Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill

Seema Malhotra Excerpts

2nd reading
Monday 28th June 2021 Commons Chamber

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

I am grateful for the opportunity to respond to the debate on behalf of the Opposition and to consider the contributions made by hon. Members. I also thank the Under-Secretary of State for Business, Energy and Industrial Strategy, the hon. Member for Sutton and Cheam (Paul Scully), for the meeting we had beforehand, in which we were able to discuss aspects of the Bill and issues that have been raised in the debate.

We have had some very positive and helpful contributions, including from the hon. Member for Thirsk and Malton (Kevin Hollinrake), with whom I have worked closely on mortgage prisoner issues and other areas of financial services regulation. He brought his characteristic clarity to the debate, raising issues including prosecutions for fraud and the resources that are necessary for us to be able to act. The speech by the hon. Member for North Norfolk (Duncan Baker) was so clear that it did not require an intervention, and I thank him for it. The hon. Member for Strangford (Jim Shannon) made the important point that Northern Ireland businesses should remain on the same footing as those in the rest of the UK. The hon. Member for Richmond Park (Sarah Olney) was right about the debt burden that businesses are facing, which is one reason why the Opposition have called for a flexible debt repayment scheme based on what businesses earn. That continues to be an essential part of how the Government must support businesses going forward.

As my hon. Friend the Member for Manchester, Withington (Jeff Smith) outlined at the start, the Bill contains some positive measures and we support its going forward. However, we want it to deliver for businesses and local authorities and to bring justice to unscrupulous company directors, and it also needs to be workable for the Valuation Office Agency and the Insolvency Service. However, there are significant gaps in the detail, which must be addressed if the Bill is to achieve its aim.

Clause 1 rules out covid-related material changes in circumstances in relation to business rates appeals. We understand that assessing thousands of appeals would not be the best use of the Valuation Office Agency’s time when a full revaluation is due to take place in 2023. However, it is vital that this change is coupled with the £1.5 billion relief fund for businesses that have been badly affected by the pandemic but that have so far missed out on business rates reliefs—a point well argued by the Federation of Small Businesses, and I will come back to that point and to concerns that it may not cover everyone. The funding should also support businesses and supply chains that have been unfairly overlooked for so long.

Confirmation that the fund is an alternative to adjustments to rateable values as a result of material changes in circumstances appeals also provides much-needed certainty to local authorities. Since 2013 business rates revenue has formed an increasingly substantial part of local government revenue. While this reliance on business rates is imperfect and longer-term reform is needed, a large fluctuation in income at the tail end of the pandemic would be the last thing that local authorities need, and the Bill makes that less likely.

However, the lack of detail around the £1.5 billion fund is worrying. Since the figure was announced in March, businesses and local authorities have had no further detail on how the amount was calculated, how it will be allocated and who will be eligible, nor is there guidance on how it should be administered. Councils are expected to develop and set up local schemes to deliver this business grant relief, but they cannot start the process until they receive their individual allocations and until the Government publish national guidance setting out the parameters for the scheme.

We are concerned that the allocations will not begin until the Bill has passed through Parliament, meaning that payments are unlikely to be made until September at the earliest. Businesses and local authorities are united in crying out for clarity on the distribution process, for clear and straightforward award criteria and for simplicity and speed in getting the funding out. Waiting until September will mean that many businesses will not survive long enough to benefit, especially in the light of the decision to postpone the next phase of unlocking and the fact that economic measures have not been continuing in lockstep with public health restrictions.

The Government previously said that this grant-based approach was to ensure that relief could be awarded more quickly than if it was sought under a rating appeal, so again, why the delay? I reiterate that the Government must publish an early release of the funding allocations and eligibility criteria, and I urge the Government to work closely with local authorities and the Local Government Association to make sure that that guidance is as clear as possible.

There are also further questions to ask about how the Government calculated the figure of £1.5 billion. What assurances can they give that it will be sufficient to support the businesses that have struggled so much without rates relief during the pandemic? I would be grateful if the Minister could cover that in his closing remarks. While the £1.5 billion discretionary fund has been broadly welcomed, the ruling out of material changes in circumstances rate appeals, as he knows, will have come as a disappointment to many businesses. Have the Government made an assessment of how many are likely to have been affected by the closing off of this avenue and how much they would have been able to claim back otherwise? Did these sums inform the Government’s calculation of the £1.5 billion figure?

The Minister will also be aware of the concerns of airports such as Heathrow, Gatwick and Manchester, and the need for a proper deal for aviation, which, so far, the Government have failed to bring forward. Heathrow has continued to pay its £120 million annual business rates bill in full despite the plummeting passenger numbers, so has the Minister undertaken an assessment of the impact that the Bill will have on the operation of pieces of national infrastructure such as airports? Was any consideration given to exempting them from the provisions?

I will make a few comments on the directors disqualification aspects of the Bill in clauses 2 and 3. It has long been known that a small number of directors of companies fraudulently use the dissolution process as a way of avoiding paying back loans, and this has become a particular concern with the covid-19 bounce back loans. With the dramatic increase in the number of company dissolutions this year compared with last year, there are fears that a minority of rogue directors have sought to use this mechanism to avoid repaying state-backed loans. It is therefore right that the Bill aims to close the dissolution loophole, allowing directors who have unscrupulously dissolved their companies to be punished and deterring others from doing this in the future.

