(1 year, 8 months ago)
Lords ChamberI disagree with the premise of the noble Baroness’s question. We are already a renewable energy superpower. She talks about lack of ambition. In the last auction, round 4, we delivered more than 11 gigawatts and 93 renewable power projects—enough to power 12 million homes. We have the largest offshore wind capacity in the whole of Europe and the second largest in the world. We want to scale-up that ambition and deliver more, but I think the noble Baroness should give us some credit for what we have already achieved.
My Lords, I remind the House of my interests in the register. Now that the feed-in tariff has ended, there is not much incentive for people to install more capacity on their homes than they use themselves. The smart export guarantee pays typically between only 1p and 5p per kilowatt-hour, which is not enough to encourage people to install excess generating capacity. Does the Minister agree that a peer-to-peer trading facility that allows people to sell their excess power to their neighbours might increase returns to generators and improve the incentive, and also reduce the cost of power to neighbours?
It is an interesting concept. As the noble Lord knows, the smart export guarantee is a market-driven mechanism, and it is for suppliers to determine the value of the exported electricity to them, taking account of their administrative costs. There are a number of schemes, such as the one mentioned by the noble Lord, and I am certainly very happy to look at it. However, we always have to bear in mind that any subsidy offered to certain generators is paid for by every other customer on the network.
(1 year, 11 months ago)
Lords ChamberI think my noble friend is talking about the warm homes discount, which we retargeted in the summer. Another three-quarters of a million people became eligible for it—some three million people are now eligible—and we were trying to target it at the most vulnerable. Clearly, there are lots of different groups that we will need to look at very closely.
My Lords, my postman asked me a question the other day that I was not able to answer, so I hope the Minister can help. He is on a tariff that guarantees him 100% renewable electricity. The cost of generating renewable electricity has fallen, yet his bill is more than doubling. He does not understand this, and neither do I. Either these renewable tariffs are nothing of the sort—they are just greenwashing—or companies must be profiteering outrageously. Which is it? If it is profiteering, is it right that the taxpayer should subsidise that?
That is another good question, and the answer is complicated. The marginal rate of electricity is set because of the highest contributor to that, which is gas-fired generation at the moment. This is why we have launched the review of market arrangements, which is looking urgently at that exact situation. The noble Lord makes a powerful point.
(2 years, 1 month ago)
Grand CommitteeMy Lords, I start by thanking the Minister for arranging the recent meetings to which he just referred to show us the progress that has been made in creating the register of overseas entities and demonstrating the prototype. I was rather impressed by the progress and, in particular, the verification process that has been included.
The verification goes some way—further than I had expected—towards the suggestion that I and others raised in the debates on the Act, which was to have a regulated person sign off publicly that they have verified the information. We could still go a little further, by ensuring that the name of that person is shown up front and central in the publicly available database. I know it can be found, but I would like to see it in the key information on people involved in the entity, right alongside the beneficiaries, officers and directors. A search function that allows the database to be searched by verifier would also be a very useful tool. It would allow users to see whether any trends emerge and would soon highlight any enablers who are not taking the verification process seriously. The more publicly visible the verification is, the more likely it is to be taken seriously by those doing it.
I hope that the Government will look at strengthening that a bit but, more importantly, that the identities of those doing the verification will be rigorously checked, that the statistics will be closely monitored to identify any trends that emerge, and that action will be taken if it becomes clear, for example, that a small number of persons are verifying a disproportionate number of entities, especially entities registered in less than transparent locations.
I realise that that all relates to the SIs tabled under the negative procedure, but it is relevant to the instrument in front of us today, which mostly covers the rules that will allow the details of an entity to be kept private. Of course, there may be perfectly innocent reasons for that—for example, a celebrity who is worried about stalking, or things of that nature—but privacy must be the exception. These sorts of rules, if not rigorously applied, can creep to become the norm if we are not careful.
Can the Minister explain how the application of these rules for keeping details private will be monitored, and at what stage the Government would step in if there was evidence that the use of the rules was becoming more common than we would expect? What statistics will be available to the public about the use of these privacy rules? How will they be reported, and how regularly?
I am not completely clear which information will be private and which will be public if someone gets a dispensation. I spoke earlier about the verification process and the making public of the identity of the regulated person who carries out the verification being an important disincentive to casual, or even false, verification. If the details of the entity are private, will that also be private? If so, why? The identity of a regulated person is not likely to be sensitive. The regulations are to protect the privacy of people on an exceptional basis; they must not become a back-door way for enablers to avoid the disinfectant of publicity. The identity of the verifier should always be public. The Minister mentioned in his opening words the penalties for false filing that will apply to the directors and officers of the entity. Can he let us know what the penalties would be for a verifier who fails to verify appropriately?
My Lords, first, I thank the Minister for his introduction and give apologies from my noble friend Lord Fox, who is unavoidably detained up a mountain. He would never normally miss an SI debate for the whole world. It is very good to see the noble Lord, Lord Vaux, in his place, as he played such a prominent role during the Bill’s Committee stage. Like him, I thank the Minister for arranging an extremely interesting and instructive hybrid demonstration of the digital application process, the way that it is put on the register and the way that the register will be maintained.
I want to speak to all three SIs, linked as they are, even if only one needs specific approval today. I welcome the speed at which the register is being brought into effect and echo the Minister’s praises for those who have been responsible for doing so. It goes quite some way to justify the rather cursory nature of the passage of the Act itself.
Of course, we still have unfinished business on the economic crime front and I hope very much that it is actively in the pipeline, to ensure that there are no kleptocrats or oligarchs out there who are unexposed. I hope that part 2 will consolidate the UK’s fragmented and ineffective anti-money laundering supervisory regime and reform corporate criminal liability law to ensure that it includes enablers. Enablers were very much the subject of our discussion in Committee. I hope that it combats the use of strategic litigation against public participation, which stifles public interest criticism of these characters, and empowers and resources Companies House to effectively monitor, verify and investigate suspicious companies. I hope that it will significantly increase resource for law enforcement agencies fighting economic crime and support whistleblowers to play an effective role in tackling economic crime. Could the Minister give us a little indication of when we might expect those goodies in the part 2 Bill?
On Regulation 7, I hope that the provisions regarding not putting information on the public register are rigorously applied. But I think there are questions when one looks through the regulation. Will certain elements of the enforcement and crime prevention authorities be consulted when an application under Regulation 7 takes place? What checks of the evidence provided by the applicant will be carried out? That is going to be an extremely important element to maintain that rigour.
As I said, we have had much discussion about enablers. It seems that those who do not comply with the requirements or make false returns on behalf of clients will be subject only to sanctions by their professional body or regulator. Have I got that right? I believe that that is what the Minister said when we had our demonstration. If that is correct, are there plans in part 2 to have sanctions on those professionals who give false verification under Section 16 of the Act, other than via professional bodies? Otherwise, it seems a very tame way of making sure that those who provide that verification do it honestly and with integrity.
It is notable that in this SI process the Act has actually been improved along the lines suggested in Committee by myself and my noble friend Lord Fox for overseas corporate trusts and nominee companies. I used the example of a Panamanian nominee company with multiple properties to point out the flaws in the original Bill. I believe—and I hope that the Minister can confirm—that that avenue is now completely closed, and that a Panamanian nominee trust company would have to disclose the beneficial ownership of every property in its portfolio.
