Retained EU Law (Revocation and Reform) Bill (Fifth sitting)
Thursday 24th November 2022
(1 year, 11 months 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 24 November 2022 - (24 Nov 2022)
The Minister for Industry and Investment Security (Ms Nusrat Ghani)
It is a pleasure to serve under your chairmanship once again, Sir George. The clause is a vital part of the Government’s retained EU law reform programme and will make sure that EU rights, obligations and remedies saved by section 4 of the European Union (Withdrawal) Act 2018 cease to apply in the UK after 31 December 2023.
Justin Madders (Ellesmere Port and Neston) (Lab)
It is a pleasure to see you in the Chair this morning, Sir George. Members will note that I am a little hoarse —please do not give me a sugar cube. I hope that means I will not be quite as lengthy as I was on Tuesday.
Justin Madders
We can try.
I want to say a few words about the clause, which will fit in with the discussion we will have on the following clauses. All these clauses pertain to the future of our law after the removal of the legal effects of EU law. I will try not to repeat myself and to focus specifically on the terms of this clause.
I begin by stating the obvious: as we untie ourselves from the European Union, we will clearly need a new settlement of legal principles. Nevertheless, we ought to treat the clause with some scepticism and scrutinise the impact it will have on our country’s legal system. In doing so, we must consider why it was decided to take a snapshot at the end of 2020 in the first place.
When the country entered the transition period for leaving the EU, the potential for a legal vacuum to emerge rapidly became apparent, as the process of preserving EU legislation and EU-derived legislation made under section 2 of the European Communities Act 1972 began. Section 4 of the European Union (Withdrawal) Act 2018 was therefore designed to prevent such a legal vacuum once the 1972 Act was repealed, by catching everything that might have been missed and its legal effects.
I am saying that to highlight an important feature of the 2018 Act, which has been to maintain the smooth operation of our legal system while we formally left the EU. Clearly, it still has importance. Unless the Government are able to use the powers in clauses 12 to 15 to replace the effects of EU law exactly—although it is clear that they do not want to do that—we face the prospect of a legal vacuum.
I have a couple of questions for the Minister. First, does she agree that section 4 of the EU (Withdrawal) Act has provided an important function over the previous years in creating stability and certainty? Secondly, does she recognise the risk of a legal vacuum opening after 2023, and can she provide any assessment the Government have made of that risk?
As a matter of interest, I have just read on the front page of today’s Financial Times that a wide range of groups, from the TUC to the CBI, have written to the Prime Minister requesting that the Bill be withdrawn. One reason they give is that it will create a vacuum and a great amount of legal uncertainty. I suspect that the Minister has not yet had a chance to discuss the contents of that letter with the Prime Minister, but if she has, will she update us? [Interruption.] The Minister’s response suggests that she has not had that opportunity.
Such questions naturally lead us to the identification problem that we discussed on Tuesday. My understanding is that the dashboard sought to capture the examples under section 4 of the 2018 Act on retaining
“rights, powers, liabilities, obligations, restrictions, remedies and procedures”.
Due to the dashboard’s catch-all nature, however, can we be certain that all those have been picked up, given that even the Government admit that not all the regulations have been captured? How on earth can we be certain that serious vacuums will not be left by the removal of section 4 if we cannot be sure that we have identified everything affected by it? That is an important point.
Linking again to our debate on Tuesday about the timeframe in which such legal effects and legislative provisions need to be restated, replaced or revoked under clauses 12 to 15, we must not treat clause 3 in isolation. We must remember that what happens alongside the mountain of other pieces of EU legislation that need to be processed will be key to how the country moves forward. At the very least the Minister must try to offer us some reassurance—or, better yet, a plan that shows—that the Government have the matter in hand and will deal with all the legislative provisions and legal decisions before the 2023 deadline.
Overall, we agree that there has to be an end to EU supremacy in UK law, but we still have concerns about how that will operate in practice. We want to avoid a situation that the Government have known was coming for at least two years. I would be grateful if the Minister could provide some assurances to the Committee that action on the concerns that have been expressed by a wide body of representative groups is in hand.
Stella Creasy (Walthamstow) (Lab/Co-op)
Good morning, Sir George. I rise to support the comments made by my hon. Friend the Member for Ellesmere Port and Neston. I also think that the debate on the clause sums up some of the practical challenges with the legislation. The retained EU law dashboard has identified just 28 pieces of directly effective retained law under section 4 of the EU withdrawal Act—a mere amuse-bouche of laws that will be affected by the Bill overall. Given that the number is so small in comparison with the at least 2,500 that have been identified, and the possible 4,000, why could the Minister not show us what will happen next? After all, our debates on Tuesday were all about what would happen if we deleted every piece of legislation. There are no guarantees about what would happen next. Rather than assuming that all these pieces of legislation should go at the end of 2023, surely Ministers could commit to reviewing the 28 now and showing us the way ahead—whether some will be retained, amended or indeed abolished. Then the clause would not be required.
All of this does make a difference. For example, on Tuesday the Government gave their very first commitment on what will happen to one of the 4,000 pieces of legislation—the Bauer and Hampshire judgments about pensions. To remind Government Members, who may well have constituents coming to them about this, those are the requirements—the pieces of case law—that mean that if a company goes bust, people are entitled to at least 50% of their pension fund. The Government committed on Tuesday to abolishing those pieces of legislation, but they are affected by the clause.
The 28 pieces of legislation are not insubstantial; they could be the way forward for the Minister. Instead of requiring the clause, she could say, “We’re going to look at the 28 and tell you what we’re going to do with them,” so that people can have confidence that we have an administrative process for these pieces of legislation and the suggestion that there has been scaremongering can be put aside. She could say, “Here are 28 examples of what we’re going to do, and the fact that they are rights under section 4 of the EU withdrawal Act helps us to contain them as a piece of work.”
The Intellectual Property (Exhaustion of Rights) (EU Exit) Regulations 2019 are another of the 28. Given that the Government are getting rid of the Bauer and Hampshire judgments, thereby affecting the pension rights and protections of our constituents, could the Minister set out what might happen on that one? She was very kind on Tuesday to set out an example of what will happen to one of the 28. It would be incredibly helpful for us as a Committee to understand the impact of the legislation and to perhaps start, if not to allay our concerns—I think Opposition Members are concerned when people’s pension protections are being not just watered down but, frankly, abolished—then to understand what the Government’s intentions are in using these powers.
I simply ask the Minister to use the clause stand part debate to explain why the 28 pieces of legislation could not have been dealt with in advance of the Bill, given that they stand on the EU withdrawal Act, and to tell us a bit about what will happen to them, to give us an indication of what horrors are to come or perhaps to reassure us. Government Members want to use the term “scaremongering”. I use the term “accountability”. I am looking forward to what the Minister has to say.
Ms Ghani
It is curious that Opposition Members say they do not want to prevent Brexit or accept the supremacy of EU law, but then they come up with every which way to stop these things actually being delivered.
The matters saved by section 4 of the EU withdrawal Act consist largely of rights, obligations and remedies developed in the case law of the Court of Justice of the European Union. Many of those overlap with rights already well established by domestic law, and those overlaps can cause confusion. The Bill allows the Government to codify any specific rights that may otherwise cease to apply if they consider it a requirement.
A question was raised about whether we are ending section 4 rights; that is not the case. Section 4 of the EU withdrawal Act incorporated the effect and interpretation of certain rights that previously had effect in the UK legal system through section 2(1) of the European Communities Act 1972. Section 4 rights largely overlap with rights that are already available in UK domestic law, and it is domestic legislation where they should be clearly expressed. This Bill seeks to rectify that constitutional anomaly by repealing section 4 of the 2018 Act. That does not mean the blanket removal of individual rights; rather, combined with other measures in the Bill, it will result in the codification of rights in specific policy.
Ministers in each Department, which will be responsible for their own elements of the Bill, will work with the appropriate bodies to ensure that they share what they will be assimilating, repealing and updating. All of that will provide additional clarity, making rights clearly accessible in UK law. That is why I recommend that the clause stand part of the Bill.
Question put and agreed to.
Clause 3 accordingly ordered to stand part of the Bill.
Clause 4
Abolition of supremacy of EU law
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clauses 5 and 6 stand part.
New clause 8—Conditions for bringing sections 3, 4 and 5 into force—
“(1) None of sections 3, 4 or 5 may be brought into force unless all the following conditions have been satisfied.
(2) The first condition is that a Minister of the Crown has, after consulting organisations and persons representative of interests substantially affected by, or with expertise in the likely legal effect of, that section on a draft of that report, laid a report before each House of Parliament setting out, with reasons, the Minister’s view as to the likely advantages and disadvantages of bringing that section into force, setting out in particular the effect of that section on—
(a) the rights of and protections for consumers, workers, and businesses, and protections of the environment and animal welfare;
(b) legal certainty, and the clarity and predictability of the law;
(c) the operation of the Trade and Cooperation agreement between the United Kingdom and the EU, and UK exports of goods and services to the European Economic Area; and
(d) the operation of the Protocol on Ireland/Northern Ireland in the EU withdrawal agreement.
(3) In relation to section 4, that report must take into account any regulation made or likely to be made by a relevant national authority under section 8(1).
(4) The second condition is that a period of sixty days has passed since that report was laid before Parliament, with no account to be taken of any time during which Parliament is dissolved or prorogued or during which either House is adjourned for more than four days.
(5) The third condition is that, after the end of that period, both Houses of Parliament have approved a resolution that that section come into force.
(6) If both Houses of Parliament have approved a resolution that that section should not come into force unless it is amended in a way set out in that resolution, then the Minister may by regulation amend that section accordingly, and that section may not be brought into force until that amendment has been made.”
This new clause requires Ministers to analyse, and to explain their analysis of, the effect of the removal of retained EU law rights, the principle of supremacy of EU law, and of the general principles. It also includes opportunity for Parliamentary approval and timeframes for laying reports before both Houses.
Justin Madders
I rise to speak to new clause 8, but before that I will address clauses 4, 5 and 6.
Clause 4 is a Ronseal clause: with regard to abolishing the supremacy of the EU, it does exactly what it says on the tin. However, unlike putting a coat of varnish on a fence, it will not be a case of simply walking away once it is done. It is inevitable that courts will need to consider case law that we have previously regarded as settled, because that law was settled when EU law was supreme, and it no longer will be. The reality is that none of us know where this clause is going to take us.
Most lawyers practising today know no other legal environment. The world has moved on in the last 50 years in ways that we could not have foreseen, and the law has moved with it, so any reinterpretation of the law needs to be done carefully. It must strike a balance between making changes where appropriate, based on our new position outside the EU, and maintaining some consistency and predictability for businesses and individuals who are trying to conduct their working and private lives within the ambit of the law. That is why some of our other amendments have attempted to create stability in terms of what the Government can control with these regulations, because we recognise that not even this Government can control the courts and which issues are litigated.
Section 5(2) of the European Union (Withdrawal) Act 2018 stated that the principle of the supremacy of EU law will continue to apply
“so far as relevant to the interpretation, disapplication or quashing of any enactment...passed or made before exit day.”
That means that retained EU regulations would take precedence over pre-existing domestic legislation that is inconsistent with them. It also makes it clear that this does not apply to anything passed after 31 December 2020, so to some extent, supremacy of EU law has already entered history. What analysis has been done on the legal consequences of retrospectively altering the relationship between retained EU law and domestic legislation passed before 31 December 2020? Have the Government have done any analysis of this, and can they anticipate which areas will be prone to more legal challenge on the issue of supremacy?
I suspect that it will be impossible for any of us to say whether the consequences of removing the principle of supremacy would reduce the clarity of the law or change its effect in any particular case. However, the overall effect is that there will be a reduction in certainty and a risk of unpredicted—and perhaps entirely undesirable and unjust—consequences. What assessment has been made of the impact of the new level of uncertainty on business investment?
Paul Blomfield (Sheffield Central) (Lab)
I wish to make a relatively brief point, anticipating what the Minister might say on the basis of her response to comments on clause 3. It is worrying, when we are trying to have a serious consideration of the Bill, that serious questions either from our Front Bench or from my hon. Friend the Member for Walthamstow are met with the suggestion that we are, in some way, trying to deny Brexit.
I think we need to be clear on this: we campaigned to remain in the European Union; the majority of Conservative Members campaigned to remain in the European Union; but we lost and we left. There is no going back; none of us is arguing for it—no rejoining the EU, no rejoining the single market, no rejoining the customs union. But there are choices in the way that we manage our future outside of the EU. That is what we are trying to deal with, because we want to make the right choices, and are worried that the Government are not.
I have come to this session from a meeting of the UK Trade and Business Commission, which is a cross-party, cross-industry body looking at the trade opportunities and trade implications of our departure from the European Union. Both the British Chambers of Commerce, which gave evidence to us this morning, and the TUC expressed huge concern about the uncertainty created by the provisions in clauses 4 to 7 and the potential for businesses and workers to get lost in a legal quagmire from which, as my hon. Friend the Member for Ellesmere Port and Neston says, only the lawyers will benefit. Given the current backlog of such cases in our courts, that uncertainty will last for some time.
Will the Minister address the concerns that were raised by the Bar Council, whose evidence I know she will have read? It warns about,
“creating uncertainty as to the meaning and status of such REUL by removing established principles by which it is to be interpreted, altering its status vis-à-vis other law, and nudging the courts towards departing from EU case-law that interprets it.”
I hope that the Minister will respond to the questions asked by my hon. Friend the Member for Ellesmere Port and Neston, because the evidence then says:
“We detect no sign that any assessment has been done as to the legal effect of those changes on the regulations concerned (despite their importance) and can therefore detect no policy rationale for those changes whatsoever.”
I hope that, in her remarks, the Minister will address those points.
Stella Creasy
My hon. Friend the Member for Sheffield Central is absolutely right. This is not about whether Brexit has happened. We all know that Brexit has happened. We have left the European Union, and, frankly, it reflects an intellectual insecurity about the legislation if that is the only response that the Government can come up with—if they cannot actually engage in defending their proposals but try to take us on to a completely different debate.
That matters because millions of people across the country are dealing with the consequences of Brexit on a daily basis, none more so than our friends and family in Northern Ireland. I rise to ask the Minister to put aside the constant talk about, “Well, if you disagree with this, if you want to ask these questions, it’s cos you didn’t agree with Brexit,” and to do justice to the people of Northern Ireland.
The Chair
Before I call the Minister to respond, the hon. Lady prayed in aid the Schleswig-Holstein affair. Without interfering in the politics of the debate, I think that a more appropriate comparison might be Zollverein in Germany or Risorgimento in Italy, which were all about the assertion of the rights of nation states.
Ms Ghani
This is turning into a very interesting morning indeed, Chairman.
I rise to resist new clause 8. This new clause seeks to set conditions on the commencement of clauses 3, 4 and 5 of the Bill. I will explain to the right hon. Member for Ellesmere Port and Neston why we are making the changes in these clauses.
Each clause is vital to this Government’s programme to reform retained EU law. That there are still circumstances where retained EU law takes precedence over UK law is not consistent with our status as an independent nation. The principle of EU supremacy must be ended without delay. These amendments would add further delay by requiring the Government to write reports on items to which we have already committed. As set out already, the Government have committed to ensuring that the necessary legislation is in place to uphold the UK’s international obligations, which includes maintaining the UK’s obligations under the trade and co-operation agreement or the Northern Ireland protocol. We will come on to consider an amendment that will allow us to spend more time discussing that issue.
This Bill will not lead to legal uncertainty—to have perfect legal certainty would mean that we would forever keep the same laws. Our approach is to improve accessibility and legal clarity by codifying, where necessary, rights and principles expressly into domestic statute.
With regard to the delegated powers in the Bill, the Government are committed to ensuring robust scrutiny for the secondary legislation made under these powers while ensuring the most effective use of Parliamentary time; I believe, Chairman, that we spent many hours discussing this issue just on Tuesday. This means that legislation made using the delegated powers in the Bill will be subject to either the negative or draft affirmative procedure, depending on the legislation that is being amended and the power used. A sifting procedure will also apply to regulations to be made under the power to restate, which affords additional scrutiny of the use of power.
Clause 4 ends the principle of supremacy of retained EU law in so far as it applies to pre-2021 legislation. The clause establishes a new priority rule, which ensures domestic legislation prevails over retained direct EU legislation where there is a conflict. Thanks to the clause, an Act of Parliament will once again be the foremost law in the land. Clause 5 ensures general principles of EU law will no longer be part of the UK statute book from the end of 2023. Clause 6 establishes that after the end of 2023 all retained EU law preserved from the sunset provisions will be known as “assimilated law”.
In response to some of the questions raised, I put on the record once again that the rulebook does not seek to remove rights. In most instances, those rights already operate and are available in domestic legislation. The rulebook contains provisions to enable the UK Government and the devolved Administrations to safeguard the rights and protections of citizens of the United Kingdom. The Bill includes a restatement power so that Departments can codify rights into domestic legislation.
On Tuesday, we spoke at length about scrutiny, the sifting process and the role that Parliament will play, so I am not sure what further response I can make today. That programme has been made clear. The Government recognise Parliament’s significant role in scrutinising statutory instruments to date and are committed to ensure appropriate scrutiny of any secondary legislation made under the Bill’s delegated powers.
Changes in the law can give rise to litigation—that is normal—but we would never change the law if people wanted no change whatsoever. The risk will be mitigated in areas where Departments use the Bill’s powers to maintain the effect of our current law, if necessary, for desired policy outcomes. In other cases, proactive management of the removal of retained EU law will allow a controlled and positive introduction of a new legal regime that seeks to mitigate any risks posed by increases in litigation. For instance, the Bill contains powers allowing the Government to retain the current legislative hierarchy between specified pieces of legislation. The effects of repealing supremacy will only be considered relevant to matters arising after the enactment of policy. The change is not retrospective, and cases that have already been concluded will not reopen. Upon finding that pre-2021 domestic law is incompatible with retained EU law, courts may place conditions in the incompatibility order to mitigate the effect of that finding.
Justin Madders
I did posit in my opening remarks the principles of EU law that will be jettisoned. In the example of legal certainty and equal treatment, does the Minister consider that those principles should no longer be part of UK law?
Ms Ghani
That assumes that we would not be treating people equally and fairly, and that is not the case when we legislate in the UK. I do not buy the idea that without EU law we are incapable of governing fairly in the UK. We are all elected to Parliament to represent our constituents, and we want to go home and tell our constituents, regardless of who they are and where they are from, that we are legislating fairly for everybody.
Why are we removing the principle of EU supremacy? That principle means that pre-2021 domestic law must give way to some pieces of retained EU law when the two conflict. That ensured legal continuity at the end of the transition period, but it is constitutionally anomalous and inappropriate, as some domestic laws, including Acts of Parliament, are subordinate to some pieces of retained law. That is the nub of the issue. We either accept the supremacy of the EU or accept the supremacy of this place. We can go round and round, but only one can prevail, and the Government believe that this Parliament should be supreme.
On the protection of fundamental rights and the equality principle, the principle of fundamental rights is generally not the exclusive preserve of the EU. We are proud of the history of the UK legal systems in which common law principles and legislation are well established to protect fundamental rights. For example, the principle of equality before the law is rooted deeply in British law. It was in 1215 that Magna Carta first acknowledged that British people had legal rights and that laws could apply to kings and queens too. The Equality Act 2010 has, to date, brought together more than 116 pieces of legislation into a single Act—a streamlined legal framework to protect the rights of individuals and to advance equality of opportunity for all. There is no equivalent to that Act in EU law, which shows how important it is that we are able to express principles such as equality before the law in a UK statute rather than relying on principles of EU law.
Mr David Jones (Clwyd West) (Con)
Does my hon. Friend not agree that a particular strength of our domestic legal system is the principle of stare decisis, whereby there is a strict rule that cases are followed in terms of precedent, which does not apply in the case of EU law?
Justin Madders
I will first address the intervention of the right hon. Member for Clwyd West. The point of clause 4 is that it removes the ability of the courts to refer to precedents from any decisions that have been taken in accordance with EU law, so it is worrying that the right hon. Member makes such comments.
The Minister said that we must decide whether we accept the supremacy of Parliament. We absolutely do, which is why so many of the amendments that we have tabled are about giving Parliament back control, not handing power to Ministers or, in the case of this clause, handing power to lawyers and judges to decide how our law moves forward.
I thank the Minister for promoting me to a right hon. Member—that was very kind of her. She also said that new clause 8 would delay matters. It will not. If the Government are on top of things, which I would like to think they were, they should be doing this work anyway. They should be doing this analysis in a way that enables Parliament to scrutinise the effect of the Bill.
Stella Creasy
Does my hon. Friend recognise that the Minister did not utter the words “Northern Ireland”, and did not at all address the question of how supremacy will be resolved in Northern Ireland, which follows both EU and UK legislation? I see that she is being given a note, so perhaps she can do us the courtesy of responding to that question.
The Chair
The Minister might care to intervene on the hon. Member who is speaking. That does not require a point of order.
Justin Madders
We will be returning to Northern Ireland, as the Minister says. She said that the Bill will not add legal uncertainty. I am afraid that that is exactly what it will do, and it is exactly what the bulk of evidence from every legal representative who has contacted the Committee shows. By abolishing principles that have been in formation for half a century, we will be in a new era and will have to develop new legal principles. That can only create uncertainty.
It is worth reflecting on the letter to which I referred earlier, which is reported in the Financial Times today. It was sent by about a dozen organisations, including the Trades Union Congress and the Chartered Institute of Personnel and Development, that have a huge interest in ensuring that the law is fair and certain. The letter warns that the Bill
“would upend ‘decades-worth of case law’ and create ‘a huge risk of poor or potentially detrimental law entering the statute book’”.
We should be listening to these people; they know what they are talking about. They have looked at the effect of the Bill and believe it will not do what some think it will. It will not be a rerun of 2019, although the Conservatives would like us to go back to 2019, because they were ahead in the polls then. We have left the EU. This legislation is about how we move forward, but I am afraid that there has been a complete failure to address the consequences of its provisions. We will be coming back to the issue for years to come, because there has been a shocking lack of forethought about the Bill’s implications. I will press new clause 8 to a vote.
Question put and agreed to.
Clause 4 accordingly ordered to stand part of the Bill.
Clauses 5 and 6 ordered to stand part of the Bill.
Clause 7
Role of courts
Alex Sobel (Leeds North West) (Lab/Co-op)
I beg to move amendment 79, in clause 7, page 4, line 32, at end insert—
“(d) the undesirability of disturbing settled understandings of the law, on the basis of which individuals and businesses may have made decisions of importance to them;
(e) the importance of legal certainty, clarity and predictability; and
(f) the principle that significant changes in the law should be made by Parliament (or, as the case may be, the relevant devolved legislature).”
This amendment adds further conditions for higher courts to regard when deciding to diverge from retained EU case law.
I will not speak for as long as I did on Tuesday, when I recited many different chemicals and species. I will also disappoint my hon. Friend the Member for Walthamstow by not mentioning killer shrimp. My contributions from now on will be pointed, seeking clarity from the Minister.
Through amendment 79, for which we are indebted to the Bar Council, we seek to expand clause 7 to make clear the important legal and constitutional principles that will be taken into account by the courts. The amendment directs higher courts, when deciding whether to depart from retained EU case law, to consider the well-established and, we hope, uncontroversial principles of legal certainty and regulatory stability. It would be helpful if the Minister could say whether she and the Government accept those legal principles and, if so, whether she agrees that higher courts should have regard to them when deciding whether to depart from retained EU law.
The amendment aims to safeguard the important constitutional principle that a significant change to the law, including a change to established case law, should be made by Parliament or the relevant devolved legislature. Again, does the Minister accept that fundamental constitutional principle and, if so, that it should guide the courts’ decisions under clause 7? She may not be in a position to accept the amendment, but I hope that she can make a simple and straightforward statement that she and the Government agree that the three legal constitutional principles set out in it must be maintained and respected by the courts.
Ms Ghani
I rise to resist amendment 79, which puts in place too high a bar for UK courts to depart from retained case law, including judgments made and influenced by the EU courts. Clause 7 will free our courts to develop case law on retained EU law that remains without being unnecessarily constrained by the past judgments of these new foreign courts. The clause introduces a new test for higher courts to apply when considering departure from retained EU case law. The test gives higher courts greater clarity on the factors to consider, and greater freedom to decide when it is appropriate to depart from retained EU case law. The amendment, however, would reinforce the excessive influence of the European courts and judgments on our domestic courts, and limit judges’ ability to decide to depart from retained EU case law, as should be their right and responsibility. I therefore ask the hon. Gentleman to withdraw the amendment.
Alex Sobel
We will not push the amendment to a vote, but the Minister did not give us sufficient clarification. I am sure that when we progress we will continue to hear the opinions of other bodies in relation to retained case law. That is really important as the Bill progresses through the House and into the other place.
Stella Creasy
The Government might not listen to Opposition Members, but they might listen to the Office for Environmental Protection, which, after all, they set up. It said:
“In making it easier for courts to depart from environmental retained case law, the Bill is likely to lead to uncertainty as it will be unclear whether long-established precedents will continue to be followed. This could result in unnecessary, costly legal proceedings. Consideration should also be given to whether this could also result in a reduction in environmental protection (where protections have been established through case law) and how this will be addressed.”
Does my hon. Friend agree that those critical points need to be addressed?
Alex Sobel
Absolutely. Agencies such as the Environment Agency, Natural England and the Office for Environmental Protection use these regulations and case law all the time. They have evolved over time in many areas—water, nature and so on. There is now a real danger to those provisions, so I hope the Minister will consult with her colleagues in the Department for Environment, Food and Rural Affairs and ensure we are not unable to undertake regulatory and enforcement action on the environment.
Alex Sobel
Having seen the opinions of different agencies—my hon. Friend the Member for Walthamstow mentioned the Office for Environmental Protection—and heard the evidence of the Bar Council, I am not sure that is the case.
Mr Jones
I hesitate to intervene again, but it is specifically provided for in clause 7(2) that, although precedent may not apply in the case of European decisions, it does in the case of domestic decisions. Of course, European courts are not bound by precedent, so we have a significant safeguard in clause 7(2) against the risks that the hon. Gentleman mentions.
Alex Sobel
I know from my brief in the shadow DEFRA team that some very important enforcement actions are extrapolated from European case law, because we were under the aegis of the European Court of Justice for a very long time. It is important that we are mindful of that.
Stella Creasy
Obviously the Bill also enshrines the idea that protections can only be watered down, because it says that nothing can be brought in that increases burdens. Of course, courts are free to set new precedents, but when this Bill is enacted only precedents that reduce protection can be set. That is why the Office for Environmental Protection is concerned.
Alex Sobel
I fear we may be straying into future debates. I will not take much longer—I take your lead, Sir George. We will have further discussions about burdens and regression, so I will not labour that point. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Brendan O’Hara (Argyll and Bute) (SNP)
I beg to move amendment 38, in clause 7, page 5, line 39, after “court)” insert
“in England and Wales or Northern Ireland”.
This amendment, together with Amendments 39 to 47 and (a) to Amendment 5, would remove the Scottish courts and Scottish law officers from the case law reference procedure provided for by new sections 6A, 6B and 6C of the EU Withdrawal Act 2018.
The Chair
With this it will be convenient to discuss the following:
Amendment 39, in clause 7, page 5, line 42, leave out from “Court,” to the end of line 2 on page 6.
See explanatory statement to Amendment 38.
Amendment 40, in clause 7, page 6, line 35, after “court)” insert
“in England and Wales or Northern Ireland”.
See explanatory statement to Amendment 38.
Amendment 41, in clause 7, page 7, leave out lines 4 and 5.
See explanatory statement to Amendment 38.
Amendment 42, in clause 7, page 7, line 19, leave out from “Court,” to the end of line 21.
See explanatory statement to Amendment 38.
Amendment 44, in clause 7, page 8, line 40, leave out
“, the Advocate General for Scotland”.
See explanatory statement to Amendment 38.
Amendment 45, in clause 7, page 9, line 2, after “court”, insert
“in England and Wales or Northern Ireland”.
See explanatory statement to Amendment 38.
Amendment (a) to Government amendment 5, in line 4, leave out “(b) the Lord Advocate”.
Amendment 46, in clause 7, page 9, leave out lines 10 and 11.
See explanatory statement to Amendment 38.
Amendment 47, in clause 7, page 9, line 11, after “legislation” insert
“, or to the retained functions of the Lord Advocate (within the meaning of section 52(6) of the Scotland Act 1998)”.
See explanatory statement to Amendment 38.
Brendan O’Hara
Anyone sufficiently interested in knowing the list of amendments I am addressing can read them in Hansard. As we have heard, clause 7 seeks to relax domestic rules on judicial precedent, which will make it easier for appellate courts across the UK to depart from retained case law. The clause also delivers a mechanism by which courts of first instance can depart from otherwise binding retained case law. I therefore very much welcomed the Labour party’s amendment 79, and supported its efforts to tidy up this section of the Bill. Labour Members are right to point out that the Government’s proposals are driven by ideology, and that they have not considered the legal uncertainty and complications that will now almost certainly prevail.
