All 12 contributions to the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021

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Wed 15th Dec 2021
Royal Assent
Lords Chamber

Royal Assent & Royal Assent & Royal Assent & Royal Assent & Royal Assent & Royal Assent

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

2nd reading
Monday 28th June 2021

(2 years, 9 months ago)

Commons Chamber
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Second Reading
18:02
Rosie Winterton Portrait Madam Deputy Speaker (Dame Rosie Winterton)
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The reasoned amendment in the name of the Liberal Democrats has been selected.

Luke Hall Portrait The Minister for Regional Growth and Local Government (Luke Hall)
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I beg to move, That the Bill be read a Second time.

The Bill contains two halves: first, a measure that changes the valuation assumptions that are applied when making business rate determinations in the light of covid-19; and secondly, a measure that will provide for the disqualification of unfit directors of dissolved companies. I will start with the first measure before moving on to the second.

The pandemic has presented significant challenges for businesses in all sectors. Our response has been of a similarly unprecedented scale, with more than £280 billion provided throughout the pandemic to protect millions of jobs and businesses. In this year’s Budget, the Chancellor announced an extra £65 billion of support for 2020-21 and 2021-22. The support we have provided for businesses included 100% business rate relief for all eligible retail, hospitality, leisure and military properties for 2020-21, at a cost of £10 billion. Combined with those eligible for small business rate relief, this means that more than half of ratepayers in England will have paid no rates in 2020-21.

At this year’s Budget, we confirmed a further three-month extension to the full 100% business rate relief for retail, hospitality and leisure businesses, followed by a further nine-month period of relief at 66% subject to the cash cap, at a further cost of £6 billion. That takes the total level of support provided to businesses by Government through relief from business rates since the start of the pandemic to over £16 billion.

That is an important context for the Bill, because as well as helping businesses through the pandemic, it is also important that we support local government with the critical role it has in supporting our communities. A vital part of that is the income that it receives from business rates, so while it is necessary to provide rates relief to businesses, it is important that we do so in a way that is targeted and that ensures that those who can still contribute continue to pay this tax.

With that in mind, clause 1 is concerned with how rateable values should be assessed during the pandemic. A business rates bill is calculated by multiplying the rateable value of the property by the multiplier, or the tax rate, and then applying the reliefs. The rateable value of a property is therefore, broadly speaking, its annual rental value at a set valuation date, which in the current rating list is 1 April 2015. All rateable values should therefore reflect annual rental values at 1 April 2015. This provides a consistent tax base for all businesses.

Of course, it is necessary to update the tax base, which is done at regular revaluations undertaken by the Valuation Office Agency. The next revaluation was originally scheduled for 1 April 2021, based on values at 1 April 2019, but last year we took the step of postponing it to 1 April 2023 to ensure that it better reflected the impact of the pandemic; Parliament approved that change by passing the Non-Domestic Rating (Lists) Act 2021. The Act received cross-party support, for which we were extremely grateful.

Outside those general revaluations, a ratepayer can still submit a challenge to the VOA on their property’s rateable value between revaluations for a number of reasons, such as to correct factual errors or reflect a material change in circumstances. If not satisfied with the outcome of the challenge, the ratepayer can appeal the VOA’s decision to the valuation tribunal. It has been an established principle of the business rates system that a material change in circumstances challenge can be made on the basis of a physical change to a property or its locality. For example, a successful MCC challenge could be made following the partial demolition of a property, or significant roadworks near a property that might affect its value.

However, following the pandemic, the VOA received high numbers of MCC challenges seeking a reduction in rateable value to reflect the impact of the pandemic. Of course, the MCC legislation, as first set out in the Local Government Finance Act 1988, was not designed with covid-19 in mind, and the MCC system has never been used in response to economy-wide impacts or shocks. It has therefore become necessary to clarify, as clause 1 does, the treatment of covid-19 in assessing rateable values.

We have been clear that relying on the MCC system to help businesses that need further support in the light of the pandemic is not the right mechanism. It would mean significant taxpayer support going to businesses with properties such as offices, many of which might be able to operate normally throughout the pandemic, at a time when we have provided significant support to those most affected.

For example, the workforce of a consultancy firm based in central London that was previously entirely office-based is likely to have been working largely from home since the start of the pandemic, but the business itself may have continued to operate throughout. Under the business rates appeal regime, it could have argued that its office space had undergone a material change of circumstances due to the reduced occupancy.

If that business’s appeal had been successful, it would have been awarded a business rates reduction, but it would not have been right for it to have a reduced tax liability on that basis, given that it had not actually suffered an economic impact. Relying on the MCC system to support businesses would also mean resolving disputes through the courts, which could take years and create additional uncertainty both for businesses and for local government, which relies on income from business rates to deliver vital local services.

The Bill will therefore ensure that the coronavirus and the restrictions put in place in response to it cannot be used as the basis for a successful MCC challenge or appeal. It will ensure that changes to the physical state of a property can continue to be reflected in rateable values as and when they occur, irrespective of whether they are a result of the coronavirus, but that the general impact of the pandemic on the property market will not be reflected until the next revaluation in 2023. Until then, all rateable values will continue to be based on the property market as at 1 April 2015. This approach is supported by the Public Accounts Committee, which has welcomed the financial certainty that such a measure gives to councils.

Clause 1 applies in England. Business rates policy is fully devolved, so whether the same legislation is necessary in Wales, Scotland or Northern Ireland is a matter for their respective Governments, but we have been working closely with the devolved Administrations regarding the Bill. Although the law in Wales is similar to that in England, different legislation applies in Scotland and Northern Ireland. Of course, the impact of the coronavirus may have been different, so whether the devolved Administrations choose to follow the measures set out in clause 1 will depend on the individual circumstances and choices made in those countries.

We have also supported businesses. We have put £16 billion of support into business rates for the pandemic, and we have announced a relief worth an additional £1.5 billion for ratepayers impacted by the pandemic who have not been able to access business rate reliefs. These new reliefs will be administered by local authorities and will be distributed according to which sectors have suffered the most economically, rather than on the basis of temporary falls in property value. This will ensure that support is provided to businesses in England in the fastest and fairest way possible, and we will continue to work with and support councils and local government to enable ratepayers to apply for the new reliefs as soon as possible.

The second part of the Bill deals with the abuse of the process whereby companies are removed from the register and dissolved. The large majority of company directors are responsible, passionate about their businesses and diligent. They act as effective stewards of the companies to which they are appointed, and I pay tribute to the directors who make such a valuable contribution to our economy and who have fought so hard over the past year to ensure their company’s survival, preserving the jobs and livelihoods of so many within their business and beyond.

Unfortunately there are exceptions, and the business community and the wider public must be protected from those individuals who abuse the privilege of limited liability. Those directors who act recklessly, irresponsibly or even criminally should expect to have to answer for their conduct. That means expecting to have their conduct investigated and, if they had done wrong, facing the possibility of being disqualified from acting as a company director for up to 15 years, depending on the severity of their misconduct. Disqualification protects the public from the actions of those who have demonstrated they are unfit to hold the position of a director of a company, and acts as a deterrent to reckless or culpable behaviour.

Evidence to support disqualification action comes from the investigation of companies and the conduct of their directors. The Secretary of State for Business, Energy and Industrial Strategy may investigate live companies through the powers contained in the Companies Act 1985, and also the conduct of the directors of insolvent companies through similar powers in the Insolvency Act 1986 and the Company Directors Disqualification Act 1986. If such investigations reveal evidence that a director’s conduct has fallen below the standards expected of someone in their position, a period of disqualification can be sought, either through a court application or through an under- taking given by the person to the Secretary of State. A period of disqualification protects the business community and the wider public by preventing the person from acting in the promotion, formation or management of a limited company. Breach of a disqualification order is a criminal offence, and an extremely serious matter.

As things stand, though, there is a loophole in the disqualification regime that some irresponsible directors have been able to exploit. It concerns the situation where a company has been dissolved without entering insolvency proceedings. Dissolution should not be used as an alternative to insolvency proceedings, but there is evidence that some directors have been using the process both as a way of fraudulently dodging the payment of company debts and of avoiding insolvency proceedings and the scrutiny of their behaviour that comes with that.

Kevin Hollinrake Portrait Kevin Hollinrake (Thirsk and Malton) (Con)
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I support the measures that my hon. Friend is taking in the Bill. He mentioned fraud. I take it that the measures he is talking about would not negate the potential for prosecution of fraud where it was demonstrated that a company director had defrauded the taxpayer by means, for example, of a bounce back loan.

Luke Hall Portrait Luke Hall
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I thank my hon. Friend for that point. He is an expert on these matters in this House, and I look forward to working with him as we deliver the Bill.

When a company is dissolved, the only way the conduct of its former directors can be scrutinised is if it is restored to the register, which is a costly process involving court proceedings. The Insolvency Service regularly receives complaints about the conduct of directors when a company has been dissolved, and many such complaints relate to the use of dissolution to dump the debts of one company, only for a new company to start up in the same business, often with the same directors and the same employees, and often even working out of the same premises. The debts dumped in this way are often large tax debts, awards made by employment tribunals or sometimes even debts owed directly to consumers.

The provisions in this Bill will close the loophole and allow the Secretary of State for Business, Energy and Industrial Strategy to investigate the conduct of former directors of dissolved companies and, where public interest criteria are met, to take action to have them disqualified from acting as a company director.

We consulted on this measure back in 2018 and it received a warm welcome from stakeholders. It has now become extremely important that we get it on to the statute book, so that it can support the business community and the wider economy in recovering from the impact of the pandemic.

This new power to investigate and seek disqualification of former directors of dissolved companies forms part of a package of counter-fraud measures seeking to target any fraudulent behaviour relating to bounce back loan schemes through the abuse of the dissolution process and to ensure the responsible use of public funds. Retrospective provisions in the Bill will mean that, when the new provision becomes law, conduct that is happening right now will become subject to investigation and could be used to support future disqualification proceedings even if the company is dissolved.

The Bill fulfils the Government’s commitment to introducing two important measures: it will make changes to the business rate appeals system and provide for the tackling of abuses associated with the process whereby companies are removed from the register and dissolved. These are two distinct areas of policy, but our approach is consistent. We will ensure the continued operation of a coherent framework, deliver certainty, support businesses to thrive, and allow councils to plan for their finances with confidence and continue to deliver the first-class services on which our communities rely. I commend the Bill to the House.

18:15
Jeff Smith Portrait Jeff Smith (Manchester, Withington) (Lab)
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It is a pleasure to respond on behalf of the Opposition to the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill. It is a short Bill but one that will have important consequences for many businesses and individuals.

The Opposition recognise the rationale behind the Bill and we do not intend to divide the House on Second Reading, but there are elements of the proposals where the Government need to be clearer about how some of the measures will work in practice and to spell out how all businesses will be supported. Businesses and local authorities have already faced massive uncertainty this year and they should not face more. I welcome the chance to discuss the Bill to ensure that we get the detail right. We will seek further clarification and information and consider tabling amendments as the Bill makes progress.

Clause 1, as we have heard, legislates to ensure that coronavirus cannot be taken as a cause of material change of circumstance for business rates valuations, and therefore prevents rateable values for businesses being altered to take into account the impact of coronavirus. We recognise that the most effective way to provide help for businesses hit by the pandemic is not via the process of application for a material change of circumstances, and that MCCs, in the context of what we hope and trust is a temporary change in circumstances, are not the correct mechanism for determining valuations.

We also acknowledge that the demand of large numbers of appeals could put strain on the system and that the most effective use of the VOA’s time and resource is the upcoming revaluation of business rates. Indeed, as the Minister said, we supported the delay in the next business rate revaluation last year, so that it did not take place in the middle of the pandemic. It is now important that the VOA is able to effectively carry out the revaluation in 2023, so I accept the logic for these measures. It is important that, where businesses have experienced what would normally qualify as an MCC, for example, a physical change of the property or the locality, not related to coronavirus, the property owner will be able to appeal against the 27-list valuation on that basis. I would be grateful if the Minister, in responding, clarified for the record and for the assurances of businesses watching that a material change of circumstance application not related to coronavirus will still be allowed and that this is not a blanket ban on MCC claims.

We welcome in principle the announcement of additional relief to businesses that have not so far benefited from any rate relief. That is a positive step towards supporting businesses, particularly in the supply chain of the retail, hospitality and leisure sectors—businesses that have seen an economic impact but have not received relief so far.

We welcome the relief, but it is unclear how the £1.5 billion figure was calculated and we have real concerns over whether it will be enough to support all those businesses that desperately need it. We are particularly concerned that the figure may not be enough to compensate one sector that has been particularly hard hit, the aviation sector, and large airports. I know that the airports, some of which have submitted applications for MCCs, are concerned that £1.5 billion is nowhere near enough to fairly reflect the impact of the pandemic and to protect jobs and livelihoods across the worst-affected sectors. The aviation sector is united in agreement that the lack of business rates relief adds to the failings of Government to provide meaningful support to the aviation industry throughout this pandemic. If £1.5 billion is demonstrated to be insufficient, can the Minister assure the House that the Government will come forward with further funding when necessary? Will the Government give consideration to a further package of support for airports impacted by coronavirus? Has the Minister undertaken an assessment of the impact that the Bill may have on the operation of national infrastructure such as airports? Was any consideration given to exempting them from the provisions?

We acknowledge that this funding mechanism has the potential to get help to businesses more quickly than via the process of application for MCC, but the Government need to get the funding out to local authorities and businesses as quickly as possible. That is why it is a matter of real concern that the Government have so far failed to give details of how the £1.5 billion will be allocated and spent.

The original announcement of the funding came on 25 March. Three months later, there is no indication of the methodology. In answer to a parliamentary question on 18 May, the Minister said that the guidance on the distribution of the fund will be finalised once the Bill has passed through Parliament. That means it is likely that allocations of the fund will not be made until after the summer recess. That means businesses will not receive payments until September at the earliest, and that is not good enough for businesses and local authorities. Many businesses do not know whether they will qualify for the fund, given that the criteria have yet to be published. There is a genuine risk that some businesses may not survive long enough to benefit if there is not some assurance of support before the autumn.

The delay also puts local authorities in a difficult position. The Government expect them to set up local initiatives to deliver grants, but have not given them details about their individual allocations or national guidance on administering the scheme. I therefore strongly urge the Government to provide businesses and local authorities with the clarity they need by publishing an early release of the indicative funding allocations and the eligibility criteria. It will be important that this funding is kept under review to ensure it is enough to meet demand. Will any new burdens due to administrative or other costs be covered by the Government? Businesses have been through so much uncertainty in the last 18 months, it is unacceptable if the Government are going to add more confusion and delay.

We welcome that the Bill gives local councils the assurance that their income from business rates will remain reasonably stable and predictable for the immediate future. With business rates currently forming such a substantial part of local authority income, a major change could have hit local government finances hard after an exceptionally challenging period with inadequate support from central Government.

From April this year to March 2023, the VOA is conducting the next business rates valuation. We appreciate that managing a large number of MCC appeals at the same time could lead to a need for extra resources for the VOA, but we think there is already a need for extra resources for the VOA. Revaluations of business rates are slow and infrequent, and a wide coalition of business organisations has called for more frequent revaluations for a closer and more accurate link between the actual rate and the state of the economy and businesses’ ability to pay. We understand the need for the next revaluation to be moved to 2023. The VOA should be given the resources it needs to carry out more frequent evaluations.

Clauses 2 and 3 make provision relating to investigation and disqualification of directors of dissolved companies. The Opposition are pleased to see the closing of a legal loophole that for too long has allowed unscrupulous or unfit company directors to evade responsibility. It is right that the Government should have the power to investigate and disqualify directors of dissolved companies. In particular, we know that between January and March this year there were over 170,000 company dissolutions in the UK, a 25% increase compared with the same period in 2020.

That raises the suspicion that dishonest individuals may have tried to exploit this loophole to avoid repaying bounce back loans. The current way to pursue fraudulent activity in relation to dissolved companies—applying to the court to restore the company—is a lengthy and costly process. We agree that it is in the public interest to remove that barrier and deliver more accountability on unfit company directors. I do, however, have a couple of questions for the Minister on the detail.

First, how will additional investigations brought about by the change be funded? Under the Bill, the Insolvency Service can apply to a court to disqualify a director only if the director’s company has been dissolved for less than three years, so it is really important that the Insolvency Service is given the resources to carry out investigations effectively and quickly. The Government need to ensure that a lack of resources does not lead to investigations into directors of dissolved companies coming at the expense of investigations into directors of insolvent ones. Put simply, if the Insolvency Service is not adequately funded, the aims of the Bill will not be met and unfit directors could continue to get away with fraudulent actions.

Secondly, if a director is to be found culpable, how exactly will the Government go about facilitating the repayment they may owe? The disqualification regime in itself does not provide measures for repayment, so can the Minister give any more detail about how the compensation orders will work? In what circumstances might the Government aim to restore the company and begin an insolvency procedure? These are questions that need to be cleared up for the Insolvency Service, the courts and creditors to have clarity over how the Bill will work in practice.

In summary, Labour accepts the overarching measures in the Bill, but we are concerned by some of the lack of detail within. The good intentions of the Bill will not be delivered without proper funding for all the sectors affected. While those issues go unaddressed, we will continue to express those concerns as the Bill makes progress. Uncertainty is not good for businesses. They deserve clarity. The lack of detail on funding is a concern, and measures to hold directors to account will not be successful unless the Insolvency Service is fully funded. I look forward to the Minister addressing those questions in closing the debate. I have no doubt that businesses and local authorities up and down the country will be hoping he does so, too.

00:01
Kevin Hollinrake Portrait Kevin Hollinrake (Thirsk and Malton) (Con)
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It is a pleasure to be called so early in a debate, Madam Deputy Speaker; I am not used to that happening frequently. I draw the House’s attention to my entry in the Register of Members’ Financial Interests.

I have been involved in business rates as a businessperson for a long time, and I greatly sympathise with businesses that have been hit by coronavirus. We know there is a disproportionate impact on some sectors as compared with others, but I support the Government’s measures here and I will explain why. The Government have put a lot of support in—I think the Minister said it was £16 billion in business rates relief to certain sectors and at least another £10 billion in grants above that. There is £1.5 billion in the Bill for businesses that were not included in those schemes.

The amendment tabled by the hon. Member for Richmond Park (Sarah Olney), who I think will speak next, is flawed. It shows a deep misunderstanding of how the business rates system works. Business rates are not about a business; they are about a property. All business rates are based on a property value. What she is trying to argue is that a business of a different business type, such as a nightclub, should be treated differently in terms of business rates from, for example, a retailer or a bank that might have traded successfully. Asking the Valuation Office Agency to value something on the basis of how a certain business has been hit by coronavirus would turn the business rates system completely upside down, at a time when that would not be particularly helpful.

I understand that more than 300,000 businesses potentially would have taken this route, some of which had not been hit by coronavirus. The amendment would create a huge opportunity—a bonanza—for the legal sector to look at this area and take these things to court. That would ultimately cost the taxpayer a lot of money on many occasions where the businesses concerned had not suffered from coronavirus.

The point is about the material change of circumstance. It is about a permanent change. That is what the measure is there for: a permanent change, as the Minister said, such as a demolition or something that affected all the premises in a locality. This is not about general market conditions. Hopefully, coronavirus will be a temporary thing and the restrictions caused by it will in two or three weeks’ time be long gone. For that reason, I do not support the hon. Lady’s amendment, and I support the Government’s action in terms of a material change of circumstance and restricting the right to take an appeal forward.

Clause 2 concerns former directors of dissolved companies. I absolutely support closing that loophole, too. As the Minister said, often, one sees business owners who will use subterfuge to avoid, for example, the repayment of bounce back loans or the payment of suppliers. That is inappropriate. If there is a direct route to that through going straight to being a dissolved entity, it is absolutely right that we close that loophole.

I listened to the shadow Minister, the hon. Member for Manchester, Withington (Jeff Smith), and he made some very good points about resources for the Insolvency Service. I have worked with it quite a lot on various matters while I have been in this House and it is not the most proactive organisation around. It may be a lack of resources, but certainly there is no point having the regulations if we do not regulate such businesses, and we have to make sure that, if these measures are introduced, the Insolvency Services does hunt down the people who try to avoid their debts, including fraudulently. As I said in my intervention on the Minister, if these debts have been avoided fraudulently, those people should be prosecuted for fraud. As I said in my intervention on the Minister, if these debts have been avoided fraudulently, those people should be prosecuted for fraud. That is another area where we lack resources. The UK has a very poor record on hunting down fraud and financial crime. That is an area where we need to beef up our resources, which would have a huge payback, of course. Consider the relative amounts charged in financial sanctions in the US versus the UK: even accounting for the size of its economy, five to six times more money comes back into the US Treasury through its prosecution of fraud. There would be a big payback for our Treasury if we beefed up resources.

Let me touch briefly on one issue with the Insolvency Service that is not directly related to the Bill but reflects on certain points made by the shadow Minister. I have been trying to get the Insolvency Service to take action against a rogue set of business rates consultants called RVA, who go into unsuspecting small businesses that do not understand that small business rate relief, for example, is freely available; they just need to contact the council and it becomes applicable to their premises and business. They do not understand that, and RVA signs them up to a contract that basically takes 50% of the relief for up to 12 years, for writing one letter to the local authority. That is absolutely wrong. We should close that organisation down now. The Insolvency Service has promised to look at it, but not as proactively as it might.

I will make a wider point on the general issue of insolvency. As many people in this place know, I am co-chair of the all-party parliamentary group on fair business banking. For some time we have had real concerns about the insolvency profession generally, and its probably unhealthy links with some of the people it gets its work from, not least the high street banks. We are doing an inquiry into that alongside the legal firm Humphries Kerstetter. We are taking evidence now and will produce a report in early September on those conflicts of interest. We have seen lots of cases, including one quite recently with KPMG and HIG where both have been fined a significant amount in a draft judgment.

There are some unhealthy alliances here. We need to remove those conflicts of interest and, as the Government have said they will consider doing at some point, move towards an independent, ombudsman-style regulator for the insolvency profession. That does not exist now; it is pretty much self-regulation, which has been proven time and again not to work. I know that is not particularly a matter for today, but this was a good opportunity to get it on the record.

18:32
Peter Grant Portrait Peter Grant (Glenrothes) (SNP)
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I am pleased to contribute to this debate. I will confine my remarks to clauses 2 and 3, which are the ones that apply in the whole of the UK. The Minister pointed out that clause 1 does not apply directly to Scotland.

The SNP welcomes the provisions to close the loopholes that have been identified, although they do not go nearly far enough. I am a bit concerned that this is the second or third time recently that a Bill has been brought forward to tighten up on director and company misconduct and company fraud, but it is framed so narrowly that it is almost impossible to amend it to widen its scope or improve it further. Although we will not oppose Second Reading tonight, I hope that we are not too far away from a more comprehensive review of companies legislation with a wider scope so that Members with particular changes they want to see are able to put them forward to be debated by the House.

In effect, the proposals make a slight change to the way in which the directors of a company are allowed to be completely separate from the company itself when things go wrong. The concept of creating a separate legal entity when a limited company is formed is perfectly sound. There were valid reasons for introducing it 150 or 200 years ago, when companies legislation was in its infancy. Many of those reasons are valid today, and we should retain the protection for directors, senior managers and, indeed, shareholders of companies that go to the wall through no fault of their own, through bad luck or misjudgment. But the reasons for protecting company directors do not extend to making it harder to deal with con men, and the occasional con woman, who set out to become millionaires at the cost of other people’s pensions, savings and hard-earned cash.

When there are reasonable grounds to believe that the directors of a company have been guilty of serious misconduct—including criminal misconduct, in some cases—we cannot allow them to delay, reduce or in any way frustrate the result of punitive action just by dissolving the company. That would be like saying that somebody who faces charges under the Road Traffic Acts can get away with it just by scrapping the car. It is not the vehicle that is at fault but the people who were driving the vehicle at the time.

The Government have rightly pointed out that some of the abuses in respect of which they want to tighten up are those carried out by what are called phoenix companies: the directors shut down one company and in essence resurrect the same company, but because they give it a different name, rank and serial number it is legally a different company and all the sins of the previous company are forgotten about.

Directors do not even need to close down the guilty company first: the same abuses can equally well be perpetrated by running two or three—or, in a case I will come to in a moment, 23—parallel companies with exactly the same couple of shareholders and exactly the same couple of directors, and very often no other employees at all. Through a process that is sometimes lengthy, sometimes short, they dump all the liabilities and debts on to one company and shut that one down, while the assets and benefits are hidden away in a separate company, to be shared only by the directors. In those circumstances, surely it is right that the Insolvency Service and other regulators have the unrestricted right to pursue the individual directors, regardless of which company name they hide behind at the time.

It has to be said that if the Government are serious about imposing improved standards of integrity in the City of London, it is unfortunate that they have chosen to present the Bill on the day when one of their own Ministers told the BBC that the standard of integrity in Government conduct by which they want to be judged is what they can get away with electorally. There is a double standard there that is perhaps not directly relevant to this debate, but the Government cannot afford to ignore it.

Let me mention one example of what can go wrong when directors appear to run a company for their own benefit and not for the benefit of those whose money they are supposed to look after. The Nunn McCreesh limited liability partnership was incorporated in August 2012 and dissolved by voluntary strike-off in October 2015. It had only three officers: Phillip Nunn, Patrick McCreesh and a company that they jointly owned called It’s Your Pension Ltd, incorporated in 2013 and dissolved by voluntary strike-off in 2016.

Coincidentally, at the same time that Mr Nunn and Mr McCreesh took the decision to dissolve the limited liability partnership, the Insolvency Service was finding that the LLP had been paid nearly £900,000 for identifying investors for Capita Oak—a name with which Members will be familiar as it was a pension fund that collapsed, taking £120 million of other people’s pensions with it. Capita Oak remains under investigation by the Serious Fraud Office; we do not know whether the part played in the Capita Oak story by Nunn McCreesh and numerous other companies is part of that investigation.

Mr Nunn and Mr McCreesh moved on quickly from their dissolved LLP and set up a whole web of companies —23 at the last count—under the Blackmore brand. Between 2016 and 2019, one of these companies, Blackmore Bond plc, raised £46 million by selling high-risk mini bonds to investors that they knew were completely unsuitable for that type of investment. Blackmore Bond plc went into administration in 2020 and the investors have almost certainly lost all of their £46 million.

Kevin Hollinrake Portrait Kevin Hollinrake
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The hon. Gentleman has raised a very interesting case. I am sure he will be aware that the Financial Conduct Authority was warned on numerous occasions about the activities of Blackmore Bond but apparently did nothing about it until it was far too late.

Peter Grant Portrait Peter Grant
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I do not know whether the hon. Gentleman was reading through the back of my notes, but he is only about five or six lines ahead of what I was going to say.

I do not know whether Mr Nunn and Mr McCreesh were ever placed under formal investigation, or whether they might still be under investigation, for their part in the Capita Oak story—for obvious reasons, that kind of information is not shared—but surely the fact that they were able to dissolve their company should not make any difference to the investigations to which they can be subjected and the sanctions they should face if they are found guilty of misconduct in their management of Nunn McCreesh LLP or, indeed, any of the umpteen other companies they have run.

Perhaps if, as the hon. Member for Thirsk and Malton (Kevin Hollinrake) indicated a moment ago, the various regulators had communicated with each other more effectively, the Financial Conduct Authority would have heard loud alarm bells ringing when in 2017 it was alerted to the highly questionable sales techniques that Blackmore Bond was using; perhaps if the FCA had made the link to the dodgy practices in relation to Capita Oak that were carried out by a different company under the same ownership and direction, it would have moved faster than it appeared to do; and perhaps, at least, the investors who ploughed £26 million into Blackmore Bond after the FCA was warned about it would have had some warning that the Blackmore Group might have been better named the Black Hole Group, because that is exactly what it became for £46 million of other people’s money.

I described that one scandal out of the many I could have described to remind the House that we are not just looking at a theoretical loophole here; we are looking at regulatory weaknesses that have allowed chancers and charlatans to make well over £1 billion of other people’s pensions and life savings disappear, and that is before we start to look at the business-to-business frauds that have forced small businesses into liquidation, often at massive financial cost to the entrepreneurs who have set them up.

The provisions in clauses 2 and 3 address just one of those weaknesses, and much more is needed. We need a complete reform of Companies House so that, for example, details of the beneficial ownership of Scottish limited partnerships and other secretive company structures have to be published. We have known for years that SLPs have been used to launder millions of pounds of dirty money created by illicit business activities, usually related to organised crime. We need to see action soon to put a stop to that. We need to reinstate the principle of the reverse burden of proof on senior bank managers, for example. When something goes wrong on their watch, rather than it being up to the authorities to prove that they were negligent, can we go back to requiring the bank manager to prove that they were doing the right thing? This reverse burden of proof often applies in other cases of professional misconduct or questions about professional conduct. All our regulators, including the Insolvency Service and the Financial Conduct Authority, need to be adequately resourced to keep up with the almost limitless ingenuity of the criminals they are trying to keep tabs on. That is about not just the amount of money they have, but the degree of training and experience that their people have, so that the person asked to take a decision as to whether somebody is fit to be registered with the FCA has the experience to know what kinds of warning signs to look out for.

Finally, we need legislation that allows us not just to disqualify directors who are guilty of wrongdoing; it should allow the authorities to order them to pay compensation to the victims. In some cases, I will support that on the basis of a civil balance of proof, which is on the balance of probabilities, rather than the much higher bar of proof beyond reasonable doubt, which is why so many cases that the Serious Fraud Office takes to court never get as far as a conviction. We welcome the provisions in clauses 2 and 3. If the long title and the scope of this legislation had allowed it, we would have been submitting a significant number of amendments to improve it on Report. I hope the time is not too far away when legislation on the wider issue comes before the House so that directors cannot simply avoid disqualification by scrapping their vehicles.

18:42
Duncan Baker Portrait Duncan Baker (North Norfolk) (Con)
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A snappy title it is not, but a very important Bill it is, for two very good reasons. I wish to recap by saying that this Government have supported the jobs and livelihoods of the people of this country to the tune of some £400 billion—£300 billion in the past year alone; the last time we exceeded 10% of GDP was in the financial crisis, and before then world war two, and we are still supporting businesses, as we are doing with this Bill. When we are trying to protect the jobs and livelihoods of so many people, there will inevitably be areas of difficulty, yet the Government have always tried to support as many people as possible. The £16 billion-worth of rates relief has been an absolute lifeline for countless businesses, including those that get in touch with me in my constituency and others all around the country. The Government are to be commended for that. Even when businesses are more difficult to support, the discretionary funds for local authorities to be able to target those businesses are also a lifeline, and therefore the £1.5 billon of additional support for businesses whose circumstances have perhaps changed during the pandemic is incredibly important and welcome.

I want to touch on an equally serious matter: we read that potentially 60% of the £46.5 billion that has been lent out through various Government schemes—lent, I might add—might be defaulted on and not repaid. When the Government are the guarantor, I certainly welcome the Treasury taking the necessary steps to mitigate that risk and the retrospective powers to curb that significant problem, putting the parameters in place to deal with directors who might dissolve a company, walk away from their responsibilities and then not just have an effect on many people, such as creditors who are equally trying to get back on their feet, but cheat the taxpayers, who must also get back on their feet. That money is so important for the re-emergence of our economy, and we absolutely have to ensure that our public services can get up again, so any power through legislation, with the legal process in there to mitigate that, is very welcome.

It is worth pointing out that we have to be mindful slightly of not being out of this pandemic, and therefore, in going after directors who default on their responsibilities —I was a director once, and I would never dream of defaulting—we need to be careful to enable businesses to resurge again. We have to make sure that approaches to recoup the money are done in the right way. I am happy that the Exchequer is being protected in this way. I think it is very sensible legislation. We know that when we create something retrospectively it is often because we have moved at speed to protect taxpayers in the first place. This is very welcome legislation, and I back it 100%.

18:46
Sarah Olney Portrait Sarah Olney (Richmond Park) (LD)
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I beg to move an amendment, to leave out from “That” to the end of the Question and add:

“this House, while agreeing that the disqualification regime should be extended to directors of dissolved companies, declines to give a Second Reading to the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill because it retrospectively overrules more than 500,000 business rates appeals made by 170,000 businesses, fails to consult the affected businesses to deliver adequate support, puts business and jobs at risk by delaying the delivery of additional business rates relief, ignores the impact of the pandemic on companies that have been excluded from business rates relief, fails to recognise the impact of the pandemic on jobs and businesses in the supply chain of retail, hospitality and leisure businesses from office-based companies to manufacturing firms, severely limits the only route available to tens of thousands of businesses in claiming Government support during the pandemic, sets a troubling precedent for future crises by retrospectively limiting businesses’ right to challenge their business rates bill, fails to bring forward meaningful reforms of the business rates system and risks leading to more job losses and company closures during an economic crisis.”

I am grateful to the Under-Secretary of State for Business, Energy and Industrial Strategy, the hon. Member for Sutton and Cheam (Paul Scully) for his engagement on the contents of this Bill. The Liberal Democrats are pleased to support the aspects of it that relate to directors’ disqualification. We have seen far too often how individuals and businesses that are owed money can be defrauded by companies being dissolved and the fact that there is a lack of powers to pursue individuals for debts.

The urgency of introducing new legislation to protect against those practices has been sharpened by the large sums loaned to support businesses throughout the pandemic. The Public Accounts Committee, of which I am a member, recently conducted an inquiry into the bounce back loan scheme, and concluded that the combined fraud and credit risk of the scheme was between £15 billion and £26 billion. Although it was right for the Government to take the action they took and continue to take to protect businesses from the impact of the pandemic and the lockdown, it is now necessary to ensure that as many of those loans as possible can be repaid and to circumvent any possible actions that might fraudulently avoid repayment.

UK businesses, especially those in the worst hit sectors of retail, hospitality, travel and the creative industries, are beginning to emerge from this pandemic with an enormous debt burden. While I welcome these measures to ensure that UK taxpayers are not defrauded, there remains an enormous question mark over how many business owners who have conducted their affairs honestly and with integrity will face a debt burden for many years to come, and the extent to which that will be a drag on the revival of our economy. I urge the Minister to keep this issue at the top of his priority list and to support our indebted small businesses in whatever way he can.

Many businesses will be dealing with their indebtedness by looking to cut costs wherever they can, which will include reviewing all their existing expenses and exploring whether these can be effectively reduced. For many businesses, this will include applying to the Valuation Office Agency for a review of the rateable value of their business premises. Many businesses will be citing a material change of circumstances resulting from the pandemic and the lockdown as the reason for their application. This is an established route for businesses to appeal against the amount of rates they pay. Major crises or changes in the law, such as the foot and mouth disease outbreak or the smoking ban, have previously been accepted as valid reasons for business rates appeals. Many businesses have had their business model permanently changed by covid, and where that will impact on the valuation of the property they operate from, their ratings appeals deserve consideration by the Valuation Office Agency.

I want to pick up on the comment from the hon. Member for Thirsk and Malton (Kevin Hollinrake) about my amendment and to reassure him that it is about the market value, as it were, or the underlying value of the business. He cited nightclubs. I can probably count in decades the last time that I was in a nightclub. I do not know whether he has more recent experience, but it is a really good example of an industry that has been really badly impacted by the pandemic. Of course, not just the operating business model of individual nightclub businesses but the underlying value of nightclub premises will have been impacted, and that will be the material change of circumstances that those businesses will be relying on to contest their business rates.

Kevin Hollinrake Portrait Kevin Hollinrake
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Rarely is a property built to be a nightclub. It is a property, which is valued on the basis of its rental value, which leads to the rateable value. That business may change hands and go from being a nightclub to a different kind of business. How could we have a rates system dependent on the business type that occupy premises? That is not how the business rates system works.

Sarah Olney Portrait Sarah Olney
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The hon. Member raises a valuable point. Nevertheless, if a property has always been operated as a nightclub business, a change of use, for example, which may well require an appeal to the local planning authority, still has a measurable impact on the value of that property.

I understand that 170,000 businesses have made 500,000 appeals to the VOA for consideration under covid-related material changes of circumstances. The Bill’s provisions retrospectively overrule covid-19 and Government restrictions as valid reasons for business rates appeals, effectively scrapping all 500,000 appeals. Instead, the Government propose a £1.5 billion fund to support payment of business rates for companies previously left out of business rates support—in other words, all those not in the retail or hospitality sectors, who have had a business rates holiday. However, the fund will not be available until after the Bill has received Royal Assent, and its Second Reading has already been delayed for 10 days, so how much longer will businesses have to wait before being compensated for not having paid a fair amount on their business rates?

There has been a lack of consultation with businesses before introducing the Bill and the proposed fund, and many firms will be left struggling with higher costs as a result. That is a direct threat to employment and to the ability of our economy to recover from the pandemic. I tabled the reasoned amendment outlining the Lib Dems’ opposition to the Bill, but I shall not press it to a vote.

Members of all parties in the House agree on the need for review and reform of the business rates regime. It imposes costs on businesses that they are powerless to control and creates an unfair playing field for businesses that do not trade out of rateable premises. The Government could make the simple move of committing to annual revaluations instead of every five years. With that, those businesses that genuinely qualify for a rating reduction would see those benefits much sooner and we could remove the need for an appeals process to reduce their costs. Every effort should be made to support businesses and to save jobs. Implementing a punitive retrospective change in the law to prevent businesses taking practical action to save on their non-staff costs represents a threat to the economy and jobs. The Government could take practical action today to help businesses, but they prefer to proceed with this Bill, which enshrines a concerning precedent that will cause many businesses to struggle.

18:53
Jim Shannon Portrait Jim Shannon (Strangford) (DUP)
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First, I thank the Minister for setting the scene so very well and for answering some of the questions that I had. I will ask a few questions—it is my nature to do so—which perhaps the Minister will be able to answer for me. Rating is a devolved issue and thus the Northern Ireland Assembly will seek to apply the legislation so that businesses in Northern Ireland are on an equal footing with those on the mainland. The Minister referred to that in his introduction, and I appreciate that, although I feel the need to stress once again that the Northern Ireland protocol is in itself putting our businesses not simply on an unequal footing but on a different playing field. That is not the debate for today, but I want to put that on the record.

The fact of the matter is this: for many businesses, the coronavirus aid package for rates was the only thing that kept the creditors away from the door. I thank the Government and Ministers for all that they did to help businesses. If we are being honest and real, we know that is why businesses are in business today, and why—hopefully—they will continue beyond the next period of time. It is important that we give credit where credit is due. The only thing that kept those creditors away was the rates package, but for some people that was not enough, and coronavirus is the final nail in the coffin—we do not know how the future will unfold over the next period—which is lamentable, and we must continue to support our businesses through a difficult time. The news this morning back home was that some of the grant aid would come to an end this Wednesday, so I would be grateful if the Minister gave us an indication of what help will be available beyond the end of this month.

We are all aware in the House that there are some people who will take what was meant for good, to help those who need it, and use it for their benefit outside the realms intended by the grants. There are always people who may abuse the system and turn it to their advantage. I know one honourable man in my constituency—I know many honourable men and honourable women in my constituency, but I will talk about one in particular—who told me that he did not apply for any grants whatsoever and he could continue to trade during the coronavirus outbreak. However, he also told me that he could do with support right now, as the Northern Ireland protocol has increased his price on orders, and prevented him from selling dog treats in his shop, along with other profitable lines. He would wish me, on his behalf, to inquire what help or rates reduction is available with regard to the insidious protocol.

Moving on, it has become clear that in order to help those who need it, we must tighten loopholes used by those who do not need help. The Government have set parameters tonight, and have closed some loopholes, and I am pleased that they have done so. That is why I support the aims of the Bill in closing the loophole with regard to the disqualification of directors. Currently, the power to disqualify directors under section 6 of the Company Directors Disqualification Act 1986 applies only to directors of companies that have become insolvent. It does not apply to the director of a company that has been dissolved and, as a result, to obtain a disqualification order against a former director of such a company is arduous, time-consuming and costly, as the Secretary of State must apply to the court to restore the dissolved company to the register of companies. The process involves paying various fees, and once the company has been restored to the register, powers under section 447 of the Companies Act 1985 can be used to obtain information and documents that are necessary to investigate the conduct of a director. Finally, a disqualification order can be sought or an undertaking obtained under section 8 of the CDDA on the grounds that disqualification is in the public interest—or section 6 of the CDDA, but only if the restored company is insolvent. Those steps meant that in 2019, out of 529,680 UK company dissolutions, 33 companies were restored to the register in England and Wales so that they could be liquidated instead.

We do not have any idea how many cases were not made for those who abused the system, but I have seen an estimate—perhaps the Minister can give us an indication of the number at the end of the debate—that at most, misconduct occurs in 1% of company dissolutions, or about 5,000 a year. Can the Minister confirm that that is the figure, as I am concerned that the number may rise? Will he set out the steps that will be taken to ensure that it does not, as more insolvencies are expected due to the pandemic and, unfortunately, abuses are feared, in some cases, of the coronavirus loan scheme?

In conclusion, I agree that we should simplify the rules, which should not affect those who have done the right thing. We should give credit to those who did so, and those who want to do the right thing every time. I therefore support clause 2, which relates to sections 6 and 7 of the CDDA, as it will address the problem and close the loophole. The measure is also supported by professional accountancy bodies among others. There is a finite amount of grant aid and support available, so we have to be prudent. As the good book says, every one of us has a duty to be prudent with what we have and to use it correctly, so not one penny of the grant aid and support available should go to the unscrupulous. I support the Bill, and I thank the Government for what they have said tonight.

19:00
Seema Malhotra Portrait Seema Malhotra (Feltham and Heston) (Lab/Co-op)
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I am grateful for the opportunity to respond to the debate on behalf of the Opposition and to consider the contributions made by hon. Members. I also thank the Under-Secretary of State for Business, Energy and Industrial Strategy, the hon. Member for Sutton and Cheam (Paul Scully), for the meeting we had beforehand, in which we were able to discuss aspects of the Bill and issues that have been raised in the debate.

We have had some very positive and helpful contributions, including from the hon. Member for Thirsk and Malton (Kevin Hollinrake), with whom I have worked closely on mortgage prisoner issues and other areas of financial services regulation. He brought his characteristic clarity to the debate, raising issues including prosecutions for fraud and the resources that are necessary for us to be able to act. The speech by the hon. Member for North Norfolk (Duncan Baker) was so clear that it did not require an intervention, and I thank him for it. The hon. Member for Strangford (Jim Shannon) made the important point that Northern Ireland businesses should remain on the same footing as those in the rest of the UK. The hon. Member for Richmond Park (Sarah Olney) was right about the debt burden that businesses are facing, which is one reason why the Opposition have called for a flexible debt repayment scheme based on what businesses earn. That continues to be an essential part of how the Government must support businesses going forward.

As my hon. Friend the Member for Manchester, Withington (Jeff Smith) outlined at the start, the Bill contains some positive measures and we support its going forward. However, we want it to deliver for businesses and local authorities and to bring justice to unscrupulous company directors, and it also needs to be workable for the Valuation Office Agency and the Insolvency Service. However, there are significant gaps in the detail, which must be addressed if the Bill is to achieve its aim.

Clause 1 rules out covid-related material changes in circumstances in relation to business rates appeals. We understand that assessing thousands of appeals would not be the best use of the Valuation Office Agency’s time when a full revaluation is due to take place in 2023. However, it is vital that this change is coupled with the £1.5 billion relief fund for businesses that have been badly affected by the pandemic but that have so far missed out on business rates reliefs—a point well argued by the Federation of Small Businesses, and I will come back to that point and to concerns that it may not cover everyone. The funding should also support businesses and supply chains that have been unfairly overlooked for so long.

Confirmation that the fund is an alternative to adjustments to rateable values as a result of material changes in circumstances appeals also provides much-needed certainty to local authorities. Since 2013 business rates revenue has formed an increasingly substantial part of local government revenue. While this reliance on business rates is imperfect and longer-term reform is needed, a large fluctuation in income at the tail end of the pandemic would be the last thing that local authorities need, and the Bill makes that less likely.

However, the lack of detail around the £1.5 billion fund is worrying. Since the figure was announced in March, businesses and local authorities have had no further detail on how the amount was calculated, how it will be allocated and who will be eligible, nor is there guidance on how it should be administered. Councils are expected to develop and set up local schemes to deliver this business grant relief, but they cannot start the process until they receive their individual allocations and until the Government publish national guidance setting out the parameters for the scheme.

We are concerned that the allocations will not begin until the Bill has passed through Parliament, meaning that payments are unlikely to be made until September at the earliest. Businesses and local authorities are united in crying out for clarity on the distribution process, for clear and straightforward award criteria and for simplicity and speed in getting the funding out. Waiting until September will mean that many businesses will not survive long enough to benefit, especially in the light of the decision to postpone the next phase of unlocking and the fact that economic measures have not been continuing in lockstep with public health restrictions.

