Status of Workers Bill [HL]

Lord Sikka Excerpts

2nd reading
Friday 10th September 2021 Lords Chamber

[Lord Sikka (Lab)]

My Lords, I congratulate my noble friend Lord Hendy on this much-needed Bill. He has my full support. It seeks to modernise employment law—something the Government have failed to do, despite numerous promises. It would give millions of long-exploited gig workers greater rights, including a statutory minimum wage, statutory sick pay, statutory paid holidays, maternity and paternity pay, protection against unfair dismissal, minimum notice periods for ending employment and much more. As other speakers have pointed out, it would also improve the collection of income tax and national insurance contributions as well.

The Bill is more than just a piece of employment legislation; it is a bedrock for rebuilding our society by improving workers’ rights and, with it, the distribution of income and wealth to lift millions out of misery. Zero-hours contracts and fake self-employment have been used to reduce workers’ share of GDP, in the form of wages and salaries. It now stands at around 49.4%, compared to 65.1% in 1976. This rate of decline is unmatched in any other industrialised nation and must be reversed. This Bill provides small beginnings for that.

Some 14.5 million people, including 4.3 million children, live below the poverty line. It is a serious indictment of our society that people in employment have to rely on food banks. Eight in 10 people claiming universal credit are in work or looking for work. Too many find it difficult to pay their rent and their energy, water and broadband connection bills. Millions of schoolchildren go hungry. Children living in poverty are more at risk of being exploited by or becoming victims of criminal gangs.

The current pandemic has shown that thousands of people have died because they lacked access to good food and housing and could not take time off for emergencies. Employment rights are the key to addressing so many of our social problems. Improving the employment rights of just one person improves the quality of life of the whole family. It reduces chances of homelessness and improves possibilities of nutritional food. Greater worker rights reduce anxiety and insecurity, which improves mental health and reduces pressure on social care, the NHS, GPs and the healthcare system. Greater worker rights reduce pressure on the social security system, so fewer people will need social security benefits. Better distribution of income flowing from better employment rights lifts people out of poverty permanently.

The Government have a history of opposing emancipatory change in employment laws and elsewhere, but I hope they will curb their instincts and support the Bill for the enormous social benefits it will bring.

Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2021

Lord Sikka Excerpts

Monday 6th September 2021 Grand Committee

[Lord Leigh of Hurley (Con)]

My Lords, I declare an interest. Since we last debated this subject, I have become a non-executive director and chairman-designate of Manolete Partners plc, an AIM-listed company involved in insolvency litigation. Therefore, I have a vested interest in addition to my other business interests.

I again congratulate the Government on the swift and decisive action taken with the introduction of this legislation in responding to the economic crisis. We did not agree on every aspect of the legislation, particularly some details of the moratorium, but we did agree on the direction of travel and the effect that all this has had. This debate is of course in respect of regulations which, as I understand it, expire at the end of this month, so although necessary, because of the way the regulations are drafted, it is probably the shortest-term effect of any regulation that has gone through this House.

More important is to know and understand what will happen after the end of this month. A number of us would argue that the time has come to relax these regulations and to rely on the market in which this Government have such faith. The market will determine which companies should have more capital allocated to them, which companies are zombie companies and which companies do not have a future. That will be decided partly by creditors and partly by people choosing whether to invest in companies that need such cash to face creditors.

It is interesting to look at the situation regarding creditors’ voluntary liquidation. Creditors’ voluntary liquidation is essentially when directors decide to throw in the towel because the business cannot carry on of its own volition. The figures published by the excellent Insolvency Service just the other day show that the level has returned to pre-pandemic levels, about 2,800 companies in the last quarter, which is roughly where it was pre-pandemic and is constant. So the market is returning to normal where it can. I very much hope that the Minister can give us an indication soon of the Government’s thinking on this extremely important issue.

[Lord Sikka (Lab)]

My Lords, there are many industries that are still not fully on a path to recovery, good examples being hospitality and events management. If we are thinking about terminating this legislation at some stage, surely before we do that the Government will have to present us with some evidence of what the impact of the cliff edge will be on those and other industries.

Clearly a cliff edge is looming, although the can continues to be kicked down the road. What will happen when suddenly, as has been said, you let the market forces rip? What will be the effect of this legislation upon creditors who would perhaps have expected to have some recovery but who now must wait to recover? Clearly there is a knock-on effect, but the Government have not really presented any estimate of that. When the cliff edge comes, what restraints will be exercised by banks, private equity, hedge funds and other secured creditors, or will they all simply be rushing to collect their resources, collect their money, and put businesses into liquidation? That will clearly have a huge negative effect.

