Draft Intellectual Property (Copyright and Related Rights) (Amendment) (EU Exit) Regulations 2018

Bill Esterson Excerpts

Monday 11th February 2019 General Committees

[Bill Esterson (Sefton Central) (Lab)]

It is a pleasure to serve under your chairmanship, Sir Edward. This is already close to being the longest statutory instrument Committee that I have served on in my nine years in this place and I have only just stood up to respond as Opposition spokesman.

[Mr Sheerman]

You haven’t had us behind you before.

[Bill Esterson]

I find the answers we have had to the numerous interventions absolutely remarkable—and not in a good way. The Minister’s inability to answer some pretty simple questions from my hon. Friends the Members for Huddersfield, for Chesterfield and for Newcastle upon Tyne North is staggering. I do not blame him in particular, because it is not his brief, but the fact that the answers are not available for him to give is baffling.

If the Minister cannot tell us what was said in the consultation, what was the point of it? What concerns were raised? He cannot tell us that either. How do we know whether the consultees at those roundtables truly reflected the breadth of views in the sector? If we cannot answer those questions, how on earth can the Committee judge the responses—he cannot tell us what they are anyway—and whether they justify us supporting the regulations? I am afraid that we are in a bit of a pickle.

The regulations are about whether holidaymakers can watch Netflix, Sky, Amazon Prime or any other content provider on the continent or in the Irish Republic; uncertainty about satellite TV broadcasts between countries staying in the EEA and our own; and businesses not knowing whether they can share databases. There is also an element in the regulations about the Marrakesh treaty and disabled people who copy material so they can use it in a different country from their country of origin, which I do not remember the Minister mentioning in his opening remarks.

We have yet another statutory instrument, which describes detailed changes to regulations relating to the UK’s exit from the EU, including in the event of, as the Minister puts it, crashing out—on the Opposition Benches we are happy with that term, but others might call it no deal. Yet again, the analysis leaves significant gaps in the ability of hon. Members to scrutinise and adequately decide whether the regulations do what they are supposed to, or whether what they propose addresses the objective of preparing for life after Brexit, including in the event of no deal.

On numerous previous occasions, my Labour Front- Bench colleagues and I have spelled out our objections to this Government’s approach to secondary legislation. The volume and flow of EU exit secondary legislation is deeply concerning for accountability and proper scrutiny, especially when the evidence does not back it up, because the evidence is not able to be provided to us, as we have just heard. The Government have assured the Opposition that no policy decisions are being taken. However, establishing a regulatory framework, for example, inevitably involves matters of judgment and raises questions about resourcing and capacity. Secondary legislation ought to be used for technical, non-partisan, non-controversial changes, because of the limited accountability that it allows. Instead, this Government continue to push through contentious legislation with high policy content via this vehicle.

As legislators we have to get it right. These regulations could represent real and substantive changes to the statute book and, as such, they need proper and in-depth scrutiny. In this light, we in the Opposition would like to put on record our deepest concerns that the process regarding these regulations is not as accessible and transparent as it should be.

Let us look at the explanatory memorandum, to see in a bit more detail what is being addressed. Paragraph 7.2 refers to the EU satellite and cable directive, which allows broadcasters to gain copyright clearance for broadcasts across the EEA, while only having to obtain permission in the country of broadcast. The explanatory memorandum says that the regulation will apply only within the UK, with consequences unresolved as to the impact for broadcasting across the EEA. This appears to have significant consequences for broadcasters, the impact of which is not addressed by the impact assessment.

Speaking of the impact assessments, when I walked into the room, I did not see copies of the three impact assessments that the Minister referred to available for hon. Members to scrutinise. On previous occasions, when the Government have bothered to publish impact assessments, they have been available to members of Delegated Legislation Committees. I do not understand why that is not the case on this occasion. My hon. Friends, who have raised their concerns about their ability to do their job this afternoon, are absolutely right to make that point, because how can they possibly comment without that information, when they are not given such detail? I have a copy of it, because I got a copy before the meeting. However, unless those copies are available here, hon. Members will not be aware of everything that might be available to them.

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[Richard Harrington]

I agree.

[Bill Esterson]

rose—

[Catherine McKinnell]

Will my hon. Friend give way?

[Bill Esterson]

I will.

[Catherine McKinnell]

I am grateful to the Chair for raising that point. Does my hon. Friend share my concern, and the concern of those businesses and consumers potentially affected by these changes, that in not providing the impact assessments for hon. Members to scrutinise as part of this process, the Government are giving the impression that they have something to hide, thereby increasing the level of anxiety about the potential impact of these changes?

[Bill Esterson]

I think my hon. Friend has made an extremely good point, and the Minister and his colleagues have heard what she has said. And I thank you, Sir Edward, for your intervention there as well.

This situation simply is not good enough. I came to this Committee today expecting that all Members would have the information that I have, or that it would be available to them in the room, but it is not here. Of the papers that are emailed around when the Committee of Selection selects the Members for a Committee, the impact assessment is not one of the documents that is usually sent; it is usually waiting here in the room for us. It would usually only be the Front-Bench spokespersons who would get a copy in advance.

[Catherine McKinnell]

As I said directly to the Minister before, I noted the comments about the impact assessments and actually looked for the impact assessments that are relevant to this legislation, but I could not find sufficient impact assessments to clarify for me what the impact of the legislation would be. So it is not even a failure of the Government to make them available today; actually, this process is all very unclear, in terms of what the impact is and how it has been assessed. So, even if the information that is available was provided, I do not think that it would be clear enough.

[Bill Esterson]

I completely agree with that, and there are a number of points here. In previous Committees, we have had a discussion about the fact that impact assessments have not been produced at all on numerous occasions when significant changes have been made, and there has been an issue with the nature of the impact assessments that the Government have chosen to produce.

I will discuss a little later the content of the three impact assessments that have been produced. My hon. Friend the Member for Newcastle upon Tyne North is quite right that they do not actually give Members the ability to scrutinise thoroughly what we are being asked to scrutinise.

[Mr Sheerman]

My hon. Friend knows, as I do, that if someone had not asked an urgent question last Thursday on roaming charges after Britain comes out of the European Union, that very complex issue would have been dealt with in one of these Committees up here, with as little information as we have now. As it was, the Minister had to come to the Dispatch Box and there was a thorough airing of a very important piece of delegated legislation. Many of us, Sir Edward, will be coming up to Committees time and again—there are hundreds of these pieces of delegated legislation. So, early on—it is quite early on—we have to get this process right, so that we have the information that we need to do our job.

So I want the Minister to reflect on what happened last Thursday. The Opposition had to call for an urgent question to find out what was going on in an important area of policy regarding roaming charges after we leave the European Union, which is not dissimilar to the policy area that we are considering now.

[Bill Esterson]

My hon. Friend is absolutely right. There is a similarity with the portability of content and the ability for consumers to watch Netflix or Amazon Prime, on the one hand, or for satellite broadcasters to reach their customers in a country different from the one where their broadcast comes from. It is very similar to the point about mobile phone roaming charges. Who knows? Maybe somebody will table an urgent question on those points in the days ahead. So I completely agree with my hon. Friend’s point; it had occurred to me, as well.

I mentioned the apparently very significant consequences for broadcasters, which have not been addressed by the impact assessment. Just to emphasise the consequences of these regulations, a European Commission notice to stakeholders states that in the absence of an agreement between the UK and the EU, broadcasters in the UK will no longer benefit from this mechanism when providing cross-border broadcasting services to EU customers, and they will have to clear rights in all the member states that their signal reaches. I do not think we are talking about a situation where it is just one side of the Irish border or the other, although there are some interesting questions there about where someone lives and which signal they receive. I do not see how the regulations address the Commission’s point. That must be of major concern to UK broadcasters. I wonder whether that was one of the technical points raised in the roundtable to which the Minister referred—he was not able to tell us before, but perhaps he will be when he responds.

Paragraph 7.4 of the explanatory memorandum refers to the implementation of the EU term directive and to copyright duration for copyright works originating from EEA states. It also says that copyright works originating in the UK will be treated with consistency in the EEA. I can see how we could guarantee consistency of treatment of works originating in the EEA, but how can the regulations guarantee the same in return? Has a mutual recognition agreement been finalised in that respect?

In paragraphs 7.5, 7.8 and 7.15 of the explanatory memorandum, it is claimed that there will be consistency of treatment for EEA citizens in the UK and for UK citizens in the EEA. Again, when was a mutual recognition agreement signed? Or, in the event that it was not, why is that claim being made? As far as I can see from what has been published, we have no way of verifying whether the regulations will hold up in court. That lack of published consultation—or informal roundtable consultation, or however the Minister wishes to describe it—would suggest that I am right to have such concerns.

In contrast to the paragraphs that indicate a continuation of mutual recognition or an establishment of new agreements on mutual recognition in some areas, paragraph 7.10 of the explanatory memorandum refers to the ending of mutual recognition and to the end of information sharing with respect to UK cultural heritage institutions. It is impossible to predict the consequences of the end of those arrangements for the arts and for heritage objects.

Paragraphs 7.12 and 7.21 refer to the Marrakesh treaty and rights for disabled people to copy copyrighted materials and to exchange such copies. Paragraph 7.12 refers to the loss of rights for disabled people to have copies of copyrighted works without infringing copyright. I do not pretend to understand the consequences of the EU’s membership of the Marrakesh treaty—unlike some of the lawyers sat behind me, I do not have the training or qualification for that—but can the Minister tell us when we will ratify the Marrakesh treaty in our own right as the UK, as indicated in paragraph 7.21?

According to the Government’s September guidance on no-deal planning, the answer is “after we have left the EU.” Can the Minister confirm whether we will be able to do what is suggested in the explanatory memorandum between exit day and ratification of the treaty? Can he confirm when we will become signatories to the treaty in our own right, or whether something already happened in that respect that is not mentioned in this paperwork?

Paragraph 7.20 concerns the portability regulation—this affects Netflix and Amazon Prime—which allows us to watch content when we visit the EEA by moving rights and permissions with the consumer. The draft regulations appear to end that arrangement. That change will have a significant impact on consumers and on the providers of content. Who will pay for holidaymakers to watch Netflix or Amazon Prime when in the EU after 29 March? I wonder whether we will be able to watch the “House of Cards” series—it springs to mind in this place—using a UK subscription, or if we will need to buy a new EU subscription to do so. Can the Minister clarify that?

The sifting Committees of both Houses of Parliament recommended that the statutory instrument should be upgraded from the negative to the affirmative procedure. The House of Commons sifting Committee gave the following reasons:

“The amendments to primary legislation are considerable, and the combined number of changes to other legislation is significant, all relating to intellectual property, a cornerstone of the internal market in services.”

The Committee set out its concerns about the country of origin principle for satellite broadcasting and the portability or otherwise of online content. It stated its reservations about the inadequacy of the impact assessments, just as my hon. Friends have this afternoon:

“The Committee is concerned about the impact on business and the loss of consumer rights and is disappointed that the Government has chosen not to provide further information on these issues to assist the Committee in its decision making.”

That is sounding very familiar. The House of Lords reached a similar conclusion. The sifting Committee conclusion is confirmed in paragraph 3.2 of the explanatory memorandum to the regulations.

Without more detailed impact assessments, how is it possible for the Government to claim that the statutory instrument does what is needed to protect businesses, workers and consumers? The EU approach to impact assessments for regulatory changes is so much stronger than the narrow version chosen by the Government. It addresses the wider economic and societal impact. It is absurd that the Government refuse to use such an analysis for complex, far-reaching changes. The lack of full analysis and consultation leaves open the question of whether regulations such as these are fit for purpose and whether they might be open to challenge in the courts. This side of the House has made that point repeatedly in Delegated Legislation Committees that have considered multiple and complex regulations related to exit from the European Union.

