As I was saying, we recognise that there will be occasions where a larger investment requires a longer return-on-investment period. After careful consideration and discussion with stakeholders, the Government have decided to address this issue, but to do so via secondary legislation, using the powers in Clause 42. I can reassure the noble Lord and my noble friend that the Government are committed to using these powers to set out in the code different rent assessment periods for different amounts of substantial capital investment offered. We will consult on what constitutes substantial capital investment and what the waiver period should be for different amounts. But we are clear that this could extend the rent assessment interval beyond the usual five years where it is appropriate to do so. This would mean that MRO cannot be exercised during the waiver period unless one of the triggers of a change of circumstances beyond the tenant’s control, or a significant price increase, is met.

In our discussions with stakeholders, we have heard varying calls for the length of waiver period that would be required to enable a pub company to see a return on its investment. These calls have varied between the five years suggested by the amendment moved by the noble Lord, Lord Mendelsohn, and 10 years. Clearly, individual circumstances will differ and we need to understand the details through consultation before we set this out in secondary legislation. The code will set out the safeguards that must be met to ensure that the tenant is protected from attempts to abuse a waiver. Again, it is vital that we consult on these to get them right.

I was glad that the noble Lord, Lord Mendelsohn, welcomed the idea of providing for investment. He set out a number of understandable concerns and potential safeguards where I think there is a lot of agreement but where we will need to work out the detail; for example, ensuring that the investment is substantial, that the tenant must take independent advice before agreeing to the deal, and that it is a genuine investment and not running repairs. He also mentioned that the pub company should not be able to require that a waiver agreement involves opting out of the Landlord and Tenant Act. I can reassure him that, using existing powers, we could restrict a pub company from requiring an opt-out of the Landlord and Tenant Act protections as a condition of investment.

My noble friend Lord Hodgson set out two areas of protection in his amendment: “significant investment” and “specified period”. Again, I think we all agree that these are important, and the secondary legislation I am proposing will set them out in detail. To meet the

9 Mar 2015 : Column 479

concerns of my noble friend Lord Younger, it will indeed be by affirmative resolution, which will enable us to have a debate.

There are other potential safeguards which will really benefit from consultation. The noble Lord, Lord Mendelsohn, asked whether the tenant can buy out of their agreement at a later date or source the finance from elsewhere. We will want to consider safeguards around ensuring that a pub company delivers the investment it promises, including when the deferral period should start. The adjudicator will have the power to intervene and arbitrate disputes where the landlord has breached the relevant provisions of the code. Remedies under the Arbitration Act are wide-ranging and the adjudicator can order redress which includes the payment of money in appropriate circumstances. I agree with the noble Lord, Lord Mendelsohn, that we need to take account of the fact that different sums of investment are significant for different types of pub—I think that he talked about urban and rural pubs, but it is probably even more complex than that. This is again a matter for secondary legislation and consultation.

5.15 pm

The noble Lord suggests in his amendment that the investment agreement should be a trigger event for MRO and PRA. The Government are not convinced that this is the right approach. Tenants will have the right to choose the investment offer or to remain with their current agreement. They will have the opportunity to take advice on whether to take the investment deal. To require MRO every time an investment offer is made would be likely to discourage pub companies from making or agreeing to such offers and so undermine the very investment that we are all trying to encourage.

This is an area where considered consultation is required. I have listened to the many points made in the House by all noble Lords. We will take account of them during the consultation process. I thank the noble Lord, Lord Snape, and the noble Viscount, Lord Younger. I encourage noble Lords to feed in their thinking to the consultation.

The Government are committed to acting to enable investment in tied pubs, with proper safeguards for tenants, through the powers already available in the Bill. I hope this provides the reassurance that the noble Lord and my noble friend seek, albeit from a slightly different perspective. I hope they will be content to withdraw their amendment.

Lord Mendelsohn: I thank the Minister for that reply. It is worth making a few brief points, the first being on the genesis of the amendment. Since our discussions in Committee, we have all been looking for ways in which we can still support the industry and the sector. We have been kicking around the draft of a partnership investment agreement between the pub companies and the tenants to find a framework that will work. What is important about the investment agreement arrangements is that the discussion has been about a partnership. It has become clear throughout the process that there is great difficulty and, in some cases, there will be a large variety of problems which

9 Mar 2015 : Column 480

prevent the sector moving forward in the sense of partnership. The amendment is intended to address that and to ensure a reasonable balance of options. Where there is investment, we want to ensure that there are no circumstances where it could be argued that a tenant did something which they did not mean or that they could be fooled, and that they enter into nothing without full appreciation of the situation. We also want to bring out the best in the pub companies as they seek to work with their tenants towards achieving a better outcome.

It would be nice if the £200 million of investment that we have heard about had actually gone into developing estates. We have tried to address this over a long period; we have even been through the annual reports and other things. Most of that investment is for things that go wrong or the general upkeep of buildings. Development of the commercial future of the estate represents a very small proportion of that. It is important that investment is considered on the basis of what it achieves for the ongoing development of the businesses and the sector. In trying to put something in the Bill, we wanted to set some tramlines. Unless there is a clear sense in the Bill—in that regard, I am grateful for some of the Minister’s comments on the tenant Act—our fear is that arguments over secondary legislation will be less helpful, will have the problem of unintended consequences and will poison discussion between the parties. In this debate, we have seen how that affects things. We feel that it would be sensible to consider such a provision. We would be grateful if the Government could consider the matter again and come back at Third Reading with something which gives us a better indication of how the framework of secondary legislation can be put together or at least some of the tramlines. I beg leave to withdraw the amendment.

Amendment 33M withdrawn.

Clause 43: Pubs Code: market rent option

Amendments 33N to 33V

Moved by Baroness Neville-Rolfe

33N: Clause 43, page 39, line 18, after “rent” insert “only”

33P: Clause 43, page 39, line 20, after “rent” insert “only”

33Q: Clause 43, page 39, line 23, leave out “the market rent”

33R: Clause 43, page 39, line 23, at end insert “—

(i) such rent as may be agreed between the pub-owning business and the tied pub tenant in accordance with the MRO procedure (see section 44), or

(ii) failing such agreement, the market rent.”

33S: Clause 43, page 39, line 25, after “rent” insert “only”

33T: Clause 43, page 39, line 27, after “rent” insert “only”

33U: Clause 43, page 39, line 44, leave out “may, in particular, require” and insert “must include provision requiring”

33V: Clause 43, page 39, line 45, after “rent” insert “only”

Amendments 33N to 33V agreed.

Amendment 33W not moved.

9 Mar 2015 : Column 481

Amendment 33X

Moved by Baroness Neville-Rolfe

33X: Clause 43, page 40, line 24, leave out from “to” to “that” in line 26 and insert “the occupation of particular premises under a tenancy or licence which is MRO-compliant, means the estimated rent which it would be reasonable to pay in respect of that occupation on the following assumptions—

(a) that the tenancy or licence concerned is entered into —

(i) on the date on which the determination of the estimated rent is made;

(ii) in an arm’s length transaction ;

(iii) after proper marketing; and

(iv) between parties each of whom has acted knowledgeably, prudently and willingly; and

(b) ”

Amendment 33X agreed.

Amendment 33Y

Moved by Lord Hodgson of Astley Abbotts

33Y: Clause 43, page 40, line 27, at end insert—

“( ) The requirement to offer a market rent only option set out in subsection (1) does not apply to franchise agreements, defined as agreements whereby no rent is paid by the franchisee and their share of the profit is unaffected by the price paid for tied products.”

Lord Hodgson of Astley Abbotts: My Lords, with Amendment 33Y, we come to the issue of franchises—another great issue that has concerned us during discussion of the Bill. I and other noble Lords referred in earlier debates to the need for investment to allow pubs to reinvent themselves. I argue that there is an equally urgent need to allow pubcos to reinvent themselves by trying out and examining new corporate structures more in keeping with modern times, with less of the baggage of suspicion that traditional models carry with them, about which we heard from the noble Lord, Lord Snape, and about which other noble Lords clearly have similar concerns.

Noble Lords will know that I do not believe that changing the pub tie in any event is any more than a marginal answer to the fundamental challenges faced by the pub trade. The real challenges are: cheap beer in the supermarket at £1.13 a pint, compared to three quid in the pub; the increased drinking of wine, which people do not drink very much in the pub; the increasing tide of regulation of drink-driving, smoking and licensing; the rapid change in the structure of our society and the deindustrialisation of large parts of the United Kingdom; and, last but not least—in fact most importantly —the brutal hours required to run a successful pub. The presence or absence of a tie will have little or no effect on any of those.

I accept that the weakness of the tie is that it has two inbuilt conflicts of interest between the owner and the tenant: first, the rental level—the higher the rent, the lower the profit for the tenant—and, secondly, the price for which goods and services are supplied. To get around that conflict, pubcos have been developing the idea of a franchise. After all, that is how Burger King, McDonald’s, PizzaExpress, Starbucks, Costa Coffee and other successful companies have developed on

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our high streets in recent years. That is a revenue-sharing model. The tenant pays no rent and all goods are supplied on a sale or return basis. The tenants’ only responsibility is for the wages paid to staff of the pub and the council tax. Both parties, owner and tenant, thus have a joint interest, a joint incentive to maximise revenue.

My Amendment 33Y is again about the Pubs Code and the market rent option. I seek to amend the clause so that it is clear beyond peradventure that all the provisions and protections of the Pubs Code apply to those franchises, including the fact that franchised pubs will count as part of the 500 pub level which triggers inclusion in the provisions of the code, which I know that the noble Lord, Lord Whitty, will discuss shortly. This is not a way to get around the code. All the provisions and protections of the code are there, except for one—the market rent option, which is of course because no rent is being paid. It is a revenue-sharing model.

My noble friend on the Front Bench again wishes to leave all this to consultation. That is not satisfactory. The hard edges of how this new world is going to operate are all in the Bill; the soft edges may—I repeat, may—come about as a result of consultation. This consultation will take place after 7 May and while I am 100% confident that the next Government will be a Conservative one, the industry will be thinking, “What if?”. For example, it will be wondering what the outcome of a consultation is likely to be with a Lab-Lib coalition, with Mr Mulholland leading a charge for no changes as a result of the consultation process. That is why there needs to be some reference to this new model in the Bill, otherwise we risk tying the industry back into an operating model which all experience has shown has some fundamental flaws and inbuilt mistrusts.

The Minister has argued that all this can be achieved under the powers of Clause 71, which is not to do with the market rent only option and the Pubs Code’s operation. It is concerned with power to grant exemptions from Pubs Code. This clause has become known as the Harry Ramsden clause. Harry Ramsden, the well known purveyor of first-class fish and chips, wishes to be certain that if his fish and chip shops supply beer and cider they will be exempt from the code. I understand that the Government are proposing to give that assurance. I know that Mr Harry Ramsden is talking to pubs to see whether he could sell his fish and chips in a pub. That would mean that fish and chips sold inside a pub would come under the code and beers sold inside Harry Ramsden’s fish and chip shops would come outside the code. Where is the sense in that? Further, Starbucks is now beginning to think about obtaining licences to sell beer and wine in its coffee shops, which are of course run on the franchising model. Where is this going to leave the traditional pub and the traditional pub model? The answer is: operating at an ever greater disadvantage.

All these developments emphasise the need for the industry to be freed up to try new ways of meeting the exceptionally competitive nature of our leisure market. The issue today is not whether 5,000 pubs are going to close. In my view, 5,000 pubs are probably doomed under any scenario. They are in the wrong location and have the wrong footprint, construction and reputation.

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The challenge for us is to prevent these 5,000 becoming 10,000 or even 15,000 pubs, and new corporate models such as franchising are one way to help.

My final words as we come to the end of this long saga are to those who think that the changes in the Bill will somehow herald a return to the golden age of the pub. I say to them: be careful what you wish for. I say the same to my Front Bench and to the noble Lords, Lord Mendelsohn and Lord Stevenson, as well. As we have heard already this afternoon, 25 years ago our predecessors introduced the beer orders. The orders were the result of a belief that big brewers with big chains of pubs were shutting out small breweries, so the answer was to limit the number of pubs that a brewery could own. The small breweries would then have a place in the sun, with the market space to thrive. No doubt to our predecessors, that all seemed extremely logically persuasive. As we know, the result was completely different. On the one hand there emerged the pure pubco, the focus of so much fury today, and on the other the market gap thus created was filled not by small breweries but by large, foreign brewers, so that noble Lords visiting a pub today will find the bar dominated by Stella Artois, Grolsch, Heineken, Foster’s, Castlemaine XXXX, Kronenbourg, Carlsberg and Peroni, with not a single UK brand among them.

At an earlier stage of the Bill, I suggested that there was the possibility of a similarly unpredicted and unwelcome outcome to these proposed changes. A pure pubco—not an integrated brewery, which does not have the same flexibility because it needs the pub to sell its beer—could say to itself: “Parliament wishes us to behave as a property company. So be it. We will behave as a property company. We will increase our short-term profitability by reducing or eliminating our support to our tenants. Where they can pay the rent, fine; where they can’t, we shall begin to look for alternative uses for the premises”. I have never been involved in a pure pubco so this is pure supposition on my part, but the pure pubcos own the overwhelming proportion of the current tied estate so, if this were to be developing trend, it would be a very serious one for the pub trade generally.

