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Commons Chamber

Volume 78: debated on Tuesday 30 April 1985

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House Of Commons

Tuesday 30 April 1985

The House met at half-past Two o'clock


[MR. SPEAKER in the Chair]

Private Business

GREATER LONDON COUNCIL (MONEY) BILL Read a Second time, and committed.

Oral Answers To Questions


European Fighter Aircraft


asked the Secretary of State for Defence what recent discussions he has had with European aerospace manufacturers about the proposed new European fighter aircraft.


asked the Secretary of State for Defence what recent discussions he has had concerning the European fighter aircraft.

In addition to regular and continuing discussions with British industry, I visited British Aerospace at Warton on 20 March and Dassault, in France, on 2 April. The visits enabled me to see for myself the experimental aircraft programmes on which the companies are engaged. They also provided an opportunity to discuss the work undertaken on the proposed European fighter aircraft. While in France I had a brief meeting with Mr. Hernu. Consultation, national and international, is also taking place regularly and frequently at official level in preparation for the meeting of EFA Defence Ministers, which I shall attend in Rome in mid-May.

Does that mean that the manufacturers in France and British Aerospace are moving closer together regarding the EFA? Will the Secretary of State give us some genuine information about that?

The hon. Gentleman asks a critical question. It is extremely difficult to answer in general terms questions about many different ranges of manufacturing interests. There is no doubt that much more intense discussion is going on at industrial level, especially among the prime contractors, to find a solution to this interesting opportunity.

Is the Secretary of State aware that the Royal Air Force cannot fly reviews or visits, but wants real aircraft? Is he further aware that in 1939 we had "Spits" and Hurricanes? We may not have had enough, but we had them. Does he realise that if he proceeds in this way we shall be short of fighter aircraft at the appropriate time?

That is not the message that I got when we visited British Aerospace. British Aerospace understands the complexities of funding the development of tomorrow's aircraft, and has played a critical role in advising about the options before me.

Will my right hon. Friend give an assurance that he is bearing prominently in mind the serious employment implications of having an early and positive decision about this project, and that it would be a great pity if the skilled teams at present at Warton were dispersed?

I completely agree with my right hon. Friend. There are critical military, industrial and employment issues involved, and we have these in mind.

Will the Secretary of State take this opportunity to say what discussions he has had with European aerospace manufacturers about collaborative projects for helicopters to meet defence needs? Does he agree that although it is true to say that the British helicopter industry will depend on successful European collaboration——

I seek to discover what discussions the Secretary of State has had with European aerospace manufacturers in general.

I congratulate the hon. Gentleman on his brave try. Obviously, I have discussions on the full procurement area, and Europe is trying increasingly to seek solutions of common specification and procurement opportunity. That includes helicopters, and all the other military equipment that we must purchase.

Knowing as he does the imperative of reaching a decision next month when he has his meeting, will my right hon. Friend confirm that the Government's top priority is to produce an air frame and an engine capable of meeting the threat, and that he will not compromise on a lesser solution simply to induce the French to join a project with ourselves, the Italians and the Germans?

Of course, my hon. Friend is correct. We must begin with the threat that we face, but the House will appreciate that all the potential partners to EFA broadly agree about the threat.

Will the Secretary of State take this opportunity to confirm that the role of the aircraft for which he is pressing is the role of the RAF one, that the configuration of the aircraft is the configuration of the RAF one, which is what meets the needs of British industry, and that he is determined to go ahead with the needs of the RAF, and of no one else, as his prime consideration? Will he also take this opportunity to confirm that while we intend to maintain an independent British aircraft manufacturing industry, we intend to do the same for the helicopter industry?

I assure the hon. Gentleman that all those issues are carefully borne in mind, as are the conflicting claims upon the resources of the Ministry of Defence budget from other air force requirements and the requirements of other armed services. A wide range of factors must be taken into account, and the interests of the British aerospace industry will be at the forefront of one's thinking.

Defence Resources (Deployment)


asked the Secretary of State for Defence if Her Majesty's Government will consider seeking to deploy defence resources from Germany to Scandinavia.

No. However, as I said in my reply to my hon. Friend on 26 March, there is a strong United Kingdom commitment, through NATO, to the defence of the NATO countries of northern Europe.

Given the existing deployment balance of the Warsaw pact and NATO, does my hon. Friend agree that NATO is far more vulnerable in Denmark and northern Europe than it is on the central front? Given the calamitous consequences for the United Kingdom should Denmark or Norway fall, should we not be thinking of ways to change that balance?

My hon. Friend will be aware that we must take into account primarily the deployment pattern of Warsaw pact forces. As he will be aware, the great concentration of those forces, both nuclear and conventional, is on the central front rather than in the northern region. Our deployment response must reflect that.

As to Scandinavia, does my hon. Friend agree that an important step forward has come about through the pre-positioning of equipment there so that we can fly in our forces speedily to reinforce the area referred to in the question, and heavy equipment will be available for their use?

My hon. and learned Friend is entirely right. The Norwegian Government's agreement to more prepositioning by Britain and the United States has been extremely helpful.

Royal Dockyards


asked the Secretary of State for Defence if he will make a statement on discussions between his Department and relevant trade unions on the future of the royal dockyards.


asked the Secretary of State for Defence what discussions he has had recently with trade union representatives from royal dockyards.

My right hon. Friend had discussions with trade union representatives at Rosyth and Devonport during visits this and last year. I met local representatives of industrial trade unions when I was in Rosyth on 17 April, and my hon. Friend the Under-Secretary of State for Defence Procurement and I plan to hold further separate discussions at Devonport and Rosyth shortly. Consultations by the Department with trade unions at national and local level are under way, both on the options for the future and on the interim measures necessary to improve performance.

May I tempt the Minister to ask the Secretary of State to have a much more open discussion about this matter? In view of the Secretary of State's liking for debates, will he come to Dunfermline and debate this matter with local Members of Parliament so that all the issues can be properly ventilated? Will be confirm that the sole assets of the companies that he will create will be the labour and skills of the work force? The companies will have no other assets.

In answer to the hon. Gentleman's second point, that is not necessarily the case, although under the preferred solution the assets of the dockyard would remain in Government hands. However, it does not preclude the contractor company from having its own assets in addition. As to consultation, I assure the hon. Gentleman that I shall be in Rosyth in May, when I hope to meet representatives of all the unions concerned. I made it clear when I was there in April that my mind is open and that I am prepared to listen to what they say. They have already argued their case in a document, but I made it clear then, as I shall in the future, that the Government's preferred option is that of commercial management.

Has the Minister read reports of a packed protest meeting in Plymouth guildhall last Friday night when the Government's proposals were met with outrage and even fury? Will he comment on the reported view of the Government's consultative exercise by Mr. Bill Goffin, a senior industrial trade union representative in the dockyards? He described their consultation intentions as pure and absolute hypocrisy?

I reject that absolutely. There have been suggestions that the consultation period will be neither genuine nor long enough. I have already assured the hon. Member for Dunfermline, West (Mr. Douglas) that the consultations will be genuine and that they will certainly be long enough in the light of the considerable discussion and debate about this matter that has taken place in the last year. I had a report of the meeting to which the hon. Member for Sheffield, Attercliffe (Mr. Duffy) referred. It is clear that virtually everybody who has an open mind on this issue is fully persuaded that the present situation cannot continue and that some change must be brought about. The debate is now about which option is finally decided on. As I say, the Government have made clear in their consultative document the way in which they see the road, but there are other points of view.

Does my right hon. Friend agree that one of the greatest assets that any company can have is the skill of its work force, but that another asset is the attitude of that work force? Is it not a fact that all the experience, for example, of British Aerospace since privatisation is that the attitude of the work force is directed to increased productivity and the increased sales penetration of the products?

It is clear that the future workload of the dockyards, and therefore employment in the dockyards, will depend on efficiency being improved and on that constructive attitude to which my hon. Friend refers. The reports that I have had in recent days of the attitude in the dockyards is, generally, of such a constructive attitude on the part of the men.

Is the Minister aware that the questions that have been asked on this issue have been put by Labour Members, on whom the task of arguing on behalf of the workers in the dockyards has fallen? Does he agree that it is significant that the right hon. Gentleman who was bullying his way to the Dispatch Box last week, the leader of the SDP, the right hon. Member for Plymouth, Devonport (Dr. Owen), who represents one of the constituencies affected, has not found time to come to the House to represent his constituents today—[Interruption.]—even though there is plenty of room on these Benches?

Order. I do not think that the Minister can answer that; it is not his responsibility.

The hon. Member for Bolsover (Mr. Skinner) is perhaps more capable of making the point than I am. I was about to draw attention to the fact that the right hon. Member for Plymouth, Devonport (Dr. Owen) was not in his place. I am certain that the workers at the dockyards in Plymouth and the voters of the area will have noted that.

Is it not a fact that 9,700 people will also be absent from the consultation process, namely, the 9,700 who have lost their jobs in the naval dockyards since the Conservatives came to power in 1979? Does the right hon. Gentleman appreciate that it is with some cynicism that the dockyard labour force views the Government's proposals, having gone through the pain of such massive redundancies in the recent past?

I am persuaded that at least the dockyard workers in Rosyth are much happier at the prospect of the Conservatives continuing in office compared with the prospect under a Labour Government of the Trident programme being scratched.

Association Of South East Asian Nations


asked the Secretary of State for Defence if he will seek a meeting with his counterparts in the Association of South East Asian Nations.

My right hon. Friend would certainly hope to see his ASEAN counterparts individually as circumstances allow, and he will be seeing the Malaysian deputy Defence Minister during the latter's visit to London next month.

I thank my hon. Friend for that answer, which I welcome. Does he agree that on this, the 10th anniversary of the ending of the Vietnam war, the ASEAN countries in general, and particularly Thailand, are continuing to bear a tremendous burden from Soviet-backed Vietnamese aggression in the region? Will he do all he can to encourage the ASEAN countries in their valiant efforts to uphold and maintain freedom in South-East Asia?

We very much share the concern of the ASEAN countries about the Vietnamese occupation of Cambodia. Equally, we share their concern about the very significant and major Soviet build-up in Cam Ranh Bay.

Does the Minister of State recall that a New Zealand battalion in that area is helping to maintain stability? This contribution from a non-nuclear power was somewhat vilified in this House and elsewhere during the visit of the Prime Minister of New Zealand.

If the hon. Member is referring to the New Zealand Government's present policy on ship visits, that is a disappointment to us and we very much hope that in the fullness of time they will reconsider their position on that issue.

Strategic Defence Initiative


asked the Secretary of State for Defence whether the introduction of a strategic defence initiative for Europe will have implications for the Trident project.


asked the Secretary of State for Defence whether the introduction of a strategic defence initiative for Europe will have implications for the Trident project.


asked the Secretary of State for Defence whether the introduction of a strategic defence initiative for Europe will have implications for the Trident project.

There is no separate strategic defence initiative for Europe. The effectiveness of Trident as a deterrent depends not on defensive measures taken by the West but on developments in Soviet anti-ballistic missile defences arising from their long-standing and extensive research programme in this field. However, as my right hon. Friend the Minister of State for the Armed Forces has already informed the House, no developments in Soviet anti-ballistic missile defences are currently foreseen which are likely to negate the deterrent effect of the United Kingdom Trident force within the lifetime of the system.

Why, when talks are taking place about the star wars initiative, are this Government continuing with the £10 billion plus Trident project, particularly when a new hospital intended to serve the interests of my constituents has been eliminated from the 25-year programme and the Newcastle general hospital cannot afford £25,000 for a scanner to make possible the early detection of cancer? Does it not show that this Government are more interested in destroying than in saving lives?

No. All it shows is that we are continuing the policy of British independent deterrence in which the last Labour Government believed.

If the Soviet Union were to respond to the American star wars programme with the same type of programme, as the British Government claim they are already doing, would it not entirely negate the value of the Trident programme, and is that not the fallacy which underlies the present defence programme?

It depends entirely upon the judgment that the hon. Gentleman and the House make about the credibility of such a Soviet initiative and the time scale within which it could be brought to fruition. We have no evidence which leads us to believe that that is likely to happen within a time scale that could frustrate the purpose of the Trident programme.

Is it not becoming increasingly obvious that as Britain cannot afford the Trident project without seriously damaging the Royal Navy the time has come for the Secretary of State to inform President Reagan that this country cannot afford the colossal sums that would be involved in the so-called star wars project?

No, that is not becoming increasingly obvious, because all thinking people know that the average cost of Trident is about one-sixth of the total increase that the Government have brought about in the defence budget.

Does my right hon. Friend agree that the essence of deterrence is the ability to deliver enough of the warheads to deter a would-be aggressor, and that all experience shows, particularly during the period when the Vulcan bomber was the deterrent force, that by the time Trident is phased out and the Soviet Union has the capability of destroying most of the weapons something new will have been developed?

My hon. Friend touches upon the difficulty of predicting the future with accuracy. However, the essence of all the Opposition alarms is that they told us that if we proceeded with our defence policy and modernised our nuclear weapons it would destabilise peace and the Soviets would break off the arms talks. The fact is that the Soviets are back at the conference table and peace has never looked more secure.

If the Secretary of State agrees with his right hon. Friend the Secretary of State for Foreign and Commonwealth Affairs, who referred to the widespread and continuing discussion and debate on the strategic concepts involved in the SDI, surely the cost of Trident is so immense that those widespread discussions and debates need to be considered before Trident is proceeded with. Ought it not to be put into cold storage until the effects of the SDI upon our country's policy are fully known?

It may be the policy of the alliance parties to put defence into cold storage, but it is certainly not the policy of this Government.

Are not the Government concerned about embarking on another round of extravagant spending when clearly the chiefs of the Army, the Air Force and the Navy are concerned about lack of spending on conventional defence?

