Post Office Compensation

Debate between Seema Malhotra and Kevin Hollinrake

Monday 18th September 2023 Commons Chamber

[Kevin Hollinrake]

The hon. Gentleman raises an important point. It is right that everyone is fairly compensated, and the detriment that people experienced will vary. As he rightly says, not all were prosecuted. That is why we have the historical shortfall scheme running, and 99% of those cases have been made offers. We also have the group litigation order scheme, which is about to be rolled out and is open for claims right now.

As I said in a previous answer, the process of assessing someone’s claim is complex and difficult, and in every single compensation scheme I have been involved in, including some of the banking schemes, it has taken a long time to settle those losses. We are looking at every possible way to expedite not just the overturned convictions scheme, but the other schemes, and we have some other ideas on how we might do that. We share the hon. Gentleman’s sentiment and we are working night and day to get those claims settled more quickly.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

I thank the Minister for his statement today. Decent, honest people have had their lives torn apart. They have been put in prison, they have been made to wait years for justice and it has been a long, painful and arduous process to get convictions overturned and seek access to compensation. Could the Minister provide an estimate of the timescale for compensation completion for those he considers eligible and not yet fully compensated? Could he also update the House on the next phase of the public inquiry? That is critical, as representatives of the Post Office, the Government and the Japanese firm Fujitsu are due to give evidence. Why has it taken so long for evidence to be taken from those key stakeholders and for them to be held to account?

Economic Crime and Corporate Transparency Bill

Debate between Seema Malhotra and Kevin Hollinrake

Consideration of Lords amendments
Monday 4th September 2023 Commons Chamber

[Kevin Hollinrake]

My right hon. and learned Friend says it is the Treasury. Actually, I am responsible for the business framework and I am concerned about putting £4 billion of regulatory burdens on businesses. That burden has been calculated in the same way that we calculated the burden for bribery, so I think it is a figure we can rely on. Our natural position is that we do not regulate businesses that would find it more difficult to deal with that regulation. That tends to be SMEs. They might find it more difficult to deal with regulation, rather than larger companies, where it is easier to put those controls in place.

We have heard arguments that the threshold means 99% of companies will not be in scope, but we do not think the number of companies is the right metric by which to assess the effect of the new offence. We believe economic activity is more appropriate. I can assure the House that 50% of economic activity would be covered by the organisations in scope of this new offence with the threshold in place. It is, of course, already easier for law enforcement to prosecute fraud in smaller organisations that fall below the threshold. Given those factors, the Government cannot support the amendment.

Lords amendment 158 seeks to introduce a failure to prevent money laundering offence. The UK already has a strong anti-money laundering regime which requires the regulatory sector to implement a comprehensive set of measures to prevent money laundering. Corporations and individuals can face serious penalties, ranging from fines to cancellations of registration and criminal prosecution if they fail to take those measures. The money laundering regulations and the money laundering offences in the Proceeds of Crime Act are directly linked and can be seen as part of the same regime. A failure to prevent money laundering offence would be hugely duplicative of the existing regime. In our conversations with industry, it has been very clear that that duplication would create a serious level of confusion and unnecessary burdens on businesses. We should be supporting legitimate businesses, rather than hampering them with overlapping regimes. The Government therefore do not support the amendment.

Lords amendment 160 would prevent enforcement authorities from having to pay legal costs in unsuccessful civil recovery proceedings, subject to certain intended safeguards. This type of amendment would be a significant departure from the loser pays principle and therefore not something we should rush into without careful consideration. The risk of paying substantial legal costs is just one of a multitude of factors that inform an operational decision to pursue an asset recovery case.

Several hon. Members and noble Lords have pointed to the similar changes made to the unexplained wealth order regime by the first economic crime Act, the Economic Crime (Transparency and Enforcement) Act 2022. The key difference is that UWOs are an investigatory tool that do not directly result in the permanent deprivation of assets, whereas civil recovery cases covered by the amendment could do so. There could, therefore, be a host of serious unintended consequences of such a change to the wider civil recovery regime, so the Government cannot support the amendment. However, we recognise the strength of feeling on the issue and the potential merits of reform. We have therefore tabled an amendment in lieu which imposes a statutory commitment to review the payment of costs in civil recovery cases in England and Wales by enforcement authorities, and to publish a report on its findings before Parliament within 12 months.

I hope the House is assured that the amendments the Government have laid are minor but sensible tweaks to the Bill. As I have set out, the Government have listened and made substantial important amendments to the Bill throughout its passage, significantly improving and strengthening the package where we recognise improvements could be made and where it makes sense for businesses. We must now, however, stand firm where we believe the amendments will not work or will place disproportionate burdens on businesses. I very much hope Members will support our position today and that the other place will note the Government’s movement on cost protection and reconsider its position on the six amendments when the Bill returns there. We must get on with implementing the vital measures in the Bill without further delay.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

It is a pleasure to speak in this debate on behalf of myself and my hon. Friend the Member for Aberavon (Stephen Kinnock). I thank the Minister for his opening remarks, and for the call last week with him and his officials. I thank the officials, pay tribute to their work on the Bill, and thank all those who have supported and taken part in the Bill’s proceedings.

We are in no doubt about the importance of the Bill. Britain has become a global hub for dirty money. The cost of economic crime now runs to as much as £350 billion, equivalent to our annual health and education budgets combined. Economic crime hits our constituents and our businesses. It hurts our public finances and it damages our reputation around the world. Action on economic crime was first promised in 2016, then 2018 and 2019. It matters because in the years from 2016 we saw a significant increase in economic crime, much of which could have been prevented if the Government had acted then. It took the invasion of Ukraine for the Government to step up. Strengthening the law has been urgently needed, which is why the Labour party has actively supported the Bill’s important passage through both Houses and sought to ensure that we leave no loopholes unchecked. Where the Government fail to act, we will.

We recognise that the Bill has made real progress in strengthening the law to tackle economic crime and its enablers. I particularly thank my right hon. Friends the Members for Barking (Dame Margaret Hodge) and for Birmingham, Hodge Hill (Liam Byrne), my hon. Friend the Member for Rhondda (Sir Chris Bryant), and the all-party parliamentary groups on anti-corruption and responsible tax and on fair business banking for their research and relentless campaigning for change. I also thank other Members who have made significant contributions to our debates, including some who are here: the hon. Member for Cheadle (Mary Robinson), the right hon. and learned Member for South Swindon (Sir Robert Buckland) and the right hon. and learned Member for Kenilworth and Southam (Sir Jeremy Wright). The Bill brings significant reform of Companies House, improving the accuracy and transparency of the register, with new powers for the registrar to become a more active gatekeeper over company creation.

Let me speak first to Government amendments which we support. I congratulate the Minister on the number of U-turns on areas that Labour argued for in Committee and on Report, including on closing loopholes around third party enablers and introducing a failure to prevent fraud offence. We welcome Government amendment 1, passed in the other place, which would expand the scope of objective 2 in clause 1, requiring Companies House to also take into account the accuracy of information already on the register before the Bill comes into effect. Government amendments 35 to 50, which all relate to the authorisation of corporate service providers, are vital amendments, especially amendment 35, which requires the registrar to publish the name of the authorised corporate service provider who has carried out ID verification. We welcome amendment 43, which requires the registrar to refuse the application for authorisation as a corporate service provider if it appears that the applicant is not a fit and proper person to become an ACSP.

Government amendments 146 to 150 introduce further provisions limiting SLAPPs that feature economic crime. I particularly thank my right hon. Friend the Member for Birmingham, Hodge Hill for his advocacy on this issue throughout the passage of the Bill and in Committee. SLAPPs are a form of abusive proceedings. It is for us to send a signal and to change the law in the public interest. I would, however, ask the Minister for clarity on the Government’s intention to cap costs via secondary legislation, set out in one of the Bill’s factsheets. It would be helpful if he could give us an idea of when the Government are considering doing that, and how quickly he expects it to happen.

Lords amendments 151 to 158 introduce an offence of failure to prevent fraud, which I know was a priority for the Minister as well before he took on his present role. This is a huge step forward, which also follows considerable pressure and work between the Government and both the Opposition and their own Back Benchers throughout the Bill’s passage. The amendments take us forward, but the evidence shows that we need to go further, which is why we will support Lord Garnier’s amendment 159.

Digital Markets, Competition and Consumers Bill (Fourteenth sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Committee stage
Tuesday 11th July 2023 Public Bill Committees

[Kevin Hollinrake]

It is a pleasure to serve under your chairmanship on hopefully the last day of this Bill Committee, Dame Maria. Chapter 4 of part 4 of the Bill aims to strengthen the quality of alternative dispute resolution available to consumers. The chapter replaces EU-derived regulations on ADR with a stronger regime that requires ADR providers to be accredited. Clause 283 defines ADR, which includes mediation, arbitration, early neutral evaluation and action under an ombudsman scheme, and who is an ADR provider. It applies only where ADR is provided in the context of a consumer contract dispute.

Government amendment 83 makes a consequential change to clause 283 in connection with amendments to clause 287. Clause 284 defines consumer contracts and consumer contract disputes. Consumer contracts include suppliers of electricity, gas, water and heat. Government amendments 84 to 88 add references to Scottish and Northern Irish legislation in relation to the supply of those utilities, which were omitted on introduction. Government amendment 89 removes a superfluous definition. Clause 285 prohibits ADR providers from carrying out ADR unless they are accredited or acting for someone who is. That is subject to the exemptions provided in clause 287. It also prohibits ADR providers arranging for third parties to carry out ADR on their behalf unless their accreditation or exemption permits that.

Clause 286 restricts the fees that accredited ADR providers may charge consumers to fees approved by the Secretary of State and those that are published. That will prevent excessive fees and ensure transparency in fee charging. Government amendments 90 and 91 clarify that the limited conditions under which fees may be charged apply only to accredited ADR providers. I commend the clauses to the Committee.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

It is a pleasure to serve under your chairship, Dame Maria. I thank the Minister for his opening remarks. This is an important part of the Bill. Clause 283 defines ADR and related terms for the purposes of the chapter. Part 4 makes accreditation of ADR providers compulsory unless an exception applies. It includes examples of ADR, such as mediation, arbitration, early neutral evaluation and action under an ombudsman scheme. In her evidence, Tracey Reilly from Consumer Scotland welcomed measures in the Bill as making it

“easier for consumers to seek redress through ADR systems that are appropriately regulated and standardised.”––[Official Report, Digital Markets, Competition and Consumers Public Bill Committee, 13 June 2023; c. 36, Q49.]

We welcome the straightforward definitions, as well as the broader chapter, which will hopefully increase trust in and use of ADR services in disputes between businesses and consumers. The Government’s policy paper on ADR released in April highlights that

“46% of consumers using alternative dispute resolution had problems including concerns over the time the process took, customer service or a perception that the process favoured the business. 54% of cases took longer to resolve than the 3 months allowed—16% of consumers who went to court did so because the business refused to comply with a previous alternative dispute resolution decision.”

That demonstrates the scale of the challenge that we face in reforming ADR provisions so that they work for consumers. We welcome this chapter as a first step in seeking to meet that challenge.

As Graham Wynn, of the British Retail Consortium, noted in his evidence,

“the accreditation system and making sure that companies abide by what they are supposed to do in ADR is vital to have confidence in general.”––[Official Report, Digital Markets, Competition and Consumers Public Bill Committee, 13 June 2023; c. 51, Q84.]

Not having a full assessment of ADR providers has been an issue with the current arrangements.

Amendment 83 provides a signpost to clause 287, which identifies who are the exempt ADR providers for the purposes of chapter 4. We recognise that this amendment provides greater clarity in the legislation.

Clause 284 defines other terms for the purposes of this chapter, and they include “Consumer contract” and “Consumer contract dispute”. We welcome these definitions, and we support amendments 84 to 89.

Clause 285 introduces provisions prohibiting a person from carrying out alternative dispute resolution in relation to a consumer contract dispute unless they are accredited or exempt, or acting under “special ADR arrangements”. The explanatory notes state:

“Special ADR arrangements are designed to cover ADR schemes under which the ADR is provided through persons who might, for instance, be styled as ‘case handlers’, ‘adjudicators’ or ‘ombudsmen’”—or women—

“who are employed, or engaged by, or on behalf of, an ADR provider running the scheme. In that case, the person providing the ADR would not need accreditation, so long as the ADR provider running the scheme is accredited or exempt and is permitted to make special ADR arrangements.”

We will need to ensure that there is clarity in distinction and that there is cover in terms of regulatory cover and also expectations of quality, and we recognise that this clarity about special ADR arrangements will be important for that purpose. This is a welcome clause, ensuring that ADR providers are accredited and not liable to act against the interest of a consumer seeking redress. With regard to the exemptions, I will make a few remarks on clause 287.

Clause 286 limits the fees that accredited ADR providers may charge consumers to those charged in accordance with provisions approved by the Secretary of State, and published in a way likely to come to the attention of consumers. Although the Opposition welcome the provisions limiting the fees that consumers can be charged, I would welcome the Minister expanding on this clause slightly. I would, for example, welcome further explanation of the process by which the fees will be approved by the Secretary of State, and their transparency. It is important that there is predictability, fairness, consistency and transparency for consumers when it comes to any fees around ADR, so it will be important to have clarity from the Minister in this regard.

Finally, we support amendments 90 and 91.

[Kevin Hollinrake]

Clearly, the Bill sets out the fact that ADR providers are restricted in what they can charge for. It is therefore very much the assumption that the fees that they charge will be fair and transparent; that is the basis of this. I am not sure what clarification the hon. Lady might be seeking other than on those particular points.

[Seema Malhotra]

This is more about ensuring that there is a fair process and that it is clear, so that we do not have a situation in which consumers are being charged more than they ought to be because there has not been clarity about the Government expectations as to how those fees will be set. I was just seeking clarity on that.

[Kevin Hollinrake]

I do not have anything further to add. Perhaps we can have a discussion about this offline.

Amendment 83 agreed to.

Clause 283, as amended, ordered to stand part of the Bill.

Clause 284

Other definitions

Amendments made: 84, in clause 284, page 189, line 34, leave out “(the gas code)” and insert “, or by section 12(1) or (2) of the Energy Act (Northern Ireland) 2011 (2011 c. 6),”.

The provisions of the Gas Act 1986 referred to in clause 284(3)(b) do not extend to Northern Ireland. This amendment would add a reference to the corresponding legislation in Northern Ireland.

Amendment 85, in clause 284, page 189, line 39, leave out “(the electricity code”) and insert “or by paragraph 3(1) or (2) of Schedule 6 to the Electricity (Northern Ireland) Order 1992 (S.I.1992/231 (N.I.1))”.

The provisions of the Electricity Act 1989 referred to in clause 284(3)(d) do not extend to Northern Ireland. This amendment would add a reference to the corresponding legislation in Northern Ireland.

Amendment 86, in clause 284, page 190, line 4, at end insert “or Part 2 of the Electricity (Northern Ireland) Order 1992”.

Part 1 of the Electricity Act 1989 does not extend to Northern Ireland. This amendment would add a reference to the corresponding legislation in Northern Ireland.

Amendment 87, in clause 284, page 190, line 6, at end insert “or Part 2 of the Gas (Northern Ireland) Order 1996 (S.I.1996/275 (N.I.2))”.

Part 1 of the Gas Act 1986 does not extend to Northern Ireland. This amendment would add a reference to the corresponding legislation in Northern Ireland.

Amendment 88, in clause 284, page 190, line 8, at end insert—

“(b) a person supplying water under a water services licence within the meaning of the Water Services etc. (Scotland) Act 2005 (asp 3), or

(c) a water undertaker within the meaning of the Water and Sewerage Services (Northern Ireland) Order 2006 (S.I.2006/3336 (N.I.21)).”

The definition of “water supplier” in Part 1 of the Water Industry Act 1991 only extends to England and Wales. This amendment would add references to the corresponding suppliers in Scotland and Northern Ireland. In the current text of the definition, the words after “means” will become paragraph (a).

Amendment 89, in clause 284, page 191, leave out line 4.—(Kevin Hollinrake.)

The amendment deletes an unnecessary word: the term “business” does not need to be defined as it is not used in Chapter 4 of Part 4 of the Bill.

Clause 284, as amended, ordered to stand part of the Bill.

Clause 285 ordered to stand part of the Bill.

Clause 286

Prohibitions relating to acting as ADR provider

Amendments made: 90, in clause 286, page 191, line 39, after “the” insert “accredited”.

This is a drafting amendment to clarify which ADR provider is referred to in clause 286(2)(a).

Amendment 91, in clause 286, page 192, line 4, after “the” insert “accredited”.—(Kevin Hollinrake.)

This is a drafting amendment to clarify which ADR provider is referred to in clause 286(2)(c).

Clause 286, as amended, ordered to stand part of the Bill.

Clause 287

Exempt ADR providers

--- Later in debate ---

[Kevin Hollinrake]

Clause 287 and schedule 22 exempt various bodies that, so far as they provide ADR, it is not considered appropriate to regulate, and also exempt ADR under statutory redress schemes regulated by other legislation. Clause 287 allows the exemptions to be reviewed and updated.

Government amendments 92 to 96 amend clause 287, and Government amendments 108 to 111 amend schedule 22. They distinguish more clearly between the two categories of exemption. They also add exemptions for the local government and social care ombudsman, the Independent Adjudicator for Higher Education, the Parliamentary Commissioner for Administration and redress schemes for social housing, lettings agencies and property management.

[Seema Malhotra]

Clause 287 introduces schedule 22 into the Bill, which sets out the persons exempt from ADR provisions. I will also make a few remarks on schedule 22. Clause 287 also introduces a provision for the Secretary of State to add or remove from the list of exemptions. I want to clarify with the Minister why this delegated power has been left to the negative procedure. There may be a good reason for that decision, but it would be helpful to understand that.

We support amendments 92 to 96; the Minister has spoken to them. Schedule 22 sets out the list of ADR providers exempt from the regulations. As the explanatory notes explain and the Minister said:

“These include persons or bodies providing, or administering, dispute resolution services which are regulated under other legislation, who are exempted in order to avoid duplication or conflict between statutory regimes”.

That is important because obviously we do not want to have over-regulation or confusion between different parts of statute.

I ask the Minister for assurances that consumers using exempt providers will be able to expect the same level of protection from those that are non-exempt ADR providers. We do not have time in Committee to go through all the comparable regulations that exempt providers will be subject to, but from a consumer perspective the expectation should be that the protections, in terms of expectations of service and the regulations, will be comparable. I would be grateful for the Minister’s confirmation of that, and an assurance that the analysis has been done, because legislation is passed at different times and we want to be sure of that consistency.

Amendment 108 alters the list of persons in part 1 of schedule 22. There are other changes within amendments 108 to 111. We have no issue with any of those amendments, and we support them.

[Kevin Hollinrake]

On the use of the negative procedure, we feel that these are technical and mechanical changes, just to ensure that the statute remains up to date and clear, and to prevent excessive use of parliamentary time. Clearly, ADR providers are regulated by other means. We see no duplication in their regulation. The Financial Ombudsman Service, for example, is already regulated and overseen by the Financial Conduct Authority. We think that it would be needless to duplicate that kind of oversight.

Amendment 92 agreed to.

Amendments made: 93, in clause 287, page 192, line 19, leave out subsection (3) and insert—

“(3) Regulations under subsection (2) may, in particular—

(a) provide for an entry in Part 1 of Schedule 22 to apply to a specified person or to any person of a specified description;

(b) provide for an entry in Part 1A of that Schedule to apply to a specified scheme or any scheme of a specified description;

(c) limit the scope of the exemption given to a person by virtue of an entry in Part 1 or IA of that Schedule, whether in relation to carrying out ADR or making special ADR arrangements (or both).”

This amendment clarifies the scope of the power to make regulations under clause 287(2). The effect of the exemption given to a person by an entry in Part 1 or 1A of Schedule may be limited, for example by reference to the purposes for which an otherwise prohibited activity is carried out or to the kinds of otherwise prohibited activity that are (or are not) exempt.

Amendment 94, in clause 287, page 192, line 34, leave out subsection (5) and insert—

“(5) Subject to any limitation on its scope provided for by Schedule 22—

(a) an exemption given to a person by virtue of an entry in Part 1 of that Schedule covers anything done by the person in the exercise of the person’s functions that would otherwise be prohibited, and

(b) an exemption given to a person by virtue of an entry in Part 1A of that Schedule covers anything done under or for the purposes of an exempted redress scheme that would otherwise be prohibited.”

The amendment clarifies the general scope of an exemption that will apply by default, unless there is provision in the Schedule for it to be more limited.

Amendment 95, in clause 287, page 192, line 37, after “section” insert

“—

‘prohibited’ means prohibited by section 285(1) or (2);”.

The amendment defines “prohibited” for the purposes of the clause by reference to clause 285.

Amendment 96, in clause 287, page 193, line 1, leave out subsection (8).—(Kevin Hollinrake.)

The amendment omits a subsection that is no longer needed as a result of the other government amendments to clause 287 and Schedule 22.

Clause 287, as amended, ordered to stand part of the Bill.

[Seema Malhotra]

On a point of order, Dame Maria. I would be grateful for your guidance. The Minister made some remarks in response to my questions and I did not get the chance to intervene on him. I know that we have moved on, so is it best that I write to him on the questions that he did not answer on comparable regulation?

--- Later in debate ---

[Kevin Hollinrake]

The hon. Member for Feltham and Heston has raised a number of points for me to respond to. As an overarching point, we are moving from a voluntary to a mandatory system of ADR regulation, so we should not look at it as if we were starting from scratch. We are improving an existing system, which should give us some assurance that this is an improvement, not a step back from improving standards in this area.

One of the hon. Lady’s principal points was about the criteria that we apply for accrediting an ADR provider. They have to be kept high-level, because there are a wide variety of different providers, so it would be wrong to be too specific about the criteria we apply. However, clause 292 and schedule 23 both set out the principles behind what accreditation will look like at every scheme level, including standards on accessibility, expertise, fairness, independence, impartiality and transparency. Clause 292 will allow the criteria to be kept under review and to be modified if necessary and appropriate. On the public record, yes, there will be a list of ADR providers.

[Seema Malhotra]

I recognise what the Minister says about moving to a mandatory system and the improvements being made, which is why it is important that we do not leave gaps. However, I want to push him on my point about expertise.

[Kevin Hollinrake]

I will come to that. Criterion 3 in schedule 23 clearly sets out that a provider will be required to have the relevant expertise. Has the hon. Lady read that criterion?

[Seema Malhotra]

I have, and I quoted it to the Minister. What I asked him was how he will determine expertise, because in other legislation on ADR that we have debated, there has been some process. Have the providers been accredited? Is it based on experience? Do they have particular qualifications? Otherwise, expertise can be very subjective. That was the question I asked.

[Kevin Hollinrake]

And that was the question I answered. In response to the hon. Lady’s points, I said that the criteria have to be kept high-level. It would be wrong to be too specific about how we judge “expertise”, because of the wide variety of different ADR providers. What we all need to do is trust the process, which the Secretary of State oversees, of trying to make sure that each provider has the relevant expertise in each scheme area. As I said, there are schemes already in place that we are now putting under the mandatory regime. Of course, expertise will be judged on a scheme-by-scheme basis, but it is difficult to set out exactly what expertise we will require in any particular scheme, other than that we would expect the person to have the relevant experience and expertise.

--- Later in debate ---

[Kevin Hollinrake]

Chapter 1 of part 5 of the Bill enhances the UK’s ability to co-operate internationally on competition and consumer matters, as open and fair competition globally ensures the best opportunities for UK businesses and consumers. Clause 302 would introduce a new power for the Competition and Markets Authority and certain consumer protection regulators to provide investigative assistance to an overseas regulator. This power will apply to civil investigations or proceedings related to competition and digital markets and consumer protection.

The clause sets out three core requirements that must be met before investigative assistance is provided. First, the overseas regulator requesting assistance must be carrying out a function that corresponds to a function that the UK regulator has under UK law. Secondly, the UK regulator must assess whether it would be appropriate to provide the assistance requested by the overseas regulator, using the conditions set out in clause 304. Thirdly, the Secretary of State must have authorised the UK regulator to provide the assistance in accordance with clause 305.

Clause 303 sets out that the request must be made in writing by the overseas authority, describe the matter for which assistance is requested, and detail any potential penalties that might be imposed following the overseas investigation. Clause 304 provides a framework for UK authorities to assess whether it is appropriate to provide the investigative assistance requested by an overseas authority; it also sets out the circumstances in which a UK authority has no discretion and must reject an incoming request for investigative assistance—for example, if there is no reciprocity and no overriding public benefit to the UK in providing the assistance in any event.

Clause 305 outlines the factors that the Secretary of State must consider in deciding whether to approve a request for assistance. For example, the Secretary of State may reject a request for assistance where they consider that it would be more appropriate for any investigation to be carried out by the UK authority solely for its own purposes. Clause 306 requires the UK authority to notify the Secretary of State where it has received for assistance and considers it appropriate to provide the requested assistance.

Clause 307 places a duty on the CMA to publish guidance in connection with requests for investigative assistance and the provision of that assistance. Any regulator with the powers to provide investigative assistance must have regard to that guidance, which must be approved by the Secretary of State. Clause 308 and schedule 25 amend the existing legislative framework to ensure that the new investigative assistance regime slots in properly and runs smoothly. For example, the usual time limits for the CMA to be able to impose civil penalties for failures to comply with merger information notices would not work in cases where the CMA is providing assistance, so schedule 25 creates a bespoke time limit specifically for such cases.

[Seema Malhotra]

Clause 302 acts as a gateway to investigative assistance provisions. This is an important provision, enabling regulators in the UK to assist an overseas regulator. The Minister outlined the conditions under which the UK regulator may assist. We understand that the issues around consumer protection and competition must increasingly be dealt with internationally, because they are increasingly digital in nature and when they arise abroad can impact consumers here, as well as the other way around. As we have gone through these matters with short remarks today, my overall comment is that while we need this provision, the safeguards that might be needed and what is or is not to be published are less apparent.

--- Later in debate ---

[Kevin Hollinrake]

There are just a couple of points to make, I think. On clause 302, the hon. Lady asked whether the police would be involved in any of the investigations. The clause sets out clearly that those are civil matters, not criminal matters. The overseas regulator requesting system is supposed to carry out a function that corresponds to a function that the UK regulator has under UK law.

[Seema Malhotra]

Either I was not clear, or the Minister mistook me. I was not talking about the police being involved. I was asking whether there are processes of sharing information akin to the way that information is shared with police, so that it can be done in more confidence. The question was about what will be known to those whose information may be shared, if there is that request.

--- Later in debate ---

[Kevin Hollinrake]

In the course of anybody’s work, if there is evidence of criminal activity, we would expect an enforcement agency or regulator to share that with the relevant enforcement authorities, including the police. Was that the point the hon. Member was trying to make?

[Seema Malhotra]

If I can put it a bit more simply, my question was about how the information will be shared, who will know that the information is being shared, and what that information is being shared about?

[Kevin Hollinrake]

If the hon. Lady has any further points that she wants clarified, perhaps she will write to me, as I am not quite sure what she is referring to.

The hon. Lady asked about safeguards and the considerations to be taken into account when agreeing to requests for assistance. The clauses provide significant safeguards with regard to the conditions that the authority itself needs to consider and, when it comes to the authorisation by a Secretary of State, consideration of appropriate protections, for example, around confidentiality and other considerations set out in the Bill.

Further details about the process and how investigative assistance will work in practice will be set out in detailed guidance. That is another point that the hon. Lady referred to—discussions between the regulator and the Secretary of State—that we expect to see in guidance. We expect the regulators and the Secretary of State to engage closely in considering whether to provide assistance. Guidance will be put in place and agreed between the regulators and the Secretary of State to set out how the measure will work in practice.

Question put and agreed to.

Clause 302 accordingly ordered to stand part of the Bill.

Clauses 303 to 308 ordered to stand part of the Bill.

Schedule 25 agreed to.

Clause 309

Disclosing information overseas

Question proposed, That the clause stand part of the Bill.

[Kevin Hollinrake]

Clause 309 provides clearer rules and more efficient gateways for information sharing between UK authorities and their overseas counterparts. The powers will apply to all UK public authorities covered by part 9 of the Enterprise Act 2002—primarily authorities with functions in connection with competition and consumer protection law. The existing overseas disclosure gateway in part 9 will be replaced with three new gateways. Under the first, a relevant UK authority may share information with an overseas authority for the joint purpose of facilitating both its own statutory functions and the functions of the overseas authority.

Under the second new gateway, a relevant UK authority can share information only to facilitate the functions of an overseas authority. When deciding whether to make a disclosure under the two gateways, the UK public authority will need to have regard to a number of factors, such as whether the laws and the practices of the other country can ensure that confidential information is appropriately stored and protected.

When deciding whether to make a disclosure to facilitate the functions of the overseas public authority only, the UK authority must give due regard to an additional layer of considerations. That includes whether the reason for the request is sufficiently serious to justify the disclosure of information. The Secretary of State will retain a power to modify, add to, or remove any of the considerations for each gateway. That is to ensure that the list of considerations remains balanced and appropriate.

There are restrictions that apply to the use and further disclosure of any information that is shared under the two gateways. The restrictions mean that, unless the disclosing authority provides its consent, information disclosed must not be used by the overseas authority for any purpose other than the one for which the information was originally disclosed; nor may the information be passed on to a third party. The Secretary of State will retain the existing power to prevent overseas disclosure of information if they consider the relevant proceedings or investigation would be more appropriately brought or carried out by authorities in the UK or in another country.

Finally, the clause introduces a new gateway for overseas disclosures by a UK public authority for the purposes of facilitating the terms of a designated co-operation arrangement. The Secretary of State will have a power to designate suitable co-operation arrangements in regulations if they are satisfied that they meet the safeguards set out in the legislation.

[Seema Malhotra]

I thank the Minister for his detailed remarks on clause 309. I will keep my remarks brief. I have concerns about some of the detail. The clause deals with disclosing information overseas. It will amend part 9 of the Enterprise Act by replacing the current overseas disclosure gateway in section 243 with new provisions governing the ability of the CMA and other UK public authorities to exchange information with overseas public authorities.

As the Minister outlined, there will be three new gateways that allow for overseas disclosures in defined circumstances, with safeguards to protect specified information. We welcome the clause. It will be important to see how it is taken forward in the guidance. It is important to have this provision in legislation, not least because tackling competition issues requires us to play an active role in global competition and consumer protection policy.

Question put and agreed to.

Clause 309 accordingly ordered to stand part of the Bill.

Clause 310

Duty of expedition on the CMA and sectoral regulators

--- Later in debate ---

[Kevin Hollinrake]

Clause 310 introduces a statutory duty of expedition in relation to the CMA’s competition and consumer law functions, including the functions relating to the new digital competition regime. Schedule 26 makes changes to the legislation that empower the sector regulators to exercise their concurrent competition powers so that they are under an equivalent duty when they do so. The new duty will require the CMA to have regard to the need for making a decision, or taking action, as soon as is reasonably practicable. It will apply to casework functions and decision making, but will exclude auxiliary functions such as the publication of guidance.

The impact of the new duty of expedition will vary on a case-by-case basis. For example, if a business asks for repeated extensions to deadlines for providing information, the duty will bolster the CMA’s ability to move the investigation along. The CMA will need to continue to ensure fair process and make evidence-based robust decisions. Parties will continue to have a right to appeal against decisions made by the CMA.

[Seema Malhotra]

The Minister has outlined the detail of the clause. Again, I will keep my remarks brief. Clause 310 would insert a new schedule into the Enterprise and Regulatory Reform Act 2013 to provide for a statutory duty of expedition in relation to specified CMA competition, consumer law and digital markets functions. The new provisions expand and replace the duty that previously applied in relation to the CMA’s functions. A new provision inserted by the clause specifies that, in making any decision or taking any action for the purposes of any of its functions within the new schedule, the CMA must have regard to the need to do so as soon as is reasonably practicable. That obligation would apply to all steps of the relevant investigatory, regulatory or enforcement process. The clause also introduces schedule 26, which imposes a duty of expedition on sectoral regulators in respect of their competition functions that are exercisable concurrently with the CMA. We support the schedule.

Question put and agreed to.

Clause 310 accordingly ordered to stand part of the Bill.

Schedule 26 agreed to.

Clause 311

Interpretation

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Seema Malhotra]

These new clauses all relate to the secondary ticketing market. In particular, they aim to further regulate the market in order to protect consumers in a sector where they are all too often left to fend for themselves. I do not plan to press these new clauses to a vote today, but I do want to speak to them. The Minister’s response will determine how we choose to move forward on Report or in further stages, because this is an important issue.

New clause 8 would amend the Consumer Rights Act 2015 to introduce provisions banning sellers on secondary ticketing sites from selling from more tickets than can be bought by consumers on the primary market. That is a direct recommendation from the CMA’s August 2021 “Secondary ticketing” report. The intent is simple: it would filter out sellers who have obtained tickets through the use of illegal bots with the intention to sell them on at a significantly inflated price. It would also reduce the risk of consumers being sold fake tickets.

New clause 9 would amend the Consumer Rights Act 2015 to impose a duty on secondary ticketing platforms to verify details from the sellers who use them. That would make it harder for bad actors who intend to scam or rip off consumers to use secondary ticketing platforms, as it would be far easier to track their details. That is also a direct recommendation from the CMA’s 2021 report. New clause 10 would introduce a requirement on the Secretary of State to produce a report on the merits of introducing a new regulatory function in the secondary ticketing sector, as recommended by the CMA in its report.

I will take a step back from the specifics of the new clauses to briefly address the broader picture of the secondary ticketing market, where consumers are continually ripped off or put at risk of falling victim to a scam. I am sure that many Committee members, and those who may be watching our proceedings, will have either had their own experiences or heard of constituents being ripped off or scammed for tickets to musical or sporting events. That is not to say that every person who resells on the secondary ticketing market is attempting to scam or rip off consumers—far from it. However, the Minister will know that when those scams and rip-offs occur, there is little in the way of enforcement against either the seller or the platforms that host and legitimise them.

The CMA’s 2021 report helpfully outlined the major areas of concern in the current secondary ticketing market. It said:

“We are concerned that some approaches used by professional resellers to buy up tickets may be illegal – involving committing fraud and/or breaching legislation introduced to prevent the bulk purchase of tickets using computer bots...Such illegal activity will reduce the number of tickets available at face value on the primary market – and increase the number of tickets advertised through secondary ticket platforms at significantly higher prices. The CMA often receives complaints about these practices but does not have the powers to tackle them.”

It went on to say:

“We are concerned that professional resellers may be i) speculatively advertising tickets that they do not own and ii) advertising tickets with inaccurate information about the ticket or the seller’s identity, which sellers are required to provide, by law, when listing tickets for sale. The CMA’s recent enforcement cases required viagogo and StubHub to put in place certain safeguards to ensure key information was gathered and displayed to consumers and that where such information was being displayed inaccurately this could be addressed. However, even if platforms comply in full with these obligations, speculative listings and inaccurate information may still appear if the resellers do not provide correct information to the platforms about themselves and/or the tickets they are listing.”

In each of those cases, there is a clear risk of consumer detriment, through being scammed or ripped off. As a result, the CMA in the same report made a series of recommendations to Government that would enable more robust enforcement in the sector. But shortly before the Bill was introduced, the Minister wrote to the CMA, stating that the Government would not adopt its recommendations. Specifically, and as part of what seems to be the quite weak rationale by the Government for not adopting those proposals, there was the suggestion that the conviction of just two ticket touts three years ago acts as a robust enough deterrent to bad actors. That seems more like the Government kicking the can down the road and failing to act in the interests of consumers, which was so powerfully highlighted by my hon. Friend the Member for Washington and Sunderland West (Mrs Hodgson) on Second Reading.

I urge the Government to consider seriously these new clauses. This need not be party political; in fact, it is far from that. They are direct recommendations from the CMA, given the work that it has done and that it does. It is a regulator whose judgment we all clearly and rightly value, considering the increased powers—and expectations for its work—granted in the Bill. The new clauses are cost free and would significantly increase the protections available to consumers using the secondary ticketing market in the UK—they would dramatically increase protections for all consumers. I look forward to the Minister’s response.

[Kevin Hollinrake]

Two of these new clauses seek to add further regulation on secondary ticketing and platforms. The third would provide for a report on the introduction of a new regulatory function for the secondary ticketing market, to be prepared within 12 months of the Bill receiving Royal Assent. I thank the hon. Member for these new clauses. I am also grateful for the work of her colleague, the hon. Member for Washington and Sunderland West, who has worked so hard in this space.

The new clauses reflect the recommendations made by the CMA in its secondary ticketing report from 2021, as the hon. Member for Feltham and Heston said. She also referred to our position, which we set out on 10 May 2023. At this point, it is too early, we believe, to bring forward further regulation on secondary ticketing.

One overarching point that I think it is fair to make here is that we should all encourage the primary market to do more to inhibit touting and report breaches of existing law. If anybody went to Glastonbury recently, they would have found great difficulty in—in fact, the impossibility of—selling on tickets, because they are limited to the person who bought the tickets in the first place, so it is clear that primary markets can do more to clamp down on secondary ticketing malpractice where it exists.

The Bill, under part 3, will itself give more powers to the CMA and other public enforcers to enforce existing consumer protection law, which includes legislation applicable to the secondary tickets sector. The shadow Minister referred to good work that is going on in this area, including existing laws. As she said, the National Trading Standards eCrime Team successfully prosecuted two ticket touts for fraud and consumer law breaches. They received prison sentences of four years and two and a half years and were subject to a £6.2 million confiscation order. Despite the imposition of additional regulation by the Breaching of Limits on Ticket Sales Regulations 2018, it is those general consumer protection law powers that the regulators have tended to use most effectively.

New clause 8 would make the platform liable where the number of tickets resold on a platform by an individual seller exceeded the maximum set by the event organiser in the primary market. It is already an offence to use automated software to buy more tickets for events than permitted, with a view to financial gain. If the rules are applied, there should be no need for further action on the secondary market, such as that proposed. However, we will work with the CMA to monitor the market and technological developments to assess whether the measure is both practical and necessary.

New clause 9 seeks to put a strict obligation on a secondary ticketing facility to verify certain information provided to it by a seller. The CMA acknowledges that placing a strict liability on platforms in this way would be an unprecedented step. Moreover, thanks to previous enforcement work of the CMA and others in the secondary ticketing market, choices and associated costs are more transparent than they were five years ago. Therefore, it is not clear to me that the proposal would amount to proportionate regulation.

--- Later in debate ---

[Seema Malhotra]

I beg to move, That the clause be read a Second time.

New clause 11 would introduce an annual reporting requirement on the CMA to report to Parliament on the operation of their functions under parts 2 and 3 of the Act, complementing the new clause debated earlier in Committee that would have introduced such a report in relation to part 1 of the Bill. Specifically, the report under new clause 11 would need to include the effectiveness of the operation of the CMA’s functions under parts 2 and 3 and the impact of the operation of those functions on maintaining competition in digital markets and on the enforcement of consumer protection law.

The report would have to be laid before both Houses of Parliament and be produced annually. The core principles behind the new clause—principles I would hope the Minister agrees with—are transparency and scrutiny. The legislation rightly confers significant powers on various regulatory bodies in the UK, not least the CMA. However, to ensure those powers are used as effectively and as fairly as possible, Parliament must be able to fully scrutinise their use and effectiveness in achieving their aims.

There is also the question of where the report goes and who scrutinises it on behalf of Parliament and the public. While I appreciate and recognise that the CMA will have frequent communication and contact with various Departments and Secretaries of State, opportunities for scrutiny are more disparate. With the former Regulatory Reform Committee being subsumed by the Business and Trade Committee, much of the opportunity for scrutiny is supposed to lie there. However, House of Commons Library research highlights that in the past five years, the CMA has appeared before the Committee just five times, and three times since 2021. The CMA does an incredibly significant job in our economy. While an average of one Select Committee appearance a year is appreciated, with the new functions granted by the Bill, one cannot help but feel that the oversight and scrutiny need to become more frequent and detailed to ensure parliamentarians and the public are as informed of the CMA’s work as possible.

I note the Regulatory Reform Group, made up of MPs from the Minister’s own party, has recently called for a cross-party Committee to oversee the performance of regulators and to offer a systematic appraisal of the UK’s regulators that cover key economic sectors. Its members are not the only ones concerned by the overall lack of transparency and scrutiny of the performance of regulators and competition authorities. There is a need for better mechanisms to allow issues to be identified earlier and reforms to be made.

Clearly, there is appetite in Parliament for further scrutiny of our regulators, not least the CMA. That is not to criticise the regulators in any way, but it is a reflection of their increased importance, our increased responsibility and the growing impact of their work in a digital economy, subject to that greater scrutiny. As a result, I hope the Minister agrees that parliamentary scrutiny of the kind that the new clause would provide is important for the effective operation of this new regulatory regime. I urge him to consider supporting the new clause—I know he has been sympathetic to similar clauses in earlier parts of the Bill—so that we see reports and discussion on the scrutiny measures of this House.

[Kevin Hollinrake]

I wholeheartedly agree that the CMA should be firmly accountable to Parliament across its digital competition and consumer functions. However, that is already the case. The CMA is already required to present an annual report to Parliament. That includes a survey of developments relating to its functions, assessments of its performance against its objectives and enforcement activity, and a summary of key decisions and financial expenditure. The CEO and chair of the CMA regularly appear before the relevant Select Committee—five times as the hon. Member said. Most recently, they appeared before the House of Lords Communications and Digital Committee. Indeed, they meet me on a regular basis, and we also provide an annual strategy steer.

In relation to the CMA’s new consumer direct enforcement functions under part 3 of the Bill, clause 193 gives the Secretary of State the power to request a report from the CMA from time to time on the effectiveness of interventions. Such a report must also be published by the CMA, so that it is available to parliamentarians and the public. I noted her points on the Regulatory Reform Group. I met Lord Tyrie and my hon. Friend the Member for Hitchin and Harpenden (Bim Afolami). They made some interesting points, which I am sure the wider House will have heard. These matters should be kept under review, but for these reasons, I hope the hon. Lady will withdraw the new clause.

[Seema Malhotra]

I thank the Minister for his remarks. New clause 11 was inspired by new clauses with a similar purpose in the United Kingdom Internal Market Act 2020, so there is an important precedent. I will not press the new clause to a vote, but we will keep the matter under review. I take this opportunity to thank all the Clerks who have been involved in the Committee. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

[Kevin Hollinrake]

On a point of order, Dame Maria. I put on the record my thanks to all the Clerks and the many people who worked on the Bill, including all the officials and my private office, for doing a tremendous job. I thank Opposition Members for their constructive dialogue.

Digital Markets, Competition and Consumers Bill (Twelfth sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Committee stage
Tuesday 4th July 2023 Public Bill Committees

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

It is a pleasure to serve under your chairship, Mr McCabe.

Before we turn to the group led by amendment 118, I will make some brief remarks on clause 217 stand part and speak to Government amendment 71. Clause 217 sets out a general prohibition on unfair commercial practices. As the Minister has outlined, it defines commercial practice as

“any act or omission by a trader relating to the promotion or supply of—

the trader’s product to a consumer

another trader’s product to a consumer, or,

a consumer’s product to the trader or another trader”.

Subsection (4) introduces provisions outlining what constitutes an unfair commercial practice, which may include a misleading action, a misleading omission or an aggressive practice, and those are dealt with in the following clauses. In addition, the subsection states that a commercial practice is unfair if it is listed in schedule 18, which we will debate in detail shortly.

We welcome the clause as a necessary provision in prohibiting unfair commercial practice, and I reiterate that we look forward to working with the Minister, including in today’s debate. If there are ways in which we can improve the Bill, we are very happy to work collaboratively so that it is as robust as possible. The amendments tabled by my hon. Friend the Member for Bermondsey and Old Southwark in the light of our discussions with stakeholders will play an important part in those deliberations.

Amendment 71 ensures that the definition of commercial practice for the purposes of chapter 1 of part 4 of the Bill includes an act or omission by a trader relating to the promotion or supply of a consumer’s product to another consumer. We welcome this amendment, which importantly ensures that the actions of rogue traders still fall under the definition of commercial practice and supports the integrity of the regime.

Clause 218 introduces provisions defining commercial practices that are misleading actions. We welcome the clause, which provides a necessary definition of a misleading action, and support its inclusion in the Bill.

Clause 219 introduces a definition of commercial practices that count as misleading omissions. Under the clause, a misleading omission would constitute the omission of material information and information that the trader is required by another enactment to provide. As with clause 218, it is a common-sense, straightforward clause and we support it.

Clause 220 sets out how an aggressive practice could constitute harassment, coercion or undue influence. That can involve behaviour before a contract or purchase is made, but it can also occur after a transaction has taken place. We support the definition’s inclusion in the Bill, but I ask for clarification. I draw the Minister’s attention to subsection (3)(a), where the Bill states that

“‘coercion’ includes the use or threat of physical force”.

Does the Minister intend that coercion includes many other threats, be they financial or personal blackmail, to suggest just a couple? Is there a wider definition or guidance on interpretation that would be helpful in providing clarification for the consumer as well as for those making a decision under the clause? I would welcome clarity from the Minister on that.

Clause 221 defines commercial practices that contravene the requirements of professional diligence. That includes practices that fall short of the standard of skill and care that a trader may reasonably be expected to exercise towards consumers and that is commensurate in the trader’s field with honest market practice or the general principle of good faith. That is important for rooting out rogue traders who may not be qualified for their profession, whether they are builders, electricians or other experts. We welcome the definition.

Clause 222 sets out where a commercial practice would be considered to have omitted material information. Subsection (2) lists what would constitute an omission, including the main characteristics of a product, the business address and the delivery price, among other things. Although we support the list of omissions and welcome its inclusion in the Bill, elements of the clause could go further to provide more protection to consumers, as reflected in amendment 127, tabled by Opposition Front Benchers, and amendment 126, tabled by my hon. Friend the Member for Bermondsey and Old Southwark, which we will come to.

[Kevin Hollinrake]

I think there is just one key point that the hon. Lady asked me to address, which is about other types of coercion. Looking at the definition with regard to practices, clause 220 talks about “coercion or undue influence”. Under subsection (3),

“‘undue influence’ means exploiting a position of power in relation to consumers so as to apply pressure in any way”.

I think that covers the definition, as she requested.

Amendment 71 agreed to.

--- Later in debate ---

[Seema Malhotra]

That is fine. I have one line, but it can come later.

Amendment 68 would ban the practice of greenwashing. Making unsubstantiated claims about the sustainability of products and services would be an unfair commercial practice. Amendment 69 is consequential on amendment 68 and would require the Government to define which products and services can be labelled “sustainable”, and requires that the definition complies with international standards.

I support the principle of the amendments tabled and the arguments made. They are along the lines of the discussion that we had in Committee last week when I spoke to the issues around greenwashing, our standards and support for evidence. I asked the Minister what overall strategy he has to ensure that green claims are accurate and evidenced, and I asked that we have a strategy for the prevention of false claims as well as a mechanism for enforcement against them. As has been argued, that issue is on the increase, particularly for younger people.

Research has shown that those under 35 across the world make decisions about products, services and even their employment on how much they trust the information that they see in relation to sustainability and climate responsibility. If we do not tackle that issue, we will see a further increase in people misleadingly marketing products because they know that those issues drive consumer purchases. They have great influence on consumer purchases and decisions.

The Minister might refer to the green claims code introduced by the CMA. Important work has been done, but in the absence of any real leadership or strategy from the Government I want to ask the Minister whether they intend to put the green claims code, or its successor, on a statutory footing. Making sure that we have a robust legislative underpinning and strategy for such issues is increasingly important, because many stakeholders see a gap.

Greenwashing was also mentioned by consumer groups in the Committee’s evidence sessions. I would press the Minister on whether the Government have plans to introduce amendments on the issue, and to strengthen voluntary or other codes relating to green claims and expectations. In an increasingly green economy, consumers are at risk of falling victim to misleading green advertising, and legislation needs to catch up.

[Kevin Hollinrake]

Amendments 68 and 69 would add the practice of greenwashing to the list of banned practices in schedule 18, and would introduce a requirement for the Government to consult on the matter. I thank the hon. Member for Gordon for his amendments, and I absolutely agree that consumers should not be misled. I admire his commitment to recycling, which is admirable. I wondered whether I should touch on that, given the difficulties that the SNP has got into with its deposit return scheme, but—

--- Later in debate ---

[Seema Malhotra]

I beg to move amendment 115, in schedule 18, page 343, line 2, at end insert—

“32 At any stage of a purchase process, presenting a price for a product which omits obligatory charges or fees (or an estimate thereof) which are payable by the majority of consumers, which are not revealed to the consumer until later in the purchase process.”

This amendment adds the practice of “drip-pricing”, a pricing technique in which traders advertise only part of a product’s price and reveal other obligatory charges later as the customer goes through the buying process, to the list of unfair commercial practices.

Amendment 115 would add the practice of drip pricing to the list of unfair commercial practices. Drip pricing is a pricing technique whereby traders advertise only part of a product’s price and reveal other obligatory charges later as the customer goes through the buying process. For example, an airline may advertise a flight abroad at a certain cost that does not include an obligatory seat charge. That is added only later in the purchasing process, by which point the consumer has already prepared to purchase the product and is less likely to stop the purchase. The argument that this practice should be included in the Bill was well documented during the Committee’s evidence sessions. The consumer group Which? stated:

“We think that drip pricing is another practice that is very harmful. There is a lot of evidence that that is the case, and it should be included on the face of the Bill.”––[Official Report, Digital Markets, Competition and Consumers Public Bill Committee, 13 June 2023; c. 13, Q16.]

That sentiment was reflected in Committee by Citizens Advice, the National Consumers Federation and Consumer Scotland, all of which argued that schedule 18 could be improved by adding the practice of drip pricing. Which? provided evidence of consumer detriment in its written submission, which states:

“We know that in many online markets people overpay for products and services because only part of an item’s price is initially shown and the total amount to be paid is revealed only at the end of the buying process. For example, multiple hotel booking firms were shown to have failed to have displayed compulsory charges such as taxes, booking or resort fees in the headline price. However, while the use of these practices is common, the CMA has found its enforcement against drip pricing has been inhibited by the absence of an explicit ban.”

In its 2021 paper, “Reforming Competition and Consumer Policy”, the CMA notes:

“Drip pricing causes real detriment to consumers...Advertising of Prices market study concluded that of a series of different price framing practices, drip pricing was clearly the most harmful frame for consumers in terms of purchasing and search errors, and that raised levels of consumer learning did not fully mitigate issues with the practice. Lengthy transaction processes associated with drip pricing can ensure consumers gain a greater sense of ownership of a product and are less likely consider other offers once additional costs are revealed.”

It is clear that the introduction of drip pricing to the list of unfair commercial practices would be supported by consumer groups and the CMA, so I urge the Minister to consider supporting the amendment. I look forward to his response.

[Kevin Hollinrake]

I share the hon. Member’s concerns. That is why we commissioned research earlier this year, which we will publish shortly. It will detail how widespread and harmful the practice is. The Prime Minister has already said that we will gather evidence on what steps the Government should take to tackle drip pricing, so I think we are aligned in our commitment to tackling the issue.

One of the key challenges, which I do not think the hon. Lady addressed, is distinguishing drip pricing that is harmful or anti-competitive from practices that may offer greater value to the consumer—for example, a company offering optional extras such as faster postage or insurance. We will consult during the passage of the Bill on which elements of drip pricing might need tackling, and on whether further action is required. We believe it is important to conduct that exercise first, so that we have a proper, evidence-driven policy. I hope the hon. Member will withdraw the amendment.

[Seema Malhotra]

I thank the Minister for his comments. There are issues to consider in relation to the amendment, but I think the broad thrust of the argument for taking action is clear. The Minister says that the findings of the research will be published shortly; I am assuming that “shortly” is not in more than a year’s time. We need to clarify that with the Government. If shortly means shortly, however, then I would be grateful for confirmation that, on the basis of the research, the Minister intends to address drip pricing; that may determine the wording in the Bill. Can the Minister confirm that there is an intention to address the issue during the passage of the Bill, perhaps through a Government amendment? The Opposition are very willing to work with the Government on that.

[Kevin Hollinrake]

I am keen to make a commitment to work with the hon. Member on the issue, and to ensure that a measure is brought forward as quickly as possible. I cannot give a precise date, but it will be very shortly.

[Seema Malhotra]

On the basis that shortly means shortly, I am willing to withdraw the amendment. Will the Minister clarify that he expects the research to come forward before Report, so that we have time to look at it? That would be a good point at which to bring forward an amendment on the issue.

--- Later in debate ---

[Kevin Hollinrake]

I cannot say when Report will be, and I do not have the timetable for that, or for the consultation on the work that we may need to do on the issue. I cannot make that precise commitment, but we are very committed to delivering on drip pricing. As the hon. Member knows, the Prime Minister spoke on it, so I cannot imagine that there will be any undue delay.

[Seema Malhotra]

On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

--- Later in debate ---

[Kevin Hollinrake]

I am not sure that I can take that analogy any further. I think we are all in agreement. They say that the art of originality is to remember what you have heard but forget where you heard it. The Opposition say that we are stealing their good ideas, but obviously we committed some time ago to taking action in this area. I am not averse to taking some of the good ideas that we hear from the Opposition from time to time, but we also have to ensure that we reject the many bad ideas we hear from them in debates.

The Government agree that legislation to tackle fake reviews should be strengthened. We anticipate doing so by adding to the list of banned practices. However, it is important to get the details of those proposals right. That includes defining what we mean by fake reviews and how “reasonable and proportionate” steps will be understood. Similarly, we want those rules to encompass the manipulation of reviews that may harm consumers, which also needs detailed work with stakeholders to define. For example, the issue is not just about people trying to boost reviews, as the hon. Member for Feltham and Heston stated; it is also to do with people removing negative reviews inappropriately, which might affect ratings on review sites. The Government will therefore be consulting on fake reviews during the passage of the Bill to ensure that these rules work as intended and are clear for businesses. We will be doing that shortly, in the autumn.

The hon. Member for Bermondsey and Old Southwark talked about ESF and Which?. I have spoken to both organisations and met them regularly. In fact, one of my first jobs in my ministerial role was to speak at an Electrical Safety First conference. On that note, I hope that hon. Members will withdraw their amendments.

[Seema Malhotra]

I am slightly disappointed by the Minister’s response; it does not sound as if there is anything other than long grass here. Significant groundwork has been done, both within Government and with stakeholders. Having another consultation in the autumn is like long grass: it is designed to spin things out until we reach 2025 and then there is something to add to the schedule. Unless the Minister wants to tell me that there is an intention to do more during the course of the Bill, we will be pushing this to a vote.

--- Later in debate ---

[Seema Malhotra]

Schedule 18 introduces a list of commercial practices that will automatically be considered unfair in all circumstances and will be prohibited. The list is long and comprehensive, and the Opposition welcome every practice listed, including a seller’s claiming to be a signatory to a code of conduct when they are not, falsely claiming that a product is able to prevent disease, providing inaccurate information about the availability of a product, and threatening a consumer if they do not buy a product.

However, we are concerned that there are significant omissions, which we addressed during our debates on the amendments. We will be happy to consider alternative wording, but we will continue to pursue additions that we believe would strengthen the Bill and its implementation. Nevertheless, we support the inclusion of this important schedule in the Bill.

[Kevin Hollinrake]

As has been said, the schedule protects consumers from the most prevalent and harmful commercial practices engaged in by deceitful traders. It largely replicates schedule 1 to the Consumer Protection from Unfair Trading Regulations 2008 and provides a list of 31 commercial practices that are banned in all circumstances due to their inherently unfair nature. Among those practices are operating pyramid promotional schemes, displaying trust marks without obtaining the necessary authorisation, and stating that a product can be legally sold when it cannot.

Question put and agreed to.

Schedule 18 accordingly agreed to.

Clauses 218 to 221 ordered to stand part of the Bill.

--- Later in debate ---

[Neil Coyle]

I have a few brief supplementary comments, further to the excellent speech of my hon. Friend the Member for Feltham and Heston. I just want to point out an anomaly and the problematic nature of the wording of the Bill, which I hope the Government will re-examine before they go further.