We heard from Professor Catherine Barnard in an evidence session, who warned that:
“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”––[Official Report, Retained EU Law (Revocation and Reform) Public Bill Committee, 8 November 2022; c. 15, Q26.]
That is exactly what this is: slash and burn. It is another example of how the now-departed brains behind this whole operation were moving with undue haste, total disregard for the consequences of what they were doing, and the obvious fear that a more considered approach would reveal the multitude of problems that will come with this plan.
Indeed, Alison Young, professor of public law at Cambridge University, warned us of the extreme uncertainty that could come from these new legal arrangements, saying:
“Those carrying out business and trade need legal certainty, so that they have an understanding of the rules, now and going forward.”
She added that
“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.”––[Official Report, Retained EU Law (Revocation and Reform) Public Bill Committee, 8 November 2022; c. 14, Q25.]
That is a recurring theme throughout these proceedings.
It is against that backdrop that we have tabled these amendments, which, although plentiful in number, are all intended to do the same thing: remove Scots law wholly and entirely from this part of the Bill. I make no apology for repeating that this is not our Brexit. Scotland did not vote for Brexit. We did not vote for this reckless piece of legislation and, quite simply, we want nothing to do with it.
Government amendment 5 is another example of the UK Government completely failing to understand Scotland or our legal system. Although I welcome the amendments in so far as they go to repair the poorly drafted first version of the Bill, with the Lord Advocate now having his or her proper place in the functions of it, it pains me that Scotland has been dragged into this mess at all. Indeed, so great is the concern about the impact of the Bill on Scots law that I understand our amendments have been directly communicated to the Secretary of State by the Scottish Government’s Cabinet Secretary for the Constitution, External Affairs and Culture, Angus Robertson. I hope that, in that spirit, the Government will now accept them.
Ms Ghani
There is too high a bar for UK courts to depart from retained case law, including judgments made and influenced by EU courts, so I rise to resist amendments 38 to 42 and 44 to 47. Clause 7 will free our courts’ developed case law and retained EU law that remains in force, without being unnecessarily constrained by the past judgments of these foreign courts. The clause will introduce new tests for higher courts to apply when considering whether to depart from retained EU case law and retained domestic case law. Lower courts will also be given greater freedom. They will be able to refer points of law relating to retained case law to higher courts for a decision, which, if successful, could result in the lower court departing from retained case law where it would otherwise be bound by it, enabling a faster and more dynamic evolution of our domestic case law away from the influence of EU law.
The clause also provides UK Government Law Officers and Law Officers of the devolved Administrations with the power to refer points of law arising on retained case law to the higher courts where proceedings have concluded. It will give Law Officers the power to intervene in cases before the higher courts and present arguments from them to depart from retained case law. This will ensure the appropriate development of the law as we move away from the influence of EU case law and the rules of interpretation.
The amendments would remove the Scottish courts and Law Officers from the lower to higher court reference procedure and from the Law Officer reference procedure. However, consistent with EU exit legislation, these measures in the Bill will apply to the whole UK. This will give courts in all four of our great nations greater freedom to develop case law unimpeded by the excessive influence of the European courts. In addition, amendment 47 would give Law Officers of the devolved Administrations the power to intervene in reserved matters, which is not constitutionally appropriate.
Proposed new section 6C of the European Union (Withdrawal) Act 2018, established in clause 7 of the Bill, gives Law Officers the power to intervene in cases before the higher courts and present arguments for them to depart from retained case law following the new tests for departure in the Bill. These provisions are framed so that Law Officers may exercise the intervention powers on behalf of their respective Governments in cases where other Ministers or the Government as a whole have a particular view on the meaning and effect of relevant pieces of retained EU law for which they are responsible.
In the light of a new test for departure from retained case law, the powers will allow the Law Officers to bring such matters before a higher court for a decision after hearing the relevant Government’s view on the correct interpretation of relevant retained EU law. Consequently, it is right that the intervention power is not available in relation to points of law that concern the retained functions of the Lord Advocate as a prosecutor. Those functions concern legislation that is reserved to Westminster. The structure of the Law Officers’ powers is consistent with the established position of the Lord Advocate within the Scottish Government, as in other contexts the structure rightly allows the Lord Advocate to represent the Scottish Government’s views on the interpretation of devolved legislation, but not legislation that is reserved to Westminster.
Peter Grant (Glenrothes) (SNP)
It is clearly not for me to comment on the best way for a Department for domestic English affairs to rule on what English courts and English Law Officers can do and must do. Equally, it is not for anybody here, including those of us from Scotland, to change the rules on what the Law Officers and courts of Scotland can do and must do—that is exclusively for the Parliament of Scotland.
Given the importance that the Prime Minister and the Secretary of State for Scotland repeatedly attached yesterday to the need for consensus when considering any change to the relationship between our two nations, will the Minister confirm that the consensus principle works in both directions, and that no changes will be made to the powers and responsibilities of Scotland’s Law Officers or Scotland’s courts without the explicit consent of the Scottish Government?
Ms Ghani
As I just said, the structure of the Law Officers’ powers is consistent with the established position of the Lord Advocate within the Scottish Government, as in other contexts the structure rightly allows the Lord Advocate to represent the Scottish Government’s views on the interpretation of devolved legislation, but not legislation that is reserved to Westminster. For those reasons, I ask the hon. Member for Argyll and Bute to withdraw the amendments.
Peter Grant
I do not know whether the Minister fully understood the significance of my question. We have not tabled the amendments because we think that the power is being given to the domestic Law Officers and courts of England—that is not for us to comment on. It is not even that we think that what is being proposed is wrong for the domestic Law Officers and courts of Scotland. However, what is completely wrong is for the domestic Parliament of England to legislate on the legally separate legal system of Scotland against the clear objections of the domestic Parliament of Scotland, which speaks on behalf of the sovereign people of Scotland.
If the Minister is convinced that what is proposed in the Bill is in the best interests of justice in Scotland, and if she can persuade the Scottish Parliament, the Scottish Government and the Scottish Law Officers that that is the case, there is no question but that the Scottish Government and Scottish Parliament will legislate on those terms. However, on the day after the Prime Minister and the Secretary of State for Scotland insisted that the relationship between our nations must be based on consensus, the Minister is proposing to drive a coach and horses through that consensus by insisting that this Minister and this Parliament have the right to interfere in the domestic affairs of another nation in this Union. That is a serious breach of the guarantees contained in article 19 of the Treaty of Union, and it is not acceptable.
I invite the Minister to come back, should she so wish, and advise the Committee. In preparation for the Bill, has she had any advice whatsoever on the application of article 19 of the Treaty of Union? Does she know what it says?
Brendan O’Hara
I absolutely associate myself with the comments made by my hon. Friend the Member for Glenrothes. It is for the Scottish Parliament and the Scottish Law Officers to decide what they can and cannot do and it is not for this place to impose that. I have always imagined that, in a partnership of equals, each partner has their voice listened to and their opinions respected. Clearly, the Union is not the partnership of equals that we have been led to believe it is. Scots law has always been independent, and it ill behoves the UK Government to try to ignore the democratically elected Scottish Parliament and the Scottish Law Officers, but I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Brendan O’Hara
I beg to move amendment 35, in clause 7, page 7, line 4, leave out
“, if the point of law relates to the meaning or effect of relevant Scotland legislation”.
This amendment, together with Amendment 36, modifies the points of law on which the Lord Advocate may make a reference under the new section 6B of the European Union (Withdrawal) Act 2018 so that it is not restricted to points of law which relate to the meaning or effect of relevant Scotland legislation.
The Chair
With this it will be convenient to discuss the following:
Amendment 37, in clause 7, page 7, line 5, after “legislation” insert
“, or to the retained functions of the Lord Advocate (within the meaning of section 52(6) of the Scotland Act 1998)”.
This amendment modifies the points of law on which the Lord Advocate may intervene under the new section 6B of the European Union (Withdrawal) Act 2018 so that the power to intervene may be exercised in relation to points of law which concern the retained functions of the Lord Advocate.
Amendment 36, in clause 7, page 8, leave out lines 8 to 21.
This amendment, which is consequential to Amendment 35, modifies the points of law on which the Lord Advocate may make a reference under the new section 6B of the European Union (Withdrawal) Act 2018, omitting the definition of “relevant Scotland legislation” from section 6B.
Amendment 93, in clause 7, page 9, line 10, leave out
“, if the argument relates to the meaning or effect of relevant Scotland legislation”.
This amendment, together with Amendment 48, modifies the arguments in legal proceedings on which the lord Advocate may intervene under the new section 6C of the European Union (Withdrawal) Act 2018 so that that section is not restricted to arguments which relate to the meaning or effect of relevant Scotland legislation.
Amendment 48, in clause 7, page 9, line 22, leave out “relevant Scotland legislation,”.
This amendment, which is consequential to Amendment 93, modifies the arguments in legal proceedings on which the Lord Advocate may intervene under the new section 6C of the European Union (Withdrawal) Act 2018, omitting the definition of “relevant Scotland legislation” from section 6C.
Brendan O’Hara
I will speak briefly about the amendments, which will remove any restraint the Bill would place on Scotland’s Lord Advocate in making reference to retained EU law.
As it stands, the Bill restricts the Lord Advocate’s power to make reference only to points of law that relate to the meaning or effect of relevant Scottish legislation. There is no corresponding restraint on the power of any other UK Law Officer regarding the law of England or Wales on matters that are reserved. Again, I understand that the message has been communicated directly to the Government by the Scottish Government. On the basis that we take the issue so seriously, I ask that the Government accept our amendments.
Peter Grant
The comments I made in relation to the last group of amendments are equally, if not more, applicable here. I appreciate that many members of the Committee would not have thought that the submission from the Law Society of Scotland was relevant to the interests of their constituents, nor should it be. The legal systems of the two nations are entirely separate. They are required to be in perpetuity by the Treaty of Union. That is not my favourite piece of legislation, but while it is there it is incumbent on this Parliament to comply with it.
The Law Society of Scotland wanted the whole of proposed new section 6B to be deleted in its entirety. It raised a number of serious concerns in principle, many of which will apply to the application of the legislation to English courts and Law Officers as well. Proposed new section 6B changes the way in which some civil law can be challenged in the courts without changing the way in which other civil law can be challenged in the courts, so the concept of the unity of a single body of civil law starts to be weakened. The legal profession will be extremely concerned about that.
The legal profession is also concerned about the idea that after a civil case has been concluded, when the time for any appeal has passed and the case is settled, Law Officers who are not a party to the case can then intervene, effectively to act as an appellant in a case in which they have no direct interest. That process rightly applies in relation to criminal law, because almost every criminal prosecution involves the Law Officers acting in the name of the Crown on behalf of the public interest.
In fact, in Scotland nobody but the Law Officers is allowed to take a prosecution in the public interest. Bodies such as the Post Office and the Health and Safety Executive are not allowed to prosecute cases in Scotland’s criminal courts. After a case has been concluded, it is perfectly in order for the Law Officers to appeal against the leniency of a sentence, for example, because they were an interested party in prosecuting the case in the first place. That does not apply if it is a civil case, so there is a legal precedent created here that the Law Society of Scotland has raised serious concerns about, as well as very possibly the Law Society of England and Wales.
The clause again threatens compliance with the Treaty of Union—that is how serious it is, Mr Howarth. Passing the clause threatens to be in breach of article 19 of the Treaty of Union, because it makes the Law Officers of England superior to the Law Officers of Scotland. It makes the domestic courts of England superior to the domestic courts of Scotland. Why do I say that? It explicitly allows the Law Officers of England to step in and interfere in a civil case that applies only in Scotland, between two parties who are resident in Scotland and subject to the law of Scotland, where a case has been considered through due process in the domestic courts of Scotland and settled with finality as a matter of Scottish law. At that point, the Law Officers of England are allowed to wade in and interfere in a legal system that has nothing whatsoever to do with them—not on a matter of reserved legislation or one that is within the remit of domestic law in England.
The equivalent power does not apply to the Law Officers of Scotland. There are no circumstances in which Scotland’s senior Law Officers can come in and interfere in a civil case that has been heard in English courts. However, there are circumstances in which the Law Officers of England can interfere after the event in a domestic case in Scotland’s court. That is not equal treatment of the two legal systems. That is not recognition of the right of the Scottish legal system to operate independently of interference from this place. I will take advice on that and I will be interested to hear if the Minister has. That would appear to me to be a deliberate breach of one of the articles of the Treaty of Union. As many will be aware, when one article of a treaty is broken, either party has the right to consider the treaty to have been brought to an end.
I expressed my concerns in the previous sitting of the Committee that the Minister might be about to accidentally repeal hundreds of bits of legislation by mistake. I am tempted to say that we should not interrupt our opponents when they are making a mistake. If this place wants to take the risk of repealing the Treaty of Union by mistake, I will not stand in its way. However, I think I should bring it to hon. Members’ attention so that at least they cannot afterwards say they did not know what they were doing.
Ms Ghani
I will try to address all the points raised because I know how seriously they are taken by Opposition Members. The Committee should reject amendments 35, 36, 37, 48 and 93 as they would give Law Officers of the devolved Administrations the power to intervene in reserved matters, which is not constitutionally appropriate.
Amendments 35, 36 and 37 concern proposed new section 6B, established by clause 7 of the Bill, which provides UK Government Law Officers and Law Officers of the devolved Administrations with the power to refer points of law arising from retained case law to the higher courts, when proceedings have concluded, for consideration against the new test for departure set out by the same clause.
Amendments 48 and 93 concern new section 6C, which gives Law Officers the power to intervene in cases before the higher courts and present arguments for them to depart from retained case law following the new test for departure in the Bill. It is right that references and interventions by the Lord Advocate are restricted to the points of law within the devolved competence of the Scottish Government. The provisions are framed so that Law Officers may exercise the reference and intervention powers on behalf of their respective Governments in cases where other Administrations have a particular view on the meaning and effect of a relevant piece of retained EU law for which they are responsible.
The powers allow Law Officers to bring the matters before a higher court, in the light of the new test for departure from retained case law, for a decision after hearing the relevant Government’s view on the correct interpretation of a relevant retained EU law. That will allow Law Officers and the Lord Advocate to ensure an appropriate development of the law as we move away from the influence of EU case law and the rules of interpretation. It would consequently be inappropriate for the Lord Advocate, on behalf of the Scottish Government, to exercise the reference and intervention powers where the points of law relate to reserved legislation. That includes points of law that concern the retained functions of the Lord Advocate as a prosecutor, as those functions concern legislation that is reserved to Westminster.
We consider the structure of the Law Officer powers to be consistent with the established position of the Lord Advocate within the Scottish Government. As in other contexts, the structure rightly allows the Lord Advocate to represent the Scottish Government’s views on the interpretation of devolved legislation but not legislation reserved to Westminster. For those reasons, we ask the hon. Member for Argyll and Bute to withdraw his amendment.
Brendan O’Hara
I congratulate my hon. Friend the Member for Glenrothes for his very thoughtful contribution. Again, that goes to the heart of the Bill and the bonfire that the Government are setting if they get it wrong, time and again. There are dangers in treating this state as one country—that is what happens when one does not consider the devolution settlement properly. But on that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Ms Ghani
I beg to move amendment 5, in clause 7, page 9, leave out lines 5 and 6 and insert—
“(2) The following are entitled to notice of the proceedings—
(a) each UK law officer;
(b) the Lord Advocate;
(c) the Counsel General for Wales;
(d) the Attorney General for Northern Ireland.”
This amendment and Amendment 6 leave out the definition of “devolved law officer” from subsection (5) of new section 6C of EUWA and instead mention each devolved law officer in subsection (2) of that section.
Ms Ghani
I will be brief. Conservative colleagues will be keen to know that we are accepting amendments 5 and 6, which will remove references to a “devolved law officer” and replace them with the specific titles of the law officers in Scotland, Wales and Northern Ireland where appropriate. This is a policy-neutral change requested by the Scottish Government and tabled by this Government in the spirit of collaboration and co-operation.
Amendment 5 agreed to.
Amendment made: 6, in clause 7, page 9, leave out lines 20 and 21.—(Ms Ghani.)
See the statement for Amendment 5
Brendan O’Hara
I beg to move amendment 49, in clause 7, page 9, line 33, at end insert—
“(11) Within three months of the passage of this Act, the Secretary of State must lay before both Houses of Parliament an assessment of the impact of this section on the commitment of the UK enshrined in article 2(2) of the Northern Ireland Protocol.”
This amendment has been tabled in my name and in that of my hon. Friend the Member for Glenrothes. A recurring theme with this Bill has been a lack of attention to detail to either the drafting or to fully understanding the consequences—unintended or otherwise—for great swathes of the UK’s Governments, the economy and wider society. It is breathtaking. The impact of the massive changes that will be brought about by the Bill has been at best an afterthought, and at worst completely ignored. It is reckless, and some could reasonably argue that it is a dereliction of duty on the Government’s part.
This lack of attention to detail will be most acutely felt in Northern Ireland, and in the impact that clause 7 could have on the protocol. Given that the primacy of EU law will be removed by this Bill, but it has been retained and reaffirmed in the Northern Ireland protocol, will the Minister explain how the two pieces of legislation are expected to interact with each other? The Government have committed to there being
“no diminution of rights, safeguards and equality of opportunity”
in Northern Ireland.
What mechanisms have been established to assess and monitor how that is working? The very least that the people of Northern Ireland deserve is a thorough and detailed assessment of the Bill’s exact impact on the protocol. That is why we ask the Secretary of State to, within three months of the Bill passing,
“lay before both Houses of Parliament an assessment of the impact”
that the Bill has had
“on the commitment of the UK enshrined in article 2(2) of the Northern Ireland Protocol.”
Ms Ghani
The Government have already committed to ensuring that the necessary legislation is in place to uphold the UK’s international obligations, including the Northern Ireland protocol. The UK is committed to ensuring that rights and equality protections continue to be upheld in Northern Ireland. I therefore ask the Committee to reject this amendment.
Article 2’s reference to
“no diminution of rights, safeguards and equality of opportunity”
demonstrates the UK Government’s commitment to ensuring that the protections currently in place in Northern Ireland of the rights, safeguards and equality of opportunity provisions set out in the relevant chapter of the Belfast/Good Friday agreement are not diminished as a result of the UK leaving the EU. The provisions in the Bill enable the Government to ensure that the retained EU law that gives effect to article 2 of the protocol is preserved beyond the sunset, or that an alternative provision is created to meet such requirements. The restatement power will also allow the UK and devolved Governments to codify case law and other interpretative effects where it is considered necessary to maintain article 2 commitments.
Clause 7’s provisions concerning case law do not apply in relation to obligations under the protocol. Section 6(6A) of the European Union (Withdrawal) Act continues to apply, so that our new test for departing from retained EU case law is subject to the rights and obligations in the protocol. The House already has its usual robust and effective scrutiny processes in place to hold Ministers accountable in relation to the Government’s commitments under the Northern Ireland protocol. In addition, these are bespoke arrangements in relation to the EU Withdrawal Agreement Joint Committee where the UK and EU jointly oversee each other’s implementation, application and interpretation of the withdrawal agreement, including the Northern Ireland protocol—for example, the publication of the annual report of the Joint Committee to aid Members’ scrutiny.
Adequate processes are already in place, and the introduction of a new statutory reporting requirement is not an appropriate use of Government or parliamentary time. I therefore ask the hon. Member for Argyll and Bute to withdraw the amendment.
Stella Creasy
It would be incredibly helpful if the Minister could clarify what she said about bespoke arrangements for Northern Ireland. Under article 2 of the protocol we have an obligation to uphold the institutions, including the Northern Ireland Human Rights Commission and the Equality Commission for Northern Ireland. Is she therefore saying that there are instances in which EU law will be retained because of the Northern Ireland protocol? Is she committing to upholding EU law where those institutions propose that it is part of upholding the Good Friday agreement? She said they were bespoke arrangements. Can she clarify that? It is quite an important point.
Ms Ghani
The preservation and restatement powers in the Bill or other existing domestic powers, such as section 8C of the European Union (Withdrawal) Act, will ensure that retained EU law that gives effect to article 2 rights is either maintained beyond the sunset or the alternative provision is created to meet such requirements. The delegated powers in the Bill, particularly the restatement powers, will provide the ability to recreate the effects of secondary retained EU law, including the interpretative effects of case law and general principles of supremacy where it is necessary to uphold article 2 rights. That provides a mechanism through which national authorities might implement article 2 obligations. As I said earlier, I asked the hon. Member for Argyll and Bute to withdraw the amendment.
Brendan O’Hara
I will not push the amendment to a vote, but we will return to it on Report. I remain completely unclear, given the timeframe, how EU law will be removed by the Bill, but be maintained and reaffirmed in the protocol. I am unclear how that actually works.
Stella Creasy
The hon. Member is making a fair point. The people of Northern Ireland deserve some clarity because, if the Bill takes away the supremacy of EU law, as we discussed earlier, but the Government are committing that there will be instances in which article 2 rights will be upheld, it would be helpful to understand what those instances are and what the process is. Who will determine what EU law can be retained? The Northern Ireland Human Rights Commission, for example, could be part of that, but it is not clear how the process works. Does the hon. Gentleman agree that we owe it to the people of Northern Ireland to set out that process now?
Brendan O’Hara
I absolutely agree with the hon. Lady. Such muddled thinking and the unintended consequences of pushing it through so quickly go to the heart of the Bill. There are consequences to setting a ridiculously unachievable sunset clause. The thinking time that should have gone into the Bill has not happened. Although I will not push the amendment to a vote now, I strongly urge the Government to work on it to be able to explain on Report exactly how the measure will work. It is far too important to the people of Northern Ireland to let it wither on the vine and hope it does not come back. This is hugely important, but I will not press it a vote.
Amendment, by leave, withdrawn.
Question proposed, That the clause, as amended, stand part of the Bill.
Ms Ghani
The bar for the UK courts to depart from retained case law in the judgments of EU courts is too high, and there continues to be an overriding desire for our judicial decisions to remain in line with the opinion of the Court of Justice of the European Union. Clause 7 will free our courts to develop case law and retained EU law that remains in force without being unnecessarily constrained by the past judgments of these now foreign courts.
Question put and agreed to.
Clause 7, as amended, accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Joy Morrissey.)
Economic Crime and Corporate Transparency Bill (Seventeenth sitting)
Thursday 24th November 2022
(1 year, 11 months 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 24 November 2022 - (24 Nov 2022)
The Committee divided: - Ayes: 7 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 7 / Noes: 9 - Question accordingly negatived.
Alison Thewliss (Glasgow Central) (SNP)
I beg to move, That the clause be read a Second time.
The new clause is designed to ensure disclosure of information relating to bank accounts held by subscribers to a memorandum of association. Like many of the amendments that the Opposition have proposed, it is aimed at tightening up loopholes, making things just that wee bit more transparent, and flagging up any issues to Companies House. The issue of bank accounts and people carrying on business at a particular address in the UK has been discussed previously. Adding a bank account to that, so that one can go, “This is a bank account. This bank account is held in the UK,” and one can find that account quite easily as a result, seems to be a sensible way to close down yet another loophole in the Bill. It will continue the jurisdiction of the issuing bank of each account, which goes to some of the other points made about Companies House registration being used and abused as a means of setting up bank accounts in other jurisdictions. People were abusing the veneer of respectability afforded to them by a company registration in the UK to then set up bank accounts in other countries, which affects those other countries through the perpetration of fraud or dubious activities in those countries by those using that Companies House veneer of respectability.
The new clause would provide a bit more transparency by giving the company registrar more information, which would be useful in terms of those red flags and making it clear where companies are actually based and carrying on their business. If, for example, a company’s bank account is held in Mauritius and it claims to carry out its business in the UK, Companies House could query that and ask, “If you are really carrying on your business in the UK, why is your bank account held in Mauritius?” That would be a red flag for the registrar and would be an extra small but significant hoop that a company would have to jump through to make the situation clearer and to give Companies House a bit more reassurance that the business that is registering is indeed legitimate. It adds a helpful grip within the system, and helps Companies House to identify any red flags. I urge the Minister to consider whether this is a measure that would help Companies House in its work.
Stephen Kinnock (Aberavon) (Lab)
It is a pleasure to serve under your chairship, Sir Christopher. New clause 24, tabled by SNP Members, would add to the transparency of the companies register and enhance the ability of law enforcement to identify suspect registrations. It would do so by requiring the subscribers or initial shareholders of a company to provide information on the location of any bank account held either by the individual shareholders or in the name of the company itself.
The new clause reflects an acknowledgement of the realities that have been exposed by many of the recent leaks and investigative reporting by the media of the widespread criminal use of bank accounts registered in jurisdictions known for exercising minimal oversight over financial activity and for lax controls on money laundering offences. Given that the entire point of the Bill is to clamp down on the ability of criminals to exploit gaps in laws and regulatory approaches to economic crime across different countries, the Opposition sincerely hope that the Government welcome proposals that are intended to provide law enforcement with as much information as possible to facilitate the detection of economic crime. Requiring Companies House to record information on the location of relevant individuals’ bank accounts seems like an eminently reasonable measure that could make a valuable contribution to the fight against economic crime.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
It is a pleasure to serve with you in the Chair, Sir Christopher. I thank the hon. Member for Glasgow Central for the new clause, which raises an interesting point. I have concerns about the privacy issues involved in putting this information in the public domain, and I wonder whether she has considered that. We are potentially talking about personal bank accounts rather than company bank accounts.
A similar proposal to require the disclosure of bank account information relating to companies was included in the 2019 corporate transparency and register reform consultation, as the hon. Member mentioned. Respondents did not on balance support the proposal and the Government subsequently agreed that the proposal did not offer sufficient benefits to justify the additional burden being imposed on companies. There is also concern that there would be practical difficulties with implementation, such as the inability to confirm information provided, or to identify where it is missing, which would reduce the effectiveness of the proposal.
There are some other measures we can use. The European Union’s fifth anti-money laundering directive required the UK to build a centralised automated mechanism, a bank account portal, designed to help law enforcement and AML supervisors to access information on the identity of holders and beneficial owners of bank accounts and safe deposit boxes. Following the UK’s exit from the EU and the agreement of the trade and co-operation agreement in January 2021, the Government reviewed the case for building the portal. At that point, law enforcement did not believe there was a strong rationale for an alternative, centralised mechanism in order to support its work and the Government concluded that we should not build a bank account portal. UK money laundering regulations have been amended to remove redundant obligations.
I would be grateful if the hon. Member withdrew her amendment, but I would like to explore the issue further, certainly as it relates to company bank accounts, so we will perhaps return to it at a later stage.
Alison Thewliss
I thank the Minister for his consideration of this proposal. I would be interested to know what has changed since the previous consideration was arrived at that such provisions were not necessary. He suggests he will weigh that up and perhaps bring forward some amendments on Report, I beg to ask leave to withdraw the amendment.
Clause, by leave, withdrawn.
New Clause 26
Reporting requirement (objectives)
“(1) The Secretary of State must publish an annual report assessing whether the powers available to the Secretary of State and the registrar are sufficient to enable the registrar to achieve its objectives under section 1081A of the Companies Act 2006 (inserted by section 1 of this Act).
(2) Each report must make a recommendation as to whether further legislation should be brought forward in response to the report.
(3) Each report must provide a breakdown of the registrar’s annual expenditure.
(4) Each report must provide annual data on the number of companies that have been struck-off by the registrar, the number and amount of fines the registrar has issued, and the number of criminal convictions made as a result of the registrar’s powers as set out in this bill.
(5) Each report must provide annual data on the number of cases referred by the registrar to law enforcement bodies and anti-money laundering supervisors.
(6) Each report must provide annual data on the total number of company incorporations to the registrar, and the number of company incorporations by Authorised Company Service Providers to the registrar.
(7) The first report must be published within one year of this Act being passed.
(8) A further report must be published at least once a year.
(9) The Secretary of State must lay a copy of each report before Parliament.”—(Seema Malhotra.)
This new clause would add a requirement on the Secretary of State to report on the powers available to the Secretary of State, the Department for Business, Energy and Industrial Strategy, and Companies House in relation to the registrar’s powers to achieve their objectives set out in clause 1.
Brought up, and read the First time.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
I beg to move, That the clause be read a Second time.
The Chair
With this it will be convenient to discuss the following:
New clause 28—Reporting requirement (strike-off powers)—
“(1) Within one year of the day on which this Act is passed, and every three years thereafter, the Secretary of State must publish a report on the powers available to the Secretary of State and the registrar in relation to the registrar’s powers under this Act to strike off a company.
(2) Each report in subsection (1) must include but is not limited to—
(a) whether the appropriate mechanisms are available to the Secretary of State to prosecute directors of companies struck off the Companies House register in relation to the Act, and to recoup money on behalf of creditors, and
(b) how much money has been returned to creditors as a result of the Act’s provision for the registrar to strike a company’s name off the register if the company does not change its address from the default address, including the proportion of this money returned to the Government.
