After Clause 46 - Register of members: information to be included and powers to obtain it

Economic Crime and Corporate Transparency Bill – in the House of Commons at 2:07 pm on 13 September 2023.

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Photo of Nigel Evans Nigel Evans Deputy Speaker (Second Deputy Chairman of Ways and Means), Chair, Restoration and Renewal Programme Board Committee, Chair, Restoration and Renewal Programme Board Committee

With this it will be convenient to discuss the following:

Lords amendments 151B and 151C, Government motion to disagree, and Government motion to insist on amendment 151A.

Lords amendment 161B, Government motion to disagree, manuscript amendments (a) and (b), and Government motion to insist on amendment 161A.

Photo of Kevin Hollinrake Kevin Hollinrake Parliamentary Under Secretary of State (Department for Business and Trade)

It is always a pleasure to speak with right hon. and hon. Members on the Economic Crime and Corporate Transparency Bill, which they will know is close to my heart and contains many vital measures for which I have long campaigned. The Bill will give us the powers we need to crack down on those who abuse our open economy, while ensuring that the vast majority of law-abiding businesses can grow and flourish.

I am grateful that both Houses have reached agreement on several issues, including those relating to the register of overseas entities and on removing the extension of the failure to prevent offence to money laundering. However, we are here today as agreement is still outstanding on a handful of remaining issues. I urge this House to accept the Government amendments, to settle those remaining topics and ensure that we can proceed to Royal Assent and implementation of these important reforms without delay.

I will now speak to those remaining topics. In the other place, the Government tabled two amendments on nominee shareholders—amendments 23B and 23C, in lieu of Commons amendment 23A, and in response to Lord Vaux’s amendment 23 on this topic from Report stage in the other place.

The Government’s amendments will allow the Secretary of State to make regulations to make further provision for the purpose of identifying persons with significant control in cases where shares are held by a nominee. This will allow the Government to work with relevant stakeholders to target the regulations in an effective and focused way that does not impose disproportionate burdens. Members of the other place agreed with the Government’s proposal and I trust that Members of this House will therefore agree with it today.

Lords amendments 151B and 151C would apply the exemption from the failure to prevent fraud offence to micro-entities only, rather than the Government’s position of excluding all small and medium-sized enterprises. The Government appreciate that Lord Garnier has moved closer to the Government’s position in agreeing to the principle of applying a threshold. However, our position remains that such an amendment would still incur significant costs to businesses. Reducing the exemption threshold to only micro-entities would increase one-off costs for businesses from around £500 million to £1.5 billion. The annual recurrent costs would increase from £60 million to over £192 million.

Photo of Robert Buckland Robert Buckland Conservative, South Swindon

Where do those figures come from?

Photo of Kevin Hollinrake Kevin Hollinrake Parliamentary Under Secretary of State (Department for Business and Trade)

We used very similar analysis to that used for the failure to prevent bribery and failure to prevent tax evasion offences. We have used a common methodology. I have not seen any figures that contradict our figures here, but in my view—having run a business and dealt with some of the failure to prevent bribery provisions—there is no doubt that there are significant costs. There may be external consultants to bring in, for example. Even if one is compliant, one might not know whether one is compliant, so there are definite associated costs to ensuring that reasonable efforts are made to prevent fraud, as it would be in this case.

Those costs would still be disproportionately shared by small business owners, when law enforcement can attribute and prosecute fraud more easily in these smaller organisations; and, as I have set out before, we must be mindful of the cumulative impact on SMEs across multiple Government requirements and regulations. In all the work I have done in the past from the Back Benches on failure to prevent, it was invariably the case that all cases involved larger businesses, not SMEs.

Large companies have the resources and specialist expertise to cope with additional burdens, whereas small businesses often have to dedicate a significant amount of time and resource, often paying for external professional advice to assess what new rules would mean for them. That is the case even where they subsequently assess that they already have adequate controls in place. That is time and resource that could otherwise have been used to grow and generate wealth for their businesses and jobs for their staff. The Government are extremely mindful of the pressures on companies of all sizes, including SMEs, and therefore do not feel it is appropriate to place this new unnecessary burden on over 450,000 businesses. I therefore urge Members of this House to support the Government motion to disagree with the Lords amendments, to ensure that we take a proportionate approach and do not impose unnecessary measures that would curb economic growth.