5.30 pm

When I made these remarks in Committee, I described this as the nuclear option. I see on the faces of noble Lords opposite, particularly the noble Lords, Lord Whitty and Lord Snape, a weary look of resignation—“He would say this, wouldn’t he?”. My career has been in the City, the success of which has been based on a ruthless flexibility with an absolute absence of sentimentality. This is what a broker was writing last week about a company that I shall not name: its,

“like-for-like growth in net income reflects a number of self-help measures and estate improvements. However, MRO puts this progress at risk. Politicians are unlikely to soften their stance, in our view. The new rules are therefore likely to result in a material decline in support to tenants and capital expenditure. We think the most exciting option for shareholders would be the creation of a separate support-free”,

real estate investment trust,

“for all existing and future free-of-tie leases”.

So these developments are afoot even before the ink is dry on the deliberations of your Lordships’ House.

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For the Government, and indeed the Opposition, to suggest that it could all be covered in the codes devised after consultation will encourage investment bankers to think of, and put forward, proposals for their pubco clients. If those proposals show clarity of structure and profitability, the argument will be to press on forthwith. Why wait for the uncertain outcome of consultation? Why live with the uncertainties of how a Pubs Code adjudicator might operate in future? Just as the beer orders led to the creation of an entirely unexpected and, in my view, counterintuitive corporate structure, so may the decisions reached by your Lordships tonight have an equally unexpected outcome. The answer is for the Government—supported, I hope, by the Opposition—to conclude that they do not want to run this risk, and to put into the Bill some reference to investment and franchising. I believe that this would give the country the level of certainty that it needs and to which, in my view, it is entitled. I beg to move.

Lord Snape (Lab): My Lords, I fear that I am going to miss the dulcet tones of the noble Lord, Lord Hodgson, on the rest of the Bill. I have sat through this paean of praise for the pubcos at Second Reading, in Committee and so far during the proceedings in your Lordships’ House today. I have some sympathy with the noble Lord’s view about the events of the late 1980s; it is a pity that he was not around in the other place when a Conservative Government were insisting that the power of the brewers at that time should be curbed. He obviously feels that the outcomes of that legislation, such as the beer orders that followed, have led to the situation in which we find ourselves now. Yet the contradiction appears to be that, while it is fair to say that he deplored the effects of the beer orders and what took place—the sell-off of the pubs and the relinquishing of the tie between the brewers and pubs has led to the pubcos that we have today—he has spent every stage of this Bill defending those same pubcos. He cannot really have it both ways; if the beer orders and their aftermath were so bad in the 1980s in creating these organisations, I wonder why he has spent so much time defending them during the passage of this legislation.

Lord Hodgson of Astley Abbotts: My Lords, I know that this is Report, not Committee, but if I may say so to the noble Lord, I have made it perfectly clear that there are between 20,000 and 25,000 tied agreements between pubcos and tenants, and not every one of them behaves like a saint; clearly, mistakes are made. I have explained, if he was not listening to my remarks earlier, that the problem with the tie is that built into it are two inherent conflicts of interest.

Lord Snape: I am grateful for that clarification; perhaps if the noble Lord had made it at Second Reading we might have spent less time bickering. The noble Lord’s Amendment 33Y seeks to put into the Bill some exemption for franchise agreements. The Minister will correct me if I have got this wrong but I think the Government have taken care of those franchise agreements and arrangements within the Bill itself. If they have not, they left themselves enough time, with the consultative procedures that the Minister has so ably outlined, to look at them again over the next few months, when these consultative arrangements are actually taking place.

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The problem with accepting the amendment, of course, is that in effect it would pre-empt that consultation and we would be likely to see the pubcos working their way around the legislation in the way about which the noble Lord, Lord Hodgson, warned us. So although I found him as lucid as ever, I think that he convinced one or two of us on this side of the House that his amendment not only was not necessary but, were it to be accepted by the Minister, would lead to an even worse situation than we are in. Surely the noble Lord can see that making exemptions in the Bill, denying the adjudicator and the Pubs Code the opportunity to consider what agreements should be exempt, and to reverse that exemption if it transpires that the exemption is being gamed at a later date to circumvent the legislation, is the proper way forward. I hope that the way in which the Minister indicates the Government’s attitude to this amendment will indicate the way in which they will take this matter forward.

Like the noble Lord, Lord Hodgson, I am coming to the conclusion of my own remarks on the Bill. I would like again to say a few words about investment. It has been a consistent theme of the noble Lord that the Bill and the failure to accept his amendment would have a serious negative effect on investment that the pubcos make in licensed premises generally; I think that that is a fair summing up of his position. However, when one looks at what I repeat is the myth of investment by the pubcos, a different situation is immediately apparent. In 2014, for example, Punch invested £43 million in its core estate but sold pubs to the value of £111 million. It has already announced that it hopes to make £307 million from selling over 1,000 of its non-core estate. Enterprise Inns invested £66 million in pubs that year, then disposed of £73 million-worth of them. This does not sound to me like either a prosperous industry or an industry controlled by those who seek a sensible and profitable way forward for it, regardless of the legislation before your Lordships today.

Lord Berkeley: Could my noble friend clarify whether those investment figures are those quoted by the companies concerned, or are they the figures that they told the landlords they were investing but in fact did not, so the landlord had to do it and then got charged extra for the investment that did not happen?

Lord Snape: My Lords, the figures that I gave were the ones that the pubcos themselves published, but I certainly agree with my noble friend. Again, without detaining your Lordships too long, I could produce in the course of the debate on this amendment 14 or 15 independent licensees who told me—along, I am sure, with other noble Lords on both sides of the Chamber—about the broken promises made by the main pubcos about investment.

I admire the oratory and indeed the optimism of the noble Lord, Lord Hodgson, who not only told us that these institutions—the pubcos, whose creation he inadvertently deplored as a result of the legislation passed by a Conservative Government back in the 1980s —were really decent chaps who are anxious to invest in their property, but forecast the result of the election as a Conservative majority. However, my reaction is: has he put his money where his mouth is? Even better, perhaps he could put the pubcos’ money in that direction

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because, like me, he does not know the outcome. None of us does. Not even those well known pundits, the pollsters, can tell us the result of the next election. I admire his optimism, if not his sentiments, as far as the pub industry is concerned. I hope that the Minister will do as she has done with the two previous attempts made by the noble Lord, Lord Hodgson, at amending this legalisation and will smother him with honeyed words but kick his wishes into touch.

Lord Mendelsohn: My Lords, I shall speak to Amendment 33AZ. I support the Government’s position on this. Before I explain why we support their position, I say to the noble Lord, Lord Hodgson, that we are very keen for the sector to prosper and develop and that initiatives by the pub companies and individual tenants will create a vibrant environment. I do not recognise the “sky is falling in” scenario that he presents, and I do not believe that the fact that some companies are looking at the potential of REITs is a big indication of things that have happened in relation to this Bill. I was approached to invest in a pubco REIT well before this Bill was even announced by the Government, and the reasons why it did not take off were leverage and risks associated with our operating model. The same issues will exist today when it happens. Ironically, I think we have more certainty now with the provisions of the Bill, but I do not think that this is a brand new scenario where the risks are so huge.

I shall speak to Amendment 33AZ because we are happy to accept Clause 71, which provides the Secretary of State with the power to make regulations enabling exemptions from the Pubs Code and that the specified descriptions of those exempted will be determined by secondary legislation. Our amendment seeks to apply the affirmative procedure to this to ensure that we can debate these matters properly and sensibly and allow the sort of discussion that we have had today.

We were concerned that the Government had described the notion of a genuine franchise as something they would be willing to consider within that context. The discussions have gone by. Our concern is not that there should not be such consideration, but we are not clear that there is a real definition which applies to that and we are yet to be convinced that there is a case for any particular exemption.

Generally, franchises are long-established arrangements. Many erudite books have been written on this subject, some of which bear my surname, but I have absolutely none of the credit for having written any part of them. These are arrangements where one party, the franchiser, grants another party, the franchisee, the right to use its trade mark, trade name or certain business systems or processes to produce or market goods or services according to certain specifications. Franchisees usually pay a one-time franchise fee plus a percentage of sales revenue as a royalty and gain name recognition, tried and tested products, standard building design and décor, detailed techniques in running and promoting the business, training of employees and ongoing help—a range of things that will help the franchiser to gain the rapid expansion of the business and earnings at minimal capital outlay, and where the franchisee is able to develop businesses that they are comfortable about being able to establish.

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Essentially, once you have an integrated business where there is a property element owned by someone else, we are yet to be persuaded that any of the mechanisms is anything other than rent by another name. There are ways in which the contracting arrangements can be very different, but in effect it comes down to the same essential relationship, despite the method of payment, be it royalties, profit share, cost deductions, rent plus or minimum guarantees. We are yet to be convinced that there is an operable definition that can work. I look forward to hearing the Minister’s comments. We are very keen to support the Government’s position that there should not be such an exclusion. We are very happy to return to this if the Government wish, but we support their position as it stands.

5.45 pm

Baroness Neville-Rolfe: My Lords, I thank my noble friend Lord Hodgson for championing the industry. I agree about the importance of investment. There has been some investment in the industry, and I hope there will be more if we get these important reforms right. I also agree about the importance of franchising as a new potential avenue of prosperity for the sector. I thank the noble Lord, Lord Mendelsohn, for his amendment, which I will come to.

Amendment 33Y seeks to provide that the market rent-only option does not apply to franchise agreements. My noble friend defines them as,

“agreements whereby no rent is paid by the”,


“and their share of the profit is unaffected by the price paid for tied products”.

The Government recognise that there are turnover-based pub agreements on the market where the tenant’s interests are arguably more aligned with the pub company because both rely on a fixed proportion of turnover. The tenant does not face the combination of wet and dry rent, as with traditional agreements. The benefits of a franchise are that you are buying a proven business concept that has been tested by the franchiser. That should mean that your risk as a franchisee is reduced. Alongside the turnover share element, this would seem an important part of what constitutes a genuine franchise.

However, pub franchises also retain some characteristics of a traditional tied agreement that mean the tenant is still at risk. For example, the tenant is locked into the agreement for at least five years with no means to change the terms. The pub company remains in a stronger negotiating position, as we understand that the relative turnover share figure is fixed and generally non-negotiable, and a franchisee is unable to shop around for a better deal on some or all of his products and services.

However, after much consideration, I am pleased to confirm to my noble friend that the Government have listened to concerns expressed and agree that genuine franchises should be exempted from the MRO provisions. Given the differences between traditional tied pubs and genuine franchise agreements, we consider this a reasonable exemption, but we are clear that the remaining code protections should still apply.

We will exempt only genuine franchise agreements, and I shall make a few comments about our thoughts here. My noble friend put forward in his amendment

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two sensible criteria that are fundamental to defining a genuine franchise, but there are likely to be others. Therefore, it would be wise to consult further before we specify exactly what we mean by a pub franchise, and to take this forward in secondary legislation. It is our intention to provide for the exemption using the existing Clause 71.

In relation to Harry Ramsden’s, the code will regulate the alcohol tie in pubs. Harry Ramsden’s fish and chip shop clearly is not a pub, and Clause 71 enables the Government to exempt Harry Ramsden’s from the regime. Similar examples will be considered on a case-by-case basis. We will look at the points made today about Harry Ramsden’s and Starbucks in developing the code.

My noble friend Lord Hodgson was concerned about potential unintended consequences and asked for more to be done in the Bill. This is a difficult one. The best way to reduce the risks of unintended consequences is to allow for flexibility through secondary legislation because it is then possible to tweak arrangements should unintended consequences arise. If we fix these matters in primary legislation, any unintended consequences would be much harder to remedy.

On Amendment 33AZ from the noble Lord, Lord Mendelsohn, I am pleased to reassure him that the regulations we will make under Clause 71 will be subject to affirmative procedure, so we will be able to have a proper debate. However, we believe that subordinate legislation is the right way ahead. I am making it clear in Hansard that that is the Government’s intention, and my Bill team will be working away on franchise and other aspects of the subordinate legislation as soon as the Bill receives Royal Assent.

I hope that my noble friend will feel reassured by my response and will agree to withdraw the amendment.

Lord Hodgson of Astley Abbotts: My Lords, I thought for one wonderful moment that my noble friend was going to agree to put something in the Bill, but it will be secondary legislation again, with all the disadvantages and uncertainties that that implies.

Of course the noble Lord, Lord Mendelsohn, has a family familiarity with franchising, in the sense that his uncle was the moving spirit of the British Franchise Association, which of course would help set the standards that would decide what a pub franchise looks like, because it has a lot of experience in that area—so this will come back to haunt him yet.

My concern about the Minister’s reply is that we find ourselves unable to move the structure of the pub trade forward. We need to find new and better models. There will always be concerns that any new corporate structure we invent carries the risk of it being used for a loophole. That is not the case, because the amendment brings every single aspect of the franchise within the Pubs Code and the Pubs Code Adjudicator’s power except the single issue that you cannot ask for a market rent option because you are not paying any rent.

I accept my noble friend’s assurances that the Government intend to make sure that this is properly dealt with in consultation, but they are making a mistake because there is a danger of slip ’twixt cup and lip. My concern is that the trade finds itself locked into a structure with which neither side is entirely

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satisfied, and that we may therefore perpetuate enmity, suspicion and difficulty. I had hoped to find a way out of that by getting something in the Bill. I am sorry that the Government will not do that, but I see no point in taking it any further on this occasion. I therefore beg leave to withdraw the amendment.

