Lord Naseby
Main Page: Lord Naseby (Conservative - Life peer)Small Business, Enterprise and Employment Bill
Lord Naseby Excerpts
Lord Phillips of Sudbury (LD)
My Lords, my name stands with that of my noble friend Lord Watson of Invergowrie on these amendments. He has introduced them with great panache, and I do not have a great deal more to say but I think that the issues are so important that a few more points are necessary and worth while.
First, I shall give the House some of the facts that point to the scale of the problem of fraud and tax avoidance, which I do not think many of our fellow country people understand. My noble friend Lord Watson and I have been hugely helped by the Anti-Corruption APPG of this House, which, in turn, has been supported by Global Witness and Christian Aid, and a wonderful job they have done. One of the statistics they have produced for us—I think that Transparency International has had some part in this as well—is that the best estimate is that $21 trillion to $32 trillion of private financial assets rest in tax havens, and that 20% to 30% of that huge corpus of assets is corruptly diverted. Of that, they reckon that $120 billion to $180 billion per annum, which is far more than the entire global aid budget, is diverted unlawfully from developing countries. This is a rather poignant day on which to say that, as the Bill concerning the 0.7% contribution to aid has just been passed.
Another fact which I find rather depressing because it affects the UK is that it is reckoned that the Crown dependencies and overseas territories are host to one-third of all the world’s shell companies. On top of that, more than 36,000 properties, which are mainly in the most expensive parts of this wonderful city, are owned by overseas owners but are placed in shell companies in tax havens, 38% of them in the British Virgin Islands, 16% in Jersey, 9.5% in the Isle of Man and 9% in Guernsey. In addition, the World Bank’s review of the 200-plus biggest corporation corruption cases shows that 70% use shell companies as their vehicles of fraud. Therefore, the background to this amendment could not be more important and striking.
At this point, I have to own up to something from my dim and distant legal past. In the mid-1960s I was what was then called a tax mitigation lawyer. I notice a groan from behind me.
Lord Phillips of Sudbury
Yes, another lawyer. However, it is very striking because that was in the mid-1960s. In fact, the last case I did was just after the first Rossminster scheme was launched on the British public. Some of your Lordships may remember those schemes. They were the first of the hyperartificial—I would say hyperludicrous—schemes. I remember putting this to the best tax chambers in London at the time. I asked them, “Would you kindly advise my client via me? Is this scheme a runner?”. Back came the answer, “These chambers will not handle any cases relating to the Rossminster scheme because we view it as anti-social”. It is extraordinary to think of barristers saying that and I am not sure that they did not use the word “immoral”. But my goodness, the world we now inhabit is very different. The demoralisation—that is a useful word to use—of this country and indeed the entire world is really depressing because it has given rise, gives rise and will continue to give rise to an ever increasing number of really shameful frauds conducted by some of the biggest and best companies and banks in this country and everywhere else in the globe. It is very sobering to recollect that we are still a good deal less corrupt in our financial dealings here than virtually every other financial centre in the world.
Lord Phillips of Sudbury
I think that we need a short debate to answer the question that my noble friend poses. However, I think that the general feeling is that small companies will not be hurt by these provisions. It is these extraordinarily obtuse long chains of shell companies, sometimes in as many as 13, 14 or 15 tax havens, that are the object of this exercise.
Lord Naseby
Can my noble friend honestly say that it will not affect small businesses? “Small business” is in the title. Every single small business in this country—not the micros but almost every other small business—is going to have to register, and that is going to cost it a considerable amount of time, money and resources. So how can he possibly say, “Well, it’s not going to affect any of them. It’s only going to be the great big national companies and other big companies that are manoeuvring things internationally”? He is talking rubbish, is he not?
Lord Phillips of Sudbury
I did not say that it would not affect them at all; I said that it would affect very few of them to a significant degree, and I stick by that. I have been a small and medium-business lawyer for most of my life, and I can say that these companies will not be significantly inhibited by these provisions or be faced with significant costs.
Lord Naseby
I am sorry to interrupt my noble friend again. He may have been a lawyer periodically dealing with a few small businesses; nevertheless, the chambers of commerce and others say exactly the opposite to what he is saying. Surely they know better than some lawyer working part time on small businesses.
Lord Phillips of Sudbury
I would not deny for a minute that they know better than the description the noble Lord gave of me. I just repeat that I do not think it will seriously inhibit the small or medium-sized company that operates in a straightforward fashion in this country. I am confident of that.
Lord Forsyth of Drumlean
I am not sure which bit the noble Lord was saying was not so. He may very well be right in his assertion—although I doubt it—that the Government will collect more money, but that does not help the small business man who is faced with these additional costs, for whom there is no benefit whatever. They already struggle to fill in their VAT forms and their surveys on this, that and the other while trying to run their businesses. This would add a very significant burden.