Turning to Lords amendment 161B, made by Lord Faulks, on cost protection for law enforcement in civil recovery cases, the Government remain of the view that the amendment would be a significant departure from the loser pays principle and therefore should not be rushed into without careful consideration. There is no clear evidence that such changes would help to achieve their intended aim of increasing the capacity of law enforcement to take on more civil recovery cases. There have been no adverse cost rulings against an enforcement authority carrying out this type of civil recovery in the past six years.

Costs are just one of many factors that determine whether law enforcement will take on a case. For example, the evidence available to pursue a case, particularly where evidence is required from overseas, often proves more vital to an operational decision. There are already a number of ways in which an enforcement agency’s liability to legal costs can be protected under the civil procedure rules in England and Wales. For instance, rule 44.2 gives the court discretion as to the payment of costs by either party, including whether they are payable to another party, the amount, and when they are payable. In addition, a cost-capping order can be applied for under rule 3.19 to limit any future costs that a party may recover under a later costs order. If we are to introduce further legislation, we must consider what gap this is trying to fill. We should also consider civil liberties and property rights that underpin our economy. We will potentially be handing huge powers to the state, which could be held over an individual.

The Government recognise the potential merits of reform, which is why we have added to the Bill a statutory commitment to review the payment of costs in civil recovery cases in England and Wales by enforcement authorities, and to publish a report on the findings before Parliament within 12 months. I therefore hope that Members of this House will agree with the Government’s position today.

In conclusion, I encourage this House to agree with the Government’s position on the outstanding Lords amendments. It is vital that we achieve Royal Assent without delay, so that we can proceed to implement the important reforms in the Bill as quickly as possible.

Photo of Rushanara Ali Rushanara Ali Shadow Minister (Investment and Small Business) 2:15, 13 September 2023

It is a great honour to speak for the Opposition on behalf of myself and my hon. Friend Stephen Kinnock. I pay tribute to my predecessor, my hon. Friend Seema Malhotra. I am also grateful to my right hon. Friends the Members for Barking (Dame Margaret Hodge) and for Birmingham, Hodge Hill (Liam Byrne), my hon. Friend Sir Chris Bryant and many others across the House who have played such an important role in getting the Bill to this point.

By the Government’s own definition:

Economic crime refers to a broad category of activity involving money, finance or assets, the purpose of which is to unlawfully obtain a profit or advantage for the perpetrator or cause loss to others.”

It poses a threat to our country’s national security, our institutions and our economy, and causes serious harm to our citizens and society. Failure to act allows criminals to benefit from the proceeds of their crimes and to fund further criminality. In the most extreme cases, we have seen the funding of organised crime groups, terrorist activity, drug dealing and people trafficking.

Economic crime has many victims. For too long, the Government have turned a blind eye to corruption and dirty money, allowing Russian illicit finance to flood into our country and let Putin’s cronies stash ill-gotten gains and even recycle the proceeds of crime into luxury properties across our cities. More than two thirds of English and Welsh properties held by foreign shell companies do not report their true owners. Research by the London School of Economics and Warwick University shows that the register of overseas entities is not fully effective. For 71% of those properties, essential information about their beneficial owners remains missing or publicly inaccessible, despite the register of overseas entities. It is not enough, and we need more action.

After the Grenfell Tower fire disaster, which claimed 72 lives, we have learned more about freeholders hiding behind offshore trusts and labyrinthine company structures to make it impossible for leaseholders to uncover who is responsible for replacing dangerous flammable cladding. Hundreds of thousands of people across the country are living in fear of Grenfell-style fires in unsafe blocks, while some owners hide abroad under company structures that help them to dodge paying for replacement cladding by setting up companies and trusts in overseas territories, lacking transparency. Our Government and our citizens must be able to access information about who owns what, and where responsibility lies.

This legislation is long overdue. As far back as 2018, the then Security Minister, Mr Wallace, was reported to have said that the BBC hit series “McMafia” was

“very close to the truth” and condemned the

“impunity with which some of these people operate and the brutality of it”.

He promised new powers to crack down on gangsters, criminals and corrupt members of the global elite, with the full force of Government to be used against them. While some steps have been taken, it took Russia’s invasion of Ukraine for the Government to step up and introduce further legislation. The Government have delayed legislation for too long, and in that time money has been lost, economic crime has persisted, and the UK economy has once again lost out. Shamefully, our city—our capital—has taken on the reputation of cleaning up much of the world’s dirty money.