Amendment 33Y withdrawn.

Clause 44: Market rent option: procedure

Amendments 33Z to 33AH

Moved by Baroness Neville-Rolfe

33Z: Clause 44, page 40, line 31, after “rent” insert “only”

33AA: Clause 44, page 40, line 31, leave out “the market rent option” and insert “the MRO”

33AB: Clause 44, page 40, line 38, after “rent” insert “only”

33AC: Clause 44, page 40, line 39, at end insert—

“(ab) specify a reasonable period (“the negotiation period”) during which the pub-owning business and the tied pub tenant may seek to agree the rent to be payable in respect of the tied pub tenant’s occupation of the premises concerned under the proposed MRO-compliant tenancy or licence;”

33AD: Clause 44, page 40, line 42, after “where” insert “, at the end of the negotiation period,”

33AE: Clause 44, page 40, line 43, leave out “cannot agree on that market rent” and insert “have not reached agreement as mentioned in paragraph (ab)”

33AF: Clause 44, page 41, line 2, at end insert—

“( ) require that the market rent must be determined by the independent assessor within a specified reasonable period;”

33AG: Clause 44, page 41, line 14, leave out “market rent option” and insert “MRO”

33AH: Clause 44, page 41, line 18, leave out “market rent option” and insert “MRO”

Amendments 33Z to 33AH agreed.

Clause 45: Market rent option: disputes

Amendment 33AJ not moved.

Amendment 33AK

Moved by Baroness Neville-Rolfe

33AK: Clause 45, page 41, line 23, after “rent” insert “only”

Amendment 33AK agreed.

Amendment 33AL not moved.

Amendments 33AM and 33AN

Moved by Baroness Neville-Rolfe

33AM: Clause 45, page 41, line 27, after “rent” insert “only”

33AN: Clause 45, page 41, line 32, leave out “market rent option” and insert “MRO”

Amendments 33AM and 33AN agreed.

Amendment 33AP not moved.

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Clause 62: Annual report

Amendment 33AQ

Moved by Baroness Neville-Rolfe

33AQ: Clause 62, page 49, line 5, after first “rent” insert “only”

Amendment 33AQ agreed.

Clause 68: “Tied pub”

Amendment 33AR not moved.

Amendment 33AS

Moved by Baroness Neville-Rolfe

33AS: Clause 68, page 51, line 26, at end insert “(whether or not it restricts such sales)”

Amendment 33AS agreed.

Clause 69: “Pub-owning business”

Amendment 33AT

Moved by Lord Whitty

33AT: Clause 69, page 51, line 37, leave out “tied pubs” and insert “pubs of any kind”

Lord Whitty: My Lords, the two amendments in this group deal with the issue of the threshold. I will be as brief as I can.

The discussion earlier today and in Committee has shown that there is an awful lot of movement within the pub world: there is buying and selling of pubs between large pubcos, breweries and other companies, and there is a lot of change in the status of pubs between being managed and tenanted and between different forms of tenancy, such as from tenancy to franchise and vice versa.

The definition of the threshold here is rather static in that it relates only to tied pubs. The Minister has made it clear that the definition of tied pubs includes franchised pubs, and I hope that she will repeat that assurance here today. I had also hoped that she would be slightly more favourable to the earlier amendment in the name of the noble Lord, Lord Stoneham, which related to pubs that are tied other than by beer and cider provision, because there are other forms of tie than the purely alcohol tie. Because pubs move from one status to another, and indeed from one company to another, it is surely a lot easier to define the threshold by the total number of pubs. Otherwise, there could be some gaming to avoid the threshold, or indeed changes in the structure of the industry that alter the way in which the code and the MRO option would apply.

The Government have said that if we did that we would run the risk of completely inappropriate pub owners falling within the area of the Bill. First, as of now, it makes a difference of one company, so it is not a comprehensive reassessment; it is just an easier way that will stand the test of time for longer. In any case, as was referred to in the debate on the previous amendment, if any company is caught inappropriately by this provision, either because of the threshold or for any other reason, the Government have the power under Clause 71 to exempt that company or companies.

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It would therefore be a lot easier were the Government to accept the rationale of what I am saying. It would make the operation of the code a lot easier and clearer. It would not make a lot of immediate difference, but it would, as I say, stand the test of time, given the volatility of the patterns of ownership with the buying, selling and changing of status within this sector. I beg to move.

Lord Hodgson of Astley Abbotts: My Lords, it will not surprise the noble Lord, Lord Whitty, that I urge the Government not to accept the amendment. The issue of the change in the MRO and its introduction is about tenants: that is to say, self-employed business men and women and the imbalance of bargaining power between the individual tenant and the brewery, in particular because of the issue of the rent charged and the charge for products and services supplied. That is the heart of the problem.

Managed pubs—the other big category—are run by people who are employed by the brewery, who run it like a branch office. The noble Lord, Lord Snape, referred earlier to how Wetherspoon runs its pubs. It has managers in every pub who are employees. They are paid a salary and a bonus, with all the other aspects that go with corporate existence. To include those in a Pubs Code would be wrong, first because there is no rent to pay and no question of any aspect of the Pubs Code applying to pubs like that. These are completely different vehicles and corporate structures, and the application of the Pubs Code can have focus and effect only where you are dealing with independent businessmen, whether they are tied, franchised, or whatever.

Baroness Neville-Rolfe: My Lords, I thank the noble Lord, Lord Whitty, for his amendment, and for his engagement on these provisions in advance of Report. As the noble Lord explained, these amendments would change the definition of a pub-owning business for the purposes of the Pubs Code to one with 500 or more pubs of any kind rather than 500 or more tied pubs.

The noble Lord asked about franchises. They will indeed be included for the purposes of the 500, as I think my noble friend Lord Hodgson helpfully explained when we were discussing it earlier. The definition focuses on the alcohol tie, because that is where we have evidence of problems, as colourfully explained in four Business Select Committee reports, all of which focused on the tie.

I understand the noble Lord’s view that companies with more than 500 pubs of any kind are companies of sufficient size that they can cope with complying with the code. However, the amendments would lead to some striking anomalies. A pub-owning company with 499 pubs, all of which are tied, would not be covered by the code, but a pub-owning company with 500 managed or free-of-tie pubs and just one tied pub would be covered for that one tied pub.

6 pm

Any intervention into the pubs market has to be proportionate and focused on problems of which we have evidence. The evidence of the past 10 years shows that the problems in the pub industry relate to abuses

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of the tied relationship. The Government do not have evidence of a problem in the free-of-tie or managed pubs market. We believe that, in the current market, the amendments would bring just one more company within scope—Mitchells & Butlers, which has around 1,800 pubs in total but fewer than 60 tied pubs in England and Wales. While I understand the noble Lord’s concerns about market share, bringing these few extra tied pubs within scope of the Pubs Code would create an anomaly. A regulatory regime for the tied pubs market would be regulating a company with 60 tied pubs but not several companies that each own several hundred tied pubs but fewer than 500 pubs in total, such as Shepherd Neame and Fuller’s. Indeed, we estimate that around 20 companies have around the same number or more tied pubs than Mitchells & Butlers, yet they would not be brought into scope by these amendments.

As noble Lords may recall, it was the will of the Committee in the other place that pub-owning companies with fewer than 500 tied pubs, including family brewers, should not be in scope of the measures in Part 4. Our legal advice also indicates that the anomaly I have referred to would put the Government at risk of a legal challenge. I hope that the noble Lord, Lord Whitty, understands the difficulty that this would place us in and the attendant risk. The legislation covers the six largest tied pub-owning companies with the vast majority of tied houses, with around 13,000 tied pubs in England and Wales between them out of around 20,000 in total, and there are anti-avoidance provisions in place. I hope that in the light of my comments he will feel able to withdraw his amendment.

Lord Whitty: I thank the Minister for that response, and particularly for her reassurance on the record on the inclusion of franchisees in the definition of the 500. The point here is that this is all about the balance of power, as she said herself: the power of very large companies that have pubs of different status to shift them from being tenanted and tied to tenanted and not tied, and vice versa, and from tenanted to managed, which applies as a result of their size. The code, of course, will relate only to their relationship with tenants of tied premises. So, in a sense, the noble Lord, Lord Hodgson, and to some extent the Minister, miss the point—it is defining who by size and influence on the market that would be most likely to present a problem for their tenants in this respect.

I do not think that I will get anywhere with the Minister tonight. I hope that the Government will bear this in mind, but at the moment clearly it makes very little difference—the difference of only one company. I hope that the Minister will not get the lawyers on to her for having named that company. Nevertheless, it is important that the vast majority of tied pubs are covered, and her definition of the threshold would ensure that. But down the line, again, there may be a problem with pub codes if large breweries began to change their status on a large scale of the pubs under their control. But for the moment, I beg leave to withdraw the amendment.

Amendment 33AT withdrawn.

Amendment 33AU not moved.

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Amendment 33AV

Moved by Baroness Neville-Rolfe

33AV: Clause 69, page 51, line 43, at end insert—

“(2A) A person not falling within subsection (1) and who is the landlord of a tied pub occupied by a tied pub tenant who has extended protection in relation to that tied pub is also a pub-owning business for the purposes of this Part in relation to that occupation.

(2B) A tied pub tenant has “extended protection in relation to a tied pub” if—

(a) the tenant occupies the tied pub under a tenancy or licence at a time when the landlord is a person who is a pub-owning business by virtue of subsection (1), and

(b) before the end of that tenancy or licence the landlord is no longer such a person (whether because of a transfer of title or because the landlord ceases to fall within subsection (1)).

(2C) But a tied pub tenant ceases to have “extended protection in relation to a tied pub” on the earlier of—

(a) the end of the tenancy or licence concerned, and

(b) the conclusion of the first rent assessment or assessment of money payable in lieu of rent to be provided after the landlord is no longer a person who is a pub-owning business by virtue of subsection (1).

(2D) The Secretary of State may for the purposes of subsections (2B) and (2C) by regulations specify—

(a) when a tenancy or licence ends;

(b) when a rent assessment or assessment of money payable in lieu of rent is concluded.

(2E) Nothing in sections 43 to 45 and sections 53 to 59 has effect in relation to a person who is a pub-owning business by virtue of subsection (2A).”

The Deputy Speaker (Lord Colwyn) (Con): Before the noble Lord comments on his amendment to the amendment, it may assist the House if I explain that there is a mistake in the Marshalled List. Amendment 33AY, the third of the noble Lord’s amendments to Amendment 33AV, should also be in the names of the noble Lords, Lord Mendelsohn and Lord Stevenson of Balmacara.

Amendment 33AW (to Amendment 33AV)

Tabled by Lord Whitty

33AW: Clause 69, line 16, leave out from beginning to “after” in line 17 and insert “10 years”

Lord Whitty: My Lords, I shall not move the amendment, but I want to say a quick word on Amendment 33AY. I was very disappointed when the Minister, who obviously thought that it was already chucking out time on the pubs section of the Bill, said in replying to my noble friend Lord Mendelsohn that she would not look again at the question raised by Amendment 33AY: in other words, that she was not prepared to look at what, from my perspective, is a disproportionate infringement of the rights of the tenant. While there is a change of owner, all other aspects of the code and of the lease will apply to terms and relations between them and the new owner, except the very one on which Parliament has insisted. I find that a bizarre position and one that may be politically difficult for the Government.

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I urge the Minister, even at this late stage—and the noble Lord, Lord Popat, is looking at it very assiduously just now—to say that she will have another look at this before Third Reading and come forward with her own proposition, or at least have some further consultation on the matter before Third Reading. If they do not do so, as this was central to the concerns of the House of Commons I fear that they will find themselves in some difficulty when the matter goes back there. Given that we all want to get this Bill finished with, although it is not very evident that we do today, there is a possibility of the Government running into trouble if they do not have another look at what is covered by Amendment 33AY. I ask the noble Lord, Lord Popat, to reflect on that on behalf of the Minister.

Amendment 33AW not moved.

Amendments 33AX and 33AY not moved.

Amendment 33AV agreed.

Clause 71: Power to grant exemptions from Pubs Code

Amendment 33AZ not moved.

Clause 72: Interpretation: other provision

Amendments 33AAA and 33AAB

Moved by Lord Popat

33AAA: Clause 72, page 53, line 25, after second “rent” insert “only”

33AAB: Clause 72, page 53, line 27, leave out “market rent option” and insert “MRO”

Amendments 33AAA and 33AAB agreed.

Clause 75: Exemption from requirement to register as early years provider

Amendment 34

Moved by Lord Popat

34: Clause 75, page 54, line 36, leave out subsection (5)

Lord Popat (Con): My Lords, Amendment 34 is a minor and technical amendment to Clause 75. It will remove subsection (5) of the clause, which made provision for a consequential amendment relating to independent school standards. This subsection is now no longer necessary, due to the repeal in England of Section 157(2)(b) of the Education Act 2002 by paragraph 16 of Schedule 1 to the Education and Skills Act 2008. Therefore, it now makes sense to take this opportunity to remove this subsection. This will not affect the purpose, impact or effect of Clause 75; it is a simple housekeeping amendment. I beg to move.

Baroness Jones of Whitchurch (Lab): My Lords, I am grateful to the noble Lord for giving that explanation. We concur that this is a minor technical amendment. We rehearsed the wider issues about the practicalities and appropriateness of very young children being cared for on school premises and the wider issues around exemption from registering as an early years provider in Committee and I do not intend to rehearse those arguments again at this stage. We are content that the amendment should go forward.