(3) Each report must make a recommendation as to whether further legislation should be brought forward in response the report.”
This new clause would add a requirement on the Secretary of State to report on the powers available to the Secretary of State, the Department for Business, Energy and Industrial Strategy, and Companies House in relation to the strike-off provisions in this Act.
New clause 63—Annual report on activity under this Act—
“(1) The registrar must publish an annual report on the implementation of, and activities under, the provisions of this Act which are relevant to the work of the registrar.
(2) The report mentioned in subsection (1) must include, but need not be limited to—
(a) information on the use of the registrar’s powers under this Act, including in relation to—
(i) financial penalties imposed, and
(ii) the number of cases of unlawful activity or suspected unlawful activity identified by the registrar;
(b) details of the steps the Registrar has taken to promote the registrar’s objectives under this Act; and
(c) the use of exemption powers for the Secretary of State introduced by this Act.
(3) The first report under subsection (1) must be published within six months of the date on which this Act receives Royal Assent.”
Seema Malhotra
It is a pleasure to serve under your chairship today, Sir Christopher, and to speak to new clauses 26, 28 and 63, which stand in my name and that of my hon. Friend the Member for Aberavon. They draw together conversations we have had in Committee about the importance of transparency and feedback on the powers and measures in the Bill and would provide Parliament with a means of interrogating their effectiveness.
New clause 26 would introduce a reporting requirement in relation to the objectives in the Bill. The Secretary of State would be required to report on the effectiveness of the powers available to the registrar to achieve her objectives as set out in clause 1. To coin a phrase for which the Minister may want to take credit, what is the point of legislation without good implementation? I think we are all agreed on that point. It is therefore important to ask: how is Parliament going to know? How are we going to spot any issues? How will we know that either further measures need to be developed or new powers need to be brought in? The new clause would provide a way for us to have that transparency and feedback.
We have done our best to draft the new clause in such a way that the Minister will be able to simply accept it or come back to us with what he thinks needs amending. Importantly, it would require the Secretary of State to
“publish an annual report assessing whether the powers available to the Secretary of State and the registrar are sufficient to enable”
Companies House to achieve its objectives. Each report would make a recommendation as to whether further legislation should be introduced in response to the report and provide a breakdown of the registrar’s annual expenditure, alongside data on the number of companies that have been struck off by the registrar, the number and amount of fines the registrar has issued and the number of criminal convictions resulting from the application of the registrar’s powers as set out in the Bill. It would also provide data on the number of cases referred by the registrar to law enforcement bodies and anti-money laundering supervisors, which is extremely important.
We need to know what has emerged from the system in order to be able to interrogate how well referrals have been taken forward and how quickly and effectively that was done. Without that information, it will be much harder to interrogate what is happening on the other side and the effectiveness of law enforcement, which has been raised during our deliberations as a real weak point in our system that needs toughening up, strengthening and supporting with the resources required. New clause 26 is important to enable adequate parliamentary scrutiny and have the ongoing debate in Parliament about the effectiveness of the measures we are passing.
New clause 63 would introduce a similar reporting requirement in relation to the registrar’s general activity in the Bill. We have laid out some of the measures, including financial penalties imposed, the number of cases of unlawful activity or suspected unlawful activity identified by the registrar, and
“the use of exemption powers for the Secretary of State introduced by this Act”.
The report does not necessarily need to specify details of what has been exempted, but it is important that Parliament has an understanding of the use of those powers, the number of times they are used, and so on. We suggest that this second report is published within six months of the Bill receiving Royal Assent.
Turning to new clause 28, the registrar’s new powers include the ability to change the address of a company’s registered office where the registrar is satisfied that the company is not authorised to use the address. The Government say the registrar will have the power to change a company’s address to Companies House’s own address and then to strike the company off the register. Currently when fraudulent companies are struck off the register, there is little due diligence done, and I know the Minister has expressed concern about this matter. It does not result in significant repercussions for the directors of a company, and a huge number of companies—nearly 400,000 a year—are struck off because they have failed even to file accounts. Directors are not investigated for misconduct or held accountable, and we know these issues have been raised by R3 and others.
Alison Thewliss
I rise to support the new clauses in the name of the official Opposition, because Parliament will need to keep a close eye on how a lot of things in this Bill are being implemented and whether they are effective at tackling economic crime. We had a lot of debate in previous sessions about powers versus duties in the Bill and said, “If they are powers, that is one thing but if they are duties, that is quite another.” If these powers are being exercised, we need to be certain of that and keep a close eye on this Bill. These useful new clauses would allow Parliament to keep a close eye on these things, because they would require the Secretary of State to publish these annual reports to give more granular and specific detail on whether the measures brought forward in the Bill are being used and are effective.
Dame Margaret Hodge (Barking) (Lab)
It is a pleasure to serve under your chairship, Sir Christopher. I rise to make the simple point that the new clause is not a technical amendment; it is about an issue of principle. It is about transparency and accountability. It is not a provision that improves things at the margin; it is about making the legislation fit for purpose. Without it, the legislation will not be fit for purpose.
Throughout my history of learning about dirty money and money laundering, it has been absolutely clear to me that we have a range of tools already in legislation. As we do not have any accountability to Parliament as to how and whether those tools are employed, we do not know how effective we are in the battle against dirty money. Let me give three examples. There is now a new bit of legislation on unexplained wealth orders; it is the first time that I have known Ministers to agree to an annual report to Parliament. They agreed to it when we did the emergency legislation. I have been arguing for that for years, so I was pleased to see it, but until that moment we did not know, and we have not seen the report yet.
A better example is golden visas. We are still waiting for the report on golden visas, how they were abused, misused and used during that period, and who was let into the country on one. Another example is the amount of money that has been frozen from people who have been sanctioned by this Government. We do not have a clue how much that is. The Government put out a figure the other day for how much Russian state money had been frozen—£18 billion—but we do not have a clue how much money we have managed to get off some of the characters we know are sitting on billions.
If there is going to be effective legislation, we need clear transparency and proper accountability. That is something that the Opposition feel incredibly strongly about. We will be pressing the new clause to a Division, because it is a sensible, pragmatic and practical provision that should be in the Bill.
Kevin Hollinrake
I thank the hon. Members for Feltham and Heston and for Aberavon for tabling their new clause. I also thank the right hon. Member for Barking and the hon. Member for Glasgow Central for their contributions. I agree with much of what they said. As they know, I fully agree that Parliament should be regularly updated on the implementation and impact of this legislation. What gets measured gets done, and it is vital that we know what is being done with this legislation.
I will speak to new clauses 26 and 28 first, because I think there may be a duplication of things that exist already. Much of the information suggested by new clause 26, such as Companies House expenditure and the numbers of companies incorporated and struck off, is already published in the Companies House annual report. Companies House already reports publicly on its activities and its regular statistical releases on gov.uk. On new clause 28, through dissolution a company is brought to a point at which it ceases to exist and ceases to appear on the register. A company can seek its own voluntary strike-off, or it can be struck of compulsorily by the registrar. In principle, that process takes place when there is reason to believe that the company is no longer in operation or carrying on business. In both cases, statutory processes ensue whereby the public generally are informed that the dissolution is in train by publications in the Gazette. There are opportunities for third parties to intervene and object to a company being dissolved.
Concerns have been expressed that unscrupulous companies choose to give the impression that they are defunct in order to precipitate their dissolution and evade creditors. That concern is ultimately misplaced, as any assets left in a company following its dissolution will not be held by the company any more, and will be passed to the Crown, bona vacantia—as ownerless property. It is also important to note the effects of the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021, which amended the Company Directors Disqualification Act 1986 by introducing a mechanism for disqualifying directors of dissolved companies.
It is also worth noting that the 1986 Act includes provision not only for disqualifying directors but for ordering disqualified directors to pay compensation. That provision is in section 15A of the Act and, as amended by the 2021 Act, covers directors of both insolvent companies and dissolved companies. If a director is disqualified and the conduct for which they were disqualified caused loss to the creditors of an insolvent or dissolved company, the director can be ordered to pay compensation either for the benefit of specified creditors or by way of a contribution to the assets of the company.
The Bill introduces a new circumstance under which the registrar might seek to strike off a company that persistently fails to provide an appropriate registered office address. I assure Members that the registrar will initiate dissolution in those particular circumstances only after having assessed the risks of doing so. The normal notification procedures, by way of the Gazette and Companies House webpages, will apply.
As noted, Companies House already makes data on company dissolutions regularly available. I question what benefit the reporting proposed by the new clause would add, as it is not clear to me that the information it covers would necessarily be available to the Secretary of State. However, I acknowledge the concern about the manner in which compulsory strike-off operates. I have asked my officials to advise me on the extent to which the Bill’s new information-sharing provisions might improve safeguards and transparency in this area. I am of course happy to engage further with Members on this topic in due course.
Most of the comments related to new clause 63. I absolutely agree that there needs to be a mechanism by which progress made on the implementation of the provisions in the Bill is reported to Parliament. There should be regular reporting on the registrar’s use of the new powers. I also accept that it is important to give Parliament an early opportunity to scrutinise how quickly Companies House implements the reforms.
I believe, however, that the new clause requires further consideration. As drafted, it has the potential to place unintended obligations on the registrar. For example, it will require the registrar to report on the imposition of financial penalties before the commencement date of the regulations. It also requires the registrar to indefinitely report on the implementation of the legislation, even if it is completed in the near future.
With the agreement of the Committee, I would like to ask my officials to consider the new clause further. I hope Members are reassured that we will give it consideration. If the new clause is withdrawn, we will have further discussions about what we might put in its place.
Seema Malhotra
I thank the Minister for his comments about the new clauses. I appreciate his response on new clause 63 and very much look forward to hearing from his officials about the proposed reports, but will he tell us when we will hear from them? None of us wants the measure to be lost in the course of proceedings, and we do not want it to be left to the Lords, so I would be grateful if he can tell us when he expects us to hear a response. Assuming that it will be positive, I am happy not to press new clause 63 to a vote.
On new clause 26, the Minister did not respond with the detail that I was expecting. I understand that some data is already published. We can have an argument about whether it is there, but it is easy for there to be a summary. If Parliament is looking at one document, it will want that data. It will want to review the later data in the context of the more procedural data that Companies House already publishes. I cannot see that it is onerous to publish a summary of data that already exists.
Dame Margaret Hodge
In the Minister’s response to my hon. Friend, he said that there was duplication of subsections (1) and (3). All the other things that were listed in subsections (4), (5), (6), (7), (8) and (9) are issues on which we want an annual report to Parliament because that shows us whether the legislation is working. If there is duplication, it is not the end of the world. There is a lot of duplication in our legislation—I am sure, Sir Christopher, that you are an expert on that—but that is not a sufficient argument to put the whole new clause out of the Committee’s consideration.
Seema Malhotra
My right hon. Friend is absolutely right; indeed, that is precisely where my concerns lay. The Minister simply talked about the relatively small part of the reporting requirement. If there were an argument as to whether to include it or not, my argument would continue to be that that is relevant to have in the context of the full reporting requirement that we are arguing for. There is not anywhere else in the legislation—unless the Minister can direct me to it—that will provide Parliament with such a report.
Kevin Hollinrake
Just to abbreviate the debate, much of the information in new clause 26 is already reported by Companies House in its annual report. I think it is being said that the key measures are the additional ones in new clause 63, which relate to what the Bill’s provisions will give effect to. I am happy to return to the Committee before Report to say where we feel the new clause needs to be addressed. If we do not do it at that point, the hon. Lady is welcome to table an amendment on Report.
Seema Malhotra
I thank the Minister. To clarify, he referred to coming back on new clause 63; my question is in relation to new clause 26 and whether and how the later subsections are all going to be covered by the Companies House annual report. It would be helpful if he responded to that, because currently I am not clear that they are all covered.
In new clause 26, we are asking for an assessment of whether
“the powers available to the Secretary of State and the registrar are sufficient to enable the registrar to achieve its objectives”
and about
“making recommendations as to whether further legislation should be brought forward in response to the report.”
Yes, there may be details elsewhere, but they could be summarised for the ease of use of the report. The new clause requires
“a breakdown of the registrar’s annual expenditure”
and
“data on the number of companies struck off”.
That information may well also be elsewhere. Will the Minister confirm whether
“the number of cases referred by the registrar to law enforcement bodies and anti-money laundering supervisors”
and so on is all going to published elsewhere?
Dame Margaret Hodge
May I also draw the Minister’s attention to new clause 26(6), which is important? It asks for an annual report of the total number of companies incorporated to the registrar and
“the number of company incorporations by Authorised Company Service Providers”.
The purpose of that particular bit of information relates to our concern about the integrity and honesty of company service providers. I do not believe that is covered in the Companies House report. I accept that there may be some duplication—we got that wrong—but there are issues of huge importance in terms of accountability and the integrity of the data that we would lose if new clause 26 were simply ignored.
Seema Malhotra
I thank my right hon. Friend for explicitly emphasising the importance of subsection (6). She is absolutely right. The Minister will be mindful of the importance of transparency in respect of the issues relating to incorporations by authorised company service providers. Will he confirm that all the subsections in new clause 26 will be explicitly covered elsewhere? If not, we will want to pursue the matter of how that information is going to be published by Companies House and the Secretary of State.
Kevin Hollinrake
Nobody is ignoring the comments that have been made. Nobody is keener than I am to make sure that there is proper scrutiny of what Companies House does with the powers. We should absolutely ensure that.
On the requirement for the Secretary of State to report on the use of the powers, any Secretary of State appointed by any Government, be they Labour or Conservative, will of course always review the powers needed and whether there is a need to legislate further. It is not right to dictate in legislation that the Secretary of State should do this, that or the other and I would not expect any Opposition to require that.
Companies House already reports on the number of companies incorporated and struck off—that is already in the annual report. It is an interesting point about corporate service providers; the right hon. Member for Barking has concerns in that regard, and I do too. I suggest that I should look at the matter further with officials and come back to the hon. Member for Feltham and Heston well in advance of Report—outside the tabling time—and if we are not going to do anything, she can table a similar new clause. If we are going to do something, that might address her concerns or she might need to go further. Those options are open to her and I hope she will give us time to try to address these matters to the House’s satisfaction.
Seema Malhotra
I thank the Minister for his comments. He has said he will review the issues addressed in new clauses 26 and 63 with his officials. There may well be areas in which, on further reflection, he agrees with us that more could be done.
On the Minister’s comment about the Secretary of State being able to introduce legislation at any time, the point that was missed was that we know the speed with which we have to respond to economic crime. If we think back to 2016, we can see that we did not act fast enough—we have not acted fast enough in the past six years—so there is strong merit in having a mechanism that speeds up any requirements for future legislation through a report that can be reviewed and followed up on.
If the Minister is committing to review the matter and come back to us, we accept that. We would like to be involved in the discussions, perhaps after he has had an initial discussion with his officials. If there is a way to move forward with consensus, perhaps prior to Report, that could be a positive way forward. I therefore beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 29
Report into the merits of a fund for tackling economic crime
“(1) The Secretary of State must produce a report into the merits of a fund for tackling economic crime.
(2) The report must consider the case for penalties paid to the registrar to be ringfenced and used solely for the purposes of tackling economic crime.
(3) The report must be laid before Parliament within six months of this Act being passed.”—(Dame Margaret Hodge.)
This new clause requires a report into the merits of a fund for tackling economic crime to be laid before Parliament.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Seema Malhotra
On a point of order, Sir Christopher, is it procedurally correct for my right hon. Friends the Members for Birmingham, Hodge Hill and for Barking to speak before I make my comments?
The Chair
People can speak in whichever order they wish. If the right hon. Lady and the right hon. Gentleman rise before you do, I will call them first. Let’s suck it and see.
New Clause 44
HMRC anti-money laundering function
“(1) The Commissioners of Revenue and Customs Act 2005 is amended as follows.
(2) After section 5 (Commissioners’ initial functions), insert—
‘5A Commissioners’ Anti-Money Laundering Functions
(1) The Commissioners shall be responsible for anti-money laundering supervision.
(2) The Commissioners shall treat the function in subsection (1) as a priority equal to the functions in section 5.’”—(Dame Margaret Hodge.)
This new clause would require HMRC to prioritise its AML supervisory function.
Brought up, and read the First time.
The Chair
With this it will be convenient to discuss new clause 72—Office for Professional Body Anti-Money Laundering Supervision: powers and duties—
“(1) The Secretary of State must by regulations set out a further power and duty for the Office for Professional Body Anti-Money Laundering Supervision.
(2) The power referred to in subsection (1) is the power to impose unlimited financial penalties on Professional Body Supervisors that fail to—
(a) adopt an effective risk-based approach to anti-money laundering supervision;
(b) impose proportionate and dissuasive sanctions for non-compliance with anti-money laundering requirements; and
(c) fail to separate their advocacy and regulatory functions.
(3) The duty referred to in subsection (1) is the duty to publish the details of any sanctions imposed on Professional Body Supervisors, and its reviews of Professional Body Supervisors with data disaggregated by body rather than by sector.”
Dame Margaret Hodge
I will speak to new clause 72 first and come back to new clause 44. The Minister and the Government will know that time and again we have said we are concerned about the way in which professionals are checked, supervised and regulated in the financial services sector and that the current system is not fit for purpose. I think we all recognise that it is the professionals who play a key role in enabling the fraudsters and money launderers to successfully commit economic crimes. It is they who either facilitate, collude in or enable the wrongdoing.
Kevin Hollinrake
Can I just say something from my own business experience? We had two very thorough inquiries from HMRC, which spent days in our office looking at our money laundering procedures. I am pleased to say that we passed the test, but HMRC really does take its job seriously.
Dame Margaret Hodge
I do not know whether I have the quote here from the previous HMRC permanent secretary—I will dig it up and send it to the Minister—but he actually said, in evidence to the Treasury Committee I think, that he did not quite understand why it was part of his job to do the supervision. I am not quoting him accurately, but the purport of what he said was that they see it as marginal and a sort of add-on—I think he used the word “add-on”—to their main function, which is to get the money in.
The position and reputation that professionals enjoy through membership of professional bodies is really important. Therefore, the professional bodies themselves should be taking steps to minimise and attack suspicious activity where it takes place, and they should be calling it out. It is in everybody’s interest to get the bad apples.
Let me give some evidence of the current failings as we see them. The 2021 review of OPBAS—the body responsible for all the professional bodies—found that 81%, or eight out of 10, were not supervising their members effectively. This review was done only on the legal and accountancy professions. Half the supervisors did not ensure that their members were taking timely action to improve their money laundering procedures where they were found wanting. A third of the supervisors did not have effective separation between the advocacy role and the supervision role, which I think is an important aspect. For a proper review, one would separate bodies undertaking supervision and bodies undertaking advocacy to ensure there is no conflict of interest.
Some 60% of the firms visited by the Solicitors Regulation Authority in 2021 were failing to comply fully with their duties to have adequate AML controls in place. OPBAS found that nine supervisory bodies of MLR are engaging in what it calls “low levels of enforcement”. The way in which those bodies respond when they find something going on is to have a quiet chat rather than issue fines and publicly censure lawyers for breaching the MLR rules. The highest ever AML fine for a law firm by the SRA was £232,500, and it was for Mishcon. If that fine had been levied by the FCA under similar powers, it would have been £5.4 million.
The Council for Licensed Conveyancers, another group of professionals who are active in this area, imposed zero fines, despite finding that two out of three of the firms it is responsible for supervising were non-compliant with AML regulations in 2019-20. To use another example, the Law Society of Northern Ireland imposed just one fine—of £1,750—in the year 2019-2020, despite it finding 228 cases of non-compliance. That is a considerable body of evidence, if I may say so, that shows that the current system is broken and not fit for purpose.
The Chartered Institute of Taxation, a group I work with a lot, found that a third of the firms visited were non-compliant, but only four firms were disciplined for failure to provide renewal forms by the required deadline and fined for failure to submit appropriate criminality check certificates or to deal with the action points that had been raised with them in the review by CIOT of their AML procedures. In three of the four disciplinary cases by CIOT, a financial penalty was imposed, and only in the fourth was the member suspended.
I know that the Government are looking at the supervisory framework but, as is the way with Governments, that could take forever. We want to implement these reforms swiftly, so we must have some assurance and confidence, particularly because of the outsourcing of the checks on individual companies, that the professionals will seek out the miscreants in their profession. We cannot wait for the review, to put it bluntly. With these measures, we have taken the least of all the options the Government have put forward and proposed it for legislation. If the Government, on reflection, want to come back with a tougher regime, that is fine, but at least we would have the minimum in place as we enact the legislation and the reform of Companies House. Our new clause says, “Action now. Toughen up the powers and duties of OPBAS—introduce greater transparency into the system, and comeback if that is needed.” We are suggesting new powers and duties for OPBAS. The power is
“to impose…financial penalties on Professional Body Supervisors that fail to…adopt an effective risk-based approach to anti-money laundering supervision…impose proportionate and dissuasive sanctions for non-compliance…and…separate their advocacy and regulatory functions.”
This is minimal, sensible and desperately needed now if we are to go ahead, with the speed that we all want, with the implementation of the legislation.
Seema Malhotra
I do not propose to spend much time speaking in support of the new clauses. The arguments made by my right hon. Friend the Member for Barking have broadly said it all. She highlighted the high levels of non-compliance, the very low levels of fines and disciplinary measures, and the frustration of the sectors in terms of tools to really root out the rogue players who need action taken against them. The new clauses would be very effective and are much needed, for the reasons outlined—in trying to get action now, toughening up powers and providing greater transparency. For the reasons that I have outlined, I totally agree that the Bill is the right place for these measures. We should not have to wait and wait and wait for what is likely to come and will almost certainly draw the same conclusions.
New clause 44 would have the effect of amending the Commissioners for Revenue and Customs Act 2005 such that the commissioners would be responsible for anti-money laundering supervision, and it states:
“The Commissioners shall treat the function in subsection (1) as a priority”.
New clause 72 would introduce provisions requiring the Secretary of State, by regulations, to set out a further power and duty for the Office for Professional Body Anti-Money Laundering Supervision. This is defined as
“the power to impose unlimited financial penalties on Professional Body Supervisors that fail”—
that fail—
“to…adopt an effective risk-based approach to anti-money laundering supervision…impose proportionate and dissuasive sanctions for non-compliance with anti-money laundering requirements …and …separate their advocacy and regulatory functions.”
We want stronger action taken against economic crime, not least because we know the scale at which it comes through the cracks, with the damage that it does to our economy. It seems to me that tightening up the roles and the performance of professional body supervisors and HMRC in some way is an opportunity that we should not miss.
The proposed clause would also insert a duty
“to publish the details of any sanctions imposed on Professional Body Supervisors, and…reviews of Professional Body Supervisors with data disaggregated by body rather than by sector.”
The sum of the two new clauses is to ensure the urgent improvement of the UK’s anti-money laundering sector. Throughout our witness sessions and Committee debates, we have heard about the lack of effectiveness of our AML system. I think that is a view also supported by the Minister. The changes are a much-needed strengthening and safeguarding against potentially rogue corporate service providers, the third parties who act on behalf of companies and can carry out the identity verification of directors.
Alison Thewliss
I support the new clauses. The anti-money laundering supervisory duties are incredibly important, as they are part of firmly closing the door on economic crime. It is important that we use this opportunity to strengthen the powers in the Bill. Frankly, if we do not do it now, when will we get round to it again?
New clause 44 asks HMRC to prioritise its AML supervisory function. That seems sensible. I would note that some additional resources will be needed; the Treasury Committee’s economic crime report points to the fact that some 30,000 businesses fall into this bracket.
I note the ongoing review of OPBAS. I do not want the Minister to get ahead of the review, but it might be useful to get a perspective on the direction of travel. At the most extreme end of that review—the Committee heard evidence on this point recently—the Government could propose that OPBAS loses its AML supervisory function. It would be interesting to hear the Minister’s perspective on where he thinks the review will end up. It is quite awkward that the review does not tie in with the Bill’s timetable: the review is ongoing, we are legislating here and we do not quite know where it will end up.
I wonder whether the Minister could clarify a point that the FCA’s chief executive, Nikhil Rathi, could not clarify when he came to the Committee. The most recent report about the performance of OPBAS is dated September 2021. It feels to me that we are overdue a report on the effectiveness of OPBAS. Is the delay a result of the ongoing review or is there some other reason for it? The September 2021 report stated that:
“The vast majority (just over 80%) of PBSs had not implemented an effective risk-based approach. Only a third of PBSs were effective in developing and recording in writing adequate risk profiles for their sector”.
The report also raised various other points about the effectiveness of OPBAS. It has been operating for several years now, but we still do not feel that it is doing what it should to supervise and ensure that the anti-money laundering responsibilities of those it supervises are carried out. If the Minister does not have information on the status of that report today, I would be perfectly content for him to write to me.
Maybe OPBAS has upped its game incredibly since the last report came out—we just do not know. That also hinders our approach to the Bill, because we do not know whether these functions are being adequately carried out. While the FCA chief executive was able to say that there has been improvement, he was not able to say what that improvement looks like. Have 100% of PBSs now implemented an “effective risk-based approach” or is it 50%, or somewhere in between? We just do not know.
It is important that we use all the opportunities we have in the Bill to up the resources for the FCA, OPBAS and HMRC to carry out their functions. As I say, anti-money laundering supervision is the key to ensuring we close the door on money laundering. Those bodies are meant to stop it, and if we do not tighten the legislation and provide the resource there is very little point having the Bill.
The Minister for Security (Tom Tugendhat)
I thank the right hon. Member for Birmingham, Hodge Hill and for Barking for their amendments, and I welcome the effort and energy they put into the oversight mechanisms that are so important in ensuring that the Bill is effective. That is the nice bit. They know what is coming next.
I do agree enormously on the importance of supervision, which has been emphasised, but I am afraid I cannot support new clause 44. Despite what the right hon. Member for Barking says, HMRC already has an anti-money laundering supervisory function and it does take its responsibilities extremely seriously. It supervises nine sectors and is the default supervisor for trust and company service providers where they are not already subject to supervision by the FCA or one of the 22 professional bodies.
Dame Margaret Hodge
I wish I had brought some of my previous notes with me. What evidence does the Minister have of that, apart from HMRC telling us that?
Dame Margaret Hodge
I am amazed that it did. Is there evidence of the number of visits or assessments carried out? I can remember a quote from the previous permanent secretary, who said, “It is not our core business.”
Tom Tugendhat
The core business of HMRC is raising money and ensuring that that money is clean. That is absolutely essential. Until HMRC works out whether or not the money is clean, it is hard to raise money. I would be hard pressed to describe my hon. Friend the Under-Secretary as a dodgy individual, but if he is going through these AML checks I think it is a good indication that HMRC is taking such matters very seriously. As I say, the checks are already being done and the responsibilities are held by branches of the Government, including HMRC and other professional bodies.
The amendments are therefore a duplication. The reality is that HMRC carried out 3,500 formal compliance inspections with businesses last year and issued over £2.5 million of penalties in 2021-22. That demonstrates that the business checks are not symbolic. They are not minor. They are extremely serious. HMRC takes them very seriously. I think the Government is entirely in agreement with the right hon. Lady that these checks need to happen, but the scale and type of reform to improve effectiveness and solve these problems is not yet clear. The Treasury will no doubt have many views when its formal consultation on the possible options opens. The consultation will ensure that the risks and implications of each option are fully understood before the Government commit to any particular model. The right hon. Lady knows very well that we need to get this right, not just to be quick.
On new clause 72, I welcome the desire to strengthen the UK’s anti-money laundering regime. I also share the support for the work OPBAS does. However, it is not yet the right time for the proposed changes, and I cannot support the suggested amendment. In June of this year, the Treasury published a review of the UK’s anti-money laundering regime, which considered the performance of the supervisory regime, including the work of OPBAS. It concluded that although there have been significant improvements in recent years, further reform is necessary to ensure effective supervision across the regulated sector. The review set out four options for reform, ranging from strengthening OPBAS to structural reform to establish a new statutory supervisor. Further policy work to develop these options is already under way, and the Treasury has committed to publishing a consultation before a decision on the direction for reform is made. It would be wrong to preclude the ongoing policy analysis and public consultation by making the changes proposed by the amendment.
Dame Margaret Hodge
I heard the Minister’s words with gloom. Initially, the Government put out a consultation with four options, and to speed it up, we decided to go with the weakest of the options—the one to which there would be the least objections. What I think I just heard him say, which is so gloomy, is that the Government will now publish a further consultation. All this stuff in the Bill will come into being and we will have absolutely no assurance that proper checking, regulation and supervision will be carried out on company service providers.
Tom Tugendhat
As I say, this is really a matter for the Treasury, and it has committed to publishing a consultation before the decision is made. It would be wrong of me to preclude the ongoing policy analysis and public consultation by making—
Seema Malhotra
May I clarify whether the Minister has had any discussions with Treasury colleagues about the matter and raised his concerns? Have they acknowledged the need to act much faster?
