On a point of order, Mr. Speaker. On Thursday 25 May, I tabled a series of written questions to the Home Secretary about a serious situation that had arisen in my constituency in Ford open prison, where it had become clear that 11 foreign national prisoners had absconded. A day later, 141 of the prisoners were removed back to closed accommodation. I had no opportunity to raise the issue on the Floor of the House because the House had risen for the recess. I wrote to the Home Secretary about this serious matter. No reply has been forthcoming and there have been no proper answers to the questions that I tabled, which were due for answer yesterday, but only holding replies. The Home Office has previously taken four months to answer questions that I have tabled in relation to police force amalgamations, using the cover of holding replies. What protection can you give us, when we seek to raise such serious matters, from this incompetent Department, which is also seeking to cover up what is going on in it?

I have said to the House before that replies to hon. Members’ questions should be timely. I have raised this matter with the Leader of the House, who has agreed to assist me in seeing that timely replies are made. The hon. Gentleman has been able to put the matter on the record, and I thank him for doing so.

I beg to move,

That leave be given to bring in a Bill to provide for the transfer to the Scottish Parliament of competence for Scottish oil and gas resources; to provide for revenues from the Scottish sector of the United Kingdom continental shelf to be paid into the Scottish Consolidated Fund; and for connected purposes.

This is a Bill to repatriate control of the oil and gas industry to Scotland and to the Scottish Parliament. It is timely and relevant to what is happening now, but it is also informed by the past and very relevant to the future.

At present, oil is once again king, at more than $70 a barrel. This year, we are approaching a record for oil revenues to the Exchequer in nominal terms. The Budget estimate was £10 billion, but that was based on $57 a barrel. Since then, oil has been more than $70 a barrel and it is likely that, this year, oil revenues to the Exchequer will reach £12.5 billion—even greater than the previous record of the mid-1980s. I am aware that the shadow Chancellor of the Exchequer is constantly expecting the Chancellor of the Exchequer to fall into a black hole. The reason why that has not happened as yet is that, this year, Brown’s black hole has been filled by black, black oil.

In the House, we frequently hear Tory and Labour Members whining about public expenditure in Scotland. It is therefore relevant to note that, this year, while the United Kingdom has a budget deficit of £40 billion, there will be a £4 billion relative budget surplus in Scotland. To put it in the language that English Conservative Members often use, that means a subsidy of £800 for every man, woman and child in Scotland flowing from Scotland to the London Exchequer.

I have always held that there are three great lies in life. The first is, “The cheque’s in the post”; the second is, “Darling, I’ll respect you in the morning”; and the third is, “I’m from the London Treasury and I want to help Scotland.” I hear from Conservative Members the explanation that the Chancellor is Scottish. Indeed, some people think that he is too Scottish. Let me reassure hon. Members that he is morphing into an Englishman. Even now, the Chancellor spends long hours at the Treasury trying to memorise the names of the England football team. He has planted a Union jack in his garden in North Queensferry. He says that Paul Gascoigne’s goal against Scotland in 1996 was his favourite football moment. He has the songs of the barmy army almost off by heart. The Chancellor may have been born Scottish, but he is desperate to become an Englishman. Greater charity hath no man than this, to lay down his nationality for a job application form.

The Chancellor, however, whether Scottish or new-born English, like his predecessors, wants to keep his mitts on Scotland’s resources. The Bill is informed by the past. Recently, through precise and detailed questioning under freedom of information legislation and what has tumbled out under the 30-year rule, we can examine the real story of the 1970s, which one or two hon. Members present can remember. Guess what skeletons have tumbled out of the cupboard?

Professor Gavin McCrone, who was then economic adviser to successive Scottish Secretaries, both Tory and Labour, wrote in a secret memo:

“An independent Scotland could now expect to have massive surpluses both on its budget and on its balance of payments and with the proper husbanding of resources this situation could last for a very long time into the future… The country would tend to be in chronic surplus to a quite embarrassing degree and its currency would become the hardest in Europe, with the exception perhaps of the Norwegian Kroner.”

The explanations tumble not only out of the Scottish Office but from down here under the 30-year rule. Sir Kenneth Berrill, then head of the central policy review staff for Harold Wilson, said that it would be hard to fight Scotland’s economic case for independence because

“on fairly reasonable assumptions about the profits to be made from North Sea oil, Scotland could go it alone quite comfortably”.

