Small Business, Enterprise and Employment Bill
Debate between Lord Watson of Invergowrie and Lord Phillips of Sudbury
Lord Watson of Invergowrie
My Lords, I begin by again stressing my strong support for the introduction of a register of people with significant control, and the enthusiastic welcome for it from the All-Party Group on Anti-Corruption, of which I am a member. Indeed, I believe that the PSC register should be overwhelmingly welcomed—I would even go so far as saying to the extent that we should be somewhat suspicious of the motives of those who oppose it in principle.
The introduction of the register is a step forward, and a big one at that, because it will frustrate people who hide or seek to hide criminal activities behind shell companies—a big and increasing problem that stretches across different parts of the world. For example, the UN has reported that Ukrainian arms licences are being given to UK shell companies involved in supplying helicopter parts to Assad in Syria, military kits to Gaddafi’s Libya and nuclear technology to Lithuania, all of which I believe should give noble Lords genuine cause for concern.
The legislation we are considering represents a significant step forward because the PSC register will record the ultimate beneficial owners of our companies and the public will be able to examine it. That said, the Bill leaves what I believe is an important gap: where the chain of ownership extends to foreign companies, not all of the links in the chain will be recorded. This will allow corruption to remain hidden away, out of sight of the UK authorities. These amendments aim to close this gap. Their implementation would involve a minimal burden for a small percentage of the most complex businesses. I very much hope that we can make some progress on this issue today.
Amendments 36, 37 and 38 seek to ensure that, where control of a UK company involves intermediaries in a chain, all the links in the chain should be revealed and exposed to scrutiny, because knowing and understanding the chain of ownership is, I believe, necessary to enable information on the register to be checked. I also believe that the importance of that has been acknowledged by the Government, because the Bill already requires that the method of control be declared, accepting that how control is exercised is important. These amendments seek to make sure that that will be made clear in the small number of cases where there is a chain of entities as part of the method of control. It would make a big difference. For example, developing countries require such information to bring legal action against a person of significant control—something they have often been unable to do in the past, often at great cost to their fragile economies.
When speaking about the register on 31 October 2013, the Prime Minister stressed that it would be publicly accessible and went on to say the following:
“It’s better for businesses here, who’ll be better able to identify who really owns the companies they’re trading with. It’s better for developing countries, who’ll have easy access to all this data without having to submit endless requests for each line of inquiry. And it’s better for us all to have an open system which everyone has access to, because the more eyes that look at this information the more accurate it will be”.
Needless to say, I thoroughly agree with the Prime Minister, but without placing on record the chain of ownership there will not be sufficient information available on the register to enable third parties to verify it properly. I believe that it is self-evident that the success of the register will rest on how accurate it is. To ensure that it is as accurate as possible, there is a need to maximise opportunities to ensure a higher level of accuracy from day one. That is what these amendments are designed to achieve.
The noble Lord, Lord Phillips, and I tabled similar amendments in Committee. The Minister said then that our amendments would be costly. Yet those amendments would have amounted to a minimal burden for a small number of companies—the most complexly structured companies at that. We estimate that only about 2% of UK businesses would need to provide only a very small amount of additional information when submitting their annual reports. The company should already have collected this information in confirming its person of significant control. The only extra demand would involve including this information in its annual report. This is such a minor requirement that I do not believe that it even merits being categorised as a “burden”, but it is a requirement that would fall exactly on the type of company that is most likely to be of concern. For that reason, I believe that it is proportionate.
In Committee, the Minister said that this would be confusing. On the contrary: surely the chain of ownership would be presented more clearly in the register, reducing the likelihood of confusion. The Minister also said in Committee that this would be seen as gold-plating. I agree with her, but is that not to be welcomed? I contend that it is not so much gold-plating as the rather more prosaic—and certainly cheaper—copper-bottoming: ensuring that the register achieves what it is designed to achieve. We are the first country in the world to introduce a public register. I believe that we should be proud of that and I also believe that we should get it right first time.
These three amendments would make a significant difference to developing countries at minimal cost to a small number of UK companies. Having listened to the Minister in Committee, the noble Lord, Lord Phillips, and I have scaled them back from the amendments that we tabled then. I very much hope that they will now find favour with the Minister. If they do not, I look forward from hearing from her how the Government intend to address this issue, perhaps in secondary legislation, so that the register can be established on the firmest possible foundations.
I turn briefly to Amendment 53. The intention of this amendment is to make a very simple point that the noble Lord, Lord Phillips, and I feel has not been properly addressed yet during the Bill’s consideration: that it should be the Secretary of State who is responsible for the operation of the PSC register, rather than Companies House. We suggest an annual report to Parliament from the Secretary of State to highlight this point, allowing parliamentarians to hold the Secretary of State to account on the operation of the register. Since this will be the world’s first public register of beneficial ownership, I believe that it is really important that we get it right.
The Secretary of State must ensure that information in the register is properly verified and that it is kept as up to date as possible. I welcome the comments that the Minister made just a few minutes ago in respect of another amendment about increasing the number of times that it is updated. Throughout the various stages of the Bill, MPs, noble Lords, interested organisations and, indeed, to a significant extent, members of the public have made the point that the public register should be updated more than annually. As things stand, it would be out of date almost as soon as it is published, so again, the Minister’s remarks are to be welcomed.
I hope that the Minister will accept what I think is a relatively straightforward and simple amendment, which will clarify ministerial responsibility for the register and increase parliamentary scrutiny of it. If not, I hope that she will outline how she or the successors of the Secretary of State would ensure that the public register is kept as accurate as possible and that the information contained within it is properly verified. I beg to move.
Lord Phillips of Sudbury (LD)
My Lords, my name stands with that of my noble friend Lord Watson of Invergowrie on these amendments. He has introduced them with great panache, and I do not have a great deal more to say but I think that the issues are so important that a few more points are necessary and worth while.
First, I shall give the House some of the facts that point to the scale of the problem of fraud and tax avoidance, which I do not think many of our fellow country people understand. My noble friend Lord Watson and I have been hugely helped by the Anti-Corruption APPG of this House, which, in turn, has been supported by Global Witness and Christian Aid, and a wonderful job they have done. One of the statistics they have produced for us—I think that Transparency International has had some part in this as well—is that the best estimate is that $21 trillion to $32 trillion of private financial assets rest in tax havens, and that 20% to 30% of that huge corpus of assets is corruptly diverted. Of that, they reckon that $120 billion to $180 billion per annum, which is far more than the entire global aid budget, is diverted unlawfully from developing countries. This is a rather poignant day on which to say that, as the Bill concerning the 0.7% contribution to aid has just been passed.
Another fact which I find rather depressing because it affects the UK is that it is reckoned that the Crown dependencies and overseas territories are host to one-third of all the world’s shell companies. On top of that, more than 36,000 properties, which are mainly in the most expensive parts of this wonderful city, are owned by overseas owners but are placed in shell companies in tax havens, 38% of them in the British Virgin Islands, 16% in Jersey, 9.5% in the Isle of Man and 9% in Guernsey. In addition, the World Bank’s review of the 200-plus biggest corporation corruption cases shows that 70% use shell companies as their vehicles of fraud. Therefore, the background to this amendment could not be more important and striking.
At this point, I have to own up to something from my dim and distant legal past. In the mid-1960s I was what was then called a tax mitigation lawyer. I notice a groan from behind me.