Lord Popat
My Lords, this is Report and we prefer not to take further interventions.
Lord Forsyth of Drumlean
I believe that interventions seeking information are allowed once on Report, so I will give way to my noble friend.
Lord Naseby
My noble friend might mention the cost of business rates, which are a huge burden to every business in this country. Business rates are going up by 2%—and what is the rate of inflation? Under 1%.
Lord Forsyth of Drumlean
Indeed, but my noble friend must not tempt me to get away from the amendment and from this Bill. When it comes to compliance costs, the Government are going to have to find £109,000 just for,
“the IT development of the registry and communication to industry”.
My experience of government IT programmes is that they usually cost considerably more than estimated. Then we have £220,000 for ongoing maintenance. In addition, it is stated:
“Costs to businesses are estimated to be £417.4m set up cost, and £77.7m pa”.
This is a country that is not able to meet its expenses and these are businesses which, certainly outside London, are under severe stress.
My noble friend and the noble Lord argue that we need to add further to the burden put on these businesses to deal with the problem of international tax evasion by large companies around the world. I intervened to ask him how—even assuming that everything that he claims for his system works once it is up and running in Britain and we have spent the £1 billion—it would help prevent the crooks and people who wish to behave in this way operating out of a different jurisdiction. Surely, the only way this Utopian view of how to tackle the issue will be achieved is if every country does this, but I do not see any evidence of other countries rushing to implement this legislation. As far as I am aware, there is no great programme to do this among the other countries that were at the G8, so all we would be doing is hobbling honest, hard-working small businesses in this country to deal with a problem that needs—
Baroness Neville-Rolfe
My Lords, the point I was making about reporting is that we would extend the annual report, in any event, so that it covered this new function, which is sensible, and in that context we would obviously look at data and other relevant issues.
The noble Lord asked about the scale of staffing required. I may be able to give him a response if I can make a bit of progress. My normal port of call would be the compliance cost assessment. The answer is that we are going to do this within the existing budget but in co-operation with other enforcement agencies. I have been to see Companies House during the course of swotting up for the Bill and I am impressed by it. It is bringing a more modern approach to the way in which it does things. It has been aware for some time that it is going to be given this new burden and it is ready and willing to pursue it.
Lord Naseby
As I understand my noble friend’s argument, she is saying that her department and other departments are in a similar mode. Their staff will cope with these changes and this huge register at nil cost other than what is already budgeted for the implementation of this Bill. Is that correct?
Baroness Neville-Rolfe
My Lords, agencies such as Companies House have long-term plans to look at the duties coming down the line which they will have to fulfil. They have been aware for some time that this duty will fall on them. Obviously it follows the Prime Minister’s initiative at Lough Erne in 2013 and the money-laundering directive discussions that have been going on in Brussels for a long time. We will be bringing in this register. I will pass on the points that have been made to Companies House but it is ready to tackle this task. Of course, the reason the compliance costs are large is because it is a small amount of work by a large number of companies. It is because the multiplier is so big that you get the compliance costs that you do. That might be of some comfort to my noble friend.
The issue of timing was raised by the noble Lord, Lord Phillips. We intend to require companies to maintain their own PSC registers from January 2016 and to file information at Companies House from April 2016. We publicly set out these intentions in January this year.
On complexity, it will be straightforward for the majority of companies to identify their PSCs. We are thinking carefully about the guidance and communications to companies so that we can get the message across about how they might do it simply and what is required. We have a working group set up to develop guidance which contains representatives from all interested parties including, everyone will be pleased to hear, small business. Our enforcement user group is co-chaired with the National Crime Agency and will look specifically at how to make best use of the PSC data so that, in making this big change, we are using it to good effect and that the benefits I have described come through.
I have set out these points at some length. I hope noble Lords have been reassured by what I have said about the forward plans for the register and its review and will be willing not to press their amendments.
Lord Naseby
My Lords, I, too, pay tribute to my noble friend on the Front Bench. I thank her for arranging the briefing session last week that I took part in, which helped me understand this in greater depth. It did not assuage many of my worries but at least I understood more clearly where Her Majesty’s Government were coming from. I think that the House should be indebted to my noble friends Lord Flight and Lord Borwick, who have taken a detailed interest in the Bill. Both have raised issues that have always been there. I listened to my noble friend Lord Flight and, indeed, corresponded with him at an earlier stage.
Since the Bill was conceived several things have happened. First, we should be aware that the United States proposes to take no action at all. The President of the United States maintains that he is there as a central body, and that he is not permitted by law and statute in the United States to take any similar action because it is a state matter. As far as the states of Delaware, Wyoming and at least two others are concerned, they are going to carry on business as usual and, in fact, probably benefit from any Bill that we start off as a wonderful, transparent initiative.