An unnamed civil servant stated:

“Progress towards devolution should be delayed for as long as possible”

in case the Parliament got its hands on oil revenues. Another civil servant stated:

“Information Division has sought for some time in briefing to undermine SNP claims to North Sea Oil… indeed it is part of my standard sales patter.”

That civil servant was Mr. Bernard Ingham, who went from spinning oil to spinning Thatcher.

Revelations are tumbling out from the past and Tory and Labour Members of Parliament must therefore forgive people in Scotland if we show some scepticism about their bona fides when they explicitly express concern for the Scottish economy. In the past 30 years, we have witnessed perhaps the greatest act of international larceny since the Spanish stole the Inca gold.

When the economic adviser to the Scottish Office said that Scotland would be richer than Switzerland, Labour politicians were telling the Scottish people that they would be poorer than Bangladesh. The difference between advice and reality was the same then as it is now. If people were prepared to lie then, why should they tell the truth now?

The Bill is about the future—“the undiscover’d country”, the thing yet to be determined. [Interruption.] I thought that I would quote an English poet. We are halfway through the North sea oil story. Thirty years have gone and there are more than 30 years to go; 30 billion barrels of oil have been produced and perhaps there are more than 30 billion barrels to come; £200 billion has gone in revenue to the Exchequer and perhaps there is that and more to come. Indeed, at current oil prices, the value of the resource is equivalent to £170,000 for every man, woman and child in Scotland, which is even more than the annual expenses of the average Labour Member of Parliament—[Interruption.] I was not looking at the hon. Member for Paisley and Renfrewshire, North (Jim Sheridan) in particular. He should not get so nervous when I make remarks like that.

Oil has been the milch cow of successive Chancellors and that has damaged investment in the industry. This year alone, there is a supplementary tax of £2 billion that threatens future exploration. Yet experts in the industry estimate that, with modest exploration incentives, an oilfield could be developed every three weeks for the next 10 years. We are told that there is a gas shortage in this country, which is somewhat surprising, given that Scotland produces seven times the amount of gas that it requires, and that there are 20 undeveloped gas fields off the west of Scotland awaiting development.

English Members of Parliament frequently whinge about Scots interfering in English business. Let me assure the House that I have no territorial designs on ruling England. I believe that, despite all evidence to the contrary, it is perfectly capable of self-government. England is a great nation and could go it alone, despite what the doubters say.

The Bill is not just about the repatriation of oil but about two different visions of the future. Instead of the moaning and groaning of English MPs, or indeed of Scottish Members of Parliament, why do not we have a vision of two nations, equal before each other, each standing on its own two feet, reaping its own harvest and ringing its own tills—two nations, each taking charge of their own economic destiny? Would that not be a much healthier relationship than the one that we have now?

When I was a lad in Linlithgow, my next-door neighbour—a Mrs. Borthwick—was a very wise woman. She had two favourite sayings. One was from Abraham Lincoln, but the other is the one that concerns us here. She said that someone once told her that if Scotland became independent, England would lose a surly lodger and gain a good neighbour. I believed that then, I believe it now and I know that the House will want to give resounding support to this Bill to make that prospect a reality.

Question put and agreed to.

Who will prepare and bring in the Bill?

Sean Connery.

He is the first on my list, Mr. Speaker.

Bill ordered to be brought in by Mr. Alex Salmond, Pete Wishart, Angus Robertson, Stewart Hosie, Mr. Mike Weir, Mr. Angus MacNeil, Mr. Elfyn Llwyd, Adam Price and Hywel Williams.

Scotland (Oil and Gas Resources)

Mr. Alex Salmond accordingly presented a Bill to provide for the transfer to the Scottish Parliament of competence for Scottish oil and gas resources; to provide for revenues from the Scottish sector of the United Kingdom continental shelf to be paid into the Scottish Consolidated Fund; and for connected purposes: And the same was read the First time; and ordered to be read a Second time on Friday 20 October, and to be printed [Bill 191].

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

In a world of change and competition, the Government work to create the conditions for business success, helping the United Kingdom to respond to the challenge of globalisation. We support successful firms by working with business to identify and tackle market failures and to overcome barriers to growth. We promote world-class science and innovation by supporting our science base and by ensuring that those ideas can be turned into high-value products and services. We also encourage a competitive energy market to deliver reliable, sustainable and affordable energy for business as well as for domestic consumers. We ensure fair markets by promoting open markets and creating the frameworks within which companies can compete freely and fairly, giving UK consumers more choice and better value.

