Small Business, Enterprise and Employment Bill
Debate between Lord Leigh of Hurley and Lord Mitchell
Lord Leigh of Hurley
I, too, shall speak to Amendments 48 and 49, as they are grouped together, and express the same reservations as my noble friend Lord Flight about not wishing to have the two connected. The reason for my amendment is principally to ensure that the policy objectives of the Bill are met. I seek to manage and mitigate unintended consequences as much as possible, in this case by making sure that only individuals who meet the criteria set out are disclosed and not many others by dint of legislative accident.
It is worth noting here that the Bill has already been improved in this regard. The original draft would have missed out partnerships entirely, because they have no legal personality, and forced the disclosure of hundreds of investors, none of whom owned 25% of the business, but all of whom would have been deemed to have owned that amount through their investment vehicle.
A particular concern is private equity, as my noble friend Lord Flight said. Funds raise money from many investors of different types and different geographies, but normally none of their investments as individuals would be anywhere near 25% of the fund. The private equity fund, typically known as the general partner, takes responsibility for investing that fund in a portfolio of businesses and managing those businesses. It is the fund run by the general partner and not any individual investor who exercises significant control. It is right that the public and, indeed, Governments know who that is. It is not necessary for them to know who the individual investors are behind it.
The merits of this point were accepted in the other place and there is an exemption for English limited partnerships. This amendment seeks to apply that to other limited partnerships that are similar to English limited partnerships in structure but are governed by other laws. I am thinking in particular of partnerships structured in the Crown dependencies. It is very important that we offer a level playing field in this context. Funds structured particularly in the Channel Islands and elsewhere are direct drivers of inward investment into the UK. To be clear, we are not talking about tax avoidance or tax evasion. It is simply a mechanism for investment. It is typically used by pension funds, which would not pay tax in any circumstances. My amendment would allow any partnership deemed similar in structure to an English limited partnership to be treated the same as one and not have to disclose the hundreds of investors underneath it.
In his excellent Budget in 2013, the Chancellor commendably launched a new initiative to make our asset management industry as competitive as possible. It was about encouraging our financial services industry to be drivers and attractors of inward investment in the real economy. These partnerships are great channels for such investment and must be encouraged. That is why they should be treated the same as English limited partnerships. If the amendment in my name and that of my noble friend Lord Flight is accepted, investors in partnerships, which are of huge benefit to the UK economy, will be treated as if they had invested in an English limited partnership or one that is similar in spirit.
Lord Mitchell
My Lords, I shall speak to Amendments 37ZA, 37B, 37C, 47B and 50A.
I congratulate the Government on coming forward with these provisions that provide for a register of beneficial interests in companies that are not listed on the Stock Exchange. Transparency in the governance of companies is essential, as is fair taxation. They are essential for providing a level playing field on which all businesses are able to compete. Anything else undermines the kind of entrepreneurship and creativity that we want to see driving growth throughout our economy. However, transparency goes beyond the issue of business competition. It also matters from the point of view of knowing who owns a company. Who owns whom is vital to know and we will return to this issue as today’s discussions continue.
The Lough Erne declaration was signed in 2013 and reflects a good understanding of the importance of the above and I am glad to see some of the thoughts reaching fruition in the Bill. The third point from that declaration is perhaps the most relevant to our proceedings and I think it came from the Prime Minister. It reads:
“Companies should know who really owns them and tax collectors and law enforcers should be able to obtain this information easily”.
That is a sound principle with which I am sure the whole Committee will agree. Parts 7 and 8 of, and Schedule 3 to, the Bill reflect this. Today we will be testing the provisions within the Bill to try to ensure that its provisions match these principles and that they are drawn tightly enough to deliver them. I hope the Minister appreciates that our intention is to support the proposals and to contribute to their effective working.
The main mechanism through which the principles are to be put in place is the PSC register—that is, “people with significant control”—which has our backing. The briefing that Christian Aid has provided—I wish to place on record my thanks to it for having done so—points out that only 9% of the British public believe that company ownership should be allowed to remain a secret. Given the reputation this country has for respecting the value of fair play, I can readily believe that.
The Government have also helpfully published and concluded a consultation on the regulations which will be issued governing the PSC register, which will aid us as we scrutinise the provisions in Committee. As the preamble to that document makes clear, PSCs—individuals with more than 25% of the company’s shares or voting rights—will have to be on the register and there will be a statutory obligation to update that. I struggled to find a proper definition of PSC. I think I found it in the wording but it should be clearly defined and positioned in the Bill so that there is no ambiguity on this.
Turning to Amendment 37ZA, I am sure noble Lords will appreciate that what we are doing here is to test the boundaries of Schedule 3, specifically the exclusions. It is right that the Secretary of State should be able to leave out certain companies that may already have more comprehensive disclosure requirements like those that are publicly listed. However, that is the underlying principle. Only companies that already disclose the information that this part of the Bill requires should be subject to exclusion. Otherwise a Secretary of State could, by order, essentially produce a definition that excludes companies that should in the spirit of the legislation be covered. I welcome the fact that doing so would require the affirmative procedure, but the fact that it would still have to be limited in that way would be a useful instruction to put into primary legislation. It would also create the kind of certainty that the playing field will remain level, as it were, and that would be helpful to businesses.
On the subject of delegated legislation, noble Lords will see that I have two recommendations from the Delegated Powers Committee in this group. The first concerns guidance about the meaning of “significant influence or control”, which is obviously a core part of the provisions. The committee stated:
“There is no provision however for Parliamentary scrutiny of the guidance. The reasons given in paragraph 285 of the memorandum for not making the guidance subject to scrutiny are the fact that it will be worked up in consultation with stakeholders and the fact that it will not conflict with the statutory provisions in Part 21A. We do not find these reasons convincing. Section 790F of the Companies Act 2006 will make it an offence if a company fails to comply with the duty to gather information about persons who exercise significant control. It seems to us that the existence of the offence will give greater importance to the guidance, since those involved are likely to see compliance with the guidance as necessary in order to avoid the risk of committing an offence. Accordingly, the guidance is liable to play a significant role in determining the meaning of ‘significant influence or control’ and therefore the range of persons who fall within the scope of the new Part 21A of the 2006 Act. In the light of this, we consider that guidance under paragraph 24(2) of Schedule 1A should be subject to Parliamentary scrutiny”.
We agree, and hence we have tabled this amendment.