The Government guidance published on 24 September 2018 sets out the consequences of a no-deal scenario in this area. It raises concerns about universal database rights, portability of online content services, country of origin for copyright clearance of satellite broadcasting, the potential for UK heritage institutions to infringe copyright, the non-ratification of the Marrakesh treaty before exit day, and the potential implications. All those concerns are apparent from a detailed analysis of the regulations and the explanatory memorandum, yet the information before us does not explain how or why they should be, and have been, addressed. It does not address the concerns raised by the Government’s own guidance.

According to the impact assessments—I return to the intervention by my hon. Friend the Member for Newcastle upon Tyne North—inadequate as they are, the Government’s aim is to maintain the status quo for UK database creators and to avoid any costs to rights holders. The logic of what is proposed is that there will be a cost to EEA creators of databases that will likely be passed on to UK consumers. It is hard to believe that consumers will not have significant concerns about the idea of having to pay more for their services. The consumer affairs experts we spoke to in preparing for this Committee had not been consulted about that. I wonder what was said at those roundtables by consumer representatives about those concerns. So much for the championing of the cause of the consumer, which we often hear from members of the Government, in particular the Secretary of State for International Trade.

Meanwhile, again in the impact assessments, we see that EEA broadcasters will not need separate rights clearance in the UK. But without a reciprocal agreement post Brexit, EEA nations could choose to suspend country of origin broadcast rules between member states. While the statutory instrument preserves the status quo, EEA broadcasters into the UK may be affected by familiarisation costs. Some 33,000 UK businesses would be affected—that is a Government estimate—as their work is broadcast by EEA rights holders into the UK. Again, there is potential for costs to be passed on to the consumers. Was that point raised in the roundtable, and what was said? We do not know.

UK online content services with EU equivalents will not be able to give customers access to their material when present in the UK unless access is reciprocated—that is in the impact assessment. That will not be in place from day one after Brexit, and there is no indication of how long such arrangements might take to put in place. What was the basis for the statement in the impact assessment that tourism in the UK would not be affected? Were broadcasters consulted? What was their view? What was the view of the UK hospitality industry of the impact on tourism in this country? Were they at those roundtables?

The explanatory memorandum states that the regulations achieve certain objectives. I wondered how it was possible for someone who is not an expert in the relevant law to confirm those claims, so I sought advice from a number of legal experts, since the Government did not publish any analysis from lawyers. One lawyer told me:

“I don’t have the bandwidth to think the implications through”.

That goes to the first intervention by my hon. Friend the Member for Huddersfield. Another lawyer told me:

“The draft regulations simply need as much Parliamentary scrutiny as time permits, and the goal is more technical than policy driven - to make the regulations as good as they can be under the circumstances, so that the courts don't have to spend the next decade unpicking them. It would be a very considerable undertaking to quality assure these very complex amendments to existing UK law.”

That came from a lawyer with 40 years’ experience of UK intellectual property law. The specialist IP lawyers who looked at this do not have the bandwidth to consider these matters. They tell us that making good regulations matters, so the courts do not have to spend the next decade unpicking them, but lawyers are unable to say whether the Government guidance on no-deal consequences have been addressed. If the lawyers cannot say whether the regulations can be relied on, what chance do we have, as Members of the House of Commons with limited access to information?

The Minister confirmed there was no formal consultation. Had there been, perhaps the lawyers could have advised the Government and avoided any potential that the regulations would be inadequate. Perhaps the lawyers would have had time to tell us whether the Government’s proposed regulations were fit for purpose. We have not even had that from the people at the roundtable.

I return to the expert advice. That lawyer with 40 years’ experience in IP told me,

“The one thing that can be said with certainty is that it is a shocking departure from minimum standards of Parliamentary scrutiny to allow such wholesale changes to our existing intellectual property laws to be made without proper stakeholder or expert scrutiny.”

That lawyer confirms what we have been saying about a number of the SIs we have been asked to consider. The Minister’s response will need to be remarkable to address the yawning gap in his analysis.

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[Richard Harrington]

I shall do my best to go through the many points that have been raised. I hope that I can persuade Opposition Members to rethink their objection to the statutory instrument—I very much doubt I can, Sir Edward, but if you will be patient with me, I will do my best. I nearly said “if the court will be patient”, because this is like a courtroom drama, but I know that you are a patient man, Sir Edward. If the Committee will bear with me, I shall do my best.

The shadow Minister raised many points. There was a general one about his concerns. [Interruption.] Perhaps he could listen to what I have to say.

[Bill Esterson]

Sorry.

[Richard Harrington]

It is perfectly okay, but I would like the hon. Gentleman to concentrate on my points, as I did my best to concentrate on his. I hope he will feel that I have answered them properly.

To deal first with the hon. Gentleman’s fundamental concern about the process as a whole, I reiterate our view that the regulations are not intended to make significant changes to existing policy. In line with the powers of the European Union (Withdrawal) Act 2018, they aim for continuity as far as possible, and so provide the minimum necessary changes to ensure that our internationally renowned UK copyright legislation continues to function in a no-deal scenario. We have really tried to provide continuity and certainty.

[Bill Esterson]

Will the Minister give way on that point?

[Richard Harrington]

Would the hon. Gentleman wait? I listened to him.

[Bill Esterson]

I think I might be able to help the Minister.

[Richard Harrington]

This is a new policy. I shall sit down.

[Bill Esterson]

I am grateful to the Minister for giving way. I have a great deal of respect for him, and I do listen to him. The Opposition understand that this series of statutory instruments is about preparing for no deal and trying to avoid disruption. The problem is that the information available to us and the answers we have had from the Minister raise serious questions about whether that is exactly what is happening. That is the heart of the matter.

[Richard Harrington]

I accept fully that that is the Opposition’s intention, but I felt that I should make it as clear as I can that the regulations are not intended to make any significant change to our existing policy.

The hon. Member for Sefton Central asked whether any rights will be lost in the event of no deal. I can categorically say that they will not. As I said previously, certain reciprocal arrangements that facilitate cross-border use of copyrighted material will end, but that is distinct from the underlying intellectual property rights. I hope that his lawyer of 40 years’ experience will confirm that. Our continued membership of the international treaties on copyright will ensure that UK works will continue to receive protection abroad, while foreign works will continue to be protected in the UK. These changes also ensure that copyright duration will not change for UK rights holders on exit.

The hon. Gentleman also asked what we are doing to support UK broadcasters who are facing the loss of the copyright country of origin principle. It is still our intention to secure an agreement with the EU on our future relationship—I think that is very well known—and as we set out in our White Paper last July, we want any deal to involve the best possible arrangements for the broadcasting sector. If we leave without a deal, broadcasters may face disruption due to the fact that the EU copyright country of origin principle would cease to apply to the UK. We have tried to give broadcasters and other businesses as much information as possible about the implications of no deal by putting this in the technical notices and detailed guidance about what it means for copyright. The UK cannot address that issue unilaterally in a no-deal scenario.

The shadow Minister mentioned the Marrakesh treaty. The UK has implemented the provisions of the treaty in UK law, and they will be retained after exit. Currently, the treaty has effect in the UK due to the EU’s ratification of it in October 2018, and we are on track to ratify it in our own right, but that cannot happen until we leave the EU, because it is an EU competence at the moment. Until we ratify the law, other treaty countries could prevent the cross-border exchange of copies of works in accessible formats in the UK. Our domestic copyright exceptions stemming from the treaty, which provide disabled persons with improved access to copyright-protected works, will not be affected by our departure from the EU.

The shadow Minister asked when we will ratify the Marrakesh treaty. We are on track to do that. It will be literally as soon as possible after exit. Our ratification must then be accepted by the World Intellectual Property Organisation, before we are once again individually treated as a member of the treaty. There will be a delay between exit and the acceptance of our ratification in a no-deal scenario. We are doing our absolute best to ensure that it will be as short as possible.

On the impact assessments, the hon. Member for Sefton Central asked why we did not consider wider impacts. The impact assessments that accompany the instrument describe in detail the effect of introducing the regulations relative to the pre-exit status quo. That is in line with the “Better regulation framework” and HM Treasury’s Green Book guidance. They are not intended to analyse the impact of no deal more broadly, such as the effect of the EU cross-border copyright mechanism ceasing to apply to the UK. Those impacts arise from the fact that the EU will treat the UK as a third country in a no-deal scenario and will happen regardless of whether this instrument is made. We considered the wider impacts of our exit from the EU in a long-term economic analysis published last November.

The shadow Minister asked why the Government are using secondary legislation for EU exit. This matter has been discussed widely in relation to many statutory instruments, but fundamentally, using primary legislation is inappropriate for the large number of mechanistic changes that are needed. It is normal to use secondary legislation in these circumstances. Furthermore, the changes are dependent on the outcome of the negotiations. This method was heavily debated and agreed to by both Houses during the passage of the European Union (Withdrawal) Act last year. It would not be practical to make all the required legislative changes through primary legislation. However, I reiterate that these changes do not include major policy changes or decisions on policy.

We are very pleased to have—and we do accept—recommendations from the sifting Committee, on which the hon. Member for Wrexham serves, to ensure that sufficient scrutiny is in place for the secondary legislation made under the principal powers in the Act. I accept what the shadow Minister said about not regarding this as enough scrutiny, but we did accept straightaway the recommendations of that Committee.

The shadow Minister asked what the effect will be on UK consumers. The EU portability regulation works by reciprocal application of cross-border rules. It will not cover UK-EU travel in the event of no deal, and we cannot replicate the effects of existing arrangements on a unilateral basis. It is true that UK consumers may see changes to their content services when they visit the EU, but the law will merely revert to its pre-April 2018 status quo.

The shadow Minister asked why the UK is unilaterally applying the country of origin principle for EU satellite broadcasters. The proposed plan is consistent with how UK legislation already treats satellite broadcasters from outside the EU. Continuing to apply the country of origin principle in this way will support UK consumers’ continued access to foreign television programming, because it is not introducing new and unnecessary burdens on broadcasts to the UK. I am sure that the businesses to which the shadow Minister refers will be very pleased about that.

The hon. Member for Wrexham continued that theme and asked why we give unilateral effect to certain mechanisms. It is unavoidable that some cross-border arrangements will apply. In some cases, we will apply these arrangements to the EU on a unilateral basis. That does not mean that we will unilaterally implement EU law; we will just provide continuity where we feel that it is appropriate.

I have done my absolute best to answer the questions raised. As I said in my opening speech, this statutory instrument is essential in preparing our copyright legislation for a no-deal scenario. I therefore commend the regulations to the Committee.

Question put.

Draft Companies, Limited Liability Partnerships and Partnerships (Amendment etc.) (EU Exit) Regulations 2019

Bill Esterson Excerpts

Monday 4th February 2019 General Committees

[Bill Esterson (Sefton Central) (Lab)]

It is a pleasure to serve under your chairmanship, Ms Buck. At the end of the Minister’s speech, I was taken by her remark about “certainty and clarity” when we leave the EU. Oh, my word—nothing could be further from the truth. I do not know whether she was trying to find out whether anybody was listening to her speech. Perhaps it was a test. I heard her, and I can only assume that that was said in a moment of great irony and humour, because it is the last thing that will happen if we leave without a deal, which is what a lot of the regulations are about.

Once again, the Minister and I are here to discuss a statutory instrument that makes provision for a regulatory framework after Brexit in the event that we crash out without a deal. On each occasion, my Labour Front-Bench colleagues and I have spelled out our objections to the Government’s approach to secondary legislation. The volume and flow of such legislation is deeply concerning for accountability and proper scrutiny. In this case, it appears that dozens and dozens of regulations are being changed. They are set out in detail in paragraphs 6.1 to 6.6 of the explanatory memorandum. I shall not go through them all, but Members can count up for themselves to see whether my description is right.

The Government have assured the Opposition that no policy decisions are being taken. That is a very odd thing to claim, because establishing a regulatory framework inevitably involves matters of judgment and raises questions about resourcing and capacity, which are surely policy matters. Secondary legislation ought to be used for technical, non-partisan and non-controversial changes because of the limited accountability it allows. Instead, the Government continue to use it as a vehicle for pushing through contentious legislation with high policy content.

