(3 years, 5 months ago)
Grand CommitteeMy Lords, we now come to the group beginning with Amendment 21.
Amendment 21
My Lords, I welcome these amendments from my noble friend Lord Hodgson of Astley Abbotts, which concern the extraterritorial application of the call-in power. Amendment 21 seeks to ensure that where an entity is formed or recognised under the law of a country or territory outside the UK, it will be a qualifying entity only if it carries on activities in the UK but not where it supplies goods or services to persons in the UK, as the clause currently provides.
I am afraid that I was slightly unclear on the precise intent of Amendments 27 and 32 so, for the benefit of the Committee, I am interpreting them as seeking to remove the provision currently in Clause 7(6)(b): that an asset situated outside the UK or the territorial sea is a qualifying asset if it is used in connection with the supply of goods or services to persons in the UK. This would mean that an asset situated outside the UK or the territorial sea is a qualifying asset only if it is used in connection with certain activities carried on in the UK.
It is important that entities formed or recognised outside the UK which provide goods or services to persons in the UK are captured through the Bill as their acquisition may give rise to national security risks to the UK. The noble Lord, Lord Fox, asked for some examples, and I am happy to provide them. For example, a foreign-registered company that does not carry on activities in the UK may still provide essential goods or services to parts of our critical national infrastructure. If a hostile party were to acquire control over that supplier, it could use that control to degrade our infrastructure. To take another example, imagine an overseas supplier of machinery or compounds to a UK-based entity producing cutting-edge advanced materials for our military. Control over that supplier could provide a hostile party with an insight into certain military capabilities or a means to sabotage the work of the UK entity to harm our military. As my noble friend Lady Noakes recognised, this could have a severe effect on national security.
Similarly, it is important that land and moveable property assets situated outside the UK or the territorial sea and intellectual property assets used in connection with the supply of goods or services to persons in the UK are also captured as their acquisition can give rise to national security risks to the UK. For example, as I have said previously, the acquisition of a wind farm situated outside the UK and its territorial sea that provides critical energy supplies to UK industry and consumers may give rise to national security risks, even though it is not strictly used in connection with activities in the UK. If the noble Lord, Lord Clement-Jones, would like to hear this example a third time, he only has to lay a further amendment.
Of course, any extraterritorial use of the powers under this Bill should be proportionate as well as meeting the other tests in the Bill. That is why the Bill explicitly sets out a UK nexus requirement that means that the Secretary of State may intervene to assess an acquisition overseas only where it has a clear connection to the UK. Remedies may be imposed at the end of an assessment only if the Secretary of State reasonably considers that they are necessary and proportionate for the purpose of safeguarding the UK’s national security. As such, the extent of an acquisition’s connection to the UK will be a clear factor in that decision.
The Bill also explicitly limits the application of remedies to persons outside the UK to those who have a clear connection to the UK—for example, UK nationals or companies, or those who carry on business in the UK.
I am conscious that I may not have answered fully the questions from the noble Lord, Lord Grantchester. If I reflect, after looking at Hansard, that I have not, I may write to him. I understand, taking these amendments as a group, the desire to probe the Government in this area, but I hope that, with this explanation, my noble friend will feel able to withdraw his amendment.
I have received one request to speak after the Minister from the noble Lord, Lord Fox.
I am probably being extremely stupid here, so please forgive me. In the first example of a foreign business supplying a critical operation in this country, I understand that that would be a problem were it taken over by a hostile nation. Let us imagine that a Belgian company, or perhaps a Canadian one, is being taken over by a company or a regime that we consider hostile. What is the Secretary of State’s next move in stopping it happening? I do not understand what the Secretary of State’s remit is over that Belgian or Canadian company, other than to suggest to the recipient of the supplies in this country that they have to change their supplier.
We now come to the group beginning with Amendment 22.
Amendment 22
I thank my noble friends Lord Lansley and Lord Vaizey, and the noble Lord, Lord Clement-Jones, for these amendments. They seek to clarify and reduce the scope of the regime in relation to asset acquisitions. The Government expect that the majority of trigger events of national security interest will be traditional mergers and acquisitions, but the Secretary of State must also be able to intervene in the rare circumstances where acquisitions of individual assets, rather than entities, may raise national security risks. The Bill as drafted provides that land, tangible moveable property and intellectual property fall within scope of the regime as qualifying assets; this has a degree of extraterritorial application.
Amendments 22 and 28 seek to restrict the inclusion of land as a qualifying asset only to land located within one mile of a sensitive site, and to require the Government to create an online checking service to identify land that is regarded as sensitive. Amendment 23 seeks to exclude “business as usual” procurement, such as the purchasing of software licences or standard network equipment, from the definition of a qualifying asset. Amendment 38 aims to ensure that intellectual property licences that do not permanently transfer ownership of the IP to the licensee are not treated as an acquisition of control over that IP.
I will first turn to Amendments 22 and 28. In limited cases, the acquisition of land can give rise to national security concerns, in particular, but not limited to, proximity risks. The UK Government do not publish the location of the sites in the UK that they consider sensitive from a national security perspective. To do so would give rise to risks to national security: it would serve as a directory for hostile actors who wish to acquire land proximate to sensitive sites, as well as actors who wish to harm us in other ways. Acquisitions of land and other assets that do not pose a national security risk can be pursued with no expectation of being called in. Parties who are unsure or believe that the land in question may be proximate to a site where the Secretary of State is likely to have concerns can voluntarily notify and receive clearance if no national security risks arise.
Risks to national security can also arise from acquisitions of control over land more than one mile from a sensitive site. Indeed, the US regime under the Committee on Foreign Investment in the United States, to which my noble friend referred and to which the amendment alludes, includes a limit of more than one mile for some sites. For example, if we are concerned about a hostile party having a good line of sight to a sensitive site, a plot of land sitting atop a hill more than a mile away might still present an excellent view and the associated security risks. Although most land-based risks are expected to relate to proximity to sensitive sites, not all will. In particular, the Secretary of State will be entitled to take into account the intended use of the land, which may be divorced from any proximity concerns.
I will now turn to Amendment 23. Noble Lords are right to argue that, in most cases, there is unlikely to be a risk to national security from the acquisition of control over intellectual property that is generally and widely available on the commercial market, but such a scenario cannot be ruled out. As set out in the draft statement provided for in Clause 3, which was published alongside the Bill, the Secretary of State expects to intervene only very rarely in acquisitions of any assets. The draft statement lists intellectual property in relation to which the Secretary of State expects acquisitions to be more likely to give rise to national security risks, although this does not include intellectual property that is easily available.
Turning to the detail of the amendment, there is no generally recognised definition of an asset being
“generally and widely available on the commercial market”.
For example, it does not specify where or to whom the asset should be available. It may be that certain intellectual property is in general widely available but is not generally or widely available to certain parties. We may wish to ensure that those parties continue to struggle to access that intellectual property.
I now turn to Amendment 38. As currently drafted, an acquisition of control over intellectual property does not require the acquirer to gain ownership of that IP. This is because acquisitions of control over intellectual property, where the asset is being licensed on a non-permanent basis, can still give rise to national security concerns. Such an exemption could allow hostile parties to use licensing arrangements to avoid the regime, for example by leasing intellectual property for an arbitrarily long period of time rather than buying it.
Temporary access to sensitive intellectual property may, for example, also allow a hostile party to copy and transfer abroad parts of it. Of course, the licensor may have some level of control over the use of its intellectual property, and any assessment of a possible risk to national security would take this into account. However, in the same way that there is no guarantee that a party selling sensitive intellectual property would ensure that the sale does not give rise to national security risks, there is also no guarantee that a party licensing intellectual property would do so.
