Delegated Legislation Committee
Draft Sea Fisheries (International Commission for the Conservation of Atlantic Tunas) (Amendment) (No. 2) Regulations 2024
The Committee consisted of the following Members:
Chair: Dr Rupa Huq
Abrahams, Debbie (Oldham East and Saddleworth) (Lab)
Bonnar, Steven (Coatbridge, Chryston and Bellshill) (SNP)
† Buckland, Sir Robert (South Swindon) (Con)
† Carter, Andy (Warrington South) (Con)
† Creasy, Stella (Walthamstow) (Lab/Co-op)
† Elphicke, Mrs Natalie (Dover) (Con)
† Fletcher, Colleen (Coventry North East) (Lab)
† Harrison, Trudy (Copeland) (Con)
Jayawardena, Mr Ranil (North East Hampshire) (Con)
† Jenkinson, Mark (Workington) (Con)
† Jones, Mr Kevan (North Durham) (Lab)
† Khan, Afzal (Manchester, Gorton) (Lab)
† Pawsey, Mark (Rugby) (Con)
† Pow, Rebecca (Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs)
† Richardson, Angela (Guildford) (Con)
† Smith, Greg (Buckingham) (Con)
† Zeichner, Daniel (Cambridge) (Lab)
Aaron Kulakiewicz, Committee Clerk
† attended the Committee
Fourth Delegated Legislation Committee
Wednesday 24 April 2024
[Dr Rupa Huq in the Chair]
Draft Sea Fisheries (International Commission for the Conservation of Atlantic Tunas) (Amendment) (No. 2) Regulations 2024
I beg to move,
That the Committee has considered the draft Sea Fisheries (International Commission for the Conservation of Atlantic Tunas) (Amendment) (No. 2) Regulations 2024.
It is a pleasure to see you in the Chair this morning, Dr Huq. The regulations were laid in draft on 14 March 2024.
Atlantic bluefin tuna are present again in UK waters, increasingly in abundance after many years. That stocks have recovered is indeed good news. In 2021, the International Union for Conservation of Nature changed its assessment of bluefin tuna from endangered to least concern, which reflects the improving state of the stock. There is significant demand for recreational fishing access to bluefin tuna, which will boost tourism in coastal communities and deliver social and economic benefits. I am especially aware of that being a south-west MP, and it is particularly pertinent to areas off the coast in the south-west.
Following European Union exit, the UK joined the international convention for the conservation of Atlantic tunas. That is referred to as ICCAT, as is the international organisation that manages Atlantic bluefin tuna, the International Commission for the Conservation of Atlantic Tunas. Joining ICCAT enabled the UK to secure a bluefin tuna quota for the first time.
In line with ICCAT rules, this draft statutory instrument will enable UK fisheries Administrations to open catch and release recreational bluefin tuna fisheries. It will permit authorised recreational fishing vessels to target bluefin tuna by rod and line only, and on a catch and release basis. Without the legislation, the UK would be able to run only commercial and scientific bluefin tuna fisheries, preventing us from unlocking the social and economic benefits associated with the recreational fishing of this valuable species.
So far, UK fisheries Administrations have taken a cautious and measured approach to managing the bluefin tuna quota by running scientific catch and release tagging or CHART programmes over the past three years. Under the CHART programme, bluefin tuna were caught and released with a low incidental mortality rate. The programme provided valuable data on the social and economic benefits associated with recreational access to bluefin tuna. A trial commercial fishery for bluefin tuna ran in 2023 in UK waters. For 2024, the UK has been allocated 16 tonnes of bluefin tuna quota for recreational fishing, which amounts to about 100 tunas —obviously that depends on size. Fish will be caught and released, but the quota is needed to cover any incidental mortality.
The Marine Management Organisation expects to open a recreational fishery in English waters in 2024—this year. The Welsh Government are also considering opening a recreational fishery in Welsh waters. Those fisheries will run alongside further CHART programmes elsewhere in the UK, as well as the continued commercial bluefin tuna trial, which will run for its second year.
