Oral Answers to Questions

Debate between Seema Malhotra and Luke Hall

Monday 29th April 2024 Commons Chamber

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

The truth is that not only have apprenticeship starts plummeted since 2017, but new data shows that the overall achievement rate has dropped since 2020, with level 2 apprenticeships hit hardest. Almost half of apprentices do not complete their courses, which is simply not good enough. Employers are calling out for reform, but this Government have their head in the sand. Is this not yet more evidence that, far from tackling barriers to opportunity and boosting Britain’s skills, the Government are failing our young people and our businesses, and that only Labour has a plan to turn this around?

[Luke Hall]

We have made apprenticeships more rigorous. They are now more credible. They are designed by employers and have proper robust assessments. The only plan Labour has, without more funding, is to cut the number of apprenticeship starts in our country by 60%. Obviously, the hon. Member missed the figures published last week, which showed a 2.5% increase in level 2 attainment rates. We are delivering high-quality standards with more off-the-job training and that should be welcomed across the House.

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

Debate between Seema Malhotra and Luke Hall

Committee stage
Thursday 8th July 2021 Public Bill Committees

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

It is a pleasure to serve under your chairship, Ms Rees. I thank the Minister for outlining in some detail the legislation before us and the rationale for clauses 2 and 3 of this short but important Bill. As my hon. Friend the Member for Manchester, Withington stated, and as we both outlined at Second Reading, Labour is broadly supportive of the Bill, including the measures to close the dissolution loophole, which are needed to help tackle phoenixism, and which had almost unanimous support in all the oral and written evidence that the Committee received. There was also support for allowing action retrospectively; it is a welcome addition to the insolvency framework.

As the Committee heard from witnesses on Tuesday, unscrupulous directors can cause significant suffering to those who have invested in, or provided loans to, their company. We have also heard that the payment of employment tribunal awards can be affected. Too often, corrupt directors are able to absolve themselves of their financial responsibilities through dissolution, due to the time and money required for creditors to restore the company before being able to take action against it or the directors. As we heard in evidence, the Bill should therefore positively impact on creditor confidence. We also know that the taxpayer is now becoming a victim of this process, and that the action being taken is more limited due to the blunt tools and insufficient powers currently available, as unscrupulous directors seek to avoid paying back covid support loans.

It is therefore welcome that clauses 2 and 3, which deal with Great Britain and Northern Ireland respectively, remove the requirement for a dissolved company to be restored before the Government can act. The key change being made is that the powers available to the Secretary of State to investigate former directors of insolvent companies will be extended to cover dissolved companies. It will become easier for the Government to investigate the conduct of dissolved companies and, consequently, to seek disqualification orders or undertakings if desired.

However, although the clauses are a positive step, there are a number of concerns, most notably around the resourcing of the Insolvency Service, the Government’s plans and performance in relation to action taken in the investigation and disqualification of directors, and Parliament’s ability to scrutinise the outcomes of the legislation. Those gaps will, in our view, significantly limit the potential effectiveness of the Bill in its efforts to tackle financial corruption—potentially costing creditors, the Government and the public billions of pounds. Labour is calling for new clauses 1 and 3, tabled in my name and that of my hon. Friend the Member for Manchester, Withington, to be added to the Bill to address those gaps.

New clause 1 would place an obligation on the Secretary of State to lay a report before the House every three months following the passing of the Bill, outlining how many directors have been investigated and disqualified by the Insolvency Service. New clause 3 would place an obligation on the Secretary of State to publish an assessment of the provisions in clauses 2 and 3 of the Bill a year after it comes into force. That assessment would consider the extent to which the provisions have achieved their objectives, the interaction of the provisions with other law and policy relating to the investigation and disqualification of directors, and possible changes to law and policy.

In relation to new clause 1, I will outline some concerns on resourcing for investigations and action, including disqualifications. As Duncan Swift, the former president of R3, highlighted on Tuesday, the Bill could result in the Insolvency Service taking on “10 to 15 times” the number of investigations that it currently undertakes. However, there is no indication in the Bill, or in the Government’s intentions around it, that the Government plan to increase funding and resources at all for the Insolvency Service, let alone by 10 to 15 times, to allow it to cope with that potentially huge increase in workload.

That is despite the fact that R3 members, as identified in its evidence, often report encountering cases showing significant legal breaches by directors that, to their surprise, do not lead to disqualification. Several witnesses have suggested that the Insolvency Service is woefully under-resourced as it is. Without the necessary extra funding and resources for the Insolvency Service, the Bill’s aims of disqualifying unscrupulous directors or seeking undertakings simply will not be met. In fact, the measures introduced by the Bill may come at the expense of what the Insolvency Service is currently able to do in terms of investigating insolvent companies.

On top of that, we know that the Insolvency Service cannot apply to court for the disqualification of a director whose company has been dissolved for three years or more. That means that the Insolvency Service does not just need the extra resources to carry out those additional investigations, but needs to carry them out promptly and within the three-year timeframe. As Dr Tribe summarised on Tuesday, the Insolvency Service

“needs to be properly funded to ensure that this additional disqualification work can happen.”––[Official Report, Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Public Bill Committee, 6 July 2021; c. 18, Q29.]

All may go smoothly. There may be no backlog, no issues and no need to review the effectiveness of the legislation in meeting its goals, but we need to know that, and Parliament must be able to scrutinise in a timely and effective way. I hope that the Minister will support Labour’s call for new clause 1 to be added to the Bill, because surely this will be a report that he, too, will want to receive. On Second Reading, the Minister for Small Business, Consumers and Labour Markets said that the Government

“will be working with the Insolvency Service to ensure that it has the resources to do its job.”—[Official Report, 28 June 2021; Vol. 698, c. 83.]