Amendment 126 would expand the definition of “invitation to purchase” to cases in which the information provided to a consumer covers the characteristics of a product, but not its price. That might sound counterintuitive, as it did to me when I first went through this with organisations, but it would expand the goods and services covered by the legislation. That is important, because the use of “price” in the wording of the Bill could prohibit action against a rogue trader. The existing wording might stop the Government meeting the aims that they are setting out to achieve.

The suggestion is that the specific requirement that the price be covered, if that is not the price paid, will potentially prevent action from being taken against a trader who deliberately advertises a price, but then changes it. An example might be where someone arranges for a person to come and fix a car part, a boiler or a pipe leak, and that person then arrives and says, “The product you’ve looked at online is not compatible with your boiler,”—or their fittings, their car or whatever it might be—“but guess what: I’ve got a different one in the van that’s a bit cheaper,” or a bit more expensive, “but will do the job better for you.”

By making a slight change to the wording of the Bill to remove the words “and its price” on page 150, amendment 126 would deal with that kind of rogue practice, which is out there and which has been raised by trading standards. The fear among the bodies that are trying to secure greater action against rogue traders is that the existing wording of the Bill allows wiggle room and will let the dodgy practices continue. I hope that airing that specific, possibly niche concern today will give us greater time to capture it and ensure that the Bill does not preclude action against rogue traders where specific prices are agreed up front but that is not the deal that takes place, because someone pays for a cheaper or even a more expensive alternative that does the same job.

Having flagged that concern, I hope that the Government will look again at the wording and at how they will meet their overall aim, which I support.

[Kevin Hollinrake]

It is an interesting point. We took the decision to strengthen the existing provisions in the Consumer Protection from Unfair Trading Regulations 2008 in relation to invitations to purchase by removing the need for enforcers to prove that the transactional decision test has been met. This significantly increases the criminal liability of unscrupulous traders.

Amendment 126 would expand the definition of an invitation to purchase still further to cases in which information about products is presented to consumers without a price shown. We are concerned that that would expand the definition too far. Moreover, other provisions in chapter 1 of the Bill will achieve a similar aim: they will prohibit traders from making misleading statements or omissions in respect of all commercial practices. We feel that that covers this issue. However, I am happy to have further conversations with the hon. Member for Bermondsey and Old Southwark, certainly based on the evidence he has received, which I am happy to look at.

Amendment 127 would require that information as to whether a third-party seller or online marketplace is a trader or a consumer be added to the list of material information in an invitation to purchase. We have the same aim. Clause 222(2)(c) will require

“the identity of the trader and the identity of any other person on whose behalf the trader is acting”

to be disclosed. Moreover, subsections (2)(d) and (e) will require a range of contact details to be provided to consumers about who they may be buying from.

Accordingly, I hope that hon. Members will not press their amendments.

[Seema Malhotra]

I thank the Minister for his comments. We still take the view that this needs to be tighter. In the light of his intentions, which we understand, we will take it away and look at it again. I do not want to lose our amendment, but we will not press it to a vote today. Perhaps we can come back to it at a future stage of the Bill.

[Seema Malhotra]

I beg to ask leave to withdraw amendment 127.

Amendment, by leave, withdrawn.

Clause 222 ordered to stand part of the Bill.

Clause 223

Public enforcement

Question proposed, That the clause stand part of the Bill.

[Kevin Hollinrake]

Clause 223 sets out who is responsible for enforcing the prohibition on unfair commercial practices. Trading standards have a duty to enforce the prohibitions in their areas across Great Britain. The Department for the Economy in Northern Ireland has a duty to enforce the prohibitions in Northern Ireland. The CMA has the power to enforce the prohibitions on a civil and criminal basis in the UK.

[Seema Malhotra]

We welcome clause 223. As the Minister states, it introduces provisions relating to the enforcement of the prohibition of unfair commercial practices, setting out how local weights and measures authorities—trading standards—will have a duty to enforce the prohibitions. The CMA will also have enforcement powers. We have talked several times in this Committee about the importance of trading standards in enforcing the regime. How involved have the CMA and trading standards been in the discussion around the powers in the Bill?

Is the Minister confident that local trading standards officers have the resources to enforce the regulations, especially after 13 years of what can only be described as a managed decline of local trading standards authorities, with local services facing a 52% reduction in service capacity under the Government’s watch since 2010? It is important to know that, because where increased expectations are coming through in legislation the question is whether there will be capacity to deliver on the new demands. I would be grateful for his response.

[Kevin Hollinrake]

I have meetings with the national teams of trading standards, and indeed the CMA, on a regular basis. We have had numerous discussions about the legislation, if the hon. Lady means her question broadly. Indeed, she was able to question some of those witnesses in the recent evidence sessions. Clearly, resources for trading standards are a matter for local authorities, not central Government. It is for local authorities to determine where those resources are committed.

Question put and agreed to.

Clause 223 accordingly ordered to stand part of the Bill.

Clause 224

Rights of redress

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Seema Malhotra]

I am pleased to speak to amendment 114, which stands in my name and that of my hon. Friend the Member for Pontypridd. I will also make reference to amendment 67, tabled by the hon. Member for Gordon.

Amendment 114 would require that the Secretary of State prepare and lay before Parliament a report on the merits of introducing a consumer right to individual and collective redress through secondary legislation, as is the case in EU member states. Amendment 67 would ensure that the consumer rights to redress set out in secondary legislation cannot offer less protection than the Consumer Protection from Unfair Trading Regulations 2008. We support the principle of amendment 67, which would have a similar effect to amendment 114 by ensuring a more robust consumer right to redress.

More specifically on amendment 114, I refer the Minister to the written evidence of Which?, which notes that

“the Bill states that ‘Consumer Rights to Redress’ may be provided for in future secondary legislation, so it will give the Secretary of State powers to amend these rights. These rights are fundamentally important, as they include payment of damages when a trader misleads a consumer. We want assurances that they will not be downgraded as a result of this process, and a commitment from the Government to strengthen redress procedures when these new regulations are drafted.”

Amendment 114 would require a commitment from the Government to report on doing that, aiding the process of strengthening redress procedures when new regulations are drafted. I urge the Government to support amendments 114 and 67, and to ensure that consumer rights to redress are as strong as they can be, particularly in an increasingly digital economy.

[Kevin Hollinrake]

Amendments 67 and 114 deal with consumers’ private rights to redress. I agree with the hon. Members for Feltham and Heston and for Gordon that it is vital that consumers have robust private rights of redress.

Amendment 67 would limit changes by regulation to the consumer rights of redress to those that are equivalent to the remedies in the CPRs—the Consumer Protection from Unfair Trading Regulations 2008. The Bill includes powers to amend rights of redress. That could include how such rights are exercised; the powers could also be used to make those rights clearer and simpler. Those would be positive changes for consumers that might not meet the test of equivalence to the current regulations that the amendment would impose. We would like to retain the ability to exceed the existing private redress provisions, if appropriate, which may encourage more consumers to make use of these rights. The first regulations made using the power will be to create the new regime to replace the current private redress provisions in the CPRs. Accordingly, those regulations will be subject to parliamentary approval via the affirmative procedure, thereby providing for appropriate parliamentary oversight of use of the power.

I turn to amendment 114. The courts already have the power to make an enforcement order against an infringer, or to accept undertakings from them to provide redress to affected consumers, through the measures in part 3. Enforcers can also accept undertakings from infringers to provide redress to affected consumers. For example, in 2021 the CMA secured an undertaking from Teletext Holidays to pay over £7 million in outstanding refunds from package travel trips cancelled due to covid-19.

The Bill will make the power to require enhanced consumer measures directly available to the CMA. Consumers also already have individual private rights of redress. In the “Reforming competition and consumer policy” consultation, we consulted on whether to introduce a right for consumers to bring collective redress. Responses were mixed, with concerns raised about unintended consequences such as the creation of a claims culture and inadvertently disincentivising the bringing of proceedings by consumer groups.

The hon. Member for Feltham and Heston referred to the EU situation. The outcome, however, is similar to the desired situation under the EU’s directive on collective redress, which requires member states to designate entities, such as consumer organisations, that can bring actions for collective redress on consumers’ behalf. The EU does not mandate that member states introduce direct rights for individual consumers to bring an action for collective redress.

We will keep the evidence under review, but our priority is to embed the CMA direct enforcement regime and understand the impact that it makes. On that basis, I hope that hon. Members will not press their amendments.

Digital Markets, Competition and Consumers Bill (Eleventh sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Committee stage
Thursday 29th June 2023 Public Bill Committees

[Kevin Hollinrake]

What a helpful question. I do not have those figures to hand, but I am happy to write to the hon. Member if we cannot find the information for him today. I am grateful for his intervention.

Clause 168 will give the court a discretionary power to make some or all of the requirements of a consumer protection order, including monetary penalties, binding on other members of the interconnected corporate group of the infringer. This power will prevent complex corporate structures from frustrating the ability of enforcement interventions to protect consumers and law-abiding traders. The exercise of the power is subject to two important conditions: first, that the infringing company meets the definition of a member of an interconnected corporate group at the time the order is made or at any time when the order is in force, and secondly that the court may make an order binding on other members of the same corporate group only if it considers it just, reasonable and proportionate. That will require an objective assessment on the facts of each case.

Clause 170 will apply where the court is considering an application for a consumer protection order made in relation to a suspected breach of unfair trading prohibitions. It will empower the court to compel traders to substantiate any factual claim made as part of their commercial practices. The burden of proving the accuracy of claims is on the trader. The clause is crucial to stopping unscrupulous traders making wild promises or getting the enforcer bogged down in disproving claims that should be backed up by evidence.

Clause 171 makes an exception to exempt the Crown from the monetary penalties that the court may impose under chapter 3 when it is engaging as a trader in commercial transactions with consumers.

I commend the clauses to the Committee.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

It is a pleasure to serve under your chairship today, Dame Maria. I thank the Minister for his opening remarks.

The Opposition recognise that clauses 165 to 167 are technical clauses. Clause 165 will provide the criteria to determine which courts within the UK have jurisdiction to hear and determine applications for consumer protection orders. It provides that where the respondent does not have a place of business in the UK, the appropriate court is where a relevant consumer is domiciled. This is a common-sense clause, and we support its inclusion in the Bill.

Clause 166 will have the effect of enabling a consumer protection order made in a court in England and Wales, Scotland or Northern Ireland to have effect in each of the constituent nations of the UK. This is a technical clause that the Opposition support.

Clause 167 will allow convictions in criminal courts and findings in civil courts to be admitted in evidence for the purpose of proving that infringing conduct has occurred. The explanatory notes confirm that it will still be necessary to prove that the conduct harmed the collective interests of consumers.

We recognise that these technical clauses are important for the implementation and operation of the new consumer protection regime enacted by this part of the Bill. We therefore support their inclusion.

My hon. Friend the Member for Bermondsey and Old Southwark made a point about case numbers and court resourcing. We expect demand on the courts to increase. The last thing that the Minister will want to see is the effective implementation of the regime, or confidence in it, being undermined because the courts cannot take on cases at speed when they might need to do so. I would welcome the Minister’s response on the issue of court capacity, support and resources.

Clause 168 will introduce provisions such that when a court makes a consumer protection order against a corporate body that is or becomes a member of a group of interconnected bodies corporate, the court has a discretionary power to direct that the order is binding upon one or more other members of the same corporate group. Subsection (6) defines two or more bodies corporate as interconnected bodies corporate

“if one of them is a subsidiary of the other, or…if both of them are subsidiaries of the same body corporate.”

Under the clause, a court would be able to make part or all of the order binding on other members of the group where the court considers it just, reasonable and proportionate to do so. The explanatory notes state that when considering whether to extend an order to another group member, the court might take into consideration whether the other member was the brains behind or benefited from the infringement, and whether the extension would help to ensure that financial penalties are paid.

Clause 168 will provide a more robust consumer enforcement regime, helping to prevent companies from restructuring to avoid liabilities and ensuring that significant deterrents are in place to prevent companies from infringing regulations of the new regime. We support the clause.

Clause 169, “Enhanced consumer measures: private designated enforcers”, sets out two conditions that must be met before enhanced consumer measures can be included in an undertaking either given to a private designated enforcer or given through the court via an application from a private enforcer.

The first condition

“is that the private designated enforcer is specified…in regulations made by the Secretary of State”

to act as a private enforcer. In our debates on clauses 143 and 144, I raised questions with the Minister’s colleague the hon. Member for Sutton and Cheam about the process of becoming a private designated enforcer. However, I would welcome further clarification from the Minister of how he envisages the process of a private enforcer working in practice. I am not very clear on whether that is through an application or via the discretion of the Secretary of State; it would be helpful and important to clarify that point to ensure that clause 169 is effective in enabling private designated enforcers, so we can be sure we know who they may be in future, and to include enhanced consumer measures in an undertaking.

The second condition, rightly,

“is that the enhanced consumer measures do not directly benefit the private designated enforcer or an associated undertaking.”

Will the Minister clarify some matters in relation to subsections (7) and (8)? Private designated enforcers must have regard to any relevant advice or guidance given by a primary authority. Could he perhaps illustrate that with an example of a primary authority within the meaning of subsection (7)(a) and a situation in which that may occur, so we are clear about the intentions for how the clause will be used?

Clause 170, “Substantiation of claims”, will enable the court to require evidence from traders to substantiate the factual claims used in their commercial practices with consumers when an application for a consumer protection order has been made against those traders. Under subsection (3), it is for the court to decide whether any evidence provided is adequate. If the court decides that it is not, or if no evidence is produced, the court can determine that the claim is inaccurate. This provision will ensure that the burden of proof regarding the accuracy of claims rests with the trader. In effect, claims must be based on evidence that can be verified by the court.

The explanatory notes specifically mention environmental claims—sometimes referred to as greenwashing—and claims about the health benefits of goods as examples where substantiation of claims may be required. Greenwashing generally refers to claims made about the positive impact of a product or service on the environment that could be seen as misleading or untrue. This is a growing area of concern under competition law. We have not tabled amendments at this point, but it is an important area in this and other legislation.

The Government and the EU have announced proposals to introduce new legal instruments to address alleged greenwashing. Ultimately, legislation to regulate claims that businesses in Europe can make in their consumer communications would come into force, as is already the case in France. A European Commission study in 2020 highlighted that 53.3% of examined environmental claims in the EU were found to be vague, misleading or unfounded, and 40% were unsubstantiated. This policy issue has highlighted the absence of common rules for companies making voluntary green claims, which, in a sense, leads to greenwashing. The uneven playing field in the market is to the disadvantage of genuinely sustainable companies. It also has an impact on how effectively consumers can make their purchase decisions.

EU proposals for the green claims directive outline that before companies communicate any of the covered types of green claims to consumers, any such claims would need to be independently verified and proven with scientific evidence. As part of scientific analysis, companies would identify the environmental impacts that are actually relevant to their products, as well as any possible trade-offs, in order to give a full and accurate picture.

There have been calls to review how comparisons between products and organisations should be made, based on equivalent information and data. There have also been calls to look at regulating environmental labels, outlining the fact that there are over 230 different labels, which, according to evidence, leads to consumer confusion and distrust. The Competition and Markets Authority published the green claims code in September 2021. It has also been investigating the sustainability claims of major household brands, and how products and services claiming to be eco-friendly are marketed.

This is a newer area, and as we move towards achieving our net zero targets it is going to become increasingly important to how the marketplace is defined. It is important to know and be ahead of where consumers might be being misled. Some of the work in the run-up to COP26 and since has been welcome, but we cannot take our foot off the accelerator.

--- Later in debate ---

[Kevin Hollinrake]

On resourcing, the hon. Members for Feltham and Heston and for Bermondsey and Old Southwark were both right to mention the courts backlog. If my ministerial colleague, the Under-Secretary of State for Science, Innovation and Technology, the hon. Member for Sutton and Cheam, committed to write to the hon. Gentleman, I am sure that he will do that. It has not come across my desk yet, but there will be no delay when it does, short of ensuring that it answers the hon. Gentleman’s questions.

One thing to say about that, of course, is that the fact that we are putting in place a direct enforcement regime may well ease the pressures on the courts, because the CMA can take action without recourse to them. That should help by ensuring that not all such cases need to go to court.

On private enforcement, and how it would work, it could happen on the basis of an enforcer’s application, or on the Secretary of State’s initiative after consultation with a proposed enforcer. I think that the only private designated enforcer currently is Which?. I hope that that answers the question of the hon. Member for Feltham and Heston.

On the hon. Lady’s points about a primary authority, a primary authority can be a local authority, it could provide information about the business to enforcing authorities and help direct their efforts to improve regulatory efficiencies.

On greenwashing, she is right that the CMA is conducting an investigation into ASOS, Boohoo and Asda. We have the green claims code to try to ensure that there are standards in this area. The Government policy in this area, of course, is that misleading information is already a breach of existing consumer laws. The CMA has issued guidance to help businesses to comply with existing obligations in that green claims code.

The hon. Member for Bermondsey and Old Southwark asked about product safety. Rather than Deputy Dawg, I would use the analogy of Clint Eastwood in “The Good, the Bad and the Ugly”. We are working very hard on this, in terms of product safety. The Office for Product Safety and Standards, which I work very closely with, comes under my remit. It has put a huge amount of time and effort into market surveillance and ensuring that products online are safe.

We have real concerns over whether that is the case, of course, and we recently met with Amazon to discuss that issue. We have also met with eBay, Wish and other platforms to point out their responsibilities. As far as we are concerned, as distributors they have responsibilities to proactively remove unsafe content. As the hon. Gentleman knows—I have said this to him before—we intend to look at that again through the product safety review, which we are about to announce, and that should clarify those responsibilities and ensure that unsafe products do not hit the marketplace in the first place.

I take the points on takedown powers very seriously, and I heard the same evidence from trading standards that the hon. Gentleman heard. We are keen to look at that matter and, again, it might involve another layer of enforcement so that we can then try to prevent those unsafe products from hitting marketplaces across the UK. Trading standards has the capacity to do that for individual websites, but I understand that there are wider concerns regarding other areas of online activity that we are keen to address.

[Seema Malhotra]

I thank the Minister for his comments relating to the calls from trading standards to strengthen the legislation, which I also support. Could the Minister perhaps clarify a couple of points?

On greenwashing, my point was about how robust our regime will be in making sure that the green claims code, and how that is implemented, will be sufficient to ensure more compliance—either with the code or with any other ways in which we are going to be taking forward legislation on this—so that we do not have to do a lot more by way of enforcement. That would clearly not be the best outcome in the long term for consumers. Having the information up front and ensuring that labelling and other matters are much more robust is better than having challenges later on, with the associated costs of taking things through the courts. My question was more about how this all sits together, and whether the Government have an overall strategy, which I think is quite important.

Finally, on the product safety review, it has been “about to be published shortly” for quite a long time. Is it coming shortly?

[Kevin Hollinrake]

Yes, it is coming shortly.

Turning to greenwashing, we take the matter very seriously, and there are two ways to deal with it. We can do ex ante regulation, which involves building a huge bureaucracy around a certain system and people checking everything, or we can put in an ex post regulation deterrent regime, which involves a code or set of standards that companies should adhere to, and then an enforcement regime that takes breaches of the code very seriously and applies penalties to organisations that do not meet the standards. The latter is a more efficient and effective way to regulate, and that is the approach we are taking. That should prove a deterrent and prevent people from doing the wrong thing in the first place.

Question put and agreed to.

Clause 165 accordingly ordered to stand part of the Bill.

Clauses 166 to 171 ordered to stand part of the Bill.

Clause 172

Power of CMA to investigate suspected infringements

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Seema Malhotra]

Clause 172 introduces provisions empowering the CMA to begin an investigation where it has reasonable grounds for expecting that a person has engaged, is engaging or is likely to engage in a commercial practice that would be considered a relevant infringement. That power acts as a trigger for the use of the CMA’s direct enforcement powers. Under subsection (3), the CMA would be able to publish a notice of investigations setting out what and whom it is investigating and indicating the investigation timetable. If, after giving such a notice, the CMA decides to close the investigation, it would be required to publish a notice of termination.

The clause is welcome. It is a vital part of the new consumer protection regime, and we need to ensure is properly enforced. While I am glad the provisions are being introduced, I note again that it will be a long time before they are in operation. It is not until 2025 that some of the provisions come into force.

It does not appear that publishing of the notice of investigation would be mandatory in all cases. Are there any times or examples of when a notice should not be published? If so, could the Minister share those with the Committee?

Under clause 173, the CMA would be empowered to give an enforcement subject a provisional infringement notice where the CMA has started an investigation under clause 172, which continues. The provisional infringement notice would need to contain certain information, including the grounds on which it is given and the enforcement subject’s acts or omissions that give rise to the CMA belief that there has been an infringement. It must also include the CMA’s proposed directions specifying the conduct required to ensure compliance. If the proposed directions include enhanced consumer measures considered by the CMA to be just, reasonable and proportionate, the notice will also need to state that and include details of those measures.

The notice must also include the process for the enforcement subject to make representations to the CMA about the notice, including the means by which and the time by which representations must be made by the enforcement subject. That must also include a hearing if the enforcement subject decides to make an oral representation and, if the CMA is considering monetary penalties, the detail of that penalty.

This is an important clause in enabling co-operation through the enforcement regime, but I would welcome clarification in a few areas. Subsection (3) sets out how the CMA may give the respondent a notice. Are there any scenarios in which the CMA will not need to give the respondent an infringement notice? If not, is this intended to be a power rather than a duty?

Subsection (4) states that the infringement notice must specify the time by which representations must be made. Does the Minister have in mind an expected time range for those representations to be made? I am sure that there is an intention that this all happens as quickly as possible, but there is no specification or guidance as to what some of the timelines might be. It would be helpful to understand the Minister’s intentions on that further.

Clause 174 grants the CMA a discretionary power to issue a final infringement notice to the enforcement subject. In deciding whether to issue a final infringement notice, the CMA will be required, under the clause, to consider whether an undertaking has been given and, if so, whether the enforcement subject has complied with its terms. A final infringement notice may impose on the enforcement subject a requirement to comply with such directions as the CMA considers appropriate to rectify an infringement and achieve compliance, and/or a requirement to pay a monetary penalty. Subsection (6) sets out that the monetary penalty must be a fixed amount not exceeding £300,000—I think that was described in earlier discussions as the middle of the pack—or, if higher, 10% of the total value of the enforcement subject’s turnover.

Under subsection (8), a final infringement notice could require the enforcement subject to publish the notice and a corrective statement. I ask the Minister—again, in the interests of transparency—why this subsection says “may require” rather than “will require”. I ask in the interests of consistency and transparency for consumers, so I would be grateful for the Minister’s response.

Clause 175 empowers the CMA to include in a final infringement notice enhanced consumer measures that it considers to be just, reasonable and proportionate. This clause is welcomed by the Opposition as an important part of the consumer protection regime.

Under clause 176, the CMA will be able to issue an online interface notice to any person whom the CMA believes has engaged, is engaging or is likely to engage in a relevant infringement. This includes third parties with a connection to the UK—for example, UK nationals and residents, UK-established businesses, and businesses carrying on business in the UK or targeting UK consumers. The purpose of this notice would be to prevent serious harm to consumers where there has been or is likely to be an infringing practice. In effect, the notice would force the infringer or any third party to take down content that is harmful to consumers. Subsection (4) sets out what the directions could include: removing content from, or modifying content on, an online interface; disabling or restricting access to an online interface; displaying a warning to consumers accessing an online interface; and deleting a fully qualified domain name.

Use of those powers has been described as a last resort. Will the Minister clarify whether this would therefore be after a period of notices and whether there is a timeline in which it might be undertaken? If a business was not responsive, would the Minister expect relatively quick use of the powers in order to protect consumers and to deter any further consumer detriment? Also, is it the Minister’s intention that the powers are just for the CMA? Considering some of the discussion that we have been having in relation to trading standards, I wonder whether use of the powers may be open in the future to other enforcers.

[Kevin Hollinrake]

In terms of publication of a notice, I think that that is a judgment for the CMA. There may be public interest in making a notice public—for example, to inform traders or consumers about practices of concern. Why would it not publish a notice? Well, it might be, for example, that that might prejudice the CMA’s investigation, which is clearly not something that we would want to happen.

The hon. Lady asked about the timescale for response. That will be something that the CMA consults on, in terms of how the process will happen, and stakeholders will be able to input into that consultation. However, we expect clear timelines to be set for responses.

Why would the CMA not give an infringement notice? Well, it might be that it decides, for example, that another enforcer might be better placed to take forward enforcement in that area. Circumstances will vary widely from case to case, and the CMA will be the best judge of whether publication is desirable in any given situation.

What about other consumer enforcers? We believe that the CMA has a leading and co-ordinating role in both the public enforcement of consumer law and in tackling market-wide practices that hinder consumer choice. The new direct enforcement model will enable the CMA to act faster and take on more cases on behalf of the public, resulting in an estimated further tens of millions—or potentially hundreds of millions—of pounds of direct benefit to consumers. Improving the speed and responsiveness of the CMA’s interventions has the greatest potential to safeguard the wider interests of consumers right across the economy.

Question put and agreed to.

Clause 172 accordingly ordered to stand part of the Bill.

Clauses 173 to 176 ordered to stand part of the Bill.

Clause 177

Undertakings

--- Later in debate ---

[Kevin Hollinrake]

We are now getting into the weeds of this. We have similar views about online marketplaces and their responsibilities. In our view, their responsibility as a distributor requires them to ensure that products are safe before they are placed on the marketplace in the first place. There should be no excuse for a distributor not checking the validity of a standards marking, for example. That is a responsibility that I have discussed with various platforms. We want to get to the position where products are verified before they enter the marketplace, through checks and balances. Rather than working reactively, platforms should work proactively in such instances, but part of that crosses over into work that we are doing in the product safety review, which we have discussed previously and will, I am sure, discuss again.

If the CMA is satisfied that a breach occurred without a reasonable excuse it can impose a penalty. That ensures that there are meaningful consequences to breaching an undertaking, to deter unscrupulous traders. Clause 182 states the types of penalties and the maximum penalty amounts that can be imposed by the CMA through a final breach of undertakings enforcement notice. The penalty imposed can be the higher of a fixed amount up to £150,000 or 5% of total turnover. A daily rate penalty can be up to £15,000 or 5% of the total value of the daily turnover, whichever is higher, accruing over the days in which non-compliance continues. Both a fixed amount and a daily rate penalty may be imposed, but they must not exceed the fixed amounts that I have just referenced. I hope that hon. Members will support Government amendment 60, and clauses 177 to 182 standing part of the Bill.

[Seema Malhotra]

The Opposition support the inclusion of clause 177. We welcome any measures that enable co-operation between enforcement bodies and subjects. I will, however, ask the Minister about timescales. The legislation as it stands contains little in the way of specifying timescales. The Minister might tell me again that this might be relevant for the consultation that the CMA undertakes on the process, but I think this will end up being relevant also for the resources that are in place, the expectations of how quickly all the procedures will be able to operate, and certainly how long it could take during the course of an initial infringement notice and a final infringement notice to reach an undertaking.

Although the inclusion of these provisions is necessary to make the regime a co-operative one, it is important that their inclusion in the Bill does not lead to unnecessary delay by enforcement subjects who might have no genuine intention to reach a commitment with the CMA. I would welcome the Minister explaining how he believes that will operate effectively.

Government amendment 60 ensures that the requirements imposed by undertakings given under clause 177 may include the taking of enhanced consumer measures, as defined by clause 213. We welcome this amendment, which should bring further consistency in the enforcement regime.

Clause 178 is consequential on clause 177. It prevents the CMA, once it has accepted an undertaking under clause 177, from giving a final infringement notice or an online interface notice to the same enforcement subject in relation to the same matter. The explanatory notes explain that the underlying policy intent is that undertakings are an alternative to final infringement or online interface notices and therefore the effect is that a person cannot be subjected to multiple enforcement resolutions of the same matter. Subsection (3) provides the necessary flexibility for the CMA. The CMA can still give a final infringement notice or an online interface notice to the extent that it deals with different matters from the undertaking. We welcome the clause.

Clause 179 sets out the process to be followed when the CMA needs to change or end an undertaking. Where the CMA proposes to accept a material variation of an undertaking or to discharge an undertaking, under this clause the CMA would be required to first give notice to the enforcement subject. If, after considering any representations made in accordance with the notice the CMA decides to take the proposed action, it would have to give further notice to the enforcement subject of that decision. We think this is an important clause.

Under clause 180, the CMA would be able to give a provisional breach of the undertakings enforcement notice where it has reasonable grounds to believe that the enforcement subject has failed to comply with one or more of the terms of the undertaking. It also sets out what the provisional breach of an enforcement notice must include. We welcome this clause as an important provision. It is important for the CMA to be clear on its intentions, for the enforcement subject to have no means of saying it was a misunderstanding, and for transparency for consumers.

Clause 181 introduces provisions enabling the CMA to issue a final breach of undertakings enforcement notice in circumstances where the deadline for the enforcement subject to make representations to the CMA in accordance with the first notice has expired, and if, after considering representations, the CMA is satisfied that the enforcement subject has committed an infringement. The clause also lists what must be included in the enforcement notice.

Subsection (4) lays out the threshold for a monetary penalty. It states that the penalty

“may be imposed only if the CMA is satisfied that the failure in question is without reasonable excuse.”

Like my hon. Friend the Member for Bermondsey and Old Southwark, I want the Minister to expand on the word “reasonable”. Will further definition be required? Does he think there will be some case law or further guidance? This is an important matter, because it can lead to questions about whether the CMA’s interpretation of “reasonable” is reasonable. We do not want to go down that route; we want a clear regime that provides less wriggle room for enforcement subjects that have no intention of complying and will use any excuse not to do so. I hope the Minister will look at that further and will give the House confidence that the apparent vagueness of the term will not enable companies that are in breach of their undertaking to escape the monetary penalties that, under the regime, they ought to pay.

Government amendment 61 requires that the information contained in a final breach of undertakings enforcement notice includes information about rights of appeal. We welcome it as a common-sense addition to what must be included in the final breach notice.

Clause 182 sets out the maximum monetary penalty that can be imposed for a breach of undertakings notice under clause 181. It amounts to a fixed amount of £150,000 or, if higher, 5% of the total value of the enforcement subject’s turnover. In the case of a daily rate, it is £15,000 or, if higher, 5% of the total value of the daily turnover of the enforcement subject. We have debated that previously. I assume that that amount relates to this being an enforcement penalty. Will the CMA continue to be the only body that has such fining powers? Will other enforcers, such as trading standards, be able to pursue penalties only through other routes? I would appreciate clarification from the Minister on that.

[Kevin Hollinrake]

The Opposition make a reasonable point about the reasonable excuse. We have left the threshold pretty broad to reflect the range of situations that could prevent compliance. We feel that a closed list on the face of the Bill would bind the CMA’s hands and make the measure less effective. As hon. Members know, the Bill requires the CMA, in the guidance on exercising its direct enforcement functions that it produces under clause 205, to provide information about the factors it takes into account in determining whether a reasonable excuse exists, and that will include examples.

The hon. Lady asked how soon after a provisional notice the CMA will issue a final breach of undertakings enforcement notice. She pre-empted my response to that: it will, again, be subject to consultation. Of course, it is at the discretion of the CMA. The CMA will set out its approach to determining the period within which representations have to be made in forthcoming guidance, preceded by the public consultation.

[Seema Malhotra]

I will take what the Minister said on reasonableness, and we will have a look at it. We may return to this matter, in order to ensure that there is not a gap between what an enforcement subject could argue and what the CMA intends, but I thank him for his response.

[Kevin Hollinrake]

It is perfectly reasonable that we have that debate, but we will do so we when we discuss clause 205. It is right that the Opposition challenge us and the CMA to ensure that the guidance is clear, and covers all bases.

Amendment 60 agreed to.

Clause 177, as amended, ordered to stand part of the Bill.

Clauses 178 to 180 ordered to stand part of the Bill.

Clause 181

Final breach of undertakings enforcement notice

Amendment made: 61, in clause 181, page 121, line 28, at end insert—

“(e) state that the respondent has a right to appeal against the notice and the main details of that right (so far as not stated in accordance with paragraph (d)).”—(Kevin Hollinrake.)

This amendment requires that the information contained in a final breach of undertakings enforcement notice includes information about rights of appeal.

Clause 181, as amended, ordered to stand part of the Bill.

Clause 182 ordered to stand part of the Bill.

Clause 183

Provisional breach of directions enforcement notice

Question proposed, That the clause stand part of the Bill.

[Kevin Hollinrake]

Clauses 183 to 188 principally deal with the enforcement of directions imposed by the CMA in its final infringement notices, online interface notices, and final breach of undertakings enforcement notices. Clause 183 empowers the CMA to enforce compliance with enforcement directions by giving a provisional breach of directions enforcement notice. That allows the enforcement subject to know the case against them and to make representations.

Clause 184 allows the CMA to give a final breach of directions enforcement notice, if it is satisfied that a direction has been fully or partially breached without a reasonable excuse. The notice must follow a provisional breach of directions enforcement notice and can be given only after the period to make representations has expired and the CMA has considered any representations received. Given the seriousness of the situation and the late stage in the process of enforcing compliance with consumer protection law, the Bill sets out that the CMA will impose a monetary penalty each time it gives a final notice under the clause.

Clause 185 provides for the types of penalties and the maximum penalty amounts that can be imposed by the CMA through a final breach of directions enforcement notice. The total penalty amount can be a fixed amount up to £150,000 or 5% of total turnover, whichever is higher. It can also be a daily rate penalty up to £15,000 or 5% of the total value of the daily turnover, whichever is higher, and accruing over the days while non-compliance continues. It can also be a combination of both, but that must not exceed the maximum penalty amounts in both separate cases.

Clause 186 gives the CMA an alternative means of enforcing compliance with directions given in final infringement notices, online interface notices and final breach of undertakings enforcement notices by enabling applications to court for an order to require compliance. It also provides a backstop power for the CMA to apply for a court order where it considers a person has failed to comply with a direction given in a final breach of directions enforcement notice.

Clause 187 gives the CMA the power to require evidence from the enforcement subject to substantiate factual claims made as part of its commercial practices under investigation. This applies where the CMA gives a provisional notice concerning a suspected breach of the unfair trading prohibitions in chapter 1 of part 4 of the Bill. By placing the burden of proving the accuracy of claims on the trader, the clause is crucial in stopping unscrupulous traders from spreading wild promises or getting the CMA bogged down in disproving claims that should be backed up by evidence.

Clause 188 sets out the process that the CMA must follow for proposing to materially vary or revoke any directions. The clause gives flexibility to the CMA to direct compliance while requiring it to provide a sufficient notice period and clear information to guarantee fairness to the person involved.

[Seema Malhotra]

Clause 183, in conjunction with clause 184, sets out the CMA’s powers to enforce compliance with enforcement directions. It introduces provisions enabling the CMA to issue a provisional breach of directions enforcement notice where it has reasonable grounds to believe that the enforcement subject has without reasonable excuse failed to comply with the direction. We support the clause.

Under clause 184, the CMA would be able issue a final breach of directions enforcement notice requiring the payment of a monetary penalty upon completion of the process laid out in the clause. We support this clause. Clause 185 is consequential on clause 184 and sets out the maximum monetary penalty that the CMA may impose for a breach under clause 184. Again, we support the clause.

Clause 186 provides the CMA with the power to apply to an appropriate court when a person or company has failed to comply with a direction given under clause 184. Under the clause, the CMA would be able to apply to the court for an enforcement order, an interim enforcement order, an online interface order or an interim online interface order. That would enable the court to act in respect of any practice or conduct that would amount to a “relevant infringement” by making a consumer protection order in addition to or instead of making an order in respect of the breach of directions. We welcome this clause, as it provides a necessary backstop for the CMA to enforce its judgments and penalties.

Clause 187 would enable the CMA to require evidence from traders substantiating the factual claims used in their commercial practices with consumers, which are at issue in a provisional notice involving alleged contravention of the new consumer protection regime. Where the CMA has issued a provisional notice to an enforcement subject and the enforcement subject makes representations to the CMA in response to that notice, the CMA may require the enforcement subject to provide evidence as to the accuracy of any claim made. For the reasons that we debated earlier, we welcome this clause and this power as they will enable the CMA to carry out its functions more effectively on behalf of consumers.

Clause 188 introduces provisions enabling the CMA to make a material variation of, or to revoke, directions that it has given under other clauses as specified. We support the inclusion of clause 188 in the Bill. I hope that what the clause provides for will be able to be done at speed and that we do not see any delays in the use of these powers where needed.

Question put and agreed to.

Clause 183 accordingly ordered to stand part of the Bill.

Clauses 184 to 188 ordered to stand part of the Bill.

Clause 189

Provisional false information enforcement notice

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Kevin Hollinrake]

Of course—sorry, Dame Maria.

Clauses 189 and 190 empower the CMA to give a provisional false information enforcement notice, followed by a final notice imposing a monetary penalty of up to £30,000 or, if higher, 1% of total turnover. They allow the CMA to enforce against, and penalise, the provision of materially false or misleading information to the CMA without reasonable excuse.

[Seema Malhotra]

Clause 189 introduces provisions granting the CMA a discretionary power to issue a provisional false information enforcement notice if it has reasonable grounds to believe that a person has provided to the CMA materially false or misleading information. It also lists what would be included in this enforcement notice. It would obviously be a really serious matter if false or misleading information was provided to the CMA. We therefore support this clause.

Clause 190 enables the CMA to issue a final false information enforcement notice. This clause is consequent on clause 189 and we therefore welcome its inclusion in the Bill. Clause 190(4) sets out the maximum monetary penalty for a false information infringement. It is important that there is a sufficient deterrent and also the ability for significant enforcement where it is found that false information has been provided to the CMA and that has been proven.

Question put and agreed to.

Clause 189 accordingly ordered to stand part of the Bill.

Clause 190 ordered to stand part of the Bill.

Clause 191

Statement of policy in relation to monetary penalties

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Kevin Hollinrake]

I fear that I may have missed one or two of the hon. Lady’s points, but I think I got most of them. Guidance under clause 191 will be publicly consulted on, giving those potentially affected by it an opportunity to comment directly. That consultation will happen post Royal Assent, and when finalised it will be published on the CMA’s website. On the Secretary of State requesting reports, clearly we do not know what we do not know. The Secretary of State has flexibility on when they might consider that a report is required under clause 193. The CMA already publishes regular impact assessments and other public reports, including its annual report to Parliament, and scrutiny will continue by traditional means, such as through Select Committees.

[Seema Malhotra]

The Minister will know that so much has gone to the Business and Trade Committee that there will be great concern about how frequently, and in what level of detail, it will be able to scrutinise all the work done under the regime. It will be a pretty tall order to do that job. I have a question for the Minister that I think is important. We have heard in previous debates about the frequency of reporting and what would be in the CMA’s report for all the new regimes and units that it will undertake. We obviously do not want to overload the CMA with unnecessary reporting, but there should be an expectation about what might be in the annual report, and there should be clarity on what the Secretary of State might expect in a report on the new regime.

Surely Ministers will want to have confidence in what is happening under the regime, and to have some data reported to them if the CMA is collecting it. Will the Secretary of State expect a, perhaps annual, report on the new regime, perhaps for a few years, to know whether it is operating effectively? Secondly, will clause 193(2) give the Secretary of State the ability to request additional or more detailed reports if there are concerns about aspects of the regime’s implementation? I understand the power to ask for more reports, but not having any report requested through the course of the implementation of the operations strikes me as a serious gap, particularly—

[The Chair]

Order. Shall we get the Minister to reply?

[Kevin Hollinrake]

I thought that perhaps I had to intervene on the hon. Lady.

[Seema Malhotra]

Particularly in relation to the early implementation of the regime—I was on my last sentence.

[Kevin Hollinrake]

That was a very comprehensive intervention. I think that we are saying the same thing. Of course the CMA will continue to report annually, and of course we would expect it to report on the new powers that it has been granted through the Bill. In addition to that, the Bill gives the Secretary of State the power to request additional reports as he or she sees fit. We think that that achieves an appropriate balance. We do not think that it is right to get in the way of the CMA doing its job by obliging it to report on a more frequent basis. Of course, as part of my role, or my successor’s role if I move from this position back to the Back Benches or wherever, we regularly have meetings with the CMA to discuss its activities and where it is using its powers. Indeed, we write an annual letter to the CMA, which sets out where we expect its focus to lie.

The hon. Lady asked a fair question about the appeals timelines. They will not be consulted on, but they will be subject to the civil procedure rules, and relevant rules in other UK jurisdictions. The civil procedure rules will be amended as part of the implementation of the provisions through the Civil Procedure Rule Committee in the usual way. Of course, we will want appeals to take place as expeditiously as possible, provided that they are fair.

Question put and agreed to.

Clause 191 accordingly ordered to stand part of the Bill.

Clauses 192 to 199 ordered to stand part of the Bill.

Clause 200

Investigatory powers of enforcers

Question proposed, That the clause stand part of the Bill.

[Kevin Hollinrake]

Clause 200 introduces schedule 15 to the Bill, which contains amendments to schedule 5 to the Consumer Rights Act 2015, relating to the investigatory powers of consumer protection enforcers. Schedule 15 amends provisions in schedule 5 to the Consumer Rights Act to ensure the enforceability of statutory information notices given to a person under paragraph 14 of schedule 5.

The amendments made through schedule 15 come in two parts. First, we are providing the courts with a new power to impose a civil monetary penalty where the court finds there has been non-compliance, without reasonable excuse, with an information notice given by any consumer enforcer. Secondly, we are providing a new direct enforcement power for the CMA to decide whether an enforcement notice it has issued has been complied with and, if not, to impose a civil monetary penalty for any non-compliance without reasonable excuse.

The schedule also sets out the extraterritorial reach of enforcers’ power to request information by notice. We are legislating to ensure that enforcers can obtain all the necessary information from parties in and outside the UK to inform their analysis and ascertain breaches of the law, subject to certain conditions. The schedule also ensures that a warrant may be granted in relation to material that may be remotely stored in the cloud but still be accessible from the premises. I hope hon. Members agree that the schedule completes the largely successful modernisation of the investigatory powers of consumer law enforcers made by the Consumer Rights Act in 2015.

[Seema Malhotra]

Clause 200 introduces schedule 15 to the Bill, which amends schedule 5 of the Consumer Rights Act 2015, which in turn details the information-gathering powers available to consumer enforcers for the purposes of civil enforcement of consumer protection law. We support the clause, but I will make a few more remarks on schedule 15.

Schedule 15 makes limited amendments to schedule 5 of the Consumer Rights Act 2015 so that an enforcement notice would have to specify the circumstances in which non-compliance with the enforcement notice could result in a financial penalty. The amendments would apply where an enforcer has given an information notice to a person and the enforcer considers that the respondent has, without reasonable excuse, failed to comply with the notice. In such circumstances, the enforcer would be able to make an application to the court.

The Opposition welcome the schedule, but there are questions related to those we have asked in relation to other clauses, specifically around the absence in the Bill of the updating of trading standards authorities’ powers for the digital economy and the 21st century. That is important. We have raised before the ability for trading standards to obtain information online and so on. Can the Minister have a look at that in more detail? In the course of further clauses next week, we may come on to some other amendments as well, but I would be grateful for the Minister’s response.

[Kevin Hollinrake]

It is our contention that trading standards do have the powers that they need to access information. There are concerns; I have concerns—I want to ensure that trading standards have sufficient powers in terms of take-down powers. That is something that we are looking at and, as the hon. Lady says, is probably something that we will discuss as the Bill proceeds.

Question put and agreed to.

Clause 200 accordingly ordered to stand part of the Bill.

Schedule 15 agreed to.

Clause 201 ordered to stand part of the Bill.

Clause 202

Notices under this Part

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Seema Malhotra]

Clause 202 sets out the process for giving notices under part 3 to persons within and outside of the UK, including business entities registered or operating outside the UK. It defines acceptable means of service and the meaning of a recipient’s proper address. We welcome the clause.

Clause 203 allows the CMA to make rules, subject to approval by the Secretary of State through secondary legislation, to set out the procedural administrative details of the CMA’s enforcement regime. The rules supplement the framework provided in chapter 4 of part 3. We welcome the clause and the clarification, and also the important points made in the explanatory notes, including the point that the rules will cover “arrangements for complaints’ handling”. The clause is a common-sense provision.

Clause 204 sets out the process for the exercise of the rule-making power under clause 203. We welcome the fact that the CMA will be required to consult with stakeholders during the preparation of the rules, and we discussed that in relation to earlier clauses. The CMA will also be required to obtain the Secretary of State’s approval before bringing any rule into operation or varying a rule. We welcome that measure too.

Under 204(5), the Secretary of State will be empowered to vary or revoke rules or to direct the CMA to vary or revoke rules, and regulations made under the clause will be subject to the negative parliamentary procedure. Although we welcome the clause, will the Minister clarify why that has been left to the negative procedure? The inclusion of affirmative and negative procedures in the Bill seems to be slightly random, so I would be grateful for that clarification.

Under clause 205, the CMA will be required to prepare and publish guidance about its general approach to carrying out its direct enforcement functions. The guidance will provide more detailed information to traders and other stakeholders about how the direct enforcement regime would work in practice. The Opposition welcome the clause because it introduces more transparency and clarity into the regime, but will the Minister tell the Committee what timeframe is considered appropriate for the publication of the guidance? He said that he saw publication happening after Royal Assent, but does he expect it to happen within a certain period of time? I am sure that he wants the legislation to be implemented as soon as possible, as do I.

Clause 206 would protect the CMA against actions for defamation as a result of the exercise of functions under part 3. We welcome the clause. It is important that the CMA is protected in carrying out its job as the co-ordinating enforcement authority.

Clause 207 introduces schedule 16, which contains minor and consequential amendment in relation to part 3. We support schedule 16 and do not consider the consequential amendments contentious. We also support Government amendments 62 and 63.

Clause 208 introduces schedule 17, which provides transitional and saving provisions in connection with part 3. Those provisions concern the operation of the new law introduced by chapter 3 and CMA direct enforcement powers under chapter 4 of part 3. They also relate to the operation of the old law, which constitutes part 8 of the Enterprise Act 2002. It lays out how the new law would apply to conduct that takes place on or after the commencement date of the Bill, and to conduct of concern that a person is likely to engage in, where such conduct is likely to take place on or after the commencement date. The old law would continue to apply to conduct that takes place before the commencement date, as well as to various other forms of conduct. We welcome this technical schedule and clarification, and we support amendment 65.

Clause 209 introduces definitions for references to supply of goods or digital content as used across part 3 and we support the clause. Clause 210 defines how references to the supply of services should be construed across part 3 and we support the clause. Clause 211 defines what is meant by an accessory to the commercial practice of a body corporate. Will the Minister clarify whether he is confident the clause adequately captures anyone who may act as an accessory and how the definition was brought together? Was it through consultation? That will provide full clarity on what constitutes an accessory.

Clause 212 defines what constitutes having a special relationship with a body corporate, covering two scenarios outlined by the Minister. As such, we support its inclusion in the Bill. Clause 213 defines three types of enhanced consumer measures, referred to as redress, compliance and choice measures. I am grateful to the Minister for outlining some detail on that and the definitions, so that those set out in subsections (2) to (4) are straightforward and clear, and that that also applies to their interpretation by consumers. We thus welcome the clause’s inclusion in the Bill.

Clause 214 defines other terms for the purposes of this part, including the definitions of “businesses”, “goods”, “enforcement orders”, “subsidiary” and “supply”, which are important, and we support their inclusion. Further, clause 215 sets out an index of defined expressions and we welcome and support it.

[Kevin Hollinrake]

I will make a couple of points, the first of which is on the negative procedure. On regulations, there is a combination in clause 204 of public consultation followed by review by the Secretary of State, which will allow for a significant level of scrutiny. On that basis, we feel the negative procedure is justified and appropriate.

On the guidance, the CMA must undertake several actions, including a public consultation on the practices. This may take some time, and we expect that the guidance may be ready by autumn 2024, but that will depend upon a number of factors. We clearly want it in place as quickly as possible, but we must ensure that it is fit for purpose.

The definition of “accessory” in clause 211 is consistent with, and restates with minor clarifications, the current definition in part 8 of the Enterprise Act 2002.

Question put and agreed to.

Clause 202 accordingly ordered to stand part of the Bill.

Clauses 203 to 207 ordered to stand part of the Bill.

Schedule 16

Part 3: minor and consequential amendments

Amendments made: 62, in schedule 16, page 329, line 17, leave out sub-paragraph (b).

See explanatory statement for Amendment 63.

Amendment 63, in schedule 16, page 329, line 23, at end insert—

“5A In Schedule 14 (provisions about disclosure of information) at the appropriate place insert—

‘Chapters 3 and 4 of Part 3 of the Digital Markets, Competition and Consumers Act 2023.’”.

This amendment, which is made for drafting consistency, inserts a reference to Chapters 3 and 4 of Part 3 of the Bill into Schedule 14 to the Enterprise Act 2002 instead of achieving the same effect by adding that reference into section 238(1) of that Act.

Amendment 64, in schedule 16, page 337, line 2, at end insert—

“Part 4 of the Digital Markets, Competition and Consumers Act 2023.”.—(Kevin Hollinrake.)

This amendment adds Part 4 of the Bill to the list of enactments in the new paragraph 20A of Schedule 5 to the Consumer Rights Act 2015 (inserted by paragraph 8(10) of Schedule 16), with the effect that authorised enforcers will be able to exercise the investigatory powers conferred by Part 4 of Schedule 5 to CRA 2015 in connection with infringements of Part 4 of the Bill.

Schedule 16, as amended, agreed to.

Clause 208 ordered to stand part of the Bill.

Schedule 17

Part 3: transitional and saving provisions in relation to Part 3

Amendment made: 65, in schedule 17, page 338, line 1, leave out from “means” to end of line 11 and insert “—

(a) Part 8 of EA 2002, as that Part had effect immediately before the commencement date, and

(b) any provisions of law (including in particular Schedule 5 to CRA 2015) relating to Part 8 of EA 2002, as those provisions had effect immediately before the commencement date.”.—(Kevin Hollinrake.)

This amendment clarifies that the definition of “the old law” for the purposes of the transitional provisions in Schedule 17 to the Bill includes Schedule 5 to the Consumer Rights Act 2015 (which confers investigatory powers on enforcers).

Schedule 17, as amended, agreed to.

Clauses 209 to 215 ordered to stand part of the Bill.

Ordered,

That the Order of the Committee of 13 June be varied by the omission from paragraph 1(f) of “and 2.00 pm”.—(Mike Wood.)

Ordered, That further consideration be now adjourned. —(Mike Wood.)

Oral Answers to Questions

Debate between Seema Malhotra and Kevin Hollinrake

Thursday 29th June 2023 Commons Chamber

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

The truth is that in the year stated, exports to the EU fell as a proportion of total trade. Last month it was not inflation that halved, but exports of fruit to the EU. The British Chambers of Commerce has reported that more small and medium-sized enterprises are seeing exports falling than rising, and Britain has the lowest export rates in the G7. When a business tells me that it used to take three days for its products to reach shelves in Germany and now it takes 30, is it not fair to conclude that the Government have failed on the economy, have no plan to make Brexit work and are making businesses pay the price?

[Kevin Hollinrake]

That backs up my comment on pessimism; the hon. Lady is cherry-picking the worst possible figures she can find. In my conversations this week at the OECD conference on SMEs, nations around the world were crying out to do business with the UK, and indeed are doing so. Of course we are trying to tackle market barriers where they exist. We are leading a whole-of-Government effort to remove a hit list of 100 market access barriers, including those arising in Europe, to open up opportunity to UK exporters worth more than £20 billion. The most recent statistics, for the year ending March 2023, show that 45 barriers were resolved in Europe in that year, compared with 41 in the previous year.

Digital Markets, Competition and Consumers Bill (Second sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Committee stage
Tuesday 13th June 2023 Public Bill Committees

[Seema Malhotra]

Q In the interests of time, I will move on to Ms Reilly. What is your view of how this will affect/benefit consumers in Scotland? Are there any other specific issues that we should consider in relation to Scotland?

Tracey Reilly: Broadly speaking, we welcome the Bill. As your previous panellists said, it has lots of good stuff in it. It should provide the CMA with more flexible powers, which can be used in a more responsive and timely way to prevent detriment. On how the Bill will affect individual consumers, we hope that it will lead to consumers experiencing lower levels of detriment and being less subject to unfair, misleading or aggressive trade practices so that if and when such practices occur, they can be stamped out more quickly and easily, and it is easier for consumers to seek redress through ADR systems that are appropriately regulated and standardised.

In terms of how the Bill will affect Scottish interests, in many ways the level of detriment experienced by consumers across the UK is similar. The consumer protection survey is UK-wide and the patterns of detriment for Scottish consumers are generally not hugely different from those experienced in the rest of the UK. That said, there are obviously differences between the two nations in the regulatory enforcement and judicial landscapes, and it is important that we understand and pay attention to them. Equally, I understand that the Department has been engaging with Scottish stakeholders. We welcome that and would obviously like that to continue through the implementation process.

Some markets operate differently in Scotland, either because they are entirely devolved because there are fewer providers and therefore lower levels of competition, or because consumers access services differently, for example, due to geography. It is important that, within the overall UK framework, the system can respond to those regional differences or local issues. We hope that the additional levels of flexibility granted to the CMA under the Bill will allow for a more flexible and targeted response, particularly if any local practices cause detriment. We look forward to liaising with the CMA on that. Noyona may wish to make additional comments, given that she is in Northern Ireland.

[Kevin Hollinrake]

Q Noyona, you mentioned that you felt that the CMA should not be the only enforcement body that oversees the legislation. Who else do you think has the experience and expertise to perform some of those significant obligations?

Noyona Chundur: There is a heightened risk, Minister, if the new direct enforcement powers sit only with the CMA. Ultimately, the purpose of those powers is to be much more agile, flexible and responsive to consumer detriment in the market. Is there a heightened risk that enforcement will default to the CMA because perhaps it may deliver a solution that is much more agile and responsive and much more in keeping with the pace of detriment in the marketplace compared with a courts-based system? The sector regulators and trading standards could therefore have the same or similar powers. The question is about agility and responsiveness to detriment, which is exploding in the marketplace. We see it increasingly, particularly in digital markets, which evolve so quickly. That is our perspective.

--- Later in debate ---

[Kevin Hollinrake]

Q I know you are an expert in ex ante regulation. Obviously the way in which people can appeal any intervention by the CMA or the DMU would be only by JR, rather than on the merits method. Is that the right standard?

Professor Myers: Again, I think the Bill strikes quite a good balance with the judicial review approach. To bring in some practical experience from my days at Ofcom, I have had a role as an expert witness in quite a number of appeals of Ofcom decisions, in front of both the Competition Appeal Tribunal and the High Court. At the Competition Appeal Tribunal, those have been under different standards: there used to be a full-merits review, but recently that was changed to a judicial review.

I think what matters, as well as the legal standard of review as laid out in this legislation, is the nature of the appeal body. In this case, it is the Competition Appeal Tribunal. Compared with the High Court, these are specialists—both judges and lay members—with specialist knowledge and experience of dealing with both competition and regulatory cases. They have a greater appetite to get into the detail and merit issues, to the extent that that is compatible with the judicial review standard, than the High Court would. Having appeared in front of the Competition Appeal Tribunal under a judicial review standard, I can say, as I think Professor Fletcher did, that that is not a walk in the park for the regulator. You get a thorough testing, and what the Competition Appeal Tribunal is looking to identify is clear errors of either law or reasoning. I think that that is an appropriate way to strike a balance here.

[Seema Malhotra]

Q I want to pick up on the answers you gave earlier when my hon. Friend the Member for Pontypridd was talking about the delays in reaching this point and the length of time it will take for the Bill to go through. If there are any further delays, particularly if we reach 2025 before this is operational, what do you see some of the risks being in the meantime?

Professor Myers: You heard some evidence earlier this afternoon about the relationship between jurisdictions in different countries. Clearly, the Digital Markets Act in the European Union is being implemented at the moment and the effects of that will come in. The longer the UK legislation takes, the more that will condition the context within which the CMA will have to operate in implementing this regime. That is probably the most likely thing. There are obviously some other countries that are looking into that, but that is probably the main issue I would point to.

--- Later in debate ---

[Seema Malhotra]

Q In your view, should more powers be given to trading standards as well? I was not quite clear on where you saw a role for the CMA and trading standards together.