The Government need to present us with a plan. What exactly is the value of the debts that are affected? How many businesses? How many creditors? We have heard absolutely no information from the Government. When market forces are allowed to rip, what exactly would be the constraints on the insolvency practitioners who charge mega sums for insolvency fees that actually worsen the crisis? The BHS liquidation began in 2016 and is still not finished. Carillion began in 2018 and is still going. Thomas Cook is still going. Maplin is still going. Monarch Airlines and many others have been going for decades and decades. There seems to be absolutely no check. If the Government are really planning ahead, they need to present a plan about how they are going to constrain the insolvency industry. We have not really heard anything about that. I have asked in PQs for information about the values that unsecured creditors may lose. I am told that the Government have no figures. Again, I ask: what is the Government’s plan to deal with the cliff edge ahead?

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I declare an interest. I am chairman of the Secondary Legislation Scrutiny Committee, which has reviewed these regulations, but I speak this afternoon not as its chairman, nor indeed for the committee at all; I speak entirely in a personal capacity.

My noble friend the Minister will be aware of my interest in these matters, and it would be right for me to begin by thanking him and his officials, led by Paul Bannister, for the time they have given me and other interested Members of your Lordships’ House over the past few months to look at aspects of the particular problem we are dealing with this afternoon. Indeed, they have given us not just time but action in the sense that we have had some really sensible regulations about pre-packs, which have become a feature of choice and often with connected persons. The regulations which the Government have produced have done much to block that loophole and, judging by my postbag, they seem to be working well so far, although, as the noble Lord, Lord Sikka, has pointed out, the point of maximum strain will of course come when we reach the end of the subsidies, whenever that may be.

I have a couple of points to make this afternoon. The first is about how we judge when “can’t pay, won’t pay” moves to “can pay, won’t pay”. My noble friend the Minister will say that paragraph 7.3 of the Explanatory Memorandum says that that is when the court is satisfied that the company’s inability to pay is not due to coronavirus. That may a possibility for a large and well-resourced company, but it is certainly beyond the resources of a small or medium-sized enterprise to go to court to try to prove this issue, which is pretty hard to prove anyway. I do not think that the Government should think that this offers anything other than the largest companies a proper balance in the argument about “can’t pay” and “can pay, but not bothering to pay”.

Of course, one understands, and has an instructive and instinctive view, that one should be helping people whose lives, efforts and companies have been set back by the pandemic, an issue over which they have no control. Of course you feel sympathy for them. However, we always have to balance that sympathy with the knowledge that this is a zero-sum game. One person’s gain is another person’s loss. I may be a supplier and may therefore be caught up in this; I may be unable to get paid and my business may be affected. It is always tempting to think that one should be trying to help those who are in difficulties and forgetting those who are strong. We need to avoid, or at least to minimise, situations where businesses that are already weak—perhaps for reasons beyond coronavirus, although that has created an additional strain—are kept afloat at the expense of suppliers and landlords.

In summary, we need to avoid taking policy decisions that benefit the weak and weaken the strong. When my noble friend winds up, it would be helpful if he could give us a stream of consciousness that will guide us as to how the Government judge all this. I understand the magic references to constant review in the Explanatory Memorandum; viable but cash poor is in there as well.

Human Rights Due Diligence

Lord Sikka Excerpts

Tuesday 20th July 2021 Lords Chamber

[Lord Callanan (Con)]

As the noble Lord will be aware, we have just finished a consultation on the audit reform proposals, which include extending audit to some non-financial matters such as climate change. Of course, we will be very happy to consider all other proposals.

[Lord Sikka (Lab) [V]]

My Lords, in an earlier reply, the Minister said that he is considering enforcement issues. Given that the UK has no central enforcer of company law or regulator of corporations, and that auditors, just mentioned by him, have absolutely no expertise in human rights, how will the Government monitor compliance with and enforcement of any proposed legislation?

[Lord Callanan (Con)]

We are considering the issue of enforcement in the audit reform consultation that I mentioned in my previous answer. We are extending the powers of the FRC, creating a new audit reform regulator in ARGA and we will be issuing our response to the audit reform consultation later in the year.