It follows that the corporate law framework is a fundamental aspect of all that and the strengths of our company law have helped make this country a prime location for incorporation by companies. Indeed, since 1997, new incorporations have risen by 60 per cent. and the number of EU firms incorporating in the United Kingdom has more than quadrupled in the same period. I note that a recent World Bank survey found that it was quicker and cheaper for companies to set up in the UK than in any other part of the EU.

We want to continue investment in the UK and we want investors to retain their confidence in our system of corporate governance. We have been extremely successful in attracting our share of global business because overseas investors recognise those strengths, as well as our macro-economic stability, our science base, high skill levels, high rates of enterprise and our competitive markets. Our overall objective is to ensure that the country remains an excellent place to do business.

As many hon. Members will know, the Bill is designed to consolidate and update company law. It is the result of a great deal of thinking done by the company law review in the late 1990s and early part of the present decade. It was followed by two White Papers in 2002 and 2005 and a great deal of consultation. The Bill has also benefited from close scrutiny in the other place, which has improved it in many respects. I pay tribute to my right hon. Friend the Member for Cardiff, South and Penarth (Alun Michael). When he was a Minister in the Department of Trade and Industry, he made a substantial contribution to the legislation.

It may help if I set out the general approach that we have taken. Over many years, existing company law was built up by layers of additions that often obscure its meaning. Any student of company law will know that it is often less clear than it should be. The Bill thus restructures and redrafts, in clearer language, about two thirds of the Companies Act 1985 and the Companies Act 1989, which had, in turn, consolidated the 1948 legislation, including all the provisions most frequently used by small companies.

We said in the other place that we hope to restate without substantive change those parts of the Companies Act 1985 that have not until now been incorporated in the legislation during the passage of the Bill through this House. We do so simply because it has been put to us that it would be convenient for practitioners to have as much of our corporate law in one place as possible. I understand from discussions between the Minister for Industry and the Regions and the major Opposition parties that there is broad agreement with proceeding in that way. If we can—I do not think that it is a matter of any controversy—those who have to implement the law would appreciate it if what I hope will become the Company Law Reform Act before the end of the year codifies as much law as possible in one place.

I confirm that the Liberal Democrats certainly support the proposals for consolidation that the Government conceded in the other place. Our concern relates to the Government’s programme motion and whether sufficient time is being given to scrutinise the new clauses that will have to be tabled to get the codification through. Will the Secretary of State elaborate on his thinking? Does he really believe that the House and the Committee can properly scrutinise the hundreds of clauses that will probably be needed between 15 June, when the Committee is scheduled to start, and 13 July?

As I understand it—I may be wrong—the timetable was agreed through the usual channels, though they are not always foolproof. I certainly said to the hon. Member for Rutland and Melton (Mr. Duncan), who speaks for the Conservative party, that we would like to complete the Bill, which has come so far, in this parliamentary Session. I do not adopt a hard-and-fast rule about the matter and I agree that we need to ensure that there is adequate time for consideration of a Bill that comprises more than 900 clauses.

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I am not the usual channels, but I will give way again to the hon. Member for Kingston and Surbiton (Mr. Davey). As long experience tells me, it is a bad idea to fall foul of one’s own Whips too often. If there is a particular problem, I undertake to speak to my Government colleagues who arrange these matters, as it is important that what will be well in excess of 900 clauses are properly examined.

I am sure that the Secretary of State will not fall foul of the usual channels on his side, because he is held in such high esteem by them. There are already 925 clauses for the Committee to scrutinise. Consolidation will mean hundreds more, which outside practitioners in particular will want to scrutinise and which will not have been scrutinised in the other place. May I present a simple proposal to the usual channels, through the Secretary of State? I suggest that the Committee stage be split into two parts, the first between now and the summer recess to deal with the 925 clauses, and the second during the wash-up period. When we return after the recess, we shall have benefited from examining the earlier clauses and will then be able to deal properly with the new clauses for codification.

Wherever discussions between the usual channels may be held, it is probably best that they do not take place across the Floor of the House. However, I understand what the hon. Gentleman has said. That approach will work only in relation to the clauses that involve merely a restatement rather than substantive changes. One of the advantages of the Bill’s long gestation has been widespread consultation and, although not everyone will be happy at the end of the day because there are some strong views on the legislation, it has benefited from a degree of consensus that I should like to maintain. Nevertheless, I will pass on the hon. Gentleman’s suggestion.

