Queen’s Speech

Lord Sikka Excerpts

Monday 16th May 2022 Lords Chamber

[Lord Sikka (Lab)]

My Lords, I will speak briefly on three issues. The first is the economy, the second is financial services reform and the third is auditing.

A sustainable economy cannot be built without boosting people’s purchasing power, but the Government’s policies are doing the opposite. People’s purchasing power is depleted by the rate of inflation, which is expected to be around 10% by the end of this year. Higher inflation is due to profiteering by supermarkets, banks, oil and gas companies, energy companies and others, yet the Government have offered no policy to check this profiteering, which is creating inflation. Their blunt instrument is to increase interest rates. How is forcing people to pay higher charges for mortgages and borrowing going to reduce corporate profiteering and address the rate of inflation? It is the wrong remedy at the wrong time, and it will harm people.

The tax burden is the highest for 70 years and the Government have crushed the poor. Even before the pandemic, the poorest 10% of households paid 47.6% of their income in indirect and direct taxes, compared to 33.5% paid by the richest 10%, yet the word “redistribution” gets no mention in any government Statement. The Government are carrying on with the policies that led to this crisis. There is austerity for public sector workers, who are getting pay rises far less than the rate of inflation. On top of that, the Government are removing £7.5 billion from household budgets this year by imposing income taxes through stealth. Over the next three years that will add up to another £40 billion. This is the economics of the madhouse.

The Government could raise another £25 billion a year simply by eliminating the perks enjoyed by the beneficiaries of capital gains. If those were taxed in the same way as earned income, and if they were forced to pay national insurance, it would raise £25 billion, yet tax reform gets absolutely no mention anywhere.

I also take issue with the Minister’s opening statement that the finance industry is paying £75 billion a year in taxes. That is wrong. That number was taken from a press release by a trade association in the City of London. The actual taxes borne by the finance industry total £34.1 billion. It simply collects the other £41 billion from customers in the form of VAT, PAYE and national insurance. Perhaps the Minister could explain why she privileges the statements of a trade association, rather than giving us the hard numbers that HMRC cannot provide. This £75 billion cannot be independently corroborated; it is simply a guess.

The Government’s proposed reform of financial services is just going to lead us into another race to the bottom. It will give us more scandals than we have had, so I hope the Government rethink that. It is disappointing that there are no proposals to regulate shadow banking, which is bigger than retail banking. Hedge funds and private equity are playing havoc on the high street. They are killing businesses; Debenhams and Maplin are good examples, and there are many others. There is no focus on their reform.

Finally, the audit reform proposals are very disappointing. They do not deal with a fundamental problem. The BHS audit partner from PwC spent two hours on the audit and 31 hours on consultancy. The audit team was led by somebody with only one year’s post-qualification experience. Most basic tasks were not performed, and the PwC partner backdated the audit report. Nothing in the Government’s Bill would check any of that. Now we know that KPMG also fabricated—forged—audit documents and handed them to the regulator. Without reform of auditor liability and threat of prosecution and prison for the offending partners, nothing will change. Why are the Government handling the audit industry with kid gloves?

Gazprom Energy

Lord Sikka Excerpts

Thursday 24th March 2022 Lords Chamber

[Lord Callanan (Con)]

I was glad to debate the noble Baroness’s Bill last week. We are not ruling out onshore wind—it can make an important contribution. There are local planning considerations that are important to bear in mind. Many people object to fracking because of the imposition on local communities, and in many respects the same objections and arguments should apply to onshore wind as well. We need to take the public with us on this and ensure that there is public support for these turbines.

[Lord Sikka (Lab)]

My Lords, between 24 February and 3 March, 28 new companies and one new limited liability partnership were registered at Companies House for which the person with significant control claims to be a Russian national. What steps have the Government taken to ensure that these companies are not used for sanctions-busting, and will they take steps to put them into compulsory winding up?

[Lord Callanan (Con)]

I am not sure what point the noble Lord is trying to make here. We are not pursuing a war on the Russian people; many Russian individuals are just as opposed to this war as we are. We have a constantly evolving round of sanctions—the Foreign Secretary announced another 65 sanctioning proposals this morning—and some 1,000 individuals and businesses have been sanctioned. However, we have to be careful to differentiate between Russian state entities, those linked to Putin, and perfectly legitimate Russian individuals.

Economic Crime (Transparency and Enforcement) Bill

Lord Sikka Excerpts

Committee stage
Monday 14th March 2022 Lords Chamber

[Lord Agnew of Oulton (Con)]

I really want to carry on in a similar vein to earlier comments, and what my Amendment 3 is trying to do is to give more levers to government and enforcement agencies to force out information when we are worried that the information is not clear. My noble friend made the point that the Explanatory Notes say that this will be subject to regulations, but those regulations will be subject to a negative resolution. Could my noble friend confirm that we could be involved in the drafting of those regulations, rather than being faced with a fait accompli at the last minute, because I think there is a lot more to be done here? This perhaps plays to my noble friend’s point about the iterative improvements this Bill is going to need over the next few years, because it is fiendishly complicated.

The other piece to this jigsaw is the likelihood of prosecution of bad actors. Having been in business many years, I am afraid that the phrase that has often been offered to me when one is trying to get things done is “It’s the cost of doing business.” If the fines are so weak and the enforcement so inconsistent, it sends a message to those bad actors to continue, because—let us be realistic—is the NCA or Companies House, or any of these other people, going to take an action against a promoter in the British Virgin Islands for £10,000 of unpaid fees? It is just not going to happen, unless we are very clear that there is a mechanism for that to happen and that the fines very quickly get to a level that makes it worth while for litigators, acting on behalf of the taxpayer and the Government, to do that. I beg to move.