By way of conclusion, I appreciate that these amendments are motivated by a desire to limit how assets are covered by the regime without adversely affecting the Secretary of State’s ability to protect national security. They would effectively limit the scope, but they would also inadvertently expose our national security to additional risk, which I have confidence is not the aim of my noble friend. In answer to the question posed by the noble Lord, Lord Grantchester, about how many notifications we expect to arise from procurements, the number is expected to be very low, and we will indeed publish guidance on those procurements.
For these reasons, I hope that the noble Lord will withdraw his amendment.
I have received requests to speak after the Minister from the noble Baroness, Lady Bowles of Berkhamsted, and the noble Lord, Lord Clement-Jones. I will call the noble Baroness first.
I have one comment and one question. My comment is that I understand everything the Minister said and I broadly agree, but I think the Government underestimate the amount of licensing they might find has to be reported, because licensing is the new sale. That is the way everything is going: there is no outright purchase of anything any more; everything is licensed, whether the programmes you use on your computer or anything else. Indeed, accounting standards even drive towards that kind of model because in some instances it becomes increasingly difficult to fit true sales into the new IFRS. I cite IFRS 15 as an example.
I meant to ask my question, but I spoke a bit too spontaneously to remember it. I am interested in follow-on activities. If, for example, you have a clearance on an investment into, say, some university research but that also encompasses a right to have a licence, would that licence to the same organisation automatically be cleared if the investment has been cleared or would you have to go round the loop again? You could apply the same to any assignment of a licence: if it is assigned to an essentially similar kind of business and a previous notification has not resulted in a clearing, can you be confident that you do not have to notify again on the basis of such a previous clearance?
I have received requests to speak after the Minister, from the noble Lords, Lord Lansley and Lord Fox. I first call the noble Lord, Lord Lansley.
My Lords, first, I express my warm thanks to my noble friend Lady Noakes, who happily introduced Amendment 97 far better than I would have. I had neglected to notice that we had reached Schedule 1, since we had not even reached the clause that introduced it. Not noticing that was entirely my fault.
If I may, I will go away and read what my noble friend said about Amendment 98, because it is purely a matter of trying to get the drafting right. He may well be correct on that.
On the other two amendments, I kindly ask my noble friend to reflect. The issue about former spouses reflects what is said in Section 127 of the Enterprise Act 2002, but this includes cohabitees, who are not in Section 127, which was subsequently amended to include civil partners. “Associated persons” has turned into “connected persons” and has broadened in ways that nobody told us was a policy.
My other point about the Enterprise Act is that I do not understand what my noble friend is saying. Earlier, he told us that the Government would not issue new guidance about material influence, because the CMA has issued guidance. I have read the CMA’s guidance and it clearly includes reference to obtaining control by stages. Obtaining control by stages, in Section 29 of the Enterprise Act 2002, includes a reference to that
“person or group of persons … materially to influence the policy of … the enterprise … to a greater degree”.
I have not invented this; it is in the Enterprise Act 2002 now. If my noble friend proposes to use the CMA’s guidance and says that everybody is happy that we are using an established understanding of what material influence is, I suggest we go away and look at whether we can use the language and guidance of the Enterprise Act to make it consistent with the practice that people have understood for the best part of 20 years.
My Lords, with thanks to all noble Lords who have spoken with such knowledge and eloquence on the amendments tabled, I will begin by speaking to Amendments 31 and 33 in the names of the noble Lord, Lord Bruce of Bennachie, and my noble friend Lady McIntosh of Pickering. The noble Lord, supported by my noble friend, clearly raises important questions on the juxtaposition of Scottish law with the powers that we are looking at in this group.
I am grateful to the Law Society of Scotland for having supported this and, if I may, rather than attempting to deal with these points on the hoof I will take them away. I commit to being in communication with noble Lords as to what needs to be done, if anything, in relation to them. More generally, perhaps putting the important Scottish points on one side for the moment, I completely agree with the noble Baroness, Lady Hayter, that the Bill has to work for every part of the United Kingdom.
These amendments concern Clauses 8 and 9 and the circumstances where acquisitions of control of entities and assets take place for the purposes of the Bill. They seek, I believe, to ensure that rights or interests in, or in relation to, entities and assets held by way of security are exempt from the regime, on the understandable basis that lending and debt arrangements do not give rise to control. Let me agree right away with the thrust of the concern expressed by the noble Lord and my noble friend. The Government do not consider that the provision of loans and finance is automatically a national security issue. Indeed, it is part of a healthy business ecosystem which enables businesses to flourish and grow in this country. Lenders need confidence that they can see a return on ordinary debt arrangements to provide that service, which is of course vital to the proper functioning of the economy. But we must recognise that there are, in a small number of cases, national security risks that can be posed through debt. I will come to this in a moment.
Access to finance is crucial for so many businesses and, to grow and succeed, they will often take out loans secured against the very businesses and assets they have fought so hard to build. That is why the Bill allows the Secretary of State to scrutinise acquisitions of control that take place when lenders exercise their rights over the collateral. The important point is that it is not where the lenders have hypothetical rights but where they exercise their rights over the collateral. This approach is needed because it will prevent hostile actors artificially structuring acquisitions in the form of loans which, following a swift and convenient default—let us put it that way—might otherwise allow them to evade scrutiny. This is a proportionate approach, and one that I am confident will keep finance flowing into UK companies and infrastructure while ensuring that our national security can be protected.
Amendments 34 and 35 in the name of my noble friend Lord Hodgson relate to Clause 10, which, in combination with Schedule 1, sets out various ways in which rights or interests are to be treated, for the purposes of the Bill, as held or acquired. These include indirect holdings whereby, for example, a person holds an interest or right indirectly if that person has a majority stake in an entity that is part of a chain of entities, each of which holds a majority stake in the entity immediately below it, the last company in the chain of which holds the interest or right. That example is relevant because Amendment 34 seeks to ensure that intragroup investments are not covered by Clause 10 and, as a result, Schedule 1 as well.
My interpretation is that my noble friend wishes to prevent internal reorganisations within the same corporate chain of entities from resulting in trigger events by virtue of Schedule 1. I confirm to the Committee that, in the vast majority of cases, that will not have an impact but, depending on the facts of the case, internal reorganisations may be in scope of the Bill. That is because there may be rare cases in which internal reorganisations pose national security risks. That may be true even if the ultimate beneficial owner is the same before and after the trigger event: for example, if there are concerns about changes to the level of control acquired by other links in the chain as a result of the internal reorganisation.
Clause 10(2)(b), which the amendment seeks to amend, is therefore important, because it makes it clear that in circumstances where a person is already treated as holding an interest or right, when something happens that would be regarded as the acquisition of that interest or right by the same person, then it is treated as such.
This means, for example, that an ultimate beneficial owner at the top of a corporate chain transferring existing majority holdings held by entities lower down in the chain to those above them could be a trigger event if it can be regarded as an acquisition by virtue of Schedule 1.
Amendment 35 would insert a new subsection into Clause 10 to provide that only one trigger event arises where more than one person is treated as acquiring an interest or right due to the provisions of Schedule 1. I can clearly see that my noble friend is seeking to help the Government by looking to ensure that the investment security unit is not deluged by duplicate notifications by corporate chains each time a new acquisition is made by an entity towards the bottom of the chain.
I can assure him that we are carefully designing the notification process and forms so that, wherever possible in situations such as these, a single notification providing all the details of the entities in the same corporate structure can be considered together. That is different from his amendment, which would seek to provide in the Bill that only one trigger event takes place. I am afraid that the Government consider that this would introduce ambiguity into the Bill, as it would not make it clear which trigger event is the one which takes place, and which should be discounted.
Hostile actors could try to exploit such a provision to avoid scrutiny by using shell companies at the bottom of long and complex corporate chains to acquire sensitive entities and assets. If only one trigger event is considered to take place by virtue of Schedule 1, the entity immediately above it in the chain could notify the acquisition, while not necessarily disclosing the control acquired by more troubling persons higher up the chain. In these circumstances, the amendment would mean that these could not be treated as separate trigger events, whereas surely they should be.