The illegal Russian invasion of Ukraine has merely highlighted a shameful situation that campaigners have long decried. For years the UK has been awash with cash from kleptocrats and oppressive regimes. Transparency International UK has highlighted that £6.7 billion worth of property has been bought with the use of suspicious wealth. I recently visited Ukraine, where I witnessed the terrible impact of the Russian aggression on the civilian population, who are constantly living in fear of airstrikes. It is sickening to think that the people who are responsible for these atrocities today could be enjoying luxury apartments and houses in Belgravia and Mayfair, just a stone’s throw from this House. However, it is not just the Kremlin; as The Times has reported, more than £200 million-worth of UK property is owned by the children of notorious rulers and their henchmen from failed states and autocracies around the world. The cost of economic crime is as much as £350 billion.

There is much to do. Law enforcement must be backed up; we must have the transparency that justice demands, and send a clear signal that there cannot be dark corners where kleptocrats can stash their money. The Bill is a starting point, not an end point. We will be holding the Government’s feet to the fire to ensure that this legislation makes an actual difference. Crucially, tackling economic crime requires support for key institutions such as the National Crime Agency, His Majesty’s Revenue and the Customs Crown Prosecution Service. It is not enough just to introduce legislation; we need enforcement, and we need these institutions to be properly resourced and supported.

We have had the FinCEN files, the Panama papers and the Paradise papers, as well as numerous inquiries by Select Committees—including the Treasury Committee, on which I served for a number of years—but we have seen only incremental change, which is very frustrating for many Members on both sides of the House. Further action is needed to ensure transparency in respect of the ownership of UK property by overseas companies, and on compensation for victims of economic crime. There remain huge gaps. However, we welcome the changes that the Government have made in relation to strategic lawsuits against public participation, which have been worked on by a number of Members.

We support Lords amendments 151B and 151C, and welcome Lord Garnier’s focus on the failure to prevent fraud in non-micro entities. We also support Lords amendment 161B, tabled by Lord Faulks. As he has explained, subsection (2) should state that the court should not normally make an order

“that any costs of proceedings relating to a case to which this section applies”,

and so on. My right hon. Friend the Member for Barking has tabled an amendment to that Lords amendment, which has been accepted, and we accept the Lords amendment on that basis.

This Bill is almost over the line. It has been improved since Ministers first embarked on it. However, there is much more to be done. We hope we can ensure that enforcement takes place once it is on the statute book, so that dirty money can be exposed, illegal assets can be seized, and action is taken against those who are guilty of economic crime. We must not have further delay in pushing for transparency and action in tackling economic crime.

Photo of Bob Neill Bob Neill Chair, Justice Committee, Chair, Justice Committee

This is an important Bill and there is much good in it, but I am afraid that a number of areas require further attention. Now is not the time for discursive speeches, but I regret to say that notwithstanding the good in the Bill, the Government have fallen into error in relation to the two Lords amendments that they seek to reverse.

Let me say first that while a measure to deal with “failure to prevent” offences is a good idea, this measure is too widely drawn. The Minister made a point about the burden of costs on small businesses, but the definition of a medium-sized business is significant: the risk is less to do with the size of a business than with where it does its business, and also its corporate structures. One of the important things we have learned from the United States is that “failure to prevent” offences are not simply about prosecuting, important though that is, but also about changing corporate behaviour. I did not hear a word about that in the Minister’s speech, and I think it might be better to reflect on it again.

Lord Garnier tabled an amendment to compromise on micro-entities; perhaps we should think again about a third tier, consisting of medium-sized as opposed to small entities. That would not be unreasonable, given that many medium-sized entities do significant work abroad where there is some risk, and given that the costs are tax-deductible from profit. I urge the Government to think again, because having done so much good in the Bill, it will be a shame if we weaken its enforcement by widening the net too much.

As for the cost caps, when the Minister said that no prosecutions had been brought yet, he did not add that that was because of their chilling effect. People will not risk bringing prosecutions if their budgets are going to be eroded after the event by costs being awarded against them. Only yesterday, in the House of Commons, I had the pleasure of meeting Bill Browder, who has set out very clearly why that has been the case for a number of years. The Serious Fraud Office tried to bring a prosecution a few years ago and got its fingers burned, and there have been few prosecutions since then. This is about behaviours rather than outcomes.