The Trident programme carries the whole support of the Chiefs of Staff and of the policy formation processes of the Ministry of Defence, but if the hon. Lady is so concerned with making known a decision about our determination to maintain Britain's independent nuclear deterrent, that explains why, when the Labour Government did it, they did it in secret with the Chevaline process.

Will the Secretary of State tell us what his views are on star wars? Does he agree with President Reagan that nuclear weapons are immoral and should be made obsolete, or does he agree with the Foreign Secretary, who made substantial criticisms of the star wars project? Can the right hon. Gentleman tell us whether President Reagan consulted his NATO allies before he made that speech, which turned upside down 40 years of NATO nuclear strategy?

The right hon. Gentleman must be fully aware that the discussions that have taken place between the Government and the United States Administration have been at the highest level, and that the Camp David communiqué, issued by the President and the Prime Minister, clearly set out the British Government's views.

Trident Missile


asked the Secretary of State for Defence if he will make a statement concerning the timing of the replacement of Polaris submarines by Trident.

The United Kingdom Trident II force is planned to enter service in the mid-1990s.

Will my right hon. Friend make it absolutely clear that the replacement of Polaris by Trident will in no way undermine our surface fleet?

I give that assurance categorically. The Polaris boats will remain in service until such time as the Trident boats are able to maintain continuous patrol.

If Trident is to continue to the point that the Minister has just mentioned, will he make arrangements for an alternative to the proposed dumping of asbestos from Faslane in my constituency, in the rural village of Glenboig, which is wholly unacceptable?

I think that the hon. Gentleman has already made points in regard to that matter. Of course, it has to be properly attended to.

Will my right hon. Friend estimate the savings to the nation as a result of the excellent performance of the pound over the past two months?

My right hon. Friend the Secretary of State made it clear what the effect of a one cent change in the pound-dollar relationship would be on the overall cost of the programme, but I cannot give my hon. Friend the exact figures at the moment.

Will the Minister answer the question asked by his hon. Friend the Member for Billericay (Mr. Proctor)? Will he give the House a categorical assurance that the surface fleet will not suffer at the expense of expenditure on Trident or Polaris at the moment?

The answer that I gave my hon. Friend was that the deterrent would not suffer ahead of the introduction of Trident. If I misheard my hon. Friend, I apologise to him. The plans for the surface fleet are well known. If the hon. Gentleman and his hon. Friends will have the patience to wait until tomorrow, more will be revealed on that matter.

Army Pay And Records Offices


asked the Secretary of State for Defence if he will make a statement on the progress so far on plans to consolidate on one or two sites Army pay manning and records offices.

Following the formal period of consultation, the detailed comments received from Ministry of Defence trade unions, as well as from hon. Members on both sides of the House, local councils and others, are now being fully evaluated. I hope to be able to make an announcement on the final decision by the end of May or early June.

I thank my right hon. Friend for that reply. In view of the considerable financial advantages of consolidation on one or two national sites as soon as possible, and in view of the ideal location, modern buildings and access to a large labour market at the Army office in Leicester, will my right hon. Friend press on with his plans to centralise at Leicester and Glasgow as quickly as he can?

I have always admired my hon. Friend for his wisdom and objectivity, but I know that he has an interest in this matter. He points to the good sense and economies that will derive from rationalisation. We are now having to make quite certain that the selection of Leicester in addition to Glasgow is right.

Is this not merely an exercise in dispersing jobs from one part of the provinces to another, because no transfers from London are taking place? Are not people being taken from high unemployment areas, and are not the civil servants concerned notionally non-mobile, with, therefore, no rights to transfer? What will the Department do to provide jobs in areas from which jobs have been taken?

What is happening is part of the transfer programme. Concentrating on Leicester as well as Glasgow involves rationalisation as well as dispersal. As part of the exercise some of the moves will be from locations outside London to Glasgow. That will be compensated for by movements from London.

Trident Missile


asked the Secretary of State for Defence what was the cost of the Trident missile programme when it was first authorised; and what percentage this represents of the present estimated cost.

The cost of Trident I—the C4 system—as first announced in July 1980 was estimated at between £4·5 billion and £5 billion at July 1980 prices. In 1982, however, the Government decided to adopt instead the Trident II—the D5 system—the estimated cost of which at September 1981 prices and at an exchange rate of £1 to $1·78 was announced at £7·5 billion. Statistically this figure is 81 per cent. of the latest estimate of £9,285 million announced by my right hon. Friend the Secretary of State for Defence in January. However, if the effects of inflation and movements in the exchange rate are set aside, the latest estimate is in fact less than that given in 1982.

Do not many military experts agree that Trident is unsuited to our needs and that it could impede the arms control talks? In view of the rocketing costs to which the Minister has admitted, would it not be better to scrap Trident now, when only a small percentage of the envisaged overall cost has been spent?

The Government want to ensure that the country's defence and peace are maintained. We are quite certain that it is right not only that we should have a nuclear deterrent but that we should have an independent nuclear deterrent. The Trident system is the most effective that we are likely to be able to command, and it can do the job effectively. As has been made clear on many occasions, as a percentage of the total defence budget it remains a small element. For instance, it costs less than the Tornado programme.

In the face of criticisms by CND activists on the Liberal Benches and a rag-bag of pacifists and unilateralists on the other Opposition Benches, will my hon. Friend give a clear assurance that the Government are prepared to will the means effectively to ensure this country's defence?

I can give that categorical assurance. We shall do so both through the provision of conventional defence and the nuclear deterrent.

Is not the only conceivable circumstance in which Trident might be used if Britain were threatened and America refused to come to our assistance? Does the Minister think that likely?

One can envisage certain situations in which Britain might need to make use of a nuclear deterrent.

Does the Minister accept that to call the possession of nuclear weapons a defence is an illusion? Does he agree that the possession of nuclear weapons makes it more likely that we will be attacked by nuclear weapons? Even at this late stage, will the Minister cancel the Trident programme so that we can meet our commitments for a conventional defence force? Does he agree that that is what the people want?

I am convinced that the absence of a deterrent would make war more likely, not less likely.

I strongly support the Government's policy on Trident. However, does my hon. Friend recognise that there could be a consequence for the Trident programme if, as I hope, the strategic defence initiative moves forward? At some stage, will my hon. Friend consider publishing documents to enable the House to judge the relativities of the SDI programme and Trident?

I think that my hon. Friend is right. This has to be examined. But he must remember that the strategic defence initiative programme is in its infancy, the research is likely to take one or two decades at least, and in the meantime it will be necessary to continue with the deterrent strategy.

Will the Minister now give us some details of the rate of exchange at which the current calculation has been made, and the difference in cost between the rate of exchange that he gave for the D5 and the present position? Will he concede that the real cost of Trident is the end of the British surface naval fleet as an effective force within NATO?

The point that the hon. Gentleman makes is nonsense. In reply to his specific question, as I think he knows, the exchange rate which was used in my right hon. Friend's latest estimate was $1·38. At that time it was pooh-poohed because the exchange rate was standing at something like $1·10 to the pound. The hon. Gentleman and the House will have noticed that there has been considerable movement since then.

As the Minister well knows, the pound is now standing at $1·21, which of course means that Trident is even more expensive than the latest estimates. Can he return to the question that was asked by his hon. Friend the Member for Billericay (Mr. Proctor) and now give, since he failed to give it before, a clear assurance to the House that the purchase of Trident will not mean any cuts in the surface fleet or any inhibition on the replacement of existing warships?

The Government's policy in regard to surface ships has been made clear. It will be even clearer when the Statement on the Defence Estimates is published tomorrow. What the right hon. Gentleman must realise is that, thanks to this Government, expenditure on defence has increased by one fifth in real terms so that the total resources available to defence are one fifth greater than they were in 1979, and, therefore, there are more resources available for spending on conventional weapons, in addition to that which will be expended on the nuclear deterrent.

Cruise Missile Bases


asked the Secretary of State for Defence whether he is satisfied with security at ground-launched cruise missile bases.

Will the Minister accept that the security needed to protect missiles in Britain is acting against the interests of the British people and that the very liberty that they are intended to defend is being destroyed by the action that is taken against people such as those in the peace movement?

I should have thought that most British people would welcome the fact that proper measures are being taken to protect important nuclear assets in the country.

Does my right hon. Friend agree that the British manning of these sites whereby we have a ratio of four to one relative to our American allies provides them with almost complete security, and such penetration of these bases as there has been has been of the outer perimeter only?

I am grateful to my hon. and learned Friend. It is certainly the case that we are never complacent on matters of security, and therefore keep all matters under review. We are satisfied that the present security arrangements appear to be satisfactory.

What security purpose is being served by large numbers of MOD police and barbed wire guarding the half-built peace chapel at Molesworth? Will the Minister now remove those police and the barbed wire, and allow the chapel to be completed and people to attend services there?

As the hon. Gentleman should be aware, the so-called peace chapel was constructed inside MOD property by those who engaged in acts of trespass.

Is my right hon. Friend aware that the nation as a whole, and Cambridgeshire in particular, expects the maximum degree of security for a defence policy which was agreed in principle by the Labour Government in 1979? Will he ensure in particular that there is no interference with this defence establishment by a body such as CND, which has totally failed to reveal the full sources of its finances?

I am grateful to my hon. Friend. I can certainly assure him that we intend to discharge our obligations under the NATO-INF arrangements, including the security obligations in respect of ground launched cruise missiles.

Will the Minister tell the House exactly how he can justify the presence of seven policemen to guard the peace chapel, which is on land that will not be used for the building of missile sites? Seven policemen and a police dog were guarding about 100 sq yds of earth when Members of the House of Commons visited Molesworth last Wednesday. How can expenditure be justified on mounting such a guard for 100 sq yds of land when there are no plans to build upon it?

I am sure that the hon. Gentleman would expect all parts of the site to be protected properly. I am glad that he was able to have first-hand experience of the security arrangements at Molesworth.

Will my hon. Friend condemn the members of Peterborough CND who have been cutting up sections of the perimeter fence at Molesworth and sending it through the mail to senior public figures, including Members of this place? Does he agree that this criminal damage sits rather uneasily alongside their somewhat holier-than-thou attitude towards both law and morality?

I agree with my hon. Friend that such activities are not especially profitable and that those concerned could be much better employed.

Overseas Allowances


asked the Secretary of State for Defence if he will make a statement on the reduction in allowances of service men stationed overseas.

The system of local overseas allowance has been implemented by successive Governments for many years, and is a tax-free allowance paid to service men and women to meet the necessary extra costs to them of serving abroad. The current round of LOA reviews has resulted so far in these allowances being reduced in some cases and increased in others.

Does my hon. Friend agree that service men in Europe are there not by choice but because they were posted, and that an average single service man returning home three times a year to keep contact with his family or girlfriends has to pay £58 to £100—[Interruption.]—in air fares or £28 to £48 in ferry fares? Is it not a disgrace to lower the morale of British service men in Europe—the same service men who made us proud to be British during the Falklands campaign?

My hon. Friend has related his supplementary question to service men in Europe, and I can assure him that the current round of LOA reviews has resulted in an increase in the allowance for service men in Cyprus, Italy, Sardinia and Portugal. If we have a system for compensating service men for differences in the cost of living between the United Kingdom and the country overseas in which they are serving, it is inevitable that the LOA will decrease as their cost of living reduces, while it may increase in other countries where the cost of living rises. I understand fully the implications for those in Germany and their disappointment, but the current review has been rigorously carried out, and on the same basis there as in other European countries where the allowance has been increased over the past 12 months.

Is it not a fact that a "squaddie" in Germany who has £6 less in his wage packet sees that as a wage cut £6? Is the Minister not aware that that is how "squaddies" see it and interpret it? A private soldier is suffering a greater percentage loss than a major-general. How can the Minister justify that? How can we maintain the morale of the Army when already many skilled men are leaving it for jobs in "civvy" street? The LOA decision has been disastrous for the British Army of the Rhine and its morale at every level.

The hon. Gentleman talks about a serious impact on morale, but I do not think that the Government and Conservative Members generally need any lectures from the Opposition Front Bench on that score when we recall the Labour Government's attitude to service pay. I remind the hon. Gentleman that the Labour Government let service pay lag by up to two years behind the recommendations of the Armed Forces Pay Review Body. I remind him also that the rate of premature voluntary retirement reached all-time record highs under the Labour Administration.

Nimrod Aircraft (Raf Waddington)


asked the Secretary of State for Defence if he will make a statement on the availability for operational flights of Nimrods at RAF Waddington.

The first Nimrod AEW at RAF Waddington is not in RAF service but is undergoing trials. Our best judgment at the moment is that an operational AEW capability for the Nimrod could be achieved in 1987. The trials aircraft has a limited AEW capability which could be used in the event of emergency and which will be progressively improved as other aircraft are delivered.

Can my right hon. Friend assure the House that, pending the somewhat tardy introduction of operational Nimrods, our AEW capability will be adequately maintained?

I can give that assurance. That capability will be maintained in three ways. One way is by means of the Shackletons, whose capability should in no way be belittled. The capacity of Nimrods will be progressively improved. NATO's E3A aircraft are available to provide cover if necessary.

Prime Minister



asked the Prime Minister if she will list her official engagements for Tuesday 30 April.

This morning I had meetings with ministerial colleagues and others, including one with the Prime Minister of Canada. In addition to my duties in this House I shall be having further meetings later today. This evening I hope to have an audience of Her Majesty the Queen. Later I shall be giving a dinner for the Prime Minister of Canada.

Having set yet another record last week—this time a record trade deficit to add to her records on unemployment, insolvencies, real interest rates, and so on—will the Prime Minister now refrain from regaling us with yet another list of irrelevant statistics? Will she this time answer one simple question: what happened to the £12 billion benefit to the balance of payments contributed by North sea oil, without which we would now be bankrupt?