As legislators, we have to get this right. The regulations represent real and substantive changes to the statute book and, as such, they need proper, in-depth scrutiny. As I said at the start of my response to the Minister, there is no certainty or clarity for business—or anybody else—if we leave without a deal, which is ultimately what the regulations are about. In the light of that, we put on record our deep concern that the process surrounding the regulations is not as accessible and transparent as it should be.

The Minister spoke about filing by businesses in the UK and in the EU, and she said that EEA businesses would have two additional filings as a result of the changes. She also said that if the regulations were implemented as a result of a no-deal Brexit, EEA and non-EEA companies would be treated the same.

Companies have three months to implement the changes that the regulations set out, and that does not sound like a long time to ensure that every affected company finds out. Can the Minister tell the Committee what plans the Government have to make sure that every single company affected by the regulations is aware of the changes that it needs to make to be compliant with UK law? If companies are not made aware of the changes, there will be significant consequences for them. I am interested to know what plans the Department has and what process will be followed.

The Minister mentioned the business registers inter- connection system, which is the EEA system that joins our Companies House system with similar systems across the rest of the EEA, if I understand correctly. We will no longer be involved in BRIS when we leave the EU, and that will have an impact on foreign branches of EEA-based businesses. Given her comment that internationally based companies will be treated the same, regardless of whether they are EEA or non-EEA, and that there will not be access to BRIS, what will be the impact for anybody who wants to use the EEA systems —the equivalents of Companies House—that are part of BRIS?

In my experience, we in this country use Companies House to check the legitimacy of a business, inspect accounts, find out who the shareholders are, find the registered office address and carry out checks before trading with another business. It is important for business-to-business activity and to enable consumers to understand whether they are buying from a reputable trader. That is a domestic matter, but at the moment, BRIS means that a straightforward and updated system can be used for such activity across the EEA. As BRIS is ending, what system will replace it?

My assumption—the Minister can confirm it or not—is that for all EEA companies, we will move to the system that we have for companies based in countries outside the EEA. For businesses that are based in the EEA and have branches in the UK, that could lead to a delay in updating the registers. If information is not up to date, the consequence for businesses buying or selling, or for consumers buying, could be that they do not get a true picture of the status of a company that they seek to trade with. Will she clarify whether that explanation is accurate? What plans are in place to deliver the best possible replacement arrangements for international cross-border trade, for businesses and consumers? The existing arrangements provide immediacy, certainty and confidence, which is why BRIS was set up in the first place.

Those are my key questions, but I have a small number of additional comments. In paragraph 7.8 of the explanatory memorandum, the Government refer to the measure applying to a “very few companies”. Will the Minister say how many companies are a “very few”? My other points are, as ever, about consultation and impact. We have this discussion every time we debate a statutory instrument of this sort, and I will not disappoint Members by omitting it today. Paragraph 10.1 indicates that the Government have not been able publicly to consult. That is cause for concern, and it is a reminder that the Minister’s statement about certainty and clarity is odd for yet another reason. Will she explain why the Government were unable to consult before laying these regulations before the House? I know that the Law Society helped to draft the regulations, but without wider input from those who will be affected by them, it is difficult to see how confident we can be that they are entirely satisfactory.

As ever, I remind the Committee that when other jurisdictions, such as the European Union, carry out an impact assessment, they consider the wider impact, and not just the very narrow direct impact of the regulations. It would be extremely advisable for the Government to change their policy and carry out a proper impact assessment. Perhaps the Minister will wish to reconsider her comment that these measures deliver certainty and clarity for when we leave the EU; they do not.

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[Bill Esterson]

I am happy to help. Paragraph 7.8 says:

“This measure applies to very few companies, but transitional provisions have nevertheless been provided that will allow sufficient time for impacted companies to consider the impact of the change on their operations and take appropriate action”.

My question was about how many companies she means by the phrase “very few companies”, which refers to:

“Investment companies that only have shares admitted to an EEA market”.

[Kelly Tolhurst]

I thank the hon. Gentleman for that clarification; that was the area I was thinking of. As far as intermediaries are concerned, five companies would be affected, but our records show that no investment companies have been identified as being affected.

On consultation, as I outlined, we have consulted, worked with and used the expertise of Companies House to ensure that we are making the best provisions to enable UK companies to implement the regulations that we require for them to be legal if we leave the European Union without a deal. By working with those experts, we believe that we have devised the simplest and best way forward.

As I set out, the changes in the regulations cover a variety of amendments to the UK company law framework, so that, on exit day, the UK statute book is workable and coherent. It should be emphasised that certainty is crucial for business confidence. In some cases, the changes are not material and will have no impact on business; they are simply provisions to tidy up the Companies Act 2006 and related secondary legislation. The communication of pre-emption offers to shareholders is one example. The changes are no less important for that reason, however, and they will mean that UK statute is on a stable footing on exit day.

As I have set out, other areas will have an impact. They include the level-down approach for EEA companies in relation to certain filing requirements for the register, as well as the changes for some entities in relation to benefits that are currently based on access to EEA-regulated markets. The removal of the cross-border mergers regime is another example of where businesses will notice a change to processes that existed as a result of our membership of the EU.

The regulations cover many different changes, but, taken individually, their impact on business will be small. My officials are working with Companies House and others to ensure that the register will be operational for exit day, and that will significantly reduce the impact felt by companies that are affected by the changes. Overall, the regulations will ensure that the UK’s company law framework remains coherent, operable and under- standable for business, and I commend them to the Committee.

Question put and agreed to.

Draft Insolvency (Amendment) (EU Exit) Regulations 2018

Bill Esterson Excerpts

Thursday 24th January 2019 General Committees

[Bill Esterson (Sefton Central) (Lab)]

I thank the Minister for her analysis of the regulations’ effects. She got quickly to the point that mutual recognition between the UK and the EU is not guaranteed if we leave with no deal. Under the terms of the withdrawal Act we would be giving one-way recognition of EU appointments and judgments. The statutory instrument would give our Government the opportunity, should they need it, to withdraw that recognition. I will tease out one or two points surrounding that intention.

People in the profession do not want the Government to have to use the power—I dare say that the Government do not want to use it either. They want the Government to secure a deal so that the existing system of mutual recognition continues, and they argue that no deal should be avoided. We often do the same in Committees such as this one, but we recognise what would happen in the event of no deal.

People in the profession have made the point to me that the Government have the power to create a level playing field for the UK profession if they are unable to obtain the deal that they are looking for. The SI is not a mechanism for maintaining the current system; it deals only with problems that could arise from not having a mutual recognition deal. I urge the Minister to take on board their point that in the event of no deal the Government should try to re-establish mutual recognition as quickly as possible so that the provisions in the SI will never be needed.

The Minister referred to the Joint Committee on Statutory Instruments’ concerns about the clarity of the regulations, potential defective drafting and the fact that they deliver broad powers rather than narrow ones. She gave various examples of what could happen without the kind of mutual agreement that I referred to. I think the Joint Committee, like the Opposition, would call for every effort to be made to achieve mutual recognition as soon as possible. Can the Minister say what work has been carried out to try to establish that mutual recognition in the event of no deal? Such work is effectively what the sector is calling for.

What indications has the Minister had from the EU about its intentions to maintain the status quo and to reciprocate what she proposes in the regulations, which is that we will continue to recognise the appointments and jurisdiction of EU courts in insolvency proceedings? Has she had an indication that that arrangement will be reciprocated in the event of no deal? What discussions have her officials had with EU Governments or the Commission?

As far as I understand it, the SI enables the Government to remove automatic recognition of foreign practitioners and recognition of court decisions. We have an extremely well regarded, strong and economically successful insolvency regime in the United Kingdom, and it is important that we continue to do so. Maintaining confidence in it is extremely important to our economy as a place for businesses to come to restructure, and for creditors in insolvency cases to recover what they are due effectively and successfully. It is important that we avoid a long-term shift away from a lot of that work being based in the United Kingdom, so those guarantees from the EU are extremely important.

A point made to me by people in the profession was that some people in the insolvency profession across the continent of Europe may see an opportunity to increase the amount of work that they can obtain at the expense of the UK profession. They may not be particularly concerned about reciprocity or about getting the EU to continue mutual recognition. I urge the Minister to address that point when she answers my question about the progress made towards achieving mutual recognition.

Further to paragraph 2.10 of the explanatory memorandum, will the Minister explain the implications of the draft regulations for the Pension Protection Fund? What is changing? I did not entirely get a sense from her speech of what assurances are in place to protect employees. Sadly, in recent years there have been some very high-profile cases that have made a significant call on the fund—the BHS insolvency springs readily to mind. Clearly we need to ensure that the fund is not undermined in any way, shape or form by what is happening, and that the draft regulations will protect workers in the event of a no-deal exit.

As paragraph 2.14 notes,

“the UK will no longer be an EU member State.”

What are the implications for employees of companies that operate in more than one jurisdiction, or where there is foreign ownership of a UK subsidiary? That may be a relatively easy question but, again, I did not quite get a sense of the answer from the Minister’s speech.

Paragraph 3.7 refers to the main thrust of the draft regulations:

“the lack of reciprocity after exit day.”

That is an argument for preventing no deal at all costs, but there is real concern about the fact that we can continue to offer recognition of EU operations in insolvency but we cannot require member states to recognise UK insolvency judgments. The explanatory memorandum sets out the challenge clearly. I would be grateful if the Minister addressed exactly what progress has been made towards overcoming the lack of mutual recognition.

As ever in Delegated Legislation Committees, there are matters of consultation and impact assessment to consider. I understand that there has been informal discussion, and having spoken to people in the sector, I think it is fair to say that they are as happy as it is possible to be—in this case, if not in all cases—with what is being proposed in the event of no deal. However, they stress that the draft regulations are only a stopgap. As the insolvency body R3 stated in its 2017 Brexit recommendations, it is extremely important that a mechanism be put in place as quickly as possible that provides the same benefits as the European insolvency regulation and the recast Brussels regulation.

R3 also noted how much money is recovered as a result of UK insolvency actions. One of its case studies was Nortel, which entered insolvency proceedings in 2009. A total of £1.5 billion was returned to creditors as a result of the work carried out by insolvency practitioners and their agents, where the insolvency was based in the UK. That compares with a total of £4 billion a year returned to creditors in the UK, including to the UK Government through HMRC. I therefore find it quite remarkable that the Government say there is no business impact worthy of an impact assessment—that they regard the impact as below the de minimis level. My calculation is that £4 billion is a little more than the £5 million de minimis level. Yet again, a regulation has a significant business impact but the Government do not carry out an impact assessment.

I will not go through the entire way in which the EU carries out its impact assessments; it does things rather differently. Those of the Committee who were here on Monday will have heard me read them out on that occasion. It is on the record and I do not need to do it again. The Minister may refer to it and I would have hoped she would have done so before today’s meeting.

[Nick Smith (Blaenau Gwent) (Lab)]

Definitely don’t want to go through that again.

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[Bill Esterson]

My dear and hon. Friend the Whip is extremely grateful that I will not repeat myself in full. The point is that the EU looks at the wider impact on the economy of similar regulations when the EU implements them. The Government’s very narrow interpretation of an impact assessment is shown in all its inadequacy by the comparison of that £4 billion per year with the £5 million de minimis level.

We will not oppose the statutory instrument; the Minister has given satisfactory answers, including to the concerns raised by Joint Committee on Statutory Instruments. We must hope that we do not end up having to apply this instrument or numerous other regulations we have dealt with recently; I know the Minister shares that hope. I await with interest her response, in particular on the work that is going on to ensure that mutual recognition carries on as seamlessly as possible, to support the very important part of our economy that is our insolvency sector.

[Kelly Tolhurst]

I thank the hon. Member for Sefton Central for his comments and contribution to the debate. We remain optimistic about reaching a deal of mutual benefit to the UK and the EU, but it is important to maintain our regulatory and legislative framework for dealing with insolvency should we leave without a deal. That is why we introduced this instrument.

The Department has consulted with the profession and spoken to some of the groups to try to ensure that that the statutory instrument will work as well as possible. Obviously, we have consulted R3, which the hon. Gentleman mentioned. As I outlined, we are very much focused on delivering a deal.