Members on both sides of the House genuinely want to maintain the consensus. In view of that, and given what the Secretary of State said, may I invite him not to move the programme motion? That would enable us to decide how to proceed with the Bill in a mature, grown-up way.

I am not in a position to give that assurance. Even if the programme motion is moved, if it turns out that other arrangements would be more appropriate we can still have discussions. We do not want to find ourselves with no timetable for the Bill. However, I will pass on what has been said to those who negotiate these matters on behalf of all the political parties and we will see what we can do. That is about as far as I can go.

Will the Secretary of State give way?

Not if the hon. Gentleman wants to discuss procedure. I should like to begin dealing with the Bill itself, or at least to embark on one of the 900-odd clauses.

My point arises from the discussion that has just taken place. Clearly, consideration in the other place benefited hugely from not being curtailed by a programme motion: there was an enormous amount of helpful debate.

The Secretary of State spoke of incorporating parts of the Companies Act 1985 in the Bill. Until a recent concession, that was not going to happen. One of the problems initially identified was that so much interpretation in the courts had been based on phrases in the 1985 Act. Importing some of that precedent into consolidated legislation that would also apply was seen as one of the main difficulties. Is the Secretary of State taking enough advice to ensure that it will be catered for?

As I have said, we want, where possible, simply to restate the law in what we hope will be the 2006 Act. We do not seek to change the law, which would require not a consolidation measure but a new measure. I think that Members on both sides of the House would consider that substantially different. I am anxious to do as much as possible on the basis of consensus. What we are asking the House to accept—the incorporation of a large amount of earlier legislation into a new Bill to consolidate it—is unusual, but I hope that we shall be able to be as accommodating as possible. I repeat that such matters as the timetable are best dealt with through the usual channels.

Let me return to the Bill. It has a number of broad themes, to which I shall return shortly. It deals with better regulation, shareholder engagement and a long-term investment culture, which is particularly important. It also provides for some flexibility in the future.

At the heart of the Bill is a new approach to directors’ duties and what is known as narrative reporting. The Bill recognises that to achieve sustainable success for the benefit of shareholders, directors must have regard to a wide range of factors. For the first time, the Bill includes a statutory statement of directors’ general duties. It provides a code of conduct that sets out how directors are expected to behave. That enshrines in statute what the law review called “enlightened shareholder value”. It recognises that directors will be more likely to achieve long-term sustainable success for the benefit of their shareholders if their companies pay attention to a wider range of matters, which are set out in clause 158.

Directors will be required to promote the success of the company in the collective best interests of their shareholders, but in doing so they will have to have regard to a wider range of factors, including the interests of employees and the environment. That is extremely important. It has been recognised by successful companies for a long time, but the Government believe that it is important that all companies recognise their wider obligations. Under the Bill, they will have to have regard to those in reaching their decisions.

That is a major step forward. I recognise that it is controversial. It was opposed in another place, certainly in the earlier stages, by the Conservatives, but I hope that, during the passage of the Bill, we can reach some unanimity on that matter because it is a major step forward in corporate governance.

The Secretary of State mentioned the new codification of the responsibilities of a director. Can he tell us why he has decided on the “have regard to” formulation rather than the “duty to” formulation, which was suggested by many members of the Trade Justice Movement?

We decided on that after a great deal of consultation. We are trying to put into statute something that is workable and that makes it clear that directors have to have regard to a wide range of issues, which are set out in the Bill. However, we want to do it in a way that does not open directors up to a range of claims or litigation. It has to be workable. We need to bear it in mind that companies do not have to incorporate in this country. By reaching a degree of consensus, which I think would not have been possible a few years ago, we have legislation that could put a duty on directors—it is not stated at the moment—and that enables them to take into account a wide range of matters, about which many people, including the Trade Justice Movement, feel strongly. We are doing it in a way that allows regard to be had to all those things. We should not get ourselves into a situation where the legislation is over-complex and wide open to litigation, which could result in it not having any effect at all, with companies choosing not to act.

On the point of the world Trade Justice Movement, I, along with many other hon. Members, have received lots of postcards from Christian Aid, Traidcraft, War on Want and the World Development Movement, which are clearly not satisfied that the Bill addresses the concerns that constituents have. What discussions has the Secretary of State had with the Secretary of State for International Development about the impact of the Bill on international development issues?