I have to say—with apologies to the Minister, whom I like and respect—that the Government have taken an unduly restrictive and literalist approach to these matters. It would be far better to find compromises—to think again, go back to the Lords, and see whether there is somewhere between Lord Garnier’s position and that of the Government. Perhaps that third tier of the medium-sized entity is a way around this. The Government are committed to a review of cost caps in 12 months’ time, but, as my right hon. and learned Friend Sir Robert Buckland said the last time this came up, what is there to review? The evidence is there: cost caps are chilling. As the Minister will see if he reads the evidence given to the Cambridge economic crime summit—at which I had the pleasure of speaking last week—it is overwhelmingly clear that not a single one of the experts could understand the Government’s position on this, so I ask them please to think again about it as well.

Photo of Alison Thewliss Alison Thewliss Shadow SNP Spokesperson (Home Affairs)

I strongly very much with what Sir Robert Neill said. Let us just agree with the Lords. Let us get on with this. Let us do this legislation, and do it properly.

Let me say first that it is important for us to have as much information as possible about those who own companies. It is clear from all the evidence that has come before us that the lack of such information causes people to find ways of hiding their money, and the UK has become a magnet for that. The Minister has suggested that there will be a significant cost to businesses, but businesses are already doing work on failure to prevent bribery. As Lord Garnier said on Monday, there is a clear read-across: it would be easy to add fraud to the current provisions. It would not be difficult, and it would bring about an economic benefit. The Minister also suggested that economic growth would be hampered in some way, but he himself has said that

“ a corporate offence of failure to prevent economic crime and money laundering would reduce the amount of money that is illegally shifted out of the UK into foreign jurisdictions and increase the amount of tax that is paid.”—[Official Report, 22 February 2020;
Vol. 672, c. 220.]

Why does the Minister now disagree with himself? Why does he disagree with statements that he has made in the past? He knows that this is an important measure, and that this is an issue that we can deal with here today and it will be done. We will not have to come back to it, we will not have to keep debating it, and the Minister will be able to see that he has finished it off and done a good job.

On the issue of adverse costs, I agree with what Bill Browder said in his evidence to the Bill Committee. By not introducing such a measure, we are inhibiting law enforcement when it comes to economic crime. We know that those on the other side of the equation who want to hide their money have plenty of it to throw at the best lawyers and at the best accountants to make things look a particular way. If we are to be in this fight, we need to give the law enforcement agencies the resources that they require, and cost capping is a key element of that.

As I said the previous time we debated these matters, there is no need for a review. We need to get on with things. An election is coming, and we do not know when we will pass this way again. The Minister should accept the Lords amendments, and get on with the work.

Photo of Robert Buckland Robert Buckland Conservative, South Swindon

I shall be brief. Alison Thewliss repeated her phrase of last week—and, indeed, we have passed this way again. I will resist the temptation to be too biblical today; I will simply reiterate to the my hon. Friend the Minister the points that I made last week. Lord Garnier has moved on the position in the Lords and offered an olive branch to the Government, in the sense that this is a different amendment. It rightly now affords what, in the opinion of many of us, will be greater protections for businesses. What is being ignored in this debate is the fact that businesses that take reasonable measures will not be the subject of a prosecution or investigation. Businesses that are not within this regime will not have that protection, so there is a cogent argument that failing to extend the “failure to prevent” offence to more businesses would leave them less well protected.

I pray in aid the excellent speech by Lord Garnier, and in particular his reference to the guidance that was issued to the Bribery Act 2010, which states:

“To a certain extent the level of risk will be linked to the size of the organisation and the nature and complexity of its business, but size will not be the only determining factor. Some small organisations can face quite significant risks and will need more extensive procedures than their counterparts facing limited risks. However, small organisations are unlikely to need procedures that are as extensive as those of a large multi-national organisation.”

Herein lies the point. The Government at that point were taking the view that it was the extent of external risk that mattered, not the size of the enterprise, which begs the question: what on earth are we doing here? Why this change? Why this change from the policy of a Conservative Government, which was echoed in the tax evasion “failure to prevent” offence of 2017?

With the greatest of respect to my hon. Friend the Minister, whom I respect utterly—he knows that I share his passion for reform in this area—it is no good citing at the last minute figures that I simply do not accept have the veracity that he claims they do. A lot of the measures have already been taken by businesses dealing with tax evasion and bribery, and I say again that this is not fraud in general; this is fraud with an intent to benefit the entity—the company—which is a different beast altogether from fraud in general.