The hon. Gentleman is quite right that the statutory instrument relates entirely to things happening in the UK, but does not enable us to have any influence on or dictate to EU member states how they treat UK orders in the event of no deal.

[Bill Esterson]

indicated assent.

[Kelly Tolhurst]

I see the hon. Gentleman understands that point.

As the hon. Gentleman will know, in what we have laid out as our future economic relationship in a deal, our focus is on ensuring that we are able to deal with mutual recognition and reciprocal status going forward if a deal is to be had. We recognise, with the profession, that if we can come to an agreement in this area in a deal situation, that would be in everyone’s best interest. With a deal, we would continue our civil judicial co-operation, including on cross-border insolvency. That is in the best interests of both the UK and the EU, as he outlined. However, it is not possible for us to unilaterally continue with the co-operation on cross-border insolvencies; we can achieve the benefits that both sides currently enjoy only through a mutual recognition agreement with the EU. The declaration on the future relationship was clear that it would include wide-ranging agreements on trade, including trade in professional and business services and the framework necessary to support that.

We will continue in those endeavours, but this SI is intended to ensure that, in a no-deal situation, UK law provides clarity for the profession and that we are able to operate on day one. After that date, it would be down to us to bring any further changes to our insolvency regulations that are not in the scope of the draft regulation to the House, as we see fit. After leaving, there may be things that come up that we might need to change, but that would be done in the course of standard business.

Regarding the hon. Gentleman’s concerns about the Pension Protection Fund, I assure the Committee that the Prime Minister and the Government have been clear that we will not row back on workers’ rights through the withdrawal Act. Employees living and working in the UK for a company registered here or in the EU will continue to receive redundancy-related payments from the national insurance fund where their insolvent employer cannot make them, as they do now. The draft regulations ensure that the law in this area is clear and can operate correctly when we are no longer an EU member state. One of the limitations is that within this SI we cannot guarantee for workers in EU states, how EU member states will deal with the employees working in those states. What we can do, as laid out in this SI, is to ensure that people working in the UK, be it for EU companies operating in the UK or UK companies, will still have those protections as they are now for UK workers.

On the hon. Gentleman’s questions about the impact assessment, we have been in this situation many times over recent months and I know it is a particular concern for him. However, for this particular SI we have assessed the direct cost of to business in terms of the costs of insolvency and have estimated that the direct cost would be £2.7 million, due to the extra costs that may arise when practitioners need to open cases in EU member states, which they do not currently have to do under EU regulations.

Draft Intellectual Property (Exhaustion of Rights) (EU Exit) Regulations 2018

Bill Esterson Excerpts

Monday 21st January 2019 General Committees

[Bill Esterson (Sefton Central) (Lab)]

It is a pleasure to serve under your chairmanship, Mrs Moon. We now know what the £171,000 an hour is being spent on. I wonder how much the Committee will contribute towards that sum and whether we will get as far as an hour’s worth.

The draft regulations are yet another example of a no-deal preparation SI, which the Prime Minister could rule out at any time she wanted by announcing that she was taking no deal off the table. [Interruption.] I am being interrupted from a sedentary position, Mrs Moon. How strange.

The Prime Minister could have ruled out no deal in her statement earlier. I just checked what she said, and yet again she has chosen not to. It seems that the Chancellor and the Business Secretary are keen on doing so, and why on earth the Prime Minister cannot is beyond me. Frankly, if she wants to work across the parties, that is exactly what she will do, and she will find a majority in this Parliament for an alternative to no deal, if and when she eventually does that. [Interruption.] More muttering from a sedentary position. How strange, again.

The SI raises a number of issues and challenges. It raises the prospect of the import of cheap products that would undercut domestic producers and drive a coach and horses through our consumer arrangements in the event of no deal. Reasons abound for ruling out no deal, and that is one of them. I shall go through some of the points that were debated at great length in the House of Lords.

The draft regulations say that in the event of no deal, existing arrangements will continue. Those arrangements are at present in the area of EU trade where IP protection within the EU has ended or been exhausted. The Minister set that out fairly, I thought. Products from anywhere in the EU can be traded across the EU without restriction once IP protection has ended.

That so-called regional exhaustion applies within the EU but not to products from outside. EU case law largely uses an example from 1999 relating to an Austrian company called Silhouette, which produced sunglasses. Older designs from the company were sold to Bulgaria, which at the time was outside the EU. Another Austrian company chose to import those older models back into Austria and sell them at substantially lower prices than the current models were being sold for.

After lengthy legal consideration, the European Court decided that that contravened EU regulations. That is the case law currently relied on for this country’s arrangements, as it is in the other EU27 and EEA member countries across the continent of Europe. Significant concerns have been raised in the sector, and by the Alliance for Intellectual Property, about the potential for legal challenge under the draft regulations, and about whether EU case law will continue to be relied on once we have left the EU. Those concerns relate to leaving with or without a deal. However, the draft regulations are about leaving with no deal.

The potential for such legal challenges raises concerns about the continuation of arrangements. A competitor could try to import a product and say that EU case law no longer applies. I know that the Government’s intention is that the situation should not cause a problem. However, legal advice has been given to the sector that such legal action could last several years and hold up a final decision. There is nothing in the SI to state whether EU case law will continue to apply to maintain the arrangements that the Minister said he wants in the event of no deal.

The question is what would happen in the situation in question. The problem would be that competitors could challenge each other, imports could be held up, and all sorts of problems and delays could arise, leading to significant concern and difficulty for businesses and consumers in this country. In the House of Lords debate, Lord Stevenson described the draft regulations as creating a “dripping roast” for lawyers. Having looked at that debate and at the representations I have been given, I am afraid I have to agree. The draft regulations are very good news for lawyers, but not much use for businesses, consumers or workers.

[Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)]

I debated some of these issues at length a number of years ago, when the Intellectual Property Act 2014 was going through the House and during debates on some of the subsequent secondary legislation. This is an interesting issue and my hon. Friend makes some important points. Does he agree that there is great concern out there, particularly among those in smaller creative sectors such as musicians, self-employed people and people in the video games industry, about the chaos that will be created by the kind of Brexit the Government are pursuing and the risk that poses to their businesses?

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[Bill Esterson]

That is exactly right. This is a challenge for all sectors, and it is a particularly big problem for smaller firms in the creative and digital sectors, for the reasons my hon. Friend gives. There is a real absence of guidance—the European Union (Withdrawal) Act 2018 is silent on the issue, and the withdrawal agreement is, too—and I am afraid the lack of clarity in the SI leaves open the real problem of whether EU case law will apply. As he said, that is a problem with regulations right across the economy and Departments. It affects many of the regulations we have considered in the past weeks and months, and those we still have ahead of us while no deal remains an option.

At present, brands have protection against cheaper imports from outside the EU. I had an example of that drawn to my attention, which Members may remember. About 15 years ago, Tesco chose to import cheap Levi’s jeans. It was challenged, and because those Levi’s were produced outside the EU, it was required to withdraw them from sale because they disrupted Levi’s arrangements in the EU. Under the draft regulations, in the absence of clarity about the applicability of EU case law, a case where someone wanted to import from outside the EU could take years to resolve. I do not know whether Tesco has plans to take a similar approach—I certainly do not make that accusation of it—but no doubt someone may want to try their luck in the absence of certainty in the draft regulations.

In paragraph 12.2 of the explanatory memorandum, the Government describe the prospect of “some costs” for exporters. The Minister’s colleague in the Lords was not able to say in great detail what it would mean for our exporters if the EU did not reciprocate the arrangements that the Government propose to put in place. Perhaps the Minister has had time following the Lords debate to come up with an answer. What will those costs be? What is their likely scale?

On trade outside the EU, it has been drawn to my attention that pharmaceutical companies in this country, for example, sell drugs to developing nations significantly below the price charged in the EU, so there is a problem with parallel trading. Without the certainty of EU case law as a protection, a parallel trader may buy up the stock of medicines and sell them back within the UK, thereby directly competing with the producer of those medicines. Again, that could take years to resolve, there is nothing in the draft regulations or the withdrawal Act, and there are serious implications for the withdrawal agreement. I come back to the comment my hon. Friend the Member for Cardiff South and Penarth made in his intervention: there is no protection there against that kind of activity.

The likely consequences are that a pharmaceuticals firm would then stop providing lower-cost medicines in a developing country, which would be a loss for people who need cheaper drugs and a loss for that company, with consequences for its production and workforce here. That could apply in a number of other sectors, too. There are serious implications for consumers of goods being sold cheaply here. It sounds very attractive—we all want cheap goods—but until that legal situation is resolved, there are real concerns about compliance with UK regulations.

I have been given information on this subject by the Alliance for Intellectual Property, which points out that cheaper prices for goods do not necessarily reach the consumer and are often

“swallowed up by traders, wholesalers and retailers.”

Even if there are cheaper prices, the cost is

“not borne by the importer”,

which leads to other consequences and lower regulatory enforcement. AIP notes:

“Products may not comply with UK regulation (eg languages on labels; sector regulations (eg cosmetics). This increases the costs of enforcement…by Trading Standards”.

Where products do not meet consumer expectations, which might be due to slight differences in the product, deterioration during transit or poor customer service support, it undermines trust in a brand. We have a very high level of regulations and highly regarded brands in this country. As AIP state, undermining that brand quality affects not only

“the competitiveness of the products in the UK market”,

but our ability to sell overseas, because if the UK brand is undermined, one of the reasons why people like to buy British is likely to be lost.

AIP continues:

“Where an imported product replaces the sale of a domestic product, the brand owner loses revenue and thereby the ability to invest in innovation, quality, choice, reputation, salaries, jobs, etc.”

Those are all real concerns, raised by businesses for which intellectual property protections and reliance on the existing system are of great importance.

I mentioned the Silhouette case, the key European Union case law on which we currently rely. The legal opinions that the Alliance for Intellectual Property relies on suggest that the Silhouette case will not

“necessarily become retained EU case-law under the EU Withdrawal Act 2018 (‘Withdrawal Act’) and therefore the UK Courts will not have to apply it when interpreting retained EU law on exhaustion of rights. Secondly, even if the case-law does fall within the definition of retained EU case-law under the Withdrawal Act, it is only relevant to retained EU law which is unmodified on or after exit day. Arguably, the retained EU law on exhaustion of rights will be materially modified on exit day, as a result of the amendments in the Exhaustion SI because the government is changing an EEA-wide exhaustion regime of which the UK is currently part, to a one-way exhaustion regime only.”

AIP’s concern is that the arguments would be tested at length and at great expense in the UK courts, should we leave with no deal, which would lead to huge uncertainty for anyone who relies on intellectual property protection for their business and products.

That point was covered at length in the Lords and I do not think a satisfactory answer was given to Lords from across the Chamber. I believe that the Minister in the Lords was going to write to Members there to answer some of their questions. Perhaps the Minister will tell the Committee whether that letter was written, and whether we might have a copy.

That brings me to a topic that we have discussed quite a lot in some SI Committees—impact assessments, or the lack of them. Incidentally, when I was discussing the matter this morning with a member of the Alliance for Intellectual Property, I asked what he thought the financial impact of the draft regulations would be, should they ever be needed. He answered that it would be in the hundreds of millions of pounds at least, because it is so important to so many businesses. Yet we are told yet again:

“A full impact assessment has not been produced for this instrument as no, or no significant, impact on the private, voluntary or public sector is foreseen.”

Such statements accompany every such set of regulations, although they all have significant impacts. The Government are reluctant to produce assessments of the impact on businesses, consumers and workers. They argue that it is only the narrow, direct and immediate effect of such regulations that is relevant. I am sure that the Minister will confirm that. It would not be the first time I had heard a Minister say it. In reality there will be a massive impact on businesses and the economy, because implementing the draft regulations will have wider consequences. The legal challenges will last for years.