Graham Wynn: I think it is important that they co-operate and that there is a clear line of responsibility for each and a clear demarcation. The real problem with trading standards is not so much their powers but their lack of resources. One business with over 2,000 stores —not a supermarket—said the other day that the number of inspections and the number of times they see a trading standards officer has come down dramatically in the last few years. It makes it very difficult for those who are responsible for compliance in the business to persuade those who are responsible for, say, marketing and promotions to keep in line. The lack of trading standards activity makes that more difficult and also leads to a playing field that is not totally level. The problem is resources.

[Kevin Hollinrake]

Q Mr Wynn, you mentioned schedule 18 and not adding to the list without proper evidence. Is it your position then that we should not at this point in time add fake reviews to that list and that we should go through a proper process of consultation before we decide what to do about that?

Graham Wynn: The view is, as I said, that we do not want to see what I call knee-jerk reactions to Daily Mail items that are politically sensitive or are political problems. The obvious answer is to say, “Let’s add it to schedule 18 as a banned practice.” It really is important that the schedule and what is in it is clear, clearly understood and that we do not add or subtract from it just on the basis of needing to get over a political problem, for example.

You can make sure that you do proper consultation and all that sort of thing, but we can understand why the Government would want to be able to add to it more quickly—obviously, primary legislation takes a while. In Europe, we certainly argued against Governments or the Commission being able to add to it willy-nilly. We were keen to keep it as something that had to be put in the directive originally. On balance, we would rather it was debated fully and that it amended legislation. Alternatively, you could decide to make changes once a year, say, rather than as you go along. That might be an alternative answer to the danger of a knee-jerk reaction.

[Kevin Hollinrake]

Q On that very point, it is something that we are keen to tackle—and Mr Coyle is right to raise it, as he has done several times today. You have talked about an evidence-based approach to this. You will be aware that we will shortly launch the product safety review, which will tackle some of these issues, including the clarification of online marketplaces’ responsibilities in terms of ensuring the safety of products. Do you think that is the right place to deal with this, rather than the Bill?

Graham Wynn: Yes. I think it needs to be done, but without committing us, we would expect it to be done in the context of a product safety review and how you are going to deal with product safety issues in the future. It needs a thorough examination, including the role of marketplaces, their general obligations and what is practical and proportionate. I would not add that to this Bill now, because it requires more of an assessment and consideration than would be possible.

[Seema Malhotra]

Q An area that we have not covered is much is alternative dispute resolution. Part 4 of the Bill would make accreditation of ADR providers compulsory unless an exception applies. How effective do you think that provision will in protecting consumers, and do you think it is the right approach?

Graham Wynn: ADR is not something that our members are exercised about in the same way as some other people are. Those who are responsible for selling high-value items tend to be members of ADR schemes. Their criticism of the current arrangement has been that they are not convinced that there is a full assessment of the ADR providers, so everything that is necessary to give them the confidence to use the systems. They believe that that perhaps has held back ADR schemes from really taking off in some places.

Those who sell high-value items—kitchens, some white goods and furniture items—generally are members of ADR schemes. Those who sell groceries, as they are generally called these days, including food and non-food, tend to feel that it is not really appropriate for them because of the cost. When dealing with something worth only a few pounds, it is much cheaper and much more sensible to just deal with the consumer and, ideally, give them their money back if there is a problem, rather than take everyone through ADR. It is not necessarily the best approach. However, the accreditation system and making sure that companies abide by what they are supposed to do in ADR is vital to have confidence in general.

--- Later in debate ---

[Seema Malhotra]

Q Sorry, in the interests of time—we may have to go to a vote shortly—I have just one small question, and then I will hand over to colleagues. You said in your evidence that it is important that more is done, because there is nothing requiring online marketplaces and other collaborative platforms to make buyers aware of who the seller is—whether it is a business or a private seller—and that that has implications for consumer rights. Could you explain a bit more about what you think needs to happen that is not in the Bill?

David MacKenzie: Absolutely. A lot of the stuff in the Bill that replaces the consumer protection regulations is really good, and we really welcome it. There is still some stuff around the definition of “trader” that we think is a little bit of a missed opportunity.

There are two angles. When does a consumer become a trader? How many things do you have to sell in an online marketplace before you become a trader? That is a difficult judgment for us to make and we feel that some work should be done on that. The point you have made is equally important: the status of the seller in an online marketplace. We think there should be a requirement for the online marketplace to declare whether the seller is a consumer or a business because that makes a massive difference to the consumer rights of the buyer and it also makes a difference to what we do.

If someone is a business seller, they have to comply with all consumer law; if they are a private seller, they do not really have to comply with anything, so this is for both consumers and for us. To be fair to other businesses that operate on the site, we think this is a necessary change that is not in the Bill.

[Kevin Hollinrake]

Q You make some important points that we seek to deal with in creating a fair and level playing field and protecting consumers at the same time. There is the whole point about whether an online marketplace is a distributor, retailer or whatever else. Do you think those questions are best resolved in this legislation or in the product safety review, which we have committed to do and brings in many other things that you have referenced already?

John Herriman: That was another point that we wanted to make. This is not the only legislation that impacts on the landscape: the product safety review is fundamentally important in this space. The key point there is being clear on where those boundaries are.

We will be contributing to the product safety review. It is fundamentally important that it should come out quickly, so that we can address it and respond to the consultation. We can then look at that in the context of this Bill and others that it might impact on as well. We think that some things would be best placed in the product safety review—anything to do with legislation there—and would not appear here. But it is important that those provisions work hand in hand over a similar period, so that we can make sure that there are not any gaps. Consumers will then be better protected and businesses will have the clarity that they need, which is really important for them.

David MacKenzie: I agree with everything John said, but if we leave all these issues to the product safety review, presumably that would apply only to unsafe products. There is a wider range of situations for which we need these take-down powers when it comes to fair trading—scams and so on.

Digital Markets, Competition and Consumers Bill (First sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Committee stage
Tuesday 13th June 2023 Public Bill Committees

[Seema Malhotra]

Q Thank you very much. This question may be more for Mr Upton. The Bill goes some way towards tackling the problem of subscription traps, but it does not go as far as what Citizens Advice has called for, or indeed the Labour party’s policy of making subscription renewals opt in rather than opt out. Why do you think that the legislation needs further safeguards? Why, in the light of your experience, is that important for protecting consumers from harm?

Matthew Upton: We have been asking for action on subscription traps for a long time. Any action is positive, but we are seeing this in the context of a cost of living crisis, where anything that takes cash out of people’s pockets stops them getting by from day to day. To be honest, we think that the intent is right, but this is potentially a huge missed opportunity for action on subscription traps. We have to understand how high the incentive is for firms to trap people in subscriptions. There is a huge amount of money to be made, to the extent that it changes the whole incentive structure so that for many firms, rather than thinking about how to provide a quality subscription, the rational thing to do is think about how to design the worst possible customer journey and to trap someone, whether through an online process that makes it difficult to cancel something—you will all have experience of this—or, to give a slightly facetious example, a process whereby you can cancel only when you ring between 2 and 2.30 on a Tuesday and you have wait for 45 minutes in the queue.

Obviously, we want to change that incentive structure so that we have a flourishing subscription economy, which should be encouraged, where consumers want to stay in subscriptions and firms focus on providing quality subscriptions. We do not think that the Bill as it stands will do that. For example, it says that exit has to be timely and straightforward. We do not think that that will work. We have been here before, if we think back to utility bills four or five years ago, when there was a big push to stop people rolling on to expensive contracts and to get them to switch. Regulators were focused on trying to dictate what went into letters to consumers about their renewals. Firms could make so much money by obeying the letter but not the spirit of the regulation that they would find ways round it, and switching rates did not go up. We think that the same will happen here.

The specific change that would make a huge difference and is legislatively straightforward is to provide that, at the end of an annual trial subscription, the default is that the consumer opts out. That is not about things like car insurance, where there is a detriment to people opting out, but for basic subscriptions, opt-out should be the default. That would allow firms to use all their ingenuity, power and influence to persuade consumers to stay in. They could go for it—send as many reminders as they wanted; that is absolutely fine. If the subscription is good, a consumer will stay in. That change will make the difference. We have done some polling on this and about 80% of people agree that that should happen. We think that it will put millions of pounds back in people’s pockets, that it is proportionate and that it will encourage a flourishing subscription economy.

[Kevin Hollinrake]

Q Rocio, on your point about including fake reviews on the face of the Bill, our intention is to legislate in this area. I do not know whether you have seen the evidence from Trustpilot, which was submitted as written evidence. It rightly points to the fact that most of the discussion around fake reviews thus far has been about products rather than services. Does not that illustrate that we need to consult properly about that to ensure that we get the legislation right? Isn’t there a risk that we could get it wrong by rushing to stick this on the face of the Bill?

Rocio Concha: A provision on fake reviews in the Bill should apply to both products and services. There is evidence to show that fake reviews also harm services. I do not think that there is a major risk. We and the CMA have produced a lot of evidence about how fake reviews are endemic on some sites. We have demonstrated the harm that they cause. It is clear what is needed. We know that we need to look at selling, buying and hosting. I do not see a risk to including such a provision on the face of the Bill. Then, in secondary legislation—

Draft Register of Overseas Entities (Definition of Foreign Limited Partner, Protection and Rectification) Regulations 2023

Debate between Seema Malhotra and Kevin Hollinrake

Monday 24th April 2023 General Committees

[Kevin Hollinrake]

I thank members of the Committee for their valuable contributions to the debate. As the Committee knows, the Government are committed to ensuring that the register of overseas entities is robust and effective at tackling the illicit use of UK property to launder money. The draft regulations provide the mechanics that ensure the effective operation of the register.

The hon. Member for Caerphilly made a very good point. Clearly, sometimes individuals are under threat from other people for a variety of reasons. For example, a celebrity or public figure may not want their identity to be public because of potential risks posed by individuals to them or their families. That might be the case for a host of reasons—stalkers, for example. Where there is serious risk of violence or intimidation of that nature, which has to be proven to the registrar, the person is allowed not to disclose their address, particularly when it is a residential address, although the information is still held by Companies House and is available to law enforcement agencies. The protection regime is not a way of circumventing the purpose of the legislation; it applies in situations where there is proven potential for harm to the individual.

I think the shadow Minister, the hon. Member for Feltham and Heston, was a little unfair in some of her comments. The Government have certainly never turned a blind eye to some of the corruption that goes on in society. She says the Government have not acted, but as someone who has often spoken out about the need for stronger measures to deal with economic crime, I would say that Governments of all persuasions have not dealt with this issue in the past. She points to the fact that David Cameron stood up in 2015 and talked about the need for these kinds of measures. I agree with both him and her, but this country has failed to introduce appropriate measures for decades, and now we are doing so.

The hon. Lady points to Russia’s invasion of Ukraine bringing this issue into public consciousness. We parliamentarians react to public concern and we have concerns in the House about the invasion, which brought these kinds of issues into stark relief and provided the impetus to deal with them. We should all welcome the fact that we are dealing with them now. This SI is one of a number of measures we are taking forward that will make it much more difficult to use either properties or companies to launder ill-gotten gains through our society.

[Seema Malhotra]

The Minister has a track record in Parliament on this, but I think it is important to say that over the last seven years things have not been moving as quickly as they should have done. It is important to put on the record that various Committees in Parliament have raised this issue. We welcome things moving forward more quickly, but we have to keep our foot on the accelerator. That is extremely important.

[Kevin Hollinrake]

We are in violent agreement on moving things forward more quickly. I absolutely agree that we should have moved more quickly, but we are where we find ourselves. We have the momentum to act now, so let us make the best use of that opportunity.

The hon. Lady asks what Companies House is doing. As far as I am aware, 7,000 entities have not complied with the legislation. Some of them will no longer be entities that we need to worry about—they may well have closed down, and an address may have changed because there is no more purpose to an entity—but we are clearly keen to find out such information. Companies House has written to tens of thousands of organisations to ask them to register and to point out that there are now restrictions on being able to rent or sell land. There are meaningful measures in place to restrict the use of land and property, which is important. Companies House is also preparing cases for enforcement, which is another important message that we send to people who have not complied with the legislation. I am keen to make sure that the measures are taken forward as quickly as possible, and I am prepared to take personal oversight of making sure they are properly implemented.

The hon. Lady asked about how the measures can be avoided, such as by sharing ownership between a family of six. A beneficial owner is a beneficial owner regardless of how the ownership is distributed, and even if there are proxies. We had this discussion on the economic crime legislation, too. I think it is fair to say that if somebody is determined to avoid the rules by giving false evidence, they will do so, but there are significant penalties for doing that, which are a key part of the legislation.

The register of overseas entities provides a novel approach, and it is important to recognise that we are setting a new global standard. By setting up a register and introducing transparency, we are at the front of the pack with the legislation, so although the Opposition constantly put forward a fair challenge by saying that we are not going far enough, we are going further than any other jurisdiction I am aware of.

--- Later in debate ---

[Seema Malhotra]

It is not just the Opposition who are raising this issue. The Minister will know that many of the organisations with which he has worked in the past have also raised concerns about the threshold. I want to probe him on the threshold being 25%. It was not clear from his answer whether he was saying that any threshold, even a low one, would have people working around it. It feels fairly high for this purpose.

[Kevin Hollinrake]

We think it is at the appropriate level. We can perhaps have a discussion about it at length on another occasion, but as I say, the idea behind this is that the beneficial owner is disclosed. I will probably write to the hon. Lady to clarify this, but as I understand it, even if somebody put a proxy or nominee in place for the ownership of a property, it would still not get them off the hook in terms of whether they are actually the beneficial owner of the property. Perhaps I can write to her to confirm that.

The register is a crucial part of the Government’s fight against illicit finance. The Economic Crime and Corporate Transparency Bill, which is before Parliament, features substantial changes to UK company and partnership law, and complements the Economic Crime (Transparency and Enforcement) Act 2022. The Bill will introduce amendments to the Act that provide further operational detail to the register of overseas entities. For example, new measures in the Bill will require more information about overseas entities, including the title numbers of the properties held by overseas entities, and put in place minimum age limits for managing officers, to ensure that details of a person over 16 years of age must always be provided. The Bill will also make further provisions for registrable beneficial owners in cases involving trusts, and it includes an anti-avoidance mechanism to ensure that those in scope of the register at the time that the Act was first published as a Bill to Parliament cannot circumvent the requirements. The laying of the draft regulations complements the measures in the Bill to ensure that the register is as effective as possible, and I commend them to the Committee.

Question put and agreed to.

Oral Answers to Questions

Debate between Seema Malhotra and Kevin Hollinrake

Thursday 23rd March 2023 Commons Chamber

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

Our great British businesses are being let down by 13 years of Tory failure, with little to help but sticking-plaster policies. The Minister may not be aware, but insolvency numbers are at their highest level in four years, which is perhaps no surprise when we look at this Government’s record on small businesses, with Help to Grow: Digital ditched, energy bill support slashed and business investment the lowest in the G7. It is no wonder that the Federation of Small Businesses says that the Budget has left many businesses feeling “short-changed”. It is clear that for this Tory Government, small businesses are an afterthought, so will the Minister follow where Labour leads—reform business rates, boost skills, make Brexit work and make Britain the best place to start and grow a business?

[Kevin Hollinrake]

I wish I could say I was surprised that the hon. Lady is once again talking Britain down. The reality is that UK growth since 2010 has been the third fastest in the G7. The private sector is now bigger than it was pre-pandemic. Private sector growth has been on trend in terms of other countries, with businesses growing. The FSB says that three out of five businesses are more resilient than they were pre-pandemic. Of course, we would all like to reform business rates, and it has been looked at on a number of occasions, but simply saying that we will scrap something that would cost £22 billion a year without putting in place a replacement for that funding is irresponsible. What will she do to replace business rates—[Interruption.] She made the point. She wants to scrap business rates, but what will replace it with, given that it would cost £22 billion a year?

Economic Crime and Corporate Transparency Bill

Debate between Seema Malhotra and Kevin Hollinrake

Report stage
Tuesday 24th January 2023 Commons Chamber

[Kevin Hollinrake]

That may not be part of this Bill, but it is part of my portfolio, I am pleased to say. My hon. Friend and I have worked together to further the cause of whistleblowers on many occasions. I am keen to bring that forward quickly. We have work under way now that will lead to a review. I am keen to complete that work quickly and come up with some firm recommendations. I am also keen to look at international examples of best practice. She is keen to have an office for the whistleblower, for example. It is right to look at other jurisdictions to see how that is working elsewhere, which can inform our work. I am keen to make significant changes as quickly as possible.

I shall draw my comments to a close and listen to the rest of the debate. I am interested to hear about the amendments tabled by Members on both sides of the House. I am sure today’s debate will be as well considered and beneficial as those on the Bill thus far. I hope Members on both sides of the House will continue to support the measures in parts 1, 2 and 3, so that we can deliver these much-anticipated and much-needed reforms. They will help to protect our constituents and the country, and ensure that the UK remains a great place for legitimate businesses to thrive.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

It is a pleasure to follow the Minister and to speak to our amendments.

The Labour party has supported this important Bill’s passage in a cross-party spirit through Second Reading and Committee. I pay particular tribute to my right hon. Friends the Members for Barking (Dame Margaret Hodge) and for Member for Birmingham, Hodge Hill (Liam Byrne) for their contributions during our proceedings. May I add my words of support? The Minister has a long track record on these issues and a reputation through the all-party group on anti-corruption and responsible tax and other campaigns, which I hope bodes well for further progress and amendments to the Bill. However, it was frustrating that in Committee the Government did not accept a number of amendments tabled by the Opposition and other Members that would have significantly strengthened the Bill even further. The Minister did agree to keep some issues under review, which we will pick up on today.

This long overdue second economic crime Bill is an opportunity to finally end Britain’s role as a global hub for dirty money, and to support honest businesses to trade and flourish, with better standards and more transparency, helping to level the playing field for businesses and co-operatives. I echo the Minister’s words on the importance of that in tackling terrorism, economic crime and illicit finance, and in cleaning up our economy in the way we all want to see.

The amendments we have tabled seek to ensure that the Bill goes further in areas including reporting and parliamentary scrutiny, strengthening the objectives of the registrar to see a more proactive role in preventing and detecting economic crime, and tightening up the authorisation and supervision of corporate service providers. Amendments scheduled for tomorrow include provisions on the failure to prevent economic crime and director liability.

--- Later in debate ---

[Seema Malhotra]

I thank the hon. Member for his intervention. Perhaps he is missing some of our argument around the central question, because it does not happen in all cases. We have not received any further information on the work and research that the Minister started during Committee on what happens with those directors, which he committed to follow up.

In our view, new clause 22 would strengthen the Bill. We are talking about people whom we hope to have trust in to undertake their responsibilities as a director. The Bill introduces a substantial amount of regulation about who can and cannot serve as a company director as a result of criminal or potentially criminal practices, so this feels like the right place for consideration of such a measure. I would be grateful for the Minister’s response. I am happy to give him forewarning that, subject to his response, we may well press the new clause to a vote.

New clause 24 calls for a creditor or liquidator to be able to apply to restore a company to the register administratively. Currently, if creditors, former creditors or liquidators wish to apply to restore a company, that is done through the court in what is often a complex and costly procedure that may well take 12 to 18 months or longer. In Committee, the Minister said that there ought to be a basis for a “less cumbersome” process for creditors and particularly for liquidators. We agree. Currently, when companies are struck off the register—that happens on average to about 400,000 companies a year—little is done to check whether fraud has occurred. As a side issue, the Minister may helpfully confirm whether directors of companies that have been struck off will also be subject to verification checks so that we do not have a period through which they may escape ID verification as Companies House looks to undergo those checks with existing directors.

The key issue is that unscrupulous directors can misappropriate the strike-off process to avoid scrutiny and rack up debts or sell company assets ahead of the company dissolution, absconding with the proceeds. The Minister said he appreciated the case for widening access to the less cumbersome process of administrative restoration, and he undertook to consider the matter further. If he does not agree to our new clause 24, I would be grateful if he would commit to bringing forward proposals during the passage of the Bill. This is a window of opportunity that we should not miss.

On new clause 34, the processes set out in the Bill rely on effective ID verification of company directors. There has been a debate as to whether that should be done in-house. The Government have chosen to use a model whereby authorised corporate service providers are trusted to undertake ID verification on behalf of Companies House and effectively certify that through a confirmation statement. The debate is ongoing on how that introduces risk into the process. Indeed, if the registrar can do only part of the verification and we need to use authorised corporate service providers, that only works if the ACSPs are known, trusted and effectively regulated.

New clause 34 seeks transparency reporting on the involvement of foreign corporate service providers in the two main routes by which they may be authorised to conduct ID checks and to incorporate a company in the UK that is registered with Companies House. Such a company being registered could have an office address in the UK; a postal address in the UK, with all the risks we debated in Committee; or an address abroad as an overseas company. The directors of the company registered in Companies House by the foreign corporate service provider may be living abroad and may never come to the UK. New clause 34 seeks to create an obligation for the Secretary of State to publish a report, first, into the number of authorised corporate service providers with a head office based outside the UK, by which we mean where the authorised UK subsidiary supervised by His Majesty’s Revenue and Customs is beneficially owned by a company that is outside the UK; and secondly, on the number of foreign corporate service providers authorised by regulations set out in proposed new section 1098I(1) of the Companies Act 2006, which is amended by clause 63.

Clause 63 enables the Secretary of State, by regulations, to authorise a person abroad to become a foreign authorised corporate service provider

“even if the person is not a relevant person as defined by regulation 8(1) of the Money Laundering Regulations”.

For example, they could be a lawyer or an art dealer. They would therefore not be supervised. Proposed new section 1098I(2) specifies that a

“‘relevant regulatory regime’ means a regime that, in the opinion”—

I stress, in the opinion—

“of the Secretary of State, has similar objectives to the regulatory regime under the Money Laundering Regulations”.

However, it does not specify any transparency on how that conclusion is reached. Clause 63 is a risk for a backdoor route to the authorisation of foreign corporate service providers—

[Kevin Hollinrake]

indicated dissent.

[Seema Malhotra]

It is a risk—the Minister is shaking his head, so I am going to repeat it—for a backdoor route to the authorisation of foreign corporate service providers in a high-risk territory that falls outside money laundering regulations.

[Kevin Hollinrake]

rose—

[Seema Malhotra]

I will just complete my point and then bring the Minister in if he wishes to intervene. I would be grateful if he could confirm why that is in the Bill in that way, and the extent of the safeguards that are in place. He will, I am sure, be mindful of the need for trust and confidence, and for transparency on who our corporate service providers are and for whom they are undertaking ID verifications, which we are then expected to trust. Subject to the Minister’s response, we intend to press this transparency reporting new clause 34 to a Division.

[Kevin Hollinrake]

I am grateful to the hon. Lady for giving way. It is not a backdoor to try to get around the legislation. I cannot think why she would think we would write 309 pages of legislation and then create a purposeful backdoor. On the reason for the measure, imagine an international free trade agreement, not with a high-risk jurisdiction—why would we do that?—but where the international partner had an anti-money laundering regime that we felt was equivalent to our own. We might consider it in that context. In no way, shape or form is this about creating a backdoor, and we would very much expect this sort of thing to be in the annual report to Parliament on the implementation and operation of the Bill.

--- Later in debate ---

[Seema Malhotra]

That is part of what we seek, but there is further to go. I know that amendments tabled by other colleagues also draw on the issue of phoenixing and the importance of preventing it. Checks on directors of companies that have been struck off and measures addressing the ease of administrative restoration are tools that we could employ to tackle phoenixing and protect customers along with other businesses and creditors.

Amendments 105 and 106 draw on a wider theme, which is that what we want in the Bill is duties, not powers. We want to see a clear outcomes focus. We want to legislate for things to be done, not for the potential for the registrar to do things—a very important distinction. First, amendment 105 specifies that it should be a duty, not a power, for the registrar to allocate a unique identifier to a director. Secondly, amendment 106 states that the registrar should ensure that the same unique identifier is used for that person in

“any other entries they have on the register under the same name or a different name.”

Thirdly, through amendment 108, we want to reduce the risk to the integrity of the register by tightening up the arrangements for the confirmation statement. A proposed director must confirm in writing either that they already have a unique director ID with the register under the same or a different name and state what it is, or that they do not yet have a unique ID. If an individual chooses to go by a different name, or may have dual citizenship and use a different passport for ID, or may even have a fake birth certificate suggesting a different date of birth, how will the registrar know? This is a protection for the system in the event that an individual is subsequently found to have lied about their identity.

I suspect that, broadly, we are in the same place when it comes to what is intended to happen through this legislation, but it would be helpful if the Minister could confirm that by answering a couple of questions. First, does he expect the registrar, under the arrangements that he has proposed, to issue a unique ID to each new director and to existing directors on the database, and should we understand that, for all intents and purposes, the power will operate in practical terms as if it were a duty? Secondly, in a search on the Companies House website, will clicking on a director’s name bring up all their directorships, linked internally by the unique ID, even if they go by different names in different companies? Perhaps the Minister would like to intervene in response to those two points.

[Kevin Hollinrake]

That is exactly how it will work.

[Seema Malhotra]

I thank the Minister for his confirmation. The legislation is not as tight as we would like it to be, but if he puts his intentions on record, that does take us a step further.

Amendment 107 would require a limited partnership dissolution notice to be published on the registrar’s website and to remain published for a minimum of 20 years. The Minister has previously said that he would like to explore with Companies House the feasibility and costs associated with introducing that requirement. I should be grateful if he confirmed that he has concluded those discussions, and tell us what decision he has reached.

New clause 20, which we support, concerns resourcing. It would raise Companies House fees to £100 to help to properly fund the fight against crime. The current fee of just £12 makes this country the sixth cheapest place in the world in which to set up a company. The Treasury Select Committee recommended a fee of £100. Will the Minister tell us what his plans are? Having a plan to resource Companies House is fundamental to achieving the goals of the Bill.

I thank Scottish National party Members for their amendments, whose arguments are similar to ours. In particular, we support new clause 36 and amendment 109, which deal with reporting and unique IDs—although we think that some minor changes might be made to new clause 36—and would also support any attempt to push them to a vote.

New clause 26, which is being debated today but will be subject to a decision tomorrow, would amend provisions in the Sanctions and Anti-Money Laundering Act 2018 to require the introduction of open registers of beneficial ownership in each of the UK’s overseas territories. There should be no double standards in the legal requirements for transparency of beneficial ownership across different parts of the UK, including the overseas territories. We have witnessed too many scandals involving money being laundered through territories for whose administration the UK is ultimately responsible to accept the idea that we must simply leave them to their own devices. According to the spin that the Government chose to put on the wording of the 2018 Act, its obligation had been met simply by the publication of a draft Order in Council, regardless of when, or even whether, such an order might actually come into force. The result is that we are here yet again, nearly five years later, still discussing how to ensure the implementation of registers to the same standards across all the UK’s territories. Surely it should not have been beyond the wit of Ministers, even in this Government, to have sorted this out by now. [Interruption.] With the exception of the Minister who is present today.

--- Later in debate ---

[Kevin Hollinrake]

It is always a pleasure to follow the hon. Member for Paisley and Renfrewshire North (Gavin Newlands), who referenced many of our debates in Committee. I thank hon. Members on both sides of the House for their kind words about my role in the Department and in taking forward this legislation. Let me first say that any reports of the death of my ambition in this area have been greatly exaggerated.

I will aim to respond to as many points as possible in the time allocated by my hon. Friends the Whips. Today we have seen broad agreement across the House on the importance of accountability to Parliament on the implementation of the reforms. I thank the hon. Member for Feltham and Heston (Seema Malhotra) for new clause 16 on this topic, and for her work in Committee. As she might understand, I feel that the new clause would duplicate the Government’s new clause 15, which would require the Government to produce for Parliament an annual report on the implementation operations of parts 1 to 3 until 2030.

I believe that the Government’s amendment is broader and capable of providing more information to assist parliamentary scrutiny. I welcome the suggestion in some areas of reporting that may be of interest. However, I do not believe that setting a prescriptive list of those in advance is the best way of achieving our intent. I fully subscribe to the view that no one goes to work to do a bad job, and I have every confidence that the registrar, given the requirements on her to oversee the integrity and accuracy of the register, will do that well and will ensure that those measures are reported to Parliament. I therefore respectfully ask the hon. Lady for Feltham and Heston not to press her amendment.

[Seema Malhotra]

I thank the Minister for giving way. Would he commit to a meeting with the right hon. Member for Barking (Dame Margaret Hodge) and me on this issue? It is not the case that my new clause duplicates the Government’s new clause. The new clauses are very complimentary and there is more to be done to make sure that we get this right.

[Kevin Hollinrake]

I am always happy to have a meeting with the hon. Lady—we met only last week to discuss her amendments and the Government amendments. Some of the things in her new clause are already reported to Parliament, such as the number of businesses struck off the register. It is important that we do not duplicate in this legislation things that are already being done, but I am always happy to have a meeting with her.

[Seema Malhotra]

The Minister has made the point today and in Committee about this data being collected and reported elsewhere, but that should make it easier to have a more comprehensive report, so that all the information on economic crime is in one place. Perhaps that is something we can pick up in the meeting that he has kindly agreed to.

[Kevin Hollinrake]

I am happy to have a meeting with the hon. Lady to discuss the different things that she thinks should be reported. Clearly, the annual report should be comprehensive and cover many of the matters that she raises.

Much has been made about creating duties and obligations for Companies House. As my hon. Friend the Member for Huntingdon (Mr Djanogly) said, we should not assume that these things will happen by right. Oversight by Ministers, Parliament, public and press is needed to ensure that these measures are properly implemented. Companies House is an Executive agency of my Department, and I can commit that it will be obliged by the Government to deliver on the policy intent and resourced to do so, which I will talk about in a second. Government new clause 15 is not just about process; it will ensure that Parliament is provided with reassurance on the further work that will be required after Royal Assent, such as the laying of secondary legislation or the development of IT.

--- Later in debate ---

[Kevin Hollinrake]

As the hon. Lady knows, the unique identifier will not be public, because we think that could increase the chances of fraud. It is already possible to search the Companies House database to a certain extent; for example, if she searches my name, my previous directorships all link together. We intend to improve the database by linking the hon. Lady’s name, year and month of birth, address and any other companies she may be associated with. That will link those records, to give a holistic overview of her company associations.

[Seema Malhotra]

Of course, the Minister will not want accounts to be inadvertently linked where there may be two people with the same name and, possibly, date of birth. Has he had any discussions with Companies House about writing to current directors to ask them to confirm whether they are on the register with any past addresses, to speed up the linking with the unique ID at the back end?

[Kevin Hollinrake]

That is an operational matter for Companies House; it is not for me as the Minister. The registrar clearly has a responsibility to ensure the integrity of the database, and how she seeks to do that will be up to her.

Amendment 101 is clearly key. The Government are committed to ensuring that the checks carried out by ACSPs are robust. ACSPs will be required to carry out checks to at least the same standard as the registrar, who will be able to query any suspicious information. The registrar will establish a robust scrutiny process with AML supervisors for onboarding ACSPs. If necessary, she can suspend or de-authorise an ACSP to exclude it from forming companies. The vast majority of accountants, lawyers and other agents who make filings on behalf of companies operate to high standards. It would be disproportionate to block them all from making such filings while the Treasury works through the reform of the supervisory regime—something that we all clearly want it to get right.

New clause 34 requires the Government to report on the number of foreign corporate service providers that have been registered at Companies House. Clause 63 gives the Secretary of State the power to permit the authorisation of foreign corporate service providers subject to equivalent AML regimes abroad. That is obviously in the context of a potential trade deal that is not currently on the table.

On amendment 104, tabled by the hon. Member for Feltham and Heston, I cannot agree with this fifth objective for the registrar. The Bill already places a legal duty on the registrar to seek to promote the objectives, which inherently demands proactivity. Tentative use of her powers would result in the registrar being in danger of failing to satisfy the duty.

On the accuracy of existing data, I thank the hon. Member for Glasgow Central (Alison Thewliss), whose new clause 36 would have the registrar ensure the accuracy and veracity of all register information prior to the commencement of the Bill’s reforms. Clearly, that constitutes many millions of pieces of information, with many thousands being added every day—the analogy of painting the Forth bridge springs to mind. If we were to do what she asks and the registrar were to fulfil the requirements of the new clause, it is unlikely that the beneficial reforms of the Bill would ever be realised, because of the duty it would place on the registrar.

Draft Conformity Assessment (Mutual Recognition Agreements) (Amendment) Regulations 2022

Debate between Seema Malhotra and Kevin Hollinrake

Tuesday 13th December 2022 General Committees

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)]

I beg to move,

That the Committee has considered the draft Conformity Assessment (Mutual Recognition Agreements) (Amendment) Regulations 2022.

It is a pleasure to serve with you in the Chair, Mr Twigg. The regulations were laid before the House on 21 November 2022 and implement a trade agreement with Switzerland, a country with which the UK has strong economic and historical ties. Switzerland is the UK’s 10th largest trading partner and our bilateral trade in goods was worth £38 billion in 2021. Members will appreciate the importance of supporting such international trade relationships while protecting our product safety and legal metrology system, which is among the strongest in the world.

The UK signed the mutual recognition agreement with Switzerland on 17 November 2022 to reduce technical barriers to trade related to conformity assessment. The MRA promotes trade in goods between the UK and Switzerland by helping businesses to simplify their conformity assessment arrangements. Product safety legislation in the UK and Switzerland—indeed, in most countries—often requires products to be assessed against minimum essential requirements, sometimes by a conformity assessment body, or CAB, external to the business. MRAs can reduce barriers by allowing the conformity assessment to be undertaken by a body based in the UK prior to export to the relevant country, which in this case is Switzerland. Likewise, they enable procedures carried out by recognised overseas CABs and appointed bodies to be recognised in respect of our domestic regulations.

The products in scope of the MRA cover many areas, from rules on noise-emitting equipment for use outdoors to measuring instruments and much in between. For example, if a small UK business that manufactures potentially noisy outdoor equipment such as lawnmowers is considering exporting that equipment to Switzerland, it might find it can get all its advice and approvals from a single UK-based CAB. If that means the business reduces its costs, it can of course pass that saving on to its customers.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

Will the Minister clarify whether the MRA will make any difference for the five sectors to which it applies or in effect continues the temporary arrangements we currently have for those sectors with the Swiss?

--- Later in debate ---

[Kevin Hollinrake]

It makes a difference in that it makes the arrangements permanent. We have a three-year deal; the MRA makes the temporary arrangements permanent and formalises the UK-Switzerland relationship in terms of conformity assessment bodies.

[Seema Malhotra]

I understand that the MRA may make temporary arrangements permanent but I am trying to understand whether anything is different under it for the five sectors to which it applies. Will anything affect businesses that are currently trading under the temporary arrangements for products that they export to Switzerland? Or does the MRA in effect continue the current temporary arrangements, even it makes them permanent?

[Kevin Hollinrake]

As I understand it, nothing is different, but I will check with my officials and come back to the hon. Lady before the end of the debate.

The outdoor equipment manufacturer I referred to will be able to continue to access international markets more easily when assessment is facilitated in the way I described, thereby increasing its exporting potential and customer choice. The MRA benefits that the UK experienced for years as an EU member are maintained through the provisions of the new MRA with Switzerland.

The statutory instrument we are considering implements the MRA by amending an earlier set of regulations made last year: the Conformity Assessment (Mutual Recognition Agreements) and Weights and Measures (Intoxicating Liquor) (Amendment) Regulations 2021.

[Kevin Hollinrake]

The rest of the EU uses the CE mark. If we want to export products to the EU, we use the CE mark. That is a European certification process. These are relationships simply between the UK and Switzerland, not with the rest of the European Union. We have a separate arrangement for that.

The 2021 regulations are amended by the instrument we are considering so that they are also included in the Swiss MRA. I will return briefly to that point when discussing the territorial scope and the specifics of the regulations.

I will now consider each of the areas in greater detail. For goods coming into the UK that are in the scope of the MRA, we have committed to recognising the results of conformity assessment procedures carried out by recognised Swiss CABs and appointed bodies against our domestic regulations. The statutory instrument makes clear that assessments carried out by a recognised body based in Switzerland should be treated as equivalent to those carried out by a UK-approved or appointed body when products are placed on the market in Great Britain.

[Seema Malhotra]

It is important to be clear about where there is simply continuity rather than giving the impression of something new happening. To clarify, the SI means continuity of importing into the UK, without further checks, for goods made in Switzerland and tested for conformity against UK standards by a conformity assessment body in Switzerland. It is simply a continuity of arrangements under the Swiss temporary measures for the five sectors to which it applies.

[Kevin Hollinrake]

As I understand it—she may want to clarify—that is a continuation of the hon. Lady’s earlier question. Everything will be the same and the only difference is that UK manufacturers should affix a new Swiss mark to their products.

The Secretary of State will add Swiss bodies recognised under the agreement to the UK’s register of CABs, known as the UK market CAB database, which is a publicly available resource used by the UK’s market surveillance bodies and regulators to verify the status of CABs that approve products sold in the UK. Having all the CABs competent to assess for the domestic market in one place creates a one-stop shop for our UK enforcement authorities and businesses, helping them quickly to find and verify the credentials of CABs. The draft regulations do not change the substance of the requirements for third-party assessment, nor do they amend any requirement related to a product’s specifications or product safety credentials.

Turning to goods in scope of the UK-Swiss MRA that are assessed by UK CABs, the SI provides for the Secretary of State to designate CABs as competent to assess that goods comply with certain regulatory requirements of Switzerland under the MRA, as set out in a schedule to the SI. To give an example, that means that where a UK-based CAB wishes to be recognised by the Swiss authorities as competent to test and assess, for example, for Switzerland’s radio equipment requirements, the body can apply to the UK Accreditation Service to be accredited as competent to test against those Swiss requirements. The Secretary of State may then designate the body under the UK’s MRA with Switzerland to assess radio equipment for export to Switzerland. Once the CAB is designated, a UK manufacturer that uses the CAB’s services to assess its products for the domestic market has the option to use that same body, rather than a Swiss one, to do its assessment. The manufacturer can continue to place products on the Swiss market efficiently and without extra costs, potentially passing savings on to consumers.

The Secretary of State, or a person authorised to act on their behalf, may also disclose information to other parties to an MRA, where required by an MRA. We may, for example, pass on information related to goods originating in Switzerland that have been suspended by UK enforcement authorities under commitments to co-operate in the MRA with Switzerland. Disclosure will be made in accordance with data protection legislation.

Let me turn to the territorial scope of the draft regulations. They extend to the whole of the UK, apart from regulation 5, on recognition of conformity assessment by Swiss CABs, which extends to Great Britain only. Northern Ireland will continue to recognise the results of conformity assessment procedures done under the MRA between the European Union and Switzerland. That is in accordance with the terms of the Northern Ireland protocol to the withdrawal agreement. Regulations 6 and 7 of the 2021 regulations, to which I referred earlier, deal respectively with the Secretary of State’s power to designate UK-based bodies under these agreements and to information sharing. The powers extend to the whole of the UK, which means that CABs across the UK can be designated under the MRA and the Secretary of State will be able to share relevant information as required under the MRA.

In conclusion, the SI will provide certainty about the UK’s approach to recognising and designating CABs for products in scope of the MRA. We introduced the draft regulations to give effect to provisions that keep barriers to trade low while preserving our robust safety rules. We do so as a Government who are committed to ensuring that consumers are protected from unsafe products as we look to deliver a product safety regime that is simple, flexible and fit for the opportunities ahead of us. I commend the draft regulations to the Committee.

--- Later in debate ---

[Kevin Hollinrake]

I appreciate the shadow Minister’s points, which were extensive and exhaustive. I want to clarify: these regulations relate to only UK companies or Swiss companies who are trading with each other. They do not relate to wider exports to the European Union or European Union exports to the UK. That is the point.

Using the hon. Lady’s example, if a company in Thirsk and Malton decided to move to Northern Ireland, and only wanted to export to Switzerland, then it could use a Swiss-based conformity assessment body to have its products verified. It could use the Swiss mark. If a Swiss company wanted to export its products to Northern Ireland, it could use the CE mark. That is how it would work, because of the different arrangements in Northern Ireland and the rest of the United Kingdom.

The hon. Lady asks if the process will be slower or more costly. That is the absolute opposite of what the regulations are about. They are about UK companies, or Swiss companies, who want to trade with each other, who want to use a different mark, because they are only trading with Switzerland or the United Kingdom.

[Seema Malhotra]

Will the Minister give way?

[Kevin Hollinrake]

I will not, because of the pressure of time. I have a lot to go through and she has asked a lot of questions, which I want to cover.

[Seema Malhotra]

It is just to clear up a misunderstanding.

[Kevin Hollinrake]

Okay.

[Seema Malhotra]

That question was about whether there will be a slower or more costly process in relation to the eight sectors that are not covered by the MRA.

[Kevin Hollinrake]

I think the hon. Lady asked both questions. Those sectors are still covered by the CE mark. It is not possible to distinguish a separate Swiss mark from the CE mark, so those eight sectors would still be covered by the CE mark. Nothing would change for companies that are trading in those sectors, so there will be no greater cost; there will be less cost for companies who are just trading bilaterally between the UK and Switzerland. The conformity assessment will be done once, not twice. If companies in that particular sector need to trade with Switzerland, that would have had to be done twice. These provisions are only for companies that are trading only between the UK and Switzerland. That is the key part of this statutory instrument.

On divergence in standards—another point raised by the hon. Lady—the regulations are made with the principle of divergence in mind. We can diverge, but if a company is exporting to Switzerland, it must have regard to Swiss regulations. It has to make sure that the product conforms with the Swiss safety regulations and other conformity regulations. That is the point. We can diverge, certainly, but if a company is exporting to Switzerland, it has to make sure that its products conform with Swiss rules. That is the point. Divergence is possible under these provisions.

The trade level in the five sectors is very hard to quantify. I cannot give the hon. Lady a number on that. She asked about the extent of trade covered by those five sectors and it is not possible to separate that out—[Interruption.] No, the figures relate to the three sectors—the 70%. If the hon. Lady wants to write to me to explore the details further, perhaps that will be swifter than arguing about it here.

As for the number of businesses we engage with, we engage with businesses all the time. I do not have those figures to hand.

Our trade with Switzerland is significant, and technical agreements on trade and goods such as the MRA that this SI will implement will serve an important function in facilitating and encouraging that trade. I have set out how the SI will preserve such measures to keep barriers to trade with Switzerland low while maintaining our robust product safety framework. In supporting the SI, we are ensuring that our manufacturers and consumers benefit from maintaining the arrangements to minimise the duplication of conformity assessment requirements between ourselves and Switzerland. I commend the SI to the Committee.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Conformity Assessment (Mutual Recognition Agreements) (Amendment) Regulations 2022.

Draft Product Safety and Metrology (Amendment and Transitional Provisions) Regulations 2022

Debate between Seema Malhotra and Kevin Hollinrake

Wednesday 7th December 2022 General Committees

[Kevin Hollinrake]

I thank the hon. Lady for her contribution, and the hon. Member for Brighton, Kemptown for his intervention.

The fact that we are taking a pragmatic approach to the issue should be welcomed, not challenged. Of course, the hon. Lady is there to provide challenge, but it is important, given the current economic circumstances, that we listen to businesses, which is what she encouraged us to do. That is one of the reasons for the delay. We have engaged with and listened to the industry’s concerns and have responded accordingly.

The hon. Lady asks by what mechanisms we do that. We have regular face-to-face meetings; I have meetings and webinars, and correspond all the time with businesses, and it is quite right that we do that. This is a sensible delay, and shows that we can use our autonomy to support businesses and provide flexibility to use either marking for now—UKCA or CE markings.

The hon. Lady is probably underestimating the amount of work that was done by manufacturers in this area. It is our best estimate that 89% of UK manufacturers either had or were planning to introduce the UKCA mark by the end of this year, so it is not as if no progress has been made. It is just that we did not want to disadvantage some businesses that had not managed to make that progress. Significant progress has been made. We do not expect to have to extend the provisions further, but it is right to extend them now and take a pragmatic approach.

The hon. Lady was quite critical of the general UK approach to product standards. I have met representatives of the Office for Product Safety and Standards on a number of occasions, and I have the highest regard for them. They are hard-working, professional civil servants, who take their job seriously and do a fantastic job. She made a good point about products sold online that might not conform to standards, which is a point I raised with the OPSS when we first met: about whether there is a fair and level playing field for other UK businesses when an online marketplace selling into UK customers might not meet relevant standards, and the different responsibilities of those marketplaces. That can be challenged on the basis that they do not believe they are a distributor. We need to look into that and are doing so as part of the product safety review, and I am very interested in the outcome.

[Seema Malhotra]

Perhaps the Minister was about to say when the Government will be publishing their product safety review due in spring 2022. That commitment was made by Ministers, not civil servants, unless he wants to tell me otherwise. I think we all respect the civil servants, who are playing their part. This is a question about the Government’s priorities and why the measures have been delayed.

[Kevin Hollinrake]

It was not this Minister who made that promise, so I cannot speak to that particular commitment, but any review should be done properly and not rushed, and we need to get this right. Various things have happened over recent years that have delayed all kinds of things, as I think the hon. Lady would understand, with a pandemic followed by a cost of living crisis and, it is fair to say, some political instability, but we need to move on from that.

[Seema Malhotra]

Will the Minister give way again?

[Kevin Hollinrake]

I will, for the last time.

[Seema Malhotra]

I thank the Minister for giving way. Given that it has been at least six months since spring 2022, will he undertake to provide a new timeline for when he expects the review to be published? Now that he is the Minister, I am sure he can get a briefing on how far away from publication we are, and he could then share with the House whether there are any further issues.

[Kevin Hollinrake]

The hon. Lady will be used to the phrase “soon”, “very soon” or whichever she wants to use—

[Seema Malhotra]

Or “shortly”.

[Kevin Hollinrake]

Yes. We are working to bring the review forward as quickly as possible, but as I say, we want to make sure that we do a good job and not just accelerate it to an arbitrary date, which might mean the review is not as sound as it could be. There are some other things that I have asked the OPSS to look at in my first weeks as Minister for Enterprise, Markets and Small Business.

[Seema Malhotra]

Will the Minister give way?

[Kevin Hollinrake]

I will not give way any more. I want to challenge a few of the other points that the hon. Lady made that do not relate to this SI. She talked about low growth. We have had the third fastest growth in the G7 since 2010, so she needs to reflect on how she defines “low growth”. The only countries that have grown faster than the UK over the last 12 years are the US and Canada, so we have grown faster than Germany and France, for example, and she might want to reflect on that. She also mentioned high levels of tax. We have had to put taxes up to balance the books, because that is what we as a party believe in doing.

Economic Crime and Corporate Transparency Bill (Nineteenth sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Committee stage
Tuesday 29th November 2022 Public Bill Committees

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

It is a pleasure to serve under your chairship, Mr Robertson, and to follow the hon. Member for Paisley and Renfrewshire North, who made a very important speech. New clause 69 would introduce new provisions to prevent the continued trading of companies repeatedly declared insolvent and the practice of phoenixing, which the hon. Member outlined. It states:

“A company may not be registered under the Companies Act 2006 if, in the opinion of the registrar of companies, it is substantially similar to a company which has been subject to winding up procedures under the Insolvency Act 1986 on more than three occasions in the preceding ten years.”

A company may be “substantially similar” to previous companies in terms of its name, registered office, proposed officers and so on. This would mean that there is more scrutiny, and questions are raised about whether a company should be able to continue trading.

It is very important, for the reasons we have outlined in Committee, to seek to protect the public and other businesses from unscrupulous operators effectively carrying on their business activity and going through the same cycle of building up debts, which leads to consumer issues, and simply disappearing and starting again. We must deal with that behaviour, which is a route through which economic crime takes place, and that is why we support the new clause. We will listen closely to the Minister’s response on how the Government propose to tackle the issue of phoenixing.

I note the similarity between the intentions of this new clause and new clauses 28 and 46, tabled by my hon. Friend the Member for Aberavon and I, which we have discussed. In different ways, all those new clauses would tighten up glaring loopholes around strike-off, insolvency and phoenixing that enable those who are participating in economic crime to avoid scrutiny. We welcome the new clause, and we look forward to the Minister’s response.

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)]

It is a pleasure to serve with you in the Chair, Mr Robertson. I appreciate the spirit of the amendment, and I also appreciate the hon. Member for Paisley and Renfrewshire North describing this as an excellent Bill—a very constructive point—but one that needs tightening up; I understand his points and applaud the efforts made by him and other Opposition Members to do so.

I am fully aware of the devastating consequences that such issues have on businesses, suppliers, supply chains and our constituents. I have a case of a gentleman called Scott Robinson who repeatedly closed his investment business down. It was called TBO Investments at one point and then became Mount Sterling Wealth. He effectively took his clients with him, and people lost huge amounts of money. They had provided money for him to invest based on supposedly low-risk investments, but he was actually gambling that money in very high-risk investments, and he did that time and again. I really sympathise with the spirit of the amendment, and I am keen to look at not just phoenixing but other types of situation where people deliberately take risks like that that have devastating consequences for consumers and businesses in our constituencies.

--- Later in debate ---

[Seema Malhotra]

This is a useful new clause, in the spirit of some of the new clauses that we have tabled on what should and should not be available to directors who are in breach of their duties, disqualified and so on. The new clause, tabled by our colleagues from the SNP, would introduce new provisions that bar directors who are in breach of their duties from receiving public funds. Under the new clause, a company with a director or directors who are in breach of the general duties outlined in the Companies Act 2006, or who have been found to have committed statutory breaches of employment law, should not receive Government-provided funds or financial support unless it is solely and specifically for the purpose of directly benefiting the company’s employees.

This is an important debate, and I would be interested in the Minister’s response. When taxpayers find out that their money goes towards effectively supporting or enriching directors who are in breach of the Companies Act, there will be a real question about what the Government can do to further disincentivise and not reward those who are in breach of employment law or other areas of legislation. We support the sentiments behind the new clause and the arguments being made, and I look forward to the Minister’s response.

[Kevin Hollinrake]

I thank the hon. Member for Paisley and Renfrewshire North for his new clause; again, I support the motivation behind it. Clearly, there are restrictions already. Where a director has failed to observe a specific duty under the Companies Act 2006, they will potentially find themselves liable to criminal sanction and disqualification. I accept the fact that we have not focused too much on that area in the past, but that is exactly why we are legislating in the Bill to make the registrar far more proactive in her work. Where an employer has committed a breach of employment law, the relevant statute will generally provide appropriate remedies either by way of a right of action for the worker—normally in an employment tribunal or the courts—or by way of state enforcement, or sometimes both.

The new clause seeks to isolate only two triggers for denying access to financial support. Although they may have merit as triggers, who is to say that there are no other matters of conduct on the part of either a company or its directors that might lead one to question the wisdom of awarding it taxpayers’ money? Obviously, that should be determined within the scheme rules. The hon. Gentleman pointed to a case in which a director was interlinked with four other companies. There are already restrictions on Government loans—covid loans, for example—which must be taken into account where there are interlinked schemes, and he is probably aware of that.

Oral Answers to Questions

Debate between Seema Malhotra and Kevin Hollinrake

Tuesday 29th November 2022 Commons Chamber

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

I grew up in a small family business. Labour is proud to be supporting Small Business Saturday and its 10th anniversary, and to have supported last week’s family business week.

Small and medium-sized enterprises are indeed the lifeblood of our economy, but they have been hit hard by 12 years of Tory failure and staggeringly low growth. Even after three Prime Ministers this year, the Government have no answers—and the House should not just take that from me; the Federation of Small Businesses judged the autumn statement as being

“low on wealth-creation, piling more pressure on the UK’s 5.5 million small businesses”.

If the Government are really serious about helping small businesses to grow, is it not time they adopted Labour’s plan to reform business rates, back our high streets, make Brexit work, and make Britain the best place in which to start and grow a business?

[Kevin Hollinrake]

As one who was in business in 2010, I remember very well what the economy was like in that year, when we took over from Labour: it was not having a good time. [Interruption.] Yes, it is a lot stronger now.

We should bear in mind that while we can choose our own opinions, we cannot choose our own facts, and the facts are that the UK has experienced the third fastest growth in the G7 since 2010—behind only the United States and Canada—and has grown faster than Germany since 2016. It is right that we seek to provide new solutions for businesses; we have to stimulate the supply side of the economy, not least because that is good not only for businesses but for consumers. However, as I said earlier, simply claiming that you are going to scrap business rates without saying how you are going to replace that £25 billion of revenue is highly irresponsible.

Economic Crime and Corporate Transparency Bill (Eighteenth sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Committee stage
Thursday 24th November 2022 Public Bill Committees

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

It is a pleasure to serve under your chairship this afternoon, Sir Christopher, and to speak briefly in support of the speech of my right hon. Friend the Member for Barking. The new clause is short and, on that basis alone, the Minister might want to look closely at it for inclusion in the Bill. It is important and significant.

We almost thought we would not have this conversation when we debated the Government new clause 15 on Tuesday, until the Minister made it clear that information about trustees would not be published. That feels like a space that is a black hole for more to be hidden in. If we do not do this, the Minister will probably see a rise in the use of trusts to achieve less transparency.

For all the reasons my right hon. Friend the Member for Barking outlined, it is important that the information about trustees is available for public inspection. I will welcome the Minister’s comments. Perhaps he has thought further on the arguments since Tuesday. Here is further room for him to consider information on trustees, where it is held and its being published for public inspection. That would be in the public interest.

[Kevin Hollinrake]

The word “trust” in this context sends shivers down all our spines. I understand the rationale behind the new clause, but the right hon. Member for Barking is right in that I will state my position.

There is a key matter here. The right hon. Lady cited a couple of examples, one a trust and one a company, where she implied a disguised ownership of certain assets. The current requirements of legislation are that information about a registrable beneficial owner of a trust is displayed publicly. If someone is a beneficial owner, their name is revealed publicly. She might argue that that person could be lying, but they can lie about ownership of anything—“I don’t own any of this and do not exert control”—as we have discussed before.

The amendment makes all trust information available, even if that sits below the 25% or whatever ownership there might be of the trust or its benefit.

Economic Crime and Corporate Transparency Bill (Seventeenth sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Committee stage
Thursday 24th November 2022 Public Bill Committees

[Kevin Hollinrake]

I thank the hon. Members for Feltham and Heston and for Aberavon for tabling their new clause. I also thank the right hon. Member for Barking and the hon. Member for Glasgow Central for their contributions. I agree with much of what they said. As they know, I fully agree that Parliament should be regularly updated on the implementation and impact of this legislation. What gets measured gets done, and it is vital that we know what is being done with this legislation.

I will speak to new clauses 26 and 28 first, because I think there may be a duplication of things that exist already. Much of the information suggested by new clause 26, such as Companies House expenditure and the numbers of companies incorporated and struck off, is already published in the Companies House annual report. Companies House already reports publicly on its activities and its regular statistical releases on gov.uk. On new clause 28, through dissolution a company is brought to a point at which it ceases to exist and ceases to appear on the register. A company can seek its own voluntary strike-off, or it can be struck of compulsorily by the registrar. In principle, that process takes place when there is reason to believe that the company is no longer in operation or carrying on business. In both cases, statutory processes ensue whereby the public generally are informed that the dissolution is in train by publications in the Gazette. There are opportunities for third parties to intervene and object to a company being dissolved.

Concerns have been expressed that unscrupulous companies choose to give the impression that they are defunct in order to precipitate their dissolution and evade creditors. That concern is ultimately misplaced, as any assets left in a company following its dissolution will not be held by the company any more, and will be passed to the Crown, bona vacantia—as ownerless property. It is also important to note the effects of the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021, which amended the Company Directors Disqualification Act 1986 by introducing a mechanism for disqualifying directors of dissolved companies.

It is also worth noting that the 1986 Act includes provision not only for disqualifying directors but for ordering disqualified directors to pay compensation. That provision is in section 15A of the Act and, as amended by the 2021 Act, covers directors of both insolvent companies and dissolved companies. If a director is disqualified and the conduct for which they were disqualified caused loss to the creditors of an insolvent or dissolved company, the director can be ordered to pay compensation either for the benefit of specified creditors or by way of a contribution to the assets of the company.

The Bill introduces a new circumstance under which the registrar might seek to strike off a company that persistently fails to provide an appropriate registered office address. I assure Members that the registrar will initiate dissolution in those particular circumstances only after having assessed the risks of doing so. The normal notification procedures, by way of the Gazette and Companies House webpages, will apply.

