My Lords, I add my congratulations to the noble Baroness, Lady Harding, on her excellent and, if I may say, charming maiden speech. Seeing the noble Lord, Lord Wakeham, in his seat, perhaps I may just mention—I declare an interest as a director—that Metro Bank has solved the issue to which he referred. You just present your driving licence and that plugs into a system that tells the bank more about you than you know; then you can open an account in 10 minutes—so the ridiculous procedures that other banks have are entirely unnecessary.
I support what the Minister said about entrepreneurship in this country. I have never known more active entrepreneurship, but it is not just happening in London and the south-east—it is all around the country. Young people are being brave and courageous enough to start their own businesses when in my generation we were told we had to go and work for the Civil Service or a large company. The universities are becoming, as they have been in the United States for many years, a cradle of new business, including new technology businesses. The numbers are immensely impressive. Over the past two years some 1 million new companies have been formed. Not all of them are necessarily actively trading, but something immensely exhilarating is happening in this country now.
I declare my interests as in the register. There are a lot of good things and good intent in this Bill, and things that could be added, as the noble Lord, Lord Hunt, and others have said. I very much hope that they will achieve their objectives as they become law.
However, I want to speak about something that is unsatisfactory in the Bill and could be quite damaging. It is covered in Parts 7 and 8 and in Schedule 3, on public company registers. The requirement, as noble Lords will be aware, is that for shareholders holding 25% or more or having some form of control over the company, ownership has to be kept in a register and that register must be made public, recording what are called the PSCs. This is really a Treasury anti-money-laundering issue, and it sits ill in this Bill, which is about positive things, particularly for SMEs. Everyone is in agreement about what is needed in this area. Beneficial ownership should be available to the tax authorities, the police and the security authorities on any sort of investigation to do with crime, terrorism or tax evasion, and companies should also know who their shareholders are. My main objection to what is in the Bill is to the public aspect. It adds nothing to the objectives and, among other things, it casually breaches 200 years of company law in terms of this embodying and including private companies, which are thrown out of the window with no evidence that a public register will achieve anything. The Government have offered very little and perhaps no justification or consultation in thus destroying the right to privacy.
The requirements of the G8 and the G20 are that companies should know who owns them, not competitors, spammers or media folk looking for a good story, or others looking to misuse such information. In arriving at where we are, I criticise in particular the impact assessment project. It is unclear whether other options were proposed or considered other than that in the Bill, and I think that it amounted to a stitch-up. It does not properly assess the potential cost to individuals. One of my colleagues in the other place said that it was the worst impact assessment that he has ever read.
As for considering other possible options, the Crown territories have for a long time had a system where all beneficial ownership is recorded and made available to the authorities. That has worked extremely satisfactorily. The United States similarly has its own system. No case has been made as to why the register needs to be public or what is added by being public. Indeed, the impact assessment itself found that the public register’s addition of value would be precisely zero and that only 10% of respondents indicated that the proposed reforms would ensure that they knew with whom they were dealing.
The big hole in the proposals is that they cover only UK companies—non-UK companies are exempt. That aspect means that it is completely avoidable. We will see a migration of the ownership of investment in the UK from UK companies to UK branches of foreign companies. It is also potentially damaging to our interests in discouraging investment. Sovereign wealth funds, investors from the Gulf, Islamic and Chinese investors like to be discreet, and for them a public declaration of their ownership is often anathema from a business and cultural perspective. It is also costly to individuals and small businesses. Some 2.4 million companies will be affected and the estimated costs so far are £1.1 billion, but that is without any potential allowance for a proper verification system.
Interestingly, public registers are also not required by the FATF guidelines, although the FATF guidelines do require proper verification procedures. So rather ironically, given that the reason for these proposals is that they are to comply with the FATF, which will add a lot of regulatory hassle for people, the Bill will not comply with the FATF unless there is proper verification.
The Minister rightly applauded growing UK entrepreneurship and the growing number of small businesses in the UK. I believe that she mentioned a total of 5 million. Part of that growth is due to the UK’s policy of making it extremely easy to use UK companies—much easier than it is to use companies in most other western economies. I think the Minister said that she wanted to see incorporation made even easier. However, the proposals in the Bill add hassle, regulation and costs when using UK companies. I am particularly concerned about the position of entrepreneurs. They typically own at least 25% of their companies. Most of their businesses are small. They will probably not know that they are supposed to keep a public register and to make information on their ownership available, partly because it will often be recorded at Companies House anyway, but they will commit a criminal breach by not so doing. If they do follow this procedure, it will add another regulatory cost. It is a further hassle for the innocent law-abiding while the guilty can very easily avoid the requirements. I think that it is substantially the NGOs which have called for public registers. It is somewhat ironic that there are no comparable requirements for public registers detailing who controls NGOs and what other organisations have an interest in them. Indeed, in one or two cases, NGOs have been shown to have had exposure to terrorist funding.
I do not believe that what is proposed in the Bill is what the Prime Minister intended in his G8 pledge. The City division of the Law Society has objected to public registers and the British Venture Capital Association has objected to their impact on the small venture companies it represents. Surely what is needed in this territory—here the right reverend Prelate the Bishop of Peterborough and I agree—is international legislation. I urge the Government to consider delaying this legislation in order to promote a common model across the western world. As I have said, if this goes ahead, we will have something which is not effective in achieving its objectives. The sensible approach that has been followed in other jurisdictions is to require beneficial ownership registers to be kept and for these to be instantly accessible to the police, the tax authorities and the security authorities but for the registers not to be public. I am disappointed to be critical but I think that we have a dog’s dinner in this part which will not achieve its objective and will simply add regulatory cost and hassle for many innocent people.