Secondly, on the cost cap, Lord Faulks was absolute right to ask: if not now, when? The reason that there have not been many cases is that there has definitely been a dampening effect on authorities bringing these civil proceedings. The intention in the Proceeds of Crime Act 2002 was for a lot more use of part 5 in civil proceedings, but we have seen that vanishingly irregularly. We need more of those in order to burnish Britain’s reputation as a centre of clean money.

Photo of Kevin Hollinrake Kevin Hollinrake Parliamentary Under Secretary of State (Department for Business and Trade) 2:30, 13 September 2023

I have listened carefully to my right hon. and learned Friend’s points. He said a few seconds ago that this would relate only to fraud that benefits the body concerned. Paragraph 1(b) of Lords amendment 151 also covers the body or an associate within that body providing services, so this is not just about the benefit to the organisation itself.

Photo of Robert Buckland Robert Buckland Conservative, South Swindon

I will take that qualification. I was seeking a short cut because time is brief. My hon. Friend is right to mention the agency point, but it is still a much narrower ambit of the offence than fraud in general. That is the point I would ask him to take away, because I am not persuaded. I think the amendments should remain within the body of the Bill as amended, and I will be voting accordingly.

Photo of Margaret Hodge Margaret Hodge Labour, Barking

Mr Deputy Speaker, I am conscious that we must vote in five minutes to remain in order, so I will simply say that economic crime is a national security issue and should not be a partisan issue in this House. I urge the Minister to set aside the party political views that he is expressing and to go with the consensus that has been built, not just in the House of Commons but in the House of Lords and in the non-governmental organisation sector outside.

Photo of David Davis David Davis Conservative, Haltemprice and Howden

The right hon. Lady is right. It is not just the parties but the different sides of the natural arguments over authority, libertarianism and civil rights that are not divided. I am a strong defender of the right to be presumed innocent, but there needs to be a rebalancing in this area, where the criminals we are up against are very sophisticated and will use smaller companies to get around this if they need to.

Photo of Margaret Hodge Margaret Hodge Labour, Barking

In the interest of trying to get to the vote on time I will close my speech, but I urge all Members to please support the amendments proposed by Conservatives in the House of Lords, which are eminently sensible, rational and pragmatic.

Photo of Kit Malthouse Kit Malthouse The Minister of State, Ministry of Justice

I am afraid that I am going to disappoint Dame Margaret Hodge and speak very strongly against Lords amendments 151B and 151C, and I refer the House to my entry in the Register of Members' Financial Interests. I am surprised at Lord Garnier’s lack of any conception of what it is like to run a small business and the cumulative impact of Government regulation thereupon. The limits that are drawn here will draw in all manner of businesses, not least some eminent barristers who will fall foul of some of the numbers. Indeed, the average town-centre or city-centre pub will be covered by these regulations, such is their level of turnover and employees. It is worrying that I am perhaps the only small-business voice here and that there are not enough small-business people in the House to point out the problems with this issue.

As the Minister has said, hundreds of thousands of businesses will be drawn into the net. This is not necessarily about the compliance cost. The kind of regulation that comes with the prospect of a criminal offence has a chilling effect on small businesses. I speak as somebody who has owned one for nearly 30 years. When the Revenue, health and safety or trading standards show up with some new regulation, a whole industry cranks into place to terrify the owners of small businesses into some kind of compliance. Then along come the consultants, the accountants, the webinars and the newsletters telling us what we do and do not have to do. All of this distracts us from what we should be doing, which is trying to create employment and wealth and paying tax to the rest of the country.

The other issue is that this misunderstands the dynamic of businesses of this size. If a business of this size is going to engage in fraud, it is very possible—more than likely, actually—that the principal will be the instigator of that fraud. The idea that, alongside all the other offences, they should take steps to prevent themselves from perpetrating fraud seems ridiculous. Added to those general difficulties are the specific ones presented by the Heath Robinson-type calculation that every business will have to undertake every month: adding together how many employees there are and how many are employed in each month in year P, then taking away the number you first thought of and dividing it by the number of months. We are all going to have to do this every single month to work out whether we are above the threshold or not. Should we have the steps? Should we not have the steps? It all seems particularly nonsensical.

We know that a vast amount of this fraud takes place in larger companies, and they have the capacity and the wherewithal to deal with it. If my hon. Friends really think that senior barristers, whose turnover and assets will be more than the threshold, should be taking and showing procedural steps to avoid conducting fraud—do not forget that they are sole practitioners—then I am afraid we have gone through the looking glass of what Conservative Members think is appropriate.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

In the interest of moving to the vote, I will not speak.