In the first quarter of this year as a whole, our current account was almost exactly in balance. There are changes in particular months, but I think that the hon. Gentleman can look over the past four years with considerable satisfaction. Of course, oil is a great contributor to the United Kingdom economy. One cannot ignore one of our greatest contributors, and I am amazed that the hon. Gentleman should try to do so. The fact that North sea oil was discovered, explored and brought ashore so quickly was a great benefit and a tribute to private enterprise.

Will my right hon. Friend give me an assurance that, in view of the tragic deaths of as many as 20 people in Stafford as a result of the influenza outbreak, the Government will provide as much help as possible to the people affected by that outbreak?

I saw the reports of the outbreak in my hon. Friend's constituency and I made inquiries. I know that there are considerable difficulties in this area because of the sudden outbreak of a severe form of 'flu which is affecting many old people. I understand that health authorities normally meet this type of contingency out of their existing financial allocations. The district is receiving £33·8 million, which includes nearly £500,000 of growth money. I hope that the district will be able to do everything that is possible within that sum.

Will the Prime Minister give the House an assurance that she will accept the recommendation of the inspector against the construction of the 290 ft monstrosity at Mansion House? Given the right hon. Lady's known distaste for planning and conservation, does she accept that, if she allows this construction to go ahead, it will be regarded as a towering insult to the City of London?

The right hon. Gentleman is aware that this is a matter for my right hon. Friend the Secretary of State for the Environment. My right hon. Friend is considering the matter and will make an announcement when he is ready to do so.

Will my right hon. Friend take the opportunity provided by the visit of the Prime Minister of Canada to emphasise the importance that her Government place on the relationship of this country with Canada? Can my right hon. Friend reveal the content of any bilateral discussions that have taken place between the two Governments? Does she agree that our social, economic and political relations will be as important in the futuré as they have been in the past?

I believe that our relationship with Canada will become closer. I understand that British investment will be welcome in Canada and that efforts will be made to achieve closer relations between the United Kingdom and Canada. Naturally, this morning, we discussed those issues that would concern us especially at the Bonn summit; in particular, how to sustain world recovery, the overriding problem of unemployment and the problems of the international debt, East-West relations and the strategic defence initiative.

asked the Prime Minister if she will list her official engagements for Tuesday 30 April.

I refer the hon. Gentleman to the reply that I gave some moments ago.

I am sure that the Prime Minister is aware that I and hon. Members from both sides of the House visited Moscow recently on behalf of Soviet jewry. We were all worried about the plight of the refuseniks who cannot leave Russia. I wonder whether the Prime Minister can give any help to enable those unfortunate people to leave that country and to go to the country of their choice.

The hon. Gentleman is correct. Whereas in 1979 about 51,000 Jewish people were able to leave the Soviet Union, the numbers have now fallen substantially. Some 900 only were allowed to leave in 1984. In the first quarter of this year, 338 left. It is only a small increase and we do not know whether the numbers will increase. We constantly raise the matter with the Soviet Union. I raised it with Mr. Gorbachev when he was here last December. We shall continue to do so because we believe that it is the right of those people to leave to visit relatives overseas or to go to Israel.

Will my right hon. Friend consider introducing in the near future effective controls on political expenditure by local authorities? In any such consideration, will she take into account the recent antics of West Yorkshire metropolitian county council, which has included the establishment of a Labour-controlled trust fund and a plan, which it hoped to keep secret, to allocate £3 million to Labour-represented wards only?

I do not believe that it is possible to control the expenditure of each and every local authority. One has to do it by indirect methods. One must acknowledge that the indirect methods have been successful in holding down the rate at which local authority expenditure has been increasing. Labour-controlled authorities have been the worst culprits, with rapidly increasing expenditure. Their rates have increased by far more than those of Conservative-controlled authorities. I believe that the practices that my hon. Friend mentioned will come within the purview of the new Widdicombe committee on the practices and procedures of local authorities.

It is good to see you back, Mr. Speaker. Does the Prime Minister recall saying during the last general election that there were no plans to change the earnings-related component of the state pension scheme? After her chat last night with the Chancellor and the Secretary of State about those matters, will she tell us and the 11 million people who are in the state earnings-related pension scheme whether that is still her explicit view of the matter?

As the right hon. Gentleman is aware, a fundamental review of the whole of social security has been undertaken. I believe that it is the duty of Governments from time to time to undertake such fundamental reviews. The review has covered four points—retirement pension, provision for children, housing benefit and supplementary benefit. The right hon. Gentleman is saying that at no time in a Government's lifetime must one undertake a fundamental review. I reject that proposition.

No, I am not saying that. Does the Prime Minister recall that when the review was set up in 1983 the Secretary of State said that his aim in setting up an inquiry

"is not to call into question the fundamental pensions structure that was established in the 1970s with all-party agreement, and to which I was a party."—[Official Report, 23 November 1983; Vol. 49, c. 360.]
Reviews are a natural part of government. Ratting should not be.

This is the most fundamental review ever undertaken since the time of Beveridge. The right hon. Gentleman will recall that Beveridge himself enunciated a firm principle that state provision should not be so great as to preclude private provision by voluntary means.

There is another principle—that when one undertakes a wholesale revision of a basic part of the welfare state, one at least tells the people when one stands for election. When and where did the Prime Minister ever say that she was going to end the state earnings-related pension scheme, the death grant and the maternity grant, to cut housing benefits and to take away allowances from the poorest in the country? Why will the right hon. Lady not answer straight questions on these matters? Why is she still such a twister?

I believe that it is a fundamental duty of government to undertake deep-seated reviews. No Government can displace that duty. We have undertaken a review. The matter will shortly come before the Cabinet. Discussion of it may take more than one meeting. [HON. MEMBERS: "Oh"]. I am well aware that the Opposition announce their reviews without ever having discussed them at all, and promptly reject them the next day. Yes, we shall undertake fundamental reviews. Yes, we shall widely discuss them. Yes, we shall bring them before the House and justify our conclusions here.

Is my right hon. Friend aware that the Labour-controlled Birmingham city council has announced a rate rise of 43 per cent.? Will she bear in mind the appalling position in which that will place many of my constituents and other Birmingham residents? Firms will undoubtedly close and the unemployment figures will be affected. Finally, is my right hon. Friend aware that the hospitals are demanding an extra £1 million? Can she do anything to help?

No. This is the effect of having a Labour authority in control. Rates rise enormously, putting a great burden on small businesses, which will result in an increase in unemployment. The Labour party always makes promises and never thinks about where the money is to come from.

Will the Prime Minister find a moment today to take note of the consternation and anger caused in Northern Ireland by the unheralded intrusion of the Prime Minister and Foreign Secretary of the Irish Republic, particularly during an election campaign?

I believe that the right hon. Gentleman is referring to the visit of the Taoiseach, on an inaugural flight from Dublin to Londonderry. We were, of course, informed of that visit two or three days ago. The right hon. Gentleman is aware of their custom, and I understand what he says.


asked the Prime Minister if she will list her official engagements for Tuesday 30 April.

I refer the hon. Gentleman to the reply that I gave some moments ago.

Is the right hon. Lady aware that yesterday's Government announcement about cervical cancer screening is nothing more than a public relations exercise, because no resources are being made available for the necessary computers or the staff to take the smears and do the laboratory tests? Without those resources, there will continue to be 1,000 preventable deaths of women every year. There is only one word for this meanness on the part of the Government—murder.

The hon. Gentleman is talking nonsense. Under this Government, spending on family practitioner services in England alone has risen from £1·4 billion in 1978–79 to over £3 billion in 1983–84. That is a growth in the volume of resources of nearly 10 per cent. The number of general practitioners has increased by over 2,000 to 23,000. Over a third of family practitioner committees are already using computers for their screening programmes or have plans to do so. My right hon. and learned Friend the Minister for Health has indicated that they should all do so. Computer programmes for that purpose will cost £4 million out of some £3 billion allocated to the family practitioner service.


asked the Prime Minister if she will list her official engagements for Tuesday 30 April.

During her busy day, has my right hon. Friend had time to see press reports of 10-year-old children smashing up a community centre, having been locked out of their junior school by striking teachers? Whatever the rights and wrongs of that pay dispute, does my right hon. Friend agree that responsibility lies wholly with striking teachers—and the Labour party, which backs every strike, no matter how damaging to children or destructive to the country they are? Are not teachers' strikes wholly wrong and damaging to all?

I believe that the teachers' strikes are wrong, in that they are directed at damaging the educational chances of children in their care. I strongly agree with my hon. Friend that teachers will find it difficult to discipline children if they set such an example. I fear that they will also lose the teaching profession the esteem in public opinion that it should have. I am pleased to hear that there is a possibility of the Burnham committee meeting within 14 days. I hope that it will find a satisfactory solution.

On a point of order, Mr. Speaker. After today's mauling, does the Prime Minister still want the televising of the House?

On a point of order, Mr. Speaker. [Interruption.] I am asking for your permission to raise a point of order, Mr. Speaker, not that of the right hon. Member for Manchester, Gorton (Mr. Kaufman). You, Mr. Speaker, are the guardian of the good name of the House. Would you please give a thought to the fact that, in the face of the bankruptcy of the Opposition's policies, they have descended today to using words such as murder, ratting and twister, which do no good to the reputation of this ancient House?

I heard those words. I did not rule them out of order because the House well knows that robust debate is part of our system. However, I must tell the House that moderation in our language is essential for civilised debate and I deprecate words of that kind.

Further to the point of order, Mr. Speaker. I strongly support your view that robust exchange is in the nature and the best conventions of the House, but when I hear your deprecation, I feel obliged, as I used two of the words that were mentioned, to rise to say that when the policies that give rise to such language are moderated, the language will be moderated.

Prime Minister's questions have undoubtedly become noisier then they were in the past. I hope that the House will bear that in mind, as it is a very bad example to set to the rest of the country.

Greater Employee Involvement

3.33 pm

I beg to move,

That leave be given to bring in a Bill to promote and stimulate greater employee involvement at the place of work.
For want of customers buying British goods, Britain's share of world trade has halved during the past 20 years. Getting more people into work means Britain winning more world trade. To do that, we have to become even more competitive. That means better productivity, more innovation, better delivery dates, improved design and better employee involvement and participation.

The companies that are doing well, be they large or small, the companies with the winning streak and in which personal commitment and dedicated hard work are evident are invariably those which encourage and foster employee involvement and participation.

Indeed, many of the best-run British, American, Japanese and German companies insist that employee involvement is a crucial element in their success. In short, all the winning-streak companies promote employee involvement. Involving employees, listening to their views and advice, and making them feel part of the team make obvious sense to any business. If employees better understand the fortunes of their firm, its finances, its markets and its new technology, and if people feel personally involved with their company's success, they will be more ready to innovate and change and thus better able to compete.

Also, if employees have a financial stake in their company there is a greater incentive to see their firm prosper and do well. Profit sharing and employee share ownership schemes make very good sense to any business. Many companies are encouraging employee involvement; many companies promote wider share ownership. Employee share schemes now cover some 1·5 million employees.

After more than 100 years of very slow progress, profit sharing started to spread rapidly in Britain in the 1970s, so that today some 2 million employees are participating in schemes. The link between profit sharing and employee shareholding was further encouraged by the tax concessions in recent Finance Acts. The present Government have extended these so that today profit sharing linked to employee shareholding is an extremely attractive and cash-effective way of rewarding all employees from executives to the most junior person on the shop floor.

Indeed, the attractiveness of profit sharing has been borne out by an extensive survey published by the Industrial Participation Association, which showed that some 91 per cent. of those surveyed approved of profit sharing.

How many people are aware that the bank clerks in any of the big four banks, or shop assistants serving in, say, Marks and Spencer or British Home Stores, may be shareholders in their companies as a consequence of profit sharing? Nothing less than a quiet revolution is taking place under our noses, and it is no less significant because it is often unnoticed.

Clearly genuine employee involvement cannot be imposed by Government. Every company and business is different and successful schemes of participation need to be mutually agreed having regard to the different circumstances in different companies. But employee involvement can be greatly stimulated and encouraged by Government. While many companies, big and small, are fostering practical participation, there are thousands of firms in which this is not happening. Invariably this is not for want of will but simply because of lack of encouragement and of suggestions as to how a start might be made.

To help these firms make a start on employee participation, a body with a budget and influence needs to be given the task of encouraging and stimulating employee involvement. The obvious body is ACAS—the Advisory, Conciliation and Arbitration Service—formed by Government but independent of Government, involving management and trade unions, employers and employees. Indeed. in its annual report last year ACAS noted
"the pressing need for employees to be further involved in consultative and decision-making processes in the organisations in which they work, if their talents and energies are to be released and their willing commitment secured to the measures necessary for economic recovery."
However, ACAS officials reported that
"progress in this area has been slow and there remains much to be done."
Today, therefore, I seek to introduce the Bill. It is short and simple. It has support in all parts of the House. It would place on ACAS a fresh statutory duty to promote the code "Employee Involvement and Participation" drawn up jointly by the Industrial Participation Association and the Institute of Personnel Management. It is a code drawn up by leading trade unionists and industrialists and others concerned to see positive participation at work. It is a practical, common-sense code which gives sound, straightforward advice and guidance to help any business, big or small, better to promote participation, to the mutual benefit of all involved, to help them compete better and win back business for Britain. If we can work effectively together, we can win more of the world's markets.

Question put and agreed to.

Bill ordered to be brought in by Mr. Tony Baldry, Mr. Ted Garrett, Mr. Michael Howard, Mr. Geoff Lawler, Mr. Jim Lester, Mr. Merlyn Rees, Mr. Richard Wainwright and Sir Brandon Rhys Williams.


Mr. Tony Baldry accordingly presented a Bill to promote and stimulate greater employee involvement at the place of work: And the same was read the First time; and ordered to be read a Second time upon Friday 10 May and to be printed. [Bill 135.]