ICCAT requires any recreational targeting of bluefin tuna to be authorised. The UK fisheries Administrations currently do not have the appropriate powers to authorise recreational fishing of bluefin tuna. Therefore, the Government wish to proceed with the draft legislation to bring recreational bluefin tuna fishing into line with the ICCAT regulations.
This draft instrument updates and amends assimilated law, namely EU regulation 2016/1627, to provide a legal framework for the UK fisheries Administrations to authorise permitting regimes in their waters should they choose to do so, and to prohibit explicitly the unauthorised recreational targeting of bluefin tuna. The amendments are distinct from licensing requirements under section 14 of the Fisheries Act 2020, which apply only to commercial vessels.
The instrument will support the delivery of the sustainability and scientific evidence objectives of the 2020 Act. It also amends the Sea Fishing (Enforcement) Regulations 2018 to confer enforcement powers on the Marine Management Organisation and the inshore fisheries and conservation authorities. With an annual allocation of 16 tonnes of quota, bluefin tuna recreational fisheries are expected to generate about £25 million in charter fees and significant additional spend over the next 10 years in deprived, rural and coastal communities. That spend will increase if quota allocations increase, so this is obviously very important for many of our coastal areas. Fisheries will also contribute to our knowledge of the abundance of bluefin tuna in UK waters.
The devolved Administrations are supportive of the amendments made by the instrument. If it is not passed, there will not be enough time to open the bluefin tuna fisheries for the full 2024 season—the aim is to open them in early August—charter businesses will lose revenue, and there will be an increased risk of illegal fishing.
I hope I have reassured Members about the purpose and aims of the instrument, which will deliver socioeconomic opportunities to coastal communities. For the reasons I set out, I commend it to the Committee.
It is a particular pleasure to serve with you in the Chair, Dr Huq, and it is always a pleasure to see the Minister in her place. I have to say that I was rather expecting to see the fisheries Minister this morning, and I suspect that yesterday afternoon he was expecting to be here. I hope he is in good health.
I should say at the outset that the Whips need not worry: we will not oppose the instrument, as we welcome it. Only a few weeks ago, we discussed the Sea Fisheries (International Commission for the Conservation of Atlantic Tunas) (Amendment) Regulations 2024, and I was going to ask the fisheries Minister why the two instruments could not have been considered together. Perhaps the Minister can give us some insight into what is going on at the Department for Environment, Food and Rural Affairs at the moment, because it is a puzzle to some of us.
The Minister’s introduction was, as ever, thorough. We absolutely agree that the return of the magnificent bluefin tuna to British waters in recent years after a long period of absence is welcome. It is not entirely clear why stocks have been replenished so significantly. A range of environmental factors has been cited, such as the warming of waters around the UK, which has perhaps led to an increase in the supply of the fish that the tuna feed upon. Credit should also go to the international interventions, through the international convention for the conservation of Atlantic tunas, which the Minister mentioned, to ensure careful management of the number of bluefin tuna. That is particularly impressive, given that they are highly migratory and mobile.
We must learn the lesson from the absence of those important fish from our waters for so long, and take every appropriate measure to prevent a reversal of the successful interventions, perhaps through overfishing, and facilitate a continuing revival of the stock. Given the interest in fisheries management of pressured stocks in the south-west—particularly pollack—this should give us confidence that, when fisheries management is done well, it can be successful.
We recognise that it is very important for the UK to comply with rules and obligations relating to our membership of the international convention for the conservation of Atlantic tunas. We support the primary purpose of this SI, which is to ensure that the UK has in place a proper legislative framework and enforcement powers with regard to recreational fishing. As I say, we discussed commercial fishing a few weeks ago.
The UK Administrations apparently do not currently have the power to comply with the ICCAT requirement to prohibit any recreational targeting of bluefin tuna unless specially authorised. We agree that this legislative deficit should be rectified for several reasons, including safeguarding the return of bluefin tuna and ensuring that the fishing stock is sustainable. Stocks need to be carefully monitored.
The SI also allows recreational fisheries to open —the Minister referred to their social and economic benefits. I recognise that the fisheries are welcomed by many fishers. I appreciate the economic benefits that they bring, particularly to coastal areas that have been struggling, and also the valuable data collection that they facilitate, but I have some questions.
