
Peter Grant
Q
Angus Robertson: Indeed. First, the Bill could be drafted in such a way that it did not apply to Scotland or Wales. That would be the easiest solution: just limit the scope of the Bill to non-devolved areas. That is suggestion 1. Suggestion 2 is to amend it now to do that or to have a similar effect. Why proceed, given the serious concerns that have been raised by both the Scottish and Welsh Governments? I do not understand why the UK Government seem to be ploughing on regardless, given that there has been a dialogue and these concerns have been enunciated for quite some time now.
Peter Grant
Q
Angus Robertson: We know that the scale of the challenge is significant first, for the reasons that I have pointed out: we already have a legislative programme and a Government legal service involved in all the legislation currently going through the Scottish Parliament.
Now we have this additional challenge, which has not been properly quantified by the UK Government, who cannot even tell us what they believe to be the split between reserved and devolved. As I have outlined, we know in broad terms what devolved powers are—they cover very significant areas. Our estimation, which is still to be gone through with a fine-toothed comb, is that this will have an extremely serious impact on the ability of the Scottish Government and the Scottish Parliament to scrutinise legislation that would need to go through our process to ensure that legislation does not fall over the sunsetting cliff edge. That is very significant.
Should the retained EU law dashboard identify whether retained EU laws in scope of the Bill are devolved or reserved? Absolutely. Do we have any sense that that is going to happen? No, we do not. A lot of work will have to be undertaken, and it is a massive displacement effort from what we are trying to get on with. If the UK Government really want to respect the devolved settlement and listen to the Scottish and Welsh Governments, and do not want to break the Sewel convention, they should bring forward an amendment that disapplies the legislation either in whole or specifically in devolved areas. That would be the most sensible and, given what the UK Government Ministers have said to me personally, the most pragmatic way of going forward. If not, one can only conclude that what was said was not said in good faith.
The Chair
Thank you very much. We have one minute left. I am keen to bring in Stella Creasy for a quick question, and then Angus for a quick answer, please.
Stella Creasy
Q
Angus Robertson: I am all in favour of good intergovernmental relations. I have been doing this job since last year, and I have gone into conversations in good faith about any and every potential challenge. If that is one of them, I am happy to do so again.
The wider point is that we are supposed to have a range of measures that we can use to make devolution work, including the Sewel convention. We have subsequently agreed ways in which Governments in the UK should work together to push through potential challenges, and common frameworks and the like are supposed to deal with some of these issues. I wish the UK Government would live up to their promises to work with the devolved Administrations across the UK, as I am keen to do. They have an opportunity to do so by respecting the Sewel convention in this particular piece of legislation.
The Chair
Thank you so much. Your evidence has been very clear, but sadly we have run out of time. It is very nice to see you again.
Angus Robertson: Thanks for having me.
Examination of Witnesses
Michael Clancy OBE, Charles Whitmore and Dr Viviane Gravey gave evidence.
The Chair
I thank our final set of witnesses for being patient—we have run slightly over time because of the Division in the House of Commons. We will now hear oral evidence from Michael Clancy, director of law reform at the Law Society of Scotland; Charles Whitmore, research associate at the School of Law and Politics at Cardiff University; and Dr Viviane Gravey of the School of History, Anthropology, Philosophy and Politics at Queen’s University Belfast. All three witnesses are appearing via Zoom. We have until 5.23 pm.
Would the witnesses introduce themselves for the record, please? Let us start with Mr Clancy—[Interruption.] We cannot hear you at the moment—[Interruption.] Okay, we are having technical problems. We will suspend briefly and someone will do something with a hammer.
The Chair
I hope that we have got it right this time. Would our witnesses like to try introducing themselves again, please?
Michael Clancy: Thank you, Sir Gary. My name is Michael Clancy. I am director of law reform at the Law Society of Scotland.
Dr Gravey: I am Viviane Gravey, a senior lecturer in European politics at Queen’s University Belfast. I am also co-chair of Brexit & Environment, a network of academics looking at the impact of Brexit on the environment.
Charles Whitmore: My name is Charles Whitmore. I am a research associate with Cardiff University’s Wales Governance Centre, where I lead on its joint work with the Wales Council for Voluntary Action, which is the national membership body for charities in Wales, on the constitutional and legal changes arising from, in this case, withdrawal from the EU.
Justin Madders
Q
Dr Gravey: Thank you very much for the question. It is true that, in any case, there will be many more concerns for Northern Ireland. We have two different types of concern. First, it will be more complex for Northern Ireland, and secondly, in the absence of an Assembly or Executive, it will be harder for Northern Ireland to either participate in the retained EU law powers or to give any kind of oversight.
In terms of how it is more complex for Northern Ireland, there were some mistakes in the discussion this morning around the scope of the Bill when it comes to Northern Ireland, in clause 1(5). That is basically just about excluding, as with the rest of the UK, a primary role from the scope of the Bill. Basically, that is there because we sometimes have direct rule in Northern Ireland. There are Orders in Council, and they are not secondary legislation, but there are statutory instruments and statutory rules in Northern Ireland that will fall within the scope of the Bill.
The protocol comes in in two different ways. First, because of the protocol, we have retained EU law in Northern Ireland, but we also have a different type of EU-inspired legislation, which is directly applicable EU law, through the annex to the protocol. There is some question about the overlap between those two groups, and what will happen, for example, if we start removing or adding protocol laws that do different things from retained EU law. We have a very complex system in Northern Ireland right now. That is one of the issues.
The other issue is, as I think you have heard, about the primacy of EU law. That will be removed by the Bill, but it is maintained and reaffirmed in the Northern Ireland Protocol Bill, which is also in front of the Commons. How those two Bills will work together is one of the big questions, and I do not think anyone has an answer. Civil society and Government—Ministers and civil servants—in Northern Ireland have a lot of questions, and there are concerns that we are not getting answers or clarity from the UK Government on this.
Justin Madders
Q
Dr Gravey: Again, there are two different impacts. There is the impact on deciding on REUL, and what happens on the revoking end impacts on oversight. Before we lost our Ministers at the end of last month, some of the Departments had started work on mapping REUL. We know that the Department of Agriculture, Environment and Rural Affairs has identified around 600. The Department for Infrastructure has identified around 500. But the other Departments have not yet told us how many. It looks like the Northern Ireland Office is pushing the Departments to do something, but there is very little clarity. On a NI dashboard, for example, it is very unclear what we are going to get —if anything.
The other point is on consent and oversight for REUL. Through the UK Brexit SIs, we experienced that best efforts at involving the devolved Administrations were very limited in practice. On the environment and agriculture, for example, the experience in Northern Ireland has been that, even when the Assembly returned in 2020, the Committee for Agriculture, Environment and Rural Affairs and DAERA were getting only parts of the Brexit SIs, and they got them very late, with very little time to engage at all with stakeholders or to provide consent. That was when we had an Assembly. When we did not have an Assembly—for most of the Brexit process—there was no formal process for stakeholder engagement and involvement in the massive change that has already happened for the creation of retained EU law.
The fact that this Bill creates even more of an opportunity to change a vast amount of legislation even more deeply, and the lack of an Assembly, leads to the concern—the Scottish Minister said this earlier—that decisions will be made without the involvement of devolved citizens. That is even more the case in Northern Ireland because we do not have the mechanism for normal consent through the Assembly and the Executive.
The Chair
Q
Michael Clancy: The Law Society of Scotland’s principal concerns are about the potential for confusion and the lack of clarity about what the law is, what law applies and when it applies. In particular, we think that the sunset provisions are unduly short. We are told that the sunset will operate from the end of 2023—a phrase that lacks some statutory precision, I might say, so we will be preparing amendments to deal with that.
There is also a lack of clarity about what comes afterwards. It will be difficult for citizens and businesses to deal with even the provisions about replacement, restatement and the creation of the new category of assimilated law in a short—apparently very compressed—period of time, and without the adequate consultation that one would expect when this sort of law is changed. I hope that is helpful.
The Chair
That is very helpful. Mr Whitmore?
Charles Whitmore: It is important to emphasise as a starting point just how significant the Bill is from a devolved perspective. There has not as yet been sufficient consideration of the implications at the governmental level. It is not evident to me, from the Bill and the Bill documents, that sufficient consideration has been given to that.
For instance, there is a lack of a consent mechanism, despite that being contrary to practice in recent legislation. The clause 2 extension power is not being granted to devolved authorities. There is significant uncertainty about how the legislation might interact with different levels of governance and the different levels of inter-dependence therein. Crucially, we do not know much yet about what mechanisms relating to institutions for intergovernmental relations we might need, have or lack so that we can ensure co-operation in what is fundamentally a shared policy space.
It is important that those issues are given due consideration, ideally prior to the introduction of the legislation. Not having an understanding of them could amplify the significant risks of omissions and accidents arising from the sunset mechanism.
A second core concern for us is the legal uncertainty, which I am sure the previous panels spoke to you about. There is significant scope for the Bill to lead to legal uncertainty, and that is compounded at the devolved level because our capacity constraints are probably more acute, so the time sensitivity is even greater, and because there is uncertainty around how you address the tensions in the Bill at an intergovernmental level.
For instance, we do not know how different parts of the UK will make use of the powers in the Bill. Which will fall within the market access principles of the United Kingdom Internal Market Act 2020? Will they fall within or without an area covered by a common framework? If you start thinking about the different uses that might be made of the restatement powers, and which parts of the UK might take different approaches to supremacy and the general principles, the level of uncertainty really does start to get quite extreme.
Ms Ghani
Q
Michael Clancy: In terms of the EU legislating differently from Scotland, it all depends on what was meant by that phrase, Minister. I am therefore kind of in the dark about what you are asking me to comment on. Certainly, the EU is a completely different legislative creature from legislatures within the UK. It operates in the field of supranational law, rather than national law, and has a different mechanism in the relationship between the Parliament, the Commission and the Council. Those are significant differences constitutionally from the way in which we operate, but I am not really sure what your fundamental objective is?