There have been wide-ranging discussions both within Government and between Government and many of the organisations that the hon. Gentleman mentioned. Indeed, my right hon. Friend the Member for Cardiff, South and Penarth had many such discussions in past weeks. Like every other hon. Member, I have had many letters and cards from constituents. I have also seen the letter written on behalf of all those groups that was sent to the Prime Minister today. They make three demands. The first is that companies be

“legally required to report on their social and environmental impacts.”

That is to a large extent covered in clause 399, under which companies are required to report on their performance, which will include the environmental and social impacts.

In relation to the second demand that those groups make, it is true that they want to go further. We say that directors should have regard to the wide range of measures that are set out in the Bill, whereas the campaign talks about “a legal duty”. I am concerned that we do not get ourselves into a situation where, whenever a company takes an individual decision, it has to go through legal hoops and a great deal of red tape, and establish almost an audit trail to examine each and every possibility to ensure that it is covered.

We are trying to strike a balance.

The third element is that those groups want people in other countries who believe they have been harmed by a UK company to have the right to take legal action in a UK court, and to have access to legal aid in order to do so. We would have some difficulty in accepting that proposition. I understand that many people want to go further, but the hon. Member for Kettering (Mr. Hollobone) will recognise that many in his party in another place opposed this measure, and do not even want what is in the Bill. We are trying to steer a sensible middle course.

If I am successful in catching your eye later, Mr. Speaker, I should like to develop the following point. Does my right hon. Friend agree that the consequence of giving in to the suggestions from the Trade Justice Movement would be to reduce the clarity of the accountability that it seeks, which would not help it to achieve its ends? As someone who has been involved in the Trade Justice Movement for many years, it seems to me that it is barking up the wrong tree.

I should say at the outset that the broad objectives of the Trade Justice Movement, particularly the Make Poverty History campaign, are supported widely throughout the country. Members of this House, including many Opposition Members, also support those aims. However, we must recognise that company law has a specific purpose, and has its limitations. There are many different ways in which we will make poverty history, and in which we can meet environmental concerns and concerns about what companies do in different parts of the world, but it is not possible to do all that in a companies Bill.

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I will give way to all Members who are standing, but I want first to answer the points that have already been made.

The second point that my right hon. Friend the Member for Cardiff, South and Penarth made is also important. It is vital that we in this House make it clear to whom a director is responsible. We do not want a director to be responsible to everybody in theory, but in fact to nobody. That would result in good directors—people acting in the best of faith and with the best will in the world—being unclear what they are supposed to do and to whom they are answerable. Bad directors—if I might use that term loosely—could easily play one side off against the other.

Those who actually have to operate the law—all Members present must have received letters on this issue—get extremely fed up when Parliament puts on the statute book a measure that is not clear. The main knock-down point is that such a provision would not achieve the very things that many people behind the Trade Justice Movement want to achieve. I do not want a British company to look at British law and say, “If that is the case, I shall incorporate in France, where perhaps there are not quite so many restraints.” The Bill strikes a sensible balance that meets people’s legitimate concern that directors should have an explicit duty to consider all such issues, but at the same time, it is clear and workable.

The Secretary of State is of course right to say that directors have a duty primarily to their shareholders. Why, therefore, does he think it necessary to ensure that when they are dealing with financial risks, they give very clear reportage to their shareholders, whereas when they are dealing with equally important non-financial risks—particularly of an environmental and social kind—there is not the same legal requirement? It is that distinction that many of us find difficult to take.

If the right hon. Gentleman looks at clause 399, which deals with the reporting requirements, he will see that it makes clear that directors have to report on a range of matters, and have to draw attention to the fact that they are not reporting on a particular matter. If any ambiguities come to light that can be resolved when these measures are examined line by line in Committee, obviously the Government will consider them. I am anxious to ensure that when the Bill leaves this House and is put on the statute book, it is clear and understandable and does not provide huge scope for litigation, from whichever angle it might come.

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I give way first to my hon. Friend the Member for Paisley and Renfrewshire, North (Jim Sheridan), who has been waiting to get in.

May I bring my right hon. Friend back to the environment? It is somewhat ironic that taking place today is the annual general meeting of the all-party group on Nigeria, of which I am a member. When I visited Nigeria, and in particular the Niger delta, I witnessed at first hand young children being choked almost to death by the gas flaring of major oil companies, including Shell. Where in the Bill will protection be provided for those people?