With the arguments I have outlined and my undertaking to write to the noble Lord, Lord Bruce, and my noble friend Lady McIntosh about the important Scottish matters they raised, I ask that the noble Lord agrees to withdraw the amendment.
I have received one request to speak after the Minister, from the noble Lord, Lord Clement-Jones.
My Lords, I thank the Minister for his response. No doubt the noble Lord, Lord Hodgson, and my noble friend Lord Bruce will respond very positively to the Minister’s offer on Amendments 31 and 33.
I must say that on Amendments 34 and 35 the Government are really tying themselves in knots in the way that the mesh—to come back to the Minister’s splendid fishing analogy—is woven in this Bill. This is catching minnows—it is catching transactions such as these intragroup transactions. I will read very carefully what the Minister has to say, but, given the number of fish caught by this that will have to be continuously thrown back in the sea after a period—as we have discussed, one that could be unduly protracted—this really is a catch-all Bill the longer we talk about and debate it. I do not think any of us is particularly comfortable with that in this Committee; we have to find a way of making it more proportionate. That will be the key task of the House as the Bill goes forward.
Let us try to get this done in five minutes.
I thank the noble Baroness, Lady Hayter, and my noble friends Lord Lansley and Lord Vaizey for tabling these amendments. I will begin with Amendments 36 and 88, which concern the Bill’s effect on higher education. Amendment 36 seeks to exempt from the regime the use of qualifying assets where that use is conducted wholly within the activity of a UK-based higher education or research institution. Amendment 88 seeks to introduce guidance to explain some of the Bill’s provisions in relation to higher education.
First, I intend to provide some general assurance to the Committee about the asset powers under the Bill. There are no asset transactions that must be notified to the Secretary of State as assets are not subject to the mandatory notifiable acquisitions regime. To quote the statement published on introduction, interventions in asset transactions by the Secretary of State are expected only in
“the headline sectors in which national security risks are more likely to arise than in the wider economy”.
The draft statement states more broadly:
“The Secretary of State expects to intervene very rarely in asset transactions.”
In relation to higher education, I assure the Committee that we do not generally expect the acquisition of qualifying assets for exclusive use by UK-based research or higher education institutions to give rise to national security concerns.
Indeed, to go further, the use of assets where there is no acquisition of a right or interest resulting in control over a qualifying asset would not even constitute a trigger event, although my understanding is that Amendment 36 seeks to go wider than this. We do, however, expect national security risks to arise in the higher education and research sectors sometimes. For example, hostile actors could seek to set up a UK-based research organisation and acquire sensitive assets through this vehicle, or enter into some form of agreement with one and gain control over sensitive assets that way. Exempting such acquisitions from the regime would therefore create a notable gap in the Secretary of State’s ability to safeguard national security.
Turning to the likelihood of the Secretary of State calling in acquisitions related to contract research, consultancy work and collaborative research and development, and the request for guidance, I point the noble Baroness to the three levels of risk set out in the draft statement. The intention of the statement is to provide guidance on the expected use of the call-in power by the Secretary of State. The three levels of risk in the statement give a hierarchy of how likely the Secretary of State is to call in an acquisition. The most likely areas of concern are “core areas”, “core activities” and “the wider economy”. Acquisitions in “core areas” are likely to be of most interest to the Secretary of State. “Core activities” are likely to fall within the “core areas” but may also fall outside them. This covers the sectors proposed to be set out in regulations under Clause 6. The Government have consulted on the definitions of the sectors to be covered by Clause 6 and published their response at the beginning of this Committee. “The wider economy” concerns everything else. The Secretary of State considers these areas unlikely to pose risks to national security. Therefore, they are unlikely to be called in under the NSI regime. I am confident that higher education and research institutions will be able to assess their activities and decide in which of these three areas of risk they fall.
I want to take a moment to assure the Committee that BEIS consulted Universities UK, the University Alliance and the Russell group on the national security and investment White Paper, published on 24 July 2018. They were very helpful. Of course, since the introduction of the Bill, as my noble friend Lord Lansley noted, BEIS has continued to engage with a number of research and academic institutions, including the Russell group. The Government very much appreciate the Russell group’s ideas on inclusion for guidance.
Turning to strategic security partnerships and domestic partners, the Bill deals only with acquisitions of control over qualifying entities and assets; it does not regulate these strategic security partnerships specifically. Any acquisitions of control made by such a partnership will be subject to the Bill in the same way as any other qualifying acquisition—namely, the Secretary of State’s likely interest in them is illustrated in the draft statement under Clause 3.
I now turn to Amendment 40 in the names of my noble friend Lord Vaizey and the noble Lord, Lord Clement-Jones. This amendment concerns Clause 12, which provides supplementary provisions about trigger events, including details about when they take place. The amendment seeks to make it clear that, in relation to the creation or potential creation of a new qualifying asset, a trigger event can take place only upon the creation of that asset.
The Government also consider that acquisitions of control over qualifying assets can take place only from the point of their creation, whether in tangible or intangible form. I reassure the noble Lords that the Bill as drafted provides for that. They will, however, be aware that the Secretary of State’s call-in power applies both to trigger events which have taken place and to those which are “in progress or contemplation”. The point at which a trigger event is in progress or contemplation will clearly depend on the facts of the case, but it could include circumstances where research and development partnerships are agreed, and it is abundantly clear what assets are to be developed and what control the funder will be acquiring over them.
We think that this is the right approach, as the primary focus of this regime is acquisitions of control over existing entities and assets. We cannot hope to know the future and how technology and national security risks might develop in every circumstance, so it is right that control of new assets can occur only once they have been created.
With the arguments I have outlined against the amendments in this group, I ask that noble Lords agree not to press them.
Before I call the noble Lord, Lord Lansley, to respond, I need to make the Committee aware of the Procedure Committee’s guidance about five hours of sitting, which expired five minutes ago. I do not want to put pressure on the noble Lord to respond on a very detailed debate, but if his response is brief we can probably include it. If not, it might be that the Whip needs to consider moving an adjournment.
My Lords, I can be brief. I do not think my noble friend really replied to Amendment 88, so I think that we will return to this on Report. I beg leave to withdraw the amendment.
That concludes the Committee’s work this afternoon. I remind Members to sanitise their desks and chairs before leaving the Room. I thank very much the broadcasting team and the support team for their assistance.
(3 years, 5 months ago)
Grand CommitteeI am grateful to my noble friend for her reply. I do not think I heard whether future pre-emptive actions under the new regime will be the subject of a statutory instrument or will just happen from the Secretary of State’s desk. Perhaps, she could answer how this or the other House will know what is happening.
I am grateful to everybody who spoke on this. It is obviously a tricky area. I am grateful to the noble Lord, Lord Clement-Jones. Undesirable, uncertain and impractical—I could not have put it better myself. I am grateful to the noble Baroness, Lady Bowles, for drawing attention to the question of the difference between two years and five years, and what will happen in that three-year period other than causing uncertainty among investors. The noble Lord, Lord Fox, raised very practical points.
Let me meet my noble friend Lord Lansley some of the way. I do not think that this will happen very frequently, but, like the noble Baroness, Lady Bowles, I am not convinced that the three additional years are really needed. The point my noble friend makes, which has certainly eluded the Law Society, is the interplay between the six-month trigger and the five years. In the tech sector, these companies grow like Topsy: they are nothing now, and they will be quite big very quickly indeed. You could have a situation where some event, ex post, could have been described as a trigger event but was not picked up as such at the time. It is unfair for people to have that uncertainty lasting for five years. The Secretary of State could say, “I never became aware of that, so I have more time to start the unwinding process, as long as it isn’t within the five-year period.” I see my noble friend’s point, and I accept that it is a rare occasion, but I still think there is something to be teased out about how the different pieces fit together, particularly in sectors of the market where very fast growth occurs.