Orders Of The Day

Insolvency Bill Lords

Order for Second Reading read.

3.40 pm

The Parliamentary Under-Secretary of State for Trade and Industry
(Mr. Alex Fletcher)

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

The measure before the House today represents the first major revision of the law relating to corporate insolvency for 50 years. It is also the most important reform of the law on individual bankruptcy this century.

During this long period, many major changes have of course taken place in every aspect of life. Thus, the need to undertake a major overhaul of the insolvency legislation is now both urgent and compelling. This the Bill achieves by introducing significant new provisions into the law on corporate insolvency in relation to England, Wales and Scotland and by simplifying and clarifying the existing legislation.

The Bill also achieves systematic modernisation of the law on individual bankruptcy in England and Wales. In Scotland, this is achieved by the Bankruptcy (Scotland) Bill which received its First Reading in this House on 18 December 1984.

The need for a thorough-going review of the insolvency legislation became apparent by the mid-1970s after 25 years of particularly rapid innovation in our financial and commercial systems. In 1977 the major, not to say daunting, task of examining the legislation and identifying sectors in need of repair and renewal was given to the review committee on insolvency law and practice chaired by Sir Kenneth Cork.

The review committee's report, which was completed in June 1982, represents a most comprehensive analysis of this part of the law and its operation. The committee found that the vast economic and social changes that have taken place since the 19th century, when the basis of the existing insolvency law and procedures were laid,
"have rendered them at best, obsolescent and at worst positively harmful".
It concluded that without radical reform
"they are no longer capable of meeting the requirements of a modern society"
and that
"fresh legislation of a comprehensive nature is required".
The Government entirely accepted this conclusion, and this Bill, which implements the majority of the review committee's recommendations either directly or in spirit, achieves the radical reforms judged necessary.

I should like to express, on behalf of the Government, my warm appreciation for the very substantial task carried out by Sir Kenneth Cork and the members of his review committee. Their report formed the basis of the Government's consideration of the deficiencies of the existing law and this Bill owes a very great deal to their valuable work.

Since the review committee's report was published, wide-ranging consultations have proceeded with interested bodies and individuals as to the way in which reform should proceed. These consultations took place first on the basis of the report itself and subsequently on the Government's White Paper "A Revised Framework for Insolvency Law" published in February last year, which set out our main proposals for reform. Very many helpful contributions and observations were received, and these are reflected in the Bill's provisions.

Before considering in detail the Bill's provisions it will be helpful if I outline the legislation's main themes. First, the Bill will ensure that those who act as insolvency practitioners are fit and competent to do so. The absence of checks on who may act in this capacity has undoubtedly led to a small but unacceptable number of abuses Part I of the Bill will remedy that problem.

Secondly, the Bill will combat abuses of the privilege of limited liability by those whose actions undermine the vitally important commercial purpose for which it was established. By so doing, it will encourage directors to take a close interest in the financial circumstances of their companies and, most importantly, to take remedial action at an early stage when financial difficulties loom.

The third theme of the Bill is to strengthen and improve procedures for facilitating the rehabilitation or reorganisation of businesses which become, or are likely to become, insolvent. To this end, the Bill establishes a new mechanism, the company administration procedure, which is designed to provide an alternative to receivership. Provisions are also included to clarify the law on receivership and to ensure that receivers are more open about their work.

Finally, the Bill contains a major modernisation and simplification of the law on corporate and personal insolvency. Those reforms will do away with unnecessary involvement of the court and will make more straightforward the working of the insolvency procedures.

The reforms will also have the valuable effect of enabling the official receivers of the insolvency service of the Department of Trade and Industry to reduce their commitment to the tasks of acting as liquidators and trustees, so permitting them to concentrate on their protective and investigative work.

The Government propose to bring forward some amendments during the Bill's passage through the House. They will mainly be of a technical nature to improve the insolvency procedures and to reflect the helpful comments of practitioners in insolvency on the Bill's provisions. But they will also include provisions to give effect to the announcement I made in November last year that the principal essential utilities should be prevented from securing more favourable treatment than other creditors following insolvency by threatening to discontinue supply. I hope that the necessary amendments will be brought forward during the Bill's consideration in Committee. Perhaps I should make it clear that I am referring to the suppliers of electricity, gas, water and telephones.

I now come to the provisions in part I which relate to insolvency practitioners. The evidence submitted to the review committee confirmed the view——

May we take it that my hon. Friend will not overturn all the Lords amendments, many of which are helpful to the Bill?

I can assure my hon. Friend that we shall overturn, not all the amendments made in the other place, but only those that require that treatment.

My hon. Friend shows his usual good humour. I hope that his common sense will be as good as his humour. Many hon. Members thought that many of the Lords amendments made the Bill acceptable to those who would take part in enterprise, which is meant to be the Government's main task. If the Government insist on overturning the common sense of the Lords, the Bill will have a difficult passage. May we hope that he will at least retain in the Bill the Lords' intention that those who enterprise in a proper manner will not be penalised by the Bill?

I shall come to the steps that we wish to take on the main amendments that were made in another place. We should not confuse enterprise in starting a business with wrecking a business. That is the distinction that we wish to try to achieve in the legislation.

Then we are at one, which is splendid.

I come now to the provisions in part I of the Bill concerning insolvency practitioners. The evidence submitted to the review committee confirmed the view that the majority of insolvency practitioners carry out their duties in a way which gives no cause for concern. But, unfortunately, a minority of practitioners has engaged in questionable activities to the detriment of creditors. It is the Government's view that it is not only desirable but essential that the public should have confidence in those who handle insolvencies.

At present, with few exceptions, anyone can act as an insolvency practitioner. The review committee recommended that measures should be introduced to ensure that professional standards are observed by all insolvency practitioners and that in future fidelity insurance should be compulsory for all forms of insolvency proceedings. The committee further recommended that transitional arrangements should be made to allow experienced but unqualified practitioners to act.

The Bill adopts those recommendations and provides that a person will not be qualified to act as an insolvency practitioner unless he has a certificate authorising him to act and has provided security for the performance of his functions. In addition, a person will not be qualified to act in a particular case unless he is independent of the company or individual concerned. It is accepted, however, that as the Bill, stands at present the restrictions on a practitioner acting in respect of "associates", as defined in clause 207, are too widely drawn to be practicable.

Consultations with the main accountancy and legal bodies are proceeding with a view to introducing amendments which will reduce the area covered by the existing provision in the Bill. Our intention is that only those relationships which clearly constitute a conflict of interests will be caught.

Will a chartered accountant who is placed by a bank with a debenture in a position of company doctor to advise the company on its financial affairs be capable thereafter of acting as a receiver if the company is subsequently put into receivership or wound up?

That is a good question, and it is the sort of point that we are currently considering. We must discuss where we should draw the line with regard to the conflict of interest. I mentioned associates, which would include partners in a firm, and the various rules that the professional bodies apply, for example, to auditors. I cannot give my hon. Friend a precise answer, because this is the sort of point that the Department wishes to consider further before introducing proposals in the House.

Will the Minister also consider the case of a firm of accountants examining, for instance, Johnson Matthey Bankers in early 1984 and giving it a clean bill of health, and then within a few weeks it becoming apparent to every man and his dog that the bank is going under? The parent company did not seem to do anything about it, and the report was then published. May we be assured that, when the Bill is enacted, it will ensure that accountants who give such a clean bill of health will not be allowed to continue to practise and to be used in the way that they were used on that occasion? Will the Bill prevent banks such as Johnson Matthey from being nationalised by a Tory Government? Is that the intention? From what the Minister said to the hon. and learned Member for Mid-Bedfordshire (Mr. Lyell), I would guess that a set of accountants could examine a company and then act as its receivers. I have an idea that Sir Kenneth Cork used to do that regularly.

I am sure that Sir Kenneth Cork can speak for himself on that point. I thought that the hon. Gentleman was in favour of nationalisation of any sort, even the backdoor nationalisation to which he referred. However, the legitimate points that he raises are not matters for this Bill. The remedy open to anyone in the case to which he referred, whether shareholder or creditor, who believes that the accountants' report was inadequate and that they have suffered as a result——

No, better than that: they can seek a remedy in the courts.

The Bill also provides that the Secretary of State's functions as regards the issuing, renewal and revocation of certificates for insolvency practitioners may be delegated to an appointed body. As yet, no final decision has been taken about the level of experience and training which will be required of an applicant for a licence or to which bodies the Secretary of State's licensing function will be delegated. Consultations are continuing with the main accountancy and legal bodies.

It is expected, however, that bodies seeking approval by the Secretary of State will be required to demonstrate that they have a qualifying examination for membership and effective disciplinary procedures, that their members have knowledge of insolvency work and that they are prepared to operate, and are capable of operating, a system of practising certificates.

It is not possible for me to say at this stage which bodies will be approved for licensing purposes. Each application will be dealt with on its merit, irrespective of whether or not that body is recognised in other, non-insolvency fields.

I stress that the Bill does not restrict the certification of experienced but unqualified persons to existing insolvency practitioners. It provides for unqualified persons who obtain the necessary practical experience in future to apply for a certificate.

It is not intended that these provisions will apply to receivers appointed by a fixed charge holder, but they will apply to administrative receivers, as defined in clause 91, and to company administrators appointed under clause 13.

The provisions of Part II(1) are principally concerned with combating abuses of limited liability. Limited liability is an essential element of a successful commercial and financial system, but it is abused. The Government's view is that limited liability is a privilege. Any misuse of it, as a result of incompetence or of lack of concern for the interests of creditors, must be punished in the interest of consumers and the business community generally.

We believe that further measures are required to strike a proper balance between limited liability and the protection of creditors. Clauses 7 to 12 are designed to restore this balance and to ensure that those concerned in the management of companies diligently monitor the financial circumstances of their businesses and confront difficulties at an early stage.

Of course, most directors of companies experiencing difficulties make timely and effective arrangements which do not require the court to intervene in their affairs and which often result in insolvency being avoided. But there are others who take no effective action, leaving the state to wind up the affairs of the company at a point where few, if any, assets remain to meet the claims of creditors.

Unless such dilatory directors have been guilty of fraudulent behaviour—which involves dishonesty, and is not a simple matter to establish—no distinction is drawn between directors who take timely action and those who do not.

Many of the good provisions in the Bill, particularly the changes relating to utilities, represent a step forward, but there is an area which the Minister has left out and which I hope he will consider. I refer to banks being allowed, almost uniquely in this country compared with other industrialised countries, to have a floating charge over assets. That often puts unsecured creditors in a difficult position and it certainly weakens their position.

Will my hon. Friend consider introducing a provision in the Bill which would outlaw, as is the case in the United States and elsewhere, banks having a floating charge but being able only to have a charge over an asset? That would prevent a bank from having a floating charge over the whole of a business. In that event, the banks would come in earlier and would have a better chance of encouraging companies to be saved.

I appreciate that my hon. Friend feels particularly strongly on that matter. I have no desire to avoid the issue that he raises, but I must remind him that the Bill deals with insolvency and insolvency procedures. We should be overstepping the scope of the Bill if we sought to reform the way in which normal commercial lending is carried out in this country.

As for unsecured creditors, the Bill provides that receivers will be required to take account of unsecured creditors in terms of the work that they perform, be they administrative receivers, as they are now called, or be they, as they were formerly called, receiver managers. The work that they perform will be of a nature that requires them to keep the unsecured creditors informed of the state of affairs of the company. That will go at least some way towards meeting my hon. Friend's point.

No distinction is drawn between directors who take timely action regarding the affairs of their business and those who do not. Indeed, at present there is no incentive in law for directors to take early action. Those who do not are a danger to shareholders, employees, consumers and, last but not least, other businesses. Most people are both traders and creditors.

Before I describe the provisions of the Bill concerning the protection to be accorded to investors and creditors from the sort of irresponsible behaviour I have described, I should like to say something about the Government's earlier proposals on disqualification which have already been referred to by some of my hon. Friends.

The House will be aware that the Bill as introduced in another place contained a clause which would have provided for directors of companies subject to compulsory winding up to be disqualified automatically from holding office in that capacity. That clause was removed from the Bill in another place.

Our initial judgment was that the director who allows the affairs of a company of which he is an officer to deteriorate to the point where the intervention of the court is required to wind it up has already gone most of the way to demonstrating his lack of fitness for corporate management. Nevertheless, we have accepted that a policy of automatic disqualification might, in a very few cases, have resulted in those who had conducted themselves properly being penalised.

Accordingly, clause 7 now requires the Official Receiver or the voluntary liquidator to report to the Secretary of State if, in their judgment, there is prima facie evidence that a person's conduct as a director makes him unfit to be concerned in future in the management of a company. If the Secretary of State considers that the public interest demands that a person should be disqualified he, or the Official Receiver on his behalf, will make the necessary application to the court.

That revised provision has the advantage over our original automatic disqualification proposals that it will apply to directors involved in voluntary as well as compulsory liquidations. It also maintains the Government's determination that strict policing of corporate insolvency must take place to ensure that creditors are protected from directors whose conduct has demonstrated their unfitness to assume the responsible office of company director.

Hence, clause 7 places the Official Receiver and the voluntary liquidator under a duty to report to the Secretary of State when they detect unfit conduct. Taken together with the provisions of Part I of the Bill to ensure that insolvency practitioners are competent and experienced, we believe that the threat of disqualification will be a strong incentive to directors to take a much closer interest in their company's financial position and to pay proper attention to the interests of creditors.

Before I proceed, I should like to comment on the amendments made in another place to clause 7, against the advice of the Government. Those amendments, which form subsections (2), (3), and (5) and the latter parts of subsection (8) of the clause, were prompted by a concern that the Bill should give guidelines as to what constitutes unfit conduct and should place some time limit in respect of the workings of clause 7.