I am not sure that I would quite share my hon. Friend’s view, but when he has a chance to look at the Bill he will see that it sets out clearly the matters to which the directors have to have regard. However, as I said a few moments ago, we also have to ensure—whether through international agreements and treaties or local legislation—that environmental and other concerns are met. While we can achieve a lot through company law, it is not possible for the Bill to deal with all the problems that might concern us. While I do not wish to labour the point, it is important that the duties imposed on directors are clear, and that they know to whom they are accountable and what they are supposed to take into account. The more complex the requirements become and the more wide-ranging the duties imposed, the more difficult it will be in practice to achieve what we actually want. The Government have sought to put before the House a Bill that is workable, represents a major step forward and will deliver what most of us want.

I am with the Secretary of State on what he is trying to do to strike the right balance. I am a company director, but not of the kind of business about which I wish to ask. Clause 158 states that directors must

“have regard…to…the impact of the company’s operations on the community and the environment”.

Would that provision give people living near a quarry, a coal mine or a nuclear power station the right to take the company in question to court because they did not like the activity, even though it was legal and had all the health and safety permissions?

No, it would not. The requirement is for the director, in reaching a decision, to have regard to all such matters, including the impact on the community. We cannot have a situation in which, essentially, two groups of people are running a company—one being the directors and the other being people who like or do not like what the company is doing and ask the courts to second-guess the company’s decisions. If we as a society decide that we do not want quarries, the best way to achieve that outcome is to pass legislation forbidding them. If quarries are legal, and provided that all planning permissions are obtained and other legal obligations are met, directors are entitled to reach that decision, because their duty is to the company. However, they do have to have regard to what they are doing. This is an important step forward and many in the other place were deeply opposed to it, but I hope that the House will support it.

To return to the point made by the hon. Member for Paisley and Renfrewshire, North (Jim Sheridan), is there not an argument that allowing legal action to be taken in the UK against UK companies by people abroad would provide them with an avenue not otherwise available? In many foreign countries where British companies operate, it is almost impossible to take legal action in the local courts. It is right that if a company is causing environmental degradation—the hon. Gentleman mentioned Shell and the Niger delta—it should be held responsible for that in the UK courts.

I would be very reluctant to encourage widespread litigation in the UK courts simply because remedies might not be easily available in some countries. There are many problems in various countries, but they cannot be resolved by simply opening up the jurisdiction of UK courts. The duties that we will impose on directors and the greater openness and transparency—so that people can see what is happening—will put more pressure on companies. Directors will be in no doubt about their duties, but the demand that we should open up the UK courts and, for good measure, provide legal aid to people bringing cases is not one to which the Government can accede. It would lead to substantial difficulties for British companies, and it would not be long before many decided to decamp to a jurisdiction more amenable to what they wanted to do. Belonging to the party that he does, the hon. Gentleman sometimes has difficulty with the concept that we live in a global economy, but he should be aware that companies can come and go very easily.

I accept much of what the right hon. Gentleman has just said, but I want to return to the contents of the business review, as set out in clause 399. Many people are worried that that clause is too narrow, and subsection (2) states:

“The purpose the business review is to inform members of the company and help them assess how the directors have performed their duty”.

Is not another legitimate public purpose of the review to allow potential investors in the company to know whether it has been acting ethically? Does he agree that it is important for this House to try to make a better and more stable market for ethical investment?

A business review produced under clause 399 by an oil company working in Nigeria, for example, would contain a formal report from the directors to company members, but it would also be available to the public. As I said a moment ago, the fact that companies will have to set out what they are doing and the effect that that is having will focus public attention on their activities. That is very important.

I want to ask another question about the business review outlined in clause 399. The transparency requirement means that company directors will have to make clear any negative social or environmental impact that their companies might cause, in the UK or overseas, but what will happen if the directors deliberately omit from the review matters that might be of concern?

Clause 399 will legally oblige directors to say why they are omitting information. When the Committee comes to consider that clause, I hope that it will accept that we have tried to draft it in a way that requires companies to report what they are doing, yet at the same ensures that people who might otherwise be tempted not say what is happening must explain what is going on.

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I have dealt with only two of the Bill’s 950 clauses, and must move on. However, first I shall give way to the hon. Members for Richmond Park (Susan Kramer) and for East Dunbartonshire (Jo Swinson).