The Government previously said that this grant-based approach was to ensure that relief could be awarded more quickly than if it was sought under a rating appeal, so again, why the delay? I reiterate that the Government must publish an early release of the funding allocations and eligibility criteria, and I urge the Government to work closely with local authorities and the Local Government Association to make sure that that guidance is as clear as possible.

There are also further questions to ask about how the Government calculated the figure of £1.5 billion. What assurances can they give that it will be sufficient to support the businesses that have struggled so much without rates relief during the pandemic? I would be grateful if the Minister could cover that in his closing remarks. While the £1.5 billion discretionary fund has been broadly welcomed, the ruling out of material changes in circumstances rate appeals, as he knows, will have come as a disappointment to many businesses. Have the Government made an assessment of how many are likely to have been affected by the closing off of this avenue and how much they would have been able to claim back otherwise? Did these sums inform the Government’s calculation of the £1.5 billion figure?

The Minister will also be aware of the concerns of airports such as Heathrow, Gatwick and Manchester, and the need for a proper deal for aviation, which, so far, the Government have failed to bring forward. Heathrow has continued to pay its £120 million annual business rates bill in full despite the plummeting passenger numbers, so has the Minister undertaken an assessment of the impact that the Bill will have on the operation of pieces of national infrastructure such as airports? Was any consideration given to exempting them from the provisions?

I will make a few comments on the directors disqualification aspects of the Bill in clauses 2 and 3. It has long been known that a small number of directors of companies fraudulently use the dissolution process as a way of avoiding paying back loans, and this has become a particular concern with the covid-19 bounce back loans. With the dramatic increase in the number of company dissolutions this year compared with last year, there are fears that a minority of rogue directors have sought to use this mechanism to avoid repaying state-backed loans. It is therefore right that the Bill aims to close the dissolution loophole, allowing directors who have unscrupulously dissolved their companies to be punished and deterring others from doing this in the future.

Additionally, applying to court to have dissolved companies restored is time-consuming and costly to the public purse. It is right that the Bill removes this hurdle to tackling business corruption, but it is unfortunate that it comes now rather than three years ago, when a Government consultation, which the Minister referred to in his opening remarks, on the Insolvency Service’s powers saw the majority of respondents agree that there was a gap in powers in relation to directors of dissolved companies. If action had been taken more promptly, as I think the Minister would agree, the significant exploitation of the bounce back loan scheme may never have happened in this way.

My hon. Friend the Member for Manchester, Withington raised Labour’s concerns about how additional investigations will be funded and the need for adequate resourcing of the VOA and the Insolvency Service. R3, the insolvency and restructuring trade body, has highlighted its members’ concerns that not all their reports to the Insolvency Service are acted on, even where serious breaches of the law are suspected, due to resourcing issues. So how do the Government intend to address this while also ensuring that the Insolvency Service stands ready to take on a potentially even bigger case load?

I would add that if resourcing delays result in investigations going beyond three years since the company is dissolved, and that consequently means that a Government run out of time to apply for a disqualification order against a culpable director, that would be an utterly unjust outcome and an incentive for the phoenixism that we want to see end. It would also surely fail the public interest test, so, finally, will the Minister explicitly clarify whether the Government plan to use compensation orders against disqualified directors? The Government’s approach to this must be made clear so that there is efficiency in returning funds to the public purse and other creditors can be monitored and evaluated properly.

I hope that the Government have been able to take note of the issues raised during this debate. Labour will keep pushing for these vital improvements and particularly for swift guidance and the release of the £1.5 billion relief fund. With many of the hardest-hit businesses yet again facing uncertainty following the extension of covid restrictions, we owe it to them to make this Bill genuinely helpful and not one more thing to worry about.

19:09
Paul Scully Portrait The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)
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This is a Bill of two halves, considering that the football is on at the moment, and the contributions that we have heard from Members throughout the House attest to the importance of each of them. I am grateful to my hon. Friend the Minister for Regional Growth and Local Government for opening these proceedings by setting out the context and the background of both elements of the Bill. I am also grateful to all the Members in all parts of the House who have participated in the debate. The points that have been raised are really important and I am glad to have the opportunity to respond, first on business rates and then on the measures relating to the disqualification of unfit directors of dissolved companies.

The House has today supported the point made by hon. Friend that the pandemic has unquestionably had a significant impact on ratepayers. This impact has been felt particularly by those in the retail, hospitality and leisure sectors, but also by many other businesses that sit elsewhere in the wider economy. That is why since April 2020 the Government have provided £16 billion of business rates relief targeted at ratepayers in the retail, hospitality and leisure sectors. As announced on 25 March, the Government intend that this will be supplemented by an additional £1.5 billion of relief to be made available to ratepayers who have not been able to benefit from the reliefs already put in place throughout the pandemic. Taken together, that represents an unprecedented package of support that reflects the unique impact of the pandemic on our economy.

These unprecedented circumstances have also tested other aspects of the business rates system, which was created long before covid-19 and was not designed with pandemics in mind. The material change of circumstances process is designed to be used in cases such as localised roadworks. Market-wide economic changes such as those arising from a pandemic can and should be considered only at a comprehensive business rates revaluation. Arguing material change of circumstances cases through the courts could result in years of uncertainty and is unnecessary where we can, as we are doing now, amend the law to ensure that it meets its original intention.

Sarah Olney Portrait Sarah Olney
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On what the Minister has said about the material change of circumstances argument not being appropriate in this case, would it not have been appropriate to have made it clear earlier in the pandemic, perhaps as long as a year ago, that it would not be an appropriate route for businesses looking to reduce their rates payment and not a circumstance that could be cited?

Paul Scully Portrait Paul Scully
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A lot of messages can go out and have gone out over the past year so that we can flex in our ability to work with businesses. I think I can boil down my relatively long job title to “Minister for unintended consequences”. We are always trying to make sure that we can flex and get clear messages out to businesses. The hon. Lady makes an interesting point. We have heard a lot about the £1.5 billion and when the guidance will be out. Clearly that is dependent on the passage of this Bill, but we want to make sure that we can work with the LGA and councils to give the clearest guidance so that they can get the money out as quickly as possible. The argument made by Members on both sides of the House is countered by the fact that by not having to go through so many appeals we can speed up the process and get the money out within weeks rather than, in certain cases, if we had to go through the entire process, years. That is why we can provide certainty to local authorities, which rely on income from business rates to fund their vital local services. It is on that basis that the Public Accounts Committee has welcomed the approach taken by the Government in the Bill.

Members have raised questions relating to when ratepayers will be able to benefit from the £1.5 billion relief that was announced on 25 March. We will work with all areas of local government to deliver the new relief scheme as soon as possible, once the Bill is passed, so that local authorities can set up their local relief scheme. The allocation of the £1.5 billion among local authorities will be made according to which sectors have suffered most economically rather than on the basis of temporary falls in individual property values. That will ensure that the support is provided to businesses in the fastest and the fairest way possible.

Seema Malhotra Portrait Seema Malhotra
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Does the Minister have any clarity at all on the timetable so that local authorities know what to expect and when?

Paul Scully Portrait Paul Scully
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The answer is as soon as possible, once this Bill has passed. I am looking forward to working with the hon. Lady in Committee to make sure that we can work through this as quickly as possible. Clearly, work will be done in consultation and conversation with the LGA and local councils to ensure that we can get comprehensive guidance in place. That is how we have been working over the past 14 months with local authorities on the other grant schemes.

Let me briefly cover a couple of quick points. The hon. Member for Manchester, Withington (Jeff Smith) asked whether there will be a blanket ban on MCCs. I can absolutely confirm that there is no blanket ban. On airports, it is a core principle of the business rates system that a material change of circumstances should be used between rate revaluations, so the drop in demand for airports in light of the pandemic is exactly the sort of market-wide economic change affecting property values that can and should only be considered at revaluation. We have been supporting airports with their fixed costs over the past year from the airport and ground operations support scheme. In his recent Budget, the Chancellor announced a further six months of support up to the equivalent of their business rates liability for the first half of the 2021-22 financial year, subject to certain conditions, and a cap per claimant of £4 million.

Seema Malhotra Portrait Seema Malhotra
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Will the hon. Gentleman give way?

Paul Scully Portrait Paul Scully
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I will not give way, but I will happily come back to the hon. Lady if I have not answered her question. I do want to get through a few areas.

Let me quickly turn to the disqualification of directors of dissolved companies. The issue of insolvency funding came up a few times. Clearly, we will be working with the Insolvency Service to ensure that it has the resources to do its job. It employs its finite resources to the maximum effect by prioritising cases in which there has been most harm to the public and the wider marketplace. Clearly, its resources are not limitless.

The hon. Member for Strangford (Jim Shannon) asked about insolvencies. Actually, the number of insolvencies has been at a 40-year low over the past few months because, effectively, in many areas, the economy has been held in stasis. That is why it is so important that, having put £352 billion-worth of support into the economy, we now have 352 billion reasons why we have to get the next bit right—why we have to help shape the recovery through these mitigations. We need to make sure that we continue to flex and continue to extend the support. That is why furlough carries on until September and why we have ensured that the winding-up proceedings have been extended for another nine months as well, so that we can get conversations going with landlords and tenants. It is so, so important to continue these measures.

I am glad that we have had broad support for the measures. In terms of compensation, directors can obviously be held personally liable for debt, and where there are breaches, there is disqualification.

Peter Grant Portrait Peter Grant
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I note the Minister’s comments that directors can be held personally liable, but does he accept that allowing an individual investor or creditor to sue a director at their own risk is very different from a scheme through which the Government or some other body effectively take that legal action on behalf of a group of aggrieved individuals, who individually cannot afford the risk of taking that action?

Paul Scully Portrait Paul Scully
- Hansard - - - Excerpts

I take the hon. Gentleman’s point. Let me just answer a couple of his points. He talked about corporate governance and audit reform. That is something that we will legislate on as soon as parliamentary time allows. He referenced a Minister saying that we would adhere to standards that we thought that we could get away with. No, that is absolutely not the case. I did not hear that comment, but I suspect what the Minister said and meant was that we are accountable to the electorate. When I heard about that comment, I thought about my own constituency where I know at least one High Court judge, an insolvency practitioner, lawyers, forensic accountants, civil servants—I have them in my own Department never mind my constituency—and journalists and, boy, will they hold me to account at the ballot box, in my local media and in the national media should it be appropriate to do so. That is that standard to which we expect to work as a Government. I am glad that he also mentioned phoenixing, because this will strengthen the phoenixing legislation as well.

I have noted the helpful contributions made by Members across the House, and I am looking forward to working with colleagues in Committee to make sure that we can get this really important legislation for both of these measures through. The scrutiny that has been provided today is, as always, greatly appreciated. I look forward to discussing this Bill with Members throughout its passage, and I commend it to the House.

Sarah Olney Portrait Sarah Olney
- Parliament Live - Hansard - - - Excerpts

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question put and agreed to.

Bill accordingly read a Second time.

Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill:

Committal

(1) The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 8 July 2021.

(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Proceedings on Consideration and Third Reading

(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which proceedings on Consideration are commenced.

(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.

Other proceedings

(7) Any other proceedings on the Bill may be programmed.—(Scott Mann.)

Question agreed to.

19:20
Sitting suspended.

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

The Committee consisted of the following Members:
Chairs: †David Mundell, Christina Rees
† Baker, Duncan (North Norfolk) (Con)
† Baynes, Simon (Clwyd South) (Con)
† Grant, Peter (Glenrothes) (SNP)
† Hall, Luke (Minister for Regional Growth and Local Government)
Hunt, Jane (Loughborough) (Con)
† Jenkinson, Mark (Workington) (Con)
† Malhotra, Seema (Feltham and Heston) (Lab/Co-op)
† Mishra, Navendu (Stockport) (Lab)
Richardson, Angela (Guildford) (Con)
† Rimmer, Ms Marie (St Helens South and Whiston) (Lab)
† Scully, Paul (Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy)
† Smith, Jeff (Manchester, Withington) (Lab)
Tomlinson, Michael (Lord Commissioner of Her Majestys Treasury)
† Webb, Suzanne (Stourbridge) (Con)
† Whitley, Mick (Birkenhead) (Lab)
† Young, Jacob (Redcar) (Con)
Yohanna Sallberg, Committee Clerk
† attended the Committee
Witnesses
Adrian Blaylock, Lead Revenues Adviser, Chartered Institute of Public Finance and Accountancy
David Magor OBE IRRV (Hons), Chief Executive, Institute of Revenues Rating and Valuation
Sarah Pickup OBE, Deputy Chief Executive, Local Government Association
Andrew Agathangelou, Founder, Transparency Task Force
Kate Nicholls OBE, Chief Executive, UKHospitality
Duncan Swift, Past President of R3 (also a restructuring and insolvency partner at Azets), R3
Public Bill Committee
Tuesday 6 July 2021
(Afternoon)
[David Mundell in the Chair]
Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill
10:54
The Committee deliberated in private.
Examination of witnesses
Adrian Blaylock and David Magor gave evidence.
10:54
None Portrait The Chair
- Hansard -

Good afternoon. We are now in a public session and I can welcome our fourth panel of witnesses: Adrian Blaylock, revenues adviser at the Chartered Institute of Public Finance and Accountancy, and David Magor, chief executive of the Institute of Revenues Rating and Valuation. Gentlemen, may I confirm that you can see and hear us? And can you each introduce yourselves?

Adrian Blaylock: I am Adrian Blaylock, lead revenues adviser for the Chartered Institute of Public Finance and Accountancy. My role in the institute is to provide specialist technical advice to local government on matters relating to council tax and non-domestic rates.

David Magor: My name is David Magor. I am the chief executive of the Institute of Revenues Rating and Valuation—I run a professional body; it’s that simple. In a previous life, I was a chief officer in local government.

None Portrait The Chair
- Hansard -

Thank you. This session will run to 2.45 pm. As you will understand, you will be questioned by members of the Committee. Are you going to start the questioning, Mr Smith?

Jeff Smith Portrait Jeff Smith (Manchester, Withington) (Lab)
- Hansard - - - Excerpts

Q40 Yes. Good afternoon; thank you for being with us. I thought it might be useful to start by asking both of you to make some introductory remarks about, in particular, clause 1 of the Bill and whether you think that it is the appropriate way of dealing with the problems that the Government have flagged up.

Adrian Blaylock: Local government has faced significant financial pressure since the start of the pandemic—and before that, for other reasons—and the Bill attempts to address, potentially, some of the issues that local government could face if the covid restrictions are not prevented from being considered in the material change of circumstance appeals. The potential loss of income to local government could be pretty significant, and what local government really needs is continuity of funding and certainty of funding, so to carry the risk of material change of circumstances, which could be the case for many years, depending on how long they take to actually make their way through the system, is significant. I think that the Bill addresses that potential issue; it does what it is intended to do.

David Magor: Adrian is correct in his summary. Certainly the impact of the material change of circumstances and the challenges that were outstanding will have had a significant financial effect on local government, and of course that will have reduced Government revenues. The Chancellor, in the Budget, had not forecast the anticipated loss as a result of these material changes in circumstance. The rating professionals, the rating advisers to the ratepayers, had chosen what was the only route available to them at the time; the route that they lawfully had to take was to treat the coronavirus impact as a material change of circumstance and act reasonably on behalf of their clients, which they did. But of course the financial impact was going to be considerable and so we have a situation where Government have intervened and said that a better way of dealing with it is through a relief scheme. All things considered, and provided that the relief is paid in a timely manner and the amount of relief is appropriate, that is a satisfactory way of dealing with it.

That having been said, the reductions in assessment that were being mooted with regard to the material change of circumstance were quite considerable, and it has raised expectations of ratepayers. One hopes that when the Bill is passed into law, as we expect it to be, and the relief scheme is put in place, the amount of relief will be sufficient to satisfy the desires of those particular ratepayers. Certain sectors, like retail, hospitality and leisure, have done very well out of the reliefs that have been awarded to them. This measure, of course, picks up others, who were not covered by those particular rules. One hopes that, when the Bill becomes law and the relief scheme is put in place, it will meet the needs of the ratepayers.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Q Thank you; that is very helpful. We will probably come back in a second to the issue of the amount. I suppose that this measure can be considered as shifting the risk from local authorities to Government and businesses—well, hopefully not businesses if the Government provide the money. Do you have any comments on the view from business and whether there are businesses and sectors that are particularly concerned? We have been approached by, for example, the airports, which do not think the money that will be available will be enough to tide them through the problems that they are facing. Other businesses or sectors may have a similar view. I am just wondering whether you have a view on that.

David Magor: Obviously, the Chancellor made provision for the airports with a special airport scheme, but of course the rateable value of the major airports in England is very significant. One can look at Heathrow, for example. It has a very significant value, and the amount of relief that was made available to it was nowhere near its rates liability. You can look at all the airports in England and compare those airports with the way airports have been treated in, for example, Scotland, where they have had 100% relief. The expectations of the airport providers and the companies running the airports are very high. However, the amount does not appear to be sufficient to meet the desires of all the ratepayers who had outstanding challenges and large assessments, like the airports. The challenge for the Government is to ensure that those particular ratepayers are satisfied.

As far as businesses generally are concerned, there are of course those that have done very well through the pandemic: their trading positions and profits have remained stable. You can argue that giving relief to them, as well as to those that have really suffered—particularly companies in the supply chain—would be unfair. Of course, if the new relief scheme is going to be dealt with by application—companies can choose to apply—one hopes the criteria of that relief scheme will ensure that relief is paid to those who are entitled to it. Meeting the expectations of the ratepayers who have had challenges in is going to be the real problem with the outcome of this Bill.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Q That takes me on to another question, specifically for Mr Magor, but Mr Blaylock may have a comment as well. The IRRV written evidence that we received flags up the issue of how you differentiate between covid and non-covid challenges and says that a “transparent, evidence-based process” needs to be adopted. I completely agree. I suppose the big question is how you do that. Would you have any comments on how you might define the difference between a covid and a non-covid challenge?

David Magor: The challenges are laid down in legislation; we know what the challenges, and the circumstances surrounding those challenges, are. It is for the valuation officer to look at every individual challenge and how that challenge is made up, and to decide whether it is covid-related or related to a normal material change of circumstance.

The important thing is that the valuation officer inspects every challenge and makes a reasonable decision in every case. That will be absolutely critical. The ones that are covid alone will stand out quite clearly. However, with those where you perhaps have a change in the high street, with the closure of a major retailer because of trading patterns, you have to be very careful to make sure that you do not mistake the fact that the retailer was intending to close anyway for the impact of covid. Remember, the valuation officer is very experienced in this process. The material change of circumstance legislation has been around for a long time, and there is lots of case law. There is absolutely no reason why the valuation officer cannot act in a reasonable and transparent way.

Adrian Blaylock: What David says is absolutely right. It is important to recognise that there are material changes of circumstance that are not related to covid. These can still go through the normal process, and the Valuation Office Agency should be able to distinguish between the different types.

Seema Malhotra Portrait Seema Malhotra (Feltham and Heston) (Lab/Co-op)
- Hansard - - - Excerpts

Q Thank you both for giving evidence to us today. I wonder if I could get your views on the value of what I think you have described as a “funding pot”—the £1.5 billion that has been allocated. Do you have concerns about the sufficiency of that, and what are those concerns based on?

The second question is more specifically to Mr Blaylock and relates to the IRRV’s evidence, in particular to paragraph 6, where you are talking about the benefits of amending provisions of section 47 of the Local Government Finance Act 1988. It would be useful to talk through your argument there to help us understand it.

Adrian Blaylock: That is probably aimed at Mr Magor, rather than me. It is really hard to know whether the size of the pot—the £1.5 billion—is large enough or not. The way I expect this scheme to work is for the Government to release guidance on the types of business they expect local government to support. In the announcement on 25 March, they gave a couple of examples of types of businesses that have not been affected but would see a reduction due to a material change of circumstance, and one that has been affected but would not see a reduction through a material change of circumstance.

Local government has to follow guidance issued by the Ministry of Housing, Communities and Local Government. That is in the regulations; section 47 of the Local Government Finance Act 1988 says that it must be taken into account. Until we know exactly the types of business the Government are expecting local government to give support to, it is really hard to say whether £1.5 billion is enough. Airports were given as an example. If airports appear in the guidance as something that the Government want local government to support, as Mr Magor says, their rateable values are large, and therefore the pot probably would not be sufficient, but it is really hard to say at this point in time.

David Magor: On the size of the overall pot, we at the institute have the advantage of having a comprehensive database going back to 1990 of all non-domestic properties. We have been looking at that database and trying to do some early forecasting of how big the pot should be.

You can see from the ministerial statements that the Minister has made quite clear exactly the direction that he wants the relief to go in. You can do a rough calculation by taking out retail, hospitality and leisure properties, exempt properties, small businesses and so on, and you are left with an effective amount of rateable value and an effective number of properties that would get the relief. Of course, the Government have also added local economic factors into the decision on the distribution of the pot, and we do not know the detail of them.

If you look at the eligible rateable value and the eligible properties, once you take out the exempt properties and those that have already received relief, you start to come to a figure well in excess of £1.5 billion. You are starting to look at a figure perhaps three times that amount. Initially, that sounds quite frightening, but of course we do not know the economic impact of covid on individual companies. Again, the Minister said in his guidance that the scheme will be by application, so it will be for companies to choose whether they apply.

No doubt, if we see the draft guidance and it gives clear indications of the way local government is to work, you can frame an application form in such a way that it will target the relief at those in most need. Until we see the guidance, it is difficult to give a clear forecast of whether the pot is large enough, mainly because of the mysterious economic factor. The implication from the Minister’s statements is that it will differ from area to area, so it will be impossible to know what figures the Minister has taken into account unless we have absolute transparency and those figures are made available.

Of course, there is a danger that individual local authorities will challenge the figure. If it is not sufficiently clear, the first thing that elected members will do is compare their figure with that of a similar local authority, and if it is significantly different, they will want to know why, so there are a few challenges ahead for the Minister.

Luke Hall Portrait The Minister for Regional Growth and Local Government (Luke Hall)
- Hansard - - - Excerpts

Q Thank you both for your evidence this afternoon. You clearly both have a wealth of experience, so it is really useful to hear your thoughts. What has your experience been of how the scope and extent of MCC claims have evolved over recent years? Could you talk us through the changing landscape of using this type of appeal over the past few years?

David Magor: When this legislation was introduced, you saw various significant events that triggered MCC changes. When you are looking for things that are similar to covid, you perhaps look at the crash of 2008 and things like foot and mouth disease. These are factors that are taken into account when you are looking at the broad picture. The covid situation, as we all know, is quite unique. The normal material change of circumstance is an essential part of the overall evaluation process. You need to reflect the changes in communities and in the environment, such as buildings being demolished or empty and so on—the material changes that happen in every neighbourhood from day to day. There are roadworks and 101 different things. Those have been dealt with very adequately by the Valuation Office Agency. The agents, on behalf of ratepayers, put in the challenges under the new challenge and appeal process, and it has worked very effectively. It has ensured that the distribution of the rate is as fair as it can be when you have got a five-year cycle of revaluations.

The special circumstances that come to mind are the crash in 2008 and foot and mouth disease. It worked quite adequately but, of course, it was nowhere near on the scale of covid, and the impact of covid on the economic wellbeing of communities.

Adrian Blaylock: The only thing I would add is the position since the end of March 2020. From 1 April 2017 to 31 March 2020, just short of 160,000 MCCs were lodged against the 2017 rating list. By the end of June, that had grown to just over 300,000, so had almost doubled in that three-month period. By the end of March 2021, 568,000 MCCs had been lodged with the Valuation Office Agency. There has been a significant increase, and it is fair to say a good proportion of those will be related to the pandemic.

Luke Hall Portrait Luke Hall
- Hansard - - - Excerpts

Q A lot of the early feedback we received suggested the potential scale of the appeals was causing concern in local government. We started to hear talk from local government about potential savings to frontline services that would need to be made. Could you tell us your experience of the way local government started to approach that potential task, and whether that started to impact on budgeting and forecasts for councils in setting their budgets?

David Magor: Since the introduction of the rates retention scheme, local authorities have had to forecast the impact of changes in the valuation list from year to year when preparing their budgets. You started with 50% retention, and moved to pilot schemes of 75% and 100%. When you have a rates retention scheme that works in that way, if you make a mistake in forecasting the reduction in value, you will significantly affect the finances of the local authority and the budgeting process.

Every chief financial officer has to make a forecast of the impact of a change. They would have to make a provision against that forecast and, of course, provisions prevent you from spending money, because you are providing for an event that is likely to happen. Certainly, as far as forecasting for the 50% rates retention scheme was concerned, every time you looked at your rateable value and the changes in that over the forthcoming year, you were conscious that any forecast you made, 50% of that reduction in value would fall on your budget.

That was the way the retention scheme worked, and it created a great deal of concern because chief financial officers were making very significant provisions. As I said, making provisions curtails the local authority’s ability to spend. Elected members quite rightly get very concerned about that. Then the MCC checks and challenges came in, with the checks first. As Adrian said, the enormous number of checks has now reached half a million, and the challenges emanating from those are well in excess of 100,000. You are talking about a massive impact on the valuation resources of the list. Local authorities have to make provision for that.

Through this Bill you would remove that risk and, as the Chair said, transfer it to central Government, because you would fund it through a relief scheme. The real problem is whether the relief will be sufficient to meet the needs of the ratepayers who are expecting a reduction in rateable value.

Adrian Blaylock: That is right. The risk and the responsibility of a local authority to set aside sufficient funds to cover any potential losses to the rating list could be significant. If I can just give you some indication of where we were: at the end of 2019-20, local government had just short of £3 billion sat in provisions for alterations of lists and appeals. This is all pre-covid. This is nothing to do with the pandemic, just essential changes to the rating list. Every year, they have to forecast what they think they will lose in the forthcoming year and there is roughly £1 billion a year being added to that pot, regardless of covid. So the potential loss on top of those normal everyday changes to the rating list—well, I would not like to think what would happen to local government finances if it went ahead. You would need a significant level of provision to be able to carry that. We have already seen local authorities applying to MHCLG for capitalisation directions because they are struggling to pay the day-to-day costs of running their services. How many more authorities would need to go down that route if that is where we get to? That is what concerns me.

Marie Rimmer Portrait Ms Marie Rimmer (St Helens South and Whiston) (Lab)
- Hansard - - - Excerpts

Q There are three very specific exemptions to the restrictions on appeals set out in clause 1(5), inasmuch as the valuation decision must take into account the effects of covid-19 on the quantity of minerals extracted and the quantity of waste disposal from the property, along with the physical state of the property being affected. Do you think those exemptions are reasonable and are there any other circumstances that you feel should be included?

David Magor: I must admit that the Bill is very well framed. We have looked closely at the Bill, clause by clause, and it meets its specific purpose. The approach to dealing with the material change in circumstances and to withdrawing or removing the covid ones is very sound. I find the provisions of clause 1 fit for purpose and they meet the needs of Government. That is a relief, in the sense that it seems to be fair. Of course, it is important that in making decisions in relation to the clauses that you have mentioned the Valuation Office Agency is transparent and gives the ratepayer and ratepayer’s agent every opportunity to make their case for other matters that are outside the covid situation.

Adrian Blaylock: I have nothing to add to that. I agree with David.

Marie Rimmer Portrait Ms Rimmer
- Hansard - - - Excerpts

Q How will the provisions affect local government income from business rates? I know you said “significant” earlier.

Adrian Blaylock: It is really hard to say because there was a suggestion of what level of reduction ratepayers would see in their rateable value from discussions between the Valuation Office Agency and rating agents. However, it is hard to say. Would that be across the board? Is that for a specific area? Is it for a specific kind of property? Without knowing exactly what the extent of the reductions in rateable values would be through material change of circumstances, it is really hard to say. The other thing to think about is longevity. Is it for the period of the lockdown? Is it from now to perpetuity? Forever? It is hard to say what the actual loss would be. There are too many unknowns, I would suggest.

Marie Rimmer Portrait Ms Rimmer
- Hansard - - - Excerpts

Q I can accept that.

David Magor: The problem with the pot of money is that when the Bill is passed and the relief scheme is released and we have guidance—of course, along with that guidance, one assumes you will have the distribution of the pot as well by individual local authorities—as well as making sure that they fully understand that individual pot and how it is made up, each local authority will then have to develop its own scheme and that scheme will be approved by members. In developing that scheme, you would have to look at the potential eligible properties in your area. From ministerial statements, you can take out RHLG properties, exempt properties and so on, because they will not get any relief, or it is the Government’s intention that they do not get any relief. You will then be left with a number of properties that are entitled to relief. What you do not know is what the economic factor in the distribution will take account of, but one assumes that you will look at the economic factor from individual company to individual company, and a company that has traded satisfactorily through the pandemic will, no doubt, not qualify for relief. One assumes, certainly from the statements that have been made in Parliament, that that is the way the Government wanted it to work.

When you get to that situation, you have to decide exactly how much relief you will pay to each individual ratepayer. There is no indication of what a reasonable amount is. There were some press releases from certain rating agents suggesting reductions as high as 25%. A couple of examples were put forward in statements from the Treasury where the amount of relief granted was a good deal less than 25%, but at the end of the day a local authority has to be really careful because it has a cash-limited pot that it has to distribute fairly to everybody to ensure that it has sufficient resource to meet the needs of every applicant. That in itself will be a challenge.

As Adrian says, you have to know how long the pot will last. The problem is that, if it is a cash-limited pot and you cannot go back for more, local authorities will be in a really difficult situation with those ratepayers who may be entitled but you did not have enough money to go around. You then revert to your other discretionary powers, particularly the hardship power. Then the cost of that starts to fall on the shoulders of the council tax payer, so it really is a massive challenge to local authorities. On top of that, in a practical sense there have already been adverse reports from the ombudsman about a lack of transparency in some local authorities with regard to the grant schemes. That was a significant problem with the grant schemes, and local authorities handled it really well. This problem, I think, is greater.

Marie Rimmer Portrait Ms Rimmer
- Hansard - - - Excerpts

Q Of course, it then has an impact on the resources available to meet the statutory duties, because business rates are much more involved now than when it was grants from the Government. The business rates revaluation is currently taking place, to be concluded in March 2022. The Bill would prevent businesses from retrospectively making an appeal against rateable values as they are now, even when the new system is in place. Is that provision necessary in your opinion?

David Magor: When the new values come into force there will be rights to appeal against them. The effect of the Bill, of course, is to prevent any applications under the check, challenge and appeal process from going forward in relation to the pandemic. That seems to be the intention of the Bill. Due to that being the law—it has closed down that particular area of activity, and the impact of the pandemic on the material change of circumstances definition—they cannot make any more appeals about that, but of course they can still continue to make normal material change of circumstances appeals right up to the closing of the existing list.

Marie Rimmer Portrait Ms Rimmer
- Hansard - - - Excerpts

Q Do you agree, Mr Blaylock?

Adrian Blaylock: Definitely. The way I read it, the Bill prevents any announcements regarding the pandemic from being taking into account, but it does not prevent any other methods of check or challenge from being taken forward by a ratepayer if something different is affecting their rateable value.

Simon Baynes Portrait Simon Baynes (Clwyd South) (Con)
- Hansard - - - Excerpts

Q I thank our witnesses. Clearly there is widespread support for the restriction on rating appeals, given the trade-off of extra funding for relief from the Government, but picking up on the point about the rate revaluation—[Interruption.]

None Portrait The Chair
- Hansard -

For our witnesses, the Commons is being suspended for three minutes. It is not a vote or a fire bell.

Simon Baynes Portrait Simon Baynes
- Hansard - - - Excerpts

Thank you, Mr Mundell. Is there a sense in which the timing of the rate revaluation is a helpful coincidence, in that it could mitigate some of the issues that ratepayers might have with the change to their business arising from coronavirus, perhaps particularly where a business has been badly affected and has to change its whole focus? Is the revaluation a way to mitigate that, and is that a helpful coincidence of timing?

David Magor: It is a helpful coincidence of timing. There is an antecedent evaluation date, and the rental evidence gathered to determine the values for the next evaluation list will reflect the circumstances of the pandemic and what is happening in the property market. The valuation officer has started to call for that evidence, which is required by statute and will reflect the current situation. Therefore, the list coming into force in 2023 will reflect the current difficult circumstances and, as you rightly say, potential changes in trading patterns and other things.

Adrian Blaylock: I agree. It is convenient it coincides, so will do exactly what David says.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q To ask a follow-up question, you were talking about local authorities and schemes they may need to set up, Mr Magor. What are you expecting in the guidance from Ministers? How soon does that guidance need to come? We heard concerns about how quickly this needs to happen. From your experience, could you share your view on how long that pot could last? Does there need to be reporting and review of expenditure? What do you expect from the Government on that and on working with local authorities on this?

David Magor: I know Adrian will pick up on the impact of it, but I will start. On the guidance, for reliefs under section 47 of the Local Government Finance Act 1988, the Minster is required to give guidance and local authorities to have regard to it. You would expect the guidance to be sufficient to enable local authorities to develop a scheme within the Government’s wishes. From ministerial statements, we know that that scheme will not include awarding relief to retail, hospitality and leisure, or those in receipt of other reliefs that remove their rate liability, and that economic factors will be considered from company to company. I would expect the guidance to clarify those issues and make it clear how the individual pots will operate.

I would also expect it to give local authorities an element of discretion—after all, section 47 is about discretionary relief—to have a scheme shaped for their area. This is why it has to be done in stages. The first is passing the Bill into law. Then, you issue the guidance with the distribution, give local authorities a chance to analyse that distribution and understand whether it is fair, and what to do at a local level. Local authorities then have regard to that guidance and devise a scheme, which has to be done quickly.

If we had not had this proposed change in the law, the valuation officer and ratepayers’ agents would be settling matters now, and I suspect refunds would have started to circulate. If this scheme is to replace those MCC challenges, you would like to think it would be in force later this year, and that any reliefs would be paid during the current financial year— that must be the aim.

The pot is a one-off that would be distributed as quickly as possible, because now is the time when the money is needed. The real issue for local authorities is devising a scheme and ensuring that they can distribute the pot fairly, and that they do not run out of money. That, in itself, will be a massive problem.

Adrian Blaylock: The only point I would add to that is timing. I think you questioned the timing and the need for haste; as David said, businesses need this money now. The only thing I would question is to ask what this relief pot meant to be compensating for. The majority of the lockdown measures and the restrictions applied during 2020-21 rather than during 2021-22, and there is a specific part of section 47 of the Local Government Finance Act that says that a local authority cannot take a decision more than six months after the financial year to which the decision relates. So, strictly speaking, as at the end of September a local authority will not be permitted to give discretionary relief rate back into 2020-21. That means that either everything needs to be in place and all the local schemes need to be up and running by the end of September, or the relief is not given for 2020-21 but is given for 2021-22 instead. However, what then happens to the businesses that had a material change of circumstances lodged for 2020-21 that are no longer in existence? They have missed out on that.

As for the timing, it is important that the Bill gets through as quickly as possible, but it is also important for people to understand that local government also have to go through their own governance processes. Devising a scheme is not just a case of somebody sitting at a desk and saying, “There you go, this is our scheme”. It needs to go through the proper governance process, which will take time. It could take two or three months for all that to go through its own internal processes, on top of whatever time it takes for the legislation to be passed and the guidance and allocations to be issued by MHCLG. Timing is crucial in this process.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Q Looking at the parliamentary timetable, it seems very unlikely that the Bill will be passed before the end of September, which creates the problem that you have just identified. I think we are all fairly clear that the Bill will pass at some point. Is there any reason, in your view, why the Government cannot give indicative guidance ahead of—you talked about it being in three stages—stage 1 being completed? Is there any reason why indicative guidance and possibly indicative valuation amounts for each local authority could not be given?

Adrian Blaylock: I do not see why not. If the Government have already taken the decision on the value of the pot—I do not know what they are doing about the allocations, but if they can work out what the allocations need to be for each local authority, they must have a clue now what they want to support, what areas they want to support and where they want local government to focus their attention. If that was to happen, it would allow local government to start formulating plans and start going through the process of putting together their own local policies. I think that would be a positive step.

David Magor: I agree wholeheartedly with that. Draft guidance and an indicative figure of the amount for each local authority would be most welcome at this stage. It would enable planning to start; it would also enable the local authorities to challenge. Better those challenges come now, as we are preparing. We are going through—let us hope—a long, hot summer, and through that long, hot summer local government accountants have nothing better to do than to work out what their relief should be, so I am sure that they would be pleased to see some indicative figures and draft guidance.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Q Clause 1 is effectively trying to make retrospective the regulations that were passed in March. I appreciate that only three months or so have passed since then, so it may be too early to make a judgment, but is there anything we can learn from the way that businesses or local authorities have reacted to those regulations? Are there any lessons that we can take from those operations so far?

Adrian Blaylock: Not to my knowledge.

David Magor: I think the overall reaction to where we are now has been relatively positive. The Government are in the process of removing this element of the material change of circumstance, and are replacing it with a grant scheme—with funding of a relief scheme. I think the only problem is the timing—that is the issue. If there is any lesson to be learned, it is that ratepayers are expecting their relief now and local authorities need to provide it in the current financial year, because they are the customer-facing service. They face the ratepayer and have to deal with the complaints that the relief has not been paid promptly enough.

None Portrait The Chair
- Hansard -

Gentlemen, your timing has been excellent, because you have concluded answers to the questions just within the time limit. On behalf of the Committee, I thank you both for your evidence this afternoon.

Examination of Witness

Sarah Pickup gave evidence.

00:00
None Portrait The Chair
- Hansard -

Q We will now hear from Sarah Pickup, who is the deputy chief executive of the Local Government Association. Sarah, can you confirm that you can see and hear us?

Sarah Pickup: I can, thank you.

None Portrait The Chair
- Hansard -

Q We have until 3.15 pm for this session. Could you confirm your details for the record?

Sarah Pickup: I am Sarah Pickup. I am deputy chief executive of the Local Government Association, with a lead on finance. I do not have the level of technical, detailed knowledge that your preceding witnesses had, but I can certainly bring you the LGA’s views on questions.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Q By way of introduction, could I ask for the view of the LGA on the principle of the Bill, which I think you welcome, and your concerns about any of the detail?

Sarah Pickup: You are correct: we welcome the principle of the Bill. An unquantified amount of material change of circumstances resolved over an unspecified period of time would be a really difficult prospect for local government to manage, and the need to make provisions would have been substantial. We have spoken to Manchester City Council, for example, which said it had calculated that it might need to make provision of around £11 million in respect of these material change of circumstances, which obviously would have meant that it had to take that resource from somewhere else. We think that there is a substantial level of challenges—we understand around 50,000 nationally. Manchester alone has had a 569% increase in those appeals on the year before, and 88% of those were to do with material change of circumstances, so certainly something needed to be done.

We welcome the prospect of a discretionary scheme, because we think councils will be able to assess where the real damage and the hit is on businesses in their area, but there are of course some challenges in devising a scheme within a fixed sum of money, so we await the guidance. A plus to local discretion is that you can try to fit it to your circumstances, but of course you have to fulfil the promises you set out in your scheme, and the resources put a cap on that. There are some challenges here, but in principle we absolutely welcome this as a way forward.

The other thing I just refer to is the timing issue, which was referred to by the previous witness. Our understanding is the same—that if someone has not made a decision by September, they cannot relate the change to the previous year. The appeals that have come in have come in largely for 2020-21; certainly, the Manchester increase refers to 2020-21. I think that is what businesses were applying for. The fact that it is ongoing into 2021-22 raises another question. There is a question about whether this fund is intended to apply to 2020-21, 2021-22 or to an unspecified period over which coronavirus has an impact. Those things will need to be addressed in the guidance, and we will need to understand whether we are trying to meet the losses to businesses in one year or in more than one year, and the timing of the regulations is important there as well.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Q That is really helpful. My second question was going to be whether you feel that £1.5 billion sounds like an adequate figure based on the indications you have had from local authorities. Given that you find it difficult to work out the time period involved, I am guessing that it is even more difficult to judge whether £1.5 billion is sufficient. Do you have any view on that?

Sarah Pickup: It is extremely difficult, actually. If we assume that it is meant to be for one year, I think Manchester’s assessment of £11 million represents about 1% of its rateable value. If in a very rough, back-of-the-envelope calculation you were to extrapolate that up to a national picture, it would take you to about £1.1 billion. However, that is a big extrapolation. Manchester has calculated what share it thinks it might get of the £1.5 billion pot, and it thinks that will permit it to offer reductions of around 10% to non-hospitality and leisure properties across its area. Of course, not all of them may need a reduction or will qualify for a payment from this fund, but I think it reinforces the point made earlier—that the expectations of business of what the fund might be able to deliver for them might not be realised in reality, for two reasons. First, more than one year is at stake here, and, secondly, people will have to design their schemes within the confines of the resources available through the distribution mechanism.

It is difficult without knowing how prescriptive the guidance will be. We understand there will be discretions here, for the very reason that you have to fit your scheme to the money available. What we do not want is some guidance that leads businesses to expect more than councils can possibly deliver within the sum available in their area.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Q Clearly, the guidance is absolutely key. Can you confirm whether discussions are happening with the LGA or individual councils about drafting that guidance?

Sarah Pickup: Not that I am aware of. The guidance would normally follow from the legislation. Obviously, people will have to give some thought to it alongside the passing of the Bill. We have not been involved to date in discussions about developing that guidance. We would welcome the opportunity to get involved in that with the Department.

Navendu Mishra Portrait Navendu Mishra (Stockport) (Lab)
- Hansard - - - Excerpts

Q Can you comment about how these provisions will affect local government’s income from business rates? We hear a lot about cuts to local government in the last 11 years, but how will this impact finances?

Sarah Pickup: These provisions mitigate against the need for having to make provisions against the material change of circumstances. In that sense, they are beneficial to local government, because it takes away that uncertainty, albeit we need the clarifications around timing and discretion as part of this.

If we stand back and think about business rates as a source of finance for local government and the Treasury’s fundamental review of business rates, they form 25% of local government income and are really important. Alongside council tax, business rates are one of the two main sources of funding, but where we stand now is that there is a whole patchwork of reliefs and new provisions for relief to businesses against their core business rates commitment. It means that the future is very uncertain. The way in which the next revaluation will go is uncertain and, arguably, while business rates have a role going forward, some significant reforms are needed to make them a stable source of finance for local government going forward.

Luke Hall Portrait Luke Hall
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Q Thank you for your evidence: I know the LGA conference is happening today. Can you think back and tell us when the LGA first heard about the potential scale of losses through MCC challenges and appeals? What was the reaction of local government at that time? What issues were they raising with you and how widespread was the concern? What time did it start to build up?

Sarah Pickup: Gosh, it is really hard to recollect precisely; so much has gone on in the last year. It was probably about a year ago; it may be slightly less. There was a lot of discussion at the point when the Valuation Office Agency started to discuss how it might address these appeals. I think there might have been some leaks in the press. That is when the discussion started to come to the fore a bit more, because there were some quite substantial proposals around the adjustments to valuations that might go forward. I think there was an attempt to address this on a uniform basis, rather than deal with every appeal and address it individually. We have gone from there to this scheme which approaches the issue differently, probably more straightforwardly and in a more timely way, certainly in the short term.

The anxieties around appeals are ever present and this was just an addition to the pre-existing issue about businesses’ ability to put in appeals right up through a rating list with no time limit on it. The check, challenge, appeal process has made a difference to that, but we have not yet seen the end result of the number of appeals from the 2017 list, because the time window has not closed yet.

Luke Hall Portrait Luke Hall
- Hansard - - - Excerpts

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 Portrait Seema Malhotra
- Hansard - - - Excerpts

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.

Marie Rimmer Portrait Ms Rimmer
- Hansard - - - Excerpts

Q The business rate revaluation that is currently taking place should be concluded in March 2022. The Bill would prevent businesses from retrospectively making an appeal against rateable values as they are now, even when the new system is in place. Is that provision necessary?

Sarah Pickup: This was probably picked up by your previous contributors. Because the basis of a valuation is based on rent as of March 2021, that valuation date sits in the middle of the pandemic, so the question is whether any adjustments are made to that or not. You would think that the impact of the pandemic on rental values would be reflected in the valuations going forward for the list starting in 2023, but clearly we will not know that until we go forward.

The other point is that it is a very changeable picture, and businesses will continue to be able to appeal based on changes in circumstances. Things that are currently due to covid could turn out to be long-term impacts on businesses, in which case I think they move into a different category. If you lose trade as a result of covid, that is one thing, but if your business goes into permanent decline, it becomes a very substantial and permanent change in circumstances, and that probably falls into a different category.

Marie Rimmer Portrait Ms Rimmer
- Hansard - - - Excerpts

Q Are you aware that three exemptions to the restriction on appeals are set out in clause 1(5)? They are very specific. The effects of covid-19 may be taken into account in valuation decisions when they affect the physical state of the property, the quantity of materials extracted or the quantity of waste disposal from the property. Those are the three specific reasons—losing trade or someone’s business going down because of covid are not among them. Are you aware of that?