Tom Tugendhat
I have had many conversations with Treasury colleagues in recent weeks and months on various aspects of the challenges that economic crime poses to the UK. Many of us are committed—in fact, the Treasury is very committed—to ensuring that economic crime is reduced in this country. The support that the Treasury has given in various different ways has resulted in many things, including a very successful operation conducted this morning by the Metropolitan police that resulted in the arrest of many people connected to economic crime. That may sound tangential on the grounds that it is about fraud, but the reality is that all of it is connected. We see a very strong overlap between money laundering, fraud and various other different forms of economic crime. The Treasury, unsurprisingly, is extremely committed to making sure that economic crime in this country reduces. The Home Office and the Department for Business, Energy and Industrial Strategy are absolutely committed to making sure that we considerably reduce the level of fraud in this country.
What is important now is to ensure that we make OPBAS as effective as possible, and that we look for some of the reforms that we have started to highlight, because that means that the changes required by the amendment will be unnecessary. I hope that we can focus on that aim.
I have just been given a statistic that records that in October 2022, HMRC named 68 estate agents that had breached anti-money laundering regulations, and fined them a collective total of £519,000. We can see that the supervision of estate agents is not just conducted by my hon. Friend the Under-Secretary but by many others around the country and is taken extremely seriously.
Dame Margaret Hodge
I hear what the Minister says, but I think we will just be setting up another duff register unless we get the regulation of those company service providers toughened up at the same time as we introduce the Bill. I want to press new clause 72 to a vote.
The Chair
You will not be able to do that now, and in the meantime, you must seek the leave of the Committee to withdraw new clause 44.
Dame Margaret Hodge
Thank you very much, Sir Christopher. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 50
Requirement for UK-resident director
‘(1) The Companies Act is amended as follows.
(2) In section 156B of the Companies Act 2006, inserted by section 87 of the Small Business, Enterprise and Employment Act 2015, after subsection (4) insert—
“(4A) The regulations must also include provision to require all companies to have at least one director who is ordinarily resident in the UK.”’—(Stephen Kinnock.)
This new clause would amend the Small Business, Enterprise and Employment Act 2015 to require all companies to have at least one person who ordinarily resides in the UK as a director.
Brought up, and read the First time.
Stephen Kinnock
I beg to move, That the clause be read a Second time.
New clause 49 sought to ensure that the provisions of the Small Business, Enterprise and Employment Act 2015, which require company directors to be natural persons, would be brought into force. The Opposition welcomed the Minister’s commitment to introducing the necessary regulations to enact that measure in the near future, and we are very pleased to have that on the record. At the same time, however, the Opposition remain convinced that there is much more that the Government could and should be doing to reduce the risks of money laundering and economic crime within the company registration requirements. The new clauses we are about to discuss provide a number of different means by which the law could be further strengthened against the risk of such abuses.
New clause 50 would make it a requirement that every company registering in the UK has at least one director who is ordinarily resident here. I have already spoken in Committee about the risks that often come with a system that allows companies to register in places to which they have a tenuous connection in terms of actually doing business there. Although there may be certain limited circumstances in which it might be legitimate for a company with no UK-based directors to register with Companies House, I am struggling to see what they might be. On the other hand, I can think of plenty of reasons why the fact that a company has no UK-based directors might be considered a red flag for money laundering risks, calling for additional scrutiny from the registrar.
Kevin Hollinrake
I thank the hon. Member for his amendment. As he set out, new clause 50 would require all companies to have at least one person who ordinarily resides in the UK among their directors. The proposal has been considered and rejected before. I am aware that some other jurisdictions have similar provisions, but the UK has chosen not to enact that type of measure for two reasons. First, it goes against the long-standing principle that any legitimate global citizen can do business freely in the UK. If we mandate a UK resident director, we are effectively asking an overseas investor looking to set up a business here to have a UK business partner. That sounds to me very much like something that the Chinese state might do. We do not consider that it is right for our open economy.
Secondly, we are not persuaded that there are enforcement or accountability benefits that will lower levels of corporate abuse or economic crime. The reforms in the Bill, such as identity verification, intelligence sharing and greater information querying, will help to deliver much-increased transparency and accountability. That will help us to discover rogues faster, share their details more quickly, hold them to account and, where necessary, close down their businesses, or indeed ask questions of them before we even allow them to incorporate here.
It is my expectation, as the hon. Member for Aberavon has set out, that Companies House will work with the NCA and others to put in place the systems to raise red flags so that when we see applications to incorporate companies from individuals from certain jurisdictions, more questions will be asked. If the registrar is not persuaded by the responses, she may simply say no. The addition of a UK resident director will not provide additional value and I very much hope that the hon. Gentleman will withdraw his new clause.
Stephen Kinnock
I thank the Minister for his remarks. We are talking about how to make it as easy as possible for those red flags to be clear. If we were to do exception reporting, there may, of course, be a clear explanation in certain circumstances for why there is not a single UK-based company director and perfectly legitimate reasons for that. We think that it would be better to do the exception reporting on that basis, so that we are casting the net and identifying red flag areas because of the nature of the company directors and where the risk would appear to be.
I take it from the Minister’s remarks that there is not a great deal of room for negotiation on that point. However, we are trying to put forward a sensible and pragmatic solution. Can the Minister say any more about how to look through the telescope in terms of exception reporting? We argue that exception reporting could be conducted on the basis of explaining why there is not a single UK-based company director while maintaining the blanket provision that there should always be such an individual in order to minimise risk.
Kevin Hollinrake
That is exactly how we expect the process to operate. If there are red flags of concern—an exception report, as the hon. Gentleman calls it—the registrar can ask further questions and may deny that company the right to establish itself in the UK. I think those checks and balances are in place, and of course, as hon. Members have said, it is very important that those opportunities are used by the registrar. I am very keen to ensure that we have the opportunity to scrutinise the use of those powers.
Stephen Kinnock
I thank the Minister for those points. I see that we will agree to disagree on this. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 51
Registration requirements: UK-based assets held by overseas entity
‘(1) The Economic Crime (Transparency and Enforcement) Act 2022 is amended as follows.
(2) In Schedule 2—
(a) in sub-paragraph (a) of paragraph 2, for “and” substitute “or”;
(b) after sub-paragraph (a) of paragraph 2 insert—
(aa) is a beneficial owner of any UK-based assets held by overseas entity, and”.’—(Stephen Kinnock.)
The intention of this new clause is to broaden the scope of registration requirements for overseas entities, as set out in the Economic Crime (Transparency and Enforcement) Act 2022, to include the beneficial owners of any UK-based assets owned by an overseas company, as well as the beneficial owners of the company itself.
Brought up, and read the First time.
Stephen Kinnock
I beg to move, That the clause be read a Second time.
The purpose of the new clause is to close what appears to be a loophole in the current requirements on the registration of overseas entities that own property in the UK. The case for the new clause is simple. Under the current rules, as set out primarily in the Economic Crime (Transparency and Enforcement) Act 2022, a foreign company that owns property or land in the UK is required to declare the beneficial ownership of the company itself. It is, however, unclear whether it would also be required to disclose the ultimate beneficial owner of any property owned by that company.
In recent years, we have seen ample evidence of how easy it can be—
Kevin Hollinrake
I am trying to understand the new clause. How could someone be the beneficial owner of a company and someone else own the assets? If the beneficial owners own the company, how can a different beneficial owner own the assets?
Stephen Kinnock
According to our interpretation, schedule 2 of the 2022 Act is unclear about whether a company would be required to disclose the ultimate beneficial owner of any property owned by that company. Our worry is that there is a loophole in the law that talks about the beneficial owner but does not give us the tools to obtain disclosure of who is the ultimate beneficial owner of the property.
In recent years, we have seen ample evidence of how easy it can be for money launderers and the enablers of economic crime to exploit any grey area, perceived or actual, in the laws that apply to them. Therefore it is essential that the law is absolutely crystal clear on that point. It is about tightening up the law as it stands.
We already know that the beneficial ownership of property and other assets is often shrouded in layer on layer of corporate secrecy. In its official guidance and examples of best practice on beneficial ownership, the Financial Action Task Force draws a distinction between the ownership of a company on the one hand and the ultimate beneficial ownership of any assets held by that company on the other. The guidance makes it clear that they are not necessarily the same thing. One of the most salient differences is that although a company can be the legal owner of a property, the ultimate beneficial owner of that property will always be a natural person, or, in layman’s terms, a human being. It is not clear whether the current legal framework for the register of overseas entities is sufficiently clear on that point.
To make a significant difference in terms of transparency, the register must require all companies to disclose the ultimate beneficial owner of any UK property under their control. It must publish that information. I would be grateful to hear the Minister’s thoughts on whether the legislation currently provides an adequate degree of clarity. If he agrees that the requirements could be made clearer, I hope that we can trust that the necessary changes will be incorporated in the Bill, or set out in regulation.
Kevin Hollinrake
Again, I thank the hon. Gentleman for tabling the new clause. I understand what he is seeking to do, and I support him in that endeavour. I believe that the intent behind the new clause is the concern that assets other than land can be used for illicit purposes, but I am not sure that the new clause, as drafted, serves to address that.
As the hon. Gentleman knows, overseas entities are required to register beneficial owners with Companies House. Those registered as the beneficial owners of the overseas entity are the same persons as the beneficial owners that the new clause seeks to make registerable. Any assets held by the overseas entity are ultimately owned by those already required to register with Companies House.
Say an overseas entity owns a case of whisky, so we know who is the beneficial owner of that case. Who then owns the bottles of whisky in the case? It is the same owner as the one who owns the case. There is no separate owner—they either own the case of whisky, or they do not. I honestly do not think that the new clause would achieve what the hon. Gentleman wants it to achieve. If we think about yachts and other property, if we know the beneficial owner of the company, we also know the owner of the assets inside it. I hope that the hon. Gentleman will withdraw the motion.
Stephen Kinnock
I thank the Minister for that clarification. What rang alarm bells with us were the comments of the Financial Action Task Force, which drew the distinction between the ownership of a company and the ultimate beneficial ownership of any assets held by that company. The Minister has made his position clear, and, again, we just agree to disagree. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Retained EU Law (Revocation and Reform) Bill (Sixth sitting)
Thursday 24th November 2022
(1 year, 11 months 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 24 November 2022 - (24 Nov 2022)
The Committee divided: - Ayes: 7 / Noes: 8 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 7 - Question accordingly agreed to.
The Committee divided: - Ayes: 6 / Noes: 7 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 7 - Question accordingly negatived.
The Committee divided: - Ayes: 7 / Noes: 6 - Question accordingly agreed to.
The Minister for Industry and Investment Security (Ms Nusrat Ghani)
It is a privilege to spend the afternoon with you in the Chair again, Sir George.
In certain areas of legislation, for example on data protection, it is likely necessary to specify that certain effects of the existing legislative hierarchy are maintained, to ensure the continuation of the legal regime. The clause therefore establishes a new power to maintain intended policy outcomes by specifying the legislative hierarchy between specific provisions of domestic legislation and provisions of retained direct EU legislation or assimilated direct legislation to maintain the current policy effect.
Justin Madders (Ellesmere Port and Neston) (Lab)
I have only a couple of questions. As I said, the Opposition consider the clause to be sensible, but will the Minister outline whether any assessment has been done as to what circumstances it is likely to be used in? What steps will the Government take to preserve the intent of the measure after 23 June 2026, when regulations made under the Bill will expire?
Ms Ghani
The hon. Gentleman asked about assessment. The REUL reform programme has been under way for more than a year. Departments have been engaged as to the effect of removing EU law principles—such as that the EU is the only one that can create principles and legislation—which is what we are working on. The work will continue to take place.
On the evidence about changing interpretation rules under clause 4, in specific cases—data protection regulation and competition law—removing the principles of interpretation as set out in the EU (Withdrawal) Act 2018 will cause unintended policy consequences as a result of the way that the legislation has been written. The compatibility power will ensure that the relationships between individual pieces of domestic legislation going forward are maintained. We intend that to ensure that our domestic law operates as the UK Government want it to. Each Department will of course be responsible for REUL elements within their portfolio.
Question put and agreed to.
Clause 8 accordingly ordered to stand part of the Bill.
Clause 9
Incompatibility orders
Alex Sobel (Leeds North West) (Lab/Co-op)
I beg to move amendment 80, in clause 9, page 10, line 36, at end insert—
“(4A) Within 28 days of the making of an incompatibility order, a Minister of the Crown must, by written statement, set out the Government’s view on the incompatibility. The statement must include consideration of the impact the incompatibility order has on rights of and protections for consumers, workers, and businesses, and protections of the environment and animal welfare, and whether the Government intends to produce regulations to revoke, amend or clarify the law in light of the order.”
This amendment requires ministers to set out, through a ministerial statement, their position on an incompatibility order that includes a consideration of the impact it will have on the rights of people.
Alex Sobel
The amendment would require Ministers to report to Parliament with a written statement in the event that a court made an order to declare that EU law and domestic law are incompatible. As we explained in relation to previous amendments, the Bill could impact on many fundamental rights of citizens in multiple areas of daily life. It could also interfere with important existing environmental protections, which I have explained at length in previous amendments.
The clause might have the effect of a court setting aside laws that guarantee such rights and protections, without giving Parliament any opportunity to ensure they can continue in place. In the interests of transparency and proper scrutiny, the amendment is designed to ensure that Parliament is alerted if that happens, enabling us to scrutinise the court decision and to consider whether we should exercise our rights to legislate to ensure that there is no confusion about Parliament’s intentions. It is not my intention to press this amendment to a vote, but I would like the Minister to explain how we can ensure proper scrutiny when such clashes inevitably occur.
Ms Ghani
The clause gives the judiciary powers in connection with the ending of the supremacy of EU law. It requires a court or tribunal to issue an incompatibility order where retained direct EU legislation cannot be read consistently with other pieces of domestic legislation. It gives the judiciary broad discretion to adapt the order to the case before it. That includes granting remedies to the effect of the incompatibility.
Courts generally have wide discretion to grant remedies that they may grant in a given case, and the clause is consistent with that principle. Where the court considers it relevant, the order could set out the effect of the incompatible provision in that particular case, delay the coming into force of the order, or remove or limit the effect of the operation of the relevant provision in other ways before the incompatibility order comes into force.
The clause is a matter of judicial process. It grants powers to the courts but does not change any rights or protections in and of themselves, which is a matter for Parliament in the scrutiny of this Bill. We do not need to create a new scrutiny process for incompatibility orders. A process of “declaration of incompatibility”, similar to that set out in clause 9, exists under the Human Rights Act 1998, and no new scrutiny procedure, such as the one proposed by this amendment, has been deemed necessary. Similar court orders could also be made under the European Communities Act 1972, where conflicts arose—again, with no such scrutiny procedure.
Once again, the hon. Member for Leeds North West raised environmental regulations. To repeat myself, we will not weaken environmental protections. The UK is a world leader in environmental protection and, in reviewing our retained EU law, we want to ensure that environmental law is fit for purpose and able to drive improved environmental outcomes. We are committed to delivering our legally binding target of halting nature’s decline by 2030. I therefore ask the hon. Gentleman to withdraw the amendment.
Alex Sobel
I take on board what the Minister says, although that last comment on the environment is slightly galling considering that on 31 October the Government were meant to bring forward, under their own domestic post-Brexit legislation—the Environment Act 2021—targets on a whole range of areas, including air quality and water quality. It is now 24 November and we still have no targets. If I am a little concerned about the Government’s performance here, she should not be surprised, but I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 9 ordered to stand part of the Bill.
Clause 10
Scope of powers
Peter Grant (Glenrothes) (SNP)
I beg to move amendment 50, in clause 10, page 11, line 12, leave out paragraph (b) and insert—
“(b) for sub-paragraph (2), substitute—
(2) Power may only be exercised by virtue of sub-paragraph (1) if—
(a) a written statement explaining the modification has been published by the Secretary of State,
(b) the Secretary of State has made an oral statement on the modification to both Houses of Parliament, and
(c) the Secretary of State has published an assessment of the impact of the modification.”
The intention of the amendment is to do what Brexit was supposed to do: restore some parliamentary oversight to the way in which the Government make and change legislation in this place. The amendment is pretty self-explanatory. It is not ideal that Ministers are giving extensive powers to chop and change laws as they see fit. If, in exceptional circumstances, it is necessary for them to have those powers, the very least Parliament should expect is that Ministers will be held to account and will explain to Parliament—ideally beforehand, but certainly afterwards—why they have done what they have done and what the impact has been.
If the Minister genuinely believes in improving accountability in this place, she will accept the amendment. In saying that, it is clear that all Ministers—nothing against this Minister—in all Public Bill Committees are under instruction not to accept anything from the Opposition. If we moved an amendment that said, “Today’s Thursday”, the Government would keep talking until it was Friday and then vote it down.
Ms Ghani
I recognise that none of that was directed at me personally, but rather collectively at all Ministers. I beg hon. Members to reject the amendment. The Government recognise the significant role that Parliament has played in scrutinising instruments to date and we are committed to ensuring the appropriate scrutiny of any secondary legislation made under existing delegated powers. We must end the restriction that some existing powers may only be used to amend retained direct principal EU legislation or rights under section 4 of the European Union (Withdrawal) Act 2018 if they are also capable of amending domestic primary legislation.
The hon. Member for Glenrothes suggests that a written ministerial statement made by a Secretary of State is accompanied by an oral statement when an existing power is exercised. I remind him that all statutory instruments that are subject to parliamentary procedure must be accompanied by an explanatory memorandum. These memorandums provide Parliament with the information and explanations required. When powers are exercised by virtue of paragraph 3(1) to schedule 8, explanatory memorandums would be laid as appropriate. Any statutory instrument that reforms retained direct EU legislation made under existing delegated powers will be subject to the proper processes for impact assessments. However, a blanket requirement for impact assessments is not appropriate as some reforms could fall below the de minimis threshold set out in the “Better regulation framework” guidance.
Now that we have left the EU, it is only appropriate for retained direct EU legislation that was not scrutinised or approved by Parliament to be treated in the same way as domestic secondary legislation, which is amendable by existing delegated powers that this Parliament has approved. For those reasons, I ask the hon. Member to withdraw his amendment.
Peter Grant
The difference, of course, is that any secondary legislation—even if it is done by the affirmative procedure—goes through a Delegated Legislation Committee in which, at best, three or four of the parties in this House are represented. For the last seven and a half years, the Scottish National party has been represented in those Committees because of the exceptional level of support that it enjoys in our country, but there are Members of Parliament, who collectively represent the interests of a lot of constituents, who never get on to Delegated Legislation Committees. The only chance they get to question the Minister about secondary legislation is if the Minister makes an oral statement before the House. Publishing something is all very well, but Members of Parliament who are not in one of the big three or four parties do not get the automatic right to question Ministers on a written statement—they do get the automatic right to questions Ministers on an oral statement. It is quite clear which way this is going, so I will not detain the Committee by pushing the amendment to a vote. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Brendan O’Hara (Argyll and Bute) (SNP)
I beg to move amendment 51, in clause 10, page 11, line 18, leave out from “paragraph 3” to the end of line 23 and insert
“may not be so made, confirmed or approved unless a draft of the legislation has been laid before, and approved by resolution of, (as the case may be) both Houses of Parliament, the Scottish Parliament, Senedd Cymru or the Northern Ireland Assembly.”
The amendment is in my name and that of my hon. Friend the Member for Glenrothes. As we have argued since the date of publication, the Bill not only undermines the devolution settlement, but puts at risk workers’ rights, product safety, food labelling, the future of the agricultural sector, and the natural environment. Clause 10 allows for all that to happen with the bare minimum of parliamentary scrutiny, allowing everything to be dealt with via secondary legislation, and thereby conveniently avoiding the intense parliamentary scrutiny that these measures most certainly require. Clause 10 would make it easier for the Government to remove our rights and protections by using delegated powers, and therefore circumvent parliamentary scrutiny, avoid transparency and evade accountability to all Members of Parliament. This is the Executive power grab people have been talking about since the day the Bill was published.
When the Bill was published, the Government told everyone who would listen that this was all about the United Kingdom taking back control and asserting the sovereignty of this Parliament, as opposed to—in their words—shady deals being agreed in small committees in Brussels, but it does not feel like that. Who exactly is it that is taking back control here? It is not this Parliament, and it is not Members of this House, because the Government have already gleefully announced that when it comes to retained EU law,
“the amount of parliamentary time that is required has been dramatically reduced.”
It seems that for the Government taking back control means putting a group of hand-picked party loyalists on to a Delegated Legislation Committee—a Committee that, as we know, has a built-in Government majority—which will bulldoze through change after change after change, as instructed. The history of DL Committees is not particularly encouraging; in the past 65 years, only 17 statutory instruments have been voted down by a DL Committee—and that has not happened since 1979.
Although there is certainly a role for DL Committees, I do not believe that that extends to them making wholesale, fundamental changes to vast swathes of the law—on matters covering everything from the environment, nature and consumer protection through to workers’ rights, product safety and agriculture—just to help the Government avoid proper parliamentary scrutiny. The reason they are avoiding parliamentary scrutiny is that, in their fervour to get rid of any lingering European influence, the wide-eyed zealots at the heart of this dysfunctional Government have arbitrarily imposed a sunset clause for December next year. This is not just the view of the Opposition; it is a widely-held view. Professor Catherine Barnard warned against the lack of parliamentary scrutiny afforded, saying:
“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.”––[Official Report, Retained EU Law (Revocation and Reform) Public Bill Committee, 8 November 2022; c. 16, Q27.]
In his evidence, George Peretz KC warned,
“One of the problems with the effectiveness of parliamentary scrutiny is that although one hears that Parliament has powers… 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.”––[Official Report, Retained EU Law Public Bill Committee, 8 November 2022; c. 32, Q61.]
Ms Ghani
I ask hon. Members to reject the amendment. Clause 10 ensures that appropriate parliamentary scrutiny is applied to the use of existing delegated powers when they are used to amend retained direct EU legislation or section 4 of the European Union (Withdrawal) Act 2018 rights. It is this Government’s view that the appropriate procedure applied when amending retained direct EU legislation should be the same as the procedure applied to domestic secondary legislation. Any additional procedure, such as that proposed by the hon. Member, would be disproportionate given the type of legislation retained direct EU legislation is composed of.
It would be wholly inappropriate if, for example, updating individual provisions adding cheese and honey to the simplified active substance list required the approval of both Houses of Parliament, the Scottish Parliament and the Welsh Parliament. Making it easier to use pre-existing powers to amend assimilated retained direct EU legislation, while ensuring it receives the most suitable level of parliamentary scrutiny, will ensure our regulations can be kept up to date, supporting growth across the whole UK.
Peter Grant
The Minister referred to domestic secondary legislation. Does she not understand that if a piece of secondary legislation relates exclusively to, for example, a devolved power of Senedd Cymru, as far as this place is concerned that is not domestic law—it is somebody else’s domestic law—and this Parliament should keep out of it?
Ms Ghani
I think we have covered the point of domestic law, law in Westminster and the role of Attorneys General. At the moment, we are forced to treat some retained direct EU legislation as equivalent to an Act of Parliament when amending it. It is no longer appropriate for retained direct EU legislation to keep the status of primary legislation when most of it has not had anywhere close to the same level of UK parliamentary scrutiny. I therefore ask the hon. Member for Argyll and Bute to withdraw the amendment.
Brendan O’Hara
I will withdraw the amendment, but it is something that we will return to on Report. This is an Executive power grab; it is a weakening of the role and influence of Members of Parliament in favour of the Executive. It is intolerable, and I hope that, when we do get to discuss it on Report, we will have the combined support of the Opposition. This is a dangerous road that we do not want to go down, and something we should avoid at all costs. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to debate that schedule 1 be the First schedule to the Bill.
Ms Ghani
Hon. Members are already aware that clause 10 modifies powers contained in other statutes that can be exercised to make secondary legislation amending former directly effective EU law. Schedule 1 makes related amendments with similar effect to alter the procedural requirements in relation to other powers to amend retained direct principal EU legislation in line with the changes made in clause 10 to schedule 8 of the European Union (Withdrawal) Act 2018. Schedule 1 also contains amendments that are consequential on the changes to the EU withdrawal Act in clause 10. I commend the clause to the Committee.
Question put and agreed to.
Clause 10 accordingly ordered to stand part of the Bill.
Schedule 1 agreed to.
Clause 11
Procedural requirements
Justin Madders
I beg to move amendment 81, in clause 11, page 13, line 26, leave out subsections (1) and (2).
This amendment removes the subsections that omit and replace paragraphs 13, 14, and 15 from the European Withdrawal Act 2018, and thereby leaves intact the existing scrutiny procedure for instruments which amend or revoke subordinate legislation made under s2(2) of the ECA 1972.
Good afternoon, Sir George. In essence, the amendment would remove the subsections that omit and replace paragraphs 13, 14 and 15 of schedule 8 to the EU withdrawal Act and leave intact the scrutiny procedure inserted for instruments that amend or revoke subordinate legislation made under the European Communities Act 1972.
If Ministers wish to revoke retained EU law, they are currently subject to what I would consider to be an appropriate level of parliamentary scrutiny, with mandatory explanatory statements, mandatory periods of prior parliamentary scrutiny and the mandatory use of draft affirmative procedures. Those enhanced provisions were inserted during the passage of the EU withdrawal Act in 2018 because Parliament considered such enhanced scrutiny necessary and proportionate, given the vast and varied nature of retained EU law and the potential impact of changes that we have debated at length over the past few days. We are talking about important environmental rights, workers’ rights and consumer rights. As we can see from the submissions made to the Committee, it appears that social media platforms are also at risk of being inadvertently switched off as a result of the Bill. We therefore think that this enhanced scrutiny is required.
I gather that the Government’s response as to why the requirements from the EU withdrawal Act can be watered down is that they believe those procedures have brought no tangible benefit. However, it is difficult to see what the rationale is for reducing the level of scrutiny when Parliament as a whole obviously thought that they were important enough to place in the Act just a few years ago. Could the Minister set out why she considers that a lower level is now appropriate?
I hear what the Hansard Society said about these procedures not having been used extensively thus far, but we are, of course, talking about something of an entirely different order to what we have seen to date. The procedures have mainly been used to maintain the status quo, but we are on a different and possibly uncertain trajectory now. It is clear from the Government’s refusal to accept any of our amendments to protect any pieces of regulation that there are going to be dramatic changes as a result of the Bill. Removing the requirement for the affirmative procedure will, once again, see a significant erosion of Parliament’s ability to scrutinise and hold Ministers to account when they amend the law. Why should parliamentarians not have greater involvement in the process set out in the Bill?
I have said this a number of times, but we really should aim to do better in the Bill. We should ensure that we are confident that, when changes are made, both Houses are able to scrutinise Ministers’ decisions. We will probably be presented, yet again, with arguments as to why we do not need such levels of scrutiny because these laws were foisted on us against our will in the first place, but that is essentially a way of saying that two wrongs make a right. I do not accept that. As I explained extensively on Tuesday, there has been a great deal of involvement on the part of UK politicians and representatives in the development of EU laws. I just do not accept the characterisation of these laws as having been foisted on us as correct.
I am not going to rehash all the arguments at the length I did the other day. I merely reaffirm that scrutiny is important, and when we, as parliamentarians, are faced with such a ministerial power grab, we should be concerned about trying to restrain it in some way. That is what this amendment seeks to do.
Stella Creasy
Apologies, Sir George, I was waiting for an affirmative action—in the same way I am waiting for an affirmative version of scrutiny from this legislation.
I rise to support amendment 81 because it is the nub of the issue, isn’t it? This is exactly what taking back control was supposed to be all about. It was about giving this place the powers that it was claimed had been cruelly taken from us by being part of the European Union. It is a while now, if we are honest, since we had the Brexit debates, but I do not recall a single leaflet that said, “Taking back control to Downing Street. Taking back control to a civil service office that would advise a Minister to pass an SI.” Yet, that is exactly what this piece of legislation will do on thousands and thousands of laws that our constituents care about because they have depended on them existing for generations.
I totally understand the challenge for Government MPs. Whether they were elected in 2019 or before, their experience of this Government has been of stability—of confidence in every decision and every piece of legislation that has been introduced. So they have never felt the need to question things or to have a mechanism whereby they could have a voice. What I often hear them loudly saying is, “In Downing Street we trust”—
Stella Creasy
Whoever is in it at any point—this week, next week, come what may.
The point is that parliamentary scrutiny is not a bad thing. Those of us who are democrats think it is quite a good and healthy thing.
Paul Blomfield (Sheffield Central) (Lab)
My hon. Friend is making a powerful point. Does she recognise the way this procedure contrasts with the way these laws were originally made? Obviously, under the co-decision making in the European Union, laws are not made only by the Commission, which is characterised as the bureaucrats. They can be passed only with the active engagement and approval of the Council of Ministers, consisting of elected representatives from each member state, and the European Parliament, consisting of directly elected Members. Does it not appear that, when Government Members talk about taking back control, the democratic deficit that they once spoke of, pointing their fingers at Brussels, will now be pointed out here?