I thought I would discuss how impact assessments might be carried out, and how such an assessment might have been done for the draft regulations we are considering. When regulations are introduced in the EU, an impact assessment is carried out, and the process is described in this way:

“IAs must set out the logical reasoning that links the problem (including subsidiarity issues), its underlying causes, the objectives and a range of policy options to tackle the problem. They must present the likely impacts of the options, who will be affected by them and how.

Stakeholders must be able to provide feedback on the basis of an inception impact assessment which describes the problem, subsidiarity related issues, objectives, policy options and an initial consideration of relevant impacts of these policy options.

IAs must compare the policy options on the basis of their economic, social and environmental impacts (quantified costs and benefits whenever possible) and present these in the IA report.

Certain elements must be included in the final IA report. These include…a description of the environmental, social and economic impacts and an explicit statement if any of these are not considered significant”—

There’s an idea. The report must also include

“a clear description of who will be affected by the initiative and how”,

as well as

“impacts on SMEs following the ‘SME test’”

in what the EU describes as its “toolbox”,

“impacts on competitiveness; and…a detailed description of the consultation strategy and the results obtained from it.”

Lack of consultation is another gap in the way in which the draft regulations have been brought before us, which we will return to.

The outline goes on:

“Initiatives supported by an impact assessment (IA) must have a validated entry in Decide, an inception impact assessment published for stakeholder feedback.”

I understand that Decide is the EU’s process for making decisions. The outline continues:

“An interservice group (ISG) must also be established to steer the preparation of the IA.

This ISG may be chaired by the lead DG or by the Secretariat-General for politically important files. A 12-week internet-based public consultation covering all of the main elements of the IA as part of a broader consultation strategy to target relevant stakeholders and evidence.

The draft IA report must be presented to the Regulatory Scrutiny Board for its scrutiny.

A positive opinion of the Board is necessary before formal interservice consultation can be launched. The RSB will generally only issue two opinions.

The IA report must be complemented by a 2 page executive summary sheet available in all languages.”

Presumably—three of my colleagues today are Welsh—that would include the Welsh language. What a good idea. What a comprehensive description of how an impact assessment could, should and might have been carried out by this Government on these draft regulations and on so many others. I remind the Minister again: those who know what they are talking about and who are experts in this field believe that there is a serious and very comprehensive impact to be experienced as a result of the draft regulations. I know that the Minister will not agree. Perhaps that is because so many on his side of the House do not like the fact that this is being done by the EU. Anyway, having looked at how the EU carries out its impact assessments, we can see that it is somewhat different. Perhaps we can look forward to an improvement in future.

I mentioned consultation. Again, we had only informal consultation on the creation of the draft regulations. It seems that that consultation came about only where the sector approached the Intellectual Property Office, which drew up the explanatory memorandum. There was no formal request for consultation before the draft regulations were drawn up. Had there been, the feedback about the need for a provision on the use of EU case law may well have come back from the sectors. What they are saying now is that a further SI may well be needed. This could have been avoided with proper consultation. I think that the Minister confirmed in his opening remarks that consultation will take place as a new exhaustion regime is developed in time, but we will see the problems I have outlined in the event of no deal and these draft regulations being necessary.

There are real problems with one-way agreements like this one. The lack of symmetry in the arrangements is bound to cause a big problem. There have been significant changes. There is a suggestion, by the way, that we go back to relying on case law from about 40 years ago, before we were in the Common Market. But times have moved on. It would take years to establish reliance on such case law, and business practices have changed. The overwhelming use of online sales in retail is a significant change in the nature of business, and it would be very difficult to compare two such different eras in relying on case law. Those are points that have been put to me about the difficulty in dealing with such a difference.

The pinning of all our hopes on a deal that may be negotiable in the future, which is what the Minister is proposing, is not a satisfactory business proposition. It will send shivers down the spine of the community we are talking about here. I know this because it has been telling me so. They need the full protection of the law in defending their intellectual property, and they are contributors to one of the most productive areas of our economy, on which Opposition Members certainly pin great hopes as part of an industrial strategy. The Government say they do, too, but without the certainty of the arrangements that should have been put in place, had proper consultation been carried out, and had those discussions taken place earlier, it is difficult to see how this will work in the event of no deal. We need certainty so that we can create a climate for those creative industry specialists working with intellectual property and seeking to export, but the prospects now seem extremely damaging.

I hope that the Minister will reflect on the challenges for importers and exporters, and on the undesirability of such uncertainty for the whole economy. I hope that he will take urgent steps to address the shortfall—an exhortation that is coming not just from my words, but from the sector, which I think is putting forward a very important case about the need for far greater certainty in these draft regulations.

[Chris Skidmore]

I thank the hon. Member for Sefton Central for the points that he has raised. I will endeavour to respond to some of the points that are specific to the statutory instrument.

The draft SI is clear that it will maintain the status quo. Regulation 2 ensures that the domestic exhaustion framework is the same after exit as it was before exit. The provision delivers, as far as possible, a continuation of the current regional exhaustion regime. This approach simply ensures that what happens currently will continue after exit day, and allows for IP-protected goods in the secondary markets to continue to be imported from the EU. We are not rushing to any alternative international exhaustion system; the draft regulations simply maintain the current regional exhaustion regime. This will ensure continued consumer choice and resilience in the supply of goods into the UK. As this will be a continuation of the current system, there is no reason to anticipate any increase in parallel-traded goods after exit. Indeed, this will ensure that the NHS continues to save £100 million a year as a result of being part of the regional exhaustion regime.

The hon. Gentleman asked about pharmaceutical innovation. The Government have done a lot of work to promote innovation in their creative industries, which represent the backbone of our business community. They give great emphasis to promoting businesses that create value. Our industrial strategy and sector deals are a great example of that, but of course the Government pursue a balanced economy that also promotes trade and the movement of goods. This plays an important part in developing a balanced economy for all types of business across the UK.

I want to turn to the Silhouette ruling from the Court of Justice of the European Union and the requirement to implement a regional exhaustion regime. It is clear that EU case law before exit will continue to apply in relation to the interpretation of EU-derived domestic law after exit under the withdrawal Act. EU case law before exit relating to the effects of this law will continue to apply under section 6(3) of the withdrawal Act, and this draft SI should provide legal clarity for businesses. For the purposes of the Committee, I note that an article was published on 14 January by the law firm Bird & Bird LLP on the Government’s draft SI stating that Silhouette

“will be ‘retained under EU case law” under section 6 of the European Union (Withdrawal) Act 2018. As a consequence, the principles laid down in these cases will continue to apply after exit day unless and until the Supreme Court or Parliament decides otherwise”.

It adds:

“The Government have done what can be done to preserve the status quo in the draft SI.”

[Bill Esterson]

The legal opinion demonstrates exactly what the problem is. The Minister said, “until the Supreme Court or Parliament decides otherwise”. Perhaps he will acknowledge that he has confirmed that this can be challenged or changed, and that we cannot just rely on retained EU case law. Perhaps he could comment on the request by one of the Lords for a sunset clause to time-limit the period during which he and his colleagues develop alternatives.

[Chris Skidmore]

I will speak about alternatives later, but I have already made the point that there is no rush to develop alternatives. As Bird & Bird made clear, there will be no change to international exhaustion or aversion to a concept of implied licence, or some of the fears that the hon. Gentleman has raised—[Interruption.] No, because this Government will look at all alternatives—I will turn to those in a moment—but this SI is intended to preserve and protect the current regime, not to change it. He mentioned the impact on business, and that is what this SI is for: to protect and preserve the current business regime.

The hon. Gentleman made an extensive contribution on impact assessments in other countries. The impact assessments that we follow in this Parliament are intended to look only at the impact of the legal instruments to which they are attached. This SI maintains the status quo within the UK, and hence there is no anticipated impact on business. The impact assessment for this SI followed the better regulation framework and is in line with Her Majesty’s Treasury’s Green Book guidance. The impact was assessed and compared with the static acquis baseline—that is, by reference to existing EU regulations and directives. The SI simply fixes deficiencies in law that will be retained under the European Union (Withdrawal) Act 2018, allowing current systems or regulatory provisions to continue to operate in a no-deal scenario. The impact analysis therefore focuses on the direct impact of the relevant SI alone. Analysis of the wider impact of the UK’s exit from the EU has previously been published, in the form of the long-term economic analysis published in November 2018.

The hon. Gentleman also asked about the cost to export. Clearly, no data is available on the potential impact on parallel exports from the UK to EEA countries, and any loss to UK businesses is hypothetical. It will depend on how rights holders wish to assert their rights in relation to parallel goods crossing from the UK to the EEA. All I can say is that this SI obviously provides the maximum possible certainty in maintaining our relationship across exhaustion rights in a regional sphere. Failure to pass this SI would therefore create significant difficulties.

The hon. Member for Cardiff South and Penarth mentioned the technical notices and the impact on small businesses. The technical notices are part of the support that we are providing to businesses. Given that this is a complex area of law, we are also encouraging businesses that engage in parallel trade, especially those that export, to seek legal advice on the actions they should take following the UK’s exit from the EU.

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[Chris Skidmore]

Passing this SI today will provide the maximum possible certainty by creating the national exhaustion regime, allowing companies and creators to have that security by keeping the status quo. That is what this SI is about. We are not having a wider debate about Brexit today; this is about ensuring that, when it comes to changing this technical apparatus in law, the regime continues as it has done previously. The SI simply ensures that we can continue to tick on as we have done in the past. Its implementation is essential to ensuring that the current arrangements continue. Failing to pass this legislation before we exit would leave a period of legal uncertainty, during which businesses could incur significant litigation risks. The SI maintains arrangements that continue to support the movement of goods to the UK. For example, this could help with NHS resilience in the supply of medicines at a cheaper cost.

The hon. Member for Sefton Central also talked about the potential consequences of an international exhaustion regime. I have already stated that this is about extending the legal framework to ensure that we protect the current regional exhaustion regime. When it comes to any further alternatives, the legal and economic arguments for various options are complex, which is why the Government are conducting research on the best exhaustion regime for the UK. Were there to be a change, the Government would introduce it only following evidence gathering and analysis, alongside engagement with a wide cross-section of stakeholders. The Government are conducting a feasibility study that will look into the levels of parallel trade between the UK and the EU. That study is ongoing and the evidence from the report will form part of the next steps in the Government’s decision-making process. I believe it will be published by Ernst and Young in 2019. Obviously, the response to the report and any further policy measures will take time. There is no compelling reason to rush to an alternative system until we have seen the evidence and listened to businesses and consumers.

The hon. Gentleman mentioned public consultation. Since the referendum result, the Intellectual Property Office has engaged with businesses in several sectors about the implications of exit. I visited the IPO’s offices in Newport on Friday and found an excellent organisation whose workforce have high morale and are determined to deliver maximum possible certainty as we approach the EU withdrawal day of 29 March. I have seen the charts and I reassure the hon. Gentleman that the IPO is doing all it can to engage with stakeholders.

The usual wide engagement with businesses and individuals was not possible on a draft no-deal instrument when the Government were in the middle of sensitive negotiations on the withdrawal agreement. Public consultation on no deal would also have risked prejudicing the ongoing discussion with the EU about our future membership. However, as I said, the IPO engaged with stakeholders across a wide range of sectors, including rights holders. That was consistent with the approach to no-deal legislation across Government, as I mentioned last week in our previous discussion on statutory instruments.

[Bill Esterson]

The Minister has read out a comprehensive note. From reading Lords Hansard, it appears to me that the only person who had spoken to the IPO was a member of the Grand Committee. The feedback I have had suggests that there has been engagement only when people have taken the initiative and called the IPO. The Minister made the extraordinary comment that there should not be public consultation on the SIs because of sensitivities—that is what I heard him say. However, without proper consultation, how can the SI be accurate? How could it have been drawn up in a way that ensures that the draft regulations do the job they need to do? Perhaps that explains why the problem of EU-retained case law is so prominent and has been criticised so much in the Lords and in the correspondence that I have received.