Sarah Pickup: Yes, we are aware, and we think that the exclusions seem reasonable—as you say, they are very specific. They would be limited to very small numbers of businesses. Loss of trade goes across a much wider range of businesses and therefore the scheme is aimed at addressing that.

Marie Rimmer Portrait Ms Rimmer
- Hansard - - - Excerpts

Q Earlier this afternoon, you talked about a backlog of rateable valuation appeals. Do you consider that the rate valuation officers will be resourced enough to catch up with the backlog and get on with everything that comes from this?

Sarah Pickup: That is something that they would have to address. We have had concerns in the past about whether the resource was sufficient to deal with the backlog quickly enough. It is in the interests of local government for there not to be a big backlog and for things to be dealt with as and when they arise. That is much more efficient in the long run.

Marie Rimmer Portrait Ms Rimmer
- Hansard - - - Excerpts

Thank you.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Q When we get the guidance—I imagine that the LGA would welcome an early indication of what that might look like—there will be quite a job for councils. They will have to design the scheme and agree it with their members. They will then have to do all the eligibility assessments. There might be IT updates to facilitate the new relief and there will presumably be some sort of reporting requirements. That is a lot of extra burden. I am guessing that the LGA might welcome some new burdens funding. Do you have any thoughts on that and what an appropriate amount might be?

Sarah Pickup: I could not give you an estimate of the amount of funding, but it is clearly a new burden. In most of the instances when new burdens have come along during the pandemic, some resourcing has been put in place to help with the design of new schemes.

Of course, revenues and benefits officers—in particular, finance officers in councils—have implemented a huge number of different schemes, some of which they have had to consult on and some of which have been much more directed and put in place by the Government. They have done that throughout the pandemic and this is another instance of something they will have to do.

The key thing, of course, is that those officers are given time. Sometimes, what we have found is that the money is announced, the guidance is passed or the regulations are put in place and then immediately everyone starts asking councils, “Where is the money? Why has it not been put out yet?”. As you said, councils need to be given time to go through due process to put schemes in place. A lot will depend on what the guidance says—and yes, early sight of it or early drafts and indications of the direction of travel, as well as early indications of the sums of money available, would be extremely helpful in helping councils to prepare.

None Portrait The Chair
- Hansard -

There are no further questions for Ms Pickup. I thank you for your time this afternoon giving evidence to the Committee.

Sarah Pickup: A pleasure—thank you.

Examination of Witness

Andrew Agathangelou gave evidence.

15:03
None Portrait The Chair
- Hansard -

Q As we have concluded the second panel slightly earlier than scheduled, we move to the third panel. I welcome Andrew Agathangelou. This session can run until 4 o’clock. I ask our witness from the Transparency Task Force to introduce himself for the record.

Andrew Agathangelou: Good afternoon. I am Andy Agathangelou, the founder of the Transparency Task Force. The Transparency Task Force is a certified social enterprise dedicated to helping ensure that consumers are treated fairly by the financial industry. I should also mention in passing that I am involved with two all-party parliamentary groups: one on pension scams and the other on personal banking and fairer financial services. My involvement is as the chair of the secretariat committee to both those APPGs. If the Chair would like, I would be very happy to elaborate on the work of the Transparency Task Force and our particular interest in this matter.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Q Welcome, and thank you for being with us. Following on from your last comment, it would be a helpful start if you could indicate your particular interest in this legislation, to what extent you welcome it and what the concerns around it are.

Andrew Agathangelou: The Transparency Task Force is all about trying to bring about regulatory reforms so that consumers get a better deal from the financial industry. An increasingly large proportion of our time and effort goes towards trying to sort out the terrible mess that occurs when people are scammed. We are very interested in cases such as Blackmore Bond, London Capital & Finance, Connaught, Lendy and Ark. There is a very long and very sad list of scams that have affected quite literally thousands of people in our country.

The reason I am particularly interested in the Bill is that we have noticed over many years that a colossal amount of carnage is being caused by a relatively small number of criminally minded individuals. It will not surprise you that one of their methodologies—one of the ways that they work—is phoenixing. As soon as they start to feel the temperature rise around them, they close down shop and reappear somewhere else. These individuals tend to be highly intelligent, very sophisticated and very good at planning and strategising their next step. They always have a plan B, C, D, E and F up their sleeves. Frankly, they have been running rings around the regulators and enforcement agencies. One of the most powerful weapons they have is the ability to dissolve their organisations and pop up somewhere else. That is why the Bill is of real interest to me. It will also be of enormous interest, I am sure, to the many tens of thousands of people out there who have lost as a consequence of criminal activity.

I do feel the need, if I may, to elaborate on the loss. When somebody finds that they have lost their entire life savings, quite literally in some cases, when they are in their 60s—in other words, too late in their life to do much about it—the financial loss is absolutely horrific, but the emotional consequences, the shock to the system, can be so bad that they find themselves self-harming. People find themselves under huge amounts of emotional stress and strain. It is particularly bad when, let us say, it is the husband who has had his entire pension savings taken from him by crooks; he is so fearful of the situation he has created for himself and his family that he has not even told his wife that it has happened. There are people out there who are living day by day with a horrific secret—that they have lost a lot of money—and they have not quite got it in them to tell their partners and families what has happened.

I am very deliberately painting this picture for you, Mr Smith, because the work that you are doing with the Bill is of great importance. If there is anything that can be done to mitigate the risk of that kind of emotional and catastrophic carnage, I would be very pleased to give it all the support I can, and I am sure everybody else would feel the same way.

The very, very worst manifestation of this—in fact, I will give you two. The worst manifestation is when you learn about children who self-harm routinely and repetitively because of the stress-induced state of the household resulting from the family’s life savings being tricked away from them by criminals. Of course, one step beyond that is when people take their own lives. There have been many suicides as a direct consequence of this kind of malpractice. That is why I am so pleased to be here today to share whatever I can about this Bill.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Q Thank you. You make a very powerful case for the ability to take action against these kinds of individuals. The question that follows on from that is: do you think the measures in the Bill are significant enough to have a material effect on the kind of individuals you are talking about who dissolve companies? Are they enough of a deterrent to make a real difference to this issue?

Andrew Agathangelou: The short answer is yes. I would characterise this Bill as a worthwhile step in the right direction. However, there is ample scope for improvement in relation to all the other areas that it touches on. I see it, hopefully, as a spearhead that might lead to other things happening as a direct consequence.

I will give you one quick example. There has been so much in the way of catastrophic regulatory failure over recent years that all the related enforcement agencies and bits of the regulatory framework need to wake up to the fact that our country has a horrific situation on its hands, in terms of the amount of crime that is going on. I believe I am right in saying that the National Crime Agency says that the annual cost of fraud in this country is something like £190 billion. That is a very big figure. Just to put that in context, I think it is well over half what the NHS costs. However, according to Anthony Stansfeld, the former Thames Valley police and crime commissioner, who is a man we have admired for quite some time for reasons that I will go on to, something like 0.03% of the amount lost in fraud, white-collar crime and economic crime is being given to the police as a resource to go and fight it. I believe I am right in saying that only 1% of the police budget goes towards fighting those sorts of issues.

My point is: yes, brilliant, let us stop criminally-minded directors from phoenixing, but please understand that this is just one small part of the ecosystem. What Parliament might want to do as a consequence of this Bill is to sit back and say, “Fine. We’ve done something really worth while in moving this Bill forward, but let’s not kid ourselves that the job is done. We’ve actually only just started to scratch the surface.”

Organisations such as Action Fraud, which, by the way—I can’t resist the joke—we call “Inaction Fraud”, the Financial Reporting Council, the Financial Conduct Authority, the Pensions Regulator, the National Crime Agency, the Serious Fraud Office, City of London police, the Insolvency Service itself, the Solicitors Regulation Authority and the professional bodies for the accounting and audit professions are all part of the landscape. They all need sorting out because of the part that they play in allowing a lot of crime to go on that really should not happen.

Let me give one further quick example. I am aware that there are people who are at risk of being scammed by directors of organisations operating today that were doing exactly the same thing last year, the year before that and the year before that. I think we can go back as far as 11 years. We are aware of dodgy directors who were scamming people 11 years ago, and were known to be scammers, but are still operating. Frankly—excuse my language—it drives me nuts.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Q What tools should the Government use to follow and recoup the money from the directors identified as culpable in these circumstances?

Andrew Agathangelou: I am quite a plain-speaking person, so forgive me, but I am about to be quite plain. The regulators need to enforce. There is evidence to suggest that, for example, despite the fact that one of the most important statutory duties of the Financial Conduct Authority—our primary conduct regulator in the UK for the financial service industry—is to try to protect consumers from harm, it is a little reluctant to enforce. That is not my opinion; the chief executive and the chairman of the Financial Conduct Authority gave evidence to the Treasury Committee earlier this year—I will try to find the link for you—admitting, frankly, that they were risk averse, I think the phrase was, when it comes to enforcing and mitigating. That is not verbatim, but that was the gist of it.

Would it not be good, ladies and gentlemen, if as well as having rules in place designed to protect consumers, we had a regulatory framework that had the gumption to go after the baddies whenever it could? There are two very important reasons for that. First, we might get them locked up or make them pay fines, and so on. That is great. That is exactly what we want, but even more importantly than that, it will show that there is good reason for these dodgy directors to not carry on their wicked craft.

It is currently a very low-risk career path for somebody to become a criminally minded director of a company. The chances of their getting caught are very low. The chances of their paying a fine are very low. The chances of their being banged up are also very low. Why? Because the regulatory framework as a whole is not built to cope with the tsunami of criminal activity that is going on. I would say, from a long list of potential improvements, that one of them would be to please encourage our regulators to regulate robustly and enforce effectively.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q Let me follow up on that. Thank you for giving evidence. You laid out a broad landscape of institutions and organisations that you said were together allowing the crime to go on, on the scale that you believe it is. You went on to say that the regulation is not really built to cope with what is happening. As part of that systemic issue, what do you think the Insolvency Service is not doing as well as it should, and does it have the resources that it needs to perform its functions effectively?

Andrew Agathangelou: I will answer your question, but before I do I would like to elaborate on a small point that you made. I actually think that the regulatory framework has been built by Parliament to do what it is designed to do. The problem is not that it is not capable of doing it; it just does not do it. It is a bit like having a really fast car that is just not being driven fast by the driver. The problem is not the vehicle; it is who or what is controlling it. I just thought I would throw that in.

To respond to your question more specifically, again I am a plain-speaking person. The Transparency Task Force ran an event last Thursday, with the title “The Great Insolvency Scam”. I can provide the Committee with the recorded video testimony of that. The reason why we ran an event called “The Great Insolvency Scam” is that we see insolvency as a very dark and murky part of the world of business and commerce. We believe that there is a pile of evidence suggesting that the Insolvency Service has been weaponised. That is where the Insolvency Service is frankly abusing its very extensive powers.

The net result is that people sometimes have their homes or businesses taken away from them, as a consequence of engineered bankruptcies. It really is an horrific, dark area. It sometimes results in people self-harming, committing suicide and all the rest of it. I will now answer your question directly. Personally, the Insolvency Service is a can of worms. I will repeat that it is my personal opinion. I think the Insolvency Service, in part, is a can of worms that needs to be opened up and looked into. It needs to be properly regulated.

I have enormous concern about giving the Insolvency Service lots more money to carry out the additional work that is going to be necessary as a consequence of this Bill going through, if it does, without first ensuring that the service is fit for purpose. These are very strong views. I am not an extreme individual who has crazy ideas. I have just listened to and seen the testimony of people who have suffered as a consequence of the types of things I am talking about.

Think of this Bill as the start of an ongoing process of reform. Please do not think of it as the end point. Please do not make the mistake of thinking that it is a “job done” situation. It really is not. There is so much to be looked at. I ask the Committee to do all it can, on behalf of the British public, to ensure that the Insolvency Service stops doing what it sometimes does.

Peter Grant Portrait Peter Grant (Glenrothes) (SNP)
- Hansard - - - Excerpts

Q Good afternoon, Mr Agathangelou. Picking up on your last point, I do not know if you are aware that a couple of amendments have been tabled that would require the Minister to come back to Parliament and report at a future date, first, on the extent to which the powers of the Bill had been used and, secondly, with an assessment of how effective the Bill had been in addressing the problems that had been identified. In your view, would those amendments strengthen the Bill, make it weaker or make no difference?

Andrew Agathangelou: If the purpose of the Bill is to have a positive effect, of course they would. You manage what you are monitoring. If things are being looked at and checked, and if the progress you are hoping will happen does not, you have a chance to review, to modify and to ask challenging questions about why what Parliament wanted to happen has not.

There is a great parallel. I was involved in giving evidence on the Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill 2021-22 a while ago. The parallel there applies here. It is absolutely vital that there is a requirement for those responsible for executing the will of Parliament to be accountable and to be able to demonstrate that they have done so.

I would be disappointed if it took an amendment to make that happen. It should go without saying that you do not just abdicate your authority, pass the Bill and hope it happens. That to me would be a very poor approach to governance in terms of ensuring that legislation is effective. Essentially, if you want the Bill to work, you must ensure that what is supposed to happen after it is passed does actually happen. To my mind, frankly, that is very clear and obvious, and I cannot begin to think what the argument against that would be. How on earth could somebody argue against the idea of making sure that something you hope works does work? I could not even begin to think about how to argue that.

Peter Grant Portrait Peter Grant
- Hansard - - - Excerpts

Q One of the questions we looked at in quite a lot of detail this morning was the retrospective nature of part of the legislation. It does not create a new offence or mean that something that was lawful at the time is retrospectively made unlawful, but it gives the Insolvency Service powers to look back at previous events that it could not have looked at in the same way before. First, do you agree with the principle that the Bill should be retrospective? Secondly, what are your thoughts on the three-year time limit that says that the Insolvency Service can look only at things that happened in the three years before a company is dissolved?

Andrew Agathangelou: First, yes. In my opinion this most certainly should be made retrospective. Why not make it retrospective? If the purpose of the Bill is to catch the baddies and to mitigate the risk of others deciding to go about doing this stuff as a direct consequence of the very powerful deterrent effect, why on earth would you not make it retrospective? To my mind that is really clear. I cannot imagine why you would not want to make it retrospective, if you had the power to do so. You are Parliament and obviously you do have the power to do so, so why not do it?

Three years is the blink of an eye in this context. There are all sorts of things that directors can—and do—do to play the game. They know the rules and regulations, and they know how to dance in, on and around them. The longer the time that you can go back, the more good you are going to do. It is as simple as that. The further you can go back and prosecute people who have broken the law, and wilfully and callously committed offences, the better. Why not make it 10 years or 15 years? I do not know what the right timeframe is, but to my mind three years seems like a very short period of time.

If the objective is to try to clean up our country, then make the timeframe as long as you can. I make this point because on the international scale I should mention that we have about 1,000 members outside the UK. It shames me to know that outside the UK, the UK is considered to be one of the worst places in the world when it comes to economic and financial crime and fraud. Some countries think the UK is the laundromat of the world. There are huge concerns over money laundering and over international drug money, terrorist money and so on.

Given how bad the level of fraud, white-collar crime, corruption and those sorts of things are within the UK, I would suggest that Parliament should come at this from the point of view of, “We should now be as powerful as we can be in opposing these dark and dangerous forces, unless there is a really good reason not to, because we have a national duty to do so.” I was brought up with the idea that the UK was a world leader when it comes to these sorts of things, but frankly the evidence really does not show that.

I want to make one particular point, Peter, if I may? There is a very powerful database called Violation Tracker that tracks the levels of violations by companies against the US authorities. When you look at the data in there, you find some startling trends, and the first is this: there are about $667 billion-worth of infringements against the US authorities by all kinds of industries. I think 52 industries are listed. The worst offending industry on the Violation Tracker database is the financial services sector, despite the fact that there is a long list of reasons why the financial industry actually ought to be the most trustworthy industry of all. That is not the case; it is actually the worst offender out of all of them. In fact, it is so bad that roughly half of all the infringements in that $667 billion total are directly attributable to the financial sector. In other words, it equates to all of the other industries put together.

My point is that the jewel in our crown, in terms of UK plc, is our financial services sector. I am of the opinion that if similar analysis to that which has been done in the US market were done in the UK, it would likely show a very similar picture. Therefore we should be fighting extremely hard to hunt down all perpetrators, all criminal dodgy directors. From my point of view, given the interest of my organisation, I think we should be relentless when it comes to chasing down people who operate scams such as Blackmore Bonds, Connaught, LCF, Premier FX, Lundy & Associates, and all the others.

Peter Grant Portrait Peter Grant
- Hansard - - - Excerpts

Q One final question, if I may, that ties together two of your previous answers. You said that you had certain knowledge of the type of scams that you just described, perpetrated by company directors who were doing the same thing many years ago. It is up to you if you want to name names in answer to this question, but are you aware of people conducting these scams now who could be disqualified from office as directors if the Insolvency Service went back and looked at the conduct of directors of companies that were dissolved earlier than the time limit of three years set out in this Bill? Does the three-year rule actually prevent the Insolvency Service from investigating directors currently conducting scams who, without that time limit, could be held to account and disqualified from holding office?

Andrew Agathangelou: Yes, that is absolutely the case. I will elaborate on my answer, if I may. Last year, the Work and Pensions Committee led by Stephen Timms MP opened an inquiry on pension scams. Many of our members are victims of pension scams, so as a consequence it is a topic we know rather a lot about. I will share a document with the Committee produced by the Transparency Task Force as part of our response to that inquiry, and that document will evidence without any doubt why it is absolutely necessary that the three-year limit is extended to five, six, seven, 10 years, however far back you can go.

I say this because I am working on the basis that if the regulators, the enforcement agencies and the Insolvency Service can prosecute criminals and have them pay fines or be locked up, or whatever it might be, they would want to do that. Why would they not want to prosecute the baddies? To my mind it is simple, and I absolutely assure you that in the document I will provide to the Committee, as well as other supporting documents and evidence, you will see named individuals who have been dancing around prosecution over many, many years—I think one is 11 years. This Bill, if extended to a proper duration of time, would become a problem for them.

I would take great satisfaction if this Bill helped to finally lock up individuals who are currently in very expensive villas in Florida, with properties all over the world, with all kinds of fancy cars and fancy homes, all paid for by the life savings of British pension savers and investors. That would be very rewarding to know.

Navendu Mishra Portrait Navendu Mishra
- Hansard - - - Excerpts

Q I believe that all 650 MPs will have constituents who have been victims of the practice of phoenixing. I believe you made reference to law enforcement agencies, Action Fraud and the National Crime Agency. Could you tell us a bit more about how big the problem of phoenixing is—directors using legislation to dissolve companies to avoid liabilities and further investigation?

Andrew Agathangelou: I cannot answer your question directly, forgive me—I do not have that data and have not done that research. Let us think of it like this: roughly four or five years ago, a man called Roberto Saviano, an investigative journalist, became quite famous for a period because he did some investigative journalism on the mafia, and as a consequence of that investigative journalism, he now lives, I believe, under police guard 24 hours a day because he lifted the lid on a whole load of really bad, really heavy stuff.

I am mentioning Roberto Saviano because about five years ago, at something called the Hay Festival, he made the point that London is the heart of global financial corruption. That is a pretty powerful thing for somebody to say, especially if they have been investigating the mafia for years and years. You can google it and find it yourself. This is a very serious heavy-duty investigative journalist.

I mention that because it is reasonable to assume that a lot of that corruption involves entities and companies set up for special purposes. If the UK is the worst country in the world when it comes to global financial corruption—or if it is not the worst, let us say it is in the top quarter of really bad countries when it comes to financial and economic crime and corruption—it is reasonable to assume that the artful dodge of phoenixing is part of the modus operandi of the “community” that does this kind of stuff. I cannot give you any facts or figures, but a little deduction suggests that it is a massive problem.

I will make one further point, if I may. One of the reasons why it is a problem is Companies House. It is still shocking to me that, despite about nine years of Parliament having an interest in Companies House, finally getting its act together and asking even really basic questions about the people behind a new company that is being set up, Companies House has been allowed to carry on behaving in the nonchalant way that it does, with its casual, risky and dangerous way of granting companies the chance to come into existence when no proper due diligence has been done.

Similarly, in the pensions world, there was a period of about three years when Her Majesty’s Revenue and Customs was happy to authorise the setting up of new pension schemes with the lightest-touch due diligence you can imagine. Basically, people were allowed to go online, fill in a form and create a new pension scheme, which would then be the perfect vehicle for scammers to use. That has happened so much.

While I am on this little rant, allow me to stay there with one more point. When the pension freedoms legislation was being introduced, many people said, “Woah, woah, woah, woah, woah! Before you go allowing people to transfer their entire pension savings in a lump sum, why don’t we stop and think what the risks of this are? Why don’t we have a conversation about whether this might lead to some kind of fraudster’s paradise?” But no, pension freedoms legislation was rushed through, and now, many years later, even the regulators, such as the Financial Conduct Authority, are making the point that not enough thought was given to the risks associated with that kind of casual, fast policy-making.

So there we go. Companies House is effectively advertising to criminals, “Come and set up a company in the UK. Don’t worry, we’ll turn a blind eye to pretty much anything that happens because, frankly, we won’t know what you’re doing or what you’re about because we won’t bother asking you.” That is one example of these sorts of issues. The second example I have given you is in relation to HMRC, and it goes on.

I honestly think that if anybody was to do some kind of independent, objective, evidence-based evaluation or analysis of the work of City of London police, the Insolvency Service, Companies House and the financial regulators—that very long list that I mentioned—around how effective they are at preventing crime from happening in the UK, I am pretty sure that report would be rather scathing.

Navendu Mishra Portrait Navendu Mishra
- Hansard - - - Excerpts

Your contribution is quite depressing, but thank you for making it.

Paul Scully Portrait The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)
- Hansard - - - Excerpts

Q I am here with my corporate governance hat on, but I am also Minister for Consumers. The issues that you raise about scams are really important, and it is really important that we continue to address that. We just had Scams Awareness Week; we have been raising awareness so that people do not get involved, but it is also important that we make sure that institutions and networks are addressed in these sort of ways.

It is interesting: you talked about the amendment, which actually asks for a single report in a year. Clearly, we want to be managing the situation and making sure that it is effective. In terms of the time that you are looking at, obviously that does not negate the ability for criminal action to be taken; it is to restore directors.

I really want to focus on the Bill itself, and the focus within that and what we are doing positively to try to tackle some of these issues—including on phoenixing, which you started off talking about. I know you talked about lots of other things, and other things that we can be doing and are doing, but do you agree that the Bill adds an extra weapon to tackle phoenixing itself?

Andrew Agathangelou: I certainly do. As I said earlier, it is a significant, valuable, worthwhile step in the right direction. My plea—forgive me; I guess I am repeating myself here—is that we look at the whole ecosystem. For example, why on earth are we not including fraud and so on in the online safety Bill? I know that is another topic, but can you see how, from my point of view, these are all interconnected issues—this is all the ecosystem?

I guess I am saying that Parliament can take one of two views here. You can either deal with this tactical, ad hoc Bill, which is of course worthwhile, in isolation of everything else. However, for goodness’ sake, please do not do that; actually look at the bigger picture here—the interconnected matrices of other issues that Parliament ought to be grabbing by the scruff of the neck and finally sorting out.

Paul Scully Portrait Paul Scully
- Hansard - - - Excerpts

I appreciate that. If you look at corporate governance and Companies House reform and all these issues, and indeed at the online harms Bill, I am sure you will have plenty of opportunity to comment on that. As I say, this deals with one specific issue because of the impetus now. That is all I wanted to raise.

None Portrait The Chair
- Hansard -

If nobody else has any questions for our witness, I thank you on behalf of the Committee for your evidence, Mr Agathangelou. I am sure the Committee welcomed your frank speaking throughout. Thank you very much.

Andrew Agathangelou: Thank you all.

Examination of Witness

Kate Nicholls gave evidence.

00:04
None Portrait The Chair
- Hansard -

We move on to our fourth witness panel for this afternoon. The next witness we will hear from is Kate Nicholls, the chief executive of UKHospitality. We have until 4.45 pm for this session. Ms Nicholls, could you formally introduce yourself for the record?

Kate Nicholls: I am Kate Nicholls, chief executive at UKHospitality, the national trade body representing hospitality businesses—pubs, clubs, bars, restaurants, hotels and holiday accommodation. We have 700 member companies, which between them operate 95,000 sites across the UK, which is about 90% of the total hospitality market.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Q Welcome, Kate. We are keen to get the view of business about how this legislation will affect businesses. Of course, UKHospitality will primarily be about hospitality businesses, but I am sure that you have supply chain businesses—and you will certainly be concerned with supply chain businesses that are some of the targets for the funding in this package.

I suppose my first question is this: what is the general view of UKHospitality of the measures, allied with the £1.5 billion funding package that goes with them?

Kate Nicholls: The key point that we would make is that we have had a high degree of support from the hospitality sector and the supply chain that goes alongside it throughout the course of the pandemic. We have a challenge in the supply chain in so far as the discretionary grants made available to our businesses within the supply chain have been allocated by local authorities, and by and large that has not flowed through as swiftly or as seamlessly as could possibly have been the case.

In addition, the business rate support made available to the supply chain businesses, and those businesses operating in the wider hospitality community that have been excluded from the hospitality and leisure grants, is not flowing through to the level that it needs to. Perhaps that is an indication of the large volume of businesses that are trying to get to grips with things and trying to get part of the wider funding available. There is a relatively small pot for a large number of businesses, particularly small and medium-sized enterprises.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Q I suppose the question that follows on from that is this: if the discretionary grants have not really been swift and seamless, as you have said, for various reasons, what lessons can we learn in trying to put in a regime for the grants that go along with this package to help businesses and local authorities in particular to manage the grant regime better?

Kate Nicholls: Part of what would be really helpful would be to have greater guidance made available to local authorities about the types of businesses that are particularly impacted by the pandemic and particularly dependent on the hospitality sector.

Hospitality is quite unique in that it has a supply chain that almost exclusively derives its income from hospitality businesses; with hospitality businesses, either 90% or 100% of their income comes from hospitality, but 75% of supply chain businesses within the sector gain more than 80% of their income from hospitality. More detail needs to be given to local authorities. Local discretion is meaningless unless you have really clear national guidance about the type of businesses that are to be supported and the impacts that they have had.

Greater clarity and economic advice centrally would help, as well as a comprehensive overhaul of the central guidance to make it clear that a multiplicity of funds have been available throughout this process—some of which have closed now, some of which remain open and some of which have been extended. That would be helpful: to provide greater clarity to those local authorities about the types of businesses that are able to be supported and how long this money is expected to last. There has been a general reticence about giving out funds when you might have a further call on income going further forward. However, now that we are towards the end of the pandemic, overhauling that guidance and providing greater certainty would be helpful.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Q In terms of the quantum of the figure—the £1.5 billion—do you have a view on whether that is sufficient? What kind of businesses ought to be prioritised in the guidance when it comes through?

Kate Nicholls: The businesses that need to be prioritised are those that have been most significantly affected by the covid crisis: both those frontline businesses in hospitality that have not benefited from the grants and the supply chain businesses to tourism, hospitality and leisure—and also those that are not business-based.

One of the areas that has been missing in a lot of the grant distribution has been food wholesale and food distribution—logistics companies wholly dependent on hospitality—but also our event caterers, business caterers and contract caterers. Those are the businesses that operate from a museum or an office, and not from their own units. They have therefore been totally excluded from grant support going forward.

In terms of the quantum available, we need to look at the allocation per local authority and make sure that that is given on the basis of the number of businesses they have that are disproportionately affected, so that we do not end up with the situation that we have had in the past, where constituencies in local authority areas that have a high concentration of these adversely affected businesses get a relatively small pot of money, because it is allocated per head, or per resident, or it reflects a different form of demographic.

We need to look at the pockets of deepest concern. As we come out of this, we want to avoid a whole-economy approach and be much more targeted and specific with the funds that need to be available in a greater volume to businesses particularly affected.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Q Finally, have you had any conversations with the Government about that mechanism and guidance? Are they taking soundings from hospitality businesses in particular about how that might work?

Kate Nicholls: Yes, they are. We are having conversations with the three main Departments that we work with—the Department for Business, Energy and Industrial Strategy, the Department for Digital, Culture, Media and Sport and the Department for Environment, Food and Rural Affairs, on the food supply and wholesale side—to ensure they are pushing to make sure that grant guidance is as comprehensive as possible and identifies the businesses that need to be caught that have been missed in the past but are disproportionally affected by covid. We are also urging that concern and care are taken to include businesses that have been particularly adversely affected as a result of the delay in step 4.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q Thank you very much, Ms Nicholls, for your evidence. Do you want to add anything further about businesses that have been excluded from other support that you believe should be within the scope and remit of—and therefore eligible for—this funding? Secondly, are you concerned about delays to the funding? How quickly do you think it needs to be made available?

Kate Nicholls: The quicker, the better is all I can say. A lot of hospitality businesses and their supply chains are clinging on by their fingertips, particularly given that they have had an extra month of restrictions imposed on them. A quarter of hospitality businesses have not been able to open and legally cannot until 19 July.

The remainder are subject to severe restrictions, meaning a loss of revenue of £3 billion. That impacts up the supply chain because if we are not operating at full capacity, we cannot get our supply chain kickstarted. The delay and cooling effect of that month of extra restrictions is significant, particularly in our town and city centre businesses.

We need to have that money as rapidly as possible, particularly because business rates bills started to kick in again for hospitality from the 1st of this month. Some £100 million of business rates bills started to be felt by the most affected businesses; that flows up through the supply chain as it tightens the credit and liquidity within the market.

The money needs to come as rapidly as possible and local authorities need to be given incentives to make that payment as rapidly as they can through the mechanism, so that delays do not hit. The danger is that if you leave it too late, you fail to get support to the businesses that are teetering on the brink and nearly surviving. We have lost an awful lot within hospitality in our supply chain, and we need to make sure we can keep those that are on the brink. The more swiftly we get money to them, the better.

On those businesses that have not benefited and need to be prioritised in this round of funding, the main ones highlighted are events, contract and office catering, particularly those in town and city centres where the delays will happen. You need a concentration on activities in central London, where businesses will not get back on their feet until we get international travel and office workers back in significant volumes. London hospitality is operating at about 20% to 30% of normal revenue levels; in the rest of the country, it is about 60% to 70%.

There is a severe lag on the central London activity zone and a heavy concentration of affected businesses in those two local authority areas, as well as Southwark on the south bank. You need to have focus on town and city centre areas, as well as the other businesses such as catering, weddings, events, conferences and banqueting, the freelance support and supply chain businesses that sit alongside those, and food wholesale, distribution and logistics.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q Thank you; that was very helpful. Within the sector, and from wider discussions you have had with those excluded, are you aware of businesses that have put in MCC appeals? What is the general feeling about this legislation?

Kate Nicholls: Yes, we had businesses that started to put in MCC appeals midway through the pandemic, when it was obvious that its effect was going to be much longer lasting than was first anticipated at the beginning of last year. A number of holiday parks, camping and caravan parks, golf courses and bigger holiday and hotel resorts put in MCC appeals. A number had been lined up for town and city centre pubs, bars, restaurants and hotels. Then there was the announcement that the MCC appeals would not be allowed under covid—that would not be a legitimate reason for an MCC appeal.

In our sector, MCC appeals are one of the few ways in which we can adjust our rateable value and our rates bills, which are incredibly high: they are the second biggest overhead as our businesses adapt to structural changes in the economy. While we might have thought that covid would be a temporary blip and a temporary impact on the economy, it is quite clear that for many businesses, particularly in towns and city centres, where there are changes to ways of working and to retail office accommodation, we are seeing a structural change that will have a longer-term impact.

People are very concerned, particularly as we move through this period when we have support and a tapering of relief on business rates at hospitality venues that comes to an end in April 2022. The concern is about what happens when we revert to rateable values and rates bills as normal in April 2022, because those bills will be set according to rateable values that were set for rents in 2015, at the height of the property market.

We are going to come back to rates bills at the highest levels we have ever seen them, having had a delay in revaluation. We will have had a long term without a market adjustment and therefore there is a concern that those businesses for which there is clearly a structural change in the marketplace are prohibited from making an appeal now that allows them to get ready for April 2022.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q Finally, have you seen a rise in businesses that may have experienced debt and other challenges being dissolved? What does the data in your membership say about what has been driving that? Are there any wider issues around the dissolving of companies that we should be aware of?

Kate Nicholls: Thankfully, we have seen very few companies in this sector go into liquidation. We have seen some administrations and some companies being revived with inward investment, particularly in the late-night sector. The areas where we have seen the biggest contractions are office-based and London-based.

We have seen a high number of business failures of individual sites and small and medium-sized enterprises. In particular, we have had contraction in the market of 12,000 hospitality businesses from covid from April 2020 to March 2021. That is a contraction of about minus 8% for pubs and bars, plus 10% for restaurants and hotels, but in major conurbations in the heart of our cities, one in five businesses has failed through the covid crisis. Part of that is very high levels of debt, and that will continue to accelerate business failure and business closure as we come out of this. The first date at which our sector can go cash positive is 19 July, but it is estimated it will take two years before the sector can recover to 2019 pre-pandemic revenue levels and profitability.

As we come out of this, we see a heavily in-debt sector. Previously, debt was used to fund growth and further investment. Pre-pandemic, we were opening two sites a day as we expanded our pubs, bars, restaurants and hotel chains; that was funded largely through the debt and earnings of the businesses. Over the course of the pandemic, we have seen that while the rest of the economy has corporate deposits that are twice the level of corporate debt, in hospitality it is exactly the opposite. We have twice the level of debt as corporate deposits, which means that our sector is going to come out with an anchor on its potential growth and recovery, because it will have to pay down and service that debt and that will delay the recovery further.

You are looking at about £2 billion or £2.5 billion of rent debt. We are waiting to see the Government’s proposals in the detail of the Bill that will help to resolve that. There is also £6 billion of Government-backed loans, which many businesses started to repay this month. That is very challenging when they have limited revenue coming in or heavily restricted revenue. Paying down that debt will to take a lot of time to get through and to get over, and we fear very much that the level of business failure that we saw during the covid crisis will be replicated in the two years as we come out of it, as we try to recover.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Q Can I follow up on a specific question that follows from something you said earlier? I was interested to hear you say that the hospitality trading levels in London are 20% to 30% of what they would normally be, and in the rest of the country it is around 60% to 70%. That is partly down to international travel, and I am guessing that there might also be areas—maybe coastal towns—that might be similarly affected by lack of footfall. I am wondering whether there is an evidence base for those regional or city-based variations that the Government might take into account in guiding the allocations, or is that a little bit too sophisticated to get into?

Kate Nicholls: It is certainly challenging to be able to get into, and I am not sure it would drill down as closely as local authority by local authority level, but there are certainly indications. You can measure footfall drops by high street data: there is good data from Springboard about footfall in our high streets, towns and city centres, as well as shopping centres. They are measuring it for retailers, but that would also apply to hospitality businesses. It is not just the international tourists: it is the offices, the work from home, and it affects different city centres differently according to the demographic that uses them. It is less to do with our coastal towns—they are benefiting from more domestic tourism and domestic footfall—but you are seeing it in London, Edinburgh, Glasgow, Manchester, and to a lesser extent Leeds, Sheffield and Newcastle. They are seeing a drop, but London is particularly badly affected because 70% of London hospitality is inbound tourism, and we are not going to see any pick-up in inbound tourism any time soon.

I think there are broad regional differences that you can apply: it is a very rough and ready crude assessment that you can place on it, but there is a possibility of looking at footfall data. However, I would urge the Government to look at the areas of the country and the constituencies where you have a disproportionately dense population of hospitality and tourism businesses—many of which will be SMEs—and where you have the supply chain businesses that support them. They tend to be local supply chains and to be geographically co-located, so that would be a good indicator of where that support needs to be directed.

Luke Hall Portrait Luke Hall
- Hansard - - - Excerpts

Q We are clearly moved to give 100% rate relief to many businesses with a £16 billion pot. Of course, I understand that some of the businesses you work with and represent will have been disappointed about where the line was drawn, so to speak. I just wonder, notwithstanding the point you made earlier in answer to the question about guidance, whether there is anything you would like local authorities to start thinking about as they start to draw up their own guidance schemes in response to some of the early challenges that have been faced by some of the businesses you will be working with.

Kate Nicholls: We would urge local authorities to work with us to identify themselves where the areas of greatest need are. One of the things that has frustrated a lot of our businesses is that there is a central message from Government, and it is not necessarily interpreted on the ground as fluidly as Government might have hoped. When you look at some of the local authority areas, we have had businesses that are clearly designed to be captured and covered by the support mechanisms that are available, but local authorities have often taken the view that if it is not directly specified in guidance and it is not a named company or a named type of business, they are precluded from using their discretion and being able to provide support to those businesses. That is the frustration that our businesses have had on the ground going forward.

It would be helpful if local authorities could be a bit more permissive in identifying the businesses that they know are hurting at a local level, rather than applying a prescriptive approach that says, “If your name’s not down, you’re not coming in,” or “Here’s a tick, you are covered.” That would help immeasurably in those businesses that tend to fall between the cracks because they are not clearcut: if you are a coach operator, are you a tourist business or are you not? A local authority should be able to understand its local area and know which ones are and therefore need to be helped, and which ones actually managed okay. Those are the kinds of areas in which we would like local authorities to use their own discretion, not wait to be told specifically by Government that they can help those businesses.

Paul Scully Portrait Paul Scully
- Hansard - - - Excerpts

Q Briefly, with my hospitality Minister hat on, and following on from that question, Kate, you will remember that Minister Huddleston and I wrote to local authorities asking them to use their additional restrictions grant before they access their top-up. Have you seen any evidence of any local authorities responding to that, either by giving more money to businesses on their books or by widening the base to fill some of the cracks that you are highlighting?

Kate Nicholls: There are a few notable exceptions, but you can measure on the fingers of fewer than two hands the local authorities and businesses we have been able to help that have had a positive response to that request. All too often, the response has been that the grants that we are talking about are closed, there is no more money, and they will get back in touch with the businesses if more money becomes available.

It is incredibly frustrating that you have this disconnect at a central level. We hear what is being pledged, and we hear and understand the work that is being done by Ministers to communicate to those local authorities, but the operators on the ground just get a “No”. Some local authorities have been more creative than others, and some have been more proactive than others, but generally speaking it has been a long, slow process, and it has been very difficult to get money out of the local authorities for the businesses that desperately need it. It has been too slow in being processed. We know, because of the work we are doing we are doing at a central Government level, that it is there and has been made available; it is just not cascading out.

Simon Baynes Portrait Simon Baynes
- Hansard - - - Excerpts

Q Ms Nicholls, I have heard you speak on many occasions about hospitality businesses with great authority. One of the points that occurs to me is that they have the capacity to spring back quicker than some other businesses. That has certainly been the experience, particularly of last summer. They also benefit from the restrictions on travel, in terms of domestic demand. Do you think that to that extent it is quite difficult to judge exactly what the situation would be like at this particular point, because they may spring back better than we fear in, say, the late summer or the autumn?

Kate Nicholls: There is clearly a value judgment that needs to be made, and local authorities know their own local markets and the businesses within them, but these businesses will be coming out with such high levels of debt that, however quickly they spring back with revenue, it will take them years to repair the damage that covid has done to them. In the past 16 months, the hospitality sector has been closed with no revenue for 10 months and so severely restricted by the social distancing restrictions that it is not profitable for the remaining six. Businesses in our night-time economy, late-night businesses and entertainment businesses, many of which have struggled to access this grant support, have been closed for 16 months with no revenue. That takes an awfully long time to recover from. The sector has lost £280 million a day. Although certain parts of the sector had a strong performance last summer, the best they achieved was 60% of normal revenue, and that is below break-even.

Yes, demand is strong, and we anticipate that people will be coming to our venues this summer, but there are still constraints that will prevent those businesses from rapidly bouncing back into being sustainable and profitable, and they remain wobbly. Debt is one that could topple them over. There are issues to do with driver and labour shortages across the supply chain. They remain in a very fragile state and there is no resilience left in the industry, so we need to work to make sure we have strategies in place and build back resilience into the hospitality sector. We can then support our supply chain. A bit of pump priming and support now will pay dividends in the longer term.

None Portrait The Chair
- Hansard -

Thank you very much, Ms Nicholls, first, for your evidence and, secondly, for your flexibility with your timings so that you were able to join us early. We appreciated that very much.

Examination of witness

Duncan Swift gave evidence.

16:09
None Portrait The Chair
- Hansard -

I now come to our next and final witness of the day. We are going to hear from Duncan Swift, formerly the president at R3, and we have until 5.15 pm for this session. Mr Swift, could you please introduce yourself for the record?

Duncan Swift: Thank you. My name is Duncan Swift. As you have just heard, I am the immediate past president of R3, which is the UK’s trade association for restructuring and insolvency professionals. I am a chartered accountant and a licensed insolvency practitioner with over 30 years in practice, and I am a partner in Azets restructuring and insolvency practice.

None Portrait The Chair
- Hansard -

We are grateful to you, too, for your flexibility on timing.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q Thank you for giving evidence to us today, Mr Swift. I wonder whether you might want to make some opening remarks about your general views of the Bill and whether you support the measures in it.

Duncan Swift: I will be pleased to do so. It is fair to say that the Bill is regarded by R3 and the profession as a step in the right direction. It has been something that we have been seeking for several years now. However, I have to say that it is not a complete solution to the use of company dissolution as a vehicle for fraud.

To expand on that point, the shortfalls relate to the scale of the problem, which the Bill does not address. It also does not necessarily address fully what remedy is applied in the prosecution of directors or in relation to gaining redress for creditors who have lost out in the use of company dissolution for fraud.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q Could you say more about the scale? You talked about what you saw as the scale of the issue. What is your experience of that?

Duncan Swift: There are two things in the context of scale. One is that the Insolvency Service undertakes company director disqualification in relation to the 17,000-odd UK corporate insolvencies that occur annually. It typically achieves about 1,200 disqualifications per annum. R3 members report that they often encounter cases involving significant breaches by directors of Insolvency Act 1986 and Companies Act 2006 requirements that are not included in the company director disqualifications at all, which would suggest that the Insolvency Service is somewhat resource-constrained.

On the flip side, there are about 400,000 to 500,000 company dissolutions per annum. Nobody is quite sure just how many of those are insolvent company dissolutions, but the last time it was looked at in any detail, it was thought that about 50% of that total might be insolvent company dissolutions. That is 10 to 15 times greater than the corporate insolvency volume I talked about earlier. One has to ask whether the Insolvency Service will be scaled up 10 to 15 times to deal with that magnitude of investigation into insolvent dissolutions, or whether the investigation of insolvent dissolutions will come at the expense of investigations into errant director behaviour in insolvencies.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q You have written in, but not formally, I do not think, to the Committee with evidence. I think you have written to Members of Parliament before. I wonder whether you might be able to put some of those ballpark calculations in a note to the Committee.

Duncan Swift: Yes, R3 will be happy to supply that to you.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q Thank you. You raise some quite serious concerns about the resourcing of the Insolvency Service. Are you and your members concerned, then, that action is not being taken against directors against whom action should be taken? Are you seeing that result in phoenixism? Have you seen that and have your members seen that?

Duncan Swift: From the reports of R3 members, we are seeing surprise that adverse director conduct reports on serious misconduct have not resulted in disqualification of the directors. Whether that caused phoenixism or meant that the directors went on to commit the same type of misbehaviour in other corporate situations, I am not able to advise.

As a trade association, our member feedback is that the number of 1,200 disqualifications per annum, which is a fairly regular number over the past several years, appears to be fewer than the volume of cases where adverse director conduct reports have been submitted, which would warrant such disqualifications being issued.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q That is very helpful—thank you. Could I ask further about when you have submitted reports and where action has been taken by the Insolvency Service and the Government? How do you think the Government should facilitate the repayment of loans from disqualified directors? Do you see that as through compensation orders? What other tools do you think could be used?

Duncan Swift: That is one area where the Bill, as presented, appears to be incomplete. Mention is made to using things such as compensation orders, but that ordinarily benefits only a single creditor. I would anticipate that in this scenario that would be the public purse in the form of HM Revenue and Customs. Director disqualification in itself, which is the investigation and prosecution process that is envisaged, does not yield compensation to any party. All it yields is a decision that the behaviour of a director is such that they should be disqualified from acting as a director in future. It does not set the compensation mechanism or the process for compensation, whether to a single creditor or the creditor body as a whole.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q To follow up on that briefly, in your view there is an inadequacy in the legislation at the moment. Do you think that there is more that needs to be done? What would you want that to look like?

Duncan Swift: On what needs to be done, disqualifications that prevent directors doing the same errant actions again is clearly a step in the right direction. Other actions that could be taken include enabling restoration of dissolved companies more readily to the register where such errant behaviour has taken place. I mentioned the number of 400,000 to 500,000 dissolutions—as in strike-offs—per annum, of which it is estimated about half are insolvent. Yet only 1% of strike-off companies are put through a process to restore them to the register. We are talking about 4,000 to 5,000 companies a year. That process, from experience, is a court-driven process that typically costs the applicant, normally a creditor, a few thousand pounds in legal costs, to get the company restored to the register, in order to have a licensed insolvency practitioner appointed to it, whether in a compulsory liquidation or a creditors’ voluntary liquidation, so as to investigate the company’s affairs, and recover assets that might have been misappropriated by its directors.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q From your experience, how long was that process taking?