Will the Minister explain how the Department has arrived at the number of permits it has decided to grant? Can she reveal any future plans to modify the number of permits and the rationale for doing so? It is important that a robust structure is in place for managing the fisheries, enforcing the rules and preventing illegal fishing. Will she provide assurances that a robust management regime will be in place before the fisheries are opened?
Similarly, what plans does the Department have for a smooth transition from the CHART programme to the full catch and release recreational fishery, ensuring that the transition does not impact fish welfare and mortality rates? As several stakeholders have stated, targeting bluefin tuna needs preparation, the right gear, and a high level of skill in handling a large pelagic fish. It is not a simple matter.
Numerous responses to the consultation exercise expressed a desire for more guidance and training in catch and release techniques, which is not surprising as tuna can be a very big fish and it is sometimes extremely challenging to perform a catch and release operation properly. It is important that we do not damage the fish in the process of releasing them. I fear that without clear instructions and possibly training, that could happen. Does the Minister have statistics on survival rates in catch and release? Are there plans to issue clearer guidance and/or training on the catch and release of bluefin tuna?
I note that the introduction of charges for permits has been postponed. Can the Minister provide an explanation for the postponement and an update on any work that has been undertaken to determine the scope and scale of future charges, as well as how any charging income would be used? Perhaps she could shed some light on the overarching issue of how she and her colleagues arrived at the distribution of the UK’s quota between commercial and recreational fishing. I appreciate that she might not be in a position to answer everything today, so I will be happy if she writes to me later.
We greatly welcome the fact that now the stocks of bluefin tuna are sufficiently replenished we are permitted a quota and we are in a position to open the fisheries. We will not oppose the legislation and will look for it to be successful in ensuring that the numbers of bluefin tuna continue to rise and that the new fisheries thrive.
I welcome the shadow Minister’s support. I hoped he would support the regulations given his interest and background in coastal issues, so that is positive. He and I agree that this legislation been much called for, is extremely welcome and will make a big difference to our coastal communities, which face many challenges. Anything we can do to help them is welcome.
I will make my best effort to answer the shadow Minister’s questions. I am standing in for the Minister for Food, Farming and Fisheries, so if I fail to answer any of the questions, my team will make a note of them and we will get back to the hon. Gentleman, but I shall do my best.
The shadow Minister asked why this instrument was not combined with the Sea Fisheries (International Commission for the Conservation of Atlantic Tunas) (Amendment) Regulations 2024. This instrument needed its own time. It is very important, and to include it with another instrument was not appropriate. We wanted this instrument to be fully dealt with because so much research, as the hon. Gentleman knows, has gone into it. We have had trials and a lot of people have fed into this, so it is important to give it its own time. The other regulations dealt with an administrative amendment, as he knows, to bring bluefin tuna management into line with ICCAT requirements. It was not appropriate to combine the two instruments.
The shadow Minister asked about the number of permits. Those are based on a fisheries model used to forecast tuna mortality for a given length of season and number of permits. The whole model has been developed with the industry and a lot of discussion has taken place with the MMO, Cefas—the Centre for Environment, Fisheries and Aquaculture Science—the Angling Trust and fishermen themselves, so I hope that that answer satisfies him.
The hon. Gentleman and I agree that it is really good news that the stocks have recovered. That demonstrates —this relates to matters that I particularly dealt with as the previous marine Minister—that if the right science is involved, so that we know what our fish stocks are, and then the right management is put in place, it is possible for our seas to recover. We know that from our marine protected areas—that is why they are so important —and our highly protected marine areas. This situation is a good demonstration of it, because taking the right action has allowed the stocks to recover, although there will be an impact, which we do not quite know yet, in relation to climate change and warming seas. Much of the food for the tunas—the herring and mackerel that they eat—has moved, which probably has some link to climate change or change in currents. That is why it is so important to monitor our stocks and keep an eye on what is happening.
The hon. Gentleman mentioned welfare. Obviously, that issue has been carefully considered. Natural England has been involved in the code of conduct on welfare, and a lot of consultation has occurred to ensure that we have the right measures in place, in relation to the fishing, to reduce any mortality. The evidence from the trials shows that having the right training and advice for the skippers and those who will be taking part in the recreational fishing can really reduce the mortality rates. That is why the training programmes are so important and everyone is being encouraged to go on them. It is so that when they apply for and get their permit, we know that the whole industry will be conducted responsibly, with the best welfare in mind.