As noted, Companies House already makes data on company dissolutions regularly available. I question what benefit the reporting proposed by the new clause would add, as it is not clear to me that the information it covers would necessarily be available to the Secretary of State. However, I acknowledge the concern about the manner in which compulsory strike-off operates. I have asked my officials to advise me on the extent to which the Bill’s new information-sharing provisions might improve safeguards and transparency in this area. I am of course happy to engage further with Members on this topic in due course.

Most of the comments related to new clause 63. I absolutely agree that there needs to be a mechanism by which progress made on the implementation of the provisions in the Bill is reported to Parliament. There should be regular reporting on the registrar’s use of the new powers. I also accept that it is important to give Parliament an early opportunity to scrutinise how quickly Companies House implements the reforms.

I believe, however, that the new clause requires further consideration. As drafted, it has the potential to place unintended obligations on the registrar. For example, it will require the registrar to report on the imposition of financial penalties before the commencement date of the regulations. It also requires the registrar to indefinitely report on the implementation of the legislation, even if it is completed in the near future.

With the agreement of the Committee, I would like to ask my officials to consider the new clause further. I hope Members are reassured that we will give it consideration. If the new clause is withdrawn, we will have further discussions about what we might put in its place.

[Seema Malhotra]

I thank the Minister for his comments about the new clauses. I appreciate his response on new clause 63 and very much look forward to hearing from his officials about the proposed reports, but will he tell us when we will hear from them? None of us wants the measure to be lost in the course of proceedings, and we do not want it to be left to the Lords, so I would be grateful if he can tell us when he expects us to hear a response. Assuming that it will be positive, I am happy not to press new clause 63 to a vote.

On new clause 26, the Minister did not respond with the detail that I was expecting. I understand that some data is already published. We can have an argument about whether it is there, but it is easy for there to be a summary. If Parliament is looking at one document, it will want that data. It will want to review the later data in the context of the more procedural data that Companies House already publishes. I cannot see that it is onerous to publish a summary of data that already exists.

--- Later in debate ---

[Seema Malhotra]

My right hon. Friend is absolutely right; indeed, that is precisely where my concerns lay. The Minister simply talked about the relatively small part of the reporting requirement. If there were an argument as to whether to include it or not, my argument would continue to be that that is relevant to have in the context of the full reporting requirement that we are arguing for. There is not anywhere else in the legislation—unless the Minister can direct me to it—that will provide Parliament with such a report.

[Kevin Hollinrake]

Just to abbreviate the debate, much of the information in new clause 26 is already reported by Companies House in its annual report. I think it is being said that the key measures are the additional ones in new clause 63, which relate to what the Bill’s provisions will give effect to. I am happy to return to the Committee before Report to say where we feel the new clause needs to be addressed. If we do not do it at that point, the hon. Lady is welcome to table an amendment on Report.

[Seema Malhotra]

I thank the Minister. To clarify, he referred to coming back on new clause 63; my question is in relation to new clause 26 and whether and how the later subsections are all going to be covered by the Companies House annual report. It would be helpful if he responded to that, because currently I am not clear that they are all covered.

In new clause 26, we are asking for an assessment of whether

“the powers available to the Secretary of State and the registrar are sufficient to enable the registrar to achieve its objectives”

and about

“making recommendations as to whether further legislation should be brought forward in response to the report.”

Yes, there may be details elsewhere, but they could be summarised for the ease of use of the report. The new clause requires

“a breakdown of the registrar’s annual expenditure”

and

“data on the number of companies struck off”.

That information may well also be elsewhere. Will the Minister confirm whether

“the number of cases referred by the registrar to law enforcement bodies and anti-money laundering supervisors”

and so on is all going to published elsewhere?

[Seema Malhotra]

I thank my right hon. Friend for explicitly emphasising the importance of subsection (6). She is absolutely right. The Minister will be mindful of the importance of transparency in respect of the issues relating to incorporations by authorised company service providers. Will he confirm that all the subsections in new clause 26 will be explicitly covered elsewhere? If not, we will want to pursue the matter of how that information is going to be published by Companies House and the Secretary of State.

[Kevin Hollinrake]

Nobody is ignoring the comments that have been made. Nobody is keener than I am to make sure that there is proper scrutiny of what Companies House does with the powers. We should absolutely ensure that.

On the requirement for the Secretary of State to report on the use of the powers, any Secretary of State appointed by any Government, be they Labour or Conservative, will of course always review the powers needed and whether there is a need to legislate further. It is not right to dictate in legislation that the Secretary of State should do this, that or the other and I would not expect any Opposition to require that.

Companies House already reports on the number of companies incorporated and struck off—that is already in the annual report. It is an interesting point about corporate service providers; the right hon. Member for Barking has concerns in that regard, and I do too. I suggest that I should look at the matter further with officials and come back to the hon. Member for Feltham and Heston well in advance of Report—outside the tabling time—and if we are not going to do anything, she can table a similar new clause. If we are going to do something, that might address her concerns or she might need to go further. Those options are open to her and I hope she will give us time to try to address these matters to the House’s satisfaction.

[Seema Malhotra]

I thank the Minister for his comments. He has said he will review the issues addressed in new clauses 26 and 63 with his officials. There may well be areas in which, on further reflection, he agrees with us that more could be done.

On the Minister’s comment about the Secretary of State being able to introduce legislation at any time, the point that was missed was that we know the speed with which we have to respond to economic crime. If we think back to 2016, we can see that we did not act fast enough—we have not acted fast enough in the past six years—so there is strong merit in having a mechanism that speeds up any requirements for future legislation through a report that can be reviewed and followed up on.

If the Minister is committing to review the matter and come back to us, we accept that. We would like to be involved in the discussions, perhaps after he has had an initial discussion with his officials. If there is a way to move forward with consensus, perhaps prior to Report, that could be a positive way forward. I therefore beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 29

Report into the merits of a fund for tackling economic crime

“(1) The Secretary of State must produce a report into the merits of a fund for tackling economic crime.

(2) The report must consider the case for penalties paid to the registrar to be ringfenced and used solely for the purposes of tackling economic crime.

(3) The report must be laid before Parliament within six months of this Act being passed.”—(Dame Margaret Hodge.)

This new clause requires a report into the merits of a fund for tackling economic crime to be laid before Parliament.

Brought up, and read the First time.

Question put, That the clause be read a Second time.

Economic Crime and Corporate Transparency Bill (Sixteenth sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Committee stage
Tuesday 22nd November 2022 Public Bill Committees

[Kevin Hollinrake]

It is always a pleasure to serve with you in the Chair, Ms Elliott. Government new clauses 1 to 4 will introduce delegated powers allowing for the application of the Companies House reform measures elsewhere in the Bill to overseas companies registered in the UK. In this context, an overseas company is one that is incorporated overseas but that has a physical establishment or branch in the UK. Under long-standing provisions in the Companies Act 2006, that presence brings with it certain obligations to register information with Companies House.

New clauses 1 to 3 allow for the making of regulations requiring overseas companies that have established a physical presence in the UK to provide an appropriate address for the overseas company, their directors or other officers, to the same standard required of domestic companies incorporated here in the UK. The aim is the same—to ensure that addresses and email addresses on the companies register are accurate and that documents sent to them will reach the companies concerned or their officers.

New clause 4 allows the application, through regulations, of identity verification requirements to directors of overseas companies operating in the UK. Through that, the Government seek to ensure that companies governed by the laws of other jurisdictions that operate in the UK are subject to identity verification requirements that are introduced by the Bill and will apply to UK companies. Regulations under the power will include requiring the delivery of statements or other information to the registrar. They will also include exemptions from identity verification on national security grounds.

The application of identity verification obligations through secondary legislation will allow the Government to adapt ID verification requirements at speed. Overseas companies who operate within the UK are only within limited control of UK law. UK legislation affecting them therefore needs to adapt more quickly to their changing circumstances than primary legislation would allow for.

[Seema Malhotra]

It is a pleasure to speak to the new clauses. The Minister has outlined the rationale for them, which is to bring some of the rules around overseas companies more in line with some other changes being made in the Bill. We welcome that, but I have a few questions.

New clause 1 outlines that where an overseas company is required to provide a service address or principal office address for a director or secretary, regulations can be made conferring power on the registrar to change the address if it does not meet the statutory requirements or is inaccurate. Who might determine whether the address is inaccurate? Is the expectation that the registrar finds that out or is that just about if something happens to be found out by chance? Is there any more information on how the power might be used to determine that an address is inaccurate?

New clause 2 confers a regulation-making power to require overseas companies to register information. The new clause makes it clear that the regulations can provide for the information to be withheld from public inspection and can confer a discretion on the registrar. We have had similar debates in Committee already. We will keep coming back to the question of the use of powers and the reporting on the use of those powers, particularly where information may be withheld. Would this be an example of a new power on the withholding of information from public inspection where the number of times it is used ought to be reported on? That would not need to give away details about whom the power had applied to, but it would help give an overall view of how the powers in the Bill were being used.

Under new clause 3, new regulations would require overseas companies to provide and maintain an appropriate address and email address. Would those new regulations be subject to the affirmative procedure, assuming that they would be in secondary legislation rather than in the Bill? It was not fully clear to me whether some of these matters were included in the Bill or whether they were regulations to enable the measures to come in later. Will the Minister clarify that?

[Kevin Hollinrake]

I am happy to, and I thank the hon. Lady for her points. As we have said during similar discussions, the registrar will have access to information; most of the queries that she will follow up will have come through information received during the course of her duties. It does not make sense for Companies House to physically validate all addresses, but nevertheless information may well come to light through the registrar’s work or the requirement for other bodies to share information with her if they feel that inaccurate information is on the register. That is how we anticipate that information will come forward.

I will not revisit the issue of national security other than to say that the power will be used sparingly and that we do not know what we do not know, so it is important that we have a provision that might be necessary in future.

Regulations under new clause 4 will correspond to regulations applying to UK companies made and debated by Parliament under the affirmative procedure. The extension to overseas companies would therefore not require additional scrutiny by Parliament and the regulations will be subject to the negative procedure.

Question put and agreed to.

New clause 1 accordingly read a Second time, and added to the Bill.

New Clause 2

Overseas companies: availability of material for public inspection etc

“In section 1046 of the Companies Act 2006 (overseas companies: registration of particulars), after subsection (6A) (inserted by section (Change of addresses of officers of overseas companies by registrar) of this Act) insert—

‘(6B) Regulations under this section may include provision for information delivered to the registrar under the regulations to be withheld from public inspection.

(6C) The provision that may be made by regulations under this section includes provision conferring a discretion on the registrar.’”—(Kevin Hollinrake.)

Section 1046 of the Companies Act 2006 confers a regulation-making power to require overseas companies to register information. The new clause makes it clear that the regulations can provide for the information to be withheld from public inspection and that they can confer a discretion on the registrar.

Brought up, read the First and Second time, and added to the Bill.

New Clause 3

Registered addresses of an overseas company

“(1) The Companies Act 2006 is amended as follows.

(2) After section 1048 insert—

‘1048A Registered addresses of an overseas company

(1) The Secretary of State may by regulations make provision requiring an overseas company that is required to register particulars under section 1046 to deliver to the registrar for registration—

(a) a statement specifying an address in the United Kingdom that is an appropriate address for the company;

(b) a statement specifying an appropriate email address for the company.

(2) The regulations may include provision—

(a) allowing an overseas company to change the address or email address for the time being registered for it under the regulations;

(b) requiring an overseas company to ensure that the address or email address for the time being registered for it under the regulations is an appropriate address or appropriate email address.

(3) The regulations may include—

(a) provision for information contained in a statement specifying an appropriate email address to be withheld from public inspection;

(b) provision corresponding or similar to any provision made by section 1097A (rectification of register relating to a company’s registered office) or to provision that may be made by regulations made under that section.

(4) In this section—

“appropriate address” has the meaning given by section 86(2);

“appropriate email address” has the meaning given by section 88A(2).

(5) Regulations under this section are subject to negative resolution procedure.’

(3) In section 1139 (service of documents on company), for subsections (2) and (3) substitute—

‘(2) A document may be served on an overseas company whose particulars are registered under section 1046—

(a) by leaving it at, or sending it by post to, the company’s registered address, or

(b) by leaving it at, or sending it by post to, the registered address of any person resident in the United Kingdom who is authorised to accept service of documents on the company’s behalf.

(3) In subsection (2) “registered address”—

(a) in relation to the overseas company, means the address for the time being registered for the company under regulations under section 1048A(1)(a);

(b) in relation to a person other than the overseas company, means any address for the time being shown as a current address in relation to that person in the part of the register available for public inspection.’”—(Kevin Hollinrake.)

Regulations under this new clause can require an overseas company to provide and maintain an appropriate address and appropriate email address. Broadly speaking, an address is appropriate if documents sent there will reach the company.

Brought up, read the First and Second time, and added to the Bill.

New Clause 4

Overseas companies: identity verification of directors

“After section 1048A of the Companies Act 2006 (inserted by section (Registered addresses of overseas companies) of this Act) insert—

‘1048B Identity verification of directors

(1) This section applies in relation to an overseas company that is required to register particulars under section 1046.

(2) The Secretary of State may by regulations make provision for the purpose of ensuring that each individual who is a director of such a company—

(a) is an individual whose identity is verified (see section 1110A), or

(b) falls within any exemption from identity verification that may be provided for by the regulations.

(3) The regulations may include provision—

(a) requiring the delivery of statements or other information to the registrar;

(b) for statements or other information delivered to the registrar under the regulations to be withheld from public inspection;

(c) applying section 167M (prohibition on director acting unless ID verified), with or without modifications;

(d) applying section 1110D (exemption from identity verification: national security grounds), with or without modifications.

(4) Regulations under this section are subject to negative resolution procedure.’”—(Kevin Hollinrake.)

Regulations under this new clause can impose identity verification requirements on the directors of overseas companies, corresponding to the requirements introduced by the Bill for directors of UK companies.

Brought up, read the First and Second time, and added to the Bill.

New Clause 5

Rectification of register: service addresses

“(1) The Companies Act 2006 is amended as follows.

(2) After section 1097A insert—

‘1097B Rectification of register: service addresses

(1) The Secretary of State may by regulations make provision authorising or requiring the registrar to change a registered service address of a relevant person if satisfied that the address does not meet the requirements of section 1141(1) and (2).

(2) In this section—

“registered service address”, in relation to a relevant person, means the address for the time being shown in the register as the person’s current service address;

“relevant person” means—

(a) a director of a company that is not an overseas company,

(b) a secretary or one of the joint secretaries of a company that is not an overseas company, or

(c) a registrable person or registrable relevant legal entity in relation to a company (within the meanings given by section 790C).

(3) The regulations may authorise or require the address to be changed on the registrar’s own motion or on an application by another person.

(4) The regulations must provide for the change in the address to be effected by the registrar proceeding as if the company had given notice under section 167H, 279H or 790LC of the change.

(5) The regulations may make provision as to—

(a) who may make an application,

(b) the information to be included in and documents to accompany an application,

(c) the registrar requiring the company or an applicant to provide information for the purposes of determining anything under the regulations,

(d) the notice to be given of an application or that the registrar is considering the exercise of powers under the regulations,

(e) the notice to be given of any decision under the regulations,

(f) the period in which objections to an application may be made,

(g) how the registrar is to determine whether a registered service address meets the requirements of section 1141(1) and (2), including in particular the evidence, or descriptions of evidence, which the registrar may without further enquiry rely on to be satisfied that the address meets those requirements,

(h) the referral by the registrar of any question for determination by the court,

(i) the registrar requiring the company to provide an address to be registered as the relevant person’s service address,

(j) the nomination by the registrar of an address (a “default address”) to be registered as the relevant person’s service address (which need not meet the requirements of section 1141(1) and (2)),

(k) the period for which the default address is permitted to be the relevant person’s registered service address, and

(l) when the change of address takes effect and the consequences of registration of the change (including provision similar or corresponding to section 1140(5)).

(6) The provision made by virtue of subsection (5)(k) may in particular include provision creating summary offences punishable with a fine not exceeding level 3 on the standard scale or, for continued contravention, a daily default fine not exceeding one-tenth of level 3 on the standard scale.

(7) The regulations must confer a right on the company to appeal to the court against any decision to change the relevant person’s registered service address under the regulations.

(8) If the regulations enable a person to apply for a registered service address to be changed, they must also confer a right on the applicant to appeal to the court against a refusal of the application.

(9) On an appeal, the court must direct the registrar to register such address as the relevant person’s registered service address as the court considers appropriate in all the circumstances of the case.

(10) The regulations may make further provision about an appeal and in particular—

(a) provision about the time within which an appeal must be brought and the grounds on which an appeal may be brought;

(b) further provision about directions by virtue of subsection (9).

(11) The regulations may include such provision applying (including applying with modifications), amending or repealing an enactment contained in this Act as the Secretary of State considers necessary or expedient in consequence of any provision made by the regulations.

(12) Regulations under this section are subject to affirmative resolution procedure.’

(3) In section 1087 (material not available for public inspection), in subsection (1)(ga)—

‘(a) after “1097A” insert “, 1097B”;

(b) for “company registered office” substitute “registered office, service address”.’”—(Kevin Hollinrake.)

This new clause confers a regulation-making power to enable the registrar to change a person’s registered service address. It is based on section 1097A of the Companies Act 2006, which makes similar provision in relation to a company’s registered office.

Brought up, read the First and Second time, and added to the Bill.

--- Later in debate ---

[Kevin Hollinrake]

Through other provisions in this Bill, a disqualified individual is prevented from acting as a general partner of a limited partnership. However, that would only cover individuals who have been disqualified for their actions as directors in a company. We also need to be able to disqualify general partners for their actions within a limited partnership. Currently, that cannot be done because the Company Directors Disqualification Act 1986 applies only to directors of companies and other limited corporate entities such as building societies and NHS foundation trusts. We would like to ensure that general partners are subject to the same requirements as directors. New clauses 10 and 11 therefore provide powers to update the 1986 Act and the Company Directors Disqualification (Northern Ireland) Order 2002 to apply to limited partnerships, limited liability partnerships and Scottish partnerships.

[Seema Malhotra]

It is a pleasure to say a few words in support of new clauses 10 and 11. New clause 10 introduces new provisions allowing the Secretary of State to make regulations applying the Company Directors Disqualification Act to relevant entities. The new clause outlines that these relevant entities include limited partnerships and Scottish limited partnerships. New clause 11 has the same effect and applies the same principles to the context of Northern Ireland. We welcome the new clauses, especially given our calls in Committee to extend directors disqualification criteria to limited partnerships.

[Kevin Hollinrake]

I have nothing further to add.

Question put and agreed to.

New clause 10 accordingly read a Second time, and added to the Bill.

New Clause 11

Power to amend disqualification legislation in relation to relevant entities: NI

“(1) The Company Directors Disqualification (Northern Ireland) Order 2002 (S.I. 2002/3150 (N.I. 4)) is amended as follows.

(2) In Article 2(2) (interpretation), for the definition of ‘regulations’ substitute—

‘“regulations”, except in Articles 13D and 25D, means regulations made by the Department subject (except in Article 23(3)) to negative resolution;’.

(3) After Article 25C insert—

‘25D Power to amend application of Order in relation to relevant entities

(1) The Secretary of State may by regulations amend this Order for the purpose of applying, or modifying the application of, any of its provisions in relation to relevant entities.

(2) For that purpose, the regulations may in particular—

(a) extend the company disqualification conditions to include corresponding conditions relating to a relevant entity;

(b) limit the company disqualification conditions to remove conditions relating to a relevant entity;

(c) modify which company disqualification conditions can, in combination with each other, result in a person being disqualified under this Order;

(d) provide for any of the company disqualification conditions to result in or contribute to a person being disqualified from acting in a role or doing something in relation to a relevant entity.

(3) In this Article “the company disqualification conditions” means the conditions that can result in or contribute to a person being disqualified under this Order from acting in a role or doing something in relation to any entity.

(4) In this Article a “relevant entity” means—

(a) a limited partnership registered under the Limited Partnerships Act 1907;

(b) a limited liability partnership registered under the Limited Liability Partnerships Act 2000;

(c) a partnership, other than a limited partnership, that is—

(i) constituted under the law of Scotland, and

(ii) a qualifying partnership within the meaning given by regulation 3 of the Partnerships (Accounts) Regulations 2008.

(5) Regulations under this Article may make consequential, supplementary, incidental, transitional or saving provision.

(6) The provision which may be made by virtue of paragraph (5) includes provision amending provision made by or under either of the following, whenever passed or made—

(a) an Act;

(b) Northern Ireland legislation.

(7) Regulations under this Article are to be made by statutory instrument.

(8) A statutory instrument containing regulations under this Article may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.’”—(Kevin Hollinrake.)

This new clause allows the Secretary of State to make regulations applying the CDD(NI)O 2002 in relation to relevant entities, meaning that a person’s conduct in relation to relevant entities would lead to disqualification, and disqualifications in other circumstances would prohibit a person from acting in relation to relevant entities.

Brought up, read the First and Second time, and added to the Bill.

New Clause 12

Required information about overseas entities: address information

“In the following provisions of Schedule 1 to the Economic Crime (Transparency and Enforcement) Act 2022 (which refer to an entity’s registered or principal office) omit ‘registered or’—

paragraph 2(1)(c);

paragraph 5(1)(b);

paragraph 6(1)(d);

paragraph 7(1)(b).”—(Kevin Hollinrake.)

This new clause would mean that the required information that must be provided about an overseas entity, a corporate registrable beneficial owner or managing officer includes its principal office in all cases, rather than there being an option to provide its registered or principal office.

Brought up, and read the First time.

--- Later in debate ---

[Kevin Hollinrake]

Without regulation 14, if the corporate trustee were not subject to its own disclosure requirements, the overseas entity would have to “look through” the legal entity trustee to find a registrable beneficial owner higher up the chain of ownership. But in the situations we are talking about it is information about the trust that is wanted, rather than information about the ownership or control of the legal entity trustee. Currently, regulation 14 therefore ensures that Companies House, His Majesty’s Revenue and Customs and law enforcement agencies receive the information about the trust and persons connected to it, which I think may be the point that the right hon. Member raises and which is much more useful to meet the aims of the register.

New clause 15 goes further by ensuring that a legal entity acting as a trustee is always a registrable beneficial owner whether or not it is “subject to its own disclosure requirements” and even if there is another registrable beneficial owner further down a chain of ownership. This maximises the transparency in respect of the involvement of a legal entity trust in a chain of ownership.

The provisions also provide a power to expand the description of persons who are registrable beneficial owners where the overseas entity is part of a chain of entities that includes a trustee. It is appropriate to have a power to expand the description, given that there may be complex arrangements that attempt to circumvent the requirements. The provisions revoke regulation 14 because it is no longer needed.

[Seema Malhotra]

It is a pleasure to make a few remarks on the new clauses which, certainly from the way the Minister has outlined them, are welcome, in that they require more information and transparency around overseas entities. We welcome all the new clauses in that regard. I do not propose to go through them—the Minister went through them in considerable detail—but I have a few comments.

On new clause 13—in fact, in relation to all the new clauses—we welcome the additional transparency. I make the point again that a particular reason for that is the large-scale abuse that we know has occurred and occurs through these rather opaque offshore corporate structures.

On new clause 14, it is welcome to have the threshold at 16 years old, but I want to clarify what that means. Can there technically be a managing officer who is under 16 but an individual who is over 16 and is a contact on their behalf? It would be helpful to know whether there could still technically be an officer who was 12, 13 or 14. It would be useful to have clarity on that.

On closing the potential loophole of beneficial owners avoiding scrutiny by acting as a trustee, it is important to have the information. I want to clarify whether it should be the same amount of information about those who have been avoiding scrutiny as trustees. Will that information be published so that third parties can search it and investigate for themselves?

[Kevin Hollinrake]

As I understand it, somebody under the age of 16 could be the managing officer, but we still require somebody over the age of 16 to be contactable. That is how we square that particular circle. It is not in our gift to legislate for how other jurisdictions describe directors of companies.

Forgive me, but I missed the hon. Lady’s second point. If she could restate it, I will try to address it.

[Seema Malhotra]

My second comment was about trustee information. New clause 15 expands the definition of “registrable beneficial owners” in part 1 of the Economic Crime (Transparency and Enforcement) Act 2022 in relation to an entity one of whose beneficial owners is a trustee, such that the beneficial owner may be included. There is also a power to expand that definition further. It looks like it is closing a potential loophole that enables beneficial owners to avoid scrutiny through acting as a trustee. The question was about whether the new information about trustees will also be published, whether there will be full transparency and whether it will be searchable by any interested parties.

[Kevin Hollinrake]

Okay. That was a similar point to the one made by the right hon. Member for Barking. No, we do not feel that is right. We do not believe that trust information should be made publicly available, given that trusts are often used to protect vulnerable people. I reassure the hon. Lady that that information will be shareable with HMRC, law enforcement and other persons with functions of a public nature once the relevant regulations have been made.

Question put and agreed to.

New clause 12 accordingly read a Second time, and added to the Bill.

New Clause 13

Registration of information about land

“In Schedule 1 to the Economic Crime (Transparency and Enforcement) Act 2022 (required information), in paragraph 2—

(a) in sub-paragraph (1), after paragraph (g) insert—

‘(h) if the entity is the registered proprietor of one or more qualifying estates in land in England and Wales, the title number of each of them;

(b) if the entity is the registered owner of one or more qualifying estates in Northern Ireland, the folio number in respect of each of them;

(c) if the entity is—

(i) entered as proprietor in the proprietorship section of the title sheet for one or more plots of land that are registered in the Land Register of Scotland, or

(ii) the tenant under one or more leases registered in the Land Register of Scotland,

the title number of the title sheet, in respect of each of them, in which the entity’s interest is registered.’;

(b) after sub-paragraph (2) insert—

‘(3) In sub-paragraph (1)(h)—

“registered proprietor”, in relation to a qualifying estate, means the person entered as proprietor of the estate in the register of title kept by the Chief Land Registrar;

“qualifying estate” has the meaning given by paragraph 1 of Schedule 4A to the Land Registration Act 2002.

(4) In sub-paragraph (1)(i)—

“registered owner”, in relation to a qualifying estate, means the person registered in the register kept under the Land Registration Act (Northern Ireland) 1970 (c. 18 (N.I.)) as the owner of the estate;

“qualifying estate” has the meaning given by paragraph 1 of Schedule 8A to the Land Registration Act (Northern Ireland) 1970.

(5) In sub-paragraph (1)(j)—

(a) “lease”, “plot of land” and “proprietor” have the meanings given by section 113(1) of the Land Registration etc. (Scotland) Act 2012;

(b) the reference to an entity’s being entered as proprietor in the proprietorship section of a title sheet is a reference to the name of the entity being so entered.’”—(Kevin Hollinrake.)

This new clause requires an overseas entity, when applying for registration in the register of overseas entities or providing an update, to include the title number etc for relevant interests in land held by it. For entities already registered, it will operate when they next provide an update.

Brought up, read the First and Second time, and added to the Bill.

New Clause 14

Registration of information about managing officers: age limits

“(1) Schedule 1 to the Economic Crime (Transparency and Enforcement) Act 2022 (applications: required information) is amended as follows.

(2) In paragraph 6(1), after paragraph (f) insert—

‘(g) if the officer is under the age of 16 years old, the name and contact details of an individual who is at least 16 years old and is willing to be contacted about the officer.’

(3) In paragraph 7(1), for paragraph (g) substitute—

‘(g) the name and contact details of an individual who is at least 16 years old and is willing to be contacted about the officer.’”—(Kevin Hollinrake.)

This new clause means that, where an application for registration as an overseas entity is required to provide details of a managing officer, there will be a requirement to include the name of an individual who is at least 16 years old and is willing to be contacted about the officer (unless the officer is an individual of at least that age).

Brought up, read the First and Second time, and added to the Bill.

New Clause 15

Registrable beneficial owners: cases involving trusts

“(1) Schedule 2 to the Economic Crime (Transparency and Enforcement) Act 2022 (registrable beneficial owners) is amended in accordance with subsections (2) to (5).

(2) In paragraph 3 (legal entities), in paragraph (b), after ‘(see Part 3)’ insert ‘or is a beneficial owner of the overseas entity by virtue of being a trustee’.

(3) In paragraph 8 (beneficial owners exempt from registration), after paragraph (b) insert—

‘(ba) the person is not a beneficial owner of the overseas entity by virtue of being a trustee,’.

(4) For the heading of Part 6 substitute ‘Powers to amend this Schedule’.

(5) Before paragraph 25 insert—

‘Expansion of meaning of “registrable beneficial owner” where trusts in view

24A (1) The Secretary of State may by regulations amend this Schedule so as to expand the description of persons who are registrable beneficial owners of an overseas entity in circumstances where the overseas entity is part of a chain of entities that includes a trustee.

(2) For these purposes an overseas entity is part of a chain of entities that includes a trustee if there is a legal entity which is a beneficial owner of it by virtue of being a trustee.

(3) Regulations under this paragraph are subject to the affirmative resolution procedure.

Power to amend thresholds etc’.

(6) Regulation 14 of the Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022 (S.I. 2022/870) (description of legal entity subject to its own disclosure requirements) is revoked.”—(Kevin Hollinrake.)

This new clause expands the definition of “registrable beneficial owner” in Part 1 of the Economic Crime (Transparency and Enforcement) Act 2022 in relation to an entity one of whose beneficial owners is a trustee. There is also a power to further expand the definition.

Brought up, read the First and Second time, and added to the Bill.

New Clause 16

Material unavailable for public inspection: verification information

“In section 16 of the Economic Crime (Transparency and Enforcement) Act 2022 (verification of registrable beneficial owners and managing officers), in subsection (2), after paragraph (c) insert—

‘(d) requiring the registrar not to make available for public inspection certain information delivered to the registrar by virtue of the regulations.’”—(Kevin Hollinrake.)

Section 16 of the Economic Crime (Transparency and Enforcement) Act 2022 confers power to make regulations about identity verification. This new clause allows the regulations to provide that information provided under the regulations is protected from public inspection.

Brought up, read the First and Second time, and added to the Bill.

New Clause 17

Material unavailable for public inspection

“For sections 22 to 24 of the Economic Crime (Transparency and Enforcement) Act 2022 substitute—

‘22 Material unavailable for inspection

(1) The following material must not, so far as it forms part of the register, be made available by the registrar for public inspection—

(a) so much of any application or other document delivered to the registrar under section 4, 7 or 9 as is required to contain—

(i) protected date of birth information;

(ii) protected residential address information;

(iii) protected trusts information;

(iv) the name or contact details of an individual provided for the purposes of section 4(1)(d), 7(1)(e) or 9(1)(f) or paragraph 6(1)(g) or 7(1)(g) of Schedule 1;

(v) an overseas entity’s email address (see paragraph 2(1)(e) of Schedule 1);

(vi) any title numbers or folio numbers in respect of land (see paragraph 2(1)(h), (i) and (j) of Schedule 1);

(b) any information that regulations under section 16 provide is not to be made available for public inspection;

(c) the following—

(i) any application or other document delivered to the registrar under regulations under section 25 (regulations protecting material), other than information provided by virtue of section 25(4);

(ii) any information which regulations under section 25 require not to be made available for public inspection;

(d) any application or other document delivered to the registrar under section 28 (administrative removal of material from the register);

(e) any court order under section 30 (rectification of the register under court order) that the court has directed under section 31 is not to be made available for public inspection;

(f) any statement delivered to the registrar by virtue of section 1067A(3) or (4) of the Companies Act 2006 (delivery of documents: identity verification requirements etc);

(g) any statement made in accordance with regulations made by virtue of section 1082(2)(c) of the Companies Act 2006 (statement of unique identifier);

(h) any document provided to the registrar under section 1092A of the Companies Act 2006 (power to require further information);

(i) any email address, identification code or password deriving from a document delivered for the purpose of authorising or facilitating electronic filing procedures or providing information by telephone;

(j) any record of the information contained in a document (or part of a document) mentioned in any of the previous paragraphs of this subsection;

(k) any other material excluded from public inspection by or under any other enactment.

(2) In this section—

“protected date of birth information” means information as to the day of the month (but not the month or year) on which an individual who is a registrable beneficial owner or managing officer of an overseas entity was born;

“protected residential address information” means information as to the usual residential address of an individual who is a registrable beneficial owner or managing officer of an overseas entity;

“protected trusts information” means the required information about a trust (see sections 4(3), 7(3) and (4) and 9(3) and (4).

(3) Information about a registrable beneficial owner or managing officer does not cease to be protected date of birth information or protected residential address information when they cease to be a registrable beneficial owner or managing officer.

(4) Where subsection (1), or a provision referred to in subsection (1), imposes a restriction by reference to material deriving from a particular description of document (or part of a document), that does not affect the availability for public inspection of the same information contained in material derived from another description of document (or part of a document) in relation to which no such restriction applies.

(5) The registrar need not retain material to which subsection (1) applies for longer than appears to the registrar reasonably necessary for the purposes for which the material was delivered to the registrar.

23 Disclosure of protected information

(1) The registrar must not disclose protected date of birth information, protected residential address information or protected trusts information unless—

(a) the disclosure is permitted by section 1110F of the Companies Act 2006 (general powers of disclosure by the registrar), or

(b) the information is required to be made available for public inspection (as a result of being contained in a document, part of a document, or record to which section 22(1) does not apply).

(2) In this section the following have the meaning given by section 22(2)—

“protected date of birth information”;

“protected residential address information”;

“protected trusts information”.’”—(Kevin Hollinrake.)

This new clause replicates for the register of overseas entities a number of changes made by the Bill in relation to companies. It also extends the list of information unavailable for public inspection.

Brought up, read the First and Second time, and added to the Bill.

New Clause 18

Protection of information

“For section 25 of the Economic Crime (Transparency and Enforcement) Act 2022 substitute—

‘25 Power to make regulations protecting material

(1) The Secretary of State may by regulations make provision requiring the registrar, on application—

(a) not to make available for public inspection any information on the register relating to an individual;

(b) to refrain from disclosing information on the register relating to an individual except in specified circumstances;

(c) not to make available for public inspection any address on the register that is not information to which paragraph (a) applies;

(d) to refrain from disclosing any such address except in specified circumstances.

(2) The regulations may make provision as to—

(a) who may make an application;

(b) the grounds on which an application may be made;

(c) the information to be included in and documents to accompany an application;

(d) the notice to be given of an application and of its outcome;

(e) how an application is to be determined;

(f) the duration of, and procedures for revoking, any restrictions on the making of information available for public inspection or its disclosure.

(3) Provision under subsection (2)(e) or (2)(f) may in particular—

(a) confer a discretion on the registrar;

(b) provide for a question to be referred to a person other than the registrar for the purposes of determining the application or revoking the restrictions.

(4) Regulations under subsection (1)(a) or (1)(c) may provide that information is not to be made unavailable for public inspection unless the person to whom it relates provides such alternative information as may be specified.

(5) The circumstances that may be specified under subsection (1)(b) or (d) by way of an exception to a restriction on disclosure include circumstances where the court has made an order, in accordance with the regulations, authorising disclosure.

(6) Regulations under subsection (1)(b) or (d) may not require the registrar to refrain from disclosing information under section 1110F of the Companies Act 2006 (general powers of disclosure by the registrar).

(7) Regulations under this section may impose a duty on the registrar to publish, in relation to such periods as may be specified—

(a) details of how many applications have been made under the regulations and how many of them have been allowed, and

(b) such other details in connection with applications under the regulations as may be specified in the regulations.

(8) Regulations under this section are subject to affirmative resolution procedure.’”—(Kevin Hollinrake.)

This new clause replicates for the register of overseas entities the provision made by clause 87 of the Bill in relation to companies.

Brought up, read the First and Second time, and added to the Bill.

New Clause 19

Resolving inconsistencies in the register

“(1) Section 27 of the Economic Crime (Transparency and Enforcement) Act 2022 (resolving inconsistencies in the register) is amended as follows.

(2) For subsections (1) and (2) substitute—

‘(1) Where it appears to the registrar that the information contained in a document delivered to the registrar by an overseas entity in connection with the register is inconsistent with other information contained in records kept by the registrar under section 1080 of the Companies Act 2006, the registrar may give notice to the overseas entity to which the document relates—

(a) stating in what respects the information contained in it appears to be inconsistent with other information in records kept by the registrar under section 1080 of the Companies Act 2006, and

(b) requiring the overseas entity, within the period of 14 days beginning with the date on which the notice is issued, to take all such steps as are reasonably open to it to resolve the inconsistency by delivering replacement or additional documents or in any other way.

(2) The notice must state the date on which it is issued.’

(3) In the heading, omit ‘in the register’.”—(Kevin Hollinrake.)

This new clause makes changes for the purpose of resolving inconsistencies in information relating to overseas entities that corresponds to the changes made by clause 81 of the Bill in relation to companies.

Brought up, read the First and Second time, and added to the Bill.

New Clause 20

Administrative removal of material from register

“(1) In the Economic Crime (Transparency and Enforcement) Act 2022—

(a) for section 28 substitute—

‘28 Administrative removal of material from the register

(1) The registrar may remove from the register anything that appears to the registrar to be—

(a) a document, or material derived from a document, accepted under section 1073 of the Companies Act 2006 (power to accept documents not meeting requirements for proper delivery), or

(b) unnecessary material as defined by section 1074 of the Companies Act 2006.

(2) The power to remove material from the register under this section may be exercised—

(a) on the registrar’s own motion, or

(b) on an application made in accordance with regulations under section 28A(2).

(3) The Secretary of State may by regulations provide that the registrar’s power to remove material from the register under this section following an application is limited to material of a description specified in the regulations.

(4) Regulations under this section are subject to the negative resolution procedure.

28A Further provision about removal of material from the register

(1) The Secretary of State must by regulations make provision for notice to be given in accordance with the regulations where material is removed from the register under section 28 otherwise than on an application.

(2) The Secretary of State must by regulations make provision in connection with the making and determination of applications for the removal of material from the register under section 28.

(3) The provision that may be made under subsection (2) includes provision as to—

(a) who may make an application,

(b) the information to be included in and documents to accompany an application,

(c) the notice to be given of an application and of its outcome,

(d) a period in which objections to an application may be made, and

(e) how an application is to be determined, including provision as to evidence that may be relied upon by the registrar for the purposes of satisfying the test in section 28(1).

(4) The provision that may be made by virtue of subsection (3)(e) includes provision as to circumstances in which—

(a) evidence is to be treated by the registrar as conclusive proof that the test in section 28(1) is met, and

(b) the power of removal must be exercised.

(5) Regulations under this section are subject to the negative resolution procedure.’;

(b) omit sections 29 and 29A (application to rectify register and resolution of discrepancies).

(2) In section 1073 of the Companies Act 2006 (power to accept documents not meeting requirements for proper delivery), in subsection (6)(a), after ‘section 1094A(1)’ (inserted by section 82 of this Act) insert—

‘or any corresponding provision of any other enactment’.”—(Kevin Hollinrake.)

This new clause replicates for the register of overseas entities the changes that clause 82 of the Bill makes in relation to the register of companies.

Brought up, read the First and Second time, and added to the Bill.

New Clause 21

Enforcement of requirement to register: updated language about penalties etc

“(1) The Economic Crime (Transparency and Enforcement) Act 2022 is amended as follows.

(2) In section 34 (power to require overseas entity to register if it owns certain land)—

(a) in subsection (4)(a), for ‘the maximum summary term for either-way offences’ substitute ‘a term not exceeding the general limit in a magistrates’ court’;

(b) omit subsection (5).

(3) In section 36 (meaning of ‘daily default fine’) after ‘applies for’ insert ‘the’.”—(Kevin Hollinrake.)

This new clause updates the penalty provision for the offence in section 34 of the Economic Crime (Transparency and Enforcement) Act 2022 to reflect changes made by the Judicial Review and Courts Act 2022. This ensures consistency with the language that clauses 136 and 137 introduce into the 2022 Act.

Brought up, read the First and Second time, and added to the Bill.

Ordered, That further consideration be now adjourned. —(Scott Mann.)

Economic Crime and Corporate Transparency Bill (Fifteenth sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Committee stage
Tuesday 22nd November 2022 Public Bill Committees

[Seema Malhotra]

Clause 159 provides that regulations under the Bill are to be made by statutory instrument. To a large extent, we have had clarification that any subsequent changes will be made through the affirmative procedure in Parliament, enabling greater scrutiny and transparency over the Bill’s implementation. I am not sure if there is a list anywhere of all the regulation-making powers that have been specified in the Bill. I feel like there is probably a summary somewhere of all of those powers, and whether any are subject to the negative procedure. I think that would be a helpful review for the Committee to have.

New clause 22 allows regulations to be made about the registration of certain Scottish partnerships, and to apply law related to companies or limited partnerships. It will allow the Scottish Partnerships (Register of People with Significant Control) Regulations 2017 to be amended or replaced in relation to those partnerships. We welcome the inclusion of amendment 43 alongside the new clause, which provides for regulations under new clause 22 to be subject to the affirmative procedure, unless they make provisions corresponding to provisions made by statutory instruments that are subject to the negative procedure. In light of my previous comments, I think it is healthy for us to clarify and have a clear summary of which are affirmative and which are negative, and the safeguards around them. That would ensure the transparency of regulation making subsequent to the passing of the Bill.

[Kevin Hollinrake]

It is a pleasure to speak with you in the Chair, Mr Paisley. I will speak briefly to amendment 43 and new clause 22, which are minor technical changes necessary due to the European Communities Act 1972 having been repealed. They give the Secretary of State the power to apply company or limited partnership law by regulations to Scottish qualifying partnerships, as well as to impose new requirements of Scottish qualifying partnerships not included in company or limited partnership law, such as identity verification. It allows the Government to retain the measures introduced by the Scottish Partnerships (Register of People with Significant Control) Regulations 2017 in relation to SQPs and to amend them in the future. Provisions about the registration of Scottish qualifying partnerships exist in the 2017 regulations, made using powers under now repealed section 2(2) of the European Communities Act 1972.

That has two consequences. First, there is no existing power to amend the regulations, other than by an Act of Parliament. Secondly, if not replaced under section 1 of the proposed retained EU law Bill, the 2017 regulations will be revoked at the end of 2023. This power will allow us to keep the existing requirements on Scottish qualifying partnerships and to add new ones. Without the amendment and new clause, it will not be possible to extend key measures introduced via the Bill, such as identity verification, to Scottish qualifying partnerships, thereby creating a dangerous loophole. I hope that my explanation has provided further clarity.

It is clear that regulations made under the Bill may make consequential, supplementary, incidental, transitional or saving provisions and regulations under specified clauses must be subject to the affirmative resolution procedure. I am sure we can write to the hon. Lady to set out exactly what those situations are.

Economic Crime and Corporate Transparency Bill (Thirteenth sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Committee stage
Thursday 17th November 2022 Public Bill Committees

[Kevin Hollinrake]

It is a pleasure to speak with you in the Chair, Ms Elliott.

This group of amendments and new clauses make provision about the circumstances in which limited partner ships dissolve, prescribe the winding-up responsibilities of the partners, and establish powers of the court to wind up limited partnerships. The lead amendment provides that a limited partnership is dissolved: if it ceases to have any general partners; if it ceases to have any limited partners; or where all general partners are either insolvent or disqualified under the directors disqualification legislation.

Government new clause 30 and amendments 96 and 97 concern the duty to notify the registrar of dissolution. Amendment 96 provides for who winds up a dissolved limited partnership. If there are general partners at the time it dissolves, the responsibility falls to them. If there are no general partners, the limited partners are obliged to take all reasonable steps to ensure that the firm is wound up.

The effect of new clause 30 is that when a limited partnership dissolves and has at least one general partner, they must notify the registrar of the dissolution. When there are no longer any general partners at the time of dissolution, the limited partners will be required to notify the registrar. Amendment 97 removes subsection (3) from the clause as the penalty for failing to notify the registrar of dissolution is covered by new clause 30. The rationale for the provisions is that the registrar needs to be informed of a limited partnership’s dissolution so that she can reflect that in the index of limited partnerships’ names which she maintains.

Government new clause 31 concerns winding up limited partnerships in the public interest. This new clause will allow the Secretary of State—in effect, the Insolvency Service—to petition the court to wind up any limited partnership in the United Kingdom, whether solvent or insolvent, and for the court to order the winding up of a limited partnership if it considers it just and equitable to do so. The Secretary of State will be able to receive information from bodies across Government, such as a law enforcement agencies or investigatory bodies, or indeed the registrar under her new information-sharing power. That will help the Secretary of State decide whether to petition the court.

Government new clause 32 allows the Secretary of State or any other person with sufficient interest to apply to the court for orders in relation to the winding up of a limited partnership. The court may make such orders if it appears to the court that a dissolved limited partnership has not been wound up properly or at all. That will ensure that dissolved limited partnerships are properly wound up in a timely manner.

The clause amends and clarifies the existing law around the winding up of limited partnerships. The changes work together with the amendments in this group to make the register more transparent. Specifically, the remaining changes in the clause, which we have not yet debated, concern the application of the actions of limited partners. They provide that a limited partnership shall not be dissolved by the bankruptcy of a partner, and remove the current provision in the Limited Partnerships Act 1907 relating to the winding up of limited partnerships.

Turning to clause 120, the Partnership Act 1890 provides that a court may dissolve a partnership when a partner is found to be suffering from “lunacy or unsound mind”. Clause 120 updates that provision with references to modern definitions of “mental disorder”. The clause also modernises the Limited Partnership Act 1907 by removing reference to the “lunacy” of a limited partner as being grounds for the dissolution of the partnership.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

We largely support the Government amendments, but I will ask a few questions and speak to clauses 119 and 120 stand part. As the Minister outlined, clause 119 concerns the dissolution and winding up of limited partnerships. It sets out that:

“A limited partnership is dissolved if it ceases to have a general partner or ceases to have a limited partner.”

The clause also sets out what happens if a limited partnership is dissolved at a time when the firm has at least one general partner. As the Minister said, it requires the general partner to notify the registrar before they wind up the limited partnership, and it would be an offence for the partners to fail to notify the registrar of the firm’s dissolution. We welcome the new provisions, but I would also welcome the Minister’s thoughts on some comments made by Professor Berry in her evidence. She stated that:

“The Bill inappropriately amends partnership law to prevent automatic dissolution on the bankruptcy of a general partner in an LP… Personal liability is no guarantee of good behaviour if the partner is already insolvent, and indeed the same restriction remains on general partners of a general partnership.”

If I have understood correctly, amendment 95 would mean that a limited partnership is dissolved if all the general partners are either insolvent or disqualified, rather than if they are all insolvent. Taken with amendment 96, it would mean that limited partnerships would not dissolve if all the limited partners are insolvent. Amendment 96 would mean that any insolvent general partners who are not disqualified must wind up a dissolved limited partnership or take “reasonable steps” to ensure that it is wound up. If there are no general partners, the insolvent limited partners must take reasonable steps to ensure that it is wound up. We support amendments 95 and 96.

I will speak briefly to Government new clause 30 and make a few comments about amendment 97. New clause 30 would introduce a new duty on the general partners of limited partnerships to notify the registrar in the event of a dissolution. If the general partners fail to comply,

“an offence is committed by each general partner who is in default”,

but

“where the general partner or limited partner is a legal entity, it does not commit an offence as a general partner or limited partner in default unless one of its managing officers is in default.”

New clause 30 also states:

“Where any such offence is committed by a general partner or limited partner that is a legal entity, or any such offence is…committed by a managing officer that is a legal entity, any managing officer of the legal entity”—

are you still following this, Ms Elliott?—

“who is in default also commits the offence if—

(a) the managing officer is an individual, or

(b) the managing officer is a legal entity and one of its managing officers is in default.”

Some of this speaks to the complexity of some of these structures, which is why it is important to be moving forward in this way. Although we welcome new clause 30, will the Minister expand on the regulations in relation to general partners who are legal entities? Could there be a situation in which none of the criteria needed for an offence to be committed is met when the general partner is a legal entity? Is there still a loophole?

We welcome new clause 31, which would allow a court to order the winding up of a limited partnership on a petition by the Secretary of State in the public interest. New clause 32

“would mean that if a limited partnership has not been wound up as is required by section 6(3A) or 6(3B), the court can make various orders on an application by the Secretary of State or a person with sufficient interest”

to order a winding up of the limited partnership. We believe the measures strengthen the legislation, so can the Minister comment on those two points?

Clause 120 amends the Partnership Act, specifying the provision for the dissolution of a partnership on the grounds of a partner’s lunacy. It is right that we update those references to “mental disorder” within the meaning of modern legislation. However, in her written evidence to the Committee, Professor Berry makes an important point that the clause may give the impression that it

“appears to mean that mental health disorder of a limited partner is now a ground for dissolution (whereas previously it was not), which cannot be intended.”

Can the Minister respond on that point as well, just to make sure that that is not a consequence in the way by Professor Berry suggested?

[Kevin Hollinrake]

It might be helpful if the hon. Lady shared with me Professor Berry’s written comments, so I can look at it in more detail. Clearly, if a general partner is a legal entity, there is a named individual behind that. We have discussed that at length before. With that information, I will write back to her to clarify those points.

Amendment 95 agreed to.

Amendments made: 96, in clause 119, page 105, line 11, leave out paragraphs (e) to (g) and insert—

‘(e) for subsections (3A) and (3B) substitute—

“(3A) If a limited partnership is dissolved at a time when the partnership has at least one general partner who is—

(a) solvent, and

(b) not disqualified under the directors disqualification legislation, the general partners at that time who are solvent and are not so disqualified must either wind up the partnership’s affairs or take all reasonable steps to ensure that its affairs are wound up by a person who is not a partner at that time.

(3B) If a limited partnership is dissolved at a time when the partnership does not have a general partner who is—

(a) solvent, and

(b) not disqualified under the directors disqualification legislation, the limited partners at that time who are solvent must take all reasonable steps to ensure that the partnership’s affairs are wound up by a person who is not a limited partner at that time.

(3BA) For enforcement of the duties under subsections (3A) and (3B) see section 25B.”

(f) omit subsection (3C).’

This amendment means that any solvent general partners who are not disqualified must wind up a dissolved limited partnership or take reasonable steps to ensure it is wound up. If there are no such general partners, the solvent limited partners must take reasonable steps to ensure it is wound up.

Amendment 97 in clause 119, page 105, line 36, leave out subsection (3).—(Kevin Hollinrake).

This amendment is consequential on NC30.

Clause 119, as amended, ordered to stand part of the Bill.

Clause 120 ordered to stand part of the Bill.

Clause 121

The register of limited partnerships

Question proposed, That the clause stand part of the Bill.

[Kevin Hollinrake]

This is a simple clause that removes outdated requirements for the registrar to file statements made by limited partnerships and issue certificates of registration for the statements filed. It brings those into line with the more modern approach for the companies register. The clause introduces a definition of the register of limited partnerships, making clear that it is part of the records the registrar holds under section 1080 of the Companies Act 2006.

[Seema Malhotra]

As the Minister outlined, the clause increases clarity over the inspection of the register, and we support it.

Question put and agreed to.

Clause 121 accordingly ordered to stand part of the Bill.

Clause 122

Material not available for public inspection

[Kevin Hollinrake]

I beg to move amendment 34, in clause 122, page 107, line 34, leave out “available for public inspection” and insert

“the following material available for public inspection, so far as it forms part of the register of limited partnerships”.

This amendment spells out that the relevant material is only to be made unavailable for public inspection if it forms part of the register of limited partnerships.

--- Later in debate ---

[Seema Malhotra]

Clause 122 inserts a new section into the Limited Partnerships Act, as the Minister outlined, to set out provisions for certain information that the registrar must not make available for public inspection. The Minister outlined that that could include dates of birth, residential information, and I think also email addresses, for the limited partnership.

We understand the need for the measure, and the Committee has debated previously the need to hold back information for personal security or privacy reasons, but information sharing might sometimes be necessary. We have talked about those who need access to information because they are undergoing insolvency or other proceedings. Is there a mechanism by which the Government could enable information that would ordinarily be protected to be shared with third parties where it is deemed necessary and does not threaten the integrity of the register or the privacy of limited partnerships? This does get confusing, so we are probing where the registrar may be able to share information, if there is a reason to do so in terms of preventing economic crime.

Amendment 34 spells out that the relevant material is to be made unavailable for public inspection only if it forms part of the register of limited partnerships. Amendment 38 will make statements required to be made when documents are delivered unavailable for public inspection. Such statements relate either to identity verification or to an individual being an authorised corporate service provider or employee of an authorised corporate service provider.

I want to ask the Minister for more detail about why that is protected information. Have the Government considered whether it would be helpful and transparent for third parties dealing with a limited partnership to know whether an individual involved in its registration is related to an ACSP? That may be particularly useful given the evidence that has already been recounted to the Committee on the increased risk of economic crime when an ACSP is involved in the registration of the company or limited partnership. This is about transparency in relation to ACSPs.

[Kevin Hollinrake]

As the hon. Lady sets out, the reason for some information not being made public is security—to prevent ID theft, for example. Throughout the Bill, we are giving the registrar powers to share information wherever necessary, particularly if it relates to tackling economic crime. Nothing in the Bill would prevent any information, public or private, from being shared with law enforcement agencies. That is quite clear; the Bill facilitates that.

On authorised corporate service providers, the measure relates to statements and not things such as ID verification. This is where it may be considered that a statement is not suitable for sharing with the general public, which we have discussed in previous debates.

Amendment 34 agreed to.

Amendments made: 35, in clause 122, page 107, line 34, at end insert—

“(za) any application or other document delivered to the registrar under section 8PA, 8G or 8V (changes of addresses by registrar) other than an order or direction of the court;”.

This amendment would mean the documents mentioned in it are unavailable for public inspection.

Amendment 36, in clause 122, page 107, leave out lines 35 to 37.

This amendment is consequential on Amendment 30.

Amendment 37, in clause 122, page 108, line 4, at end insert—

“(ba) so much of any statement delivered to the registrar as is required to contain the information mentioned in any of the following provisions (which relate to identity verification)—

section 8A(1C)(b) or (1F)(c)(ii);

section 8L(3)(a)(ii) or (b)(ii);

section 8Q(4)(b) or (7)(c)(ii);”.

This amendment would make statements relating to identity verification of registered officers unavailable for public inspection.

Amendment 38, in clause 122, page 108, line 7, at end insert—

“(ca) any statement delivered to the registrar by virtue of section 1067A(3) or (4) of the Companies Act 2006 (delivery of documents: identity verification and authorised corporate service providers);”.

This amendment would make statements required to be made when documents are delivered unavailable for public inspection. The statements either relate to identity verification or to an individual being an authorised corporate service provider or employee of an authorised corporate service provider.

Amendment 39, in clause 122, page 109, line 4, leave out “and”.

This amendment is consequential on Amendment 40.

Amendment 40, in clause 122, page 109, line 7, at end insert—

“(c) section 22(5) of the Economic Crime (Transparency and Enforcement) Act 2022 (extent of obligation to retain material not available for public inspection).”.—(Kevin Hollinrake.)

This amendment is consequential on NC17.

Clause 122, as amended, ordered to stand part of the Bill.

Clause 123 ordered to stand part of the Bill.

Clause 124

Disclosure of information about partners

Question proposed, That the clause stand part of the Bill.

[Kevin Hollinrake]

This is another simple clause, which ensures that personal information is used only for its intended purpose and prevents personal information from being exposed to abuse. The clause prevents the registrar from disclosing personal information about partners unless, in a few limited circumstances, it is necessary to do so. In all cases, information will remain available to law enforcement.

[Seema Malhotra]

We support the clause. As the Minister said, it restricts the registrar from disclosing certain information unless specific conditions apply. As we have rehearsed in other debates, we acknowledge the importance of ensuring that law-abiding individuals who have provided personal information are adequately protected. I am grateful for the Minister’s confirmation and clarity that that information would still be available to law enforcement officers.

I am less clear about what is proactively and reactively available, in the sense of whether it is for the registrar to make the information available or for law enforcement to request it. Perhaps the Minister could just confirm that it can work both ways.

[Kevin Hollinrake]

Yes, it can.

Question put and agreed to.

Clause 124 accordingly ordered to stand part of the Bill.

Clause 125

Registrar’s power to confirm dissolution of limited partnership

[Seema Malhotra]

I beg to move amendment 163, in clause 125, page 112, line 35, leave out “power” and insert “duty”.

This amendment is consequential on Amendment 164.