Duncan Swift: From experience, in terms of restoration pre-pandemic, you could be looking at 12, maybe 18 months. With the restrictions on court time in the pandemic, it is taking a lot longer.

Peter Grant Portrait Peter Grant
- Hansard - - - Excerpts

Q Good afternoon, Mr Swift. May I pick up on something you referred to and which was mentioned in the submission to us yesterday from your colleagues at R3? You said that there are a number of reports of potentially serious misconduct by directors that have been submitted by your members that do not seem to be acted on. I can understand that, as a representative body, R3 might not be privy to the details, but are you telling us that you will have had members who have acted as administrators or liquidators who have submitted highly critical reports to the Insolvency Service and have then seen the same directors coming back, setting up a new company and essentially restarting the same kind of misconduct? Is that the information that you are getting back from your members, even if they are not allowed to tell you which companies they are referring to?

Duncan Swift: Yes, sir, that is correct. Although director disqualification—banning a director or person from acting as such—is a deterrent, we also see instances of disqualified directors continuing to act as though they are the controlling party in corporate affairs subsequently. The serious rogue directors do not see being disqualified as a significant deterrent. A more significant deterrent is being held to account for the assets that they may have misappropriated and incurring personal liability for such actions that they have wrongfully undertaken while holding the office of director. That goes to the heart of the fact that more thought needs to be given by Government to how they will actually prosecute those directors. It is not just a matter of disqualifying them as directors. Crucially, what are the Government going to do in terms of revisiting the dissolved company that those directors have inappropriately dealt with through dissolution, rather than conducting an office holder investigation of their affairs, to enable some form of redress through the company’s position to recover assets and to compensate creditors who have lost out as a result of that individual’s actions?

Peter Grant Portrait Peter Grant
- Hansard - - - Excerpts

Q One solution that has been mooted— a partial solution—is that where an administrator or a liquidator makes a report beyond a given standard of belief that there has been serious misconduct, the fact of that report being submitted should be in the public domain. At the moment, it is a public fact that a report has been submitted, but the content of it is not published. Creditors of the dissolved company, and potentially investors in and creditors of a phoenix company, do not know whether any misconduct has been identified by the liquidator or administrator. Where do you see the balance of public interest in that case? Is there a question of potentially damaging the reputation of a director who turns out to have done nothing wrong? Or is it more important to protect the next generation of investors by flagging up that that particular director has had almost a yellow card—a report against them—that has not quite been followed up?

Duncan Swift: That is a very difficult question to answer. I am not a lawyer, so I am not entirely certain where the legal privilege lies. There is the risk that a well-intended but adverse report by an office holder based upon, more often than not, incomplete information might open up that office holder to legal action by the person who is the subject of that adverse report for defamation and impact on their character. It is a very difficult area.

In terms of the position of directors and dissolved companies generally, certainly suppliers, the providers of credit and those who rely upon the good name of an individual as a director are able to assess the quality of that name by dint of Companies House records on the track record of dissolutions and formal insolvencies of those individuals, as long as the Companies House data upon which that assessment is made is known to be accurate. Although this sits somewhat outside the Bill, reforms have been proposed to improve the veracity of the data that Companies House provides to all its users for that assessment.

To go back to an earlier question on improvements that can be made, and going back to the scale of the problem that this Bill currently does not really address, one thing I have not mentioned is that 95% of all company dissolutions are actually at the behest of Companies House. They are not at the behest of directors. Companies House has automatic strike-off for non-filing of accounts and non-filing of conformation statements. It is no surprise that those who would abuse the position of director choose not to file accounts and choose not to file confirmation statements.

One clear improvement would therefore be to remove the automatic strike-off power of Companies House, and to have that 95% of companies that would be struck off put into some form of quarantine or screening process—whether that screening is done by the Insolvency Service or some other Government body—as a precursor to deciding what to do with those companies earmarked for strike-off, and also for their registered directors. What was their behaviour leading up to the circumstances where such strike-off was being contemplated? At the moment, there is a huge volume of companies coming up for dissolution at the behest of Companies House, not at any other party’s behest.

Peter Grant Portrait Peter Grant
- Hansard - - - Excerpts

Q Would it make rogue directors less comfortable or less complacent about having one of their companies compulsorily struck off for what I think you described as non-compliance with reporting requirements? Would they be less likely to do that if there were also an automatic disqualification of all the relevant directorships at the same time? Would that act as an effective deterrent?

Duncan Swift: It would certainly act as an effective deterrent. I would have to ask—not having considered the question before—whether that would proportionate to the size of the problem. It would certainly be a proportionate deterrent in the context of this Bill if, rather than it being left to the Insolvency Service to investigate dissolved companies that were found to be insolvent after the event, the companies about to be automatically struck off for non-filing of accounts and confirmation statements had their position reviewed by the Insolvency Service at that point, pre-strike-off, to identify whether they should go through a compulsory liquidation process to address and fully investigate the director’s behaviour, and to recover assets for the benefit of creditors.

Peter Grant Portrait Peter Grant
- Hansard - - - Excerpts

Q May I play devil’s advocate for a moment and mention the fact that a lot of what you have suggested would generate a lot more work for insolvency practitioners? How do you persuade members of the Committee that what you are asking for is actually in the best interests of creditors, investors and suppliers of these companies, and is not simply trying to drum up more business for your employers?

Duncan Swift: I understand where the question is coming from, but actually what I am proposing is a lot more work for the Insolvency Service, which is the party that this Bill identifies as performing it. What I am saying is that that work should occur a lot earlier than after the event of a company being struck off—more than likely at the behest of Companies House—and subsequently found to be insolvent.

Pre-strike-off by Companies House, that review is undertaken, ideally, by the Insolvency Service, if it is scaled up to do that investigation. But as I say, the volumes are 10 to 15 times more than the volume of insolvent companies. Should it go into a compulsory liquidation process following that investigation or initial review by the Insolvency Service, it is the official receiver that is first appointed by the court to be the liquidator in the compulsory liquidation—so, it is Companies House, Insolvency Service, Insolvency Service. That is not a direct benefit to the private sector members of the insolvency profession.

Peter Grant Portrait Peter Grant
- Hansard - - - Excerpts

Q I have one final question. The legislation as it stands would set a three-year time limit on any application for disqualification, starting from when the company was dissolved. What are your views on that three-year time limit? Is too short, too long, or just about right?

Duncan Swift: I have to say, from experience, it is too short. Rogue directors or individuals who abuse the position of director go to great pains to extract all the asset value out of the companies that they are abusing and to provide a false, or certainly incomplete, trail of their actions as directors of the company. As an office holder coming in after the event, it is like pulling together a 3,000 or 4,000-piece jigsaw puzzle when holding only about five pieces to start with. You are having to make inquiries with multiple stakeholders, as well as interviewing the directors and their associates, to start to get the bits of the jigsaw puzzle necessary for a picture of what actually went on, in order to convince a court that what went on was actually a fraud upon the creditors and that the director had not acted properly. Again, from experience, although a relatively speedy pulling together of the jigsaw puzzle and convincing of the court takes three years, there are many cases where it takes far longer.

Paul Scully Portrait Paul Scully
- Hansard - - - Excerpts

Q To expand on a few of those areas, starting with the three-year time limit to file a disqualification application, the Insolvency Service or the Secretary of State can already examine historic conduct, but they have three years to file the application for disqualification. Can you expand a bit on what you meant about the court process, which presumably comes afterwards?

Duncan Swift: What I was explaining about the timeline was that for the office holder—whether it be the Insolvency Service or the official receiver as liquidator, or the Insolvency Service coming in to pull together a picture of the company’s financial dealings and the director’s conduct in the course of those dealings—it takes time. In the first phase in particular, it can take two years to get a reasonably complete picture before one can be confident of putting forward an application to court, either for a recovery of assets or, I would have thought, the disqualification of a director in circumstances where that individual may well be using the proceeds of such activities to defend their position, as well as seeking to confuse it to defend against the likelihood of such claims being brought against them.

Paul Scully Portrait Paul Scully
- Hansard - - - Excerpts

Q We talked a little about compensation orders earlier, which already exist for insolvent companies. This legislation would effectively extend them to dissolved companies, so that compensation can affect all creditors— individual and classes of creditors. A lot of the stuff you talked about at the beginning related to a wider piece of work that you would like to see on Insolvency Service reform and corporate governance. However, do you find the fact that we are bringing compensation orders within the realm of dissolved companies of benefit to—

Duncan Swift: Forgive me, but my understanding and experience of compensation orders is that they are brought on behalf of a single creditor or a few creditors. I suggest a more comprehensive approach: that the insolvency process that already exists is applied, and if a dissolved company is found to be insolvent, it is readily restored to the register and put through the insolvency process. That will have two consequences: a full investigation by the office holder, who in the first instance of the compulsory liquidation is the official receiver of the directors’ conduct; and for that process to recover such assets that are available for the benefit of all creditors of that company, not only a few.

Paul Scully Portrait Paul Scully
- Hansard - - - Excerpts

Q Okay. The other issue I want to clarify is the resource issue that we started off talking about. In some of the conversations that we had with earlier panellists, we were talking about the public interest test and the prioritisation of the cases that were most likely to get a result, frankly. Is it purely a resource issue that you are raising? Is it one of those that is not working as well? Are you saying that the filters may be wrong within those tests? Could you expand on that?

Duncan Swift: All I can go on is the statistics issued by the Insolvency Service on disqualification orders or undertakings from directors for misconduct relative to the total number of corporate insolvencies per annum, and the member feedback that R3 receives. At an anecdotal level, members report that they have submitted serious adverse conduct reports against individuals, only to find that no action has been taken against said individuals by the Insolvency Service. We are not told why. Clearly there is a threshold.

Coming back to the statistics, it would appear that the Insolvency Service is consistently—year in, year out, irrespective of fluctuations in the total number of corporate insolvencies—disqualifying about 1,200 individuals per annum. That suggests to me that there is a resource issue. I am not in a position to ask the Insolvency Service whether that is the case, but that is what it feels like.

Paul Scully Portrait Paul Scully
- Hansard - - - Excerpts

Q That is interesting—thank you very much. Obviously, we consulted on this back in 2018, but there is a particular compulsion to do this now, to tackle the most egregious cases of fraud involving the financial support given by the taxpayer throughout the pandemic. Presumably you welcome that, and therefore the drive to get this measure—albeit that it is not as wide as you would like—through now?

Duncan Swift: Yes. As I said at the start, this is a step in the right direction, but unfortunately it does not go far enough.

Paul Scully Portrait Paul Scully
- Hansard - - - Excerpts

Q Sure, but going back to the numbers—I know that it is anecdotal so it is difficult to tell—what sort of deterrent effect do you think this will have?

Duncan Swift: I repeat: it is a step in the right direction, but it is not enough. Individuals who would choose to abuse the benefits of directorship of limited liability companies are not dissuaded by the prospect of being disqualified—that is my experience and that of the members of R3. A more significant deterrent is that they are not only disqualified but the ill-gotten gains of said actions that led to their disqualification are required to be repaid and recovered for the benefit of those who have suffered as a consequence of those actions. If that also includes criminal liability, so much the better; I am sure that will add to the weight of the deterrent. They are far less likely to do it if they can see the routes to the gains that they obtain from such behaviour being readily recoverable.

None Portrait The Chair
- Hansard -

There are no further questions, Mr Swift. We thank you for your evidence this afternoon, and for your flexibility on timing, which we greatly appreciate. That brings us to the end of today’s sitting. The Committee will meet again on Thursday 8 July to begin line-by-line scrutiny of the Bill.

Ordered, That further consideration be now adjourned. —(Paul Scully.)

00:05
Adjourned till Thursday 8 July at half-past Eleven o’clock.
Written evidence to be reported to the House
RDDB01 Anton Smith, Partner, Ashton Bond Gigg solicitors
RDDB02 Institute of Revenues, Rating and Valuation (IRRV)
RDDB03 Paul Sewell BSc., Managing Director of The Machinery Users’ Association Inc.

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

The Committee consisted of the following Members:
Chairs: David Mundell, † Christina Rees
† Baker, Duncan (North Norfolk) (Con)
† Baynes, Simon (Clwyd South) (Con)
† Grant, Peter (Glenrothes) (SNP)
† Hall, Luke (Minister for Regional Growth and Local Government)
† Hunt, Jane (Loughborough) (Con)
† Jenkinson, Mark (Workington) (Con)
† Malhotra, Seema (Feltham and Heston) (Lab/Co-op)
† Mishra, Navendu (Stockport) (Lab)
† Richardson, Angela (Guildford) (Con)
† Rimmer, Ms Marie (St Helens South and Whiston) (Lab)
† Scully, Paul (Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy)
† Smith, Jeff (Manchester, Withington) (Lab)
Tomlinson, Michael (Lord Commissioner of Her Majesty's Treasury)
† Webb, Suzanne (Stourbridge) (Con)
† Whitley, Mick (Birkenhead) (Lab)
† Young, Jacob (Redcar) (Con)
Yohanna Sallberg, Committee Clerk
† attended the Committee
Witnesses
Stephen Pegge, Managing Director, Commercial Finance, UK Finance
David Kerr, Fellow, Chartered Institute of Credit Management
Dr John Tribe, Senior Lecturer in Law, University of Liverpool
Public Bill Committee
Tuesday 6 July 2021
(Morning)
[Christina Rees in the Chair]
Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill
09:25
None Portrait The Chair
- Hansard -

We are now sitting in public and the proceedings are being broadcast. Before we begin, I have a few preliminary announcements. Members will understand the need to respect social distancing guidance. In line with the Commission’s decision, face coverings should be worn in Committee unless Members are speaking or they are medically exempt. Hansard colleagues would be grateful if Members could email their speaking notes to hansardnotes@parliament.uk. Please switch electronic devices to silent. Tea and coffee are not allowed during sittings.

We will first consider the programme motion on the amendment paper. We will then consider a motion to enable the reporting of written evidence for publication and a motion to allow us to deliberate in private about our questions before the oral evidence session. In view of the time available, I really hope that we can take those matters forward without debate. I call the Minister to move the programme motion standing in his name, which was discussed yesterday by the programming sub-committee for the Bill.

Ordered,

That—

1. the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 6 July)

meet—

(a) at 2.00 pm on Tuesday 6 July;

(b) at 11.30 am and 2.00 pm on Thursday 8 July.

2. the Committee shall hear oral evidence in accordance with the following Table:

Date

Time

Witness

Tuesday 6 July

Until no later than 10.30 am

UK Finance

Tuesday 6 July

Until no later than 11:00 am

The Chartered Institute of Credit Management

Tuesday 6 July

Until no later than 11:25 am

Dr John Tribe, University of Liverpool

Tuesday 6 July

Until no later than 2:45 pm

The Chartered Institute of Public Finance

and Accountancy; The Institute of Revenues

Rating and Valuation

Tuesday 6 July

Until no later than 3:15 pm

Local Government Association

Tuesday 6 July

Until no later than 4:00 pm

The Transparency Task Force

Tuesday 6 July

Until no later than 4:45 pm

UKHospitality

Tuesday 6 July

Until no later than 5:15 pm

R3



3. the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Thursday 8 July.—(Luke Hall.)

Resolved,

That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Luke Hall.)

Resolved,

That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—(Luke Hall.)

09:27
The Committee deliberated in private.
Examination of Witness
Stephen Pegge gave evidence.
09:32
None Portrait The Chair
- Hansard -

We are now sitting in public again, and the proceedings are being broadcast. Before we start hearing from the witnesses, do any Members wish to make any declaration of interest in connection with the Bill?

Peter Grant Portrait Peter Grant (Glenrothes) (SNP)
- Hansard - - - Excerpts

One of the witnesses this afternoon is from the Chartered Institute of Public Finance and Accountancy. I am a member of that institute.

None Portrait The Chair
- Hansard -

Q So noted. We will now hear oral evidence from Stephen Pegge, managing director, commercial finance, at UK Finance. Before calling the first Member to ask a question, I should like to remind all Members that questions should be limited to matters within the scope of the Bill and that we must stick to the timings in the programme motion the Committee has agreed. For this session, we have until 10.30 am.

Stephen Pegge: Good morning, and thank you for the opportunity to come along today. My name is Stephen Pegge. I am managing director, commercial finance, at UK Finance. UK Finance is the trade association for finance and banking. We have around 300 members, many of whom provide services to companies, and we are involved more widely in supporting small and medium-sized enterprise policy.

None Portrait The Chair
- Hansard -

Q Do you have any general remarks about the Bill?

Stephen Pegge: Yes. This is an important Bill, and one that certainly has the support of many in the business community, including lenders. I know that the consultation had widespread support. It does appear that closing this loophole should be beneficial in terms of the enforcement of good practice, the prevention of abuse and a certain degree of deterrence of the misuse of an important and useful facility that allows companies to be dissolved quickly and cheaply, where that is appropriate and justified, as an alternative to liquidation.

There have been instances over the years where companies have been dissolved with outstanding liabilities, as a result of creditors or those who are owed money. I should stress that it is not just a question of banks, but others who may be owed money and indeed consumers who have perhaps paid deposits on work that has not been done or who are unable to recover those funds, because there has been a deliberate attempt to avoid debts by seeking dissolution.

It is possible in current circumstances for action to be taken, but it can be time consuming and costly, and would usually involve restoring a company to the register if it has already been dissolved. The particular arrangements here will make it possible for the Insolvency Service to investigate directors where there is evidence of abuse, even in circumstances where the business is not insolvent, but instead has been dissolved. That is the loophole that the Bill is looking to close and one, as I say, that we would very much support being open.

None Portrait The Chair
- Hansard -

Thank you, Mr Pegge. We will now take questions from members of the Committee, if you would be so kind as to answer. The Opposition traditionally go first, so I call Jeff Smith.

Jeff Smith Portrait Jeff Smith (Manchester, Withington) (Lab)
- Hansard - - - Excerpts

Q Hi, and thanks for coming to give evidence. I am just trying to get a picture of the scale of the problem. To what extent do you think this is a problem? Are the measures in this legislation adequate to deal with the scale of the problem that you think is out there?

Stephen Pegge: To put it in context, the Insolvency Service estimates that there is currently evidence of misconduct or misuse of dissolution process in only 1% of cases. Given that there are something like 500,000 dissolutions a year, that might amount to only about 5,000 cases. There is some evidence that it is a rising problem and, given that the average company that is dissolved might have a loan of say £200,000, even 5,000 cases could amount to a risk to creditors of up to £1 billion. It is significant in scale because of the large number of companies, even if it is not currently a high level of risk in proportionate terms. I would emphasise that the vast majority of businesses are honest and straightforward and are not abusing this scheme.

The other factor that members of the Committee may be interested in is that quite clearly over the last year, during the covid crisis, there have been a significant number of companies that have taken finance. Given that the Government, through the British Business Bank, have provided guarantees, there would be an impact on the taxpayer if those loans were not repaid and a claim for repayment were made. Again, that is relevant to consideration.

Seema Malhotra Portrait Seema Malhotra (Feltham and Heston) (Lab/Co-op)
- Hansard - - - Excerpts

Q Thank you for your evidence today, Mr Pegge. I understand that you helped to establish the covid-19 lending schemes. The Government have suggested that some companies have been dissolved to avoid paying back Government loans given as coronavirus support. Have you seen any evidence of that? If these measures go through, do you believe, from your experience and what you have seen, that the Insolvency Service is adequately resourced to deal with the expansion of powers it would have through the Bill?

Stephen Pegge: Yes, we have seen instances of this practice being used to try and avoid liability under bounce back loans. Back in May 2020, UK Finance with the British Business Bank established the bounce bank loan fraud collaboration group. It involves attendees from the Cabinet Office; CIFAS, the UK fraud prevention service; the Treasury; BEIS; and the National Investigation Service—NATIS. The aim is for intelligence to be shared, good practice to be developed and a threat log to be maintained and fed into the National Crime Agency and the National Economic Crime Centre. In fact, this was one of the practices which had been identified through that and has led to some efforts more recently to try to intervene and intercept these cases of dissolved companies involving Companies House and BEIS.

In the meantime, it is always possible that these cases may well have got through and there is some evidence—again, reported by the Insolvency Service—that there could be around 2,000 such cases which are dissolved and where currently the powers to investigate do not exist, so it is a real problem. If it were to become a more popular route for fraud, while there are mechanisms to deal with it and creditors can object when they get notice through alerts when these situations are gazetted, unscrupulous individuals can still get through and it is important that it is closed as a loophole.

As regards the resources of the Insolvency Service, we have all been conscious that, while the number of insolvencies has been low during a period of suspension and the generous support that has been provided to businesses through public agencies and the finance industry, we would expect that to rise significantly in this next period. There is already some evidence that it will do so. It is important that the Insolvency Service is resourced sufficiently to be able to deal with this. The evidence at the moment is that they have been involved in disqualification of directors in something like 1,000 or so cases across the last year, so it is quite possible that there might be a rise in the amount of work that they will need to do. We would certainly support any investigation into what additional resources might be necessary.

Peter Grant Portrait Peter Grant
- Hansard - - - Excerpts

Q Good morning, Mr Pegge. You have described the loophole of company directors being able to dissolve the company in order to avoid their liabilities. Another way that directors can act is to set up two or three companies, transfer all the assets out of a company, dissolve the company with the debts and retain the companies with the assets. Is that a loophole that will still exist, even if the Bill goes through? If that loophole continues, is there a danger that that then becomes the route of choice for dodgy directors to avoid their liabilities?

Stephen Pegge: I think the practice you are describing is sometimes called phoenixing—setting up a company in the same location with the same assets purporting to be the same business with the same directors. It has certainly been a matter of concern for some time. Putting in place these measures should help to discourage and mitigate the risks of phoenixing: I do not think it entirely removes it. As you say, it is possible, even without these additional powers of investigation, for that to take place, but certainly where there is evidence of abuse, the fact that the Insolvency Service will have powers under the discretion delegated by the Secretary of State to investigate the directors, take action against them in terms of disqualification more generally, and seek compensation from them personally for losses suffered will discourage the practice of phoenixing, which I know is a concern. As I say, I do not think that it entirely removes it, but it certainly will discourage it, and to some extent remove some of the possibilities of it taking place.

Mick Whitley Portrait Mick Whitley (Birkenhead) (Lab)
- Hansard - - - Excerpts

Q Welcome, Mr Pegge. Do the Government proposals address all the problems that have been identified with the dissolution process in relation to liabilities and directors’ conduct?

Stephen Pegge: This is certainly a very important contribution to addressing major issues, and it is the one that we have been most concerned about recently. We have seen, as I mentioned, real evidence of dissolution being used as an attempt to avoid liability, but I stress that in many cases dissolution is an efficient and appropriate way for companies to be removed from the register where there is no money owing and that business is ceasing, without going through the time and cost of liquidation, which obviously is available as an alternative—for solvent businesses through members’ voluntary liquidation, or in insolvent situations through creditors’ voluntary or compulsory liquidation. I am not aware of significant other means by which we need to deal with abuse of dissolution. This is the one that has been most to the fore in the evidence that we have seen of abuse, certainly through the fraud group.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Q I am trying to get a picture of the scale of the issue. You mentioned that the Insolvency Service was involved in about 1,0000 cases in the last year. I appreciate that you said that that is a low number for the year. Then you said that there may be around 2,000 cases where the powers to investigate currently do not exist. That sounds like a significant increase in work for the Insolvency Service, and I wonder whether you think that it will be able to cope.

Stephen Pegge: I am not close enough to its work and resource. One thing that I would say is that the Insolvency Service has very good experience in these sorts of investigations. I would also say that the other element of work, if it has found problems that meet the threshold of evidence and it takes action to disqualify a director, does not necessarily need to involve a court process. In most cases, the Insolvency Service will be successful in getting an undertaking from the director involved to be disqualified. It then has the powers to put that into effect, but certainly people may want to consider whether the resources are sufficient to deal with the case.

The other point is that these are situations where dissolution has been successful. We are also looking to these measures to act, to a certain extent, as a deterrent, in order to make it less attractive for those looking to abuse the system to try it on, as it were. So it may be that this event becomes less frequent in due course.

In fact, one of the processes that is clearly available is for creditors to object to an application for dissolution—and, indeed, the Insolvency Service at the moment is also able to object—on the basis of complaints at that earlier stage, where they have evidence of doing so. And because of evidence of significant numbers of attempts here, those objections have been done on a mass basis.

Marie Rimmer Portrait Ms Marie Rimmer (St Helens South and Whiston) (Lab)
- Hansard - - - Excerpts

Q Good morning, Mr Pegge. Clause 2(14) states that the provisions

“have effect in relation to conduct…occurring, and in relation to companies dissolved, at any time before, as well as after, the passing of this Act.”

Do you support making these provisions retrospective and, if so, how should the Insolvency Service make use of these retrospective powers?

Stephen Pegge: As I understand it, the support for this measure was confirmed as early as 2018 and it has really been a lack of parliamentary time that has made it difficult for it to be put in place. Given that we are aware of abuse that has happened in the meantime, I support this measure being retrospective. I appreciate that that retrospectivity is not often applied to such Bills, but we are talking about a fairly high evidence threshold and about situations where natural justice would support this measure being made with retrospective effect.

Paul Scully Portrait The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)
- Hansard - - - Excerpts

Q It is good to see you again, Stephen. That is an interesting point about the retrospective nature of the measure, given what you were saying about businesses taking on more debt throughout the pandemic. Obviously, the insolvency practitioners will work through things, as you have rightly said, in order of public interest. What do you think they may look to do to give lenders confidence, by approaching the pandemic response finance first?

Stephen Pegge: Clearly, when lenders are undertaking a credit assessment, they will consider both the willingness to repay and the ability to repay, the probability of default and the loss in the event of default. All those could potentially be, and I would say probably at the margin, factors that could be influenced by the use of dissolution as a means of avoiding liability.

Quite clearly, it is very difficult for a company that has been struck off the register to make payments under a loan, so there will be the avoidance of debt in those circumstances. Given that currently there is time and cost involved in restoring a company to the register, the ability then to take this action against directors after the event both to deter and, if the activity should still carry on, to investigate and take action against directors in a more timely and cost-effective way should reduce the ultimate losses to creditors. I think there has been an estimate that creditors could be saved around £1 billion as a result of this measure, which would be significant in terms of credit assessments.

The net effect is the ability to provide more finance with less time having to be spent on assessment up front, on better terms, and in circumstances that should help the recovery. However, I will emphasise, Minister, that this is only one factor and it is all operating at the margin. Nevertheless, it is certainly something that during the past year has become a matter of concern, especially in relation to bounce back loans.

Paul Scully Portrait Paul Scully
- Hansard - - - Excerpts

Q It is a complicated scene, as you say, and this is only one part of it. I think you are, therefore, suggesting that strengthening the regime in this way will give further confidence to lenders, and especially SME companies within the supply chains.

Stephen Pegge: Yes, exactly. It will, therefore, be possible to focus more time and support on those who deserve the finance, without the distraction of those who are abusing the process.

Paul Scully Portrait Paul Scully
- Hansard - - - Excerpts

Q Finally, what effect do you think there would be on lending if this regime did not come into place or the loophole were not closed? Would there be a chilling effect?

Stephen Pegge: As you say, it is a matter of a chilling effect. It is one other factor that would weigh on finance providers’ minds when making lending decisions. This is a crucial time for lenders to provide finance. If you look at the latest Bank of England figures, for May, which were published last week, some £7 billion of new lending was provided to SMEs.

Latest surveys suggest that high proportions of loan applications are being sanctioned—something like 85%—and we want that to continue. The expectation that this sort of loophole is being closed should build confidence. It will ensure that there is discouragement of bad actors, so that it does not grow out of proportion, which we fear might otherwise be the case.

Peter Grant Portrait Peter Grant
- Hansard - - - Excerpts

Q Good morning again, Mr Pegge. I apologise because I think I mispronounced your name earlier because I tried to read it without my glasses on. In an earlier answer, you referred to the retrospective nature of parts of the Bill. You indicated that you supported them. In particular, you referred to the fact that the Government had made it clear since 2018 that the legislation was coming.

Clearly, we are not creating a new offence that was not illegal at the time. We are considering legislation to make it easier for the authorities to act against people who may have committed offences, which I think is an important distinction. Even given that, is there an argument that the retrospective power should apply only to the date when the Government first published their proposals to legislate? Would you still support the Insolvency Service if it wanted to take action in relation to things that had happened in, say, 2015 or 2016? Would you have any concerns about that?

Stephen Pegge: As you say, this is essentially a technical loophole, which the Bill seeks to close. All it does is confer powers of investigation, with significant and rigorous practices in terms of investigation. The risk of miscarriage of justice is relatively limited. I do not have a particular date in mind. The point I was trying to emphasise was that this has widespread support and has had for some time.

None Portrait The Chair
- Hansard -

Thank you for joining us today, Mr Pegge, and taking the time to give evidence to the Committee. We are grateful.

We should be moving on to the next panel now but apparently the next witness is not ready. I will adjourn the Committee for a short time. We will reconvene when we have the next witness online. Thank you.

09:59
Sitting suspended.
Examination of witness
David Kerr gave evidence.
10:04
None Portrait The Chair
- Hansard -

Q We will now hear oral evidence from David Kerr, a fellow at the Chartered Institute of Credit Management. We have until 11 for this session. Could the witness please introduce himself for the record and make a few remarks about the Bill? Thank you.

David Kerr: Good morning, and thank you for the invitation to join the proceedings today. My name is David Kerr. I am a fellow of the Chartered Institute of Credit Management, the largest such body for credit managers. It was formed approximately 80 years ago and provides professional support, training and representation for credit managers and the creditor community.

The CICM contributed to the 2018 consultation and broadly supported the proposed measure in relation to director disqualification. Creditors have often raised concerns about directors leaving behind unpaid debts; whereas in a formal insolvency process, there will be some inquiry by an insolvency practitioner, when a company is dissolved ordinarily there is not. As we have heard, at present, the Insolvency Service will rarely look at those cases because it would potentially involve the cost of restoring a company to the register. The Bill therefore plugs an important gap, as others have commented.

It is probably important to make the point that this was first considered as a suitable measure and had support back in 2018, and while the urgency to bring it in now is understood, this measure is not solely for the purposes of chasing after directors and recouping funds in relation to covid debts but potentially has wider implications as well. There has been reference to the fact that 2,000 or 2,500 companies with unpaid bounce back loans may have been dissolved over the last year or so. I do not think there is any suggestion that every one of those will be investigated, but presumably the Insolvency Service will apply the same public interest criteria as it has hitherto in relation to insolvent companies. That would certainly give it the power to investigate those companies where directors have left behind debts, whether they are bank or Government debts or any other. That should act as a deterrent, one would hope, to directors using this route to avoid liabilities, and will perhaps also restore some confidence in the creditor community, provided that the action taken is publicised and therefore serves its purpose, both in the compensation orders that might be made and the deterrent factor. Broadly, the CICM supports the Bill. With that, I will be happy to take any questions that Committee members may have.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q Thank you for giving evidence today, Mr Kerr. You talked about restoring confidence to the creditor community. Would you say that there has been a loss of confidence in the creditor community? In relation to the 2,000 or 2,500 dissolved companies that you mentioned as having received covid-related loans, would you say that a high proportion of those may require investigation? Based on your experience of the creditor community, do you think that there was the means to repay those loans that those companies then tried to avoid?

David Kerr: In relation to confidence, I would not go as far as to say that there is a lack of confidence in the system, but in order to enhance confidence this is a suitable measure. It removes one source of frustration among creditors, which is where they can see directors who are not taking steps to put their companies through a formal insolvency process and instead are seeking to avoid debts by using the dissolution route.

In terms of numbers, I have not made any inquiry into the 2,000 to 2,500 companies that have been mentioned, but there has to be a sense of realism about the extent to which any Government agency can inquire into their circumstances. A percentage of them, based on creditor inquiries, complaints or other information that may come into the hands of the Insolvency Service, would trigger some investigation.

In relation to insolvent companies, although perhaps insolvency practitioners and creditors may be frustrated from time to time about the number of cases that result in disqualification proceedings, again there needs to be a sense of realism around the extent to which that can be done. That will happen in cases where, despite all the information, there is also a public interest test that is passed to pursue those actions.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q If a case passes the public interest test, do you think there should be the resources to deal with that? There is concern that the Insolvency Service may not have the resources, and therefore the ability to follow up on the expansion of powers in the Bill in the public interest. Has your experience been that the Insolvency Service has been able to resource any investigations that might be needed? What tools should the Government use to pursue directors of dissolved companies that they identify as culpable? Do you have a view on that?

David Kerr: In terms of resources and the ability to pursue all the cases that the Insolvency Service might wish to pursue, I guess that is probably a question for the Department. Not all the cases that are investigated will pass the public interest threshold. To the extent that there are cases that pass the test but cannot be pursued for resource reasons, I am sure the Insolvency Service would welcome any additional resources that can be made available to it. From the point of view of creditors, if actions are pursued in relation to covid-related debts and not others, perhaps the measure works against them a bit.

That comes to the second part of your question. There are two elements to this. First, there is the potential disqualification of individuals who are proven to have acted inappropriately. Secondly, and on the back of that to some extent, there is the possibility of compensation orders against those individuals, with a view to putting money back into the hands of creditors. Again, I am sure CICM creditors would wish that to be as effective for its members as for any Government debt.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Q Mr Kerr, you said that the CICM is broadly supportive. Do you have any particular concerns about the Bill? Is there anything that you think is missing from it, or could it be improved?

David Kerr: I think the point has been made about resource. I have heard comments from others on Second Reading and elsewhere about that. It would be unfortunate if the emphasis were entirely on dealing with bounce back loan fraud and if that took resources away from other directors’ conduct investigation cases. That point is not, I suppose, directly relevant to the provisions in the Bill; it is more a question of how it is implemented and taken forward. There have also been some comments about the retrospective element; the previous witness touched on that. I think these cases have to be taken within three years of the relevant date—the date of insolvency or the date of dissolution. I do not think the Department would be able to go back before 2018 in any event, and that was the date on which the consultation was conducted, so I suppose one could argue that directors have had notice of the intended provisions for the relevant period.

Those were probably the only points where there might be concerns to a limited extent, but generally I think the provision is a sensible one that gives the service powers that it does not have currently and which can only be helpful, I would have thought, to trust and confidence in the insolvency regime.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Q That is very helpful. On the three-year cut-off, are you concerned that that is likely to have implications on other investigations that the Insolvency Service carries out if it is not funded properly?

David Kerr: I was referring partly to the point that had been made by the Committee to the previous witness about whether there would be any issues around natural justice if the retrospective provisions pre-dated the consultation. I do not think that, in practice, that would happen. Going forward, the compensation laws that might be sought can be obtained after the disqualification order or undertaking, so there may be more than three years available to the service from the date of dissolution. There has to be a cut-off. I do not think there is any suggestion that the provisions of the disqualification have to be changed in that respect, merely that they would be applied to these circumstances. They have proved to be satisfactory since 1986 in relation to director disqualification in the insolvency proceedings, so I have no reason to believe that, going forward, those time limits will not be effective in relation to dissolved companies.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q Are any sanctions that are currently available to use against directors who may have dissolved companies to avoid liabilities not being used as much as they could be?

David Kerr: None that I can think of immediately.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

If you change your mind you can always let us know.

Peter Grant Portrait Peter Grant
- Hansard - - - Excerpts

Q Good morning, Mr Kerr. May I come back to the retrospective nature of parts of the legislation? The three-year period will be permitted because that is what the current timescale is. Given the notorious complexity of a lot of financial misconduct cases and the fact that they are long drawn-out processes, is there an argument for that three-year period to be extended in cases where there is an indication that there is not only misconduct, but potentially criminal fraud? I am thinking about cases in which the potential fraud runs into the tens of millions of pounds. Is there an argument that in those cases, there should be no hiding place for criminals of that scale, simply because of the length of time they have managed to get away with it?

David Kerr: That is a fair point. I suppose the statute of limitations could be considered a relevant backstop, but I will come back to my previous point that we have a three-year limit in relation to investigations into directors’ conduct in insolvent situations, and that has been with us for 35 years. I have not heard any suggestion from the Insolvency Service that that has proved to be inadequate. This is effectively an extension of the same power into dissolved company circumstances. I have not seen or heard any evidence to suggest that it is an inadequate period.

Peter Grant Portrait Peter Grant
- Hansard - - - Excerpts

Q You say that you have not heard any such representations from the Insolvency Service. Have you had any such representations from lenders or creditors? They may take a different view from the Insolvency Service if it is their money that is at stake.

David Kerr: Perhaps some in the creditor community would like it to be a six-year period, but I do not think they have argued strongly for it, and I do not think there is a necessarily a case made for that. From a creditor perspective, in an ideal world, perhaps it would be open ended. That may be unrealistic.

Paul Scully Portrait Paul Scully
- Hansard - - - Excerpts

Q Thank you for giving evidence, Mr Kerr. Can you talk a little bit more about the deterrent that you spoke about? How much of an impact do you think the measure, and especially the threat of disqualification, will have on providing the necessary deterrence?

David Kerr: The current disqualification provisions act as a deterrent to some extent, because directors know that, in respect of every company that goes into an insolvent liquidation or administration, there will be some inquiry. There is an obligation on the insolvency practitioner to carry out a certain amount of inquiry into the conduct of the directors of those companies and make a report in each of those cases to the Insolvency Service on their conduct. The provisions do not provide for the same report. It will have to be triggered by something else, whether that is a creditor complaint or other information, but it will provide the opportunity for the service to make the same inquiry.

Paul Scully Portrait Paul Scully
- Hansard - - - Excerpts

Q You talked earlier about the public interest test and prioritisation. Obviously, we are trying to strengthen the enforcement regime to deal with the most egregious cases of fraud in relation to the financial support that the taxpayer has given throughout the pandemic. In your experience, has the insolvency practice been prioritising this work? As well as having the public interest test, or threshold, has it prioritised approaching the most serious cases at the earliest stage?

David Kerr: Do you mean the work of the Insolvency Service?

Paul Scully Portrait Paul Scully
- Hansard - - - Excerpts

Yes. We are talking about Insolvency Service resources. We would have expected the Insolvency Service to prioritise the work that it does on the most egregious cases, and that would indeed be how we would anticipate it moving forward. Have you seen that first hand?

David Kerr: This may not be a direct answer to your question, but the concern of the creditor community might be that, if this provision were used almost exclusively for the purposes of pursuing bounce back loan fraud, perhaps it would not have the wider benefit that could come from it. Perhaps that has to be the emphasis in the short term, but in the long run—it is a provision that was considered worthy of introducing back in 2018, before covid came along—one would hope that it will be of broader use.

Quite how the service will prioritise its limited resources and decide which cases to look at is a matter for it to work out once it gets the powers. One would hope that the cases that come to its attention through the insolvency practitioners’ reports will receive equal attention and that it will not be to the detriment of those cases that these other cases are being pursued.

Paul Scully Portrait Paul Scully
- Hansard - - - Excerpts

Q We heard a little bit in the earlier panel about phoenixing. Do you think this measure will help to combat that malpractice, where one company is shut down and dissolved and another takes its place, with the same directors, doing the same business from the same premises with the same staff?

David Kerr: That can happen, whether it is through an insolvency process or a dissolution. To the extent that it has happened through dissolution, the measure plugs that gap, because it is gives the same investigative powers to the Insolvency Service. It comes back to the deterrent point that you made previously. If the service is seen to be taking action in these cases and publicising the fact that it has done so, that will, one would have thought, have a deterrent effect.

Paul Scully Portrait Paul Scully
- Hansard - - - Excerpts

Q Finally, in terms of your role in credit management, what do you think this will do for the confidence of lenders and supply chains, in particular SMEs in those supply chains?

David Kerr: Generally, if the system is seen to be working well and those who abuse it are brought to account, then it helps enhance the confidence of those engaged in providing credit, whether it is through loans, trade credit or anything else. In that sense, it is a welcome provision that, if resourced and used as intended, should have the desired effect.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q To follow up on a couple of points, there have been critics of the proposals in this small piece of legislation. From your experience and that of your members, how long can it take for companies that have been dissolved to be restored to the register? In 2019, over half a million UK companies were dissolved but only 33 restored. In terms of the time it takes in practice, what could that look like?

David Kerr: I think the cost issue is the bigger disincentive for creditors that previously might have wanted to take steps to try and get somebody appointed to investigate. The service itself has made the point that there are legal costs and other costs associated with that process, and it would not be practical for creditors to mount that kind of action alone or, in many case, at all, given the amounts of their own debts.

The bigger disincentive is probably the cost and this avoids that. You are right in the sense that if there is a lengthy time process and if it takes several months, that eats into the three-year time limit that we have talked about, so that could be a problem. I think here, with this measure, we avoid that because the Department can have the ability to make appropriate inquiries and take action, without the need to go through that process.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q How much could it cost? What sort of range of costs could creditors see?

David Kerr: I do not have those figures in front of me but I have seen the fees involved. They amount to a few hundred pounds, but that does not include the cost of a solicitor to spend the time doing the necessary work. I would imagine that it would be a few hundred running into a thousand or more pounds to get a company restored, but I could not give you any exact figures.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q May I probe you a little further on the three year issue? You are right that within legislation there is provision for courts to make disqualification orders within three years after a company has been dissolved. This legislation extends that in line with that current time limit. In light of the fact that we have very unusual circumstances at the moment, with potentially thousands of companies that could require investigation, do you think that with that increased workload for the Insolvency Service, the question about available resources and the court backlogs, there could be a particular issue with directors effectively being culpable but the Government running out of time for courts to issue disqualification orders against them?

David Kerr: We might have touched on this slightly previously. First, there is no suggestion, as far as I am aware, that the whole of the 2,500 companies that have been mentioned would be the subject of an investigation. We are talking about dissolutions in the last 15 months or thereabouts. The time limit is relevant, obviously, because the service has to work to that, but the previous witness made the point, which we should bear in mind, that the majority of the cases that it takes do not necessarily involve court proceedings. In a lot of cases, having presented the evidence to the directors and with the threat of court proceedings available to the service if necessary, many are resolved by the director giving an undertaking, which has the same effect as an order, so a lot of them will not involve court proceedings and that helps the service to achieve what it is seeking to do within that timeframe. Many of the cases in these instances of dissolved companies, I imagine, would result similarly in a relatively high proportion of those being concluded by undertaking.

Simon Baynes Portrait Simon Baynes (Clwyd South) (Con)
- Hansard - - - Excerpts

Q Thank you, Mr Kerr, for your evidence. I have two questions. These measures clearly have widespread support. Can you give us a feel for the scale of the problem with dissolved companies? We have discussed quite a lot of different figures this morning, but do you feel this is a very significant problem, or a manageable problem, just to get some more idea anecdotally on that?

Secondly, clause 2 allows “easier investigation”. Can you give us some idea of the way in which the Bill improves that process of investigation?

David Kerr: I will deal with the second point first. We know that this provision means that we do not have to go through the process of restoring a company and instead the Department can commence an investigation in circumstances where it deems it appropriate without any barriers to doing that. In that sense it makes the process easier to commence the work it needs to do.

Many companies are dissolved every year, but I do not think there is any suggestion that all those, or even the majority, involve any misconduct by directors and by those who have opposed or supported the measure. I do not think there is any suggestion among those who proposed or supported the measure that that process should be removed as an option for companies in appropriate circumstances. The question is really how many of those represent some form of misconduct or where misconduct might be hidden, or where there is some abuse. I have not seen any statistics on that and do not know if anybody would know for certain. Again, it comes back to the point that the service would have the power to investigate in circumstances where something was brought to its attention, suggesting a need for investigation. In that sense, it is a welcome provision.

None Portrait The Chair
- Hansard -

Thank you for giving evidence, Mr Kerr. If there are no further questions, we will move on to the next panel.

Examination of witness

Dr John Tribe gave evidence.

10:33
None Portrait The Chair
- Hansard -

Q We will now hear oral evidence from Dr John Tribe, senior lecturer in law at the University of Liverpool. We have until 11.25 am for this session. Please introduce yourself for the record and make some remarks about the Bill.

Dr Tribe: Thank you very much for the invitation and opportunity to address the Committee on this important Bill. I will address the second half of the Bill and the clauses on directors disqualification. Like all the contributions on Second Reading in the House of Commons, I welcome and support the changes that the Bill introduces to the Company Directors Disqualification Act 1986 and the extension of the public protection provisions in that Act to unfit directors of dissolved companies.

The measures are a welcome addition to the insolvency framework and system that work effectively and are well managed by the Insolvency Service and its diligent and hard-working staff. This new statutory addition to their armoury is a necessary power to maintain public confidence, to protect the public from unfit directors, and to maintain the integrity of the limited liability company form.

