Small Business, Enterprise and Employment Bill

Debate between Lord Phillips of Sudbury and Lord Flight

Monday 9th March 2015 Lords Chamber

[Lord Phillips of Sudbury]

I would not deny for a minute that they know better than the description the noble Lord gave of me. I just repeat that I do not think it will seriously inhibit the small or medium-sized company that operates in a straightforward fashion in this country. I am confident of that.

[Lord Flight (Con)]

My Lords, we touched on this previously. Four million small companies are going to be affected, and if any of them does not obey the law, it will be committing a criminal offence. How is a small entrepreneur with a plumbing business up in Norfolk going to even know that this law exists and that he needs to comply with it?

[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.

Small Business, Enterprise and Employment Bill

Debate between Lord Phillips of Sudbury and Lord Flight

Monday 19th January 2015 Grand Committee

[Lord Flight (Con)]

My Lords, I declare my interests as set out in the register.

At Second Reading, I expressed some unhappiness and concern about the compulsory public register provisions. One of my main objections is to the inclusion of, and the impact on, small companies. Generally, I think that it is a wonderful thing that this country has had an explosion in entrepreneurship over the past five years, the likes of which I have not seen in my lifetime, with lots of young people happily getting on with setting up their own businesses—and, as I have said before, that is not just confined to London and the south-east. One of several reasons for that is that, compared to other countries, the Government have made it relatively easy to set up your own business: forming a company is extremely easy; the nature of the financial accounting returns has been made simpler for small businesses; and, whereas there are major hurdles in setting up a new SME in, for example, Italy, in this country it is pretty straightforward. That has been a huge success.

Prima facie, I am not happy with additional regulatory burdens, particularly on small businesses, unless they add some clear advantage. Here I cannot see that a small business, as defined in the Companies Act 2006, will have the resources to be engaged in terrorist funding, nor do I see much prospect for at least material avoidance or for a security risk. Therefore, my Amendment 37A calls for the exclusion of small companies as defined in the Companies Act from the application of compulsory public registers. One of my concerns is that there are huge numbers of new small companies—1 million last year, I think, and nearly 2 million over the past two and a half years—and they are almost invariably run and controlled by the entrepreneur who set them up, so he will almost certainly fall into the category of having control through owning 25% or more of the company. I think it extremely unlikely that small businesses will know about this legislation, as it is pretty unlikely that they will be employing lawyers who could warn them about it, so I also see the danger that large numbers of entrepreneurs will quite innocently not keep this register and thereby commit a criminal office. I do not think that any Members of this Committee would want to see entrepreneurs prosecuted for the criminal offence of not keeping their public register.

I believe that this is an unnecessary piece of additional bureaucracy on small businesses. I believe that it will be substantially ignored out of ignorance of the requirements. I really do not see that there is any need to include small businesses within the public registers legislation.

[Lord Phillips of Sudbury (LD)]

Can the noble Lord assure the Committee that taking small businesses out, as he requires under this amendment, will not take out shell companies, which are the major tool by which major international and, indeed, national frauds are effected?

[Lord Flight]

It depends on whether a shell company falls within the Companies Act definition, so it will depend on what funds there are—what the shell company is capitalised at—and the other issues in the Companies Act that determine what is a small business. There is not necessarily a black-and-white answer, but I would have thought that if the Government graciously accepted my amendment they could add to it significantly by carving out that shell companies are not excluded.

Financial Services (Banking Reform) Bill

Debate between Lord Phillips of Sudbury and Lord Flight

Tuesday 26th November 2013 Lords Chamber

[Lord Phillips of Sudbury]

My Lords, I support Amendments 21 and 51 as strongly as I can. We all know that the vast majority of people in the City of London and other financial centres are decent people who try to do good rather than bad, but the system of which they are part has been largely stripped of its ethical underpinning. Although you cannot inculcate morality by statute law, you can at least provide support for the forces of good and truth in dealing.

These two amendments are the very minimum required. I wonder whether the wording of Amendment 51, which refers to “rules of conduct”, is ideal. As a lawyer, whenever I see the word “rules”, I slightly draw back, because lawyers spend their time avoiding rules on behalf of their clients.

I would have hoped, and still hope, that if either or both these amendments were incorporated into the Bill, they would be construed in a wide way. There is no shadow of doubt but that too many people arrive in positions of responsibility without regard to these rules. As the most reverend Primate said, you can have a junior dealer who can cause devastating damage to a bank or other firm. So I hope that the Government accept these amendments or agree to come back at Third Reading with something comparable, bearing in mind the astonishing fact that the vast majority of our business schools have no ethical component in their curriculum at all. I do not think that 10% of them do anything in terms of ethics. If anyone says to me that it is a waste of time and a lot of hot air, they need only glance back at where we have come from. As other noble Lords have said, the degree of cynicism manifest in the policies and actions of so many financial institutions is stunning.

I hope that, if these amendments are brought into the Bill, they are construed widely by those who have to implement them. I am particularly happy that Amendment 51 would require any breach of standards of conduct to be reported to the relevant authority, because that is a real deterrent. People would be anxious about that. This proposal must be the absolute rock-bottom minimum to provide some underpinning for the future of financial services.

[Lord Flight]

My Lords, I come down to a very practical issue. In the territory that we are discussing, pre-approval is absolutely necessary for dealing with staff and anti-money-laundering requirements.

Financial Services Bill

Debate between Lord Phillips of Sudbury and Lord Flight

Monday 26th November 2012 Lords Chamber

[Lord Flight]

My Lords, I raised the issue of the 15-year longstop in Committee. The Minister gave me some comfort that the Treasury was looking at this.