Ms Ghani
Q
Michael Clancy: As you might have seen from our evidence, we took a lead from the comments made by Theresa May when she was Prime Minister about the creation of retained EU law as a route to certainty following the UK’s withdrawal from the European Union. Of course, it is always in the gift of Governments to change tack. To change to a different legislative structure, following the creation of retained EU law, is certainly possible, and the Bill seeks to do that, but I suppose the question is whether it is wise to do that in the time of the current economic crisis in which we are living.
Is it wise to do that with what could be described as a doctrinaire approach to time limits? The symbolic element of the later time by which changes can take place terminating 10 years after the referendum is all very well in terms of the political discourse, but will it be practicable to get to that point? Will there be adequate time for consultation with relevant individuals and businesses before that date arrives? Those are real issues embedded in the Bill.
There is then of course the issue that Mr Robertson and others talked about: the way in which all that interacts with the devolved Administrations and legislatures, and how they can deal with that approach to changing REUL. That is where one would want to criticise the Bill and ensure that we get it right if the changes are to proceed.
Ms Ghani
Q
“The UK government is in effect telling the devolved administrations to put on hold a lot of their priorities if they want to keep the status quo in any areas such as the environment where REUL plays a significant role.”
The compatibility and preservation powers in the Bill have been drafted as concurrent powers allowing either the devolved Administrations or UK Ministers to use them in devolved areas, or acting jointly. Those concurrent powers mean that devolved Administrations do not necessarily have to put on hold their priorities or allocate significant resources if they wish to maintain the status quo. Do you not agree?
Dr Gravey: Thank you so much, first of all for having read the blog—
Ms Ghani
I will never get those hours of my life back. That is fine. Please carry on.
Dr Gravey: Just the fact of the need to map all retained EU law in the devolved sphere is something that the devolved Administrations had not planned to do, and are being asked to do. Whether we can restate everything or not, there is one thing that as a Minister you might be able to help us with. Through transposition back in the ’90s or 2000s, a single SI might have been taken for the whole of the UK, even though it is an area of devolved competence. Can the different Administrations now each retain or amend that same SI differently? Can we have that kind of restatement of devolution powers?
There is a potential issue there. We are not sure what will happen when there was only one Brexit SI or one SI that was transposed back in the ’90s. For example, in some cases, transposition has been done by primary legislation in Scotland but secondary legislation in the rest of the UK.
We have all these things that have to be mapped. The mapping itself will take a lot of time, as we know from past SIs work. On the devolved Administration point, a lot of the worry is just going through and potentially making the case that at this point they need to have the right to retain something, although it is perhaps revoked in England. The impression that I have from my engagement with the Administrations is that there are some concerns there. If the UK Government are willing to say, “Don’t worry, even if it is the same SI, you can retain it while we revoke it”, that will reassure the devolved Administrations a lot.
Michael Clancy: May I say that I do not think that concurrent and joint are the same thing? We talk about powers granted to devolved Administrations being conferred concurrently and jointly. Concurrently means that they are used either by a UK Minister or by a devolved Administration independently of each another in devolved areas, whereas jointly means that a UK Minister and a devolved Administration are acting together. It is useful to get that kind of distinction on the record.
The Chair
Thank you, that is very helpful.
Charles Whitmore: While we are on the concurrency of the powers, I think this is a significant concern. It is a constitutional anomaly within our legislation that the UK Government can use concurrent powers in the Bill to legislate in areas of devolved competence without any form of seeking consent from relevant devolved Ministers. It is egregiously out of keeping not only with the Sewel convention, which is already under significant strain but with other EU withdrawal-related pieces of legislation.
Sections 6(7), (8), (9) and section 10(9) of the United Kingdom Internal Market Act 2020 require the UK Government to seek the consent of devolved authorities before making regulations and to publish a statement as to—if this is the case—why they are going ahead with that, despite potential devolved refusal. We have mechanisms in the European Union (Withdrawal) Act itself, and an intergovernmental agreement alongside, which provide a consent mechanism so that there is a recognition that this is a jointly shared space. It is quite odd that there is no consent mechanism of that nature in this Bill.
Justin Madders
Q
Michael Clancy: It might be difficult to get a protocol into the Bill, but if one recollects, in the United Kingdom Internal Market Act it was a long tussle between the Government and the other parliamentary participants in making reference to common frameworks in that measure.
One can say that under the EUWA arrangements for making retained EU law that had to be made by UK Ministers, a protocol was established between the Scottish Government and the Scottish Parliament where Scottish Ministers would indicate to the Parliament certain UK measures that would affect devolved matters. The Parliament would consider them and rank them according to whether they were significant or less so. Something like 83 separate orders were dealt with in that way, in terms of creating retained European Union law at that time over the period from 2018 to 2021.
Dr Gravey: If I can just add to that, of course a consent mechanism would be welcome, although we have seen some issues. What has been put in place for REUL around the withdrawal Act has been inter-governmental, so we are removing oversight in Parliament—both in Westminster and in the devolved Administrations—from the equation. They only come in because it is in the gift of the Scottish Government and Welsh Government to involve them, and because they have decided to involve them, but the agreement is between the UK Government and, for example, the Welsh Government.
Secondly, the absence of an Executive in Northern Ireland raises the question of how we can get consent. Can we have some kind of role for the civil service in Northern Ireland to grant consent? Can we have some role for the Northern Ireland Affairs Committee in the House of Commons to review some of this work? We do not know, but we need to think about it, because the absence of an Executive in Northern Ireland will be a rolling issue, and consent has to be rethought around that.
The Chair
Thank you very much—a final word from Mr Clancy.
Michael Clancy: That is a very important point about the role of intergovernmental relations in all this. We had a long period of reflection on intergovernmental relations, which resulted in the new structure being created earlier this year. One of its key aspects is that the relations should facilitate effective collaboration and regular engagement in the context of increased interaction between devolved and reserved competences in our new relationship with the EU and other global partners. The issue of intergovernmental relations has already anticipated that, and we should not necessarily want to reinvent the wheel. Instead, I suggest that we need to reflect on the structure of intergovernmental relations and see whether there is anything that can be developed or, alternatively, refocused on the issues that arise from the Bill.
The Chair
Thank you very much. There are no further questions, but you have given us a lot to think about. I am sorry for the technical glitch and the delay at the beginning, but thank you for your expert and excellent evidence. We will take it into account as we take forward our Committee proceedings.
Colleagues, I am afraid that brings us to the end of the time allotted—I know you will be upset—for the Committee to ask questions in this sitting. On behalf of the Committee, I thank the witnesses for their evidence. The Whip is about to prepare to move the adjournment, and the Committee will next meet on Tuesday 22 November for line-by-line consideration of the Bill. I cannot wait.
Ordered, That further consideration be now adjourned. —(Joy Morrissey).
Economic Crime and Corporate Transparency Bill (Tenth sitting)
Tuesday 8th November 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 View all Economic Crime and Corporate Transparency Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 8 November 2022 - (8 Nov 2022)
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
It is a pleasure to speak with you in the Chair, Ms Elliott. Clause 80 gives the registrar of companies a new power to require information. The registrar’s existing powers are insufficient to tackle the large volume of inaccurate or suspicious information on the register. She has no powers to compel filers to furnish her with information to assist her to investigate filings that she is concerned are inaccurate or fraudulent, and that she may wish to remove. That means that suspect information is often accepted on to the companies register, damaging its accuracy, reliability and usefulness.
The insertion of proposed new section 1092A into the Companies Act 2006 will give the registrar a power to require that a person provide her with information for certain purposes. Those are: determining whether someone has complied with a delivery obligation or requirement; determining whether a document delivered to her satisfies the proper delivery requirements, including whether it contains accurate information; or determining whether or how to exercise her powers to remove improperly delivered information from the register or to resolve inconsistencies on it.
It is suspected that a significant amount of fraudulent information is already on the register. The power will therefore apply to existing register information as well as to all new information submitted to the registrar. The clause will also make it an offence for someone to fail to respond to the registrar’s request for information without a reasonable excuse. The maximum penalty for that offence will be two years’ imprisonment. It is imperative that we equip the registrar with all the tools necessary to challenge dubious information and ensure the integrity of the register. The power in the clause is the cornerstone of that ambition.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship, Ms Elliott. I thank the Minister for his remarks. We support the clause, which provides for a power to require additional information. He is right that the proposed new section is the cornerstone of providing the registrar with the powers to maintain the integrity of the register, so we support the clause.
Liam Byrne (Birmingham, Hodge Hill) (Lab)
It is a pleasure to serve with you in the Chair, Ms Elliott. When the Minister winds up the debate on the clause, will he say a little more about some of the information that the registrar may be seeking, and in particular whether she is able to solicit information from people seeking to file accounts, and so on, that has been requested by other agencies? All kinds of information is sometimes beyond the purview of, for example, the National Crime Agency, and sometimes the registrar, rather than a police agency, making the first approach may be a more intelligent way to get the information needed for an investigation. It would be helpful if the Minister clarified whether Companies House can act in concert with other law enforcement agencies to gather information that is needed to help to bring prosecutions.
Kevin Hollinrake
I am grateful for the right hon. Gentleman’s remarks. The answer is yes, that is exactly what the legislation allows for: the risk-based flow of information between the registrar and law enforcement agencies. Of course, the power will be discretionary, so the registrar will determine when to exercise it, but it can be to request any information that she requires under legislation—both public and private information.
Question put and agreed to.
Clause 80, as amended, accordingly ordered to stand part of the Bill.
Clause 81
Registrar’s notice to resolve inconsistencies
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government amendment 13.
Clause 82 stand part.
Clause 83 stand part.
Government new clause 7—Power to require businesses to report discrepancies.
Kevin Hollinrake
Clause 81 enables the registrar to require a company to resolve an inconsistency where it appears that information contained in a document delivered to the registrar in relation to a company is inconsistent with any other records she holds, including records about other business entities or organisations such as limited liability partnerships and limited partnerships. Currently, the inconsistency resolution power is available only if there is an inconsistency between the delivered information and the information on the companies register.
