Small Business, Enterprise and Employment Bill

Lord Forsyth of Drumlean Excerpts

Monday 9th March 2015 Lords Chamber

[Lord Forsyth of Drumlean (Con)]

My Lords, I am most grateful to my noble friend for giving way. I confess that I have not followed these proceedings at earlier stages of the Bill and perhaps he can help me out. He is describing a very undesirable situation. However, as these provisions apply only to companies which are registered at Companies House, why will the criminals and bad guys not operate in other jurisdictions, and how is adding so much cost and burden to honest small businesses justified in that context?

[Lord Phillips of Sudbury]

I think that we need a short debate to answer the question that my noble friend poses. However, I think that the general feeling is that small companies will not be hurt by these provisions. It is these extraordinarily obtuse long chains of shell companies, sometimes in as many as 13, 14 or 15 tax havens, that are the object of this exercise.

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[Lord Phillips of Sudbury]

I have a huge amount of sympathy with the noble Lord pointing out the hypercomplexity of this. I can only say to him—I must also put it in the context of having worked in this field for more than 50 years and having been a non-executive director of more than 15 SME companies—that I do not think there is any real prospect of an innocent SME going about its business falling foul, let alone criminally foul, of this law. However, I accept that the whole Bill is of near barbaric complexity and I do not know how we get round that. I am afraid that the price for the scandalous intentional misbehaviour of large and some small entities is invariably paid by the innocent.

Perhaps I may try to return to my story. As I said, there is a real demoralisation particularly of the business world but also of our whole society which we need to take intense notice of. We are at a tipping point in terms of the common good. The publicity of some of these awful cases is universal now, so that more and more of the richest people and companies, in terms of the money they have, are seen to be getting away with murder—as the man in the street would call it—in terms of paying tax. That is totally antipathetic to the good and fair society that we seek to create and help in this House. It is a total denial of fairness and duty.

These provisions are very modest but will enable the authorities, in particular the tax and fraud authorities, to grapple with some of these very expensively advised entities and the chains that they establish around the tax havens of the world, without one arm being tied behind their back. We all know that the authorities are ludicrously understaffed in comparison with the private sector—I am talking about the irresponsible part of the private sector—although that is another issue which has to be dealt with another day. I hope that my noble friend will be able to reassure the House that this will not be yet another statute that lies gathering dust on the shelves of Whitehall, but that there will be a practical and rigorous enforcement of the provisions inserted here.

Finally, without the limited transparency that is afforded by Amendments 36, 37 and 38, the authorities will not be able to get at the malefactors any more than they have thus far. I think I am right in saying that not a single bank director has been prosecuted since the collapse of 2008, during which period tens of thousands of our fellow countrymen and women have been prosecuted before magistrates’ courts. We must stop that, as it is profoundly demoralising for this country. We must give the authorities the tools to do their hugely difficult job. The fact that we are the first country to introduce a PSC register is something that the Government should be congratulated on. I commend the Prime Minister, because it is not easy in his party to say some of the things that he has said. The noble Lord, Lord Watson of Invergowrie, mentioned one of those things, but I particularly like what he said to the G8 in 2013. The point he made and the language he made it in were absolutely right. The Prime Minister said that,

“companies should know who really owns them, and tax collectors and law enforcers should be able to obtain this information easily”—

for example, through central registries—

“so people can’t avoid taxes by using complicated and fake structures”.

Bang on. All this series of amendments does is lend a few practical teeth to that sentiment. I hope that this commends itself to the House and the Government.

[Lord Forsyth of Drumlean]

My Lords, I will speak briefly against this amendment. Of course, no one could dispute the intention behind it. If the intention is to stop criminal activities and tax evasion—and I make a distinction between tax avoidance and tax evasion; when we are talking about criminal activities, we are talking about tax evasion—no one could dispute it. However, it rather seems like a sledgehammer to crack a nut, or perhaps a sledgehammer aimed in the wrong places. The impact assessment undertaken by the Department for Business, Innovation and Skills of the proposals as they already stand says that almost £1 billion will be added to the costs of small businesses, which the noble Lord, Lord Phillips, tells us is not really significant. I wager to suggest—

[Lord Phillips of Sudbury]

I am grateful to the noble Lord for giving way. I do not think that he will find in that impact assessment any attempt to assess the cost of the amendments that we are talking about in this group. I will leave it at that.