We accept that guidelines on unfit conduct and a time limit in relation to clause 7 are desirable. We do not believe, however, that the amendments which were made represent the best approach to this question and it is intended to bring forward our own proposals as the Bill makes progress.

I now come to clause 9, which provides for directors to be made personally liable for the debts of their companies where the court makes a declaration of wrongful trading. I believe that this measure will provide an even more powerful spur to proper conduct than our proposals on disqualification. Put simply, it affects the pocket directly. That may impose its own discipline on the conduct of certain directors.

That directors should be required to accept personal liability for wrongful as opposed to fraudulent trading is a new concept, which was one of the review committee's main recommendations. It concluded that nothing less would serve to meet widespread concern at the ease with which an unscrupulous person can allow a company to continue to trade when there is no reasonable prospect of its creditors being paid.

The Government share the review committee's judgment and consider that the introduction of the concept of wrongful trading will be of major benefit in discouraging reckless conduct. In particular, it will tackle the vicious problem of the "phoenix syndrome" where successive insolvent companies carry on what is essentially the same business.

Clause 9 of our Bill draws heavily on the committee's proposals. It empowers the court to declare a director of a company in insolvent liquidation to be personally liable to make a contribution to the assets of the company if it had traded wrongfully.

Such a liability is incurred if before the liquidation the director knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation and did not take the steps he ought to have taken to minimise the potential loss to creditors.

The effect of the clause will be to provide an effective civil remedy to those who suffer losses as a result of a director's behaviour which may have been reckless, negligent or otherwise unreasonable.

Taken together, our proposals on disqualification and wrongful trading should go far towards improving commercial conduct and protecting creditors. I believe they are generally welcomed.

Given that the provisions relating to disqualification in clause 7 will very much rely upon the liquidator reporting to the Secretary of State if he considers that a director is unfit, how effective does my hon. Friend think that they will be in practice? How far will the clause deal with the abuse to which he referred earlier? Would it not have been much better if the original proposal relating to automatic disqualification had been retained and we had said res ipsa loquitur—the thing speaks for itself—and that if a director has gone as far as compulsory liquidation he should account automatically to the court? Is it not unfortunate that, with the connivance of the Labour party in another place, these clauses were removed from the Bill?

I am bound to sympathise very much with my hon. Friend. As I tried to explain earlier, the Government's proposals which were removed in another place were criticised on one or two points. They were criticised a great deal on emotional points and they were criticised legitimately on one or two factual points. One criticism was that as the proposals were framed they might have caught a very few innocent directors. We had to bow to that argument. I wish that the original clause 7 had been more fully debated in another place before the amendments were made, but in considering the question as a whole we are falling back on the liquidator or the official receiver making his report to my right hon. Friend the Secretary of State for Trade and Industry.

We are still examining the provisions of clause 7. We wish to provide guidance in the Bill about what constitutes unfitness in a director so that directors and their advisers, as well as liquidators, will know precisely what is expected of them when filing their reports and running their businesses. The Government want the proposals to be as effective as possible. In many ways they are a second best. I have to concede that. However, in all honesty, I think that as they compare in other ways with the original clause 7, one has given way on a particular point. I am delighted that my hon. Friend says that the proposals will improve and strengthen clause 7. I look forward to his co-operation.

I wonder whether the Minister was confusing innocence with slackness. It would seem that if a director has allowed that pitch to be reached, he must have been dilatory in carrying out his duties towards that firm.

I agree with my hon. Friend. If a company is completely ruined, as all too often happens, I hope that the liquidator responsible for reporting on the conduct of directors will not just take into account the guidelines that we are laying down but will draw on his own experience and ask himself, "What were the directors doing, each and every one of them, in the days, weeks and months before the company was wrecked?" It is on that basis and in that spirit that we expect to receive reports from liquidators and the official receiver.

Might the weakness of the present clause from another place be strengthened by allowing the creditor to make application to the court should the liquidator not do so?

We have considered that possibility. We take the view that we do not wish frivolous actions to be raised. We believe that the person who is in the best position to make the judgment regarding the conduct of directors is the person responsible for winding up the affairs of the company. In this case, it would be a licensed liquidator or the official receiver himself.

I am sure that those matters will be discussed at great length in Committee. It is an important aspect of the Bill. I shall be happy to have those discussions.

Does not the Minister recognise that a similar situation exists under the law at the moment, and that no more that about a couple of dozen directors a year are recommended for disqualification? Surely, when there is a prima facie case of neglect of duty by a director, the right solution is that he should be automatically disqualified, with the burden of proof then reversed, and let him make an application to the court to show his innocence as there is a prima facie case against him.

On the basis of remarks that have been made in the House this afternoon, there seems to be a difference between us and another place in the view taken of the Government's original proposals. No doubt that debate will continue for the rest of the day and in Committee.

I was about to refer to the Bill's provisions on company rescue procedures. The review committee recommended that greater emphasis should be placed on business rescue and reorganisation, and suggested that a new procedure should be established—the company administration procedure—under which the court may appoint an administrator to a company if it considers that the appointment would promote either its rehabilitation or restructuring through sale of parts of the business as going concerns.

A key element in company rescue is the availability of a breathing space during which plans can be put together by new management to return the company to viability or to secure survival of parts of the business. The absence of that breathing space too often means the demise of any prospect of the rehabilitation or the reorganisation of companies.

The administration procedure therefore provides for a statutory moratorium on all actions and proceedings against a company including creditors' rights to enforce their security.

Following publication of the Bill, many helpful comments from practitioners in the insolvency area have been received regarding the new procedure. As a result, it is hoped to make a number of amendments to the Bill's provisions to improve the new procedure and to ensure that it can work effectively.

I refer now to the provisions amending the law relating to receivership. The review committee drew attention to two principal areas of weakness in the existing law. The first concerned the receiver's lack of accountability to unsecured creditors. The second weakness is the lack of clarity of the law relating to a receiver's powers and duties. The main thrust of the provisions is therefore to remedy deficiencies in those areas.

The Bill's provisions deal mainly with the law on receivers appointed under floating charges over the whole of a company. Such receivers will be known in future as administrative receivers. That is the old receiver and manager. I must confess that I find that a little confusing. We are talking about a new administrator and administrative receivers. I looked at the Bill the other day, and found that it would require about six or seven dozen amendments to change the terminology throughout the Bill. However, we shall see how we get on with the terminology. If it seems to be confusng, we may consider making changes.

We all understand what a receiver and manager is. Why have we changed the title?

That is a legitimate question. I take note of my hon. Friend's point. As I said, six or seven dozen amendments would be required. That is why I hesitated.

When the receiver is appointed, the decision is made more or less immediately, as I understand it, but with an administrator there is a period between a petition being presented to the court and the court deciding to appoint the administrator. Will my hon. Friend clarify the length of that period, because time is of the essence in these matters?

The moratorium takes effect from the day when the application to the court is made, and the provisional administrator is appointed, so to speak. I think that there is a period of three months—I am sorry, but I cannot be certain—between the application and the administrator being confirmed or otherwise. The breathing space starts immediately a petition is made, and the administrator is instructed to go forth and prepare his plan.

Would it be possible for the petition to be withdrawn if the firm found that things were not as bad as it thought?

Indeed. An application can be made to the court by a company, creditor, or anyone affected by the administration, to have the petition withdrawn. I hope that that rehabilitating and restructuring procedure will be used. I shall be happy, as I am sure the whole House will, to see companies emerging after six, nine or 12 months of breathing space fit and able to conduct their business with new vigour.

I should like to refer to the new corporate and individual insolvency codes. I refer now to the fourth of the Bill's major areas of reform—the restatement in modern form of the corporate and personal insolvency codes—which accounts for nearly three quarters of the Bill's 211 clauses. In the Government's view—and one which I believe is widely shared—it is essential that modern insolvency codes should reflect the commercial world within which they must operate. They should ensure that causes of commercial failure are the subject of close inquiry, both in the interests of those who have suffered financially and in the public interest to promote a healthy business environment. In order to achieve our aim of simplified, modern and harmonised codes for both corporate and individual insolvency, which will endure for many years, the Bill adopts many of the recommendations contained in the review committee's report. It also effects a complete overhaul of the antiquated bankruptcy code, which is currently embodied in the Bankruptcy Act 1914. Many of the corporate insolvency provisions in the Companies Act 1985 are also modernised or replaced by undated legislation.

As a result of the new procedures, time-consuming and routine tasks which currently fall to the official receiver and his staff will be swept away. In future they will be able to concentrate on the investigation of the affairs of both individual and corporate insolvents. The simplified procedures will also mean that insolvency practitioners who act as liquidators and trustees will be able to carry out their duties without unnecessary bureaucracy and expense.

I am pleased to say that the general response to the detailed procedural elements of the Bill has been favourable. We have gone a long way towards developing new insolvency codes which will meet the needs of today and the foreseeable future, but we continue to welcome suggestions for improvements to the Bill's proposals.

We have had many helpful comments already, and I should like to express my appreciation for the contributions which practitioners in insolvency have made to our work on the Bill. We hope to introduce a number of amendments to take account of the various matters drawn to our attention and to make further improvements to the Bill. For example, we have been urged strongly to look again at the question of the matrimonial home in bankruptcy and we have issued a consultative paper. This will enable account to be taken of the views on how reform should be made in the present legislation. A copy of this paper has been placed in the Library.

I draw the attention of the House to one final matter—the preferential status of certain debts, such as taxes, owed to Government and others. The review committee recommended the abolition of preferential status in the case of some tax liabilities, and a reduction in the period for which preferential status is applied in others. The Government looked again at this question and subsequently brought forward amendments to the Bill in another place.

The Bill's provisions now have the effect of removing the preferential status of taxes except in the case of collector taxes—that is, taxes such as value added tax and pay-as-you-earn which are collected on behalf of Government and which represent sums of money that are never the property of the individual or company which collects them. It would be quite wrong if, on insolvency, such moneys were distributed to private creditors.

This is a particularly serious matter for the small company which can fail because of preferential creditors which can have a domino effect upon a number of other companies. The problem is that the Inland Revenue might have failed to collect money owing when it should have collected it. If it had collected the money, it would not have built up such a large preferential debt and more money would be available to distribute to other creditors. The failure of the Inland Revenue can cause the failure of a number of companies. I do not see why the Inland Revenue should be in such a privileged position.

When a company fails, it should not be assumed that only 5 or 10 per cent. of its debt will be paid to non-preferential creditors. A substantial sum—perhaps one third or one half—should be paid to them. That would have a substantial effect on small companies which would not be faced with the distress with which they now have to cope when one of the customers goes bankrupt.

I am grateful to the right hon. Gentleman, but I cannot accept the premise upon which he bases his argument. He said that sometimes a creditor is to blame for the debtor's disaster. One could argue that not only about Crown debts but in relation to a bank, which has supported a company for years. One could say that the bank is to blame if the company goes under because it should have clipped the company's wings much earlier. I do not accept the right hon. Gentleman's general argument.

The Government have gone a long way in relation to Crown preference. I have explained what we are doing about public utilities which have had a bogus preferential status. We have moved a long way in that direction.

I do not know how much further we can go than to say that a body does not have preferential rights, that therefore it must not act as if it had and to pass legislation to ensure that it does not act in that way.

My hon. Friend has the wrong end of the stick. I was referring to the preferential treatment still accorded to VAT and PAYE.

We are trying to distinguish between assessed debts—corporation tax, some income tax and rates. They lose their preferential status. However, when a company collects money such as employees' tax, VAT or national insurance contributions, that has nothing to do with trading. The company is carrying funds on trust with a view to paying them to the Revenue. That has nothing to do with a liquidation or bankruptcy and such funds should be given preferential treatment.

Unlike normal traders, the Government cannot choose with whom they do business. They cannot refuse to deal with a company's PAYE, VAT or national insurance contributions because they do not like that company's record, but a trade creditor can refuse to do business with a company. I think that the arguments are powerful.

Does my hon. Friend accept that a small business man faced with a large company does not have much choice either?

The small business man can decide whether he does business with a company. However, the Government do not have that choice in relation to VAT and PAYE. The Government's concessions go a long way towards satisfying the legitimate arguments expressed here and elsewhere.

What happens when an administrator is appointed to a firm which has not paid its bill to a supplier? Will the supplier still have to pay the VAT on a bill which is not paid because the administrator has imposed a moratorium? The administrator provision would be more popular if we knew the answer to that question.

I shall answer that later, but I think that such a supplier would still have to pay the VAT. I do not want to confuse that issue with the receivership provisions in the Finance Bill. We are making changes in legislation which will allow a concession to be made in relation to VAT.

The Bill's proposals represent a significant reform of the law on preferential debts. I am sure that this will be generally appreciated. I would add, however, that the Government do not accept that there is any justification for the reduction in the preference period of value added tax from 12 months to six months. This was inserted into the Bill by an amendment made in another place. We shall invite the House to restore the previous position.

I am sure that my hon. Friend is right to distinguish between the two taxes. As soon as a business registers for VAT, it has an immediate cash flow benefit. Many small firms use VAT to keep going. However, perhaps there is something in what the right hon. Member for Ashton-under-Lyme (Mr. Sheldon) said. It is up to the Government to move on this matter. Is not the Treasury acting in accordance with the Keith committee proposals? The Chancellor said that over the next three or four years he expects a £800 million cash flow benefit from the changes in VAT enforcement contained in the Finance Bill.

There is a quid pro quo. As business men rejoice in the changes relating to Crown preferential debts, public bodies which lose preferential status may decide to move more quickly and be less lenient when debts becoming outstanding. With the loss of preferential status, such bodies may chase for their money harder than before. That is inevitable.