I see that there is no impact statement. In fact, there is a statement in each SI that there is no impact from any of the SIs. That seems very strange. Is it a technicality? In other words, does the main impact come from the passing of the primary legislation? Or is it the case that this set of SIs and maintaining the register will have no impact? It seems extraordinary to put that statement into these SIs, when what they actually do is put into effect the really important part of part 1 of the economic crime legislation. I hope that the Minister can clarify where the Government believe that the impact is.
I have a little technical teaser for the SI team. I noticed that these regulations are made partly under Section 25(3) but not under Section 25(3)(e) and (g). Given that they are being made under paragraphs (a) to (d) and (f), that seems rather odd. Paragraph (e) is
“recording of restrictions in the register”
and paragraph (g) is
“the charging of fees by the registrar for disclosing information where the regulations permit disclosure, by way of exception, in specified circumstances.”
Since the SI specifically mentions the bits of the Act which are prayed in aid to make the regulation, it would be useful to know why these two paragraphs have been excluded.
We have three SIs here. Are any other SIs needed to bring the register into effect or is that it? Can we say it is done and dusted, all that needs to happen now is that Companies House gets on with it and the register will be open as soon as possible?
Finally, it would be useful to know from the Minister by when he expects the Crown dependencies and overseas territories to introduce public company ownership registers. I believe it was meant to be by the end of the year; are they still on track for that? In the meantime, will the Government ensure that the authorities in those dependencies and overseas territories will proactively share information with UK authorities to enable comprehensive sanctions designations?
(2 years, 4 months ago)
Grand CommitteeMy Lords, I thank the Minister for his clear explanation of how the scheme will work. However, like the noble Lord, Lord Jones, I await the Minister’s response to the Secondary Legislation Scrutiny Committee’s specific comments relating to how the scheme will work in making progress towards the Government’s ambitious target of 600,000 installations by 2028 and on how realistic the Government’s current projections and targets are, given the six-year timetable.
I also want to know from the Minister why there is a seven-week delay in the introduction of the scheme. This causes severe problems for both manufacturers and installers who have geared up for the scheme’s introduction on 1 April. Will the RHI scheme be extended to cover this gap? Can the Minister also confirm that this scheme will run its full course, unlike the green homes grant, and tell us what will happen if the take-up goes beyond 30,000 installations per year? Is funding contemplated for that?
I am also interested in the Minister’s response to the part that other measures and technologies can play in achieving the same ends. Can he provide confirmation that they will receive similar financial support and incentives? Although the financial support that the boiler upgrade scheme will provide is welcome and necessary, it is important to recognise that heat pumps and biomass boilers are just two of a range of technologies that will help us to reach net zero. We need to take into account the diverse nature of the United Kingdom’s stock of domestic and non-domestic properties. This requires us to be flexible in the choices we make regarding the low-carbon solutions that are employed.
For instance, heat pumps are not appropriate or effective in a vast number of properties. Given this, the Government should adopt a technology-neutral approach to the decarbonisation of home heating, ensuring that the most appropriate and suitable solutions are used on a case-by-case basis. BEIS’s figures indicate that, in the off-grid space, roughly 1.7 million homes use fuel oil for heating, while another 220,000 use LPG. For many of these properties, which are often older, uninsulated and listed and where insulating is either unfeasible or extremely challenging, installing a retrofitted heat pump could cost £30,000 or more. Even with the maximum amount of government support, home owners in these instances would be left with a bill for £24,000 or more.
One interesting option for such properties is renewable liquefied gas, a fuel source with almost zero carbon emissions that is made from a range of sustainable feedstocks including food waste. Renewable liquefied gas can effectively utilise existing infrastructure to deliver affordable decarbonisation solutions for both domestic and non-domestic properties. Keeping costs down for the consumer is particularly important in ensuring an equitable transition. Giving too much weight to any one technology, such as heat pumps, risks leaving people behind on the journey to a greener future. I urge the Government to remain open-minded and give due consideration to those homes that are the hardest to decarbonise, where a one-size-fits-all approach is not appropriate.
My Lords, discussions on heat pumps are always interesting. Everyone seems to have a view, although few have any experience of actually running the things; I find that this is particularly the case with those who are the most enthusiastic about them. I would love to know how many noble Lords who have spoken today have installed a heat pump—indeed, whether the Minister or any other member of the Government has done so. For the record, I have; I have two heat pumps, in fact, so I do speak a little from experience.
I welcome the scheme even if, from a personal point of view, I regret that it has come a bit late for me —although I do benefit from the RHI scheme, which over its life is slightly more generous. We need to bring down the costs of heat pumps if we are to encourage their uptake. This scheme is simple and up front, so I think it is likely to be more successful than the RHI scheme, which is complex and, frankly, rather tedious with having to measure everything and send in the forms every three months.
I want to raise a couple of points of caution, based both on my own experience with heat pumps and on publicly available information, including an Answer from the Minister to a Written Question I submitted to him about a year ago. Heat pumps are often stated as being able to generate heat equivalent to three to four times the electrical energy that is put in; I have seen claims of up to five times. There has been quite a lot of press coverage over the weekend suggesting that, with these grants and based on that kind of efficiency claim, heat pumps could now be cheaper than gas. There is plenty of coverage saying it; it is not right, but it says it. Advertising in brochures for heat pumps often talks about those sorts of efficiency multiples. My own pumps claim they should achieve 3.2 times efficiency; they are less efficient high-temperature pumps, which is why it is a slightly lower number.
(2 years, 5 months ago)
Lords ChamberMy Lords, I shall speak also to Amendment 6 in this group.
Amendment 2
“makes clear that a company may not be designated by the Secretary of State if it is owned, wholly or in part, by a foreign power or entity specified in regulations laid by the Secretary of State.”
In Grand Committee, my noble friend Lady Wilcox of Newport very ably, in my Covid absence, introduced two Labour amendments that would have severely restricted foreign involvement in the UK’s civil nuclear industry. During the course of that debate, she suggested that if the Government were sympathetic to the arguments but uneasy with the mechanism, they could come forward with an alternative. In responding, the Minister confirmed this. These adapted amendments following Committee take on board the considerations that we debated and, although weakening the original amendments, retain their essence.
It is with that in mind that I hope the Minister will consider Amendments 2 and 6 favourably. They now provide alternatives—rather than banning foreign involvement completely, they would require the Secretary of State to establish and maintain a list of foreign powers and entities that are barred from involvement in UK nuclear projects. This feels both proportionate and reasonable. As we see it, the list would operate in a similar manner to the financial action task force’s list of high-risk countries for money laundering, which is part of our domestic law via regularly updated SIs.
The amendments do not specify criteria for including states or entities on the list; it could be national security, but the Secretary of State could also choose to bar a company that has a questionable track record in other respects—be it a poor delivery record or safety concerns. It may be that the department wishes to bar the involvement of some individuals or entities currently subject to sanctions but who may not necessarily still be on the sanctions list at the time of a future designation.