Stella Creasy
My hon. Friend has alighted on the fundamental challenge here. Obviously, it is a case of Council of Ministers—bad; individual Minister—no problem whatever. That seems to be what this Bill is doing and the process that MPs are setting up. As somebody who is hopeful that—not too long from now—Labour Members will be sitting on the Government side of this room, I still think it is a good idea for Back-Bench MPs to be able to raise questions, to table amendments and to have a voice. I thought taking back control was very much about saying that we did not trust Ministers when they joined a Council, but we did trust them when they had to face parliamentary scrutiny and to be in front of MPs who could ask them questions—difficult or otherwise, approved by the Whips or not. I know that my Whip, my hon. Friend the Member for North Tyneside, will catch my eye at this point. Amendment 81 would restore the scrutiny powers that we all agreed to in the EU withdrawal Act in the end and that were part of a process of giving people in this place more opportunity to influence what would happen next.
There is a practical challenge here. If we have all accepted that we do not even know which laws will be covered, because the dashboard will not be updated until next year, will all of us on this Committee be completely confident when a constituent comes to us and says, “You did X, but your Parliament did Y. Tell me the reason for that. Did you vote for that? Where were you when laws were passed that led to Facebook stopping working in the UK? Where were you when laws were passed that led to pension protections being deleted? What did you say? Did you vote for it? How did you represent me in that process?”—and answer there comes none, because the powers were entirely with Ministers, and the power of scrutiny, which MPs in this place could have saved and given to colleagues, was abandoned?
Peter Grant
I stand to speak in favour of the amendment, although, at best, all it seeks to do is take an entirely unacceptable clause and make it slightly less unacceptable. Clause 11 is about a Henry VIII power; it is about removing protections for this House that were, ironically, forced on the Government by Members of the other House. I am not a great fan of unelected legislatures anywhere—I certainly do not want my country even partly ruled by one—but I have to say to Conservative Members that when the House of Lords is keener on protecting the rights of this House than Government Back-Bench and Front-Bench Members are, the Government really do need to look at themselves in the mirror and ask themselves: are we a democratic Government or are we not?
I support the limited improvements to the clause, but if the amendment falls, I will seek to divide the Committee to exclude clause 11 in its entirety.
Ms Ghani
I ask hon. Members to reject the amendment. Unless I was in a different Committee Room, or on a different planet, I think Opposition Members have had every opportunity to raise their voices, because we have heard much from them today and on Tuesday, and we have had much scrutiny as well. Our constituents know exactly what we are doing because it is all noted in Hansard.
The amendment would render clause 11 without purpose. Subsections (1) and (2) ensure the removal of additional parliamentary scrutiny requirements, established in the EU withdrawal Act, in relation to the amendment or revocation of secondary legislation made under section 2(2) of the European Communities Act 1972. Subsections (1) and (2) will ensure that when secondary legislation made under section 2(2) ECA is being amended or revoked using other delegated powers, the only parliamentary scrutiny requirements that will apply are those attached to the power being used. These delegated powers have their own parliamentary scrutiny procedure attached, which has been approved by Parliament, ensuring suitable scrutiny will continue to occur.
It is imperative that additional scrutiny requirements are removed, because it is clearly inappropriate that legislation created solely to implement our obligations as a member of the EU enjoys this privileged status. What is more, no tangible benefit has been identified as a result of these scrutiny requirements; as was mentioned, that was referenced in the evidence session by Dr Ruth Fox of the Hansard Society. In practice, they add a layer of complexity that makes it difficult to make amendments to legislation containing section 2(2) ECA provisions.
Removing these requirements reflects the main purpose of this Bill, which is to take a new approach to retained EU law, removing the precedence given in UK law to law derived from the EU that is no longer considered fit for purpose.
Brendan O’Hara
The Minister said that we get our voices heard, including in this Committee, and that may well be true for the Government, the official Opposition and SNP members. However, we have heard a lot today about Northern Ireland. When is the voice of the Democratic Unionist party and the Social Democratic and Labour party going to be heard? We have heard a lot about the environment, but where is the voice of the Greens? Where is the voice of Plaid Cymru? Where is the voice of the Liberal Democrats? They will not be heard in a Delegated Legislation Committee. We are not talking about the voice of Parliament, but the voice of a DL Committee, which is very restricted.
Ms Ghani
The hon. Member is not being wholly honest. The level of scrutiny of any piece of legislation, not only in Committee but on the Floor of this House and the Floor of the other place, takes place for all items of legislation.
The hon. Member will be well aware of the evidence session we had just a few weeks ago, when we had a number of people from environmental agencies who previously had Green credentials or who were previously Green or Lib Dem candidates. So it is not as if those voices are not heard.
Justin Madders
I think the irony is noted: the Minister says that everyone has their opportunity to speak and then does not give way to interventions.
Dr Luke Evans (Bosworth) (Con)
On a point of order, Sir George. I think it is fair to say that the Minister has given way numerous times. It is a little churlish to suggest that she has not, and I would like Hansard to observe that.
The Chair
As the hon. Gentleman well knows, it is not up to me to decide whether a Minister, or anyone else, should give way during a speech. So, strictly speaking, it is not a point of order, but the hon. Gentleman has made his point.
Justin Madders
The convention is of course that Ministers give way when asked to in Bill Committee, because that is the point of a Bill Committee—that we have the opportunity to scrutinise legislation and question the Minister on its intent. I think the record will show that that has not been possible on every occasion.
That is why this amendment is so important, because the Government are obsessed with keeping power for themselves. The idea that the decision to leave the EU was about taking back control was not about the people of this country; it was about Ministers in Parliament making decisions that they do not have to address the elected representatives of this country on and that they do not have to justify. They are hiding away from proper accountability. That is not what taking back control is about.
My hon. Friend the Member for Walthamstow said it is clear that Government Members have no scintilla of doubt about the intentions of the Government and are confident that nothing untoward will happen. Well, if the last scintilla of doubt has ridden out of town for them, it is certainly very much in the high street for us, because we are concerned about the Government’s intentions. We have plenty of reasons to be concerned that they will not maintain laws that we want maintained and that our constituents expect to see maintained. So we want to push this amendment to a vote.
Stella Creasy
Does my hon. Friend agree that it is quite worrying that the Minister is conflating scrutiny of the Bill, and Opposition Members raising concerns about the process set out in it, with scrutiny of the subsequent statutory instruments that will be laid by Ministers under the Bill to address the 4,000 pieces of legislation that will be deleted by it? The Committee is scrutinising the Bill itself, not its impact. That the two are being conflated—the idea being that no further scrutiny should be required—is troubling. We do not know what impact the Bill will have, only the powers that it asks for. Does my hon. Friend agree that separating out those two things is important in taking back control?
Justin Madders
I agree, and I hope that by the time the Bill reaches its conclusion we have clearer answers on how Parliament will be able to properly scrutinise many of the powers that the Government are awarding themselves in the Bill. I will press the amendment to a vote.
Question put, That the amendment be made.
Peter Grant
I oppose the inclusion of clause 11, as I indicated earlier. I will give the Minister credit and assume that she just got confused. She has attempted to justify removing the requirement for full parliamentary consideration of a Bill to revoke European legislation and turning it all into secondary legislation. Not content with insisting on a sunset clause that means that if that secondary legislation does not get approved, nothing gets approved, she then attempted to justify removing the requirement to use the affirmative process for the vast majority of that legislation and instead use the negative process, which we all know is an even weaker form of parliamentary scrutiny. She completely missed the point. In fact, I think she confused the status of a Public Bill Committee such as this with that of a Delegated Legislation Committee, which she thinks is an adequate way for some of these important regulations to be considered.
The reason this Public Bill Committee exists is that the legislation was approved—not unanimously, by any means—by the House of Commons. The only requirement that anybody had to speak and vote on Second Reading was that the people of their constituency chose them to represent them in Parliament. Every member of the Committee is here because our party Whips chose to put us here. We were not elected to it by our people. We had to be elected to be in the Chamber of the House of Commons, but it is the Whips who decided who got to serve on this Committee. As my hon. Friend the Member for Argyll and Bute has said, Northern Ireland Members never get the opportunity to have their voice heard on a Delegated Legislation Committee, though they do have a voice on Second and Third Reading. There is also no automatic right for Wales to be represented. Wales is represented in this place by four political parties, but there is only one voice from Wales on this Committee. That did not have to happen; the Whips could easily have put someone else on it instead.
Dr Evans
If Scotland were to be independent and part of the EU, the European Council uses majority voting so members have to like or lump whatever they are given at the end of the vote. At the end of the day, someone has to make a decision and Government have to decide. How would that fit if Scotland were independent?
Peter Grant
I cannot speak about what decisions the Scottish Parliament will take after we are independent, but I look forward to seeing that day before any of us are very much older. I am confident that it is a modern, democratic Parliament with much improved scrutiny procedures. For example, in the Scottish Parliament it would have been impossible for us to have two changes of Prime Minister without the explicit approval of the Parliament. Nobody can become a Minister of the Scottish Government without being approved by the Scottish Parliament. There is much greater parliamentary accountability for the Executive than there is ever going to be here.
My confident expectation is that when an independent Scotland goes back into the European Union, the Scottish Parliament will have a much greater role in scrutinising the actions of our Ministers, acting on our behalf, at the European Council than this Parliament has ever had. As I have said to the Committee before, the problem with lack of accountability and scrutiny of European legislation is not because the European Union’s processes are flawed, but because parliamentary accountability in this place is fundamentally flawed.
If I intended to be part of this establishment for much longer, I would be attempting to improve its processes in order to bring it into line with proper democratic Parliaments, such as the one in Scotland. Given that neither I nor any of my colleagues from Scotland are likely to be here for very much longer, I will have to leave it to those who remain to sort out the mess of a Parliament that they have created.
Ms Ghani
Our objective is not to remove power from Parliament. Our objective is to ensure that amendments or revocations made to subordinate legislation made under other existing powers receive the most appropriate level of parliamentary scrutiny. Fundamentally, people need to accept the Brexit vote and appreciate that we have to have sovereignty here. I do not think we are going to win that argument—we are too far apart.
When the European Union (Withdrawal Agreement) Act 2020 was agreed, additional parliamentary scrutiny requirements were agreed in relation to the amendment or revocation of secondary legislation made under section 2(2) of the European Communities Act 1972. It is clearly inappropriate that legislation created solely to implement our obligations as a member of the EU enjoys that privileged status. We therefore seek to remove those requirements. This reflects the main purpose of the Bill—removing the precedence given in UK law to EU-derived law—which is no longer fit for purpose now that the UK has left the EU. I recommend that the clause stand part of the Bill.
Question put, That the clause stand part of the Bill.
Brendan O’Hara
I beg to move amendment 53, in clause 12, page 15, line 1, leave out subsection (3).
The Chair
With this it will be convenient to discuss the following:
Government amendments 8 and 9.
Amendment 54, in clause 12, page 15, line 13, leave out subsection (7).
Clause stand part.
Government amendments 10 to 13.
Clause 13 stand part.
Brendan O’Hara
I will speak to amendments 53 and 54 on behalf of myself and my hon. Friend the Member for Glenrothes. Members will be aware that clause 12 is about the mechanism that will allow UK Government Ministers, or Ministers in the devolved Administrations, to restate or protect current retained EU law so that it does not fall away automatically at the end of 2023.
Thanks to the insidious Internal Market Act 2020, there is, as with so much of this Bill, huge confusion about which areas are devolved and which areas remained reserved. That problem was recognised by Charles Whitmore from the school of law and politics at Cardiff University when he gave evidence. He highlighted the issues surrounding restatement powers, particularly for the devolved Governments, taking into account the role of the Internal Market Act. He told the Committee:
“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.”––[Official Report, Retained EU Law (Revocation and Reform) Public Bill Committee, 8 November 2022; c. 85, Q141.]
Of course, Mr Whitmore was absolutely right to make that assessment, but it is just one of multiple problems with the clause, because it allows Ministers the freedom to decide exactly how much EU law they want to restate or protect. It lets the Government view the existing statute book as something of a smörgåsbord, whereby they can pick and choose which parts of the law they wish to keep and which parts, simply by their inaction, they will allow to disappear in December next year. For example, they could brazenly announce that they have decided to protect workers’ rights by restating them, when in reality they will have saved only the bare minimum of regulations—the ones that suit them, rather than the whole suite of laws that combine together to provide what we currently understand to be workers’ rights.
Another huge problem with the clause—indeed, it is a problem that runs throughout the Bill like the writing through a stick of rock—is that it has yet another one of those self-imposed, utterly unachievable and ideologically driven sunset clauses. It is no surprise that the clause has been criticised by the Law Society of Scotland’s Michael Clancy, who warned in his evidence to the Committee that there was a real danger that the restatement provisions contained in the clause could create further uncertainty. He said:
“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.”––[Official Report, Retained EU Law (Revocation and Reform) Public Bill Committee, 8 November 2022; c. 84, Q141.]
Clause 12(3) declares that should a piece of legislation be restated and an extension be granted beyond December 2023, the legislation cannot be regarded as retained EU law. That appears particularly petty, if not vindicative, and it reflects the almost irrational hatred and loathing of anything connected to the European Union, however loosely. Our amendment 53 would remove subsection (3), meaning that the retained EU laws that the UK, Scottish, Welsh or Northern Irish Governments wish to restate will still be what they are: retained EU law.
Amendment 54 would remove the arbitrary deadline of 31 December 2023 proposed in subsection (7). As we have heard numerous times, that impossibly tight deadline is only there for narrow ideological reasons and is a disaster waiting to happen. Amendment 54 would remove the dangerous cliff edge by deleting subsection (7) entirely.
As we have said throughout, we will help to improve the Bill, which is a truly awful piece of legislation, wherever we can, and that is what amendments 53 and 54 are designed to do. We want to make the Bill a little less damaging to the statute book and, more importantly, to those whose lives and livelihoods depend on there being robust law and regulation in place.
Ms Ghani
The overarching aim of the Bill is to define retained EU law as a legal category, and the power to restate such law must be viewed with that in mind. The hon. Member for Argyll and Bute said that he wants to help the process, even though he is fundamentally trying to block it. The power to restate has been designed to allow the Government to restate domestic law where it is considered appropriate for the UK in a post-Brexit setting. However, the resulting legislation will no longer be retained EU law, as subsection (3) makes clear. The restated legislation will be ordinary domestic UK legislation that is subject to traditional domestic rules of interpretation. In particular, the supremacy of EU law will no longer apply, and section 4 rights and the general principles of EU law will cease to be read into the legislation.
Ms Ghani
If I can make a bit of progress, I will give way later.
The power will enable the Government to clarify, consolidate, codify and restate REUL to preserve the effect of the current law, while removing it from the category of REUL. It will be used selectively and is not a way to simply continue the broad concepts of EU law. Retained EU law was never intended to sit on the statute book indefinitely, although I believe that hon. Members wish it did. It is both constitutionally anomalous and politically challenging. Subsection (3) is therefore a crucial part of clause 12, and is necessary to ensure that the Government can deliver on the overarching aims of the Bill.
Peter Grant
Can the Minister explain the difference between restating and amending? At what point does a restatement of a piece of legislation become either an amendment or a completely new piece of legislation? Who will be the arbiter of that? Will the courts decide?
Ms Ghani
I did not hear the end of that question, but each Department will be in charge of the Bills in its portfolio. We have the Brexit opportunities department helping as well. I have already mentioned the processes in place to ensure that scrutiny happens, and how Ministers will work to ensure that we assimilate, amend or update.
Peter Grant
I am sorry if the Minister did not understand my question. I am talking not about the political, democratic scrutiny, but about the legal interpretation of restated legislation, which will fall to the courts. My question is: who decides whether what has been done under clause 12 is simply a restatement of EU retained law or an amendment to law, which requires a different process?
Ms Ghani
I hope I am not failing to understand the question. As I mentioned, each of the REUL Bills is assigned to a Department, and it will be for the Ministers responsible for the REUL Bill to make a decision on whether they need to assimilate, repeal or update.
I ask the hon. Member for Argyll and Bute to withdraw his amendment. I ask the Committee to accept the Government amendments. They are simple clarificatory amendments that ensure that the restatement powers in clauses 12 to 14 cannot be used to bring back EU law concepts, such as the principle of supremacy, or general principles that the Bill aims to sunset.
Brendan O’Hara
The Minister is right. As we have said from day one, we oppose the Bill, but if it has to pass—history and the numbers in the room tell us that it will pass—it will do so without our support. As we have said, we have a duty not to ignore the most egregious parts of this legislation. Where we think that it will hurt people, affect businesses or leave holes in the statute book, or is ideologically driven folly, we will oppose it, and point out the problems to the Government, so that, as my hon. Friend the Member for Glenrothes said, there cannot come a time when the Government say, “We didn’t know. Nobody told us this was happening.” Our role here is to oppose every step of the way, but also point out in as much detail and with as much clarity as we can where this dreadful piece of legislation is almost inevitably headed. We will pick the matter up, I am sure, on Report, but I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendments made: 8, in clause 12, page 15, line 2, leave out “legislation” and insert “the thing”.
This amendment provides that effects produced by virtue of the retained EU law referred to in subsection (5) do not apply in relation to anything that is codified.
Amendment 9, in clause 12, page 15, line 10, leave out “of legislation”.—(Ms Ghani.)
This amendment enables regulations to produce, in relation to anything that is codified, an effect equivalent to an effect mentioned in subsection (4).
Clause 12, as amended, ordered to stand part of the Bill.
Clause 13
Power to restate assimilated law or reproduce sunsetted retained EU rights, powers, liabilities etc
Amendments made: 10, in clause 13, page 15, line 29, leave out “legislation” and insert “thing”.
This amendment provides that effects produced by virtue of the retained EU law referred to in subsection (4) do not apply in relation to anything that is codified.
Amendment 11, in clause 13, page 15, line 33, leave out “of legislation”.
This amendment enables regulations to produce, in relation to anything that is codified, an effect equivalent to an effect mentioned in subsection (4).
Amendment 12, in clause 13, page 15, line 36, leave out “of legislation”.
This amendment enables regulations to produce, in relation to anything that is codified, an effect equivalent to an effect mentioned in subsection (7).
Amendment 13, in clause 13, page 15, line 40, leave out “legislation” and insert “thing”.—(Ms Ghani.)
This amendment enables regulations to produce, in relation to anything that is codified, an effect equivalent to an effect mentioned in subsection (7).
Clause 13, as amended, ordered to stand part of the Bill
Clause 14
Powers to restate or reproduce: general
Alex Sobel
I beg to move amendment 82, in clause 14, page 16, line 18, at end insert—
“(1A) No regulations may be made under section 12 or 13 unless all the following conditions have been satisfied.
(1B) The first condition is that the relevant national authority has consulted on a draft of the regulations with organisations and persons representative of interests substantially affected by, or with expertise in the likely legal effect of, those regulations.
(1C) The second condition is that, after that consultation has concluded, the relevant national authority has laid a report before each House of Parliament (or, as the case may be, the Scottish Parliament, Senedd Cymru, or the Northern Ireland Assembly) setting out—
(a) the authority’s view as to whether the proposed regulations make any change in the rights of and protections for consumers, workers, and businesses, and protections of the environment and animal welfare, and the reasons for that view;
(b) whether in making the regulations the national authority has considered using its discretion under section 12(6), section 13(6), or subsection (2), (3) or (4) of this section, and if so, the reason why it does or does not intend to exercise that discretion.
(1D) The third condition is that a period of sixty days has passed since that report was laid, with no account to be taken of any time during which Parliament (or, as the case may be, the Scottish Parliament, Senedd Cymru, or the Northern Ireland Assembly) is dissolved or prorogued or during which it was adjourned for more than four days, and where they were laid before Parliament, paragraph 8(11)(a) of Schedule 3 shall apply in determining the commencement of that period.”
This amendment requires the national authority to consult on a draft text of “restatement” regulations, and to set out its reasoning on the choices made when drafting those regulations to Parliament or the relevant devolved legislature.
The Chair
With this it will be convenient to discuss the following:
Amendment 83, in clause 14, page 16, line 26, at end insert—
“(3A) A restatement may not be made unless such consultation with relevant stakeholders as the relevant national authority considers appropriate has taken place on whether the conditions set out in subsection (3) are met.”
This amendment ensures that relevant stakeholders are consulted to ensure that the conditions for the exercise of the power to restate set under clause 14(3) are met.
Government amendment 14.
Amendment 56, in clause 14, page 16, line 32, leave out subsection (5).
Government amendment 15.
Amendment 55, in clause 14, page 17, line 2, at end insert—
“(9) Regulations under section 12 or 13 may not be made unless the relevant national authority has consulted all parties that authority considers relevant.”
Clause stand part.
Alex Sobel
Our amendments 82 and 83 require the national authority to consult on a draft text of restatement regulations, and to set out to Parliament or the relevant devolved legislature its reasoning on the choices made when drafting the regulations. I am sure the Minister will want to earnestly reassure us that national authorities are bound to consider those decisions carefully. It follows that she should readily accept that their reasoning should be published.
On consultation, the Bar Council’s written evidence refers to clauses 12 to 15 and schedule 3 granting Ministers enormous power to legislate at will to replace or update retained EU law, without any requirement to consult anyone, on matters of enormous importance to business, consumers, employees and the environment. There is no requirement for any parliamentary vote; there will be only the minimal scrutiny afforded by the affirmative procedure.
Furthermore, Parliament may well be confronted with Hobson’s choice: either agree in full to unsatisfactory replacements for retained EU law, or vote out the whole lot. As a result, as we heard earlier, fundamental rights such as paid bank holidays or environmental protections to stop air or water pollution could simply disappear completely, perhaps through mistake or oversight, with little or no opportunity for public debate.
We agree with the Bar Council that important changes to our law should be made by Parliament after proper consultation, public debate, and scrutiny, not by ministerial fiat. The rushed and uncertain process for replacement or removal of REUL and the deliberate creation of legal uncertainty will seriously damage the UK’s hard-won reputation for regulatory stability, predictability, and competence, on which growth-promoting investment in critical sectors of our economy depend.
The Bar Council points out that the complete absence of any requirement to consult those affected by the exercise or non-exercise of Ministers’ powers under the Bill is incomprehensible, given that we are talking about often complex legislation, and that errors or omissions can have serious adverse consequences for business as well as consumers, workers and others. Businesses can have no confidence that they will have any ability to comment on or influence, or even any prior notice of, legislation that can profoundly affect them—a gap that, in the Bar Council’s view, which we share, would be a serious deterrent to investment.
Stella Creasy
I have a horrible feeling that it is because of something I am about to say. I rise to support amendment 82. To go back to the theme of this afternoon, if we are taking back control, then surely control should rest with this place. That means that this place needs the relevant information and powers to do its job. Amendment 82 would require consultation on any restatement of retained EU law, including on whether it affects rights and protections.
The right hon. Member for Clwyd West will find that amendment 82 finally satisfies his concern that we are all scaremongering. If we are scaremongering, it should not be a big deal for Government to restate and confirm that the laws they are replacing will not change any protections; that will reassure those of us who might otherwise trouble vulnerable people.
Amendment 82 does two things. First, it helps with the reality, which is that no Government—shock, horror!—is perfect. No Government get everything right all the time, so sometimes, with the best will in the world, and the best grace in the world, corrections need to be made. We have all sat on Delegated Legislation Committees to do that.
Consultation on draft regulations will help identify minor issues, unintended consequences and drafting errors before a law comes into force; that ensures that it is better legislation before parliamentary time is committed to it. We agreed on Tuesday that this would take 4,000 hours of parliamentary time—267 days, if we sat 24 hours a day. The Minister looks surprised at that; I hope she has done some maths on how we will pass all these SIs before the deadline in the Bill. It will require some parliamentary time, at least.
Consultation can be incredibly helpful. It can identify quirks, and experts come up with points. We might have strong views on workers’ rights, but SIs will come up regarding standards, and there are experts out there who spend their lives being obsessed with electrical standards. Surely asking them to double-check what we have written down would be good.
Restatements are subject to less scrutiny, because they should not make substantive changes to regulations. That takes me to my second point, and the more substantive—dare I say it, “conspiracy, rather than cock-up”—moment in all this. It would be simple and straightforward for the Government to affirm that there will be no change in protections or rights if they did not intend to use the powers in the Bill to water down workers’ rights; to reduce environmental protections that we all believe are important; or to reduce fundamental consumer protections that resolve knotty problems, such as whether, at this time, when everyone is trying to book a train, we will get compensation from Avanti. We live in hope. Why would the Government not commit to doing that, and reassure us all? All amendment 82 does is hold the Government to the pledges that they are making, and ensure that every single time a piece of legislation is brought before the House, it does what it says on the tin. I have forgotten the name of the company I am thinking of. It is not Dulux; it is the other one—the one that has to do with paving.
Stella Creasy
Ronseal, that’s it; I am showing my age. This should be a Ronseal moment—it does what it says on the tin. I have a horrible feeling that the Minister will reject the amendment. I hope that she recognises that the concern comes in when the Government reject relatively benign proposals, such as the suggestion that they should simply say, “Yep, this legislation is like-for-like; it does not water down protections.”
As we saw on Tuesday, the Government have already started to decide, in private, which pieces of EU retained law they will not continue with, so we know that some things will change. Some legislation will fall, and we understand that; the whole point of leaving the European Union was to have the power to reject things. Knowing what will or will not be taken out is surely the epitome of taking back control. Each of us should be able, in our constituency surgeries, when we are inevitably asked about a piece of legislation and its impact, to say, “Ah, yes. Well, that is where this decision came from, and this is what we were told at the time.” Parliamentary scrutiny, done well—even done at all—is taking back control, so let us see some of it in this Bill, for a change.
Peter Grant
I rise to speak to amendments 55 and 56 in my name and that of my hon. Friend the Member for Argyll and Bute. This is an attempt to, once again, restrict the Executive’s power grab and to limit, to some small extent, the extent to which the Government are taking powers away from this Parliament and for themselves. It is an attempt to limit the use of Henry VIII powers.
First, the amendments seek to remove subsection (5) to clause 14. I make no apology for raising this point every time I see such a provision in any legislation. It is a bad idea to allow a Minister of the Crown to change any Act of Parliament that they fancy without having to present a Bill in the House of Commons that amends it. The whole House should need to approve the change, after giving it appropriate consideration, and after every single Member has had a chance to comment on it. Subsection (5) essentially seeks to do that. Interestingly, its text is now fairly standard in Bills featuring the Henry VIII powers that the Government are putting through. At some point, the Government spotted something that worries them. They have discovered a part of an Act of Parliament that they are terrified a Minister could ever change, so they have tabled Government amendment 14 to stop that happening.
Ms Ghani
The Government recognise the importance of ensuring legislation undergoes appropriate scrutiny and consultation, and I will set that out shortly. However, I ask that hon. Members reject amendments 82, 83, 55 and 56.
It is right that we ensure that any amendments to retained EU law or assimilated law receive appropriate scrutiny and are subject to the proper processes for consultation. That is why we have sought to ensure that the Bill contains robust scrutiny mechanisms, including for the powers to restate under clauses 12 and 13. First, the draft affirmative procedure will be applied where the powers to restate are being used to amend primary legislation. Secondly, the sifting procedure will apply to clauses 12 and 13 for the regulations that are proposed to be made under the negative procedure. The sifting procedure largely corresponds with the sifting procedure under the European Union (Withdrawal) Act 2018, and will provide for additional scrutiny of the legislation being made. Parliament can then scrutinise instruments, subject to sifting, and make active decisions regarding the legislation. It is our expectation that Departments will follow the standard procedures regarding consultation during policy development.
On amendment 56, let me be clear that the powers are not capable of restating any REUL or assimilated law that is primary legislation. Work is already ongoing across Whitehall on a REUL statutory instrument programme, which will continue after the Bill’s Royal Assent. The inclusion in the Bill of a consultation requirement for the powers, which is what the amendments seek to achieve, would build further time into the SI programme. That would disempower Departments, hindering their ability to pursue the REUL reform that they judged to be necessary. For the powers to restate in particular, that would delay the opportunity for Departments to use the powers to maintain the existing policy effect of their REUL in cases where that was judged to be necessary, by reproducing certain EU principles of interpretation that will cease to apply after the sunset.
Given that the powers to restate have been designed to enable Departments only to provide for substantially the same policy effect, when that is considered desirable and appropriate for the UK in a post-Brexit setting, the inclusion of a requirement to consult—both on the regulations proposed to be made and the purposes for their use—seems particularly unnecessary. As such, I ask the hon. Member for Leeds North West to withdraw the amendment.
The Government’s simple clarificatory amendments will ensure that the restatement powers in clauses 12 to 14 cannot be used to bring back the EU law concepts—such as the principle of supremacy or general principles—that the Bill aims to sunset, in general terms.