I believe that the Bill will ensure that insolvency proceedings are conducted by practitioners who are competent and fit to act in that capacity. It will deter and punish those who take advantage of limited liability either by negligent conduct or by furthering their own interests at the expense of creditors. The new administrator procedure and the reform of the law on receivership will give a new thrust to efforts to avoid insolvency or to rescue the viable parts of insolvent companies.

Finally, the Bill will provide modern and effective insolvency codes which will not only meet current needs but also stand the test of time. I commend the Bill to the House.

4.29 pm

It is in a way appropriate that it should fall to this Government to bring forward a Bill on insolvency because it comes at a time of record insolvencies, with over 13,000 company liquidations and over 8,000 bankruptcies last year. Having enlarged the scope of the problem in this way, the Government can at least be said, in bringing forward the Bill, to have recognised their responsibility.

The Insolvency Bill is the first major attempt at reform of the subject this century.

I have only just started, and I do not propose to give way for some time.

The reform is universally regarded as long overdue. The mischiefs against which the Bill is directed are notorious. Indeed, the Minister mentioned a large number of them. I suppose the first, at least in the public consciousness, is the phoenix syndrome, which he mentioned, whereby rogue directors escape their liabilities by going into liquidation, leaving in their wake a trail of unpaid creditors, and are then able to set themselves up in the same business on the following day free of all their debts and ready to start again.

Then there is the cowboy liquidator who often acts in collusion with the rogue director. As the law stands, liquidators need have no qualifications of any sort. The cowboy liquidator is nevertheless permitted to handle and to gain access to substantial assets. In many cases, I am sorry to say, he uses that ability to cheat creditors of what is due to them.

There is also the plight of the unsecured creditor, which I think was very much in the mind of the Cork review committee. The unsecured creditor almost always loses out because he is left with what remains after the holder of a floating charge has recovered his money, after preferential creditors such as the Government have taken their share, and after professional expenses have been paid. What is left to the unsecured creditor as a consequence is, in most cases, nothing.

A further mischief with which the Bill is concerned, to which the Minister also referred, is what is often a headlong rush into insolvency—usually at the instance of the debenture holder, the bank—of companies which could be nursed back to proper financial health. It is often—this is a point that the Minister did not raise—the employees of such an enterprise who bear the brunt of the priority asserted by the banks in protecting their own interests. There is a clear public interest in making sure that companies do not go prematurely into insolvency.

There are then myriad ways with which the Bill is largely concerned in which an archaic insolvency law fails to provide the speedy, fair and effective procedures that we need in today's circumstances to establish a proper balance between the interests of the directors on the one hand, and creditors, consumers, employees and the community at large on the other. To the extent that the Bill seeks, as it does, and largely succeeds, to remedy these deficiencies, the Opposition will support it.

The Bill is, of course, based substantially on the Cork report. The Opposition join the Minister in expressing our appreciation of the work done by the review committee and Sir Kenneth Cork. It was the Secretary of State's predecessor who appointed Sir Kenneth Cork in 1977. As the Minister said, the report was produced in 1982, followed by a Government White Paper in February 1984.

Despite this fairly leisurely timetable—particularly, if I may say so, on the Government's part, rather than that of the committee—the Bill shows many signs of inadequate preparation, and certainly inadequate consultation. One instance of this is that no debate took place either on the Cork report or on the White Paper. In the light of the mauling that the Bill received in another place, to which the Minister made many references, the Government must surely regret now not having consulted more widely and thoroughly before they produced the Bill.

We intend to approach the Bill constructively. Our object is to make it a better Bill. Our starting point—and here I echo the language that the Minister used—is that limited liability is an immense privilege that allows business men to trade, often using other people's money, at little risk to themselves. It is a privilege which has been of great importance and which will continue to be of importance in stimulating economic activity. It is also one which is clearly susceptible to abuse. In our view, the evidence is now incontrovertible that that privilege has been considerably abused, and that many worthwhile interests which deserve attention have suffered as a result.

Too often we believe that limited liability encourages commercial behaviour which would rightly be regarded as outrageous if it were a matter of the private affairs of a private individual. We believe, in other words, that the privilege should be extended only to those who are clearly fit to use it, and that those who abuse it should have the privilege removed.

We bear in mind that the whole thrust of the Cork report was to shift the balance of advantage away from directors and in favour of consumers, creditors, employees and the public interest.

Is the hon. Gentleman saying that the privilege should be extended only to those who are clearly fit to have it? Does he suggest that people can become directors of limited companies only if they pass some kind of test?

I do not believe that even the hon. Gentleman expects me to be so foolish as to agree with that proposition. It is not what I am saying. I am saying, however—and this takes us immediately to the heart of the issue which occupied and, indeed, preoccupied their Lordships in another place—that we are not content with the present form of clause 7, and here we share the Minister's view.

The Bill began by proposing that any director involved in a compulsory liquidation should be automatically disqualified, subject to the right of appeal and so on. We do not find the principle of automatic disqualification as offensive as many clearly have. We are, after all, talking of withdrawing a privilege, not of convicting somebody of a criminal offence. I think that what went wrong with clause 7 as originally drafted was that it took the wrong criterion. It fastened upon compulsory liquidation as the point at which the disqualification should apply. That was unacceptable simply because it did not necessarily catch the rogue director who would be pretty adept—more adept, perhaps, than the unlucky and incompetent director—at escaping, getting out and going into voluntary liquidation long before the measure came to apply to him.

We favour a set of tough rules to restrict unfit directors. We believe that clause 7 as it stands is too weak. It is particularly weak in the mechanism that it proposes. One or two hon. Members have already referred to that in interventions. It proposes, as the Minister knows, that the matter should depend upon a report by the official receiver or a liquidator. All the evidence is that liquidators in particular simply do not make such reports.

There is a statutory provision under section 9 of the Insolvency Act 1976 which is virtually unused. Under the legislation, for example, companies have an obligation to file accounts and, when those companies go into liquidation, liquidators have an obligation to make reports if they fail to carry out that duty. However, although 400,000 companies are at present in default of that duty, the average figure of reports by liquidators on such failures is fewer than 30 in the past two or three years. We shall wait to see what amendments to this provision the Government bring forward.

By way of indicating what we would like to see, we believe that we should try to strike at the inclusion in clause 7 of a pattern of conduct which is able to identify not, as I have said, the unlucky director who makes a mistake on one occasion, but the director who comes in, knows what he is doing, gets out at the right moment and sets up again. Therefore, we may well look with favour upon an amendment seeking that sequence of perhaps two liquidations—whether compulsory or voluntary does not matter—as a sign that here is a director involved in something which is an abuse and which ought to be stopped.

As to other matters in the Bill, we support the concept of wrongful trading, that is, the idea that a director who accepts credit at a time when he knows or ought to know that the company is insolvent should be personally liable. We believe that the amendments that were made in another place means that clause 9 is unsatisfactory and needs tightening. We would like to see a move towards something nearer to the basic recommendations in the Cork report.

We agree strongly that liquidators should be professionally qualified. Currently, anyone can be a liquidator. The only experience that liquidators have at the lower end of the market, as it were, is that they themselves have been insolvent on many occasions. Some of them have been through the mill so often that they recognise eventually that it is easier to make money out of running liquidations than constantly becoming insolvent. That is often the way in which they are able to gain experience and to make a profit from their activities.

We support the proposed reform, but we are not convinced of the soundness of the Minister's detailed thinking on who should be qualified. We shall want to consider that in more detail in Committee. The Minister may be aware that there are some operators who foresaw reform and the introduction of a Bill some years ago. They took the precaution of setting themselves up in small professional bodies for the purpose of meeting any criteria which might be laid down in the Bill. That is something that should be examined carefully.

We support also the introduction of the Cork-recommended administrator, whose task will be to keep a failing company in business. It is a valuable idea which offers some hope of reducing the number of unnecessary business failures. However, we are concerned that the appointment of an administrator can be vetoed by the debenture holder—usually the bank—and that employees' rights are not given greater protection.

As a general proposition, the Government have been perhaps too solicitous of the banks' interests. One of the major shifts in emphasis between the report and the Bill is that the banks have managed to ensure that nothing will happen to disturb their preferences. Surely the administrator's role should be to stop companies from being driven into insolvency unnecessarily. We are all familiar with notorious examples such as Stone Platt where the banks insisted on putting in their receivers. In effect, they have destroyed companies that could have survived. We should consider the relationship between the rights of a debenture holder and the appointment of an administrator. There is a more general case, however, for restricting the rights of the holders of floating charges, who almost always grab the lion's share and leave little for unsecured creditors.

The Bill does not go far enough to protect the interests of employees of a company to which an administrator is appointed. One of the real promises of advance that lies behind the idea of an administrator is that jobs that might have been destroyed will be safeguarded. Many members of the work force will be involved directly as their jobs will depend on the administrator's success. At least one representative of the work force should be on the administrator's committee. The administrator should be under a clear statutory duty to consult and inform the work force. He should have a general duty as well to safeguard employment.

On one issue we are less at one with the Government than on the matters to which I have referred so far. We believe that the Bill, in some respects, is animated by an attempt to downgrade the role of the official receiver, probably in an attempt to save public spending. It is clear that the savings from such an exercise would be illusory and, at best, minimal. The exercise is an example of dogma at work. We can claim the support of the Cork report in maintaining that there is a legitimate public interest which must be protected in ensuring that insolvency procedures are properly carried out. This means a continuing and important role for the official receiver.

I agree with the hon. Gentleman that there is an important public interest role for the official receiver. The improvements that we have made to the details in the Bill and the shifts of policy in the Bill are intended to allow the official receiver's department to be able to carry out its investigative and protective work more effectively and spend less time on matters for which it was never designed.

I am glad to hear the Minister say that. I give him notice that we shall consider carefully and critically anything that smacks of an attempt to privatise by a side wind any of the official receiver's functions.

The Government, under pressure, have gone some way towards the recommendation in the Cork report that the Government's preferences and those of public corporations shold be abolished. We welcome the move on rates and on what are now known as directly assessed taxes such as corporation tax and capital gains tax. We welcome the amendment, which was agreed to in another place, to reduce the scope or time limit of the preference on collector taxes such as VAT and PAYE. We shall ensure that there is further debate on these issues in Committee, bearing in mind the general desirability of equivalence of treatment so that as much as possible is left for unsecured creditors. That is a leit motif of the Cork report and we must never lose sight of that objective.

Consumer organisations have been keen to give special protection to the consumer who makes a prepayment for goods or services to a firm which then fails before the goods or services are delivered. There is no doubt that such persons, who are currently treated as ordinary creditors, receive a raw deal, but we must accept that they are not unique. All unsecured creditors are in that position. The argument is finely balanced. It is undesirable to create a new class of preferred creditor, but there is a case for saying that the ordinary consumer has less chance of protecting himself than a trade creditor and is perhaps less aware that he is advancing credit to a trader, which the trader can use as part of his working capital. We shall be keen to hear further argument on these issues in Committee. We shall come to a conclusion in the light of the arguments.

Does the hon. Gentleman agree that consumer organisations are concerned also about servicing contracts, which are rather difficult to quantify and which give consumers very few rights?

The hon. Lady is right about that. There are a number of areas in which the consumer is not properly protected. I am sympathetic generally to the consumer organisations' argument but I enter the caveat that we should be a little chary of creating new classes of preferred creditors when the general thrust of the reform should be to treat everyone as nearly equivalent as possible.

So much for what is in the Bill. The Opposition's major criticism is directed to what is not. It is unfortunate that in some respects the Bill can be regarded as a missed opportunity. It has failed to provide the comprehensive reform that was recommended in the Cork report and was the object of the review committee's report. For example, the Bill fails to provide for a specialist insolvency court, which the Cork committee recommended. Such a court would have meant a substantial step towards simplification of inevitably complicated procedures, whatever reforms the Bill is able to introduce. Insolvency involves many complicated matters and there is a powerful case—the Cork committee certainly made one—for a specialist court to deal with it.

The Bill makes no provision—perhaps this is its major omission—for the Cork recommendation of a fund comprising 10 per cent. of available assets to be set aside for unsecured creditors. There was some dispute over the precise purpose of the fund, but it seems that the ground for that argument has changed slightly since the report's publication. Whatever the ground on which that idea would be supported—either because it was a fund for distribution to the unsecured creditors or because it was a fund to enable the liquidator to carry out his tasks and duties more efficiently for the unsecured creditors—it is unfortunate that it has not been embraced by the Bill. We shall table an amendment on that subject so that we may have a proper debate.

May I make this point for the sake of clarity. I have discussed the matter with Sir Kenneth Cork. I have it on his word that what is intended is a fighting fund for the liquidator and not a dividend reserved for the unsecured creditors, which would be a paltry sum in most cases.

I am grateful to the hon. Gentleman for making that point. I believe that the fighting fund concept is a stronger ground on which to support this idea, although the report did not advance the idea in quite those terms.

The Bill is deficient in omitting to establish an insolvency court and a 10 per cent. fund. The legislation has failed to provide the package recommended by Cork. Everything hung together in that package. Because important elements in the Cork package are left out, the Bill falls far short of the comprehensive reforms that Cork recommended. Without those elements, the reforms in the Bill will be less effective than they should be.

The Bill is widely regarded as excessively long and complicated. That was perhaps inevitable. It is only the framework of the body of rules, regulations and law which will govern this matter in the future. Much will depend on the detailed rules and notes that have yet to be produced, and we hope that we will receive further information in Committee about them. Much will depend also on the amendments that are made in Committee. If we emulate our colleagues in another place, those amendments will be substantial, numerous and far reaching. The Committee stage could be unusually important, and we intend to make it so. We intend to approach this important task as constructively as possible.

4.52 pm

This has been an extraordinarily difficult subject on which to put speech notes together. It affects us in two ways, because it is one of the few ways in which hon. Members can be disqualified. For someone who is a both a business man and a Member of Parliament, there is a sort of double jeopardy, because one faces a potential disaster area as a business man and as a Member of Parliament.