Consideration has included the type of hooks used. The advice is to use circular hooks, which do not go as far down the fish’s throat and cause less damage. All that was researched very closely. Interestingly—I asked this question about the tuna—the fishermen do not even pull them right out of the water; they have to remain alongside the boat. All those matters were taken into account in the debates and discussions about welfare, so I hope that I have reassured the hon. Gentleman about that. There is a very clear code of conduct and guidance, but all of it will still be up for review. There will be further trials, and the system can be tweaked and changed, if necessary, as the scheme goes along.
I hope that my comments give the hon. Gentleman assurances about many of the questions that he asked. I reiterate the need for this instrument in order to enable the UK fisheries Administrations to establish recreational bluefin tuna fisheries in their waters. I stress that the regulations will bring social and economic benefits to the fishing industry and our coastal communities, which need that so much. They have also been devised with the codes of conduct and so on, so that the whole industry will be sustainable. This is sustainable management of bluefin tuna. Again, I commend the instrument to the Committee.
Question put and agreed to.
Committee rose.
Draft National Crime Agency (Directed Tasking) Order 2023
The Committee consisted of the following Members:
Chair: Derek Twigg
† Bristow, Paul (Peterborough) (Con)
Burgon, Richard (Leeds East) (Lab)
† Duffield, Rosie (Canterbury) (Lab)
† Firth, Anna (Southend West) (Con)
† Fletcher, Colleen (Coventry North East) (Lab)
† Green, Chris (Bolton West) (Con)
† Grundy, James (Leigh) (Con)
† Holloway, Adam (Gravesham) (Con)
† Jarvis, Dan (Barnsley Central) (Lab)
† Johnson, Kim (Liverpool, Riverside) (Lab)
† Mann, Scott (Lord Commissioner of His Majesty’s Treasury)
† Morris, Grahame (Easington) (Lab)
Thewliss, Alison (Glasgow Central) (SNP)
† Timpson, Edward (Eddisbury) (Con)
† Tugendhat, Tom (Minister for Security)
† Watling, Giles (Clacton) (Con)
† Wheeler, Mrs Heather (South Derbyshire) (Con)
Jonathan Finlay, Committee Clerk
† attended the Committee
Fifth Delegated Legislation Committee
Wednesday 24 April 2024
[Derek Twigg in the Chair]
Draft National Crime Agency (Directed Tasking) Order 2023
I beg to move,
That the Committee has considered the draft National Crime Agency (Directed Tasking) Order 2023.
It is a pleasure to serve under your chairmanship, Mr Twigg. I will start with the context in which we are introducing the order. Hon. Members will no doubt know that the impact of serious and organised crime on the United Kingdom is significant and growing. Put simply, it poses a threat to our national security and prosperity.
In partnership with law enforcement and industry, the Government have taken concerted action to tackle economic crime, fraud, bribery and corruption, all of which severely harm the economy and cause significant suffering. If we are to keep pace with those threats properly and effectively, only a system-wide response will do.
To that end, the Government announced, as part of the 2023 serious and organised crime strategy, their intention to amend section 5(5) of the Crime and Courts Act 2013 to allow the director general of the National Crime Agency to direct the director of the Serious Fraud Office on matters relating to the investigation of suspected incidents of serious or complex fraud, bribery and corruption. This change will support strong, ongoing collaboration between the NCA and the SFO by enabling the director general of the NCA to direct the director of the SFO when the NCA requires the assistance, skills and expertise of the SFO, and satisfactory arrangements cannot be made under the existing voluntary tasking of the arrangement.
Will my right hon. Friend give way?
I would be honoured.
It may be that my right hon. Friend will come on to this point, so I apologise in advance if he was going to, but I am just interested to know about the process for the NCA, given the workload that already exists for the SFO, its budget, its capacity, and also the prospects of a potential successful prosecution, when deciding whether to make a direction, so as not to overload the SFO and perhaps end up with less success as a consequence.