--- Later in debate ---

[Kevin Hollinrake]

The quick answer to the hon. Gentleman’s comment is that we believe in people using their judgment. The registrar, who we believe to be a competent person, should use her judgment in these cases. It may not always be proportionate in the circumstances to issue a notice of dissolution. However, I am grateful for the amendments.

The Bill allows the registrar to remove a limited partnership from the index of names without going through the dissolution notice process if she is absolutely certain that the partnership was dissolved, resulting in its deregistration. Amendments 163 and 164 would compel the registrar to publish a notice warning of dissolution, and then a notice confirming dissolution within two months if she reasonably believes that a limited partnership is dissolved. The registrar, despite being certain that the limited partnership was dissolved, would be forced to go through the warning notice and representation-seeking process to confirm that. It would unnecessarily take longer for the registrar to deregister a limited partnership that she was certain had been dissolved.

Furthermore, the process of issuing a dissolution notice attracts a cost. Were the registrar to issue a warning notice, wait for representations and then issue a dissolution notice each and every time she had reasonable cause to believe that a limited partnership had dissolved, the cost may be significant. The registrar should therefore be given flexibility to use her judgment to determine whether to begin the dissolution notice process on a case-by-case basis.

I support the intentions of the hon. Members for Feltham and Heston and for Aberavon, through amendment 165, to increase transparency and bring clarity to the register concerning limited partnerships that are dissolved. The Bill already requires the registrar to issue the notice of dissolution in the Gazette, which is a matter of public record and can be accessed by the public indefinitely. That information will also be added to a limited partnership’s record, with the information being made available to the public for 20 years, either on the register or through the public records office. The information would therefore already be in the public domain. However, I would like to explore with Companies House the feasibility and costs associated with also publishing that information on its website, as the hon. Members have suggested. I will return to them on that point.

[Seema Malhotra]

I thank the Minister for his comments, which I welcome, and I thank SNP colleagues for their support.

I will reflect on the Minister’s comments in relation to amendments 163 and 164. Obviously, we want to look at proportionality of resources alongside the management of risk and the effectiveness of provisions. I will not press the amendments to a Division today.

In relation to the Minister’s comments on amendment 165, I welcome his taking our suggestion away to look at it, and I look forward to hearing from him in due course. Perhaps he could produce a short note to confirm how the Government might want to move forward with our suggestion. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to consider clauses 126 and 127 stand part.

[Kevin Hollinrake]

Clause 125 will allow the registrar to confirm that a limited partnership is dissolved where she has reasonable cause to believe that it is, and to remove the name of the dissolved firm from the index of limited partnerships that she maintains. It is important that limited partnerships and interested parties are given sufficient notice of the potential dissolution, allowing them to make representations to the registrar if they object. The registrar will therefore be required to publish a notice of her intention to dissolve the limited partnership in the Gazette and to notify the limited partnership of her intention. After a period of not less than two months, the registrar may publish a second notice in the Gazette, which will effectively dissolve the limited partnership, if it is not dissolved already, and let it be deregistered.

Within a period of six years from dissolution, a dissolved limited partnership’s former general partner may apply to the registrar for the partnership to be revived if they bring the limited partnership’s information up to date and pay any fines or penalties that are owed. The Secretary of State, any partner or any person with an interest in the limited partnership may also apply to the court for the limited partnership to be revived. We expect that confirmation of dissolution power to dramatically reduce the number of limited partnerships that are currently registered. A more accurate and up-to-date register will give clarity to the public and law enforcement about the number of active limited partnerships.

Clause 126 will, within a six-month period following commencement of the Act, allow the registrar to publish a notice in the Gazette that limited partnerships are dissolved without having to follow the warning notice and representation-gathering process. This will immediately dissolve those limited partnerships that failed to comply in the six-month transitional period with the requirement to supply the registrar with information required under the Bill.

Clause 127 allows limited partnerships that are not dissolved to deregister and, should the partners want to, continue as general partnerships without the need to wind up the affairs of the firm. All partners in the limited partnership must agree to the deregistration process. That avoids both the potentially protracted process of dissolving and winding up the limited partnership before it becomes a different entity, and the associated administrative burden that would fall upon the registrar.

[Seema Malhotra]

We discussed clause 125 previously, but it is perhaps helpful to summarise it. Labour supports the clause. It would insert proposed new sections 18 to 24 into the Limited Partnerships Act 1907. They would give the registrar the power to publish a warning notice if she has reasonable cause to believe that a limited partnership has been dissolved. In the absence of any information to the contrary being received within two months, the registrar would have the power to publish a dissolution notice, and the partnership would be dissolved. The proposed new sections also provide for a process for applications to the registrar or court to revive a limited partnership if certain conditions are met.

Clause 126 is a transitional provision. It provides that if the registrar exercises the powers in clause 125 during the six-month period—is it during the six-month period or after it?—after the Bill comes into force, she can publish a notice stating that she has reasonable cause to believe that a limited partnership has been dissolved without having to comply with the warning notice or notification provisions. Will the Minister clarify whether the power applies within the six months or after the six months?

Clause 127 inserts a proposed new section into the Limited Partnerships Act to allow limited partnerships that want to cease to exist to apply to the registrar to be removed if all the partners agree to deregister the partnership. Will the Minister assure the Committee that the clause will not enable limited partnerships involved in wrongdoing and economic crime to voluntarily dissolve before any scrutiny or investigation into them? Will there be safeguards against that occurring?

[Kevin Hollinrake]

On the hon. Lady’s point of clarification, it is after the six-month period.

On the hon. Lady’s latter point, about the dissolution of a company, will she clarify what question she wants me to address?

[Seema Malhotra]

I am very happy to. Clause 127 enables limited partnerships to apply to be deregistered if all partners agree. My question relates to the potential opportunity that that provides a partnership where there has been wrongdoing or economic crime and the deregistration is an attempt to avoid scrutiny or investigation. Are there any safeguards around that? Will checks take place if partners apply to voluntarily deregister under the provisions of the clause?

[Kevin Hollinrake]

That is a fair point. Off the top of my head, I would say that that might be a red flag and the registrar would look in more detail into the parties related to the deregistration, but I will write to the hon. Lady to provide further detail on that point.

Question put and agreed to.

Clause 125 accordingly ordered to stand part of the Bill.

Clauses 126 and 127 ordered to stand part of the Bill.

Clause 128

Delivery of documents relating to limited partnerships

[Seema Malhotra]

I beg to move amendment 166, in clause 128, page 117, leave out lines 7 to 23 and insert—

“(1) An individual may not deliver a document under a provision listed in subsection (4) to the registrar on their own behalf unless—

(a) the individual’s identity is verified (see section 1110A which, for the purposes of this section, will apply to limited partnerships as it applies to companies), or

(b) the individual falls within any exemption that may be specified in regulations made by the Secretary of State for the purposes of this paragraph.

(2) An individual may not deliver documents to the registrar on behalf of another person unless—

(a) the individual’s identity is verified (see section 1110A),

(b) the individual is an authorised corporate service provider,

(c) the individual is an employee of an authorised corporate service provider and is acting in the course of their employment, or

(d) the individual falls within any exemption that may be specified in regulations made by the Secretary of State for the purposes of this paragraph.

(3) A document delivered to the registrar by an individual on their own behalf must be accompanied by—

(a) a statement that the individual’s identity is verified, or

(b) a statement that the individual falls within an exemption specified in regulations under subsection (1)(b).

(3A) A document delivered to the registrar by an individual on behalf of another person must be accompanied by—

(a) a statement that the individual’s identity is verified and that they have the person’s authority to deliver the document,

(b) a statement that the individual is an authorised corporate service provider and that they have the person’s authority to deliver the document,

(c) a statement that the individual is an employee of an authorized corporate service provider and is acting in the course of their employment and that the authorised corporate service provider has the person’s authority to deliver the document, or

(d) a statement that the individual falls within an exemption specified in regulations under subsection (2)(d) and that they have the person’s authority to deliver the document.

(3B) Regulations under subsection (1)(b) or (2)(d) are subject to affirmative resolution procedure.”

It is a pleasure to move the amendment tabled by my right hon. Friend the Member for Barking. The clause sets out that certain documents relating to a limited partnership can be delivered to the registrar only by an authorised corporate service provider. The documents include, but are not limited to, applications for registration, changes of address, changes relating to partners, and confirmation of statements.

We are concerned by the provisions set out in the clause, particularly those on allowing documents relating to limited partnerships to be submitted only by ACSPs, given the concerns that have been raised about economic crime committed through ACSPs. As a result, we support amendment 166, which would expand beyond just ACSPs the range of people who can deliver documents relating to limited partnerships. It would remove the provision in the clause that mandates that only ACSPs can deliver such documents and replace it with new provisions.

--- Later in debate ---

[Kevin Hollinrake]

I am happy to provide that clarification. I thank the right hon. Member for Barking, who is not present today, for her amendment. The measures in part 2 are intended to tackle the role of limited partnerships in global money laundering schemes. Clause 128 ensures that key documents pertaining to limited partnerships can be submitted only by an authorised corporate service provider. The key is that those providers must be registered with the registrar and supervised for anti-money laundering purposes. Doing so will give the registrar a clear audit trail of who has been setting up and providing corporate services to limited partnerships, and enable that audit trail to be shared with AML supervisors.

The hon. Member for Feltham and Heston is absolutely right to say that there are question marks over corporate service providers. We know that, and we recognise those comments from UK Finance. That is why the Treasury is undertaking the consultation on how we can improve the supervision of corporate service providers, which certainly needs to be done. As I have said many times, corporate service providers can be major accountants that are bona fide organisations; the hon. Lady refers to the minority of corporate service providers that we do need to better regulate and supervise. That body of work is currently being undertaken.

We think the approach of requiring ACSPs to provide the documentation, which is more restrictive than the filing options for limited companies, is appropriate given both the relatively low numbers of limited partnerships created each year and the fact that they are used chiefly by the investment sector, which routinely uses agents. The amendment would require individuals to submit documents if their identity was verified, but it would remove the requirement for individuals to be relevant persons under the money laundering regulations. I do not think that would be the right approach. It would mean that they would not, for example, have the obligation to conduct due diligence checks on those on whose behalf they were acting or to adhere to record-keeping requirements, and they would not be supervised for anti-money laundering purposes.

Clause 128 will serve not just to better support supervision but as a prompt for better supervision, so I invite the hon. Member for Feltham and Heston to withdraw the amendment.

[Seema Malhotra]

I thank the Minister for his remarks. This is an important debate. I am not sure that we have exhausted it today, and we may not, but it strikes me that the Minister’s main argument—that the volume of registrations might be less—is not the strongest. I wish to look further at what he said about who and what would fall under anti-money laundering regulations and whether the amendment could reduce some of the scrutiny and controls in that respect. I do not believe that would necessarily be the case if we were effectively allowing individuals to submit documents on their own behalf if they wished to do so.

It would be worth our coming back to this issue. I do not intend to press the amendment to a vote, and I am sure that my right hon. Friend the Member for Barking will also want to reflect on the Minister’s comments, but we remain concerned about the delivery of documents relating to limited partnerships. I recognise what the Minister said, but I also appreciate—he will know this from his work on these issues in the past—the concerns about trust and company service providers and ACSPs. If we can make the provision a little stronger and a little more in line with the way the process works for companies, and if we push the argument just a little further and there is not as strong a downside as the Minister believes, it may be worth coming back to this issue. I will reflect on it with my right hon. Friend. On that basis, I intend to withdraw the amendment.

[Kevin Hollinrake]

Just to clarify, my argument was not that smaller numbers of limited partnerships are being set up and therefore the risk is less. It is quite the opposite: we know that limited partnerships have been involved in economic crime so we think the risk is greater. That is why we want to put in an extra layer of scrutiny. We believe that introducing somebody who is supervised under the AML regulations provides that extra level of scrutiny and an extra level of check and balance in the process. That is our basic argument.

[Seema Malhotra]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: 41, in clause 128, page 117, line 39, leave out from beginning to end of line 16 on page 118. —(Kevin Hollinrake.)

This amendment is consequential on NC9.

Question proposed, That the clause, as amended, stand part of the Bill.

[Kevin Hollinrake]

Clause 128 is another simple clause. It ensures that key documents pertaining to limited partnerships can be submitted only by an authorised corporate service provider. I have already set out why clause 128 is so important in making limited partnerships and their partners subject to a greater level of scrutiny than they are currently exposed to.

[Seema Malhotra]

As the Minister has outlined, clause 128 inserts into the Limited Partnerships Act proposed new sections 26 and 27, which require applications for registration and documentation of changes to be submitted by an ACSP. We have had a useful debate to which I am sure we will return.

Proposed new section 27 gives the Secretary of State the power to disapply section 26 if that is necessary

“in the interests of national security”

or

“for the purposes of preventing or detecting serious crime”.

We did not go into this exemption in much detail and the Minister may have some further comments on it. The ideas of national security and preventing or detecting serious crime are quite broad; perhaps the Minister could comment on some of the circumstances in which he sees the power being used by the Secretary of State and whether this might be an example of where the use of the power and the number of times it is used should be reported through some mechanism to Parliament.

[Seema Malhotra]

Yes, that is in clause 128.

[Kevin Hollinrake]

We have debated the same issue at length on a number of occasions. We feel they are proportionate powers to hand the Secretary of State and will be used very rarely.

Question put and agreed to.

Clause 128, as amended, accordingly ordered to stand part of the Bill.

Clause 129

General false statement offences

Question proposed, That the clause stand part of the Bill.

[Kevin Hollinrake]

Clause 129 simply introduces two false statement offences—basic and aggravated— into the Limited Partnerships Act. The offences mirror those in the Companies Act and the Economic Crime (Transparency and Enforcement) Act 2022. The Committee has supported this approach when debating other clauses.

[Seema Malhotra]

I thank the Minister for his remarks. I just want to clarify for the record that clause 128 was confusing, Ms Elliott, because I was talking about proposed new sections 26 and 27, which are in clause 128. I hope that has cleared that up.

Clause 129 relates to general false statement offences. As the Minister said, the clause introduces two levels of offences relating to the submission of a false, misleading or deceptive document or statement to the registrar. That is absolutely right. Proposed new section 28 defines offences where such submissions are made without reasonable excuse and proposed new section 29 defines aggravated offences where such submissions are made knowingly. In each case, where an offence is committed by a legal entity, every managing officer of the entity will also be deemed to have committed the offence. We welcome the new offences and support the clause.

Question put and agreed to.

Clause 129 accordingly ordered to stand part of the Bill.

Clause 130

Service on a limited partnership

Question proposed, That the clause stand part of the Bill.

[Kevin Hollinrake]

Clause 130 specifies how documents may be served at the registered office for the purposes of the Limited Partnerships Act. The clause is necessary to ensure that the registrar or another body can serve documents to a limited partnership’s registered address with assurances that they will be received. It is in line with the principles we discussed in part 1 of the Bill.

[Seema Malhotra]

I thank the Minister for his comments. We support this straightforward clause. It inserts a new section in the Limited Partnerships Act to enable documents to be served on the limited partnership by leaving them at or sending them to their registered office. We welcome and support the clause.

Question put and agreed to.

Clause 130 accordingly ordered to stand part of the Bill.

Clause 131

Application of company law

[Kevin Hollinrake]

I beg to move amendment 42, in clause 131, page 120, line 18, leave out

“any Act, whenever passed or made”

and insert

“either of the following, whenever passed or made—

(a) an Act;

(b) Northern Ireland legislation.”

This would allow for consequential amendments to be made to Northern Ireland legislation if the power inserted by clause 131 of the Bill is exercised to apply company law to limited partnerships, for example amendments to the Company Directors Disqualification (Northern Ireland) Order 2002.

--- Later in debate ---

[Seema Malhotra]

It is a pleasure to speak to new clause 48, which would extend the investigations regime under part XIV of the Companies Act 1985 to include limited partnerships. The new clause simply applies to limited partnerships the investigation regimes that companies are currently subject to. We have heard throughout the Committee’s debate on part 2 of the Bill how limited partnerships can be used as a vehicle for economic crime. We have raised numerous concerns, reports and consultations by this Government and other agencies that identify the risk of economic crime through limited partnerships and Scottish limited partnerships. As a result, new clause 48 provides a simple mechanism for applying more scrutiny and transparency to limited partnerships—something I am sure the Government will agree is important. I would be grateful for the Minister’s response on this matter. I hope the Minister will consider the strong reasons for bringing in this new clause.

[Kevin Hollinrake]

On new clause 48, it is of course right that Companies House should have the necessary powers to investigate wrongdoing by limited partnerships. I am fully signed up to improving transparency and scrutiny, as the shadow Minister knows. One thing we want to avoid, though, is duplication. I will set out why I think the amendment is unnecessary on that basis.

The provisions set out in part XIV of the Companies Act 1985 allow the Secretary of State to appoint investigators to conduct investigations into companies’ affairs. Part XIV applies to companies, overseas companies, and limited liability partnerships. All of these are bodies corporate with independent legal personality. In these cases, it makes sense to have powers to investigate the conduct of the people running them to ensure that they cannot hide behind the independent legal personality of the entity itself.

In contrast, where a limited partnership has no separate legal personality, the conduct of its partners is unshielded. They can already be investigated for fraudulent and other unlawful conduct under existing criminal law and prosecuted accordingly. Where a partner in a limited partnership is itself a company, the provisions of part XIV would already apply to them. It is therefore unnecessary to extend the investigations regime under part XIV in its entirety to limited partnerships, as this amendment would.

Nevertheless, I welcome and am happy to consider suggestions that help us to root out wrongdoers and deal with them appropriately. I have asked my officials to consider which of the measures in part XIV of the 1985 Act there might be a case for refashioning to bolster the authorities’ ability to investigate limited partnerships and those concerned in their management.

[Seema Malhotra]

I thank the Minister for his very helpful response to new clause 48. I think it is the right way forward to be considering the provisions in part XIV of the Companies Act 1985 that might be relevant and applicable, so that we do not duplicate what may be on statute elsewhere. The easiest way to keep this issue on record for further debate would be for the Minister to come back to me in writing once officials have had a chance to make their assessment. We would be grateful for that.

Clause 131 sets out provision for regulations to be made by the Secretary of State to facilitate the continuing alignment of partnership law with general company law. We support this, and the discussion we have just had is in alignment with that principle. We also support amendment 42. Clause 132 sets out provisions to make it clear that a limited partnership registered in any part of the UK other than Scotland does not have an independent legal personality, even if its principal place of business is in Scotland. The location of registration is the determining factor. It would be helpful if the Minister spoke to this measure, so that we are clear on the reasons behind it. Clause 133 inserts new section 28 into the Limited Partnerships Act 1907 and sets out the general provisions for regulations that can be made under that Act and that the power to make regulations will be exercisable by SI.

I also just wanted to clarify the process by which regulations will be made, because I think they are subject to negative procedure rather than positive resolution procedure. I just wondered why the Government have made that decision about these regulations.

[Kevin Hollinrake]

In terms of the situation with Scotland, it can be confusing for third parties—it might be a bank, for example; opening a bank account—to understand the difference between a business that is operating in Scotland and has a base there, and one that is registered as a Scottish limited partnership. This measure is trying to clarify in law the difference between the two, to try to ensure that the right questions are asked in those circumstances. That is the basis for this clarification.

If I may, I will write to the hon. Lady to say why we have determined that regulations made under the negative or affirmative procedure should be treated in the way she describes.

Amendment 42 agreed to.

Clause 131, as amended, ordered to stand part of the Bill.

Clauses 132 and 133 ordered to stand part of the Bill.

Clause 134

Limited partnerships: further amendments

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Seema Malhotra]

I am grateful to the Minister for laying that out. As he outlined, clause 134 omits section 17 of the Limited Partnerships Act 1907 and introduces schedule 5 to that Act, which makes consequential amendments. We have no issues with or comments to make on this clause.

Question put and agreed to.

Clause 134 accordingly ordered to stand part of the Bill.

Schedule 5 agreed to.

Clause 135

Register of overseas entities

Question proposed, That the clause stand part of the Bill.

[Kevin Hollinrake]

The clauses that we will now debate in part 3 of the Bill make amendments to the Economic Crime (Transparency and Enforcement) Act 2022, which establishes the register of overseas entities. The amendments all serve either to either address issues identified post-implementation or to align the ECTE Act with similar provisions in companies legislation, for instance provisions relating to false statement offences.

The ECTE Act requires overseas entities that own or intend to own land in the United Kingdom to register their beneficial owners with Companies House in certain circumstances. The ROE opened for registrations on 1 August 2022. Section 3 of the ECTE Act currently states that the register is to consist of the following:

“a list of registered overseas entities…documents delivered to the registrar under this Part or regulations made under it, or otherwise in connection with the register, and…any other information required to be included in the register by this Part or regulations made under it.”

Economic Crime and Corporate Transparency Bill (Twelfth sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Committee stage
Tuesday 15th November 2022 Public Bill Committees

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)]

I am very pleased to respond to the right hon. Lady’s speech. In relation to some of the issues we have with limited partnerships, she has set out her case very well and fairly.

Through the Bill, we are trying to make it easier for Companies House to spot exactly the kinds of red flags the right hon. Lady has referred to. She mentioned people such as Alexandru Terna. Under this legislation, for the first time, significant penalties will accrue to somebody who does not declare their partners accurately. As I have said on a number of occasions in recent days, I am sympathetic to a number of the right hon. Lady’s amendments, including new clause 56. I understand the reasons why she has tabled it.

The new clause would partially duplicate the Scottish Partnerships (Register of People with Significant Control) Regulations 2017. Scottish limited partnerships have legal personality, meaning that in the eyes of the law they are a separate legal entity and have distinct duties and liabilities to those of their partners. It is therefore possible to apply persons of significant control requirements to those entities. As the right hon. Lady said, the same is not true of English, Welsh or Northern Irish limited partnerships, which do not have legal personality. Unlike SLPs, those forms of limited partnership register with Companies House but are not a separate legal entity from their partners. The partners are the embodiment of the partnership; as such, legislating for the registration of people who have significant influence or control over an English, Welsh or Northern Irish LP is legislating for the registration of people who control other people. I will return to that point in a second.

Not having legal personality means that limited partnerships cannot own property or assets in their own name; any assets are held in the name of the partners themselves. They are a registrable legal relationship, and can be thought of a bit like a marriage: the act of registering gives the relationship legal force and bestows rights and duties on the partners, but it does not create something separate that can be owned. Like a marriage, a partnership ends on the death of a partner.

It is therefore not legally possible to apply the persons of significant control requirements currently applied to Scottish LPs to English, Welsh and Northern Irish LPs. It would be possible to draft legislation for a different regime applying a different definition of beneficial ownership, but given that the partnership only exists as a business relationship between partners and its body exists in the person of the partners, it is not apparent who, beyond the partners, should be registered. A likely outcome would therefore be all limited partnerships reporting that no person met the requirements, other than those already registered as partners.

Nevertheless, I understand that the intention of the right hon. Member for Barking is to increase transparency about who is managing and controlling a limited partnership. That is why the clauses that we are debating will increase the amount of information that is available concerning the partners of a limited partnership, and place a legal duty on partners to update those details with the registrar. In addition, the identities of all general partners must now be verified, and any corporate general partner must name an individual who may be contacted in relation to the limited partnership and whose identity must also be verified.

Although the right hon. Lady admits that her new clause is not a perfect solution, she has raised a good point. In consultation with her and officials, I will give further consideration to this matter, to ensure that there are no other means by which somebody may have undue control over a limited partnership. I am keen to work with her and discuss how we might do that.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

It is a pleasure to say a few words on this topic—we have had a very good and extensive debate on these clauses, so I will limit my remarks.

I think we are in violent agreement that more needs to be done. I made remarks earlier about the extent to which we have seen the misuse of partnerships grow. Research in the past eight to 10 years has shown the growth in the formation of limited partnerships and the extent to which they are used for economic crime. We have taken a long time to get here, but it is useful and important that we are now at this point.

Schedule 4, which is inserted into the Bill by clause 100, sets out information that must be provided to the registrar by partners who are individuals and corporate bodies in relation to limited partnerships. I think we all support the introduction of these measures as necessary for increasing the information and transparency around who actually owns and controls limited partnerships. As the Minister is responding to the points and questions raised by my right hon. Friend the Member for Barking, I think those points about transparency and how that works across these clauses and the framework of the legislation as a whole are extremely important.

There is a transitional period of six months for compliance after the Bill comes into force, and the Bill provides that non-compliance will be

“treated by the registrar as reasonable cause to believe that the limited partnership has been dissolved”.

We have raised related questions in the course of debate. Although we may recognise the need for a transitional period, why are we waiting six months? What reassurances can the Minister give us that there are adequate safeguards against limited partnerships that have been set up for criminal purposes simply taking no action during the six-month period in order to avoid scrutiny and transparency?

The Minister may refer us to other parts of the Bill where we have discussed what can happen when companies get dissolved. However, we do not want to strengthen the legislation on one hand but, on the other, provide a way for those who have been using these vehicles for years, given the scale of economic crime that the research suggests, to have a “get out of jail free” card because of the time allowed for compliance and the lack of scrutiny of what is happening.

On new clause 56, I am really pleased that the Minister recognises the arguments that have been made, and his openness about wanting to work together. As my right hon. Friend the Member for Barking said, the wording may not be perfect, but let us work together on the solution. That is important if the Committee is to make sure that the legislation is improved prior to its return to the whole House on Report.

I think it is worth saying that those who have given evidence to the Committee will also be looking for changes. There have been numerous reports by the Government themselves highlighting the use and abuse of the limited partnership model for the purpose of economic crime. To give one example, when giving evidence to the Committee, the legal professor Elspeth Berry said of limited partnerships:

“I dread explaining them to my students, because of the difficulty in trying to get at who owns limited partnerships and who is in control of what is going on”.––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 27 October 2022; c. 103, Q194.]

Clearly, there is opinion among experts that mirrors the wider concerns that we have heard about the opaqueness of ownership and control information around limited partnerships.

--- Later in debate ---

[Kevin Hollinrake]

It is clear from the number of different things that we have discussed over recent days that we need to work on a number of points to improve the legislation. There is no question about that, and I am grateful to hon. Members for their contributions to that end. The shadow Minister raised the six-month transitional period. Clearly, we are trying to strike a balance between rooting out wrongdoing and ensuring that legitimate organisations have time to provide the information. I think it is a reasonable time period. It may be that something happens as she described, and some nefarious activities are—

[Seema Malhotra]

Will the Minister consider this a little further in the light of the fact that the Bill’s provisions will not come as a surprise? The Bill has been introduced, there has been Government documentation and consultation, and so on. Might the six months be looked at again in the light of that fact?

[Kevin Hollinrake]

I was going on to say that I think the period is fair. As the hon. Lady knows from the debate that we have had over recent days, the way the legislation works is that a number of different pressure points are applied to those who are potentially guilty of wrongdoing. The dissolution of a partnership may well be a red flag for Companies House in certain circumstances, together with other information that it may glean, including from the confirmation statements that general partners have to submit—those are combined with criminal sanctions, of course—and information sharing. All those things come together in this holy alliance to clamp down on the opportunities created by limited partnerships and other vehicles that we have discussed. I think it is a fair balance, but I am always happy to continue to debate these things.

Question put and agreed to.

Clause 100 accordingly ordered to stand part of the Bill.

Schedule 4

Required information

Amendment made: 50, in schedule 4, page 164, line 1, leave out “registered or”.—(Kevin Hollinrake.)

This amendment would mean that, in relation to the registration of limited partnerships, the required information that must be provided about a partner that is a legal entity includes its principal office in all cases, rather than there being an option to provide its registered or principal office.

Schedule 4, as amended, agreed to.

Clauses 101 and 102 ordered to stand part of the Bill.

Clause 103

A limited partnership’s registered office

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Kevin Hollinrake]

Currently, limited partnerships must provide a proposed principal place of business only on registration. There is a requirement to notify the registrar if the principal place of business changes, but the penalty is just a fine of £1 per day, which does not effectively deter non-compliance. There are many cases where limited partnerships have not informed the registrar that their principal place of business has changed, meaning that she is unable to notify them of any changes or serve documents on them.

Clause 103 therefore introduces a requirement for general partners to maintain a registered office address that is in the original jurisdiction of registration in the United Kingdom and keep this up to date. This means where the principal place of business changes, including by moving abroad, the registrar still has a UK registered office address on record for the limited partnership. An important attraction of limited partnerships for legitimate businesses is the flexibility to move their principal place of business abroad. The clause therefore retains that flexibility while also ensuring the registrar has an appropriate address in the United Kingdom for contact and potential enforcement purposes.

The clause also sets certain conditions for the address to shore up the limited partnership’s connection to the UK and allow scrutiny of the limited partnership. For example, the address must be able to be used for communication purposes and it must be possible for the delivery of documents there to be recorded by an acknowledgement of delivery. The address must be either the limited partnership’s principal place of business, the usual residential or office address of a general partner, or the address of an authorised corporate service provider that is acting for the limited partnership.

The general partners of limited partnerships can change the registered office address, but they must inform the registrar of the change and confirm that the new registered office address is an appropriate address. This is a critical part of limited partnership reform. Failure to meet the address requirements will be an offence and may result in a substantial fine. The clause mirrors changes made by part 1 of the Bill to powers for the registrar to move registered office addresses, either on application or on the registrar’s own motion, where the address fails the “appropriate address” test.

Clause 104 extends the requirement to have a registered office address to limited partnerships that were registered before commencement of the Bill. It gives them a period of six months to comply with the new requirements. The end of the transition period will provide the registrar with a point at which to assess which limited partnerships have failed to comply and may therefore be inactive. The registrar can then treat the limited partnership as dissolved and update the register accordingly, which will assist enforcement and compliance activities.

[Seema Malhotra]

I thank the Minister for his remarks. I have some brief comments to make about clauses 103 and 104 stand part. The Minister has outlined what the clauses do. Clause 103 inserts a new section into the Limited Partnerships Act 1907 that establishes on general partners of limited partnerships a duty to ensure that the firm’s registered office is at all times an appropriate address at which to receive correspondence. The clause introduces a new power for the Secretary of State to make regulations giving the registrar the power to change a limited partnership’s registered office address. The appropriate address is supposed to be within the original jurisdiction.

While new regulations on the addresses of limited partnerships are needed, Elspeth Berry, a legal expert on limited partnerships, set out in her written evidence to the Committee concerns about this element of the Bill. She said:

“The requirements for an “appropriate” registered office address or email are an improvement but do not guarantee a genuine economic link to the UK…The “appropriate” address for the registered office, and email address, ensure that the address is used with consent, and someone will answer. However, the provisions still lend themselves to maildrops, with no real economic presence. None of the options intended to link an LP to the UK demonstrate a real economic link. Option 1 is apparently already complied with by most rogue LPs already, because they have no real place of business in the UK, so anywhere can be the “principal” place. Option 2, the usual residential address of a partner, can be redacted, so redaction must not apply if it is also chosen as the registered office. Option 3 is the address of a corporate general partner, with all the lack of transparency that entails. Option 4 is an ACSP address, which can be a maildrop.”

Will the Minister respond to those concerns? What assurances have the Government received that the provisions in the clause will genuinely guarantee the economic link to the UK that is intended? If not, will he look again at this part of the Bill? It would be a shame to get to the point of the Bill becoming an Act without it being able to do what is intended.

Clause 104 provides for a six-month transitional period during which the general partners of existing firms must submit a statement specifying the firm’s registered office, per the regulations set out in clause 103. Will it really take six months to specify an address? Is that not something that the Minister can look at? Other provisions of the Bill refer to 28 days, so why this six-month period? Perhaps six months emerged from a consultation as the most effective option, or it has simply been passported into the Bill because that is in alignment with some other regulation. Was it just cut and paste? If, however, not much thought has gone into this transition period, and if there are no downsides to doing so, we have an opportunity to amend,. Again, I will be grateful for the Minister’s response.

--- Later in debate ---

[Kevin Hollinrake]

The two clauses mirror the provisions in clauses 30 and 31, which we debated previously. They apply to limited partnerships the registered email requirements introduced for companies. Clause 105 requires limited partnerships to have a registered email address. The email address must be “appropriate”, which means that

“in the ordinary course of events, emails sent to it by the registrar would be expected to come to the attention of a person acting on behalf of the limited partnership.”

Clause 106 provides for a transition period of six months for existing limited partnerships to provide an appropriate email address to the registrar. If, at the end of six months, a limited partnership has failed to supply an appropriate email address, the registrar will have reasonable cause to believe that the limited partnership is dissolved. That will mean that the confirmation of dissolution process, which we will debate later, is open to the registrar, who may consequently move to deregister the limited partnership.

[Seema Malhotra]

It is a pleasure to speak to clauses 105 and 106. As the Minister said, clause 105 inserts new provisions in the Limited Partnerships Act 1907. The new measures provide that all general partners must maintain an appropriate email address. The Minister has probably outlined this before, but it is helpful to consider what we mean by “appropriate”. Email addresses can be anything—for example, [e-mail]—or they could be more robustly connected to an entity. Will the Minister say anything further about the definition of an appropriate email address? Is it just one that works and to which somebody responds in the end? A failure to comply would be an offence, and it is right that a general partner could face a fine.

Clause 106 gives the general partners of a limited partnership a six-month transition period in which to submit their email addresses to the registrar and comply with the provisions introduced by clause 105. I think the Minister knows exactly what my concerns are about how long it can take to register an email address with the registrar. The most honest businesses and those doing the best are probably more likely to comply more quickly. Again, I make the point that it feels as though six months is an extremely long time for limited partnerships to comply with these new measures.

[Kevin Hollinrake]

The hon. Lady asked about the definition of an appropriate email address. As I said, it is an appropriate email address if emails sent to it would be

“expected to come to the attention of a person acting on behalf”

of a limited partnership. I think that is pretty clear—it has to be an address that can receive emails and to which somebody can respond.

On the question asked by the right hon. Member for Barking, where the partner is not an individual but a firm or body corporate, information is also required on the individuals involved in the management of those firms. That includes making sure that there is a named contact.

Question put and agreed to.

Clause 105 accordingly ordered to stand part of the Bill.

Clause 106 ordered to stand part of the Bill.

Clause 107

Restrictions on general partners

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Kevin Hollinrake]

A named individual will be required for corporate partners—namely, a registered officer. I made that commitment earlier in the debate. I hope the right hon. Lady will be reassured on that point.

[Seema Malhotra]

On a point of clarification, the Minister just talked about limited partnerships, where a named individual is required. I know this is confusing. Would the situation be the same in relation to limited liability partnerships?

[Kevin Hollinrake]

Yes, as I understand it, but I will get clarification on that.

--- Later in debate ---

[Seema Malhotra]

It is a pleasure to speak to these measures. We have had quite an extensive debate, so I will make just some limited remarks on clause 107 and new clauses 57 and 58. Clause 107 is a very important clause, inserting a requirement on registration for confirmation that a limited partnership’s proposed general partners are not disqualified under the director’s disqualification regime. It also inserts, under proposed new section 8J, a new duty to take steps to remove a general partner who is disqualified. If general partners fail to do that, they will be liable to an offence.

Those requirements are extremely important. I think that some of the debate is just on where some measures perhaps do not go far enough. In summary, we support the arguments made by my right hon. Friend the Member for Barking on new clauses 57 and 58.

I want to read out another contribution from Professor Berry. I think it is important to keep these contributions on the record in our discussions—recognising as well some of what the Minister has said. As Professor Berry set out in her written evidence to the Committee about the issue of corporate directors, ascertaining an individual acting as a director through a body corporate is certainly more opaque than if the director is just a natural person. The situation is very confusing, but I will read out what the professor said. She stated that

“the concept is demonstrably open to abuse, a ban”

on corporate directors

“was originally proposed in the interests of accountability and transparency, and a legal entity is incapable itself of carrying out the functions or duties of a director…Not only are corporate partners/LLP members a significant feature of wrongdoing…the attempts in the Bill to trace an individual somewhere behind them are so complex as to be unworkable in practice…impossible in practice for CH to check, and an obvious route for obfuscation by wrongdoers. E.g the concept of a named officer or of a managing officer of a corporate partner (and presumably of an LLP member), compounded by the fact that a named officer’s residential address can be redacted and they need not supply a service address.”

As the Minister reflects on our discussions and how we move forward, he should bear in mind the concerns raised by Professor Berry. Whatever is brought forward by the Government—however they have reconsidered it, and tested what it will do and mean in practice—does it pass the Professor Berry test, and meet the challenges that have been put to us regarding the legislation and what could otherwise slip through the net?

[Kevin Hollinrake]

I think it passes that test; it certainly seems to pass the test of the new clause tabled by the right hon. Member for Barking. In her remarks, she said that we are just looking at one person behind that corporate entity: that is exactly what we are achieving through the regulations, making sure that there is an actual person—a registered officer, a managing officer—who sits behind any corporate entity. That person will be verified, with a UK address. The TCSPs within those organisations, to which the right hon. Lady referred, will also have their identify verified, and anyone who is found guilty of false filing could face significant fines and jail sentences. I think the Bill achieves what she has set out, but as I said in my earlier remarks, I am happy to consider what further restrictions on those corporate entities might be appropriate.

Question put and agreed to.

Clause 107 accordingly ordered to stand part of the Bill.

Clause 108

Officers of general partners

--- Later in debate ---

[Kevin Hollinrake]

Amendments 18 to 24 and 26 to 28 make changes to clauses 108 and 111 of the Bill to extend identity verification requirements to registered officers of corporate general partners of limited partnerships. General partners will be required to confirm whether their registered officer is identity-verified or exempt when registering a limited partnership, becoming a general partner, changing a general partner, or changing the registered officer. A failure to do so will result in those general partners committing an offence. Each proposed registered officer will also be required to confirm whether they are identity-verified or exempt. The corporate general partner will be required to maintain a registered officer, who will have to be verified at all times unless exempted from those requirements.

The other amendments in the group mirror the changes made by clauses 64 and 65, the principles of which we have already debated. They include allowing the Secretary of State to make regulations setting out exemptions to the ID verification requirement. Exemptions may be warranted: for example, where it would not be appropriate to require a registered officer who has already undergone sufficient checks as part of their appointment process to verify their identity. Similarly, the amendments also mirror the regulations requiring statements about identity verification to be accompanied by other statements or other information; making statements relating to ID verification unavailable for public inspection; and introducing an identity verification exemption on the grounds of national security, or to prevent serious crime.

[Seema Malhotra]

We will keep our comments on this first group of amendments very brief. Broadly, we support these amendments. I would like clarification on a couple of points about amendments 22 and 37 and new clause 9.

--- Later in debate ---

[Seema Malhotra]

We broadly support the amendments. Clause 114 inserts a proposed new section into the Limited Partnerships Act 1907 that would give the registrar the power to change the service address of a relevant individual. Amendments 25 and 29 confer a regulation-making power to enable the registrar to change the registered service address or principal office address of a general partner in a limited partnership. Although we do not oppose the amendments, I would be grateful to understand why they are regulation-making powers. If there is a basis for legislating for the regulations, why are they not in the Bill? Is it just a case of creating the provisions now? It would be helpful to understand that.

Amendment 35 would mean that

“any application or other document delivered to the registrar under section 8PA, 8G or 8V (changes of addresses by registrar) other than an order or direction of the court”

would be unavailable for public inspection. What information will that cover? In the light of the transparency arguments being made, would any relevant information not be publicly available? As the Government have tabled a lot of amendments, it would be helpful to slightly disentangle some of their implications.

[Kevin Hollinrake]

I am grateful to the hon. Lady for her points. On why the amendments confer regulation-making powers, as she knows, regulations give us flexibility to change things more easily. The provisions of the regulations are probably moveable feasts. It is sensible not to have them in the Bill, but to be able to learn and change areas as we go along.

Amendment 35 would prevent documents relating to changes of address by the registrar under new powers from being made available for public inspection. If I can, I will get back to the hon. Lady later in the debate about the particular circumstances she described.

Amendment 25 agreed to.

Amendment made: 26, in clause 108, page 91, line 6, at end insert —

“8PB  Registered officers: statements about exemption from identity verification

(1) The Secretary of State may by regulations make provision requiring a relevant statement delivered to the registrar to be accompanied by additional statements or additional information in connection with the subject-matter of the relevant statement.

(2) In this section “relevant statement” means a statement under any of the following provisions that confirms that a general partner’s registered officer falls within an exemption from identity verification—

(a) section 8A(1C)(b) or (1F)(c)(ii);

(b) section 8L(3)(a)(ii) or (b)(ii);

(c) section 8Q(4)(b) or (7)(c)(ii);

(d) section109(2)(a) or113(2)(a) of the Economic Crime and Corporate Transparency Act 2022.

(3) Regulations under this section are subject to the affirmative resolution procedure.”—(Kevin Hollinrake.)

This amendment allows the Secretary of State to make regulations requiring statements about identify verification to be accompanied by other statements or information. It mirrors the amendment to the Companies Act 2006 made by clause 64 of the Bill.

Question proposed, That the clause, as amended, stand part of the Bill.

--- Later in debate ---

[Kevin Hollinrake]

When registering a limited partnership, the names of the general partners are currently required. Not all general partners are individuals; they can instead be a business entity. That means there is often no named individual associated with that general partner or indeed the partnership. Clause 108 introduces a requirement for general partners that are legal entities to provide a registered officer for that entity. As I set out earlier, general partners must ensure that their registered officers are individuals and have had their identity verified. The clause also requires general partners that are legal entities with one or more corporate managing officers to have a named natural person contact for each of those corporate managing officers.

The measures will increase transparency of the partnership activity by further identifying who is involved in the chain of management. They also ensure that the registrar has a point of contact for the general partner for compliance and enforcement purposes. General partners who are legal entities are responsible for keeping that information up to date. If they fail to comply, they are liable for an offence and a substantial fine. That could also fall on any managing officers who are in default.

Clause 109 introduces a six-month transition period within which existing partnerships’ general partners that are legal entities must bring themselves into compliance by submitting a statement to the registrar setting out those details. That allows the register to be brought up to date while giving sufficient time for general partners to submit the required information without being immediately liable to an offence.

[Seema Malhotra]

Clause 108 amends the Limited Partnerships Act 1907 by inserting provisions, as outlined by the Minister, that set out that general partners that are legal entities must specify the name or names of a proposed registered officer. That will make it possible to contact an individual person in general partners that are legal entities.

We have had some broad debate on the matter, but we have no objection to clause 108, which is welcome. Obviously, questions about transparency go further, but we welcome and support the clause.

Clause 109 relates to the transitional provisions. We understand the need for that, but the Minister will know my views on the six months.

Clause 108, as amended, ordered to stand part of the Bill.

Clause 109 ordered to stand part of the Bill.

Clause 110

Removal of option to authenticate application by signature

Question proposed, That the clause stand part of the Bill.

[Kevin Hollinrake]

Clause 110 removes the option to authenticate limited partnerships registration applications, as well as applications for designation as a private fund limited partnership, by signature. A signature, which is something readily forged, is no longer a necessary requirement as the Bill introduces other means of electronic authentication to ensure the correct delivery of documents to the registrar by authorised persons. Those means will be robust, secure and effective. Furthermore, other similar provisions that require general partners to deliver documents to the registrar, such as confirmation statements, do not require a signature. The clause therefore creates alignment across the Limited Partnerships Act.

[Seema Malhotra]

This clause amends the Limited Partnerships Act by removing the need for a signature when applying for registration of a limited partnership, as the Minister outlined along with the reasons for that. It aligns with new provisions set out in the Bill that impose obligations on general partners to deliver statements and other documents that do not require a signature. I will welcome assurances from the Minister that the Government have carried out some analysis of whether the removal of the option to authenticate an application by signature will have any impact on the effectiveness of the registrar in detecting or preventing economic crime. I will be grateful for that, for the background and for the possible impacts of the measure.

[Kevin Hollinrake]

As I said, a wet signature is not the key to preventing inappropriate filing documents or inappropriate use of any kind of entity, be it a limited partnership or a company. We are in the modern age now, when many of us approve documents through electronic means. The key to ensuring that we have a register that has integrity and is correct is in the other measures, as we have set out many times.

[Seema Malhotra]

I understand what the Minister is saying about a wet signature depending on the circumstance, but a lot of documents can be signed electronically but still with a signature. I want to clarify, given the total removal of a wet signature, whether something can be signed electronically and in what circumstances. I know of a situation in which some signatures were put on documentation fraudulently, and that is now being uncovered as evidence of a fraud that took place.

[Kevin Hollinrake]

The clause does remove the option of a wet signature. It means that electronic means are fine, which already applies to companies. The key to uncovering an undoing, with a wet signature or not, is the other measures in the Bill: sharing of information, sanctions for false filing of documents, criminal sanctions and all those other measures that we discussed by which we can identify wrongdoing and take action against those who are culpable.

Question put and agreed to.

Clause 110 accordingly ordered to stand part of the Bill.

Clause 111

Notification of information about partners

Amendments made: 27, in clause 111, page 92, line 34, at end insert—

“, and

(b) confirming that the proposed registered officer meets the requirement in section 8K(1)(c)(i) or confirming that the proposed registered officer meets the requirement in section 8K(1)(c)(ii).”

This amendment would require a new general partner which is a legal entity to confirm whether its proposed registered officer is identify verified or exempt.

Amendment 28, in clause 111, page 93, line 17, at end insert—

“, and

(ii) confirming that the individual meets the requirement in section 8K(1)(c)(i) or confirming that the individual meets the requirement in section 8K(1)(c)(ii).”—(Kevin Hollinrake.)

This amendment would require the proposed registered officer for a new general partner which is a legal entity to confirm whether they are identify verified or exempt.

[Seema Malhotra]

I beg to move amendment 162, in clause 111, page 95, leave out lines 22 to 24.

This amendment would remove the provision for it to be a defence for a person charged with an offence under this section to prove that they reasonably believed that notice had been given under proposed section 8Q of the Limited Partnerships Act 1907.

It is a pleasure to move the amendment, which I tabled with the hon. Member for Aberavon. The clause inserts new sections into the Limited Partnerships Act requiring general partners to notify the registrar of changes to a limited partnership’s partners and information about partners, and changes occurring between an application and the limited partnership’s registration. It also inserts offences for failing to notify information about partners. If the limited partnership does not notify Companies House of notifiable changes within 14 days of a change occurring, the limited partnership will have committed an offence. We have concerns about certain provisions in the clause, which is why we tabled the amendment.

As Professor Berry, a legal professor, set out in her written evidence submitted to the Committee:

“The Bill should not provide a defence if a general partner reasonably believed notice of their appointments had been given to the Registrar… General partners are personally liable for the acts of one another…and are jointly responsible for registering/filing notice of appointment. If they themselves fail to register/file, they should be required to wait to see a change on register. Reasonable belief would provide a loophole.”

That is a significant point. If the Minister is unable to support this amendment or to commit to looking at this more closely and coming back to the Committee, I ask him to identify whether and where Professor Berry is wrong in her written evidence or in the concerns she raised. What assurances has he received, what questions has he asked of officials, and what advice has he taken that this defence does not merely create an unnecessary loophole through which regulations can continue to be abused?

In the interests of ensuring that the legislation is as robust as possible, I urge the Minister to accept this amendment. I look forward to his response.

[Kevin Hollinrake]

On the hon. Lady’s point relating to amendment 35 regarding an address that might be removed from public view, a person could apply to the registrar because their address has been fraudulently registered as that of a general partner. Amendment 35 would mean that the person’s application was not visible to the public, therefore protecting the applicant. That is the sort of circumstance in which the registrar would use that power.

Clause 111 makes it an offence for a person to act as a general partner of a limited partnership if the registrar has not been notified that the person has become a general partner with 14 days of their appointment. A general partner who manages the firm without that notification having been given on time but in the reasonable belief that notification was given has a defence to prosecution. Amendment 162 would remove that defence, making the person strictly liable despite their reasonably held belief. General partners who deliberately fail to comply with the requirement to notify the registrar of their appointment should of course be punished for that offence. In the example that the hon. Lady raises, it may well be that if other general partners were guilty of not properly submitting information, they may be guilty of that offence too. The registrar would make a decision accordingly.

Notwithstanding that the Bill creates these offences, in our view the general partner should not be liable for the offence if they have acted on the basis of an objectively reasonable belief. Examples of circumstances in which a general partner might reasonably, but mistakenly, believe that notification of their appointment had been given might include where a general partner has asked its authorised corporate service provider to submit the application, which has been delayed in circumstances beyond the general partner’s control and without their knowledge, or where there has been a technical hitch of which they were unaware—for example, if the information was being supplied electronically. I therefore ask that the amendment be withdrawn.

[Seema Malhotra]

I thank the Minister for his response. There might be a question about whether confirmation is received or one can go online and check. The Minister’s response does not seem as robust as I was expecting or hoping in relation to this as a potential loophole.

[Kevin Hollinrake]

Sometimes in life, things happen and it may well be that they are not drawn to the attention of the general partner. The hon. Lady may think there should be a requirement on the general partner to check that the record has been properly made. It is a reasonableness defence. We expect the registrar to use her judgment in the exercise of any decision about whether an offence has been committed. We may need to agree to disagree on this particular point.

[Seema Malhotra]

I am not going to press the amendment to a vote, but I do think this is something we should come back to. If the risk is a serious one, we need to take it seriously. I will look to how we might progress this issue through the future stages of the Bill. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: 29, in clause 111, page 95, line 45, at end insert—

“8V Regulations about change of general partner’s addresses by registrar

(1) The Secretary of State may by regulations make provision authorising or requiring the registrar to—

(a) change a registered service address of a general partner in a limited partnership if satisfied that the address does not meet the requirements of section 1141(1) and (2) of the Companies Act 2006;

(b) change the address registered as the principal office of a general partner in a limited partnership if satisfied that the address is not in fact their principal office.

(2) In this section—

‘address registered as the principal office’, in relation to a general partner, means the address for the time being shown in the register as the address of the general partner’s current principal office;

‘registered service address’, in relation to a general partner, means the address for the time being shown in the register as the general partner’s current service address.

(3) The regulations may authorise or require the address to be changed on the registrar’s own motion or on an application by another person.

(4) The regulations—

(a) may include provision corresponding or similar to any provision that may be included in regulations under section 1097B of the Companies Act 2006;

(b) must include—

(i) provision about appeals corresponding to the provision that must be included in regulations under section 1097B by virtue of subsections (7) and (8) of that section;

(ii) provision corresponding to subsection (9) of that section.

(5) Regulations under this section are subject to the affirmative resolution procedure.”—(Kevin Hollinrake.)

This amendment confers a regulation-making power to enable the registrar to change the registered service address or principal office address of a general partner in a limited partnership.

Question proposed, That the clause, as amended, stand part of the Bill.

--- Later in debate ---

[Seema Malhotra]

I may not have indicated clearly that I wished to speak earlier, Mr Robertson, and that may be why I was not called to speak in the clause stand part debate for clauses 111 to 115. Nevertheless, my speeches were not going to be long ones, so we will move forward.

We are generally supportive of clauses 116 and 117. Clause 116 inserts new sections into the Limited Partnerships Act 1907 to assist in keeping the register up to date and places a requirement on limited partnerships to deliver statements to the registrar specifying what changes have been made to the partnerships that must be delivered to the registrar within 14 days of every review period, which is every year from the date the limited partnership was registered. We welcome the clause as a necessary provision to maintain the accuracy of the register in relation to limited partners.

Amendment 32 means that new section 10E of the Limited Partnerships Act, on confirmation statements, will apply to Scottish limited partnerships. As a consequence, amendment 33 leaves out the power in clause 117 to amend existing provision about confirmation statements for Scottish limited partnerships. We support clauses 116 and 117 and the Government amendments.

Amendment 32 agreed to.

Clause 116, as amended, ordered to stand part of the Bill.

Clause 117

Confirmation statements: Scottish partnerships

Amendment made: 33, in clause 117, page 103, line 2, leave out from beginning to “(review” in line 17 and insert—

“In regulation 37 of the Scottish Partnerships (Register of People with Significant Control) Regulations 2017 (S.I. 2017/694)”.—(Kevin Hollinrake).

See Member’s explanatory statement for Amendment 32.

Clause 117, as amended, ordered to stand part of the Bill.

Clause 118

Power for HMRC to obtain accounts

Question proposed, That the clause stand part of the Bill.

[Kevin Hollinrake]

Limited partnerships are tax transparent, meaning that the individuals that are part of the limited partnership pay tax, rather than the limited partnership itself. In many cases, the partners of a limited partnership will pay tax in the UK, either because they are individuals who pay income tax or because they are corporate entities that pay corporation tax. Where the partners are UK corporate entities, they will also provide accounting information to the registrar. However, there are some limited partnerships whose partners do not pay tax in the UK or which are not legally required to provide accounting information to the UK Government.

The clause will give the Secretary of State the power to make regulations that require the general partners of UK-registered limited partnerships to provide accounting information to HMRC, closing the current gap. General partners who do not comply with that requirement will commit an offence and be liable to a fine or imprisonment.

[Dame Margaret Hodge]

That sounds like a good idea, but HMRC is absolutely hopeless at using such powers. Time and again with these limited partnerships where scandals have emerged, it appears companies have told HMRC that they are dormant. They have not submitted accounts, and HMRC never checks up on them. What steps will the Minister take to make sure that those useful powers are used?

[Seema Malhotra]

I thank my right hon. Friend for her remarks. The clause is extremely important for HMRC, providing clarity around accounts and accounting information and what tax should be due. It gives HMRC powers to request information and inserts a new section into the Limited Partnerships Act 1907 to create a new power for the Secretary of State to make regulations that require general partners to prepare accounts and, on request, make accounting information available to HMRC.

We very much support the measure. We want enhanced powers for HMRC to help with the detection and prevention of economic crime, and indeed the paying of rightful tax through better accounting information and submission of tax returns. I support the question that my right hon. Friend the Member for Barking asked about how we can ensure that HMRC uses the powers in a useful way.

[Kevin Hollinrake]

The right hon. Member for Barking went to a very tough school. She is not an easy person to please. Quite rightly, she is very demanding of more action in various areas; I support that, as she knows. HMRC is not directly answerable to BEIS. It reports to the Treasury, of course.

Economic Crime and Corporate Transparency Bill (Eleventh sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Committee stage
Tuesday 15th November 2022 Public Bill Committees

[Kevin Hollinrake]

As I have just set out to the Committee, clause 89, as amended, will enable Companies House fees to be used to fund enforcement and prosecution action against companies and other entities. As we increase the powers of the registrar and expand the role that Companies House and the Insolvency Service play in tackling economic crime, we need to make sure that they are appropriately resourced to carry out that activity. The clause is therefore vital in ensuring that Companies House can do that.

Question put and agreed to.

Clause 89, as amended, accordingly ordered to stand part of the Bill.

Clause 90

Disclosure of information

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

I beg to move amendment 105, in clause 90, page 69, line 24, at end insert

“and,

(c) to an insolvency practitioner appointed over a corporate who has requested information not publicly available on the register about to a corporate over which they have been appointed, or any other corporates linked to that of the entity to which they have been appointed, from the Registrar.”

This amendment would enable the Registrar to share non-public information on the register upon request by insolvency practitioners, in relation to the corporate over which they have been appointed, or any other corporates linked to that of the entity to which they have been appointed.

It is a pleasure to serve under your chairship, Mr Robertson. Clause 90 amends the Companies Act 2006, inserting proposed new sections that allow any person and the registrar to disclose information to each other, and help the registrar to perform its functions. It is an important clause that effectively widens disclosure provisions, allowing the registrar to disclose any information held, and to do so proactively where that disclosure enables the exercise of the registrar’s functions. I am concerned that it perhaps does not go far enough. We heard in evidence about the importance of clarity around information sharing, what is and is not permitted, and what can be disclosed.

It is in this light that I speak to amendment 105, in my name and that of my hon. Friend the Member for Aberavon, which would enable the registrar to share non-public information on the register on request by insolvency practitioners in relation to a corporate over which they have been appointed, or any other corporates linked to the entity to which they have been appointed. In short, the amendment would ensure that, where the registrar holds non-public information that could aid insolvency practitioners in carrying out their duties in investigating a corporate that they have been appointed to investigate, the registrar can, on request, share that information with the insolvency practitioners.

As R3, the insolvency practitioners group, laid out in its evidence to the Committee, insolvency practitioners, when appointed over corporate entities, are required by law

“to investigate a company’s affairs and director conduct…in order to discharge their duties.”