I would be grateful if the Minister could tell me about the statutory instruments and how publicity of pre-emptive actions is to be provided.
Does the Minister wish to respond?
The Minister is saying she will respond in writing. Is the noble Lord, Lord Hodgson, withdrawing his amendment?
The Minister is going to write, is she?
Was it the fact or just the implication?
We now come to the group beginning with Amendment 14.
Clause 6: Notifiable acquisitions
Amendment 14
My Lords, I welcome Amendment 14 from my noble friend Lady McIntosh of Pickering, and Amendment 94 from the noble Lords, Lord Fox and Lord Clement-Jones, which overall seek further consultation and scrutiny on Clause 6 regulations. Perhaps I may say at the outset that we would be delighted to meet the noble Baroness, Lady Hayter, to discuss the concerns of the Wellcome Trust, which, as she said, is a world-class research organisation and worth hearing.
Perhaps I may begin by clarifying for the benefit of the Committee that while acquisitions of land are in scope of the call-in power, they are not in scope of the mandatory regime. Acquisitions of land, as with assets more widely, are expected to be called in only very rarely.
I turn first to Amendment 14, tabled by my noble friend Lady McIntosh of Pickering. It would require the Secretary of State to consult relevant stakeholders before making any regulations under Clause 6. Those regulations are of significance as they define the scope of the mandatory notification regime. As such, the Secretary of State has already consulted on sectoral definitions for the qualifying entities proposed to be in scope of the mandatory regime, and further engagement is planned with particular sectors in advance of turning these definitions into draft regulations. Again, I echo my noble friend’s apologies that the information on sectoral scope arrived only as we came into the Committee. The consultation was extensive and lasted from November for eight weeks. We received 94 responses and have not yet finalised all the sectoral definitions. Further targeted engagement to refine these definitions will be made in advance of laying regulations. The Secretary of State will therefore undertake consultation where appropriate.
I can reassure my noble friend Lady McIntosh and the noble Lord, Lord Bruce of Bennachie, that, given the importance and potential complexity of any future regulations under Clause 6—defining and bringing new advanced technology sectors into the regime, for example—it is difficult to foresee many instances in which consultation of relevant stakeholders will not be required. As such, there is no need to create a requirement in statute to cater for this. Public law duties already create the right incentives.
The second amendment to Clause 6, Amendment 94, proposed by the noble Lords, Lord Fox and Lord Clement- Jones, would require the Secretary of State to lay before Parliament a proposed draft of any regulations made under the clause for 30 days before the draft regulations themselves are laid and are subject to the approval of both Houses. Amendment 94 would also require the Secretary of State to identify a committee to report on the proposed draft regulations and then himself report on his consideration of the committee’s recommendations. The Bill as drafted provides for regulations made under Clause 6 clause to be subject to the affirmative resolution procedure.
While I take the points made by the noble Lord, Lord Fox, that these statutory instruments cannot be amended, they can be declined, as we have seen a small number of times in the past. This ensures an appropriate balance whereby the mandatory regime can be quickly updated should new risks to national security emerge, while still giving Parliament appropriate oversight by requiring it to approve the regulations.
In its report on the Bill published on 22 February, the Delegated Powers and Regulatory Reform Committee concluded that,
“there is nothing in the Bill to which we would wish to draw the attention of the House.”
So, although I was in some way surprised to see the noble Lords’ amendment tabled in relation to Clause 6, in disagreement with the judgment of the committee, we can agree that the powers of the Bill are necessarily drawn widely in order to make the process more efficient. I believe that the committee recognised the careful balance that the Bill strikes in Clause 6 and other clauses between allowing the Secretary of State the flexibility to ensure that the regime is effective in protecting our national security while providing sufficient opportunity for parliamentary scrutiny and input.
I welcome the opportunity to discuss this matter further with noble Lords. However, for the reasons I have set out, I cannot accept these amendments and ask that they be withdrawn or not moved.
My Lords, I have received two requests to speak after the Minister: from the noble Baroness, Lady Hayter, and the noble Lord, Lord Clement-Jones.
I forgot to declare at the beginning that I used to work for the Wellcome Trust. It was 20 years ago, but I think it should still be noted.
That concludes the work of the Committee this afternoon. I remind Members to sanitise their desks and chairs before leaving the Room.
(3 years, 7 months ago)
Lords ChamberMy Lords, I have it in command from Her Majesty the Queen to acquaint the House that Her Majesty, having been informed of the purport of the Trade Bill, has consented to place her prerogative, so far as it is affected by the Bill, at the disposal of Parliament for the purposes of the Bill.
I call the Minister to make a statement on legislative consent.
My Lords, as the Government have made clear throughout all stages of the Trade Bill, the UK Government are committed to working closely with the devolved Administrations to deliver an independent trade policy that works for the whole of the UK. I am pleased to say that the Senedd and the Scottish Parliament have both granted legislative consent, and I am grateful to colleagues in the Welsh and Scottish Governments, who have worked tirelessly to consider this Bill and schedule the necessary votes. However, the Northern Ireland Executive have not brought forward a legislative consent memorandum, and the Assembly has therefore not voted on legislative consent. I reassure noble Lords that the Government will continue to engage with the Northern Ireland Executive.
Clause 8: Standards affected by international trade agreements
Amendment 1
My Lords, we now come to the group beginning with Amendment 2. I remind noble Lords that Members other than the mover and the Minister may speak only once and that short questions of elucidation are discouraged. Anyone wishing to press this or anything else in this group to a Division must make that clear in the debate.
Schedule 3: Exceptions to restrictions in the devolution settlements
Amendment 2
(3 years, 8 months ago)
Lords ChamberMy Lords, we now come to the group beginning with Amendment 9. I remind noble Lords that Members other than the mover and the Minister may speak only once and that short questions of elucidation are discouraged. Anyone wishing to press this or anything else in this group to a Division should make that clear in debate.
Amendment 9
I call the next speaker, the noble Baroness, Lady Falkner, and I will then call the noble Baroness, Lady Northover.
My Lords, it is a real pleasure, as the fourth person to have put my name to the amendment, to speak after the wonderful speeches that we have just heard—most notably, that of the noble Lord, Lord Alton, who has been steadfast on this issue for many years.
Every now and then, two or three times a century, nations are measured in international affairs for what they did or did not do. In the writing of the history of the United Kingdom in our era, Brexit is expected to take centre stage, but we do not know at this stage whether in the long run it will prove to have been a canny move, giving us flexibility to adapt to a new world, or an ill-thought-through wail of frustration at globalisation. Some of the tally of the UK’s actions at this time will stand out; others, mercifully, will be forgotten.
In this amendment, if passed by this place and agreed to by the other place, we can see a stand-out moment—standing out and standing by a relatively small religious group that is subject to a crime against humanity: genocide. At a time when we know that it is happening—when we have the technology, the resources and the testimony of survivors that tell us of such egregious practices—for us to profess ignorance would be nothing less than condoning China’s behaviour against its Uighurs Muslims in Xinjiang.
I and the noble Lord, Lord Alton, have spoken over several years in this Chamber about the atrocities committed against the Uighurs. I almost feel that I am repeating myself every time I stand up to make this kind of speech, but I am not, as every time I look at the subject and the detail of what we know today, as opposed to what we knew last month or last year, I can see that things are getting worse.
China is running a gulag worthy of the description of the Soviet gulags by Aleksandr Solzhenitsyn, except that from what we now know in real time, not in retrospect, it is much worse. From 2015, we learned of detention camps from seeing satellite images. There were Chinese denials. Then, in 2018, the Chinese Government stopped denying their existence when the evidence was irrefutable and declared that they were “vocational education and training camps”. In these camps in Xinjiang, inmates are asked to renounce the Koran and their belief in God and to profess belief in—you could not make this up—"Xi Jinping thought”.
