Small Business, Enterprise and Employment Bill

Robert Neill Excerpts

Wednesday 19th November 2014 Commons Chamber

[Robert Neill (Bromley and Chislehurst) (Con)]

I recognise the importance of the initiatives set out in part 8. Does the Minister recognise that, consistent with his observation about making sure there is proportionality, before any regulations relating to part 8 are drawn up, careful consultation should take place with those directly affected in the financial sectors and, in particular, great attention should be given to the security risks that might arise if a register is held online?

[Matthew Hancock]

I strongly agree with my hon. Friend. Improving transparency internationally is important in ensuring that we tackle crime and have a system that people trust, but we have to introduce things in a way that supports legitimate business, does not put undue burdens on business and is secure in terms of the data held. The points he makes are important.

We have increased parliamentary scrutiny of the business impact target—the target for regulatory reduction. We heard in Committee that the Labour party would make no commitment to tackle the burden of regulation on business, whereas we have our one-in, two-out rule. We are ensuring that the targets and the associated metrics will have to be laid before Parliament when they are set or amended. We have also changed the Secretary of State’s powers on administration sales to connected parties and certain elements of the register of people with significant control, so that they are now subject to the affirmative resolution procedure, not the negative one.

We have also introduced new topics during the Bill’s passage, making it easier for small businesses to access finance. Research suggests that 71% of small businesses approach only one finance provider. Our change will ensure that those who want to do so, having been rejected by their bank, can have their details passed on, to encourage greater competition among finance providers. One problem was that there were few different finance providers—the number of banks had shrunk over the past couple of decades—but now, thankfully, the competition is very successfully coming back into the market for finance.

--- Later in debate ---

[Mr Jonathan Djanogly (Huntingdon) (Con)]

I declare my interests as they appear in the Register of Members’ Financial Interests.

On Second Reading I raised my concerns about the provisions in clause 75 and part 7, and related issues in part 8 and schedule 3, to set up a register of people with significant control—in effect, a register of beneficial ownership. I questioned whether they would have benefit in terms of countering illegal activity or investigating tax evasion, even if this was at the triple cost of loss of privacy, increasing the regulatory burden on companies and threatening investment in British companies. Since that time, my concerns that we are doing the wrong thing have increased, not reduced.

I am sorry not to have been given time to speak to my tabled amendments. It is of concern also that the issue of privacy was not raised by any amendments tabled in Committee, with the honourable exception of the wise remarks made by my hon. Friend the Member for Newark (Robert Jenrick) in the stand part debate. He raised the key question: how many of the 22.5 million English companies is it actually suspected may be subject to some wrongdoing that could be tackled by these proposals? This question has yet to be answered by the Minister or anyone else. I respectfully suggest that this is not the proper process for encouraging investment or portraying this Government as business-friendly.

The Under-Secretary of State for Business, Innovation and Skills, the hon. Member for East Dunbartonshire (Jo Swinson), replied in Committee that the impact assessments undertaken indicated that

“our proposed measures are lawful, necessary and proportionate”––[Official Report, Small Business, Enterprise and Employment Public Bill Committee, 30 October 2014; c. 423.]

So I went through the impact assessment, and I cannot find such justification at all. In fact, it is by some way the weakest case I have ever read in an impact assessment. For instance, the impact assessment makes it clear that there exists little or no data or academic literature quantifying the proposition that a reduction in crime will follow as a result of a register of people with significant control.

My prediction is that these part 7, clause 75 and schedule 3 provisions will not work. In many instances there will be confusion as to who or what is a shareholder with significant control—for instance, in terms of family holdings, let alone complicated trusts, with expensive advice then required. The proposed data collection method is based on self-reporting, with no verification mechanism, which could make it easy, especially for non-resident shareholders, to misreport or simply to give the shares to someone else to hold.

For the purpose of this debate, let us take as our starting point the G8 agreement that companies should know who their shareholders are. I repeat: companies—not commercial competitors, NGOs, direct marketers, spammers or providers of financial services looking for clients, let alone criminals, fraudsters and all the others who could use or misuse information provided under these provisions.

Now we have the further G20 communiqué proposing a crackdown on secret shell companies. However, this was not accompanied by a call for share registers to be made public. So how did we get from the narrow G8 and G20 proposals to what we have in the Bill?

[Robert Neill]

My hon. Friend is making a powerful case and I very much agree with him. Is it not significant that on the back of the G7 discussions these proposals might be extended to the British overseas territories and Crown dependencies, many of which are already well in advance of most other jurisdictions on transparency on an international scale?

[Mr Djanogly]

That may be the case, but it has not been said in public.

There is a hint in the impact assessment that, amazingly, provides only two alternatives—do nothing and rely on voluntary campaigns, or jump all the way to the Bill provisions and propose company registers, with companies reporting annually to Companies House. But why does the impact assessment not review more focused registration regimes? That will now need to be addressed in the other place.

This is not an academic issue. In particular, there seems to have been a wholesale disregard for the material impact that these provisions will have on privacy. People can buy assets privately unless the asset is public, such as a listed stock. They may not want other people to know what they own; they may have cultural, security or even religious-based concerns about people knowing that they own part of a company. What evidence do the Government offer in the impact assessment to justify destroying this right of privacy? Very little.

As for the increase in the regulatory burden, the impact assessment talks of implementation costs on companies and ongoing costs. It also says that the costs to people who need to register their interests cannot be ascertained, and those are the same people who may have to take expensive advice.

Investment in British companies is also threatened. The impact assessment methodology is again flawed, because it looks at the quantity of companies affected, not the quality. In other words, one lost huge Chinese investor deciding not to use or invest in an English company could be very damaging to UK plc, even if a thousand single-owner tiny companies say that this measure will not impact upon them. Again, the impact assessment does not support the Government’s contention that they remain convinced that this reform will be good for business and the UK business environment. What the IA actually says is:

“There is a risk that we have not accurately accounted for this potential impact on overseas investment in the UK and UK competitiveness . . . particularly since the UK will likely be a ‘first mover.’”

One has to ask why we should be the first mover, with associated risks as we claw ourselves away from recession.

And here’s the rub: foreign companies will not have to keep this register, which means that British people who legitimately wish to retain their privacy will be forced not to use English companies, but to use, say, Irish or British Virgin Islands ones instead. As always, it will be the relatively small, unsophisticated businessman who bears the weight of regulation aimed at catching drug smugglers, which I suggest these proposals will fail to do anyway.

Looking at this Bill as it goes to the other place, I would consider abolishing the need for companies to file annual returns of their PSCs—that is, returns that will be outdated within five minutes of being filed. Accepting that the company PSC register is instigated to comply with the G8 and G20 requirements, if the company does not wish to release the PSC register voluntarily, the applicant should have to ask the court for access. I suggest that the proper purpose grounds for access should be restricted to national security, personal safety issues and tax investigations.

In this way Government crime and tax agencies would be able to make their inquiries, but the registers would still protect privacy for those companies that wished to respect this right. At the same time, the unjustified costs and regulation of keeping the central register would be abolished and foreign investors would not be put off investing in the UK. Finally, investors, especially British investors, would be saved the irrationality of having to trade through UK branches of foreign companies in order to retain their privacy rights. There is time for the other place to review these provisions, and I hope it does so.