Amendment 2

National Insurance Contributions Bill - Report – in the House of Lords at 4:04 pm on 7 February 2022.

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Baroness Kramer:

Moved by Baroness Kramer

2: Clause 2, page 2, line 26, at end insert—“(e) the freeport governance body of any freeport tax site in which the employer has business premises maintains a record of all the businesses operating, or applying to operate within the tax site and this record—(i) contains information, which the freeport governance body must make reasonable efforts to verify, about the beneficial owner of the business; and(ii) is easily accessible to relevant enforcement agencies and to the general public.”Member’s explanatory statementThis amendment adds an additional condition whereby the relief would only be available if the freeport maintained a public record of the beneficial ownership of businesses operating on the site.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat Lords Spokesperson (Treasury and Economy)

My Lords, I am afraid that I carry responsibility for Amendments 2 and 3. I will start with Amendment 3, because it is one that I will not move today. It would provide for a review of the effectiveness of the NIC exemption for employers in freeports. Is it delivering additional jobs and economic growth, rather than displacing jobs and growth from other areas? How much is it costing in lost NIC payments at a time when we are requiring the lowest-paid workers to pay higher NI contributions? Are the big companies benefiting rather than SMEs? Those are the issues that we hope a review would look at and report back to this House. I will not repeat the evidence that suggests that freeports deliver few new jobs, mostly of low quality, but I am putting the Government on notice that we will look at these issues and demand evidence from them as the policy on freeports is implemented.

Amendment 2 addresses a problem that, sadly, could not be more topical. Russia’s gathering of troops on the Ukraine border has put on the front pages of newspapers the concern that kleptocrats and oligarchs use the UK as their money laundering centre of choice—the London laundromat, which allows autocrats, among others, to shrug off economic sanctions. I and others talked about the evidence for this in some detail last week in Grand Committee, so I will not rehearse all the facts and figures. I will just say that the Government themselves estimate that £100 billion of new corrupt money flows into the UK each year.

Freeports are notorious for attracting crime, because the customs and tax declarations that usually underpin transparency are absent. Our freeports will provide the added lure of tax-free processing to enhance the money laundering process. The Government insist that the freeport governing bodies will have to keep registers of beneficial ownership of operations and make reasonable attempts to verify their accuracy. That is their attempt to try to contain and limit this form of crime. But, importantly, they are refusing so far to make those registers public. Frankly, this is almost mind-blowing, since every Conservative Chancellor since George Osborne has stressed that registers must be public to be effective. We regularly lecture every country around the world on this issue, including the overseas territories and the Crown dependencies.

Civil society groups and activists across the globe can examine records and registers when they are public, and can alert the enforcement and regulatory agencies. I think we all acknowledge that those enforcement and regulatory agencies have far too few staff and resources to do the work alone without the information flow from civil society and activist groups. I could send your Lordships to many sources that describe the shortage of resources in enforcement, but I will simply quote the National Crime Agency’s inspection by Her Majesty’s Inspectorate of Constabulary in July 2021—only seven months ago. It says very clearly:

“There is insufficient capacity in the investigations command to meet the demand”.

We cannot rely solely on enforcement to keep freeports clean.

Amendment 2 would require that registers of beneficial ownership are not only held, verified and available to enforcement agencies but made public. This is not a time to step backwards in the work we do to try to bring an end to money laundering. If the Minister cannot accept this—it is beyond me why not—I will seek to divide the House.

Photo of Lord Tunnicliffe Lord Tunnicliffe Opposition Deputy Chief Whip (Lords), Shadow Spokesperson (Defence), Shadow Spokesperson (Treasury), Shadow Minister (Transport) 4:15, 7 February 2022

My Lords, we welcome the tabling of these amendments by the noble Baroness, Lady Kramer. It is fair to say that there is huge scepticism around the Government’s freeports policy. This was reflected at Second Reading. There is no need to go over these arguments again. Sites are coming on stream and time will tell whether the many promised benefits are realised. I was very pleased to sign Amendment 2, and I hope the Minister will respond positively in his remarks.

The topic has taken on additional significance in recent weeks but these concerns are by no means new. Promises of increased transparency have been made year after year. Some limited reforms have come but the level of ambition has been low. We are all aware of the risks involved in freeports. If the Government are serious about mitigating these risks and moving towards a public register of beneficial ownership in a wider sense, why not start here? It feels like an easy win. If the Minister is unable to give the noble Baroness, Lady Kramer, the assurances she seeks, we will join her in any Division she calls.