Photo of Kevin Hollinrake Kevin Hollinrake Parliamentary Under Secretary of State (Department for Business and Trade)

I welcome Rushanara Ali to her place. We worked closely together on the Treasury Committee and it is a pleasure to work across the House with her today. I also pay tribute to her predecessor, Seema Malhotra for her similar approach to the work we have done on this legislation. I thank all hon. and right hon. Members for their contributions to this debate and their support for the Government’s amendments made in the other place. I want to refer to a number of points that have been raised today.

The shadow Minister, the hon. Member for Bethnal Green and Bow, referred to the Government turning a blind eye to the issue of economic crime, but nothing could be further from the truth. Many of us have worked on this cross-party across the House from the Back Benches and now on the Front Benches, and this is the second piece of legislation we have brought forward on economic crime in the past 18 months. These are groundbreaking new measures. This Bill contains further reforms to the Register of Overseas Entities introduced in the previous legislation. Our legislation on strategic lawsuits against public participation—SLAPPs—is world leading, and we now have the “failure to prevent” offence, which I will speak to in a moment.

The hon. Lady also referred to the resources made available to our law enforcement agencies. We are continuing to invest in measures to tackle economic crime, and we have increased the budget of the National Crime Agency year on year since 2019. Its budget has now increased 40% from the figure in 2019 and stands at just over £700 million.

Together, the recent spending review settlement and private sector contributions through the new economic crime levy will provide £400 million of funding over the spending review period, and the levy is estimated to bring in £100 million per annum starting from this financial year, 2023-24. There will be a wide-ranging review by the end of 2027, providing transparency on how the levy is performing against its original purpose, including on how the money is spent. Existing efforts will move at pace to enhance and further drive forward the unit in what are inevitably complex and lengthy operations. In considering this legislation, we have often debated the extra resources that we are determined to deliver for Companies House and will pay for at least 400 more people. That is an incredibly important part of the Bill.

My hon. Friend Sir Robert Neill stated very clearly that he feels the failure to prevent threshold is too widely drawn, and I understand his point. As I said in my opening speech, all the cases I have dealt with in this place—whether it be Lloyds HBOS Reading, HSBC, NatWest or others—have involved large organisations that turned a blind eye to fraud or let it happen on their watch. We believe it is right to strike a balance between the offence’s crime prevention benefits and the burden placed on business. There is a balance between risk and regulation, and we want to make sure that the regulations do not put excessive costs on business.

My right hon. and learned Friend Sir Robert Buckland made similar points. He cast doubt on the figures I have in front of me on the costs of the burden on business, which we believe will be £1.5 billion of implementation costs and around £192 million of recurrent annual costs. I am happy to look at other costs and analyses, but those are the figures before me.

My right hon. and learned Friend makes an interesting point that the threshold will facilitate economic crime in certain companies, but the Lords amendment allows some companies to be outside the rules. I am not sure how he can draw a line to say that there will be economic crime in some companies and not in others. It is very difficult to draw a line, and we believe that drawing a line at larger companies is right.

Photo of Kit Malthouse Kit Malthouse The Minister of State, Ministry of Justice

Lines matter. At a point in a business’s evolution, as my hon. Friend will know from building his own business, it crosses a line. It is perfectly possible, under the definitions in Lords amendment 151C, that a company that satisfies the financial criterion will decide to go from nine employees to 10 or 11, and suddenly it crosses into this world of pain—the compliance people show up, and the company needs a whole new process and procedure that comes with employing that single extra person, on top of all the other employment and safety regulation it is having to deal with. Setting these thresholds at a level at which companies can absorb the step up in responsibility, and without a disproportionate amount of cost, seems critical. Does he agree?

Photo of Kevin Hollinrake Kevin Hollinrake Parliamentary Under Secretary of State (Department for Business and Trade)

I do agree. I listened closely to my right hon. Friend’s remarks. He said he might be the only small business owner currently in the Chamber, but he is talking to one. I have owned a business for 30 years, growing it from a small business to a larger one, and I absolutely agree that it is not just the legislation itself but its implementation and the requirement to implement prevention procedures. As he puts it, that would almost create a new industry of advisers to advise on what needs to be done, be they accountants or third parties. He is right to raise those concerns on behalf of small and medium-sized enterprises.