Additionally, applying to court to have dissolved companies restored is time-consuming and costly to the public purse. It is right that the Bill removes this hurdle to tackling business corruption, but it is unfortunate that it comes now rather than three years ago, when a Government consultation, which the Minister referred to in his opening remarks, on the Insolvency Service’s powers saw the majority of respondents agree that there was a gap in powers in relation to directors of dissolved companies. If action had been taken more promptly, as I think the Minister would agree, the significant exploitation of the bounce back loan scheme may never have happened in this way.

My hon. Friend the Member for Manchester, Withington raised Labour’s concerns about how additional investigations will be funded and the need for adequate resourcing of the VOA and the Insolvency Service. R3, the insolvency and restructuring trade body, has highlighted its members’ concerns that not all their reports to the Insolvency Service are acted on, even where serious breaches of the law are suspected, due to resourcing issues. So how do the Government intend to address this while also ensuring that the Insolvency Service stands ready to take on a potentially even bigger case load?

I would add that if resourcing delays result in investigations going beyond three years since the company is dissolved, and that consequently means that a Government run out of time to apply for a disqualification order against a culpable director, that would be an utterly unjust outcome and an incentive for the phoenixism that we want to see end. It would also surely fail the public interest test, so, finally, will the Minister explicitly clarify whether the Government plan to use compensation orders against disqualified directors? The Government’s approach to this must be made clear so that there is efficiency in returning funds to the public purse and other creditors can be monitored and evaluated properly.

I hope that the Government have been able to take note of the issues raised during this debate. Labour will keep pushing for these vital improvements and particularly for swift guidance and the release of the £1.5 billion relief fund. With many of the hardest-hit businesses yet again facing uncertainty following the extension of covid restrictions, we owe it to them to make this Bill genuinely helpful and not one more thing to worry about.

--- Later in debate ---

[Paul Scully]

A lot of messages can go out and have gone out over the past year so that we can flex in our ability to work with businesses. I think I can boil down my relatively long job title to “Minister for unintended consequences”. We are always trying to make sure that we can flex and get clear messages out to businesses. The hon. Lady makes an interesting point. We have heard a lot about the £1.5 billion and when the guidance will be out. Clearly that is dependent on the passage of this Bill, but we want to make sure that we can work with the LGA and councils to give the clearest guidance so that they can get the money out as quickly as possible. The argument made by Members on both sides of the House is countered by the fact that by not having to go through so many appeals we can speed up the process and get the money out within weeks rather than, in certain cases, if we had to go through the entire process, years. That is why we can provide certainty to local authorities, which rely on income from business rates to fund their vital local services. It is on that basis that the Public Accounts Committee has welcomed the approach taken by the Government in the Bill.

Members have raised questions relating to when ratepayers will be able to benefit from the £1.5 billion relief that was announced on 25 March. We will work with all areas of local government to deliver the new relief scheme as soon as possible, once the Bill is passed, so that local authorities can set up their local relief scheme. The allocation of the £1.5 billion among local authorities will be made according to which sectors have suffered most economically rather than on the basis of temporary falls in individual property values. That will ensure that the support is provided to businesses in the fastest and the fairest way possible.

[Seema Malhotra]

Does the Minister have any clarity at all on the timetable so that local authorities know what to expect and when?

[Paul Scully]

The answer is as soon as possible, once this Bill has passed. I am looking forward to working with the hon. Lady in Committee to make sure that we can work through this as quickly as possible. Clearly, work will be done in consultation and conversation with the LGA and local councils to ensure that we can get comprehensive guidance in place. That is how we have been working over the past 14 months with local authorities on the other grant schemes.

Let me briefly cover a couple of quick points. The hon. Member for Manchester, Withington (Jeff Smith) asked whether there will be a blanket ban on MCCs. I can absolutely confirm that there is no blanket ban. On airports, it is a core principle of the business rates system that a material change of circumstances should be used between rate revaluations, so the drop in demand for airports in light of the pandemic is exactly the sort of market-wide economic change affecting property values that can and should only be considered at revaluation. We have been supporting airports with their fixed costs over the past year from the airport and ground operations support scheme. In his recent Budget, the Chancellor announced a further six months of support up to the equivalent of their business rates liability for the first half of the 2021-22 financial year, subject to certain conditions, and a cap per claimant of £4 million.

[Seema Malhotra]

Will the hon. Gentleman give way?

[Paul Scully]

I will not give way, but I will happily come back to the hon. Lady if I have not answered her question. I do want to get through a few areas.

Let me quickly turn to the disqualification of directors of dissolved companies. The issue of insolvency funding came up a few times. Clearly, we will be working with the Insolvency Service to ensure that it has the resources to do its job. It employs its finite resources to the maximum effect by prioritising cases in which there has been most harm to the public and the wider marketplace. Clearly, its resources are not limitless.

The hon. Member for Strangford (Jim Shannon) asked about insolvencies. Actually, the number of insolvencies has been at a 40-year low over the past few months because, effectively, in many areas, the economy has been held in stasis. That is why it is so important that, having put £352 billion-worth of support into the economy, we now have 352 billion reasons why we have to get the next bit right—why we have to help shape the recovery through these mitigations. We need to make sure that we continue to flex and continue to extend the support. That is why furlough carries on until September and why we have ensured that the winding-up proceedings have been extended for another nine months as well, so that we can get conversations going with landlords and tenants. It is so, so important to continue these measures.

I am glad that we have had broad support for the measures. In terms of compensation, directors can obviously be held personally liable for debt, and where there are breaches, there is disqualification.