Alex Sobel
The Minister talked about both an appropriate level of scrutiny and robust scrutiny, but then went on to talk about sifting. We know that there are upwards of 4,000 regulations. That is exactly the concern we have about how much scrutiny there will be across those regulations. The Minister’s main objection seemed to be that the provision would create too lengthy a procedure for the SI programme. Our point is that it would otherwise be rushed through within a matter of months, until the 2023 sunset date, without the proper scrutiny. That is why amendments 82 and 83, and the SNP amendments 55 and 56, are necessary. I will press amendment 82 to a Division.
Question put, That the amendment be made.
Peter Grant
I had intended to press both to a Division, Sir George, but to save time, and given that the Government Whip already has her great big no vote ready to hang up to make sure that Conservative Back Benchers know what they are supposed to do, there is clearly no point. We know the result already, so to save the Committee time, I will not press either amendment.
The Chair
I am very grateful to the hon. Gentleman. We would have been in a bit of muddle otherwise.
Clause 14, as amended, ordered to stand part of the Bill.
Clause 15
Powers to revoke or replace
Alex Sobel
I beg to move amendment 84, in clause 15, page 17, line 30, at end insert—
“(4A) No regulations may be made under this section unless the conditions set out in section [Conditions on the exercise of powers under section 15 and 16] have been complied with.”
This amendment ensures that the powers to revoke or replace would be subject to restrictions as laid out in NC9.
The Chair
With this it will be convenient to discuss the following:
Amendment 85, in clause 15, page 17, line 31, leave out subsections (5) and (6).
This amendment will remove the restriction on the replacement of EU law that states it must not add to the regulatory burden.
Amendment 94, in clause 15, page 17, line 37, at end insert—
“(6A) No provision may be made under this section unless the relevant national authority considers that the effect of the provision will lead to an increase in levels of environmental protection.
(6B) The relevant national authority must consult its environmental governance body before making any provision under this section.
(6C) The relevant national authority must publish any advice it receives from its environmental governance body, as well as the authority’s response and reasons for any departure from this advice, and lay these documents before the relevant parliament or assembly.
(6D) No provision may be made by the relevant national authority under this section until the final version of its policy statement or statutory guidance on environmental principles, as set out in Section 14 of the Environment Act 2021 for England, Schedule 2 paragraph (6) for Northern Ireland, and Section 14 of the UK Withdrawal from the European Union (Continuity) (Scotland) Act 2021 for Scotland, has been laid before the respective Parliament and the relevant legal duty commenced.
(6E) The relevant national authority must consult persons or bodies representing the interests of those likely to be affected by the provisions before making regulations under this section.
(6F) No provision may be made under this section by a Minister of the Crown until the legally binding targets required under the Environment Act 2021 have been published, and the Secretary of State has laid before Parliament a statement setting out how the provision is compatible with the delivery of these targets.”
This amendment sets a number of conditions which must be met before provision under this clause revoking or replacing retained EU law may be made.
Amendment 86, in clause 15, page 18, leave out lines 1 to 7.
This amendment is consequential on Amendment 85.
Clause stand part.
Amendment 87, in clause 16, page 18, line 27, at end insert—
“(3) No regulations may be made under this section unless the conditions set out in section [Conditions on the exercise of powers under section 15 and 16] have been complied with.”
This amendment would ensure that the power to update would be subject to the restrictions laid out in NC9.
New clause 9—Conditions on the exercise of powers under section 15 and 16—
“(1) The first condition is that the relevant national authority has consulted such organisations as appear to it to be representative of interests substantially affected by its proposals, and any such other persons as it considers appropriate, on a draft of those regulations.
(2) The second condition is that the national authority has, after that consultation has concluded and after considering any representations made to it, laid a draft of the regulations before each House of Parliament (or, as the case may be, the Scottish Parliament, Senedd or Northern Ireland Assembly), together with a report setting out, with reasons, the authority’s view as to the likely advantages and disadvantages of making those regulations, setting out in particular—
(a) a summary of the objectives and effect of those regulations as compared to the instrument that they will revoke, replace or modify;
(b) any difference as between that instrument and the proposed regulations in terms of protections for consumers, workers, businesses, the environment, or animal welfare;
(c) any benefits which are expected to flow from the revocation or replacement of that instrument;
(d) the consultation undertaken as required by subsection (2);
(e) any representations received as a result of that consultation;
(f) the reason why the national authority considers that it is appropriate to make those regulations, having considered those representations;
(g) the reasons why the national authority considers that section 15(5) (overall reduction in burdens) does not preclude the making of the regulations, explaining what burdens are reduced or increased as a result of the making of the regulations;
(h) the compatibility of the revocation, modification, or replacement of that instrument with obligations in the Trade and Cooperation Agreement between the United Kingdom and the EU, and the likely effect on UK exports of goods or services to the European Economic Area; and
(i) the likely effect of the revocation, modification, or replacement of that instrument on the operation of the Protocol on Ireland/Northern Ireland in the EU withdrawal agreement.
(3) The third condition is that a period of sixty days has passed since those draft regulations or that report were laid as required by subsection (2) with no account to be taken of any time during which Parliament (or, as the case may be, the Scottish Parliament, Senedd Cymru or Northern Ireland Assembly) is dissolved or prorogued or during which either House or that body is adjourned for more than four days, and where they were laid before Parliament, paragraph 8(11)(a) of Schedule 3 shall apply in determining the commencement of that period.
(4) The fourth condition is that the national authority has considered any representations made during the period provided for by subsection (3) and, in particular, any resolution or report of, or of any committee of, either House of Parliament (or, as the case may be of the Scottish Parliament, Senedd Cymru or Northern Ireland Assembly) with regard to the proposals, and has published its reasons for accepting or rejecting any such representations, resolution, or report.”
This new clause requires the relevant national authorities to consult with key stakeholders on proposed regulations revoking or replacing REUL, and to show Parliament their assessment of the impact of the changes.
Alex Sobel
I am afraid we are back to the Homeric length of speech that I regaled everyone with on Tuesday.
This wide range of amendments is designed to do three things. First, amendments 84, 87, new clause 9 and amendment 94 require proper consultation before the revocation, replacement and updating powers in clauses 15 and 16 can be exercised. Secondly, amendments 85 and 86 remove a prohibition in clause 15(5) against the relevant national authority using powers in a way that would “increase the regulatory burden”. Thirdly, amendment 94 adds a new subsection to clause 15 to ensure that the use of powers to revoke or replace retained EU law is made subject to compliance, in addition to consultation, with the environmental governance framework established by the Environment Act 2021. I will consider each of those three considerations in turn.
First, on consultation, as we have already discussed when considering other amendments, many worried stakeholders have voiced deep concerns about the unchecked powers that clauses 15 and 16 in particular place into the hands of Ministers. The Hansard Society has commented that clause 15 includes, with just a few caveats, “Do anything we want” powers for Ministers. I will not denigrate them by calling them Henry VIII powers. The Hansard Society's written evidence says the blank-cheque powers allow Ministers to act without having to observe the same oversight provisions—for example, a requirement to consult—that were required by the very legislation they are replacing.
Clause 15 also permits sub-delegation, the creation of a criminal offence or the imposition of a monetary penalty providing that any new regulations “correspond” or are “similar to” the original retained EU law. What such terms as “appropriate”, “correspond” and “similar” mean in practice is left entirely up to Ministers—“Do anything you want.” The duty to consult those bearing the brunt of the changes should be one of the most basic to a Government who have now been in power for more than 12 years. Carrying out such a process should not be viewed as burdensome; it is, or should be, a basic requirement of good and proper governance.
Our new clause 9 would remedy that defect by setting out a proper, good governance process of consultation. After consultation, Ministers would need to report to Parliament on the comments and representations made, and explain their objectives, their reasons for accepting or rejecting comments and any differences between the proposed and original regulations, in terms of protections for consumers, workers, businesses, the environment and animal welfare. They would be required to explain what burdens are reduced or increased as a result of the new regulations and to list the anticipated benefits they expect from the revocation or replacement, state whether the revocation or replacement is compatible with the trade and co-operation agreement, explain the likely effect on UK trade with the European Economic Area and, finally, set out the likely effect on the Northern Ireland protocol.
I hope the Minister agrees that those are all perfectly reasonable things to consider. If so, I hope she will either accept our amendments or, if she prefers, could make a commitment now that that will be part of the Government’s process.
Stella Creasy
We come to the rub of the matter. When Brexit happened, we were told that we wanted to make our own laws. Any of us who were concerned that that might lead to a reduction in standards or protections were told we need not worry: being out of the EU, which was holding us back from making our own laws, was also holding us back from having higher standards.
Fast forward to 2022 and clause 15, and we know the truth. The clause writes the obsession with deregulation into law. If the Bill passes in its current form, all that our constituents can look forward to is the slow trickle of their rights being watered down and washed away—all in the name, allegedly, of reducing burdens on business. Let us be very clear: business does not want a no-regulation environment. That is a recipe not for competition, creativity and entrepreneurship, but for bad actors running riot over well-established industries and ruining entrepreneurship and creativity. Business wants better regulation. It wants good regulation.
When a law talks of a “regulatory burden”, we know that it does not speak to our economy; it speaks to an ideology that is holding this country back. At a time of economic boom, that would not be a sensible measure. At a time of economic crisis, it is genuinely destructive. Clause 15 means that all the things we were told during the Brexit referendum about higher standards were not true. It means that the promises that environmental protections would be better if we left the European Union will not be kept.
For the avoidance of doubt, that is not an argument about returning to the European Union or undermining the referendum, and nor is it saying that we should not have left the European Union—that debate has been had. It is an argument for holding to account all who claimed during the referendum campaign that somehow things would be better. The Bill demands that they must not be, because it insists that a regulatory burden cannot be created, and what it defines as a regulatory burden is a better standard.
The amendments in this group are therefore designed not just to hold to account all those Brexiteers who made such rash claims, but to protect the right of the British public to have the standards that they want, especially when it comes to the environment, workers’ rights or consumer protections. On Tuesday, Ministers spent much of the time telling us about their record of improving our legal standards and the rights of our constituents. Indeed, the Minister said:
“The UK regime sets some of the highest standards of consumer protection in the world, and this will continue to be the case.”––[Official Report, Retained EU Law (Revocation and Reform) Public Bill Committee, 22 November 2022; c. 168.]
This clause means that that is not necessarily the case.
The clause says that we cannot improve our consumer protections. Indeed, we have already seen that from how the Government have reacted since we left the European Union. The European Union tried to bring in various regulations about sustainability of goods—frankly, about ensuring that if someone is sold something, it is not tat. Our Government have refused to implement those regulations. Indeed, if the Bill is passed as drafted, we could not introduce them. In this brave new world, we could be sold as much tat as we like and not know that it is tat, all because the Government are determined that deregulation is what the country wants. Again, that is not something I ever saw on the leaflets that came out during the referendum campaign.
Amendment 85 deletes the ratchet provision, and amendment 86 is consequential to it. Between them, the amendments would allow Ministers to replace existing retained EU law with more stringent measures to allow us to have the higher standards that we all say we want on environmental issues, so that we can protect and conserve our precious species—dare I say it, even the killer shrimp. That would help to make the promise a reality.
The Minister might suggest that new burdens should not be pushed through without consultation, and that the minimal parliamentary scrutiny given the potential impact is not a problem, but deregulation is not value-neutral. The loss of a protection can and will create as much of a burden for businesses as not having a burden would do. When we open the door to lower standards, we open the door to bad actors. Good legal protections for workers’ rights, consumer rights and environmental rights help to ensure that the market is fairer. They give businesses certainty and encourage creativity, because they allow people to plan without worrying that they will be undercut.
Given that, the Minister needs to be clear about the definition of a burden in what the Government are doing. For example, is it a burden for a business to pay new parents during their parental leave, regardless of how long they have been employed? In that case, is it deemed undesirable? Is it a burden to have to record whether any materials known to be harmful to human health are involved in a cosmetic product, and therefore is it something undesirable? Are rules governing how many hours employees are allowed to take off possibly a burden? Is reporting on the ethnicity pay gap in an organisation a burden, and therefore something deemed undesirable by the Bill?
If we are reviewing all retained law—it is debatable whether we even have the time to do so in the timetable set out by the Government—we should use the opportunity to usher in the higher protections that Ministers have assured us are the Government’s ambitions. They are things that my and all our constituents deserve. Here are some of the places where, without subsections (5) and (6), Government regulations could improve rights and standards in the UK.
We could have stronger protections for agency workers, many of whom work in the creative industries and have been hit hard by covid and the cutting of our ties with the European Union. That is something that many musicians, actors and performers would benefit from.
We could have higher standards on equal pay. I was born shortly after the equal pay legislation was introduced in this country, and it is a source of shame for many of us that we still do not have equal pay. However, we could finally use the freedom that comes from taking back control to do that. The Government have fallen behind on their own commitments, and that is nothing to do with retained EU law—they failed to publish a report on the gender pay gap, which we were promised. We could use this gap and the fact that we are abolishing all the existing laws to bring in higher standards. On Tuesday, the Minister spoke passionately on how she has been supporting those campaigns.
We could bring in the legislation sponsored by the right hon. Member for Basingstoke (Dame Maria Miller), and ensure that pregnancy and maternity discrimination does not happen in this country.
Peter Grant
A long time ago now, it seems, I was a member of my local planning authority for a number of years. We used to get dozens and dozens of planning applications for consideration, and there was often a lot of discussion about whether councillors who were uncomfortable with an application should attempt to draft conditions that had to be honoured before the application could be approved. A lot of those conditions were perfectly reasonable; we would put in conditions to ensure that housing development was road-safe, for example. An important piece of national guidance that certainly applied in Scotland—I do not know if there was an equivalent in England—was that if someone had to burden a planning application with a huge, complex set of conditions in order to make it acceptable, the application should be refused and the applicant invited to come back later with a better one. That is where we are with clause 15. The official Opposition clearly feel that the only way to make clause 15 even vaguely acceptable is to restrict it in so many ways, and with so many amendments, that it would effectively tear the heart out of the clause.
Although I certainly will not oppose any of the amendments that the hon. Member for Leeds North West wants to press to a vote, we will oppose clause 15 when the question on it is put, whether it is amended or not. It is an utterly dreadful piece of legislation. Can Members imagine any circumstance in which it could be considered good governance to give an individual or a national authority the right to repeal 4,000 pieces of legislation, knowing perfectly well that they have no intention of bringing anything forward to replace them? That is what clause 15 effectively aims to do.
As the hon. Member for Walthamstow pointed out earlier, subsection 5 of clause 15 gives the lie to the entire argument about why the Tories wanted to be allowed to regulate for themselves. It was never about being allowed to have better standards of employment law than the rest of Europe, and it was never about being allowed to apply better standards of environmental protection, consumer protection, animal welfare or anything else. It was always about pandering to what my hon. Friend the Member for Argyll and Bute has described as the wide-eyed enthusiasts of the European Research Group, and those who are so far to the right of the ERG they cannot even get elected to this place. In clause 15, and particularly in subsection (5), theirs is the agenda we are being asked to follow.
I am really interested to hear the Minister explain why she feels it is necessary to have an Act of Parliament that potentially allows a national authority to tear down 40 years of protective legislation, with the intention of replacing it with nothing, and with the extreme risk that we will run out of time to replace it with anything. We should remember that we have barely a year from now, never mind from when they start to tear apart the legislation.
When we look at the restriction in subsection (5) and then look over the page at what some of the terms in the subsection mean, we find that they are hair-raising. Legislation that imposes a burden that could include a financial cost is not allowed. There is no threshold and no limit on how many people would need to be affected by that financial cost. For example, the personal protective equipment non-provider PPE Medpro—it was slated in The Guardian this morning and in the Chamber earlier—made a profit of £76 million by supplying to the Government PPE that was not fit for use. If the Minister had been minded to bring in replacement legislation, it would have reduced PPE Medpro’s overnight profit from £76 million and tuppence to a mere £76 million. The Bill would say that was a financial burden. It would therefore be an increased regulatory burden, and it would not be allowed.
Subsection 10(b) refers to “an administrative inconvenience”. Well, good luck to the lawyers who want to decide what is an inconvenience and what is not. Again, there is no threshold and nothing about proportionality. There is nothing to say whether it imposes a disproportionate administrative inconvenience on a substantial section of the economy. That would be a reasonable protection to want to build in, but anybody who claims that that is inconvenient administratively could then challenge it in court. In fact, there is nothing written into the clause that says that the burden has to affect the private sector in order to make it unlawful.
If the burden applies to the civil servants that are trying to administer the new legislation, that is an administrative inconvenience to the civil service, especially if there will be 90,000 fewer of them than we had last year. I am talking about improving legislation that allows one person out of 60 million in these islands to say, “That’s a bit inconvenient for me”, and an entire piece of secondary legislation can be struck down. Despite some of the things I have seen from the Conservative party in my time, I genuinely do not believe that that is what it wants, but I know that that is what some people want.
My fear is that people who cannot get elected to this place are pulling the strings of those who did. Those people are looking to use the clause, and particularly subsection (5), to achieve their dream of a tiny bit of the world where all regulations can be struck down at the stroke of a pen, and once they are struck down it is impossible to replace them with anything. There are people who, at times, have been very close to the seat of power in this place—their donations have helped to change the course of political history in the last 10 years—who do not want there to be any workers’ rights whatever.
A former member of the Government, on whose watch this Bill was drafted, is on the record as saying that he does not think workers have an automatic right to paid holidays. That is the kind of ideology we are dealing with here.
Clause 15 is not about achieving a reasonable objective; it is about completely tearing down 40 years of legislation, some of which we might not welcome but much of which has helped to make the four nations of the United Kingdom more modern and democratic. For that reason, I can understand why some people would happily see all that legislation torn up and replaced with nothing. I genuinely do not believe that is what the Minister wants, I genuinely do not believe it is what the majority of Conservative party members want and I can say with absolute certainty that it is not what the people of Scotland want, and it is not something that the people of Scotland will accept.
I will support any amendments that the Opposition are minded to press to a vote but, amended or unamended, I will seek to divide the Committee on removing clause 15 from the Bill.
Ms Ghani
I beg that the Committee rejects amendment 84 and does not press new clause 9 or amendment 87.
It may surprise the Committee that English is not my first language—I was not born in this country—but it has never occurred to me that the words “regulation” and “standards” are the same. Members can look them up in a dictionary, but they are definitely not the same.
Clause 15 is about ensuring we have the right regulations in place, by removing those regulations that are unduly burdensome, outdated or not fit for purpose in the UK. How about swapping them for proportionate, high-quality and agile regulations that help the UK economy, and all of us who work in it, to be nimble and competitive?
I remind the Committee that Departments will be able to maintain the current level of regulation where it is considered appropriate. Only where existing regulations are considered to be unnecessarily burdensome and not fit for purpose may a lower level of regulation be introduced. I will validate that in a moment.
The concerns of hon. Members regarding the scope of the Bill’s powers are unfounded, as the powers to revoke or replace are important cost-cutting enablers of retained EU law reform. The dashboard has identified more than 2,500 pieces of retained EU law, and it is therefore right to have a power of this scope that is capable of acting on a wide range of REUL covering a variety of policy areas. The powers have several safeguards that mitigate their use, namely any legislation made under clause 15(2) that recreates a delegated power or a criminal offence present in REUL is subject to the affirmative procedure. Legislation made under clause 15(3) is specifically subject to the affirmative procedure, which will ensure that changes to policy objectives can be actively approved by Parliament. In addition, a sifting procedure will apply to legislation where Ministers choose to use the negative procedure.
The clause 16 power is intended to facilitate technical updates to retained EU law, to take account of changes in technology or developments in scientific understanding. This ongoing power is not intended to bring about significant policy change. It is instead designed to ensure the UK keeps pace with advances in science and technology over time.
The amendments would add a significant amount of time to the process and, ultimately, could risk Departments being unable to maximise the use of their powers to revoke or replace retained EU law across all policy areas, until such powers sunset. The Bill has been drafted to ensure that legislation made under these powers is subject to robust scrutiny procedures that are proportionate to the scope of the powers, as highlighted above.
I ask the Committee not to press amendments 85, 86 or 94. As I mentioned, the Bill is an enabling Act. Amendment 94 would place a number of environmental requirements on UK Ministers or devolved authorities when they intend to use the powers to revoke or replace, irrespective of the policy area. This amendment would therefore preclude Departments making reforms in policy areas unrelated to the environment, which would significantly impact the opportunity to use these powers.
On amendments 85 and 86, we have sought to ensure that the powers to revoke or replace cannot be used to add to the overall regulatory burden on this subject area. In her evidence to the Committee, Professor Alison Young noted that combining
“a number of earlier burdens, turn them into one burden with a higher standard, that is also not increasing the burden.”––[Official Report, Retained EU Law (Revocation and Reform) Bill Public Bill Committee, 8 November 2022; c. 19, Q33.]
The requirement not to add to the overall regulatory burden has been drafted to allow the relevant national authority to determine how best to achieve the desired policy outcome. For example, removing regulations or administrative requirements that are deemed unnecessary or unsuitable will make it possible to add new regulations with a higher standard—shock, horror—where it is deemed necessary or desirable, provided that the overall regulatory burden is not increased. The reforms that these powers will enable are vital to allow the UK to drive genuine reform and seize the opportunities of Brexit.
We had a repeat of the debate about animal welfare. As I mentioned the other day, the Government remain focused on how best to deliver the “Action Plan for Animal Welfare” published in 2021, which builds on our existing high animal welfare standards. I therefore ask the hon. Member for Leeds North West to withdraw the amendment.
Alex Sobel
The Minister and Conservative MPs expect us to trust them, when they have repeatedly voted against our attempts to preserve the most basic legal rights and protections for consumers, workers and the environment in Committee so far. In fact, no Government should be trusted with the sweeping powers that this Bill will grant, with minimal parliamentary oversight or scrutiny. Instead of wasting time debating their trustworthiness, our amendments were designed to move beyond the trust that the Government have failed to earn and allow for greater transparency. I will push amendment 85 to a vote, but I beg to ask leave to withdraw amendment 84.
Amendment, by leave, withdrawn.
Amendment proposed: 85, in clause 15, page 17, line 31, leave out subsections (5) and (6).—(Alex Sobel.)
This amendment will remove the restriction on the replacement of EU law that states it must not add to the regulatory burden.
Question put, That the amendment be made.
Economic Crime and Corporate Transparency Bill (Eighteenth sitting)
Thursday 24th November 2022
(1 year, 11 months 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 Amendment Paper: Public Bill Committee Amendments as at 24 November 2022 - (24 Nov 2022)
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 8 - Question accordingly negatived.
The Chair
Order. Let me just tell Members about the dilapidations in this room. The thermometer does not work, so we are not able to confirm our own instincts that it is quite cold. I suggested the window be shut, and I am told that it will not shut properly. If Members are very cold during the course of the afternoon, we may have to suspend the sitting for five or 10 minutes so we can go out and get some collective exercise together.
New Clause 52
Beneficial owners: shares and voting rights held by immediate family
“(1) The Economic Crime (Transparency and Enforcement) Act 2022 is amended as follows.
(2) In Schedule 2, after paragraph 6 insert—
‘(6A) For the purposes of subsection (6) above—
(a) Condition 1 is also met where 5% or more of shares are held, directly or indirectly, by X and one or more members of the immediate family of X; and
(b) Condition 2 is also met where 5% or more of voting rights are held, directly or indirectly, by X and one or more members of the immediate family of X.’”—(Stephen Kinnock.)
The intention of this new clause is to close a loophole in the current rules on registration of overseas entities, so that a threshold lower than 25% ownership or control is applied where a company’s shares or voting rights are held by multiple members of the same family.
Brought up, and read the First time.
Stephen Kinnock (Aberavon) (Lab)
I beg to move, That the clause be read a Second time.
Conservative Members will have gathered by now that the common theme of many of the new clauses tabled by the Opposition on the register of overseas entities is really closing loopholes. We may not, even will the best will in the world, be able to foresee at this stage exactly where any loopholes may arise, but we can at least act now to close the most obvious and predictable ones. In that spirit, new clause 52 seeks to address one of the most widely documented and understood means by which criminals attempt to conceal the true owners of property in places such as the UK.
As the Financial Action Task Force guidance on transparency and beneficial ownership explains:
“Criminals often use informal nominee arrangements whereby friends, family members or associates purport to be the beneficial owners of corporate vehicles. This can be particularly challenging given the informal and private nature of such arrangements. This issue can be addressed by placing obligations on the nominee to disclose to the company registry the identity of the person on behalf of whom they are acting and imposing sanctions for false declarations.”
Going back as far as the Small Business, Enterprise and Employment Act 2015 as well as in more recent legislation, the Government have made significant strides toward eliminating legal loopholes used to conceal economic crime—for instance by abolishing bearer shares and providing for a requirement for company directors to be natural persons, which the Minister assures us will be brought into effect shortly.
Although I commend the Government for having taken those steps, it is clear that we need to go further. Given how high the Government have set the threshold at which ownership of a company’s shares must be declared—at 25%—the need to tackle risks of concealing ownership by spreading shares among several different people becomes all the more urgent. Splitting ownership between family members would appear to be the easiest and most obvious way to do this. If the threshold for declaring ownership is set at 25% of a company’s shares or voting rights, it takes little imagination to come up with a solution: simply break up the shares so that on paper, if not in reality, five members of the same family appear to own no more than 20% of the company each. As a result, none of them have to disclose their connections with the company under our current laws.
Although it should be acknowledged that similar issues involving the use of nominee directors, for example, raise some complicated legal questions, the use of family members to conceal the beneficial ownership of a foreign company is surely an issue that can be easily dealt with. New clause 52 provides a simple solution that I hope the Government will accept in the constructive spirit in which it is proposed.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
Although I welcome the spirit of the new clause and the hon. Member’s wish to close a loophole, I do not think there is one. Let me set out why. It is his position that persons might deliberately reduce their shareholding below the 25% threshold, or hold shares via multiple family members, in an effort to avoid scrutiny. The 25% threshold follows the UK’s people with significant control regime, which similarly requires beneficial ownership information for UK-registered companies.
When the PSC regime was in development, significant analysis, including consultation, considered the question of thresholds. The threshold of more than 25% reflects the level of control a person needs in voting rights, under UK company law, to be able to block special resolutions of a company. It was considered that 25% represented the optimum opportunity to understand who is in a position to exert significant influence and control over a company. Collecting information on legal ownership below that threshold would be much more akin to what would be done to have the effect of creating a register of shareholders, rather than beneficial ownership.
In any case, reducing shareholdings will not allow an individual legally to evade scrutiny if they continue to exert significant influence or control. The Economic Crime (Transparency and Enforcement) Act 2022 already addresses that; anyone who has a right to exercise, or actually exercises, significant influence or control over an overseas entity is still required to be registered under condition 4 of schedule 2, which states that,
“X has the right to exercise, or actually exercises, significant influence or control over Y”.
Condition 3 states that,
“X holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of Y.”
There are other conditions within the definition, other than the 25%.
Information submitted about beneficial owners must be verified by a UK-supervised “relevant person”, such as a lawyer or accountant. Where shares are held through multiple members of the same family, relevant persons are likely to notice that when verifying an overseas entity’s application. Where a nominee holds shares for another person, the ECTE Act requires the other person to be recorded as the beneficial owner, not the nominee. That is exactly what the hon. Member for Aberavon set out. It is an offence to deliver false or misleading information to Companies House, and anyone who delivered, or caused to be delivered, such information would be at risk of prosecution—including, potentially, the lawyer or accountant.
From April 2023, UK anti-money laundering supervised relevant persons will be required to report material discrepancies to Companies House in the information contained on the register of overseas entities. That would include where a person has not been recorded as a registrable beneficial owner when a relevant person believes they should have been. The Government do not intend to lower the threshold at this time, but the Bill includes a power to amend the beneficial ownership threshold, which will be subject to the affirmative resolution procedure. I hope that these reassurances will persuade the hon. Gentleman to withdraw the new clause.
Stephen Kinnock
I thank the Minister for his response. I think the spirit of the new clauses is about prevention being better than cure. The Opposition feel that, if we look at the spectrum from deeply opaque business practices to fully transparent ones, when family members are involved we are almost by definition at the more opaque end of the spectrum. By definition, family members will be in a position to communicate with one another, things will not be on the record and the whole thing can be easily cooked up in the way that I outlined. For example, if five family members were given 20% each, they would come in under the 25% threshold.
Does the Minister agree that where family members are concerned things are more likely to be at the more opaque end of the spectrum and therefore the Bill should reflect that and have the lower threshold, as set out in the new clause?
Kevin Hollinrake
I go back to what I said earlier; I think there are all kinds of ways in which somebody could try to subvert the regulations. That is the reality and that is why we are putting the onus not only on the people concerned with the entity but on the people who represent the entity. That is the lawyer, or the accountant, and they should ask all the questions that the hon. Member set out. They should notice a family connection and potentially the person behind those individuals.