According to the Economist, guards ask prisoners if there is a God and beat those who say that there is. I think that I am the only Muslim speaking in this debate. I can tell noble Lords that it is impossible for a Muslim to renounce God, since the acknowledgment of God’s existence is the foundational principle of being a Muslim. While getting a daily beating may not sound egregious, Muslims will not go there—they will not sign up to “Xi Jinping” thought if it involves giving up God. It is something for which they will be prepared to die—and they are dying.
Then there is the sterilisation of Uighur women. In parts of Xinjiang, the Uighur birth rate fell by 60% between 2015 and 2018. There is, furthermore, the forced transfer of people to undertake forced labour—in detention, with watchtowers to prevent them escaping their factory dormitories. This persecution of the Uighurs is a crime against humanity systematically imposed by a state—a Government—that brooks no internal opposition. It is the most extensive violation in the world today of the principle that individuals have a right to liberty and dignity simply because of their humanity—because they are people.
This amendment abrogates trade deals—revokes them, as it says—if the other signatory, according to a High Court ruling, is a state that has committed genocide. It is needed in this Bill because no party to the genocide convention should be doing business with China while it continues to perpetrate this crime. If we pass this, we in the United Kingdom will be refusing to stand idly by and to elevate commerce above conscience. Not to pass it would be a shame. If we decide to pass it, it will represent us as a beacon of liberty in one of our first acts as a sovereign nation.
The noble Baroness, Lady Kennedy, spoke of the 70th anniversary of the genocide convention. Other noble Lords have referred to international institutions, as, no doubt, will the Minister, in his closing speech. I remind the House that we cannot leave this to other bodies when there is the disgrace—I go so far as to say the obscenity—of China being elected to the United Nations Human Rights Council. The time has come: we have to act.
My Lords, we now come to the group beginning with Amendment 11. I remind noble Lords that Members other than the mover and the Minister may speak only once and that short questions of elucidation are discouraged. Anyone wishing to press this or anything else in this group to a Division should make that clear during the course of the debate.
Amendment 11
My Lords, I thank noble Lords very much for the support that the amendment has received from across the House. I listened carefully to the Minister but was not at all convinced by what he had to say. It seemed to boil down to two things. The first was that nothing should change because you might have to change other agreements—which is clearly nonsense in this day of technology. Secondly, if the Minister really cared about the NHS and data protection, the Government should write their own amendments to the Bill, instead of having the rest of the House do it for them. On that basis, I wish to test the opinion of the House.
My Lords, I shall now put the Question. We have heard from a Member speaking remotely that they wish to divide the House in support of the amendment and I will take that into account. The Question is that Amendment 11 be agreed to.
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Lords ChamberMy Lords, a limited number of Members are here in the Chamber, respecting social distancing, and if the capacity of the Chamber is exceeded I will immediately adjourn the House. Other Members will participate remotely, but all Members will be treated equally, wherever they are. For Members participating remotely, microphones will unmute shortly before they are due to speak—please accept any on-screen prompt to unmute. Microphones will be muted after each speech. I ask noble Lords to be patient if there are any short delays between physical and remote participants. I should remind the House that our normal courtesies in debate still very much apply in this new hybrid way of working.
I shall begin by setting out how these proceedings will work. A participants list for today’s proceedings has been published and is in my brief, which Members should have received. I also have lists of Members who have put their names to the amendments or who have expressed an interest in speaking on each group. I will call Members to speak in the order in which they are listed. Members’ microphones will be muted by the broadcasters, except when I call a Member to speak. Interventions during speeches or “before the noble Lord sits down” are not permitted, and uncalled speakers will not be heard. Other than the mover of an amendment or the Minister, Members may speak only once on each group. Short questions of elucidation after the Minister’s response are permitted but discouraged; a Member wishing to ask such a question, including Members in the Chamber, must email the clerk.
The groupings are binding and it will not be possible to degroup an amendment for separate debate. A Member intending to press an amendment already debated to a Division should give notice of that fact in the course of the debate. Leave should also be given to withdraw amendments. When putting the Question, I will collect voices in the Chamber only. If a Member taking part remotely intends to trigger a Division, they should make this clear when speaking on the group. We will now begin.
Clause 1: Moratoriums in Great Britain
Amendment 1
I call the noble Baroness, Lady Taylor. No? Then I call the noble Lord, Lord Pannick.
My Lords, I am speaking to Amendments 103 and 106, which are in my name and in the names of three other members of your Lordships’ Constitution Committee: our esteemed chairman—the noble Baroness, Lady Taylor of Bolton—the noble Baroness, Lady Fookes, and the noble and learned Lord, Lord Wallace of Tankerness.
These amendments address aspects of the retrospective nature of provisions in the Bill. Paragraph 7 of Schedule 10 and paragraph 7 of Schedule 11 will render void a relevant winding-up order which was made by a court on or after 27 April this year but before the day on which the schedules come into force.
My Lords, in Committee I made the point that even during a crisis it is still important that we are vigilant in scrutinising legislation, particularly where basic rule of law issues are at stake. Specifically, I drew attention to the provisions in the Bill that raise the fundamental question of retrospective legislation. The noble Lord, Lord Pannick, one of my fellow members of the Constitution Committee, has just outlined why it is important that we closely scrutinise attempts by government to introduce retrospection in legislation.
I place on record my thanks to the noble Earl, Lord Howe, for his very prompt reply to some of the points I raised in Committee—echoed by the noble Lord, Lord Howarth of Newport, who is also on the Constitution Committee. As the noble Lord, Lord Pannick, indicated, we have now received the Government’s response to the Constitution Committee’s seventh report on the Bill—although, as he pointed out, the committee has not had a proper opportunity to consider that response.
As we have heard, retrospective legislation prima facie offends the rule of law, although it is recognised that there will be occasions, when there is an urgent or compelling need, when it may be necessary. I will address the retrospection issues in Amendment 40 and its equivalent Northern Ireland provision, Amendment 42. They draw particular attention to the retrospective nature of Clauses 10 and 11, which suspend directors’ liability for wrongful trading in Great Britain and Northern Ireland.
Under insolvency legislation, the general rule is that a court may hold directors personally liable for allowing a company to continue trading beyond the point when insolvency appears inevitable. The provisions in Clauses 10 and 11 oblige the courts to assume that a director is not responsible for any worsening of the financial position of the company or its creditors that occurs during the “relevant period”, which starts on 1 March and—with reference to the amendment the Government have just moved—would conclude on 30 September this year.
Clearly, if that is the assumption the courts are obliged to make—there is no suggestion in the legislation that it is a rebuttable presumption—no one will go to court to challenge the behaviour of a director. Indeed, the rationale for the policy, set out in the Explanatory Notes and reiterated in the Government’s response to the Constitution Committee report, is that the deterrent to a company continuing to trade where there is a threat of insolvency is removed by these clauses. Pandemic-induced insolvencies can thus be avoided.
To use the words of the Explanatory Notes, I fully recognise the merit of helping
“to prevent businesses, which would be viable but for the impact of the pandemic, from closing.”
I suspect that most, if not all, of us would generally assent to that. However, I will point out two aspects of the Government’s arguments that need further clarification. As pointed out in the Constitution Committee’s seventh report, the removal of the so-called deterrent effect cannot credibly be said to have carried any weight in decisions taken by directors between 1 March and the date when the policy to suspend personal liability for wrongful trading was announced, 28 March, allowing almost four weeks of extra retrospective effect. Secondly, as the Government acknowledge in paragraph 225 of the Explanatory Notes:
“There is no requirement to show that the company’s worsening financial position was due to the COVID-19 pandemic.”
The amendments to which I am speaking seek to maintain the spirit of the concession on wrongful trading and would apply only if the courts are satisfied that on the underlying facts, creditors can discharge the burden of proving that the instance of wrongful trading was not attributable to the financial pressures of the pandemic.
The Constitution Committee’s seventh report says that
“measures with retrospective effect are exceptional and undesirable in principle, requiring the strongest possible justification. We do not think the Government has yet made the case for them”.