Amendment 34 agreed.

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Amendment 34A

Moved by Lord Mendelsohn

34A: After Clause 81, insert the following new Clause—

“Register of people with significant control for property

(1) The Secretary of State shall by regulations made by statutory instrument establish a register of freehold estates and leases owned by or granted to people of significant control as outlined in Schedule 3.

(2) A statutory instrument containing regulations under subsection (1) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”

Lord Mendelsohn: My Lords, we have tabled this amendment to add another property dimension to the register of persons with significant control. There are a variety of considerations as to the way we do that, consistent with the notions of transparency we are trying to bring in. We were minded to table the amendment to probe the Government on this issue largely as a result of Transparency International’s very interesting report on properties in London being bought through offshore corporate secrecy. We have tabled this amendment to try to deal with this issue in the context of the persons with significant control register, where they use a holding company to acquire these properties. The amendment would establish a register of persons with significant control for property.

Research that analysed data from the Land Registry and the Metropolitan Police Proceeds of Corruption Unit found that 75% of properties whose owners were under investigation for corruption made use of offshore corporate secrecy to hide their identities. Since 2004, more than £180 million-worth of property in the UK has been brought under criminal investigation as the suspected proceeds of corruption. However, this is believed to be only the tip of the iceberg as the scale of proceeds of corruption invested in UK property is understood to be considerably higher. Indeed, more than 75% of the properties under criminal investigation use offshore corporate secrecy. Some 36,342 London properties, totalling 2.25 square miles, are held by offshore haven companies, invariably through UK corporate entities. Of these, 38% are in the British Virgin Islands, 16% in Jersey, 9.5% in the Isle of Man and 9% in Guernsey. Almost one in 10 properties in the City of Westminster, 7.3% of properties in Kensington and Chelsea and almost 5% in the City of London are owned by companies registered in an offshore secrecy jurisdiction.

According to the latest figures, which cover October 2013 to September 2014, estate agents contributed to only 0.05% of all suspicious activity reports submitted. This figure does not match the risks posed by money launderers to the UK property market, the distortions created or the problems associated with the amount of money involved. It is important to understand that the overall value of these transactions in the report alone, which is only part of what can be easily identified, is, on rough calculations, between £100 billion and £250 billion.

Naturally, this amendment is insufficient by itself to tackle the problem and will not deal entirely with these sorts of issues and the distortions to the market that the corrupt money brings. A debate about how

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transparency should be established over who owns the companies that own so much property in the UK through making such transparency a Land Registry requirement is for another Bill at another time. However, this provision is useful as a result of the frequent structures that are developed to hide ownership, largely by establishing UK holding entities. This Bill provides an opportune moment to take our first step in addressing this. It will not address the problem but it is a step in the right direction. I beg to move.

6.15 pm

Baroness Neville-Rolfe: My Lords, I thank the noble Lord for tabling the amendment and am grateful to him for providing the background to it. I think he suggested that it was a probing amendment but it may be helpful if I explain some of the concerns it may raise in its current form. We must also consider the potential costs and wider implications of such a measure and the actions that we are already taking in this space, so I will endeavour to do that.

If we attempted to register the beneficial owners of all properties, that would impact on the 24 million titles on the Land Register. I am glad that this amendment would add the Land Registry to the long list of government departments involved in helping with this Bill. Last year, the Land Registry processed more than 32 million applications, which underpinned property sales worth hundreds of billions of pounds. Depending on how it is defined, a register of this kind could impact on millions of home owners, the vast majority of whom will be entirely law-abiding, as I sure the noble Lord agrees. It could also potentially deter perfectly lawful inward investment in all our major towns and cities.

If we consider the problem of companies—particularly overseas companies—being used to obscure the identity of the true owners of high-value properties, the scale of the problem is comparatively small. Approximately 0.4% of all titles in England and Wales are registered to overseas companies. Implementing the proposed reform would require us either to create a brand new register or substantially to alter either the existing Land Register, the company register or both. We need to consider carefully the links and interactions between these registers. We would also need to consider new mechanisms for requiring individuals to provide beneficial ownership information in relation to property.

In short, the cost and wider implications of such a measure would be huge for both government and property owners. This seems perverse in a Bill that is designed to help small business. Furthermore, a property register is not required by any international standards or EU directive. It is not a commitment the UK or our G7 or G20 partners have made. On that basis, I urge noble Lords to consider this problem in the context of the regimes we already have in place and the reforms we are committed to make in this important Bill. For example, the Land Registry already records the legal owner of a property, both residential and commercial, whether that is an individual or a company, and regardless of whether that company has been registered in the UK. Where the registered owner is a company, the Land Registry will also record the Companies House

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registration number for UK companies, or the territory of incorporation for overseas companies. This is information that can be accessed by the public. Where allegations of corruption or fraud are raised, the Land Registry works across a variety of government agencies to assist their investigations.

Let me be clear: the UK does not turn a blind eye to corruption and money laundering. Noble Lords will no doubt be familiar with the case of James Ibori, a former Nigerian politician who is reported to have owned a number of UK properties. In 2012, he was sentenced by a UK court to 13 years’ imprisonment for money laundering.

In this Bill we are taking forward world-leading reforms to ensure transparency of UK company ownership and control. We will talk about the register of people with significant control in more detail shortly. However, that reform means that, subject to the will of Parliament, from 2016 all UK companies will have to register their beneficial owners at Companies House. So where a property is owned by a UK company, information on that company’s beneficial ownership will be immediately accessible, online and for free once submitted. However, the misuse of companies is a global problem, and we need a global solution. That is why the UK is working hard to encourage other jurisdictions to take equally ambitious steps. We are seeing progress. G7 and G20 countries have made firm commitments on company beneficial ownership. EU member states will be required to implement central registers accessible to those with a “legitimate interest” when the fourth money laundering directive is adopted shortly.

These commitments will all help ensure that UK authorities can quickly and easily access beneficial ownership information on non-UK companies. These reforms to company transparency form part of our commitment to protecting the integrity of our financial system and ensuring that the UK maintains a strong reputation as a clean and safe place to invest, and a hostile environment for corrupt funds.

We will of course continue to look at what more can be done to tackle company misuse and illicit financial flows. However, that action must be proportionate and targeted. For all the reasons that I have set out, I do not believe that a register of property beneficial ownership represents a sensible or proportionate step. I hope noble Lords have been reassured by my explanation and some of the information that I have given, and that the amendment will be withdrawn.

Lord Mendelsohn: My Lords, there is certain irony in a Government who used the company wrapper on the purchase of property as a means of enhancing taxation perhaps not having been alive to the considerable opportunities that the amendment may present in the long run to deal with a variety of other things.

Aside from that, I thank the Minister for her reply. Uppermost in our considerations, in this and other amendments that we will come to, is ensuring there is the right level of transparency to ensure the integrity of how this country’s financial system operates. That is a goal we share. Both parties feel that, over time, they have dealt with the issue, only to find that problems come up again. It will constantly be work in progress and there is no step that one can take that will be

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sufficient to give everyone confidence that these matters will be dealt with. It would be useful for the Government to examine this area further. It is not a question of size or numbers. The reason that this problem is manageable is that a smaller number is involved, as opposed to the large mass of homes, and there will be little impact on the larger, law-abiding mass of people.

I am encouraged by what the noble Baroness has said. It is encouraging that we are looking to amendments that produce further enhancements to make sure that the ambitions that she has set out are fulfilled. I hope that she is sympathetic to them. I beg leave to withdraw the amendment.

Amendment 34A withdrawn.

Schedule 3: Register of people with significant control

Amendment 35

Moved by Baroness Neville-Rolfe

35: Schedule 3, page 163, line 30, at end insert “, and

(i) if, in relation to that company, restrictions on using or disclosing any of the individual’s PSC particulars are in force under regulations under section 790ZF, that fact.”

Baroness Neville-Rolfe: My Lords, this group of amendments responds to recommendations of the Delegated Powers and Regulatory Reform Committee and to a number of issues raised in Committee. I thank the DPRRC for its diligent scrutiny of the Bill and am happy to accept all its recommendations relating to Parts 7 to 9 of the Bill.

Amendments 54 and 57 mean that regulations to provide for exceptions to the ban on corporate directors, and orders modifying Schedule 1 to the Company Directors Disqualification Act 1986, will be subject to the affirmative resolution procedure. Amendments 47 to 50 provide that the statutory guidance on the meaning of “significant influence and control” for the register of people with significant control will be subject to the negative resolution procedure, instead of merely being laid before Parliament.

I have also reflected on certain amendments tabled in Committee by the noble Lords, Lord Mitchell, Lord Watson of Invergowrie, Lord Phillips of Sudbury and Lord Stevenson of Balmacara, who is sitting opposite. The noble Lords called for information in the central register to be kept up to date. The Bill contains a power for the Secretary of State to increase the frequency with which PSC information is filed at Companies House. I can now confirm the Government’s intention to use that power to do this.

Having discussed the issue with Companies House, we intend to allow the central register to operate for around 12 months before using the power—in other words, in 2017. This will allow the system to bed in, thereby helping companies’ transition to the new requirements. In 2017, we will in any case need to increase the frequency with which PSC information is filed at Companies House. This is because proposals in the EU’s soon-to-be-adopted fourth money laundering directive will require all EU member states to have company beneficial ownership information in central registers that is “current”. This means that we could not rely on an annual update to the central register.

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Some noble Lords were concerned that the requirement for a person accessing PSC information from the company’s own register to tell the company whether they would disclose information to any other person would be unduly restrictive. On reflection, I agree that requiring those wishing to inspect the register to say whether they would disclose that information to someone else and, if so, to whom, was unnecessarily burdensome. Amendment 42 therefore removes proposed Section 790O(4)(d) of new Part 21A of the Companies Act. However, I can reassure noble Lords that safeguards are still in place around inspection of the company’s own PSC register. The person wanting access must provide his name and address, and the purpose for which the information will be used. If the company suspects the information is not sought for a proper purpose, it may apply to the court to refuse access.

Individuals at serious risk of harm will be able to apply to the registrar to have their information protected from public disclosure. If granted, their information will not be disclosed on the register at Companies House or the company’s own PSC register. To ensure appropriate levels of transparency, noble Lords argued that the fact of a person’s information being protected from public disclosure should be stated on the company and central PSC register. I agree that this is important. It will ensure that users of PSC information know whether a company has PSCs, thereby preventing the company being unfairly accused of having failed to identify its PSCs because there is no information in its register. It will also act as a safeguard against erroneous disclosure of information by a company or Companies House. Amendments 35 and 45 provide for this.

Amendments 44 and 46 are technical. They make clear that a company must not make available for public inspection PSC residential address information, or information protected from public disclosure because the individual is at serious risk of harm.

I turn finally to Amendments 51 and 52. These enable investors in certain non-UK arrangements to be treated in the same way as limited partners in English limited partnerships—an issue raised by my noble friends Lord Flight and Lord Leigh of Hurley in Committee. I agree that we must ensure that investors in foreign limited partnerships that operate in broadly the same way as English limited partnerships are treated in the same way. At the same time, we must ensure that this does not open up a convenient loophole for criminals to exploit. I am satisfied that setting out the characteristics of such arrangements in secondary legislation is the best way to avoid this risk.

It may be helpful if I explain to noble Lords why we have not made equivalent provision for other UK and non-UK structures used for investment purposes. In cases where an individual holds, in the words of the Bill, a “majority stake”—that is, more than 50%—in a fund, and where that fund owns more than 25% of a UK company, we would expect that individual to be disclosed on the register. However, we do not expect companies to look through every investor in a fund to check whether there is a PSC. Nor do we expect

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investors continually to monitor their holdings in UK companies. I intend to ensure that this point is made clear in guidance and hope that my noble friends are reassured by this explanation. I beg to move.

Lord Watson of Invergowrie (Lab): My Lords, I offer my support to the Government on Amendments 35 and 42; I very much welcome both. I accept that individuals may have their details protected from being published in the PSC register in exceptional circumstances, and I have been reassured by Ministers’ comments in your Lordships’ House and another place stating that exemptions will be given only in such circumstances. I am sure that that will remain the case. In this respect, the Government have strengthened the Bill during its passage through both Houses. In another place, the Government accepted an amendment from the Member of Parliament for Hartlepool, whereby proposals for classes of companies to be exempted from the register should be subject to the affirmative procedure, which will allow greater scrutiny and debate.

I am also pleased that the Government have introduced Amendment 35 today, which will highlight in the register where a protection exists. This is a real step forward for transparency and accountability.

I have argued at previous stages of the Bill that the public interest test must always be available to challenge an exemption when new evidence comes to light. I ask the Minister whether she will undertake to keep this matter under consideration and to do likewise with regard to publishing a list of broad categories under which exemptions can be given.

Turning to Amendment 42, the requirements associated with proposed new Section 790O(4)(d) to the Companies Act really were quite prohibitive and ran counter to the spirit of the introduction of a register. Removing that proposed new section will have a significant effect. It will allow organisations and members of the public to view businesses’ registers and publish the information where they deem it necessary.

I tabled a similar amendment to this in Committee, and I appreciate the Minister listening and acting on it. I also want to record my thanks to noble Lords from across the House who spoke in favour of that amendment in Committee.