My hon. and learned Friend raises some good points. I will come on to them in a moment, if I may, and I will just continue for now.
With the addition of the director of the Serious Fraud Office to the list of agencies that can be subject to directed tasking, the measure will strengthen the National Crime Agency’s ability to co-ordinate a national effort against serious and organised crime. It will also place the NCA’s relationship with the SFO on the same footing as its relationship with police forces in England and Wales and the British Transport police.
This change does not impact the existing working practices and arrangements in relation to Scotland and Northern Ireland. The National Crime Agency ensures that its activity within both jurisdictions takes full account of their specific and differing legislative, operational and political requirements while respecting the primacy of the respective police forces and prosecution authorities.
The Government’s aim, as set out in the recently published serious and organised crime strategy, is to reduce serious and organised crime in the UK. We will do that by disrupting and dismantling organised crime groups operating in and against the United Kingdom.
There is no doubt that the social and economic cost of serious and organised crime to the UK is eye-watering, running to at least £47 billion a year, but, extraordinary as that figure is, it does not begin to tell the whole story—a story of lives disrupted and of unimaginable suffering caused by heinous criminality such as sexual exploitation, drug abuse and human trafficking. Beyond the enormous financial and human costs, serious and organised crime threatens the legitimacy of the state. It damages our national security and prosperity. Our mission is to reduce the impact of serious and organised crime, including fraud.
The threat from fraud has increased in volume over recent years. The Government are implementing the fraud strategy, which includes launching a national fraud squad, blocking frauds at source and empowering the public to respond. That includes committing £100 million, as part of a wider £400 million package, to tackle economic crime and improve the law enforcement response to fraud. We have also set ourselves the target of reducing fraud by 10% from 2019 levels by the end of this Parliament. To help to achieve that target, in March the Home Secretary hosted the inaugural Global Fraud Summit to galvanise the international response and strengthen collaboration.
The National Crime Agency has been crucial to our response. It leads and co-ordinates the United Kingdom law enforcement response to serious and organised crime. We have strengthened the agency’s ability to combat organised criminals, increasing its budget by 44% to more than £870 million since the start of this Parliament—[Interruption.] That includes support to Canterbury. The Serious Fraud Office is also a critical partner in the fraud system; it has recovered more than £160 million in proceeds of crime, put 16 executives behind bars and forced big business to pay more than £1 billion in fines in the last five years alone.
The order forms part of the Government’s ongoing fight against economic crime, which causes significant harm to the United Kingdom. Subject to proper safeguards, it brings the investigative capability of the Serious Fraud Office’s work within scope for direction by the director general of the National Crime Agency, akin to the arrangement that already exists in relation to police forces in England and Wales. In practice, that means that, where it is assessed that improving the intelligence picture and/or the operational delivery is required as a priority to tackle a threat, decisions on voluntary and directed taskings are taken following discussion with the national strategic tasking and co-ordination group. To answer the question asked by my hon. and learned Friend the Member for Eddisbury, that will effectively be taken forward as a joint effort between the DG NCA, as he is called, and the director of the SFO.
The order provides a welcome additional power that will assist in sharing tools and expertise to fight serious and complex fraud, bribery and corruption. The relationship between the National Crime Agency and Serious Fraud Office is already extremely good, and the existing voluntary tasking arrangements are working. The order provides the mechanism for directed tasking, should it be needed, and I commend it to the Committee.
It is a particular pleasure to serve under your chairship, Mr Twigg. I thank the Minister for his remarks.
As the Minister set out, the order amends the Crime and Courts Act 2013 and the Criminal Justice Act 1987. Doing so will provide the director general of the National Crime Agency with the power to direct the Serious Fraud Office to perform specified tasks in investigating financial crime. As the Minister knows, the Opposition will always work with the Government on countering serious and organised crime. We therefore support the order, because it is crucial that there is a joined-up response across our law enforcement agencies to fight serious and organised crime, including fraud.