Office of the Whistleblower Bill [HL]

Lord Sikka Excerpts

2nd reading
Friday 25th June 2021 Lords Chamber

[Lord Sikka (Lab) [V]]

My Lords, I congratulate the noble Baroness, Lady Kramer, on this much needed Bill, which I fully support. Whistleblowers take enormous personal risks to protect society from harmful practices, but they receive little support from within the organisation or from industry regulators, which are all too often inclined to silence individuals. Whistleblowers and their families pay a heavy price for exposing wrongdoings and their reward is often insecurity and early death.

The issues become evident whenever anyone looks at the life histories of whistleblowers. One such person was Paul Moore, head of group regulatory risk at HBOS. His revelations foreshadowed the follies exposed by the 2007-08 banking crash. In 2004, he reported reckless risk-taking through unsustainable lending and the sale of dubious financial products, such as payment protection insurance, to the HBOS chief executive. Paul was fired for reporting this. His complaint was put to HBOS’s auditor, KPMG, which is hired and paid by directors, and which inevitably sided with the board. As Paul’s role was senior, his sacking was investigated by the Financial Services Authority, which also sided with the HBOS board. Then came the 2007-08 crash and HBOS became the subject of a £21 billion bailout.

Despite being proved right, Paul paid a heavy price for his principled position. Headhunters ignored him and he never worked in banking again. He had to cope with bouts of depression and ill health. He died last October at the age of 61. Had the board and regulators heeded his warnings, HBOS would potentially not have failed so spectacularly. In fact, HBOS was so aggressive about its lending that it created a race to the bottom for the lending market and increased the risk in the system. The true cost of its recklessness will never be known. Paul’s case shows that employers and current regulatory bodies are conflicted and cannot support or protect whistleblowers. The current legal framework also failed to support and protect Paul. We need an independent office of the whistleblower, as the Bill proposes. I very much hope that the Government will support the Bill.

Employment Rights

Lord Sikka Excerpts

Thursday 10th June 2021 Lords Chamber

[Lord Callanan (Con)]

As I said earlier, of course we will provide the appropriate funding in the spending review. I do not know where the noble Baroness has got her figures from, but we have more than doubled the budget for minimum wage enforcement and compliance. It is now more than £27 million annually, up from £13.2 million in 2015-16. More than 400 HMRC staff are involved in the enforcement of the minimum wage. In 2021, HMRC concluded more than 2,700 minimum wage investigations and returned more than £16.7 million in arrears to more than 155,000 workers.

[Lord Sikka (Lab) [V]]

My Lords, in 2020, 347,000 workers did not receive the statutory minimum wage. That has been a persistent problem. The financial penalties have not had the desired effect and clearly need to be strengthened. Will the Minister introduce legislation stating that the penalty for each violation should be not less than the total remuneration of the directors of the offending business? If not, why not?

[Lord Callanan (Con)]

This builds on my answer to the previous question. Since 2015, the Government have ordered employers to repay more than £100 million to a million workers. Over the course of 2020-21, HMRC’s Promote team facilitated nearly 800,000 employers and workers to seek further information on the minimum wage. So there is considerable enforcement going on in this space, and I just do not recognise the picture painted by the noble Lord and the previous speaker.

Professional Qualifications Bill [HL]

Lord Sikka Excerpts

Committee stage
Wednesday 9th June 2021 Lords Chamber

[Baroness Noakes (Con)]

My Lords, I put my name down in this group in order to speak to Amendments 19 and 29, but I shall say a few words first on Amendments 52 to 55. Normally, I do not support Report amendments, which are a slightly lazy way of trying to open up a debate on wider issues, but in this case I think they have a point.

The Government’s impact assessment is, to use a tactful term, pretty light. It certainly does not analyse very much impact, probably because the Government do not have a clear idea of what they are going to do with the powers in the Bill. If that is not clear from the Bill itself, it is certainly clear from the report of the Delegated Powers and Regulatory Reform Committee. Poor impact statements are a widespread problem and we will not solve that for this Bill, but it is incumbent on the Government to be transparent about the impact of a Bill once it becomes law.

I shall therefore be listening carefully to what the Minister says, because it may well be that some or all of Amendments 52 to 55 will need to be considered again on Report. Alternatively, as my noble friend Lord Lansley suggested, we could legislate for post-legislative scrutiny; after five years might be an appropriate time for a report. However, it is very important that we monitor the Bill’s impact.