6.30 pm

Lord Stevenson of Balmacara (Lab): My Lords, I simply want to add a little to the comments of my noble friend Lord Watson. In his typically modest way, he did not take enough credit for himself for raising some of the issues. I think he touched on them at the end of his remarks, but without his probing in Committee we perhaps would not have got as far as we have. With the additional help of the DPRRC’s recommendations, which were very firm in a number of areas relating in particular to the change to the affirmative procedure but also to matters related to foreign limited partnerships and directors’ responsibilities, we have now got to a much better place. We are very grateful to the Minister for listening so well and for bringing forward these amendments.

Baroness Neville-Rolfe: I thank noble Lords. I am especially grateful to the noble Lord, Lord Watson, for his support today and for the work that he put

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into what has become the government amendments. If I may, I will write to him on the public interest test.

Amendment 35 agreed.

Amendment 36

Moved by Lord Watson of Invergowrie

36: Schedule 3, page 163, line 30, at end insert—

“(i) where the control is exercised through a chain of legal entities (as described in Schedule 1A), details of name, service address and jurisdiction of registration of all legal entities in the chain”

Lord Watson of Invergowrie: My Lords, I begin by again stressing my strong support for the introduction of a register of people with significant control, and the enthusiastic welcome for it from the All-Party Group on Anti-Corruption, of which I am a member. Indeed, I believe that the PSC register should be overwhelmingly welcomed—I would even go so far as saying to the extent that we should be somewhat suspicious of the motives of those who oppose it in principle.

The introduction of the register is a step forward, and a big one at that, because it will frustrate people who hide or seek to hide criminal activities behind shell companies—a big and increasing problem that stretches across different parts of the world. For example, the UN has reported that Ukrainian arms licences are being given to UK shell companies involved in supplying helicopter parts to Assad in Syria, military kits to Gaddafi’s Libya and nuclear technology to Lithuania, all of which I believe should give noble Lords genuine cause for concern.

The legislation we are considering represents a significant step forward because the PSC register will record the ultimate beneficial owners of our companies and the public will be able to examine it. That said, the Bill leaves what I believe is an important gap: where the chain of ownership extends to foreign companies, not all of the links in the chain will be recorded. This will allow corruption to remain hidden away, out of sight of the UK authorities. These amendments aim to close this gap. Their implementation would involve a minimal burden for a small percentage of the most complex businesses. I very much hope that we can make some progress on this issue today.

Amendments 36, 37 and 38 seek to ensure that, where control of a UK company involves intermediaries in a chain, all the links in the chain should be revealed and exposed to scrutiny, because knowing and understanding the chain of ownership is, I believe, necessary to enable information on the register to be checked. I also believe that the importance of that has been acknowledged by the Government, because the Bill already requires that the method of control be declared, accepting that how control is exercised is important. These amendments seek to make sure that that will be made clear in the small number of cases where there is a chain of entities as part of the method of control. It would make a big difference. For example, developing countries require such information to bring legal action against a person of significant control—something they have often been unable to do in the past, often at great cost to their fragile economies.

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When speaking about the register on 31 October 2013, the Prime Minister stressed that it would be publicly accessible and went on to say the following:

“It’s better for businesses here, who’ll be better able to identify who really owns the companies they’re trading with. It’s better for developing countries, who’ll have easy access to all this data without having to submit endless requests for each line of inquiry. And it’s better for us all to have an open system which everyone has access to, because the more eyes that look at this information the more accurate it will be”.

Needless to say, I thoroughly agree with the Prime Minister, but without placing on record the chain of ownership there will not be sufficient information available on the register to enable third parties to verify it properly. I believe that it is self-evident that the success of the register will rest on how accurate it is. To ensure that it is as accurate as possible, there is a need to maximise opportunities to ensure a higher level of accuracy from day one. That is what these amendments are designed to achieve.

The noble Lord, Lord Phillips, and I tabled similar amendments in Committee. The Minister said then that our amendments would be costly. Yet those amendments would have amounted to a minimal burden for a small number of companies—the most complexly structured companies at that. We estimate that only about 2% of UK businesses would need to provide only a very small amount of additional information when submitting their annual reports. The company should already have collected this information in confirming its person of significant control. The only extra demand would involve including this information in its annual report. This is such a minor requirement that I do not believe that it even merits being categorised as a “burden”, but it is a requirement that would fall exactly on the type of company that is most likely to be of concern. For that reason, I believe that it is proportionate.

In Committee, the Minister said that this would be confusing. On the contrary: surely the chain of ownership would be presented more clearly in the register, reducing the likelihood of confusion. The Minister also said in Committee that this would be seen as gold-plating. I agree with her, but is that not to be welcomed? I contend that it is not so much gold-plating as the rather more prosaic—and certainly cheaper—copper-bottoming: ensuring that the register achieves what it is designed to achieve. We are the first country in the world to introduce a public register. I believe that we should be proud of that and I also believe that we should get it right first time.

These three amendments would make a significant difference to developing countries at minimal cost to a small number of UK companies. Having listened to the Minister in Committee, the noble Lord, Lord Phillips, and I have scaled them back from the amendments that we tabled then. I very much hope that they will now find favour with the Minister. If they do not, I look forward from hearing from her how the Government intend to address this issue, perhaps in secondary legislation, so that the register can be established on the firmest possible foundations.

I turn briefly to Amendment 53. The intention of this amendment is to make a very simple point that the noble Lord, Lord Phillips, and I feel has not been properly addressed yet during the Bill’s consideration:

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that it should be the Secretary of State who is responsible for the operation of the PSC register, rather than Companies House. We suggest an annual report to Parliament from the Secretary of State to highlight this point, allowing parliamentarians to hold the Secretary of State to account on the operation of the register. Since this will be the world’s first public register of beneficial ownership, I believe that it is really important that we get it right.

The Secretary of State must ensure that information in the register is properly verified and that it is kept as up to date as possible. I welcome the comments that the Minister made just a few minutes ago in respect of another amendment about increasing the number of times that it is updated. Throughout the various stages of the Bill, MPs, noble Lords, interested organisations and, indeed, to a significant extent, members of the public have made the point that the public register should be updated more than annually. As things stand, it would be out of date almost as soon as it is published, so again, the Minister’s remarks are to be welcomed.

I hope that the Minister will accept what I think is a relatively straightforward and simple amendment, which will clarify ministerial responsibility for the register and increase parliamentary scrutiny of it. If not, I hope that she will outline how she or the successors of the Secretary of State would ensure that the public register is kept as accurate as possible and that the information contained within it is properly verified. I beg to move.

Lord Phillips of Sudbury (LD): My Lords, my name stands with that of my noble friend Lord Watson of Invergowrie on these amendments. He has introduced them with great panache, and I do not have a great deal more to say but I think that the issues are so important that a few more points are necessary and worth while.

First, I shall give the House some of the facts that point to the scale of the problem of fraud and tax avoidance, which I do not think many of our fellow country people understand. My noble friend Lord Watson and I have been hugely helped by the Anti-Corruption APPG of this House, which, in turn, has been supported by Global Witness and Christian Aid, and a wonderful job they have done. One of the statistics they have produced for us—I think that Transparency International has had some part in this as well—is that the best estimate is that $21 trillion to $32 trillion of private financial assets rest in tax havens, and that 20% to 30% of that huge corpus of assets is corruptly diverted. Of that, they reckon that $120 billion to $180 billion per annum, which is far more than the entire global aid budget, is diverted unlawfully from developing countries. This is a rather poignant day on which to say that, as the Bill concerning the 0.7% contribution to aid has just been passed.

Another fact which I find rather depressing because it affects the UK is that it is reckoned that the Crown dependencies and overseas territories are host to one-third of all the world’s shell companies. On top of that, more than 36,000 properties, which are mainly in the most expensive parts of this wonderful city, are owned by overseas owners but are placed in shell companies in tax havens, 38% of them in the British Virgin Islands, 16% in Jersey, 9.5% in the Isle of Man and 9% in

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Guernsey. In addition, the World Bank’s review of the 200-plus biggest corporation corruption cases shows that 70% use shell companies as their vehicles of fraud. Therefore, the background to this amendment could not be more important and striking.

At this point, I have to own up to something from my dim and distant legal past. In the mid-1960s I was what was then called a tax mitigation lawyer. I notice a groan from behind me.

Lord Naseby (Con): Another lawyer.

Lord Phillips of Sudbury: Yes, another lawyer. However, it is very striking because that was in the mid-1960s. In fact, the last case I did was just after the first Rossminster scheme was launched on the British public. Some of your Lordships may remember those schemes. They were the first of the hyperartificial—I would say hyperludicrous—schemes. I remember putting this to the best tax chambers in London at the time. I asked them, “Would you kindly advise my client via me? Is this scheme a runner?”. Back came the answer, “These chambers will not handle any cases relating to the Rossminster scheme because we view it as anti-social”. It is extraordinary to think of barristers saying that and I am not sure that they did not use the word “immoral”. But my goodness, the world we now inhabit is very different. The demoralisation—that is a useful word to use—of this country and indeed the entire world is really depressing because it has given rise, gives rise and will continue to give rise to an ever increasing number of really shameful frauds conducted by some of the biggest and best companies and banks in this country and everywhere else in the globe. It is very sobering to recollect that we are still a good deal less corrupt in our financial dealings here than virtually every other financial centre in the world.

6.45 pm

Lord Forsyth of Drumlean (Con): My Lords, I am most grateful to my noble friend for giving way. I confess that I have not followed these proceedings at earlier stages of the Bill and perhaps he can help me out. He is describing a very undesirable situation. However, as these provisions apply only to companies which are registered at Companies House, why will the criminals and bad guys not operate in other jurisdictions, and how is adding so much cost and burden to honest small businesses justified in that context?

Lord Phillips of Sudbury: I think that we need a short debate to answer the question that my noble friend poses. However, I think that the general feeling is that small companies will not be hurt by these provisions. It is these extraordinarily obtuse long chains of shell companies, sometimes in as many as 13, 14 or 15 tax havens, that are the object of this exercise.

Lord Naseby: Can my noble friend honestly say that it will not affect small businesses? “Small business” is in the title. Every single small business in this country—not the micros but almost every other small business—is going to have to register, and that is going to cost it a considerable amount of time, money and resources. So how can he possibly say, “Well, it’s not

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going to affect any of them. It’s only going to be the great big national companies and other big companies that are manoeuvring things internationally”? He is talking rubbish, is he not?

Lord Phillips of Sudbury: I did not say that it would not affect them at all; I said that it would affect very few of them to a significant degree, and I stick by that. I have been a small and medium-business lawyer for most of my life, and I can say that these companies will not be significantly inhibited by these provisions or be faced with significant costs.

Lord Naseby: I am sorry to interrupt my noble friend again. He may have been a lawyer periodically dealing with a few small businesses; nevertheless, the chambers of commerce and others say exactly the opposite to what he is saying. Surely they know better than some lawyer working part time on small businesses.

Lord Phillips of Sudbury: I would not deny for a minute that they know better than the description the noble Lord gave of me. I just repeat that I do not think it will seriously inhibit the small or medium-sized company that operates in a straightforward fashion in this country. I am confident of that.

Lord Flight (Con): My Lords, we touched on this previously. Four million small companies are going to be affected, and if any of them does not obey the law, it will be committing a criminal offence. How is a small entrepreneur with a plumbing business up in Norfolk going to even know that this law exists and that he needs to comply with it?

Lord Phillips of Sudbury: I have a huge amount of sympathy with the noble Lord pointing out the hypercomplexity of this. I can only say to him—I must also put it in the context of having worked in this field for more than 50 years and having been a non-executive director of more than 15 SME companies—that I do not think there is any real prospect of an innocent SME going about its business falling foul, let alone criminally foul, of this law. However, I accept that the whole Bill is of near barbaric complexity and I do not know how we get round that. I am afraid that the price for the scandalous intentional misbehaviour of large and some small entities is invariably paid by the innocent.

Perhaps I may try to return to my story. As I said, there is a real demoralisation particularly of the business world but also of our whole society which we need to take intense notice of. We are at a tipping point in terms of the common good. The publicity of some of these awful cases is universal now, so that more and more of the richest people and companies, in terms of the money they have, are seen to be getting away with murder—as the man in the street would call it—in terms of paying tax. That is totally antipathetic to the good and fair society that we seek to create and help in this House. It is a total denial of fairness and duty.

These provisions are very modest but will enable the authorities, in particular the tax and fraud authorities, to grapple with some of these very expensively advised entities and the chains that they establish around the tax havens of the world, without one arm being tied

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behind their back. We all know that the authorities are ludicrously understaffed in comparison with the private sector—I am talking about the irresponsible part of the private sector—although that is another issue which has to be dealt with another day. I hope that my noble friend will be able to reassure the House that this will not be yet another statute that lies gathering dust on the shelves of Whitehall, but that there will be a practical and rigorous enforcement of the provisions inserted here.