[Chris Skidmore]

The consultations that have taken place at IPO level are clear that the overwhelming number of stakeholders believe that the preservation of the status quo is in the best interests of all the sectors at the moment. If the hon. Gentleman decides to vote down the SI, he will send a clear message to those sectors that, with 60 or 70 days to go, he wants to ensure maximum possible instability. I ask him to think carefully as we go through these no-deal SIs. He has described the industries in the creative sector as vital to the UK economy and our global brand, and I entirely agree with him about that. I urge him not to vote down an SI that simply provides certainty, stability and the maximum possible opportunity for those businesses to carry on their day-to-day operations without any change.

The hon. Gentleman mentioned the Lords debate. The Government have written to Lords who participated in it and I am happy to provide him with a copy of the letter. It gives a clear response to their queries, which the hon. Gentleman mentioned. He can also see the evidence of the letter with regard to the points that he made about the sunset clause and the consultation.

I hope that I have satisfactorily addressed the points that have been made. To summarise, the Government are preparing for all scenarios and the SI is essential in preparing the UK for the possibility of leaving the EU without a deal. The draft regulations ensure a continuation of current systems as far as possible, delivering the status quo for imports into the UK. Many stakeholders have endorsed that approach.

The draft regulations aim to ensure as much continuity and certainty as possible in the immediate period after no deal. A long-term decision on the exhaustion regime will need to be informed by careful assessment of the balance of interests, and the Government will undertake a comprehensive programme of economic analysis and consultation to achieve that. For now, it is important that the draft regulations are in place to ensure that there is a clear, predictable and legally defined exhaustion regime in the UK in the event of no deal, and to maintain a regime that continues to protect IP holders’ rights while giving choice to consumers in the UK across a range of goods, including essential commodities such as food and medicines.

In addition, the draft regulations provide certainty in the immediate term for businesses and consumers, and limit friction in the trade of goods between the UK and the EEA. I hope that the Committee will support the draft regulations.

Question put.

Draft Patents (Amendment) (EU Exit) Regulations 2018 Draft trade marks (Amendment Etc.) (EU Exit) Regulations 2018

Bill Esterson Excerpts

Thursday 17th January 2019 General Committees

[Bill Esterson (Sefton Central) (Lab)]

It is a pleasure to serve under your chairmanship, Sir Henry. I think this is the first time I have had that pleasure. I look forward to the rest of the deliberations. I think this is the first time that the Minister and I have faced each other as Front Benchers, although we have occasionally crossed swords, if that is not overstating it, on—

[Chris Skidmore]

The Education Committee.

[Bill Esterson]

Indeed. The Minister referred to the importance of the intellectual property regime in the United Kingdom. He was absolutely right to state in the terms he used the high regard in which it is held throughout the world. There are key questions for us about maintaining those high standards and that high reputation. In the digital era, that is perhaps more vital for businesses than it has ever been.

The operation of the patent and trademark system after exit day will play a key part in delivering business confidence. I fully welcome the Chancellor’s commitment to the business community to ruling out any prospect of no deal; that is most welcome to Opposition Members. I look forward to the Prime Minister’s making exactly the same commitment, in order to deliver the certainty for our economy that is so needed and desired by businesses, workers and consumers.

Of course, if we avoid no deal, the regulations before us become less of a challenge, but given that we have to prepare for every eventuality, we need to consider them, as the Minister says. Currently, patent law functions through domestic legislation, while EU law sets out legal provisions on the patenting of biotechnical inventions. That includes exceptions from patenting, the scope of any protection, and a compulsory licensing regime between overlapping patents and plant variety rights.

EU law also provides processes for a compulsory licence to be granted for UK manufacture of a patented medicine for export to a country with a public health need, and sets out an exception under which certain studies, trials and tests can be carried out using a patented pharmaceutical product without infringing the patent. Those provisions are being transposed under these regulations, but in these areas, questions arise to do with patented pharmaceutical products and agro-chemicals, where the EU provides for an additional period of protection after a patent has run out. I ask the Minister to address that.

In the no-deal notice, the Government advised:

“Supplementary protection certificate holders, applicants for supplementary protection certificates, and third parties may wish to familiarise themselves with any changes to the related regulatory processes (human and veterinary medicines and chemicals).”

What measure have the Government undertaken to promote those among stakeholders, and what progress has been made on certainty regarding the unified patent court? My understanding is that that is an EU-wide agreement, unlike the non-EU European Patent Office, which covers much of what is referred to in this statutory instrument.

As with all the recent SIs relating to no-deal planning, no impact assessment has been carried out of the regulations before us, and only informal consultation has taken place. That is something we have debated a number of times with the Minister’s colleague, the Under-Secretary of State for Business, Energy and Industrial Strategy, the hon. Member for Rochester and Strood (Kelly Tolhurst); perhaps the Minister can add this occasion to the list. One concern we have raised before, and which I know has been raised in written questions, is the cumulative impact of all these SIs. I draw to the Minister’s attention to the fact that there is concern about that within the business community, even if the Government do not see the need for individual impact assessments on specific regulations.

I also ask the Minister to confirm that separate UK and EU registration will be required for applications for intellectual property. Can he confirm what, if anything, is changing in that regard, given that, from my understanding, at present it is a non-EU body that manages EU-wide registration? Perhaps he can clarify exactly what will change in respect of patent applications, given that they are not an EU responsibility.

In relation to EU trademark applications pending on exit day, applicants may file a new UK trademark application within a period of nine months from exit day, maintaining the filing date, priority date, or seniority date. Can the Minister confirm what will happen after that nine-month period, and whether my understanding of the nine-period is indeed right? The draft regulations do not make reference to international trademark registrations or applications. What progress has been made with the World Intellectual Property Organisation to protect existing international registrations? This area is incredibly important, and the protection of IP is of immense value to businesses in the digital era. Getting it right is crucial.

I thank the Minister for his opening remarks, but there are significant questions still to answer about what he seems to think are relatively minor changes. Even minor changes need to be addressed to make sure we get this right. I hope that we will not need these regulations, and I hope that he hopes the same, but we need to get them right in case we do.

Draft Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) regulations 2018

Bill Esterson Excerpts

Thursday 10th January 2019 General Committees

[Bill Esterson (Sefton Central) (Lab)]

It is always a pleasure to serve under your chairmanship, Mr Davies. I take the opportunity to wish you and all hon. Members a happy new year.

I noted from the Minister’s opening remarks that we are still very much in the pantomime season. She only had to look behind her to see the truth of that statement as in her opening comments, when she confidently articulated the likelihood of Tuesday’s vote succeeding in the House. I do not want to disabuse her, but I sincerely doubt that that will happen. Nevertheless, here we are. We will play the game and address the regulations before us in the spirit intended, with the assumption that the deal will go through on Tuesday, even though we all know that is not going to happen.

The Minister rightly said how important it is that we have a successful, sustainable and workable audit regulatory framework in the UK after leaving the European Union. I wholeheartedly agree with that sentiment, but her speech and the information before us raises a number of questions, which we can usefully address, regardless of how we leave the European Union and whether the vote goes through on Tuesday.

The Minister mentioned the fact that a transition period in the withdrawal agreement lasts until the end of 2020, and that this avoids a cliff edge in the changes that she described. Can I ask her about the FRC’s confidence in its ability to negotiate new mutual recognition agreements to avoid simply delaying a cliff edge until the end of 2020? What have other countries said on the same subject? My understanding, from talking to the FRC, is that negotiating mutual recognition agreements on those subjects is by no means straightforward—they are extremely complex. I must ask where her confidence comes from, because I could not find in the paperwork before us any kind of clarification or assurance that would lead her to be so confident.

The Minister mentioned the commentary of the Government of the Republic of Ireland. She also mentioned that the number of businesses affected cross-border on the island of Ireland is small. Can she tell us how small, how many businesses are affected and what their turnover is? Similarly, can she say exactly how many businesses overall will be affected by the anticipated changes, and what their turnover is? I note that again—as for similar statutory instruments that we have discussed in the last few months—we have no impact assessment. The last impact assessment we had, which was on accounting standards, suggested that 20,000 businesses were affected. That is a sizeable number, and I would be interested to know whether it is a similar sort of number in this case. Perhaps she can get that figure for us.

As with the accounting standards regulations, the responsibility for oversight moves from the European Commission to the Secretary of State, and is delivered by the Financial Reporting Council. I ask the Minister, as I did last time, what the arrangements are. There are arrangements for scrutiny of the European Commission’s activities, but what arrangements will we have to scrutinise the Secretary of State’s activities and, more importantly, how will resourcing of the FRC be changed to address the additional workload resulting from what she set out in her remarks?

We are discussing regulations for significant additional third-country operation of auditors in the UK, and the regulation of that activity. Those are very important areas. Public confidence in our auditing profession is low, with some very high-profile cases— Carillion springs readily to mind—so anything that undermines or further devalues public confidence in how audits are carried out would be extremely damaging. What assurances can she give that the FRC will be in a position to ensure that no further damage done to the reputation and quality of audit? That is extremely important. Twenty-one months is not a long time. The changes are significant and additional reassurance would be extremely welcome.

I mentioned the Irish Republic. The chartered accountants body in Ireland is calling for negotiation on the mutual recognition of professional qualifications. My understanding is that a significant number of EU citizens are working in our large audit firms, which audit the FTSE 350, for example. What arrangements are being put in place to ensure that their qualifications are recognised and that they will be able to continue auditing businesses of all sizes in this country? The Irish Government want to deliver a bilateral mutual recognition agreement. As some of these issues will not just apply in the Irish Republic, is something similar being suggested by other EU countries, and have those discussions taken place with the Minister’s Department?

The regulations are in the event of the withdrawal agreement going through. However, if the agreement does not go through, what planning has been done on these subjects in the event of no deal? I was heartened to hear the Secretary of State’s comments that he is doing everything in his power to avoid no deal, which he reiterated this morning in response to the very bad news about the job losses at Jaguar Land Rover. Knowing him, I am sure that is true, but in the event of no deal, what would be the impact on the regulations before us? More importantly, what would be the impact on the auditing that is relevant to these regulations? As with so many other parts of our economy and country, no deal would have serious consequences for the audit sector. Arrangements need to be put in place—a point that has also been made in the information that is in front of us, and in the Minister’s opening remarks. To be fair, she set that out very well.

With the exception of a small number of people in this House, we can perhaps all agree that avoiding no deal is extremely important. With these regulations, we have yet another example of why it is so important that we avoid no deal, and that the proper arrangements are put in place to make sure—whether for the audit sector or for many other areas of the economy—we have an agreement that we can all get behind. As I said before, that is not going to be the agreement that the Prime Minister puts forward on Tuesday, but we are certainly going to need to agree something in the coming weeks and months. The prospect of no deal, whether for these regulations or for other areas, is utterly disastrous for us all.

Draft Accounts and Reports (Amendment) (EU Exit) REgulations 2018

Bill Esterson Excerpts

Wednesday 12th December 2018 General Committees

[Bill Esterson (Sefton Central) (Lab)]

It is a pleasure, as always, to serve under your chairmanship, Mr Davies. Yet again—for the third time in a week—we are here to discuss the consequences of no deal and the changes that are needed to regulations. Yet again, we are told in the explanatory notes that they are relatively minor, but when we dig deeper we find that they affect quite a large number of pieces of legislation and that in combination, they are significant. The combined effect of these SIs, along with many other aspects of the way Brexit is progressing, demonstrates just how important it is that the Government rule out any prospect of no deal as urgently as possible. Businesses are crying out for that certainty. The more of these SIs we consider, the more uncertainty is created.

In this case, the reporting requirements will change significantly, in particular—but not exclusively—for companies where the parent company is in the EEA and subsidiaries are in the UK. The advice note produced last month by specialists Linklaters contains the heading:

“Brexit set to increase accounting requirements for UK entities with EEA parents or subsidiaries”.

That is not something that any Government or any business would want to read. It summarises the fact that this SI, along with the others, will lead to great potential difficulties for businesses and the economy.

I think the Minister quoted from paragraph 2.11 of the explanatory memorandum, which states that

“it is inappropriate to continue with preferential treatment for EEA entities, or UK entities with parents or subsidiaries from EEA States, or entities listing on EEA regulated markets, because that would amount to unreciprocated preferential treatment.”