Where the registrar suspects that information submitted to her is inaccurate, but that suspicion is based only on information that she holds but that is not published on the register, for instance information gleaned from law enforcement agencies—that is the point the right hon. Member for Birmingham, Hodge Hill just mentioned—she will be able to issue a notice to require the company to correct the mistake. The clause will strengthen the registrar’s ability to ensure the register is accurate and reliable.
Government amendment 13 and new clause 7 are concerned with the identification and rectification of discrepancies between information that businesses, such as banks, lawyers or accountants, obtain in the course of their business relationships with customers, and information that the registrar curates. In our White Paper in February, the Government committed to expand current discrepancy reporting requirements to include discrepancies in director information and in registered office addresses. That would build on the discrepancy reporting that already occurs under the money laundering regulations in relation to beneficial ownership. It is a key part of our vision for Companies House reform that there are active and effective feedback loops from the private sector to help the registrar maintain the accuracy of the data she holds. This will benefit business and help protect personal information.
The power inserted by new clause 7 introduces a regulation-making power into the Companies Act 2006. Regulations made under that power can set out who must check for discrepancies and what information they check, beyond just discrepancies in relation to beneficial ownership information. The regulations can also be used to create offences for failure by those obliged to check for discrepancies to comply with those obligations.
Government amendment 13 omits section 1095A from the Companies Act. This power to resolve discrepancies in certain circumstances is no longer needed because of the wider power introduced by clause 82, which enhances and rationalises the registrar’s powers to remove material from the register. Proposed new section 1094 of the Companies Act, as substituted by clause 82, gives the registrar the power to remove material on the register where it has not met proper delivery requirements or is unnecessary. The registrar could exercise that power on her own motion, or on application.
Clause 82 will strengthen the registrar’s powers, enabling her to proactively clean up the register. The power is safeguarded by the requirement that the registrar may exercise it only if satisfied that the interest of the company or applicant in removing the material is not outweighed by any interest of other persons in the material continuing to appear on the register. That matches the test that the court has to apply, which is the focus of clause 83.
Clause 83 expands the range of people whose interests a court must take into account when considering whether to make an order to remove material that has legal consequences from the register. Currently, a court can only make an order to remove material if satisfied that the material is damaging to a company and removing the material outweighs the interests of any other person in the material in retaining it.
That test overlooks the fact that a person other than the company might have their interests affected by a filing—for example, a person whose name has been fraudulently registered as a director of a company with which the person in fact has no connection. Clause 83 amends section 1096(3) of the Companies Act so that the court must now also take into account the interests of an applicant, who may be different to the company, as well as the company.
Seema Malhotra
I have a few questions on the clauses. Clause 81, on the registrar’s notice to resolve inconsistencies, would expand the powers of the registrar to identify inconsistencies by considering all records—it goes wider than just the information on the register. Any notice given would state the nature of the inconsistency and give the company 14 days to resolve it. Could I ask the Minister to clarify what will happen if a company exceeds this 14-day period?
On new clause 7 on the power to require businesses to report discrepancies, I want to understand how that might be operationalised. Would the registrar seek information from businesses, or would businesses be expected to do something without being requested to? It was not quite clear how the measure would be used. On businesses that might come under scope, the Minister mentioned financial services, but the proposed new section under new clause 7 refers to regulations imposing requirements on
“a person who is carrying on business in the United Kingdom”.
Any company or business may be required to report discrepancies. It would be helpful to understand that point, as there is a fair bit of detail in new clause 7. I would appreciate the Minister’s comments on that.
Clause 82 creates a new power for the registrar to remove information that was submitted to it and accepted despite not meeting proper delivery requirements. There may well have been reasons for the information being accepted. As the Minister mentioned in a previous debate, for some reason there may have been a minor issue that was considered not significant—I think he may have used the word “material”—and the information did not meet proper delivery requirements. Could I clarify whether the Minister would expect there to be any notification to directors or officers about material being removed? Would any note be made on the register as a record of material having been removed? It would simply be a matter of putting on a company’s record that material was there and accepted even though it did not meet properly delivery requirements and was subsequently removed. It is not about there being a risk of a cover-up, with material being removed, but it is helpful to have an audit trail. Perhaps the Minister can outline how he envisages that power being used.
Clause 83 amends the Companies Act 2006 so that, as regards material being removed, the court may take into consideration whether the interests of an applicant outweigh the interest of other parties. Can I clarify how this would be used? Would it be used when a third party did not believe that it was appropriate to remove the material? Who else might the applicant be? I am trying to understand when it might be used and a case might come to court to weigh the pros and cons in terms of parties’ interests in having that material removed. It would be helpful to have some clarity on that.
Alison Thewliss (Glasgow Central) (SNP)
I have some questions about new clause 7. I am reading through it and trying, as I have done with many of the amendments, to put myself in the scenario of being the person who is carrying on business in the United Kingdom. It says that as that person, I am obliged to
“obtain specified information about a customer (or prospective customer)…before entering into a business relationship with them, or…during a business relationship with them”
and I have to identify any discrepancies and report them to the registrar. I get that: if I do that and I see a discrepancy, I have an obligation to report it. It feels as though the Minister is bringing forward a very soft version of a failure to prevent offence, which of course I am fine with.
I want to double-check something, however. The new clause goes on to talk about offences that might be created for failure to comply with the requirements, and I want to know what happens if I, as the person carrying on the business, do not spot a discrepancy. How is it ascertained whether I did not spot the discrepancy—whether it was a genuine mistake on my part—or whether I failed to report something that somebody else later picked up?
We are talking here about convictions, punishable as set out near the end of the new clause, and I am curious about how the regulations will work in practice. If I do not spot a discrepancy and report it, how does the law know that I did not spot it? Perhaps I ignored it because I thought it was not relevant or important, or perhaps I did it deliberately. If I come back after the fact and say, “I didn’t report it because I didn’t see it,” or “I didn’t report it because I didn’t want to,” those are two very different things.
I do not quite understand how the new clause will work. Some people might think it is good and beneficial to go clyping and grassing up people who do not comply, and that is fine, but it is quite a different thing if a discrepancy has been overlooked. I would like the Minister to explain how that will work in practice.
Kevin Hollinrake
I will first take the latter point, which covers some of the shadow Minister’s points as well. There will be more detail in secondary legislation about how new clause 7 is expected to operate, but it is quite reasonable to think that third party business entities will understand how this should work. Within that, we would expect there always to be a reasonableness defence if an error was made or something was done in good faith. We would not expect a penalty to be applied in that case, but there will be more detail on that in secondary legislation.
The shadow Minister asked what would happen if an organisation failed to comply with a notice within the 14-day period that it is given to respond. There is an unlimited fine, potentially, for failure to comply. Other situations might even lead to somebody facing a prison sentence of up to two years, in certain instances. A lot would depend on the circumstances involved. That also relates to what the hon. Member for Glasgow Central asked.
The shadow Minister asked for more detail about how the relationship between the registrar and third party companies would work. This does not just refer to the financial sector; it also refers to the legal sector. It would pertain to any organisation that is supervised by money laundering regulations. I think that is the extent to which companies would be bound by the rules on checking discrepancies.
The shadow Minister asked whether there would be a flag if a record was removed. Clearly, there will be a red flag for the registrar themselves, depending on the reason why that record has been removed, and that may be something we cover in further detail in secondary legislation. My immediate reaction is that we would not want red flags to be set against a company that had made an honest mistake, because that might unreasonably set some hares running. I am a little concerned that that might happen if we did as the shadow Minister described.
Seema Malhotra
For clarity, perhaps I can distinguish the difference between a red flag and a record of what has happened. We keep a record of what happens, but a red flag is a cause of concern.
Kevin Hollinrake
Yes. The registrar will have the ability to annotate the register as is appropriate in the regulations we intend to make using the power found in section 1080.
Question put and agreed to.
Clause 81 accordingly ordered to stand part of the Bill.
Clause 82
Administrative removal of material from the register
Amendment made: 13, in clause 82, page 65, line 21, at end insert—
“(6) Omit section 1095A (rectification of register to resolve a discrepancy).”.—(Kevin Hollinrake.)
This repeals section 1095A of the Companies Act 2006 as in practice the only circumstances in which material would be removed from the register under that section are caught by new section 1094 (inserted by clause 82 of the Bill).
Clause 82, as amended, ordered to stand part of the Bill.
Clause 83 ordered to stand part of the Bill.
Clause 84
Inspection of the register: general
Kevin Hollinrake
I beg to move amendment 106, in clause 84, page 65, leave out lines 40 and 41 and insert—
“sections 64(6A), 67(1A), 73(7), 75(4A), 76(5A), 76A(9) and 76B(9) (which confer powers to suppress a company’s name that it has been directed or ordered to change);”.
This is consequential on NC34.
The Chair
With this it will be convenient to debate Government new clause 34—Requirements to change name: removal of old name from public inspection.
Kevin Hollinrake
Members of the Committee might remember that when we discussed the provisions concerning company name change directions last Tuesday, there was much debate about the 28-day compliance period, a topic on which I have since written to the hon. Member for Feltham and Heston. It is fair to say that we might not have exactly achieved a meeting of minds on that occasion, but we will try again today.
I am grateful to the hon. Members for Feltham and Heston and for Aberavon for withdrawing their amendments in the hope that we could get to a place we agreed on. I think we all agree that a company should have a reasonable amount of time to change its name and that we would prefer compliance rather than an imposed solution involving the registrar defaulting the company’s name to its rather anonymous company registration number.
Compliance will, quite legitimately, take some time and effort on behalf of the company. Notice of a proposed change will have to be given to shareholders, and those representing not less than 75% of the total voting rights of eligible shares will have to agree to the change. That is why it is the Government’s position that a company should have a minimum period of 28 days to change its name following a direction, with the possibility to ask the Secretary of State to extend that period where necessary.
Hon. Members are right, however, to be concerned about the harm that can flow from offending names. Where the Secretary of State has determined it appropriate to issue a direction, it will almost invariably be the case that the name’s presence on the register risks causing harm to users. That is why clauses 17 and 18 give the registrar new powers to remove a company name from the publicly accessible part of the register at the point a direction is issued, so any ongoing harm would be curtailed immediately at that point.