We are also supportive in principle of the review clause, which would enable us to see the practical impacts of freeport tax relief. Freeports are a leap of faith. The Government hope that they will bring both local and national benefits, but we cannot be sure on either front. The Government will no doubt be keeping all these things under review—to do otherwise would be inconceivable—but can the Minister assure us today that we will get to see the data? I am sure that he will want to shout from the rooftops if their predictions on job and wealth creation are correct, but what if they are not? Sadly, we cannot always expect transparency and honesty from this Administration. If the Prime Minister is serious about turning over a new leaf, perhaps we can start here.

Photo of Viscount Younger of Leckie Viscount Younger of Leckie Lord in Waiting (HM Household) (Whip)

My Lords, I start by directly addressing Amendment 2, which seeks to create an additional condition whereby freeports relief would be available only where the freeport maintained a public record of the beneficial ownership of the businesses operating on the freeport site. I thank the noble Baroness, Lady Kramer, for raising this important issue. Before I go any further, I would like to broaden the debate, as the House will be aware of the considerable interest that continues to be shown in related matters—as the noble Baroness touched on—taking account of the register of overseas entities’ beneficial ownership, economic crime in general, illicit finance and money laundering. Because of this, I hope that the House will forgive me if I give a full and considered response to the noble Baroness and, indeed, the noble Lord, Lord Tunnicliffe.

The Government are taking firm and co-ordinated action to crack down on economic crime and are determined to go further. We will not tolerate criminals profiting from illicit money and will do whatever is necessary to bring these criminals to justice. The Home Office and the Treasury lead the policy response for government. We have well-established governance structures that oversee activity across the system, building on the landmark Economic Crime Plan, which brought the public and private sectors together to tackle economic crime.

The ever-evolving nature of economic crime means that it cannot be combated by law enforcement alone; the capabilities, resources and experience of a wide range of partners from across justice agencies, government departments, regulatory bodies and, of course, the private sector, are required. The Government are bringing forward significant investment to tackle these crimes, including through legislating for the Economic Crime (Anti-Money Laundering) Levy. The upcoming fraud action plan and second Economic Crime Plan this year will further enhance the public and private sector’s response in cracking down on economic crime and fraud.

In recent years we have taken important actions to strengthen our fight against economic crime. Let me give noble Lords some examples. The first was the creation of the new National Economic Crime Centre to co-ordinate the law enforcement response to economic crime. The second was the establishment of the Office for Professional Body Anti-Money Laundering Supervision to improve oversight of anti-money laundering compliance in the legal and accountancy sectors. The third was the Criminal Finances Act 2017, which introduced new powers, including unexplained wealth orders and account freezing orders. Finally, we introduced a global human rights sanctions regime.

The UK is fully committed to coming down firmly on entities which contravene the UK’s robust counter-illicit finance regime, as demonstrated by the actions of our anti-money laundering supervisors. This is apparent in the FCA’s recent success in securing its first criminal prosecution against NatWest bank under the money laundering regulations. NatWest pleaded guilty to three offences of breaching the regulations, resulting in a £268.4 million fine. Similarly, in April 2019 the FCA fined Standard Chartered bank £102.2 million, which was the second largest financial penalty ever imposed by the FCA for anti-money laundering control failings.

The noble Baroness touched on Russia, as I thought she might. The UK has also taken decisive action to tackle Russian illicit finance. We have acted, in unison with our key partners, most notably the European Union and the United States, against Russia directly on issues that have arisen in areas such as anti-corruption. We have introduced the global anti-corruption sanctions regime and have already sanctioned 14 individuals involved with the $230 million tax fraud in Russia, perpetrated by organised crime groups and uncovered by the brave Sergei Magnitsky. The Government are also bringing forward investment to tackle economic crime. The combination of this year’s spending review settlement and private sector contributions through the economic crime levy, as mentioned earlier, will provide funding to tackle economic crime totalling around £400 million over the spending review period.

Let me now return to corporate transparency. The UK is a global leader in beneficial ownership transparency. The Financial Action Task Force’s 2018 assessment recognised this: the UK is one of only five advanced economies to have achieved a pass mark for beneficial ownership transparency. The UK is the only G20 country with a free, fully public and easily accessible beneficial ownership register. The people with significant control register—the so-called PSC—at Companies House has more than 5.6 million names of people with significant control over nearly 4.4 million UK-registered companies. As well as the PSC, the Government intend to implement a register of beneficial owners of overseas entities that own or buy property in the UK. This register will be one of the first of its type in the world and will go further to bring transparency to the UK property market. This, in turn, will make it easier for regulators, legitimate businesses and the general public to know who the true owners of UK property are, and enable law-enforcement agencies to carry out effective investigations.

We are also committed to leading international reform efforts on beneficial ownership. Last year, under the UK’s leadership, all G7 countries committed to strengthening and implementing beneficial ownership registers. This builds on discussions we are driving forward at the Financial Action Task Force to bolster wider international standards on company beneficial ownership. Our actions are helping to ensure there are no weak links in the global financial system. The Government’s proposed reforms to Companies House will further strengthen our position as a world leader in corporate transparency, therefore enabling us to tackle economic crime and protect the UK from hostile actors, thereby enhancing the attractiveness of the UK as a place to invest.