My contributions to this Committee come from an academic viewpoint, as a senior lecturer in law at the University of Liverpool. For 20 years, I have been researching and writing about insolvency law, both corporate and personal. For much of that time, I have been interested in the role and accountability of office holders, including company directors. I have been editor of the Mithani: Directors’ Disqualification newsletter, and continue to sit on the editorial board of that publication. More recently, I have written about the disqualification proceedings in Kids Company and Carillion. I have five brief points or observations to make on the Bill: if the Chair allows, I can run through those. They are brief, if you want me to address them at this point.

None Portrait The Chair
- Hansard -

Yes, of course.

Dr Tribe: The first is on limited liability and corporate form abuse. I view the corporate form as a statutory privilege—a concession of the legislature that should be managed properly and should be used by individuals adhering to the highest standards of commercial morality and probity. Put simply, directors should know their duties and live up to them. They should be held to account if they do not, and certainly if they stray further into the realm of the unfit.

My second point is on phoenixing. Contributions from across the House of Commons on Second Reading of the Bill, the explanatory notes to the Bill, and the Parliament Library document on the Bill have all mentioned the phenomenon of phoenixing, and comments suggest that the misuse of limited liability companies and of the bounce back loan scheme is the latest example of this sort of undesirable behaviour, or “unfit” behaviour, to use the language of section 6 of the Company Directors Disqualification Act 1986. I agree with the comments that have been made: phoenixing has been a perennial problem with the limited liability form because of the damage that misuse of that form can do to creditors, and it is right that it is troubling us now in the context of the bounce back loan system as part of the Government’s package of support during the pandemic. The taxpayer stepped up and provided these bounce back loans; the taxpayer should be protected now at this point, and the Insolvency Service needs the tools and, most importantly, the funding to do that work.

My third point is on directors disqualification and public protection. Through the history of our corporate insolvency laws, we have grappled with the balance between entrepreneurialism on the one hand and the kind of behaviour we are discussing today—unfit behaviour and malpractice—on the other. Indeed, directors disqualification provisions were first introduced in the Companies Act 1928, and there have been several reforms and updates over time since then—and hopefully, in my view, also with this 2021 Bill, if it is passed.

Over the past 20 years or so, we have also gradually increased the number of entities that are subject to the disqualification regime, and dissolved companies are the latest vehicle in a long-running trend, because there will always be some misuse. We need to ensure that the relevant regulator has the powers and funding to combat that unfit behaviour when it does arise, because public protection is, in my view, the main driver of the directors disqualification regime. As we know, the limited liability form is the basis of our credit system: if it is not protected properly, the whole system could ultimately be damaged.

My fourth and penultimate point is on the dissolution statistics. We know that dissolution is an important part of keeping the Companies House register in order. Dissolution is part of the normal life cycle of the company; dissolution keeps the register tidy and up to date. It happens regularly, and it is necessary. As you perhaps already know, there were approximately half a million dissolutions per year over the past six years, and the explanatory notes to the Bill explain that in the first quarter of 2021, we saw some 170,000 dissolutions. It is appropriate that these take place, for the reasons I have outlined—namely, keeping the register in good order—but unfortunately, among those dissolutions, there could be some of the unscrupulous activities that we have been mulling over, namely the dissolution of a company that has taken out a bounce back loan and has been dissolved before the loan has been paid back to what is ultimately the taxpayer-creditor. This is a loophole, and it should be closed so that directors of live companies, directors of insolvent companies and directors of dissolved companies are all treated the same way for the purposes of section 6 of the Company Directors Disqualification Act 1986.

In late June 2021—I think it was the 21st—the Public Accounts Committee projected a loss of between £16 billion and £27 billion of bounce back loans, from a total of approximately £90 billion that was lent by the British Business Bank via the banks. As you know, PricewaterhouseCoopers is due to report on the extent of fraud and credit failure within that £27 billion. There could be a huge loss to the taxpayer, unfortunately. Any loopholes that may have helped facilitate those losses, which, in turn, help evade responsibility for those losses, should be closed.

My final point is on funding. The Insolvency Service needs to be properly funded to ensure that this additional disqualification work can happen. Until appropriate funding is hammered out, the provisions in the Bill still provide a deterrent to those who seek to use limited liability forms in an unfit manner. The Bill’s clauses, and any compensation orders which may follow directors disqualifications, go some way to ensuring that limited liability corporate forms are protected, and that delinquent directors have an immediate, powerful deterrent against abuse of conduct, so that trust in our system is maintained. In short, the bigger the stick, the better the deterrent. That is my introductory statement.

None Portrait The Chair
- Hansard -

Thank you, Dr Tribe. We will now take some questions from Committee members.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Q Thank you Dr Tribe, that was a very helpful overview, and pretty unqualified support for the principle of the Bill. It did seem that your main concern is about resourcing it. You said that until appropriate funding is handed out to the Insolvency Service, the Bill will, at least, be a deterrent. Do you have a view as to the nature of the problem, and the funding that the Insolvency service would need to actually make this work?

Dr Tribe: It is my impression that this new work to deal with directors of dissolved companies who have potentially behaved in an unfit manner would be subsumed into the general run of business of the disqualification unit at the Insolvency Service. They prioritise the most egregious cases, or those that help send out a public protection signal to the public. In the interim, I think this kind of work would fall into that part of their function. My point about hammering out or ensuring funding is in place is partly in response to some comments on funding made on Second Reading of the Bill. Since the Companies Act 1928, and perhaps most famously in the Cork report of 1982, this question of whether the disqualification regime is properly funded has always existed. Its lack of efficacy between 1928 and 1982 was put down to a lack of resourcing.

That point is very important, because in essence this is the system that protects the limited liability form, the engine of capitalism that drives through our commercial activities. Unless the Insolvency Service is able to properly resource and ensure that this work is undertaken, we have a problem when we try to pursue those who are responsible for the loss of between £16 billion and £27 billion. This potentially unknown—we will find out when the PwC report comes in—and potentially large gap will need to be addressed in terms of where the money went and who was responsible for causing that money to be dissipated.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Q Thank you, that is helpful. Just as a follow-up, are you concerned that there might be a focus on making use of these new powers at the expense of current work on other insolvent companies?

Dr Tribe: Not necessarily. Going back to my prioritisation point, the Insolvency Service obviously has finite resources that it needs to deploy in the best way possible—I suppose that is a problem for many public bodies— if other types of abuse manifest over time. The most obvious and recent problem is the bounce back loan phoenixism problem, but in due course other things might come about that require us to tinker with our corporate and insolvency law so that we have an effective system that maintains trust and confidence in it. What the Insolvency Service wants to do in terms of prioritising threats to the system will depend on its internal guidance.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q Dr Tribe, I want to ask first whether you have a view about the existing sanctions that are available to use against directors who may be abusing the dissolution process—perhaps powers that are currently available but are not used as extensively as they might be. That is one of the challenges that critics of this legislation may make.

Secondly, are there any other more general problems with the dissolution of companies that are important to discuss at this time while changes are being made? Should changes be made to the eligibility criteria on dissolutions? What steps need to be taken prior to dissolution?

Dr Tribe: I will take the first question first. I think you are drawing attention to the compensation order regime, and you did so on Second Reading, too. There is some interesting research by Dr Williams at Cambridge in 2014, who looked—he sort of future-gazed—at how successful the compensation system might be. In that research, he highlighted that some of the directors in small closely held companies, which he argues the regime mainly targets, might end up being adjudicated bankrupt—they might go through the bankruptcy process, I should say—in due course. That would mean, of course, that any pursuit of those individuals would run into another layer of difficulty in trying to get to the value that might be there for the insolvent estate of the company or dissolved company that we are dealing with. His work future-gazed in that way at some of these issues.

It is true to say that, on the compensation regime, we saw one case in 2019, the Noble Vintners case, where insolvency and companies court Judge Prentis made a 15-year disqualification order. That is right at the top of what we call the Sevenoaks scale, after the case in which Lord Justice Dillon set out the various types of malpractice and where they fall on the scale, from two years up to 15. In the Noble Vintners case, it was the most unfit behaviour on the facts of that case that you could have —up at the 15-year period. Then, of course, that was followed by a compensation order that recouped for creditors just over half a million pounds—£559,000.

There has been some success with the compensation scheme. It is in its early days, in a certain sense. Although the reforms came in in 2015, there was a delay in implementation. You are right to say that we should pause for thought and mull over how effective that is. That takes us back to the resourcing and funding point, for one thing. Secondly, it takes us to the idea of that prioritisation agenda and how fruitful a claim that you are going to bring might be to get compensation. It is a power that exists and should exist. It goes some way—as you can see from the case of Noble Vintners—to getting value back into the insolvent estate for the creditors. It is a positive thing for creditors, and something that the disqualification regime did not do until that reform in 2015. Of course, it provided a protection mechanism, but in terms of getting value back into the estate, that is a good reform. That is your first question.

Your second question was on dissolution problems. I think you might be driving at the process of dissolution and how the registrar at Companies House deals with dissolution. After the directors have signed their form, made their declaration, paid the £10 and noted that there is going to be a striking off and that is published in the London Gazette, there is a period of two months where all the parties that should be informed—shareholders, creditors, employees and pension managers, for example—might know of this potential dissolution and should then, therefore, perhaps act on it as creditors. Some of the witnesses who have gone before me may have addressed this, particularly those from the credit community. In due course, as part of a wider analysis of what Companies House and its function is, that step in dissolution may be looked at.

As I said earlier, there are approximately half a million dissolutions per year, and many of those are for very good reasons in terms of, as I have said, maintaining the integrity of the register and getting rid of companies that have been through the insolvency processes but then get dissolved as well. The guidance for the Bill and some other sources note that among those half a million dissolutions, there could be about 5,000 that are potentially problematic that we would want the Insolvency Service to be able to investigate. Obviously, 5,000 is a lot more than the current levels of disqualification under the current provisions. Over the past decade or so, there have been about 1,200 a year, so you can see there is quite a significant upshift in the work that the Insolvency Service might have to do.

A Companies House review perhaps in due course mulling on what its function is—is it a regulator, is it a repository of information?—might look to dissolution, but in the short term I think you have this £17 billion to £26 billion problem, and there seems to be a loophole that needs to be closed.

None Portrait The Chair
- Hansard -

Thank you, Dr Tribe. Peter Grant next.

Peter Grant Portrait Peter Grant
- Hansard - - - Excerpts

Q Thank you, Ms Rees, and good morning, Dr Tribe. Following on from that last question, there are three kinds of sanctions available now: the director disqualification, the compensation order and, ultimately, criminal prosecution. Are there significant differences, first, in the burden of proof required for each of those actions, and secondly, in the cost and time taken to bring any of those actions to fruition?

Dr Tribe: I think you are right to point out that there are different avenues that could be visited on the directors that we are talking about. We are not necessarily talking about directors in the general run of business; we are talking about people, as perhaps you suggest, who engage in criminal behaviour. For example, with the bounce back loan scheme, a form of fraud could lead to a prosecution.

What we are dealing with today, though, particularly with this amendment to the Company Directors Disqualification Act 1986, is a regulatory function, so we are dealing with a lower burden of proof than we would if it was a criminal sanction for any subsequent prosecution for fraud. In that sense, on the Insolvency Service’s work on what is known as a jury question in the context of directors’ disqualification, with each case being looked at on its facts, the determination whether whatever has occurred has been deemed to be unfit does have that lower evidential burden than any subsequent criminal activity that the prosecuting authorities might address. In that sense, the disqualification regime is perhaps better able to get deterrent-type results than mounting subsequent criminal prosecutions. We know, of course, that the criminal justice regime is also having some problems with funding. If the disqualification regime is able to achieve any public policy outcomes in terms of deterrent, in a regulatory manner, that is perhaps quite effective.

Peter Grant Portrait Peter Grant
- Hansard - - - Excerpts

Q You also mentioned, as some other witnesses have, what is known as phoenixing. There is a variant of that practice whereby, rather than creating a new company immediately after the old one has been dissolved, you create what looks on the surface like a legitimate group company structure, and then over time, you very quietly shift all the assets over to one company, leave all their liabilities in another one, wind up the company with the liabilities, and then the directors help themselves to the company with the assets. Does this legislation do anything to address that particular loophole, and if not, what further changes are needed to prevent, or at least strongly discourage, that practice?

Dr Tribe: That is an interesting question because it highlights the long history of English and Welsh and Scottish company provisions when we are thinking about the nature of groups of companies and then single entities, and how structures and groups are used and how we move value between one entity and another.

There is the quite interesting case of Creasey v. Breachwood Motors Ltd where, because of an employment claim, value was moved into a new entity, and of course the claim was left with the original company, meaning that that employee had an empty shell through which to pursue their claim, which was problematic. The judge at first instance was able to say, “No, in the interests of justice, you can switch your claim to that new entity.” That judgment was overruled subsequently, but it does raise an important point. Indeed, in the case that overruled it, the group reconstruction that occurred was held to be legitimate for tax reasons. There are instances of the kind of behaviour that you are talking about that can perhaps be problematic in the pure phoenixing sense, but then there are legitimate reconstructions that happen where the intentions of the directors were for tax efficiency or some other purpose that is not unfit or nefarious in the way that we are discussing.

In terms of the misuse of the corporate form, one can go right back through our company law history to recite many examples of essentially what we are talking about—phoenixing, or what has been called centrebinding—and some of the critique of pre-packaged administration is around the same point. Is it appropriate that the corporate form is able to be used in this way so that the creditors of company A are left languishing while all the value is moved into company B in the way you have described?

That takes me back to my introductory response point, which is that in English and Welsh and Scottish law, for a very long time we have used the separate juristic person—the company as a thing. It is a really sacrosanct idea that, just like I am not responsible for your debts, and you are not responsible for mine, we have that structure in place for policy reasons, and have done since the 19th century originally, to aggregate wealth and entrepreneurial activity. I suppose you as the legislature expect that, as part of that privilege that you have allowed incorporators to use, over time you will get some form of abuse, and that element, which is hopefully as small as possible, has to be dealt with, like we are trying to do today, or, to some extent, tolerated.

Peter Grant Portrait Peter Grant
- Hansard - - - Excerpts

Q Finally, I want to look at the retrospective nature of some of the provisions from a legal point of view. First, do you have any concerns not about the principle of creating a retrospective offence, which the Bill does not do, but about retrospectively giving powers to an enforcement agency that we used not to have? Do you have any concerns about the natural justice issues that that might raise? Alternatively, are there circumstances where the three-year time limit is too short and where you would be in favour of allowing the Insolvency Service to go back more than three years before the dissolution date?

Dr Tribe: On your first point, which was about retrospective activity, it is much like the Corporate Insolvency and Governance Act 2020 reforms, which have successfully been passed. We have seen lots of new cases on the provisions that were in that Bill; it has been very successful. The reforms in that statute were mooted much earlier, in 2018. It is the same with this suggestion to close the dissolution loophole. Much like with the 2020 CIGA provision, the coronavirus has freed up legislative time to get both sets of provisions—the CIGA activity and the dissolution activity—in front of you to get it on to the statute book. Some of this was discussed by Sarah Olney on Second Reading.

What does it mean in terms of the retrospective nature of what you are doing? We had the idea some time ago, and corona has meant that we have had to address it against the backdrop of the bounce back loan scheme. Unfortunately, the abuse of that scheme seems to be so massive—as we have seen, there is a £16 billion to £27 billion projected shortfall, or loss—that we need to go back in time to look at some behaviour. Of course, we are not generally speaking about breaches of duty in the general sense of directors’ duties. We are talking about what could be seen as the use of the corporate form purposely to avoid the insolvency provisions and the oversight that they can give, with the powers that are currently in the Act that we are dealing with.

That needs to be dealt with, and if it is in a retrospective way—you may have seen in late June that there was a disqualification order for 12 years because of some fraudulent activity that had occurred with a Mr Khan and his Birmingham-based business, where he had forged documents to get a bounce back loan of £50,000. The Insolvency Service successfully brought that action following administration. Some Glasgow-based companies have also been wound up in the public interest because of bounce back loan abuse. To answer your question briefly, it is the bounce back loan fraud that has meant we have had to act retrospectively. No, I do not have any issues on that point.

On your question about three years, I suppose that again goes back to funding and time limits, and whether the Insolvency Service is adequately resourced to deal with the amount of dissolutions—whether it is 5,000 as predicted, or whether the forthcoming PwC report shows that it is much worse. If it is well resourced, the time issues might not be such a problem. If it is not, they perhaps will be.

Peter Grant Portrait Peter Grant
- Hansard - - - Excerpts

Thank you.

None Portrait The Chair
- Hansard -

I call the Minister.

Paul Scully Portrait Paul Scully
- Hansard - - - Excerpts

Q I have just two brief questions, because you opened up and summarised well. The point about funding has come up quite a lot, and I wonder if you could expand on some of your comments. You talked about the public interest test and the prioritisation of the Insolvency Service’s cases, so that it would look at the bigger, most egregious issues first. Obviously, with the number of cases you are talking about, it would also presumably look at the ones where there is a realistic likelihood of a successful outcome, rather just investigating every case.

Dr Tribe: In some writing on this point in relation to Carillion, I suggested the reason that the Insolvency Service might be looking at a large public limited company to bring these mechanisms to bear is because that is a pretty well known, massive liquidation, which has lots of Government contracts linked to it and taxpayer money bound up in its activities. You can see why it would perhaps be appropriate, much as with previous well-known disqualifications, for the Insolvency Service to bring the action or the proceedings if the relevant public interest tests are met. That is because it helps with the agenda of sending out the appropriate messages to the commercial community that you should use corporate vehicles and corporate forms in an appropriate way, and that you should live up to your duties in an appropriate way generally, as well as facing some of the consequences if you misuse the form and harm creditors and other stakeholders.

On the prioritisation point, you could go for good messaging, in the sense of prioritising cases. I suppose that the problem with the bounce back loan scheme and this dissolution issue that we are dealing with is that, as I think one of the previous questions hinted at, the volume of cases could be so great that with prioritisation you will need to have quite a large group of civil servants working on the issue.

As for the question of how likely it is that we might get a result in a case, and therefore whether we should bring proceedings, we have seen recently that once the Insolvency Service’s tests are met, it is wholly appropriate that it should bring these proceedings, even if in due course the result is not what it thought or what its specialist advisers—the QCs and so on who have advised it—would have predicted. Hopefully, the money will be well spent in bringing proceedings, but sometimes we do not get the result for factual reasons, basically.

Paul Scully Portrait Paul Scully
- Hansard - - - Excerpts

Q I have a final question. You mentioned Carillion, which you wrote about and studied. Within Carillion and a number of other cases—Carillion is an interesting one, because there are a lot of supply chains in there—as I asked previous panel members, what extra confidence does plugging these loopholes bring to small and medium-sized enterprises?

Dr Tribe: Carillion, because it is a large plc, has messaging on the plc side of our regime, thinking about how directors behave in relation to those types of companies. This perhaps goes back to Mr Grant’s question about group structures—do not use group structures in a way that is problematic. That will be interesting to monitor on what is a live case; I do not want to mull on the facts of that case too closely.

Sorry, what was the second part of your question?

Paul Scully Portrait Paul Scully
- Hansard - - - Excerpts

Q It was about the fact that Carillion obviously has a large supply chain within it, and you have been dealing with and writing about cases with complex supply chains. What confidence can this measure to close that loophole give to SMEs in particular?

Dr Tribe: Thanks for that clarification. If we can ensure that any vehicle that is used in any form of creditor relationship with different entities has an individual put-off effect by going down this dissolution route that we have identified, it will hopefully increase confidence in the way people use the corporate form. The more loopholes we can close down that have caused us to think the form is being used inappropriately, the better.

Unfortunately, phoenixing, as we have discussed, has been going on for literally decades, and perhaps in the future we might be back here again with some other problem that has arisen because of nefarious activity.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Q I will just ask one final question. We have had some written evidence suggesting that the current regime is adequate. If you do not mind my quoting from it, it says:

“Applying the current controls properly, putting dissolved companies into liquidation and publicising that new policy will be a far more effective deterrent...That requires no new legislation at all.”

Do you have a view on that?

Dr Tribe: The trouble is that to get to that liquidation point, you have to go through the restoration stage. I think that submission might have also talked about the idea of restoring an entity to the register and then going through that insolvency route. I think the Insolvency Service did 33 of those in 2019—pre the bounce back loan issue and pre corona, obviously. Each one of those 33 will have cost it court fees, process fees at Companies House and so on, which means there is this extra layer of procedure that it has to get through before it can ultimately investigate the unfitness activity. I think the dissolution reform in this legislation ensures that that extra layer of bureaucracy—getting the companies back on the register, through restoration, then going through the insolvency processes—is cleared out, and we move straight to the enforcement section.

The other problem with restoration is that you perhaps undermine the integrity of the register itself if you take 33 companies off it, but you then want to put them back on because you need to go through the steps that we want for enforcement and so on. It is an interesting point, but I think you have a quicker public protection mechanism process that you can do now that gets you to a less costly enforcement outcome.

None Portrait The Chair
- Hansard -

If there are no further questions, I thank you, Dr Tribe, for giving evidence this morning. It is much appreciated. I thank all the witnesses for appearing this morning.

Ordered, That further consideration be now adjourned. —(Paul Scully.)

00:02
Adjourned till this day at Two o’clock.

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

The Committee consisted of the following Members:
Chairs: David Mundell, † Christina Rees
† Baker, Duncan (North Norfolk) (Con)
† Baynes, Simon (Clwyd South) (Con)
† Grant, Peter (Glenrothes) (SNP)
† Hall, Luke (Minister for Regional Growth and Local Government)
† Hunt, Jane (Loughborough) (Con)
† Jenkinson, Mark (Workington) (Con)
† Malhotra, Seema (Feltham and Heston) (Lab/Co-op)
Mishra, Navendu (Stockport) (Lab)
† Richardson, Angela (Guildford) (Con)
† Rimmer, Ms Marie (St Helens South and Whiston) (Lab)
Scully, Paul (Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy)
† Smith, Jeff (Manchester, Withington) (Lab)
† Throup, Maggie (Lord Commissioner of Her Majesty's Treasury)
† Webb, Suzanne (Stourbridge) (Con)
† Whitley, Mick (Birkenhead) (Lab)
† Young, Jacob (Redcar) (Con)
Yohanna Sallberg, Committee Clerk
† attended the Committee
Public Bill Committee
Thursday 8 July 2021
[Christina Rees in the Chair]
Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill
10:19
None Portrait The Chair
- Hansard -

Before we begin, I remind Members to observe social distancing and sit only in the places that are clearly marked. I also remind Members that, in line with the House of Commons Commission’s decision, face coverings should be worn in Committee unless people are speaking or are medically exempt. Please switch electronic devices to silent. Tea and coffee are not allowed during sittings. The Hansard Reporters would be grateful if Members could email any electronic copies of their speaking notes to hansardnotes@ parliament.uk.

We will now begin our line-by-line consideration of the Bill. The selection and grouping list for today’s sitting, which is available in the room, shows how the selected amendments have been grouped together for debate. The list shows the order of debates. Decisions on each amendment are taken when we come to the clause or schedule that it affects.

Clause 1

Determinations in respect of certain non-domestic rating lists

Question proposed, That the clause stand part of the Bill.

None Portrait The Chair
- Hansard -

With this it will be convenient to discuss new clause 2—Effectiveness of non-domestic rating lists provisions

“(1) The Secretary of State must, no later than the end of the period of one year after the day on which this Act is passed, lay before Parliament an assessment of the effectiveness of the provisions in section 1 of this Act.

(2) The assessment must include consideration of—

(a) the extent to which the provisions have achieved their objectives;

(b) the interaction of the provisions with other law and policy relating to coronavirus support for business and business rates; and

(c) possible related changes to law and policy.”

This new clause would place an obligation on the Secretary of State to publish an assessment of the provisions in section 1 of this Act.

Luke Hall Portrait The Minister for Regional Growth and Local Government (Luke Hall)
- Hansard - - - Excerpts

It is a pleasure to serve under your chairmanship, Ms Rees. The Bill before the Committee is one of two halves. The first half is a measure that changes the valuation assumptions applied when making business rates determinations in the light of the pandemic. The provisions that will implement the measure are contained entirely within the first clause.

In order to understand clause 1, I will briefly take us back to the Local Government Finance Act 1988, which requires business rates to be calculated from rateable values that, broadly speaking, represent annual rental values. Those values are updated at regular general revaluations. Earlier this year, we were extremely grateful for the cross-party support for the passing of the Non-Domestic Rating (Lists) Act 2021, which sets out the date of the next revaluation on 1 April 2023, based on a valuation date of 1 April 2021. That means that future business rates bills will reflect the impact of the pandemic on the commercial property market.

Outside general revaluations, rateable values can be altered only to correct an inaccuracy or to reflect a material change of circumstance, such as a physical change to a property or locality. For example, a successful material change in circumstances challenge might be made on the basis of significant roadworks in a property’s immediate area. The material change in circumstances legislation itself, which is set out in the 1988 Act, was not designed with pandemics or coronavirus in mind, and the material change in circumstances system was not intended to be used in response to matters with economy-wide impacts. Relying on the MCC system, rather than on targeted business rates reliefs, is not in line with the original intention of the law and would not be the right approach to take to support businesses that have been impacted during the pandemic. Clause 1 of the Bill therefore clarifies that the impact of the coronavirus pandemic, and the Government’s response to it, should be reflected at the next general revaluation on 1 April 2023.

Business rates are devolved, so clause 1 applies to England. Decisions on whether to take similar steps in Wales, Scotland and Northern Ireland are for the respective Governments to make. I understand that in Northern Ireland the matter is still under consideration. The Scottish Government have recently announced that they agree with our position that it is not appropriate to use the MCC appeals system in relation to covid-19 or related restrictions. Yesterday, the Welsh Government announced that they also agree with our position, and set out their intention to seek to include provisions covering Wales in the Bill. We will work closely with the Welsh Government on this, and I will keep Members, including those on the Opposition Front Bench, updated on any amendments to the Bill that might be required. I am glad to say that the largely cross-party support that we have received for this measure is now spreading to cross-territorial support.

As I said on Second Reading, the measures in clause 1 do not mean that we have not provided significant support to businesses during the pandemic; there has been a £16 billion package of support for business rates. We have also announced £1.5 billion in relief to be targeted at ratepayers who have not already benefited from support linked to business rates. The additional business rates relief will be administered by councils, and my Department will continue to work closely with local government to enable ratepayers to apply for the support as soon as possible, subject to the passing of the Bill.

New clause 2 would require an assessment of the effectiveness of the provisions in clause 1 to be made within one year of Royal Assent. It would require the Secretary of State’s assessment to consider

“the interaction of the provisions with other law and policy relating to coronavirus support for business and business rates”,

as well as the Government’s overall package of support for businesses impacted by the pandemic. We completely understand hon. Members’ concern to ensure that the business rates system is kept under review.

The objective of the Bill, which is to ensure that successful MCC appeals cannot be made on the basis of the pandemic or the Government’s response to it, will be met as soon as the Bill is enacted, so I can certainly assure the Committee that there will be no need to monitor the implementation of any changes to the rating list or any new practices by the Valuation Office Agency once the Bill is passed. That is simply because the VOA has not, to date, been amending the rating list to reflect covid-19. I hope the Committee will see that new clause 2 is therefore unnecessary.

I appreciate, however, that interest extends beyond the provisions in the Bill to the design of the wider business rates system. This matter will therefore be considered as part of the fundamental review of business rates, which is currently being carried out by the Chancellor. We published the consultation earlier this month to set out proposals for moving to a system of three-yearly evaluations. As part of ensuring the sustainability of that three-yearly cycle, we are reviewing the MCC system. It is clear from our need to bring forward this piece of legislation that the MCC system has not worked as expected in this instance.

I can certainly assure the Committee that we will be looking more generally at the MCC rules as we see how they can be improved to avoid this type of situation arising again. We will work with the VOA, stakeholders and, I hope, our Opposition colleagues to understand how we can improve the system and track and monitor its operation. We absolutely monitor and track changes to the business rates yield through our regular returns from local government. The VOA publishes regular statistics on the rating list and, of course, keeps us fully informed of activity on the rating list. I am confident we can find a sustainable system that we can monitor effectively and that will stand the test of time.

Jeff Smith Portrait Jeff Smith (Manchester, Withington) (Lab)
- Hansard - - - Excerpts

It is a pleasure to see you in the Chair, Ms Rees. May I start by wishing the Minister a happy birthday? What better way to spend a birthday than in a Bill Committee? I am grateful to him for setting out the rationale for clause 1, which would rule out covid-related material change in circumstances claims for business rates appeals.

As we outlined on Second Reading, the Opposition broadly recognise the rationale for the Bill as a whole, and we accept the logic for the provisions in clause 1. Material change in circumstances claims related to covid restrictions would not be the most effective way to provide help for business that have been—I hope only temporarily—badly hit by the pandemic. Indeed, many of those who most need the extra help might struggle with the time-consuming process of such an appeal. We appreciate that a large number of covid-related appeals could lead to what has been described as an effective shadow revaluation, which could put a real strain on the Valuation Office Agency, when its time and expertise would be better used on the upcoming general revaluation of business rates in 2023.

There is also a risk that new MCC-related changes would have to be made every time Government restrictions on businesses changed. It remains to be seen whether we have seen the last of the restrictions and business closures as a result of the pandemic—we hope we have—but if not, a further wave of such applications in the wake of further restrictions could cause future problems for the VOA.

To go alongside this legislation, the Government have announced an additional relief fund for businesses that have so far not benefited from any rates relief, such as those in the supply chain of retail, hospitality and leisure businesses. In principle, that seems a sensible way of administering targeted support without the need for MCC claims, but questions remain: first on the adequacy of the £1.5 billion figure, especially for certain sectors such as large airports, and secondly on the guidance and eligibility criteria for the fund.

We welcome that clause 1 gives local authorities some guarantee that their income from business rates will remain reasonably stable for the immediate future. With business rates forming such a substantial part of local authorities’ income, they need that stability. The uncertainty that would be caused by a potential income reduction as a result of large numbers of MCCs could cause real problems, particularly following such a difficult period for local government, marred by covid pressures after 10 years of austerity and broken promises from the Government about their support.

As I said during the evidence sessions, this legislation can be considered to be shifting the financial risk, or burden, from local government to the national Government by means of support for businesses. That seems reasonable, given the financial difficulties that local government is facing, but it is reasonable only if the funding available is sufficient to guarantee businesses the support they need. On Second Reading, we raised concerns about whether the £1.5 billion package that goes alongside the Bill would be enough to support all those businesses that have missed out on rates relief and other support so far, and the Government still have not clarified how they arrived at that figure or who exactly they envisage it supporting. It would be helpful if the Minister referred to that in his response.

I raise the example of large airports, which have been among the sectors worst affected by the pandemic. They pay huge amounts of business rates, but have been able to access only limited rates relief. Many were planning to put in MCC claims to try to recoup some of that money and stay afloat, but this legislation rules that out. I would therefore be grateful if the Minister could clarify whether the £1.5 billion fund is supposed to cover airports as well as all the other businesses that have missed out.

During the evidence sessions, David Magor, the chief executive officer of the Institute of Revenues Rating and Valuation, said of the £1.5 billion:

“the amount does not appear to be sufficient to meet the desires of all the ratepayers who had outstanding challenges and large assessments, like the airports. The challenge for the Government is to ensure that those particular ratepayers are satisfied.”––[Official Report, Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Public Bill Committee, 6 July 2021; c. 28, Q41.]

Heathrow, for example, had losses in 2020 exceeding £2 billion, including a business rates bill of £120 million— the biggest in the UK. It has been given £8 million in business rates relief. If the £1.5 billion pot is to support large airports too, it would appear to be inadequate. If not, what are larger airports supposed to do as an alternative to claiming for MCC, and will the Government come forward with further funding for large airports and critical infrastructure?

Even taking the airports and critical infrastructure out of the equation, there is serious concern about the £1.5 billion figure, which is shared by some of the experts we heard from at the evidence sessions earlier in the week. We have since had written evidence from the car parking sector, which is another one that has expressed real concerns. The consensus appears to be that we simply will not know whether it is enough or not until the Government publish the guidance for the scheme—something that businesses and local authorities are hoping happens urgently.

Even though it is usual for guidance to be published after the accompanying legislation has completed its passage through Parliament, there seems to be no reason why the Government could not publish draft guidance now and an indicative figure on the amount for each local authority immediately. The Opposition strongly urge the Government to do so, and given that the passing of the legislation is not actually required in order for the £1.5 billion to be released, we encourage the Government to get on with it quickly. There are businesses out there in real financial difficulty that are desperate for rapid help.

I also wonder whether the Minister can address concerns raised during the evidence sessions about the timing of the legislation and its impact on the release of funding. As we heard on Tuesday from Adrian Blaylock of the Chartered Institute of Public Finance and Accountancy and Sarah Pickup of the Local Government Association, there is a concern about timing related to section 47 of the Local Government Finance Act 1988. In essence, a local authority cannot take financial decisions more than six months after the financial year to which the decision relates. As we know, the majority of covid restrictions applied during financial year 2020-21 rather than 2021-22, so there is a question about whether a local authority can grant these reliefs to cover losses incurred during the 2020-21 financial year. Local authorities need reassurance that they can; otherwise, strictly speaking, all the local schemes will need to be set up and be running by the end of September.

As of this morning, we have the legislative timetable until the summer recess, and while the Government thought it appropriate to schedule two days for the Second Reading of the Nationality and Borders Bill, they could not find time for the remaining stages of the Bill we are discussing today. Given that there will be Lords consideration, as well as the conference recess, I do not see how the Bill will get through all its stages before the middle to end of October. If the Minister can correct me on the timescales, I will happily give way. If not, I hope that he will explain how this will affect the timescale for payments.

We have received supplementary evidence from the Institute of Revenues Rating and Valuation suggesting that a way around this problem might be to amend the Bill, effectively to exclude it from section 47 of the 1988 Act. I am interested to know whether the Government might consider such an amendment on Report to give local authorities and businesses reassurance.

11:45
We have heard about the risk that, if the amounts allocated to each local authority are inadequate, there will be pressure on overstretched councils provide funding from their own pot, beyond the resources that have been made available. Of course, that could result in local economic pressure, because businesses that cannot manage without the relief that they have been expecting may close. That reinforces the urgent need for the Government to get guidance out to businesses and councils to give them certainty, and to be transparent about the rationale behind the amounts to be allocated and the eligibility criteria.
I repeat the point made by the Local Government Association that there cannot be a simplistic per head allocation of resources across local authorities; it needs to factor in the areas and sectors where businesses have taken the biggest hit. It was a concern to hear during the evidence sessions that there appear to be no conversations happening with local government on the framing of that guidance. Perhaps the Minister could address that point.
I will touch on the ability of the VOA to carry out its duties in the context of this legislation. As we know, the VOA is currently conducting the next business rates valuation. Although this legislation removes a potential overburdening of the VOA by ruling out an influx of MCC claims, we believe that there is already a need for extra resources for the VOA. Revaluations of business rates are slow and infrequent, and a wide coalition of business organisations has been calling for more frequent revaluations so that there is a closer and more accurate link between the rate and the state of the economy and businesses’ ability to pay.
We understand, and supported, the decision for the next revaluation to be moved to 2023, so that it did not take place in the middle of a pandemic. More generally, as we hope to leave the pandemic behind us, the VOA needs to be given the resources that it needs to carry out more frequent revaluations. Additionally, plenty of businesses have legitimate non-covid-related MCC claims. They will be looking hopefully to the VOA for a timely decision, and it needs to have the necessary resources to process all the claims not ruled out by this legislation.
Finally, I will speak to new clause 2, which appears in my name and that of my hon. Friend the Member for Feltham and Heston. The new clause would place an obligation on the Secretary of State to publish an assessment of the provisions in clause 1. It asks for a review of the effectiveness of the legislation. Of course, the effectiveness of any legislation should be subject to review, but in relation to this particular Bill there are a number of uncertainties and questions around the provisions, impacts and related funding.
We do not know whether restrictions and closures will need to be reintroduced later in the year. We all hope not, of course, and we hope that we do not get a vaccine-resistant strain of the virus, but the upcoming relatively uncontrolled relaxation of restrictions may have consequences that are difficult to predict. If we have to close businesses again, we need to know how well this package has worked. We owe it to struggling businesses, overburdened local authorities and the VOA to get this right. An assessment of the provisions in the Bill is, we think, a very reasonable request. By then we should have access to hard data and facts that will inform us for the future, so I hope that Committee members will support new clause 2.
The Opposition recognise the rationale for the Bill. We have tried to engage constructively to raise the questions that need to be clarified, and I look forward to the Minister doing so in his response.
Luke Hall Portrait Luke Hall
- Hansard - - - Excerpts

I thank the hon. Gentlemen for the constructive way in which he has held this discussion and raised legitimate points, especially following the sittings on Tuesday, which I thought were useful and informative. I will try to address all those points.

On funding, the £1.5 billion comes on top of a significant package of business rates support: £16 billion of relief over two years for the retail, hospitality, leisure and nursery ratepayers most affected by the pandemic. The new scheme will be targeted at the sectors that are most affected by covid-19 but have not benefited from that type of business rates support. It will enable councils to award relief to businesses that they consider to have been most affected, using their local knowledge, contacts and systems for determining who will be eligible. Councils will ultimately be responsible for decisions on the award of the relief. The crux of the issue is that it is about ensuring that relief is targeted at the businesses most affected by covid-19 and providing certainty for ratepayers and councils—it is not about saving money. It is never easy to draw the line, but we think that this strikes the right balance between supporting ratepayers and maintaining a tax base that continues to fund vital services in local government, which are more important than they ever have been.

On the point about airports, it is a core principle of the business rates system that MCC challenges should be used between revaluations to address issues of a discrete geographic, sectoral or temporal nature. The drop in demand for airports in the light of the pandemic is exactly the sort of market-wide economic change affecting property values that should be considered only at revaluations. Airports have received significant support for their fixed costs during this period from the airport and ground operations support scheme, and the Chancellor announced in his recent Budget a further six months’ support up to the equivalent of their business rate liabilities for the first half of 2021, subject to certain conditions under the £4 million cap.

The hon. Gentleman asked when the guidance for councils would be published. As we heard earlier this week, we absolutely recognise the importance of getting the guidance published as soon as we can. We want to do that, and I will clarify one of the points that was raised on Tuesday. We have shared the draft guidance with the LGA, officers from the Chartered Institute of Public Finance and Accountancy, and the Institute of Revenues Rating and Valuation. We are now discussing the parameters of the scheme with them in order to help shape the final document, so I offer the Committee some reassurance on that. We have done that in parallel here, to try to ensure that we can get it published as quickly as we can. We will absolutely be working with local government to help ratepayers apply for the new relief as soon as they can once the Bill has passed and they have set up their schemes.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

Does the Minister accept that there is absolutely no reason to wait for the Bill to pass to put the scheme in place? The Government could distribute the £1.5 billion today, if they wanted.

Luke Hall Portrait Luke Hall
- Hansard - - - Excerpts

I thank the hon. Gentleman for that intervention. The point is that we are still working on the final points in the guidance. The LGA made the point that it desperately wants to be involved in the drawing up of the guidance and in setting the framework and parameters. That is what we are doing and going through now. As soon as we are ready to do that, of course that is what we will do. We are as keen as everybody for the support to be available to local authorities, so as soon as the Bill has passed, we will ensure that we get the support out to councils and businesses as soon as we can. It is a point that has been well made by the Opposition and by people who contributed written evidence and who participated in the session earlier this week and the Second Reading debate, so we are acutely aware of that point.

Another temporal question was raised on Tuesday that the hon. Gentleman asked me to clarify today—whether the legislation will prevent councils from awarding rate relief after the end of September. I want to offer some reassurance on that, and I will perhaps do so in writing after the Committee as well, just to provide some more detail. There is a requirement in primary legislation that certain decisions on the use of a discretionary rate relief scheme must be made by a local authority by the end of the September following the year in question. For the year 2021, that deadline is fast approaching. Given the scrutiny that a Bill of this nature deserves, we do not expect councils to be in a position to award the whole £1.5 billion relief scheme in respect of liabilities for 2020-21. Instead, we can simply ensure that the scheme will apply to 2021-22 liabilities, and local authorities have over a year until the deadline for that period. Ratepayers will still be receiving rate relief, which councils can award on the basis of how ratepayers have been affected by covid-19, but it will be against their liability for this year rather than last year, so we can still ensure that ratepayers quickly receive support against their rates bill once the Bill receives Royal Assent. As that is a slightly technical point, perhaps I will put that in writing before Report, so that it can be scrutinised properly by the Opposition and we can discuss the point further.

I appreciate that concerns have been raised about VOA funding. I agree that the Bill will help the VOA to focus on delivering its important functions, such as the wider 2023 revaluation. The Treasury is working closely with the VOA and HMRC to understand the resourcing requirements. We have provided the VOA with £22 million to update its IT systems, enabling it to become more flexible, more efficient and more resilient, and we have provided £31 million to support the revaluation in 2023. Of course, we will continue to assess the VOA’s funding in the spending review as well.

The hon. Gentleman rightly highlighted the pressures on local government and the new burdens that the Bill could create. It is right that when the Government ask councils to deliver new activity we consider new burdens. I assure the Committee that we will work closely with local government to consider, and assess the funding of, any new burdens in the administration of the relief as they arise. We have tried to do that in good faith throughout the pandemic, and will continue to ensure that that is the case.

I thank the hon. Gentleman again for his contribution. I am happy to try to clarify any further points that he wants to raise between now and Report. I look forward to continuing discussions throughout the passage of the Bill.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2

Unfit directors of dissolved companies: Great Britain

Question proposed, That the clause stand part of the Bill.

None Portrait The Chair
- Hansard -

With this it will be convenient to discuss the following:

Clause 3 stand part.

New clause 1—Duty to report on directors of dissolved companies

“(1) The Secretary of State must lay a report before each House of Parliament no later than three months after the day on which this Act is passed, and during each three month period thereafter.

(2) Each report under subsection (1) must include the number of former directors of dissolved companies the Insolvency Service has—

(a) investigated; and

(b) disqualified

both in the three-month period prior to the report being published, and in total since section 1 came into force.”

This new clause would place an obligation on the Secretary of State to report the number of former directors of dissolved companies investigated and disqualified by the Insolvency Service.

New clause 3—Effectiveness of provisions on former directors of dissolved companies—

“(1) The Secretary of State must, no later than the end of the period of one year after the day on which sections 2 and 3 come into force, lay before Parliament an assessment of the effectiveness of the provisions in section 2 and 3 of this Act.

(2) The assessment must include consideration of—

(a) the extent to which the provisions have achieved their objectives;

(b) the interaction of the provisions with other law and policy relating to the investigation and disqualification of directors; and

(c) possible related changes to law and policy.”

This new clause would place an obligation on the Secretary of State to publish an assessment of the provisions in section 2 and 3 of this Act.

Luke Hall Portrait Luke Hall
- Hansard - - - Excerpts

I am grateful to the Committee for its useful input in the discussion so far. I welcome the opportunity to talk further about our insolvency regime, which is an international leader on speed and efficiency, returns to creditors and cost. A strong insolvency regime must be backed up by efficient and robust enforcement to tackle wrongdoing, and the UK has a first-class regime to deal with regulatory breaches, whether through criminal proceedings or disqualifying individuals who have shown themselves unfit to act in the management of a limited company.

It will not escape the Committee’s notice that the Company Directors Disqualification Act 1986 contains provisions that allow disqualification proceedings to be sought in live companies and in insolvent companies but not in dissolved companies. That is a loophole that has been exploited by unscrupulous company directors, and we heard many examples of that earlier in the week. For example, we have seen many instances where a company is dissolved in order to dump debts, such as those owed to the taxman or employment tribunal awards, only for a new company to pop up, running with the same directors in the same building, sometimes even with the same staff.

The process of allowing one company with debts to drop off the register and starting a new company without the burden of debt is sometimes known as phoenixism. We heard many worrying examples of that earlier this week and on Second Reading. We are therefore seeking to increase the scope of the CDDA to make it possible to challenge director misconduct, even where a company has been struck off the register and dissolved. The clause amends various sections of the CDDA, which will improve the enforcement regime by applying investigation and disqualification processes to former directors of dissolved companies.

On the whole, the amendments apply similar processes and standards to those cases as already exist for disqualification of directors of insolvent companies. That includes the option for a former director of a dissolved company to provide a disqualification undertaking to the Secretary of State rather than face court proceedings. Clause 2(2) amends section 6 of the CDDA to give a power to the court to make a disqualification order on the application of the Secretary of State where it is satisfied that a person was a company director of a dissolved company, and that their conduct makes them unfit to be concerned in the management of a limited company. It also clarifies which court has jurisdiction to make an order for the winding up of the company.