Finally, without the limited transparency that is afforded by Amendments 36, 37 and 38, the authorities will not be able to get at the malefactors any more than they have thus far. I think I am right in saying that not a single bank director has been prosecuted since the collapse of 2008, during which period tens of thousands of our fellow countrymen and women have been prosecuted before magistrates’ courts. We must stop that, as it is profoundly demoralising for this country. We must give the authorities the tools to do their hugely difficult job. The fact that we are the first country to introduce a PSC register is something that the Government should be congratulated on. I commend the Prime Minister, because it is not easy in his party to say some of the things that he has said. The noble Lord, Lord Watson of Invergowrie, mentioned one of those things, but I particularly like what he said to the G8 in 2013. The point he made and the language he made it in were absolutely right. The Prime Minister said that,

“companies should know who really owns them, and tax collectors and law enforcers should be able to obtain this information easily”—

for example, through central registries—

“so people can’t avoid taxes by using complicated and fake structures”.

Bang on. All this series of amendments does is lend a few practical teeth to that sentiment. I hope that this commends itself to the House and the Government.

Lord Forsyth of Drumlean: My Lords, I will speak briefly against this amendment. Of course, no one could dispute the intention behind it. If the intention is to stop criminal activities and tax evasion—and I make a distinction between tax avoidance and tax evasion; when we are talking about criminal activities, we are talking about tax evasion—no one could dispute it. However, it rather seems like a sledgehammer to crack a nut, or perhaps a sledgehammer aimed in the wrong places. The impact assessment undertaken by the Department for Business, Innovation and Skills of the proposals as they already stand says that almost £1 billion will be added to the costs of small businesses, which the noble Lord, Lord Phillips, tells us is not really significant. I wager to suggest—

Lord Phillips of Sudbury: I am grateful to the noble Lord for giving way. I do not think that he will find in that impact assessment any attempt to assess the cost of the amendments that we are talking about in this group. I will leave it at that.

Lord Forsyth of Drumlean: The noble Lord is absolutely right, because this is not the Government’s proposal—which is why I am against his amendment. He said in

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his speech that it would not be very much extra without actually telling us how much extra it would be. We already have £1 billion being added to the costs of small and medium-sized businesses at a time of great stress in our economy and when we are desperate for them to grow and create wealth. Yet here we are asking people running small businesses to fill in forms, and if they fill them in inaccurately, they will find themselves committing a criminal office.

Lord Phillips of Sudbury: I am most grateful to the noble Lord for giving way a second time, and I promise not to intervene again—but that is not so. He should take account of the fact that if we were to recover even 20% more of the tax that currently is not paid but should be, many billions of pounds will redound to the benefit of SMEs as well as of everyone else.

Lord Forsyth of Drumlean: I am not sure which bit the noble Lord was saying was not so. He may very well be right in his assertion—although I doubt it—that the Government will collect more money, but that does not help the small business man who is faced with these additional costs, for whom there is no benefit whatever. They already struggle to fill in their VAT forms and their surveys on this, that and the other while trying to run their businesses. This would add a very significant burden.

Lord Naseby: My Lords—

Lord Popat: My Lords, this is Report and we prefer not to take further interventions.

Lord Forsyth of Drumlean: I believe that interventions seeking information are allowed once on Report, so I will give way to my noble friend.

Lord Naseby: My noble friend might mention the cost of business rates, which are a huge burden to every business in this country. Business rates are going up by 2%—and what is the rate of inflation? Under 1%.

Lord Forsyth of Drumlean: Indeed, but my noble friend must not tempt me to get away from the amendment and from this Bill. When it comes to compliance costs, the Government are going to have to find £109,000 just for,

“the IT development of the registry and communication to industry”.

My experience of government IT programmes is that they usually cost considerably more than estimated. Then we have £220,000 for ongoing maintenance. In addition, it is stated:

“Costs to businesses are estimated to be £417.4m set up cost, and £77.7m pa”.

This is a country that is not able to meet its expenses and these are businesses which, certainly outside London, are under severe stress.

My noble friend and the noble Lord argue that we need to add further to the burden put on these businesses to deal with the problem of international tax evasion by large companies around the world. I intervened to

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ask him how—even assuming that everything that he claims for his system works once it is up and running in Britain and we have spent the £1 billion—it would help prevent the crooks and people who wish to behave in this way operating out of a different jurisdiction. Surely, the only way this Utopian view of how to tackle the issue will be achieved is if every country does this, but I do not see any evidence of other countries rushing to implement this legislation. As far as I am aware, there is no great programme to do this among the other countries that were at the G8, so all we would be doing is hobbling honest, hard-working small businesses in this country to deal with a problem that needs—

Lord Watson of Invergowrie: I am grateful to the noble Lord for giving way. I always listen to the noble Lord, Lord Forsyth, carefully. He always makes very considered contributions to the House, although I may not agree with him very often. This is one of those occasions. I regret that he seems to be making a speech that should have been made three months or so ago at Second Reading, because he is not arguing specifically against the amendments that I have put down; he is arguing against this section of the Bill in its entirety. I accept that he is perfectly entitled to do that, but these arguments have already been given a considerable airing.

I just would draw his attention to the amendments, which say, “where the control”—that is, the control of a company—

“is exercised through a chain of legal entities”.

That will not impact on many small and medium-sized enterprises. This is for large, complex organisations, which is why I mentioned the figure of some 2% that it has been estimated would be affected. The other companies will have to say who their person of significant control is anyway, whatever the size of the company. In most cases, it will be the chief executive. This part of the Bill will not be a burden to any significant extent on smaller companies. The bigger companies, which have an international dimension and therefore will have a complex structure, are those that we are trying to catch with these amendments. It is not in any sense about companies based in the UK that have no ownership outside the UK.

7 pm

Lord Forsyth of Drumlean: My response to that is that it is a fair cop. He is absolutely right that I should have made this speech three months ago. I had no idea, along with, I suspect, 99.99% of the country, that this measure was included in this Bill. I had not read about a desire to set up a register, adding £1 billion to the cost, in any newspaper or seen any great debate about it. Perhaps I have been a little remiss. It is perfectly true that the occasion of this amendment has given me an opportunity to draw attention to the considerable cost involved, which I appreciate was argued at an earlier stage of the Bill.

However, in his speech, the noble Lord argued that the Minister had argued at an earlier stage of the proceedings that she could not accept his amendment because it would add to the costs on small business. I support my noble friend in arguing that we should not

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add to the costs on small businesses. Therefore, I think I am in order in arguing against this amendment because, as the noble Lord said, it was an issue at an earlier stage.

I apologise to the House that I was not involved at an earlier stage but when one of my noble friends pointed out to me what was in the Bill, I could not believe it. I looked up the Government’s assessment of compliance costs. Certainly, when I was in government, as the noble Lord will remember, impact assessments invariably turned out to be less than what they were. Even at this late stage, I hope that, in rejecting these amendments, my noble friend will think very carefully about introducing this measure at this time of great stress.

I could understand it if all the other G8 countries had their legislation in place; then I could see how it could work. The noble Lord is not addressing my main point; namely, that if we are concerned about people setting up shell companies to hide where their interests lie, passing this legislation will not deal with that problem because people will operate outside other countries. I made a speech the other day which upset Amazon and I received a letter from its public affairs person. I said that Amazon did not pay business rates and corporation tax in the same way as ordinary retail outlets. She pointed out that Amazon pays business rates on its distribution centres. I wrote back and said, “But you haven’t dealt with the point about corporation tax”. We understand that one of the reasons that Luxembourg will meet the quota on overseas aid is because it is based on gross national income, which includes revenues that really should have been in other countries. Therefore, although the amount that it is spending on overseas aid is tiny, it appears to meet the target because of the number of companies that use Luxembourg in that way. If the Government wish to recover the tax that my noble friend is concerned about, the answer is to pass the necessary legislation in the Finance Bill. It is not to ask hard-working people up and down this country to burn the midnight oil filling in registers of the kind proposed, nor to complicate the statute book.

I cannot believe this Bill, which is dealing with small business. It is pages and pages of stuff. The Explanatory Notes would take a whole evening to read. It seems to me that this amendment and the provisions in the Bill relating to the register drive a coach and horses through the Government’s declared policy of reducing the burdens on business and allowing it to concentrate on wealth creation.

Baroness Neville-Rolfe: I am grateful to the noble Lord, Lord Watson, and my noble friend Lord Phillips for these amendments. I thank my noble friends Lord Forsyth and Lord Naseby for reminding us of the needs of small business, many of which will of course be caught by the Bill at a substantial cost, but it will be over 10 years. It has been properly costed in an impact assessment, which has been available for some months. Of course, businesses would have to deal with any additional requirements, as my noble friend has made clear, if we were to impose them. I should equally say that the benefits of the register have the potential to be substantial, whether as a result of improved efficacy

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of investigations and outcomes where companies are being used to facilitate serious criminal activity, or to businesses as a result of their operation in a more open and trusted environment. As my noble friend Lord Phillips said, this is a cause in favour of transparency and against corruption that the Prime Minister has led.

However, the group of amendments raises important questions about the information in the register of people with significant control and the integrity and accuracy of those data. I turn first to Amendments 36, 37 and 38, which would require details of every company in the ownership chain to be entered in the PSC register. The PSC register is a ground-breaking change and the UK is leading by example. The register will contain information on the individuals who ultimately control UK companies, including how that control is held. I do not think my noble friend was in the House earlier when I ran through some of the international efforts that have been going on and reported on the progress of the money laundering directive. However, I did not deal with the overseas territories and Crown dependencies, which were raised by my noble friend Lord Phillips. We are working closely with the overseas territories and Crown dependencies and are keeping them informed as the UK policy on corporate transparency develops. This will help to feed into their thinking. We believe that they have made significant progress on tax transparency and they have publicly committed to transparency of company ownership. Arguably, more has been achieved in the past year than over the past 10 years.

Some noble Lords and business groups feel that we have gone too far, in particular by making the register publicly available when this is not currently a global requirement. They fear that reform will impose unnecessary costs on business and have an adverse impact on UK competitiveness. These amendments seek to go further. They would require information not only on those individuals but on every legal entity in the ownership chain. The question we have to ask is whether this goes too far. Such an approach is not required by international standards, by the likely EU requirements shortly to be adopted in the fourth money laundering directive or by our G7 or G20 commitments. Nor is it something—this is significant—that the law enforcement community, including HMRC, has called for.

The amendments would add to the already substantial compliance costs. Companies must update their own registers as changes occur. Companies keeping their own registers would have even more information to obtain and keep up to date, plus the compliance cost of notifying every change in every layer of a chain. Companies owning other companies would have to work out if and when they need to report information. These amendments could also adversely impact the utility of the register. More data do not necessarily lead to more transparency. If the amendment were adopted, the very information we want to reveal may be buried under a mass of less relevant data. What matters is who ultimately exercises control, which, subject to the will of Parliament, from next year will be on the public record and not just available to law enforcement agencies. However, I recognise that this is an issue that some noble Lords feel strongly about.

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Clause 82 already requires us to undertake a statutory review of the PSC within three years of the requirements coming into force. That review will provide an opportunity to look at the range of issues raised by noble Lords on all sides of the House. I am prepared expressly to consider looking at the question of the ownership chain in the context of that review.

I now turn to Amendment 53. Let me start by making clear that I am absolutely committed to ensuring the integrity and accuracy of information on the public register. I am satisfied that our current approach achieves this. It is based on a combination of pre- and post-registration checks, criminal penalties and public scrutiny. We are looking at what more we can do and have started with the creation of a new register integrity team at Companies House. The team undertakes compliance activities to help companies, ensuring that they are fulfilling their filing responsibilities, and data analysis to identify where specific activities can improve the integrity of the register. The Government already have powers of investigation that allow them, for example, to require the production of documents. Moreover, as the register will be public, transparency will be a driver of accuracy.

Amendment 53 calls for the Secretary of State to lay an annual report before Parliament on measures taken to ensure that PSC data are verified and accurate. A clear requirement on the register to verify every piece of PSC information would not be proportionate. However, I know that this is not what my noble friends have in mind. They want assurance that our proactive approach to ensuring data accuracy will continue. The Government fully support that objective. I do not, however, think that an additional bespoke report is the way to achieve that. The Bill requires the Secretary of State to review whether the register’s objectives have been achieved within three years of its implementation. The accuracy of the information will be a key part of the review as well as all other relevant issues, such as whether additional information on the ownership chain should be recorded.

I can also commit today to ensuring that, in future, Companies House will make explicit reference to activities undertaken to ensure the integrity and accuracy of information on the register in its annual report, which is, of course, presented to Parliament every year.

Lord Forsyth of Drumlean: Given the size and scope of the register, can my noble friend say how exactly Companies House will do that, how many people they will need to employ to achieve that objective and what the likely cost will be?

Baroness Neville-Rolfe: My Lords, the point I was making about reporting is that we would extend the annual report, in any event, so that it covered this new function, which is sensible, and in that context we would obviously look at data and other relevant issues.

The noble Lord asked about the scale of staffing required. I may be able to give him a response if I can make a bit of progress. My normal port of call would be the compliance cost assessment. The answer is that we are going to do this within the existing budget but in co-operation with other enforcement agencies. I

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have been to see Companies House during the course of swotting up for the Bill and I am impressed by it. It is bringing a more modern approach to the way in which it does things. It has been aware for some time that it is going to be given this new burden and it is ready and willing to pursue it.

Lord Naseby: As I understand my noble friend’s argument, she is saying that her department and other departments are in a similar mode. Their staff will cope with these changes and this huge register at nil cost other than what is already budgeted for the implementation of this Bill. Is that correct?