I do not deny that that would be the case in the disastrous event of no deal, but we must be trying to avoid that. That prompts some questions, which I would like to explore with the Minister, about the impact of this SI.

Paragraph 7.4 sets out in a little more detail what is anticipated. It talks about the changes to the Companies Act 2006—at least, I think that is what it refers to:

“Section 399 CA06 set out conditions under which UK subsidiaries with EEA parents were exempt from the requirement to file group accounts. That exemption has been reduced in scope so that it applies only to UK subsidiaries with UK parents.”

How many companies are going to be affected? What proportion of the economy will be affected? I asked a similar question yesterday and I do not think we ever quite got the answer. Perhaps the Minister can have another go today. She may not have had the answer yesterday, and if she does not have it today, I am happy for her to say so and to write to me separately.

That also applies to the point about an impact assessment. As with previous SIs, the Government say that it is not relevant because of the limited impact. Let us get an honest assessment of the impact of the changes. How many companies will be affected? What size are those companies? What proportion of the economy will be affected?

My hon. Friend the Member for Edinburgh South asked an interesting question about the potential for businesses to move from the UK into the EEA after Brexit. What assessment has been made of that? What came back from the consultation about the prospect of that happening? Presumably, if a company that is registered in the UK at the moment wants to avoid additional reporting requirements, it would be tempted, if it has an EEA parent, to re-register in the EEA. What are the consequences if that happens?

What consequences have the Government considered, in terms of the feedback from the consultation and any assessment they have carried out? If no assessment has been carried out, why on earth not? This could have quite serious consequences. I can think of a very sizeable business located in my hon. Friend’s constituency that might be affected by such a desire to shift registration, and I can imagine the consequences of shifting that registration and the business operations associated with it. Some answers would be very much appreciated, if we are to do justice to our scrutiny of the regulations.

How was the consultation carried out? How many businesses were consulted? What business organisations were consulted? What were their responses? Paragraph 10.2 of the explanatory memorandum describes it as an informal consultation, but that does not give an indication of its scale or scope, or what the responses were. In order to make sure that we are properly assessing the impact, scale and consequences of the regulations, we need answers to those questions as well.

I have made the point about the Government’s decision that the regulations do not justify a full impact assessment. Frankly, if this is of a more sizeable scope and if the potential for businesses to relocate is significant, there will be a significant impact. I am surprised that the Government have decided that an impact assessment is not required.

I turn to other matters. How will the new arrangements operate? What will the arrangements be for companies listed in the EEA that have subsidiaries in the UK? What will be the reporting arrangements to replace what happens at the moment? It was not clear from the Minister’s initial remarks how that will work, so perhaps she can confirm that. Will Companies House be sufficiently resourced to address the additional accounting requirements that Linklaters refers to in its analysis? For that matter, will businesses be sufficiently resourced to address the additional work? Will additional funding be required for Companies House, or will it just have additional responsibilities without extra resources to discharge them?

Specifically, will the Minister describe the impact of the regulations on extractive industry companies registered in the EEA? How will they be affected? I understand from the explanatory notes and analysis that there is a particular issue about the effect of the changes on country-by-country reporting by extractive companies, such as those in the mining sector. As Linklaters tells us, there will be significant issues in respect of the exemption from the requirement to prepare consolidated accounts. There will also be significant impacts when it comes to the exemption from the requirement to prepare a non-financial information statement, the ability to change accounting frameworks on de-listing, the dormant company exemption from producing accounts, country-by-country reporting by extractive companies in mining, qualified partnership accounts and overseas company regimes.

Those significant changes go substantially beyond what the Minister said in her opening remarks about the scale and scope of what we are being asked to approve. Will she give that her detailed attention, with any support that her officials can deliver this afternoon? Will she write to the Committee to answer the questions that I have raised?

On their own, but especially with the other statutory instruments we have been asked to approve, the regulations are an indication that significant changes are being made to the legislative framework of this country as a result of no deal planning. I accept that we have no choice other than to address the regulations this afternoon, but that does not mean we have to do so without adequate scrutiny.

--- Later in debate ---

[Kelly Tolhurst]

Actually, I think it is quite right that as a Government we are preparing for no deal, and we will continue to do so. That is why I am here presenting a statutory instrument—so that in the event of no deal we will be able to give business confidence and clarity on what the outcome will be, whether it is liked or not, in a no deal scenario.

I will try to answer some of the questions that the hon. Member for Sefton Central posed about the statutory instrument. He asked about the total number of companies that might be affected. There are approximately 3.8 million active companies on the UK register as it stands, and 98.5% of them happen to be micro or small businesses. There are approximately 35,000 medium-sized businesses and 20,000 large entities on the register. We have assessed that fewer than 20,000 companies will be affected by the statutory instrument, with a range of sizes and set-ups.

I was asked what assessment we have made of de-listing. As I have outlined, we did not carry out a full assessment, because we established from the data we have that the burden and cost to business will be below £5 million. The burden on business will relate to the potential costs of having to file accounts and make preparations, where they had been exempt. Obviously, that is a small cost to a limited number of organisations.

Obviously the de-listing is very difficult to assess. It is very difficult to assess how many companies would take the decision to leave the UK based in a no deal scenario. As I have said, as a Minister I have not been made aware of any companies that have registered an interest in leaving the UK, based on the changes that we are considering. We estimate that the number of organisations that might decide to de-list would be very small, but it is a very difficult number to assess.

[Bill Esterson]

The Minister said that nearly 20,000 businesses would be affected by the regulations. The explanatory memorandum states that there is “no significant” impact on business. I just wonder whether she can tell me how many businesses it would take for the Government to decide that it was a significant number worthy of an impact assessment.

[Kelly Tolhurst]

As the hon. Gentleman knows, because I have just outlined it, we are talking about approximately 20,000 businesses that would be affected, out of the current 3.8 million businesses that are registered in the UK. That is a small number of businesses in relation to the total number of registered companies. However, we are talking about the cost, and the burden will relate to the potential extra costs in relation to accounting and reporting.

We must remember that, as Members will have read and as I have mentioned, dormant companies for example have been exempt. They will no longer be exempt, so there will be a cost to that under the regulations in a no deal situation.

--- Later in debate ---

[Kelly Tolhurst]

I am going to carry on, because I have given as full an answer as I am prepared to give.

As I highlighted in my introduction, and as I have reiterated, we are not changing the way in which we ask companies to report. We will work with Companies House, as we do already, to ensure that we identify all the companies that are affected by not having the exemptions, that we have the data, and that any guidance that is needed is issued well before the SI comes into effect.

On the extraction industries, the hon. Member for Sefton Central is right that currently the EU Commission has the power to grant equivalency to third countries. We are not changing any of the criteria for that; rather than the EU Commission having that power, the Secretary of State would have the authority to make those decisions in a no deal situation. As I outlined, the SI will correct the deficiencies in EU retained law.

[Bill Esterson]

Will the Minister give way on that point?

[Kelly Tolhurst]

I give way.

[Ian Murray]

It is called scrutiny.

[Bill Esterson]

I think my hon. Friend has anticipated my question. Will the Minister explain what the scrutiny process will be for the Secretary of State’s decision making in the event of no deal?

[Kelly Tolhurst]

I thank the hon. Gentleman for that question. As I outlined, the European Commission has the power to grant equivalency, and we are not changing any powers here. Having looked at this, we believe that it is small enough for us to have it in an Executive power. If the European Commission has those powers currently, it is right they would be transferred to the UK Secretary of State in a no deal situation. Scrutiny would operate exactly as it does currently.

[Bill Esterson]

Really?

[Kelly Tolhurst]

Absolutely, because the Secretary of State would make those decisions and grant those powers. Granting equivalency to third countries is obviously a small part of it.

Effective financial reporting underpins the success of every business. It helps to inform decision making, to improve performance and to promote confidence in a company’s future. As the UK exits the EU, it is paramount that we maintain the integrity of the UK system of accounting and reporting. The regulations will ensure that it remains coherent, operable and understandable for companies, users of accounts, and the general public, who rely on the transparency that it provides. I commend the regulations to the Committee.

Question put.

Draft Takeovers (Amendment) (EU Exit) Regulations 2019

Bill Esterson Excerpts

Tuesday 11th December 2018 General Committees

[Bill Esterson (Sefton Central) (Lab)]

The Minister’s remarks show that the prospect of no deal should be avoided at all costs for this reason alone; there are many other reasons for avoiding it, but let us explore the risks in the regulations.

The Minister talked about legal clarity and certainty, and referred to part 28 of the Companies Act 2006. However, the regulations move from a specific provision, covered by our relationships as part of the European Union, and of the EEA in particular, to general obligations in terms of international co-operation, the implication of which is that we move to a weaker takeover regulatory system.

The hon. Member for Amber Valley talked about what happens in the event of a takeover that straddles exit day and about how we guarantee continued co-operation before and after exit day from our EEA counterparts. The problem is that the duty to co-operate will no longer apply, as the Minister said.

The hon. Member for Basildon and Billericay asked an even more pertinent question on reciprocal arrangements, and I want to quote part of a letter the Minister wrote to the shadow Secretary of State, my hon. Friend the Member for Salford and Eccles (Rebecca Long Bailey):

“At EU exit, however, EEA Member States will no longer be bound by a duty under EU law to cooperate with the UK. To leave section 950 of the Companies Act intact would therefore be to impose a duty on the Panel that is not reciprocated by supervisory authorities elsewhere in the EEA.”

The hon. Member for Basildon and Billericay hit the nail on the head: we cannot guarantee that the supervisory arrangements will be in place from the EEA once we have left. That is a really important point that the Minister will need to address.

As with so many other areas of business dealings and the regulatory environment, there is a real problem. The UK domestic takeover regime will need to function outside the existing EU framework. My understanding is that it is fully integrated at the moment because of our EU membership, but that will no longer be the case. Perhaps the Minister can confirm exactly how it will operate, because her two hon. Friends have highlighted a very real problem regarding the current complexity. That complexity is pretty clear from paragraph 7.1 of the explanatory memorandum. That paragraph describes the consequential amendments required and demonstrates how many changes are needed to existing legislation in this country to disentangle us from the EU arrangements that we are party to at the moment. Perhaps the Minister can address that point and the apparent confusion between her remarks and what she said in the letter I quoted.

In addition, will the Minister talk about what will happen with takeovers that are across multiple jurisdictions? Can she tell us what preparations the Competition and Markets Authority has made? What will the experience of the existing and additional staff be? What qualifications will current and new staff have? How long does it take for staff to acquire the skills needed to supervise such arrangements adequately?

Coming back to the points made by the Minister’s hon. Friends, who will regulate in cases where companies have a registered office in an EEA member state and trade their securities on the UK stock exchange? That is the point about multiple jurisdictions. The fact that a company is registered in an EEA state does not mean that we are not interested; if it is trading on our stock market, we have an enormous interest in ensuring that we supervise adequately.

I am afraid we are becoming rather used to an absence of impact assessments for the SIs we are discussing relating to no deal, which are coming thick and fast—one last week, and two this week that the Minister and I are dealing with. The explanatory memorandum states that

“the impact on most businesses will be minimal”,

so an impact assessment was not produced. However, it also says that 10 UK companies are affected by the regulations. Perhaps the Minister can tell the Committee how big those companies are and how significant they are for the UK economy. If they are sizeable companies, that is not an insignificant issue—and, let us face it, if they are involved in takeover activity, they are likely to be sizeable companies. That raises the question of why the Government have decided not to produce an impact assessment.

I mentioned the consequential amendments. Paragraph 7.14 of the explanatory memorandum speaks of a duty of co-operation. EEA member state bodies will have no duty, and we will have no duty, so will the Minister explain how that will work, and address the points that have been raised?

It seemed from the Minister’s initial remarks—I think there were some gaps in her analysis in response to her hon. Friends—that the Government cannot guarantee at this stage how the takeover regime will operate in the event of no deal. I suggest that she needs to answer that today, if she can. If she cannot, she should write to all members of the Committee with more detail about how the regime will operate in the event of no deal regarding the multi-jurisdictional challenge.