The earlier amendments have very helpfully highlighted for us that this ability to remove an offending name from the publicly inspectable part of the register is not available to the registrar in respect of the name change direction and order provisions that already exist in the Companies Act 2006—but it ought to be. New clause 34 addresses that issue, ensuring that the registrar will have the ability to suppress the name and the subject of a direction or order under all circumstances under which one might be issued.
Government amendment 106 ensures that the general right for people to inspect the register does not extend to offending names that have been suppressed. The effect is that we strike a fair balance between allowing companies adequate time to comply with a name change direction and protecting users of the register from harm that might arise from the offending name remaining visible while the company goes through its internal name change process. I hope hon. Members will welcome these amendments, and I commend them to the Committee.
Seema Malhotra
I thank the Minister for his remarks, and wish to speak to this group on behalf of my hon. Friend the Member for Aberavon as well. I must say that these provisions are not easy to follow, so forgive me for feeling like I will need to reread Hansard in a darkened room in order to completely follow what the Minister has said.
Dame Margaret Hodge (Barking) (Lab)
I do not think any of us understood a word of that. It would be really nice if the Minister could explain it in black and white, because I just could not get what that was getting at at all.
Kevin Hollinrake
In layman’s terms, it means that if a company is required to change its name because it could cause harm, the registrar can immediately suspend that name from the register—as we discussed last week—so it cannot cause harm.
Dame Margaret Hodge
Perhaps the Minister could also explain how that is different from what we agreed last week.
Seema Malhotra
I thank my right hon. Friend for her question, which the Minister may wish to answer before I continue my remarks.
Kevin Hollinrake
It extends the extent. The registrar did have that power to a certain degree for certain names, but they did not have it in every circumstance, so the Bill extends its right to use the power. Basically, in any situation where a name change is required because it could cause harm to the public, the registrar can immediately suspend that name from the register so that it cannot cause harm in any circumstance.
Seema Malhotra
I am grateful to the Minister for his intervention.
The clauses on the register include important provisions related to information sharing and the parameters of information that may be made available to the public. They are hugely important on a number of levels, facilitating access to relevant information for law enforcement and, more broadly, building public trust and confidence in our laws on economic crime. As drafted, the Bill appears to lean much more heavily towards restricting the availability of information to the public, and as we have said, an explanation of the Government’s thinking and rationale on these issues would be helpful for the deliberations of the Committee.
Clause 84 deals specifically with exemptions from requirements to make information publicly available. Exempting information from public disclosure pending verification by the registrar is a reasonable provision, since it could be argued that such information might otherwise give a misleading or inaccurate picture of the registry if certain information released to the public was ultimately excluded on the grounds that it could not be verified.
Clause 84 also deals with the names of companies registered incorrectly or used for criminal purposes. As the explanatory notes confirm, the intention is to prevent such information from being disclosed to the public, but a slightly clearer explanation of those provisions would be helpful. It seems reasonable in most cases to exclude information submitted in error to the registrar. On company names used for criminal purposes, perhaps the Minister could explain whether the intention of clause 84 is to prevent the disclosure of information relevant to a specific ongoing criminal investigation.
Seema Malhotra
Have I jumped? That is my fault. I have just checked the grouping, and I see that we are discussing clauses 82 and 83. In which case, I will stop there.
Seema Malhotra
I thought it was clause 84 stand part, clause 85 stand part and clause 86 stand part.
Liam Byrne
On a point of order, Ms Elliott. I would be really grateful if you could just clarify where we are in the debate.
The Chair
We are debating Government amendment 106 to clause 84, with which it is convenient to consider Government new clause 34. It is this light; I am afraid I am reading eights for threes. I am terribly sorry.
Seema Malhotra
That is clear. I was slightly confused by the grouping, but that is absolutely clear, and I will continue my remarks when we come to the next group.
Kevin Hollinrake
I have nothing further to add.
Amendment 106 agreed to.
Question proposed, That the clause, as amended, stand part of the Bill.
Kevin Hollinrake
Clauses 84 to 86 all make amendments to the provisions in the Companies Act 2006 about rights to inspect the register and obtain copies of the material on it.
Section 1085 of the Companies Act requires the registrar to make company information available for public inspection. Clause 84 makes consequential technical amendments to the section resulting from the various amendments to the Companies Act that are made elsewhere in the Bill—[Interruption.]
The Chair
Order. We need some clarity. We are in the middle of a Committee sitting and it is not appropriate to speak from beyond the bar. May I also say that we need some light? [Interruption.] Order. We will resume.
Kevin Hollinrake
I can see my notes very clearly. It is absolutely fine.
The amendments qualify the inspection rights in section 1085 of the Companies Act to ensure that certain information cannot be inspected. The information in question comprises company names that have, for example, been the subject of a registrar name- change direction because of concern that the name’s use is for criminal purposes.
The technical amendments to the Companies Act made by clauses 85 and 86 improve the integrity of the companies register and prevent the abuse of personal information held on it. Clause 85 makes amendments that relate to copies of material on the register, clarifying that the right to require a copy of material on the register applies only to materials that are available for public inspection. The clause also removes the option that an applicant has for submitting applications to require a copy of an enhanced disclosure document in paper form or electronically. It allows the registrar to determine the form and manner in which copies of registered material are to be provided under section 1086 of the Companies Act.
Seema Malhotra
Clause 84, as I alluded to earlier, deals with names of companies registered incorrectly or used for criminal purposes. The explanatory notes confirm that the intention is to prevent such information from being disclosed to the public. Excluding information submitted to the registrar in error seems reasonable, as I mentioned earlier, in most cases. With regard to company names used for criminal purposes, I would be grateful if the Minister could clarify whether the intention behind clause 84 is to prevent the disclosure of information relevant to a specific criminal investigation that may be ongoing. I am sure that we all agree that sensitive information should not be disclosed if doing so would compromise an active investigation by law enforcement agencies. If, however, all investigations and, where relevant, prosecutions and court proceedings have reached their conclusion, there might be an argument for public disclosure of said information about the company in question to then be permitted.
If it is the Government’s intention to prevent disclosures of company names used for criminal purposes only in circumstances where it is absolutely necessary to do so, perhaps the wording of clause 84, which is currently quite broad, may be usefully amended to reflect that. I am also raising those concerns on behalf of my hon. Friend the Member for Aberavon. Perhaps there could be a specific provision enabling information on such company names to be disclosed to the public once any criminal proceedings are over in cases where there may be a public interest to do so. It would be helpful if the Minister could set out the Government’s thinking on those issues.
Clause 85 amends the Companies Act to give more powers to the registrar, for instance in relation to the format in which information may be provided. The provision enabling the registrar to require an application for access to information to be submitted electronically is broadly welcome, inasmuch as it supports the wider objective of delivering more streamlined and effective services, although it may be helpful for the Minister to clarify when he expects a fully electronic process for members of the public to request and access information held by the registrar to be up and running.
Clause 86 extends the scope for information, including information of the kind covered by previous clauses, not to be disclosed by the registrar. The more general question of what information should be made publicly available, and the criteria on which those decisions are made, will be discussed shortly in relation to the next clause, but I would be grateful for the Minister’s comments.
Kevin Hollinrake
Clause 84 relates to issues that we debated earlier. The information in question comprises company names that have, for example, been the subject of a registrar name change direction because of a concern that the name’s use is for criminal purposes. I do not think that there is anything different here from what we have already discussed. It deals only with the exception to the general rule of making the entire register available to the public where the registrar uses her discretion to take a name off the register. It is not related to police investigations; she would suppress the name of a company for other reasons.
Question put and agreed to.
Clause 84, as amended, accordingly ordered to stand part of the Bill.
Clauses 85 and 86 ordered to stand part of the Bill.
Clause 87
Protecting information on the register
Seema Malhotra
I beg to move amendment 114, in clause 87, page 68, line 7, at end insert—
‘(7A) Regulations under subsection (1) above may not prevent the registrar from making available for public inspection information mentioned in paragraphs (a) to (d) unless there are compelling reasons for the information to be withheld.
(7B) For the purposes of subsection (7A) above, “compelling reasons for the information to be withheld” include circumstances in which the registrar may decide that public release of the information may result in—
(a) a serious threat to the personal safety and security of the individual to which the information relates;
(b) adverse effects on any investigation by an appropriate officer of a suspected offence under this Act;
(c) adverse effects on the ability of an appropriate officer to impose a penalty for any offence under this Act; or
(d) a clear risk to the national security of the UK;’.
This amendment seeks to expand the registrar’s powers to release information about the Companies House register, where it is in the public interest to do so, while also enabling personal information relating to an individual to be withheld in cases where there are compelling reasons to do so.
It is a pleasure to speak to the amendment, tabled in my name and that of my hon. Friend the Member for Aberavon. It appears at least possible that the Government could place strict limits on the rights of journalists to request information, for example, in connection with investigations that may well be firmly in the public interest. Disclosures of that kind have been seen in the Panama papers and the Paradise papers. Those are just two examples of how important it is that legitimate journalistic access to information held by the registrar must be protected.
It is with those concerns in mind that we have tabled amendment 114. Its aim is to ensure that there is a default presumption in favour of disclosing information in response to a request, whether from a journalist or an ordinary member of the public, and to ensure that legitimate requests are refused only when there is clear evidence of a compelling reason to do so. We believe that the powers granted to the Secretary of State under clause 87, as drafted, are simply too broad. We therefore strongly urge the Government to support the sentiments in amendment 114.
Kevin Hollinrake
I am not sure that what we are trying to do here is relevant to the matter that the hon. Lady raised. Amendment 114 would prevent regulations being made to allow the registrar to make information unavailable for public inspection under new section 1088 unless there are compelling reasons for the information to be withheld, which this amendment outlines.
Of course, there are instances where disclosure of information on the public register is inappropriate—I think we have all agreed that through the course of this debate—for instance, where it could lead to an increased risk of fraud and identity theft, or put individuals at risk for some reason, such as in cases of domestic abuse. There are limitations in the extent to which existing provisions in the Companies Act 2006 allow personal information to be withheld from the public register. We want to expand that to ensure that personal information is properly protected.