[Lord Sikka (Lab)]

My Lords, I rise to speak to a number of amendments in my name in this group—there are eight of them—and I will be fairly brief.

First, Amendments 5 and 13 basically ask the beneficial owners and various other parties to provide their former names. In Part 4 of Schedule 1, the Bill requires managing officers who are managing the beneficial owner’s interest to provide their former names. But the same is somehow not required for registerable beneficial owners where they are persons other than individuals—which could be companies that are forever changing their names, or other parties. What I am seeking to do through Amendments 5 and 13 is to, as it were, align the various provisions in the Bill, and I hope that the Government will be agreeable to that.

Amendments 8, 12 and 14 require the beneficial owners, or their managing agents et cetera, to provide a list of any criminal convictions and sanctions against them. At the moment, the Bill does not ask for that kind of information, so it is perfectly possible for somebody to look at this proposed register of property ownership and not know that the ultimate beneficiaries have various convictions, which may well be abroad. It really exerts pressure on them to either come clean or to avoid the UK altogether—which perhaps would be more preferable. Again, it is a fairly straight forward suggestion asking the Government to act upon that.

The meatier part of my eight amendments relate to Amendments 18, 19 and 20, which take issue with the Government’s provision of the definition of registrable beneficial interest, generally taken to be 25% of the shares or voting rights, or somebody having significant influence or control. As it is now defined it is too wide. Indeed, the provision of any number is too wide. If you say it is 25%, it is not inconceivable that half a dozen people will get together and make sure that nobody gets to 25%. If you specify 20%, that will be exactly the same. So four, five or six drug traffickers can get together and own a fraction of a company, and through that they can invest their proceeds in a property. Under this kind of approach, none of them would be identified as a beneficial owner or count as a person of significant control, because they do not meet the thresholds specified in the Bill.

The Bill as presently drafted leaves open the possibility that companies holding UK property would continue to hide the identity of true owners by claiming that there was no beneficial owner. This is already a major problem at Companies House for the companies already registered in the UK. That has been identified by a number of whistleblowers and a number of leaks that we have had. However, rather than tackling the issue, the Government have imported these problems into the Bill, and it is quite likely that the Bill will not achieve its assumed objectives.

So I suggest that there should be no numerical specification of the beneficial interest definition; rather, any interest should be disclosable. It is not every day that ordinary individuals want to buy UK property through opaque offshore companies. They have a reason why they want to do this, so we must make sure that absolutely no door is open to them. By leaving this definition, the danger is that the Bill simply will not achieve its objectives. I therefore recommend my amendments to the Government in the hope that this will help to end the abuses.

[Lord Vaux of Harrowden (CB)]

My Lords, I support most of the amendments in the group, including the government amendments, which are generally very helpful.

I will speak to Amendment 24 in my name and to the similar Amendment 23, in the name of the noble Baroness, Lady Chapman, both of which are intended to address the possibility of there being a very long period between a change in the ownership of the entity and that change being reported in the annual update. I thank the noble Lord, Lord Cromwell, for his support in this. Amendment 23 would require an update to be filed within 14 days of when a person has become or has ceased to be a registrable beneficial owner. My Amendment 24 is slightly wider, requiring any changes in registered information to be reported within 14 days. However, both amendments seek to bring the overseas entity regime into line with the persons of significant control regime that UK companies must follow. To be honest, I would be content either way.

As the Bill is currently drafted, an overseas entity could register and then immediately change its beneficial ownership and we would not get to know about that for a full year, during which time any number of actions could take place, including the sale of the property to an innocent third party who unwittingly might find themselves enriching a criminal or someone subject to sanctions.

The Bill rightly puts restrictions on the disposition and registration of property, but it does nothing to deal with the more likely scenario of the overseas entity itself, or indeed an entity further up the ownership chain, being sold; indeed, this 12-month grace period almost wilfully ignores that. It seems rather perverse that the overseas entity regime should be more benign than the regime that applies to persons of significant control for UK companies.

In his helpful all-Peers letter of Friday, the Minister explained that the reason they have done it this way is to protect innocent third-party buyers from not being able to register the purchase of a property if the overseas entity turns out to be in breach of the requirement to report a change. That is obviously extremely important. However, a very simple solution is already built into the Bill. The overseas entity has the ability, under Clause 7(8), to shorten the update period and file an update immediately before it sells. Any innocent buyer would simply insist that this happens before the sale is completed, and that would deal with the problem that the Minister explained. Accordingly, I see no reason why one of Amendments 23 or 24 should not be accepted, so that overseas entities would have the same reporting requirements as UK companies have. The whole point of the overseas entity register is that we should know who beneficially owns UK properties. Allowing that information to be potentially up to 12 months out of date cannot make sense. I cannot think of any other corporate register that would allow such a long period to notify changes.

--- Later in debate ---

Again, it is worth remembering that the majority of entities registering will be legitimate, and we have to balance the burden of this reporting for them with the benefits that the Bill will deliver. That is a balance that we have sought to strike throughout the development of the register.

[Lord Sikka (Lab)]

I refer the Minister to an entity called Business Bank Italy Ltd. It was owned by a convicted Mafia person from Italy, who registered this bank here and it had a website inviting wealth management. At Companies House, there was absolutely no declaration of any criminal convictions. Previously, the same person registered as secretary and director of another company, where the same person provided information in Italian. When it was translated into English, it read, “My name is the Chicken Thief, my occupation is a fraudster”, and the address was “Street of 40 Thieves, town of Ali Baba in Italy.” There is no information on whether there was any criminal conviction or anything else. The Minister just said that there are robust checks at Companies House. Where are these robust checks? I could pick out that example. Companies House did not carry any out; neither did any government department. As he knows, I have been filing a lot of Written Questions of late drawing Ministers’ attention to all kinds of strange goings-on in companies. It seems to me that, by rejecting the idea that somebody has to provide their former names and a record of criminal convictions and sanctions, the Government are opening the door for these people to misbehave.