The Minister told us in Committee that this was an interesting idea and that the department would study it closely. We are grateful that he made BEIS officials available to us for discussion on this and other topics last week, but that meeting took place just hours before the deadline for tabling government amendments, and final agreement could not be reached. The Minister knows we are supportive of the Bill, but our general support should not diminish the importance of our concerns. The feeling of colleagues in Grand Committee and in private discussions since has been that the protections under the National Security and Investment Act 2021 are not sufficient in this area. We feel that Amendments 2 and 6 offer a sensible way forward, building on a system already used by other departments—Her Majesty’s Treasury, for example—and familiar to financial and other institutions across the country.
Should the amendments be accepted, I am sure the department will be free to address any drafting deficiencies, but we on these Benches believe that this is an important point of principle and will test the opinion of the House if the Minister does not accept Amendment 2. With that, I beg to move.
My Lords, I speak to Amendments 4, 7 and 8 in this group in my name, but, before I do that, I will quickly say that I also support Amendments 2 and 6, in the name of the noble Lord, Lord McNicol of West Kilbride. In Committee, I said I was unable to support his amendments because I felt that a blanket ban on foreign state involvement in our nuclear programme went much too far, so I am delighted that he has now found a more flexible formulation, which would enable the Secretary of State to decide who should be barred from the nuclear programme.
The amendments in my name are intended to cover a similar point, but perhaps more widely and slightly more flexibly. Last week, we spent a lot of time discussing the importance of being able to identify the ultimate beneficial owners of property in the UK. It seems to me considerably more important that we should always be certain of the identity of any party that may be able to exercise significant control over a nuclear company, either directly or indirectly, and that we should be able to take action to prevent undesirable parties, should they attempt to obtain significant control of a nuclear company. My amendments simply seek to achieve that.
As I mentioned in Committee, it was ruled out of scope when I tried to introduce an amendment that would have allowed the Secretary of State to revoke the licence of a nuclear company if an undesirable party obtained significant control. My amendments here are restricted to the designation under the Bill, but the comments I am about to make apply every bit as much to the licensing regime, and I ask the Minister to keep that in mind.
I have revised my amendments from Committee so that my three amendments now introduce a regime for designated nuclear companies that is similar to that which applies to persons with significant control of UK companies. They further give the Secretary of State the ability—not the obligation—to revoke the designation of a nuclear company either where the Secretary of State is not satisfied that the identity of a party with significant control has been verified, or if a party later obtains significant control and the Secretary of State is not satisfied that they are a fit and proper party to own or control a company.
I am very grateful to the Minister and his team for their helpful engagement on this point—again, unfortunately, just before the deadline for submitting the amendments. They have pointed me towards the National Security and Investment Act 2021—the NSI Act—as providing the protections that I am seeking and, to an extent, they are right. But there remain important gaps, and I want to raise them and hear what the Minister thinks.
First, the NSI Act comes into play only if there is a notifiable transaction, so it does not apply at the point when a nuclear company is applying to be designated. It seems to me important that we designate companies only where we are satisfied that we know the identity of all parties that might have significant control, so Amendment 4 adds a new condition that the Secretary of State is satisfied that the identity of any party with significant control has been verified.
I am sure the Minister will tell us that the Government will of course carry out this verification as part of their due diligence—he is nodding—before a designation is granted. If the Government intend to carry out this step anyway, why not accept the amendment? Secondly, it is, sadly, not uncommon for due diligence not to be completed as thoroughly as we might like—1 am sure we can all think of examples of that. The amendment would not add any burden to the Government, but it would ensure that this critical verification step must be included in the due diligence, so why not accept it?
There is another reason. If the due diligence failed to identify such a party for some reason, without Amendments 4 and 7 taken together there would be no mechanism in the Bill to remedy the situation after the designation had been granted. The NSI Act would not apply, because no qualifying transaction would have taken place. So we would be stuck with a party that we had not verified, which cannot be right.
The next problem with relying on the NSI Act is that the first remedy under the Act is that, if a notifiable transaction takes place without authorisation, it is void. But that can apply only to UK companies. If, for example, a nuclear company has a 51% shareholder that is a Japanese company, and a Chinese company later takes a stake in that Japanese company, there is no way we can void that transaction, regardless of what the NSI Act says.
(2 years, 5 months ago)
Lords ChamberMy Lords, I support the theme of what the noble Lord, Lord Clement-Jones, just said, which is the general weakness of the definition of beneficial ownership in this Bill. It is very striking that in other jurisdictions within the British Isles that hold registers of beneficial ownership and have done for some years, the beneficial owner is always defined as an individual and never as a firm or a trust. An individual who ultimately owns or controls the entity must be identified. The Bill as currently constructed has significant weaknesses, which will prevent the identification of individual beneficial owners in the way that the Government apparently intend but have not as yet achieved.
My Lords, we find ourselves in an unusual position. Normally, this House is trying to knock the edges off overzealous legislation and limit the powers the Government have a tendency to give themselves. In this Bill, we are trying to achieve the exact opposite: to strengthen the powers and close the loopholes so that the powers are as effective as possible.
We are trying to move quickly because of the awful situation in Ukraine. As the Minister said at the outset, the overseas entity register is not an emergency measure—although it will be useful in this situation. In normal times, it would be subject to much more detailed scrutiny, and we would not normally debate such wide groups as we are today. At Second Reading, I asked the Minister to confirm that the follow-up economic crime Bill would be sufficiently wide in scope to allow the matters we are covering now to be considered further, if necessary, as part of that Bill. While the Minister nodded vigorously at the time, he did not give that confirmation in his response. The House clearly accepts the need to move fast, and matters which would normally be voted on will not be pushed to a vote. I hope that the Government will reciprocate that flexibility. Speaking for myself, it would be much easier to accept the flaws and gaps in this Bill, if it were clear that there will be the opportunity to give the more detailed scrutiny which these important issues deserve in due course. Will the Minister please provide that confirmation today?
We all welcome the additional clauses that the Government are proposing on trusts, one of the more common methods to obscure ultimate ownership. Of course, trusts can be—and, as the Minister said, they usually are—perfectly legitimate. However, they can be misused. As such, I commend the Government for introducing these new clauses. That said, and in addition to the points made by the noble Lord, Lord Clement-Jones, there is still one area where an important gap remains: the classic way of camouflaging the identity of the ultimate beneficial owner is by the use of discretionary trusts. These will often have a stated beneficiary, such as a charity, but, because they are discretionary, the benefit can be passed to others who are not identified. That might be under a formal agreement, but it is often something less formal or traceable. In such situations, it can be difficult to ascertain who the real beneficiary is. The identity of “the settlor or guarantor” is one clue— government Amendment 15 rightly requires those to be identified.
The Minister kindly wrote to me yesterday afternoon—I apologise for spoiling his weekend. He said that HMRC already has access to information about beneficiaries through new data-sharing gateways and existing exchange of notes mechanisms. However, this is true only for UK resident taxpayers and for situations where money actually flows. It does not cover all jurisdictions, so the gap remains. Many of the ultimate property owners are not UK residents, and value can pass in different ways—for example, the simple right to use the property rent-free would not be picked-up by HMRC.
One other way of trying to see through such discretionary trusts is to identify who has benefited in the past, including those who have had the use of the underlying property at less than market rent. It would be relatively easy to add a subsection to the Government’s Amendment 15 to cover that, and it would not be difficult information for innocent parties to provide. Is this something which the Government could consider, even if it is in later regulation?