Clause 87 amends the Companies Act to allow individuals to apply to the registrar to suppress information relating to an individual or address and prevent it from being disclosed or made available for public inspection. That will include their residential address, signature, business occupation, and date of birth in old documents.
Dame Margaret Hodge
This is another opportunity to raise the issue, to which I have not had an answer, of Fedotov. That is how he kept his name off the—[Interruption.] It is. We just need an answer.
Kevin Hollinrake
The answer is that any person applying under the exemption will have to prove to the registrar that there is sufficient evidence of a serious risk of violence or intimidation to protect their names or information. If necessary, the registrar will refer cases to an appropriate law enforcement agency and will have the power to revoke protection if information comes to light to suggest that false evidence has been provided.
Does the right hon. Lady honestly think that a registrar, who has a duty and responsibility to protect the integrity of the register, would assist an oligarch, for example, in trying to hide information? I think we are into conspiracy theory territory here, which I do not think will get us very far.
Dame Margaret Hodge
In general, I would agree with the Minister. However, the truth is that Fedotov did manage that. If the Minister could provide an explanation of why and how that happened, then we might get greater comfort in this Committee that those circumstances will not arise again.
Kevin Hollinrake
I committed earlier to look into that case, and I will, but the Usmanov case, as I said, was a completely different case. The whole reason why we are bringing forward this legislation is to improve transparency and fight economic crime. The right hon. Lady’s indication that perhaps the registrar might be complicit with Russian oligarchs, who may be guilty of economic crime, is not really plausible.
These are reasonable provisions for people whom we suggest might be at risk of harm if we publish that information, and they have to demonstrate that that harm is a salient risk. They are reasonable provisions that would be used fairly sparingly in the main, but nevertheless there have to be those kinds of provisions where somebody is at risk of harm. That does not exempt the applicant from providing the information to the registrar, where it is still required by legislation, but it will no longer be displayed publicly. Critically—and this should answer the right hon. Lady’s point—information would still be available to law enforcement agencies and other public bodies. It would not be appropriate to limit the registrar’s ability to protect personal information in the way proposed by the amendment.
Seema Malhotra
I will not push amendment 114 to a vote. It is an area where there is probably further debate to be had but, having reflected on that with my hon. Friend the Member for Aberavon, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
As we have discussed, there are instances where disclosure of information on the public register can lead to an increased risk of fraud and identity theft or put individuals at risk for other reasons, such as in cases of domestic abuse. The clause addresses this by amending certain sections of the Companies Act 2006 that confer or otherwise relate to the power for the Secretary of State to make regulations, permitting applications for personal information to be suppressed or protected, which means that the information is not made available on the public companies register.
Seema Malhotra
I wish to make a few remarks. I take on board the Minister’s comments, and we all agree about instances where there may be domestic violence reasons, for example, or other security and personal information reasons for why an individual’s home addresses and so on should not be disclosed. As discussed earlier, transparency plays a vital role in building public confidence in our ability to crack down on fraudulent or other criminal abuses of our companies legislation. Arguably, clause 87 grants an extraordinary degree of power to the Secretary of State to specify in regulations not just what information may be disclosed to the public, but who might be permitted to request information in the first place and on what grounds. It is quite a long clause. We had a debate before on the questions about safeguards, some of the uses of those powers and the extent to which there may be information that is not publicly available that ought to be, in the public interest. I would be grateful for a further discussion of the matter. I will work with my hon. Friend the Member for Aberavon to put together a note for the Minister with some more specific points to which it would be useful to have responses before Report.
Kevin Hollinrake
I just want to reiterate that all protected information, whether suppressed or not, is available to law enforcement agencies. That is the critical point. Individuals who seek to use these exemptions have to provide sufficient evidence of a serious risk of violence or intimidation, and that protection can be revoked if new information comes to the registrar’s attention that she feels casts doubt on the original assertions.
Question put and agreed to.
Clause 87 accordingly ordered to stand part of the Bill.
Clause 88
Analysis of information for the purposes of crime prevention or detection
Dame Margaret Hodge
I beg to move amendment 119, in clause 88, page 68, line 15, leave out from “must” to the end of line 17 and insert
“analyse information within its possession with a view to preventing or detecting crime.”
The Chair
With this it will be convenient to discuss the following:
Amendment 120, in clause 88, page 68, line 17, at end insert—
“(1A) In carrying out the analysis the registrar must make use of its power to require additional information under section 1092A where the registrar considers that such additional information may contribute to the prevention or detection of crime.”
Amendment 116, in clause 88, page 68, line 17, at end insert—
“(1A) As part of the analysis under subsection (1), the registrar must carry out a risk assessment to identify where the information it holds might give rise to a matter of concern.
(1B) Where the assessment identifies a matter of concern, the registrar must—
(a) carry out whatever further analysis it considers necessary; and
(b) share any evidence of unlawful activity it identifies with the relevant law enforcement agency.
(1C) For the purposes of this section, a “matter of concern” includes—
(a) inaccurate information;
(b) information that might create a false or misleading impression; or
(c) evidence of economic crime.”
New clause 37—Duty to check person of significant control status—
“(1) The Companies Act 2006 is amended as follows.
(2) After section 790LP (Offence of failing to comply with sections 790LI to 790LN) insert—
“790LQ Duty to check person of significant control status
(1) This section applies when a registrable person’s identity is verified under section 1110A(1) and a risk assessment carried out under section 1062A(1A) has identified a matter of concern in relation to the registrable person.
(2) The registrar must take steps to ensure that the registrable person whose identity is being verified is a person with significant control over the company.””
New clause 38—Risk-based examination of accounts of dissolved companies—
“(1) The Companies Act 2006 is amended as follows.
(2) After section 1062A (analysis of information for the purposes of crime prevention and detection) insert—
“1062B Risk-based examination of accounts of dissolved companies
(1A) In a case where the registrar’s risk assessment under section 1062A(1A) has identified a matter of concern in relation to a dissolved company, the registrar must examine the accounts of the dissolved company with a view to establishing whether any economic crime has been committed.
(1B) The registrar must share details of any evidence gathered under subsection (1A) with the relevant law enforcement agencies.””
New clause 41—Disclosure of control of 5% or more of shares in a public company—
“(1) This section applies to shareholdings in public companies as defined by section 4 of the Companies Act 2006.
(2) A person who controls 5% or more of the shares in a public company must declare this fact to the registrar.
(3) The duty in subsection (2) applies whether the person controls the shares directly or indirectly.
(4) The registrar may impose a penalty on any person who fails to comply with the duty in subsection (2).”
This new clause would require all persons controlling 5% or more of the shares in a public company to declare the total amount of their shareholding to the registrar. This would, for example, require a person controlling shares through multiple nominees to declare the total number of shares they control.
New clause 42—Verification of persons controlling 5% or more of shares in a public company—
“(1) This section applies where—
(a) a person has disclosed to the registrar control of 5% or more of the shares in a public company under section [Disclosure of control of 5% or more of shares in a public company], and
(b) the registrar has identified a matter of concern under subsection 1062A(1A) of the Companies Act 2006.
(2) the registrar must—
(a) verify the identity of that person, and
(b) verify the number of shares that person claims to control.”
This new clause should be read together with Amendment 116 which inserts subsection 1062A(1A) into the Companies Act 2006. It would require the registrar to verify both the identity and the shareholding of a person who controls 5% or more of shares in a company where the registrar’s risk-based analysis set out in Amendment 116 has identified a matter of concern.
New clause 43—Disclosure of shares held by nominee—
“(1) This section applies to public companies as defined by section 4 of the Companies Act 2006.
(2) Any person holding shares in a public company as nominee for another person must disclose this fact to the registrar.
(3) The registrar may impose a penalty on any person who fails to comply with the duty in subsection (2).”
This new clause would require shareholders of a company to disclose the fact that they are acting as nominees. Failure to comply could result in a penalty.
Dame Margaret Hodge
The Minister is delighted. All the provisions are grouped together, so he will have to listen to me forever. The lighting is not much better, but we will see how we go—I know we are saving energy.
The provisions that we are discussing all sit together. I will start with amendments 119 and 120, with which we are trying to strengthen the duties, rather than the powers, of Companies House. During the course of the Committee’s discussion of the Bill, we have considered how UK corporate structures and vehicles are used to move, hide and launder money. When the Bill is enacted, although I hope that it will be amended to strengthen the nature of the information we get by strengthening the supervision of company service providers, Companies House will hold a wealth of data.
Amendment 119 seeks to make it compulsory for Companies House to analyse that data to prevent and detect crime. By removing some words, it would be tougher than the current wording of the clause, according to which Companies House could analyse that data, but does not necessarily have to. The clause says
“as the registrar considers appropriate”,
and, without the amendment, Companies House could and will argue that it does not consider analysis “appropriate”. We would remove that provision and say that the registrar must use the data that has been made available to her to see whether or not it can support us in our efforts to avoid crime.
I have one other thing to say about this issue. We have talked a lot in the debate about corruption and the way in which it has impacted the UK economy. As we discuss the Bill further, we have to remember the impact it will also have much more widely. According to the ONE Campaign’s latest estimate, around $1 trillion is lost every year to corruption in developing countries. A lot of that comes through the abuse of corporate structures that we have in the UK. That is just one example that demonstrates how UK corporate structures facilitate theft and corrupt activity.
I know that that is under the current regime and that much of this should go when we get to our new regime. However, I will give another example of how the abuse of UK corporate structures led to money, again, coming out of Russia, which is the bottle laundromat—another of these laundromats—that was uncovered by Transparency International. British companies were, again, at the centre. It was a money laundering operation from 2014 to 2016 where $820 million came out of Russia. Again, it involved—classically—a network of shell companies, many of them UK firms, that apparently sold bottle-moulding machines to Russia.
Kevin Hollinrake
The right hon. Lady raises some important cases, and she is right to do so. Is that not exactly why we are trying to do this in this way? There are 4.5 million companies registered in England. Around 700,000 companies are registered every year, or 2,000 a day, and 400,000 are dissolved every year. If she is asking Companies House to analyse every single company—that is exactly what her amendment says—to determine risk, she is asking too much of Companies House and she will miss the important needles in the haystack that she refers to.