I have always thought it unreasonable in principle that financial advisers should be picked on as a group not subject to the statute of limitations. A second-hand car dealer is subject to the statute of limitations, as are all sorts of other people who might sell people other products. It is particularly important right now because with RDR, there will be a large number of smaller financial advisers going out of business and wanting to close down their businesses. As long as the statute of limitations does not apply, those businesses have an open-ended possible liability.

A survey was done a while back by the Association of Professional Financial Advisers, which found that 75% of consumers thought there should be a limit applying to financial advisers. Interestingly, as many as 23% felt that all liabilities should cease once someone ceased to be a client of an adviser.

I am hopeful that the Minister may have something a little more explicit to tell the House today but my strong request is that this matter should be addressed now. If it is, it will make what is going to happen next year in terms of the impact of RDR a great deal more manageable. I beg to move.

[Lord Phillips of Sudbury]

Can I now intervene, as I intended to, before the noble Lord, Lord Flight, sits down?

[Lord Phillips of Sudbury]

I thank my noble friend. I withdraw the sedentary remark. The noble Lord is experienced in these affairs, so can he assure the House that the situation will not arise where somebody with no financial sophistication whatever enters into arrangements with one of the agents about whom he is talking—for example, in respect of a pension—only to find 15 years later that there has been a gross failure of propriety?

[Lord Flight]

I do not entirely understand the circumstances that the noble Lord envisages. Someone may have been advised to take out a pension with one of the life companies through their financial adviser. It is possible that the individual’s circumstances, the law or the economic circumstances will change and that, with hindsight, the individual might have taken out a different sort of pension. At the end of the day, the life company is the provider of the pension and it is that company with which the individual will be dealing in their retirement. I think that a 15-year period is fair for a financial adviser, as it is for any other occupation in which an individual is engaged.

[Lord Phillips of Sudbury]

Very often a person taking out a pension, in particular, is wholly dependent upon the advice of the financial adviser.

Financial Services Bill

Debate between Lord Phillips of Sudbury and Lord Flight

Tuesday 6th November 2012 Lords Chamber

[Lord Flight]

My Lords, I do not particularly see how having a debate about the appointment after the governor has been appointed does very much to improve accountability. Ongoing accountability is needed. The debate is whether or not that should be through the Treasury Select Committee, or whether potentially there should be much greater constitutional development in terms of appearing before one or both Houses of this Parliament, in the sort of way that occurs in the USA. I agree with the principle that there is a great deal of power, which needs to have some accountability. Looking back over the events of the past five years, there was certainly a period between autumn 2007 and summer 2008 when it was very clear that the Governor of the Bank of England was completely unaware that a major banking run was overtaking this country. A bit of accountability and some questions from this House or the other place would perhaps have stirred things up.

[Lord Phillips of Sudbury]

My Lords, I concur with what the noble Lord, Lord Flight, has said, and I am a bit foxed by the way in which the noble Lord, Lord Eatwell, introduced this amendment. I think I heard him say that these appointments have become more and more politicised, and that he regretted that. It strikes me that to require a debate to be held in the House of Commons after the appointment has been made is an invitation to the utmost politicisation, especially because, as far as I can see, there would be no consequence to that debate, in that the appointment would already have been made.

Financial Services Bill

Debate between Lord Phillips of Sudbury and Lord Flight

Tuesday 3rd July 2012 Lords Chamber

[Lord Phillips of Sudbury]

My Lords, one takes one’s life in one’s hands if one tries to interpret the ineffable complexities of the Bill and of these amendments. However, I will try because I think that there has been some misunderstanding of Amendment 35, starting with the noble Lord, Lord Eatwell, and finishing with the noble Lord, Lord Davies of Stamford. If one analyses it closely, one sees that the fears that were expressed are not justified.

First, the promotion bit of Amendment 35 is couched within the purpose of the committee, which is to,

“contribute to the achievement by the Bank of the Financial Stability Objective”.

Therefore, whatever it does by way of promotion must be within that objective. The amendment continues by stating that this shall include promoting, first and crucially,

“a stable and sustainable supply of finance to the economy”.

That is the number one priority. Only then, and subject to that, as the noble Lord, Lord Peston, made clear, is there the inclusion of promoting,

“objectives for economic growth and employment”.

For the life of me, I do not see how the noble Lord, Lord Eatwell, can persevere with his concern, given that the right of promotion is subject and subsidiary to promoting a stable and sustainable supply of finance, and then has to be within the Bank of England’s financial stability objective.

Furthermore, there is no coercion here given that the economic growth objective is third on the list of priorities. Frankly, there is not a straw of difference between “promoting” these things and—in Amendment 35A, tabled by the noble Lord, Lord Sassoon—“supporting” them. Some may say that there is a difference, but as a lawyer I say that there is little or none. I contribute these thoughts in the hope that more light will be cast on Amendment 35.

[Lord Flight]

My Lords, I support the Government’s amendments. I would like to make two small points to pick up on the point made by my noble friend Lord Trenchard. First, when it comes to the achievement of stability, having adequate competition in the domestic market is crucial. The problem with the banking system is that it became too much of a cartel without enough competition. When cartels exist, they tend to do the same thing at the same time and the resulting problems are often large in scale.

I well remember, following the Barings problem, having many discussions with the then Governor of the Bank of England, the late Sir Eddie George. What happened then was that the lender of last resort principle was deemed to apply only to banks that were too large to fail, so smaller banks such as Hambros were closed down and sold, and we ended up with a moral hazard problem and a cartel problem. I stress that adequate domestic competition is very much part of the stability objective, whereas with economic success it is international competitiveness that is arguably more important, particularly for the role of London.

We will come to this subject later on, but there is an important difference in the interplay between adequate domestic competition and being adequately competitive internationally in terms of the two objectives of stability and economic growth.