However, as I said before, someone could potentially have 0% ownership of an entity and still exert significant control. That is the point. What we are saying is that even if they have 0%, the rules still catch them if they are the person who is exerting control in a way that influences directors or shareholders, or indeed if they can appoint or dismiss directors. All those things are covered under the current provisions.
Stephen Kinnock
As I have said, we are very much about prevention being better than cure and a smart as possible approach to risk management. However, I take the Minister’s comments on board and I have no further comments to make. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 53
Beneficial owners in overseas territories
‘(1) The Sanctions and Anti-Money Laundering Act 2018 is amended as follows.
(2) In section 51, after subsection (5) insert—
“(5A) The Secretary of State must ensure that the Order in Council under subsection (2) above comes into effect on date no later than 30 June 2023.”’—(Stephen Kinnock.)
This new clause would amend the Sanctions and Anti-Money Laundering Act 2018 to ensure that an Order in Council requiring open registers of beneficial ownership in the British Overseas Territories comes into force no later than 30 June 2023.
Brought up, and read the First time.
Stephen Kinnock
I beg to move, That the clause be read a Second time.
New clause 53 would amend the wording of provisions in the Sanctions and Anti-Money Laundering Act 2018 to require the introduction of open registers of beneficial ownership in each of the UK’s overseas territories.
Some of the Committee’s Members are veterans of the struggle to incorporate the requirement into the 2018 Act and will no doubt recall that it was only thanks to the persistent effort of certain Back Benchers against the determined resistance of Ministers that the necessary amendment was ultimately made. It would be remiss of me not to pay particular tribute to the efforts on this issue of my right hon. Friend the Member for Barking. The Minister also deserves recognition for his advocacy on the need for transparency to be extended to the overseas territories, albeit in his previous incarnation as a Back-Bench Member of this House.
Stephen Kinnock
My right hon. Friend asks a very good question, while chuntering from a sedentary position. I trust that the Minister’s views have not changed with his recent promotion.
The fundamental principle behind new clause 53 is simply that there should be no double standards in the legal requirements for transparency of beneficial ownership across different parts of the UK, including in the overseas territories. To put it bluntly, we have simply witnessed too many scandals involving money being laundered through territories for whose administration the UK is ultimately responsible to accept the idea that we must simply leave them to their own devices.
I will not name names here, but I think—
Stephen Kinnock
My right hon. Friend may well wish to do so.
I think that any member of this Committee will understand what I mean when I refer to certain “usual suspects” in cases involving financial dealings that, even with the most charitable interpretation, can only be described as being questionable at best.
The language that was ultimately added to the Sanctions and Anti-Money Laundering Act 2018 reflected a recognition from Members of all parties and in both Houses that the same standards requiring open, publicly accessible registers of beneficial ownership should apply to both the UK and its overseas territories. It also reflected the widespread consensus that if we wanted to ensure that the overseas territories played by the same standards, we should be prepared to use sticks as well as carrots.
The result of that consensus was the provision in section 51 of the 2018 Act that any overseas territory that had not established a beneficial ownership registry in line with the standards of our own by the end of 2020 should be subject to direct legislation by an Order in Council. As I have already mentioned, the Government practically had to be dragged kicking and screaming to the point where they accepted that provision in the first place. However, as subsequent events have demonstrated, the real problem is that Ministers have interpreted section 51 of the Act so creatively that in effect they have completely undermined if not the letter then certainly the spirit of the law.
It seemed clear to those who pushed for section 51 of the 2018 Act that what it required was for beneficial ownership registries to be in place by the end of 2020, whether as a result of the overseas territories’ own legislation or an Order in Council. According to the spin the Government chose to put on it, its obligation had been met simply by the publication of a draft Order in Council, regardless of when, or even whether, such an order might actually come into force. The result is that we are here yet again—almost five years later—still discussing how to ensure the implementation of registers to the same standards across all of the UK’s territories. Surely it should not be beyond the wit of Ministers—even in this Government—to have sorted this out by now—[Interruption.] I am just checking that hon. Members are still awake on the Back Benches.
Kevin Hollinrake
I am certainly not arguing against the spirit of the new clause. I add my thanks to the right hon. Member for Barking and, indeed, my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell), who took great action on this matter way before I became interested in the whole subject—although it is true to say that I took an active interest from the Back Benches on ensuring that we address this issue.
I do not accept the hon. Gentleman’s characterisation of our approach as being hands off. I do not consider 250 pages of legislation as being hands off at all. There is much we want to do and agree on, and I have to agree with what I said previously. The hon. Member for Aberavon may regard me as poacher turned gamekeeper, but I do not see that at all. I still want to ensure these measures are in place. In fact, we should go further than his new clause, and I will explain that in a second.
When amendments were tabled to the Bill that became the 2018 Act several years ago, we were clearly in a very different place. All inhabited overseas territories have now committed to introducing publicly accessible registers of company beneficial ownership, and the UK Government expect them to be in place by the end of 2023, so there is a deadline on which the order could be placed. As well as overseas territories, we have committed to asking the Crown dependencies to also do that, and that does not feature in the hon. Gentleman’s new clause, so it is important that this goes further than he set out.
Dame Margaret Hodge
The Minister is correct in what he says, but could he deny the rumour I have heard, which is that they are trying to get around ensuring public accountability by charging anybody who wishes to look at the register by entry? If a charge is levied for entry to everything that appears on the register, that would diminish the intended public accountability.
Kevin Hollinrake
I am not aware of that. Clearly, it is important that the overseas territories and Crown dependencies respect the will of Parliament and the spirit of the will of Parliament, so we would be very concerned if that is the case.
Dame Margaret Hodge
I have raised this issue with the right hon. Member for Sutton Coldfield, who now sits in the Foreign Office, but I do not think it is entirely within his portfolio. Will the Minister agree to pursue the issue? If that is the way they have tried to avoid or play down the intent of Parliament, it is a very serious matter.
Kevin Hollinrake
I do not think we should operate on the basis of rumours, but I hope that the overseas territories and Crown dependencies will be following this debate with interest. We want them to follow both the spirit and the letter of the legislation that is implemented. The information should be publicly available—that is the clear intention.
This is a major commitment that will put the overseas territories and Crown dependencies ahead of most jurisdictions, and it will be a vital element of promoting greater transparency around the control and ownership of companies. I have sought assurances that it is not a hollow commitment. The FCDO is providing support to the overseas territories through Open Ownership, a respected and expert NGO, to ensure that each territory can progress its publicly accessible registers, and significant progress has been made. For example, Gibraltar’s register is already live, so it will be interesting to hear about the right hon. Lady’s experiences of that.
Dame Margaret Hodge
The Minister has jogged my memory. It was actually from the implementation of the Gibraltar register that I heard that, although it is live, there is a charge for accessing information.
Kevin Hollinrake
That may be something that the right hon. Lady will investigate. I am happy to make the commitment that we will do so as well.
The Cayman Islands has completed a consultation on the approach to its register, and the technical work to hit the target date is under way. The BVI recently passed primary legislation to enable the framework for regulations to be made for its register in preparation for the end of 2023. Smaller overseas territories are also working with the FCDO to update their systems to allow public access to this important information. Notably, in Anguilla the FCDO financed a completely new register, which is designed to allow public access.
The effect of new clause 53 would be to move the timeline forward by only six months for the overseas territories. All the territories are now willingly implementing publicly accessible registers and putting significant effort into the policy, despite the fact that most jurisdictions around the world are not doing so. To move forward an agreed timeline would not show good faith in our partnership with the territories. I can commit to keep the House regularly up to date on progress with the territories, and the UK Government will continue to work collaboratively, and as equal partners, with the overseas territories on their commitment.
Stephen Kinnock
I fear that it is a bit naive and complacent to think that this is going to be done by consensus. Five years have gone by since the 2018 Act was introduced and it is extraordinary that we may have to wait another 12 months, as the Minister says. Frankly, I remain sceptical that, without a stick as well as a carrot in this conversation, anything will ever happen. I would welcome any feedback that the Minister has on that point. I do not really have a specific question for him, but I am struggling to understand why we can possibly think it is acceptable that here we are, five years later, with a chasm in our ability to implement and go after the things that we want to go after. Does he really think it is justifiable to wait another 12 months, rather than just accepting the new clause?
Kevin Hollinrake
As Ronald Reagan used to say about the Russians: trust, but verify. It is important that we trust our partners but also that we see what they are doing to put these measures into effect. I quoted a number of examples where that has been done. All these overseas territories are putting the measures in place. It is right to work on a basis of good faith. We have the stick the hon. Gentleman requires, if necessary. Beyond the end of 2023, we can then use the Order in Council procedure, as he suggests. I will ensure that we keep watch over the situation very carefully, as I have committed to do. The hon. Gentleman can rest assured that it is our understanding that these measures will be in place. I urge him to withdraw the new clause on that basis.
Stephen Kinnock
Unfortunately, we remain unconvinced by the Minister’s answers on these points and we wish to push the new clause to a vote.
Question put, That the clause be read a Second time.
Stephen Kinnock
I beg to move, That the clause be read a Second time.
Given the extensive discussions we have had on issues involving money laundering risks, including risks in relation to certain designated high-risk jurisdictions overseas, there is a fundamental question that we are not sure we have got to the bottom of. That question, which is addressed in part by new clause 54, is why we should allow a company incorporated overseas in a jurisdiction that operates on the basis of lax money laundering controls to do business in the UK at all, much less to own property or land here.
As we have already discussed, the primary purpose of the Treasury’s list of designated high-risk countries is to mirror the list of jurisdictions identified by the Financial Action Task Force as posing serious threats of money laundering and terrorist financing on account of weaknesses in their laws, inadequate law enforcement or some combination of the two.
New clause 54 seeks to incorporate into the Bill what we on the Opposition Benches believe to be a matter of basic common sense: if a company was initially formed under laws designated by the Treasury, under international guidelines, as seriously deficient in their approach to money laundering risks, that company should not be allowed to own land or property in the UK. It is a straightforward solution to a very serious problem. It would go a long way towards driving tainted money out of the UK property market. I hope that, on this basis, the Government will support new clause 54.
Kevin Hollinrake
New clause 54 seeks to prevent the acquisition of land in the UK by companies registered in jurisdictions that are listed as high risk by the Financial Action Task Force or so designated by the Secretary of State under the UK’s money laundering regulations. The Financial Action Task Force lists jurisdictions identified as having strategic deficiencies in their anti-money laundering and counter terrorist financing regimes that could pose an increased illicit finance risk.
The new clause is well intentioned and hon. Members are to be commended for their determination to rid the UK of dirty money. However, we do not believe that the new clause will have the intended effect. Jurisdictions that appear on the taskforce’s list of jurisdictions under increased monitoring, which include some key UK partners and Commonwealth members, have committed to swiftly resolve the identified deficiencies within agreed timeframes. The list is updated three times a year, and under the UK’s AML regulations, obliged businesses are already required to take enhanced due diligence measures for customers and transactions linked with individuals or companies established in high-risk jurisdictions.
Liam Byrne
No one could accuse the Minister of being an innocent abroad in a world that is not innocent, but I have to ask him whether he seriously believes the content of the paragraphs that he has just read out. I have no doubt that there are countries around the world that have said that they are going to increase their AML supervision, but we now have a situation in this country where we have some very bad people, such as Usmanov and others, who own property portfolios of up to £50 million. We have allowed them to do that, and now we cannot take those portfolios off them, so could the Minister at least tell us how he is going to seriously get a grip on bad people from bad countries being allowed to buy assets here in the UK?
Kevin Hollinrake
We have applied sanctions on a targeted basis to some of those actors—[Interruption.] The right hon. Gentleman raises his eyebrows. Is he not aware of the sanctions we have applied to certain individuals from high-risk jurisdictions?
Liam Byrne
As the Minister knows, I am one of the Members who pushed for the Government to toughen up their sanctions after they left so many people off the sanctions list the first time around. Going forward, how is he going to stop bad people from bad countries who have no intention of improving their AML regulation buying mansions in London?
Kevin Hollinrake
It is entirely wrong to tar everybody from one country with the same brush. Clearly there are some deficiencies, but is the right hon. Gentleman honestly saying that every person from a jurisdiction that has deficiencies in its AML regime is a bad person? I think that is what he said, and I think it is entirely inappropriate.
Liam Byrne
I am grateful for the chance to put the question where it belongs, which is back on the Minister. The question was very simple: how is he going to ensure that bad people who happen to live in bad countries are prohibited from buying assets here in London? How is he going to do that? Tell us!
Kevin Hollinrake
Through the provisions in this 250-page piece of legislation; through the provisions in the legislation that was passed earlier this year, which both of us campaigned for; and through other things, such as the sanctions regime—through all those different things. It is our view that we should look at the people, not necessarily the jurisdiction. Of course, we work internationally to improve jurisdictions around the world, but it is wrong to suddenly say that countries, potentially including Commonwealth countries, are bad countries, which I think is what the right hon. Gentleman said.
Liam Byrne
We may as well pursue this to its death—I am grateful to the Minister for being so generous in giving way. Let us take the example of Usmanov. He has only recently been sanctioned, but when we read the indictment, we see that it is very clear that he has been an associate, colleague and enabler of President Putin for an awfully long time. The sanctions came ex post facto, after he had been allowed to acquire assets. How do we create a more preventive regime to stop this kind of nuisance on our shores?
Kevin Hollinrake
The right hon. Gentleman is saying that no Russian should ever be able to buy property in the UK—
Kevin Hollinrake
That is exactly what he is saying. Russia is a high-risk jurisdiction; is he saying that no Russian can buy property in the UK?
Liam Byrne
I am grateful for the chance to clarify. The Minister is engaged in the old debating tactic of putting the question back on me, but the question is on him: how is he going to stop individuals like Usmanov buying property in London in the future? What safeguards does he think he has in place? When a sanction has not yet been put in place, how is he going to stop people about whom we have serious concerns acquiring that kind of asset?
Kevin Hollinrake
If the right hon. Gentleman is saying that people are guilty until proven innocent, that is entirely the wrong way to look at this issue. Of course, those decisions have to be information-led; many of the provisions in the Bill are about information sharing and being information-led, looking at the red flags, identifying the people who we potentially need to be concerned about, and preventing those people’s actions on that basis.
Liam Byrne
The Minister is being characteristically generous with his time. Is he therefore reassuring the Committee that if the provisions in the Bill had been in place, Usmanov would have been prohibited from buying a mansion three years ago—yes or no?
Kevin Hollinrake
He may not have been, because he was not on the sanctions list at that point, and he was not on a sanctions list anywhere else in the world, as far as I am aware. He may have been—I do not actually know that information—but Usmanov would have been treated like anybody else under our system. It is interesting how quickly the Opposition sometimes will jettison some of the fundamentals of our society, one of which being that a person is innocent until proven guilty. We need the evidence before we can sanction somebody. We will adhere to that principle—certainly I will as long as I am in Parliament.
This new clause would prevent the registration of titles by legitimate companies in any of the jurisdictions on the lists. That would have a detrimental impact on those companies wishing to invest in the UK, as not every company incorporated in those jurisdictions is a bad actor. Although the new clause would prevent registration of title by an overseas entity, it is not possible to prevent a transaction from taking place and money changing hands. Unintended consequences would be likely.
Any overseas entity applying to the Land Registry to register title must now be registered with Companies House and have an ID number. That provides a safeguard against bad actors, more transparency about the overseas entity, and information for law enforcement should it later transpire that the overseas entity is involved in criminal activity. Therefore, I politely ask for this new clause to be withdrawn.
Stephen Kinnock
We are really just going back to the point about prevention being better than cure. Of course, what is really important here is that it is our sovereign Government, our Treasury, doing the designations. It is our Treasury and other expertise in our British Government saying, “That jurisdiction over there is high risk. It has lax control on money laundering. It has no sense, really, of what is going on. It’s a kind of wild west in its business environment.” That should raise many red flags and set many alarm bells ringing. The constructive spirit of this proposal is to say, “Look, we know where there are red flags. We should be acting on those red flags in a preventive way,” rather than, as my right hon. Friend the Member for Birmingham, Hodge Hill said, an ex post facto way, because once the damage is done, it is a lot more costly and a lot more insidious, because we have not dealt with the issue at source and then we are left to clear up the mess and pick up the pieces. That is the spirit in which the proposal is made. I invite the Minister to express any reflections that he has on what is actually a kind of philosophical point about the Bill. Is prevention better than cure—yes or no?
Kevin Hollinrake
Yes, undoubtedly, but I think that putting a blanket restriction on bona fide companies and bona fide individuals buying from those jurisdictions is disproportionate and wrong. I absolutely agree with the hon. Gentleman in terms of the spirit of the new clause and of his point about red flags. That is exactly the way the system works. Yes, certainly, the registrar should definitely look at the jurisdiction from which the person is purchasing a property, for example. That may well be the red flag that the hon. Gentleman refers to. To me, that is a more appropriate way of dealing with this matter than simply a blanket ban on purchase.
Stephen Kinnock
I thank the Minister for those points. We remain unconvinced by the position and would like to push this new clause to a Division.
Question put, That the clause be read a Second time.
Stephen Kinnock
I beg to move, That the clause be read a Second time.
New clause 55 also provides a simple solution to what appears to be a flaw in the Bill’s current drafting, which could be exploited by criminals seeking to exploit any legal loopholes left open to them. Under the Economic Crime (Transparency and Enforcement) Act 2022, companies required to register their ownership of UK property are required to provide annual updates on any changes to their beneficial ownership. It is not hard to see how that could be used as a loophole to conceal the ownership of property by, for instance, an individual designated by UK sanctions. A company could, at least in theory, report to Companies House that its beneficial owner was the same as it had been the previous year, without disclosing the fact that another individual had been a beneficial owner at some point during the intervening 12 months.
New clause 55 is intended to probe the Government’s thinking in this area and, as with the previous new clause, to provide the Minister with an opportunity to set out in detail how the Government plan to ensure that the laws leave no foreseeable loopholes open for exploitation by criminals.
Kevin Hollinrake
I might get into trouble with you, Sir Christopher, but on the previous new clause, countries on the high-risk jurisdiction list include Israel, Turkey and the Czech Republic. Is it honestly the Opposition’s intention to prevent individuals and companies from those jurisdictions from buying property in the UK? We should think again.
I thank the hon. Member for Aberavon for new clause 55. I wholeheartedly agree that keeping the information on the register up to date is critical. The annual update requirement is intended to provide certainty for third parties transacting with overseas entities. Property transactions often take many months to complete, and during that time a third party transacting with an overseas entity must have certainty that the entity remains compliant with the requirements of the register so that transactions are not disrupted. The key sanction for non-compliance with the register, which interferes with existing property rights, is to make it impossible for a buyer to register a title if purchasing from a non-compliant overseas entity. The onus is therefore on the buyer and their agents to ensure that they do not transact with a non-compliant entity.
In order to protect the buyer, likely to be an innocent third party, it follows that there must be absolute legal certainty about the compliance status of the overseas entity throughout the duration of the transaction. An annual update provides that certainty, giving enough time for transactions to be completed before the requirement for an update kicks in. If an update is not made on time, the overseas entity is regarded as non-compliant, and the restrictions on land transfers will bite.
The hon. Member talked about somebody switching ownership between the two reporting times. I cannot honestly see what the benefit to anybody of doing that would be, but he may wish to give me examples.
The ECTE Act includes a power to amend the update period by regulations. Should it become clear, once the register has bedded in, that the update period is too long or too short, that power can be exercised to change the update period. I therefore ask that the probing new clause be withdrawn.
Stephen Kinnock
I thank the Minister for those clarifications. This was an opportunity to set out those assurances, which we are happy to accept. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 56
Limited partnerships: registration of persons of significant control
“(1) The Secretary of State must by regulations make provision about the registration of persons of significant control in relation to limited partnerships.
(2) For the purposes of regulations under this section, ‘persons of significant control’ may include persons with a right to—
(a) 25% or more of the surplus assets on winding up,
(b) a voting share of 25% or more,
(c) appoint or remove the majority of managers,
(d) exercise significant influence or control over the business, or
(e) exercise significant influence or control over a firm which would be a person of significant control if it were an individual.
(3) No regulations to which this section applies may be made unless a draft of the statutory instrument containing the regulations (whether or not together with other provisions) has been laid before, and approved by a resolution of, each House of Parliament.”—(Dame Margaret Hodge.)
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Dame Margaret Hodge
I beg to move, That the clause be read a Second time.
We touched on this issue last week. The new clause is what I consider to be another perfectly sensible, rational, pragmatic amendment that enhances transparency and accountability. It would ensure that the legislation worked effectively rather than ineffectively, as we think will be the case at the moment.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship this afternoon, Sir Christopher, and to speak briefly in support of the speech of my right hon. Friend the Member for Barking. The new clause is short and, on that basis alone, the Minister might want to look closely at it for inclusion in the Bill. It is important and significant.
We almost thought we would not have this conversation when we debated the Government new clause 15 on Tuesday, until the Minister made it clear that information about trustees would not be published. That feels like a space that is a black hole for more to be hidden in. If we do not do this, the Minister will probably see a rise in the use of trusts to achieve less transparency.
For all the reasons my right hon. Friend the Member for Barking outlined, it is important that the information about trustees is available for public inspection. I will welcome the Minister’s comments. Perhaps he has thought further on the arguments since Tuesday. Here is further room for him to consider information on trustees, where it is held and its being published for public inspection. That would be in the public interest.
Kevin Hollinrake
The word “trust” in this context sends shivers down all our spines. I understand the rationale behind the new clause, but the right hon. Member for Barking is right in that I will state my position.
There is a key matter here. The right hon. Lady cited a couple of examples, one a trust and one a company, where she implied a disguised ownership of certain assets. The current requirements of legislation are that information about a registrable beneficial owner of a trust is displayed publicly. If someone is a beneficial owner, their name is revealed publicly. She might argue that that person could be lying, but they can lie about ownership of anything—“I don’t own any of this and do not exert control”—as we have discussed before.
The amendment makes all trust information available, even if that sits below the 25% or whatever ownership there might be of the trust or its benefit.
Dame Margaret Hodge
Usmanov is the better example, although I could have talked about Gutseriev or Fedotov, or about Azerbaijan—I had a debate in the House on the leading family of Azerbaijan. The reason all those things hang together is that the beneficial ownership is passed to a daughter or sister, or the shareholding is below 5%, and we are creating all these legal loopholes that enable the Usmanovs, Gutserievs, Fedotovs and all those people to hide their real control of an asset. That is really the point. That is what we are trying to get at—having it out in the open. What we have said constantly with our amendments is that if there are minor flaws with the way we have put them together, we are happy to listen, but I am absolutely certain that the principle behind them is correct.
Kevin Hollinrake
I just do not think that is right. The right hon. Lady might not have meant this exactly, but even if ownership is reduced—this goes for a company more than a trust—to below 5%, the amendment would not even solve that issue, would it? The legislation requires the beneficial ownership to be registrable and for there to be openly available information. Of course the person who is entering that information could lie. A lawyer or accountant could lie. But now they are subject to a criminal sanction for doing that if it is proven. As has been mentioned, information around trusts is a concern. It should raise red flags with Companies House. That information can of course be shared.
The other thing I would say is that trusts are used for legitimate purposes, including to protect the privacy and safety of children, for example, and other vulnerable individuals. The ECTE Act allows the registrar to disclose protected trust information to HMRC, and regulations will soon be made to allow the registrar to disclose the information to other persons with functions of a public nature, such as tackling crime.
Dame Margaret Hodge
The Minister often says this, but there are two issues here. If the trust or any of these entities are for legitimate purposes, the people involved should have absolutely no fear of transparency. That is the fallacy in the argument. If nobody is doing anything wrong, they should not worry about the information being public. If there are really good reasons, as there occasionally may be, for keeping confidential the name of a particular individual in a particular trust, we can and we are putting in legislation that covers those exceptional circumstances, but using the exceptional circumstance to justify the general rule is simply not good enough.
Kevin Hollinrake
We may have to agree to disagree. The requirement to register somebody of beneficial ownership is quite clear. If there is a beneficial owner, that person will have to be publicly named. That is what we seek to achieve through this legislation, and that is what we think it does. There are some points in the amendment that we think are relevant, including potentially widening access to information in certain circumstances with certain authorities. We will consider that, but we cannot accept the totality of the amendment at this time.
Question put, That the clause be read a Second time.
The Chair
With this, it will be convenient to discuss:
New clause 61—Reporting requirement (overseas territories)—
“‘(1) The Secretary of State must, no later than six months from the date on which this Act comes into force, carry out and publish the results of a review of the level of regulation of cryptoasset businesses for the purposes of tackling economic crime in—
(a) each of the Crown Dependencies; and
(b) each of the UK Overseas Territories.
(2) Following the publication of such a review, the Secretary of State must prepare and publish a strategy for enhancing the level of regulation of cryptoasset businesses in any of the jurisdictions mentioned in subsection (1) above which may have serious deficiencies in their regulatory frameworks in relation to such businesses.
(3) For the purposes of subsection (2) above, criteria for identifying serious deficiencies shall include—
(a) the level of compliance by each jurisdiction with international standards set out by the Financial Action Task Force and affiliated regional bodies;
(b) the level of compliance by each jurisdiction with its legal obligations under any relevant international agreements to which it is a party; and
(c) the level of enforcement in each jurisdiction of relevant laws applicable in that jurisdiction.
(4) The strategy required by subsection (2) above must include specific plans to ensure parity between—
(a) legal frameworks; and
(b) law enforcement efforts
between the UK and each Crown Dependency and Overseas Territory.”
Stephen Kinnock
New clause 60 takes us back to some of the issues we touched on during Tuesday’s debate on part 4 of the Bill in relation to cryptoassets. Considering how many new regulations there are in this area, it is worth taking stock of how well the regulations already in place have been implemented to date and what more needs to be done to ensure that those responsible for enforcing the measures in the Bill have the powers, the expertise and the capacity they need.
The Minister for Security (Tom Tugendhat)
I am sympathetic to the intent of new clause 60, but I cannot agree to it. It remains vital to maintain a robust supervisory regime for cryptoasset firms, but that is something the FCA already does.
The FCA’s approach to assessing firms in the initial stages through registration removes poor-quality firms and bad actors from the UK system, reducing the risk of domestic firms being used to launder the proceeds of illicit activity. That robust gateway has already prevented over 200 firms that were unable to manage anti-money laundering and counter-terrorist financing risks from being registered.
Cryptoasset firms approved to operate in the UK are subject to ongoing supervision by the FCA to make sure they continue to meet those standards. The regime also provides the FCA with a number of powers in relation to those who do not meet the UK’s standards. For example, the FCA can direct a firm to make disclosures, implement additional controls and oversights, and issue injunctions to prevent potentially illicit cryptoasset activity. Furthermore, the FCA is already subject to oversight by His Majesty’s Treasury, the lead Department for anti-money laundering regulations, and, as a statutory regulator, it is also directly accountable to Parliament.
I turn to new clause 61. Again, I am sympathetic but do not support it. As we have discussed, FATF sets international standards on anti-money laundering and counter-terrorist financing, including in relation to the regulation of cryptoasset businesses, or “virtual asset service providers”, as the taskforce calls them.
FATF and its regional bodies are responsible for assessing their members against international standards. That includes assessments of the Crown dependencies and overseas territories on their regulation of cryptoasset businesses. A UK review of the Crown dependencies and overseas territories would not add value to that. The Crown dependencies and overseas territories co-operate with the UK and are committed to meeting international standards on fighting financial crime and countering terrorist finance. I therefore ask the hon. Member for Aberavon to withdraw the proposed new clauses.
Stephen Kinnock
I thank the Minister for that feedback. We want to ensure there is a mechanism to check and verify that the FCA is able and resourced to do what we want it to do. Our worry is that if we take a hands-off approach and leave it to its own devices without looking at whether it is achieving what we want it to achieve, in this fast-moving world, we could potentially lose control of the situation. I am sure that that would be a matter of regret to the Minister and the Committee.
New clause 61 is about ensuring that UK authorities can keep a close watch on developments in the overseas territories and take any necessary steps to ensure that we avoid the same kind of race to the bottom that has turned some of those territories into a magnet for a host of dodgy—and often outright criminal—financial transactions in recent decades. There are already reports of rapidly growing cottage industries springing up in places such as the Cayman Islands, aiming to facilitate the incorporation of cryptoasset businesses with, we can only assume, minimal regulatory oversight.
I thank the Minister for his comments, but will he say a bit more about how we are ensuring and building robust approaches to regulating crypto-related risks in our overseas territories, as well as the Crown dependencies, in the light of those growing cottage industries, the increasing risk, and our responsibility for what is happening there? Does he feel that there is anything more that could or should be done?
Tom Tugendhat
The hon. Member raises some important points. I do not in any way wish to disabuse him of the view that there is a risk with this industry; crypto has posed challenges to many areas. It is worth pointing out that the FCA has a budget of £600 million and co-operates extremely closely with the overseas territories and their regulatory bodies. It provides not just an oversight function here, but an education function for many others, and it sets an example that many other jurisdictions seek to emulate.