[Lord Callanan (Con)]

We are not opening the door. I assume that the companies the noble Lord is referring to are existing UK-registered companies; I know he has asked me a number of Written Questions about companies registered on the UK database, and I totally accept his point. He is pointing out an issue we are well aware of: that the existing UK companies register is a dumb register. The registrar is obliged under existing law to accept the information tabled to her. The noble Lord has raised a number of examples and tabled Written Questions to me about some patently ridiculous information that has been supplied. I get regular correspondence from noble Lords and from constituency Members of Parliament where false information is given and false companies registered at people’s addresses, unknown to them, and they then receive correspondence.

The difficulty at the moment is that the registrar does not have the legal power to query the information registered to her. If the noble Lord will be patient and wait for economic crime Bill part 2, which is coming, he will find that it will deal with this precise point. It will give the registrar the ability to query that information and provide that people must give identity details, passport information, et cetera, when they register. This is a massive change to the operation of Companies House—the biggest change for something like 170 years to the register database. It will give the registrar the power to query that information and people will have to provide evidence of their identity, addresses, et cetera. The noble Lord is right—there are a number of ridiculous examples—but we will deal with that. I am aware of it, and it will be in the next Bill.

In addition, information regarding designated persons who are listed on the UK sanctions list is already published for free via GOV.UK by colleagues in the Office of Financial Sanctions Implementation.

Finally, the verification mechanisms of the register, which will be provided for under Clause 16, will ensure as far as possible that the information provided is highly accurate. This register will provide vital information and in turn give enforcement agencies even greater information to take actions and carry out their own investigations. Therefore, on balance and taking into account the reasoning we have set out, we are unable to accept these amendments.

However, I am in agreement with the noble Lord on the particular importance of ensuring that there is clear information for users of the register about whether individuals identified as beneficial owners of the overseas entities are subject to UK sanctions. It is in the public interest for users of the register of overseas entities to be able easily to see whether a registrable beneficial owner is a designated person listed on the UK sanctions list.

The Government have therefore tabled their own Amendments 7, 9 and 11, which would mean that the required information about a registrable beneficial owner will include information about whether they are designated by virtue of the Sanctions and Anti-Money Laundering Act 2018. These three amendments would require overseas entities to confirm whether any of their registrable beneficial owners are designated persons listed on the UK sanctions list. It would be an offence not to do so. This information would be displayed publicly on the register. This will ensure that this information is then more easily accessible to the average user of the register. That fulfils a requirement raised by a number of noble Lords, and by Members of the other place when they debated this legislation. I hope that the noble Lord, Lord Sikka, will appreciate that these three amendments will deliver a good deal, if perhaps not all, of the intention of his amendments and those proposed in the other place.

I move on to Amendments 18, 19 and 20, also tabled by the noble Lord, Lord Sikka, which relate to the level of shareholding that would define a “beneficial owner”. His amendments seek to remove the 25% level altogether, to capture any person who holds any shares in the overseas entity in scope.

The 25% threshold contained in the Bill is in line with global norms with regards to beneficial ownership. The Financial Action Task Force, which sets global anti-money laundering and counterterrorist financing standards, has found that this threshold is acceptable as an example of how to determine beneficial ownership. As a result, 25%—or more than 25%—is used in many jurisdictions, such as in the US and in the European Union’s recent anti-money laundering directives. The 25% threshold also follows the UK’s PSC—person with significant control—regime, which similarly requires beneficial ownership information of UK-registered companies. When the PSC regime was in development—

--- Later in debate ---

[Lord Callanan (Con)]

My Lords, I start this grouping by speaking to the government amendments, which I have tabled. They are Amendments 33, 75 and 76; 35, 36 and 37; 63 and 77; 65, 66, 69, 70 and 72; 68 and 71; and 73 and 81. I hope that everybody is taking careful note, because there will be a check later.

These are technical amendments relating to land registration in Scotland, tidying up some of the drafting in the Bill. If it would be of assistance to noble Lords, I am happy to speak in more detail on any of these, but meanwhile, in the interests of time, I will move on to the more substantive government amendments in this group.

Amendments 73 and 74 make small but important technical changes to the Bill to ensure that Schedule 4 operates effectively in line with the land registration law of Scotland. These amendments add to existing provisions when an application must be rejected by Registers of Scotland because of the implications for who will be shown in the Land Register of Scotland as the owner of a plot of land. These amendments ensure consistency and clarity in setting out the circumstances in which a prescriptive claim application might result in a prescriptive claimant being provisionally entered as the owner of a plot in Scotland.

I am mindful that several noble Lords and Baronesses, including the noble Baroness, Lady Chapman of Darlington, and the noble Lords, Lord Fox and Lord Sikka, have tabled amendments to shorten the transition period proposed. To inform that debate, I thought it might be helpful to set out several government amendments that we hope will help to ease concerns about the length of the transition period for registering retrospective property ownership and the perceived risk of people moving illicit assets in the meantime—a concern that has been raised with me by several noble Lords.

Amendment 86 requires overseas entities when registering, who have disposed of certain land between 28 February 2022—the date that the Bill was published—and the date of their application to register, to submit a statement with their application setting out details of what has been sold and the beneficial ownership of the entity immediately before that transfer of title. The land in scope is that which otherwise would be caught by the transition period: that is, land that was registered after 1 January 1999 in England and Wales and after 8 December 2014 in Scotland. The noble Baroness, Lady Jones, now knows why we have selected those dates.