Dame Margaret Hodge
Were I asking that, that would be unreasonable but if the Minister takes all my amendments together, he will see that they and others talk about a risk-based assessment of the available data.
Kevin Hollinrake
The amendment does not say that. It says that
“the registrar must carry out a risk assessment”,
not a risk-based approach. There is a big difference in terms of what the right hon. Lady is asking for.
Dame Margaret Hodge
But when we come to the new clauses, which we will discuss later, they say “risk-based”. It is a risk-based assessment. Perhaps the Minister could explain what the difference is.
Kevin Hollinrake
The amendment says
“a risk assessment to identify where the information it holds might give rise to a matter of concern.”
That certainly says to me that a risk assessment would be required for every company. To me, a risk-based approach would identify various pieces of information, and Companies House would act on that information and determine whether the risk is from companies, directors or persons of significant control and act on that. That is our approach; the right hon. Lady’s approach is moving away from that.
Dame Margaret Hodge
The Minister is misinterpreting our approach. I am sorry if he reads it that way, but I agree that we are not asking for 100%. He calls it a risk-based assessment; I call it a risk assessment. Apologies for the difference in language.
Liam Byrne
If we were having this debate in my constituency, my constituents would say to me and, indeed, to the Minister, “We want to hire a police officer to stop crime.” If we look at a definition of what a police officer does, they maintain law and order in local areas, prevent crime, reduce fear of crime and improve the quality of life for all citizens. We want Companies House to stop economic crime and that is what my right hon. Friend’s amendments seek to achieve.
Dame Margaret Hodge
And presumably the policeman does not knock on every door.
Dame Margaret Hodge
At the moment, the Bill says—I can’t read it because there is no bloody light! It is a thing that as you get old, your eyes aren’t brilliant:
“The registrar must carry out such analysis of information within the registrar’s possession as the registrar considers appropriate”.
We are attempting to take that wording out of the Bill to make it a duty, because otherwise we know from the other enforcement agencies and the work of other Government agencies that unless clearly directed, the real work would not be done. There would be an excuse. They would be busy doing something else. This is their key proactive role. We can go on and on about it during the course of the Bill, but I assure the Minister that the registrar should do it in a risk-based way. She should not do it, as the Bill says, as is appropriate; she should just do it. That is really the first thing.
I will quickly describe the bottle laundromat. The Minister and I are very familiar with all the stories, but other members of the Committee are not, and the stories are pretty shocking. Every time we hear another one, it is shocking. The stories reinforce the justification for the sort of interventions that Labour Members want to include in the Bill.
Dame Margaret Hodge
I think this is about a different interpretation of words.
The amendment would require Companies House to conduct risk assessments of the information and data it holds on the register for the purposes of the prevention and detection of economic crime. The amendment also creates a basis for new clauses 37 and 38, to introduce an obligation on Companies House to use all the data it collects to identify where economic crime risks lie.
I genuinely think we are quarrelling about words, not about what we want to do. On the basis of that risk assessment, or whatever word the Minister wants to use, Companies House would then decide when to use its powers proactively.
Interestingly enough, my wonderful staff have looked it up, and everybody else uses these terms. We are not alone in this. The Financial Action Task Force standards talk about risk assessments. It talks about a “risk-based approach”. Is that language better for the Minister?
Dame Margaret Hodge
It means the same to us—I think the Minister is really being a little bit pedantic here. If we bring the amendments back on Report with the words “risk-based”, perhaps we will have a better chance of getting them through.
The risk-based approach is central to the implementation of FATF’s recommendations. The UK’s AML regime and the Council of Europe use a risk-based approach, as does the private sector. I want to use a risk-based approach, and so does the Minister, so why do we not just get on with it?
Kevin Hollinrake
We do, and it is exactly what the clause states:
“The registrar must carry out such analysis of information within the registrar’s possession as the registrar considers appropriate for the purposes of preventing or detecting crime.”
In other words, the registrar identifies a red flag and then does an investigation. The right hon. Lady’s amendment 116 says:
“the registrar must carry out a risk assessment to identify where the information it holds might give rise to a matter of concern.”
That is a non-risk-based assessment.
The Chair
Order. Minister, may I intervene for a second? You will have time to respond to all this in the debate, but that is a very long intervention.
Dame Margaret Hodge
I have to say we disagree, but I will come back to this issue. I think our proposals strengthen the Bill.
I tabled my amendments to clause 88 because I do not support the wording of
“as the registrar considers appropriate”.
I have to say to the Minister that we discovered in this morning’s sitting that the company registrar has so far registered 3,000 properties for a register that has now been in place since August. In three months, she has done 3,000, but there are 138,000 to deal with. At that rate—if she does 12,000 a year—she will be there till doomsday, so putting a little bomb underneath her to ensure that she takes action is important.
Liam Byrne
My right hon. Friend is making a brilliant speech. If anything, the Minister has caused more alarm than he might have intended this afternoon by referring to the language in the Bill that says the registrar must take account of the information that she holds. There is no way that we would ask a police officer to police Hodge Hill simply with reference to the information that that police officer happens to hold. We would ask the police officer to look at the crime environment in the constituency as a whole, taking account of all kinds of perspectives, not simply the information that he or she happened to have in their little black book.
Dame Margaret Hodge
I will move on to new clause 37, which has the aim of checking that the stated person of significant control really is the person who controls the company. Powers to get information, to reject documents, to require information and to remove documents all sit in the Bill. The new clause would ensure that, through a risk-based assessment—I just reiterate that for the Minister—Companies House would proactively check that the person named as the PSC was the PSC in reality. Current legislation requires the ID verification of a company owner, but not the verification of their status as a company owner, so the risk remains that nominees will continue to be put forward as owners of companies despite the real control being elsewhere. The risk is heightened if the Minister does not move to ensure that company service providers are properly regulated, supervised and vetted before the whole system comes into force.
In the current system, there are endless examples that demonstrate the extent of the problem that the Minister and the Government are trying to tackle—we are trying to contribute to that process. One is the famous dentist in Belgium. From an interrogation of the Companies House register, we know that five beneficial owners control more than 6,000 companies, which is a huge red flag. Some 4,000 of them are under the age of two, and 400,000 companies—almost 10% of the total—still do not declare a person of significant control. We have the Azerbaijan laundromat example, where a lorry driver in Baku was named as the person of significant control and had no idea that kleptocrats from Azerbaijan were taking all the money out of the banks and money laundering it elsewhere.
There is one filing in Companies House for which I thought I would name the person of significant control. The company is called Global Risks Reduction Funding Ltd, and the name is listed as—I will take a deep breath—
“Neutral-Claimant-Federal-Witness-Director-Captain-Postmaster-Bank-Banker-Plenipotentiary-Notary-Judge-Vassalee For The Vessel-Phouthone-Thone: Siharath.”
I do not think anybody has questioned that as the person of significant control. The whole thing is absurd.
An important point for the Minister is that, in 2019, Transparency International did a quick Google search and found 23 active company service providers that were offering the service of nominee persons of significant control—that was one quick search of one directory. When Global Witness undertook research on Scottish limited partnerships, it found that 40% of the beneficial owners of Scottish limited partnerships were either a national of a former Soviet country, or a company incorporated in the former Soviet Union.
Alison Thewliss
I have been tracking for some time the number of times when a person of significant control for Scottish limited partnerships has not even been registered. Does the right hon. Lady agree that it is ridiculous that there are still 201 companies for which a person of significant control does not exist at all?
Dame Margaret Hodge
Yes. The law is being broken but nobody is pursuing those who are guilty.
These are all reasons for closely monitoring data on persons of significant control. The measure would simply put a duty on Companies House to be proactive and to check the status of the person named on a risk-based basis, not just via their personal details.
New clause 38 deals with dissolution, which has been raised with me by a number of stakeholders. We know of numerous instances of bad people dissolving companies for nefarious purposes. The new clause would ensure that the registrar looks at the accounts of a company seeking to dissolve to ensure that no fraud or other crime has occurred. If the registrar found such cause for concern, she would have to pass the information on to relevant enforcement agencies.
We are all very familiar with the phoenixing of companies and the role that that practice has played in facilitating fraud. I have chosen as an example the case of Rodney and Pauline Williams, which is typical. They ran a company called Curio Bridal Boutique Ltd. They made false representations to take money out of the company and put it into another company in anticipation of winding up Curio Bridal Boutique. They took £111,000, of which they put £42,000 into the pockets of their own family. They were detected and convicted, but sadly the successful detection of such cases is all too rare and the practice happens all too often.
The Troika Laundromat—another of the laundromats that has hit us over the last 10 years or so—is another example of where a leak of documents showed how one of Russia’s largest investment banks, Troika Dialog, was central to the channelling of billions of dollars out of Russia. That leak covered 1.3 million transactions. It involved more than 1,000 UK limited liability partnerships, and it was found that the UK had been handling nearly £10 billion of dodgy Russian money. One UK-based company was found to have made payments totalling £360 million, although it filed accounts each year and dared to declare itself dormant. It then dissolved itself in 2014. That company was called Stranger Agency LLP.
Seema Malhotra
It is a pleasure to speak in this debate on amendments and new clauses relating to clause 88. My right hon. Friend has gone through the measures in considerable detail, so I will limit my remarks, but I want to put on record a number of points about them, because they are important.
Amendments 119, 120 and 116 would ensure that the registrar, rather than carrying out analysis as she sees appropriate, would analyse information in her possession with a view to preventing or detecting crime. I hope that hon. Members agree that we all want the same thing. I also hope that the Minister recognises the work that has gone into thinking this through and seriously considers taking some of the sentiments and wording of the amendments, or perhaps some other wording, to add another layer of robustness to the Bill.