Baroness Neville-Rolfe: My Lords, agencies such as Companies House have long-term plans to look at the duties coming down the line which they will have to fulfil. They have been aware for some time that this duty will fall on them. Obviously it follows the Prime Minister’s initiative at Lough Erne in 2013 and the money-laundering directive discussions that have been going on in Brussels for a long time. We will be bringing in this register. I will pass on the points that have been made to Companies House but it is ready to tackle this task. Of course, the reason the compliance costs are large is because it is a small amount of work by a large number of companies. It is because the multiplier is so big that you get the compliance costs that you do. That might be of some comfort to my noble friend.

The issue of timing was raised by the noble Lord, Lord Phillips. We intend to require companies to maintain their own PSC registers from January 2016 and to file information at Companies House from April 2016. We publicly set out these intentions in January this year.

On complexity, it will be straightforward for the majority of companies to identify their PSCs. We are thinking carefully about the guidance and communications to companies so that we can get the message across about how they might do it simply and what is required. We have a working group set up to develop guidance which contains representatives from all interested parties including, everyone will be pleased to hear, small business. Our enforcement user group is co-chaired with the National Crime Agency and will look specifically at how to make best use of the PSC data so that, in making this big change, we are using it to good effect and that the benefits I have described come through.

I have set out these points at some length. I hope noble Lords have been reassured by what I have said about the forward plans for the register and its review and will be willing not to press their amendments.

7.15 pm

Lord Watson of Invergowrie: My Lords, this has been a longer and more vigorous debate than had been anticipated. I feel like a guest at my own party such is the distance we have travelled from the narrow effects of the amendments.

The noble Lord, Lord Forsyth, made an important point: a number of companies will be involved in the register and there will be some costs. I fully accept that. However, it is a central part of the Bill. It has

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come a considerable way down the road now and has been broadly accepted. The noble Lord said that he was not aware of any disquiet about it. That suggests to me that not many companies are making a great deal of noise about it. Yes, there are costs, but they have realised that benefits will follow the introduction of the register.

I disagree with the noble Lord when he says that we are the only country doing this. Yes, the UK is taking a lead—that is commendable—but someone has to start. There is considerable opposition to this within the EU, never mind beyond it, but we have to start somewhere. If we do not, it will never happen. From that point of view I give the Government credit for grasping the issue and taking it forward. Where it goes from here we do not know. Indeed, in doing research for this evening I noticed that since the Committee stage in January four Crown dependencies have come forward and said, “We have looked at the idea of a public register but, frankly, we do not think it is a good idea and we are not going to do it”. Also since the Committee stage the leader of the Opposition has said that, should he be in a position to do so after 7 May, he will make it a requirement on the overseas territories and the Crown dependencies that they have such a public register. I accept that there is opposition to a register but the UK is due credit for leading the way in this.

As to what the amendments seek to do, I was surprised that the Minister said she was concerned that if too much information came forward it might obscure the situation rather than clarify it. That is similar to the argument that there is no point in having a 50 pence tax rate because people will not pay it; that you will get more tax if it is only 40p or 45p. If you set laws in any civilised country you expect people to obey them and for those laws to have the effect intended. If information is sought, it has to produce the clarity that is the intention of the amendments.

I repeat that it is anticipated that about 2% of all UK companies would be caught by these amendments should they be accepted and added to the Bill—not small companies and the small and medium-sized enterprises, because they do not have a complex international structure in which to hide aspects of their business, even if they wanted to.

I am disappointed that the Minister is not prepared to accept the amendment. It is a narrow point and would not add a great deal to what the Bill is trying to achieve. I accept that she will not change her position and I respect that. I also respect the fact that she said there will be a review within three years and that will give the opportunity to look at the situation again.

During the debate on these provisions I have noticed that in fact three new sections in the Bill would allow secondary legislation to address the question of foreign companies and ownership issues. I just highlight new Section 790K(5), new Section 790L and new Section 790M(7). I agree with the noble Lord, Lord Forsyth, that it is indeed a beast of a Bill, although recently I was involved with the Deregulation Bill, which is every bit as complex and fat a document. There are opportunities, should the Minister feel that they are worth pursuing, but obviously it would be better if this was included in primary legislation. However, I

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accept what she has said and I look forward to the review of the legislation. There will be a lot of valuable impact as regards this part of the Bill. With those remarks, I beg leave to withdraw the amendment.

Amendment 36 withdrawn.

Amendments 37 and 38 not moved.

Amendment 39

Moved by Lord Flight

39: Schedule 3, page 166, leave out line 3

Lord Flight (Con): My Lords, I suggest that measures like this and other anti money-laundering measures are much more effective to the extent that they are common preferably among the G20 countries, but at least among the G8 and other more advanced parts of the world. There is less scope to pick and choose jurisdictions if the same rules broadly apply across all the important areas. In that context, I have made the point previously that it is not achieving much to say, “The UK is in the lead here”. The question, in introducing measures like this, is whether they are going to be followed internationally and will they be similar in order for them to be effective. Although I am no great lover of the EU, the forthcoming fourth anti-money laundering directive is extremely important. It is expected that it will require a central register of company-beneficial information, which data will need to be accessible to those with a legitimate interest; that is, law enforcement agencies and regulated entities. The word “legitimate” has not as yet been defined and I do not know whether it is going to be, but the supposition is that it would cover the proper investigative bodies for anti-money laundering, tax evasion and security matters.

The amendments in my name in this group hang together as a package and reflect the fourth EU anti-money laundering directive. Amendments 41, 43, 55 and 56 seek to mirror the expected terms of the directive: to limit access to proper and legitimate purposes as they are generally understood. The second important point, which is picked up in Amendments 39 and 40, is that the EU directive also requires the implementation of central registers of beneficial ownership. The amendments seek effectively to remove the option of individual companies keeping their own PSC registers at their registered offices and would permit the Government to require either that Companies House should keep a register, or if the Department for Business, Innovation and Skills wants to do it, it could do so. But it would clearly be messy to leave the option for companies to keep their registers and for there to be a central register as well. Surely it is better to have one or the other, but not either/or, which would further add to costs and complexity.

I thank the Minister for her helpful reply to my letter of 6 March. From her letter I detect some movement towards implementation, at least in practice, of what would be a more common EU approach to PSCs. The noble Baroness made the point in her letter that although government Amendment 42 serves to remove the requirement for a person requesting access to a company’s PSC to state whether the information will be disclosed to any other person, a person seeking

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such access must provide their name, address and the purpose for which the information is to be used. The company will retain the right to apply to the court to refuse access if it suspects that the person is not requesting the information for a proper purpose. It will also be a criminal offence for a person to disclose information to another person if they know or suspect that such other person will use the information for an improper purpose. This is the language I have been arguing for—proper and improper purposes. My main objection to these measures has been that they would allow improper use to be made of the information about private companies, in particular writing about people’s private wealth in a potentially salacious way or stirring up hostilities. It seems that the UK is creeping towards mirroring the language of my amendments about proper purpose and refusing access to PSCs for what are not proper purposes. It would seem that the legislation, or its implementation in the UK, is shifting somewhat in the sensible direction, as I have argued throughout.

What matters is that the appropriate authorities—the tax and security authorities—can have access to information for proper purposes. Indeed, that is what the Prime Minister was saying at the G8 meeting, but not that any old media individual can look up people’s personal affairs. I would ask this of the Minister. In the references she has made more recently to proper and improper purposes, it would seem that the legislation now provides much more protection against improper use than was the case before. If that is correct, it may be that my amendments are not necessary. Surely the right drift of things is that the measures across the EU should be pretty similar, led by this country but not with this country out of line and overgold-plated. I beg to move.

Lord Borwick (Con): My Lords, there is a very significant difference between privacy and secrecy. There could be lots of reasons for privacy, but not only involving an entrepreneur. Take Tony Blair’s tax return, for instance. That is his private matter, but this Bill will open up private matters to anyone for any proper purpose. Blair and others can support their own cases, but who will speak up for the entrepreneurs? It is indeed a great power of the state to inquire about something, but that power should not be given to all its citizens. The state has its own secrets too, which is as it should be. Transparency is not always a merit. These proposals presume that anything which is not transparent is bad, and that anyone who is involved in anything secret is guilty of something. That is clearly not the case. There are nearly 3.5 million businesses in the UK. The vast majority of them are law-abiding and simply trying to make products that people want to buy or provide services that they need. In any case, there is unlikely to be reliable ownership information on criminals, who can be expected to conceal their interests. If this is intended to root out a few bad cases, then it really is using a sledgehammer to crack a nut.

Tony Blair mentioned in his memoirs that he regrets the freedom of information legislation. I can see why, as life has got more complex since then, with real threats affecting Britain. It is not impossible that extremist threats could be made against alcohol producers or other producers of goods not approved by IS

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sympathisers, or scientists and research facilities by violent animal welfare groups. Debbie Vincent was sentenced to six years in prison after attempting to blackmail an animal testing company. The campaign she was involved in used the threat of improvised explosive devices and the desecration of graves. Cases like that must be taken into consideration when we decide what information to make available. But it is not just extremist threats. Freedom of information has unquestionably changed people’s behaviour. This is mainly to avoid things being written down, which can make simple tasks all the more difficult to carry out. Not writing things down has the perverse effect of encouraging more secretive behaviour.

I took a look at the impact assessment of the policy, which was mentioned by my noble friend. I found it staggering. The cost is estimated to be £1.08 billion and the value zero—no benefits apart from a woolly promise to “lead the way” on transparency. Can our coalition partners or the Labour Party really not think of anything better to do with a billion pounds than make companies waste it on lawyers? There may well be Members of this House who believe that there could be nothing wrong with spending a billion pounds on professional fees, but they are in the minority and I believe they are proven lawyers. With these new rules, a private company raising money to employ more people and expand will have to go through extra hurdles to get a new shareholder. It is hard enough to get a new shareholder when a company really needs it so any extra burdens will make that important task much more difficult.

7.30 pm

We must always remember that regulation is as bad as taxation—often worse, in fact, because it is insidious and stealthy. For this amount of money, we could reduce the rate of corporation tax by 2% for a year, causing a large increase in employment and more money for pay rises. Can I tease my noble friend the Minister into revealing whether she actually believes that this part of the legislation is better than a tax cut? But if we are to have this cursed regulation, I would like my amendments to be considered.

The first is to make sure that the proper purpose of the inquiries is the same proper purpose as had been declared. Is it inconceivable that a journalist or an animal rights activist would make an inquiry for anything other than a proper purpose? Is it likely that he will change the purpose when he gets the information?

The second will try to ensure that inquirers are honest. There is a list of severe penalties for directors of companies who cheat or lie on the register—two years in jail would seem to be a severe penalty indeed. Surely if the individual inquirer lies, he should face the same risks of two years’ imprisonment as a company officer; that is in new Section 790R, I believe. But I believe it is most likely that an organisation will get an individual to front for it. This amendment makes the organisation culpable.

I thank my noble friend the Minister and her Bill team for their time and courtesy in answering my questions. I believe they are doing a rotten task in the best way it can be done. The draftsmen of this sort of

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legislation believe that they are dealing with reasonable people. That is always an interesting idea. But the trouble is that there are some really nasty people out there. I fear that if we give the public this whole new power at enormous cost, certain responsibilities go with it. There are other options, too. My noble friend Lord Flight has proposed very sensible amendments. I think it would be a good idea to defer public access until we properly assess the international landscape, as we are the only country currently proposing to do this. Clause 82(4) creates a three-year review period. Can my noble friend confirm whether the review will reveal whether there has been any increase in the number of threats made as a result of this legislation?

Lord Naseby: My Lords, I, too, pay tribute to my noble friend on the Front Bench. I thank her for arranging the briefing session last week that I took part in, which helped me understand this in greater depth. It did not assuage many of my worries but at least I understood more clearly where Her Majesty’s Government were coming from. I think that the House should be indebted to my noble friends Lord Flight and Lord Borwick, who have taken a detailed interest in the Bill. Both have raised issues that have always been there. I listened to my noble friend Lord Flight and, indeed, corresponded with him at an earlier stage.

Since the Bill was conceived several things have happened. First, we should be aware that the United States proposes to take no action at all. The President of the United States maintains that he is there as a central body, and that is he is not permitted by law and statute in the United States to take any similar action because it is a state matter. As far as the states of Delaware, Wyoming and at least two others are concerned, they are going to carry on business as usual and, in fact, probably benefit from any Bill that we start off as a wonderful, transparent initiative.

The other dimension that has been clarified is that the OECD has indicated that if the United States is not going to comply, it sees no reason why it should. That is a second block. The G20 and the G8 have already been referred to; there does not seem to be much movement there other than what is likely to come out of the EU. That seems to be a very strong case for waiting to see exactly what comes out of the EU in preference to going forward on our own. At least then there would be a significant number of countries that would have come to a conclusion about what can be done and what is proper and ideal in terms of helping the law enforcement agencies. That to me is absolutely crucial.

Perhaps I could raise a point about timing. I listened to what my noble friend on the Front Bench said about timing. I do not know how closely she knows the timings of the implementation of the pensions Bill, but small businesses are currently having to register—as far as I know, by 1 April. It all has to be done online—it is not an easy thing for anybody to do; it is not the most user-friendly process—but those small businesses are registering for a policy to be implemented in 2017. Obviously, that department, in a fairly complicated area, has decided that it needs a couple of years to get the whole thing up and running properly. But my noble friend on the Front Bench

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seems to be saying that although we are starting later with this Bill—it has not even had Royal Assent yet—the whole thing is going to be up and running by 2016. I just wonder how realistic that timescale is.