The group recommends

“that insolvency practitioners be able to request access to Companies House’s non-public information pertaining to any other corporates linked to that of the entity to which they have been appointed.”

This is a simple but quite important amendment, which would ensure that, where economic crime could have taken place in a dissolved company, insolvency practitioners can proactively request all the non-public information held by the registrar on the register that would help in either preventing or detecting the possible economic crime. It is not about a fishing expedition, or anything like that: it is about giving, in specific circumstances, insolvency practitioners the further tools that they have said are important to help them to do their incredibly important job.

I ask the Minister to give the amendment serious consideration. We are not necessarily planning to press it to a vote, because this is an area where he will probably see the merits of the argument. He may want to come back to it later, perhaps with a Government proposal, or we may pick it up again. It seems to plug an important gap in a part of the legislation that concerns the disclosure of information. The legislation is proactive, from the point of view of the registrar being able to share information; if, however, the registrar does not know where it might be needed, insolvency practitioners, who have duties under the law, should have the opportunity to request information that can provide evidence for economic crime or give insight into a company, so that potential economic crimes do not go undetected and unpunished.

[Kevin Hollinrake]

I thank the hon. Members for the amendment.. The registrar is already permitted to share information with insolvency practitioners for purposes connected with her own functions—clearly now expanded, given this legislation. However, we acknowledge that there may be other specific circumstances in which she wishes to share information, so I sympathise with the tabling of the amendment.

--- Later in debate ---

[The Chair]

With this it will be convenient to consider the following:

That schedule 3 be the Third schedule to the Bill.

Clause 91 to 93 stand part.

New clause 36—Disclosure of PSC information to local authorities—

‘(1) The Companies Act 2006 is amended as follows.

(2) After section 790ZH (inserted by section 92 of this Act) insert—

790Z1 Disclosure of PSC information to local authorities

‘(1) The Secretary of State may by regulations make provision to facilitate the release of information held by companies on people of significant control to any relevant local authority which may request such information for the purposes of—

(a) tackling economic crime; and

(b) recovering a relevant unpaid debt;

(2) For the purposes of subsection (4A)(a) above, “tackling economic crime” includes any reasonable steps which the local authority may see fit to take as part of an investigation into a company which the authority has reasonable grounds to suspect may be involved in the commission of a relevant offence.

(4) For the purposes of subsection (4B) above, a “relevant offence” includes an offence under—

(a) the Proceeds of Crime Act 2002; and

(b) the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, as amended.

(5) For the purposes of subsection (4A)(b) above, a “relevant unpaid debt” includes unpaid business rates subject to recovery by the local authority under the Local Government Finance Act 1988.’

This new clause makes specific provision for relevant information to be disclosed, upon request, to a relevant local authority in connection with any effort by such an authority to investigate suspected economic crime, or to collect outstanding debts from companies which have not paid business rates.

[Kevin Hollinrake]

Currently, the registrar is restricted in what information she can share, which can be done only on a reactive basis. Clause 90 enhances the data sharing powers of the registrar so that she can proactively share information. Sharing will be allowed for the purposes of the registrar’s own functions or where she is sharing with a public authority for the purposes of their function.

Schedule 3 makes consequential amendments to the Companies Act 2006 and the Economic Crime (Transparency and Enforcement) Act 2002 resulting from clause 90. Clauses 91 to 93 make further amendments to the Companies Act to improve the registrar’s information sharing capabilities, ensure that the necessary safeguards are in place and improve the integrity of the register. Clause 91 closes a gap by making it an offence for a company to use or disclose protected information in contravention of section 241 of the Companies Act.

Clause 92 confers a power on the registrar on application to make an order requiring a company not to use or disclose relevant people with significant control particulars. Currently, the registrar can use directors’ residential addresses only for the purpose of communicating with the director. Clause 93 will remove the restriction on the use of protected information, specifically directors’ residential addresses. That means that the registrar will be able to use residential address information for alternative purposes such as cross-checking the accuracy of information on the register. That will help to improve the integrity of the register.

I thank hon. Members for new clause 36. Its effect would be to give the Secretary of State a power to make regulations to facilitate the release of people of significant control information from companies to local authorities for the purposes of tackling economic crime and recovering a relevant unpaid debt. We do not believe that the amendment is necessary. Clause 92 already provides a power for the Secretary of State to make regulations that specify the circumstances in which a company may disclose relevant PSC particulars.

Furthermore, the Government consider that it would be more appropriate for the registrar to have the power to disclose such information to local authorities, rather than the company, given the closeness of the relationship between a company and its people of significant control, and the risk of tipping off. A company may have only one director, person of significant control and shareholder. Such person could, in effect, be disclosing self-incriminating information about themselves.

Committee members can rest assured that under the new powers given to the registrar in clause 90, they can disclose information to a public authority for purposes connected with that public authority’s functions. That includes local authorities. The registrar may also disclose information to any persons for purposes connected with its own functions, such as for the purposes of crime prevention and detection. Clause 90 already provides a route for local authorities to access PSC information for the purposes of tackling crime and recovering relevant unpaid debt. I hope that provides reassurance to hon. Members.

[Seema Malhotra]

It is a pleasure to speak in this stand part debate. I will defer to my hon. Friend the Member for Aberavon to speak to new clause 36.

I have referenced some points on clause 90 and its importance. I will make a couple of other remarks on that more generally. It widens disclosure provisions, and the registrar will proactively disclose information held where that disclosure enables the exercise of her functions. I have a question for the Minister on subsections (5) and (6), where offences and defences are set out. That is obviously important, but I have a concern about the disclosure or data sharing provisions.

The fear of being on the wrong side of the law can sometimes deter the use of those powers. It is a question about whether there has been any discussion with the registrar, for example, about the interpretation of the wording; being as clear as possible about what is permissible within the law and where the offences might be, and the possible defence for a person who could be charged with an offence under subsection (5). So often we say, “There are powers to do X” or “The police have a power”, but there are concerns about the use of that power and how someone could be accused of not using that power within the law, so we might end up having a challenge. Someone could go through a process to clear their name or to say that their actions were within the scope of the law. We just need to be clear to reduce the challenges that can come later.

Perhaps the Minister will respond today or clarify in discussions with the registrar on this very important clause that it is as clearly worded as it could be, with less room to be challenged where that power is used as intended by Parliament.

Schedule 3 makes consequential amendments to clause 90 and amends the Companies Act to enable the registrar to disclose usual residential addresses. It states that where additional trust information is protected from disclosure to the public, regulations made under section 25 may not require the registrar to refrain from disclosing that information under proposed new section 1110E. Will the Minister explain that aspect a little further? Broadly, we welcome the schedule as a necessary provision in expanding the information sharing aspect.

Clause 91 highlights an offence that can be committed by a company and every officer who is in default. Clause 92 confers a power on the Secretary of State, on application, to make regulations requiring the registrar to make an order requiring a company not to use or disclose relevant information regarding persons of significant control. The Minister has spoken to this point briefly, but could he expand a little more on the introduction of this clause, and can he provide any examples of instances in which—as per clause 92—the Secretary of State might require a company not to disclose PSC information? We would welcome that clarity.

I have no further comments on clause 93, which restricts the registrar from using directors’ residential addresses for anything other than communicating with the director. I would welcome the Minister’s clarification of the points I have raised.

--- Later in debate ---

[Kevin Hollinrake]

This is a very simple measure. The Government are seeking to tackle the misuse of limited partnerships while modernising the law governing them. The clause clarifies the meaning of the term “limited partnership”. The revised wording removes ambiguity and sets out that it is possible to be a limited partnership only by virtue of being registered as a limited partnership under the Limited Partnerships Act 1907. Furthermore, the Companies Act 2006 provision relating to the index of company names is amended to refer to limited partnerships registered under the Limited Partnerships Act. That allows the registrar to remove firms from the index of company names if they are dissolved, cease to be registered under the Limited Partnerships Act, or both.

[Seema Malhotra]

The clause inserts the definition of limited partnership into the Bill and makes clear that the registrar is obliged to maintain only those limited partnerships registered under the 1907 Act within the registrar’s index of names.

Limited partnerships are a specific type of business structure in UK law that confer limited liability on some partners and therefore have to be registered with Companies House in line with the Limited Partnerships Act 1907 and the Partnership Act 1890, but numerous reports and consultations by the Government have identified the risk of economic crime through limited partnerships and Scottish limited partnerships. As I know the Minister will be well aware, the consultation in 2018 also emphasised the apparent attractiveness of such partnerships as vehicles for organised crime, and I am sure we will come back to that when we consider amendments to this part of the Bill. The consultation noted specifically that the National Crime Agency reported a high volume of suspected criminal activity involving Scottish limited partnerships. It also referred to claims made in an investigation that 113 SLPs were involved in a much larger money laundering scheme that transferred more than $20 billion out of Russia between 2010 and 2014.

Limited partnerships and Scottish limited partnerships have been identified by the Government for some time as high-risk corporate structures when it comes to facilitating and enabling economic crime. It is positive that we have reached this point, but it is disappointing how long it has taken. The clause is important, as it ensures that the registrar is obliged to maintain those limited partnerships that are registered as such, thereby ensuring that the registrar is not under any obligation to maintain names of defunct limited partnerships.

Draft Subsidy Control (Subsidies and Schemes of Interest or Particular Interest) Regulations 2022

Debate between Seema Malhotra and Kevin Hollinrake

Monday 14th November 2022 General Committees

[Kevin Hollinrake]

I take that point and commit to writing to the right hon. Gentleman about that.

On the shadow Minister’s point about the non-binding nature of judgments from the SAU, they are obviously subject to a potential legal challenge. If a public authority declined to accept the recommendations of the SAU, which seems quite unlikely, it would open itself up to legal challenge, either by a competitor or organisation in receipt of subsidies, another country or the EU, for example. It seems an unlikely state of affairs, but we believe the public authority should be able to use its judgment, obviously while heeding the advice of the SAU.

In terms of scrutiny, any referral to the SAU is published on its database, showing what referrals have been made, and any recommendations by the SAU are published. That provides for scrutiny over the decisions made by either the SAU or the public authority.

[Seema Malhotra]

The Minister is right that referrals made to the SAU and its reports will be published, but the question was whether a subsequent disagreement would be published anywhere. If a public authority chooses not to go along with the recommendations, is there any transparency over that?

[Kevin Hollinrake]

There is certainly transparency in terms of any referral, which would be on the public record. The response from the SAU would also be public. I do not understand the hon. Lady’s further point. It is a decision for public authorities, at that point. If they choose to ignore the advice, on their head be it.

[Seema Malhotra]

I thank the Minister for his generosity in giving way again. For example, as part of the process, a public authority that disagreed with the recommendations in a report within 30 days from the SAU could need to send it a letter to say, “We have taken your report, but have chosen to disagree with the recommendations.” That would then be on the public record.

[Kevin Hollinrake]

That is a fair point. I will take it away and write to the hon. Lady.

I mentioned sensitive sectors in my previous points. On what was and was not in the Bill—the hon. Lady raised that earlier—the reason we did it this way around is to allow for feedback, and not just from parliamentarians debating the sensitive sectors, for example. We think that it is important to get feedback from the sectors themselves—the stakeholders. We published our position in January, had a consultation from March to May, then introduced draft regulations that we believe deal with the issues raised.

It is true that the devolved Administrations said that they would not contribute directly to the consultation, but they have engaged with us to a great degree, including through correspondence and in a number of meetings. Their positions were all points of clarification. No objections were raised to the measures. I do not know whether the resources that the hon. Lady referred to have been allocated, but will happily write to her on that. The way we are dealing with tax subsidies mirrors how the EU dealt with them. We felt that that was appropriate, rather than doing something different. There are specific reasons for that, particularly with regard to how the Treasury operates.

I thank hon. Members on both sides of the Committee for their valuable contributions to this excellent and informative debate. The draft regulations are crucial to the effective functioning of a new UK subsidy control regime. They define the small proportion of subsidies and schemes that will have greater potential to lead to undue distortion and negative effects, and should be subjected to additional scrutiny by the SAU. As such, I commend the draft regulations to the Committee.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Subsidy Control (Subsidies and Schemes of Interest or Particular Interest) Regulations 2022.

Economic Crime and Corporate Transparency Bill (Tenth sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Committee stage
Tuesday 8th November 2022 Public Bill Committees

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)]

It is a pleasure to speak with you in the Chair, Ms Elliott. Clause 80 gives the registrar of companies a new power to require information. The registrar’s existing powers are insufficient to tackle the large volume of inaccurate or suspicious information on the register. She has no powers to compel filers to furnish her with information to assist her to investigate filings that she is concerned are inaccurate or fraudulent, and that she may wish to remove. That means that suspect information is often accepted on to the companies register, damaging its accuracy, reliability and usefulness.

The insertion of proposed new section 1092A into the Companies Act 2006 will give the registrar a power to require that a person provide her with information for certain purposes. Those are: determining whether someone has complied with a delivery obligation or requirement; determining whether a document delivered to her satisfies the proper delivery requirements, including whether it contains accurate information; or determining whether or how to exercise her powers to remove improperly delivered information from the register or to resolve inconsistencies on it.

It is suspected that a significant amount of fraudulent information is already on the register. The power will therefore apply to existing register information as well as to all new information submitted to the registrar. The clause will also make it an offence for someone to fail to respond to the registrar’s request for information without a reasonable excuse. The maximum penalty for that offence will be two years’ imprisonment. It is imperative that we equip the registrar with all the tools necessary to challenge dubious information and ensure the integrity of the register. The power in the clause is the cornerstone of that ambition.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

It is a pleasure to serve under your chairship, Ms Elliott. I thank the Minister for his remarks. We support the clause, which provides for a power to require additional information. He is right that the proposed new section is the cornerstone of providing the registrar with the powers to maintain the integrity of the register, so we support the clause.

--- Later in debate ---

[Kevin Hollinrake]

Clause 81 enables the registrar to require a company to resolve an inconsistency where it appears that information contained in a document delivered to the registrar in relation to a company is inconsistent with any other records she holds, including records about other business entities or organisations such as limited liability partnerships and limited partnerships. Currently, the inconsistency resolution power is available only if there is an inconsistency between the delivered information and the information on the companies register.

Where the registrar suspects that information submitted to her is inaccurate, but that suspicion is based only on information that she holds but that is not published on the register, for instance information gleaned from law enforcement agencies—that is the point the right hon. Member for Birmingham, Hodge Hill just mentioned—she will be able to issue a notice to require the company to correct the mistake. The clause will strengthen the registrar’s ability to ensure the register is accurate and reliable.

Government amendment 13 and new clause 7 are concerned with the identification and rectification of discrepancies between information that businesses, such as banks, lawyers or accountants, obtain in the course of their business relationships with customers, and information that the registrar curates. In our White Paper in February, the Government committed to expand current discrepancy reporting requirements to include discrepancies in director information and in registered office addresses. That would build on the discrepancy reporting that already occurs under the money laundering regulations in relation to beneficial ownership. It is a key part of our vision for Companies House reform that there are active and effective feedback loops from the private sector to help the registrar maintain the accuracy of the data she holds. This will benefit business and help protect personal information.

The power inserted by new clause 7 introduces a regulation-making power into the Companies Act 2006. Regulations made under that power can set out who must check for discrepancies and what information they check, beyond just discrepancies in relation to beneficial ownership information. The regulations can also be used to create offences for failure by those obliged to check for discrepancies to comply with those obligations.

Government amendment 13 omits section 1095A from the Companies Act. This power to resolve discrepancies in certain circumstances is no longer needed because of the wider power introduced by clause 82, which enhances and rationalises the registrar’s powers to remove material from the register. Proposed new section 1094 of the Companies Act, as substituted by clause 82, gives the registrar the power to remove material on the register where it has not met proper delivery requirements or is unnecessary. The registrar could exercise that power on her own motion, or on application.

Clause 82 will strengthen the registrar’s powers, enabling her to proactively clean up the register. The power is safeguarded by the requirement that the registrar may exercise it only if satisfied that the interest of the company or applicant in removing the material is not outweighed by any interest of other persons in the material continuing to appear on the register. That matches the test that the court has to apply, which is the focus of clause 83.

Clause 83 expands the range of people whose interests a court must take into account when considering whether to make an order to remove material that has legal consequences from the register. Currently, a court can only make an order to remove material if satisfied that the material is damaging to a company and removing the material outweighs the interests of any other person in the material in retaining it.

That test overlooks the fact that a person other than the company might have their interests affected by a filing—for example, a person whose name has been fraudulently registered as a director of a company with which the person in fact has no connection. Clause 83 amends section 1096(3) of the Companies Act so that the court must now also take into account the interests of an applicant, who may be different to the company, as well as the company.

[Seema Malhotra]

I have a few questions on the clauses. Clause 81, on the registrar’s notice to resolve inconsistencies, would expand the powers of the registrar to identify inconsistencies by considering all records—it goes wider than just the information on the register. Any notice given would state the nature of the inconsistency and give the company 14 days to resolve it. Could I ask the Minister to clarify what will happen if a company exceeds this 14-day period?

On new clause 7 on the power to require businesses to report discrepancies, I want to understand how that might be operationalised. Would the registrar seek information from businesses, or would businesses be expected to do something without being requested to? It was not quite clear how the measure would be used. On businesses that might come under scope, the Minister mentioned financial services, but the proposed new section under new clause 7 refers to regulations imposing requirements on

“a person who is carrying on business in the United Kingdom”.

Any company or business may be required to report discrepancies. It would be helpful to understand that point, as there is a fair bit of detail in new clause 7. I would appreciate the Minister’s comments on that.

Clause 82 creates a new power for the registrar to remove information that was submitted to it and accepted despite not meeting proper delivery requirements. There may well have been reasons for the information being accepted. As the Minister mentioned in a previous debate, for some reason there may have been a minor issue that was considered not significant—I think he may have used the word “material”—and the information did not meet proper delivery requirements. Could I clarify whether the Minister would expect there to be any notification to directors or officers about material being removed? Would any note be made on the register as a record of material having been removed? It would simply be a matter of putting on a company’s record that material was there and accepted even though it did not meet properly delivery requirements and was subsequently removed. It is not about there being a risk of a cover-up, with material being removed, but it is helpful to have an audit trail. Perhaps the Minister can outline how he envisages that power being used.

Clause 83 amends the Companies Act 2006 so that, as regards material being removed, the court may take into consideration whether the interests of an applicant outweigh the interest of other parties. Can I clarify how this would be used? Would it be used when a third party did not believe that it was appropriate to remove the material? Who else might the applicant be? I am trying to understand when it might be used and a case might come to court to weigh the pros and cons in terms of parties’ interests in having that material removed. It would be helpful to have some clarity on that.

--- Later in debate ---

[Kevin Hollinrake]

I will first take the latter point, which covers some of the shadow Minister’s points as well. There will be more detail in secondary legislation about how new clause 7 is expected to operate, but it is quite reasonable to think that third party business entities will understand how this should work. Within that, we would expect there always to be a reasonableness defence if an error was made or something was done in good faith. We would not expect a penalty to be applied in that case, but there will be more detail on that in secondary legislation.

The shadow Minister asked what would happen if an organisation failed to comply with a notice within the 14-day period that it is given to respond. There is an unlimited fine, potentially, for failure to comply. Other situations might even lead to somebody facing a prison sentence of up to two years, in certain instances. A lot would depend on the circumstances involved. That also relates to what the hon. Member for Glasgow Central asked.

The shadow Minister asked for more detail about how the relationship between the registrar and third party companies would work. This does not just refer to the financial sector; it also refers to the legal sector. It would pertain to any organisation that is supervised by money laundering regulations. I think that is the extent to which companies would be bound by the rules on checking discrepancies.

The shadow Minister asked whether there would be a flag if a record was removed. Clearly, there will be a red flag for the registrar themselves, depending on the reason why that record has been removed, and that may be something we cover in further detail in secondary legislation. My immediate reaction is that we would not want red flags to be set against a company that had made an honest mistake, because that might unreasonably set some hares running. I am a little concerned that that might happen if we did as the shadow Minister described.

[Seema Malhotra]

For clarity, perhaps I can distinguish the difference between a red flag and a record of what has happened. We keep a record of what happens, but a red flag is a cause of concern.

[Kevin Hollinrake]

Yes. The registrar will have the ability to annotate the register as is appropriate in the regulations we intend to make using the power found in section 1080.

Question put and agreed to.

Clause 81 accordingly ordered to stand part of the Bill.

Clause 82

Administrative removal of material from the register

Amendment made: 13, in clause 82, page 65, line 21, at end insert—

“(6) Omit section 1095A (rectification of register to resolve a discrepancy).”.—(Kevin Hollinrake.)

This repeals section 1095A of the Companies Act 2006 as in practice the only circumstances in which material would be removed from the register under that section are caught by new section 1094 (inserted by clause 82 of the Bill).

Clause 82, as amended, ordered to stand part of the Bill.

Clause 83 ordered to stand part of the Bill.

Clause 84

Inspection of the register: general

--- Later in debate ---

[Kevin Hollinrake]

Members of the Committee might remember that when we discussed the provisions concerning company name change directions last Tuesday, there was much debate about the 28-day compliance period, a topic on which I have since written to the hon. Member for Feltham and Heston. It is fair to say that we might not have exactly achieved a meeting of minds on that occasion, but we will try again today.

I am grateful to the hon. Members for Feltham and Heston and for Aberavon for withdrawing their amendments in the hope that we could get to a place we agreed on. I think we all agree that a company should have a reasonable amount of time to change its name and that we would prefer compliance rather than an imposed solution involving the registrar defaulting the company’s name to its rather anonymous company registration number.

Compliance will, quite legitimately, take some time and effort on behalf of the company. Notice of a proposed change will have to be given to shareholders, and those representing not less than 75% of the total voting rights of eligible shares will have to agree to the change. That is why it is the Government’s position that a company should have a minimum period of 28 days to change its name following a direction, with the possibility to ask the Secretary of State to extend that period where necessary.

Hon. Members are right, however, to be concerned about the harm that can flow from offending names. Where the Secretary of State has determined it appropriate to issue a direction, it will almost invariably be the case that the name’s presence on the register risks causing harm to users. That is why clauses 17 and 18 give the registrar new powers to remove a company name from the publicly accessible part of the register at the point a direction is issued, so any ongoing harm would be curtailed immediately at that point.

The earlier amendments have very helpfully highlighted for us that this ability to remove an offending name from the publicly inspectable part of the register is not available to the registrar in respect of the name change direction and order provisions that already exist in the Companies Act 2006—but it ought to be. New clause 34 addresses that issue, ensuring that the registrar will have the ability to suppress the name and the subject of a direction or order under all circumstances under which one might be issued.

Government amendment 106 ensures that the general right for people to inspect the register does not extend to offending names that have been suppressed. The effect is that we strike a fair balance between allowing companies adequate time to comply with a name change direction and protecting users of the register from harm that might arise from the offending name remaining visible while the company goes through its internal name change process. I hope hon. Members will welcome these amendments, and I commend them to the Committee.

[Seema Malhotra]

I thank the Minister for his remarks, and wish to speak to this group on behalf of my hon. Friend the Member for Aberavon as well. I must say that these provisions are not easy to follow, so forgive me for feeling like I will need to reread Hansard in a darkened room in order to completely follow what the Minister has said.

[Seema Malhotra]

I give way to the Minister.

[Kevin Hollinrake]

In layman’s terms, it means that if a company is required to change its name because it could cause harm, the registrar can immediately suspend that name from the register—as we discussed last week—so it cannot cause harm.

[Seema Malhotra]

I give way to my right hon. Friend the Member for Barking.

--- Later in debate ---

[Seema Malhotra]

I thank my right hon. Friend for her question, which the Minister may wish to answer before I continue my remarks.

[Kevin Hollinrake]

It extends the extent. The registrar did have that power to a certain degree for certain names, but they did not have it in every circumstance, so the Bill extends its right to use the power. Basically, in any situation where a name change is required because it could cause harm to the public, the registrar can immediately suspend that name from the register so that it cannot cause harm in any circumstance.

[Seema Malhotra]

I am grateful to the Minister for his intervention.

The clauses on the register include important provisions related to information sharing and the parameters of information that may be made available to the public. They are hugely important on a number of levels, facilitating access to relevant information for law enforcement and, more broadly, building public trust and confidence in our laws on economic crime. As drafted, the Bill appears to lean much more heavily towards restricting the availability of information to the public, and as we have said, an explanation of the Government’s thinking and rationale on these issues would be helpful for the deliberations of the Committee.

Clause 84 deals specifically with exemptions from requirements to make information publicly available. Exempting information from public disclosure pending verification by the registrar is a reasonable provision, since it could be argued that such information might otherwise give a misleading or inaccurate picture of the registry if certain information released to the public was ultimately excluded on the grounds that it could not be verified.

Clause 84 also deals with the names of companies registered incorrectly or used for criminal purposes. As the explanatory notes confirm, the intention is to prevent such information from being disclosed to the public, but a slightly clearer explanation of those provisions would be helpful. It seems reasonable in most cases to exclude information submitted in error to the registrar. On company names used for criminal purposes, perhaps the Minister could explain whether the intention of clause 84 is to prevent the disclosure of information relevant to a specific ongoing criminal investigation.

[Kevin Hollinrake]

We are not debating clause 84 yet, are we?

[Seema Malhotra]

Have I jumped? That is my fault. I have just checked the grouping, and I see that we are discussing clauses 82 and 83. In which case, I will stop there.

--- Later in debate ---

[Seema Malhotra]

That is clear. I was slightly confused by the grouping, but that is absolutely clear, and I will continue my remarks when we come to the next group.

[Kevin Hollinrake]

I have nothing further to add.

Amendment 106 agreed to.

Question proposed, That the clause, as amended, stand part of the Bill.

--- Later in debate ---

[Kevin Hollinrake]

I can see my notes very clearly. It is absolutely fine.

The amendments qualify the inspection rights in section 1085 of the Companies Act to ensure that certain information cannot be inspected. The information in question comprises company names that have, for example, been the subject of a registrar name- change direction because of concern that the name’s use is for criminal purposes.

The technical amendments to the Companies Act made by clauses 85 and 86 improve the integrity of the companies register and prevent the abuse of personal information held on it. Clause 85 makes amendments that relate to copies of material on the register, clarifying that the right to require a copy of material on the register applies only to materials that are available for public inspection. The clause also removes the option that an applicant has for submitting applications to require a copy of an enhanced disclosure document in paper form or electronically. It allows the registrar to determine the form and manner in which copies of registered material are to be provided under section 1086 of the Companies Act.

[Seema Malhotra]

Clause 84, as I alluded to earlier, deals with names of companies registered incorrectly or used for criminal purposes. The explanatory notes confirm that the intention is to prevent such information from being disclosed to the public. Excluding information submitted to the registrar in error seems reasonable, as I mentioned earlier, in most cases. With regard to company names used for criminal purposes, I would be grateful if the Minister could clarify whether the intention behind clause 84 is to prevent the disclosure of information relevant to a specific criminal investigation that may be ongoing. I am sure that we all agree that sensitive information should not be disclosed if doing so would compromise an active investigation by law enforcement agencies. If, however, all investigations and, where relevant, prosecutions and court proceedings have reached their conclusion, there might be an argument for public disclosure of said information about the company in question to then be permitted.

If it is the Government’s intention to prevent disclosures of company names used for criminal purposes only in circumstances where it is absolutely necessary to do so, perhaps the wording of clause 84, which is currently quite broad, may be usefully amended to reflect that. I am also raising those concerns on behalf of my hon. Friend the Member for Aberavon. Perhaps there could be a specific provision enabling information on such company names to be disclosed to the public once any criminal proceedings are over in cases where there may be a public interest to do so. It would be helpful if the Minister could set out the Government’s thinking on those issues.

Clause 85 amends the Companies Act to give more powers to the registrar, for instance in relation to the format in which information may be provided. The provision enabling the registrar to require an application for access to information to be submitted electronically is broadly welcome, inasmuch as it supports the wider objective of delivering more streamlined and effective services, although it may be helpful for the Minister to clarify when he expects a fully electronic process for members of the public to request and access information held by the registrar to be up and running.

Clause 86 extends the scope for information, including information of the kind covered by previous clauses, not to be disclosed by the registrar. The more general question of what information should be made publicly available, and the criteria on which those decisions are made, will be discussed shortly in relation to the next clause, but I would be grateful for the Minister’s comments.

[Kevin Hollinrake]

Clause 84 relates to issues that we debated earlier. The information in question comprises company names that have, for example, been the subject of a registrar name change direction because of a concern that the name’s use is for criminal purposes. I do not think that there is anything different here from what we have already discussed. It deals only with the exception to the general rule of making the entire register available to the public where the registrar uses her discretion to take a name off the register. It is not related to police investigations; she would suppress the name of a company for other reasons.

Question put and agreed to.

Clause 84, as amended, accordingly ordered to stand part of the Bill.

Clauses 85 and 86 ordered to stand part of the Bill.

Clause 87

Protecting information on the register

[Seema Malhotra]

I beg to move amendment 114, in clause 87, page 68, line 7, at end insert—

‘(7A) Regulations under subsection (1) above may not prevent the registrar from making available for public inspection information mentioned in paragraphs (a) to (d) unless there are compelling reasons for the information to be withheld.

(7B) For the purposes of subsection (7A) above, “compelling reasons for the information to be withheld” include circumstances in which the registrar may decide that public release of the information may result in—

(a) a serious threat to the personal safety and security of the individual to which the information relates;

(b) adverse effects on any investigation by an appropriate officer of a suspected offence under this Act;

(c) adverse effects on the ability of an appropriate officer to impose a penalty for any offence under this Act; or

(d) a clear risk to the national security of the UK;’.

This amendment seeks to expand the registrar’s powers to release information about the Companies House register, where it is in the public interest to do so, while also enabling personal information relating to an individual to be withheld in cases where there are compelling reasons to do so.

It is a pleasure to speak to the amendment, tabled in my name and that of my hon. Friend the Member for Aberavon. It appears at least possible that the Government could place strict limits on the rights of journalists to request information, for example, in connection with investigations that may well be firmly in the public interest. Disclosures of that kind have been seen in the Panama papers and the Paradise papers. Those are just two examples of how important it is that legitimate journalistic access to information held by the registrar must be protected.

It is with those concerns in mind that we have tabled amendment 114. Its aim is to ensure that there is a default presumption in favour of disclosing information in response to a request, whether from a journalist or an ordinary member of the public, and to ensure that legitimate requests are refused only when there is clear evidence of a compelling reason to do so. We believe that the powers granted to the Secretary of State under clause 87, as drafted, are simply too broad. We therefore strongly urge the Government to support the sentiments in amendment 114.

[Kevin Hollinrake]

I am not sure that what we are trying to do here is relevant to the matter that the hon. Lady raised. Amendment 114 would prevent regulations being made to allow the registrar to make information unavailable for public inspection under new section 1088 unless there are compelling reasons for the information to be withheld, which this amendment outlines.

Of course, there are instances where disclosure of information on the public register is inappropriate—I think we have all agreed that through the course of this debate—for instance, where it could lead to an increased risk of fraud and identity theft, or put individuals at risk for some reason, such as in cases of domestic abuse. There are limitations in the extent to which existing provisions in the Companies Act 2006 allow personal information to be withheld from the public register. We want to expand that to ensure that personal information is properly protected.

Clause 87 amends the Companies Act to allow individuals to apply to the registrar to suppress information relating to an individual or address and prevent it from being disclosed or made available for public inspection. That will include their residential address, signature, business occupation, and date of birth in old documents.

--- Later in debate ---

[Seema Malhotra]

I will not push amendment 114 to a vote. It is an area where there is probably further debate to be had but, having reflected on that with my hon. Friend the Member for Aberavon, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

[Kevin Hollinrake]

As we have discussed, there are instances where disclosure of information on the public register can lead to an increased risk of fraud and identity theft or put individuals at risk for other reasons, such as in cases of domestic abuse. The clause addresses this by amending certain sections of the Companies Act 2006 that confer or otherwise relate to the power for the Secretary of State to make regulations, permitting applications for personal information to be suppressed or protected, which means that the information is not made available on the public companies register.

[Seema Malhotra]

I wish to make a few remarks. I take on board the Minister’s comments, and we all agree about instances where there may be domestic violence reasons, for example, or other security and personal information reasons for why an individual’s home addresses and so on should not be disclosed. As discussed earlier, transparency plays a vital role in building public confidence in our ability to crack down on fraudulent or other criminal abuses of our companies legislation. Arguably, clause 87 grants an extraordinary degree of power to the Secretary of State to specify in regulations not just what information may be disclosed to the public, but who might be permitted to request information in the first place and on what grounds. It is quite a long clause. We had a debate before on the questions about safeguards, some of the uses of those powers and the extent to which there may be information that is not publicly available that ought to be, in the public interest. I would be grateful for a further discussion of the matter. I will work with my hon. Friend the Member for Aberavon to put together a note for the Minister with some more specific points to which it would be useful to have responses before Report.

--- Later in debate ---

[Kevin Hollinrake]

Currently, the registrar cannot proactively share the information she holds on businesses and individuals that is of use to law enforcement agencies and regulatory bodies. Nor can she carry out routine analysis to spot patterns of behaviour that are indicative of criminal activity. The clause inserts a new function for the registrar so that she is obliged to undertake such analysis as she considers appropriate for crime prevention and detection purposes, such as spotting fraudulent activity. That will provide the statutory basis on which the registrar’s new intelligence hub will be founded. The hub will be instrumental in identifying strategic and tactical economic crime threats posed by information on the register. That has long been called for. Under the data sharing powers that sit elsewhere in the Bill, the registrar will be able to proactively exchange the fruits of her analysis. The new clause is critical in supporting law enforcement agencies to tackle economic crime.

[Seema Malhotra]

As I have said before, we do not necessarily have any problem with what is in the Bill. It is about what is not in the Bill. The clause is important. We have debated how it can be improved and I am sure we will come back to debate that further. On the basis that it is an important part of the Bill, we support clause stand part.

Question put and agreed to.

Clause 88 accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Scott Mann.)

Economic Crime and Corporate Transparency Bill (Ninth sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Committee stage
Tuesday 8th November 2022 Public Bill Committees

[Kevin Hollinrake]

It is a pleasure to serve with you in the Chair, Ms Bardell.

Amendment 9 is a technical amendment. Clause 65 enables the Secretary of State to exempt a person from identity verification requirements by written notice, if necessary in the interests of national security or to prevent or detect serious crime. The consequence of someone being subject to such a written notice is that they will not be obliged to observe certain rules. For example, an unverified individual benefiting from an exemption will not need to refrain from acting as a director and will not be liable for an offence for acting as such.

The amendment clarifies that companies whose directors are exempt from the prohibition to act when unverified are relieved of their duty to ensure that such a director has their identity verified. Therefore, they will not be criminally liable for failing to comply with that duty in relation to the exempted person. Relieving companies of the duty meets the original policy intention and is a logical consequence of the exemption granted to individuals on these grounds. I hope that my explanation has provided further clarity on why that is needed.

On amendment 101, any proposed use of the national security exemption in clause 65 will be carefully considered by the Secretary of State. A duty to report to Parliament’s Intelligence and Security Committee on the use of that exemption is unnecessary. The ISC’s oversight functions are clearly set out in the Justice and Security Act 2013 and the accompanying memorandum of understanding. It is inappropriate to include a specific oversight role for the ISC in relation to the deployment of this exemption. The amendment is therefore not necessary, and I ask hon. Members not to press it.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

It is a pleasure to serve under your chairship, Ms Bardell. I thank the Minister for his opening remarks. I recognise that clause 65 gives the Secretary of State the power to provide written notice to exempt someone from identity requirements if necessary in the interests of national security or for preventing or detecting crime. The Opposition recognises the importance of protecting national security, but the Minister will know from previous debates that we seek greater clarity about where exemptions may be granted, and the transparency and accountability around the use of those powers. The Government have tabled amendment 9, which is consequential to clause 65. If the clause is agreed to, the amendment makes sense.

Amendment 101, which my hon. Friend the Member for Aberavon and I tabled, comes back to scrutiny of the use of the exemption powers. I will probably say a few times today that the title of the Bill includes is the Economic Crime and Corporate Transparency Bill. Where there are questions about a potential lack of or reduced transparency and possible serious impacts, there should be accountability, even from the Secretary of State. We live in a democracy where the Government should be and are accountable for actions of the Secretary of State.

The amendment simply states that there should be a process by which any use of the identity verification exemption on national security grounds provided by the clause should be subject to some scrutiny. The Minister may have better ideas on how to deal with that question if the Intelligence and Security Committee is not the right place. We have used the ISC because it is a parliamentary Committee that deals with national security matters, is on Privy Council terms, and will have the confidence of Parliament and the Government in reviewing these matters and raising any questions. All the amendment does is provide scrutiny for the exemption process by referring a report to the Intelligence and Security Committee, which ensures that the information remains privileged and not publicly accessible. If the Minister is, as he intimated, unable to support the amendment, I urge him to give us confidence about how he would provide assurances.

--- Later in debate ---

[Kevin Hollinrake]

Perhaps I could give the hon. Lady some examples of the kinds of individuals the exemption might apply to. We expect the exemption to be used on very rare occasions, for individuals including, but not limited to, those working for the UK intelligence community or law enforcement agencies. She should bear in mind that the Secretary of State is introducing the provisions. I hope that she will be reassured that the powers will be used sparingly but wisely.

[Seema Malhotra]

I thank the Minister for his intervention. The issue is not what we assume and hope might happen, but having some checks and balances on the use of powers. It is part of our responsibility on the Committee to think that through.

[Seema Malhotra]

I thank my right hon. Friend for highlighting an important case in point.

[Kevin Hollinrake]

May I speak to that case very quickly? The Usmanov case was entirely different. A Secretary of State did not introduce legislation providing for a Russian oligarch to move, in that case, billions of pounds-worth of assets to his sister, I think. What we are talking about here is the Secretary of State using a power to remove somebody whose identity is sensitive from a public register—not allowing an oligarch to subvert the regulations.

[Seema Malhotra]

I thank the Minister for his intervention.

--- Later in debate ---

[Seema Malhotra]

Thank you, Ms Bardell. I thank my right hon. Friend for her intervention. To wrap up my remarks on this point, the Minister makes a valid point in relation to the types of cases and the circumstances under which people might be given exemptions, identified on national security grounds. My right hon. Friend makes a good point as well about where things might come through the system inadvertently. That is partly why we have checks and balances.

I take the Minister’s point about individuals who may be working for the intelligence and security community, but he could give us some reassurance by saying that every single Secretary of State in whose hands this power lies in future will consider every case carefully so we need have no cause for concern about that, given the transparency and accountability. We set up systems such that there are ways in which the decisions of Secretaries of State and Ministers have controls, checks and balances around them.

In circumstances in which a Secretary of State might say that a name is too secret to divulge, even knowing whether there has been use of the power—the number of times used and the categories for which it has been used—could still be important information. For example, what if suddenly in future the Secretary of State was determining 10 a month—I am not saying that they would? The Minister and I have no idea who the Secretary of State might be in five or 10 years’ time, so we have no idea whether there might be an abuse of the power. However, sometimes even having the number can be a red flag, because ordinarily we might expect one every three months, so why do we have five a month coming through?

There are therefore ways in which we can have such controls without putting someone’s identity or security—or the nation’s security—at risk. Having some controls over those powers is a big and important theme of the report. I ask the Minister to consider that and to say: “Look, we will consider whether we can have, without it being too onerous a job, some mechanism for controls and reporting on use of the powers, such as through Privy Council routes.” I would then be happy not to press my amendment.

[Kevin Hollinrake]

I am happy to reflect on that and have further discussion. As the hon. Lady and other Members know, I am keen for Parliament to have scrutiny of any measures that we introduce. We will take it away to consider.

[Seema Malhotra]

I appreciate the opportunity. I therefore will not press amendment 10.

Amendment 9 agreed to.

Clause 65, as amended, ordered to stand part of the Bill.

Clause 66

Allocation of unique identifiers

--- Later in debate ---

[Kevin Hollinrake]

Addresses are not covered by the amendment, although we discussed the verification of addresses at length the other day. We think we have struck a fair balance in terms of a company address. The shadow Minister seems to be saying that she wants the unique identifier to be searchable; we think that the person’s name should be public and searchable. I did not quite understand her point about people hiding their email addresses or names, and searching by unique identifier, rather than the other way around. We think that the searchable entity should be the person’s name, and the Bill would then make it easier to see the connections between a director’s name and the different companies with which that person is connected.

[Seema Malhotra]

The example was given of the number of John Smiths there might be. There might even be a number of Seema Malhotras, but I do not know that there are as many.

[Kevin Hollinrake]

There is only one.

[Seema Malhotra]

I think I found three. For the most part, the Minister’s arguments are very strong, but he is on very weak ground here. Is he seriously saying that if someone genuinely wants to see Mr John Smith’s directorships, they will have to spend three hours going through all the John Smiths? Would that be enough time to de-duplicate and link the right ones together? That is crazy. There is a much simpler solution. It would do the job, and bring us in line with other countries.

[Kevin Hollinrake]

I am not aware of the countries to which the hon. Lady refers. How would someone know the unique identifier so as to be able to search by that record? What someone will recognise is the name of the person, whether it is Usmanov or another name. That is likely to be the search term that people use, so we think that, for the public view, the most important link is the name. That would also have some implications in terms of potential fraud.

The unique identifier is there to do exactly what the hon. Lady and the hon. Member for Glasgow Central want it to do: it creates a connection behind the scenes, in Companies House, so that a simple search can reveal the connection between a person and all the different companies. That is how it works: we search by the names. We think that is the best way around. She wants to search by the unique identifier.

--- Later in debate ---

[Seema Malhotra]

May I kindly suggest that the Minister ask his officials more about how the unique IDs that are used in Australia, New Zealand and India are working, and whether there is something we might learn from them? If he has not been briefed on that already, it might be a useful step for him to take.

On the Minister’s second point, he is absolutely right that we usually start with a name. We might start with “Mr Kevin Hollinrake, Thirsk and Malton”, but we would then find his unique identifier and be able to use it to link him with the hundreds of other entries for Kevin Hollinrakes—perhaps some of them even live in Feltham and Heston—and see whether they are the same person.

If the Minister is unclear about what I referred to as a proxy identifier, I am happy to take that offline. It is a simple measure used for security reasons, and it is basically like having a “known as” name. Everyone might know the Minister by a nickname, but people will always be able to identify him, because the unique identifier is linked solely to the underlying email address or ID. It is not publicly the same, but it is uniquely linked, so that someone who uses one will access the data of the other.

[Kevin Hollinrake]

I am happy to look at the international examples that the hon. Lady mentions, and at the generic name issue. I think that is a fair point, and I have already asked officials to look at how that might work in the case of John Smith and the like. I have just done a quick search on one of my previous co-directors, Harry Hill, who has quite a generic name. If we put in “Harry Hill, Hunters, Companies House” it brings up the Harry Hill that is associated with me, not another Harry Hill. There are simple ways to make connections involving names such as John Smith. I will come back to the hon. Lady with an answer on that if I can.

We do not think that changing the power to a duty would have the desired effect of obliging people to have unique identifiers in the first place. That will be achieved by mandatory provisions including the regulations under the power contained in section 1082 of the Companies Act.

[Seema Malhotra]

I would appreciate it if the Minister came back to me on that point, because I am not clear that section 1082 of the Companies Act, as amended by the Bill, will achieve what he thinks it will. I want a clear answer about whether all directors will have a unique identifier under the new regime. That is question No. 1, and everything else follows from that.

[Kevin Hollinrake]

Yes, they will. That is exactly what the Bill provides. It is a mandatory provision, including the regulations under the power contained in section 1082 of the Companies Act. Those two things combined will ensure that Companies House provides a unique identifier for every company director and for every person of significant control. I think that is what the hon. Lady hopes to achieve.

Let me turn to amendment 103. Unique identifiers will be a tool to help Companies House to link an individual’s verified identity across multiple roles and company associations. For example, if an individual is a director for company A and also a person with significant control for company B, Companies House will be able better to link those appointments using the unique identifier. The identifiers should not be made public, in our view. Their purpose is to allow the person who is assigned the identifier to communicate securely and privately with Companies House. Making the unique identifiers public would, in our view, compromise their use, because they could be appropriated and misused by anyone looking at the register, including potentially to commit identify fraud and other crimes. However, Companies House will be making changes to how members of the public view the register, enabled by unique identifiers, so it will be possible accurately to see connections between individuals and entities, including how many companies an individual is a director of, or how many companies a person has significant control over. On that basis, I hope hon. Members will withdraw their amendment.

--- Later in debate ---

[Kevin Hollinrake]

Clause 67 amends section 1087 of the Companies Act 2006 to extend the list of registered material unavailable for public inspection to include

“any statement delivered to the registrar”

to confirm compliance with identity verification requirements, which means that statements delivered to the registrar concerning identity verification will stay private, protecting personal and sensitive information. Government amendment 10 clarifies that section 1087 is only about withholding from public inspection the portion of the registrar’s records concerning companies. Other provisions elsewhere in legislation provide for the withholding from public inspection of the portion of the registrar’s record pertaining to other entities, such as limited liability partnerships and limited partnerships.

[Seema Malhotra]

We have very few remarks to make. As the Minister has outlined, clause 67 amends the Companies Act to extend the list of material unavailable for public inspection to include

“any statement delivered to the registrar”

under the provisions listed. I make the general comment that we want to have greater clarity on this matter so that we do not inadvertently find ourselves, through the legislation, in a situation whereby director, shareholder or officer information becomes hidden for all the reasons outlined in the Bill. The clue is in the name—it is about corporate transparency. I am making a broad point about concerns of reducing transparency when we are here to increase it.

Amendment 10 agreed to.

Clause 67, as amended, ordered to stand part of the Bill.

Clause 68

Requirements for administrative restoration

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Kevin Hollinrake]

As I said in my remarks, anyone delivering an application to strike off a company to the registrar would have to verify their identity. I do not see how that is not clear.

[Seema Malhotra]

I thank the Minister for that intervention. If he means that the aims of the new clause are already included in the proposed operation of the system, that is helpful clarification.

Currently, when companies are struck off the Companies House register, very little is done to check whether fraud has occurred and, in turn, that means that there are few repercussions for the directors of those companies. On average, 400,000 companies are struck off the register each year, so perhaps the Minister could go one step further and clarify whether such ID verification will apply to all directors of companies that are struck off. How will that happen if there are no unique identifiers? If wrongful actions are committed, will the proposed regime go one step further to ensure that red flags and investigations into possible misconduct or fraudulent activity will ensue? At the moment, unscrupulous directors are likely to misappropriate the strike-off process to avoid scrutiny and to rack up debts or to sell company assets ahead of the company dissolution, effectively absconding with the proceeds. Our new clause does not just call for a check on IDs but for red flags in the system to alert authorities to possible fraudulent activity that should be subject to further investigation. The Minister may want to respond to that suggestion later.

As I have outlined, creditors may seek to apply through the courts for a company to be restored, albeit under different legislation. New clause 46 would enable a creditor or a liquidator to apply to restore a company administratively. I believe it would be helpful to the Minister’s considerations to outline our intentions. The introduction of director identity verification may go some way to deterring directors from registering multiple companies fraudulently, but in the case of companies already struck off the register, there is limited opportunity to hold directors accountable for their wrongful actions and for returns to their companies’ creditors.

Members of the insolvency and restructuring trade body, R3, report that director disqualifications have little or no effect on fraudulent directors. It is absolutely shocking that the system has been allowed to continue in that way. There is little or no effect on fraudulent directors, and seriously rogue directors will often go on to commit repeat frauds despite being disqualified.

Those directors who have been disqualified may continue to operate behind the scenes as de facto directors, shadow directors or advisers to a company. We are trying to close some of those options, but there are all sorts of ways in which those who want to get around the system can do so if determined. Hence the need for the legislation to be more belt and braces.

A much more significant deterrent occurs when the company is put through an insolvency process and directors are held to account for the assets that have been misappropriated. If a company has been dissolved and automatically struck off the Companies House register—the company therefore no longer exists, in effect—that process can only take place if the company is first restored. However, if a company’s former creditors or liquidators at the time of the company’s striking off or dissolution wish to apply to restore the company, they must do so through the court.

The court process can clearly deter creditors as it is sometimes a complex procedure, in part due to the costs, which are typically £1,500 to £3,000, and in part due to the huge amount of time involved, which can be 12 to 18 months. Businesses are busy, creditors are busy, and the extra strain has to be weighed up against the cost of doing it. We have to have a solution. I am glad that the Minister has intimated that there ought to be a basis for what I think he described as a “less cumbersome” process. I agree. I hope that we will see some proposals, perhaps in Committee. It would be helpful to strike while the iron is hot.

Directors are all too easily able to create a significant barrier to the investigation of their conduct. Indeed, data from Companies House shows that only 2% of dissolved companies are put through a process to restore them to the register each year. I do not have the data on the number of creditors who might do so were it a less cumbersome process, but I think we can all agree that it would be far more than 2%. Certainly the research suggests that.

Under section 1024 of the Companies Act, former directors or members of a company can apply to restore a company administratively, avoiding a court process. However, that is not an option for a former liquidator or creditor of a company. New clause 46 would amend section 1024 so that a former creditor or liquidator could apply to restore a company administratively, without the need for a potentially lengthy and costly application to court. That would make it simpler for a company to be put through an insolvency process so that the company’s directors can be held to account for the assets that have been misappropriated and incur liability for their actions. Returns to creditors could then be made.

I hope that the Minister will, in his reflections, consider the wording of new clause 46. It might help him on the way to finding a simple solution. There is a real issue here. In the interests of fairness to businesses and creditors that do the right thing but are treated unfairly, it should not be so hard to bring to account those who had clearly planned to be struck off, more quickly, cheaply and easily.

[Kevin Hollinrake]

On the hon. Lady’s legitimacy argument, as I said, we can understand that there might be a case about liquidators. We have committed to look at that. It is much more difficult in the case of creditors’ interests. She talked about the misappropriation of funds, but it is not the registrar’s position—the registrar is not deemed capable—to determine whether that is the case. I do not see how a creditor’s interests can be decided on by the registrar. However, I commit to us looking at the liquidator element.

On the issues the hon. Lady has mentioned with respect to Companies House and new clause 45, the requirements under the objective at the start of the Bill make it clear that the registrar’s responsibility is to minimise unlawful activities. On whether a striking-off in certain circumstances is a red flag, there will be a number of ways in which that can be determined, either through automated processes or by human intervention. It is not realistic for the registrar to determine fraud, but it is definitely within her capability to determine whether there is a red flag around fraud. We expect the registrar to put those measures in place; in fact, there is a requirement for her to do that under objective 4— minimise unlawful activities.

We have had debates at length in previous sittings on whether we should dictate to the registrar how she should do that, with myriad conditions and circumstances involved and discussion as to what constitutes a red flag. On this side of the Committee, we believe that we should leave it to Companies House to determine how the registrar minimises unlawful activities and what constitutes a red flag. That, of course, will be shared with relevant enforcement agencies.

[Seema Malhotra]

I know the Minister is not intending to, and I would not want him to, misrepresent our position, but the difference between our views is generally whether there should be greater tools and provision in legislation to give the registrar teeth that might be helpful in her work. The Minister is right that it would not be for the registrar to determine fraud, but that there should be a red flag system whereby the registrar is uniquely in a position to be able to determine that.

[Kevin Hollinrake]

We are in total agreement—violent agreement—which is great.

The hon. Lady made a point about shadow directors. There are all kinds of ways in which a nefarious individual can influence the behaviour of a company, for which we cannot possibly legislate. There is no such thing as, and no legal status of, a shadow director. Therefore, how would we ban somebody from being one? We have to operate within the boundaries of the law. That is what we feel, and we have reached a fair balance here. I hope the hon. Lady will not press her new clauses to a vote later in the proceedings.

Question put and agreed to.

Clause 68 accordingly ordered to stand part of the Bill.

Clause 69

Delivery of documents: identity verification etc

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Kevin Hollinrake]

The clause also provides that the registrar need not make these records available for public inspection 20 years after those dates.

[Seema Malhotra]

I will speak to clauses 76 to 79. I thank the Minister for his comments. He has outlined that clause 76 would amend the Companies Act 2006 to give the registrar the power to reject documents that are not consistent with information held by the registrar and that give the registrar reasonable grounds to doubt whether the document complies with Companies House requirements.

A document that is refused under this power is treated as not having been delivered. These clauses will apply to all documents filed with the Companies House registrar. Such documents could include the annual confirmation statement—formerly the annual return—the annual accounts, forms appointing or terminating directorships, applications to register a charge or the filing of changes to the articles of association. The broad list can be found on the Government website under the postal forms that a limited company can file with Companies House.

Clause 76 is a welcome measure that should help Companies House transition from passive administrator to active agent as regards the information submitted to it. Will the Minister expand on how the registrar will be alerted when inconsistent documents are submitted? Have there been discussions with the registrar about the process by which inconsistencies will be checked? The Government may be considering a risk-based approach such as automatic flagging, but it would be helpful to clarify how the system is likely to work and be implemented.

I was searching the legislation to see if there was any deadline for rejection by which Companies House will confirm the rejection of a document. I cannot see a timeline specified, but I would be grateful if the Minister could correct me if that is wrong. In the Bill as drafted, a rejected document is treated as never having been delivered. Could the Minister clarify that? It suggests to me—though it is not fully clear—that companies could be submitting information in good faith, maybe just before a deadline, but could be fined for missing a deadline if the document was subsequently rejected. It would be helpful to know whether Companies House will be working to a deadline to confirm or reject a document that has inconsistencies. If there will be, what might that mean for companies that submitted documentation in good faith, and what will happen with the resubmission of any documentation?

I have no particular comments on clause 77, but I have a question about clause 78 and the preservation of original documents. The Minister is right that our confidence in digital technology and digital records has improved significantly. Can the Minister clarify what needs to be kept in hard copy for two years? Does that refer to all the records that we have discussed? I am not clear about how that sits alongside options for electronic storage of original documents that had been certified by the registrar. There are some other mentions of certification in the Bill, so it would be useful to understand that. I do not have any other concerns or questions on that point.

--- Later in debate ---

[Kevin Hollinrake]

How can we consistently tackle inconsistency in the documentation? We are back to the red flags issue. It is up to Companies House to determine the circumstances in which something would have a red flag, in that it was incorrect. It is not impossible for the Committee to do Companies House’s job for it in terms of how it determines what might constitute a red flag, but I have every confidence that Companies House will determine that appropriately. Again, that is assisted by the requirement that when people file information that is clearly, patently and deliberately wrong, there are penalties for false filing.

As for deadlines, I do not think there is any deadline that the registrar has to adhere to for when determining something to be inconsistent or wrong. The document can be rejected and companies can expect that rejection to be speedy in the majority of cases. The registrar has discretion not to reject an inconsistent document if she feels it is not materially inconsistent. Those are points of detail that can probably be left to Companies House.

[Seema Malhotra]

I thank the Minister for his response. What he said about points of detail is true to some extent, but not fully true as regards what the provisions could mean for companies that have submitted information in good faith before a deadline. If documents are rejected after the deadline, it could result in the company being considered to have not submitted documents. There seems to be a slightly grey area. Would companies be fined for missing deadlines, or would they be given, in the case of a significant document, a short period of, say, seven days to resubmit it with corrections, without facing a penalty? It could be seen as a late submission. We just want a fair process in instances when genuine mistakes are made.

[Kevin Hollinrake]

So do I, and I would expect the registrar to use her judgment when determining whether something has been inappropriately filed. We would not expect a fine to be issued if it is not the company’s fault that it has missed a deadline, as in the situation that the hon. Lady describes. There is a wider requirement for any registrar to act reasonably in that regard.

Question put and agreed to.

Clause 76 accordingly ordered to stand part of the Bill.

Clause 77 to 79 ordered to stand part of the Bill.

Clause 80

Power to require additional information

[Kevin Hollinrake]

I beg to move amendment 11, in clause 80, page 63, line 2, at end insert—

“(vi) section 28 or 29 of the Limited Partnerships Act 1907;”.

This amendment spells out that statements made by a person in response to a requirement under section 1092A of the Companies Act 2006 can be used in criminal proceedings for the false statement offences under the Limited Partnerships Act 1907.