[Lord Forsyth of Drumlean]

The noble Lord is absolutely right, because this is not the Government’s proposal—which is why I am against his amendment. He said in his speech that it would not be very much extra without actually telling us how much extra it would be. We already have £1 billion being added to the costs of small and medium-sized businesses at a time of great stress in our economy and when we are desperate for them to grow and create wealth. Yet here we are asking people running small businesses to fill in forms, and if they fill them in inaccurately, they will find themselves committing a criminal office.

[Lord Phillips of Sudbury]

I am most grateful to the noble Lord for giving way a second time, and I promise not to intervene again—but that is not so. He should take account of the fact that if we were to recover even 20% more of the tax that currently is not paid but should be, many billions of pounds will redound to the benefit of SMEs as well as of everyone else.

[Lord Forsyth of Drumlean]

I am not sure which bit the noble Lord was saying was not so. He may very well be right in his assertion—although I doubt it—that the Government will collect more money, but that does not help the small business man who is faced with these additional costs, for whom there is no benefit whatever. They already struggle to fill in their VAT forms and their surveys on this, that and the other while trying to run their businesses. This would add a very significant burden.

[Lord Naseby]

My Lords—

[Lord Popat]

My Lords, this is Report and we prefer not to take further interventions.

[Lord Forsyth of Drumlean]

I believe that interventions seeking information are allowed once on Report, so I will give way to my noble friend.

[Lord Naseby]

My noble friend might mention the cost of business rates, which are a huge burden to every business in this country. Business rates are going up by 2%—and what is the rate of inflation? Under 1%.

[Lord Forsyth of Drumlean]

Indeed, but my noble friend must not tempt me to get away from the amendment and from this Bill. When it comes to compliance costs, the Government are going to have to find £109,000 just for,

“the IT development of the registry and communication to industry”.

My experience of government IT programmes is that they usually cost considerably more than estimated. Then we have £220,000 for ongoing maintenance. In addition, it is stated:

“Costs to businesses are estimated to be £417.4m set up cost, and £77.7m pa”.

This is a country that is not able to meet its expenses and these are businesses which, certainly outside London, are under severe stress.

My noble friend and the noble Lord argue that we need to add further to the burden put on these businesses to deal with the problem of international tax evasion by large companies around the world. I intervened to ask him how—even assuming that everything that he claims for his system works once it is up and running in Britain and we have spent the £1 billion—it would help prevent the crooks and people who wish to behave in this way operating out of a different jurisdiction. Surely, the only way this Utopian view of how to tackle the issue will be achieved is if every country does this, but I do not see any evidence of other countries rushing to implement this legislation. As far as I am aware, there is no great programme to do this among the other countries that were at the G8, so all we would be doing is hobbling honest, hard-working small businesses in this country to deal with a problem that needs—

[Lord Watson of Invergowrie]

I am grateful to the noble Lord for giving way. I always listen to the noble Lord, Lord Forsyth, carefully. He always makes very considered contributions to the House, although I may not agree with him very often. This is one of those occasions. I regret that he seems to be making a speech that should have been made three months or so ago at Second Reading, because he is not arguing specifically against the amendments that I have put down; he is arguing against this section of the Bill in its entirety. I accept that he is perfectly entitled to do that, but these arguments have already been given a considerable airing.

I just would draw his attention to the amendments, which say, “where the control”—that is, the control of a company—

“is exercised through a chain of legal entities”.

That will not impact on many small and medium-sized enterprises. This is for large, complex organisations, which is why I mentioned the figure of some 2% that it has been estimated would be affected. The other companies will have to say who their person of significant control is anyway, whatever the size of the company. In most cases, it will be the chief executive. This part of the Bill will not be a burden to any significant extent on smaller companies. The bigger companies, which have an international dimension and therefore will have a complex structure, are those that we are trying to catch with these amendments. It is not in any sense about companies based in the UK that have no ownership outside the UK.

[Lord Forsyth of Drumlean]

My response to that is that it is a fair cop. He is absolutely right that I should have made this speech three months ago. I had no idea, along with, I suspect, 99.99% of the country, that this measure was included in this Bill. I had not read about a desire to set up a register, adding £1 billion to the cost, in any newspaper or seen any great debate about it. Perhaps I have been a little remiss. It is perfectly true that the occasion of this amendment has given me an opportunity to draw attention to the considerable cost involved, which I appreciate was argued at an earlier stage of the Bill.

