United Kingdom enterprise law concerns the ownership, regulation and potentially competition in the provision of public services, private or mutual companies in the United Kingdom.
Contents
History
Corporate governance
Labour rights
Competition and consumers
Insolvency
Administrative law
Education
Health
Banking
UK banking has two main parts. First, the Bank of England administers monetary policy, influencing interest rates, inflation and employment, and it regulates the banking market with HM Treasury, the Prudential Regulation Authority and Financial Conduct Authority. Second, there are private banks, and some non-shareholder banks (co-operatives, mutual or building societies), that provide credit to consumer and business clients. Borrowing money on credit (and repaying the debt later) is important for people expand a business, invest in a new enterprise, or purchase valuable assets more quickly than by saving. Every day, banks estimate the prospects of a borrower succeeding or failing, and set interest rates for debt repayments according their predictions of the risk (or average risk of ventures like it). If all banks together lend more money, this means enterprises will do more, potentially employ more people, and if business ventures are productive in the long run, society's prosperity will increase. If banks charge interest that people cannot afford, or if banks lend too much money to ventures that are unproductive, economic growth will slow, stagnate, and sometimes crash. Although UK banks, except the Bank of England, are shareholder or mutually owned, many countries operate public retail banks (for consumers) and public investment banks (for business). The UK used to run Girobank for consumers, and there have been many proposals for a "British Investment Bank" (like the Nordic Investment Bank or KfW in Germany) since the global financial crisis of 2007-2008, but these proposals have not yet been accepted.
The Bank of England provides finance and support to, and may influence interest rates of the private banks through monetary policy. It was originally established as a corporation with private shareholders under the Bank of England Act 1694, to raise money for war with Louis XIV, King of France. After the South Sea Company collapsed in a speculative bubble in 1720, the Bank of England became the dominant financial institution, and acted as a banker to the UK government and other private banks. This meant, simply by being the biggest financial institution, it could influence interest rates that other banks charged to businesses and consumers by altering its interest rate for the banks' bank accounts. It also acted as a lender through the 19th century in emergencies to finance banks facing collapse. Because of its power, many believed the Bank of England should have more public duties and supervision. The Bank of England Act 1946 nationalised it. Its current constitution, and guarantees of a degree of operational independence from government, is found in the Bank of England Act 1998. Under section 1, the bank's executive body, the "Court of Directors" is "appointed by Her Majesty", which in effect is the Prime Minister. This includes the Governor of the Bank of England (currently Mark Carney) and up to 14 directors in total (currently there are 12, 9 men and 3 women). The Governor may serve for a maximum of 8 years, deputy governors for a maximum of 10 years, but they may be removed only if they acquire a political position, work for the bank, are absent for over 3 months, become bankrupt, or "is unable or unfit to discharge his functions as a member". This makes removal hard, and potentially a court review. A sub-committee of directors sets pay for all directors, rather than an non-conflicted body like Parliament. The Bank's most important function is administering monetary policy. Under BEA 1998 section 11 its objectives are to (a) "maintain price stability, and (b) subject to that, to support the economic policy of Her Majesty’s Government, including its objectives for growth and employment." Under section 12, the Treasury issues its interpretation of "price stability" and "economic policy" each year, together with an inflation target. To change inflation, the Bank of England has three main policy options. First, it performs "open market operations", buying and selling banks' bonds at differing rates (i.e. loaning money to banks at higher or lower interest, known "discounting"), buying back government bonds ("repos") or selling them, and giving credit to banks at differing rates. This will affect the interest rate banks charge by influencing the quantity of money in the economy (more spending by the central bank means more money, and so lower interest) but also may not. Second, the Bank of England may direct banks to keep different higher or lower reserves proportionate to their lending. Third, the Bank of England could direct private banks adopt specific deposit taking or lending policies, in specified volumes or interest rates. The Treasury is, however, only meant to give orders to the Bank of England in "extreme economic circumstances". This should ensure that changes to monetary policy are undertaken neutrally, and artificial booms are not manufactured before an election.