Amendment 11 reinforces the legal framework to maximise the prospects of truthful and accurate information being delivered to the registrar. The general rule is that fairness requires that a person who is compelled on pain of criminal sanctions to provide information to the authorities should not be prosecuted if the information they are forced to supply is incriminating. Proposed new section 1092C(1) of the Companies Act 2006, inserted by clause 80, ensures that that fairness requirement is met in relation to uses by the registrar under the new power in proposed new section 1092A to compel a person to provide her with information for the purposes of her being able to determine whether filing obligations have been met.

However, the privilege against self-incrimination is not absolute. As is the case elsewhere in the statute book, the Bill includes exceptions. A person compelled to provide information is not immune from prosecution for offences that prohibit the giving of false, misleading or deceptive statements. Proposed new section 1092C(2) provides for that exception. The amendment adds the two proposed new “false statements” sections that clause 129 of the Bill inserts into the Limited Partnerships Act 1907 to the list in proposed new section 1092C(2). That ensures that when the registrar compels a person to provide information under her new power to determine whether filing obligations concerning limited partnerships have been met, the person cannot claim privilege against self-incrimination if the information they are compelled to deliver reveals that they have submitted a false filing. I trust the Committee will agree that this is a well-considered amendment.

[Seema Malhotra]

We do not have extensive remarks. As the Minister has outlined, the clause introduces a new power for the registrar to require information to determine whether someone has met the requirements on document delivery. Failure to comply without a reasonable excuse would be a criminal offence.

[Seema Malhotra]

Yes. Thank you, Chair. I was just speaking briefly to clause 80. The amendment spells out that statements made by a person in response to that requirement can be used in criminal proceedings on those false statements, and we support that.

Amendment 11 agreed to.

[Kevin Hollinrake]

I beg to move amendment 12, in clause 80, page 63, line 14, leave out subsection (5).

This amendment is consequential on NC17.

--- Later in debate ---

[Kevin Hollinrake]

That does not directly relate to this amendment, but I will get back to the right hon. Lady on that point in a separate conversation. Details such as the name and company of the person verifying the information submitted by an overseas entity to the register will continue to be publicly visible; it is not our intention to change that.

New clause 17 replaces sections 22 to 24 of the ECTE Act with proposed new sections 22 and 23. As with new clause 16, new clause 17 adds to the list of information that the registrar must not make available for public inspection, to help prevent the abuse of such information. That includes categories of information that were never intended to be made available for public inspection, but were missed during the expedited passage of the ECTE Act through Parliament, such as the email address of an overseas entity. New clause 17 also includes new categories of information that an overseas entity will be required to provide as a result of other amendments that are being introduced by the Bill, including the title number of land that an overseas entity owns, and documents provided to the registrar under her new power to require further information. New clause 17’s insertion of new section 23 also means that the registrar can disclose protected information about trusts, date of birth and residential address only in two scenarios.

Amendments 12, 39, 40 and 49 are consequential on new clause 17. Under the amendments, the registrar need not retain material that must not be made available for public inspection longer than appears reasonably necessary to her for the purposes for which the material was delivered to her.

I will say to the right hon. Member for Barking that there have been over 3,000 registrations on the register of overseas entities since it was established on 1 August 2022. It is right to ensure that the public register of material concerning overseas entities contains only information that is necessary to display, and that certain information, including email addresses, is not made publicly available for the reasons that I have stated. It is also right to amend the Companies Act 2006 in a way that mirrors amendments made in the Bill, so that there is consistency between the two Acts.

[Seema Malhotra]

In the time that we have had, it has been difficult to go through exactly what all the new clauses and amendments mean for what is and is not hidden information. We may come back to this issue, so I will not oppose the measures today. New clause 16 confers a power to make regulations about identity verification.

[Kevin Hollinrake]

Protected information includes protected date of birth information, which means information as to the day of the month—but not the month of the year—on which the registered beneficial owner or managing officer of an overseas entity was born. It also includes protected residential information, which means information as to the usual residential address of an individual who is a registered beneficial owner or managing officer, and protected trust information, which means the required information about a trust.

[Seema Malhotra]

I thank the Minister for his clarification. He did set out a little of that when he spoke to the new clauses. Given the speed with which we are going through the Bill, it is sometimes a little hard to keep track of what has been added, and whether there are any other consequences from that. I am not saying that there are consequences, but it feels as though a lot of Government amendments have come forward. I am not necessarily objecting to those before us today, but as a matter of principle, we need to go through provisions to check whether the devil is in the detail; after all, as I have said, the Bill has “Corporate Transparency” in its title.

[Kevin Hollinrake]

We will debate the overseas entities register in more detail in part 3, so there might be a good opportunity for further debate then.

[Seema Malhotra]

That would be welcome. New clause 18 grants the Secretary of State the power to make regulations as they see fit, in order to protect material on the register. Further scrutiny will be required on what could happen in future, and the circumstances in which that power might be needed.

The perception may have been that we had opposing positions on some aspects of the Secretary of State’s powers, but we now find ourselves coming a little closer together. We are debating the Bill, which largely has cross-party support, in good faith, but there are many little ways in which things could get changed, without those changes being subject to full debate in the House. It is important that we debate that further during proceedings on the Bill. I repeat that I want to ensure that there is no devil in the detail. I appreciate the Minister committing to return to the issue in part 3, when we will have a chance to look at the matter in slightly more detail.

Economic Crime and Corporate Transparency Bill (Seventh sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Committee stage
Thursday 3rd November 2022 Public Bill Committees

[Kevin Hollinrake]

I think the best way forward on that is for myself and the Minister for Security to have a conversation. We can set out some of the reasons why that is the case in more detail in writing, as I promised to do earlier. We can then have a further discussion from there.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

When the Minister writes to my right hon. Friend the Member for Barking—which I am sure will be copied to all members of the Committee—it would be helpful to understand who would have been in scope in the original drafting, what specifically changed and who would be out of scope in the revised drafting. It would be clearer for us to know whether it has narrowed correctly, whether it is a tightening—and we should be happy with it—or whether, inadvertently, in dealing with one matter it has excluded others who might be useful to draw into the scope of the provision.

[Kevin Hollinrake]

That is perfectly reasonable. I tried to set out those kinds of example earlier, so I am very happy to clarify that in a letter to both the hon. Lady and the right hon. Member for Barking. Our position is that somebody might be subject to a travel ban for a number of reasons, and that does not necessarily exclude them from being a fit and proper person to run a company. Now, Members may think of some reasons why that individual should not be a fit and proper person, but I will set out why that person may still be fit and proper, and then we can all either agree, disagree or find a way of dealing with it.

--- Later in debate ---

[Kevin Hollinrake]

That situation would be covered under the Bill because company naming is part of it. That is a different thing from what the right hon. Member for Barking was describing. She was taking about the movement of assets, and Companies House would not have access to that information on a dynamic basis. It clearly would have information on a name or director change, and it can act as it deems appropriate, in terms of notifying authorities or making further enquiries about what the company is doing.

[Seema Malhotra]

I am grateful to the Minister for giving way. I feel that we have allowed this conversation to get a bit more complicated than it needs to be on one specific point in relation to amendment 83, and I think the Minister has made it slightly more complicated too.

I understand that the Minister may be wondering whether a huge scope of things have happened in the three months prior to a person becoming a designated person. Does he agree that proposed new section 11B(2) could be tighter so that where it says, “If the person changes”, it specifies changes to owners, directors or other information relating to the company on the register in the three months prior to the person becoming a designated person? There should be a way, through the design of the computer systems, which is being undertaken as part of the transformation in Companies House, for the registrar to trigger an automatic alert when somebody becomes a designated person to inform the Office of Financial Sanctions Implementation and the National Crime Agency that something had happened on the record in the previous three months. That would therefore not require a huge amount of resource and labour, but there would be a useful report and trigger if the Bill required the registrar to do that.

[Kevin Hollinrake]

I do not disagree with that, but my point was not that it would be too much work for the registrar; I never said that at all. My point was that may well be that the Companies House registrar looks at the amendment—she may be listening to this debate—thinks, “It’s a really good idea to do that,” and builds that into her systems. As legislators, we could direct Companies House to do a million things, but surely we should give it the power to share this information in a way that provides the most appropriate risk alert processes. We should let it get on with it while holding it to account for the broader objectives. We should not micromanage Companies House.

[Seema Malhotra]

I thank the Minister for giving way. I do not think this is a case of micromanagement, and nor are we asking for hundreds of things. We are making a specific request, based on specific research. I think an automatic alert could be triggered, and perhaps the Minister—

Economic Crime and Corporate Transparency Bill (Eighth sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Committee stage
Thursday 3rd November 2022 Public Bill Committees

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

It is a pleasure to serve under your chairship, Mr Robertson. I will continue to speak to this group, finishing with a few remarks about clause 43 and our new clause 35.

We welcome clause 43 and recognise that it reflects new circumstances that arise from the Bill’s abolition of local registers of directors, set out in clause 50. We have further questions on that, which we will deal with when we come to later clauses.

On new clause 35, let me put our argument on the record. I thank the Minister for his comments, which I hope suggest that we will move on in some form, perhaps with the data he comes back with. Will he update us on when he expects to come back to us, so that we can come to a conclusion, and perhaps on an alternative way to make progress on the matter, during the passage of the Bill?

The reason my hon. Friend the Member for Aberavon and I tabled new clause 35 is to include provision such that persons convicted under the National Minimum Wage Act 1998 cannot be appointed as company directors. There are real questions about whether we would want an employer who wilfully neglected or refused to pay the national minimum wage to a worker who qualified for it to be the director of a company after the Bill comes fully into force. The new clause would strengthen a lot of the measures in the Bill, because we are talking about people we hope to trust to undertake their responsibilities as a director.

The Bill introduces a substantial amount of regulation about who can and cannot serve as a company director as a result of criminal or potentially criminal practices, so this feels like the right place for consideration of such a measure. I will welcome the Minister’s comments and I look forward to continuing to work with him as we make progress.

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)]

It is a pleasure to speak with you in the Chair, Mr Robertson.

I am not quite clear when I will be able to get the information that we should have before we look at the matter in new clause 35. I think it is right to identify the scale and nature of the problem before we legislate, but I am certainly keen to do so, not least in my role as the person responsible for labour frameworks and markets.

I will respond to one or two of the comments of the hon. Member for Feltham and Heston. We already have power to ban directors disqualified overseas, under section 5A of the Company Directors Disqualification Act 1986. We can and have taken steps to disqualify directors who have been convicted of relevant foreign offences. On exemptions, I think we dealt with exemption from identity verification in a previous sitting. This will be set out in regulation, but that will probably include people who have already had their ID verified, for example.

The hon. Lady also asked about the defence of “reasonably believed” in clause 40. That would cover a situation where somebody had broken the rules but perhaps did not know that the rules had been broken. That would of course be subject to some kind of investigation, and the person could say, “It wasn’t me who submitted the return. I am not guilty of an offence.” It is a defence that somebody believed the information had been submitted correctly when actually it had not. I think that is a reasonable provision, which investigators would be able to take into account before taking forward a prosecution.

Question put and agreed to.

Clause 36 accordingly ordered to stand part of the Bill.

Clauses 37 to 42 ordered to stand part of the Bill.

Clause 43

Registrar’s power to change a director’s service address

Amendment made: 7, in clause 43, page 31, line 10, at end insert

“(but see subsection (4A)).

(4A) Subsection (4)—

(a) does not limit the service address that may be registered for the director under regulations under section 1097B (rectification of register), and

(b) ceases to apply in relation to the director if a new service address is registered for the director under those regulations.’”—(Kevin Hollinrake.)

Where a director’s service address is moved to their residential address under section 246 of the Companies Act 2006, subsection (4) imposes restrictions on further changes. This amendment ensures those restrictions do not bite on further changes under new section 1097B (inserted by NC5).

Clause 43, as amended, ordered to stand part of the Bill.

Clause 44

Register of members: name to be included

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Seema Malhotra]

I thank the Minister for his comprehensive walk through these clauses, which I am sure he wrote overnight. It was very helpful. I have a few questions, but I will start by speaking to clause 44, which amends the Companies Act 2006 so that for individuals entered in a register of members, commonly denoting shareholders, “name” refers to a forename and surname. I have made the point before that it is quite staggering that we have not had such specification of the information that should be required. We absolutely welcome this measure and the encouraging of greater transparency of company shareholders.

We support the clause, but it seems to be countered by moves that arguably encourage less transparency of shareholders. In particular, the withdrawal of the central register, with information held only by the company rather than centrally, will make it harder to have public access and knowledge of who shareholders are.

It is important for us to emphasise why transparency continues to be so important. Transparency International has noted that, until now, shareholder information has been extremely limited and difficult to access. That has been a core factor in the UK’s unwanted reputation as a hub for dirty money and economic crime. The lack of any substantial rules and regulations around shareholder information reduces the reliability of the information published by Companies House and, in turn, of the totality of information about a company held by Companies House. We have tabled amendments to later clauses, but I wanted to make that broader point. While we talk separately about directors, officers and shareholders, in the end we are talking about entities working together as a whole, and wanting transparency about activity, and who is involved in it, as a whole.

Clause 45 concerns the power to amend required information. As the Minister outlined, the clause allows the Secretary of State to make regulations to specify changes to the information that must be entered in a company’s register of members. This is an important clause, and I have a couple of questions for the Minister. First, is there any consideration of what information may be required? I think there was some suggestion about the addresses of company members. In the Minister’s opinion, would the clause provide for a potential future decision by the Secretary of State to bring forward proposals to request identity verification and perhaps directors’ IDs from shareholders with shares of less than 5%?

I wonder whether this should be among the requirements for transparency of shareholder information in the Bill, which specifies changes to information that must be entered. If there are measures that could be brought forward, should they not be in the Bill rather than in future regulations? Is it a case of simply saying, “We will go as far as we think is relevant now and leave the option open for additions later”? Where the Minister thinks there could be further measures later, it would be interesting to debate whether some of them could be brought forward.

The Minister clearly set out the arguments for clause 46, and we support the expansion of the court’s powers.

Clause 47 relates to the register of members and the protection of information. As the Minister outlined, the clause would allow the Secretary of State to make regulations requiring a company to refrain from using or disclosing individual membership information except in specified circumstances. I was not fully clear who may make applications to the registrar not to use or disclose information. There may well be good reasons for such a request, but what individuals do the Government have in mind and in what circumstances could such a direction be made? Procedures in the future may result in less transparency, and for good reason, but it is important that we understand the reasons for that and that they are on public record as we consider the Bill.

It is possible that transparency is countered by the implementation of the Bill and the subsequent legislation for which it makes provision. That may reduce transparency by backdoor means, as it were, and reduce its scope to apply to those very individuals whom we may want to subject to such transparency. I am sure that the Minister understands why we want to probe that issue.

Clause 48 concerns the removal of the option to use the central register. Given all the measures relating to transparency and shareholder information, I am concerned about their total effect. The important principle running through the Bill is increased transparency in terms of publication and searchability, but the Bill also provides for private companies to exercise the option not to be on the central register. Perhaps I have not followed all the detail relating to the disclosure of shareholder information, but after the Bill’s implementation, I think there will be less publicly available shareholder information and not more. I look forward to the Minister’s response to those concerns.

[Kevin Hollinrake]

I think I have noted all the points raised by the hon. Lady. She is absolutely right that, in future, the Secretary of State could, through regulations, elect for the collection of more information from shareholders or any other relevant parties. We must all acknowledge that we do not want to put undue burdens on people who are trying to go about their normal, legitimate, bona fide commercial business. We are trying to strike a balance to ensure that we get the information from those we need it from, who may be acting for nefarious purposes.

On the hon. Lady’s point about the circumstances in which someone may want to remove details from the public register, that individual could be a celebrity, who would not want their address held publicly, or someone who fears domestic abuse. Those are the types of cases and circumstances that may arise. The information would still be held, just not in public. The law enforcement agencies would still have access to it, but the general public would not. When making such an application for removal, an individual would have to demonstrate evidence of risk, and could not simply say, “I want that information removing.” The registrar can refer cases to law enforcement agencies if she is in any doubt about whether the application has been made for bona fide reasons. She can also revoke a removal, if she feels that she has been given false information. I think they are reasonable provisions, and that judgment will be exercised.

On updating the register, the hon. Lady has tabled amendment 104, which we will consider in the next group. Perhaps we will have a good debate about that then.

Question put and agreed to.

Clause 44 accordingly ordered to stand part of the Bill.

Clauses 45 to 48 ordered to stand part of the Bill.

Schedule 1 agreed to.

Clause 49

Membership information: one-off statement

[Seema Malhotra]

I beg to move amendment 104, in clause 49, page 34, line 32, after “time” insert “and annually thereafter”.

This amendment would require a confirmation statement with company membership information as set out in clause 49 subsection 2 to be submitted annually.

The clause requires a company to provide a full list of shareholders when the first confirmation statement is filed after clause 44(3) comes into force. As I said, the clause is a welcome step in increasing the transparency of shareholder ownership and information, which we support strongly. Nevertheless, as has been said, the provisions in the Bill on shareholder information could and should go further. That is the context in which we tabled the amendment.

The amendment would provide that the confirmation statement about the company membership under this clause is submitted not only on a one-off basis but annually. The principle of shareholder information being submitted is one we support fully. If the Government believe that should be a one-off, I would be grateful if the Minister could explain why it need not be annual.

As I have mentioned, opaque shareholder ownership is a significant barrier to ensuring transparency and tackling economic crime. An example that has been cited already is Savaro Ltd. In August 2020, tonnes of ammonium nitrate exploded in Beirut port, killing more than 200 and wounding thousands more. The reported owner of the chemicals was a UK-registered private limited company called Savaro Ltd. The data provided by Savaro Ltd gives an insight into the poor quality of shareholder information held at Companies House and how that hinders investigation. Transparency International highlighted how, to identify the shareholders, it had to go back to 2015 for documents that named Status Grand as the sole owner.

Instead of identifying shareholders annually, companies only have to say that no shareholders have changed. The information is hidden in PDF documents, so it is unnecessarily time-consuming to establish who held shares in an entity at a particular point in time. Savaro is a clear example of how annual shareholder data, which the amendment would provide for, could assist considerably in investigating even criminal activity in UK companies.

Let me pre-empt the Minister’s pushing back on the amendment. One common argument against companies providing shareholder names annually is that it would prove too onerous a task for UK companies, but in answer to a written parliamentary question that I tabled his predecessor outlined that the average number of shareholders in UK companies in 2021-22 was only 2.15. The average number of directors was 1.59, so the number of shareholders was not that much higher. To argue that it would be onerous for the majority of companies to provide shareholder information does not seem so credible when set against the low average number of shareholders by comparison with company directors, as set out in the Government’s own data.

I urge the Government to consider this important amendment and hope the Minister will respond positively on how we might move forward with the sentiments and arguments behind it.

[Kevin Hollinrake]

I am grateful to the hon. Lady for her amendment. Clause 49 requires companies to provide to the registrar a one-off snapshot of relevant membership information when the first confirmation statement is due following the clause’s commencement. The amendment would require companies to provide that relevant membership information annually thereafter. The hon. Lady—or is she right honourable?

[Seema Malhotra]

Honourable—for the moment.

[Kevin Hollinrake]

It is only a matter of time. The hon. Lady cited the disturbing case, which I too read about, of Savaro Ltd in Beirut. It may be helpful for me to clarify how the clause as drafted works with existing company law. Companies are already required to provide a confirmation statement at least annually, which records changes in membership information in the previous period. One of the principles behind the confirmation statement is that companies should not be required to resubmit information that has already been filed on the register. Through the process, companies are required to either confirm the information submitted previously or provide Companies House with any updates to a variety of information, including the information contained in their register of members.

For example, if information submitted previously about a company’s members needed to be updated, or there were new members to disclose information about, the existing confirmation statement process already requires the disclosure of that information. Clause 49 introduces a requirement for companies to file a one-off snapshot of relevant information. That will be the means for companies to provide full names for all their members, as required by clause 44. That will give Companies House the starting point to display the information in a more user-friendly way. That information will then be maintained through existing confirmation statement requirements—annual updates, in effect.

The hon. Lady makes a good point about the usability of the information and the different PDFs being held. Companies House is looking at that. The Government would welcome suggestions on how best to display the information—a simple table would be preferable, in my view—which is to be determined as part of the implementation. That will involve user testing in the usual way to ensure that the information is displayed in a user-friendly way, as the hon. Lady seeks. Although I appreciate the intent behind the amendment, it would serve only to duplicate existing requirements, and would introduce the requirement to deliver potentially the same information on a yearly basis in cases where there had been no change in membership. I would therefore be grateful if she could withdraw it.

[Seema Malhotra]

I thank the Minister for his comments and his recognition of the important sentiments behind the amendment, which I will withdraw. I think some of the measures he outlined regarding the format of the information on Companies House and searchability will go a long way to addressing the point. I hope that we will be able to continue a dialogue on that, perhaps under his guidance about how we can best engage, to ensure that what is published is searchable and meets the important sentiments of transparency, so that frankly we never have another Savaro Ltd. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

[Kevin Hollinrake]

Clause 49 is linked to clause 44, to which I spoke a few seconds ago and which introduces new requirements in respect of the names information to be provided to the company in relation to its members, for inclusion by the company in its register of members. Currently, information on shareholders can be contained across multiple filings. The clause requires certain companies to provide the registrar with a one-off list of all shareholders, including their names and how many shares they hold. The first confirmation statement will be due after the new names requirement in clause 44 comes fully into force.

Collecting that information via a one-off snapshot will improve the usefulness of the information on the register by enabling Companies House to display the information in a more user-friendly way. Companies will then confirm the information submitted previously, or provide any updates to Companies House—via the existing confirmation statement process—on the information contained in its register of members.

[Seema Malhotra]

I have no further points to add.

Question put and agreed to.

Clause 49 accordingly ordered to stand part of the Bill.

Clause 50

Abolition of local registers etc

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 69, in schedule 2, page 148, line 40, at end insert—

“167GA Unique identification number for directors

(1) On receipt of notification of a person becoming a director, the registrar must allocate that director a unique identification number, unless such a number has already been allocated to that person.

(2) Any information supplied to the registrar under or by virtue of this Act about a person who has been allocated a unique identification number under subsection (1) must include that number.”

Amendment 68, in schedule 2, page 150, line 36, at end insert—

“167KA Limit on number of directorships held

(1) Where notice has been given to the registrar that a person (P) has become a director, the registrar may determine that P may not hold that directorship.

(2) The registrar may make a determination under subsection (1) if the registrar considers that P holds an excessive number of directorships.

(3) The factors that the registrar may take into account in making a determination under subsection (1) are the experience, expertise and circumstances of P.

(4) If the registrar makes a determination under subsection (1), P may not hold office as a director of the company.”

Amendment 70, in schedule 2, page 150, line 39, after “167G,”, insert “167GA”.

This amendment would provide for penalties to apply to anyone failing to provide their unique identification number (see Amendment 69) to the registrar.

That schedule 2 be the Second schedule to the Bill.

[Kevin Hollinrake]

In last year’s consultation on the powers of the registrar, the Government asked stakeholders for their views about the requirements for companies to hold their own registers and to deliver the information contained in them to Companies House. Stakeholders were also asked whether the election regime, by which companies can choose to keep their registers only at Companies House, should be retained. They were clear that centralising certain registers with Companies House could reduce burdens on businesses. In response, the Government said that we would continue to consider updating the registers regime accordingly.

The Government have decided that, where possible, a single source of information about companies is preferable, and that that source should be Companies House. In future, the definitive registers of directors, secretaries and persons of significant control will, in all cases, be held by the registrar rather by companies themselves. Clause 50 introduces schedule 2, which contains the amendments to the Companies Act to implement that policy by setting out the requirements and processes that will apply upon the abolition of local registers and the existing election regime. The changes will apply to registers of directors, of secretaries and of persons of significant control.

Schedule 2 sets out the detailed requirements necessary to give effect to the new regime for companies’ registers. The schedule is necessarily long and detailed because of the complexity of re-engineering the existing system to repeal obligations to maintain local registers and replace them with a regime that will result in the population of central registers. What have largely been a range of duties for companies to maintain records are broadly being transposed into an analogous set of obligations to report that information to the registrar. In many instances, companies are currently obliged not only to maintain registers but to notify the registrar of changes to them. The eradication of local registers will therefore serve to ease burdens on business.

However, it is worth drawing attention to a number of areas in which the new registers regime will involve new reporting obligations for companies. Proposed new section 167G will replace section 167 of the Companies Act 2006 and introduce additional requirements on companies. When notifying the registrar of a new director, companies will be required to make statements to verify the director’s identity and that the individual is not disqualified or otherwise ineligible to be a director.

Proposed new section 790LB will permit that the notification of a new person with significant control, which is required under proposed new section 790LA, is accompanied by a statement confirming that the individual’s identity is verified. If a statement is provided in relation to a registrable relevant legal entity—a legal entity that itself has significant control in a company—it must specify the name of one of its relevant officers and must confirm that their identity is verified. The notice must be accompanied by a statement from the relevant officer confirming that they are the relevant officer of the registrable relevant legal entity.

On amendment 68, which was tabled by the hon. Member for Glasgow Central, given that in our consultation on potential reforms for inclusion in the Bill the Government considered the possibility of including a cap on directorships, I am sympathetic to the underlying intention of the amendment. Approximately three out of four respondents to the consultation opposed a cap. The Government chose not to proceed with one, believing it preferable to verify identities and provide more accurate linkage of records, thereby providing a more accurate picture of involvement with companies. That reasoning stands today.

Analysis of the companies register, together with comparison against other data sets and the reporting of anomalies from obliged entities, will assist in identifying circumstances in which we believe the number of directorships poses a risk of criminal activity. That information will be shared with the relevant enforcement and supervisory bodies.

The amendment proposes a form of fitness test rather than a cap. I acknowledge that this removes some concerns about the bluntness of such a cap and addresses some of the concerns raised by respondents in our original consultation. However, in return the amendment undermines the agency of company owners to act independently and in their own interests when appointing people to run the business they own. It places the registrar in the position of being a higher authority for such appointments. Would they ever have at their disposal the evidence to make a negative determination? What would be the implications of a negative determination on the actions taken by a validly appointed director up to the point of such a determination?

The possibilities in this policy area were given careful consideration as part of the Government consultation. We have not identified a legislative proposal along the lines of 68 amendment that is workable or appropriate. It would undermine business confidence in the UK if companies could not be sure whether their director appointments would take effect. We believe that the new and existing powers to analyse and query information and on identity verification, along with the enhancement that will be brought to linking people across multiple roles and the wider data-sharing possibilities for the registrar, all serve to strengthen our capacity to identify possible grounds for concern. Such concerns can be reported to the relevant agencies, investigated and acted upon, including by pursuing the disqualification of directors, if appropriate. I hope I have clarified why we do not believe the amendment should be taken forward.

Amendments 69 and 70 will be redundant once the expanded power under section 1082 is exercised, as amended under clause 66. The effect will be that all individuals who are under a duty to verify their identity will be assigned a unique identifier when they successfully complete identity verification. This will include all directors, who will commit an offence if they act as a director without having their identity verified.

[Seema Malhotra]

Will the Minister clarify what he said? Will all directors be given a unique identifier?

[Kevin Hollinrake]

Yes, that is in clause 66. Further detail about the use and allocation of unique identifiers will be set out in regulations made via the affirmative procedure, so Parliament will have sufficient opportunity to scrutinise them. There is no need, therefore, for the inclusion of a penalty for directors who fail to provide the registrar with their unique identifier. It will be the registrar who issues a director with a unique identifier, not the company or the director. I hope my explanation has provided further clarity on why the amendments are not needed. I urge the hon. Member not to press the amendments to a vote.

--- Later in debate ---

[Seema Malhotra]

Thank you, Mr Robertson.

The importance of clause 50, which relates to schedule 2, is obvious and requires no further comment. The Minister’s description of schedule 2 as long and detailed was on the button. Its length is understandable given the changes it is making by abolishing the requirement for companies to maintain their own registers of directors, registers of directors’ residential addresses, registers of secretaries and registers of people with significant control. Instead, that information will be held centrally by the registrar, with the important provision that companies have a duty to update the registrar of any change to the information.

We welcome the proposed changes in clause 50, but I want to comment on amendments on 68, 69 and 70 tabled by my SNP colleagues, to which I am sure they will speak. Amendment 68 would limit the number of directorships that one individual may hold. Where notice has been given to the registrar that a person has become a director, the registrar may determine that they should not hold that position, if the registrar considers that they hold an excessive number of directorships. That may be achieved by setting a cap on the number of directorships held and it might be possible to override that limit if there were good reason, and a simple means introduced by which that application and argument could be made to the registrar. Such a proposal could be implemented sensibly to bring about the benefits that it offers, especially in the light of some of the abuses committed.

From our evidence sessions and debates in Committee, we have learned that individuals with multiple directorships are a massive red flag in terms of potential criminal activity. In evidence to us on 27 October, Bill Browder said:

“Why is it okay to have a person be a director of 400 companies? That does not make any sense to me. Why should there not be some limitation—maybe 10? Ten companies is a lot of companies—but 400 companies, or a thousand companies?”

––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 74, Q151.]

A limit on the number of directorships could easily be set in legislation and that would not stop people conducting their lawful business, but it would make it harder for criminals to use the system and our company structures to launder money and act as drivers of economic crime. It is worth reflecting on the fact that the evidence for that change came from a range of professional bodies. They also said that if they were directors of four, five, six or seven companies, how would they have the time to undertake their responsibilities with the required due care? The Minister referred to the consultation on this issue and said that three out of four of those consulted opposed a cap. Can he give us clarification on the year of that consultation? There are some questions about how we might interpret some of the responses, given the number of respondents and how many responded to all the questions.

In the light of that, I will make a few other remarks. The Association of Accounting Technicians, a registered charity based in London that acts as a professional body for accounting technicians worldwide, echoes Mr Browder’s assessment. In September 2020, it published an article recommending a cap of 15 directorships for one person, but it recognised, I think as we all do, that it is a difficult balancing act. We do not want to stop legitimate, lawful and productive activity, but we want to have a way of putting a stop to mechanisms that are easy to abuse. The AAT noted that there was a cap of 15 in Ireland, a general cap of 20 in India, and a cap of five in France that applies to public companies only.

Bodies that responded to the Government’s consultation made other interesting comments. There was a wide range of views on the cap, from two to 100 I think, with many suggesting between 15 and 25. This is an important conversation in the light of the scale and nature of economic crime, how it is changing, and the scale of abuse of our company structures. Some action has been undertaken in slightly different contexts, with less clarity about what has been happening with Russian money, Russian oligarchs and the connection to our international security. This year has really helped to challenge and expose much of that, albeit six years after legislation on economic crime was first promised. The point is that we have reached a place where our eyes are wide open now—or definitely wider, if not open completely.

Some of the wider comments and contributions to the Government’s consultation may well be worth going back to, in the light of what other countries do seemingly without impeding their economy or their companies’ activities. India is a good example of a nation whose trade is growing and that has a real focus on both domestic growth and international trade. I worry that we are closing down some of these debates, when this is a time to review them, perhaps with a slightly more open mind.

[Kevin Hollinrake]

What limit would the hon. Lady put on it?

[Seema Malhotra]

The Minister asks a fair question. He is not necessarily stating a cap. Given what has come out in the consultation, and what has been in the articles about whether there should be a cap and what would be right for British companies, it is certainly open to further conversation. It is interesting that in the Government’s consultation many were suggesting between 15 and 25, which is in the ballpark of what has been happening in other countries. The make-up of our economy could be slightly different. We have to understand it in the round, and in the context of our economy, but it is a question of a scale of 400 to 1,000.

If the Minister is saying that there might be a level at which there starts to be a red flag, and implicitly that Companies House may implement the legislation, perhaps Companies House and the registrar will say, “Maybe we’ll just do a procedural check if we have 25-plus directorships.” I do not know. That is where data and analytics help, rather than a ballpark figure. It must be within a considered understanding of how our economy works, and how and where legitimate business is carried out, with a view from directors as well. We might find that it is an easier answer to reach, because it does not have to be one that only we, as Members of Parliament, comment on; it has to be informed.

We are not arguing for a hard cap. We are saying that, as the logic of the SNP amendment outlines, rather than managing on a case-by-case basis, having a way to manage risk structurally and procedurally is an important response to the evidence, the nature of use that we have seen and the situation we find ourselves in today. There is room to learn from the experience of other countries.

Amendment 69 would insert a provision into schedule 2, requiring that:

“On receipt of notification of a person becoming a director, the registrar must allocate that director a unique identification number, unless such a number has already been allocated to that person.”

Amendment 70 follows from that, and would provide penalties for anyone failing to provide their unique identification number to the registrar. We support the spirit of the amendments, but I refer the Committee to our amendments 102 and 103, which we will be speaking to in later debates. Our amendments take a slightly different approach and place a duty on the registrar to give every director a unique identification number, which is published on the registrar’s website. I think that approach is tighter.

I hope in his response that the Minister will be clear about what the registrar is required to do versus what they can do, and what will be and will not be published on the unique identifiers for directors.

--- Later in debate ---

[The Chair]

With this it will be convenient to consider clauses 53 to 56 stand part.

[Kevin Hollinrake]

This group of clauses will improve the quality and value of financial information on the companies register.

Clause 52 will require a micro-entity company to file both its balance sheet and profit and loss account with the registrar. It removes the current option available for a micro-entity to omit—or fillet out—its profit and loss account when filing its accounts with Companies House. Clause 53 will require small companies to file a profit and loss account, and a directors’ report, when filing their accounts with the registrar. Clause 54 ensures that clauses 52 and 53 operate as intended by amending references to the existing small company and micro-entity filing obligations in the Companies Act 2006.

Clause 55 requires any companies seeking an audit exemption to provide an additional statement from their directors. That will help to deter fraudulent under-reporting by companies and, where a company director has provided a false statement, provide additional enforcement evidence that can make it easier to successfully prosecute directors. Finally, clause 56 removes the option for small companies, including micro-entities, to prepare and file a set of abridged accounts.

Collectively, the clauses will ensure that more financial information for micro-entities is publicly available on the register, helping to inform better business and lending decisions. They will ensure that the company’s turnover—one of the three eligibility criteria that determine the size of the company and what it must file with the registrar—is publicly available. The clauses will also provide greater transparency of micro-entity accounts, which will help to deter fraudulent or criminal activity and make such activity more easily identifiable.

It is crucial that we strike the right balance between transparency and burdens on business. As micro-entities already file a copy of their annual accounts for other purposes—tax returns with His Majesty’s Revenue and Customs, for example—the changes will not be overly burdensome for them.

[Seema Malhotra]

I thank the Minister for his comments. We welcome the measures in these clauses.

As the Minister said, clause 52 updates the filing requirements for micro-entities. A company is a micro-entity if it has any two of the following criteria: a turnover of £632,000 or less, a balance sheet of £316,000 or less, or 10 or fewer employees. The technical definition of a small company is any company that has any two of the following criteria: a turnover of £10.2 million or less, a turnover of £5.1 million or less, and 50 employees or less. Although we use the terms micro and small entities—in terms of the scale and size of other companies, that is significant—they can be larger than the terms indicate. That increased transparency from clause 52 is important.

We welcome clause 52 as a reflection of the fact that insufficient information is filed from those micro-entities to give a true and fair view of their financial position. The minimal disclosure requirements at present have also made them attractive to fraudsters who want to present a false picture.

There were 1.3 million micro-entity accounts filed in 2019-20. It is the most common choice for account filings. The Government’s December 2020 consultation on improving the quality and value of financial information on the register noted:

“Fraud investigation bodies have reported that micro-entity accounts are often used by companies that are investigated in money laundering cases.”

It is therefore absolutely right to tighten things up and seek greater transparency in the accounts and financial positions of companies’ activities. However, that raises the important question of whether any further work might be needed on micro-entities, although that question is for another debate.

On roll-out time, the Bill’s impact assessment suggests on page 76 that familiarisation time will be needed to get micro-entities up to speed with the changes, but there should not be significant additional costs, as companies already collect and submit additional information to HMRC in tax filings. In the light of what we and the Minister have said, we want moves that stop the criminal behaviour, but do not impede ordinary, good, productive and lawful business, so the measures are welcome. We want to see them come into force as soon as is practicable. The Secretary of State may make a determination later about when to bring the requirements into force, but perhaps the Minister will indicate today when he expects the Government will want the new requirements on micro-entities to become operational.

We welcome clause 52 as a necessary means to ensure that small businesses that are not micro-entities file full accounts to the registrar—which, again, will increase transparency and the availability of information. Clause 54’s consequential amendments seek to ensure that clauses 52 and 53 function as intended.

I want to make a few comments on clause 55. Perhaps the Minister can clarify the exemptions from audit requirements under this clause. When a company seeks an exemption from the requirement to have its accounts audited—for example, because it is a small company with £10 million or less in turnover—the clause would require directors to make a statement confirming that the company qualifies for an exemption.

I would appreciate it if, in the interest of the robustness of legislation, the Minister would expand on the clause and clarify what qualifies a company to have an exemption in that regard. The Government brought in an increase in audit exemption levels, effectively making more companies eligible for exemptions, and that goes back to the 2013 EU accounting directive, which sought to simplify requirements on companies submitting accounts and gave member states the flexibility to increase the small company accounting and audit exemption thresholds. Is there likely to be any review of those thresholds? Perhaps the Minister can enlighten me as to whether there is clear demand for that.

In the light of current circumstances—the clamping down on, and growth in, economic crime, as well as the transformations we will have seen in the last six, eight or 10 years—will the Minister tell us whether the high thresholds brought in by the Government have reduced audits and the transparency of information on the register? Have they affected the extent to which information filed by companies is trusted? Is the Minister interested in considering whether the levels for audit exemption are acceptable and right in the context of current economic crime, or does he think, in the light of the opportunities presented by the Bill, that there is reason to look at any of that again?

We welcome clause 56 as a necessary provision for improving the accuracy of information in relation to small companies.

[Kevin Hollinrake]

I will check the implementation date of the new rules around filing full accounts and let the hon. Member know in detail.

In terms of the audit exemption, the threshold is currently £10.2 million. We will always keep that under review, because we are trying to ease the burden on business while ensuring that nothing untoward is happening. Having been through the process myself, I know that auditing a business is very extensive, exhaustive and expensive. It is absolutely right that we seek to reduce burdens on business whenever we can, while also putting appropriate checks and balances in place.

Question put and agreed to.

Clause 52 accordingly ordered to stand part of the Bill.

Clauses 53 to 56 ordered to stand part of the Bill.

Clause 57

Confirmation statements

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Kevin Hollinrake]

I am very disappointed that the right hon. Lady regards me as anti-regulatory. I want a system that allows good, bona fide businesses to go about their daily business without unnecessary checks and balances. We cannot control everything that goes on in our society but, in the main, businesses are lawful, and undertake lawful and legitimate commercial activity.

If the right hon. Lady expects a world in which we check every single filing, nobody will be doing any commercial work in our society. The only people we will have will then be box-checkers, and where would the tax revenue come from to pay for all the things that both she and I want in our society?

We must have a proportionate balance between regulation, the cost of resourcing regulators and the needs of law enforcement agencies. That is why our belief, which I know is not entirely hers, is that we need to take an intelligence-based approach to regulation. That is the most effective way to do it.

[Seema Malhotra]

I think we all agree that we do not want to do things that impede lawful activity—that is not a matter for debate, really. The question is whether the systems will be strong enough. They do not have to be burdensome; there are ways in which systems can have automatic checks, and be underpinned by clear roles and responsibilities. The question of who would know whether there are errors in a confirmation statement, and how that would be checked, is quite an important one for ensuring that we are not—

[The Chair]

Order. This is an intervention. I call the Minister.

[Kevin Hollinrake]

I do not disagree. I agree with the hon. Lady about automation, but checking every single document and every single file would be ludicrously burdensome, because 99% of those filings would be legitimate documents. I speak as somebody who has been an authorised person under the FCA, so I know how many checks, and double-checks, someone in such a position has to make. The vast majority of people who the FCA regulates do a bona fide, legitimate job.

We are trying to find the people who are not doing so, and what we are trying to do through the Bill is to allow the sharing of information and the cross-referencing of information to identify all the red flags—the hon. Lady talks about automation—and then trigger alerts that can be investigated. I think that we all agree about that, and that is the approach that we are taking.

As I was saying, these measures will all ensure that companies, once formed, will reassert to the registrar via their annual confirmation statement that the company’s intended future activities are lawful.

Clause 59 will oblige a company to notify the registrar via its first annual confirmation statement of a change in its principal business activity if such a change takes place between the company’s application to be incorporated and the incorporation taking place. That addresses the fact that there is currently no duty to notify the registrar during the incorporation process. This new obligation builds on the existing obligation in section 853C of the Companies Act 2006, whereby companies have to notify the registrar of a change in principal business activities via their annual confirmation statement.

Clause 60 amends section 853J(4) of the Companies Act so that the framing of criminal offences is consistent with similar provisions in this Bill. It also makes the same amendment to section 853L(1), which concerns the offence of failing to submit a confirmation statement on time. It will clarify that every officer of the company who is in default can commit the offence, as well as every director of the company. It also corrects an irregularity with the framing of the offence, which currently imposes strict liability on all the company’s directors and secretaries, regardless of whether they are in default—in other words, regardless of whether they authorised, permitted, participated in, or failed to take all reasonable steps to prevent, the contravention. I hope right hon. and hon. Members agree that it is important that these measures reach the statute book.

[Seema Malhotra]

We welcome clause 57 which, as the Minister said, prescribes the company’s duty to notify the registrar about certain events and provide certain information in advance of and at the same time as the delivery of the annual confirmation statement. That is obviously very important.

We have already debated some of the issues that clause 58 addresses. It is obviously an important clause, and the Minister has outlined that the approach is to hope for accuracy, based on risk assessments and red flags. We understand that, but it still does not feel as strong as we need it to be. It does not feel clear and strong on detecting issues, and it does not give the registrar a clear expectation of what the Minister intends. It felt a little like the Minister was just hoping that everything would work out. We should be clearer about what steps should be taken on detection, prevention and enforcement, and ensure that that is as strong as possible through the passage of the Bill. That is incredibly important, because we know that those are weak areas.

My right hon. Friend the Member for Birmingham, Hodge Hill made the very important point that we need to clarify what is expected of the registrar. They will be subject to many different demands, and in some ways it will make their life easier if they see in Hansard that there is a clear expectation from the Government, the Minister and the House about what is to be done. That would aid the call for greater resources, as it is frankly a way of making savings from enforcement later, and increasing the speed of detection will considerably lower the cost of economic crime. I hope that the Minister recognises that I am putting these comments and questions to him in the hope of detecting ways of tightening up the message about what we expect, in order to better implement the Bill and its stated goals.

We welcome clause 59, which I think we referred to earlier. Clause 60 will align terminology around existing offences relating to confirmation statements. The Minister outlined the detail of that. I raise a similar question as previously, because I seek clarity from him on what it will mean in practice for companies that breach the new provisions around confirmation statements. What is the result of failure to comply with the provisions, and who will be held to account? Clarifying that would be quite helpful. It would also be helpful to understand whether the Bill will allow for retrospective penalties, should information on the confirmation statements turn out to be misleading, and perhaps purposefully misleading.

[Kevin Hollinrake]

The hon. Lady raises some good points on retrospective penalties. I will find out that information and come back to her.

Question put and agreed to.

Clause 57 accordingly ordered to stand part of the Bill.

Clauses 58 to 60 ordered to stand part of the Bill.

Clause 61

Identity verification of persons with significant control

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Kevin Hollinrake]

Under the cross-Government identity proving framework in “Good Practice Guide 45”—GPG 45—a combination of non-photographic documents, including Government, financial and social history documents, can be accepted to achieve a medium-level assurance of identity. That includes birth certificates, marriage certificates and recent utility bills. The framework, which also recognises ID documentation from authoritative sources, such as the financial sector or local authorities, is routinely used to build a picture of identity. Restricting that process by defining a recognised authority as a Department or agency could therefore inadvertently disenfranchise individuals from meeting ID verification requirements. I take the hon. Member’s point that the amendment seeks to include certain forms of ID, but it might not serve the purpose that he thinks it would.

[Seema Malhotra]

I understand what the Minister says in relation to GPG 45. I wonder whether he has considered that, in circumstances where an identity document with a photograph of the individual’s face may not be available, for whatever reason, in some way having a photograph of the person’s face is the most important thing. Is that something he has considered as part of verification checks?

[Kevin Hollinrake]

All these matters need to be considered in the round when we come to the further details of ID verification. I was simply pointing out some of the shortcomings of the amendment.

In certain circumstances, non-photographic verification should also be available, to ensure that the Companies House service meets digital inclusion drivers and accessibility requirements, as set out in the Department for Digital, Culture, Media and Sport digital identity and attributes trust framework. The Companies House service must also adhere to the public sector equality duty.

The ability to verify using a range of documentation will maximise the number of service users able to verify digitally or at all. Not having that route would prospectively drive users toward assisted digital or non-digital routes, resulting in additional burden, an impact on ease of doing business, and increased cost and resource. It would also lead to far higher rejection rates, impacting company incorporations and appointments. As I said, the vast majority of companies are law-abiding, and it is disproportionate to put this burden on them.

I turn to the amendments that seek to remove parts of clause 62. Again, I have sympathy with my colleagues who are concerned about the effectiveness of the AML regime. Indeed, the measures in the Bill requiring corporate service providers to register with Companies House are intended to support the AML regime—a point raised earlier by the right hon. Member for Barking. There is a requirement for corporate service providers to register with Companies House as well as an AML supervisor. We will know who corporate service providers are registered with, and we will be able to provide their supervisors with information that will enable them to do their job more effectively. Where corporate service providers fail to act effectively, the registrar will be able to suspend or de-authorise them.

The practical effect of the amendments would be to limit verification pathways to the registrar only, preventing verification by the AML regulated sector from being acceptable for the purposes of ID verification under the Companies Act. That is unnecessary, and it would come at the expense of people and businesses conducting their activities entirely legitimately.

About half of company formations are currently submitted by third parties, very many of which take their responsibilities seriously and are highly diligent in conducting ID verification checks. They include high street accountants, regional legal firms servicing small businesses, and so on. I am concerned that preventing third parties from being able to register with Companies House and verify identities would have disproportionate consequences for those entities, possibly driving business away from them. That effect would be particularly acute where ID verification is taken as a package with company formation and other services. It is not clear how the amendments would affect the ability of corporate service providers to deliver documents on behalf of their clients if they are not required to be authorised, for example if they represent limited partnerships.

Many company directors and people with significant control currently registered at Companies House, all of whom will need to verify their ID under the transitional provisions post enactment, would prefer to do so by using their professional adviser. They would suddenly find that their long-established legal adviser was deemed fit by the Government to verify their ID for money laundering purposes under the money laundering regulations but unfit to do so under the Companies Act. The amendments would therefore create considerable disruption for individuals as well as corporate service providers. I hope that my explanation has provided reassurance and that hon. Members will consider withdrawing their amendments.

I have already described the new powers provided by clause 62. Beyond that, it is important to note that the regulations provided for by the clause can also specify the records that authorised corporate service providers will be required to keep in connection with the verification or reverification of identity. Those record-keeping obligations on authorised corporate service providers can be enforced through offences for non-compliance. Additionally, the Secretary of State can confer, by regulation, discretion on the registrar about when an individual’s identity ceases to be verified. The individual will then be required to re-verify their identity. Finally, regulations under the new sections introduced by the clause will be subject to the affirmative resolution procedure.

Economic Crime and Corporate Transparency Bill (Sixth sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Committee stage
Tuesday 1st November 2022 Public Bill Committees

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

Thank you, Ms Bardell. I do not think we were fully clear between us. It is a pleasure to serve under your chairship. I rise to speak to amendment 76, which is in my name and the name of my hon. Friend the Member for Aberavon. I want to conclude on the remarks he has already made.

Clause 27 sets out exceptions to name change directions if the Secretary of State is satisfied that it is in the interests of national security, or of preventing and detecting serious crime, for a business to carry on operating under a name that goes against regulations. We have tabled this amendment to require any exemption to a name change direction on the grounds of national security to also be subject to appropriate transparency.

Amendment 76 is a probing amendment designed to clarify the purpose and circumstances in which the Secretary of State can use their powers of exemption, and who will be aware of how the exemption is being used. The Minister may tell me that some of this is subject to greater security. In that case, which body or Committee would be aware, even under Privy Council rules, of the use of these powers?

[Kevin Hollinrake]

It is a pleasure to serve with you in the Chair, Ms Bardell.

As Members will have noted, this group is large and includes both amendments and clauses. The hon. Member for Aberavon—I appreciate his kind words and those of the hon. Member for Feltham and Heston—has tabled many amendments, and they would make changes across multiple clauses. It will therefore be helpful for all Members if I lay out the effects of the clause as currently drafted, before turning to the amendments and the many points made during the debate.

Clauses 14 to 22 together form the majority of the chapter on registered company names. At present, the Companies Act 2006 leaves it to the discretion of the Secretary of State to determine the time period within which a company must comply with a direction to change its name. Clause 14 amends that to standardise the various direction-issuing powers already found in part 5 of the Companies Act 2006 and those that are inserted by this Bill. This means that in all instances where companies are directed to change their registered names, they must do so within at least 28 days of the date of the direction. [Interruption.] There are two things I would say to the hon. Member for Aberavon. Clause 14 must be looked at in context, and the point is that proposed new subsection (2A) of section 64 of the Companies Act would give

“a period of at least 28 days beginning with the date of the direction.”

Combined with new subsection (2) of section 76 of that Act, as inserted by clause 14(5) of this Bill, that means the direction will be a fixed period. There will be a fixed period, just as he wants, and in all likelihood it will be 28 days. It may sound like odd drafting, but the “at least” part is to ensure that the direction cannot be less than 28 days to give companies a reasonable chance to make the change. Once the decision has been made on how long the company will get, that will be a fixed period, unless the company provides justification for changing it.

[Kevin Hollinrake]

It is in the Bill. The point is that the company, in some circumstances, can effectively apply to have that time period extended. That is the point of this; that is where the “at least” bit comes in.

[Seema Malhotra]

Perhaps the Minister can clarify whether a period of 128 days given in writing would be in line with the terms of the clause. Did he go back to the lawyers to see whether the clause could be redrafted to read that the period must be a maximum of 28 days, beginning with the date of direction? That would still allow for the terms of proposed new subsection (2B) and a permitted extension within three weeks.

[Kevin Hollinrake]

We need to allow for some discretion when certain companies cannot comply because of certain consequences and for whatever reason. As a simple example, a company might have to get an agreed resolution between directors or shareholders to change its name. That is why the term “at least” applies in the clause.

I would like to move on, because there is more that I would like to share with you, which deals with the issue from a different direction. I will come back to you, I promise you.

--- Later in debate ---

[Kevin Hollinrake]

And I do not think the right hon. Lady imagines that the registrar could go around them all. I am glad we agree on that.

[Seema Malhotra]

Will the Minister give way?

[Kevin Hollinrake]

I would like to finish the point. The key point is that the measure requires the people who control the company, be it the directors or persons of significant control, to make statements. If they make false statements or fail to comply with the requirement, they will be committing a criminal offence, as is every officer of the company who is in default.

What the right hon. Member for Barking seems to want is to have armies of address checkers going around the country. This is ex post regulation, which is a more effective means of regulation. I do not suppose that anybody on this Committee wants to inhibit the lawful, commercial activity of the vast majority of companies that go about their normal commercial business every single day.

[Kevin Hollinrake]

No, not at this point in time.

We are striking a balance between the two. These measures have to be seen in the context of the wider provisions of the Bill on checking the identity of directors and persons of significant control—the people who are controlling the company. If people make false statements, those people and that company will be guilty of an offence.

The shadow Minister wanted to intervene.

[Seema Malhotra]

Does the Minister agree that being able to use analytics to determine that 1,000 companies are registered at one address would not mean manually going through and using resources in that manner, and would mean—taking a risk-based approach—that we would identify where something needed to be done?

[Kevin Hollinrake]

Absolutely. We all agree with that. The registrar will look at that.

[Seema Malhotra]

When?

[Kevin Hollinrake]

If it is an example where 2,000 companies are registered at an address near Edinburgh, and somebody tries to register that address, that may well lead to a red flag. Companies House is investing in that capability, as part of its work. It is not just about people, but systems and automation of systems, in order to see those red flags. At that point in time, the system would potentially do what the right hon. Member for Barking wants it to do—raise a red flag. That could then be queried with the directors and the people who control the company, and could alert law enforcement authorities. I do not think anybody here is suggesting that Companies House becomes another law enforcement authority. There has to be information sharing between Companies House and the law enforcement authorities.

--- Later in debate ---

[Kevin Hollinrake]

As for the period of compliance, we will let hon. Member know. There is a huge volume of records. We want Companies House to be more proactive. We do not want it to be swamped by information being supplied to it all at once. We need to make sure that the commencement order is carried out sensibly. Red flags could well be applied to a company address that has many other companies attached to it. If a company had registered multiple company directors or persons of significant control or had recognised multiple companies at one particular address, that should be the kind of red flag that, following a risk-based approach, would require checks and balances to be put in place. Those companies would be struck off the register and other actions would be taken against the individuals.

The new definition in clause 28 negates the need to include the reasonable suspicion element of amendment 86. Where the registrar, informed by the intelligence and information available to her, has reasonable grounds to suspect that the company does not have permission to use the address, she may come to the view that in the ordinary course of events, the appropriate address conditions will not be met. The registrar will then either reject it or change it according to the circumstances.

[Seema Malhotra]

If I am following the Minister’s arguments as he intends, is he saying that his view of objective 4 and how it would be interpreted means it would be implicit that the registrar would be expected to check addresses and ensure minimum fraudulent activity and so on? In response to the amendment tabled by my right hon. Friend the Member for Barking, which called for a duty on the registrar to verify the appropriateness of the address using a risk-based approach, I believe the Minister argued that that was implied and would therefore be done under the objectives as they stand.

I put it on the record that we agree with the new clauses and amendments that he has outlined and that were debated with clause 29. They are important. Does the Minister think that, even after his new powers and requirements are in place, the gap will be closed sufficiently? To say that the registrar could act on intelligence available to her either implies that somebody will give it to her or that there will be a function that will operate as if there were a duty. Is that his intention?

--- Later in debate ---

[Kevin Hollinrake]

The purpose of this set of amendments and new clauses is to better standardise address information requirements across the Companies Act 2006 to allow the registrar to take appropriate action when information is erroneous or misleading.

It is important for users of the company register that the information they find on it is accurate and has genuine utility for them. The amendments standardise the address information that companies will be required to file in relation to corporate directors, company secretaries, relevant legal entities and registerable persons—the latter two being the categories of people with significant control of a company. In future, a service address and a principal office address will be required for all those categories. The former measure will give certainty about where documents can be served, and the latter will give clarity about the physical whereabouts of the party concerned.

New clauses 5 and 6 address the circumstances in which it appears that the stated service address does not fulfil its requirements or that the person of significant control or the company cannot demonstrate that the stated address is their principal office address. The new clauses imitate section 1097A of the Companies Act 2006 as amended by clause 29 of the Bill.

Clause 29 amends the 2006 Act to give the Secretary of State the power to make regulations enabling the registrar to change a company’s registered office address when there is reason to believe that it is no longer appropriate. That power, and those contained within this group of amendments, will be an important weapon in the fight against identity hijack and abuses of innocent people’s address details.

Similarly, the purposes of the remaining amendments in the group are to strengthen the framework for changing address when it is expedient to do so, and to improve the utility of address data. I trust that the Committee will agree that these well-considered amendments and additions will add value for users of the Companies House registers and afford further protection against the nefarious use of private individuals’ information.

[Seema Malhotra]

I am grateful for the opportunity to speak in support the Government’s amendments and new clauses, which we welcome.

As the Minister has set out, new clauses 5, 6 and 8 give the Government the power to introduce regulations that authorise or require the registrar to change addresses and to serve documents to those with significant control. He also mentioned that new clause 5 mirrors section 1097A of the Companies Act, which confers a regulation-making power to enable the registrar to change a company’s registered address, and an equivalent power for a company’s service address. New clause 6 does the same for the registered principal address of a relevant person

As we have been discussing today, registering an address at Companies House does not require the permission of the owner or occupier of that location. It goes without saying that the negative impacts are significant, from visits from debt collectors or bailiffs to damage to a company’s credit rating. Under the regulations, anyone can apply to the registrar to have the registered office of a company changed, following a procedure. It is right that the Bill broadens that power to service addresses and principal addresses. Those are important steps, and the wider amendments close loopholes on company addresses.