The other dimension that has been clarified is that the OECD has indicated that if the United States is not going to comply, it sees no reason why it should. That is a second block. The G20 and the G8 have already been referred to; there does not seem to be much movement there other than what is likely to come out of the EU. That seems to be a very strong case for waiting to see exactly what comes out of the EU in preference to going forward on our own. At least then there would be a significant number of countries that would have come to a conclusion about what can be done and what is proper and ideal in terms of helping the law enforcement agencies. That to me is absolutely crucial.
Perhaps I could raise a point about timing. I listened to what my noble friend on the Front Bench said about timing. I do not know how closely she knows the timings of the implementation of the pensions Bill, but small businesses are currently having to register—as far as I know, by 1 April. It all has to be done online—it is not an easy thing for anybody to do; it is not the most user-friendly process—but those small businesses are registering for a policy to be implemented in 2017. Obviously, that department, in a fairly complicated area, has decided that it needs a couple of years to get the whole thing up and running properly. But my noble friend on the Front Bench seems to be saying that, although we are starting later with this Bill—it has not even had Royal Assent yet—the whole thing is going to be up and running by 2016. I just wonder how realistic that timescale is.
I know that Her Majesty’s Government want to do everything online but, frankly, the software that has been produced in a number of areas leaves much to be desired. Can my noble friend reassure me that the software that is associated with this is almost ready to be set forward for the market to use, or is it still being produced somewhere? Has it been trialled yet? I do not know but I am asking my noble friend to have a close look at timing. Finally, I repeat that for small business to have to face a charge of over £1 billion when this is supposed to be an enterprise country is, frankly, absolutely ridiculous.
Lord Watson of Invergowrie
My Lords, I oppose the amendments in the name of the noble Lord, Lord Flight. Frankly, they are quite in contradiction to the whole thrust of the Bill, which is to increase transparency. They would have the opposite effect and I very much regret that. I am not going to rehearse the arguments that we traded in Committee a couple of months ago but I would just like to point out that he has brought up a new point about proper purpose. I dare say we could be here till this time next week before getting any sort of consensus on what a proper purpose was—in fact, we might not have succeeded even by then. I really think that that would be a backward step.
Surely the basic premise of the legislation is that public scrutiny will root out corruption more effectively, and indeed quickly, than the legal authorities themselves could do. I cannot understand noble Lords being opposed to that. To a certain extent, as far as companies are concerned, there is a case of, “If you have nothing to hide, you have nothing to fear”—but, equally, what do companies have to fear from transparency? The analogy with the former Prime Minister Tony Blair was not particularly apt in this situation. Personal privacy is one thing but companies have to be prepared to be open about the way in which they operate. Commercial confidentiality is one thing, but it has its limits.
My final point is about removing the requirement for a business to make its register publicly available. That is an essential element of this part of the Bill. I find it strange that the noble Lord, Lord Borwick—
Baroness Neville-Rolfe
My Lords, on the face of it, the first part of the noble Lord’s presumption is correct, but I think that I will take the time to reflect on it further and write to him, because I certainly would not want to mislead the House on such an important point. There are safeguards, but it is also a public register.
I should perhaps answer the question asked by my noble friend Lord Borwick, about the number of threats that individuals receive in the context of the review. I hope that it will reassure him when I say that I intend to look widely at those issues, as I have already said. As he probably knows, threat levels are not directly within my department’s remit, but I certainly intend that the review should consider the impact and efficacy of the protection regime as a whole.
I hope that, in view of the various reassurances that I have given, my noble friend Lord Flight will feel able to withdraw his amendment.
Lord Naseby
My Lords, before my noble friend sits down, will she clarify the point about the impending EU law? What happens if it goes through in, say, nine months, six months or 12 months? It is presumably the intention of Her Majesty’s Government to sign the law and then, if necessary, amend the Bill. Or will they wait another two years, or two and one-quarter years, and then amend it? If we are to sign up in Brussels to a law, it ought to be the law that applies in the United Kingdom, not one that is half Europe and half something else.
Baroness Neville-Rolfe
My Lords, we hope that the directive will be agreed in Brussels in the next few months. It is a directive, so there will be a two-year commencement, as normal. In the mean time we will bring in—and, I hope, road test and make a great success of—the register that we plan. If the detail of the directive requires some change either to the Bill—or, more likely, I suspect, from my experience of European directives, to regulations made under Section 122—that will be laid before the House in the usual way. I take comfort from the fact that that important bit of transparency legislation is going through in Brussels, and one would hope to see it on the statute book as soon as possible. That is the situation.