As we heard from the noble Lord, Lord Pannick, the Government have now responded. In fairness, in my reading of that response the Minister seeks to give some justification for the exceptional retrospective effect of these provisions in relation to wrongful trading. I echo the noble Lord, Lord Pannick: it would be helpful if the Government could set out on the record, on the Floor of the House, what these justifications are.
Furthermore, on page 4 of his reply the noble Lord, Lord Callanan, states that
“the temporary suspension of liability for wrongful trading is required to mitigate the effects of the COVID-19 emergency, and is a proportionate measure. There are safeguards against abuse in the form of other, unchanged elements of Company and Insolvency law. As I have also set out above, given the inevitable delay in drawing up legislation, it was essential to give public assurance that these provisions would have retrospective effect in order for them to be able to have their intended effect on directors’ confidence in continuing to keep their companies going.”
In conclusion, I have two questions for the Minister arising from that response. First, what is the rationale for the retrospection’s having effect from 1 March, rather than from a date when the Government were able to give the public assurance referred to by the noble Lord, Lord Callanan, given that ahead of the announcement, there could be no removal of the so-called deterrent effect? Secondly, can the Minister confirm that an announcement by the Government of their intention to change the law is not, by itself, sufficient justification for using retrospective legislation and should not become a regular practice? I look forward with interest to her reply.
Briefly, the amendments on dates tabled in Committee that the noble Baroness, Lady Barker, mentioned were also in my name. I am therefore very grateful that the Government have decided to extend the initial period to September 2020. That does not seem to be contested by anybody.
My major point on the rest of the amendments concerns whether there should be retrospection in the Bill at all, but people seem to have broadly accepted that, with the condition that we expect the Minister to make a very full statement on it. In passing, I have received quite a lot of representations about the Bill in my position as the Labour Front-Bench spokesman, and the vast majority were on this particular aspect. Therefore, there is public sensibility about it and I am grateful that the Minister will deal with it when she responds.
Just before I call the Minister, I am going to see whether we can try the noble Baroness, Lady Taylor, again. No? I call the Minister.
I thank my noble friend Lady Fookes, the noble Baroness, Lady Taylor of Bolton, the noble and learned Lord, Lord Wallace of Tankerness, and the noble Lord, Lord Pannick, for the issues they raised concerning the suspension of wrongful trading and restrictions on winding-up petitions.
I turn first to Amendments 40 and 42, which seek to remove the suspension of wrongful trading in cases where a company’s financial problems are unrelated to the coronavirus. Noble Lords will recall that the purpose of this measure is to remove the potential for wrongful trading liability at a time when many directors have been, and still are, making difficult decisions about the future of their companies. The suspension does not mean that a struggling company could just carry on trading without any regard for the consequences, but that, if it unfortunately enters insolvency, the directors will not face personal liability for using their best endeavours and trading while the pandemic is having such an impact on businesses.
Amendments 40 and 42 would disapply the suspension of wrongful trading if it can be shown that the underlying causes of the problems are unrelated to Covid-19. While this is a laudable aim, I fear that at this uncertain time it would be very difficult for directors to disentangle the various reasons for their company’s woes. Asking them to be 100% certain that those difficulties are related exclusively to Covid-19 before continuing to trade may be a test too far. Moreover, they would want to be 100% certain. The threat of personal liability is a very effective deterrent and directors do not want to put themselves in a position where they could lose their house if they took the risk of trying to save a struggling company. The stakes here are high: if there is any doubt—and in most situations there surely will be—directors would be likely to cease trading and the objective of this measure will not be achieved.
We understand noble Lords’ concerns about a blanket suspension of liability, but other protections for creditors and the wider business community will continue to apply. For example, directors’ duties under the Companies Act 2006 and directors disqualification actions are not affected. For it to be successful in its objective to save otherwise viable businesses, the blanket suspension given by Clauses 10 and 11 is necessary.
The noble and learned Lord, Lord Wallace, and the noble Lord, Lord Pannick, asked why we are suspending trading from 1 March, as indeed did my noble friend Lord Bourne. Wrongful trading does not in itself affect normal business; rather it is the recovery action that may be made retrospectively by an insolvency officeholder against the company’s directors after the company enters insolvency proceedings. Suspension of the wrongful trading liability will not interfere with normal relationships between a business and its customers.
I turn next to Amendments 103 and 106, which would remove the retrospective provision in Schedules 10 and 11 regarding the making of winding-up orders. We understand the concerns of noble Lords regarding retrospection. This is not a step to be taken lightly and, if it is misapplied, retrospective legislation could indeed lead to significant injustice. We do not dispute the conclusion of the Constitution Committee that such measures should be based on need rather than on desirability. However, the need for retrospection in the context of this measure has been amply demonstrated, and I believe that there has been an especially compelling justification for these provisions.
Certain creditors have shown that they will pursue their debts despite government requests for pragmatism or forbearance, regardless of whether such action is in the interest of the survival of other businesses and irrespective of the impact on the economy as a whole. It is because the evidence demonstrates that the restraint required in the current circumstances can be guaranteed only through legislation that the Government have brought forward this widely supported measure.
However, its purpose would be wholly undermined if the protection it gives against certain types of undesirable creditor behaviour were to begin only after Royal Assent. That approach could have led only to an immediate rush to court by creditors urgently seeking winding-up orders in order to beat the deadline. That would have defeated the legislation even before it reached this House. It is right that creditors who have obtained winding-up orders specifically to frustrate Parliament’s legislative intention should not benefit from that behaviour. That is particularly so when the behaviour has caused potentially significant harm to a company that was the subject of a petition.
The noble Lord, Lord Pannick, and the noble and learned Lord, Lord Wallace, also asked how anyone could tell whether an order made between 27 April and the Bill coming into force is void. It is possible that a small number of creditors may not have acted responsibly and have brought winding-up petitions on the basis of the current law despite the Government’s previous announcement that this will not be allowed. The official receiver, or in Scotland the interim liquidator, will be required to bring any such circumstances to the attention of the court so that it can take appropriate measures.
I hope that noble Lords will understand why we are not able to accept Amendments 40, 42, 103 and 106, and that they will agree not to press them.
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Lords ChamberI have received a request to speak after the Minister from the noble Baroness, Lady Falkner of Margravine. After the noble Baroness, we will hear a response from the Minister.
My Lords, for clarity, I did not request to speak after the Minister; it was due to an inadvertent error that I ended up not being on the list to speak when I should have spoken. In fact, as I am speaking after the Minister, I will use the opportunity to make one or two general observations about this process that conform to what the noble Lord, Lord Hodgson of Astley Abbotts, and the noble Viscount, Lord Trenchard, have said.
This is the second Bill in which I am involved in legislative scrutiny. The first one was when we had a virtual House, and with this one we have a hybrid House. I can only concur with everything that has been said about how a hybrid House cannot work for any kind of complex or contentious piece of legislation.
These are pieces of legislation with implications that, as several noble Lords have said, go beyond the immediate health and economic emergencies. They should not be passed by this House unless and until we have the capacity to undertake proper scrutiny. Normally, my only excuse for speaking at this point would be if the Minister had said something on which I needed further clarification; I would then have spoken before he had sat down.
The idea that one is still continuing to speak to amendments in this manner is regrettable, but there is a broader point, also raised by the noble Lords, Lord Liddle and Lord Adonis: this is complex legislation, we do not know when we will revert to normal procedures, and a vaccine may not be found. I hope that this situation does not continue for very long, but it could continue for some time. In that case, do the usual channels deal with the legislation that is pertinent to the health and economic emergency that we face in this House through these proceedings, as a necessity, and therefore, park legislation that has very long-term implications for all kinds of governance in this country, until this is over? I do not blame the Government. They are trying their best to deal with an emergency facing the country. However, I wonder whether there is some level of complicity—I use that word with care—in the usual channels, that they so comfortably settle into these extraordinary arrangements. If people were truly aware of what was happening, of how we are passing legislation and how we are conducting scrutiny, even in terms of Oral Questions, they would be quite astonished.