This is an anti-avoidance measure. It would mean that any overseas entity disposing of any of their property in the period from 28 February and the date of their application to register on the register of overseas entities must provide information about the entity’s beneficial ownership immediately before the disposal. They must provide that information by the end of the transition period. This will mean that law enforcement will therefore have access to a record of the beneficial ownership to aid the enforcement of historic cases, and the seller would no longer be able to avoid being under a legal duty to provide beneficial ownership information by disposing of a property in advance of registering—something that I know was a significant concern for many noble Lords. This new disclosure requirement should significantly strengthen law enforcement’s abilities to investigate and prosecute both buyer and seller, and all involved in the transaction, should the criminal law have been broken.

Crucially, it addresses the concerns that have been raised with me in both Houses that corrupt people must not be allowed to sell up and escape the transparency that the register will bring. It is my submission that this measure will be more effective than any further reduction in the transition period, which risks opening up the provisions of the register to legal challenge, something that would no doubt be exploited by those wishing to avoid it.

Amendments 55, 60, 64, 79 and 82 align the transitional periods under Schedules 3 and 4 with the period in the new clause inserted by Amendment 86.

Amendment 87 supplements Amendment 86 by making it an offence for certain overseas entities who do not apply for registration during the transitional period, and every officer in default, to fail to provide information equivalent to that required by Amendment 86. That means information about relevant dispositions in land made on or after 28 February 2022 and the end of the transitional period. In the case of continued contravention, an offence is also committed by every officer of the overseas entity who did not commit an offence in relation to the initial contravention. A person guilty of an offence is liable on summary conviction to a fine and a daily default fine of up to £2,500 a day in England and Wales.

Amendment 88 makes further supplementary provisions, including a power to make regulations in connection with the new clause inserted by Amendment 86.

Amendment 59 reflects the revised transitional period of six months. It requires the Chief Land Registrar to act as soon as reasonably practicable, and in any event before the end of the transitional period, to enter a restriction in relation to an estate in land owned by an overseas entity that became the registered proprietor of that estate following an application made before commencement of the Bill.

Amendments 66, 69, 70 and 72 are technical amendments relating to land registration in Scotland. In the interests of time, I propose to move on to other substantive amendments, but am more than happy to speak on these amendments in more detail if required. I beg to move.

[Lord Sikka (Lab)]

My Lords, I apologise; I am not sure if it is my turn or someone else’s. I have four amendments in this group. I have listened carefully to what the Minister has said about Amendment 86. The real problem is that you can have an overseas entity that can be used to buy a property in the UK. When that property is sold, money is laundered, but before the six-month period is over the overseas entity is liquidated so there is no information of any kind to file. By giving anyone more than 14 days—this is a theme referred to earlier by the noble Lords, Lord Cromwell and Lord Vaux—the Government are inviting these kinds of cat-and-mouse games.

I recommend that no one should have more than 14 days. After all, that is what we give at the moment to UK companies to file information about persons with significant interest as per Part 21A of the Companies Act 2006, which says that the PSC’s details must first be recorded in the company’s internal register within 14 days of the change and Companies House must be notified within a further 14 days, which is the maximum permitted. So why are overseas entities to be given a longer period? We seem to be creating an opportunity here, a window, for these entities to misbehave, and at the end no declaration of any kind can be made. Fourteen days is not too demanding in the era of electronic filing. We must close all opportunities for anyone to circumvent the filing requirements and thereby get away with basically laundering their proceeds.

My second two amendments are Amendments 58 and 67, which, as has been referred to, are about the amnesty that is built into the Bill. The Bill grants amnesty from disclosures to those who acquired property in Scotland before 8 December 2014 and before 1 January 1999 in England and Wales. That is completely contrary to the Bill’s claim of adding transparency and providing no hiding place for dirty money. The amnesty will mean that large swathes of UK property are owned by overseas companies without any public knowledge of their true owners; people will simply not know who owns them.

I shall give some examples of Scottish property that is owned by anonymous offshore companies purchased before 8 December 2014 where people do not know who the true owners are: Strathfillan Forest, owned by Thar Enterprises in Jersey, registered at the Land Register in June 1999; Ardfin Estate, on the Isle of Jura, owned by Ardfin Lodge Ltd, again in Jersey, registered in November 2010; Glenogle Estate, owned by Glenogle Estate Ltd in the Isle of Man, registered in May 1999; most of Charlotte Square in Edinburgh, owned by Fordell Estates Ltd in the British Virgin Islands, registered in the Land Registry in 2010; Glenborrodale deer forest, owned by Luna Ltd in the Bahamas, registered at the Land Register in July 2000; and the Pitmain Estate, owned by Ranita Management SA in Panama. Even if these properties are acquired with clean money, people have a right to know who their neighbours are and who owns a large part of their locality. Are these people actually socially responsible? The Government are legally creating an amnesty, and that is really unacceptable.

This opacity is not just an issue in Scotland: it is an issue for the whole of the UK. Close to 250,000 residential properties in the UK are registered to individuals based overseas. UK property worth more than £170 billion is estimated to be held overseas, much of it anonymously. Last October, the Pandora papers leak revealed that Heads of Government, oligarchs, business tycoons, ruling families and Middle-Eastern monarchs were among the anonymous owners of at least £4 billion of property, held through offshore shell companies. When did they acquire that? We do not quite know: it might well have been before the dates specified in the Bill.

Cost of Living

Lord Sikka Excerpts

Thursday 3rd February 2022 Grand Committee

[Lord Sikka (Lab)]

My Lords, I thank the noble Lord, Lord Whitty, for this timely debate. It is a pleasure to follow the noble Baroness, Lady Bennett of Manor Castle.