Fraud is the single largest crime type in the UK. The crime survey for England and Wales estimates that 40% of crimes against individuals are frauds. Britain should be a hostile environment for all types of serious and organised crime, with an approach from our police and law enforcement agencies that is ruthlessly relentless in countering what constitutes some of the most pernicious criminal activity. Therefore, although I will endeavour to be brief, I want to make a few points and ask some questions about the context and detail of the order, and I would be grateful if the Minister responded to them, either when he rises to his feet or by letter.
Before I do so, I pay tribute to all those in the NCA, the SFO, and all our police and law enforcement agencies who fight serious and organised crime. The nature of their work means that they serve in the shadows, and some of their work, for instance fighting financial crime, may perhaps be a little less gritty than some of their colleagues’, but it is no less important. The old adage “follow the money” continues to be a sound one. After meeting some of them recently, my huge respect for them has only grown. They do not always get the recognition that they deserve, and I am sure the Minister and the entire Committee will join me in thanking them for their service.
It is important to note that the order originates from the Government’s serious and organised crime strategy published in December. That document, which provides important direction in countering some of the worst crime in the country, should have the soundest of foundations. However, it states that the estimated financial cost of serious and organised crime to the UK is £47 billion, a figure the Minister mentioned earlier—interestingly, I think he said “at least £47 billion”. By my maths—I am happy to be corrected if I have got this wrong—£47 billion is an inflation-adjusted figure from the £37 billion in the 2015 report. With fraud alone recorded to have doubled in 2023, according to the accounting firm BDO, the £47 billion figure cannot properly reflect the reality of serious and organised crime now, and therefore cannot properly inform the response required from Government to disrupt and defeat it.
I would be grateful if the Minister gave us his assessment of the very latest actual cost of serious and organised crime to the UK. If he has a good memory, he might remember that he said in his answer to my written question on 23 January that the Home Office would publish an updated figure. On 8 February, the Minister for Legal Migration responded to my follow-up written question on this matter, saying that a research report on the cost of serious and organised crime would not be published until 2025. I have to say, that is not good enough. Why cannot that important information be published sooner? Why could it not have been calculated in time to be included in the serious and organised crime strategy that was published back in December?
On the arrangements that will support the order, I draw the Minister’s attention to two issues. The first lies with a specific type of direction the NCA will give the SFO to carry out. The complex nature of fraud and financial crime cases means that they can be connected to other ongoing investigations into other aspects of serious and organised crime that could be the responsibility of the NCA, but not of the SFO. It is entirely understandable, and indeed necessary, that the Minister will not want to say anything that would compromise capability, but it might be helpful to the Committee if he could say something about the thresholds that need to be met before the NCA gives direction to the SFO to conduct specified tasks. Does he also have an estimate, even if it is approximate, of how many direct orders the NCA could issue over the next 12 months?
The order specifies that the NCA will meet the costs of the SFO’s completing a specified task. However, there are still questions about how the SFO will deliver, because it is not yet clear that it will have sufficient resources such as staff, offices, payroll, equipment and so on. Can the Minister give an assurance that the SFO will have sufficient resources to deliver on what is being asked of it by the NCA? If not, what work has taken or is taking place with the Attorney General’s Office to ensure that it can? Also, if the cost of an NCA-directed task carried out by the SFO exceeds the payment made by the NCA, who will pay the difference?
The Opposition welcome the strengthening of the close working relationship that already exists between the NCA and the SFO, and we support the order. However, we seek assurances from the Minister that the right infrastructure is in place to facilitate the new working arrangements between the NCA and the SFO. I am sure the Minister will continue to appreciate the constructive spirit of our remarks in these Committees as we work together in the national interest on these important matters.
I welcome the hon. Member’s contribution to this debate and his good grace and approach. He raised some appropriate and some slightly more challenging questions than I wanted on the £47 billion. As a loyal listener to “More or Less”, as I am sure he is, I may have to look for further guidance on this. That is the inflation-adjusted figure from £37 billion. If he will forgive me, he is not quite right to say that adding the fraud stats into that will make a different figure. It may or it may not. Of course, fraud has replaced a lot of other crime types that would have been counted in earlier figures. I assure him that I will not make him wait until 2025. I will chase the figures and come up with a better answer for him as soon as possible. I will write to him on that.