As a general theme, we should not be allowing overseas entities to register unless they are fully transparent. To be honest, the Government’s apparent reluctance to accept clauses which would improve that transparency is somewhat concerning. On that theme, I also wholeheartedly support Amendment 17. It seems rather pointless to have information on the overseas entity, if that still fails to show us who owns the property. I urge the Minister to look at that seriously.
My Lords, I shall speak in support of the noble Lord, Lord Clement-Jones, and his Amendment 17. I recognise that the Government have made big strides in the last few days to listen to the concerns which are so widely held. However, given all this effort, and given that the Bill has sat almost ready for four or five years, I feel that we could go further today and do the job properly.
There is no point in legislating for a Bill that leaves huge gaps for more anonymity. I am really sceptical about the need for endless anonymity. The people who strive to have anonymity do not always have it for the right motives. We need to recognise that. I said to the Minister before we came to the Chamber that we spend our lives being entirely reasonable in this country while trying to deal with very unreasonable people. Of course, we must stick to the law, but we need to have the levers in the law which enable us to tackle these bad actors. This is why, in my own slightly layman attempt with Amendment 23, I have tried to bring more focus on the promoters of these organisations. This is to ensure that there is much more responsibility taken by directors who promote organisations, and that they help to provide proper due diligence when working with the sorts of people they are busily defending anonymity for.
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.
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.
Yes, but they would have to be tabling notices to any potential beneficial owners in order to update the register. We think that if we have a yearly update, any third party transacting with that entity would then have sufficient legal certainty to be able to proceed. The point is not that the entity might not register the change of ownership but that the third party, and indeed Companies House, have no way of knowing whether it has. Therefore, a third party could engage in a transaction thinking that the original entity is compliant and then discover afterwards that it has not updated its register and is non-compliant, and therefore potentially lose its money and be unable to proceed with the transaction because it cannot register the property. On balance, we think the better option is to have a yearly update cycle, but I realise that this is a point of debate and I am happy to discuss it further. I know that the noble Lord, Lord Vaux, is engaged in this.
The Minister has not addressed the point that this can easily be dealt with by bringing forward the annual update, which a company has the ability to do under—I think, from memory—Clause 7. If that were done as part of the property transaction, that solves the problem completely. Does the Minister disagree with that?
No, I do not disagree with that. It is, of course, perfectly possible—
The noble Lord often suggests setting up special Committees of this House. He will know that it is way above my pay grade to dictate to the House authorities what committees they wish to set up for examining particular Bills. I know from appearances that there are some extremely good and effective committees already in this House examining all parts of the Government’s legislative agenda and all departments—but, if the noble Lord can forgive me, I will not get into instructing the House authorities on what committees to set up to future scrutinise our work.
Relevant firms, including financial institutions, law firms, accountancy firms and estate agents, under the anti-money laundering framework, must inform Her Majesty’s Treasury as soon as practicable if they know, or have reasonable cause to suspect while carrying out their business, that they have encountered a person subject to financial sanctions, or a person who has committed a financial sanctions offence. They must state the information on which the knowledge or suspicion is based, and any information they hold about the person by which they can be identified. It is already an offence to fail to comply with this reporting obligation. I understand that the noble Lord does not think that the legislation is applied properly—perhaps we can look at that—but there is already an offence on the statute book.
Activity which seeks to evade these new beneficial ownership reporting obligations should be taken into account in the course of these firms taking a risk-based approach to anti-money laundering, and any suspicions of sanctions evasion should be reported in accordance with their legal obligations. I am pleased to say that Treasury Ministers will be writing to the anti-money-laundering supervisors of the relevant professional enablers on this matter, highlighting that the Government will be expecting everyone in these sectors to be particularly vigilant.
I hope that, with the reassurances that I have provided on this important issue, the noble Lord will feel able to withdraw his amendment.
The Minister was kind enough to offer to meet with me about my Amendment 24. I actually asked about meeting regarding the verification regulations in Clause 16. Is he prepared to do that, probably with others, as it is very important that these regulations get the input of all these highly intelligent people around the Committee before they are issues, rather than afterwards?
Yes, I am happy to meet with the noble Lord and his colleagues to discuss that matter.
Before the Minister tries to answer that, we need to recognise delivering what the noble Lord, Lord Eatwell, wants would be absolutely transformative to Companies House. There is no tinkering at the edges here; this would be a massive transformational change and, unless we get that, this amendment will not deliver what is being asked of it.
I will quickly add to the comments from the noble Lord, Lord Pannick. Clause 16 sets out the regulations must
“make provision … about the information that must be verified … about the person by whom the information must be verified … requiring a statement, evidence or other information to be delivered to the registrar for the purposes of sections”
et cetera. Perhaps the Minister could enlighten us as to what he has in mind there.
My Lords, I am grateful to my noble friend Lord Eatwell for moving Amendment 42. As we all know, he has a huge amount of experience in this field, having overseen many of these matters in another jurisdiction. He has long pressed the Government to introduce a register of this kind, but Amendment 42 calls for proper data verification. As we have heard from a number of noble Lords—the noble Lords, Lord Vaux and Lord Cromwell, the noble Baroness, Lady Kramer, and others—it is essential to the credibility of this Bill to ensure that any data is verified and accurate, as my noble friend Lord Eatwell put it.
The Government moved a little on this topic when the Bill was in the House of Commons, passing what was then Amendment 49, as we heard from other noble Lords, requiring the Secretary of State to lay regulations outlining the verification process before the register goes live. We welcome that move as it provides greater certainty, but as we have already heard, it prompts a number of supplementary questions and, in our view, does not go far enough. That is what Amendment 42, which we support, seeks to address.
When will we see the regulations? Will the process be based on previous consultations or require a separate engagement exercise? What if they are brought forward and the envisaged process is deemed inadequate? What if we end up getting the Bill before the SI has been laid? As with the earlier group on the transition period, we need greater clarity on process and timescales. Surely, accurate, verified data as required by my noble friend Lord Eatwell’s Amendment 42 is essential; without it, the Bill simply will not succeed.
(2 years, 5 months ago)
Lords ChamberMy Lords, I remind the House of my interest as a chartered accountant—which I hesitate to do after the last speech, I have to say. Like most noble Lords, I welcome this Bill, although I greatly regret the Government having to introduce these measures in such circumstances and in such a rush. We have tolerated for far too long the UK—and London in particular—becoming a haven for the ill-gotten gains of criminals. Of course, we need to get this Bill onto the statute book quickly, so that we can effectively sanction those responsible for the atrocities taking place in Ukraine.
Economic crime, however, is a much wider subject than Russia, and we have a lot of work to do to remedy the laissez-faire attitude to economic crime that has pervaded government policy—or, perhaps, lack of policy—in the last decade. The resignation speech of the noble Lord, Lord Agnew, said it better than I ever could. There is much more to do than is covered in this Bill, and I was pleased to hear the reassurances about the follow-up Bill.
In my comments, I will concentrate on the overseas entity register, but I have one observation on the unexplained wealth order clauses. The Government have blamed the aggressive use of legal action by oligarchs as the major reason why UWOs have not been successful so far. I am sure that there is some truth in that, but I am unconvinced that it is the main issue. More likely, the major problem is the lack of a properly resourced enforcement agency—something we also see in the wider issue of fraud more generally. I understand the reason for introducing legal costs clauses, but I do feel uncomfortable that someone who is entirely innocent will not be able to recover the potentially huge legal costs to defend themselves.