My hon. Friend the Member for Bromley and Chislehurst asked about setting the threshold at a different level, the small company threshold rather than the current micro company threshold. The small company threshold is 50 employers, £10.2 million of turnover and a £5.1 million balance sheet, according to Companies House, whereas we think a 250-employee threshold would be more appropriate. That is where we differ, but I am happy to continue that conversation.

Photo of Richard Fuller Richard Fuller Conservative, North East Bedfordshire

I want to ask a question that I do not think was addressed last time we debated Lords amendments, and that I do not think the Government have addressed today. What are the implications if there is an explicit threshold? What further thought have the Government given to the implications of putting in a threshold? Are they satisfied that some of the concerns raised by Opposition Members and Conservative Back Benchers have been taken into account?

Photo of Kevin Hollinrake Kevin Hollinrake Parliamentary Under Secretary of State (Department for Business and Trade) 2:45, 13 September 2023

We are very clear that we believe we have the right threshold. Larger companies clearly have the capacity and the human resources and risk compliance departments to mitigate these kinds of risks, whereas small and medium-sized enterprises are rightly much more focused on driving their business forward, which is very important to the economic health of our country. I think we have it right. My hon. Friend made a similar point in our previous debate on this issue, and he makes it very strongly. The fact that both he and my right hon. Friend Kit Malthouse have made that point today counterbalances some of the arguments on the other side for extending the threshold further.

Alison Thewliss spoke about my previous comments. I think I have been pretty consistent in everything I have said in the House, unless she can point to anything different I have said from the Back Benches—[Interruption.] The shadow Minister, Jonathan Reynolds, laughs, but I have always been a champion of the “failure to prevent” offence. If Members look back to the original Bill, which I think was 260 pages long—it is now nearly 400 pages long—they will see that I have been very keen to make sure that we listen to hon. Members on things like the “failure to prevent” offence and the identification doctrine, which both now feature in the Bill. All the cases I dealt with on the Back Benches, and indeed the information I have seen as a Minister, show that the kind of fraud the law enforcement agencies have not been able to prosecute is happening in larger companies, not smaller companies.

We believe that these circumstances are different from unexplained wealth orders, for which we obviously put cost-capping measures in place. Of course, unexplained wealth orders are not a process for taking somebody’s assets from them; they are a process for freezing assets. Lords amendment 161B is entirely different. In my view, there is definitely a civil liberties issue in terms of the power of the state versus the power of the individual. This measure potentially delivers an imbalance of power between the state and the individual. I would be keen to have a conversation with the very learned Members in the Chamber, but they must understand that the state is powerful and well resourced compared with the individual. Obviously there are some individuals who are very well resourced, but we still operate on the presumption of innocence in this country, and we have to be very careful. That is why we want a review to look into this and report back to Parliament within 12 months.

We have communicated with the National Crime Agency to ask for evidence on where it feels these measures are needed. All law enforcement agencies want more power and more provision, of course, but I have seen no clear, significant evidence from the enforcement agencies that cost-capping orders would be needed in this situation.

I, too, have spoken to Bill Browder, and I have spoken to officials about whether this measure is needed in the UK regime. Members will be aware that Mr Browder principally looks at the parallels with the US situation, where adverse costs do not apply across the system. Members have talked about the chilling effect of such provisions, but there is potentially a chilling effect on the other side of the equation.

Yesterday I met a barrister who defends people against such actions, and he was very concerned about the imbalance of power that would result. I have not seen any significant evidence, and I am very interested in the evidence that my hon. Friend the Member for Bromley and Chislehurst gave to the Cambridge crime symposium, at which I have spoken in the past, on whether this is needed. However, I am not aware of anything the Justice Committee or the Law Commission has done in this area. It is important that we look at that kind of evidence before we implement these kinds of measures.

Dame Margaret Hodge accuses me of being party political. I am surprised she takes that view. I have worked on a cross-party basis from the Back Benches and, as she knows, I do the same from the Front Bench, and I will continue to do so to make sure that we get this legislation right.

In conclusion, throughout the passage of the Bill, the Government have worked hard to get the balance right between tackling economic crime and ensuring that the UK remains a place where law-abiding businesses can flourish without unnecessary burdens. The motions tabled by the Government today achieve that balanced and proportionate approach, and I therefore urge Members on both sides of the House to support them.

Lords amendments 23B and 23C agreed to.