Outside the central bank, banks are mostly run as profit-making corporations, without meaningful representation for customers. This means, the standard rules in the Companies Act 2006 apply. Directors are usually appointed by existing directors in the nomination committee, unless the members of a company (invariably shareholders) remove them by majority vote. Bank directors largely set their own pay, delegating the task to a remuneration committee of the board. Most shareholders are asset managers, exercising votes with other people's money that comes through pensions, life insurance or mutual funds, who are meant to engage with boards, but have few explicit channels to represent the ultimate investors. Asset managers rarely sue for breach of directors' duties (for negligence or conflicts of interest), through derivative claims. However, there is some public oversight through the bank licensing system. Under the Financial Services and Markets Act 2000 section 19 there is a "general prohibition" on performing a "regulated activity", including accepting deposits from the public, without authority. The two main UK regulators are the Prudential Regulation Authority and the Financial Conduct Authority. Once a bank has received authorisation in the UK, or another member state, it may operate throughout the EU under the terms of the host state's rules: it has a "passport" giving it freedom of establishment in the internal market. Since the Credit Institutions Directive 2013, there are some added governance requirements beyond the general framework: for example, duties of directors must be clearly defined, and there should be a policy on board diversity to ensure gender and ethnic balance. If the UK had employee representation on boards, there would also be a requirement for at least one employee to sit on the remuneration committee, but this step has not yet been taken.
While banks perform an essential economic function, supported by public institutions, the rights of bank customers have generally been limited to contract. In general terms and conditions, customers receive very limited protection. The Consumer Credit Act 1974 sections 140A to 140D prohibit unfair credit relationships, including extortionate interest rates. The Consumer Rights Act 2015 sections 62 to 65 prohibit terms that create contrary to good faith, create a significant imbalance, but the courts have not yet used these rules in a meaningful way for consumers. Most importantly, since Foley v Hill the courts have held customers who deposit money in a bank account lose any rights of property by default: they apparently have only contractual claims in debt for the money to be repaid. If customers did have property rights in their deposits, they would be able to claim their money back upon a bank's insolvency, trace the money if it had been wrongly paid away, and (subject to agreement) claim profits made on the money. However, the courts have denied that bank customers have property rights. The same position has generally spread in banking practice globally, and Parliament has not yet taken the opportunity to ensure banks offer accounts where customer money is protected as property. Because insolvent banks do not, governments have found it necessary to publicly guarantee depositors' savings. This follows the model, started in the Great Depression, the US set up the Federal Deposit Insurance Corporation, to prevent bank runs. In 2017, the UK guaranteed deposits up to £85,000, mirroring an EU wide minimum guarantee of €100,000. Moreover, because of the knock-on consequences of any bank failure, because bank debts are locked into a network of international finance, government has found it practically necessary to prevent banks going insolvent. Under the Banking Act 2009 if a bank is going into insolvency, the government may (and usually will if "the stability of the financial systems" is at stake) pursue one of three "stabilisation options". The Bank of England will either try to ensure the failed bank is sold onto another private sector purchaser, set up a subsidiary company to run the failing bank's assets (a "bridge-bank"), or for the UK Treasury to directly take shares in "temporary public ownership". This will wipe out the shareholders, but will keep creditors' claims in tact. One method to prevent bank insolvencies, following the "Basel III" programme of the international banker group, has been to require banks hold more money in reserve based on how risky their lending is. EU wide rules in the Capital Requirements Regulation 2013 achieve this in some detail, for instance requiring proportionally less in reserves if sound government debt is held, but more if mortgage-backed securities are held.
Natural resources
Natural resources have historically been critical for energy and raw materials in the UK economy. Before the industrial revolution, energy and heating needs were served mainly by burning timber. The development of the steam engine, particularly after James Watt's patents in 1775, and rail transport led coal to be the UK's dominant energy source, now governed under the Coal Industry Act 1994. The development of the internal combustion engine in the late 19th century, led to a gradual displacement of coal by oil and gas. In the 21st century, because of critical threat of climate damage caused by human beings burning coal, oil and gas (or any fossil fuel releasing carbon dioxide and greenhouse gases), the UK is trying to shift to energy based on zero-carbon: wind, hydro or solar based power. In 2015, the UK's energy consumption was 47% petroleum, 29% natural gas, 18% electricity and 5% other, but the growth of renewable electricity, and the introduction of electric vehicles is increasingly rapid. Under the Climate Change Act 2008, the UK government is bound to ensure there is an 80% reduction of carbon emissions compared to 1990 levels, when the Kyoto Protocol was drafted. This is meant to prevent the damage from extreme weather, flooding and coastlines going under the sea. The scientific community takes the view that, while the oil and gas industry still provides energy, it must be phased out.