Clause 2(3) amends section 7 of the CDDA. It sets out that, where an application for a disqualification order against a former director of a dissolved company is made, it must be before the end of the three years, starting with the date of dissolution of the company. That mirrors the situation for insolvent companies, where a disqualification order must be made within three years of the date of insolvency. Clause 2(3) also makes an important amendment to section 7(4) of the CDDA to expand the power of the Secretary of State to investigate director conduct in dissolved companies. The outcome of such investigations will provide the evidence for disqualification proceedings and establish that public interest criteria are met.

Section 8ZA of the CDDA allows for the disqualification of a person where they have exerted influence over another person who has been disqualified as a result of their conduct as a director of an insolvent company. If the court is satisfied that the disqualified person acted under the instructions of another person, it may also disqualify that person on an application made by the Secretary of State under section 8ZB. Clause 2(4) and (5) amend those sections of the CDDA so that a similar application may be made by the Secretary of State where a former director of a dissolved company has been disqualified but acted under the instructions of another person. Again, that mirrors the current position with regard to disqualification in insolvent companies.

Sections 15A to 15C of the CDDA deal with the question of compensation to creditors where they have suffered losses due to the actions of a disqualified director. If the court is satisfied that that has happened, it may make an order for the disqualified director to make compensation payments to creditors from their own funds. Alternatively, a disqualified director may give an undertaking to the Secretary of State to make compensation payments as a way to avoid court proceedings. Clause 2(6) amends section 15A of the CDDA to bring the disqualification of former directors of dissolved companies into scope for compensation orders or undertakings.
The provisions of the CDDA apply beyond the companies registered at Companies House. Sections 22A to 22H apply the disqualification provisions to, among others, directors of building societies registered under the Building Societies Act 1986, directors of NHS foundation trusts, and trustees of charitable incorporated organisations, but only companies registered at Companies House will use the dissolution procedure of the Companies Act 2006, so clauses 2(7) and (13) make amendments to those sections to remove any references to dissolved companies, which have been added by clause 2, when those cases are being considered. Finally, clause 2(14) clarifies that the new provisions will apply to former directors’ conduct in all dissolved companies, including companies that were dissolved prior to commencement. The CDDA applies to England, Scotland and Wales, so the clause applies in those jurisdictions.
I will also speak to clause 3, as the matter of who may be appointed as a company director is one for which legislative competence is transferred to the Northern Ireland Assembly. Clause 3 applies similar provisions to those in clause 2, except that they are applied to the Company Directors Disqualification (Northern Ireland) Order 2002. A legislative consent motion has been provided by the Northern Ireland Assembly, so I hope the Committee will agree that the changes will increase confidence in doing business across the UK, protect the business community and the wider public from the actions of delinquent directors, and send a strong message that the dissolution procedure may not be abused. I recommend that clauses 2 and 3 stand part of the Bill.
Seema Malhotra Portrait Seema Malhotra (Feltham and Heston) (Lab/Co-op)
- Hansard - - - Excerpts

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 Portrait Luke Hall
- Hansard - - - Excerpts

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.

12:15
Through online searches, people can see that a wealth of information is already provided. In future reports, enforcement outcomes will also include any disqualifications made against former directors of dissolved companies. In addition, an undertaking has been given in the impact assessment for the Bill to produce a post-implementation review of the measure to allow for investigation and disqualification of former directors of dissolved companies. That review will be done within five years of the commencement of the measure, which is in line with better regulation requirements. The exact form of the review is yet to be determined, and I am happy to work with the Opposition and hear their views about it. It is likely to be informed by the case numbers and to include an assessment of whether the powers are capable of being used as intended. I hope that that reassures hon. Members that there will be a review of the new provisions, and that they will therefore not press the new clauses.
On the resourcing point that the hon. Member for Feltham and Heston raised, the Insolvency Service employs its finite resources to maximum effect. It tries to prioritise cases where there has been most harm to the public and the wider marketplace. While it is clear that the resources of the Insolvency Service are not limitless, they are sufficient to take forward all cases where there is a realistic likelihood that investigation will result in the disqualification of directors, bankruptcy restrictions, the winding up of a company in the public interest or a successful prosecution. All cases requiring further investigation are prioritised and allocated so that the most serious cases are dealt with first. The Insolvency Service, the Department for Business, Energy and Industrial Strategy and the Treasury continue to work closely to respond to bounce back loan fraud, including by determining the resources that are required to tackle these cases.
The hon. Lady made a point about time limits. I reassure Members that the time limit referred to in the Bill does not relate to when the misconduct occurred. An application for a disqualification order may be made within three years of the date on which the company was dissolved, but that period can be extended with the leave of the court. That mirrors the provision for the investigation of conduct in companies subject to insolvency proceedings, where the period during which a disqualification application may be made is three years from the date the company becomes insolvent.
At present, the average time between the commencement of an insolvency to the stage of an investigation where a decision is taken to start proceedings is about 15 months. The bounce back loan scheme was launched on 4 May, so we are confident that a period of three years will be sufficient in most cases for an investigation into the conduct of former directors of dissolved companies with unpaid bounce back loans to be properly undertaken. We should also be clear that there is no limit to how far back conduct can be considered in evidence to support a disqualification report.
I hope that that offers some reassurance to Opposition Members. I am happy to work with them on the detail as we move through the passage of the Bill.
None Portrait The Chair
- Hansard -

Mr Grant, would you like to speak on these provisions before I put the Question?

Peter Grant Portrait Peter Grant (Glenrothes) (SNP)
- Hansard - - - Excerpts

I am very grateful for your understanding, Ms Rees, in allowing me to speak. I would like to make some comments on clause 2. I think that the new clauses are good and I hope that the Committee will agree to them.

There is widespread agreement that clause 2, or something very like it, is needed. We have seen only one dissenting submission from anybody, and that was from an individual solicitor. Speaking as a legal layperson, I thought that that submission contained inconsistencies and seemed almost to miss the point of the legislation. Although I respect the right of that individual to express their views, I cannot agree with them.

We already have legislation that gives the Insolvency Service three years to apply for a disqualification order against the director of a company that goes through a full liquidation if it finds evidence of misconduct in the running of the liquidated company. If the director chooses to dissolve the company without going through liquidation first, the Insolvency Service cannot move to have them disqualified from other directorships for misconduct in the running of the dissolved company.

To indicate how untenable that inconsistency is now that it has been identified, I invite the Committee to imagine that the clause we are debating had been included in the Company Directors Disqualification Act right at the beginning. If somebody had come forward with a proposal to change the Act to create a special exemption for directors who deliberately dissolved their company as a way of dodging the consequences of the own misconduct, nobody would have taken it seriously. We would not create a loophole deliberately. The only disappointment I have is that the proposal to close this loophole has taken so long and that there are still far too many other loopholes for criminals to exploit.

I want to repeat a comment I made on Second Reading, and on which I asked a number of the witnesses to comment on Tuesday. The Government rightly point to the increase in phoenix companies that are set up as part of, or immediately after the dissolution of, a dodgy company. A similar abuse can and does take place where the phoenix company is a long-established associate company of the one being dissolved. The abuse does not rely on a new company being set up if the directors have a few handy replacement companies already in the bank, or on the Companies House register.

During the evidence sessions, I asked a number of witnesses if they had any concerns about the retrospective nature of clause 2. It is important to remember, as the Minister has pointed out, that we are not retrospectively outlawing something that was legal at the time; all we are saying that if someone is strongly suspected of having acted improperly or illegally in the past, that misconduct can be properly investigated. We are not even giving additional powers to the regulator to act; we are removing an artificial barrier that should probably never have been there in the first place to allow that investigation.

We heard an interesting range of views from witnesses on the three-year time limit. As the Minister pointed out, that limit applies from the date of dissolution, not the date of misconduct. If, for example, the directors of a company dissolved it in 2019 because they realised that their misconduct of 2015 was beginning to be picked up by the Insolvency Service or anyone else, they would not get away with it. For now, I think it makes sense to retain the three-year limit that applies elsewhere in the original Act, but I ask the Minister to give careful consideration to extending the limit in future legislation.

In other debates, I have referred to the scandalous way in which Blackmore Bond plc targeted very high-risk investments at people it knew were looking for quite the opposite—a safe place to invest money they could not afford to lose, as they had told the directors of Blackmore Bond. The investors have lost pensions and life savings totalling £46 million. The shareholder directors, Phillip Nunn and Patrick McCreesh, still appear to be doing very nicely indeed, thank you very much.

In 2015, the Insolvency Service, as part of a much bigger investigation into at least one other company, found that through an earlier company called Nunn McCreesh limited liability partnership, the same Phillip Nunn and Patrick McCreesh had been paid nearly £900,000 to identify investors for Capita Oak—an investment scheme that is now under investigation by the Serious Fraud Office. At the very least, there are major questions about what Nunn and McCreesh did for their £900,000 and about whether it was legal or proper. Perhaps by complete coincidence, also in 2015, Nunn and McCreesh dissolved the limited liability partnership.

Under the existing legislation, the Insolvency Service would not have been able to use any misconduct in the running of Nunn McCreesh llp to apply for disqualification orders against Nunn and McCreesh. It could not have stopped them from setting up the much more lucrative Blackmore Bond in 2016. The Bill still would not allow it to do so because of the three-year time limit. That is one reason I am asking the Minister to consider the three-year limit in future.

At least this legislation means that if another Nunn McCreesh llp comes along now, the Insolvency Service will have one small but important additional weapon in its armoury to stop it. It came too late to stop Blackmore Bond making £46 million by making other people’s money—other people’s life savings and pensions—disappear. Hopefully, the next Blackmore Bond will be stopped in time and that will not happen again.

It took only the briefest of searches this morning to find that Phillip Nunn, one of the directors of Blackmore Bond and Nunn McCreesh, was a director of no fewer than 10 different companies that have been dissolved in the past year. For most of them, the only other director was Patrick McCreesh. I do not know whether Mr Nunn or Mr McCreesh was ever placed under formal investigation for their part in Capita Oak, and I do not know what was in the liquidator’s report that was submitted to the Secretary of State about their conduct, as happens with any insolvency case, but surely the fact that they were able to dissolve the company in 2015 should not make any difference to the investigations to which they can be subjected now or the sanctions they can face if they are found or suspected to be guilty of serious misconduct in the operation of Nunn McCreesh llp or any of their other companies. When I was looking at the activities of Blackmore Bond, one of the other companies with which it went into what was called a strategic partnership led to another of these fascinating spider’s webs of dissolved companies and resurrected companies, one of which has an ultimate owner that is a limited liability partnership registered in England with five partners who appear to be members of the same family—two people of similar age who are the designated partners, and three people about 25 to 30 years younger than them who are partners but not designated. It looks like mum, dad and kids—why not?

According to documents that the senior designated partner certified and submitted to Companies House, which Companies House accepted and still has displayed on its website, one of those younger partners consented to the responsibility of being a partner in that partnership when she was 16 years old. One of them, according to those documents, consented to those responsibilities when she was 14 years old. One of them was 10 years old.

Some of our witnesses referred to the gross inadequacies in the processes of Companies House for checking the documents that are submitted to it. Those documents are being used to demonstrate that a company is genuine and bona fide. Those kinds of thing make it clear to me that while the Bill should be supported today and while the clause should be adopted with or without the related new clauses suggested by the main Opposition party, there are still massive holes in our regulation of companies through the Financial Conduct Authority, Companies House and the register of companies, the Financial Reporting Council and the professional auditing bodies.

Not a single part of the regulatory framework is working properly. Sometimes that is because the regulators are not doing the jobs that they are there to do. Sometimes it is because they are not resourced and do not have the firepower to compete with some of what they are faced with. Sometimes it is because the legislation we have provided them with is not fit for purpose. When those three things come together in so many regulators at the same time, it is no wonder, as one of our witnesses pointed out, that the United Kingdom is seen as one of the softest of soft touches for fraudulent companies. An entire company can be set up for no other reason than to steal people’s money.

I welcome the Bill, I certainly support clauses 2 and 3, and I will recommend that the Bill be supported when it returns to the House on Third Reading, but it is only a tiny step on a much longer journey. I urge the Minister and his colleagues in Government not to see the Bill as the last step, but to see it as the first in making the United Kingdom, whatever format it might take in the future, and all our four nations no-go areas for the scammers, chancers and charlatans for whom we have been far too soft a touch for far too long.

Luke Hall Portrait Luke Hall
- Hansard - - - Excerpts

I thank the hon. Gentleman for his powerful contribution; he is extremely well informed on these matters. I thank him also for his support and take into account his comments on the three-year limit. I am grateful for that.

The Government are certainly not pretending that the work stops here. However, the Bill is a positive step forward in the right direction and it is taking action. I will raise the points the hon. Gentleman has made today with the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Sutton and Cheam.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.

Clause 3 ordered to stand part of the Bill.

Clause 4

Extent, commencement and short title

Question proposed, That the clause stand part of the Bill.

Luke Hall Portrait Luke Hall
- Hansard - - - Excerpts

The clause covers technical areas such as the Bill’s territorial extent, the commencement and the short title. Clause 4(1) sets out that the business rates measure relating to material changes of circumstance in clause 1 extends to England and Wales. However, the application of clause 1 is to England, meaning that in effect it applies only to England. As I said earlier, the Welsh Government yesterday announced their intention to include in the Bill provisions applying to Wales. We will work closely with them on that and take the necessary steps.

Clause 4(2) confirms that the extent of the directors disqualification measure is the same as for the provisions being amended, which means that clause 2 extends to Great Britain and clause 3 to Northern Ireland. The effect is that the measure extends to the whole UK.

12:30
Clause 4(4) and (5) deal with commencement. The business rates measure relating to material changes of circumstances will commence when the Bill is passed. The power for the Secretary of State or the Northern Ireland Department for the Economy to investigate the conduct of former directors of dissolved companies, set out in clauses 2(3)(b) and 3(3)(b), will also commence when the Bill is passed. That will allow for the investigation process to start immediately where serious breaches of expected standards are suspected. Other provisions in clauses 2 and 3, such as the powers to seek the disqualification of former directors of dissolved companies, will commence two months after the Bill has passed.
Clause 4(6) confirms the short title of the Bill.
Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

I thank the Minister. Obviously, this is a technical clause that we have no problem with. I just want to make this point again: the extent and the commencement are important, but the distribution of the £1.5 billion to businesses that desperately need help does not rest on the passing of the Bill and its clauses. The commencement of the help to businesses could start as soon as the guidance is ready.

Luke Hall Portrait Luke Hall
- Hansard - - - Excerpts

I thank the hon. Gentleman. That is why we are so keen that we work at pace with the LGA and others to make sure that the guidance is in the right place to distribute so that we can get the support out as quickly as possible.

Question put and agreed to.

Clause 4 accordingly ordered to stand part of the Bill.

None Portrait The Chair
- Hansard -

Does the hon. Lady want to move new clause 1 formally?

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

In the light of the Minister’s response, I will not press it today, but we would be interested in further discussions on the review that the Minister has outlined and we will return to this issue on Report.

New Clause 2

Effectiveness of non-domestic rating lists provisions

“(1) The Secretary of State must, no later than the end of the period of one year after the day on which this Act is passed, lay before Parliament an assessment of the effectiveness of the provisions in section 1 of this Act.

(2) The assessment must include consideration of—

(a) the extent to which the provisions have achieved their objectives;

(b) the interaction of the provisions with other law and policy relating to coronavirus support for business and business rates; and

(c) possible related changes to law and policy.”—(Jeff Smith.)

This new clause would place an obligation on the Secretary of State to publish an assessment of the provisions in section 1 of this Act.

Brought up, and read the First time.

Question put, That the clause be read a Second time.

Division 1

Ayes: 5

Noes: 8

New Clause 3
Effectiveness of provisions on former directors of dissolved companies
“(1) The Secretary of State must, no later than the end of the period of one year after the day on which sections 2 and 3 come into force, lay before Parliament an assessment of the effectiveness of the provisions in section 2 and 3 of this Act.
(2) The assessment must include consideration of—
(a) the extent to which the provisions have achieved their objectives;
(b) the interaction of the provisions with other law and policy relating to the investigation and disqualification of directors; and
(c) possible related changes to law and policy.”—(Seema Malhotra.)
This new clause would place an obligation on the Secretary of State to publish an assessment of the provisions in section 2 and 3 of this Act.
Brought up, and read the First time.
Question put, That the clause be read a Second time.

Division 2

Ayes: 5

Noes: 8

Question proposed, That the Chair do report the Bill to the House.
Luke Hall Portrait Luke Hall
- Hansard - - - Excerpts

I put on record my thanks to the Committee, the Clerks of the Committee for their work, the Opposition for being so constructive, and all hon. Members. I also thank the Opposition for wishing me a very happy birthday. If I am honest with myself, I have never had this many people at one of my birthdays, so it is an absolute pleasure. I thank the Committee for its work in the consideration of this important Bill.

Question put and agreed to.

Bill accordingly to be reported, without amendment.

12:37
Committee rose.
Written evidence reported to the House
RDDB04 Philip Clarkson BSc FRICS IRRV (Hons), Director—Rating, Lambert Smith Hampton
RDDB05 R3, the insolvency and restructuring trade body
RDDB06 Supplementary evidence from the Institute of Revenues, Rating and Valuation (IRRV)

Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill (Programme) (No.2)

Ordered,
That the (Order of 28 June) Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill (Programme)) be varied as follows:
(1) Paragraphs (4) and (5) of the Order shall be omitted.
(2) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion two hours after the commencement of proceedings on the Motion for this Order.
(3) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion three hours after the commencement of proceedings on the Motion for this Order.—(Luke Hall.)

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

Consideration of Bill, not amended in the Public Bill Committee
New Clause 1
Duty to report on directors of dissolved companies
‘(1) The Secretary of State must lay a report before each House of Parliament no later than three months after the day on which this Act is passed, and during each three month period thereafter.
(2) Each report under subsection (1) must include the number of former directors of dissolved companies the Insolvency Service has—
(a) investigated; and
(b) disqualified both in the three-month period prior to the report being published, and in total since section 1 came into force.’—(Jeff Smith.)
This new clause would place an obligation on the Secretary of State to report the number of former directors of dissolved companies investigated and disqualified by the Insolvency Service.
Brought up, and read the First time.
13:25
Jeff Smith Portrait Jeff Smith (Manchester, Withington) (Lab)
- Hansard - - - Excerpts

I beg to move, That the clause be read a Second time.

Nigel Evans Portrait Mr Deputy Speaker (Mr Nigel Evans)
- Hansard - - - Excerpts

With this it will be convenient to discuss the following:

New clause 2—Guidance on non-domestic rating and coronavirus

‘(1) The Secretary of State must, no later than three months from the day on which this Act is passed, publish guidance for local government bodies on the application of—

(a) the provisions of section 1 of this Act, and

(b) the wider local business support policy framework associated with that section.

(2) In preparing the guidance the Secretary of State must consult—

(a) independent experts, and

(b) representatives of companies whose non-domestic ratings determinations are affected by section 1.’

This new clause would require the Secretary of State to publish guidance to local government bodies on the application of the provisions of section 1 of this act. This guidance must be prepared following consultation of independent experts and businesses whose business rates appeals are affected by section 1.

Government amendments 1 to 6.

Jeff Smith Portrait Jeff Smith
- Parliament Live - Hansard - - - Excerpts

I am conscious that we have an important debate to follow and that time is pressing, so I shall be relatively brief. Labour’s broad support for this Bill has not changed. We recognise the urgent need to support businesses, as well as the Valuation Office Agency, and the need to close a legislative gap exploited by unscrupulous directors. The Bill remains lacking in some safeguards. Labour attempted to correct that in Committee, but we were unsuccessful. The new clause is concerned with the resourcing and capacity of the Insolvency Service to deal with the new measures relating to directors of dissolved companies.

As we heard from witnesses in July at the evidence sessions, unscrupulous directors can cause significant suffering to those who have invested in or loaned to their companies. Too often, these directors are able to absolve themselves of their financial responsibilities by dissolving their companies and creating a financial and time barrier to holding them to account. So clauses 2 and 3 of the Bill allow for a director to be investigated and disqualified before their company is restored. That plugs the important gap and is a welcome measure; it removes a costly barrier, both in monetary and time terms, to accountability and financial responsibility.

However, as Duncan Swift, the former president of R3 highlighted in the Bill’s evidence sessions, these provisions could see the Insolvency Service take on 10 to 15 times the number of investigations it currently undertakes. Despite that potential increase in workload, there is no indication in the Bill that the Government plan to increase funding and resources at all for the Insolvency Service, let alone to do so by the significant amount it might need to allow it to cope with the extra investigations. So Labour is calling for new clause 1 to be added to the Bill to ensure that there is appropriate, regular oversight and scrutiny of the Insolvency Service’s ability to carry out this increased workload. If it is not given the resources to carry out its increased responsibilities, clauses 2 and 3 of the Bill become, in effect, redundant. New clause 1 would ensure that parliamentarians and others are kept updated on the Insolvency Service’s ability to carry out its tasks and on any need it has for extra resources. We do not intend to press the new clause to a vote, but we think it is important to make this point, particularly given that the Insolvency Service cannot apply to court for the disqualification of a director whose company has been dissolved for more than three years. That means that the Insolvency Service does not just need extra resources to carry out the additional investigations; it needs them to carry out those investigations promptly, within that three-year timeframe.

As Dr Tribe summarised:

“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.]

Although this Bill goes some way to helping tackle financial corruption, the Government could and should go further. The Bill is too narrowly defined for any financial amendments, but the Government could provide a stronger deterrent, beyond disqualification, for unscrupulous directors.

Let me briefly turn to the other new clause and amendments. New clause 2 stands in the name of the hon. Member for Richmond Park (Sarah Olney) and we do not disagree with it. However, we think we do not have to wait for this until the day the Act is passed. It is clear that there is cross-party support for the Bill, that it will pass and that businesses are desperate for support in the current circumstances. So we see no reason why indicative guidance cannot be published and sent to local authorities, as well as possibly indicative amounts for the grants that local authorities will receive, so that they can get on quickly with designing their schemes, ready for when the Act passes. I make the point that we made in Committee that this should not be on a per-head basis; it should take into account the effect of the pandemic on different regions and on different sectors of the economy. I also note the Government’s technical solution, which allowed the backdating of these grants so they effectively apply this financial year.

13:30
In Committee back in July, the Minister said that the Government were engaging with local authorities and
“working on the final points in the guidance.”––[Official Report, Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Public Bill Committee, 8 July 2021; c. 76.]
Officials have had all summer to do that now. Let us just get on with it—let us let local authorities know what they can do and let them get on with doing it.
Finally, we support the Government’s technical amendments to allow the measures to apply to Wales as well as England. We note that they are at the request of the Welsh Government and we welcome them.
Peter Grant Portrait Peter Grant
- Hansard - - - Excerpts

I beg your pardon, Mr Deputy Speaker. I am standing to speak to the wrong provision.

Luke Hall Portrait The Minister for Regional Growth and Local Government (Luke Hall)
- Hansard - - - Excerpts

I welcome the contribution from the hon. Member for Manchester, Withington (Jeff Smith). I shall start by responding to new clause 1, tabled by the hon. Member for Feltham and Heston (Seema Malhotra) and the hon. Gentleman. I am grateful to him for his constructive words and the way in which he has approached the debate.

The new clause would require the Secretary of State to report to Parliament on the number of directors investigated and disqualified under the new provisions in the Bill every three months from the date that the Act is passed. I am grateful to hon. Members for the opportunity to confirm to the House that statistical reporting is routinely undertaken by the Insolvency Service. Regular three-monthly releases cover company insolvencies across the whole UK as well as individual insolvencies in England and Wales. The releases also contain underlying data and are published and available online to everybody.

As well as that, since the start of the pandemic, the Insolvency Service has been publishing experimental monthly releases of data concerning insolvency numbers. This was so that the statistics could act as an indicator of the impact of the pandemic on insolvencies. It may be of particular interest to hon. Members that the Insolvency Service also releases monthly updates about its enforcement activities. This information includes not only the number of companies wound up in the public interest, but the number of disqualification orders and undertakings broken down by the relevant section of the Company Directors Disqualification Act 1986, under which they were sought. Going forward, these numbers will include any orders or undertakings obtained as a result of this new provision. The reports also include information on lengths of periods of disqualification. Furthermore, there is an annual report on the nature of the misconduct being alleged.

I hope that the hon. Gentleman is reassured that a large amount of information is already provided that can be accessed easily through a quick online search and that future reports of enforcement outcomes will include any disqualifications made against former directors of dissolved companies. I would be grateful to him for withdrawing his new clause.

Let me just add one last point. The hon. Gentleman also mentioned the new burdens on councils. I somewhat couched my answer the last time we spoke about it, so I just want to put on record that we will absolutely be meeting the new burdens cost, including the associated administrative and IT costs.

Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

Clause 1

Determinations in respect of certain non-domestic rating lists

Amendments made: 1, page 1, line 2, for “an English” substitute “a rating”.

This amendment and Amendments 2 to 6 extend the application of Clause 1 to non-domestic rating lists compiled for the purposes of business rates in Wales (as well as lists for England).

Amendment 2, page 1, line 5, for “an English” substitute “a rating”.

See the explanatory statement for Amendment 1.

Amendment 3, page 1, line 8, for “an English” substitute “a rating”.

See the explanatory statement for Amendment 1.

Amendment 4, page 2, leave out lines 22 and 23.

See the explanatory statement for Amendment 1.

Amendment 5, page 2, leave out lines 28 to 35.

See the explanatory statement for Amendment 1.

Amendment 6, page 2, line 40, at end insert—

‘“rating list” means a local non-domestic rating list or central nondomestic rating list under Part 3 of the LGFA 1988.’.—(Luke Hall.)

See the explanatory statement for Amendment 1.

Third Reading

13:34
Luke Hall Portrait Luke Hall
- Hansard - - - Excerpts

I beg to move, That the Bill be now read the Third time.

It is a pleasure to lead this two-part Bill on Third Reading after a series of constructive debates and scrutiny sessions. The contributions of Members from across the House have underlined the importance of these business rates and insolvency measures being on the statute book and will stand the Bill in good stead as it passes to the other place.

The business rates element of the Bill is a sensible measure that will mean that the application of the material change of circumstances process meets the law’s original intention. The MCC process is designed to be used in cases such as localised roadworks, not in response to market-wide economic changes. The passage of the Bill would ensure that this continues to be the case. Instead of business rates bills potentially being reduced following lengthy appeals processes, ratepayers will instead be able to benefit from a £1.5 billion relief package to be targeted at those businesses that have not benefited from the support linked to business rates during the pandemic.

The relief will be available as soon as possible once the Bill has passed and local authorities have set up their local schemes. This approach has been welcomed by the Public Accounts Committee and will be mirrored by the Scottish and Welsh Governments. That means that this measure has wide support, both in respect of the English business rates system and across the other nations of the UK, where ratings are a devolved matter.

Similarly, we have also seen widespread support for the second measure, which brings the conduct of former directors of dissolved companies into scope for investigation and potential disqualification proceedings. This measure is a valuable addition that will be an important tool to help to combat bounce back loan fraud and to deter others from acting in breach of their duties as company directors. I am pleased that the measure will apply across the United Kingdom, protecting our businesses and increasing confidence in doing business in all four nations.

I am grateful for the contribution of all Members throughout the Bill’s earlier passage and today. I thank them for the attention that they have paid to the Bill. I am particularly grateful to the shadow Ministers, the hon. Members for Manchester, Withington (Jeff Smith) and for Feltham and Heston (Seema Malhotra), for their constructive scrutiny of the Bill.

Finally, I thank the Clerks of the House and my excellent Bill team at the Ministry of Housing, Communities and Local Government, who have supported us in steering this piece of important legislation through the House. This important Bill speaks to the Government’s commitment to maintaining sensible and fair rating and director disqualification regimes, and I am pleased to have supported it in its passage so far. I commend it to the House.

13:36
Jeff Smith Portrait Jeff Smith
- Hansard - - - Excerpts

I will again be brief, because we set out our concerns on Second Reading and in Committee, I am aware that this might not be seen as the highlight of the parliamentary week by Members, and there is an important debate to follow.

As we said, we have always supported the Bill’s broad aims. We want to see support administered quickly for businesses that have been affected by covid and have missed out on business rates relief. We accept that ruling out material change of circumstances claims, but instead administering the bespoke £1.5 billion fund, will probably be the best way of doing so in the current circumstances. We also support the aims of clauses 2 and 3, which would close the legal loophole and give the Government the power to investigate and disqualify unscrupulous or unfit company directors.

I welcome the Government’s decision to extend the provisions of clause 1 to apply in Wales, which has been welcomed by colleagues in the Senedd. I also welcome the Government’s decision to ask local authorities, when it comes to administering the fund, to award relief against the liabilities of ratepayers for the current financial year—2021-22—as a way of getting around the restrictions on the business rates legislation so that they can effectively award it against the previous year. It is a technical solution to a technical problem caused by the timing of the funding, when it is eventually released. Local government colleagues assure me that they are happy with this.

Again, I emphasise the fact that we need to get this relief out to businesses as quickly as possible. The rates relief was announced in March and not a penny has yet been paid out. I do not think we need to wait for the end of the Bill proceedings to get indicative guidance to local authorities to design their schemes.

There are still concerns about the resourcing of the Valuation Office Agency and the Insolvency Service and how funds will be recouped and actions taken against unfit company directors. I hope that the Minister will take those concerns into further consideration.

Finally, I thank the Minister for his engagement with me and my hon. Friend the Member for Feltham and Heston (Seema Malhotra) on the Bill’s finer points. I thank his officials and the many, many representatives of the business community and local authority officers who have also engaged with us during the passage of the Bill.

13:39
Peter Grant Portrait Peter Grant
- Parliament Live - Hansard - - - Excerpts

I am pleased to make a brief contribution to the debate. As I did at earlier stages, I will restrict my comments to the disqualification of directors, which is the only aspect of the Bill that extends directly to Scotland.

The SNP supports the Bill. Our concerns are the same as those of the official Opposition: that much, much more is needed than is included. We need a much more comprehensive set of regulations, not so much to protect shareholders and directors as to protect customers, members of the public and investors from the scams that have all too often been committed by companies whose shareholders are the directors. A lot of company legislation was designed to protect investors against misaction or misconduct by company directors who are different people, but we are now looking at companies whose directors are the shareholders. They are not going to defraud themselves, but sometimes they may be willing to defraud others.

At earlier stages, I have repeatedly mentioned the conduct of a group of companies called Blackmore Bond and its directors Phillip Nunn and Patrick McCreesh. I will not go over even a fraction of their history, but why they were not at least investigated for disqualification long, long ago is beyond me. The Bill will not make it easier for such directors to be called to order, so we need legislation that fills in the gaps that are left.

As an indication of just how current such behaviour is, the BBC reported as recently as Monday that DialADeal Scotland Ltd has been fined £150,000 by the Information Commissioner’s Office for making more than half a million illegal marketing calls, many to numbers that had explicitly opted out of such calls. DialADeal Scotland Ltd used false business names in its marketing, which is illegal. It disguised the number that it was calling from so that people could not phone back to complain, which is also illegal. The calls were about non-existent green deal energy savings schemes. That is not a telecoms offence; it is fraud or attempted fraud, and very probably conspiracy to defraud.

The fine was decided in September 2021, but clearly the action by the Information Commissioner’s Office started before then. In May 2021, the directors of the company, Calum Mckay Kirkpatrick and Yvonne Mccuaig, applied to Companies House to place the company in voluntary liquidation—almost certainly with the sole purpose of avoiding the financial penalty that they knew was coming their way, because if the company were dissolved before the order was made, its directors would get off scot-free. Fortunately, the Information Commissioner’s Office was able to lodge an objection with Companies House and the voluntary strike-off action has been suspended.

The same two individuals, Kirkpatrick and Mccuaig, were also directors of DialADealUK Ltd, which was voluntarily dissolved in September 2018, immediately before DialADeal Scotland Ltd was created. Coincidentally, shortly after they had started the process of winding up DialADeal Scotland Ltd, they set up another company called Simple Lead Ltd. Not one of those companies has ever filed a set of accounts with Companies House; DialADeal Scotland’s accounts are now over a year out of date.

Why is it that company directors can repeatedly avoid any kind of scrutiny? As I have mentioned in relation to Nunn and McCreesh’s companies, they can go for years and years without filing the very limited information that they have to file at Companies House, which just does not seem able to keep up.

Alison Thewliss Portrait Alison Thewliss (Glasgow Central) (SNP)
- Hansard - - - Excerpts

My hon. Friend makes a very good point about Companies House and its limitations. Does he share my concern that the UK Government just do not care enough about Companies House and the massive loopholes that they are leaving for people to be defrauded and company directors to get away scot-free with the wrong things that they are up to?

Peter Grant Portrait Peter Grant
- Hansard - - - Excerpts

That would certainly be many people’s interpretation of how long it has taken the Government to take any firm action. We keep being promised a comprehensive review of company legislation; it cannot come quickly enough. I hope that we will finally see an end to the scandal of the creatures called Scottish limited partnerships, which are too often set up purely as a means to fund organised crime.

Companies House needs to be reformed and probably better resourced. As the Opposition spokesperson—the hon. Member for Manchester, Withington (Jeff Smith)—mentioned, the Bill may place additional demands on the resources of the Insolvency Service. We know that the Financial Conduct Authority needs another complete sorting out. Either it is not doing its job or it has not been asked to do the right job; it probably does not have the resources to deal with fraud on the scale that is now going on right under our nose.

Although I welcome the Bill and we will certainly not oppose it—we have supported it all the way through—we look for assurances from the Government that it is not the end of the road. It can only be allowed to be one tiny step towards finally stopping these people. I remember one of the witnesses who gave evidence to the Bill Committee describing the United Kingdom as becoming one of the go-to places of choice for international fraudsters. That is not a badge that any of us should bear with honour. If that badge is applied to the financial services industry, and to the business community in the United Kingdom generally, it will take years—decades—to get rid of and honest businesses will suffer desperately.

The Government have to start to act now. I do not know whether the Minister is in a position to tell us today when the comprehensive review of company regulation will come forward, but I certainly hope that we will see it very soon. As DialADeal’s example makes clear, even since we started our consideration of the Bill, further scams have been inflicted on innocent people throughout these islands.

Question put and agreed to.

Bill accordingly read the Third time and passed.

Nigel Evans Portrait Mr Deputy Speaker (Mr Nigel Evans)
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Dame Rosie Winterton will now take the Chair for our important debate on the legacy of Jo Cox.

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

First Reading
11:40
The Bill was brought from the Commons, read a first time and ordered to be printed.

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

Debate before Second Reading
18:13
Moved by
Lord Greenhalgh Portrait Lord Greenhalgh
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That the Grand Committee do consider the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill before Second Reading.

Lord Callanan Portrait The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
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My Lords, this is a Bill with two distinct and important measures. The first is a measure to change the valuation assumptions that are applied when making business rate determinations in the light of Covid-19. The second measure provides for the investigation and disqualification of the former directors of dissolved companies.

Let me start with the business rates measure. Clause 1 of this Bill is about how the impacts of Covid-19 should be accounted for in rateable values, the key component of business rates liabilities. This clause will ensure that the coronavirus and its effects will not be considered as a material change of circumstance for the purposes of assessing rateable values. This measure is needed to respond to the unprecedented volume of appeals received by the Valuation Office Agency since the start of the pandemic. It will provide local authorities with certainty and security against a potentially crippling financial blow. It will ensure that the law operates in the way it was designed to do, by using general revaluations of non-domestic properties to reflect the impacts of major economic events in rateable values. As noble Lords will recall from when we debated and approved the Non-Domestic Rating (Lists) (No.2) Bill, a matter which I am sure is at the forefront of all noble Lords’ imaginations, the next revaluation in England has been moved to 2023 based on the market at 1 April 2021 so that the system can better reflect the impact of the pandemic.

The pandemic has of course hit businesses hard, and the Government have responded with unprecedented support. To take business rates alone, over this financial year and the last one, we are providing £16 billion of business rates relief for retail, hospitality, leisure and nursery properties. We are introducing a further £1.5 billion of relief in recognition of the complex ways in which Covid-19 has impacted the economy and supply chains. Local government has also needed government support. Business rates provide a stable source of income for local authorities to plan the financing and delivery of local public services. The events that necessitated this measure threatened that stability and certainty in a profound way.

The Local Government Finance Act 1988 provided the source of our valuation and local business taxation systems. Ensuring that this system operates as it was designed to do is a vital part of the Government’s rationale. Business rates bills are calculated by multiplying the rateable value of the property by the multiplier or tax rate, then applying various reliefs. The rateable value of a property is, broadly speaking, its annual rental value at a set valuation date. These rateable values are updated at regular revaluations undertaken by the Valuation Office Agency, which provides a consistent tax base for all businesses and a stable income stream for all local authorities.

Of course, ratepayers can challenge rateable values outside of general revaluations for a number of reasons, such as to correct a factual error or to reflect what is called a material change of circumstances, or MCC. If not satisfied with the outcome of the challenge, the ratepayer may appeal the VOA’s decision to the valuation tribunal.

The MCC system was not designed to reflect changes in economic factors, market conditions or the general level of rents. The 1988 Act was not designed with Covid-19 in mind, and the MCC system has never been used in response to an event with such economy-wide impacts as Covid-19. Moreover, the Government are clear that relying on the MCC system to help businesses that need further support in light of the pandemic would be misguided. It would mean significant amounts of taxpayer support going to businesses with properties such as offices, many of which have been able to operate normally throughout the pandemic, of course. It would also mean resolving such disputes through the courts. This could take many years and would create additional uncertainty for ratepayers and local councils.

Instead, the Bill will clarify the law such that coronavirus, and the restrictions put in place in response to it, cannot be used as the basis for making a successful MCC challenge or appeal. It will ensure that changes to the physical state of the property can continue to be reflected in rateable values as and when they occur, irrespective of whether this is as a result of coronavirus, but that the general impact of the pandemic on the property market will not be reflected until the next revaluation in 2023. This approach will provide much-needed certainty to councils and ratepayers alike.

We have of course worked closely with the devolved Administrations on these and other matters over the last 18 months. Following a request from the Welsh Government and amendments tabled on Report in the other place, the Bill will extend to Wales as well as England. Scotland has begun its own legislative process, which mirrors our approach.

The Government welcomed the support of Labour Members in the other place. The Public Accounts Committee also recorded its approval for the Government’s approach, as did the local government witnesses in Committee. These endorsements speak to the fundamental soundness of the policy rationale behind the business rates measures in the Bill.

The second part of this Bill addresses the problem of potential abuse of the process whereby companies are struck off the register and dissolved. I am proud to pay tribute to the resilience and determination of the many thousands of British company directors who have steered their companies through challenges from lockdowns, social distancing, and other restrictions on trading, all of which were necessary to limit the spread of Covid-19 and to keep our country safe. The responsible and effective stewardship of companies has helped to save countless jobs and livelihoods and will continue to provide an invaluable contribution to the economy as it recovers from the effects of the pandemic.

Unfortunately, there will always be those few individuals who do not comply with their duties as directors, and who do not act in the best interests of the company, its employees, or its creditors. It is important that that majority of honest and diligent directors, and the wider public, are protected from the potentially very damaging actions of those few bad apples. Directors who behave recklessly or irresponsibly can expect to have to answer for their conduct and may face proceedings to disqualify them from acting in the management of a company. Evidence to support disqualification action comes from investigation of companies and the conduct of their directors, and I would like to explain a little of how this process works in practice.

For insolvent companies, conduct is investigated through powers in the Insolvency Act 1986 and the Company Directors Disqualification Act 1986. Insolvency officeholders submit returns to the Secretary of State, reporting on the conduct of the directors in question. These are vetted, and where misconduct is suspected, it is assessed on the basis of public interest; for example, how much harm there has been to creditors and the wider public. Further investigation may be undertaken through examining company records and seeking information from third parties, including creditors, and directors themselves will also be asked to provide information and given opportunities to explain their actions. Where evidence of misconduct is found, a period of disqualification may then be sought. Investigations may also occur in live companies, using powers in the Companies Act 1985.

This Bill extends the circumstances in which the Secretary of State may investigate the conduct of directors to where the company has been dissolved without being subject to insolvency proceedings. It will extend the deterrent effect of the disqualification regime to those directors who abuse the company dissolution process. The Government consulted on this measure in 2018, when it was welcomed by stakeholders. Implementation is now particularly important to help reduce the risk of the fraudulent avoidance of repayment of government-backed loans made to businesses to support them during the pandemic.

It is an unfortunate fact of life that people who abuse the system will seek to take advantage wherever they can, so counterfraud checks were built into the lending process for bounce-back loans. For example, as a condition of the guarantee agreement, lenders were required to undertake appropriate anti-fraud and anti-money laundering checks before loans were made, and if they did not, they would not be able to call on the Government’s guarantee in the event of a borrower’s default. The new power to investigate and disqualify former directors of dissolved companies will back up those anti-fraud measures by deterring wrongful avoidance of repayment, and so help to ensure that public funds are protected. It will also pave the way to seek compensation from disqualified directors guilty of misconduct that has caused loss to others, including in relation to bounce-back loans.

Noble Lords may also be interested to hear about other actions taken by my department to minimise the risk of companies fraudulently avoiding repayment of their bounce-back loans. In March 2021, the department entered a blanket objection to any company with an unpaid bounce-back loan being struck off the register. This has prevented almost 51,000 companies, with total unpaid loans of over £1.7 billion, being dissolved. This action has ensured that lenders can continue to make recoveries on loans due to be repaid and will ensure that the public purse is protected. I commend this Bill to the Committee.

18:24
Baroness Blower Portrait Baroness Blower (Lab)
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My Lords, there are many in this Committee with considerable and specific expertise in relation to the matters covered by this Bill, none more so than my noble friend Lord Sikka. I venture to speak in this debate, however, to seek clarification from the Minister on matters relating to the role of local councils.

On 25 March, Her Majesty’s Government announced that they would give councils £1.5 billion to offer grant relief to businesses, excluding retail, hospitality and leisure, that have been hard hit by the Covid pandemic. As I understand it, this relief is an alternative to any adjustment to rateable value as a result of changes in circumstances. I therefore have a number of questions for the Minister. I do not think that the basis of the calculation of £1.5 billion is known, except presumably by those who made it, nor is it unambiguously clear to me how the money will be disbursed. Can the Minister say what will happen if the fund is exhausted and whether perhaps any local councils would be expected to top it up?

Further, in regard to local councils, given that one assumes there will be criteria for disbursement, is it foreseeable that there may be disputes and possibly appeals? If there were, this would inevitably result in additional administrative and IT costs. It is not clear that any additional funding or financial support will be available to local councils to carry out these duties and responsibilities. Can the Minister tell the Committee whether local councils—their finances already hard hit, not just because of Covid but from years of cuts—will be expected to bear the administration costs of the scheme? If so, what assessment has been made of the impact on local ratepayers and local services? I look forward to the Minister’s response.

18:26
Lord Bourne of Aberystwyth Portrait Lord Bourne of Aberystwyth (Con)
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My Lords, it is a great pleasure to follow the noble Baroness, Lady Blower, who certainly made some very telling points. I thank my noble friend the Minister for setting out the purport of the legislation, which is clearly important. It is legislation that I broadly support. It clearly comes in two parts, “Rating” and “Directors Disqualification”.

On the “Rating” part, it is worth making the point that the Government have given some £280 billion of support to business since the start of the pandemic and that, during 2020-21, more than half of business rate payers have paid nothing. That support continues, and quite right too. The material change of circumstances would be a blunt instrument in the present situation and I can certainly see the point, on financial rectitude and common sense, of proceeding to the basis of valuation in 2023 on an unchanged basis. In the other place, the Public Accounts Committee has approved of that approach.

I have a similar question to the noble Baroness about the £1.5 billion of support. The noble Lord quite rightly referred to the importance of certainty for business, but there is uncertainty as to how this particular fund is going to be disbursed and which businesses will benefit from it. It would be good to hear when there will be clarity on that because, to reiterate the point, certainty is vital for business—as it is for us all in our everyday lives.

There is then the question of whether it will be enough and what will happen if it is not. The case has been well made in relation to, for example, airports. I know that might not be a fashionable point as we approach COP 26, which I strongly support, but we are all heavily dependent on airports in our everyday lives, as we have clearly seen, so it would be good to have some reassurance for that section of the community.

In passing—I appreciate that it is probably beyond the pay grade of both Ministers—I look forward to the Budget next week and perhaps some indication of some tax changes so that digital businesses and the Netflixes of this world, which clearly have not been paying enough tax on a fair basis, are perhaps brought into a position where they pay a fairer tax. I hope that we will get some indication of when that is going to happen.

I move to the second part of the legislation, which relates to “Directors Disqualification”. As the Minister rightly said, this disqualification change predates the Covid pandemic. In a sense, it has nothing to do with Covid; it is something important that needs to be done quite independently of Covid. I appreciate that we all have a great interest—quite apart from tackling the fraud—in ensuring that the bounce-back loans are properly dealt with, but it would be good to hear that this is not the sum total of what is intended here.