The regulations show again how important it is that the Government do everything in their power to avoid the prospect of no deal. The way forward is to get a plan that Parliament and the EU can support so that we do not end up in that situation in the first place.

Draft Competition (Amendment etc.) (EU Exit) Regulations 2019

Bill Esterson Excerpts

Wednesday 5th December 2018 General Committees

[Bill Esterson (Sefton Central) (Lab)]

It is a pleasure to serve under your chairmanship, Sir Christopher. I note that we have 82 minutes remaining for our deliberations.

I thank the Minister for writing to me in detail a few weeks ago about this important, detailed and complicated matter, which relates to how we adjust domestic competition law in the event of no deal. It is perhaps appropriate to ask the Minister to indicate what the Government’s plans will be for addressing changes to domestic competition law if there is a deal.

The SI raises a number of questions, starting with what the consequences will be for existing competition proceedings under EU law. The UK element of disputes that involve overseas businesses with UK operations will be affected, so will the Minister explain how things will work in the event of no deal when businesses are involved in disputes that cross jurisdictions between the UK and the EU? I am not entirely clear that her speech or the explanatory memorandum have addressed how the Government see that issue being resolved.

The Minister said that no impact assessment had been carried out. An awful lot of legislation is being amended merely to cover the costs of leaving the EU. Will she take this opportunity to confirm that the Government will not allow no deal, to avoid those costs? Will she set out her view on how the Government will go about avoiding no deal? [Interruption.] I note that the Government Whip is shaking her head; I cannot possibly imagine why. I would be interested to hear the Minister’s view.

If I have counted correctly, the Practical Law UK website describes a total of 18 pieces of legislation that will be amended by the draft regulations, with a further eight consequential changes and five more amendments that require secondary legislation. That is a significant shift in legislation. Is a statutory instrument appropriate for such a major change? When the Minister read out the title of the regulations, I noted that it includes the word “etc.” Now, what does “etc.” mean? [Interruption.] She points out that it covers a long list of potential areas.

The draft regulations cover a lot of ground—a vast array of legislation is being amended. The Minister used the phrase “highly integrated”, which gives us a clue about the complexity. I suggest that there is rather more involved than changing the wording from “EU” to “UK” in multiple pieces of legislation. It is a surprise to Opposition Members that a statutory instrument is considered sufficient for such an important topic. Might it have been better to scrutinise the impact on each of the specific pieces of legislation that she described? She summarised the situation in her opening remarks, but there seems to be quite a lot more to it than is perhaps implied in the explanatory memorandum.

According to the Practical Law UK website, the Competition and Markets Authority has indicated that it will have a much bigger role after Brexit. That is self-evident, given the competition law responsibilities that the UK is to take on from the EU. What assessment have the Government made of the CMA’s capacity and of its ability to address its additional responsibilities?

The CMA will also have a new role in relation to state aid. Will the Minister spell out what that role will be? We know that the Government have often been reluctant to use state aid. They are far less prepared to do so than other countries, including our European partners, or to organise tenders in a way that supports UK businesses. I remember the lengthy debates we had in 2010, when I was first elected to Parliament, about the competition between Siemens and Bombardier for Crossrail trains. The contract went to Siemens rather than to UK-based Bombardier, which shows the Government’s reluctance to support UK-based industry.

I read on Friday that the Government had issued the tender for fleet solid support ships as an international competition, on the grounds that they are not naval ships. There is no one in the navy or in the shipbuilding industry who regards fleet solid support ships as anything other than naval ships; it seems that only the Government do that. However, the consequence is that we now have an international tender, rather than a domestic opportunity for domestic shipyards, which is causing huge problems for the workers at Cammell Laird shipyard in the Liverpool city region. As the Government do not regard these ships as being naval, I wonder—because it is in the papers—whether they are covered by the liner shipping block exemption. Perhaps the Minister can answer that question.

What consultation has been undertaken regarding potential future divergence between the EU and the UK on competition law? Perhaps the Minister has the results of that consultation and can share them with us.

I put to the Minister comments made by the UK Trade Policy Observatory:

“An issue which was addressed in the EU (Withdrawal) Act 2018 is the scenario where UK courts are obliged to follow EU judgments that pre-date Brexit. The new s60A (7) provides that the relevant court or decision-maker may disapply the interpretative obligation if they consider that to be appropriate in the light of various criteria”.

What guidance will the Government give to decision makers?

The UK Trade Policy Observatory also says that

“a claimant for a private damages action will have to open new proceedings in the UK courts, and would be well-advised to do so now for any current investigations before the European Commission”,

because

“an infringement of EU competition will no longer be binding after Brexit for the purpose of follow-on actions in the UK courts.”

I would be interested to know whether the Minister agrees with that observation. If she does not agree with it, what might her analysis be?

Significant, wide-ranging changes are being proposed in the event of no deal. Parliamentary scrutiny of them involves just the small selection of Members on this Committee, following a similar Committee sitting yesterday in the other place. As I have said, several dozen pieces of legislation are affected—sometimes, as the Minister indicated in her opening remarks, in significant ways.

This SI gives rise to many questions and I question whether we are able to do it justice. I am not a lawyer and neither is the Minister, although undoubtedly she has lawyers advising her. I question whether this process allows for adequate scrutiny. It is a very good example of why the Government really must do everything in their power to avoid the prospect of no deal.

--- Later in debate ---

[Kelly Tolhurst]

I was wondering whether I might be able to start by answering the hon. Member for Saffron Central.

[Bill Esterson]

Sefton Central.

[Kelly Tolhurst]

I apologise; I often get annoyed when people refer to my constituency as Rochester and “Stroud”, rather than “Strood”.

The hon. Gentleman asked what we would do with the regulations if we entered into a deal, bearing in mind that we are talking about this statutory instrument as a no-deal SI. This SI is about retaining EU law. Were we to enter into a deal, we would bring further SIs to the House to modify the current regulations.

The hon. Gentleman expressed concern about how we would work cross-jurisdictionally and is unsatisfied with the explanatory memorandum. The CMA, our regime and how the UK has dealt with competition law over the years have a high regard internationally. We co-operate and are part of a number of international bodies. We are regarded as having a world-class framework and operation. There is absolute commitment from the Government to ensuring that, where we can, we co-operate with other states and the EU. Even in a no-deal scenario, the intention will be to ensure that regulators at that level will be able to seek to enter into co-operation agreements bilaterally to ensure that consumers are protected. Ultimately, the European Union and the UK are committed to protection for consumers, as I have said a number of times over the past few weeks in Committees.

[Bill Esterson]

Is the problem not that, if there is no deal, by definition there will not be an agreement to ensure that co-operation? How does the Minister envisage the CMA and our competition framework coping in that situation?

[Kelly Tolhurst]

The hon. Gentleman is right: if we enter a no-deal situation, we will not have a deal with the European Union. However, our world-respected bodies, such as the CMA and other regulators, are communicating on a daily and weekly basis with their counterparts in not only Europe but other parts of the world. There is nothing to suggest that that co-operation, communication and co-working would change, and we would seek for it to be continued. We still want to co-operate with our international partners, and I cannot foresee a situation, with or without a deal, where that would not happen. That is my understanding.

With regard to the hon. Gentleman’s question about whether it is right that we are debating this big SI in a short Committee, I highlight that the SI changes two big pieces of legislation. Remember that we are retaining EU law, so the SI is not a change in policy; it is about retaining what we have, to make it fit so that on day one, were we to leave the European Union without a deal, our statute book would function.

The first piece of legislation is the Competition Act 1998, and the SIs that sit under it. We have all sat through a number of SI Committees. In the years I have been a Member of Parliament, many small statutory instruments have altered larger pieces of legislation. The second piece of legislation is the Enterprise Act 2002, and other SIs that have been introduced that relate to the EU, and to the block exemption that I mentioned. The “etc.” refers to the other pieces of legislation, consideration of which we have all sat through. From looking at a hard copy of the Bill, a number of minor changes are clearly being made. That gives Members an idea of why we are discussing this matter in Committee, as opposed to having a wider debate.

With regard to whether the CMA is capable of continuing to do its job given the potential increase of work in a no-deal scenario, we expect that the CMA might have an increased case load of between five and seven antitrust cases in a year. We have also assessed—working with the CMA, obviously—that the CMA might have to deal with between 15 and 30 extra merger cases over a year.[Official Report, 17 December 2018, Vol. 651, c. 4MC.] The National Audit Office has looked at the CMA and believes that it has robust plans in place to operate and function after we leave the EU.

As Members will know, in 2017 in the spring statement the Chancellor put £3 billion aside over a two-year period for funding our EU exit. In the spring statement of this year, the Chancellor announced just under £24 million extra for the CMA. The CMA is going through a recruitment process to increase its number of workers. That will constitute a substantial increase in the size of the CMA, and I am reliably informed that the CMA is working to plan, and recruitment is on target at the moment.

State aid is not part of today’s SI, but I am sure that the hon. Member for Sefton Central will be pleased to hear that the Government will soon lay an SI on that issue. I look forward to having greater conversations with him about the merits—or not—of state aid, and what he would like to see in the future.

Regarding divergence, as the hon. Gentleman explained and as I understand it, post-exit decisions in the European courts will be notable by UK courts, but not binding on UK courts. The idea that previous case law becomes part of UK case law history has come about because businesses need certainty and decision makers need to be able to look at that: it is quite right that pre-exit case law remains the bank of case law. However, as we have determined, UK courts will not be bound by that case law, although they will obviously have regard to it. Going forward, we need businesses to have assurance that previous case law has set the precedent, but as we have outlined in the SI, UK courts can diverge from it.

As regards the guidance that we will be giving on that point, it is case law: obviously, it will be defined by judgments. As the hon. Gentleman knows, markets, competition and things are changing all the time, so the guidance will also change over time. At that point, if necessary, we will give guidance to the relevant individuals. The hon. Gentleman mentioned bringing claims in the UK for things happening within the jurisdiction of the European Union. That is true: they will be brought here in the UK. I believe we can do so under UK law in UK courts. Also on that point, there is an ability to bring a civil, private claim in the UK under foreign tort law anyway.

My hon. Friend the Member for Harrow East asked what we will do to make sure that the UK protects its consumers from the big corporate organisations that are perceived to potentially cause restrictions and competition issues in the UK. As I outlined, our competition law in the UK is world renowned; we are respected internationally for the way we deal with such cases, and we already have great co-operation with international organisations.

To give one example, in the Google investigation a UK market was one of the main ones being investigated, and most of the claimants came from the UK market. I hope that gives my hon. Friend some comfort that, even if we are in a no-deal situation, if this SI is agreed we will be more than ready to take on those challenges and we will continue to maintain co-operation with our international partners and the European Union to make sure that the protection of UK consumers is at the heart of what they are doing.

Oral Answers to Questions

Bill Esterson Excerpts

Tuesday 20th November 2018 Commons Chamber

[Greg Clark]

One of the reasons why companies up and down the country sometimes find it a struggle to recruit people is that we have such a low level of unemployment in this country. I would have thought that the hon. Gentleman would recognise that. He knows that one of the benefits of leaving the European Union is that our migration policy will be set in this country according to the needs of our economy—so it’s over to us.

[Bill Esterson (Sefton Central) (Lab)]

The Prime Minister’s botched Brexit deal creates uncertainty for business. The lack of any commitment to permanent customs arrangements means that there is no guarantee of tariff-free, frictionless trade. Frankly, I am amazed that any Business Secretary would put their name to this deal. Without any commitments to frictionless trade, how can the Government claim to be helping business?

[Greg Clark]

I do not know whether the hon. Gentleman has read the proposed agreement, but business leaders certainly have, and they have been warmly supportive of it. There are good reasons for that. One of the things that businesses have asked for is a transition period leading up to an agreement that we should be able to trade without tariffs, without quotas and without frictions. This agreement provides for that, which is one reason why it has been endorsed by businesses up and down the country.