The overseas entity register is a good start, but I am afraid I do not expect it to make much practical difference. Innocent people will provide the required information—which is useful in itself—but those who are using offshore structures dishonestly to hide their identity will still be able to do so. There are many other ways of hiding ownership, including discretionary trusts, undisclosed nominees, complex corporate structures and so on. The current alleged situation of Graham Bonham-Carter and Oleg Deripaska is a good example of how this can happen.
So, in the spirit of being helpful, how might we improve this? First, while the reduction from 18 months is welcome, the time period of six months is still too long. In fact, the period is more than six months, because these clauses do not commence until such date as the Secretary of State decides. Can the Minister say when that will be? Six months still gives a lot of time for people to rearrange their affairs to avoid the rules. I would have favoured 28 days, but perhaps the three months that the Institute of Chartered Accountants has suggested might be a good compromise.
Secondly, while the new rules will prevent a property being sold once the rules are in force until the entity is registered, this does not stop the sale of the company, or, indeed, of a company further up the chain. The Bill will therefore not prevent a criminal realising the value of the property. Frankly, there is probably not a lot we can do about that, but I note that the register will only have to be updated annually, so it may be a very long time before we discover the change. It would be better if the changes to the beneficial ownership had to be updated on the register immediately after the transaction takes place. The Companies Act 2006 requires the persons of significant control register to be updated within 14 days. Perhaps the Minister could explain why the overseas entities register is different from that?
Thirdly, the register will be pointless if there is no real verification of it. One way to improve that would be to leverage the due diligence that should already be happening under anti-money laundering legislation, although clearly this does not always happen as well as it should do. At the moment, we rely on the passive, risk-based requirement to report suspicious activity. It would seriously concentrate the minds of lawyers and accountants who advise those using offshore entities if there was an active requirement for them to place a statement on the register that they have carried out their due diligence and are satisfied that the beneficial ownership is correctly stated, and if we also made sure they were liable for that statement under Clause 15. As well as improving the integrity of the register, this would have the additional impact of making those who are enabling the hiding of assets to think very seriously about it. The requirement for such a statement could easily be included in the regulations to be made under Clause 16. Is that something the Minister would consider?
This Bill is a start, but it is a rushed Bill, issued to deal with an emergency situation, and scrutiny is being substantially curtailed. It is not without flaws. As I said, the subject of economic crime is much wider, and deserves much greater work and consideration. I was pleased to hear the details of the follow-up Bill, which needs to be comprehensive. Can the Minister please make a clear statement that the follow-up Bill—given the curtailed nature of the scrutiny here—will allow the matters covered in this rushed Bill to be looked at again, with the more detailed scrutiny the subject needs and deserves?
I said there was a robust system in place under the money laundering regulations in response to the various points that were made about financial services professionals, estate agents, et cetera. That is not to say that we cannot improve the system; we certainly look to do that. Providing information and transparency on property ownership, unexplained wealth orders and the sanctions regime, which is what we are doing, will help to supplement that system.
In July 2021, the CPS amended its legal guidance on money laundering offences for prosecutors to make it clear that it is possible to charge someone under Section 330 of POCA, which relates to the failure to disclose money laundering in the regulated sector. This closes a long-standing gap in law enforcement’s toolkit, which will better enable us to tackle the small minority of complicit professional enablers.
In addition, the Solicitors Regulation Authority—the largest legal PBS which supervises approximately 75% of regulated legal service providers in the UK—undertook a broad range of enforcement action in 2021. This included issuing 14 fines totalling £163,000, suspending membership three times and cancelling membership 13 times, effectively preventing an individual conducting regulated activity.
To take another example, the Institute of Chartered Accountants in England and Wales—the largest accountancy PBS—undertook a broad range of enforcement action. This included issuing 59 fines, totalling £178,000, and cancelling the membership of firms six times—again, effectively preventing an individual conducting regulated activity.
The noble Lord, Lord Carlile, suggested that we should consider how we can make legal professionals report matters relating to national security in a structured way and without the benefit of legal professional privilege. This is a complicated matter and not for this Bill, but I certainly welcome his contribution and his engagement, and we will certainly look at that.
The noble Baroness, Lady Kramer, raised an important point on protecting whistleblowers. We recognise how valuable it is that whistleblowers are prepared to shine a light on wrongdoing and believe that they should be able to do so without fear of recriminations. The whistleblowing regime enables workers to seek redress if they are dismissed or suffer detriment because they have made a so-called protective disclosure about wrongdoing. It is right and proper that the Government review the whistleblowing framework once we have had sufficient time to build the necessary evidence of impact of the most recent reforms. We are considering the scope and timing of a review.
A number of noble Lords—the noble Lord, Lord Macdonald, in particular— raised an important point concerning the wording “knowingly and recklessly”. The wording is drafted on precedent, coming from the Companies Act. This clause is intended to provide a necessary and proportionate deterrent to those who may otherwise provide inaccurate or misleading information on the register of overseas entities. This was debated at length in the other place and the Government have already made a commitment to reconsider the drafting. I also welcome the comments of the noble Lord, Lord Macdonald, on the sanctions proposals.
The noble Baroness, Lady Kramer, and the noble and learned Lord, Lord Garnier, asked about the issue of the register and trusts. If the assets are owned via an overseas legal entity, then this entity is within the scope of the draft Bill and will be required to register the trustees as beneficial owners with Companies House and state the reason that they are the beneficial owner—that is, because they are the trustees of that trust.
Her Majesty’s Revenue and Customs introduced a register of trusts in 2017. Trustees of trusts that acquire UK land or property are required to register and provide information on the beneficial ownership of the trust. The information on the register can be shared with law enforcement authorities and enables them to access information on the trustees and beneficiaries of all trusts. Reforms to unexplained wealth orders will also allow law enforcement to investigate the origin of any property held via trusts.
I now turn to the points raised by the noble Lords, Lord Vaux and Lord Eatwell, on verification. Clause 16 requires the Secretary of State to make regulations requiring the verification of information before an overseas entity makes an application for registration, complies with the updating duty or makes an application to be removed from the live register. To ensure that regulations are laid in a timely way, we have added a requirement for regulations to be made before applications may be made for registration in the register of overseas entities. We expect that UK anti-money laundering supervised professionals may have a part to play in this, and we will set out details on the verification scheme in regulations. Overseas entities will be required to update their information annually, and Companies House will be given broad powers to query information it holds via the further legislation to come later in the year. Also, the very public nature of the register means that there will be many eyes viewing the data, which will of course aid in identifying any inaccuracies. I thank my noble and learned friend Lord Garnier for his comments on whether we are capturing the ultimate beneficiaries of property. This is an important point.
The Minister has not answered the question about why the register is updated annually, not 14 days after a transaction in the way that the PSC rules have to be updated.
I will come to that in a second. The new register is designed to allow investigators to get behind opaque companies. Whether a title is held by a company or an individual, the noble Lord is right that there may be a different beneficiary of the property. That is something investigators may explore further. The task of this register is to look through the company, and that is where we are focused in scope. The question of recording the ultimate beneficiaries of property is a far wider point and would apply to properties held by individuals and UK companies too.