Although both coal and oil production were publicly owned in the past, coal, oil and gas extraction is performed today by private corporations under government licence. The largest entities include BP, Shell, but also now joined by entirely foreign firms such as Apache, Talisman, CNR, TAQA or Cuadrilla. This means that ordinary UK company law (or US corporate law) sets the governance rights of oil and gas corporations, with board of directors invariably removable only by shareholders (typically large asset managers). The Petroleum Act 1998 section 2, rights of land ownership do not equate to rights to oil and gas (or hydrocarbons) underneath. In Bocardo SA v Star Energy UK Onshore Ltd, the Supreme Court did hold that a landowner may sue a company for trespass if it drills under its land without permission, but a majority held that damages will be nominal. This meant that a landowner in Surrey was only able to recover £1000 when a licensed oil company drilled a diagonal well 800 to 2800 feet under its property, and not the £621,180 awarded by the High Court to reflect a share of the oil profits. Similarly, under the Continental Shelf Act 1964 section 1 rights "outside territorial waters with respect to the sea bed and subsoil and their natural resources" are "vested in Her Majesty." Since 1919, the Crown has prohibited searching and boring for oil and gas without a licence. Under the Energy Act 2016, licensing is managed by the Oil and Gas Authority. Under section 8, the OGA should hand out licences so as to minimise future public expense, secure the energy supply, ensure storage of carbon dioxide, fully collaborate with the UK government, innovation, and stable regulation to encourage investment. Overshadowing this is the duty in PA 1998 sections 9A-I on the Secretary of State for ‘maximising the economic recovery of UK petroleum’. The Secretary of State may give directions to the OGA in the interests of national security, or the public in exceptional circumstances, while the OGA is nominally capable of funding itself through fees on license applicants and holders. In the process of licensing, the Hydrocarbons Licensing Directive Regulations 1995 require objective, transparent and competitive criteria to be applied by OGA. Under regulation 3, the OGA should consider an applicants technical and financial capability, price, previous conduct, and refuse all applications if none are satisfactory, while regulation 5 requires that all criteria to be applied are stated in the public notice for tenders. Under PA 1998 section 4, model licence clauses are prescribed by the Secretary of State, for instance in the Petroleum Licensing (Production) (Seaward Areas) Regulations 2008. Schedule 1's model clauses give the OGA discretion over the licence term, the licensee's obligation to submit its work programme, revocation on breach of a licence, arbitration for disputes, or health and environmental safety. For onshore oil and gas extraction, and particularly hydraulic fracturing (or "fracking"), there are further requirements that must be fulfilled. For fracking, these include negotiating with landowners where a drill site is situated, getting the Mineral Planning Authority's approval for exploratory wells, consent from the council under the Town and Country Planning Act 1990 section 57, getting permission for disposing of hazardous waste and inordinate water use, and finally consent from the Department for Business, Energy and Industrial Strategy. In R (Frack Free Balcombe Residents Association) v West Sussex CC the resident group in Balcombe lost an action for judicial review of their Council's planning permission for Cuadrilla Balcombe Ltd to explore the potential to frack for shale gas. Large protests had opposed any steps toward fracking. However, Gilbart J held that the council had not been wrong in refusing to consider public opposition, and took the view would have acted unlawfully if it had considered the opposition.