I urge the hon. Member to look at the way in which the FCA actually works, and at the way in which the overseas territories and Crown dependencies already co-operate. That is not to say that there are not problems—there are often problems in such regulatory environments, which we need to address—but the correct thing to do is to work with the FCA, as it is already doing an excellent job, and ensure that it is properly resourced. As I said, £0.6 billion seems like quite a lot, and there are various ways in which we are supporting further improvements via co-operation.
Stephen Kinnock
I thank the Minister for those points. We feel that it is a bit of a leap of faith but, on the basis of the assurances that he has given, I am happy to withdraw the clauses. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 64
Disclosure of information in the public interest likely to be relevant to the investigation of economic crime
“(1) It is a defence to an action based on the disclosure or publication of information for the defendant to show that—
(a) the disclosure or publication complained of was likely to be relevant to the investigation of an economic crime, and
(b) the defendant reasonably believed that the disclosure or publication complained of was likely to be relevant to the investigation of an economic crime.
(2) Subject to subsection (3), in determining whether the defendant has shown the matters mentioned in subsection (1), the court must have regard to all the circumstances of the case.
(3) In determining whether it was reasonable for the defendant to believe that the disclosure or publication complained of was likely to be relevant to the investigation of an economic crime, the court must make such allowance for editorial judgement as it considers appropriate.
(4) For the avoidance of doubt, the defence under this section may be relied upon irrespective of whether the statement complained of is a statement of fact or a statement of opinion.”—(Liam Byrne.)
Brought up, and read the First time.
The Chair
With this it will be convenient to discuss new clause 65—Economic crime: power to strike out statement of case for abuse of process—
“The court may strike out the whole or part of any statement of case which can be reasonably understood as having the purpose of concealing, or preventing disclosure or publication of, any information likely to be relevant to the investigation of an economic crime.”
Liam Byrne
It is a pleasure to serve with you in the Chair, Sir Christopher. I thank the Minister for Security, along with the right hon. Member for Haltemprice and Howden (Mr Davis) and the hon. Member for Isle of Wight (Bob Seely), who have worked assiduously on this issue over the course of this year.
In many ways, we have debated this issue a lot during our consideration of the Bill. There is a shared belief across the Committee that sunlight is the best disinfectant and, because this is the Economic Crime and Corporate Transparency Bill, it is important that we empower everyone who brings transparency to the business of investigating economic crime, including journalists.
Yet I am afraid that, to many people, “global Britain” now means that our country is a global centre for lawfare. Our courts, which have been sanctuaries for justice for 1,000 years, have become arenas of silence where expensive lawyers—Schillings and others—are used systematically by bad people to try to rack up enormous costs for journalists, to such an extent that they are no longer able to bring important information and news into the public domain.
The issue is now so serious that, when the Foreign Policy Centre surveyed investigative journalists around the world, it found that three quarters of them had received legal threats designed to shut them up. The origin of those threats is, by and large, this country; in fact, this country was responsible for more legal threats than the United States and the European Union put together. We have become a global centre for lawfare against people who are being so courageous and brave in trying to bring crime to public attention.
We have so many of these strategic lawsuits against public participation, as they are called, that there is now a clear playbook. First, the company or oligarch will try to target an individual. They will always try to target the individual journalist rather than the organisation they work for because, frankly, they know that they can intimidate the individual far more than they can intimidate a corporate organisation. That is exactly what brave journalists such as Carole Cadwalladr and Catherine Belton had to face.
Secondly, the company or oligarch will then file the most ludicrously exaggerated claims. Look, for example, at the claims that Mr Mohamed Amersi has filed against a former Member of this House, Charlotte Leslie. It is the most ridiculous, conflated nonsense that he is trying to put through the court, but that is par for the course, because, of course, they are not interested in winning the case; all they are interested in doing is racking up as much cost as possible to damage the poorer party.
Thirdly, the claimant will go to enormous lengths to try to intimidate the individual. In “Kleptopia”, the journalist Tom Burgis, the author of that and other wonderful books, tells a story of how private investigators from Eurasian Natural Resources Corporation suddenly turned up at a meeting in an underground car park between him and a former director of the Serious Fraud Office. There is no way they could have known that meeting was taking place unless they were hacking and bugging his phone, but that is the kind of intimidation that these individuals think is acceptable.
Fourthly, these oligarchs will try to co-ordinate with others. Look at the way Roman Abramovich tried to intimidate Catherine Belton: he sidled up with all sorts of cronies and mates to try to bring a concerted action against her and her publisher, HarperCollins. Finally, they will try to file claims in multiple jurisdictions, such as Australia, in order to maximise the costs.
If anyone thinks that this is something of the past, there is one case in particular that shows that it is very much of the present. The Nazarbayevs are trying to take the Bureau of Investigative Journalism to court. That is a great example, frankly, of this whole playbook being thrown at journalists trying to expose economic crime.
The Nazarbayev Fund’s holding company, Jusan Technologies Ltd, issued defamation proceedings in the High Court on 16 August. It has also filed against the Telegraph and openDemocracy. Its lawyers, Boies Schiller Flexner, the firm, incidentally, that represented Harvey Weinstein, are trying to use the Defamation Act 2013 to attack and shut down the team of investigative journalists for the crime of exposing the network of funds— $7.8 billion-worth of gross assets—held through a company registered in the UK that recently had just one employee. Documents revealed by the journalists in October 2021 showed that Jusan Technologies was the centre of a sprawling corporate operation, with private interests held by well-connected members of the Kazakh elite and businesses connected to the ruling family of the United Arab Emirates, and assets held through dozens of businesses scattered throughout Kazakhstan, Luxembourg, the UAE, the UK and now the United States.
All the tactics I mentioned are now being used against the Bureau of Investigative Journalism. It is simply outrageous that a country that prides itself on being the home of free speech is now home to courts being used to silence journalists. New clauses 64 and 65 seek to take the regime set out in clause 155 onwards, related to protected disclosures, and say, “Well, look, if we are going to protect disclosures, then among the group that we should be trying to protect are journalists, and the disclosures that we should be trying to protect are of information relating to the investigation of an economic crime.”
With my thanks to the Clerks and others, we have taken a slightly different approach in the new clauses, but that is basically the intellectual and philosophical approach that we seek to take, and that is why people are happy that the new clauses are within the scope of the Bill. Crucially, the new clauses seek to equip a judge—not us here in this House—with the power to dismiss legal actions clearly designed to silence journalists and others investigating economic crime.
Stephen Kinnock
I will be brief. I fully support the comments made by my right hon. Friend the Member for Birmingham, Hodge Hill, and I fully support the new clause. I pay tribute to the other Members he mentioned who have played an important role in raising the profile and awareness of this very important issue. The Committee has an opportunity to reflect on the need for urgent action by the Government to crack down on abuses of our legal system by the wealthy and powerful individuals who seek to shut down dissenting voices whose investigations are inconvenient to them.
Surely, the Government have been aware for some time of the most flagrant cases of jurisdiction shopping by oligarchs and kleptocrats in British courts, but recognition of the problem has not been backed up by the necessary legislation. The Government have missed repeated opportunities to legislate against SLAPPs, and although consultations have been launched and expert advice and evidence has been reviewed, we still have not seen meaningful action to deal with these problems. It remains unclear when, or even if, new legislation will be forthcoming. I look forward to hearing what the Minister has to say on this important subject.
Alison Thewliss (Glasgow Central) (SNP)
I very much to support everything that the right hon. Member for Birmingham, Hodge Hill said. In his evidence to the Committee, Thomas Mayne of Chatham House said:
“This is a perfect opportunity for some kind of anti-SLAPP legislation to be put in the Bill.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 80, Q166.]
If the new clause is not going to be accepted this afternoon, will the Minister explain exactly when we will pass this legislation? Not “in due course”, not “at some point”, not “when legislative time permits”—when precisely will we legislate on this issue, if not now?
Tom Tugendhat
It is a huge pleasure to speak on this new clause. None of what I am going to say to begin with will particularly surprise the right hon. Member for Birmingham, Hodge Hill, because—
Tom Tugendhat
He knows very well that I am not going to accept it. The way in which the new clause is set out cuts across many other aspects of law, and it would quite severely affect jurisprudence in this country. However, he is absolutely right to point out the issue, and it is worth taking a bit of time to explain how we intend to address it.
The right hon. Gentleman is correct that the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Thirsk and Malton, and I are extremely clear that this is an important aspect of legal reform that we need to see in the United Kingdom. It is important because it affects freedom of speech in this country, as the right hon. Gentleman rightly says, and because it has a certain negative influence on the legal environment in which, sadly, people have to operate. He rightly spoke about Catherine Belton, whose work in exposing many of the crimes of the Putin regime has been frankly exemplary and heroic.
It is important that we address this. The way to do that is not to treat it simply as an economic crime, which it is not. It is not just a crime that affects the economy of our country or the movement of dirty money. It is a crime that is about freedom of speech and the access to justice that many people in our county need. We should look at it more as an offence against a fundamental democratic value than as an economic crime. That is why the work is being done with the Ministry of Justice, for rather obvious reasons. We are ensuring that we have a piece of anti-SLAPPs legislation, as the right hon. Gentleman correctly calls it, that addresses the whole problem.
The UK is still leading the way on the issue at national level. We are not yet where we wish to be, but we are doing better than many others. It is worth remembering that many different groups are working on this. The Solicitors Regulation Authority is already doing a lot of work to review the 20 firms suspected of involvement in SLAPP activity. The SRA is shortly to issue its regulated professionals with another warning notice, which will provide guidance on conduct in such disputes. It has already outlined guidance on certain oppressive behaviours, and has expressly linked those to the growing focus on the use of SLAPPs in England and Wales.
As the right hon. Member for Birmingham, Hodge Hill knows, there are many different tactics—aggressive letters, labelling correspondence and seeking to run up bills, as he rightly identified—that challenge people’s access to justice. They are exactly what the SRA is looking at and will be communicating with the MOJ about.
Dame Margaret Hodge
First, will the Minister describe the action that, according to him, the Government are taking? I do not understand what action they are taking.
Secondly, the new clauses that my right hon. Friend the Member for Birmingham, Hodge Hill tabled were written by a group of lawyers who support the UK Anti-SLAPP Coalition. They are not like the new clauses that we put together—they have been given considerable consideration—so I do not quite see how they could be bad law. They have thought this through.
Thirdly, there is a real tendency—I say this with the greatest respect and affection for the Minister’s work—for Ministers to shift a bit a paper to the left or right and do nothing with it. It is the easiest thing to do. We have described this as a once-in-a-lifetime opportunity to change the world; I plead with the Minister to grasp it and accept the new clauses. Let us move forward, rather than shifting the paper aside.
Tom Tugendhat
I am surprised to hear the right hon. Lady speak so negatively about her other amendments and new clauses. New clause 64 is not the only one that is well drafted; others have been as well. New clause 64 focuses, quite rightly, on getting anti-SLAPP provisions into the Bill, but it would extend the reach a bit further than we could take. I am happy to look further at the issue. I am happy to listen carefully to the opinions not only of the right hon. Lady, but of the people who advised the right hon. Member for Birmingham, Hodge Hill, on different approaches to the question. I am extremely happy to listen, but I am afraid we will not accept the new clause.
Seema Malhotra
When the Minister talks about looking more closely at this new clause, does he mean in the proceedings on the Bill?
Tom Tugendhat
I will be looking closer at the new clause in the proceedings on the Bill, but whether it makes it through will not necessarily be my final decision, as she knows very well. I would be interested to hear the arguments of the people to whom the hon. Lady has spoken.
Liam Byrne
I am grateful for the chance to intervene, because I sense that the Minister has almost reached the conclusion of his remarks without giving the Committee the date on which a more comprehensive proposal, which is what he argues for, will be presented to the House. We know that the Ministry of Justice has already conducted its consultation, and that the consultation responses have been analysed, but we have not had a hard date from either the Leader of the House or the Justice Secretary. If the Minister is in reassuring mode, he could perhaps furnish us with that date now.
Tom Tugendhat
I am afraid I will have to ask the Ministry of Justice for that information, but I am happy to write to the right hon. Gentleman. With that, I rest.
Liam Byrne
The truth is that people will be appalled by this debate. We gathered an enormous number of campaign groups and journalists together in the House on Tuesday evening, at a function that I had the privilege to co-sponsor with the right hon. Member for Haltemprice and Howden. The kinetic energy behind reform is significant. The law will change—we will get there—but the question is whether this Government want to be the authors of that change or continue to oppose it.
Every single day that the law does not change, bad people and bad lawyers will be racking up millions of pounds in legal costs in order to intimidate and stop publication by journalists who are hunting the truth. I am afraid that is not a good place for this Government to be in.
James Daly (Bury North) (Con)
I refer the Committee to my entry the Register of Members’ Financial Interests. The question I have is not a challenge to what has been said. As a practising solicitor I agree with the points the right hon. Gentleman is making, but the new clause would impact upon some general points regarding the professional duties of solicitors to their clients. A solicitor accepts a brief and then has to act in the best interests of that client and do various other things. If that involves criminality, it is a different question altogether. The Law Society is very much behind these proposals; what further regulation or advice should there be for solicitors to ensure that they can act within legislation such as that proposed?
The Chair
Order. The hon. Gentleman referred to his entry in the Register of Members’ Financial Interests but did not specify what it was or how it was relevant to his question.
James Daly
I apologise; I said I was a practising solicitor part way through my intervention. I mentioned that because I was touching on the legal profession, how it interacts with legislation and professional duties, as also mentioned by my right hon. Friend the Minister for Security.
Liam Byrne
The hon. Member is not just a practising solicitor, but clearly also a recovering solicitor. The SRA has been on the front foot in wanting to crack down on some of the bad behaviour. We had this debate in January on the Floor of the House; it was one of the best debates I have seen in 18 years in this place. What became clear was that, although there are some in the legal profession who do have to operate on that cab-rank rule—they have to step forward and plea in favour of people who are at the front of the queue—there are others who have choices about who they represent. The truth is that here in London there are groups of lawyers, such as Schillings—there are many others—who are making millions out of some very bad people. In fact, those people are so bad that they have subsequently been sanctioned, in this country and around the world.
Dame Margaret Hodge
Does my right hon. Friend agree that if the SRA were to fine those solicitors who engaged in that sort of false litigation—it is phony litigation—it would be a little cost on business given the millions they are making? Abramovich, for example, is worth, as far as we know, £12 billion. If he spends £50 million on a legal case, it is peanuts to him, and it is certainly peanuts to the solicitors who are subject to fines by the SRA.
Liam Byrne
My right hon. Friend is absolutely right that the whole strategy behind a strategic legal action against the public participant is not to win: they just want to damage their opponent to such an extent that they cannot afford to tell the truth.
It has been a disappointing debate, and it will disappoint many of the people who are watching and following it. It is unfortunate timing, because the anti-SLAPP coalition is coming together for its second annual conference on Monday, when it will publish a draft and more comprehensive law. We have not had a date from the Minister as to when the Government may have listened and brought forward a more comprehensive argument. If the argument is that the measures I am moving today are too fragmented or nugatory, that is fine, but let us hear the date for when a more comprehensive solution will be proposed. The Secretary of State for Justice has said it will be forthcoming but has not provided the date. That was the point of the new clauses: we want to know the date.
Liam Byrne
I beg to move, That the clause be read a Second time.
In a way, new clause 66 builds on the debate we have just had, but it takes the proposed reform in a slightly different direction. The Minister is well aware that in earlier debates we touched on the problem that when lawyers engage in work that falls squarely within the scope of money laundering regulations, there is a risk that regulated activity can slip through the cracks in the supervision regime because of the lack of a default supervisor for the legal sector. When a lawyer is engaged in regulated activity but is not a member of a particular legal supervisory regime, high-risk work is in effect unsupervised. I do not think that is where the Committee wants things to be.
In particular, the problem can occur in relation to wills, estate planning and estate administration, but it potentially extends to quite a wide range of individual legal professionals. For example, unregistered solicitors who do not have a practising certificate are prohibited by law from acting as solicitors, but may still offer other regulated services without being subject to the SRA’s supervisory authority. As the Government’s recent review of the anti-money laundering regulatory and supervisory regime highlighted, the absence of a default supervisor for those lawyers leaves us with a significant supervisory gap. I think it is a hole in the supervisory regime that the Minister will want to fix. We tabled the new clause to uncover what his strategy might be.
Seema Malhotra
It is a pleasure to speak briefly in support of new clause 66, tabled by my right hon. Friend the Member for Birmingham, Hodge Hill. He laid out clearly his reasons for doing so, and I think we all share his concern.
The new clause concerns the introduction of a default supervisory authority for independent legal professionals, and includes provisions such that when an independent legal professional is not a member of any of the professional bodies listed in schedule 1 to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, but undertakes regulated business within the scope of regulation 12 of them, the Solicitors Regulation Authority should be the default body for that independent legal professional.
As my right hon. Friend outlined, it is concerning that legal professionals who are not members of any professional legal bodies are still undertaking activities and taking cases. It is effectively a loophole that can enable rogue actors to act as legal professionals without the supervision or membership of a professional body, thereby avoiding scrutiny of their actions, which could facilitate economic crime and money laundering. Clearly, we need a solution. My right hon. Friend suggested that it is a problem that the Government need to fix; we would be keen to work with them on how that will happen. I think we all want to find a solution, and to do so before the Bill goes much further through the House.
Tom Tugendhat
I thank the right hon. Member for Birmingham, Hodge Hill for tabling the new clause and the hon. Member for Feltham and Heston for her comments on how it is designed to elucidate answers for procedure rather than to push for a change in the law. There is a lot that really does need further investigation, but the reality is that although we should all seek to prevent legal professionals from undertaking activity connected to money laundering, the new clause would not quite do that.
As the hon. Member for Feltham and Heston will know, there are currently nine UK professional body supervisors—known as PBSs—that supervise legal professionals for anti-money laundering purposes. Of course, the SRA is one of them. They cover different professions and the different jurisdictions: England and Wales, Scotland, and Northern Ireland. Supervisors already work closely with the Office for Professional Body Anti-Money Laundering Supervision—OPBAS—which we spoke about earlier, to ensure full compliance.
The vast majority of legal professionals are already carefully conducting strong anti-money laundering work. However, the Government’s review of the UK’s AML regime, published in June, identified concerns in the legal sector that a small number of professionals may be unsupervised. The examples are limited to some specific and small subsectors, such as specialist wills and estate planners and one or two unregistered barristers.
The review concluded that further reform of the supervisory regime is necessary to improve its effectiveness and proposed four options for reform, which could include giving the SRA, or other legal sector supervisors, a greater role. The review committed to taking forward a public consultation to develop the options further, which is necessary given the potential scale of the reform and the need to ensure that we fully understand the risks and impact of our final decision. I reassure Members that the Government are focused on ensuring that the reform addresses the problems identified in the review, including that of supervisory gaps.
The new clause would require the SRA to supervise independent legal professionals in Scotland and Northern Ireland who are not regulated by any of the professional bodies listed in the money laundering regulations. Additionally, each AML supervisor currently represents different legal professions with diverging practices and processes. In the absence of broader AML reforms and appropriate resourcing, it would be difficult for the SRA to supervise those who are not currently members of its own regulated community, as the new clause would require.
I share the desire of the right hon. Member for Birmingham, Hodge Hill to strengthen our supervision regime; however, given the ongoing reforms to AML supervision that would be interrupted by the new clause, and its likely impact on the SRA, it would not be appropriate to accept it at this moment. I therefore urge the right hon. Gentleman to withdraw the motion.
Liam Byrne
The Minister made the case for the new clause rather well. I am grateful for his confession that significant numbers of businesses are in effect not covered by a default supervisor. If anything, he will have alarmed those listening from the other place who will, no doubt, want to pick up the new clause and build on it, especially given the Minister’s intention—sotto voce, I think—to try to move in the direction of reform.
The point I want to underline is that the challenge we are presenting is not about firms that are covered by a supervisory regime; our worry is about firms that are not covered. The Minister wisely began his remarks by talking about the nine different sets of legal sector supervisors. He may know that almost a quarter of legal firms visited by these nine supervisors were assessed as being non-compliant with AML rules, and 71% of the firms visited by the biggest legal sector supervisor—the SRA—have not put in place an independent audit function to gauge the effectiveness of their AML policies, controls and procedures. He may also know that 60% of the firms that were subject to a full on-site inspection by the SRA were not fully compliant with requirements to have in place adequate AML policies, controls and procedures. This is a significant problem.
I think the Minister is indicating that the Government are open to reform. It was not clear to me precisely which aspects of the new clause were being opposed, but we think that the place to really get this done in a thorough way may be the other place, safe in the knowledge that the Bill will come back to the Commons in a much healthier state. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 67
Civil asset recovery in cases of economic crime
“The Secretary of State must by regulations make provision for costs in civil recovery proceedings involving economic crime to be awarded against the enforcement authority only where the respondent can show that the enforcement authority has acted unreasonably, dishonestly or improperly.”—(Liam Byrne.)
Brought up, and read the First time.
The Chair
With this it will be convenient to discuss new clause 68—Criminal asset confiscation in cases of economic crime—
“The Secretary of State must by regulations make provision for the parties to bear their own costs in criminal confiscation proceedings following an unsuccessful prosecution of an economic crime.”
Liam Byrne
The new clause would cap legal costs where the Government try to bring unexplained wealth orders into effect. That point was picked up by the Foreign Affairs Committee when it was ably chaired by the Minister for Security. It also featured heavily in the economic crime manifesto which the other Minister helped launch in Westminster Abbey not too long ago, in the heady days of summer, when he was among the leading campaigners for cleaning up economic crime—his apprenticeship for the Bill in many ways.
You will know, Sir Christopher, that we have a real problem in this country, in that we introduced a brilliant legal reform back in 2018—I cannot remember whether that was one, two or three Governments ago, but it was introduced by a Conservative Administration and supported by Members across the House. Indeed, when I was in Washington with the Minister earlier in the year, unexplained wealth orders were lauded by the Department of Justice, the Department of the Treasury and everyone else we met as a really serious bit of legal innovation that the rest of the world could learn from. It fell to us to explain that all four of the unexplained wealth orders that have been moved so far have failed. Of course, one reasons that they are failing is because the poor National Crime Agency—I mean poor financially—is having to go up against some of the richest people in the world, and is simply being outgunned and outspent in court.
The case of Aliyev is a good example. I think it was the second unexplained wealth order, and the National Crime Agency sought to target properties owned by Ms Nazarbayeva and her son Nurali Aliyev. It was always going to be a difficult case, because the mother was the Speaker in Kazakhstan’s Senate and a successful businessperson—she was named in Forbes and all those kinds of things. Her son, who is an investor and entrepreneur, had founded Capital Holdings JSC, a business that manages about 25 different companies. However, the National Crime Agency suspected that the source of Nurali’s property wealth was his father, who had held several senior public roles in Kazakhstan and had fallen out with the Government. Unfortunately, he died in suspicious circumstances in 2015. The NCA suspected that the father had been involved in bribery, corruption and money laundering, and it had prayed in aid lots of good evidence in order to substantiate its case.
The enormously complex legal structures involved in the case meant that the National Crime Agency had to serve the unexplained wealth order against a host of offshore companies that owned the properties. It had to serve against the London solicitor Mr Andrew Baker, who was a trustee of the complex arrangements. Two of the properties were bought by companies in the British Virgin Islands and sold on to Panamanian companies. A third was sold from a BVI company to a company in Curacao, and then to another in Anguilla. It was the classic type of case that the Bill is designed to police.
In early April, however, Mrs Justice Lang discharged the unexplained wealth order that had been granted, because of new evidence that had been presented. Reuters subsequently reported that the protagonists in the case were seeking £1.5 million-worth of costs from the National Crime Agency, which had to fork out an interim payment of £500,000. Given that the NCA’s anti-corruption budget was only about £4 million in the year in question, Members can see what kind of impact such tactics can have. In the United States, which is much better at this than we are, there is a much stronger cost-control regime.
Again, this measure that has cross-party support. I think the hon. Member for Amber Valley (Nigel Mills) sought an amendment to the Criminal Finances Act 2017 that would have changed the law so that costs could not be awarded on an indemnity basis. I am no expert on that particular amendment, but it was rejected by the Government. None the less, there have been efforts by hon. Members across the House to try to get a handle on the matter.
Kevin Hollinrake
The right hon. Gentleman says that there is a much stricter cost-control regime in the United States. He is clearly not aware that there is no such regime in the United States, because no adverse costs are awarded. It is a completely different legal system.
Liam Byrne
I meant, in summary, the economic effect. The impact is that agencies have much greater latitude to bring cases against bad people in American courts without fear of what it will do to their enforcement budget. That is exactly where we need our enforcement agencies to be. If we are going to strengthen their hand, to really effectively police the problem and to respect what the Government need to do, namely, to ensure that we maximise the effectiveness of our enforcement agencies within tight budgets, the measure should, I hope, be accepted by the Government. I am delighted to have had the opportunity to move the new clause.
Stephen Kinnock
I wish briefly to concur with my right hon. Friend’s every word. He has made a powerful case about unexplained wealth orders. That was something of a false dawn for the reasons he set out. Similar to what we said about SLAPPs, we are concerned about the chilling effect—the vast disparity between the financial firepower of the people that the UWOs seek to go after and that of the NCA and, frankly, the British state.
My right hon. Friend’s new clause would absolutely push the Bill in the right direction. It provides a means for us to level the playing field. On the basis of that common-sense proposal, we can start to have serious conversations about how to crack down on some of the kleptocrats. I thank my right hon. Friend for his clause and the manner in which he has proposed it. I hope that the Minister will seek to champion it rather than oppose it.
Tom Tugendhat
I am grateful for the intent behind new clause tabled by the right hon. Member for Birmingham, Hodge Hill. He has an absolutely valid point—we need to equalise the firepower between some of the organisations. We have a fundamental challenge, because we cannot assume that arising from the actions of a UWO, which is not a human rights action but to do with civil litigation, costs should fall on the losing party. We must look at how to balance the different elements.
My own inclination would be look more at how we fund our agencies to do this work. Some members may have heard that I once was in the Army. The way the armed forces does such things is by having two different forms of budget—the ongoing budget and the war reserve. I am much more inclined, and much more persuadable, towards the argument that we should be making sure that the agencies that take on such claims have a war reserve to ensure that they can meet the costs without that affecting their ongoing work, rather than changing the law in a way that would affect civil liabilities in many different areas.
Dame Margaret Hodge
To be honest, I do not think that would prevent the impact that the fear of incurring costs would have on how any of the agencies operate. Everyone in the House has great respect for Bill Browder, and I am sure that the Minister will have talked to him about the issue, and I know that the Under-Secretary has, too. Bill Browder is completely shocked and astounded by the fact that we allow any costs at all to be claimed by successful litigants when they challenge Government action.
I do not know whether either Minister had the chance to meet Judge Mark Wolf, who is over here campaigning for an international anti-corruption court. I do not know whether they have come across him. He was here last week and, when we talked about such litigation, he expressed absolute astonishment that defendants in any of these cases, have the right to any of their costs being met. In America, looking at those figures, great success comes from that hugely important lack of ability to claim costs.
Tom Tugendhat
It is worth pointing out that the Americans do not use unexplained wealth orders, which, after all, are civil litigation, because they do not have them. Therefore, the question of costs does not apply in the same way.
Dame Margaret Hodge
I would not use the example of unexplained wealth orders. They have not worked in the way that we had all hoped and intended. On the failure to prevent bribery, if we think of the acts that the Serious Fraud Office has been engaged in—I think it is with Serco, where they face a couple of million pounds in claims and costs. It goes right across the panoply of tools that we have to fight economic crime.
Tom Tugendhat
This new clause clearly focuses on the Proceeds of Crime Act 2002 and the different ways in which it would be affected. I will not accept it, for the reasons that I have given; I believe it expands far too far into other areas of civil litigation. I do, however, take the right hon. Lady’s point entirely. The ways in which our agencies can defend themselves has already been on my plate for many, many weeks.
Liam Byrne
The Minister has had quite an education since becoming a Minister and joining the ranks of the Government, because, of course, it was in the Foreign Affairs Committee report on tackling illicit finance in which he authored a number of quite strong words about the need to reform and improve the regime for unexplained wealth orders, which are an important legal innovation. They are looked up to by enforcement agencies from around the world, and it is a national embarrassment that they are not working. It could well be, as the Minister argues, that the right answer is to create a war-fighting fund for our enforcement agencies, but that would have been possible if the Government had not opposed all the amendments that we suggested to create and restock the war chest that might be needed.
I appreciate that in this business a politician’s first instinct is to want to have their cake and to eat it, but unfortunately the Minister voted against putting us in that position at an earlier stage in the Bill. It is therefore important to send a clear signal to the other place that this is an important set of reforms for the Government to focus on and get right. I will therefore press the new clause to a vote.
Question put, That the clause be read a Second time.