People are facing a twin threat of rising prices and shrinking incomes. The announcement of the new energy cap comes on the day when, as some have mentioned, Shell has announced that its profits have risen from $4.8 billion to $19.3 billion. It is so awash with money that it is paying an extra $8.5 billion to its shareholders in the shape of a share buyback. In the last decade, oil and gas companies have paid £200 billion in dividends while the regulators have been twiddling their thumbs and doing absolutely nothing. Over the last decade, the big six energy companies have paid £23 billion in dividends, which is 82% of their pre-tax profits and six times the amount of money that they pay in corporation tax. The sad truth is that the UK, unlike Ireland, cannot even produce its own electricity—it has to import it. It does not even have enough storage facilities for gas; thanks to the Government, they have been run down. Our gas storage facilities are equivalent to only 2% of our annual demand compared to—

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

Ireland does not generate its own gas—it gets it from us.

[Lord Sikka (Lab)]

Other countries are better at handling it, if you like. Let us look at Norway. Norway collects about $21.35 for each barrel of oil extracted from the North Sea because it kept a large part of it under public control. The UK gets only 8% of that: $1.72 per barrel—those are the figures for 2019. Why? Because of this obsession with light-touch regulation and privatisation being good, while people are basically struggling. It is shameful that as a nation we are not even able to generate our own electricity—enough to meet our needs.

Today’s announcement by the Government does not really help that much: £693 or £700 extra. Perhaps the Minister will be able to tell us how much additional VAT will be generated as a result of this hike in the energy price and exactly where it will go. The Government should have listened to the Labour Party and its call for a 5% cut in VAT. The imposition of that 5% is highly regressive: the poorest suffer the most. The Chancellor said today that he did not really want to reduce it because that helps the rich. That is interesting: the Government have been handing all kinds of tax cuts to the rich and he never complained, but now he says that this would help the rich. Of course, the Government could claw back the equivalent amount from the rich by, for example, increasing the highest rate of income tax from 45% to 50%. That option is always available, but not exactly exercised.

The 2% electricity discount is also highly deceptive. It is not a discount at all. If I go to a supermarket and it is selling something on a discount, that does not mean that I have to repay that amount over the next five years, which is what people are being forced to do here. They will have to repay about £40 over the next five years. The £150 council tax rebate does nothing for the poor or those living in rented accommodation. It would also be helpful to know who is paying the cost of that. Will central Government be bearing the cost of that £150 discount, or will it lead to a further cut in local authority budgets as they are forced to bear this cost? Even if this £150 gift, as some people are calling it, is accepted by some, what happens to the other £350 of the cost of energy that people will have to bear?

The Government need to rethink their entire economic policy. They need to help the poorest. They have already cut universal credit by £1,040 from 4.4 million people. They are offering only a 3.1% increase in the state pension, while the CPI is likely to be double that rate. The increase in minimum wage is 6.6%, while RPI is already at 7.5%, so that does not really do anything. Winter fuel payments have not changed since 2011. The Government need to offer an immediate increase in the state pension of £500, double the winter fuel allowance and increase universal credit and the minimum wage at least in line with RPI to give people a cushion.

Although we have talked about energy prices, we have not said much about what is happening to retail prices. Just in the past six weeks, the price of 18 essential, staple items has gone up by more than 8%, and supermarkets, now owned by private equity, are basically lapping it up. Morrisons has increased its price of those 18 items by 15.3% in the past six weeks and Asda by 13.6%. Why are the Government letting private equity rip and increase the cost of living?

Energy Costs

Lord Sikka Excerpts

Thursday 6th January 2022 Lords Chamber

[Lord Sikka (Lab)]

My Lords, I thank the noble Baroness, Lady McIntosh of Pickering, for this debate.

The effects of high energy prices upon low-income households are exacerbated by the Government’s wrong policies. The cut in universal credit has made millions of households energy poor. Disposable incomes of the less well-off will be further depleted by the 1.25% Johnson tax and the freezing of personal allowances and income tax thresholds. We already know that VAT on domestic fuel and the green levy are regressive and hurt the poorest the most. Millions of retirees are unable to afford the high energy costs. Despite the triple lock, some 2.1 million pensioners live in poverty. The government response is to cut the real value of the state pension, which in April this year is due to rise by 3.1%, while the rate of inflation is expected to be double that. The age-related winter fuel payment of between £100 and £300 has remained unchanged since 2011. If it was linked to energy prices, it would need to be double that. Due to the Government’s policies, millions of people will suffer hardship and thousands will die from fuel poverty.

The privatisation of the energy industry has also been disastrous. There is little focus on the long-term, and that has deepened the crisis. In the past decade, the big six energy companies, mostly foreign-owned, have paid £23 billion in dividends, equivalent to 82% of their pre-tax profits. The investment in infrastructure is pitiful. The UK relies upon gas and electricity imports from Belgium, France, Ireland, Norway, Russia and elsewhere. The UK has around nine terawatt-hours of stored gas reserves, equivalent to 2% of annual demand, compared with equivalents of between 25% and 37% in major EU countries. As a result, people are highly exposed to price shocks.

Ofgem has failed to provide energy security and market stability or monitor the financial stability of energy companies. The collapsed Bulb Energy had, on its last balance sheet, bank loans of £54 million, owed suppliers £466 million and had accumulated losses of £223 million. However, its share capital was only £100. With such gigantic leverage, bigger than the leverage of Lehman Brothers and Bear Stearns, neither Bulb nor its parent company Simple Energy, which had debts of £1 billion, were in any position to manage the volatility in the market. Ofgem did absolutely nothing to deal with that.