New clause 8 allows documents to be served on persons of significant control over a company as well as on directors, secretaries and others. Amendment 44 requires a corporate director to include a principal office in all cases, rather than its registered or principal office. Amendments 46 and 47 do the same for corporate secretaries. Amendment 45 requires a company to provide a service address for directors who are not individuals. Amendment 48 requires a company to provide a service address for persons of significant control who are not individuals. Amendment 50 requires a principal office to be provided for all partners that are a legal entity in a limited partnership.

It goes without saying that all those amendments are welcome in limiting the value of registered offices used as a way of concealing where a company does its business. We support them, but a question remains about the missing link in the chain. We must ensure that, in the use of the powers that we have been talking about, the registrar will—I hope, from our discussions with the Minister—in due course have a duty to ensure that whatever can be done with a risk-based approach can make the most use of the additional powers and requirements being introduced in the Bill. Without that, it feels as if their impact will be far less, and the achievement of the goals of those powers and requirements will be considerably less than otherwise.

Question put and agreed to.

Clause 30

Registered email addresses etc

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss clause 31 stand part.

[Kevin Hollinrake]

Clauses 30 and 31 relate to new requirements for companies to provide an email address to the registrar. When the Companies Act 2006 was drafted, the vast majority of filings presented by companies to Companies House were on paper, and communications to companies from Companies House were posted to the company. The effect of that, especially in the modern digital world, is to slow things down. These days, the vast majority of filings are made digitally, and the Companies Act needs to change to reflect that reality and more modern working practices.

Clause 30 will require that all companies maintain an appropriate email address. One benefit of that is that communications with a company can be expected to be quicker. In addition, it is a cheaper way to communicate and will provide savings for both Companies House and businesses. A failure to provide an appropriate email address will be an offence, and when a company notifies a change to its registered email address it will be obliged to provide a statement that the email address is appropriate. That will assist the registrar in instances where the email address is found not to be appropriate, and it turns out to be something other than a genuine mistake. I provide reassurance, however, that the effect of subsection (7) is that registered email addresses will not be made available for public inspection. That will reduce the risk of their being used fraudulently.

Clause 31 describes the means by which companies already on the register must provide their appropriate email address. Companies will be required to provide the appropriate email address in a statement submitted alongside their first confirmation statement after the requirements outlined in clause 30 come into effect. That transitional period has been selected to reduce the burden both on companies and on Companies House. Given the number of companies already registered with Companies House, it will provide a staggering of notifications of appropriate email addresses, allowing Companies House to deal with them in a timely manner. Companies will not have to provide an extra document to Companies House until they already have to make a required filing. That is a sensible and proportionate method of ensuring compliance with the new requirements. If the company does not supply the appropriate email address with its confirmation statement, it will be in breach of the requirements.

[Seema Malhotra]

I have just a few remarks. We have no issues at all with the clauses, and welcome them. Amending the Companies Act to require all companies to maintain an appropriate email address that can be used in correspondence and administrative matters with Companies House seems appropriate. The email address would be trusted, and any emails sent by the registrar would be expected to come to the attention of a person acting on behalf of the company. We therefore support clause 30.

It is also very sensible to have a transitional period. I am not sure whether clause 31 says how long the transitional period will last before the previous clause comes into effect, and I am not sure whether the Minister said so either. He may have a view on that, or he may come forward with it later.

[Kevin Hollinrake]

I am happy to come back to the shadow Minister with that information in due course.

Question put and agreed to.

Clause 30 accordingly ordered to stand part of the Bill.

Clause 31 ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Scott Mann.)

Economic Crime and Corporate Transparency Bill (Fifth sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Committee stage
Tuesday 1st November 2022 Public Bill Committees

[Kevin Hollinrake]

I absolutely agree. That is the nature of and the substance behind the Bill—making sure that the resources fit the need and that Companies House can promote the integrity of the register and work with law enforcement agencies to share that information and identify the red flags with a risk-based approach. We need to make sure that the work it is doing is appropriate to the task it has been given and that it is sufficiently funded.

Currently, the fees for Companies House are set at a level commensurate with its activities. The Bill seeks to massively increase the scope of its functions to that gatekeeper approach, so it has to be sufficiently funded. The funding started in this spending round, with £63 million for personnel and improving technology to be able to more easily identify the red flags. Companies House is bringing in external expertise to look at its work and what it will need to do to take the expanded activities into account. We need to make sure that as we go forward the resources will be sufficient for it to deliver on its new duties. It is right not to put the cart before the horse. We cannot say, “It should be £50” or “It should be £100”. Various figures have been thrown about. I think the Treasury Committee suggested £100. We need first to identify what it will cost for Companies House to cope with the new duties and then set the figure attached to that cost, to make sure that it has the right resources but does not become a huge bureaucracy that is out of control in terms of costs.

[Seema Malhotra]

We are very quickly getting to the crux of the issues on resourcing for implementation. He referred to independent experts coming in to work with Companies House on its new capabilities and how it will need to be resourced. Will there be a recommendation from those experts on how much resource will be required? We have the objectives and we have debated whether they are sufficient to achieve the goals of the Bill, and we will come back to that point, but will there be a recommendation on how much resource is required and will that recommendation be a matter of public debate?

[Kevin Hollinrake]

Yes, in both cases. That work is going on now. Those recommendations will then be discussed with me and my colleagues in the Department and we will come back to the House. The decisions we make will be approved by the House under the affirmative procedure.

--- Later in debate ---

[Kevin Hollinrake]

The shadow Minister also wants to intervene, so I shall take the interventions together.

[Seema Malhotra]

My intervention also relates to that of my right hon. Friend the Member for Birmingham, Hodge Hill. There is a risk of underestimating the amount of work, and of that then being locked in. I hope that during the course of the Committee, if we are to use our time to best effect, there will be further challenge to the scope of the work or to the expectations of how much work happens. We do not want the scoping for resources to be based on the Bill at the start; that is not necessarily what it will be at the end. Will the Minister clarify that the resourcing plan will be made in light of the ambition of the Bill, because we do not want it to fall short? The Minister’s words—about legislation with implementation—will keep coming back to him, and I am sure he is the first to want not to fall short of them.

[Kevin Hollinrake]

Those words will live with me as long as I am in Parliament.

[Seema Malhotra]

They are good words.

[Kevin Hollinrake]

That is hugely important. The hon. Lady makes exactly the right case: for us to give a figure now, whether that is £50 or £100, is to put the cart before the horse. We all agree that the right resources will be needed, but they will be based on the duties in the final version of the Bill approved by both Houses. That is what we will seek to do with Companies House. My intention is absolutely that Companies House will do that.

In response to the point made by the right hon. Member for Birmingham, Hodge Hill, it is not just about people. I do not yet know the extra numbers that Companies House will dedicate to this work, or when. That is what we need to see in a clear plan that it will set out. Technology, however, can also play a huge part. Companies House holds a huge amount of data, public and non-public, that law enforcement agencies can make use of with a risk-based approach. Technology can certainly play a part, and that is not always inexpensive.

--- Later in debate ---

[Kevin Hollinrake]

The Government acknowledge the growing unease in many quarters about the limitations on the company registrar’s ability to manage the quality of information that finds its way on to the register for which she is the custodian. The entirely new objectives introduced by the clause set the scene for the rest of the Companies House measures in the Bill. They signal the biggest step change in the whole ethos of Companies House and the registrar since that role was established in 1844, which I think the Committee will welcome.

The objectives make it clear to all that the registrar will no longer simply be the passive recipient of information; in performing her duties and functions as modified and expanded in the other Bill provisions that we will discuss in Committee; the registrar will be emboldened to be much more active in her guardianship role. No longer will Companies House be a passive receptacle for company information; nor will it simply accept in good faith what it is given. This Bill will give the registrar wide-ranging new powers to assist her to query more information and to reject filings that the registrar does not believe meet the standards of proper delivery or which do not tally with information that the registrar already holds. The registrar will be able to analyse and share information with other bodies, including law enforcement.

Those are just a few examples of how Companies House will operate differently in the future. The new powers will be exercised with the new objectives introduced by this clause firmly in mind. The objectives are geared towards ensuring that information that companies and others provide is complete, accurate and not misleading, and towards minimising the extent to which companies and others carry out or facilitate the carrying-out by others of unlawful activity. The Government are confident that, in aggregate, their introduction will make Companies House a far more effective gatekeeper.

[Seema Malhotra]

I am grateful to the Minister. Now that we are debating clause stand part, perhaps I can officially say “welcome” to him—I was saving it until now. It is indeed good to see him in his place and to be having the debates with him on the Front Bench.

We have debated aspects of clause 1, and have raised relevant questions. The issue is not whether we agree with the objectives, because of course we agree with all the objectives that have been outlined. The issue is whether they go far enough. Objective 1 is about delivering documents to the registrar. Objective 2 is about those documents containing all the information that they are required to contain. Objective 3 is designed to minimise the risk of information on the register creating a false or misleading impression to the public. Objective 4 is about minimising the extent to which companies and firms carry out or facilitate the carrying out by others of unlawful activities.

I think we might ask ourselves the question again and again: why has it taken this long to get here when we have been having debates on the need to tighten up Companies House for so long and legislation has been promised for some time? When we read the provisions, I think we can say again: is this really the extent of our ambitions? Getting to second base is not the same as getting a home run, is it? I think that is the question and will remain the question. Although we agree with clause 1 and what is in it, we are going to keep asking the question about whether the basis on which so much else will be based in the Bill will be strong enough to give Companies House all it needs, along with the message about its duties to achieve its objectives.

This legislation is designed to tackle economic crime. As we have heard in the debate, it is also designed to protect UK national security. Those are two really serious matters that go together. We are talking about making it harder for kleptocrats, criminals and terrorists to engage in money laundering, with an impact on other crimes: crimes that go on in our streets, crimes related to drugs, crimes related to low-level theft and, now, even the security of our mobile phones and our data and conversations. So much more is at stake in terms of what goes on in people’s everyday lives and their everyday security, much more than perhaps we envisaged when this legislation was first promised at least six years ago. The scale of the challenge has absolutely increased, and the question is as much about whether we will be forward-looking in the legislation as it is about tackling the scale of the problem, on the basis of which legislation began to be drafted perhaps one or two years ago.

--- Later in debate ---

[Kevin Hollinrake]

I thank the right hon. Gentleman for his comments. I do not agree with what he has said. I read through much of the evidence given to the Committee before I was part of it, and Transparency International said that

“the Government has taken an important step toward cracking down on kleptocrats, criminals and terrorists—including associates of the Putin regime—who abuse UK companies for nefarious purposes.”

It also says that the Bill

“presents a number of welcome reforms to the operation of Companies House that, if implemented effectively, would help to prevent money launderers from abusing the UK’s company incorporation system”.

There are people who agree with what we are doing here. We should of course reflect on the comments that have been made by hon. Members in the Committee, but I do think these objectives are important steps forward. We must ensure that they are effective, that there are no Swiss cheese loopholes, as the shadow Minister mentioned, and that the relevant bodies are properly resourced. That is a body of work I will continue with over the next few weeks.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2

Memorandum of association: names to be included

[Seema Malhotra]

I beg to move amendment 85, in clause 2, page 2, line 15, at end insert—

“(2A) After subsection 1, insert—

‘(1A) The memorandum must also state—

(a) the nationality of the each subscriber; and

(b) the country in which each subscriber is ordinarily resident.’”

This amendment would require a memorandum on the formation of a company to include the nationality and country of ordinary residence of each subscriber (a subscriber being one of the company’s initial shareholders at the time it was set up) along with their name.

--- Later in debate ---

[Kevin Hollinrake]

All directors and people with significant control need to be ID-verified for existing companies, and the same obligation will be placed on new corporations.

Finally, clause 8 will permit an application for the registration of a company to contain a statement that the identities of its persons with significant control have been verified. The clause will allow persons with initial significant control to comply with the ID verification requirements at the point of registering a company. Where a company’s subscribers cannot make a statement confirming that persons with significant control have complied with ID verification requirements, the company will nevertheless be registered. The registrar will then direct the persons with significant control to comply with the identity verification requirements.

[Seema Malhotra]

It is a pleasure to speak to clause 2 and to clauses 3 to 8. I have been listening carefully to the Minister and have a few questions. I have made extensive remarks in support for clause 2, so I do not intend to go much further on that. Suffice to say that we have had an important debate, and I think the Minister will find that we will continue to come back to some of these matters.

On the point about the nationality of the subscriber and the country in which they are ordinarily resident, I did not hear the Minister give a clear answer as to whether the Government might consider tabling future amendments if they do not want to support ours. I have good faith in the Minister and want him, on day one of taking up his responsibilities, to take on board hon. Members’ points, so I would be grateful if he could come back to us on how he plans to consider that matter. My hon. Friend the Member for Aberavon may want to apply a similar principle to other clauses, so it would be most helpful if the Minister could take away the point about the subscriber’s nationality and the country in which they are ordinarily resident.

We support clause 3, which will ensure that when a company registers, it cannot be formed for unlawful purposes. It is extraordinary that we have not made that clear before or sought such a declaration previously, but it is a necessary provision in the light of the scale of abuse of Companies House by those whom we are now seeking to prevent from doing so in the future. We need to clear out companies that are not performing the functions that we would expect of a company registered in the UK. As the Minister goes through the resources question as to how quickly we will be looking to Companies House to go through and verify existing company records, this will fall into that important cleaning-up exercise. It is a necessary provision and is intended to ensure that if such a declaration turns out to be inaccurate, the registrar can reject the company’s filing on the basis that a false filing offence will have been committed. That is an important step forward.

Clause 4 will ensure that when a company registers, it must declare that none of its subscribers—its initial shareholders—is a disqualified director. We welcome the clause, because it is important to think about people’s roles and how games could be played with Companies House, and therefore with Britain and the British public, without cross-checks and balances in place. The clause is necessary to ensure that the registrar is able to actively reject and remove company subscribers who have been disqualified as directors. It cannot be right that somebody who has been found unwilling or unable to meet their legal responsibilities as a director could still be involved in, and have control of, the formation of a new company. It was a loophole in the Companies Act 2006 that a disqualified director was not prevented from owning a newly established company. It was a loophole ripe for exploitation, but we welcome clause 4.

--- Later in debate ---

[The Chair]

With this it will be convenient to consider clauses 10 to 13 stand part.

[Kevin Hollinrake]

I do not think I did commit to write to the hon. Member for Feltham and Heston, but I am happy to do so if she would like. I am definitely committed to considering all the contributions to the debate.

The Companies Act 2006 contains a range of provisions, whose focus it is to mitigate potentially undesirable impacts arising from a company’s choice of name. For example, it is already unlawful to incorporate a company the name of which, in the opinion of the Secretary of State, constitutes an offence or is offensive. Clauses 9, 10, 11, 12 and 13 will place further controls and restrictions around the choosing of company names by making amendments to the Companies Act 2006.

Clause 9 will give the Secretary of State the ability to prevent the registration of a company name that, in his view, is intended to facilitate the commission of an offence involving dishonesty or deception, such as fraud. It is sadly all too common for Companies House to observe the opportunistic establishment of new companies, whose names, for example, appear to exploit natural disasters or humanitarian crises. At present, Companies House has no means of preventing the registration of company names capable of facilitating deception of this nature. This provision will provide that power.

Clause 10 builds on existing safeguards in the Companies Act 2006, which restrict the extent to which companies can adopt names that give the false impression of a connection with a UK public authority. At present, if a name was to suggest association with UK national or local government, the devolved Administrations or specified local authorities, the Act and associated regulations provide a framework within which consent needs to be sought. The clause supplements that framework by providing safeguards in the international sphere. However, rather than applying a system of consenting, the starting assumption will be to prohibit names that, in the opinion of the Secretary of State, give a misleading impression that the associated company is linked to a foreign Government or its agencies.

Such a prohibition will also apply to names that reference recognised international organisations—for example, NATO or the United Nations. Of course, there may be occasions where overseas Governments and international bodies quite legitimately wish to incorporate companies in the UK. The clause would not prevent those companies from having names that connect them with a Government or body where that connection is a true reflection of reality.

Clause 11 will give the Secretary of State the responsibility to reject the registration of names that comprise or contain what, in his opinion, constitutes computer code. Company names are a potential vehicle through which bad actors can infiltrate the systems of those who access or download them. Computer code embedded or incorporated within a company name has the potential to subvert and to exploit the networks of unwitting third parties. That is clearly something we would wish to guard against.

Clause 12 inserts a provision that effectively prevents a company from re-registering a name that has already been the subject of a direction. That change will prevent an administratively burdensome cycle of repeat name-change directions, which is clearly better avoided.

Clause 13 prevents directors and shareholders from carrying a name to another company when they have already been denied its usage, as a consequence of either a direction from the Secretary of State or an order made by a company names adjudicator. It does, however, recognise that there might be instances in which secondary use would be quite legitimate. Scope is therefore provided for the Secretary of State to approve a name, notwithstanding the general prohibition introduced by the clause.

[Seema Malhotra]

We support clause 9. We recognise that it amends the Companies Act to give the Secretary of State the ability to prevent registration of a company if they think the name of that company is intended to facilitate dishonesty or deception. Companies House deals with up to 100 cases of corporate identity theft every month, and given that this form of fraud and others are starting to become more prevalent, it is right that there be these new powers to prevent registration, stemming—we hope—the flow of new fraudulent registrations. An incredible amount of distress arises from the impact of that dishonesty and deception.

Clause 10 inserts into the Companies Act a new section prohibiting company names falsely connected to foreign Governments and international organisations, and the Minister has spoken about why that section is important. It gives the Secretary of State the ability to prevent the registration of a company with a proposed name that, in the Secretary of State’s opinion, suggests a connection with a foreign Government, its offshoots or international bodies where none actually exists. As has been mentioned, that could be the UN or NATO, or any other body. Of course, we support the principle behind that measure, but in the interests of transparency about the use of that power, could the Minister clarify whether, when the Secretary of State is asked to make a judgment in such a situation, he expects that the judgment will be publicly shared—that, for example, Companies House might report on the uses of that power as part of its reporting?

I also want to clarify how the power will be used. When a company is formed that the Companies House registrar suspects is not actually connected with a foreign Government or other international body, but looks like it might be, will the registrar have a duty to flag such instances with the Secretary of State? That is important, because it comes back to the question of the proactiveness of the registrar’s duties, so it would be helpful to clarify it. What about the scenario where an attempt is made to register a company with a proposed name that, were it to be raised, would go through that process and very correctly be stopped by the Secretary of State, but it is not picked up by Companies House? If that situation arose for any reason—it could be new staff, or it could be the pressure of time because of insufficient resources; mistakes can be made in those circumstances—could a third party then apply for the name of that company to be changed? How would that work if it were an international organisation?

If uses of the power were reported by Companies House, would we be able to search and see that a number of people had sought to set up a company called United Nations Associates, or something like that? Would we be able to have a sense of how Companies House is perhaps being used in that way?

Should a company that has had its name changed by direction of the Secretary of State continue to seek to trade under that company name—perhaps in an overseas jurisdiction, if the name is falsely connected with foreign Governments—it would be helpful to clarify what measures could be taken, and by whom, to seek to put an end to that. There may be an obvious answer.

--- Later in debate ---

[Seema Malhotra]

I echo the concerns raised by my right hon. Friend the Member for Barking. She has drawn out some important distinctions. One is where there has been duplicity in setting up a company with a particular name, and there may be good reason for wanting to challenge that. She has highlighted the safeguards, but she is right that we need clarity in relation to kleptocrats and real connections to foreign Governments, which the Bill is trying to stop.

I thank Joe Wright. The hon. Member for Glasgow Central is right, because technology and people who use it are getting more and more sophisticated. Embedded computer code can maliciously infect the systems of those who access or download data. I saw the very real impact of data getting on to servers when I recently visited a company in Liverpool for a roundtable. Their systems had gone down, but luckily they had safeguards to stop what had happened. How quickly viruses, spyware and other means of destruction can travel, and they pose such security risks for companies and countries. That is an important part of our security, so it would be helpful to have some further information on that.

We welcome clauses 12 and 13 as important provisions. Clause 12 ensures that companies cannot use names that are misleading or used to mask criminal purposes. Clause 13 provides a mechanism to ensure that where there is good reason for a direction to change company names, it is not bypassed by those who use the registrar for fraudulent purposes. What enforcement mechanisms would come into force in such situations?

[Kevin Hollinrake]

On a point of correction, I said in answer to a question from the right hon. Member for Birmingham, Hodge Hill that existing directors and people with significant control had 28 days to verify their identity. That figure has not been set yet. It will be set in a commencement order, which I will find out more about. The 28 days applies to relevant legal entities.

Financial Services and Markets Bill

Debate between Seema Malhotra and Kevin Hollinrake

2nd reading
Wednesday 7th September 2022 Commons Chamber

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

Thank you, Madam Deputy Speaker, for the opportunity to speak in this important debate about these very significant issues of structural reform in our financial services, the accountability of our regulatory bodies and consumer protection. I am pleased that we have started to have some debate on the net zero policy and regulatory principle, and I want to endorse all the points made by my hon. Friend the Member for Hampstead and Kilburn (Tulip Siddiq) in her important opening speech on green finance. Unfortunately, the Bill does fall short of what I believe is needed to protect consumers, and I want to speak about three key areas: first, access to cash; secondly, and briefly, mutuals and co-operatives; and thirdly, action for mortgage prisoners.

First, access to cash is an issue on which I have spoken before and led debates in Westminster Hall. It is right—finally, we can all be very pleased—that the Bill aims to protect people’s access to cash and will introduce a legislative framework to ensure the continued provision of cash withdrawal and deposit facilities. I want to recognise the work that has been done by Access to Cash Action Group members, which have worked very hard on this issue, including Age UK, Toynbee Hall and banks such as HSBC, NatWest and Nationwide. It is a really important network, and it is right that they are taking steps voluntarily, but it is also important that there is an underpinning of legislation to back those steps. Indeed, the failure to act fast enough has cut millions of people off from a range of important vital services.

Last year I presented a petition to Parliament on behalf of constituents in Hounslow West in the light of the closure of the local Santander Bath Road branch. Since then, we have lost two more branches of Barclays in Feltham and Heston, leaving even more of my constituents without access to in-person banking services. I pay tribute to some of our local councillors—Councillors Bandna Chopra, Jagdish Sharma and Hina Mir—for raising this issue in their local wards, but the standard response we received from the banks was just not good enough. Around 6,000 bank branches have closed since 2015, yet the Bill does not seem to do anything to protect essential face-to-face banking services. It also makes no commitment to free access to cash—I was surprised that the Minister did not take the opportunity to confirm his commitment to that. It is important that the definition of the minimum distance between cashpoints is brought forward earlier, and I do not understand why the Minister cannot clarify the Government’s position on that. Surely he must have a point of view.

I am a Labour and Co-operative party MP, and it is staggering that the number of mutual credit unions has plummeted by more than 20% since 2016. If we have learned anything from the pandemic, it is the importance of community and community solutions in our local and public services. Although the Bill contains some welcome and long-overdue provisions, such as enabling credit unions to offer a wider range of products, the Government’s plans for the sector could be far more ambitious, and I wonder whether we could work cross-party on that issue. Labour has demonstrated an ambition to boost the size of the co-operative and mutual sector, and there is demand for that across the country.

I am a member of the Financial Inclusion Commission, and there is a slight frustration—or perhaps a bigger frustration when we consider the issues raised by Members across the House—that the Bill does not seem to prioritise financial inclusion as much as is needed, particularly given the cost of living crisis that we are now facing. In that context, I wish to raise the issue of mortgage prisoners. The Bill provided a vital opportunity for the Government to act to ensure that financial regulators are stronger in their ability to help mortgage prisoners. The UK’s 195,000 mortgage prisoners took out their mortgages prior to the financial crisis, with fully regulated high street banks such as Northern Rock. They were kept trapped on high standard variable rates, before their mortgages were sold by the Government to mortgage loan sharks such as Cerberus, Tulip and Heliodor. They cannot switch to different lenders.

As co-chair of the all-party parliamentary group on mortgage prisoners, I have heard from key workers, many of whom risked their lives to work through the pandemic, about the personal consequences for them and their families of being trapped into paying high mortgage interest rates. Imagine how it must feel to be a nurse who took out a mortgage with a high street bank, only to find that their mortgage was sold on by the Government to a vulture fund that does not have to treat them fairly or offer them a good deal. Those mortgage prisoners are suffering financial devastation from interest rate rises to their already high standard variable rates, and that comes on top of the pressures of rising energy bills and the cost of living crisis.

One of my constituents is a mortgage prisoner whose mortgage was sold to Landmark Mortgages and is ultimately owned by Cerberus. They are stuck paying an SVR, and are not being offered any new deals. They have now seen a rise in the SVR from 4.39% to 5.89%, and they are therefore paying more than £9,000 more a year than they would if they were with an active lender. There is nothing they can do to gain any certainty over their mortgage payments. Many mortgage prisoners are terrified at the prospect of future interest rate rises. Prior to the financial crisis, the gap between the Northern Rock SVR and the base rate was 2.09%. Since 2009 it has been more than 4% above the base rate.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

The hon. Lady is making interesting and key points about mortgage prisoners. At the time those loan books were sold, UK Asset Resolution made commitments to the Treasury Committee that those people would still be able to access market and fixed-rate deals, but that has not proven to be the case. It is very difficult for the Committee to get those kinds of assurances without having confidence that those assurances would be valid.

Subsidy Control Bill

Debate between Seema Malhotra and Kevin Hollinrake

3rd reading
Monday 13th December 2021 Commons Chamber

[Seema Malhotra]

I do not think it is about us picking losers or winners at all. This is about us using the data, understanding where there are areas of greatest need and having that as part of a data-led levelling-up agenda. Given that the Government have created a specific Department for levelling up, Labour is surprised that that mandate is not clear and that the hon. Gentleman does not have the answers he needs to have a framework that gives confidence that we are applying resources to areas of greatest need. To be frank, the Government’s record on that is not very strong. The Bill should be explicit that supporting areas of deprivation should fall squarely within the subsidy control principles.

On improving the way the new regime will operate, there is a serious lack of transparency in the Bill on how public money is spent and how value for money can be assessed.

[Kevin Hollinrake]

Does the hon. Lady not agree that the problem with amendment 16—the net zero amendment —is judging what is consistent with the net zero commitments? I have a Westminster Hall debate tomorrow —at 4 o’clock if anybody has nothing better to do and wants to tune in. On greenwashing, for example, it is incredibly difficult to ascertain what complies with net zero when there is so much noise around this. We need to improve in that area. Is this not really a charter for lawyers to take these subsidies to court time and again? Is not that the problem with her amendment?

[Seema Malhotra]

I thank the hon. Member for his intervention. We have agreed with many of his amendments. What he has just said actually lends even greater weight to wanting to make sure that that is a consideration and that we have the resources to support that. Perhaps he will talk to those on his own Treasury Bench about this, because we would have hoped that by now there would be a clearer road map for how the country is supposed to move forward to achieving our net zero commitments. He will know as well as I do that many small businesses have been crying out for a road map to net zero to know what can make the most difference, how to assess it and how to look at whether they have a decarbonisation strategy that is fit for purpose. So I think he is lending weight to our argument that we need something in the legislation to help drive the processes behind that. People want answers and want to know they are doing the right thing and making the right investments on our road map to net zero.

I was referring to the serious lack of transparency in the Bill around how public money is spent and value for money can be assessed. There is no requirement to report subsidies below £315,000 over three years. An unlimited number—an unlimited number—of subsidies up to £500,000 could be made under a scheme and not one would need to be reported, as long as the scheme itself apparently is reported. That is not good enough. The argument that this is in order to be consistent with the EU fall because the thresholds in the EU state aid regime were in the context of a very different regime; they were in the context of a scheme of pre-notification, where scrutiny took place before the allocation of the subsidy, not a permissive regime that challenges subsidies after they have been granted. In that context, we must think differently about what we seek to import; we are not importing the whole environment around how those decisions were made in the past.

The Minister has previously stated that we are in a position to be able to change those thresholds—it is not a matter of can’t; it is a matter of won’t. The hon. Member for Weston-super-Mare (John Penrose) said very cleverly: if this is so obvious and the Minister agrees with transparency, why are we not doing it?

During covid, we have seen Ministers wasting money on crony personal protective equipment contracts. I could spend my entire speech talking about this, but my main point is that that would have remained hidden from the public and from Parliament without ongoing freedom of information requests. Transparency on public expenditure—who is paying out, how much is being given, who it is going to and what it is being used for— are basic questions that we should know answers to as a matter of routine on subsidies being paid by our Governments, local authorities or other public authorities. Greater transparency, not less, should underpin the system of self-assessment by public authorities that sits at the heart of the Bill and our responsibility to the taxpayer.

The Centre for Public Data has made it clear that greater transparency would help ensure the honesty, consistency and efficiency of the system. It is also essential that interested parties—be they competitors, other public authorities or groups acting in the public interest—are able to challenge subsidies that they believe are distortive or unfair.

On the subsidy database, we support amendments 1 to 8 on transparency and reducing the threshold for the requirement to report on the database. This includes subsidies made under a scheme referred to in amendment 1. As the Bill stands, subsidies made under a scheme with a value of less than £500,000 do not have to be entered on to the database. There is no convincing reason for that, and it is in the public interest that all subsidies under a scheme be published. Worse still, a scheme can be registered with little information so that there will be no overall transparency for a scheme under which millions of pounds of taxpayers’ money could be spent without scrutiny.

Amendment 8 in the names of the hon. Members for Weston-super-Mare and for Thirsk and Malton amends clause 70, which currently provides that, where a subsidy is made under a scheme, the decision to grant an individual subsidy cannot be reviewed. The amendment suggests that the response given by the Minister in Committee was not reassuring enough.

This set of amendments also reduces the timeframes in which subsidies must be entered on to the transparency database and the timeframes in which any modifications must be uploaded. Members will be aware that the Bill currently requires subsidies or schemes to be entered on to the database within six months of being made or within one year in the case of a tax measure. We argued in Committee that there was a need to reduce those timeframes. Having longer makes it more likely to result in an incomplete or inaccurate entry, because officials may leave or records may be lost. We heard evidence from Jonathan Branton, a legal expert in the area, who said,

“I have yet to hear a…persuasive case for why you need that long to publish…an award.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 58, Q79.]

Amendments 21 and 22 were intended to bring all services of public economic interest subsidies with a value of more than £500 into the scope of transparency requirements. We do not understand why such subsidies—those up to £14.5 million or all those in the case of hospital care, adult social care and certain public transportation services—should be excluded from transparency requirements. With respect to amendment 6, we firmly support the need for the date of the subsidy to be entered on to the database. There should be no ambiguity about the day that the clock starts to tick for the period in which a challenge can be brought.

If the Minister wants to try to argue that greater transparency would lead to higher costs and more red tape for public authorities, that does not hold up to scrutiny either, because they have that information and they are used to reporting their expenditure above £500. That point was made on Second Reading as well by the hon. Member for Weston-super-Mare. When giving evidence in Committee, Dr Roger Barker of the Institute of Directors said that

“there should be transparency at every level of subsidy”.––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 37, Q48.]

A transparent system is important, but so is the quality of the data contained in it. That is why we tabled amendment 20, which would require the Secretary of State to ensure that the subsidy database is subject to routine audit to verify the accuracy and completeness of entries. That would incentivise complete and accurate reporting and provide a mechanism for putting errors right.

In Committee, we heard clear evidence that the database in its current form contains significant inaccuracies and gaps in the data entered. Expert witnesses suggested that not all subsidies were being entered, as just 501 subsidies were recorded in the best part of 10 months. Of those entries that had been recorded, more than half had a zero or nil value, so either the database is not fit for purpose or the entry of data by public authorities has not been up to scratch—or both.

If the database is not subject to any oversight or control, and if inaccurate or incomplete information entered on to it is not checked, poor-quality information is likely to lead to misguided legal challenges or to harmful subsidies failing to be addressed. We want to be constructive on this point, which is why the amendment is drafted in a way that permits the Secretary of State to decide who should undertake the audits and how they can be done most effectively.

On devolution, this is not a fair four-nations Bill. As it stands, regulations and guidance can be developed without seeking the consent of the devolved Administrations; only the Secretary of State can call for subsidies to be assessed by the CMA; and there are no requirements for the devolved Administrations to be represented on the CMA’s new subsidy advice unit. That is important because we need a system that commands the confidence of all four nations.

The devolved Administrations should be given a genuine voice in developing and implementing the new regime. The Minister’s response in Committee to our concerns and those of the devolved Administrations was that he had had a number of meetings with the devolved Administrations and would keep talking to them. I would be grateful if he could provide an update on those discussions.



Amendments 23 to 25 would provide Scottish, Welsh and Northern Irish Ministers with the power to call in subsidies or schemes under clause 55. Currently, only the Secretary of State has the power to issue a call-in direction, triggering a report to the CMA. On that basis, the CMA’s reports are not binding on a public authority. The harm of extending the call-in power to the devolved nations is not clear to us. Why is the Secretary of State empowered to call in Scottish, Welsh and Northern Irish subsidies that may damage economic interests in England but the Scottish, Welsh and Northern Irish leaders cannot call in subsidies that they believe can cause economic harm in their nations?

Subsidy Control Bill (Eighth sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Thursday 4th November 2021 Public Bill Committees

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

I beg to move amendment 55, in clause 60, page 33, line 20, after “Secretary of State” insert

“, the Scottish Ministers, the Welsh Ministers and the Department for the Economy in Northern Ireland”.

This amendment extends the post-award referral powers under this section to the Devolved Administrations.

It is a pleasure to serve under your chairship, Mr Sharma. You beat me to it: I wish you, and all who might be celebrating, a happy Diwali and Bandi Chhor Divas today. It is a very auspicious day, and it is a pleasure to be debating the Bill on such an auspicious day.

Clause 60 gives the Secretary of State the power to refer subsidies or schemes to the CMA after they have been awarded. Although Labour supports the general principle of post-award referrals, there are key problems that we wish to raise about this clause, not least the asymmetry of powers between the Secretary of State and the devolved Administrations, as well as some other key details. Amendment 55 has been tabled because, in our view, the Bill fails to provide the devolved Administrations with the proportionate and fair symmetry of powers that they should have, given that the Bill will operate across the UK.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

Is that not the point, though? The hon. Lady said “across the UK”; this is a UK-wide scheme, so we have to have somebody in overall charge of the scheme, which is why we cannot have symmetry of powers for all the devolved regions. The Secretary of State is Secretary of State for the entire United Kingdom, so does it not have to be the case that he holds some powers that the devolved Administrations do not?

[Seema Malhotra]

I thank the hon. Member for his contribution. He will see from the contributions of Opposition Members that we are not saying that exactly the same powers should be given in all circumstances to the devolved Administrations, but that there are areas in which arguments for the devolved Administrations having similar powers make sense within the context of how the regime may operate. With a view to how issues could be raised and dealt with, there may be very good reason for doing that. We propose this not for political purposes but because we seek a regime that will work effectively and with some symmetry of powers relating to the opportunity, where it would be helpful, to challenge subsidies. I will lay out a couple of reasons why.

The clause gives the Secretary of State the power to make post-award referrals to the CMA but does not extend this power to the devolved Administrations. The specific purpose of the amendment is to extend the post-award referral powers in the clause to the devolved Administrations. As it stands, the Secretary of State can refer to the CMA subsidies granted in Scotland, Wales and Northern Ireland that may be perceived to damage the interests of enterprises in England. However, the devolved Administrations cannot bring forward an argument. They may in time have good reason to refer subsidies—English or others—to the CMA that they may perceive damage interests within the devolved Administration areas.

Subsidy Control Bill (Fourth sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Thursday 28th October 2021 Public Bill Committees

[Seema Malhotra]

I thank the Minister for his comments. It feels as if this area is not sufficiently defined. I cannot see why we would not want to have better symmetry of powers between the devolved nation Administrations.

[Kevin Hollinrake]

Is not a reason that this could distort competition between different parts of the United Kingdom? If an example of a streamlined subsidy scheme is the business rate grants for hospitality, whole parts of the UK—Scotland, for example—could provide a huge amount of support across the hospitality sector, which would unfairly disadvantage the rest of the UK. Is that not an example of how this might be a danger?

[Seema Malhotra]

I am not sure I fully agree with that. Surely it would mean that it was incompatible with the principles in schedule 1. I think that the principles would preclude that. I come back to the point that at the moment we have an asymmetry of power. I cannot, in the circumstances of streamlined subsidy schemes as they are currently defined, see why that should not be a power that is there for the devolved Administrations. It is important to go further with the amendment, and I would like to put it to a vote.

--- Later in debate ---

[Kevin Hollinrake]

Is it not quite obvious? We are trying to target new investment to go into those regions, rather than existing investment being transferred from one part of the country to another. Is that not what the clause is trying to say?

[Seema Malhotra]

I hear what the hon. Gentleman says, and that is indeed what it is probably trying to do, but the problem is not only that it potentially undermines levelling up; it could also undermine and challenge the Government’s freeport policy. In the Queen’s Speech and the 2021 Budget, the UK Government announced eight new freeports in England, which are intended to promote regional regeneration and job creation and to become hotbeds of innovation. However, it is notable that no mention of freeports was made in the Government’s consultation on subsidy control policy, which closed on 31 March.

Under the Government’s freeport policy, significant subsidies, particularly tax reliefs, move to a particular site. In fact, they are conditional on a relocation. Are these tax reliefs—enhanced capital allowance, enhanced structures in building allowance, business rate relief and relief from national insurance contributions—which are conditional on relocating to a freeport, prohibited or not by clause 18? We heard significant reservations about clause 18 from our expert witnesses on Tuesday. As Jonathan Branton from DWF Group put it:

“Having a prohibition in the Bill, even a badly worded one, is potentially too blunt a tool, which might backfire.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 56, Q77.]

Amendment 13 would mean that the prohibition in clause 18 would not come into force until the Secretary of State has laid before Parliament a report that explains how the provision is consistent with both reducing deprivation across the UK and the Government’s freeport policy. This modest amendment is designed to ensure that the Government have properly considered the impact of the clause 18 prohibition on tackling regional inequality and on the freeport policy. However, we are not convinced at the moment that sufficient thought has been given to that impact.

Beyond our concerns about whether the Government have considered the impact of this provision on their claimed commitment to levelling up across the UK, there are also questions about how public authorities should interpret the clause 18 prohibition. Specifically, the prohibition applies where a subsidy is conditional on moving all or part of the economic activity from one area of the UK to another, but I cannot see where we have had a definition of “area”. Will the Minister explain whether “area” refers to a nation of the United Kingdom, a region, a local authority, a town, a village or any or all of the above? What about a council subsidising a business to move from one part of a local authority to another? There might be perfectly sensible and sound economic and regeneration reasons to do that—for example, to make way for an infrastructure project—but presumably this would be caught by clause 18. Therefore, it is arguably prohibited. Will the Minister clarify the interpretation of the current wording of clause 18?

Subsidy Control Bill (Second sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Tuesday 26th October 2021 Public Bill Committees

[Seema Malhotra]

Q Specifically on what is in there—I am conscious of the time—are there recommendations you would make, based on that experience, around what may need to be tightened up within the Bill? That would be quite helpful, because there are questions about the de minimis threshold, about whether an entry should take six months, and about how long things should be open to challenge.

Jonathan Branton: On the challenge point, I think one month is too short, because that requires people to be extremely alert about checking things. The database is not readily searchable. It does not send prompts when particular information is put on at a sectoral level. If you were keeping an eye on it, you would have to be checking it every other day to see that something was coming forward about which you were concerned.

In terms of searching for amounts and dates on which things have been recorded, all that is not regulated. What we really need—I will hand over to Alex in a second as I know he has strong views on this—is something that sets out in very clear detail exactly what needs to come in on every entry. Then, in practice, when you actually come to making those entries, it must require you to put in the correct answers to those questions in order for the entry to go live on the website. If that does not happen, you should get pushed back. That is clearly not working well enough.

Alexander Rose: As Jonathan says, essentially, the key piece of information on that website is the date the entry is made, and the reason that is so important is that the challenger has as little as a month to challenge once that information is placed on the website. To put some numbers on what Jonathan said, first and foremost there are only 501 entries. There are a lot of subsidies, so there is no way that only 501 subsidies have been awarded since 11 pm, 31 December 2020.

Secondly, of those 501, some 257 are recorded as having a zero or nil value. In order to bring a digital review—

[Kevin Hollinrake (Thirsk and Malton) (Con)]

Q How many, sorry?

Alexander Rose: Two hundred and fifty seven out of 501. In order to bring a digital review challenge, you are probably going to have to spend between £25,000 and £40,000, so if you are seeing a nil value, you are very unlikely to bring a claim.

Some of those are going to be schemes, and I will bring out some of the schemes on that website at the moment. SC10261, the Tees Valley Capital Grant Scheme, is listed as having been posted on the website on 1 April 2020, but the website did not exist on 1 April 2020. SC10388 is a real estate grant of £675,000 in Girton in Cambridgeshire—I picked this one because it is the last—and that one does not have a date at all. There is no way that somebody wanting to challenge would be able to know that date unless, as I have personally done, they have been saving the spreadsheets and comparing them.

Now, essentially, what we have here, therefore, is a mousetrap that is lacking a spring. Unfortunately, the Bill does not fix that. The way to fix it is at clause 32, which relates to the database, and it must expressly say that there needs to be two things. First and foremost, that information has to be included—the date it is actually entered and/or modified. Secondly, I think you need to end up having a search function that gives you three pieces of information. You need to have the date an entry was entered or modified; the name of the funder, because that is currently not searchable; and the name of the beneficiary, which is on there at the moment. Those are the three key pieces of information. The other element is, in order to capture that scenario where people simply are not putting into the database, you need to have some sanction if you fail to put it on.

The other issue that needs to be considered is that, at the moment, you have up to six months to put that information on the database. A large enough subsidy could make a business insolvent within that six months, so it feels to me that the period needs to be shorter. Likewise, the period to challenge needs to be longer. There is no obvious reason for having a shorter period for what is rightly described as the most important piece of post-Brexit legislation than for a planning permission judicial review. It should be longer. The next point is that there should be some level of sanction if that information is not put online. For example, maybe a sensible level would be the challenge period is extended to six months.

Jonathan Branton: The challenge period is not validly started if the right information is not put online. That is one way of looking at it. If it is not validly started, it never ends.

--- Later in debate ---

[Seema Malhotra]

Q May I come back on two brief points? There is not a requirement to have representation from all four nations, as far as I understand. That seems to be slightly at odds with the UKIM set-up, which has been a cause of concern for what needs to have a four-nations approach and buy-in. Would it be a concern to you if there was that requirement in the Bill? Secondly, the question I do not think I heard an answer to was, where should there be a function for either audit or checking of the accuracy of information put on the subsidy database? Would that need to be within BEIS rather than the CMA?

Rachel Merelie: Perhaps, again, I will pick up on the second one first. Yes, at the moment, given that the database sits within BEIS, it would be most appropriate for that sort of checking function to be part of its remit. Obviously, if it were decided for that database to sit with the CMA, we would need to have the requisite resources and powers associated with it.

On representation from all four nations, as you say, there is currently no formal requirement in the Bill. The CMA, as I said, is a pan-UK body. It does have good relationships across all four nations, and is very used to working with them. We are not the policy makers here—that is important to underline—we take on board and do our best to implement the policy set by the Government and by Parliament.

[Kevin Hollinrake]

Q If you have a monitoring requirement, you would think the obvious place for you to go to look at would be the database, yet we heard evidence earlier that fewer than half the entries on that database even have a figure for how much subsidy has been allocated. Is that not a concern to you, because how else will you gather the information other than looking at the database?

Rachel Merelie: That is a very good question. I think we will need to understand how that database is operating, and I am sure you are right; that will be one of the ways in which we will gather information. We may also be going directly to public authorities to ask them questions. I guess we would also be doing some market analysis, some desktop analysis, and so on, of how the subsidy regime is operating more widely. I think there will be a number of different ways in which we gather information, but you are absolutely right—the database will be an important part of that.

--- Later in debate ---

[Kevin Hollinrake]

Q I realise that your primary focus is going to be very large schemes—not hundreds of thousands of pounds, but millions of pounds. Nevertheless, somebody has to monitor the smaller stuff as well to make sure that people are not abusing the system. I do not see how anybody can monitor that. To monitor that, you would have to monitor every local authority in the country and stitch all their contributions together against a certain entity.

Rachel Merelie: In the way the Bill is currently set up, that wider monitoring on a day-to-day basis is not something that we will be involved in.

[Seema Malhotra]

Q I want to come back on a couple of points. This is in relation to helping make sure that there is a regime that commands confidence and provides the information to public authorities, which are engaging with some of this activity for the first time. To what extent do you think more needs to be done to engage with public bodies and prepare them to be able to grant subsidies effectively and efficiently to enterprises under the regime? It is likely that a lot of that burden could end up with public bodies approaching the subsidy advice unit. Are you factoring that in to how you see the unit working, or do you think that some of that needs to be done elsewhere?

Rachel Merelie: That is a very good question. I am sure that you are right—there will be quite a process to educate and support the public authorities as they embrace the new regime. I think that a lot of this will come from central Government and the guidance that they will publish. The subsidy advice unit, I suspect, will need to flesh out that guidance with respect to the very large subsidies and the information that we will need to carry out our assessment. We are keen to work with public authorities to make sure that they understand what will be required. Yes, we are aware of the need to do that guidance, which is one reason why, I suspect, it will take a little time between Royal Assent and the commencement of the Act, as there will be a need to get that guidance and detail out there and give confidence to those who want to operate under the regime to do so.

--- Later in debate ---

[Kevin Hollinrake]

It was my point, though. Thank you.

[Seema Malhotra]

Q We had some discussion about clause 70(7)(a), and there is some point of clarification about the definition of “interested party”, which I do not think is fully clear in relation to the devolved Administrations, but either we agree on the need for the Bill to be taken forward, I hope with some significant improvements, or there is a view that that cannot be achieved. I want to come back on a couple of points that you made, Mr McKee, that I was not fully clear on. The first is on being prepared to be involved in discussions, the question being what outcomes would be achieved. Do you feel clear at the moment on what specific changes, whether in relation to call-in powers, an obligation to consult or consent, you would want to see inserted in the Bill to meet some of those concerns? It would be very helpful to understand specifically what they were. Perhaps that could be in writing afterwards.

Secondly, I was not fully clear on what your view was in relation to local authorities. It seemed that it was more for the Scottish Parliament to decide what local authorities in Scotland may or may not do, rather than local authorities across the UK being able to make subsidies if they felt that they were in line with the subsidy control principles, and beneficial for their area. I was slightly confused on what your view was about local authorities being able to make subsidy decisions in Scotland. Perhaps you could come back on both those points, and put in writing what specific changes you want to see.

Ivan McKee: On the specifics of what our asks would be, I am very happy to put that in writing. In broad terms, it centres around, as I said, the requirement to not have the Secretary of State able to operate in devolved areas, as per the devolved settlement, and for the Scottish Government and Scottish Ministers to be able to do that. For us to have equivalent powers as it refers to devolved areas would be the ask, in broad terms. I have outlined some of that verbally, but I am very happy to come back to the Committee in writing with the details on specifically what that means.

Local authorities have always been able to grant aid within the rules that exist, so effectively nothing changes there. What changes with regard to the Bill is the authority that it gives the Secretary of State that it does not give in devolved areas to Ministers in the devolved Administrations. That is our concern.

Subsidy Control Bill (First sitting)

Debate between Seema Malhotra and Kevin Hollinrake

Tuesday 26th October 2021 Public Bill Committees

[Kevin Hollinrake]

Yes.

Professor Fothergill: I see no reason that things should be reported. This is a personal view, not the view of the alliance, but I know that the local authorities that I work with in the Industrial Communities Alliance have welcomed an increase in the de minimis threshold. Operationally, that makes sense and does not lead to big damage to competition across the country, or indeed to damage to international trade.

[Seema Malhotra]

Q May I ask for some final clarification on that? Part of the question was about the reporting. If all the decisions have been made and the work has been done on a subsidy, reporting—putting an entry on the database—should not be an onerous matter. Are you objecting to that also?

Professor Fothergill: No, I am not objecting to reporting. By the way, when I speak of reporting, I should clarify that the alliance has not taken a particular view on the issue. If I am speaking about reporting, I am expressing a personal opinion that it should not be too onerous. I would have to consult some of my local authority colleagues to clarify their precise views on that, but I know that their precise view on the de minimis threshold is that the increase is a good idea.

--- Later in debate ---

[Kevin Hollinrake]

I think it’s the EU level.

Professor Rickard: Okay, thank you. I do not see why it could not be lower. I recognise that there is a concern that we are putting a burden on granting authorities, but the granting authorities have this information. They have already collated it and made a decision. Increasingly, with tech, I do not think it is a huge burden to upload that type of information to a database, so I would argue for an even lower threshold than £175,000. If I gave you a number, it would be an arbitrary number—as I suggested, all thresholds are arbitrary numbers—but it could be as low as £100,000. I think that would not unduly burden governing authorities, but would increase transparency to ensure value for money and compliance with the principles.

Thomas Pope: I completely agree that all of these numbers are somewhat arbitrary. The reason I mentioned £175,000 specifically is that it is the EU level, and it is the number that was in the Government’s consultation at the start of the year. That was a question in the consultation, but in the end the level was higher. It is very hard to say whether the right number is £100,000, £80,000, £150,000, £175,000 or £210,000. It should be low enough that we have a good sense of how the system is actually affecting how subsidies are offered.

[Seema Malhotra]

Q I want to follow up on a couple of points, starting with the duty to provide pre-action information—primarily, clause 76. There are ways in which a public authority may refuse or suggest that it would be difficult to give information based on a number of categories—commercial sensitivity, confidentiality and so on—without it seeming to be clear how that could then be challenged. I wonder whether transparency, and being able to bring a challenge with the information needed, needs to be stronger, or whether the role of the CMA might need to be stronger to support requests for information.

Thomas Pope: I am not an expert on that, and you will probably want to ask other witnesses. I think part of the point here is that a failure to comply with something like this could be challengeable, not directly, under the process set out in this Bill, but that is also a violation of public law. But as I say, it would be better to ask a lawyer than me on that.

Professor Rickard: One possibility, potentially, when you are talking about commercially sensitive information is not to limit the amount of commercially sensitive information that would be in the database but, when you do get a public request, to do something similar to what they do with Nomis and the labour data, which is very disaggregated by firms. You have to sign a declaration saying why you are using this information and that you are not going to use it in a commercial way. That may be a way to provide the necessary information to a potential challenger, but in a way that protects information that is potentially commercially sensitive. So I certainly think there are ways around it, and I think that it would be important to explore some of those mechanisms.

Financial Services Bill

Debate between Seema Malhotra and Kevin Hollinrake

Monday 26th April 2021 Commons Chamber

[Seema Malhotra (Feltham and Heston) (Lab/Co-op) [V]]

I start by paying tribute to Rachel Neale and the UK Mortgage Prisoners group for their incredible resilience and the way that they have worked for the last two years with the all-party parliamentary group on mortgage prisoners, which I co-chair, to help to get a pragmatic solution to the problems that we know they face. I also pay tribute to my constituent Mohammed Masood, who first brought this issue to my attention after his family’s own experience—a situation that, after so many years, is still ongoing.

I am grateful for the opportunity to speak in support of Lords amendment 8, which would provide immediate relief to up to 250,000 mortgage prisoners—the FCA’s estimate—by capping standard variable rates and ensuring that they could access fixed-rate deals. The arguments for that were made powerfully and movingly in the other place, and indeed by my right hon. Friend the Member for Wolverhampton South East (Mr McFadden) from the Front Bench tonight.

The Minister said that he wants to be guided by the facts. I thank him for his commitment to addressing this issue, but perhaps I can share some other data and another interpretation of the same facts to show why I and others believe that the solution proposed in Lords amendment 8 would indeed be both proportionate and practical.

The 250,000 mortgage prisoners took out their mortgages prior to the financial crisis with fully regulated high street banks such as Northern Rock. They were then kept trapped on high standard variable rates before being sold to mortgage loan sharks such as Cerberus, Tulip and Heliodor. The amendment would apply a cap on the standard variable rate for mortgage prisoners with inactive lenders and unregulated entities and ensure that they can access fixed-rate deals. It would be a targeted intervention that would have no impact on the wider market of active lenders, such as the main high street banks, which compete to offer their existing customers new deals.

The margins on these Northern Rock mortgages increased significantly after the financial crisis. As interest rates available to those at active lenders fell, the Government kept mortgage prisoners on high SVRs and then sold them off to inactive lenders and vulture funds, who also kept them on high SVRs. Prior to the financial crisis, the gap between the Northern Rock SVR and the base rate was 2.09%. Since 2009, it has been 4.29% above the base rate.

When the Government sold on the loans, they gave some of the purchasers, such as Tulip Mortgages, complete discretion on interest rate policy after 12 months. Protections for later packages of mortgages sold required only that the SVR be kept at the level of the third highest of a basket of 15 SVRs, which was higher than the current rate charged to mortgage prisoners. If mortgage prisoners were entitled to new deals on the same basis as other customers, the average rate they would be paying would be 1.8% below the level of the proposed SVR cap of 2.1%.

The Minister suggested that the SVRs paid by mortgage prisoners are just 0.4% higher than SVRs at other lenders. As I said on Report, our case studies, which include nurses, teachers, members of the armed forces and small business people, tell another story. It is inappropriate to compare the rates that borrowers with inactive lenders are currently paying with those paid by SVR customers at other active lenders. If mortgage prisoners were with an active lender and up to date with payments, they would have access to a product transfer, giving them a lower fixed rate.

The Treasury has said that the amendment cannot be supported because it would not be fair to borrowers in the active market, but more than 75% of borrowers in the active market move off the SVR within six months as they are able to access a new deal. Mortgage prisoners have been stuck on high SVRs for more than 10 years. Their mortgages were sold by the Government without their consent and without the proper protections. People trapped on these high interest rates do not have much chance to reduce the amount they owe. When their mortgage finishes when they are in their 60s or 70s, these mortgage loan sharks often put pressure on them to sell and threaten to repossess their home.

The FCA and the Government claim to have helped mortgage prisoners by changing the rules on affordability tests, but there has been very slow take-up of those new flexibilities. The FCA’s cost-benefit analysis, published when the rules were proposed, estimated that somewhere between 2,000 and 14,000 mortgage prisoners would switch using the new rules. The APPG has received reports from campaign groups that only 40 mortgage prisoners have been able to switch so far.

Mortgage prisoners have been neglected for more than 10 years. Families have been destroyed and homes have been lost. While the Minister commissions yet another review, every month mortgage prisoners struggle to make their monthly payment due to high interest rates. The delays will mean that more homes will be lost. As the consumer champion Martin Lewis has said, an SVR cap on closed-book mortgages

“would provide immediate emergency relief to those most at risk of financial ruin. No one should underestimate the threat to wellbeing and even lives if this doesn’t happen, and happen soon.”

We welcome support for the amendment from Martin Lewis and from Surviving Economic Abuse.

The Government have the option of coming up with an alternative proposal to provide the relief that mortgage prisoners so desperately need. So far, they have failed to do so. That is why I hope that all colleagues will support Lords amendment 8 tonight.

[Kevin Hollinrake]

I rise to speak to amendment 8. I listened carefully to the Minister’s comments, and he has engaged across the House very frequently on this issue. I know this challenge is not of his making. It is not even of this Government’s making, but it is the responsibility of the Government of the day to solve it, because it is a problem of a Government’s making—indeed, it is of a Conservative Government’s, or coalition Government’s making. We are duty-bound to find a solution.

We have heard some very good speeches, including some very fine points about markets and intervention in markets. I am somebody who absolutely believes in markets. The markets have revolutionised my life and I have seen them revolutionise many others—how much wealth they create, how many jobs and opportunities they create, and what a great job they do for consumers in driving down prices and driving up service. But there is no market here. This is an extreme example of market failure. Inactive lenders do not set their SVRs based on recruitment of new customers, which is what should happen in a marketplace. It is not defensible to say, “We cannot intervene in this way in terms of an SVR cap because it is an intervention in markets.” The two things are not compatible.