I thank the noble Lord, Lord Carlile, for sharing his experiences with Companies House. We have outlined in the White Paper, published last week, what we are proposing to do under register reform. We are seeking to limit the risk of the misuse of companies by ensuring more reliably accurate information on the companies register, reinforced by identity verification of people who manage or control companies and other UK- registered entities. We will give greater powers to Companies House to query and to challenge the information it receives, and we will give enhanced protection of personal information provided to Companies House. There will be more effective investigation and enforcement and better cross-checking of data with other public and private sector bodies. Companies House will be able to proactively share information with law-enforcement bodies where they have evidence of anomalous filings or suspicious behaviours.
I move on to unexplained wealth orders. I thank the noble Baroness, Lady Chapman, the noble Lords, Lord Vaux and Lord Carlile, and my noble and learned friend Lord Garnier for the points that they raised on the use of UWOs. The threat of substantial legal costs has been a barrier to the use of UWOs. Likely subjects of UWOs are the most litigious persons. To ensure that unexplained wealth can be investigated in the maximum number of cases, we are reforming the cost rules to ensure that agencies will not be burdened with high legal costs if they act with integrity. If an agency acts dishonestly, unreasonably or improperly, it may still be ordered to pay the costs of those subject to a UWO, which is to ensure fairness. An important point to raise regards the changes to the cost rules to limit law-enforcement liability following an adverse court ruling. Protection from costs means that the court has discretion to award costs against an enforcement agency only if it acted dishonestly, unreasonably or improperly. This will remove a key barrier that has discouraged the use of UWOs, while of course providing a safeguard against arbitrary use of the powers.
The noble Lords, Lord Vaux and Lord Carlile, expressed concerns relating to resourcing for law enforcement agencies. The Government have developed a sustainable funding model that demonstrates our commitment to tackling economic crime. The combination of this year’s spending review settlement and private sector contributions through the levy will provide economic crime funding totalling around £400 million over the spending review period. That includes the £63 million that I mentioned earlier for Companies House reform. Since 2006-07 nearly £1.2 billion of the assets recovered under the Proceeds of Crime Act has been returned to law enforcement agencies, prosecutors and the courts to fund further asset-recovery capability or work that protects the public from harm.
Account freezing and forfeiture orders are a hugely impactful tool in the law enforcement toolkit. AFOs have proved their worth in a wide range of cases and are seen by law enforcement agencies as a quick and effective method of disrupting criminals and recovering their assets. In 2020-21 just under £219 million of the proceeds of crime were recovered within England, Wales and Northern Ireland. This continues the general trend of improved performance since 2016-17.
The noble Baroness, Lady Kramer, raised an important point on Clause 18 of the Bill and the exemptions for which it provides. The phrase used in the draft Registration of Overseas Entities Bill, published in 2018, was that the Secretary of State may exempt a person from the requirement to register only for “special reasons”. This was intended to mirror the wording used in the Companies Act 2006 in respect of the persons with significant control regime. However, the pre-legislative scrutiny committee that examined the draft Bill in 2019 was of the opinion that the reasons why an exemption could be granted should be explicit in the Bill. The Government accepted the committee’s concern that otherwise the power may be too wide, and we amended the Bill accordingly—I think that also addresses some of the points made by the noble Lord, Lord Carlile. The circumstances outlined in the Bill have been carefully considered to provide clarity but also flexibility for unforeseeable but legitimate scenarios. Given that the key objectives of this register are to improve transparency and combat money laundering, these exemptions will be used very carefully, and only for evidenced and legitimate reasons.
The noble Baronesses, Lady Bennett and Lady Kramer, raised the subject of freeports. Throughout the bidding prospectus and subsequent business-case processes, prospective freeports were required to set out how they would manage the risk of illicit activity. Those plans were scrutinised by officials in Border Force, HMRC, the National Crime Agency and others. The Government already require each freeport governance body to take reasonable efforts to verify the beneficial ownership of businesses operating within the freeport tax site and to make that information available to HMRC, law enforcement agencies and other relevant public bodies. Given the nature of the information, we do not think it would be appropriate for the freeport governance body to release that information publicly because it is a third party and does not have the locus to release such information about a business to the public. Furthermore, the requirement would also partially duplicate the people with significant control register at Companies House, where there is already an onus on the company itself to provide information.
I fear that I am running out of time—
(2 years, 5 months ago)
Grand CommitteeMy Lords, first I should apologise for not being able to take part in the Second Reading of the Bill. I therefore start by stating that I generally support the Bill, for two reasons: first, because I believe that nuclear power will be essential if we are to meet our net-zero goals; and, secondly, because I believe that it is essential that we become more self-sufficient in our energy needs and, in particular, reduce our reliance on other countries that may not share our values—this has been starkly demonstrated in the past couple of weeks.
The three linked amendments in my name in this group, Amendments 11, 22 and 24, are intended to address that last point. In order to ensure that we are not reliant on potentially hostile parties for our energy needs, we must be able to identify the ultimate beneficial owners or controllers of any companies that own a material part of our key energy providers. I hope that that is not a controversial statement. Indeed, the Government are in the process of putting rules in place for the identification of owners of UK property and I would argue that it is much more important for owners of nuclear-generating assets to be identified.
However, I can find nowhere in the legislation where identification of the ultimate beneficial ownership or control is a requirement. The nearest that I could find are the persons of significant control rules, but they do not always apply; they apply only to UK companies, for example, and in any event are easily avoided. These three amendments therefore try to address that shortcoming. I tried to introduce a clause that required all holders of nuclear generation licences to identify their ultimate beneficial owners, but it was not allowed. It was apparently out of scope of the Bill. I think that the Minister might want to consider that. Therefore, I have had to restrict these amendments simply to the designation process.
Amendment 11 ensures that, before a nuclear company can be designated under the Bill, the Secretary of State should be satisfied that the identity of any party that owns or controls, directly or indirectly, more than 10% of a nuclear company has been verified. Amendment 22 then allows the Secretary of State to revoke that designation if at some future point they are no longer satisfied that those identities have been verified. Amendment 24 adds a further duty on the nuclear company to notify the Secretary of State of the identity of any party that later gains ownership or control of more than 10% of it, again directly or indirectly, and allows the Secretary of State to revoke the designation if the nuclear company fails to make such notification or if the Secretary of State considers the new party not to be a fit or proper person to own or control a nuclear company.
I have deliberately not put in any prohibition of ownership in these amendments. I would not, for example, go as far as the noble Lord, Lord McNicol of West Kilbride, or the noble Lord, Lord Oates, in Amendment 9, which would prohibit the designation of a nuclear company that has any foreign power as a shareholder. As we heard, there are plenty of countries—France, for example—where it would be perfectly acceptable for them to own a stake and there are many others where it would clearly not be acceptable.
We should not be looking at state shareholdings only. There are many non-state parties that I would think would not be fit and proper to own nuclear assets. I think that it is appropriate that we look at each case on its merits and allow the Secretary of State to decide if the ownership is acceptable in the particular circumstances. The critical thing is that we should be able to identify the ultimate ownership and control and take appropriate decisions based on that, including the right to revoke the designation.