I know that Her Majesty’s Government want to do everything online but, frankly, the software that has been produced in a number of areas leaves much to be desired. Can my noble friend reassure me that the software that is associated with this is almost ready to be set forward for the market to use, or is it still being produced somewhere? Has it been trialled yet? I do not know but I am asking my noble friend to have a close look at timing. Finally, I repeat that for small business to have to face a charge of over £1 billion when this is supposed to be an enterprise country is, frankly, absolutely ridiculous.

Lord Watson of Invergowrie: My Lords, I oppose the amendments in the name of the noble Lord, Lord Flight. Frankly, they are quite in contradiction to the whole thrust of the Bill, which is to increase transparency. They would have the opposite effect and I very much regret that. I am not going to rehearse the arguments that we traded in Committee a couple of months ago but I would just like to point out that he has brought up a new point about proper purpose. I dare say we could be here till this time next week before getting any sort of consensus on what a proper purpose was—in fact, we might not have succeeded even by then. I really think that that would be a backward step.

Surely the basic premise of the legislation is that public scrutiny will root out corruption more effectively, and indeed quickly, than the legal authorities themselves could do. I cannot understand noble Lords being opposed to that. To a certain extent, as far as companies are concerned, there is a case of, “If you have nothing to hide, you have nothing to fear”—but, equally, what do companies have to fear from transparency? The analogy with the former Prime Minister Tony Blair was not particularly apt in this situation. Personal privacy is one thing but companies have to be prepared to be open about the way in which they operate. Commercial confidentiality is one thing, but it has its limits.

My final point is about removing the requirement for a business to make its register publicly available. That is an essential element of this part of the Bill. I find it strange that the noble Lord, Lord Borwick—

Lord Flight: My suggestion was that we fell in with the new arrangements, which are not complete but which use the language of a public register while stating very correctly that it should not be available to any old Tom, Dick and Harry but should be available for legitimate purposes. That seems to me to be the essence of what we are here to do.

Lord Watson of Invergowrie: Yes, but defining what is a proper purpose is simply not achievable. People will ask for information. If they use that information in a way that is against the law, they leave themselves open to action. That is a protection.

The noble Lord, Lord Borwick, said that he did not understand why the Liberal Democrats or the Labour Party were supporting this legislation. I have to remind

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him that it is a government Bill, and it is a government Bill with different aspects to it. It did not emanate from his coalition partners or from the Opposition. However, this is one aspect of the Bill which all parts of the House should get behind, because it seeks to achieve transparency. In terms of the way in which British business operates, surely that has to be a positive development.

Baroness Neville-Rolfe: My Lords, I am grateful to the noble Lords, Lord Flight and Lord Borwick, for their amendments. I thank them and the noble Lord, Lord Naseby, for the many points that they have made at a series of meetings and in correspondence, and express the hope that they will encourage business representatives with an eye for simplicity to help with the implementation process so that it is as business friendly as possible.

We are reasonably confident about our 2016 timeline. We have clear plans in place at Companies House which are already being implemented. All being well, we are on track to meet our 2016 deadline. I know that there can be problems with software, but that is the plan.

Amendments 39 and 40 would allow a company’s own PSC register to be held solely at Companies House. I agree that flexibility is important. That is why the Bill gives private companies the option of holding their company registers solely at Companies House. However, it is important that companies can continue to hold their own register at their registered office, service provider’s office or other suitable location should they wish to do so.

Amendments 41 and 43 would restrict access to a company’s own PSC register to law enforcement and tax authorities. Amendments 55 and 56 would do likewise in respect of PSC information held centrally at Companies House. As I explained during our Committee debates, reducing the level of access to PSC information runs entirely counter to our public commitments on this reform.

Company transparency matters, and it is not just about tackling criminals. The Prime Minister set out the rationale for this back in October 2013. He said that transparency of company control allows businesses better to identify who really owns the companies they are trading with, that it gives developing countries easy access to data without having to submit endless requests for information, and that a public register allows public scrutiny and therefore supports data accuracy.

I know that there are concerns about the impact on privacy of this reform. We are satisfied with the balance that we have struck. We will not, for example, place residential addresses in the public domain, and we will put in place a protection regime that allows individuals at serious risk of harm to apply for their information not to be disclosed.

Of most practical importance, in the coming months the EU will adopt the fourth money-laundering directive, which will require member states to implement semi-public central registers of company beneficial ownership. This will ensure that all with a “legitimate interest” can access the register. My noble friend Lord Flight asked

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what “legitimate” meant. We believe that a legitimate interest would include civil society organisations and journalists in the context of their money-laundering investigations. He also asked what “proper purpose” means. The term is intended to have a wide interpretation and application. We are satisfied that there is no need to define it in the Bill. This is in line with the approach taken for the inspection regime for the register of members. I was reassured to know that if a company suspected that a person wanted access to a company’s PSC register for the purpose only of carrying out identity theft or fraud or using junk mail, that would not be a proper purpose.

7.45 pm

Concerns have been expressed about the UK being the first to move on this agenda. We have seen and are continuing to see growing international momentum. G20 leaders committed to implement the G20 high-level principles on beneficial ownership at the G20 summit last November. It was a commitment on a par with that made by the G7 in 2013. This obviously includes the US, and I know that my noble friend Lord Hill was in Washington recently talking about the importance of transparency issues. The White House published beneficial ownership proposals as part of the President’s budget proposal for fiscal year 2015. Those proposals would modify and expand the Internal Revenue Service’s existing tax reporting mechanism to provide a federal solution to beneficial ownership transparency. The US Treasury has been developing a legislative plan to take this measure through Congress. I hope that that gives some comfort to my noble friend Lord Naseby.

The noble Lord, Lord Borwick, asked about costs and benefit. I shall not repeat what I have already said, but his Amendment 43A would make it an offence for a person to disclose information obtained from a company’s own PSC register to another person if they suspected that it would be used by that other person for a different purpose from that told to the company originally. This desired outcome is already implicit in the Bill. In other words, it is already the case that a person should not disclose information to another person if they know the information will be used by that person for a different purpose. The penalty for breaching this requirement is up to two years in prison. This is the same penalty as that which applies to companies that fail to provide information or provide false information. I do not think that any further amendment is needed to make this clear, not least as we have followed an established precedent in respect of the inspection regime for the register of members.

Amendment 43B seeks to provide that where an offence in relation to PSC register inspection is committed by a company or organisation, every officer of that body would be guilty of the offence. I understand the noble Lord’s desire for this change. However, I hope that I may reassure him that common-law principles would mean that, if a company committed the offence, the officers of the company who were in default would be guilty of the offence without us needing to make any changes to the Bill. In the case of an organisation, the same principles would apply. I am sure that my noble friend will agree that punishing only those who committed the offence is a proportionate response.

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I hope that I have dealt with the key points that have been raised in debate.

Lord Forsyth of Drumlean: I apologise for being somewhat behind the curve, but I was trying to think of an example of what a legitimate purpose is. If, for example, a person wanted to get this information in order to compile the Sunday Times rich list, that would be legitimate if it was made clear that that was why they were seeking the information, but if they asked for the information for another reason and then used it or passed it on to a journalist, they could be sent to prison for two years. Is that what the Minister was saying?

Baroness Neville-Rolfe: My Lords, on the face of it, the first part of the noble Lord’s presumption is correct, but I think that I will take the time to reflect on it further and write to him, because I certainly would not want to mislead the House on such an important point. There are safeguards, but it is also a public register.

I should perhaps answer the question asked by my noble friend Lord Borwick, about the number of threats that individuals receive in the context of the review. I hope that it will reassure him when I say that I intend to look widely at those issues, as I have already said. As he probably knows, threat levels are not directly within my department’s remit, but I certainly intend that the review should consider the impact and efficacy of the protection regime as a whole.

I hope that, in view of the various reassurances that I have given, my noble friend Lord Flight will feel able to withdraw his amendment.

Lord Naseby: My Lords, before my noble friend sits down, will she clarify the point about the impending EU law? What happens if it goes through in, say, nine months, six months or 12 months? It is presumably the intention of Her Majesty’s Government to sign the law and then, if necessary, amend the Bill. Or will they wait another two years, or two and one-quarter years, and then amend it? If we are to sign up in Brussels to a law, it ought to be the law that applies in United Kingdom, not one that is half Europe and half something else.

Baroness Neville-Rolfe: My Lords, we hope that the directive will be agreed in Brussels in the next few months. It is a directive, so there will be a two-year commencement, as normal. In the mean time we will bring in—and, I hope, road test and make a great success of—the register that we plan. If the detail of the directive requires some change either to the Bill—or, more likely, I suspect, from my experience of European directives, to regulations made under Section 122—that will be laid before the House in the usual way. I take comfort from the fact that that important bit of transparency legislation is going through in Brussels, and one would hope to see it on the statute book as soon as possible. That is the situation.

Lord Flight: My Lords, I suggest that what will happen is that the EU directive will come forth and we will be heavily gold-plated on its requirement. It is pretty clear that its requirement is for a register, but one available only for legitimate purposes.

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I know that I have no chance of persuading the Government at this stage to fall in line with the EU and honour the privacy of private companies. What right is there for a snooping journalist to go around finding out what wealth someone has through the introduction of the register and looking up information about their private affairs? I find it quite unacceptable that that should be done, just like that, when it adds absolutely nothing to the task of unearthing fiscal and terrorist crime.

I have tried throughout to persuade the Government that it would be more sensible to limit access essentially to those tasked with finding crime, so there is little point in pushing the amendment further. I beg leave to withdraw the amendment.

Amendment 39 withdrawn.

Amendments 40 and 41 not moved.

Amendment 42

Moved by Baroness Neville-Rolfe

42: Schedule 3, page 166, line 31, leave out from “used” to end of line 40

Amendment 42 agreed.

Amendments 43 to 43B not moved.

Amendments 44 to 52

Moved by Baroness Neville-Rolfe

44: Schedule 3, page 168, line 24, at end insert—

“790SA Protected information

(1) Section 790N and subsections (1) and (2) of section 790O are subject to—

(a) section 790ZE (protection of information as to usual residential address), and

(b) any provision of regulations made under section 790ZF (protection of material).

(2) Subsection (1) is not to be taken to affect the generality of the power conferred by virtue of section 790ZF(3)(ea).”

45: Schedule 3, page 175, line 1, leave out “where an application is granted,”

46: Schedule 3, page 175, line 3, at end insert—

“(ea) the operation of sections 790N to 790S in cases where an application is made, and”

47: Schedule 3, page 180, line 36, leave out “prepare and publish” and insert “issue”

48: Schedule 3, page 180, leave out line 39

49: Schedule 3, page 180, line 40, leave out from “guidance” to first “in” in line 41

50: Schedule 3, page 180, line 42, at end insert—

“(3A) Before issuing guidance under this paragraph the Secretary of State must lay a draft of it before Parliament.

(3B) If, within the 40-day period, either House of Parliament resolves not to approve the draft guidance, the Secretary of State must take no further steps in relation to it.

(3C) If no such resolution is made within that period, the Secretary of State must issue and publish the guidance in the form of the draft.

(3D) Sub-paragraph (3B) does not prevent a new draft of proposed guidance from being laid before Parliament.

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(3E) In this section “the 40-day period”, in relation to draft guidance, means the period of 40 days beginning with the day on which the draft is laid before Parliament (or, if it is not laid before each House on the same day, the later of the days on which it is laid).

(3F) In calculating the 40-day period, no account is to be taken of any period during which—

(a) Parliament is dissolved or prorogued, or

(b) both Houses are adjourned for more than 4 days.

(3G) The Secretary of State may revise guidance issued under this paragraph, and a reference in this paragraph to guidance includes a reference to revised guidance.”

51: Schedule 3, page 181, line 15, after “means” insert “—

( ) ”

52: Schedule 3, page 181, line 18, at end insert “, or

( ) a foreign limited partner.

(5) In this paragraph “foreign limited partner” means an individual who—

(a) participates in arrangements established under the law of a country or territory outside the United Kingdom, and

(b) has the characteristics prescribed by regulations made by the Secretary of State.

(6) Regulations under this paragraph may, in particular, prescribe characteristics by reference to—

(a) the nature of arrangements;

(b) the nature of an individual’s participation in the arrangements.

(7) Regulations under this paragraph are subject to affirmative resolution procedure.”

Amendments 44 to 52 agreed.

Amendment 53 not moved.

Clause 87: Requirement for all company directors to be natural persons

Amendment 54

Moved by Baroness Neville-Rolfe

54: Clause 87, page 61, line 22, leave out “negative” and insert “affirmative”

Amendment 54 agreed.

Clause 92: Duty to deliver confirmation statement instead of annual return

Amendments 55 and 56 not moved.

Amendment 56A

Moved by Lord Mendelsohn

56A: After Clause 103, insert the following new Clause—

“Director’s duties: takeovers and mergers

(1) This section applies to directors of companies involved in any or all of the following—

(a) takeover bids;

(b) merger transactions; and

(c) transactions (not falling within paragraph (a) or (b) that have or may have, directly or indirectly, an effect on the ownership or control of companies of which they are a director.

(2) Directors of companies affected by transactions outlined in subsection (1) must set out clearly in a public statement when making recommendations to shareholders how they have discharged their duties as directors, as outlined in section 172 of the Companies Act 2006 (duty to promote the success of the company).”