If the noble Baroness, Lady Hayter, has one defining characteristic, it is her determination to get the consumer interest felt, and she frequently finds all kinds of surprising ways to do that in Bills, but I want to explain why in this instance she is wrong to try to get the Bill amended with her Amendments 19 and 29. I was particularly struck by a briefing from the British Dental Association that commented that this Bill appears to focus on services, consumers and trade. Those are inappropriate concepts to describe the healthcare professions, which are certainly one of the major reasons given for this Bill being enacted and are cited as the professions likely to be covered by the regulations under Clause 1.

Those terms may well be appropriate for other professions which qualify and oversee professionals who trade their services, though I am not sure that “consumers” is always the right description for those other professions. For example, I do not really know who the consumer is in relation to regulated auditors, who are covered by this Bill via the Financial Reporting Council. The healthcare professions are focused on safety rather than on what consumers want or need from the profession, and we should never lose sight of that.

I do not think that either the consultation requirement in Amendment 19 or the board membership requirement in Amendment 29 fit well within this Bill, given the focus on the healthcare professions that is likely to follow once the Bill becomes law. I completely get that regulated professions and their regulators must not be focused on their own narrow interests but bear the public interest in mind. But that is usually achieved through regulators being independent of the professionals they regulate, and they often have independent members comprising some or the majority of their boards. If they are not on their boards, they are certainly well entrenched in their disciplinary processes. That aspect, the independent characteristic of the regulators, is what we should focus on in this instance, rather than the consumer interests.

[Lord Sikka (Lab) [V]]

My Lords, it is a great pleasure to speak in this debate, especially after the noble Baroness, Lady Noakes. I support Amendment 55 in the name of the noble Baroness, Lady Bennett of Manor Castle.

This amendment takes a broader view about the nature of skills shortages and human consequences from the recognition of professional qualifications. There are many reasons for this Bill, and one is the failure of the United Kingdom to produce skilled labour, and the relative absence of any coherent government strategy to produce the desired skilled labour force. The problems have been well documented. For example, in 2000 a report published by the National Skills Task Force said that there were

“external skill shortages, that is, recruitment difficulties due to an excess of demand over supply of required skills in the external labour market”.

Examples included

“highly-paid occupations requiring specific technical qualifications such as engineers and technologists and health and related occupations … and craft and technician vacancies in the engineering industry”.

It also referred to internal skills shortages—that is,

“skill deficiencies among existing employees”.

Similar skills gaps were identified in the 2019 report by the Industrial Strategy Council, which said that about 21 million workers—two-thirds of the workforce—might

“lack the basic digital skills”

that employers will need in 2030.

Some businesses have responded to skills shortages by renting talent from external partners—for example, through outsourcing partnerships. Of course, that creates its own logistical and organisational problems. Nevertheless, in the absence of a coherent strategy, neither the Government, the industry nor universities have been able to address the perennial problem of skills shortages.

Finding appropriate PhD students, as the noble Lord, Lord Patel, mentioned, is also highly problematical. It is simply too costly for many individuals to undertake a PhD in the UK. In supervising PhD students for nearly 30 years, I can only recall about one or two indigenous British students who came to do a doctorate in accounting, business or finance. It is so rare.

At the moment, the Government and industry are not even connecting the dots. The spate of hiring and rehiring workers on inferior pay and working conditions will not address skills shortages and will have a negative effect on attracting new local talent to crucial industries. After all, if the wages and working conditions are poorer, why would somebody want to go into that industry?

The Government’s strategy so far has been to enrol and recruit foreign workers to fill the gaps. That is especially evident in the National Health Service. Brexit has added new dimensions because it has alienated many EU workers residing in the UK. Their departure and the unwillingness of many other EU citizens to work in the UK have deepened and widened the skills shortages.

The Government are now looking to recognise foreign qualifications to address the local skills shortages. The aim, as always, is to poach skilled persons from abroad. The traffic will predominantly be one way from developing countries to the UK. I doubt that many Brits will actually want to go and work in countries such as Ghana, Zimbabwe or Nigeria, where the wages may be lower and the working conditions may not be comparable.

This ability to poach workers from other places will inevitably dilute the pressure on the UK to develop its own institutional structures to address the skills shortages. That development is highly necessary, and we need a government strategy. Therefore, it is absolutely right that Parliament must monitor the impact of this Bill on the management of strategies for addressing skills shortages, as has been extremely well articulated by the noble Baroness, Lady Bennett of Manor Castle.