I am sure that the Minister will point out his statement at Second Reading that the Government intend to take a special share in all future nuclear new-build projects, but that is only an intention and, as the Minister pointed out, is subject to negotiation; no details of the rights attached to such special share have been provided. I therefore think that some safeguard is required in the legislation. While I would be happy to discuss the details of these amendments—for example, whether 10% is the right level—I hope that the Minister can see the attraction of the principles set out in Amendments 11, 22 and 24. I also hope that, as I said, he will consider the wider point that these rights and duties should apply with respect to all nuclear power generation licences, not just those that wish to be designated.
My Lords, we are getting to the important issue—quite rightly raised by the noble Lord, Lord Vaux—of control, the involvement of foreign companies and, behind them, possibly foreign Governments in this vital part of our energy security. There is one thing that I would like to know before the Minister replies. He will remember, as will most of your Lordships, that my right honourable friend Theresa May, back in 2016 after she became Prime Minister, ordered a review of Hinkley Point C, in particular the involvement of Chinese interests in that vast project, which is now going ahead. Everyone got quite agitated at the time. I remember the Chinese ambassador walking around saying, “Has there been a coup? What’s happened? What’s gone wrong? Was the Chancellor of Exchequer not in Beijing the other day agreeing that this was a new golden area of co-operation between China and the United Kingdom and, in the words of Xi Jinping, that there was going to be ‘unlimited’ partnership in all sorts of investments?” The Chinese, along with EDF and the French, were welcomed with open arms to get the Hinkley Point C project off the ground.
After a while, there was a review, which concluded that Hinkley Point C should go ahead, to the great delight of the Chinese. The whole thing was a very good bargain for them: not only did they get involved in Hinkley Point C, but they had a promise of involvement in Sizewell C and, even better for them, a promise of bringing in Hualong technology and managing their own project at Bradwell-on-Sea. This was a great delight and was going to be the poster boy project for the Chinese, as they moved into massive sales of Chinese technology and development, which would go well beyond a GDA for Bradwell into the possibility of building and managing a nuclear power station right at the middle of our system.
The review that Theresa May authorised was thorough and went into considerable detail into the conditions that there should be on the Chinese going forward. I would like to know from the Minister whether those conditions still prevail or whether they have been modified 10 years later, under further pressures, when the public attitude towards Chinese involvement has changed 180 degrees. We have moved from an age of loving everything Chinese to getting rid of everything Chinese. Has there been a change? It would be helpful if he could describe to what extent we have moved on that and to what extent those review conditions of 2016 still prevail.
My Lords, I had rather a nice time working with the Liberal Democrats in the Cameron Government, when, in an enlightened way, they were strongly in favour of nuclear power. It appears that they chop and change from time to time, but those were the days.
Before I speak further, my noble friend Lord Trenchard has reminded me that I should have made it absolutely clear that I have an indirect interest to declare, in that I advise Mitsubishi Electric, which is concerned with the power sector and indirectly therefore with nuclear construction. I suppose that I also have a sort of interest in the sense that I was Secretary of State 40 years ago and tried to build nine new reactors, of which only one, Sizewell B, was ever built. I think that I am allowed to reflect to this Committee that things would be much nicer for us if we had got the other eight built as well. They were all low-carbon and would have helped greatly in the present crisis, but that is all history.
On these amendments, it is absolutely true, as the noble Lord, Lord Oates, observed, that the radioactive waste issue requires careful handling and examination, and it must be addressed fully and with all the knowledge that we can bring to bear to establish and meet the many understandable concerns about it.
As for value for money, we will come to that in the next amendment. Of course, there are enormous difficulties in defining what value for what money, but we can debate that in more detail in a moment.
What is not true is to imply that there has been no technical solution to the absolutely safe—nothing is 100% but it is highly safe—burying of high-radioactivity nuclear waste for thousands of years. It is certainly more than 40 years since the late Walter Marshall explained to me that vitrification and burial two or three miles down in a stable geological formation was very nearly foolproof. There was a faint possibility of corrosion of the glass vitrification case around the radioactive material, but otherwise it would be safe for hundreds of thousands of years. He added, rather cynically, that if before then people wanted to dig it up and eat the glass, they may have more problems than radioactive waste. The vitrification option is there; it can be done.
In the great debate going on in America about the Yucca Mountain development as a waste disposal centre, I noticed that the statistics produced—I have the precise figure here—say that all but one in every 10,000 waste packages going into the repository, if it is built, would be secure for more than 150,000 years. So we are talking about the most minute dangers. The danger is there, but it is minute, and has to be weighed against all the other problems—we will come to value in a moment—of abandoning an area of low-carbon electricity which will be reliable, will stop a great deal of the suffering that we have today, and will be not only a stepping-stone to but a crucial adjunct and back-up of the renewable and clean energies that we all want to see dominate when conditions allow.
My Lords, my Amendment 42 to Clause 40 is loosely related to decommissioning, which is why it is in this group, but perhaps slightly niche or tangential.
It is important that there is clarity as to who is responsible for decommissioning. As I understand it, Clause 40 is intended to make it easier for nuclear companies to obtain debt finance by removing the risk that a lender might be caught by the definition of being associated and so potentially become liable for the decommissioning costs, which would not be appropriate for a debt provider. That makes perfect sense, and I fully support the clause in principle.
However, it seems to me that as currently drafted there is a risk that the exemption the clause sets out could create a loophole under which a party that should be treated as associated for decommissioning purposes is able to avoid that by doing some creative structuring of their holding using debt. This is often done, for example, by private equity companies, although more commonly for tax purposes, but it would not be hard to reduce a shareholding to just below the threshold of 20% while in fact retaining the ability to take control above 20% because of the rights attached to debt or quasi-debt. If a party has structured their investment to be 19.9%, and is thus not deemed associated and not liable for decommissioning costs, but it then goes over 20% through the exercise of rights arising due to debt holdings, that party should clearly be treated as associated and should not be able to utilise the exemption set out in Clause 40. However, as the clause is written, it would be able to.
It would be highly unusual for a genuinely arm’s-length debt provider such as a bank to own shares in a company as well as providing debt, apart from the share security rights that come with the debt. Amendment 42 would simply restrict the exemption to parties that did not own shares. That should close off the potential loophole while not changing the intended aim of Clause 40 to encourage debt financers to step up. I hope the Minister can accept it.
What I can say is that the Government will meet all our obligations to communities in decommissioning the site.
When the Minister was answering on Amendment 42, I think that she confirmed the existence of the loophole that I had pointed out, so I will just ask her a direct question. If someone whose stake was, say, 30% managed to structure it so that it was 19% and debt, then that debt was subsequently rejigged to bring us back above the 20% threshold, should that person be treated as associated or not?
I am told that Section 67 of the 2008 Act already provides for this, because the totality of the investment would be taken together. If it is over the threshold, it will be caught.
But the whole point of Clause 40 is to create an exemption, so that share security rights that arise from debt are not taken into consideration when deciding whether someone is over the 20% or not. That is the whole point of Clause 40 and is precisely the problem that I was alluding to. I am happy to meet the Minister to discuss it, if that is easier.
I am happy to explore this further out of Committee.
(2 years, 6 months ago)
Lords ChamberMy Lords, it seems that this Bill will be some time in coming, but surely there are things we can do more quickly. For example, the Companies Act 2006 sets out clearly what information is required on directors and shareholders. Is it actually necessary to legislate for Companies House to verify that information? It may not be able to refuse to register the information, but there is nothing to stop it flagging the fact that the information is unverified.