To mitigate the crisis, I urge the Government to do five things: first, reverse cuts in universal credit and planned tax increases; secondly, abolish VAT and the green levy on domestic fuel; thirdly, double the winter fuel payment and restore the real value of the state pension; and fourthly, provide funds to insulate homes.

The cost of these four things can easily be met by taxing unearned income at the same rates as earned income. Applying that to capital gains would raise £17 billion extra in income tax and £8 billion in national insurance contributions—more than enough to cover the cost.

Fifthly, and finally, the energy sector should be brought under public ownership so that the country can plan for the long term and we can end profiteering and abuses by energy companies.

Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) (No. 2) Regulations 2021

Lord Sikka Excerpts

Tuesday 9th November 2021 Grand Committee

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

My Lords, the regulations were laid before the House on the 28 September 2021.

Following the emergence of Covid-19, the Government quickly implemented the Corporate Insolvency and Governance Act 2020, which introduced a set of permanent and temporary measures aimed at helping companies through the shock effects of the pandemic. In addition, many businesses have also benefited from an exceptional economic package of support from the Government in excess of £400 billion through the furlough and self-employed income support schemes, and through various grants and loans, and business rates and VAT relief.

Since their introduction last year, these measures have proved invaluable in protecting many businesses that were unable to trade from unnecessary insolvency due to the restrictions imposed in the national lockdown periods to deal with the pandemic. Most of the temporary insolvency measures, including the relaxation of wrongful trading, lapsed at the end of June this year, but the restrictions on company winding-up petitions were extended for a further three months until the end of September.

Without doubt, the pandemic has presented a huge challenge for us all, but we have listened and taken action to protect businesses whose very existence has been threatened by the lockdown restrictions that were necessary to keep us all safe. However, we recognise that these measures, and in particular the restrictions on the use of company winding-up petitions, are a severe restriction on creditors’ rights to enforce recovery of their debts and as such should not remain in place for longer than is necessary.

Now that we are back to full trading following the successful completion of the Government’s four-step roadmap out of lockdown on 19 July, all businesses are able to fully reopen without restriction. The signs are indicative of a strong economic bounce-back and the time is right to begin to restore the insolvency regime to its normal operation by returning some creditor rights.

We must bear in mind, however, that many businesses, particularly those sectors that were most affected by the lockdown restrictions for over a year, such as retail and hospitality, have been severely impacted and their solvency will be endangered by accrued debts and low cash reserves before they have been given a chance to trade back to profitability and financial health. As such, it is crucial that we do not pull the rug completely at this pivotal moment and instead allow the previous measures to end in a controlled way that provides affected businesses with a further period of protections.

These regulations therefore introduce a new kind of temporary restriction on winding up companies that is less of an impediment to creditors and tapers the version that has been in place since last year. The instrument replaces the previous high bar for winding-up petitions on the grounds of inability to pay debts, which required that petitioners satisfy a court that the debts were not Covid-19 related, with new targeted criteria for creditors which seek to encourage dialogue with their debtors prior to pursuing a winding up.

The new and temporary criteria for petitioning creditors, which came into force on 1 October 2021 for a period of six months, are: first, a requirement for creditors to demonstrate that they have sought to negotiate repayment of a debt before seeking to wind a company up; secondly, that the debt owed must be at least £10,000; and, thirdly, that a company winding-up petition cannot be brought in respect of a commercial rent as described by the provisions in the Coronavirus Act 2020.

On the first of those criteria—a new requirement for creditors to demonstrate that they have sought to negotiate the repayment of a debt—before presenting a winding-up petition a creditor must send a notice to the company giving it 21 days to respond with proposals for paying the debt. Creditors will then be required to confirm to the court that they have sent the notice, whether they have received any proposals from the company and, if so, state why they are not satisfactory. A creditor is not obliged to agree to the proposals put forward by the company. However, the court will be able to draw on its existing discretion to refuse to make a winding-up order where it appears that a creditor is attempting to abuse the winding-up process.

I am aware that, throughout the pandemic, many creditors and debtors have continued to work closely to find solutions together. I know that many businesses have come to agreements, and I thank them for their efforts in what are challenging circumstances for both sides. This measure reinforces the Government’s message that creditors and debtors should collaborate to find solutions to address arrears that have accrued as a result of the pandemic.

The second of the temporary criteria is that to present a company winding-up petition the debt owed must be at least £10,000. Ordinarily, there is no minimum amount that must be owed before a winding-up petition can be brought, although, when it is based on a statutory demand, the debt owed must be at least £750. A temporary increase in the minimum debt level to £10,000 will prevent petitions for relatively small debts that would otherwise be presented. In particular, this is likely to reduce the number of petitions presented against SMEs, which tend to have smaller debts and less cash reserves, making them most in need of additional support. The £10,000 limit also aligns with the current £10,000 limit for issuing proceedings in the small claims court and is easily identifiable as a measure to prevent winding-up petitions being presented for small debts and to allow businesses to focus on recovery.

The final element of the criteria is that a company winding-up petition cannot be presented in respect of commercial rent. The Committee will be aware that, during the summer, the Department for Levelling Up, Housing and Communities announced an extension of the moratorium on the forfeiture of commercial tenancies until 25 March 2022. This is to allow time for the implementation through primary legislation—the Commercial Rent (Coronavirus) Bill, which is being introduced to Parliament today—of a rent arbitration scheme to help industry deal with commercial rental debts that have accrued to a significant level during the national restrictions periods. Subject to parliamentary passage, it will come into force next year.