The interests of third parties and the public are partially represented through provisions on access to infrastructure, tax, and decommissioning. Under the Petroleum Act 1998 sections 17-17H there is a right of companies that are not owners of pipelines or gas interconnectors to use the infrastructure if there is spare capacity. This is not well utilised, and it usually left to commercial negotiation. Under the Energy Act 2011 sections 82-83 the Secretary of State can require a pipeline owner gives access on its own motion, apparently to reduce the problem of companies being too timid to exercise legal rights for fear of commercial repercussions. Taxation on oil and gas outputs have increasingly been reduced. Initially the Oil Taxation Act 1975 section 1 required a special Petroleum Revenue Tax, set as high as 75% of profits in 1983, but this ended for new licences after 1993, and then reduced from 50% in 2010, down to 0% in 2016. Under the Corporation Tax Act 2010 sections 272-279A there is still a "ring fenced corporation tax", on individual fields that are "ring fenced" from other activities, set at 30%, but just 19% for smaller fields. An additional "supplementary charge" of 10% of profits was introduced in 2002 to ensure a ‘fair return’ to the state, because ‘oil companies [were] generating excess profits’. Finally, under the Petroleum Act 1998 sections 29-45 require responsible decommissioning of oil and gas infrastructure. Under section 29, the Secretary of State can require a written notice of a decommissioning plan, on which stakeholders (e.g. the local community) must be consulted. Under section 30, notice regarding abandonment can be served on anyone who owns or has an interest in an installation. There are fines and offences for failure to comply. Estimates for the cost of decommissioning the UK's offshore platforms have been £16.9bn in the next decade, and £75bn to £100bn in total. A series of objections have been raised against the government's policy of cutting taxes while subsidising BP, Shell and Exxon for these costs.
Energy
The need to stop climate damage, and create sustainable energy, has driven UK energy policy. The Climate Change Act 2008 section 1 requires an 80% reduction on 1990 greenhouse gas emissions by 2050, but this can always be made more stringent in line with science or international law. Eliminating carbon emissions and fossil fuels means using only electricity (no more petrol or gas) and only using zero carbon inputs. In 2015, total UK energy use was composed of 18% electricity, 29% natural gas, and 49% petroleum. Electricity itself, by 2015, was generated 24% from "renewable" sources, 30% gas, 22% coal, and 21% nuclear. "Renewable" sources were 48% wind, 9% solar (doubling each year to 2016), and 7.5% hydroelectric. But 35% of "renewable" electricity was "bioenergy", that is mostly timber, emitting more carbon than coal as it is burnt by converted coal stations. Under the Energy Act 2013 section 1, the Secretary of State can set legally binding decarbonisation targets in electricity, but the government not done this yet. Under section 131, the Secretary of State should, however, give Parliament an annual "Strategy and Policy Statement" on its strategic energy priorities, and how they will be achieved.
Two main strategies have pushed a transition to renewable power. First, under the Electricity Act 1989 sections 32-32M, the Secretary of State was able to place renewables obligations on energy generating companies. Large electricity generating companies (i.e. the big six, British Gas, EDF, E.ON, nPower, Scottish Power and SSE) had to buy fixed percentages of "Renewable Obligation Certificates" from renewable generators if they did not meet set quotas in their own electricity generators. This encouraged significant investment in wind and solar farms, although the Energy Act 2013 enabled the scheme to be closed to new installations over 5MW capacity in 2015 and all in 2017. In Solar Century Holdings Ltd v SS for Energy and Climate Change a group of solar companies challenged the closure decision by judicial review. Solar Century Ltd claimed they had a legitimate expectation from the government in its previous policy documents for "maintaining support levels". The Court of Appeal rejected the claim, because no unconditional promise was given. As a replacement, under EA 2013 sections 6-26 created a "contracts for difference" system to subsidise energy companies' investment in renewables. The government owned "Low Carbon Contracts Co." pays licensed energy generators money under contracts lasting, for example, 15 years, reflecting the difference between a predicted future price of electricity (a "reference price") and a predicted future price of electricity with more renewable investment (a "strike price"). The LCCC gets its money from a levy on the energy companies, which pass costs onto consumers. This system was apparently seen by the government as preferable to direct investment by taxing polluters' profits. The second strategy to boost renewables was the Energy Act 2008's "feed-in tariff". Electricity produced with renewables has to be paid a certain price by electricity companies: a "generation" rate (even if the producer uses the energy itself) and an "export" rate (when the producer sells to the grid). In PreussenElektra AG v Schleswag AG a large energy company (now part of E.ON) challenged a similar scheme in Germany. It argued that the feed-in tariff operated like a tax to subsidise renewable energy companies, since non-renewable energy companies passed the costs on, and so should be considered an unlawful state aid, contrary to TFEU article 107. The Court of Justice rejected the argument, holding that the redistributive effects were inherent in the scheme, as indeed they are in any change to private law. Since then, feed-in tariffs have been considerably successful at promoting small scale electricity production by homes and business, and solar and wind in general.