However, in his speech, the noble Lord argued that the Minister had argued at an earlier stage of the proceedings that she could not accept his amendment because it would add to the costs on small business. I support my noble friend in arguing that we should not add to the costs on small businesses. Therefore, I think I am in order in arguing against this amendment because, as the noble Lord said, it was an issue at an earlier stage.

I apologise to the House that I was not involved at an earlier stage but when one of my noble friends pointed out to me what was in the Bill, I could not believe it. I looked up the Government’s assessment of compliance costs. Certainly, when I was in government, as the noble Lord will remember, impact assessments invariably turned out to be less than what they were. Even at this late stage, I hope that, in rejecting these amendments, my noble friend will think very carefully about introducing this measure at this time of great stress.

I could understand it if all the other G8 countries had their legislation in place; then I could see how it could work. The noble Lord is not addressing my main point; namely, that if we are concerned about people setting up shell companies to hide where their interests lie, passing this legislation will not deal with that problem because people will operate outside other countries. I made a speech the other day which upset Amazon and I received a letter from its public affairs person. I said that Amazon did not pay business rates and corporation tax in the same way as ordinary retail outlets. She pointed out that Amazon pays business rates on its distribution centres. I wrote back and said, “But you haven’t dealt with the point about corporation tax”. We understand that one of the reasons that Luxembourg will meet the quota on overseas aid is because it is based on gross national income, which includes revenues that really should have been in other countries. Therefore, although the amount that it is spending on overseas aid is tiny, it appears to meet the target because of the number of companies that use Luxembourg in that way. If the Government wish to recover the tax that my noble friend is concerned about, the answer is to pass the necessary legislation in the Finance Bill. It is not to ask hard-working people up and down this country to burn the midnight oil filling in registers of the kind proposed, nor to complicate the statute book.

I cannot believe this Bill, which is dealing with small business. It is pages and pages of stuff. The Explanatory Notes would take a whole evening to read. It seems to me that this amendment and the provisions in the Bill relating to the register drive a coach and horses through the Government’s declared policy of reducing the burdens on business and allowing it to concentrate on wealth creation.

[Baroness Neville-Rolfe]

I am grateful to the noble Lord, Lord Watson, and my noble friend Lord Phillips for these amendments. I thank my noble friends Lord Forsyth and Lord Naseby for reminding us of the needs of small business, many of which will of course be caught by the Bill at a substantial cost, but it will be over 10 years. It has been properly costed in an impact assessment, which has been available for some months. Of course, businesses would have to deal with any additional requirements, as my noble friend has made clear, if we were to impose them. I should equally say that the benefits of the register have the potential to be substantial, whether as a result of improved efficacy of investigations and outcomes where companies are being used to facilitate serious criminal activity, or to businesses as a result of their operation in a more open and trusted environment. As my noble friend Lord Phillips said, this is a cause in favour of transparency and against corruption that the Prime Minister has led.

However, the group of amendments raises important questions about the information in the register of people with significant control and the integrity and accuracy of those data. I turn first to Amendments 36, 37 and 38, which would require details of every company in the ownership chain to be entered in the PSC register. The PSC register is a ground-breaking change and the UK is leading by example. The register will contain information on the individuals who ultimately control UK companies, including how that control is held. I do not think my noble friend was in the House earlier when I ran through some of the international efforts that have been going on and reported on the progress of the money laundering directive. However, I did not deal with the overseas territories and Crown dependencies, which were raised by my noble friend Lord Phillips. We are working closely with the overseas territories and Crown dependencies and are keeping them informed as the UK policy on corporate transparency develops. This will help to feed into their thinking. We believe that they have made significant progress on tax transparency and they have publicly committed to transparency of company ownership. Arguably, more has been achieved in the past year than over the past 10 years.

Some noble Lords and business groups feel that we have gone too far, in particular by making the register publicly available when this is not currently a global requirement. They fear that reform will impose unnecessary costs on business and have an adverse impact on UK competitiveness. These amendments seek to go further. They would require information not only on those individuals but on every legal entity in the ownership chain. The question we have to ask is whether this goes too far. Such an approach is not required by international standards, by the likely EU requirements shortly to be adopted in the fourth money laundering directive or by our G7 or G20 commitments. Nor is it something—this is significant—that the law enforcement community, including HMRC, has called for.