The Companies House reforms will deliver more reliable information on the companies register via verification of the identity of people who manage, control or set up companies; greater powers for Companies House to query and challenge the information submitted to it; and the removal of technological and legal barriers to allowing enhanced cross-checks on corporate data with other public and private sector bodies. To ensure that these changes can be delivered as swiftly as possible, at last year’s spending review the Government committed to an additional £63 million to facilitate Companies House reform. These reforms require primary legislation and, as noble Lords will have heard from the Prime Minister last week, we are committed to bringing this legislation forward. However, in anticipation of any questions on this, I am not in a position, I am afraid, to announce timings or refer to any Queen’s Speech.

I turn now to freeports, which are really the subject of the remarks of both the noble Baroness, Lady Kramer, and the noble Lord, Lord Tunnicliffe. We have gone further: throughout the bidding process and subsequent business case processes, prospective freeports have been required to set out how they will manage the risk of illicit activity, with those plans being scrutinised by officials in the Border Force, HMRC, the National Crime Agency and others.

On beneficial ownership specifically, I start with a reminder that the freeports bidding prospectus stipulated that each freeport must agree a governance structure with the Government. The precise governance structure is tailored to each freeport’s needs but it must be consistent with the requirements set out in the publicly available freeports bidding prospectus.

The Government already require each freeport governance body to undertake reasonable efforts to verify the beneficial owner of businesses operating within the freeport tax site and to make this information available to not only HMRC but law enforcement agencies and other relevant public bodies. This is a condition of freeport status. It is a proportionate approach which means that local area law enforcement can take effective measures to ensure the security and propriety of operations within the freeport.

Specifically on Amendment 2, tabled by the noble Baroness, Lady Kramer, the difference between this and the existing requirement on freeport governance bodies is that the amendment would require the freeport governance body to make its record of beneficial ownership available to the general public as well as to law enforcement. Given the nature of the information, we do not think it would be appropriate for the freeport governance body to release this information publicly. After all, the freeport governance body is a third party. It does not have the locus to release such information about a business to the general public. For example, it would be inappropriate for a port operator, sitting on a freeport governance body, to make public the details of the beneficial owner of a manufacturer operating elsewhere in the freeport. Such a requirement would also duplicate and undermine the people with significant control register at Companies House. The onus is already on the company itself.

The amendment, although well-meaning, is not necessary. The broad requirement is already in place. It would be inappropriate because, as mentioned earlier, it would place a requirement on the freeport governance body to release to the public information about a third party. It would duplicate the wider work that I have set out. I hope that the measures this Government have taken more widely in relation to anti-money laundering, to free ports and to beneficial ownership more broadly, will reassure the House.

I note that the noble Baroness said that she was minded not to move Amendment 3. However, I owe it to her to give an explanation from our side about the amendment that she tabled. Amendment 3 would require the Government to conduct a review into the effectiveness of the policy 18 months from the date at which this Act receives Royal Assent. The Government acknowledge the importance of monitoring reliefs of this nature and of evaluating ambitious programmes such as these freeports. For this reason, the Government have already committed to reviewing the use and effectiveness of this relief before deciding whether to extend it further. This review will look at the data available through HMRC’s systems.

With this brief response, I again thank the noble Baroness and the noble Lord for their contributions. I hope that the noble Baroness will agree to withdraw her amendment.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat Lords Spokesperson (Treasury and Economy) 4:30, 7 February 2022

My Lords, the Minister has not persuaded me. In fact, if anything, most of his speech reinforced my position. We already have a public register of ownership of companies in the UK. We hope that this will be strengthened through verification when we next see this legislation. The Government have committed to a public register of the beneficial ownership of property in the UK. We think that the legislation is sitting somewhere in the department. We hope that it will see the light of day very soon.

Last week, the Minister, the noble Lord, Lord Ahmad, assured us that he had brought the overseas territories to the point at which they were committed to public registers of beneficial ownership by 2023, but here we have a new register which is suddenly not public. We do not need this anomaly or backward step. I do not understand the Government’s resistance. I am afraid that, although I very much respect the Minister, his arguments reinforced my conviction, as I hope that it will have reinforced the conviction of this House, that we need to divide on this issue.

Ayes 195, Noes 179.

Division number 1 National Insurance Contributions Bill - Report — Amendment 2

Aye: 195 Members of the House of Lords

No: 179 Members of the House of Lords

Aye: A-Z by last name

No: A-Z by last name

Amendment 2 agreed.

Amendment 3 not moved.

Clause 6: Zero-rate contributions for armed forces veterans