The restrictions on the commercial rent arrears recovery scheme have also been extended to 25 March 2022. This carve-out in relation to winding up is necessary in order not to destabilise the proposed rent arbitration scheme before it is introduced, and again reinforces the Government’s message that, wherever possible, creditors and their debtors should work together to find a way to come to amicable agreements on rent debt accrued during the periods of national lockdown. We recognise that this could cause continuing uncertainty for commercial landlords who themselves may be under pressure as a result of the pandemic. However, the rent arbitration scheme will deliver certainty to both the landlord and the tenant when an agreement to pay lockdown rent arrears has been unachievable. Furthermore, while rent debts accrued during lockdown are ring-fenced for the purpose of the arbitration scheme, all commercial rent owed after 19 July 2021 should be paid in full as and when it falls due.

In conclusion, these new targeted criteria demonstrate that the Government have listened and taken into account the concerns raised repeatedly about the potential cliff-edge scenario leading to a sharp increase in insolvencies when government regulatory and fiscal support end. The new targeted criteria reinforce the importance of striking a balance between the rights of creditors and the further protections needed by businesses most affected by the pandemic. I cannot stress enough that discussion is crucial between creditors and their debtors, as the best way to recovery will be the one where they work together. I ask them please to continue to negotiate and find solutions together, wherever possible. That would be my message to both sides. With that, I commend these regulations to the Committee.

[Lord Sikka (Lab)]

My Lords, this is the latest instalment of long-running legislation, which may well come to an end fairly soon. None the less, there are a number of issues, and I should be grateful for clarification.

A recurring issue has been the relative absence of any cliff-edge arrangements to prevent a high number of business and personal bankruptcies. With the relaxation of the insolvency constraints from 1 October, the number of bankruptcies has already begun to accelerate and may well get worse. Further problems will come when businesses need to repay their Covid loans and, inevitably, their cash flows will be squeezed. The Government made a fundamental mistake in not taking an equity stake in large businesses; if they had done so, those businesses would not have to repay the loans and interest and their cash flows would have been preserved for productive use and investment in productive assets.

As far as I can make out, the statutory instrument does not amend the sections of the Insolvency Act 1986 that deal with the disposition of property between the presentation of a winding-up petition and the date of the winding-up order. This suggests to me that banks are perhaps already able to freeze the accounts of their clients, which might actually force some into bankruptcy. Perhaps the Minister could clarify whether that is the case.

The Minister also referred in passing to the 16 January 2021 announcement in a press release entitled Eviction Protection Extended for Businesses Most in Need, in which the Government promised that they would legislate to ring-fence Covid-related rent arrears that had been accrued as a result of trading restrictions placed on businesses, and introduce a system of binding arbitration for landlords and tenants who cannot come to a negotiated settlement on payment. Could the Minister say when this legislation will be enacted? I might have missed something; I am not aware that it has been enacted.

[A noble Lord]

It has been.

[Lord Sikka (Lab)]

It has been? You may be right; I probably missed it.

Why are the same arbitrations terms not available to individuals? Why are they restricted to commercial landlords and commercial property? The increase in the threshold—from £750 to £10,000—for presenting a winding-up petition may give temporary reprieve to some small businesses, but the Government have missed an opportunity to offer permanent help to small businesses in matters of bankruptcy. This would have required a change in the order in which the creditors of an insolvent business are paid. Currently, secured creditors, which include banks, private equity, hedge funds and wealthy individuals, walk off with most of the proceeds from the sale of the assets of a bankrupt business, leaving little, if anything, for unsecured creditors, comprising employee pension schemes and supply-chain creditors, including many small businesses.

The insolvency law is forcing employees to forgo some of their pension rights. It also strangles many small businesses, because, in their capacity as unsecured creditors, they will receive next to nothing from the bankruptcy of a large customer. So, unlike financial conglomerates, they are forced to bear a highly disproportionate amount of risk arising from the bankruptcy of their clients. I cannot think of any moral or economic reason that justifies financial conglomerates being able to walk away with most of the assets of a bankrupt business, leaving small businesses and pension schemes with little or nothing.

It would be helpful to hear what moral and economic justification the Minister can offer; it is actually strangling SMEs and damaging employee pension interests. Could the Minister indicate whether, perhaps before the end of this Parliament, the Government have any plan to introduce legislation that will facilitate the equitable sharing of bankruptcy risks among all creditors? As I said, there is no economic or moral reason why secured creditors have to be prioritised. That law goes back to the 18th century, and here we are in the 21st century still not having changed it. Is it not time that we did?

[Lord Lennie (Lab)]

My Lords, as the Minister has said, the statutory instrument introduces new temporary tapering measures that restrict the use of winding-up petitions. From 1 October, this instrument introduced a tapering effect, we are told by government, to protect companies from aggressive creditor enforcement as the economy opens up. The new temporary measures will be in place until 31 March 2022, but, ultimately, it is an extension of some support and a withdrawal of other support in the way it has been tapered.

We believe that it is right to maintain restrictions on serving winding-up petitions under Schedule 10 to the Corporate Insolvency and Governance Act 2020. It is vital that businesses that have sustained so much pressure during the last 18 months be supported right through to the end of the pandemic. This pressure was clearly demonstrated by the recently published annual report from the Insolvency Service, which found that although some measures had mitigated the impact of the pandemic on businesses, the number of people who have accessed the Redundancy Payments Service was up around 20% on normal levels.

Non-UK Residents: Property Ownership Register

Lord Sikka Excerpts

Tuesday 2nd November 2021 Lords Chamber

[Lord Callanan (Con)]

My noble friend is correct about our intention for the registration of overseas entities, and an 18-month transitional regime is planned once the register has been implemented. This will give overseas entities time to either dispose of their holdings or identify and register their beneficial owners. The regime will disincentivise anyone seeking to do business with a non-compliant overseas entity.