The amendments would add to the already substantial compliance costs. Companies must update their own registers as changes occur. Companies keeping their own registers would have even more information to obtain and keep up to date, plus the compliance cost of notifying every change in every layer of a chain. Companies owning other companies would have to work out if and when they need to report information. These amendments could also adversely impact the utility of the register. More data do not necessarily lead to more transparency. If the amendment were adopted, the very information we want to reveal may be buried under a mass of less relevant data. What matters is who ultimately exercises control, which, subject to the will of Parliament, from next year will be on the public record and not just available to law enforcement agencies. However, I recognise that this is an issue that some noble Lords feel strongly about.

Clause 82 already requires us to undertake a statutory review of the PSC within three years of the requirements coming into force. That review will provide an opportunity to look at the range of issues raised by noble Lords on all sides of the House. I am prepared expressly to consider looking at the question of the ownership chain in the context of that review.

I now turn to Amendment 53. Let me start by making clear that I am absolutely committed to ensuring the integrity and accuracy of information on the public register. I am satisfied that our current approach achieves this. It is based on a combination of pre- and post-registration checks, criminal penalties and public scrutiny. We are looking at what more we can do and have started with the creation of a new register integrity team at Companies House. The team undertakes compliance activities to help companies, ensuring that they are fulfilling their filing responsibilities, and data analysis to identify where specific activities can improve the integrity of the register. The Government already have powers of investigation that allow them, for example, to require the production of documents. Moreover, as the register will be public, transparency will be a driver of accuracy.

Amendment 53 calls for the Secretary of State to lay an annual report before Parliament on measures taken to ensure that PSC data are verified and accurate. A clear requirement on the register to verify every piece of PSC information would not be proportionate. However, I know that this is not what my noble friends have in mind. They want assurance that our proactive approach to ensuring data accuracy will continue. The Government fully support that objective. I do not, however, think that an additional bespoke report is the way to achieve that. The Bill requires the Secretary of State to review whether the register’s objectives have been achieved within three years of its implementation. The accuracy of the information will be a key part of the review as well as all other relevant issues, such as whether additional information on the ownership chain should be recorded.

I can also commit today to ensuring that, in future, Companies House will make explicit reference to activities undertaken to ensure the integrity and accuracy of information on the register in its annual report, which is, of course, presented to Parliament every year.

[Lord Forsyth of Drumlean]

Given the size and scope of the register, can my noble friend say how exactly Companies House will do that, how many people they will need to employ to achieve that objective and what the likely cost will be?

[Baroness Neville-Rolfe]

My Lords, the point I was making about reporting is that we would extend the annual report, in any event, so that it covered this new function, which is sensible, and in that context we would obviously look at data and other relevant issues.

The noble Lord asked about the scale of staffing required. I may be able to give him a response if I can make a bit of progress. My normal port of call would be the compliance cost assessment. The answer is that we are going to do this within the existing budget but in co-operation with other enforcement agencies. I have been to see Companies House during the course of swotting up for the Bill and I am impressed by it. It is bringing a more modern approach to the way in which it does things. It has been aware for some time that it is going to be given this new burden and it is ready and willing to pursue it.

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I hope that I have dealt with the key points that have been raised in debate.

[Lord Forsyth of Drumlean]

I apologise for being somewhat behind the curve, but I was trying to think of an example of what a legitimate purpose is. If, for example, a person wanted to get this information in order to compile the Sunday Times rich list, that would be legitimate if it was made clear that that was why they were seeking the information, but if they asked for the information for another reason and then used it or passed it on to a journalist, they could be sent to prison for two years. Is that what the Minister was saying?

[Baroness Neville-Rolfe]

My Lords, on the face of it, the first part of the noble Lord’s presumption is correct, but I think that I will take the time to reflect on it further and write to him, because I certainly would not want to mislead the House on such an important point. There are safeguards, but it is also a public register.

I should perhaps answer the question asked by my noble friend Lord Borwick, about the number of threats that individuals receive in the context of the review. I hope that it will reassure him when I say that I intend to look widely at those issues, as I have already said. As he probably knows, threat levels are not directly within my department’s remit, but I certainly intend that the review should consider the impact and efficacy of the protection regime as a whole.

I hope that, in view of the various reassurances that I have given, my noble friend Lord Flight will feel able to withdraw his amendment.