This subject is a bewildering mystery to most business men. It reminds me of the charts for ancient mariners which show that a part of the sea was a no-go area. I believe that most business men would like to keep well clear of it. I am worried that people might be frightened into taking precipitate action and calling for voluntary liquidation, even though they might still be able to fight out of a corner.

The proposal to appoint an administrator is an interesting new idea. We shall have to suck it and see to ascertain how it will work in practice. I suspect that most business men would be reluctant to call in an administrator if they felt that they could deal with matters themselves. It would be helpful to have a document equivalent to the highway code to guide business men through the Bill's provisions, explaining the courses open to them if they are in difficulties.

I feel that I can speak from personal experience because a year or two after I started my business I found that I was in difficulties. I had two bankers. One said that he did not want to go to gaol with me. The other said, "You have got into this muddle; you get out of it yourself." Fortunately, he helped me during the next two or three years until I was able to show a respectable state of affairs.

I understand that the Office of Fair Trading has said that more than 200,000 people lost £18 million last year. Last year there were 3,000 receiverships, 5,000 compulsory liquidations, 8,000 personal bankruptcies and 9,000 voluntary liquidations. They were probably only the tip of the iceberg, because, for every business that goes into liquidation, there must be many more fighting to survive and make a go of their businesses.

During the past seven years there have been, on average, only about 20 prosecutions a year for dishonest practices, because it is difficult to prove dishonesty. The hon. Member for Dagenham (Mr. Gould) said that there is a record number of bankruptcies, but he was looking at only half the figure. On the other side of the coin, there was a record number of company formations. More than 1 million companies are registered at Companies house—an increase of nearly 50 per cent. since the Conservative party came to power. That reflects the way in which the small business can help.

An interesting table published in, I believe, the Financial Times showed how few of those companies can make substantial profits. The majority are very small businesses and are probably only just able to show a small net worth. Such businesses might become insolvent if they ran into difficulties.

Although I would not question Sir Kenneth Cork's competence, the report contained some strange points. The report stated:
"We have sought to protect the non-executive directors in large enterprises, on the one hand, while severely penalising those who abuse the privilege of limited liability by operating behind one-man, insufficiently capitalised companies on the other."
I disagree, because I believe that we should help one-man businesses. Those businesses are often under-capitalised, and we do not want legislation that will penalise them while protecting the non-executive directors in large companies. It was a pity that all the members of the Cork committee were from the "good and the great". The committee included no representatives of lay people or small businesses.

Sir Kenneth Cork said that an insolvent company could trade out of its difficulties only by incurring further liabilities. That is not true. I found when I was in difficulties that the best way to pay the bills was to collect the amounts owing to my business. That is not a way of incurring greater liabilities. I question some of the report's references to the liabilities of small firms.

I must confess that I have not come to a judgment as to where the Bill strikes a balance between clamping down on rogue directors and helping genuine investors. To some extent, the Bill does not go far enough in dealing with rogue directors. To threaten compulsory disqualification is unsatisfactory to the majority of honest directors who are doing their best. Their reputations could be impugned by compulsory disqualifications, even though they had taken what they believed was a sensible risk.

My business is currently investigating an opportunity to take over another company which has had a period of difficult trading. I spoke to my fellow director yesterday about this matter. He said that if there were any question of his being compulsorily disqualified he would not touch the other company. Although there are many provisions to assist people—the hon. Member for Dagenham said that he did not think that certain actions should be criminal offences—the fact is that a person who is disqualified from being a director loses his livelihood in that business. He would not, therefore, want to take on another risky business. The other place debated this difficulty. A person's livelihood would be affected if he took on the directorship of a business that got into difficulties even as long as two years after he left it.

One's livelihood is seriously affected if one drives a car into a tree. That is the way in which we should examine how directors behave in a company. We should consider whether they have wrecked the business or whether, despite the fact that the business became insolvent, they acted responsibly. It is not suggested that we should impose a penalty for insolvency. What matters is the way in which directors behave when they should have seen the danger signals.

I am grateful to my hon. Friend for pointing that out, but it is not easy. It depends upon the way we look at it. It is not inappropriate to look at one of the new credit cards. It has a hologram on it. It differs depending on the way one looks at it. It is the same with a business. A business can seem to be all right. Something can suddenly happen, white suddenly becomes black and the business looks different. Stocks which seem to be good suddenly seem to be not so good. A company which seems to be solvent suddenly becomes insolvent. That is the difficulty.

A director can understand a company in which he has been a director for many years. He can be satisfied that it is trading properly. He can then be asked to join the board of another company where matters are not so clear. If he is likely to be faced with compulsory disqualification because the second business goes wrong, he is likely to keep away from it.

I should like to believe that people can be encouraged to join boards of companies where there may be difficulties. The director may not know which way to look at the hologram because it can change. He does not want to be faced with compulsory disqualification from his existing directorship if the second company goes wrong.

When I was in difficulties, one bank told me that it thought that I could trade through the difficulty, while the other took the opposite view. Most directors would be unhappy at the prospect of finding themselves in court having to argue that they should not be compulsorily disqualified.

We are not being tough enough with the rogues. There is no point in merely removing their right to be the director of a limited liability company. A Mr. Darrock came to see me in my constituency a little while ago. He had been trying to obtain payment from—I do not believe I am being unfair in saying this—a rogue. A Mr. MacDonald, trading as Mac's Engines—not a limited company—consistently did not pay when the bailiffs tried to enforce judgment against him. My friend obtained a judgment for £47 because the man had failed to repair his car properly. He could not get the judgment enforced. When I wrote and asked the Lord Chancellor what could be done, he told me that the court had no power to enforce a judgment.

That gentleman—"gentleman" is perhaps not the right word to use—had been trading continuously on that basis. He lived somewhere in Southport. No one knew precisely where he lived. His plant, equipment and business were on lease and therefore the bailiff could seize nothing. Such people should be stopped from trading. Imprisonment is called for.

The Bill, as drafted, before it went to the other place, was too sweeping. It threw the blanket of automatic disqualification over innocent people whereas guilty people could dodge through and say, "If I lose my limited liability company, I can still trade."

There is an attractive simplicity in what the hon. Gentleman is saying about the distinction between the honest director and the rogue director. The problem is that in some cases a director gets into difficulties and succumbs, because of the pressure and suggestions made by other less honest people, to a course of conduct which inevitably prejudices his creditors and other people.

The remarkable fact is that Sir Kenneth Cork said that in his vast experience he had met only five or six people who had set out deliberately to defraud. Others had drifted into it. We are dealing with a difficult subject.

It must be wrong for a company director to become insolvent. People do not join boards or set up companies with the intention of becoming insolvent unless they are one of the tiny minority of dishonest people. However, one makes mistakes in the course of trading. I do not suppose that there is one company in which mistakes are not made. Directors will get into a frightful sweat if they think that they will be taken to court for genuine mistakes and dealt with for wrongful trading. As I said, the difficulty is that if something is looked at one way it seems to be all right, but if looked at the other way it is wrong. Rogues can get away with wrongful trading.

The Lord Chancellor said that he had no power to stop the man I have described from trading. He was known to be a rogue. The local newspapers have now stopped taking his advertisements; but fancy there being no power to stop that man from trading. Bailiffs made numerous abortive attempts to enforce judgment. Nothing could be done. The plaintiff was told that he had to bring proceedings again after a year. I am not a lawyer, but apparently after one year the judgment lapses and the plaintiff would have to start the proceedings again. It is unfair to throw that duty on to the plaintiff. The Government should act to stop the rogues. We should take more powers to deal with them rather than throw a blanket of compulsory disqualification which may frighten people.

My fellow director told me that we could forget about the business that we are considering if there were any likelihood of any of the directors being compulsorily disqualified. Courts should have powers to prevent people from trading and to imprison people if they continued to trade against the court's judgment.

The idea of an administrator is good. We shall have to see how it works. The Bill is woolly. We need to know more about the period before a petition is presented. We need to know how a company will decide to present a petition, what happens when it has been presented, and how long the proceedings will take. My hon. Friend the Minister said that he could enlighten us further about that. Some of the provisions are vague and impractical. Clause 24(1) calls for a statement of affairs as at the date of the order. Another date might be more sensible. That subsection should be amended to read, "or such other date as may be determined by the administrator."

In a business, stocks are usually taken at the weekend. A court would not make an order at the weekend and therefore the administrator should have the option as to the date when the accounts should be prepared. Clause 23(2) provides that a statement of affairs should be prepared within 21 days. When I was in difficulties it took me two years to produce a set of accounts. Everyone was horrified to see them and I told them that matters must have improved during those two years. I was desperate to produce the accounts. How is that to be done within 21 days? The subsection further provides that they could be prepared within a longer period not exceeding two months.

Generally, when a company is in difficulties the accounting system has broken down. It may be one of the reasons why it got into difficulties. My accounts showed that everything was fine and profitable, but that proved to be wrong because the accountant did not know how to prepare them. If the accounting system is in a shambles, how will anyone be able to produce a statement of affairs within 21 days or two months? A further subsection mentions "reasonable excuse". I do not know who will decide whether the excuse is reasonable—the administrator or the court. The Bill needs tightening up.

I do not know how "wrongful trading" or "knowledge" will be defined. The definitions will probably develop through case law rather than be something that we can pin down.

My hon. Friend has been enlightening us most helpfully. The House should know that he now runs a highly successful business employing, I believe, several hundred people.

When one is in a competitive industry one is reluctant to say more than one needs. I am fortunate that the company which I control now employs 500 people. Last weekend I was pilloried by one of the less honourable Opposition Members for talking about the need to abolish wages councils while drawing an increased salary from my company. I started work at £4 5s a week. I cannot see why other people should be prevented from starting in the same way.

I am worried that if compulsory disqualification is lurking, one of two things will happen. Directors will see something that they do not like and clear off the board. They will keep their fingers crossed that nothing will happen in the following two years. I understand that that is the magic period. If the company can get through the following two years, the directors will be all right. The rats will be leaving a sinking ship.

On the other hand, if the directors think that the company will go under in less than two years, they will make a damned nuisance of themselves. They will start to interfere. That is the time when it will be advisable to appoint a chief executive who commands confidence, and let him get on with the job. I would hate to find myself subject to constant interference from a host of non-executive directors demanding the preparation of statements of affairs on a daily basis and querying everything that I did, so that they could prove to some strange court—when the company had finally collapsed under the weight of their interference—that they had taken every reasonable step and were whiter than white. That is another area in which compulsory disqualification could work in an unhelpful way. We need to pinpoint the rogues, and leave the others to make the best of what could well be a difficult job.

The White Paper "Burdens on Business" has just been published. It noted the fact that lack of capital can be a main cause of failure. We must accept the fact that, in many businesses, trading on creditors' capital is all part of the business. One does not pay one's supplier until one has been paid by one's customer, where there is a difficulty with the customer. Although we must pay proper regard to the terms of contract, we must also remember the day-to-day practicalities. There are under-capitalised companies, and we should be able to help rather than to hinder them.

5.12 pm

I am pleased to welcome the Bill. Although we will wish to consider many parts of it in detail in Committee, as was done in another place, all hon. Members will welcome the general thrust of the reforms.

I first became aware of these major problems through a range of small businesses in the Teesside area, a number of which were members of the Teesside small business club, and also through some constituents who had been hit hard when their small businesses lost substantial amounts of money because other firms went into liquidation.

I became increasingly horrified when some of the practices in which firms indulge were drawn to my attention. I am grateful to the north eastern traders association, and also to David Carter, of Carter Steel, in my consituency and other steel stockholders who drew to my attention some of the activities of Chancery Lane Registrars, who have become notorious for quick liquidations and the equally quick and adroit reincarnations of the same people in a new guise. The activities of such nefarious firms over a long period have led to the undermining of one business after another. Members of the small business club and of the north eastern traders association, and other small business men, will welcome the proposed changes. I will wish to draw upon their experiences during the passage of the Bill in order to ensure that their interests are protected. Firms that are providing employment now and will provide more in the future are being damaged and are unable to grow because of the activities of some nefarious people.

As a result of the tragedy of Stone Platt, for instance, and major collapses such as that of the Stern empire, when people saw either tragedies or abuses occurring, they became aware of the need for legislation. The Stone Platt tragedy was a major catastrophe for the engineering industry, and I hope that we have all learnt from the lessons of the chairman, Leslie Pincott. Many of us believe that that company should have been treated differently by the banks and that it could have continued—at least in part—as the proud company that it had been in the past if it had not been for the way in which the law operates at present.

However, the urgency of the need for reform is also shown by the rapid increase in the number of companies going into voluntary or compulsory liquidation. Since 1977, when Edmund Dell commissioned the Cork report, more than 73,000 companies have been wound up—half of them since the publication of the Cork report in June 1982. Despite possible Conservative protests, I remind hon. Members that the Government have presided over a threefold increase in the annual number of liquidations and that the figure has risen fivefold since the early 1970s.

Such a level of insolvency could be seen as a reflection of a dynamic, flexible, industrial society in which a high level of start-ups reflected a healthy economy. In fact, however, the escalating number of liquidations has far outstripped the increase in the number of companies registered, which has risen from 571,000 in 1973 to 692,000 in 1979 and to nearly 813,000 in 1983. That is an increase of about 20 per cent. The number of liquidations has increased by 300 per cent. We know why that has happened. I do not want to open a general economic debate about the circumstances in which companies have had to operate in recent years, but, as is demonstrated by the unemployment figures, they have been very difficult. Many companies have collapsed through no fault of their own, because of the adverse trading conditions.