The hon. Member’s point about thresholds is a good one. That will be looked at by the director general of the NCA in consultation with the director of the SFO. Clearly, the resources can be spent in many different areas all the time. We are always looking to prioritise the most important and most high-impact investigations—not necessarily the ones with the greater financial burden, but those that have the most pernicious effect on people’s lives, directly or indirectly. Resourcing is always a challenge, so the threshold will depend on the different circumstances. There is not a blunt answer. It is a more complex approach that the director general of the NCA and the director of the SFO have to look at.
On who will pay, the costs will be discussed between the SFO and the NCA and, if need be, between the Home Secretary and the Attorney General. The Attorney General has been extremely supportive and active in making sure the SFO has the resources for investigations. I am sure that approach will continue and be followed by whoever may replace her. She has been a fantastic champion of the SFO.
I hope the Committee will support this fantastic order. It will make a difference to the NCA’s ability to direct and co-ordinate criminal investigations, and it will ensure that we have security and the protection that the British people expect against fraud. It is part of a larger effort and a wider package. It is a strengthening measure, which I commend to the Committee.
Question put and agreed to.
Committee rose.
Draft Accounting Standards (Prescribed Bodies) (United States of America and Japan) (Amendment) Regulations 2024
The Committee consisted of the following Members:
Chair: Mr Philip Hollobone
† Ali, Rushanara (Bethnal Green and Bow) (Lab)
† Byrne, Liam (Birmingham, Hodge Hill) (Lab)
† Cates, Miriam (Penistone and Stocksbridge) (Con)
† Clarke-Smith, Brendan (Bassetlaw) (Con)
Cruddas, Jon (Dagenham and Rainham) (Lab)
† Gardiner, Barry (Brent North) (Lab)
Greenwood, Margaret (Wirral West) (Lab)
† Hollinrake, Kevin (Minister of State, Department for Business and Trade)
† Hudson, Dr Neil (Penrith and The Border) (Con)
Hussain, Imran (Bradford East) (Lab)
† Lewer, Andrew (Northampton South) (Con)
† Marson, Julie (Hertford and Stortford) (Con)
† Penrose, John (Weston-super-Mare) (Con)
† Tami, Mark (Alyn and Deeside) (Lab)
† Tuckwell, Steve (Uxbridge and South Ruislip) (Con)
† Vickers, Matt (Stockton South) (Con)
† Wood, Mike (Lord Commissioner of His Majesty’s Treasury)
Sara Elkhawad, Committee Clerk
† attended the Committee
Sixth Delegated Legislation Committee
Wednesday 24 April 2024
[Mr Philip Hollobone in the Chair]
Draft Accounting Standards (Prescribed Bodies) (United States of America and Japan) (Amendment) Regulations 2024
I beg to move,
That the Committee has considered the draft Accounting Standards (Prescribed Bodies) (United States of America and Japan) (Amendment) Regulations 2024.
It is a pleasure to serve with you in the Chair, Mr Hollobone.
The regulations were laid before the House in draft on 21 February, and were debated and agreed under the affirmative resolution procedure in the Grand Committee of the House of Lords on Tuesday 26 March. The Accounting Standards (Prescribed Bodies) (United States of America and Japan) Regulations 2015 provide a regulatory easement of the UK’s company reporting rules for US or Japanese-listed parent companies that have chosen to re-domicile in the UK. The easement was originally introduced in 2012, and was extended in 2015 and 2022. It provides qualifying companies with extra time to transition from their national accounting practices to UK-recognised accounting standards.
Parent companies listed in the US or Japan may take up to four financial years, following UK incorporation, in which to make the transition, in order to prepare their group accounts in line with UK accounting principles. When originally introduced in 2012, this was deemed especially helpful for companies using US or Japanese accounting standards, which might otherwise have struggled to adapt to UK domestic standards when domiciling to the UK. By providing this exemption, the regulations make the UK a more attractive place for companies in those jurisdictions to re-domicile into.
In 2023, the Department published a post-implementation review of the 2015 regulations. The review took evidence from a small number of previously US or Japanese-listed, now UK-domiciled, firms about their cost savings from the easement. The survey responses confirmed that the regulatory easement provides flexibility and enables cost savings for the businesses using it. Businesses that responded to the survey reported that the easement reduced their conversion costs significantly. One company also said that the regulations allowed it to submit accounts in the “most prudent and efficient” way while listed in the US.