Those may have been reassuring words to get us through this week, but we want to be able to see the outcomes of the process and how well the system is working. Surely that is in all our interests, both as parliamentarians and as constituency MPs.

New clause 1 would ensure regular reporting on the number of directors of dissolved companies investigated and disqualified by the Insolvency Service. In doing so, it would provide oversight and scrutiny around the Insolvency Service’s ability to implement the measures in the Bill. It would alert the House to any resourcing issues facing the Insolvency Service and evidence the need for extra funding in order to fulfil the aims of this Bill.

Another significant gap in the Bill is the lack of detail surrounding how the Government plan to act following the potential disqualification of directors. Disqualification itself does not provide measures for repayment so, on its own, it is not enough of a deterrent to prevent directors from acting unscrupulously. As Duncan Swift summarised on Tuesday:

“The serious rogue directors do not see being disqualified as a significant deterrent.”––[Official Report, Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Public Bill Committee, 6 July 2021; c. 60, Q96.]

What does represent a deterrent is being held to account for misappropriated assets and having personal liability for actions wrongfully undertaken as a director. Compensation orders are mentioned in the Bill. Since they have been introduced, very few compensation orders have been issued and their effectiveness has been unclear. Insolvency is a tried and tested way of recovering monies owed to creditors. Thousands of insolvency procedures take place every year that return hundreds of millions of pounds to creditors, but these processes are not without time, cost and considerable stress.

In order for the Insolvency Service, the courts and creditors to have clarity over what this Bill means, the Government should address the legislative gap. In order for the Bill to be effective, they must ensure this policy acts as a deterrent to unscrupulous directors and allows the aims of this Bill to be met.

That is why Labour has tabled new clause 3, which I am speaking to now. It would ensure that an annual assessment was made of the Bill’s effectiveness in acting as a deterrent to unscrupulous directors and at recouping owed monies. It will encourage the consideration of changes to the Bill to aid its effectiveness, making up for the current gaps in the Bill’s detail.

Clauses 2 and 3, which makes the same change to legislation in Northern Ireland, are broadly welcomed by the Labour party. We are pleased that a legal loophole, exploited for too long by unscrupulous directors, will finally be closed, but the Bill does not contain the details and or provide the oversight that Parliament needs to scrutinise its effectiveness and the outcomes it seeks to achieve. That was why we tabled new clauses 1 and 3: to ensure that the Insolvency Service is given the funding it needs to carry out the Bill’s goals, and to see disqualified directors repaying their loans and being held accountable for their liabilities in the most effective way.

I hope that the Committee sees the value of these new clauses and what they bring to the Bill, and I look forward to the Minister’s response.

[Luke Hall]

I again thank the Opposition for the constructive way in which they have approached this useful discussion throughout the passage of the Bill. I am grateful for the contributions on new clauses 1 and 3, which would require the Secretary of State to make reports every three months to Parliament on the number of directors investigated and disqualified under the provisions in the Bill, and to report their effectiveness after one year.

I reassure the Committee that the Insolvency Service routinely produces insolvency statistics, covering company insolvencies in the UK and individual insolvencies in England and Wales, as well as some of the underlying data alongside that. These are published online, available to everybody, every three months. At the start of the pandemic, the Insolvency Service undertook to provisionally add experimental monthly data releases concerning insolvency numbers. In this way, the statistics could act as an indicator on the pandemic’s impact on insolvencies.

As well as the quarterly releases of insolvency statistics, information about the Insolvency Service’s enforcement activities is published and updated monthly. This data includes the number of companies wound up in the public interest and the number of disqualification orders and undertakings, broken down by the relevant section of the CDDA under which they were sought. Information on the length of the periods of disqualification is included and there is an annual report on the nature of the misconduct being alleged.

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

Debate between Seema Malhotra and Luke Hall

Committee stage
Tuesday 6th July 2021 Public Bill Committees

[Luke Hall]

Q It would be interesting to hear your view, from a local government perspective, on exactly why the LGA thinks that ruling out MCC appeals for councils provides extra certainty—I think that is what the LGA has said—and how big a difference that has made to councils and their planning of their finances.

Sarah Pickup: There is a greater degree of certainty, because they do not face a period of time of not knowing whether an appeal will be successful or not, nor the extent of that success, and therefore having to make additional provisions on their balance sheet. Instead, they have a scheme to operate that offers them resources to provide discretionary funds to local businesses, which is welcome. As we have said, there is still some uncertainty in relation to what the guidance says and whether the scheme delivers what businesses expect, and whether, if not, there is either a pressure on the council to fund beyond the resources that have been made available, or a pressure because businesses cannot manage without the relief that they had been expecting, and therefore some businesses start to fail.

[Seema Malhotra]

Q As a slightly different angle on this, I was just wondering about any contact that you may have had, or experience that you may have had, with the Valuation Office Agency at the moment, and whether it has the resources it needs for the work it is currently undertaking—its existing functions—as well. I would be very interested in your perspective on that.

Sarah Pickup: I do not have detailed knowledge of its precise funding at the moment, but over time, we certainly have made a case that we support the Valuation Office Agency being funded adequately to deal with the task in hand, because there has been a very big backlog of appeals on the books. It has been pulling those down, and the change to check, challenge, appeal has impacted on that. Nevertheless, there is still a backlog, and our fears were that if the Agency was not properly resourced, you would end up with overlapping backlogs of appeals from different rating lists creating ever more uncertainty and not really taking away that need for councils to keep assessing the provisions that they need to make on their balance sheets.

One of the things that we certainly would support is a time limit on the time when businesses can put forward checks, challenges, and especially appeals against any given rating list. We think that would help, and it is in place, I believe, in some of the other UK nations.