It has been a serious issue over a period of time that directors have used the ability to dissolve their company to dodge the impact of insolvency legislation. I hope this is not going to be limited to the bounce-back provision, and I hope the Government are minded to use the Insolvency Service more widely to tackle other frauds. Many creditors of companies are in a very parlous position because of this considerable loophole, which has been abused over a period of time.

I certainly welcome the partial closing of the loophole, but it would be good to hear that the Government intend to move further than that. It has been suggested by the Insolvency Service that more than 5,000 dissolutions of companies a year have sidestepped the insolvency protections of the Insolvency Act 1986 and the Company Directors Disqualification Act 1986. This particular legislation deals only with the protection offered by the Company Directors Disqualification Act. It does not seem to do anything about the Insolvency Act protections, because we do not know that the company is necessarily going to be brought within the purport of the insolvency legislation. There are considerable protections in that 1986 Act that will not govern these companies, notwithstanding the provisions in this legislation.

As I say, this legislation is worth one or two cheers but not three because, as far as I can see, it does not go far enough. It would be good to hear that the Government recognise that and intend to take it further to protect other creditors and to tighten it regarding those who abuse the provisions of the Companies Act—the ability to operate through a company and the separate personality provisions entailed in that. I look forward to hearing more on that point.

I also want to raise the point about reimbursement. This deals with the disqualification of directors and tightens that particular screw for directors using dissolution inappropriately, but as far as I can see it does not do anything directly in relation to them disgorging the profits that they have made fraudulently. It is important that that should happen. The Minister referred to this in a rather vague, amorphous way, but it would be good to hear specifically what it means. Is this going to be by virtue of a compensation order? How is it going to be done?

Further to that point, given what I have said about the number of companies that come within this particular provision—up to 5,000 a year, on a calculation made by the Government themselves—what are we doing about the resources for the Insolvency Service? It is stretched already and, if it is expected to take on this extra work, it will need extra resource if, as we all hope, it is to do the job appropriately.

I support the legislation, but we should not run away with the idea that it solves all the problems in this area. It does not, and we will need more action.

18:33
Earl of Lytton Portrait The Earl of Lytton (CB)
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My Lords, the procedure for this debate before Second Reading was queried at the time of the Chief Whip’s commitment Motion. I had not realised that not only has this procedure been used only once before—namely, last October during our hybrid phase—but, so far as I know, the Procedure Committee has not reported on it. I have to say that I consider it unsatisfactory to separate in time and place the bulk of debate here from a decision to give a Second Reading some other time in the Chamber. Can the Minister confirm what discussions with the Procedure Committee have taken place about using this procedure now that we are out of hybrid mode? He may need to come back to me on that on some other occasion.

As to the matter for debate, noble Lords will know of my involvement, over a lifetime as a property professional, with business rates and local government finance and in this House, from the day of my maiden speech to the present time. With my having declared that matter, it will come as no surprise that it is the rating part in Clause 1 of the Bill that I seek to address, and that only. I do not propose to disappoint the Minister in what I have to say, but I apologise in advance because I will need a little time to explain it. I declare at the same time that I am an occupier of business premises and I benefit from a small-business exemption—but, for the avoidance of doubt, I did not claim any Covid grant or relief for the interruption of business activities.

I acknowledge that the Government have made great efforts to relieve business rate payers of many of the worst effects and burdens that have arisen during the pandemic, but it is far from the case that it has been applied equally to all, or indeed evenly across the spectrum of property. Nor has it been in any way linked to impact or means, so far as I can tell.

I also acknowledge that, having introduced measures to grant emergency relief, it might be seen as perverse to allow those who benefited from them to make further claims for the same period due to material changes of circumstances, or MCCs. However, it would be simplistic to go down that road. I do not believe that those who set about to make MCC appeals were those same beneficiaries or intended to claim for the same period, given that the duration of relief was not known at that time. Indeed, it is likely that they were not one and the same. Either way, it should be a simple matter to make provision to prevent such double counting, if indeed there is evidence of it.

MCCs have always been available where substantial change has affected the assumed annual value of property; a supermarket opening up down the road, affecting traditional high streets, or changes in highway arrangements, affecting trade—that sort of thing. However, the Government suggest that this was never intended to address an issue of global impact such as a pandemic. From the dawn of rating under the statute of Elizabeth I to the General Rate Act 1967—on which I cut my professional teeth—and on to the present day, there has been plenty of time to ponder such matters, and yet we have this measure only now. Coincidence? I think not.

The reality is that in the pandemic some sectors did well, others realigned their processes and activities to stay afloat, and a further group floundered and continue to do so. It is not correct to say that the pandemic produced a general downturn lasting for more than a year, which is the usual benchmark for dealing with material matters for rating valuation purposes.

It is a concern that the Government took so long after the commencement of the lockdown to come forward with a measure of this type. Effectively, a year elapsed before the Government chose to lay, initially, a statutory instrument with prospective effect, with the promise of a Bill with retrospective effect—which is where we are now, of course. I do not believe that proper consultation with business rate payers was part of that process.

The courts have been at pains to point out that rateable values are meant to represent the benefit of occupation to the occupier. Where government prevents or limits such beneficial use, rateable values should reduce—but not, it seems, where HM Treasury deems otherwise. As a result, appeals against assessments on grounds of MCCs were made in good faith, in time, and were validated long before the end of March 2021. No attempt was made to avoid this wasted cost and effort during the period when doubtless many public servants were furloughed, but equally the resources were there to consider and act in an appropriate and timely manner on such issues. The Valuation Office Agency was actively involved in negotiations regarding these MCC appeals, in conjunction with ratepayers’ representatives.

I have received representations from, among others, Heathrow Airport—referred to by the noble Lord, Lord Bourne of Aberystwyth—and some advice from rating experts Gerald Eve. If ever there was an MCC event sufficient to interrupt the operation of the nation’s largest airport, this had to be it. While late in the day a grant scheme was set up, it was capped at £2 million per hereditament, so amounted to a flea-bite of a concession in something like the Heathrow rates bill.

Worse than that, it selectively, and, I suggest, unreasonably, failed to address the issues affecting very large assessments and operations such as Heathrow and Gatwick, which to all intents and purposes were completely shut down by force of law while, at the same time, support was given to other types of activity that were still able to keep going, as we have heard. It is therefore hard to comprehend precisely what sort of a material change of circumstances would afford any relief to such a large enterprise, given the effect of the Bill. Nor does it dispel the impression of selective discrimination against a specific class of undertaking.

It is not just about mega-businesses of this sort—many others have suffered equally. Although the productivity may have held up, the double overheads of supporting remote working staff and maintaining empty office buildings have none the less been significant. The Government have protected office tenants from being hounded by their landlords to pay rent for space that they were prevented from physically occupying but have offered them zero protection when it came to business rate bills. That seems to be nothing short of double standards.

The Government have promised to set in place a £1.5 billion discretionary business rates relief fund in place of the MCC reductions that this Bill will now negate. I doubt whether many local authorities will exercise discretion in favour of an international airport, or indeed any but a relatively local cause célèbre, however significant the larger employment and economic activities are of big undertakings that underpin local economies and employment.

The explanatory paper produced at the same time as the SI gives examples in which a ratepayer with a £95,000 assessment might get £7,300 of relief, despite their turnover collapsing to zero. What that tells us is that any benefit is likely to be minimal and that £1.5 billion is a drop in the ocean. To follow what other noble Lords have said, could the Minister please clarify how the Government arrived at this sum of £1.5 billion as appropriate recompense for ratepayers badly impacted by the pandemic? Having been announced in March 2021, in the 2021 fiscal year, does this sum relate only to that year, with nothing further, or is it intended that there should be some further funding for 2021-22?

I find it disturbing that a deliberate decision has been made not to provide information as to how the £1.5 billion will be apportioned between councils and how they should make decisions as to which businesses in their areas should receive some of it—until, that is, this Bill is passed. Of course, that leaves businesses and billing authorities alike in no position to make any plans in relation to it. Can the Minister explain why he cannot today publish a draft of the proposed allocation of the £1.5 billion to each local billing authority and share the draft guidance planned to be issued to councils explaining the circumstances in which the Government believe that businesses should qualify for a share of the cash?

The apparent intention is to make the distribution according to the official data on the impacts of the pandemic on different sectors and not according to estimates of the impact on a property’s value. All this is apparently to ensure

“an even and more proportionate allocation of support”.

We were told that this would enable a speedier payment of support than would have been possible under the usual MCC appeal rules. I am afraid that I do not entirely follow that.

I feel that this is a matter of a veil of obfuscation. Fundamentally, it is about protecting Treasury income streams, first and foremost—and I am afraid that it is just too bad if businesses crumble. It lacks equity and fairness; the most desperate of businesses will be least able to mount a case or may have already gone under, waiting in desperation for government support that has failed to materialise. There is nothing in prospect for those at tipping point now. I have long said, and will say again, that if HM Treasury can think of nothing better to do than to disadvantage businesses which suffer serious losses, due in significant part to government edict, it will be of small concern to it that, in response, reduced exposure to a tax on business floorspace—perhaps by trading increasingly on the web—becomes a standard business plan and, for those who cannot avoid it, a fetter on the nature and extent of the financial risks they will be prepared to underwrite on behalf of the taxman. The moral hazard in all this is that it continues to underpin government willingness to game the system without taking adequate responsibility for the outcome. I suspect that, by the time the £1.5 billion fund kicks in, it will be too little and almost certainly much too late.

Of course, part of the answer is much more frequent revaluations—that, of course, is well beyond the scope of this Bill—but there was supposed to be a fundamental review of business rates, and many expected it to have progressed beyond the 2017 findings. I invite the Minister to give us an update on that if he is willing, but it is no wonder that some on the political spectrum suggest abolishing business rates altogether. It does not need to be so. It would be a perfectly good, fair and cheap-to-run system save for government insistence on overworking it and, essentially, unfairly treating businesses ever since the arrival of the poll tax in 1990. It is a salutary tale of mismanagement, and Clause 1 of this Bill continues the fundamental error.

I leave your Lordships with this thought: what else follows from this further incursion into business rate payer protections and stability of local government budgets?

18:45
Lord Holmes of Richmond Portrait Lord Holmes of Richmond (Con)
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My Lords, it is a pleasure to follow the noble Earl and to take part in this pre-Second Reading debate, which brings me to my first question for my noble friend the Minister. Can he enlighten noble Lords as to when Second Reading is due to take place?

I support this Bill in general, but associate myself with some of the comments from the noble Earl and from my noble friend Lord Bourne of Aberystwyth. I ask my noble friend the Minister to go back to the department and consider all possible new technologies which could assist in reclaiming BBLS, CBILS and other funds which may otherwise disappear into the ether for want of new technologies which can trace and track down such potentially fraudulent activity.

I support the Bill, but want to test the Minister to see whether we can take the opportunity of this small piece of legislation to go broader and look at the whole area of insolvency practice and potentially to consider in Committee whether it is high time to have a single independent regulator and ombudsman for the insolvency sector. They could consider both individual and corporate insolvencies and be funded through a levy. These ideas are hardly radical; they were certainly seen in other parts of our economy decades ago. This Bill offers an opportunity to look at the insolvency arena through these new governance glasses.

What is the situation now? There is a code of ethics which is voluntary. One can join a recognised professional body, of which there are currently four—there have been more—which do not necessarily act in concert or with consistency and which also act as trade associations for this part of economy, with practitioners able to shop between these RPBs if the mood suits, for reasons which we can all appreciate.

This sector of the economy is too important to be left to be governed as it currently is. It is also extraordinarily unique as an outlier when one considers it in comparison with, for example, legal or financial services.

What could we achieve with this Bill if we took a couple of amendments in Committee? We have the opportunity to end this inconsistency, to bring clarity and to stop the perception of conflict and, in some situations, the actuality of conflict. It is better for IPs and for everybody—better for businesses and better for the entire economy—bringing confidence to all involved, and confidence in this part of the economy. Any economy relies not just on brilliant businesses being built and succeeding but on how we deal with businesses when they get into difficulties. It is so important that this is run efficiently and effectively. If we see that a company is distressed and goes into insolvency procedures, how effectively could it be operated? Potentially, it could maintain employment, supply chains and the local community, if run optimally.

This is too important to be left as it currently is, and it was foreseen six years ago in the Small Business, Enterprise and Employment Act, in which powers—yet to be implemented—were given to the Secretary of State to have a single regulator for this service. Would my noble friend agree that six years is long enough to wait? If we bring amendments forward in Committee, it would make complete sense to implement that part of the Act.

We have the opportunity to end inconsistency and bring coherence and confidence to this sector and the wider economy. I look forward to returning to these points in Committee. I wish the Bill a swift and safe passage through Second Reading, whenever that might be, and I look forward to my noble friend’s comments at this and future stages.

18:50
Lord Cormack Portrait Lord Cormack (Con)
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My Lords, I am very glad to follow my noble friend Lord Holmes of Richmond. I associate myself with some of the remarks made by my other noble friend, but particularly underline the very real importance of the speech made by the noble Earl, Lord Lytton, who has a lifetime’s experience here.

I must begin by declaring an interest that, for almost half a century, I have from time to time given advice to the Machinery Users’ Association, which was founded as long ago as 1884 to advise—I see the noble Earl nodding—industry and business on the rating of plant and industrial machinery. There is real concern in the association on behalf of its many members in many businesses and industries. There is an element of retrospectivity in this legislation, which is not good.

I am also somewhat disturbed by the way in which we are debating Second Reading but not debating Second Reading. This was scheduled to be taken on the Floor of the House on 26 October. It was then scheduled to be taken on the Floor of the House yesterday. The change, I might say, had nothing to do with the tragic events of Friday; it had been announced before then. I do not really think this is the way we should legislate when the legislation is very broad-ranging.

I will say nothing about the directors—with broad agreement over that section of the Bill, I do not need to—but we have real uncertainty facing many businesses. The noble Earl put this very graphically in talking about the £1.5 billion. When will we know how this will be distributed? What will be the criteria? We ought to know. Business ought to know.

I asked the MUA to give me one or two examples. I will not detain or weary the Committee by going into great detail, but I am told that the owners of a former British Home Store in Barnstaple, in Devon, cannot market it or let it—they could not begin to let it during lockdown—yet they were required to pay 100% of the rates and were not entitled to a retail discount. For another totally different company, a tenant in Sloane Street—an exclusive address, with costs to match—had premises effectively vacant from the beginning of the first lockdown. This could be replicated up and down the country. I do not dissent at all from anything the noble Baroness, Lady Blower, said about the importance of business rates to local authorities, but local authorities will get nothing at all if they are surrounded by bankrupt businesses, and it is very important—even at this late stage in the progress of the legislation—that the Government come clean a little more clearly.

The sum of £1.5 billion sounds extraordinary and magisterial—to all of us in this Committee it is—but not when spread over a whole country. How long is it for? What precisely will happen when revaluation comes about in 2023? I am delighted to see the noble Baroness nodding vigorously, because these questions must be answered. People’s livelihoods and the livelihoods of local authorities depend to a large degree on this. It is a most unsatisfactory piece of legislation. It is two pieces of legislation cobbled together. One of them I do not particularly dissent from, because nobody could conceivably approve of fraud, and fraud perpetrated at the expense of the taxpayer during a pandemic is about as low as you can get. We would all agree with that. However, the rating put on at the beginning is a different subject which needs more comprehensive and joined-up thinking.

I am sorry that my noble friend Lord Callanan has been called away, but I ask my noble friend who will reply to this debate whether we can have some conversations, if not before Second Reading then at least before Committee, because it would not be beyond the wit of man and certainly should not be beyond the wit of government to table one or two amendments that would bring a degree of cohesion to the Bill. It should be accompanied by a reasonably detailed statement about how this £1.5 billion is to be used.

I could go on, but I will not. However, I am very grateful to the noble Earl, Lord Lytton, for bringing his lifetime of professional experience to our deliberations.

18:57
Lord Sikka Portrait Lord Sikka (Lab)
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My Lords, I am delighted to participate in this debate. I particularly commend the speech by the noble Lord, Lord Holmes of Richmond, and agree with almost everything that he said. I will confine my comments to the second part of the Bill, relating to insolvency. It is unlikely to achieve its aims.

The Bill assumes that the Insolvency Service will act in a timely manner, but it is hard to find much evidence to support that. Carillion collapsed in January 2018. Only on 12 January 2021 did the Insolvency Service apply for director disqualification orders against eight directors and former directors of Carillion. To date, none has been disqualified. BHS, which was mentioned earlier, entered administration on 25 April 2016 and liquidation on 2 December 2016, but it was only on 5 November 2019 that former BHS director Dominic Chappell was disqualified for 10 years. A number of executive and non-executive directors, including the BHS chairman, were severely criticised in the joint report by the House of Commons Work and Pensions Committee and the Business, Innovation and Skills Committee, but to date none has been disqualified. It is business as usual.

Of course, little people get picked on. The Bill has not really been preceded by any changes to the law relating to the formation of companies. Anyone, from anywhere in the world, can form a limited company in the UK. There is no authentication check on the identity of individuals forming the company, its directors or its shareholders. Private companies in the UK need one director only, who must be a natural person, and the BEIS website very helpfully tells people that directors do not have to live in the UK. How on earth will the Government enforce the UK legislation against directors who do not live in the UK?

Public companies need at least two directors but only one of them needs to be a natural person. The other can be a shell company located in an opaque tax haven where absolutely nothing is known about directors of companies. There are plenty of examples of that. UK-registered companies have around 7 million directors at the moment. I hope the Minister can tell the Committee how many of those are resident outside the UK or are bodies corporate registered in opaque tax havens. How many of those named are fake and do not exist? You can use any name you like.

Companies House acts mainly as a filing box and rarely performs any meaningful checks. Thousands of companies have directors whose addresses are in offshore jurisdictions and it is impossible for the UK to call foreign nationals to account for corporate offences. Can the Minister again please explain how the Insolvency Service will act against those individuals?

UK company law also permits nominee shareholdings and directorships, which enables concealment of the identity of real controllers and beneficiaries. How will the real controllers of companies be disciplined or disqualified? The Government also act in a very inconsistent manner when taking action against the filing of false information. I will give the Committee a pretty well known but real example.

Individuals connected with the mafia in Italy formed a company in the UK with the name Magnolia Fundaction UK Ltd. The company’s officers used Italian to file information at Companies House. When translated into English, the document said that the name of one of the directors was “The Chicken Thief”. He gave his occupation as “fraudster” and the address given was “The Street of the 40 Thieves in the town of Ali Baba, Italy”. Companies House dutifully accepted such documents. When the matter was raised in the House of Commons on 14 September 2017, the Minister said,

“No action has been taken”—


I think the sound of the Division Bell is the cue for me to stop. I will return to the actions of the Chicken Thief afterwards.

19:02
Sitting suspended for a Division in the House.
19:10
Lord Sikka Portrait Lord Sikka (Lab)
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To recap, I was talking about the individuals connected to the mafia who had a company in the UK called Magnolia Fundaction UK Ltd. They filed information saying that the director’s name was “The Chicken Thief”, his occupation “fraudster” and the address “Street of the 40 Thieves in the town of Ali Baba, Italy. Companies House gratefully accepted this and filed it away—that was it. When the Secretary of State was asked on 14 September 2017 what she was going to do about it, the reply was:

“No action has been taken at this time against the promoters and officers of Magnolia Fundaction UK Ltd for filing inappropriate information in Italian at Companies House.”


Nothing has changed since; it is exactly the same.

I knew the names of some well-known convicted mafia criminals and, out of curiosity, I put one of their names into the Companies House website. The person turned out to be a director of an organisation called Business Bank Italy Ltd, registered in the UK. It had a website that was inviting people to invest. I reported that matter to the shadow Chancellor at the time, Anneliese Dodds, she raised it in the other place and eventually the website vanished.

Nobody in authority at the Insolvency Service or anywhere else even bothers to see whether criminals’ names appear in the Companies House database. It is that bad, and we think that that kind of institutional framework will help us deal with misdemeanours by directors; it is not going to do that. What the Government have done is prosecute someone who demonstrated how easy it is to form a company with a false name and then announced in a newspaper that he had done it. So they went and prosecuted him—effectively, he was a whistleblower.

The proposed regime under the Bill for dissolved companies will suffer from the same problem as the current regime for live companies: the requirement that an interested party, most likely a creditor, raises concerns about the conduct of a company’s directors with the Insolvency Service. But how will the creditors know that a company is being dissolved? Directors are required to notify creditors of the proposed dissolution, and such creditors have an opportunity to object to the proposed dissolution before it takes effect, but not all such creditors may be notified. You can have pre-packs without any creditors meeting. People do not even need to be told. All kinds of things happen.

Once a company has been dissolved, there is no equivalent of a liquidator or an administrator of an insolvent company who has a duty to investigate the conduct of directors and report them to the Insolvency Service. This makes it more likely that only the particularly egregious examples of misconduct significant enough to come to the attention of the interested party will be investigated in respect of the directors of dissolved companies.

Companies can also be dissolved without any formal legal process. For example, Companies House can dissolve a company if it fails to file annual accounts. You do not need to go through any legal process; just do not file the accounts. Every year, thousands of companies do that, so many rogue directors can choose this method to dissolve companies. Such possibilities do not even appear in the Bill, as to who is going to find out and what they are going to do about it.

The Bill places considerable reliance upon insolvency practitioners but the insolvency industry has been engaged in corrupt practices for years. About 20 years ago I published a monograph—titled, appropriately, Insolvent Abuse—which documented many of the corrupt practices of the insolvency industry. Hardly anything has changed in the last 20 years. The industry is still running amok. This week the Financial Reporting Council confirmed its fine of £13 million on KPMG and £500,000 on its insolvency partner, together with costs of £2.8 million for investigation. The reason was that KPMG and its insolvency partner pushed Silentnight, which was a client of the accountancy firm, towards insolvency, so that the private equity group HIG, the client that it really wanted to cultivate, could buy the business out of administration by dumping the defined-benefit pension scheme for Silentnight’s 1,200 staff. KPMG’s partner lied to the Pensions Regulator and to the Pension Protection Fund.

KPMG has been central to numerous scandals, and its involvement in another will perhaps not surprise many in this House. However, it is still in business, and its lying partner is not facing any criminal investigation or charge. Perhaps the Minister can explain why there is one set of laws for ordinary mortals but another for accountancy firm partners, where they go in front of kangaroo courts and lie but still continue with their lives.

In case anyone thinks that was a hefty fine for the partner, usually the partnership agreement states that the firm will reimburse the partner, so his £500,000 fine will be reimbursed, while the £13 million fine for KPMG will go not to the members of the Silentnight pension scheme, who have lost some of their pension rights, but to the coffers of the Institute of Chartered Accountants in England and Wales, which authorised the cheating, lying partner. The institute will be quids in. It is akin to someone being fined for mugging and then being told, “By the way, make the cheque payable to the Institute of Muggers.” That is what we have by way of self-regulation, and it is wrong on every count.

I urge the Minister to act to ensure that the money goes to the victims of KPMG, not the ICAEW, which does not deserve it. It has already recovered the costs of the investigation. These RPBs—recognised professional bodies—must not benefit from the misconduct of their members; in fact, they should be in the dock for authorising those members. What kind of supervision do they actually carry out?

The corrupt practices of the insolvency industry are also documented in last month’s publication by the All-Party Parliamentary Group on Banking, Resolving Insolvency: Restoring Confidence in the System. It notes that insolvency practitioners

“sell their independence, and their considerable powers, in return for an appointment to an insolvency case.”

Who usually appoints them? Banks. So they are basically colluding with banks. The report says that conflicts of interest are regularly being ignored. The interests of banks are prioritised and too many innocent people have lost their homes, businesses and savings as a result. Your Lordships can see the evidence; it is in the monograph that I launched.

Many victims claim that banks and insolvency practitioners have forged their signatures in order to repossess assets. Evidence of that has appeared in national newspapers and on the BBC, but the National Crime Agency has sat on the evidence for months or even years and has done absolutely nothing. I have been told by authoritative sources that there are hundreds of such cases, but nothing is getting done. The recognised professional bodies are essentially accountancy trade associations—I am sorry; I will finish. They have no independence from their members and have a long history of sweeping things under their dust-laden carpets.

About a year ago, replying to one of my Written Questions, the Minister said that 7,962 insolvency cases had still not been resolved, and that their age was between five and nine years, while 3,642 were more than 10 years old, and 14,328 were more than 15 years old. No regulator asks why insolvency practitioners are milking insolvencies. The longest one that I know of lasted 30 years, and that related to Israel-British Bank. PricewaterhouseCoopers made it last for 34 years, and it came to an end when there was not a penny left in the business. These are real-life sharks, and they really need to be dealt with.

There was a report by Sally Masterton, codenamed “Project Lord Turnbull”, which was written in 2013 and formally published in June 2018 by the All-Party Parliamentary Group on Fair Business Banking. It referred to fraud at HBOS. There was no action by any recognised professional body, although the report made it clear that the fraud could not have been carried out without the complicity of the partners. There has been no investigation into the RPBs either. In the last 10 years, some 8,000 complaints about insolvency practitioners have been lodged with the RPBs and—guess what—only five out of 8,000 have had their licences withdrawn. Over the last seven years, only three IPs had their licences revoked. Is the Minister really content with that?

I finish with two specific requests. Can the Minister arrange two things? One is an independent public inquiry into the insolvency industry. Secondly, could he arrange for a relevant Minister to meet me and a former police and crime commissioner to see and hear the evidence about how banks, lawyers and insolvency practitioners are colluding and perpetrating devious practices that have deprived people of their homes, businesses and savings? I am sure that he does not tolerate corrupt practices and will willingly agree to these two requests.

19:22
Baroness Pinnock Portrait Baroness Pinnock (LD)
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My Lords, I draw the Committee’s attention to my entry in the register of interests, which includes my roles as vice-president of the Local Government Association and as a member of Kirklees Council. The Bill includes two elements, which the noble Lord, Lord Cormack, described as being “cobbled together”—I cannot but agree. The only connection that I could find was that they both relate to businesses. Clause 1 concerns business rates, and Clauses 2 and 3 address the “directors disqualification” part of the Bill title. I anticipated a rather dull afternoon discussing this, so I thank the noble Lord, Lord Sikka, for changing my view of directors’ disqualification. It has been a lively debate, and I think that a lot of people will be reading Hansard as a consequence.

I want to start by talking about Clause 1, which is the part about non-domestic rates. Many businesses have had a very tough 18 months during which they have endeavoured to keep afloat. I accept that the Government have provided considerable financial support to businesses to mitigate the worst of the impacts of the Covid pandemic. Nevertheless, it is not surprising to me that many have tried any potential route that may provide financial relief. As we have heard, this has resulted in businesses applying to the Valuation Office Agency for what is called a check of their rateable value, the aim being to get a revaluation based on material change of conditions that has impacted on their business as a consequence of Covid restrictions and measures. At this point, I thank the House Library for a very helpful explanation to a non-professional of the measures in the Bill.

The purpose of the Bill is to manage this growing number of checks. The government argument is that businesses have been able to access government loans and some grants to tide them over the Covid period and that these are sufficient to address the trading difficulties resulting from lockdowns and restrictions imposed by the Government. The problem with this argument is that, undoubtedly, some businesses will have not been able to access these funds and the recourse taken by unusually large numbers of applying for MCCs is a warning sign that all is not well. I concur with the noble Earl, Lord Lytton, and the noble Lord, Lord Cormack, on this matter, particularly that the £1.5 billion fund that has been set aside by the Government for relief to compensate for these changes is almost certainly inadequate. The pleas that we have heard from the noble Earl and the noble Lord, as well as from the noble Lord, Lord Bourne, that we must see the detail of the fund before we progress this Bill are urgent. I hope that the Minister can give us some assurances that this will happen before Committee.

Clause 1 is retrospective and has a catch-all approach. The only circumstances that businesses can use to apply to the VOA will be physical changes to the property and special considerations in relation to mineral extractions and waste disposal firms. I accept that unless this legislation is passed, the business rates system will be undermined. That is its purpose, but lots of things are not adequate. I am sure that the Minister will have put them right by the time that we are in Committee.

None Portrait Noble Lords
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Baroness Pinnock Portrait Baroness Pinnock (LD)
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We have a really lively session; it is excellent.

As a measure that will deal with an immediate problem flowing from the very rare circumstances of a pandemic, we can but agree with it. However, I have a few questions for the Minister. Can he explain the financial impact of these changes on local government? About 25% of local government funding comes from business rates, so any change, however small, can have a considerable impact on really tight council budgets. It is important for those of us who are concerned about local government, as the noble Baroness, Lady Blower, said, to know exactly what the impact will be. When the noble Lord, Lord Callanan, introduced the Bill, he emphasised the importance of certainty of local government funding from business rates.

Can the Minister explain what estimations have been made of the impact of impending rises in interest rates on businesses that have accepted government loans during Covid? The implications for what might happen are obvious. Concerning the £1.5 billion relief fund, we need to know the details and what happens when the fund runs out, as I suspect it will. Also, we need answers to the questions asked by the noble Baroness, Lady Blower, about administrative costs for local government in handling it.

Next, can the Minister say when much-needed fundamental changes to the business rate system will occur? We have been promised them for quite a long time now, and there is a lot of concern around local government and the business world that the current system is not answering the questions it needs to on town centre businesses on the one hand and digital businesses on the other, as the noble Lord, Lord Bourne, said. My concern is about warehouse and distribution centres, which do not pay their fair share by any means. That must be put right. Finally, will the Minister confirm whether a review of these measures is being planned within, say, a year of their introduction, so that we know what is going on?

I turn to Clauses 3 and 4, which relate to director disqualification. The last-minute changes to the timing of this debate have ensured that a number of people who would have spoken are not available. This includes my noble friend Lord Fox, who actually could have spoken because the Bill he has been speaking on has finished. I am sure he will be here for Committee but he has provided me with the following words, as this is definitely not my area of knowledge, let alone expertise.

He writes that these Benches welcome the intentions of the director disqualification part of the Bill. It is right that powers be created so that those who have fraudulently benefited from payments introduced to protect businesses during Covid are brought to book and the money recovered. Like other noble Lords, we received a briefing from R3, which represents insolvency practitioners; I am sure the Minister and the department also heard from it. Its members must file a report on the directors’ conduct with the Insolvency Service when acting as officeholders in a formal insolvency process, so its experience in this is welcome. Its concerns, like ours, focus on how the Bill will actually work and how it will help the wider creditor network.

First, we should be clear about one thing. The work of the Bill should not be at the expense of investigations into insolvent rather than dissolved companies. As R3 explains:

“R3 members already repeatedly express their frustration that not all their reports highlighting suspected serious legal breaches are acted on.”


Can the Minister assure the Committee that additional resources will be available to take on the extra activity created by the Bill, rather than it cannibalising an already stretched situation? Perhaps he can offer some crumb of comfort to the wider insolvency community by talking to his colleague the Chancellor of the Exchequer about this. Given that the Chancellor is embarking on a “non-spending review”, an activity such as this which brings money both back to government and into legitimate circulation will benefit the economy and pay back many times.

Our second point seeks detail as to how in practice this legislation will recover the money. What will be the mechanisms to recoup money from culpable directors? Do the Government intend to use tools such as compensation orders? This is significant because, unlike an insolvency process, where returns are made to the creditor body, the so far little-used compensation orders normally benefit only one creditor—in this case, we guess, HMRC.

Although the Government have indicated that they will expand the number of creditors who can benefit from a compensation order, this has not been made clear in the legislation, so we have to assume they will not. Where there are multiple creditors, an insolvency procedure has to date been more successful at recovering money owed to these creditors. How will the Bill protect all the other creditors as well as HMRC? I look forward to the Minister’s response.

19:34
Baroness Blake of Leeds Portrait Baroness Blake of Leeds (Lab)
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My Lords, I refer to my interests as laid out in the register. Following on from the noble Baroness, Lady Pinnock, one thing I am fast learning in this place is that the debates that look relatively boring often turn out to be those which have the most depth and interest, as this one has certainly proved.

I am extremely grateful for the evidence and expertise that we have heard from many speakers in the debate today, in particular from the noble Earl, Lord Lytton, and in the eloquent contribution from my noble friend Lord Sikka.

The Bill has the broad support of the Opposition Front Bench, but I refer to its limited objectives in that regard. The provisions to rule out Covid-19-related material change of circumstances business rates appeals, as well as the steps to give new powers to the Insolvency Service, are both appropriate and necessary.

On the first issue, we accept the logic of disqualifying Covid MCC appeals, given that a large number of these appeals could effectively result in a shadow revaluation and, as we have heard, a full revaluation is already scheduled for 2023. The demand for such appeals would certainly put strain on the system when the most effective use of the Valuation Office Agency’s time and resource is the upcoming revaluation of business rates.

On the Insolvency Service, we support the closing of a legal loophole that for too long has allowed unscrupulous company directors to evade responsibility for their financial decisions. However, I would appreciate clarification from the Minister as to whether the service has sufficient resources to carry out this extra work. I also refer to the excellent contribution from my noble friend Lady Blower, who highlighted the real risks faced by local authorities if this situation is not resolved and the impact on local ratepayer services without the necessary resource and income.

As we have heard from several contributors, there remains an enormous question around how the amount of £1.5 billion was arrived at and whether there is any realistic prospect of it being adequate. The noble Earl, Lord Lytton, highlighted in particular the plight of the mega-large companies, which I think all of us have received some interest from, but also all the other anomalies—those of the smaller companies and the plight that they found themselves in. The answer to the question of resource is urgent.

With this in mind, our main concerns with the Bill are less in regard to what is in it than in regard to what is not in it. My Front Bench colleague in the other place, the shadow Chancellor, has called on the Government to cut, and eventually entirely scrap, business rates. The outdated rates system must be replaced with a new system of business taxation fit for the 21st century. We must look to shift the burden of business taxes to create a level playing field, unlike with the current system, which punishes investment, entrepreneurship and the high street. The noble Lord, Lord Cormack, stressed just how urgent this situation is. We must look for more frequent revaluations, instant reductions in bills where property values fall and rewards for businesses that move into empty premises. Ultimately, this is the only way we can help bricks-and-mortar retailers compete with online tech giants. In this sense, the Bill is a missed opportunity.

In the later stages of the Bill, we will seek amendments that can pave the way for this root-and-branch reform of business rates, but also explore ways to better tackle corruption. On this, I am pleased that the Bill will help the Insolvency Service to investigate directors, take disqualification action and potentially implement 15-year bans—but again we have to ask: does the service have enough resource to tackle the job in hand?

Given the significant losses to creditors that corrupt practices in insolvency and dissolution processes can bring, we would like to see wider legislation. We know that not only do these reckless, rogue directors cause enormous harm to the economic state of affected businesses, but the emotional harm done to so many people working in business is truly immense. Unfortunately, the Bill is narrow in scope and therefore difficult to amend, but we will consider options for increasing reporting. As has been said repeatedly in this debate, the Government need to do much more.

As I said earlier, the Opposition Front Bench supports the provisions but, as is often the case with limited Bills such as this, it represents a missed opportunity. Business rates reform needs far more than a four-clause Bill to support our business community. If the Government are serious about confronting corruption, they must do far more than closing loopholes. I hope the Minister will provide assurances that the Bill is not the sum total of their efforts in these two areas.

I end by further emphasising just how important it is that draft guidance for local authorities on how to administer the scheme is laid down and published as soon as possible, including on how the resource will be apportioned between local billing authorities. I do not think it can be said often enough how stretched local authorities currently are. Budget discussions are happening across all levels of local government in a state of some despair. The atmosphere of uncertainty and concern about the future ability of councils to deliver services is something that we in this place all need to treat with the utmost seriousness and concern.

19:43
Lord Greenhalgh Portrait The Minister of State, Home Office and Department for Levelling Up, Housing & Communities (Lord Greenhalgh) (Con)
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My Lords, it is a pleasure to close what has been an engaging and informed debate. I thank noble Lords for their contributions both in the Room and in discussions outside—although I have to say that 10 officials were present for a drop-in session and no one turned up. I am very happy to have engagement on this, but it has sometimes been difficult. This is a short Bill, but the measures contained in it are important issues of public policy and I am grateful for all perspectives.

It is hugely important that the integrity and clarity of the valuation system that underpins business rates are maintained. That is why we are taking forward this important measure to clarify that coronavirus and its impacts should not be considered grounds for a material change of circumstance appeal. The alternative would be to allow the pandemic to have a hugely distorting effect on the rating system, casting local government financial planning into jeopardy. I say in response to the noble Baroness, Lady Pinnock, that these would have been considerable sums. Places such as Westminster obviously have a huge business rate base that is then allocated more widely. Clogging up the appeals courts for years to come is not the way forward and would have set a dangerous precedent for the future.

I am grateful for noble Lords’ support for the director disqualification measure in the Bill, which brings the conduct of former directors of dissolved companies into scope for investigation and potential disqualification proceedings. The United Kingdom has a world-class insolvency regime, and a strong enforcement framework is vital to that. Additionally, this measure will be an important tool for helping to combat bounce-back loan fraud and for deterring others from acting in breach of their duties as company directors.

Before I address the many points in this debate, which forms the largest part of my speech, I put on record that I have commercial property interests and am a company director—I should have raised that right at the start of my speech. Like the noble Earl, Lord Lytton, I did not claim from any of the schemes that we have been discussing today to mitigate against the payment of business rates.

In response to the noble Baroness, Lady Pinnock, I have to say that the purpose of the Bill is to restore the law to its intended practice and so no ratepayer will face seeing their bill increase as a result of the Bill. There will therefore be no material impact on the ratepayer.

The noble Earl, Lord Lytton, is a master of understanding procedure in the House, but I have been assured that this debate taking place in Grand Committee before Second Reading was agreed between the usual channels to prevent a very late sitting on Monday 18 October. In response to my noble friend Lord Holmes of Richmond, the Second Reading will take place tomorrow but without further formal debate.

The noble Baronesses, Lady Blake of Leeds and Lady Blower, raised the issue of how the £1.5 billion would be split and the approach to that. It will be allocated to local authorities based on the stock of properties in the area whose sectors have been affected by Covid-19 and which have not been eligible for existing support linked to business rates. Local authorities will then use their knowledge of local businesses and the local economy to make awards. The noble Baronesses, Lady Blower and Lady Pinnock, raised the issue of the additional administrative burdens. This will of course fall within the new burdens doctrine so that any administrative costs to local government will be covered.

Many noble Lords, including the noble Baronesses, Lady Blake and Lady Pinnock, the noble Earl, Lord Lytton, and my noble friends Lord Bourne and Lord Cormack, asked whether £1.5 billion is enough. This new £1.5 billion relief comes on top of an unprecedented £16 billion of relief over two years provided by the Government for the ratepayers most affected by the pandemic. This new scheme will be targeted at sectors that have been affected by Covid-19 but are not eligible for support linked to business rates. The new £1.5 billion of relief will enable local authorities to provide a meaningful level of support to those who have not been eligible for support linked to business rates.

My noble friend Lord Cormack and others raised the issue of the legislation’s retrospection. The Government are intervening because we want to ensure that the law regarding valuation operates correctly while providing significant relief to ensure that support is provided to businesses most in need. Allowing rateable values to fall for market and economy-wide matters such as the Covid-19 measures would be out of line with the principles of rating, where such matters are reflected at general revaluations. It is right that we ensure that the law continues to follow these principles.

My noble friend Lord Cormack and the noble Baronesses, Lady Blower and Lady Blake, all wanted to know when the guidance for local authorities on the operation of the relief scheme will be published. I recognise that it is important because it will help local authorities make decisions over the design of the relief scheme. We will publish the final local authority guidance as soon as the Bill receives Royal Assent. I want to let Members know that we are engaging very closely with the Local Government Association, the Institute of Revenues, Rating and Valuation and, obviously, CIPFA, in ensuring that we get this right.

My noble friend Lord Bourne and the noble Earl, Lord Lytton, all raised the issue of airports. It is a core principle of the business rates system that market-wide economic changes affecting property values, such as the pandemic, can and should only be considered at revaluation. The drop in demand for airports in light of the pandemic is therefore exactly the sort of economic change which should not be reflected between revaluations. The next revaluation in 2023 will be based on the market on 1 April 2021 and therefore will better reflect the impact of the pandemic.

My noble friend Lord Bourne noted that the measure is itself not enough for bounce-back loan recovery. The Government have been clear that bounce-back loan facilities are loans and not grants and have worked closely with lenders to develop industry-wide principles for the collection and recovery of bounce-back loans. This includes the recovery approach that lenders should take in the event that a borrower defaults and there is a claim on the guarantee with net proceeds being returned to Her Majesty’s Government.

Lord Bourne of Aberystwyth Portrait Lord Bourne of Aberystwyth (Con)
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That is not the specific point I was concerned about. With respect to the Minister, I quite appreciate that it is right to go after the bounce-back loans. My concern was that it did not extend to other creditors who are owed money and that there is a focus just on the bounce-back loans, whereas there is obviously a large field of creditors who have no redress if that is the only concern that the Government have.

Lord Greenhalgh Portrait Lord Greenhalgh (Con)
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Beyond bounce-back loans, the Government are working closely with lenders to develop industry-wide principles so that we can learn from this and apply those in areas beyond bounce-back loans. However, I will write to my noble friend on that specific point.

The noble Baroness, Lady Blake of Leeds, and my noble friend Lord Bourne asked about the funding for the Insolvency Service. The Insolvency Service’s resources are not limitless. However, all cases are carefully reviewed and assessed to determine the degree of harm caused to the public and to business, with the most serious cases prioritised.

The noble Baroness, Lady Pinnock, mentioned compensation orders and my noble friend Lord Bourne asked about the steps to get directors to reimburse. I want to clarify that compensation orders may be sought for a creditor or creditors, a class of creditors, or as a general contribution to the assets of the company. These are the rules for insolvent company director cases now and we are seeking to extend the same rules to dissolved company directors. The amount and to whom the compensation is to be paid is specified in the order or undertaking. The provision in the Bill extends this to former directors of dissolved companies, although it is unlikely that the court would order a contribution to the assets of the company in such cases.

I will not have to write to my noble friend Lord Bourne, because I have found the relevant note—I hope that noble Lords appreciate that this is not my ministerial area and I am having to pick this up as I go along. My noble friend asked whether the new measure would deal with all fraud and not just the bounce-back loans, and it will. It will, for example, deter directors from the practise of phoenixing, where the debts of one company are dumped using dissolution and a new company starts up doing the same thing. It sets that precedent to deal with the specific example of phoenixing.

In response to my noble friend Lord Holmes on the wider reform of insolvency, the Government recognise the important work that insolvency practitioners do and are currently reviewing the regulatory framework that governs them to ensure that the best possible outcomes are achieved for creditors. As part of this, the Government issued a call for evidence in 2019 to seek the views of stakeholders on the impact of the regulatory objectives introduced for the insolvency profession in 2015. The Government will respond in due course.

There was a tremendous speech from the noble Lord, Lord Sikka, from which I learned an awful lot. He raised issues related to company and insolvency law. Obviously, a number of them go beyond the scope of this four-clause Bill, but we keep the wider company and insolvency law frameworks under constant review and will bring forward amendments to the House as and when needed. However, the noble Lord will know that the Government are considering wider reforms to the register of companies, and that work is ongoing. Unfortunately, it is above my pay grade to be able to approve an independent inquiry such as he called for, but I am sure he can engage with colleagues at BEIS and take forward some of those points, and I know that the team here is very aware of his concerns.

Lord Sikka Portrait Lord Sikka (Lab)
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Will the Minister be gracious enough to arrange for me and a former police and crime commissioner to see the relevant Minister so that the evidence that has been accumulated, showing corrupt practices by insolvency practitioners together with banks and lawyers, can be shown?

Lord Greenhalgh Portrait Lord Greenhalgh (Con)
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I think that by “a former police and crime commissioner” the noble Lord is referring to me, as a former Deputy Mayor of London for Policing and Crime. Where there is criminality, there are plenty of ways for the noble Lord to put forward his evidence. If he is having difficulty in presenting it to the Government, I shall do all I can to ensure that he gets to the right person. At the moment, this is beyond my direct area, but I am happy to engage and help him in any way possible.

I want to address a point raised by the noble Lord, Lord Alton of Liverpool, who could not be here today, but I know will be following the debate with interest, particularly after the contribution from the noble Lord, Lord Sikka. He wished to convey to me the plight of the English language teaching sector, an important sector that has suffered terribly throughout the pandemic. The Government are carefully looking at the different sectors as we design the new £1.5 billion relief scheme for businesses that have not been eligible for existing support linked to business rates. We will confirm the eligibility of sectors in due course when we publish guidance in the proper way, but certainly the English language teaching sector is one of those that we are looking at very carefully. Ultimately, decisions on individual awards of relief will be a matter for local authorities.

I thank all noble Lords for their participation and engagement. My noble friend Lord Callanan and I look forward to working with noble Lords on future stages of the Bill and, hopefully, seeing it swiftly through its remaining stages, given the support that we have seen. I beg to move.

