Second Reading

Part of Small Business, Enterprise and Employment Bill – in the House of Lords at 7:10 pm on 2nd December 2014.

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Photo of Lord Watson of Invergowrie Lord Watson of Invergowrie Labour 7:10 pm, 2nd December 2014

My Lords, I wish to speak in particular to Parts 7 and 8 and Schedule 3 to the Bill, an area that has already been covered by noble Lords. I hope that I can find something different to say. I want to start with a quote:

“Companies should know who really owns them, and tax collectors and law enforcers should be able to obtain this information easily, for example—through central registries—so people can’t avoid taxes by using complicated and fake structures”.

Those were the words of the Prime Minister who, as host, made corporate ownership transparency central to his theme when he spoke at the 2013 G8 summit in County Fermanagh. I have to say that he has been as good as his word, and it is very much to be welcomed that this Bill includes provision for a,

“register of people with significant control”,

representing as it does a major step forward in preventing people hiding criminal activities behind shell companies. This is something that is strongly supported by the general public, according to a recent ComRes poll for Christian Aid, which revealed that only 9% of the British public believe that company ownership should be allowed to be kept secret. I suggest that it would not be too demanding a task to work out what sort of people might be included in that 9%. Legislating for a PSC register in this way would deliver Commitment 7 of the UK’s Open Government Partnership National Action Plan 2013-2015. Although it is not something I do very often, I want to congratulate the Government on making the UK the first country to introduce a public register of the beneficial owners of companies.

Businesses play an important role in developing thriving societies across the world, but some companies abuse global corporate structures for their own gain. Secret ownership structures allow wealth to be hidden away, preventing useful investment and driving inequality. The way companies are structured is more often than not at the heart of how such illicit flows are facilitated, either through evading tax, money laundering or outright corruption. The cost to developing countries of this behaviour is quite staggering. It has been estimated that such countries may lose as much as $120 billion to $160 billion annually in tax revenue, a figure greater than the entire global aid budget.

Many companies and individuals dodge taxes by keeping their money in a complex network of trusts and so-called shell firms, whereby companies are hidden inside each other without revealing their true owners. These are often based in secretive tax havens, and it is secretive company ownership that makes most cases of large-scale corruption, criminal money laundering and terrorist financing possible. A World Bank review of 213 big corruption cases from 1980 to 2010 found that more than 70% relied on anonymous shell entities. Company service providers registered in the UK and its Crown dependencies and overseas territories were, to our shame, second on the list in providing these shell entities. I shall give just one example. An anonymous UK company owned the Ukrainian presidential palace of the vilified and ultimately overthrown Viktor Yanukovych.

Unlike the noble Lords, Lord Flight and Lord Leigh, I urge the Government to tighten the actions they have taken in this regard rather than loosen them. I want to see the Government build on the commitments in the Bill and I believe that there are various actions they could take. As has been stated by other noble Lords, the EU, other G8 and G20 countries are yet to introduce public registers, although progress is being made. I would call on the Government, using their own example, to do all they can to persuade others to introduce public registers. Surely it is deplorable, as my noble friend Lord McKenzie said, that despite the pressure exerted on the UK’s Crown dependencies and overseas territories at the 2013 G8 summit and since to introduce such public registers, not one has yet done so. Ministers should do all they can personally to persuade the dependencies to introduce public registers so as to shine some light on to what are often pretty murky waters.

In terms of actions specifically relating to this Bill, it provides that the public register will be updated annually. The Government need to monitor the accuracy of the public register closely and to consider what measures they might employ to ensure that it is updated more often. The Bill does not propose a verification regime for the information in the register and assumes a 100% compliance rate. I believe that the Government should work with Companies House to ensure an adequate verification regime for information that will go into the public register. In another place, the Government said that exemptions to publishing information in the register would be given only in exceptional circumstances. It is essential that they should abide by that commitment, and the broad categories under which exemptions may be granted should be published. There should also be adequate sanctions for those who fail to update the registers properly and, pour encourager les autres, the Government should publish a list of the sanctions available.

Finally in relation to this part of the Bill, businesses must keep their own registers up to date. It is important that members of the public can view them as they will be updated more often than the public register could be. For that reason, new Section 790O(4)(d) on page 162 should be removed because it seeks personal information that may well discourage organisations from publishing information that they have obtained about businesses’ registers. I would ask the Minister to give an assurance that that new section will not be used to prevent reports or investigations being undertaken and published.

I would like to make some brief comments on two other aspects of the Bill. Prior to being a Member of another place and the Scottish Parliament, I was a full-time trade union official and, at a different time, a director of a small company. I know what it is like to wait anxiously for debts to be paid as staff salaries become due. Indeed, when I eventually left the company I was owed thousands of pounds because, like the other directors, we had forgone part of our salary simply to ensure that the staff could be paid. That was not because we were unable to find business, but because we were unable to force those businesses to which we had provided our services to pay what was due. My noble friend Lord Sugar drew attention to the fact that one in five insolvencies is the result of a business being unable to secure payment for goods and services that have been provided. That is surely a scandal, and yet the figure is unlikely to improve through the implementation of this Bill.

Clause 3 requires merely that certain companies—I have to say that it is notable that the financial services sector is exempted—must publish information about their payment practices and policies relating to business-to-business contracts. I have to ask the Minister why the Bill does not contain measures that would force late payers to play fair. Perhaps I may make a suggestion, although it is not particularly scientific. Debts of up to £10,000 should be paid within 30 days and debts above that figure within 90 days. If this was enshrined in legislation and the debts were not paid in that time, a 1% increase to the debt could be applied. I suggest that that would make most companies pay within what by any standards are reasonable timeframes. I cannot see what the legal arguments against this suggestion would be, although I am sure that there would indeed be some.

Several speakers have mentioned the fear of small companies not wanting to make a fuss about unpaid debts for fear of losing future business with the larger company. If there were a legal requirement for debts to be paid within a certain period, every business from the smallest to the largest would be in the same position and would suffer no detriment. Without some sanction being applied, I believe that small businesses will continue to go under through non-payment of debt and through no fault of their own. That is not a situation that should be tolerated.

On the other side of the coin, as a trade union official I represented people who wanted security in the form of a regular job with good conditions such as sick pay, maternity pay, holiday pay and pensions. I will concede to the noble Lord, Lord Leigh, that we are no longer in the position of nine to five jobs and 35-hour weeks. I did not know many people who worked a 35-hour week then and I certainly do not know any now, and I accept that. However, that is not to say that the conditions to which I have referred should simply be swept aside. None of the above—sick pay, maternity pay, pensions and so on—is payable to people on zero-hours contracts, and to hear such contracts being defended by so many speakers in this debate, including the Minister, is dispiriting, to put it mildly.

Often we hear Ministers speak, as several noble Lords have done today, about the need to reduce burdens on business. I accept that in many cases that is legitimate. But what thought is given to reducing the burdens on the individuals who work for those businesses—the burden of not knowing when or perhaps even where they will next be working; the burden of receiving no sick pay when they are too ill to present themselves for work; the burden of arranging childcare to enable them to get to work, only to find when they get there that the employer says, “No work today”, and there is no compensation for the costs that they have incurred; the burden of being unable to get a mortgage because they do not have a regular wage or salary; and the burden of being unable to make financial plans with any certainty? Other than removing the exclusivity clause from zero-hours contracts, those with no alternative than to work under them get no solace or support from the Bill.

Please, let us not justify zero-hours contracts by suggesting that the arrangement suits some people. Yes, I am sure it does but it is a small minority of those subject to what is no more than modern-day serfdom. Surely in an advanced, high-tech economy, we can do better than this for our people in the workplace.