Having conducted the post-implementation review, the Government decided to extend the regulations, which we believe make a small but useful contribution to a pro-growth regulatory regime that supports inward investment. To give effect to that decision, the Government laid the Accounting Standards (Prescribed Bodies) (United States of America and Japan) (Amendment) Regulations 2023 before the House on 6 September 2023. Those regulations extended the easement in recognition of its evident benefit to businesses that have used it so far. The easement would have expired without those regulations, thereby requiring newly domiciled US and Japanese companies to immediately convert accounting practice when filing their first set of UK accounts.
Although the post-implementation review found that the regulations are a helpful feature of the UK’s regulatory environment, it also identified a small risk of abuse or misunderstanding. The review noted that more could be done to improve the understanding that the easement is a transitional, time-limited concession, not a permanent exemption from the UK’s company reporting rules. In particular, the 2015 regulations did not require companies to indicate when their four-year period ends, which made it difficult to determine whether a company had exceeded the easement period. That would leave the door open for companies to use the easement for longer than permitted and make it difficult to monitor that risk.
The Government did not find any specific evidence of that abuse; none the less, we chose to take a proactive measure to prevent it. Regulation 4 of the 2023 regulations introduced an obligation on companies using the easement to include a note in their accounts stating when the easement ceases to apply. This additional requirement on companies was deemed to be a simple and proportional mechanism to reduce the potential risk of abuse. Regrettably, in making the provision to require a note in the accounts, the Department for Business and Trade made an error of parliamentary procedure by using the negative resolution procedure, rather than correctly using the affirmative resolution procedure.
The new statutory instrument is intended to correct the error. It removes regulation 4 of the 2023 amending regulations and substitutes a new regulation 5A in the 2015 regulations, doing this through the correct, affirmative resolution procedure. The rest of the 2023 amending regulations were made correctly, but the Government are grateful to the Joint Committee on Statutory Instruments for drawing their attention to the procedural error.
Driving growth in the UK economy requires attracting inward investment. The regulations are just one example of how we can make it easier for overseas companies to incorporate in the UK and create jobs in the UK economy. I urge the Committee to approve them.
It is a pleasure to serve under your chairmanship, Mr Hollobone. I welcome the regulations, which correct an error. A mistake was made, as the Minister has described. Of course, we support this correction and support regulations that aim to enhance the attractiveness of the UK as a domicile for businesses. We must ensure that the UK remains an inviting destination for businesses. We must continue to work towards making our country an important destination for businesses to do business and somewhere they feel welcomed, and our legal arrangements must be such that that is the case.
The 2015 regulations provide to US and Japanese-listed parent companies an extended transition period of up to four financial years, after incorporation in the UK, to convert to UK accounting principles. We support the objective of the regulation to encourage US and Japanese-listed companies to re-domicile in the UK. As the Minister set out, regulation 4 of the 2023 regulations was laid incorrectly, under the negative resolution procedure, and today’s legislation corrects that error. Parent companies are therefore not subject to any enforceable obligation to note their group accounts under the existing, incorrectly laid regulation. I am glad that the new instrument corrects the mistake.
Driving growth in the UK must be one of our top priorities. To enable that, we need to ensure that we attract inward investment. I therefore welcome the correction to the regulations, which ensures that the aim of the process of overseas companies integrating into the UK is fulfilled.
The prescribed bodies regulations provide an easement of the UK’s company reporting rules to support US and Japanese-listed parent companies that have chosen to domicile in the UK. I very much appreciate the shadow Minister’s support for the measures. For some larger companies, the savings can be in the millions of pounds. Helping companies to more easily move their incorporation to the UK, by reducing the costs of the switch, is the right thing to do for our economy and helps to ensure that the UK remains attractive and open for business. The Government now propose to correct the procedural error in making regulation 4 of the 2023 regulations, by means of this affirmative statutory instrument. I commend the regulations to the Committee.
Question put and agreed to.
Committee rose.