To be clear, I am not against mutual recognition of qualifications, as this increases opportunities for individuals, but I am very concerned about the negative consequences for developing countries. They spend millions of pounds to educate and train engineers, doctors, surgeons and other skilled persons, but will never see the full benefit of their social investment. It can take more than a decade to train a skilled doctor or surgeon and, at the end, having developed those individuals, the developing countries will be unable to receive the benefits. There are also other consequences. To put it another way, if the UK started to see its highly educated citizens leave on a scale already observed in many developing countries, it would find itself with a smaller and less educated workforce. Such changes would coincide with a more rapidly ageing population due to the fact that emigrants tend to be younger adults.

For a long time, the UK has taken the cream of the skills from developing countries with absolutely no compensation. This brain drain retards the development of local economies and social infrastructure. It results in a huge transfer of wealth from poorer countries to the UK, while they suffer from a lack of sufficiently skilled personnel in both the public and private sectors. With a loss of skilled labour, poorer countries cannot offer universal healthcare to their citizens. That is just one example. The only appropriate redress is a bilaterally managed scheme of direct reimbursement of the value lost to each of the countries affected by migration of skilled labour. I sincerely hope that the Minister will give such an undertaking and, in due course, bring legislation to provide further details and make the compensation to developing countries a reality.

Professional Qualifications Bill [HL]

Lord Sikka Excerpts

2nd reading
Tuesday 25th May 2021 Lords Chamber

[Lord Sikka (Lab) [V]]

My Lords, it is a great pleasure and honour to join this debate, and I particularly thank the noble Baroness, Lady Bennett of Manor Castle, for raising the issues that she has.

We are all conditioned to place trust in professionals; after all, no one would willingly let an unqualified surgeon operate on them. However, there is a darker side to professional qualifications and trade in professional services, whether at home or abroad, and the mono- chromatic approach of the Bill pays little attention to that.

Professionally qualified bankers have crashed banks and the economy and are implicated in HBOS, RBS and other frauds. Professionally qualified accountants and lawyers are often the masterminds behind money laundering scams and ingenious tax avoidance schemes that plunder the public purse and condemn millions to go without decent healthcare, housing, education, pensions and social infrastructure. Professionally qualified insolvency practitioners unnecessarily prolong insolvencies to collect mega fees. Too many auditing firms, often licensed by the Institute of Chartered Accountants in England and Wales, are complicit in accounting scandals and tax avoidance. On a number of occasions, the courts have concluded that the tax avoidance schemes marketed by accounting firms are unlawful. Despite that, not a single accounting firm whose scheme has been judged to be unlawful has actually been disciplined by the ICAEW, and that is wrong. So my question is this: through this Bill, what will we actually be exporting and importing through mutual recognition of professional qualifications and work experiences?

The faith in professional qualification and regulation is double-edged; it also blocks the emergence of new professions. The Bill does not establish any universal norms or benchmarks for professional education—for example, the principle that professional qualifications must prioritise public welfare and not promote anti-social practices.

Consider the case of accounting and wealth creation. We all know wealth creation requires co-operation among a variety of stakeholders. Shareholders provide finance and get a return in the form of dividends. Employees provide brains and brawn and get a return in the form of wages and salaries. Society provides education, healthcare, security and a legal system, and gets a return in the form of taxes. However, in professional accounting education, payment of wages and taxes is considered a cost, while payment to finance capital in the form of dividend is considered a reward. The self-serving logic is that efficiency depends on cutting costs, so armies of auditing firms and accountants working in those firms are available to squeeze labour, cut wages and design tax-dodging schemes. No professional is ever hired to advise on how to reduce return-to-finance capital.

Alternatives to conventional accounting logics are available but never find their way on to the professional accounting education syllabus adopted by the ICAEW and other bodies. They continue to inculcate individuals into class warfare. This Bill does not check the worst of professional qualifications by establishing principles of good professional education.

