Small Business, Enterprise and Employment Bill

Debate between Lord Mitchell and Lord Phillips of Sudbury

Monday 19th January 2015 Grand Committee

[Lord Mitchell (Lab)]

My Lords, as a champion of small companies half of me has a lot of sympathy with this amendment but the other half is worried. We define a small company as one that has a turnover of less than £6.5 million, a balance sheet of less than £3.26 million and fewer than 50 employees. The questions that have been raised today are: what is to prevent such companies from getting up to the activities we are seeking to prevent, and is size really the sole determinant of illegal activities? Maybe we should have a definition of a micro-company—a small, start-up company that has criteria much below the numbers I have given. We need to keep bureaucracy and red tape out of it, but it is quite clear that in the right hands a coach and horses can be driven through this and we need to have some degree of protection.

[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.

--- Later in debate ---

[Lord Phillips of Sudbury]

My Lords, my name is on the amendments in this group, but I shall speak, if I may, to Amendment 37A in particular.

Amendment 37A defines “intermediaries”, which is the term used in Amendments 39, 41 and 43. As defined in Amendment 37A, “intermediaries” would catch, I think and hope, all the links in the chain of shell companies—as they usually are—that enable a fraudulent scheme to be effected. It may well be that the drafting of Amendment 37A is defective because, as I think we all know only too well, the combination of the details of the amendments in relation to this Bill and in relation to the Acts of Parliament that the Bill amends is pretty hair-raising even for a lawyer. Therefore, I apologise in advance if the Minister guns me down on the wording of Amendment 37A, but the purport of it is clear enough and I am convinced that it should be there.

It is no good allowing the many devices utilised by the people and corporations that use the very lax system of international control now prevailing, so we are trying here to do something really effective. I pay tribute to my noble friend the Minister and the Government for grappling with these issues at all, because, as the noble Lord, Lord Watson of Invergowrie, said, we are the first to try to get a grip on this. We all realise that we cannot effectively get a grip of the problem on our own, but at least we are in the field and showing our mettle. As the noble Lord, Lord Watson, mentioned, initiatives are being taken in consultation with some of these tax havens, but it is not a very happy tale: only one decision has been taken so far, by the Cayman Islands, which is to have nothing to do with all of this. I have a terrible suspicion that the others may come back with a similar response, because it is their bread and butter to be the handmaids of the world’s great fraudsters and shysters. But we are doing our best, and I hope that Amendment 37A will commend itself.

I will make just one more short point, on Amendment 37. As the noble Lord, Lord Watson, said, when a similar amendment was discussed in the other place, the Minister there said that the Bill includes a new power, amending the Companies Act, that will allow amendment of the frequency of the provision of the information, which is currently annual. Amendment 37 would allow ad-hoc inspections, so it would allow the person having the authority to make a lightning swoop, if you like, on the company or person concerned in order to extract up-to-date, current information on what they are up to. As I understand what the Minister in the other place said, it is not enough simply to have a general power to amend the timing of all this; we need an ad-hoc power to move against particular individual companies at any time. That would be one of the effects of Amendment 37.

[Lord Mitchell]

My Lords, I rise to speak to Amendment 37, to which I have put my name. I pay tribute to my noble friend Lord Watson of Invergowrie for the work he has done in this area and for that very clear exposition of the relevant issues. He has made the important points, so I shall try not to repeat what he said.

Amendment 37 would give the Secretary of State power to make regulations ensuring that the PSC register is current and accurate. My noble friend Lord Watson explained the importance of that, but I shall echo his arguments. It is vital that the register be up to date if it is to do the job we expect of it and shine a light on some of the murkier examples of using anonymous shell companies to obscure the true ownership of an asset. I believe the Government see the register as providing something of a snapshot of the beneficial owners of a company, but in this day and age where technology has made instant communication the norm, rather than the exception, there is no reason why the PSC should not be kept up to date.

In this context, it is worth considering the evidence put before the Committee in the other place by the Institute of Directors, which said that the PSC,

“will be updated once a year and a fair number of people said in our consultations, ‘It’s going to be out of date within minutes of being published.’”—[Official Report, Commons, Small Business, Enterprise and Employment Bill Committee, 14/10/14; col. 19]

In your Lordships’ House there is an obligation on each of us to maintain our register of interests, which is not allowed to be more than one month out of date. Why should companies have an annual requirement? It simply does not make sense in this electronic age. In their response to the consultation, the Government said that they will continue to work through the principle that information will be provided to the central registry to ensure that there are no loopholes or unintended consequences. My concern is that this could be a loophole, so I would like the Minister to address it.

My second point is about accountability. As my noble friend Lord Watson said, this amendment requires the Secretary of State to ensure that the right regulations are in place so that what is on the PSC register is accurate and complete. Parliament will be able to scrutinise these regulations to check that they are capable of delivering an accurate register.

I shall pick up a remaining point from the debate about this group, and I hope the Minister will be able to put our minds at rest. Too little progress has been made in encouraging Overseas Territories and Crown dependencies to have public registers. If we return to the original Lough Erne agreement, it is clear that making progress on this issue is an integral part of fulfilling its spirit. I hope the Minister can update us on whether the Government will consider making such registers obligatory.