Turning to the Bill, I am not going to use the notes that I would have used for this speech, but there are one or two things it is important to put on the record. I declare an interest as set out in the register, concerning the Bank of England, and that I am speaking in a personal capacity on this Bill. I have already spoken about the inappropriateness of doing this in this manner in Committee, but I also want to say a word or two about fast-track legislation. I sat on the Constitution Committee when it did a report on when and how Governments should use fast-track legislation. In all candour, and with the highest regard for the Minister, there are measures in this Bill that are simply inappropriate for fast-tracking through the Chamber in this way. These longer term and permanent changes should not be discussed today.
In light of that, I completely support Amendment 37 in the names of the noble Baronesses, Lady Bowles of Berkhamsted and Lady Altmann, for the Secretary of State to conduct a review of the provisions for a moratorium, and to lay a report before Parliament. They indicate that the review should be done in 18 months, which is a fair timescale.
I also support Amendments 2, 4, 8, 28 and 42, in the names of the noble Lords, Lord Stevenson, Lord Palmer, Lord Fox and Lord Hodgson, the noble and learned Lord, Lord Hope, the noble Baronesses, Lady Bowles and Lady Altmann, concerning all aspects of the independence of the monitor. The danger of the Bill not making clear the separation and independence of the monitor is a perception that there was a closeness between the directors of the company and a lack of transparency for creditors. I support those amendments essentially to assist the monitor, those insolvency practitioners. I hear what the Minister says about their own regulatory framework and the onus upon them to behave in an upright manner, but as he noted in his closing remarks, there are enough safeguards built into the regulation of insolvency practitioners whereby these amendments are otiose. I argue that by having them in this Bill—which is subject to review if Amendment 37 passes on Report—if they were entirely redundant, we could do away with them in 18 months. The Secretary of State could then lay before us the report that says that these amendments are redundant. I argue that this helps the monitor at this point, and on that basis, I intend to support them on Report.
We now come to the group of amendments beginning with Amendment 46. I remind noble Lords that anyone wishing to speak after the Minister should email the clerk during the debate. Anyone wishing to press this or any other amendment in the group to a Division should make that clear during the debate.
Clause 10: Suspension of liability for wrongful trading: Great Britain
Amendment 46
My Lords, I too will be brief in the interests of time. I echo the wise words of the noble Baroness, Lady Anelay, and I support her Amendment 143, but I particularly want to talk to my own Amendment 144. This amendment deals with an issue whereby the Bill has rightly removed barriers for those companies whose articles do not allow virtual AGMs to be held. It is clearly important to enable such meetings in the current environment, but Schedule 14 has some worrying implications for shareholder capitalism. I ask my noble friend the Minister to consider Amendment 144, and I thank the noble Baroness, Lady Bowles, for her support. The amendment would make a small change in respect of paragraph (b) of Schedule 14 (3)(6), which removes the right of shareholders to ask questions at AGMs and permits them only to vote.
That paragraph would clearly reduce shareholders’ ability to scrutinise, engage with and hold to account a company's management. As ShareAction has pointed out, it would also damage the UK’s reputation for protecting shareholder rights and the interests of both institutional and individual shareholders. My amendment would simply omit paragraph (b), so that ways can be found to allow shareholders to engage in dialogue and question their boards, as is already the case for US and European companies. I would also hope that, after these emergency measures expire, my noble friend might agree that there is a need to develop ways to modernise British AGMs to better reflect the era of modern stakeholder capitalism.
I now call the noble Earl, Lord Clancarty. No? I call the noble Lord, Lord Cormack.
My Lords, today’s proceedings have illustrated how impossible it is for a virtual or a hybrid House to hold the Government adequately to account. I ask those who arrange our proceedings to ensure that time is fairly and evenly distributed. We started with no time limits on speeches, and we are now having to gallop through a great many important issues.
I give my total support to what my noble friend Lady Anelay said on her Amendment 143. These charities include some of the most notable in the country, and many of them are connected with heritage and the arts, which is why I was anxious to give my support. It really is crucial, especially when the Bill has not had any real scrutiny in the other place, that adequate time is given to consider the vital points that have been made in this very wide-ranging group of amendments. I would like to go on at much greater length but, in deference to others, I will not. However, I repeat my strong support for my noble friend Lady Anelay.
I will now try the noble Earl, Lord Clancarty, again. No, that did not work, so we will go to the Minister, the noble Baroness, Lady Bloomfield.
Can I correct for the record something that I said on the previous amendments? The money that will take precedence from HMRC includes VAT held on behalf of customers, as well as national insurance contributions. What it does not include is things such as corporation tax.
I thank noble Lords for their amendments on a range of important issues in this group. I will try to cover them all, as well as the Committee’s questions, as best I can in the time available. I thank the noble Lord, Lord Stevenson, for highlighting the important matter of directors’ duties under the Companies Act. These duties continue to apply during the period in which personal liability for wrongful trading is suspended. The purpose of this provision is to remove the deterrent of personal liability at the point at which the directors of the company are deciding whether it should continue to trade at a time of great economic uncertainty. At this time, it is important that directors can be certain that their decision to trade on will not result in personal liability.
I reassure the noble Lord that those directors’ duties he refers to in his amendment will continue to operate, including the duty to protect the interests of creditors. I add that directors have legal responsibilities under wider company law; for example, to exercise independent judgment with reasonable care, skill and diligence. These duties will remain in place, as will measures in insolvency law to penalise directors who abuse their position. Therefore, directors will still face the threat of fraudulent trading, coupled with director disqualification from a compensation regime where their conduct merits it.
On Amendment 67, regarding the general power to amend insolvency law, I thank the noble Baroness, Lady Bowles, for raising the matter of ensuring that temporary amendments made using the general powers in Clauses 18 and 26 remain relevant and necessary while in effect and will be removed when they are not needed. Full consideration must be given to the impact of temporary amendments on anybody likely to be affected by them, not just small or medium-sized companies and unsecured creditors, and this consideration must be given before the powers are used. The amendments must then be proportionate to the purpose of making them, which must be one of the purposes set out in Clauses 19 and 27. This might be reducing the number of entities having to use corporate insolvency proceedings or mitigating the impact of Covid-19 on those processes. Further, the powers in Clauses 18 and 26 may not be used to create a provision to impose or increase a fee.
A temporary amendment which causes financial harm to small and medium-sized companies and unsecured creditors is unlikely to meet one of the purposes for which the powers in Clauses 18 and 26 may be used. Temporary amendments must remain under review. In the unfortunate circumstances where an amendment caused unforeseen and unintended harm, this would be addressed during the ongoing review process.
A number of noble Lords mentioned the Small Business Commissioner in relation to Amendment 75. The noble Lords, Lord Stevenson and Lord Mendelsohn, are right to highlight the office of the commissioner as a force for good in resolving payment issues for the smallest businesses which, as we know, are least able to weather the storm of cash flow issues. The Government are completely focused on their manifesto commitment to clamp down on late payment to small businesses. The SBC’s intervention in late-payment disputes has recovered over £7 million in late or unpaid invoices for small businesses since it was created, and its work has been especially important in light of the cash flow issues all sizes of businesses have been facing in the current Covid situation. I hope this also goes some way to addressing the concerns of the noble Lord, Lord Palmer.
We have already pledged to consult on extending the powers of the SBC and we will bring forward that consultation as soon as we are able. The consultation period and engagement with interested parties will bring forward ideas for the extension of scope and powers and will be given consideration. I hope that noble Lords will understand our desire to consult carefully before making important decisions such as this one.