Although the clause does not contain many subsections, it is important, because it is a very big aspect of what we need to be working to achieve and supporting the registrar to achieve, yet it does not go into much detail about Parliament’s intentions and what the Minister expects. The Minister and I disagree slightly. Although I agree that some of the amendments might be slightly more prescriptive than we might like—that is partly about probing and making points on the record—the clause sets out remarkably little direction on a very big part of what we want the registrar to do. I hope that the Minister will be able to reflect on the amendments in the round in the context of adding a layer of robustness to the Bill by ensuring that the registrar is clear on her duty to use the information available and the importance of doing so, and therefore giving confidence. Sometimes when legislation is a little too broad, or not clearly interpreted, it can lead to inertia. It is not always clear what can be done or what was intended by Parliament. Therefore, the reaction is to do less just in case something would cross a line. That is where clarity on how the legislation will be interpreted is important. If there are ways in which we can go further without a downside, we should consider them.
Amendment 120 would ensure that, in carrying out the analysis, the registrar will make use of the power to require additional information under section 1092A, where the registrar considers that additional information may contribute. Making that explicit would be helpful. Amendment 116 would require the registrar, when analysing information for the purposes of detecting and preventing economic crime, to take a risk-based approach. I think that we all agree on that, but my right hon. Friend the Member for Birmingham, Hodge Hill expressed what we expect from the police in terms of thinking a little more widely in relation to the prevention of crime.
We do not seek to extend the requirements too far beyond what is practical for the registrar to do, or to detract from their main responsibilities. This is complex, and it is important to think about the role and objective of prevention, and to give some greater clarity about what might be expected by Parliament in relation to achieving it. Where the risk-based assessment that could be carried out identifies a matter of concern, it would be clear that it was Parliament’s intention that further analysis that may be needed can be carried out, and that information can and should be shared with the relevant law enforcement agency.
As we have stated, the amendments would help to ensure that the legislation in the end does in practice what it sets out to do. That is what we all want to achieve. Indeed, the amendments would give a little more shape to the proactive role that Companies House would have in detecting and preventing economic crime.
I will speak briefly to new clause 37, tabled by my right hon. Friend the Member for Barking. We welcome the new clause, which would insert a duty on the registrar to check an individual’s person of significant control status. That would apply where the registrable person’s identity is verified in the way that she outlined. The registrar would then take steps to ensure that the registrable person whose identity is being verified is indeed a person with significant control over the company. The new clause would ensure that, where there is an identified risk suggestive of potential economic crime with regard to a registrable person who is a person of significant control, that person’s status is then investigated by the registrar or put forward for further investigation, depending on the circumstance.
As we have called for throughout the Committee, we must ensure that the Bill acts on its aims and helps move and encourage Companies House to shift from being a passive administrator to a proactive agent, because Companies House plays a very important role as a first line of defence. The new clause would do just that. I welcome the Minister’s thoughts on these measures. If he opposes the new clause, as he has hinted he might, can he see some arguments for adding some necessary teeth to the legislation, and might he bring forward suggestions of his own?
New clause 38 would provide that in a case where the registrar’s risk assessment under section 1062A(1A) has identified a matter of concern in relation to a dissolved company, the registrar must examine the accounts of the dissolved company with a view to establishing whether any economic crime has been committed. The registrar must share details of any evidence gathered under subsection (1A) with the relevant law enforcement agencies. We welcome the introduction of the new clause, as it would ensure that directors of companies that have been set up and used for fraudulent or criminal purposes are unable to simply dissolve the company to avoid scrutiny or investigation before potentially committing a similar offence with another company.
R3, the insolvency and restructuring trade body, said in its written evidence to the Committee that
“the Government has missed a crucial opportunity to truly close some of the loopholes currently exploited so easily by fraudsters. The Bill’s proposals will be limited in their efficacy to bring about real change to preventing and disrupting economic crime if companies used as vehicles for fraud continue to be dissolved and struck off the Companies House register automatically, with next to no due diligence carried out to ascertain whether the company has been involved in fraudulent activity”.
New clause 38 would tackle precisely that issue, which has arisen in other parts our debate, and introduce the due diligence necessary to ascertain whether a dissolved company has been involved in criminal activity. In its evidence, R3 outlines that around 400,000 companies—I think the Minister also cited this number—are dissolved and struck off the Companies House register each year. We would be grateful if the Minister responded to what we see as a loophole and, in light of previous discussions, explained whether it goes as far as it could.
I will speak briefly to new clauses 41 to 43. New clause 41 would require a person who controls 5% or more of the shares in a public company to disclose the total amount of their shares to the registrar. It would also require a person controlling shares through multiple nominees to declare the total number of shares they control.
New clause 42 would require Companies House to verify both the identity and the shareholding of a person who controls 5% or more of shares in a company where the registrar’s risk-based analysis set out in amendment 116 has identified a matter of concern. New clause 43, tabled by my right hon. Friend the Member for Birmingham, Hodge Hill, would introduce a new provision requiring disclosure of shares held by a nominee. Under the new clause, any person holding shares in a public company as nominee for another person must disclose that fact to the registrar. The registrar may also impose a penalty on any person who fails to comply.
Liam Byrne
It is a pleasure to speak to new clause 43, which is in my name but has been drafted with the assistance of my right hon. and hon. Friends. In introducing it, I have to think that the Minister is a lucky man, because there are very few opportunities when any of us in this place have the chance to translate a life’s work into the law of the land. Yet that is precisely the opportunity that we have afforded to the Minister, who is steering the Bill so ably through Committee. That is why we are here to help him. The Minister will know that he is living the dream.
I know that the Minister is not insensible to the scale of economic crime in this country or to the threat that it poses, because I was privileged enough to be there in Westminster Abbey just a few months ago, when he got up to speak with his customary eloquence to the launch of the economic crime manifesto. That has been drawn up with input from so many right hon. and hon. Members, and it is the manifesto that declares loud and clear:
“Dirty money is a national security threat…Dirty money causes massive financial damage…Dirty money is damaging the UK’s reputation…Dirty money may be pushing up prices for British citizens…Dirty money undermines the rule of law and democratic institutions.”
The Minister knows what he is talking about when it comes to the Bill, which is why he is stewarding it so ably through Committee. That is why I know that, as a canny captain in his Department, he is alive to all the constructive recommendations that we are making to him, because that that strengthens his hand.
The Minister has obviously got some theatre to perform because he has to get the Bill through the House and then get it through the House of Lords, and then back through the House of Commons. As an experienced and seasoned political operator, he will know that it is really wise to make a few strategic concessions to the Opposition to keep them on side. Although he has not revealed that yet by making us any concessions, it will not be long, and it could be at the conclusion of my speech to new clause 43, because it is a blindingly obvious improvement to a current hole in the Bill.
To make that case, I need to demonstrate three things this afternoon: that use of proxies by bad people is a problem; that use of proxies by bad people is a problem here in our country; and that the Bill is deficient and needs toughening up.
Let me share a few examples of why proxies are such a problem. Where better to start than with exhibit A, Roman Abramovich, who was finally sanctioned earlier this year after a disgraceful period of licence in which he was allowed to do terrible things like buy football clubs? Now he has of course put Chelsea football club into some sort of trust. The money is frozen. He has declared that all net proceeds from the sale will be donated to the victims of the war. Members on both sides will have been as surprised as I was to hear from the Foreign Office Minister this morning at Foreign Office questions that that money has still not been routed to victims of Russia’s barbarity in Ukraine; it is still frozen by red tape and bureaucracy in this country.
That is an outrage, because Roman Abramovich secretly transferred hundreds of millions of pounds in assets, including private jets—including the world’s biggest private jet—to his children just days before he was placed under sanctions. That is not my view; that is the view of the Federal Bureau of Investigation. The oligarch has seven children, aged between eight and 30. He is alleged to have made his offspring the beneficiaries of an offshore trust in Cyprus that controls his assets. That transfer was made in February and included a £282-million Boeing 787 Dreamliner, super yachts and trophy items bought through a network of shell companies, including some in Jersey and the British Virgin Islands: Wotton Overseas Holdings Ltd, Jersey; Clear Skies Flights Ltd, Jersey; and Wenham Overseas Ltd, British Virgin Islands.
All that begins to illustrate how a bad actor has used proxies to circumvent sanctions and sanction controls. The tragedy of course is that it was not Companies House that proactively brought the matter to the House to say, “Here we are, folks. I think we have a bit of a problem”; no, we have to learn about it not from Companies House or a British crime enforcement agency, but from the United States, where the authorities brought an action and forced disclosure of the information in the American courts. That underlines my point that use of proxies is a systemic problem.
I want to go further, however, and to illustrate how the use of proxies is a systemic problem of economic crime here in our country. Who better to illustrate that than Alisher Usmanov? He has strong ties to President Putin and his inner circle. On 22 March this year, it was revealed that Usmanov’s sister, a gynaecologist based in Tashkent, had the beneficial ownership of 27 different Swiss bank accounts with hundreds of millions of dollars in them. In fact, analysis of the suspicious activity reports related to those accounts showed that they had been moving around about $1.6 billion. That was revealed in The Guardian newspaper. His assets include a $600-million super yacht, the Dilbar, an Airbus H175 helicopter and UK properties including Sutton Place, a 16th-century Tudor house in Surrey, which are held through a range of different trusts. He is widely known as someone whom we should be taking far more aggressive action against than we are today.
We then have the case of Dimitry Mazepin. He was —is—the controller of Uralchem and a number of other fertiliser companies on behalf of President Putin and the Russian Government. Among the holding companies in Mazepin’s group is Uralchem Freight, based in Cyprus, which has control of a fertiliser terminal in Latvia. The Latvian press, however, reports that the beneficial owner of that organisation is someone called Aamar Atta Bhidwal. That is the same name as a director of Quest Resources, incorporated at Companies House on 16 July 2021, in Guisborough. The co-director was someone called Gordon Alexander, a director of Hutton Chemicals. Quest is also, we are told, in the beneficial ownership of a company with close association with Mr Mazepin.
Clearly, there is already a risk that UK nationals on the Companies House register can be used as proxies, whether wittingly or unwittingly, by someone who is sanctioned.