The Parliamentary Under-Secretary of State for Trade and Industry
(Mr. David Trippier)

I have great respect for the hon. Gentleman, but it is wrong to attempt to mislead the House by giving jaundiced figures. As the Minister with special responsibility for small firms, I have said time and again that the latest accurate net figure for births versus deaths in 1983 was 47,000—the highest ever on record. I suggest to the hon. Gentleman that the net figure is the one that matters.

I shall be delighted to stop giving jaundiced figures to the House when the Government stop doing the same. I welcome the increase in new company registrations, and I hope that the rate will increase even more rapidly in future. However, in the past five years there has been a massive increase in the number of liquidations. No one can be pleased about that. That trend points to the need for legislative change such as is encompassed in the Bill.

The problems are complex and on a grand scale. During the coming months, some hon. Members will be involved in a formidable Committee stage. The scale of the problems justified the establishment of the Cork inquiry in 1977 as the first real attempt to consider the harmonisation and reform of the bankruptcy code and the company winding-up code.

What is disappointing—and I have pressed the Minister for action on the reforms for some time now—is the snail's pace at which the Government moved to produce the White Paper in Feburary 1984, nearly two years after the Cork report was published. That slowness was in stark contrast to the haste with which they insisted that comments should be submitted—only six weeks were allowed—and the lack of consultation on the draft Bill. That was remarkable in the case of a measure of such length and complexity which is in no way partisan. Only six weeks, including Christmas and the new year, elapsed between publication and the commencement of the Committee stage in the Lords. That haste resulted in embarrassment for the Government in the other place. They had to withdraw and redraft clauses on the disqualification of directors, and they will now have to introduce a spate of technical amendments in Committee.

Another regrettable feature of the Bill is that, in spite of its long gestation, it relies on delegated legislation on important matters such as company insolvency rules, for which rule-making powers are conferred in clause 89 and schedule 4. We do not know what the details will be, although they are fundamental to the operation of the legislation. Some of the questions that the hon. Member for Bolton, North-East (Mr. Thurnham) asked will be resolved when those rules are published.

Even if the Bill gets Royal Assent in the summer or the autumn, all of the associated rules which are to be made by statutory instrument through the negative procedure will not be promulgated until autumn 1986. When does the Minister expect to publish the details of those statutory instruments? The Government have devalued the role of the advisory committee which was set up under the Insolvency Act 1976 to review and examine changes in the rules. It now has the right only to be consulted. The Lord Chancellor will make the rules. The wisdom of that might be doubted in view of the difficulties with the Bill in another place. I hope that there will be wide consultation on the rules before they are promulgated.

The Government have made no commitment to the drafting of the statutory instruments which contain the rules, and I should be grateful if the Minister could make that matter clear. I strongly agree with the hon. Member for Dagenham (Mr. Gould) that it is a pity that the Government decided not to proceed with the Cork recommendations for insolvency courts. Cork said:
"The judicial administration of insolvency matters in England and Wales is long overdue for drastic rationalisation and simplification. The striking feature of the present system is the diversity of the tribunals by which such matters are heard and determined."
He said that there was limited expertise at county court level among registrars, judges and legal practitioners in dealing with complex and technical law and in analysing transactions which involve commercial sharp practice and dishonesty. He also said that it would have been better if legislation had incorporated the establishment of an insolvency court. The Bill's reforms—introducing the administrator to help prevent firms going directly into liquidation, securing the rights of creditors and the disqualification of directors held to have traded wrongfully—point to the establishment of a court which is able to dispense swift justice and help administrators and liquidators to sort out companies in difficulty. That was intended to be a major object of the Bill. The harmonisation of corporate and individual insolvency is a feature of the principal commercial companies outside the Commonwealth, including Europe and the United States, which have insolvency courts. Their establishment here would have helped with the harmonisation of European Community law. I hope that the Government will think again about that.

As for directors and wrongful trading, the establishment of the new legal framework, which the Cork report said would achieve economies as compared with the present system, could be combined with giving the ordinary creditor—indeed, anybody with a legitimate interest in the affairs of a company—the right of access to an insolvency court to complain of wrongful trading. There would have to be a filter to sort out frivolous or malicious complaints. That would be an alternative to the draconian powers of disqualification which were originally in the Bill and which would have risked congesting the courts with applications for relief from many directors of failed companies.

In its present form, the Bill has perhaps gone too far as a charter for directors, giving the Secretary of State, or the receiver acting on his behalf, the power to apply for a disqualification order. The Cork report proposed power to disqualify after one insolvent liquidation, but only for cases of delinquent conduct, of trading wrongfully or of other unfitness. The Consumers Association suggests a new measure which would disqualify directors who have been associated with two or more failures in a five-year period unless they could demonstrate their fitness to manage another business.

It is difficult to get the balance right between the director who has innocently got into difficulties, the director who has acted incompetently and got into difficulties and the director who has acted wickedly arid illegally and got into difficulties. There is a fine line between innocence, incompetence and wickedness. I hope that we shall be able to pursue this matter further m Committee, because I do not think that the Bill has got the balance right.

One of the Bill's main weaknesses, which the alliance attempted unsuccessfully to remedy in Committee in another place, is that it does little or nothing for the consumer. Nor does it do anything to protect the most vulnerable class of unsecured creditor—the member of the public who puts down a deposit on goods. My noble Friends Lord Taylor of Gryfe and Lord Meston went over the arguments in another place. I am sure that such unsecured creditors should be protected. We shall have to pursue the matter further in Committee.

Large and powerful creditors such as banks are in an extremely favourable position because of their insistence, when granting overdrafts, on being given a fixed charge on a company's permanent assets and a floating charge on its current assets. That enables the bank, on liquidation, to pay off its own debt in full before leaving anything to be distributed to unsecured creditors. The Bill enhances the strength of those creditors. Preferential debts and floating charges have been abolished in the insolvency laws in several other countries, and it is a great pity that there has not been a move in that direction here. VAT preference was limited to six months by amendment in another place, but that does not apply to PAYE and other taxation or rates, which have preference for 12 months. As I understand it, the Government are likely to try to reinsert 12 months for VAT. Perhaps the Minister will clarify that.

There are two ways in which the Bill could be improved to help unsecured creditors. First, it could give depositors the same rights as employees—to a maximum of £800—and, secondly, it could set aside at least 10 per cent. of the funds realised from the sale of assets by the receiver under a floating charge to be distributed among unsecured creditors. I suggest at least 10 per cent., but we can debate what the figure might be.

Like the hon. Member for Dagenham, I hope that we shall be able to approach these matters constructively and find the right balance that takes account of conflicting interests. That balance should also take care of the interests of consumers, business men and directors. It should ensure that those who are trying to do a good job of running a company legally will be allowed to continue to do so. It should ensure that businesses that should be maintained are maintained by the administrator and that those who abuse the system and want to continue to do so are outlawed and prevented from trading.

5.30 pm

Insolvency has a very long history, going back as long as trade has taken place. The first traces of legal intervention in dealing with the problem of insolvency can be found at the time of Henry VIII. For a very long time the creditor had the right to go against either the assets or the body of his debtor, and that took place until fairly modern times—even in the time of Dickens. One can remember horrendous accounts in current novels of those who were unfortunate enough to be cast into the debtors' gaol. In the Cork report there was a reference to an unfortunate debtor who was executed at Smithfield in 1761. Many people have approached me in my capacity as an accountant over the years and suggested not, perhaps, that execution would be appropriate for those who have lost their money for them, but certainly that casting into gaol would be.

The present law on bankruptcy goes back 100 years, to the 1883 Bankruptcy Act. That was the foundation stone of modern bankruptcy and insolvency law, and the company provisions for insolvency followed a few years after that. The Cork report was the first ever major review of the law on this important and obviously distressing subject.

The chairman of the committee, Sir Kenneth Cork—a founder member of the Insolvency Practitioners Association—was a most distinguished practitioner in this field. He and his colleagues on the committee reflected for no less than five years in preparing their mammoth report. I am led to believe that it consists of more than 250,000 words, although I cannot say that I have counted them. The report is based on five years of research and a very large number of interviews with witnesses and papers presented to the committee.

I have always thought it a pity that there is no summary of all the committee's recommendations. Funnily enough, at times recommendations are spelled out in parts of the report and other times they are not. That makes it hard to establish which of its recommendations have not been implemented in the Bill now before us. There have been references to a number of them already in the debate and I am sure that other hon. Members will add to that list.

The consultation that took place over those five years continued with the White Paper that came out afterwards and is now continuing with the Bill. I do not think it at all surprising that the Bill took so long to prepare, since it took the committee five years to complete its inquiry. The Bill is very technical and complex, and also very long. It seeks to simplify the law. I am not sure that the drafting has always achieved this, but I am sure that we shall consider that in much more detail in Committee. There are certainly some parts of it which I do not find easy to follow, but that seems to be fairly common with modern drafting—at least of technical Bills.

Many amendments were put down in the Lords and there is now some confusion about the state reached with some of the original provisions. It would be a very good idea if a Bill such as this were to be published the year before it is laid before the House so that there could be a year of discussion on the details of the drafting. I understand the pressures to get the law through and to get the problems dealt with, but on a matter of this nature, which is not partisan, it would be more sensible if the Bill were published in draft and adequate time given in which to consider the drafting.

There was a reference earlier in the debate—I think by the hon. Member for Stockton, South (Mr. Wrigglesworth)—to harmony with Europe. That is a very good point, which had also occured to me. I hope that the Minister will be able at some stage in our proceedings to enlighten us on what has been achieved to harmonise the insolvency laws in Europe—not very much, I suspect.

The aims of this Bill must be generally welcomed. I am sure that all of us who have experience in this field as accountants wholly welcome the intention to license insolvency practitioners. Reference has been made to the particularly disgraceful case of Chancery Lane Registrars—now put out of business, thank goodness. Nefarious liquidators were very small in number, but they needed to be dealt with. We trust that in future, under the licensing provisions in the Bill, this problem will not arise. I believe that there are still people advertising themselves as liquidation consultants and offering help to directors of companies who are in difficulties. Once they have made that contact through newspaper advertisements, they set about their nefarious tricks. They must be stopped.

There is an astonishingly large number of companies in existence. The latest figure I have seen is 965,411 at 31 December 1983. Allowing for the increase last year, it must now be over 1 million. It has been growing at about 1,000 a week net, after allowing for those removed from the list. That is one company for every 50 or so people in the country. Many of those companies are not trading, but a very large, important part of our commercial life is carried on in this form.

The number of insolvencies in a year is significant, but it is far lower than the number of new companies, although the statistics could be argued both ways, I am sure. Certainly there are far more new companies registered than there are old ones going out of business. Nevertheless, the numbers going down are significant. There are some 4,000 solvent companies voluntarily winding up in any year and some 14,000 companies going into insolvent liquidation—5,000 in compulsory winding up by the court and 9,000 in creditors' voluntarily winding up, where the creditors appoint the liquidator. Then there are about 3,000 cases in which receivers are appointed. I have no access to figures which tie receiverships and liquidations together. Often in a receivership there are no funds left for unsecured creditors and, as a result of that, no liquidator is appointed and the company is simply struck off the list without ever appearing in the liquidation statistics. In other cases there are some funds available and a liquidator is appointed. I have thus not got a figure for the total number of insolvencies but it must be between 16,000 and 17,000 companies a year.

I am sure that the main argument about this Bill will be over the question of the privilege of limited liability and what steps should be taken to prevent loss and penalise those at fault who have acted wrongly in the management of a company as directors—those who are not fit to be in charge of companies.

There are two ways in which those who have acted wrongly as directors can be attacked. The first is to disqualify them from acting as directors in future and the second is to make them personally liable for the debts incurred. There is existing law on both these points. It is possible to apply, under section 300 of the Companies Act 1985, to have the director of an insolvent company disqualified. Unfortunately, however, in practice, very few applications have been made under that provision and its predecessor in the Companies Act 1976.

Incidentally, I understand that there will be something like 100 amendments to the Companies Act 1985 as a result of this new insolvency Bill. So here we have, fresh from the printers, a consolidating Companies Act and already holes are being torn in it by alterations through this insolvency Bill. Presumably in a few years we shall need to have another consolidating Act. It certainly is hard to keep up to date with the current law references because the knowledge of most of us is based on the provisions of earlier Companies Acts. I cannot go back to the ones in the 1920s, but I can go back to 1948. When I started as an accountant that was the bible for my generation. Now the bible will be the 1985 Act, with reference numbers which initially mean nothing to those people who have been practising accountancy and law.

In practice, neither the disqualification powers nor the power that exists to require a director to contribute to the repayment of the debts of a company has worked. At present, in order to make a director liable for the debts of a company it is necessary for him to be found guilty of fraudulent trading. The success rate in such prosecutions has been very low indeed because it has to be proved that he knew that the company was not going to be able to pay its creditors. Good barristers have found it easy in practice to convince a court that whatever might have happened, it was not the intention of the director concerned to cause the creditors to lose their money. Prosecutions have been infrequent, and those brought have often been unsuccessful because it has not been possible to prove the amount of knowledge necessary to obtain a conviction.

I welcome the change of emphasis in the Bill. Under the new provision of wrongful trading, a court will have only to satisfy itself that the director should have known that the company would be unable to pay its debts. However, one can see arguments inevitably arising as to what was reasonable in terms of "should have known". Action to be taken against the directors of an insolvent company was the main subject of discussion in the other place—although there were debates on many issues in the Bill—and there will also be a great deal of discussion on it in Committee here.

Over 300 companies a week go into liquidation or receivership, and many directors are involved but I do not believe that many of them give rise to the problems that we are now debating. There are only a relatively few directors who do not care and even fewer who deliberately make off with the assets of the company, or live off them. However, there is a need to encourage all directors to take full care in exercising their privilege of limited liability.

In my experience of many years as an accountant, I have not been involved in one prosecution as liquidator or receiver of a company. There have of course been cases that we have reported to the Department, but not one where