Small Business, Enterprise and Employment Bill

Debate between Lord Leigh of Hurley and Lord Phillips of Sudbury

Monday 19th January 2015 Grand Committee

[Lord Phillips of Sudbury]

My Lords, I reiterate what the noble Lord, Lord Mitchell, has said. I spent the best part of my very long legal career acting for small businesses and start-ups, and nobody could be more in favour of them from virtually every point of view. However, we absolutely cannot leave a gap through which coaches and horses will ride with impunity. I am sure that the noble Lord, Lord Flight, does not need reminding of the fact that shell companies are a vehicle of choice for huge fraud. It is reckoned now internationally that fraud amounts to £27 trillion to £35 trillion, while our own fraud figures are rising at a startling rate. The amount of tax evasion—I shall not use the word “avoidance”, because it is discredited—is staggering and rising exponentially. The principal vehicle by which fraud, evasion, irresponsibility and immorality are effected in our country is the shell company. I am sure that I do not need to tell your Lordships that Barclays, I think it was the year before last, paid some derisory proportion of tax on its profits by using over 100 shell companies, in a huge chain, switching through virtually every tax haven on the globe.

If there is one thing that we really must do, and which I believe everybody in this House is determined to try to do, it is to prevent the evasion of the intention of us as legislators over a whole raft of measures—particularly tax but not by any means confined to tax. At present, because of such companies largely using the considerable wits of thousands of lawyers and accountants in the City, with the aid of the tax havens throughout the globe that sit with open mouths looking for funds to pass through them, we are in a parlous state. The highly beneficent intention of this legislation is to do something about that, and I hope that we will not be engaged in yet another legislative self-delusion, of which I have sat through so many. I hope that the noble Lord, Lord Flight, does not misunderstand me—I totally go with his basic proposition—but we cannot leave this Bill in a state that facilitates the very thing that all of us are determined to try to deal with.

Even if we got the legislation right, for us to rely on the proper implementation of the law that leaves this place would be another self-delusion. Our implementation agencies are so terribly underresourced that it is not David and Goliath in this country—it is so often David without his sling and Goliath. To my mind that means that, when we are in doubt, we should screw the template tighter to the intention that we have for this legislation. I am afraid that that leads me to be unhappy with the amendment.

[Lord Leigh of Hurley (Con)]

My Lords, I draw your Lordships’ attention to my entry in the register of interests, which includes directorship and ownership of a number of small companies within the thresholds.

I agree with the noble Lord, Lord Phillips, that the measure’s intention is clear and its purpose very noble and needed. However, like the noble Lord, Lord Mitchell, I am keen to ensure that bureaucracy on small companies and SMEs is minimised. The case of a national bank, which I shall not append by name because I am sure that there are many others, using lots of subsidiary companies to avoid tax, is not caught here, because a subsidiary company would not be a small company.

My concern is the small family company where, perhaps by the second or third generation, there are multifarious ownerships, possibly through a trust or directly. Indeed, the Institute of Chartered Accountants in England and Wales, of which I am a fellow, helped clarify my thinking by giving the example of a number of family members who own a company but one of them habitually votes in accordance with the directions of his or her spouse. In such a case, would the spouse be a significant controller and what lengths would the company need to go to so as to establish that? This is just an extra layer of complication and administration that our SME companies should not have to face.

[Lord Phillips of Sudbury]

Is the noble Lord sure of what he just said? He said that a subsidiary company in a chain of subsidiaries would not be a small company. I would want to be absolutely certain of that. My impression is rather the reverse: if it has minimal paid-up capital, as indeed it could, how would it be caught?

[Lord Leigh of Hurley]

As I understand it, if it is a subsidiary of a much larger company then it is not a small company as defined in the Companies Act. I stand to be corrected but that is how I understand it.

--- Later in debate ---

[Lord Phillips of Sudbury]

My Lords, my name is on two of these amendments, Amendments 44 and 47. My noble friend Lord Watson has introduced them very fully, but I would like to add a few further points. As a first general point, some have commented—the noble Lord who has just spoken made the point that this is imposing a huge liability on limited companies—and asked why any member of the public should have access to the information on this register. The answer is simple but has not been referred to. Too often we overlook the fact that limited liability is an entirely state-provided privilege—and what a privilege it is. It protects those who own companies from the normal results of one’s own lack of success and, in some respects, even worse. Major conditions must surely be attached to the enjoyment of such a privilege. I believe that the Government are correct in the general purport of the provisions that we are now talking about. However, the way in which they have been constructed and, indeed, some of the drafting, leave a lot to be desired. I support some of the proposals made by my noble friend Lord Flight and the noble Lord, Lord Leigh of Hurley.

I want to concentrate on new Section 790O, from which Amendment 44 would remove the last lines. That removal is justified on the grounds that what is required by this subsection is unrealistic and, I would say, impractical. How does one provide information about the future which may not be in one’s control? I refer to new Section 790O(4)(d), which says that where a member of the public requests access to the company’s PSC register to see what is in it, they must say with that application,

“whether the information will be disclosed to any other person”.

How on earth can one do that? One could say, “I want it for this and that reason”, but one cannot tell whether in future it will be disclosed by someone else, or if one would want to disclose it for a purpose as yet unknown to a person as yet unknown.

It then it goes on to say that in making the application for access to the PSC register, one must give,

“the purpose for which the information is to be used by”,

any person to whom it is disclosed. Again, that is not realistic. For those reasons alone, it is entirely right that this part of the section be removed, as the amendment requests. There may be some residual need for something that is currently within that subsection and my noble friend the Minister may want to highlight that. Indeed, a lot of what we say today needs reflection and it may be that she will come back on Report and say, “Okay, we will remove sub-paragraphs (i) and (iii) but we need sub-paragraph (ii) and something else”.

Then, new Section 790P(3) says:

“If on an application under this section the court is satisfied that the inspection or copy is not sought for a proper purpose”—

without defining “proper purpose”, which is not good enough. These are important provisions. There are remedies and consequences for not complying with the law. Not to have a definition of a “proper purpose” must be wrong. Having said that, I am not entirely happy with the definition provided by my noble friends Lord Flight and Lord Leigh of Hurley, but I will not detain the Committee any longer. I just confine myself to those points. However, the drafting of this whole area of the Bill is extraordinarily opaque in places and lacking in proper clarity. I am concerned at the bureaucratic effects of some provisions while strongly in favour of the general purport of the Government in producing this part of the Bill.

[Lord Leigh of Hurley]

My Lords, I just make the point that this amendment is not in my name, as was previously suggested, although I rather wish it was. I thank my noble friend Lord Flight for that back-handed compliment.

It is worth recalling that the PSC register in the UK in fact relies on self-reporting information that is not subject to independent verification. My noble friend the Minister indicated that it will be accurate because it is public but I struggle to rationalise that. The important point is that it is not subject to independent verification and, as my noble friend Lord Flight mentioned, that does not comply with Financial Action Task Force recommendations 24 and 25. None the less, that is the chosen route of Her Majesty’s Government and one has to consider the ramifications of allowing full public access to this unverified data. It means that people will take as read information supplied by companies, which of course could be completely incorrect, and they will assume that, as it is on an official register, it has validation when it is not the case. While recognising that tax and law authorities must and should—