Motion agreed.
Committee adjourned at 7.58 pm.

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

Second Reading
12:25
Moved by
Lord Callanan Portrait Lord Callanan
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That the Bill be now read a second time.

Debated in Grand Committee on 19 October.

Lord Faulkner of Worcester Portrait The Deputy Speaker (Lord Faulkner of Worcester) (Lab)
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I remind the House that the debate before Second Reading on the Bill took place in Grand Committee on 19 October, and call the noble Lord, Lord Callanan, on behalf of the noble Lord, Lord Greenhalgh.

Lord Cormack Portrait Lord Cormack (Con)
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My Lords, I would like to put it on record that I took part in the debate in Grand Committee. Because the timing was changed twice, many who wished to take part in that Second Reading had to withdraw. This is not a very satisfactory way of proceeding. It is exceptional and I would like my noble friend’s assurance that he does not wish to do this again. Second Readings should take place on the Floor of your Lordships’ House.

Lord Callanan Portrait Lord Callanan (Con)
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My Lords, much as I would like to reassure the noble Lord, these matters are not within my control. As he is no doubt well aware, these are matters agreed between the usual channels of the main party groupings. There have been extensive opportunities to take part in briefings and other matters related to the Bill.

Bill read a second time and committed to a Grand Committee.

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

Report
18:39
Clause 1: Determination in respect of certain non-domestic rating lists
Amendment 1
Moved by
1: Clause 1, page 2, line 20, at end insert—
“(7A) Before the first determination to which this section applies is made, the Valuation Office Agency must publish a statement outlining—(a) how many checks, challenges or appeals in relation to a material changes of circumstances due to the coronavirus pandemic it has received and what the total monetary value of those checks, challenges or appeals is, and(b) its assessment of the impact of this section on the ability of the current system of business rates to—(i) provide an effective form of funding for local authorities; and(ii) support town centres and local high streets.”Member’s explanatory statement
This amendment would require the Valuation Office Agency to publish information on applications relating to a material changes of circumstances, and whether the changes introduced in this Act will support local authorities, town centres and high streets.
Baroness Pinnock Portrait Baroness Pinnock (LD)
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My Lords, I draw the attention of the House to my relevant interests as set out in the register, as a vice-president of the Local Government Association and as a member of Kirklees Council. I am speaking on Amendment 1 in my name and that of my noble friend Lord Fox, and on Amendment 2 in the name of the noble Baroness, Lady Blake.

I and my colleagues support the principle of the proposals—as I have said at every occasion—in relation to the non-domestic rates element of the Bill. Businesses have faced challenging circumstances due to Covid, and these challenges remain. Understandably, businesses have reviewed their position, and some have decided to use the VOA check, challenge, appeal process to seek a reduction in their business rates. The VOA publishes quarterly statistics of the numbers of businesses using the process to appeal their rates. The statistics do indeed show a spike in both the check and challenge elements of the process. For example, there were around 80,000 checks requested in the March to June quarter of 2020 —this spike compares with an average of around 10,000. However, 70,000 of these checks were quickly resolved. There were around 22,000 challenges in the next quarter, but fewer than half seem to have been resolved. There is clearly a significant increase in the volume of claims being received by the VOA. However, the value of these claims, including the value of successful claims, is not revealed.

Throughout the course of the Bill, I have been concerned to establish the evidence base for its proposals, including, importantly, the total value of successful and potentially successful claims which would result in a loss of business rates income. A loss in business rates income has a direct and adverse impact on local government finances, which have already been squeezed dry. Responding in Committee to similar concerns that I raised, the Minister was unable to give a categoric assurance that there would be no loss of income for local government. The Minister stated then that

“central government will meet 75% of the costs of irrecoverable losses in business rates income for 2020-21.”—[Official Report, 10/11/21; col. GC 522.]

Can the Minister confirm that local government will not be paying for any losses in business rates due to Covid?

Further, it is widely accepted that the existing system of business rates is ineffective and woefully inadequate in ensuring that retail businesses that use online ordering are paying at the same rate as those on traditional high streets that the Government often profess to want to support but lamentably fail to.

Amendment 2, in the name of the noble Baroness, Lady Blake, seeks a review of the impact of the changes and of whether business rates are fit for purpose. Any government review with recommendations to try to fix this broken system is welcome, and we support the sentiments in this amendment. I beg to move.

Baroness Blake of Leeds Portrait Baroness Blake of Leeds (Lab)
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My Lords, I declare my interests, particularly as a vice-president of the LGA. I will speak to Amendment 2, in my name, and to Amendment 1, as introduced by the noble Baroness, Lady Pinnock.

As we begin Report, I remind the House that we are broadly supportive of the Bill and recognise that action needs to be taken swiftly. The measure in the Bill to rule out Covid-19-related material change of circumstances business rates appeals—that is quite a mouthful—coupled with the announcement of £1.5 billion in funding to provide additional targeted support to those businesses that have not already received rates relief, provides some certainty for local government.

18:45
The noble Baroness, Lady Pinnock, referred to the impact on the finances of local government, and that of course broadens out to the challenges of the whole pandemic period. In Committee, I was reminded that, only nine months ago, I was the leader of the second largest metropolitan authority in the country. The financial aspects around Covid back then were incredibly concerning, and they continue to be so.
I emphasise the real concern expressed across the local government sector about how that figure of £1.5 billion was arrived at. It sounds a significant amount of money—and indeed it is. The point I keep coming back to is whether it matches the need that it is there to cover. Is it sufficient to prevent businesses falling through the cracks? Will it address the Government’s long-term neglect of the UK’s high streets and local businesses?
I draw attention to the wider issue that remains: whether business rates are fair and effective. In October, the CBI, along with 40 trade associations—including the British Retail Consortium, UKHospitality and the SMMT—representing about 261,000 businesses, called for the reform of the current business rates system, stating that the
“existing, outdated and outmoded business rate regime acts as a drag on … a high wage, high productivity and high investment economy.”
Amendment 2 seeks to get to the heart of this issue for businesses up and down the country. It would ensure that a report is produced on whether further legislation is needed on factors which may or may not be taken into account in making a relevant determination in relation to business rates. Her Majesty’s Opposition would like a root-and-branch reform of the business rates system, to make it fair and to help bricks-and- mortar retailers compete with online tech giants. Such reform cannot come soon enough. Data from the ONS in October revealed that up to 332,000 businesses, employing over 800,000 people, are at risk across the country. We need to shift the burden of business taxes to create a level playing field, moving away from one that punishes investment, entrepreneurship and the high street.
I look forward with interest to hearing the Minister’s comments, particularly referring back to the discussions that we had in Committee. A significant number of concerns were expressed from all sides of the Chamber at the way that this legislation has been brought forward; we need to put a marker down around that. Having said that, given the critical situation facing businesses, and therefore local authorities, and therefore communities, we recognise the need to move forward with the legislation, but we need to recognise that there are some very serious questions still to be answered.
Lord Leigh of Hurley Portrait Lord Leigh of Hurley (Con)
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My Lords, I want to add my comments on Amendment 2. I remind the House of my interests: I advise SME businesses and am also a landlord.

Increasingly, a number of people that I talk to, specifically in the retail sector, are very concerned that the Government are not listening to their concerns in respect of rates. Over the last 18 months, a number of companies have gone through CVAs. As a result of those CVAs, they have entered into turnover-based rents with landlords, enabling them to carry on trading from particular locations. But the size of the rates has meant that, despite having turnover rents, they are not able to carry on trading from retail premises, specifically because of the rates; more importantly, they are not able to open new locations that would otherwise be economically viable because of turnover rents, specifically because of rates.

I do not expect my noble friend the Minister to answer these concerns in this debate on this amendment, but business, particularly the retail sector, would like it acknowledged that the Government are aware of, focused on and planning steps to address this issue.

Lord Greenhalgh Portrait The Minister of State, Home Office and Department for Levelling Up, Housing & Communities (Lord Greenhalgh) (Con)
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I thank noble Lords for raising two important issues. The noble Baroness, Lady Pinnock, asked whether we will have data to know whether the £1.5 billion is enough and that we are not short-changing local government in any way. The noble Baroness, Lady Blake of Leeds, wanted to know about the future of business rates reform, given that we are seeing the economy shift to online and that many bricks-and-mortar businesses are struggling to pay their rates bills. I will try to address those points in turn.

I can give the noble Baroness, Lady Pinnock, some assurance on the availability of VOA statistics, which tell us about the adequacy of the Government’s support. During 2022, the VOA will provide new data specifically marking out Covid-related MCCs but, even in the existing data sets, we can get an insight into the nature of these cases. I quote more recent figures from October: as of 30 September 2021, 63,780 challenges were outstanding in England, the vast majority of which are on hold pending this Bill. Far more challenges could come forward from ratepayers who have already made checks—a check being the first stage in appealing the rateable value of one’s property. In the period since April 2020, the VOA has received more than 400,000 checks. So, there is a wealth of statistical evidence out there and it will be enhanced next year. This evidence cautions against any suggestion that we should introduce a like-for-like compensation for Covid-related reductions in rateable value, which, on account of this Bill, will rightly not materialise. That was never the intention, and we should not seek to create an equivalence.

On the point made by my noble friend Lord Leigh of Hurley and the noble Baroness, Lady Blake, we recognise that particular industries have been hit very hard by the pandemic. We have statistics on the drop in gross value added by industry, and there is a wide range of reductions by sector. That comes to the question of how we divide the £1.5 billion, which I will return to in the debate on the next group of amendments.

Let me give the Government’s most up-to-date position. Following the conclusion of the business rates review, the Government will shortly consult on measures arising from that review and seek to bring forward legislation in due course. The consultation was published only yesterday and explicitly anticipates future legislation to deliver major reforms. These include three-yearly revaluations, a major ask of ratepayers, support for property improvements and support for green plant and machinery. So, noble Lords should have complete confidence that there will be an opportunity for them to consider, debate and scrutinise these measures and the Government’s overall business rates policy.

I should have declared my residential and commercial property interests as set out in the register; I forgot to do that right at the beginning. I must underline that I have not been involved with any material change of circumstance approach, but I recognise that many businesses, including many small businesses, are waiting eagerly to hear how we will resolve this situation.

Baroness Pinnock Portrait Baroness Pinnock (LD)
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My Lords, I thank the Minister for his response. We clearly had evidence of the volume of appeals by businesses. I am still concerned about the value of those and whether sufficient money is being made available to recompense businesses, but we will come to that in the next debate. Having said that, I thank the Minister for his reply and beg leave to withdraw the amendment.

Amendment 1 withdrawn.
Amendment 2 not moved.
Amendment 3
Moved by
3: After Clause 1, insert the following new Clause—
“Advice to local authorities
Before 1 March 2022, the Secretary of State must publish a statement containing advice to local authorities on the implementation of this Act.”Member’s explanatory statement
This amendment would ensure that the Secretary of State publishes advice to local authorities on the implementation of this Act.
Baroness Blake of Leeds Portrait Baroness Blake of Leeds (Lab)
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In this group we also have Amendments 7 and 8, in the name of the noble Baroness, Lady Pinnock.

I move this amendment to seek confirmation

“that the Secretary of State publishes advice to local authorities on the implementation of this Act.”

Clearly, there has been some movement on this issue; there was widespread concern about this Act in Committee. From my experience, this message has been repeated not only in this area but throughout the whole pandemic. Given that local authorities were tasked with many responsibilities in helping businesses with the financial packages from government, which were welcome, it is important that whoever is in government has the full respect for local government that it needs and deserves. Timely, appropriate and full information is of paramount importance.

I am sure that I do not need to remind the House that local authorities face a dire situation, particularly regarding their finances. Many of them are about to publish their budget, which they will have to deliver in the early months of next year. The timing of this Bill brings into focus why local authorities are asking for clarity, and the sense of urgency that is being expressed.

We know that, since 2010, under the policy of austerity, Conservative Governments have variously come together to cut £15 billion from central government funding to local authorities. According to the Local Government Association, councils in England will face a funding gap of more than £5 billion by 2024 just to maintain services at their current levels. That is why we must ensure that they get the best advice from government on the implementation of this Bill. If we could have real clarification from the Minister on what advice they will receive and when, we would be grateful.

On the £1.5 billion in the funding announcement, I remember my noble friend Lord Hunt saying in Committee that there is a problem in that the guidance to local authorities on the distribution of money is still awaited. Many businesses do not know whether they will qualify for funding given that, as I understand it, the criteria have not yet been published. My noble friend was particularly concerned that whole areas have been missed out in the proceedings.

In Committee, the Minister stated:

“The funding will be available as soon as local authorities have established their own local release schemes; the Government will support them to do this as quickly as possible, including through new burdens funding.”—[Official Report, 10/11/21; col. GC 522.]


I would be grateful if the Minister could provide an update on how that work is going, and give a clear explanation of how the rationale running throughout this is being used to inform how decisions are made and how fairness and transparency will be assured. I beg to move.

Baroness Pinnock Portrait Baroness Pinnock (LD)
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My Lords, Amendments 7 and 8 in my name pursue an issue I raised both at Second Reading and in Committee regarding the complete mystery surrounding the £1.5 billion of taxpayers’ money that the Government propose to use as recompense for businesses in removing their rights to appeal their business rates.

This is all very unsatisfactory. The Bill is in its final stages and we do not know, first, the value of the real and estimated claims being made by businesses via material changes of circumstances based on the impact of Covid. The Minister may well claim that there is no information regarding the value of estimated claims, yet that is precisely what the Bill seeks to do. Secondly, we do not know at all whether £1.5 billion will in any way be sufficient to adequately and fairly compensate business for the removal of lawful claims made to the VOA.

19:00
Throughout the course of the Bill’s passage, the Minister has been unable to make a connection between removing the right to appeal the level of business rates using Covid as the reason and the sum of compensation specifically stated in the Bill. This simply will not do. The Minister has also so far been unable to explain how the £1.5 billion will be disbursed. Perhaps he will be able to provide some answers today.
What is the basis for the estimate of the need for £1.5 billion? Will it be sufficient to cover all legitimate claims? What criteria will be used to judge claims? Will criteria be set by government, or will there be local discretion? Will the funding be distributed to local authorities prior to claims being made and, if so, how will this be done? If the funding runs out and legitimate claims are still in process, will the Government be prepared to increase the funding available?
I know that is a lot of questions, but I have been asking them all right through the process of discussing the Bill. I hope the Minister will be able to provide full answers to them, as I am not prepared to support a Bill that leaves so many fundamental questions unanswered. I look forward to his response.
Lord Cormack Portrait Lord Cormack (Con)
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My Lords, I intervene very briefly, as I did at the substitute Second Reading and in Committee. I am concerned only with Clause 1 of the Bill, and I declare again—as I have in the past—that I have from time to time over the last nearly 50 years given advice to the Machinery Users’ Association, which was established in 1884 to give advice on the rating of plant and industrial machinery. Many of its members are, of course, concerned, particularly with the questions the noble Baroness, Lady Pinnock, just raised.

I do not want to prolong the debate; it is clear that the Bill is going to go through your Lordships’ House without amendment. I just ask my noble friend to give as much information and as clear answers as he can to the wholly legitimate questions asked by the noble Baronesses, Lady Blake of Leeds and Lady Pinnock. I await his replies with considerable interest.

Lord Greenhalgh Portrait Lord Greenhalgh (Con)
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My Lords, I will do my very best. I start by saying that local authorities are protected by what is known as the local tax income guarantee; I know the noble Baroness, Lady Pinnock, knows about that. Three critical questions have been raised, and I will take time in answering them to reassure noble Lords that this has been well thought through.

First, there is a false equivalence between the £1.5 billion and the material change in circumstances. We do not see the £1.5 billion as a like-for-like compensation for Covid-related MCC claims. The statistics show that it would have seen reductions applied indiscriminately to properties whether or not their occupiers needed support. The £1.5 billion relief we are introducing is not—and should not be—designed to mimic or replace the MCCs that were submitted. It is better than that: it is focused on those who submitted MCCs who genuinely needed support and may have had to wait years. They will be able to access it more quickly because the approach is more targeted, and industries that have received quite considerable support are excluded from that amount. That is why we are taking this important approach.

I think the critical question that the noble Baronesses, Lady Blake and Lady Pinnock, asked is how the £1.5 billion will be distributed. I have to say that I have taken quite a long time to understand that myself; I put that right on the table. I have had some help from the former chief economist of the Bank of England, Andy Haldane, and I have had meetings with colleagues and Ministers in the Treasury about this. I think I broadly understand it. The marker that will be used at the national level is the ONS data around the gross value added reduction for those industries that have not had support. That is very robust information at the national level, but unfortunately we do not have very good data at the regional level for the last two years. So we will use the data we have at the local level around industries, because we know, broadly speaking, which businesses are at the local council level. Therefore, it is not something that is going to be gained. There is a clear proxy metric in GVA with the good data we have at the local level. I am satisfied that this is the best we can do in these circumstances and a sensible way in which to divide the cake.

The last question is around the timing of the guidance and implementation. I have spoken of the benefits of using locally administered business rates relief, rather than the appeals system, to funnel support where it is needed. One of these is pace, and since Parliament is agreed on the principle of the Government’s approach, we have a responsibility to avoid unnecessary delay. We need to move, and that is one of the real benefits of this course of action. The best course of action is to speed the Bill through to Royal Assent. On that basis, I hope noble Lords will not press their amendments.

Baroness Blake of Leeds Portrait Baroness Blake of Leeds (Lab)
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My Lords, I thank the Minister for taking our concerns very seriously and for going away and having conversations with some very senior people. I am sure I speak for the noble Lords on the Liberal Democrat Benches when I say that we appreciate that. In Committee this concern was repeated from whichever Bench someone was speaking from. This is a very real concern, so I sincerely thank the Minister.

The question that will remain, of course, is how this is maintained and monitored and how we make sure that there will be recourse to additional funds if the £1.5 billion is not adequate. I am not sure that I have quite got that security of knowledge.

Lord Greenhalgh Portrait Lord Greenhalgh (Con)
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The Government always keep these matters under review. We recognise the importance of business rates in providing the financial stability and underpinning for local councils, and I can make that commitment, as with all government policy.

Baroness Blake of Leeds Portrait Baroness Blake of Leeds (Lab)
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With those reassurances, I beg leave to withdraw my amendment.

Amendment 3 withdrawn.
Amendment 4
Moved by
4: After Clause 3, insert the following new Clause—
“Insolvency Service finances and resources
(1) Before 1 March 2022, the Secretary of State must make a statement on the impact of this Act on the financial situation of the Insolvency Service. (2) The statement must include an assessment as to whether the Insolvency Service is sufficiently resourced to meet its obligations under this Act.”Member’s explanatory statement
This amendment would place an obligation on the Secretary of State to make a statement on the impact of this Act on the financial situation of the Insolvency Service and whether the Insolvency Service is sufficiently resourced to meet its obligations under this Act.
Baroness Blake of Leeds Portrait Baroness Blake of Leeds (Lab)
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This amendment relates to part of the situation discussed in Committee: that this a hybrid Bill which has caused some conversation and comment over its different stages.

In moving Amendment 4 in my name, I will also reference Amendments 5 and 6. Amendment 4 would place an obligation on the Secretary of State to

“make a statement on the impact of this Act on the financial situation of the Insolvency Service”

and

“whether the Insolvency Service is sufficiently resourced to meet its obligations under this Act.”

As we know, the Bill removes the necessity for the Insolvency Service to apply to court to have dissolved companies restored before investigating said companies’ directors. In doing so, it makes it quicker and cheaper for the Insolvency Service to investigate the directors of dissolved companies.

Her Majesty’s Opposition are pleased at the closing of a legal loophole that for too long has allowed unscrupulous company directors to evade responsibility for their financial decisions. However, we remain concerned about whether the Insolvency Service has enough resources to carry out this extra work. We understand the concern caused by the behaviour of some directors in receipt of, for example, bounce-back loans and how the dissolution process might be being used inappropriately to shed liabilities. I should like to ask the Minister: do we have an assessment of the scale of the problem this is causing?

The Bill makes no mention of further funding for the Insolvency Service. Given that the Bill means that the service will be carrying out additional investigations, this is worrying and risks overstretching it. Can the Minister confirm that the service will be given the adequate funding to deal with this workload and ensure that all necessary investigations are carried out to a good standard? If the Minister argues against such a statement, as requested by Amendment 4, will he explain clearly how adequate resourcing for the service for these new powers will be included in its annual report? I beg to move.

Lord Fox Portrait Lord Fox (LD)
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My Lords, I rise to speak to Amendments 5 and 6 in my name and that of the noble Lord, Lord Leigh of Hurley.

Amendment 5 seeks to add a new clause that would require the Secretary of State to report on the resources and the powers available to both the Secretary of State and the Insolvency Service in relation to the Bill. It covers similar territory to the amendment of the noble Baroness, Lady Blake. Despite the Minister’s comments in Committee that resources are always available for cases in the public interest, members of the insolvency and restructuring profession report that they often see cases involving significant breaches by directors that are not investigated and acted on. This would suggest that the Insolvency Service is currently resource-constrained.

That view is supported by looking at figures on the disqualification of directors of insolvent companies by the Insolvency Service. These show a roughly flat line of disqualifications made by the service over a number of years—a constant rate of disqualification, irrespective of economic conditions, trends or fluctuations in the number of corporate insolvencies. Again, that suggests a resourcing issue for the service.

That situation could get worse without a commitment to fund the additional cases that the Bill will create. We have therefore tabled our Amendment 5, which would require the Government to report six months after the Bill has been passed on whether the appropriate resources were available to undertake the additional investigations required as a result of the legislation.

I thank the Minister, who met me and the noble Lord, Lord Leigh, to discuss these amendments—I think very productively. It is clear that the Minister and the Insolvency Service grasp the point that the more resources that there are, the better the return, or likely return, to the taxpayer. We are looking for something from the Minister that indicates that Her Majesty’s Treasury shares this understanding. We of course do not want to upset delicate negotiations that may now be under way between the Minister’s department and the Treasury, but a clear indication that the resource issue is in hand would help negate the need for this amendment.

It would also be helpful if the Minister were able to comment on the nature of the cases that this legislation will enable. Our understanding is that the Bill gives the Insolvency Service the power to pursue recompense from the former directors of dissolved companies and that this can be done via compensation orders without the cost of reinstating the companies in question. The key issue for clarification is which creditors may benefit from these future compensation orders. Can he confirm that future beneficiaries will include all other creditors in addition to Her Majesty’s Treasury? The Minister has just nodded. Can he confirm that the Insolvency Service will include the plights of those other creditors in its calculation of the public interest when it decides which cases to pursue?

The second amendment, Amendment 6, would also add another clause. This time, it creates a requirement on the Secretary of State to report on the impact of the legislation on the investigations into the conduct of directors of dissolved companies. The principal purpose of this amendment is to weigh the success of the legislation by measuring and reporting its ability to claw back money from directors of dissolved companies. We know that the Insolvency Service already has a duty to report annually. However, at the moment, our reading is that the metric we propose here is not explicitly included in the list of requirements on which to report. Again, following discussions with the Minister, it seems reasonable for this “cash-back” criterion to be added to the Insolvency Service’s annual report agenda. We hope that his response to this amendment will do just that, rather than requiring primary legislation. I trust that he is able to make those undertakings.

19:15
Lord Leigh of Hurley Portrait Lord Leigh of Hurley (Con)
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My Lords, I have put my name to Amendments 5 and 6, although, with all credit to the noble Lord, Lord Fox, his team did most of the work in compiling the text. Given the hybrid nature of the Bill, I need to declare a completely different set of interests, which is that I am chairman of an AIM company, Manolete Partners plc, which is in the insolvency-related area.

The direction of travel from the noble Lord, Lord Fox, and me is to ensure that regular creditors, in addition to Her Majesty’s Government and agencies such as HMRC, are looked after where companies have been dissolved. It is clear that some people are prepared to be struck off as directors and do not see that as much of an impediment to their business life. I am grateful to the insolvency trade association, R3, which has advised us that insolvency and restructuring professionals, who have extensive experience in tackling fraud, have noted that serious serial rogue directors do not see being disqualified as a significant deterrent, and will often go on to commit repeat frauds. Insolvency practitioners frequently see disqualified directors contributing to successive business failures or breaching the terms of their disqualification by working as shadow directors or “advisers” to these phoenix companies that are subsequently set up. In fact, R3 has given us specific examples of where that has taken place.

It is clear that the disqualification mechanism is not in itself deterring culpable directors, thereby putting the public at risk. For the policy to be effective, it is clear that investigations should lead to prosecutions. It is not clear to me how the prosecution of a director of a dissolved company—that is, a company that no longer exists—can legally take place without the company first being restored. Perhaps the Minister can clarify that. Does the Insolvency Service intend to restore every company when it is going for prosecutions? That is why we want to see how the Insolvency Service will do that and how successful it has been. That is why Amendment 5, particularly proposed new subsections (2) and (3), is required.

There is still the open question: is this the right route? For example, should we be looking at changing the law somehow to allow prosecution of directors of former companies, now dissolved, without returning them to the register? I would be keen to push the Insolvency Service to tell us, as proposed new subsection (2)(b) of Amendment 5 requires. But what the noble Lord, Lord Fox, and I are most concerned about is compensation. In that regard, I thank the Minister for his letter of 22 November setting out the position on the existing regime as far as Sections 15A and 15B of the Company Directors Disqualification Act 1986 are concerned in respect of compensation orders.

As I understand it, using a compensation order means that many other frauds, not just the bounce-backs that prompted this legislation, can be carried out, whereby the directors simply will not get investigated or identified if the dissolved company is left alone. As I have mentioned, currently it is only by restoring these entities and putting them through an insolvency process that misplaced assets, other frauds, misfeasance and so on can be identified, leading to further action against these directors.

I genuinely think there is some confusion—certainly for me and possibly the noble Lord, Lord Fox, and others—in understanding whether or not a company needs to be restored before further action can be taken. If it is not restored, what are the mechanics of a compensation order in respect of a company that does not exist anymore? We would like to see the evidence of what the Insolvency Service is up to. With a dissolved company remaining dissolved, the normal creditors—non-government creditors—stand to gain nothing from the compensation order because the fraud concerned related primarily to bounce-back loan fraud. This is clearly very important where the Government are the victim and we all want to assist them, but that does not help the wider body of creditors who have suffered.

I appreciate we are straying into some technical areas, and we are going to have to rely on assurances that compensation orders will be used by the courts for the benefit of all creditors rather than just HMRC. We are also, frankly, just going to have to wait and see what definition will be used for public interest. I do not think there has been any offer of assistance in defining public interest. We are going to have to see how many cases are dealt with by the Insolvency Service. That is why we have tabled Amendment 6, so we can see what happens and—as is our usual style—then suggest some helpful further steps that might be taken.

I am aware that the Insolvency Service, as has been mentioned, publishes an annual report, which I have read carefully; it was updated a couple of weeks ago. That shows that the Insolvency Service is a big and important agency. I was surprised to learn that it spends some £625 million per year. By statute, it has to report on its activities, and I was pleased to see that it has an 84% customer satisfaction result, on which I congratulate it and the Minister. But it is not clear to me from reading this report that the specific items requested in Amendment 6, particularly subsection (2) of the proposed new clause, would be required to be disclosed as separate, specific issues. I welcome the Minister’s views on how we can best achieve some transparency, and how the Government are getting on with implementing this Bill and achieving the aims we all seek.

Lord Callanan Portrait The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
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My Lords, Amendments 4, 5 and 6 seek to put reporting requirements into statute, and I am happy to comment on them. I am grateful to noble Lords for giving me the opportunity to talk both about the process of investigation and disqualification and the reporting work that the Insolvency Service already undertakes. I also put on record my thanks to the noble Baroness, Lady Blake, the noble Lord, Lord Fox, and my noble friend Lord Leigh, for the very constructive and helpful meetings that we have had in the lead-up to this debate.

Before I talk specifically about resourcing and reporting of investigative outcomes, let me take some time to remind noble Lords of the process which leads to the disqualification of company directors, focusing on the situation where a company is subject to insolvency proceedings—which is different to the situation where a company is dissolved. The officeholder, whether they be an administrative receiver, a liquidator or an administrator, must report to the Secretary of State on the conduct of the directors of the company within three months of the company going into insolvent liquidation, administration or administrative receivership. Upon receipt of this conduct return, the Insolvency Service will assess the information provided to prioritise the case in terms of its public interest. Factors that could be considered—for the benefit of my noble friend Lord Leigh—might be the seriousness of the misconduct in terms of the damage caused, the previous behaviour of the director in question and the need for protection of the public from the actions of the director. This assessment is used to prioritise the most serious cases, which are then investigated using the powers in the Company Directors Disqualification Act 1986.

Of course, not all investigations will lead to disqualification proceedings being brought. One outcome of the investigation might be that the director acted reasonably given the information that was available to them at the time, and if this became apparent then the investigation would be concluded. Where there is evidence of misconduct, though, and the Secretary of State is satisfied that public interest criteria are met, disqualification proceedings may be sought, either through an application to the court or through the director giving an undertaking not to act as such for a period of time, depending on the determined seriousness of the misconduct. An application for disqualification must not be made after three years from the start of the insolvency proceedings unless the court gives its permission. For unfit directors of insolvent companies, the period of disqualification can be between two and 15 years.

Following on from successful disqualification proceedings, if it can be identified that the director’s conduct caused losses to creditors, then the Secretary of State may seek payment from the director for their benefit by way of disqualification compensation. As with the disqualification proceedings, this may be dealt with by way of an application to a court or by an undertaking given by the director. Compensation may be paid to the Secretary of State for the benefit of a specific creditor or creditors, or a specific class or classes of creditors, or instead may be paid to the insolvency officeholder for the benefit of all creditors.

Compensation work is undertaken by investigators at the Insolvency Service, so as much of the money as possible may be returned to creditors. I confirm for the benefit of the noble Lord, Lord Fox, and my noble friend Lord Leigh, that no preference is given to any particular creditors or groups of creditors, other than that the compensation payments are for the benefit of those who have lost out as a result of the misconduct. It is important to note also that, if the insolvency officeholder had already used the various provisions in the Insolvency Act 1986 which allow them to seek recoveries for the benefit of creditors, such as the fraudulent or wrongful trading provisions, then compensation would very probably not be sought for the conduct which led to those claims so that the directors would not face double jeopardy.

Noble Lords will have seen that the Bill gives a similar standing to the new measures to investigate and disqualify former directors of dissolved companies as currently exists for insolvent companies and they use the same sections of the Company Directors Disqualification Act. Unlike insolvent companies, though, there will not be an officeholder in a dissolved company, so the investigation process will not start with a report on the director’s conduct. Instead, the Secretary of State will in most cases be alerted to potential misconduct through complaints received by members of the public. This will not mean that conduct reports provided by insolvency officeholders will be overlooked in favour of complaints received in dissolved companies. All will be assessed in terms of their relative seriousness and the level of public interest. A disqualification application must not be made after three years from the date of dissolution unless the court gives its permission.

This would perhaps be an appropriate point in my remarks to pay tribute to the excellent work of insolvency practitioners, who provide the conduct returns to the Insolvency Service, and who in many cases continue to assist with the investigative effort beyond that initial assessment.

Noble Lords may well recall that these measures were developed and consulted on back in 2018, before any of us had even heard of a disease called Covid-19 or a bounce-back loan. At the time, the Insolvency Service had been receiving a regular low level of complaints about the abuse of the process of company dissolution. Many of those complaints concerned its use in phoenix companies—where one company is dissolved only for another to spring up essentially doing the same thing but without the debts. Because of the dissolution, the Insolvency Service had been unable to take action against the directors responsible. The opinions of stakeholders on new powers to tackle this kind of misconduct were sought, and these were generally fairly positively received. Implementation of the measures has now become even more important and more urgent because of the risk of abuse of the dissolution process to avoid repayment of bounce-back loans.

This brings me to the question from the noble Baroness, Lady Blake. I can tell the noble Baroness that the Bounce Back Loan Scheme closed for new applicants on 31 March 2021. At the time of the scheme’s closure, £47.4 billion-worth of finance had been provided to some 1.5 million businesses. Given the levels of uncertainty around the economy and the virus, the anticipated fraud levels are very preliminary and speculative. They are not based on any repayment data because that did not even begin until May 2021.

I make a final point on the process for disqualification. I can confirm to my noble friend Lord Leigh that it would not be necessary for a company to be restored to the register for the conduct of its directors to be investigated, and the same applies if and when compensation is sought from a disqualified former director of a dissolved company. There will be no automatic restoration process, nor is there any need for one for the purposes of the investigation and disqualification. This way, the costs and administrative burden of restoration can be avoided.

19:30
I turn now, if I may, to the amendments seeking to establish a statutory reporting requirement for investigations and the resourcing of the Insolvency Service. I am pleased to confirm to noble Lords that, under an existing statutory requirement, Her Majesty’s Treasury directs the Insolvency Service to report annually on its work and finances. This is pursuant to a power in Section 7 of the Government Resources and Accounts Act 2000. Its annual report and accounts include both an overview and an analysis of the agency’s performance over the course of the year. There are sections on how it makes use of resources available, including those used for enforcement activities and enforcement case studies, including disqualification and criminal prosecution. The report also includes information on how much money was returned to creditors during the year. Full accounts are provided, which are audited and signed off by the Comptroller and Auditor-General, and the whole package is available to everyone online. Going forward, the annual reports and accounts will of course include relevant information on the new measures as part of the enforcement reporting package.
In response to a question from my noble friend Lord Leigh, specific information on money returned to creditors from compensation orders has not previously been published, as they are relatively new in this framework. However, I have asked the Insolvency Service to consider how this can best be achieved when such information becomes available. In addition, the Insolvency Service regularly makes available a large amount of insolvency and enforcement statistics and, again, these are readily available online.
Specifically regarding enforcement activities, the number of disqualification orders is published and updated monthly, and a breakdown of disqualification orders and undertakings obtained by the relevant section of the Company Directors Disqualification Act under which they were sought is provided. Other information provided on a monthly basis includes lengths of periods of disqualification. Furthermore, there is an annual report on the nature of misconduct in disqualification allegations. Future releases of statistical information will include the number of disqualified former directors of dissolved companies.
I note the concern of the noble Lord, Lord Fox, and my noble friend Lord Leigh about the reporting of how much money will be returned to creditors, and of course the Government are also concerned about getting money back for taxpayers. But I should emphasise that this measure expands the Secretary of State’s powers to investigate and disqualify culpable directors, and disqualification itself is not a process which is a mechanism for returning money to creditors. Instead, it is intended to protect creditors from future losses caused by those directors who, through their reckless or irresponsible behaviour, have shown themselves unfit to hold that position—and to deter others from behaving similarly.
The Secretary of State’s power to seek compensation from disqualified company directors was a welcome addition to the enforcement regime in 2015, which will obviously benefit from these new cases. Nevertheless, the purpose of the legislation is primarily as I described.
On the part of the amendment that requires a statutory review of the effectiveness of the mechanism for the new investigation and disqualification measures, I hope that noble Lords will be pleased to note that the Bill’s impact assessment gives an undertaking for a post-implementation review to take place within five years of commencement. As well as being in line with better regulation requirements, this will ensure that a proper assessment is undertaken of whether the use of the new powers has been effective.
Finally, I know that noble Lords, in particular the noble Baroness, Lady Blake, are keen to ensure that the Insolvency Service is sufficiently resourced to tackle wrongdoing and misconduct. Following the outcome of the spending review 2021, the Government are currently considering the resourcing level needed for the Insolvency Service to undertake its statutory functions, and that includes the additional proposed enforcement requirement contained in the Bill, should it be passed by the House. That process is ongoing, with budgets set to be finalised ahead of the next financial year.
I apologise for the length of my reply, but I hope that I have been able to satisfy noble Lords and reassure them that all the information they seek through their amendments will be published—some as part of an existing statutory requirement—and that the reviews that they look to secure are in fact already in place. Once again, while thanking all noble Lords for their contributions, their continued interest in this Bill and, of course, for their amendments, I hope I have been able to convince them not to press their amendments.
Lord Fox Portrait Lord Fox (LD)
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Before the Minister sits down, first I thank the Minister, who has largely been able to meet most of our concerns. On a point of clarification, he said something like, “There will be no automatic restoration process, nor is there a need for one” for the purposes of investigation and disqualification. Does that also mean that there would be no need for one for the purposes of pursuing a compensation order? Can the Minister confirm that there does not need to be reinstatement for the compensation order to be pursued?

Lord Callanan Portrait Lord Callanan (Con)
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Yes, it is my understanding that the Bill, if passed, will enable compensation to be pursued, and there is no need for the restoration of companies to the register for that to take place.

Baroness Blake of Leeds Portrait Baroness Blake of Leeds (Lab)
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I start by thanking the Minister for a very full response. Sometimes when I get a very full response, I wonder whether it is an attempt to overload the system, but actually it was very technical. I also thank him—I think on behalf of us all—for taking time to bring his officials together to talk us through it.

We established in Committee that the Bill does not have the capacity to deal with some of the serious concerns raised in our discussions. We will need to revisit some of the worst excesses and infringements of current legislation. Some of the personal testimonies to the levels of fraud and the fact that some directors were re-emerging and getting away with some unspeakable behaviour is still of huge concern to us all.

On reporting, would it be possible to have a conversation on how we can pull out the relevant information from the various reports to which the Minister referred? With the best will in the world, we will not all be able to sit down to go through a whole set of annual accounts. With the particular experience with Covid and the extent of concern about it, there is a real need for transparency. I hope that we can pick this up and take it forward.

My concern about resourcing is still very live, and I hope that after the reassurance on the spending review and the need to focus on this, the debate in this Chamber will help to inform the decisions that are made. Noble Lords will have heard several in-depth media reports on the concern about the levels of fraud that have been perpetrated over the past 18 months, and I think there is a lot more to come to light.

I thank the Minister for his reassurances, and we will keep scrutinising progress in this important area. I look forward to opportunities—perhaps through further legislation—to deal with some of the real problems that continue.

Amendment 4 withdrawn.
Amendments 5 and 6 not moved.
Clause 4: Extent, commencement and short title
Amendments 7 and 8 not moved.

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

Third Reading
15:49
Motion
Moved by
Lord Greenhalgh Portrait Lord Greenhalgh
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That the Bill do now pass.

Lord Greenhalgh Portrait The Minister of State, Home Office and Department for Levelling Up, Housing & Communities (Lord Greenhalgh) (Con)
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My Lords, it is a pleasure to see this Bill through to its conclusion.

The pandemic has had far-reaching and unexpected impacts and the business rates part of this Bill seeks to address its potentially distortive effects on the rating system and local government income. By clarifying that coronavirus and the Government’s response to it will not be considered a “material change of circumstances” for the purpose of property valuation, the Bill ensures that the rating system will continue to operate as it was intended to. It also removes a significant source of uncertainty for local councils.

I thank noble Lords for the engagement we have had during the passage of the Bill. We have sought to strike the right balance between getting this important measure passed quickly and leaving space for legitimate discussion on the wider issues at play, for instance the future of business rates. Considerable expertise has been in evidence, which will be of great value when we come to debate the more substantial changes that the Government have announced. In particular, I thank the noble Baronesses, Lady Blake and Lady Pinnock, for their careful scrutiny and, ultimately, the very welcome support they have offered.

The new power to investigate the conduct of former directors of dissolved companies and seek to disqualify them where appropriate will have far-reaching benefits to the economy, in terms of improved confidence in lending, and to business and the wider public, in protecting them from the actions of rogue directors.

Of course, there is the very pressing matter of ensuring that the Government have the tools they need to tackle those reprehensible individuals who have taken advantage of a public health crisis to line their own pockets, and this new measure will play its part in bringing them to task. I am sure noble Lords will agree with me that it is only right that the retrospective provision in this measure will mean that the investigation of those individuals may start immediately upon Royal Assent.

As well as the noble Baronesses, I extend my thanks to the noble Lord, Lord Fox, and my noble friend Lord Leigh, who have provided thoughtful and constructive contributions to the debate on the director disqualification part of this Bill. Finally, I thank the Bill teams in the Department for Levelling Up, Housing and Communities, and the Insolvency Service for bringing me up to speed on some of the more detailed provisions and helping me get a proper understanding of the Bill. I beg to move that this Bill do now pass.

Baroness Blake of Leeds Portrait Baroness Blake of Leeds (Lab)
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My Lords, it is fair to say that there has been some significant consternation from noble Lords at the way this Bill was initially put together. However, in the main, we support its passage to get help to those in serious need.

We expressed our ongoing concerns at different stages of this Bill. It is obvious that the whole area of business rates needs urgent review and root-and-branch reform. Likewise, enormous concerns remain as to whether the Insolvency Service is sufficiently resourced to meet its obligations under the Bill with regard to the significant increase in business, as outlined.

I put on record my appreciation of the informed contributions from the noble Lords, Lord Fox and Lord Leigh, the noble Earl, Lord Lytton, and the noble Baroness, Lady Pinnock. I thank my noble friends Lord Hunt and Lord Sikka for their invaluable insights and knowledge on these matters.

From these Benches, we express our gratitude to the Bill team, the clerks and the staff of the House, and the Insolvency Service for the in-depth briefings it provided. I also thank both Ministers involved in this Bill: first, the noble Lord, Lord Greenhalgh—I particularly acknowledge the further detailed investigation he went into when the cause of our concerns over the business rates issue came to light—and the noble Lord, Lord Callanan, for his continued courtesy in offering regular briefings from his team and the insolvency support service on the various matters under consideration.

Finally, I thank both Ben Wood and Dan Harris, our excellent advisers, for their unfailingly high standard of support throughout the proceedings.

Clearly, both matters leave further work to be undertaken in both Houses, as has been outlined. I will watch the implementation of provisions with great interest.

Baroness Pinnock Portrait Baroness Pinnock (LD)
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My Lords, on behalf of my noble friend Lord Fox, I thank the noble Lord, Lord Callanan, for the constructive meetings that helpfully resolved the issues in the part of the Bill dealing with directors’ disqualifications and insolvency. I thank the Minister for the time he devoted to discussions on the Bill and the private meetings we held to try to resolve various issues, some of which remain; nevertheless, we are happy that the Bill has to pass to deal with the issues in front of us. I am still concerned about its retrospective nature, an issue that we did not fully resolve, inevitably. As the noble Baroness, Lady Blake, has said, the reforming of business rates is still a major concern. But with that in mind I wish to thank everybody who was involved, particularly Sarah Pughe, from the Lib Dems’ legislative team, for her help and advice. I am grateful for the way the Bill was discussed and debated so that we were, in the end, able to support it. With that, I thank the Minister for his help.

Earl of Lytton Portrait The Earl of Lytton (CB)
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My Lords, I will make a contribution from, as it were, the technical Benches on the matter of non-domestic rating. I thank the Minister—this will probably be the only time I can thank him publicly—for writing to me about matters he raised when we were at a previous stage of the Bill, in connection with the package of measures the Government have put in place to try to alleviate the problems facing businesses. I do not know whether the right term is “sidestep”, but I suspect he did not quite get the point I was making. Where a major manufacturer carries out works to meet an environmental target—for decarbonisation, for example—and in doing so wrecks something tantamount to a building or structure, or an item covered by the plant and machinery order, a proportion of its value automatically gets built in as an addition to the rateable value. That has been described to me as the double whammy of having to pay for the improvement to meet a government-imposed target, and additional rates. I was trying to focus on specific instances involving a building or structure, or the plant and machinery order, but I leave that to one side because that was to some extent an overture to what the Bill is about. I mention it only because the Minister was making the point about the assistance the Government have provided.

As for the Bill itself, I obviously regret a business rating measure of such a binary nature preventing the effects of coronavirus being properly reflected in rental values as a material change of circumstances for the purposes of making appeals against the assessments. Although the government package of reliefs and other support for the business sector is extremely welcome, it none the less pales into insignificance compared with what businesses could have expected, had a material change of circumstances applied. I will leave that there.

The Government say that the material change of circumstances was never intended to apply to things like pandemics. Well, probably not, but there has never been a time like this when HM Treasury and HMRC have been quite so keen to protect their income streams come what may, regardless of the precise effects on businesses. I hope this Bill does not have the consequences I fear it might, but I remain concerned that the whole process of business rates is beginning to drive responses, which should always be a warning sign with any taxation measure going forward. That said, I thank the Minister and the Bill team, and other noble Lords who have spoken up for the business rate payer. I wish this Bill a safe passage, and I hope it will not fulfil my worst prognostications.

15:59
Bill passed.

Royal Assent

Royal Assent
Wednesday 15th December 2021

(2 years, 3 months ago)

Lords Chamber
Read Full debate Read Hansard Text Amendment Paper: HL Bill 50-R-I Marshalled list for Report - (29 Nov 2021)
11:06
The following Acts were given Royal Assent:
Critical Benchmarks (References and Administrators’ Liability) Act,
Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act,
Armed Forces Act.