I am afraid that it is necessary for primary legislation to enact the reforms of Companies House. This is an area for which I am responsible, and I work closely with Companies House on it. I get a steady flow of complaints from noble Lords and from Members of Parliament about abuses of the Companies House register. There is a certain amount that we can do with the funding that I announced in terms of reforms, but the primary reforms require primary legislation.
(2 years, 8 months ago)
Grand CommitteeMy Lords, I understand and welcome the principle of the regulations—to ensure that large companies state what they are doing about climate risks and opportunities—but I have one concern. Companies’ financial statements are becoming ever fuller of environmental, social and governance information. There is a danger that, in doing this, we render the accounts more difficult to follow. It becomes hard to see the wood from the trees.
We have only to look at US listed company financial statements to see how that can go. You have to wade through hundreds of pages of risk and other ESG analysis. Most of it consists of standard-form, boilerplate statements that do not change year to year and, in reality, add little or nothing to the understanding of the reader. Indeed, it can make the accounts almost unreadable and very hard to make an informed decision about the position of the company.
I fear there is a danger that we may be starting to follow that trend, so I am very pleased that Part 3 of the regulations requires a review to be carried out, but that is not until 6 April 2027. I suspect that it will become clear much more quickly than that whether they are having the desired effect or are just adding more meaningless boilerplate to the accounts. I urge the Minister to keep that under constant review, rather than waiting until 2027, and to take action much more quickly if it becomes clear that the regulations are really not doing what is intended.
We shall see, my Lords. We debate these regulations on the back of the most important summit the UK has ever held—a summit which future generations will look back on as when we either met the moment or missed the opportunity. It is increasingly clear that progress at COP 26 was modest and, too often, action will come too late. The Climate Action Tracker has stated that Glasgow commitments mean that, rather than limiting warming to the target 1.5 degrees, we are on track for a devastating 2.4-degree rise.
This is the backdrop to which we debate these regulations, which I hope have not come too late, as they will play an essential part in reaching net zero by 2050, as well as ensuring businesses both mitigate the risks of climate change and seize opportunities.
Today’s instrument introduces new reporting obligations for certain UK registered companies, as the Minister explained, including certain listed companies and companies with more than 500 employees and a turnover of more than £500 million, which require them to report climate-related financial information as part of their strategic report. This is in line with the recommendations of the task force on climate-related financial disclosures—a framework which includes 11 recommendations forming, as we have heard, four pillars: governance, strategy, risk management, and metrics and targets.
Support has been coalescing around these recommendations. The TCFD’s latest annual status report states that the number of organisations endorsing the task force’s recommendations has increased to more than 2,600—an annual increase of 70%.
We should remember that, regardless of the serious impact on migration, security and hunger, climate chaos is also costly. The Intergovernmental Panel on Climate Change estimates $69 trillion in global financial losses by 2100 from a 2-degree warming scenario.
Getting to this point has taken a while, and climate delay has been a repeated issue with this Government. The task force on climate-related financial disclosures published its recommendations back in 2017. Then the UK Government’s green finance strategy set out an expectation that all listed companies and large asset owners should disclose in line with the TCFD’s recommendations back in 2019, but did not hold a consultation on the proposals until earlier this year. As we have heard, these new requirements are to come into force next April, 2022—five years after the task force on climate-related financial disclosures published its recommendations.
According to BEIS, regulatory action is necessary because the current voluntary approach
“is unlikely to be effective … current levels of disclosure across the economy are low and reporting quality varies significantly.”
If we look in detail at the impact assessment, this is clear. Looking at the central scenario for additional groups having to comply with reporting requirements, it reveals that only 34% of the 1,350 companies in scope have already aligned with governance, 24% with risk management and only 14% with scenario analysis. The impact assessment estimates that 1,350 companies are in scope of the regulations. Can the Minister tell us what percentage of the UK economy this covers?
The impact assessment states that
“When a UK group is in scope, all the subsidiaries (UK and overseas) belonging to the same UK group, would be expected to hold some degree of reporting burden.”
What does “some degree” mean? These regulations also focus on companies producing mandatory qualitative scenario analysis. The impact assessment states that the Government
“understand that while some companies might decide to go beyond these requirements … there will be some companies that lack the expertise, resources and capabilities to undertake quantitative scenario analysis by the time these regulations come into force.”
How many companies are predicted to produce quantitative analysis as well? What will be done to encourage both qualitative and quantitative analysis to be produced? When does the Minister expect quantification to be phased in?
It is regrettable that, first, we are unable to study the non-binding guidance alongside these regulations and, secondly, that the LLPs regulations have not been laid at the same time as this SI, due to their interlinking nature. The Secondary Legislation Scrutiny Committee flagged this SI as an instrument of interest:
“We note that the Department will produce guidance on the new reporting requirements which, according to the Impact Assessment, will be around 125 pages long. This suggests a considerable degree of complexity. In the absence of the actual guidance, it is difficult to form a view of the nature and extent of the new reporting requirements, and how robust the Department’s assessment of the impact on businesses is.”
Does the Minister agree that there will be a “considerable degree of complexity”? Why is the guidance not ready for today’s debate? In the consultation stage impact assessment, the Government had assumed that guidance would be about 75 pages long. Why has this increased by 50 pages according to the Secondary Legislation Scrutiny Committee’s report?
The Government state that the combined impact on business of these regulations and those which apply to LLPs is £145.3 million. The impact assessment states that costs result from companies needing
“to get familiar with BEIS Guidance, TCFD Guidance and other companies’ disclosures before producing their own report”,
as well as ongoing costs which include collecting and processing information, strategy and risk management. How are the Government communicating to and supporting businesses with this additional cost?
I would like some clarification from the Minister on enforcement. The impact assessment states that:
“We also expect there to be an additional ongoing cost of monitoring, supervision and enforcement to the Financial Reporting Council (FRC) as the appropriate regulating body for disclosures”,
but is the FRC properly resourced to take on this additional burden? Can the Minister explain how the Government will work closely with the Financial Conduct Authority and the Financial Reporting Council to ensure monitoring and enforcement frameworks operate in a coherent and complementary way? What happens if these companies fail to follow these obligations or publish substandard information? Will there be fines? The impact assessment states that “reporting quality varies significantly”, as the Minister said, so can these regulations ensure that this does not continue to be the case? A review before 6 April 2027 is welcome, but the impact assessment states that there will be “a light touch review” in 2023. What will this consist of?
I end by speaking about small and medium-sized enterprises. As the impact assessment states,
“Climate change poses significant risks to businesses,”
and we have to include SMEs within that statement. The cost implication of these risks means that SMEs can be even more exposed to the risks and to being squeezed out of the opportunities of climate change. Does the Minister see these obligations being extended to SMEs soon? The impact assessment states,
“disclosure can have cascade effects through the supply chain”.
Can the Minister confirm they are not just relying on trickle-down climate economics to see a change in reporting behaviour for SMEs? The cost implications for SMEs make it essential that the Government have a strategy to support them.
To conclude, these regulations are welcome, but they represent only a small part of the picture of how the Government need to help businesses respond to the risks and opportunities of climate change.