I would welcome some clarity from the Minister about Clause 10, which is headed

“Duty of regulator to provide information to overseas regulator”,


and its link with broader regulatory issues which inevitably arise from reliance placed on professionals. Consider the case of Barings Bank, which collapsed in February 1995. Its audits were conducted by Coopers & Lybrand and Deloitte in the UK and in Singapore. The accounting qualifications of some of the Singapore staff were recognised in the UK and enabled them to become members of the UK bodies. However, this did not give the then banking regulator, the Bank of England, access to that staff and the audit firm’s working papers in Singapore. Paragraphs 15 and 153 of the Bank of England’s 1995 report titled Report of the Board of Banking Supervision Inquiry into the Circumstances of the Collapse of Barings said:

“We have not been permitted access to C&L Singapore’s work papers relating to the 1994 audit of BFS [Baring Futures (Singapore) Pte Limited] or had the opportunity to interview their personnel. C&L Singapore has declined our request for access, stating that its obligation to respect its client confidentiality prevents it assisting us … We have not been permitted either access to the working papers of D&T or the opportunity to interview any of their personnel who performed the audit. We do not know what records and explanations were provided by BFS personnel to them”.


I hope that the Minister will be able to say something about the interaction between mutual recognition of qualifications and regulatory co-operation. Would a foreign national enjoying membership of a UK professional body but not resident in the UK be required to co-operate with the Financial Conduct Authority or equivalent? Under reciprocal arrangements, UK citizens would be required to co-operate with foreign regulators.

The Bill applies to 160 professions that are regulated by legislation and a network of more than 50 regulators. This multiplicity of regulators results in duplication, waste and obfuscation. For example, we have four professional accountancy bodies, known as the recognised supervisory bodies, or RSBs, dealing with external auditing. They are overseen by the Financial Reporting Council, soon to become the audit, reporting and governance authority or ARGA. However, there are five recognised qualifying bodies, the qualifications of which are recognised for auditing purposes. In addition, there are four recognised professional bodies, RPBs, dealing with around 1,300 insolvency practitioners. The Bill does not streamline the regulatory maze and says nothing about the autonomy or powers of various regulators. If a qualification is recognised by just one recognised supervisory body or recognised professional body, would others be forced to do the same? Is there a pecking order of the professional bodies? I strongly urge the Government to streamline the regulatory arrangements and eliminate the powers of all the accountancy bodies and transfer them to the FRC or its replacement, ARGA.

The 160 professions covered by the Bill need to be seen in a broader light. The reason is that each profession erects barriers to entry, which erodes competition and the quest for higher quality. For example, UK law requires that only an entity under the control of individuals licensed to carry out an audit can conduct audits, so 51% of the partners of a firm or 51% of shareholders of a company conducting the audit must hold a licence to audit. This is unlike any other market. For example, there is no requirement that a pharmaceutical business must be under the control of qualified pharmacists. The recognition of professional qualifications and the monopolies built around them prevent others, such as technology companies, from entering the audit market to facilitate much-needed change. So the recognition of professional qualifications has consequences, leading to monopolies, lack of competition and inevitable failures. The Government’s impact assessment shows no awareness of such impacts or how the social closure around predetermined qualifications facilitates failure and prevents the emergence of new professions.

The protection of the audit market also has implications for which qualifications get mutual recognition. Many IT qualifications will not be recognised, even though they are useful for audit purposes.

Mutual recognition of qualifications is part of a brain drain which encourages doctors, nurses, engineers and others to migrate from developing and emerging economies to the UK. Despite making a huge investment in social infrastructure and individuals, the home countries will not be in a position to receive the benefits of that investment. This is a huge transfer in not only skills but wealth from poorer nations to the UK. Will the Government compensate poorer countries for the loss of their wealth and human resources, and on what scale? If the UK continues to entice people from poorer countries, what incentives will it have to develop its own education and related infrastructure?

Can the Minister explain the link between mutual recognition and the Government’s immigration policy? Will anyone holding a recognised qualification get priority in securing a work permit and possible settlement in the UK, even if they earn less than £25,600 a year? Also, the Bill does not put any time limit on mutual recognition of qualifications. How will that be addressed? Will it be a once-and-for-all decision?

Finally, the Bill permits specified regulators to recognise foreign qualifications. Thus, the regulators have a clear statutory and public role. Despite this, the Bill does not place all regulators and relevant professional bodies within the framework of freedom of information legislation; these are public bodies and should be within its scope so that ordinary people can ask questions and hold the bodies to account.

[The Deputy Speaker (Baroness Fookes) (Con)]

I understand that the noble Baroness, Lady Wheatcroft, has withdrawn, so I call the noble Lord, Lord Palmer of Childs Hill.

Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2021

Lord Sikka Excerpts

Tuesday 18th May 2021 Grand Committee

[Lord Sikka (Lab) [V]]

My Lords, the regulations before us extend the life of temporary measures to 30 June this year, but the Government have failed to provide any road map to show how businesses can negotiable the cliff edge that is inevitable whenever the regulations end. The past 15 months should have been used to develop such a strategy, but none is in sight at the moment.

Covid-related loans have been welcomed by many businesses and have enabled them to manage and survive the crisis. Such support has been welcomed by big and small businesses, including easyJet, British Airways and many others. Of course, some loans will never be repaid. However, this loan-centric policy is also storing up more problems for the future. In time, the loans and interest thereupon will need to be repaid. The repayments will deplete business cash flows and dampen business recovery, employment and investment in productive assets.

A better policy option would have been to take an equity stake in businesses wherever possible. This would mean that business cash flows would not be depressed and would instead be available for investment in productive assets. In time, the Government could sell their equity stake to recoup their investment if they so wished. Of course, the equity stake would need to be written off if the business in question did not survive. However, that risk is no different from a situation where the business has been supported by government loans. Even now, there is nothing to prevent the Government converting their loans to an equity stake wherever possible. I hope that the Minister will agree with this proposal and the Government can therefore avoid the problems that will surely arise and affect many businesses.

In previous debates, I have asked the Government to help unsecured creditors. Under insolvency law as it stands now, unsecured creditors recover little of the debts owed to them. This in turn affects their survival, jobs, investment and local prosperity. There is no economic or moral reason for enabling secured creditors —mostly banks and other financial institutions—to walk away with most of the proceeds from the sale of a bankrupt business’s assets. This leaves little for unsecured creditors and hits micro-businesses and SMEs particularly hard. Their prospects of survival are strangled by inequitable insolvency laws.

The current insolvency laws do not provide equitable risk-sharing and the biggest burden is borne by those least able to carry it, namely micro-businesses and SMEs. Such entities are not diversified and therefore cannot absorb the risk arising from the collapse of a major customer. In contrast, banks hold diversified portfolios and are in a position to absorb risks arising from the default of loans. Insolvency law needs to be changed. At least 40% of the proceeds from the sale of bankrupt businesses’ assets must be ring-fenced for distribution to unsecured creditors to give them a chance of survival. If the Minister does not agree, I hope he will explain why SMEs are being penalised by the current insolvency laws.

There is no legislation in place to prevent insolvency practitioners enriching themselves by prolonging insolvencies and charging exorbitant fees. In some cases, partners are charging more than £1,500 an hour for their services; I have seen the invoices. Government statistics show that around 14,328 insolvencies were not finalised, even after 15 years. This is a licence to loot and no regulator has done anything to check it. It is no good saying that a creditors’ committee can act because many insolvencies do not require the prior approval of creditors. In any case, small businesses are too busy looking for replacement business and do not have the time to attend such meetings. Even if they did, the votes cast by banks and private equity would override their concerns. The cost of administration and the liquidation fees are directly borne by unsecured creditors. In other words, higher fees for insolvency practitioners reduce the amounts that can be recovered by unsecured creditors. I hope the Minister can explain why secured creditors do not bear the cost of insolvency —the insolvency practitioners’ fees, in other words.

I urge the Government to provide an insolvency road map so that more businesses can survive the coming crisis, which will not end soon but will roll on for quite a few years yet. We need a strategy in place now.

International Accounting Standards (Delegation of Functions) (EU Exit) Regulations 2021

Lord Sikka Excerpts

Tuesday 27th April 2021 Grand Committee

[Lord Sikka (Lab) [V]]

My Lords, it is a great pleasure to join this debate.

The Government claim to be “taking back control”—that slogan has been used quite a few times—but there is no sign of that in this statutory instrument. In common with the Financial Reporting Council, the newly created Accounting Standards Endorsement Board will primarily rubber-stamp the international accounting standards, better known as the international financial reporting standards, or IFRS. These standards are produced by the International Accounting Standards Board—the IASB.

The IASB is a subsidiary of the International Financial Reporting Standards Foundation, and it is registered in the US state of Delaware. The sole reason for that was actually to avoid tax on its income. That fact alone disqualifies the IASB from acting as a standard setter, but the Government permit it to effectively set standards for the UK. The IASB is subsidised by the big four accounting firms and major corporations, among others. This enables the funders to pull levers and exercise undue influence—in other words, the IASB is already captured.