Kevin Hollinrake
I intervene in the hope that I might abbreviate the debate—I am probably going to fail. Is the right hon. Gentleman aware that it is already the case in law that a share held by a person as a nominee or proxy for another is to be treated as though the share is held by the true owner? Also, in law, failure to declare the true owner is a criminal offence. Is he aware of that?
Liam Byrne
Yes, of course, but the Minister must also be aware that the provisions he has sketched into the law have comprehensively failed, as my next example will now prove.
Mazepin was the majority owner of Hitech Grand Prix, and his son was a racing driver. His company, Uralkali, was the sponsor of this company until March 2022. In March of this year, 75% was transferred to a company called Bergton Management Ltd. The shares were not sold; they were relinquished. There does not seem to have been any cash paid out for this major economic interest in a globally significant grand prix company.
From Bergton Management Ltd, the ownership of the assets moved to somebody called Oliver Oakes, who now controls 75% of the shares. He created Uralkali racing in January of this year. In an interview last year, he called Dmitry Mazepin a friend, associate, colleague and manager. I saw from the Companies House register this morning that he created Hitech Global Holdings on 11 March 2022, just three days after Mr Mazepin and his son were sanctioned.
There is a clear risk that oligarchs are using proxies, and that this misbehaviour is washing up on our shores and in Companies House. That leaves us with the third question: whether there is a hole in the Bill here. We need look no further than the evidence that UK Finance provided to the Committee. I said:
“So you would say to Members of Parliament who are worried about bad people transferring control of an economic asset to proxies that, at the moment, we do not have enough safeguards in the Bill.”
The answer came:
“I think they could be improved, yes.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 11, Q10.]
Here is a simple opportunity for the Minister to apply a bit of good old-fashioned belt and braces, make the Opposition happy, keep them on side and ensure that some of his former colleagues who put together the economic crime manifesto are singing his praises wherever they can—accept either the principle or the wording of new clause 43. It asks for nothing more than that any person holding shares in a public company as a nominee for another person must disclose that fact to the register, or face a sanction. That is straightforward, it is not complicated, and it would make a difference.
Kevin Hollinrake
I am grateful to the right hon. Gentleman for his kind words. I remember very clearly my speech in Westminster Abbey that night. He might remember that I talked about corporate criminal liability and whistleblower reform, which are absolutely essential. Indeed, at least one of those falls under my portfolio, so I am certainly committed to bringing forward those reforms when I can.
The only difference between hon. Members of the Opposition and ourselves is the means by which we would achieve the same end. On amendments 119 and 120, I am always happy to look at sensible amendments that take us forward. When Opposition Members talk about those cases, they are talking primarily about cases in the past where we did not have the powers that this Bill provides, and where we did not have the level of enforcement; we both agree that that needs improvement.
Where we differ is on how we go about this. I have serious concerns about the provisions in amendment 116, tabled by the right hon. Member for Barking, which seem to require the registrar to look at every single company on the record. That is exactly what it says. It says that the registrar
“must carry out a risk assessment to identify where the information it holds might give rise to a matter of concern.”
The registrar can do that only by looking at every single record.
Kevin Hollinrake
I will just develop my arguments. I listened to hers at length, and I heard them very clearly. Our approach is a more workable one. I do not think her approach is workable. I think that if we listen to each other’s arguments, we are probably saying the same thing. We are trying to overlay the information that sits with the registrar herself in Companies House with information from others, such as banks, lawyers, accountants—we discussed that in earlier debates—and law enforcement agencies in order to identify where the information she holds identifies risks, so that she can then carry out an investigation.
Kevin Hollinrake
I will develop my point a little further, and then I will let the right hon. Lady intervene.
Liam Byrne
My concern was to ensure that the registrar has a crime-fighting obligation, and that when she conducts her risk assessments, she is not constrained merely to the information that is before her—that which is on the register.
Kevin Hollinrake
As the right hon. Member knows, objective 4 establishes exactly that: an obligation
“to minimise the extent to which companies and others carry out unlawful activities, or…facilitate the carrying out by others of unlawful activities.”
That is quite clearly in the Bill.
New clauses 37 and 38 would require the status of a person with significant control and the accounts of dissolved companies to be checked by the registrar. The registrar would be required to carry out a risk assessment of all those companies—roughly 1,000 companies per day. Members might be thinking that every person with significant control has some connection to Russian dirty money or Russian oligarchs, but the vast majority of state-owned enterprises have a person with significant control, because they own more than 25% of those companies. For the registrar to look at 1,000 companies every single day to determine whether there is a risk, and then investigate further—that is exactly what the right hon. Lady’s new clauses would require—would not be practical.
Dame Margaret Hodge
This is becoming a rather absurd psephological debate. I have just asked my right hon. Friend the Member for Birmingham, Hodge Hill whether I have got the wording wrong—whether there is a great difference between risk assessment and risk-based assessment. Perhaps Government Members will tell me differently, but those two things are the same, and we should not try to locate a difference between them.
The last thing any of us wants to do is micromanage any of our organisations through legislation, but we have to look at the experience and the record of all the enforcement agencies and bodies in the financial services sector over the years. If we have colleagues of ours in the House doing that, they will meet with massive criticism. One way to tighten and toughen this up without having to get involved in the minutiae is to move from powers to duties, which is the purpose of a lot of the amendments we are debating today. If the Minister does not take seriously some of these practical suggestions, he is in danger of setting up a new system that is as open to abuse as the current system, and we will be back here in a couple of years putting it right.
Kevin Hollinrake
All legislation needs improvement, but we must not put the registrar under a duty that makes her job impossible. That is what the right hon. Lady’s amendment would do. That is what I am pointing out to her; not that I do not think—
Kevin Hollinrake
I cannot let the right hon. Lady intervene again. We are pressed for time. We just do not agree on this point. I think that we agree on the broad sentiment that there should be a risk-based analysis, but that is not what her amendment says.
With 1,000 companies resolved every day, it would be impractical to have a risk assessment of every single one of those companies and to then do the risk-based analysis. I think that the amendments are too directive, and I ask Members not to press them. I am happy to consider whether there is a less prescriptive formulation that we could add to the clause to have that effect. I completely understand and concur with Members’ broad objective. Of course we want a proactive regulator who determines where the risks are and acts on information, be it from journalists, private sector companies or enforcement agencies, to inform her work and to make sure that she pursues those who are most likely to be guilty of wrongdoing.
A couple of Members referred to the Russian sanctions regime. In the Russia (Sanctions) (EU Exit) (Amendment) (No. 13) Regulations 2022, we broadened the designation criteria to include specified immediate family members and those with links to Russian state-owned businesses. There are, of course, things like the combating kleptocracy cell at the National Crime Agency.
New clauses 41, 42 and 43 seek to address concerns about nominee shareholders. New clauses 41 and 42 would require people who control, directly or indirectly, 5% or more of the shares in a public company to declare themselves. New clause 43 would require any person holding shares in a public company as a nominee for another person to disclose that fact to the registrar. The new clauses would put additional obligations to disclose information to the registrar on to the person who holds the shares, rather than the company to which the shares relate.
New clauses 41 and 42 would create a burden in relation to public companies that would not exist for private companies. It would not be proportionate to impose such a burden on public companies that are low risk and that have additional requirements placed on them. It is already the case in the law on nominee shareholders or proxies that a share held by a person as a nominee for another is to be treated as though the share is held by the true owner and not by the nominee. Failure to declare a shareholder is a criminal offence and if the court were to find that a person should have been registered, the person and their company would be at risk of prosecution. I hope that provides the assurance that right hon. and hon. Members need.
Dame Margaret Hodge
I know that we share the objectives, but I feel very frustrated by the inability to decide whether a risk assessment and a risk-based assessment are the same. For the life of me, I cannot see the difference. We will put it to the vote and see whether those in favour of risk-based assessments are happy to go with “risk assessments”.
Kevin Hollinrake
That is not what the right hon. Lady has put in her amendment. It says not “risk-based assessment” but “risk assessment”.
Dame Margaret Hodge
I would say that there is no difference. In amendment 116, we have “risk assessments”. For those of us who think this is the way forward, I have to say that the Minister’s argument seems constructed rather than real.
Liam Byrne
On a point of order, Ms Elliott. Can you clarify the order of consideration for the amendments and new clauses in this group?
The Chair
Let me be clear. We are discussing amendment 119 to clause 88. Does the right hon. Member for Barking want to press the amendment to a vote?
Dame Margaret Hodge
No. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment proposed: 116, in clause 88, page 68, line 17, at end insert—
‘(1A) As part of the analysis under subsection (1), the registrar must carry out a risk assessment to identify where the information it holds might give rise to a matter of concern.
(1B) Where the assessment identifies a matter of concern, the registrar must—
(a) carry out whatever further analysis it considers necessary; and
(b) share any evidence of unlawful activity it identifies with the relevant law enforcement agency.
(1C) For the purposes of this section, a “matter of concern” includes—
(a) inaccurate information;
(b) information that might create a false or misleading impression; or
(c) evidence of economic crime.’—(Dame Margaret Hodge.)
Question put, That the amendment be made.
Kevin Hollinrake
Currently, the registrar cannot proactively share the information she holds on businesses and individuals that is of use to law enforcement agencies and regulatory bodies. Nor can she carry out routine analysis to spot patterns of behaviour that are indicative of criminal activity. The clause inserts a new function for the registrar so that she is obliged to undertake such analysis as she considers appropriate for crime prevention and detection purposes, such as spotting fraudulent activity. That will provide the statutory basis on which the registrar’s new intelligence hub will be founded. The hub will be instrumental in identifying strategic and tactical economic crime threats posed by information on the register. That has long been called for. Under the data sharing powers that sit elsewhere in the Bill, the registrar will be able to proactively exchange the fruits of her analysis. The new clause is critical in supporting law enforcement agencies to tackle economic crime.
Seema Malhotra
As I have said before, we do not necessarily have any problem with what is in the Bill. It is about what is not in the Bill. The clause is important. We have debated how it can be improved and I am sure we will come back to debate that further. On the basis that it is an important part of the Bill, we support clause stand part.
Question put and agreed to.
Clause 88 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Scott Mann.)