I turn to Amendment 48 on the Financial Reporting Council, tabled by the noble Lord, Lord Stevenson. The Government are committed to strengthening the UK’s corporate governance and audit regime. We are drawing up plans to replace the Financial Reporting Council with a new regulator, as part of a wider programme of audit reform. This programme covers the recommendations of three independent reviews by Sir John Kingman, Sir Donald Brydon and the Competition and Markets Authority. The Government are therefore already considering many, if not all, the specific issues highlighted by this amendment. Our intention is to set out our proposals in the coming months, seeking views on them where the Government have not already done so. The noble Lord will be aware that this Bill takes forward some of the corporate governance reforms related to his amendment, such as a freestanding moratorium and a new restructuring tool.
We were asked why we were not reforming Companies House. The consultation on reform received a significant number of responses. An official government response will be published in due course. We are considering a broad package of reforms to Companies House, to ensure that it is fit for the future and continues to contribute to the UK’s business environment. The proposals amount to the most significant reform of the UK’s company registration framework since the companies register was first introduced in 1844 and it is important to take the time to get it right.
Amendment 80, in the name of the noble Baroness, Lady Bowles, covers the role of the Registrar of Companies. The Government agree that there is a case for introducing further checks to verify the identities of individuals setting up, managing or controlling corporate entities. Last year’s consultation proposed that those with a key role in companies should have their identity verified, and that Companies House should have greater powers to query and seek corroboration on information before it is entered on the register and to remove inaccurate information.
I turn to Amendment 143 in the name of my noble friend Lady Anelay. I will try to allay her concerns, and those of my noble friend Lord Cormack. There have been extensive discussions with DCMS and the Charity Commission, which have been involved in all the measures in the Bill. My noble friend will be aware that a small number of charities is incorporated and regulated by an Act of Parliament or by royal charter. In the limited time available it was not considered proportionate to extend the measures in Schedule 14 to the Bill to this small group of charities. Extending the relevant provisions to these groups of charities in a way that would be effective and avoid unintended consequences would be complex.
In cases where charities are not covered by the Bill’s flexibility on AGMs, the Charity Commission has indicated in its published guidance that it will take a pragmatic and proportionate approach where members’ meetings need to be postponed or held virtually in order to comply with social distancing, even where this may appear to be contrary to the rules of the charity’s governing document.
I am grateful to my noble friend Lady Altmann and the noble Baroness, Lady Bowles, for tabling an amendment on shareholder representation that draws attention to the flexibilities offered regarding meetings of companies and other qualifying bodies. Given that, at present, public health measures preclude mass gatherings, it is right that the Government should temporarily suspend certain members’ rights, the most fundamental being the right to attend a meeting in person. The measures on AGMs and other meetings enable them to be held in a way that is consistent with the coronavirus regulations and the Government guidelines on social distancing. The new measures will not prevent shareholders exercising their right to vote. They will still have the ability to vote by proxy where available.
To minimise the impact of not being able to attend, we expect companies to engage with shareholders ahead of and following meetings, including responding to shareholders’ questions that are sent in by electronic and other means. We have issued guidance to industry that bodies which seek to make use of the range of meeting flexibilities that the Bill provides should explore all alternative avenues to ensure that their members are able to participate in AGMs and other meetings to as great an extent as is reasonably practical.
I turn now to the final point made by the noble Baroness, Lady Bowles, on the Financial Reporting Council UK audit reform in response to the review by Sir John Kingman of the FRC, Sir Donald Brydon’s review of audit and the Competition and Markets Authority’s study of competition in the statutory audit market. The Government have committed to bringing forward proposals for reform, including legislation to establish a new regulator in place of the FRC.
I would like to thank noble Lords for their insightful contributions. I have sought to offer reassurances regarding each of the issues raised, albeit in brevity given the range of issues in this group. I hope that the noble Lord will feel able to withdraw his amendment.
Could I ask the Deputy Chairman of Committees how long we have?
If the Government Chief Whip would like to make a short statement, he can at this point.
We will finish this group and then we will have to do the remaining group as first business tomorrow.
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Lords ChamberTo ask Her Majesty’s Government what steps they are taking to address short-selling on financial markets of shares in companies based in the United Kingdom impacted by the COVID-19 pandemic.
My Lords, short selling is a legitimate investment technique that contributes to orderly and open markets, supporting many consumers. As the recent Financial Conduct Authority statement makes clear, short selling is not responsible for recent market falls, and there has been a decrease in its activity in recent days. We continue to monitor activity in UK markets. It is our view that there should be a high bar for the FCA to impose a short-selling ban.
I thank my noble friend for that Answer and personally thank him for all that he and his department are doing at this time to support British business. However, can he understand the anger and concern felt by many? At a time when the British Government and British taxpayer are mounting an unprecedented collective national effort to stand together with businesses and save jobs, a small number of hedge funds are cashing in on the crisis by short selling stock in struggling businesses, pulling the financial rug from under their feet and those of their employees, and betting on the British Government and taxpayer to pick up the pieces. Can my noble friend confirm that short selling positions have tripled in London over the past week? Will he make it clear to those hedge funds that their actions may at present be legal but are far from moral at this time? Will he echo calls from the Governor of the Bank of England, Andrew Bailey, for those responsible to stop, and if they do not, will he urge the regulator to use the existing powers to ban the practice for the duration of the crisis, as other jurisdictions have done?
I thank my noble friend for his comments but taking short and long positions allows for the hedging of risks, and short selling can therefore benefit a wide range of investors, not just hedge funds, by helping them to manage the risk in their portfolios, particularly when the market is volatile. Many of these investors are ordinary investors, including pension funds for employees of companies and local government. However, I understand my noble friend’s point, and the regulators are closely monitoring activity. I cannot comment on the figures that he quoted about the extent of short selling in recent days but overall, the FCA’s reporting data shows that aggregate net short selling activity reported to the FCA is low as a percentage of total market activity and has in fact decreased over successive recent days.
(5 years, 1 month ago)
Lords ChamberMy Lords, I thank the noble Lord, Lord Mawson, for giving me this opportunity to celebrate this momentous anniversary of human achievement. As Buzz Aldrin climbed the steps of the lunar landing module for the last time, Neil Armstrong reminded him of one item in his shoulder pocket that he was meant to leave behind. It was an ultra-microfiche inside an aluminium case inscribed simply “From Planet Earth”. He dropped it from the steps. The microfiche that floated slowly down to the moon’s surface contained goodwill messages from 73 world leaders, including Indira Gandhi, Pope Paul VI, Chiang Kai-shek, President Tito, Haile Selassie and the only surviving signatory, Her Majesty Queen Elizabeth II. Over the weekend, I had the opportunity to read these: they were optimistic in tone and had two great themes. The first was a desire for peace; and the other was the hope that this great human scientific advance may hold the key to improving life here on earth.
It is important to remember the context of 1969. We were at the height of the Cold War and the Vietnam War. It was a time of great power tensions, not unlike our own. Notwithstanding this division, the writers of those messages believed that the search of the heavens had the capacity to draw us closer together on earth. The moon and space were not a resource to be exploited but a frontier to be explored. The boundaries to be expanded were of human knowledge and understanding, not of nation states. This sentiment was captured in the lunar plaque for the Apollo 11, which remains on the surface of the moon and states:
“WE CAME IN PEACE FOR ALL MANKIND”.
This is also expressed clearly in Article 1 of the Outer Space Treaty of 1967, signed by 103 countries, and which the UK played a leading role in securing. Article 1 states that exploration,
“shall be carried out for the benefit and interests of all countries ... and shall be the province of all mankind”.
It may be that this momentous anniversary offers us an opportunity to revisit that treaty and reaffirm our commitment to its precepts. As we celebrate the Apollo 11 mission, we might pause and reflect what we may be in danger of leaving something behind: a belief that, whatever our differences, we are all human first and that we are privileged to share the most extraordinarily beautiful home in the known universe, which it falls to us in this generation to cherish and improve for the benefit of the next.