One of the UK’s biggest failures has been to build durable accounting institutions. We had the Accounting Standards Steering Committee, which morphed into the Accounting Standards Committee, the Accounting Standards Board, the Accounting Council, and now the Accounting Standards Endorsement Board. The names have changed but the entity remains colonised by scandal-ridden big accounting firms and corporations. There is no independence from corporate interests. The legislation does not require the endorsement board to hold open board meetings and it does not owe a “duty of care” to any individual stakeholder. The statutory instrument exempts it from liability, which means that there are weak pressure points upon it to advance the welfare of various stakeholders or even consider the negative impact of accounting standards.

The US has robust accounting standards which are set by the Financial Accounting Standards Board. This enables the authorities to respond to scandals. By contrast, the UK has abandoned its capacity to set accounting standards and the Government look to the IASB to respond to UK scandals. The Parliamentary Commission on Banking Standards highlighted the failures of IFRS, including fair value accounting and the demotion of prudence. We are still awaiting meaningful reforms. The collapse of Carillion also highlighted failures of fair value accounting, good will and reverse factoring; we are still awaiting reforms some two years later. The Government can say only that they are waiting for the IASB to act; meanwhile, accounting scandals continue.

Regulators such as the Prudential Regulation Authority have already learned to ignore some aspects of corporate financial statements of banks and regulated entities, especially items such as good will and capitalised software costs. Just think of the costs of looking through these documents and working out entirely different numbers. The end result is that we have two sets of financial statements: one published by companies in accordance with international accounting standards and another modified by the PRA. I hope the Minister will tell us which one is more credible.

The Government’s recent consultation paper Restoring Trust in Audit and Corporate Governance mentions possible reform of distributable profits, which requires consideration of capital maintenance. However, IFRS have no clear concept of capital maintenance. Company financial statements add up random numbers based on historical costs, amortised costs, net realisable values, present values, fair values and just plain guesses. The end result is that companies are not maintaining any financial or real capital. It is impossible to address issues around illegal dividend payments within the Government’s policies. The international accounting standards are the residue of their political games rather than what stakeholders or any set of investors might need. Contrary to what the Minister, the noble Lord, Lord Callanan, said earlier, they do not improve the quality of financial reporting.

I will illustrate that with an example relating to accounting for related party transactions. These are the material transactions that occur between a company and the parties who are in a position to exercise significant control over it. There was a time when such transactions were disclosed, but they are not disclosed now. As the US refused to accept IFRS, the IASB sought to enrol China in its project. Many Chinese companies are controlled by the Chinese Government. They did not like the related party accounting standard because they were not keen to disclose transactions between them and the companies they controlled. Did the IASB make a stand? No. It exempted Government-related companies from disclosing related party transactions. It is hard to understand the UK Government’s enthusiasm for adopting accounting standards shaped by the Chinese Government.

We all know that accounting rules affect the calculation of profits, leverage, liquidity, solvency, risks, wages, dividends, pensions and taxes. These have a direct impact on the distribution of income and wealth. Only Parliament has a democratic mandate to adjudicate on such matters. However, the Government have transferred such authority to unaccountable corporate elites and weakened Parliament. This legislation is against our national interest.

Greensill Capital

Lord Sikka Excerpts

Wednesday 14th April 2021 Lords Chamber

[Lord Callanan (Con)]

I just do not agree with the fundamental point the noble Baroness makes. Of course it is important that all decisions taken by Ministers and civil servants are taken independently, but I return to my original point that it is a good thing that people have experience of the private sector—and that people in the private sector have experience in the public sector. There should not just be two distinct career paths which never meet. As long as the appropriate propriety and transparency are followed, it is a good thing.

[Lord Sikka (Lab) [V]]

My Lords, early last year three of Greensill’s major clients—NMC Health, BrightHouse and Agritrade—collapsed. This provided a reminder of the precariousness of its business model. We know that Greensill was not subject to capital adequacy tests by the FCA or the PRA, so how did the Government perform due diligence checks before approving it as a lender? Can the Minister give a firm commitment to publish all documents relating to Greensill’s designation as a lender?

[Lord Callanan (Con)]

I remind the noble Lord of the answers I gave to earlier questions. These decisions were taken not by the Government but by the British Business Bank, and there were also other non-bank lenders accredited under CLBILS. These were loans which the Government put in place in emergency conditions to save viable businesses. The whole object was to try to preserve jobs and employment in the economy. I am sorry if the Opposition do not think that is a good thing, but I think it is good that jobs are being preserved.