[Lord Sikka (Lab)]

My Lords, Companies House does not make any checks on the authenticity of company directors. Does the Minister know how many persons of significant control have used fake names and addresses, and therefore control property in the UK under the same fake identities? If not, why not?

[Lord Callanan (Con)]

Of course there are always some people who present fake identities, and Companies House will take action where that is identified. We are reforming Companies House, as the noble Lord knows. I mentioned the amount of money that we are putting into that. We want to try to tighten up the regime and make sure that people are registered legitimately. London and the UK are open to doing business and we take pride in being an open and accessible economy, but there is no place for illicit money flows, and we will take action to prevent it.

Ethnicity Pay Gap Reporting

Lord Sikka Excerpts

Monday 25th October 2021 Lords Chamber

[Lord Sikka (Lab)]

My Lords, I thank my noble friend Lord Boateng for this much-needed debate and fully support his call for mandatory reporting.

The ethnicity pay gap reflects sedimented residues of colonialism and worker exploitation and must be eradicated. Disclosures are vital in giving visibility to unacceptable practices and paving the way for reforms. Well-managed businesses already have the relevant information, so the cost of disclosure is negligible. In any case, it would be a minuscule proportion of the amounts that these entities spend on public relations campaigns.

Mandatory reporting of the ethnicity pay gap and investigation of the related lack of diversity should be extended to professions, universities and other large entities. Only 140 of the UK’s 21,000 university professors are black. Only six of 800 partners at UK Magic Circle law firms are black. As has already been said, FTSE 100 companies have zero senior black executives at board level.

In 1987, the accountancy profession was the subject of a Commission for Racial Equality probe into racism in the recruitment process. It published a document entitled Chartered Accountancy Training Contracts: Report of a Formal Investigation into Ethnic Minority Recruitment. It promised to revisit the issue, but never did. Its successor bodies have not done so either.

While some accountancy firms have voluntarily disclosed ethnicity pay gap data, progress towards eradication of the ethnicity pay gap is slow. Most recently, black staff at PricewaterhouseCoopers are reported to be paid 41% less than white colleagues. Ernst & Young has an ethnicity pay gap of 36.7%.

There is a lack of diversity in big accounting firms. Last year, there were only 17 black partners among the top eight accountancy firms. Only 11 of the Big Four accounting firms’ 3,000 UK partners are black. Deloitte has one black partner, Ernst & Young and KPMG have two each and PricewaterhouseCoopers has only six. A July 2021 report by the Financial Reporting Council showed that disabled and LGBTQ+ citizens have virtually no chance of reaching a senior position in major accounting firms.

Will the Minister bring legislation to achieve the following six objectives: mandatory ethnicity pay gap reporting; directors providing binding plans to reduce the ethnicity pay gap and increase diversity; increased diversity and reduction of the ethnicity pay gap forming part of executive remuneration contracts; auditing of this data by trade unions and works councils, not accounting firms that cannot be trusted to deliver any honest audit; sanctions from the Government, including refusing to give public contracts to entities which are not reducing their ethnicity pay gap; and an annual report from the Government explaining how their policies are addressing ethnicity pay gap issues? I look forward to hearing the Minister’s detailed reply to these six suggestions.

Private Equity Takeovers

Lord Sikka Excerpts

Thursday 21st October 2021 Lords Chamber

Asked by

[Lord Sikka]

To ask Her Majesty’s Government what assessment they have made of the takeover of United Kingdom companies by private equity firms; and in particular, their effect on the economy.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

My Lords, the UK’s merger regime recognises that investors play a major and positive role in the UK economy and that many UK sectors have benefited substantially from takeovers and mergers. On the few occasions that private equity-funded acquisitions have raised concerns, the Government have always carefully monitored developments and taken action when there were clear public interest grounds.

[Lord Sikka (Lab)]

My Lords, the typical business model of private equity includes high leverage, financial engineering, tax abuse, pension dumping, job losses and asset stripping. This trail of destruction includes Silentnight, Bernard Matthews, Debenhams, Maplin, Cath Kidston, Toys “R” Us, Four Seasons and much more. When will the Government commission an independent inquiry into the impact of private equity’s destructive practices on all stakeholders?

[Lord Callanan (Con)]

The UK’s merger regime, which I remind the noble Lord was put in place by the last Labour Government, recognises that overseas investors play a major and positive role in the UK economy, and that many UK sectors have benefited substantially from takeovers and mergers. Such transactions can help to boost UK jobs, increase management efficiency and support businesses to grow on the world stage. We benefit from being an open and accessible economy.

UK Property Ownership: Overseas Jurisdictions

Lord Sikka Excerpts

Wednesday 13th October 2021 Lords Chamber

[Lord Callanan (Con)]

I think these are two completely separate issues that the noble Lord is confusing. As I said, it remains a priority for the Government. We have already published a draft Bill, we have carried out pre-legislative scrutiny on the matter and we will legislate as soon as parliamentary time allows.

[Lord Sikka (Lab)]

My Lords, the UK itself is a barrier to transparency. Any crook from anywhere in the world can form a company here without any checks on the authenticity of directors, and can conceal illicit financial flows. The Government have had 11 years to reform Companies House but have failed to do so. Can the Minister explain why reform of Companies House has not received greater priority?

[Lord Callanan (Con)]

We are already investing £20 million in the reform of Companies House to provide many of the services the noble Lord refers to, but many of the reforms also require primary legislation and we will legislate when we can. The noble Lord is not correct in his basic assertion: the UK’s anti-money laundering regime was reviewed by the Financial Action Task Force and the UK achieved the best rating of any country assessed so far in the round of evaluations.