A moment ago the Secretary of State said that the information in the business review would be a valuable guide for investors. However, Lord Sainsbury of Turville said in the other place that the purpose of the review was to inform members of the company. He said:

“It is not designed to help individuals decide on investment decisions, nor is it targeted at the wider public in the sense that they should feel entitled to rely on it.”—[Official Report, House of Lords, 10 May 2006; Vol. 681, c. 920.]

Does not that exactly contradict what the right hon. Gentleman just said? Does it not define the problem involved in shifting from an operating and financial review to a business review?

I do not think that it does. As I said at the outset, a director’s duty is to the company and therefore to its members—its shareholders. A company’s annual report or business review is primarily for its members, but it is also something that would-be investors or outside groups can read, and so form judgments about what the company is doing. The hon. Lady illustrates why we must make sure that the Bill makes it clear to whom a director is responsible. If we do not have that clarity, all sorts of difficulties will arise, both in getting directors to make sensible decisions and in achieving our objective. Clause 399 will provide much more openness and transparency than is available at present, and will also meet requirements other than those specified under clause 158. I believe that we have struck the right balance. It is inconceivable that what large public companies publish in their business reviews will not be very widely studied.

The Secretary of State seems to accept that many people increasingly take social and environmental factors into account in their purchasing and investment decisions—I am sure that that is backed up by the contents of our postbags—so it is vital that people have clear information. However, does he not also accept that the Government have missed a huge opportunity in abandoning OFRs in favour of the business review? The business review is much narrower, applies to far fewer companies and will not be subject to the clear mandatory standards that would allow consumers to compare like with like.

I do not accept that. I agree that many members of the public want to make informed decisions as to where they buy their goods and services. The Bill will help, as will other measures. The reason why the Government decided not to proceed with the OFR was that we were anxious to minimise the regulatory burden on companies in general. I forget whether the Liberal Democrats have a policy on that— I suppose it depends who they are talking to at the time. I do not accept the point that the hon. Lady makes about the business review. It will allow ample scope for all the things that need to be reported on to be set out as fully as possible.

In Committee there will obviously be a great deal of scrutiny of the two clauses relating to the business review, as of others. The Government have sought to put on the statute book a major step forward. I accept that it is controversial, but it provides clarity, and something that will actually work and, in the years to come, will influence companies’ behaviour. Let us be in no doubt: the duty is certainly intended to affect a company’s behaviour so that it behaves ethically and has proper regard for all the matters set out in the Bill. I also want to make sure that the business review is properly understood. I believe that it will encourage directors to provide information that will enable people to make decisions.

I shall now say a word about a small part of the Bill that was controversial in another place. It relates to derivative actions. We recognise that occasionally directors of a company may put their own interests ahead of those of the company. We have sought to introduce a new procedure that means that claims lacking merit will be thrown out at an early stage.

We have provided a two-stage process. First, any applicant has to make a prima facie case. At the second stage, still before the substantive action begins, the court has to consider whether the decision of the directors was one that the company could reasonably and independently have taken. I believe that what the Government have done here will ensure that the process is not open to misuse, but will avoid the situation that we have seen in the past whereby a small section of the shareholders have felt that the directors have done something to the company’s detriment. Until now the remedy in such a situation was not clear. It is time that the remedy was put on the statute book.

A lot of the Bill is designed to regulate companies better. It is essentially a deregulatory measure. Much of our companies legislation was put in place with large companies with numerous public investors in mind. It is worth bearing in mind the fact that more than 90 per cent. of companies have five shareholders or fewer, and that many shares are not publicly traded. The Bill will help smaller companies. It will make it more straightforward to set up a company. It will remove the prohibition on private companies providing financial assistance to purchase their own shares. It will simplify the way in which they take decisions, they will no longer have to have annual general meetings, and it will allow greater use of written resolutions.

The Bill will also help bigger companies. It produces significant savings by removing obstacles in the way of electronic communications. We believe that the saving could amount to about £50 million a year for FTSE-listed companies alone.

The Secretary of State talks about private companies. Concerns have been raised with me about the provisions that allow a private company to do away with the post of company secretary. While I understand that in a small private company, such as a husband-and-wife operation, that is sensible, there are some very large private companies. Has the Secretary of State given any consideration to whether the provision should relate to the size of the company rather than whether it is private or public?

We did consider that, and came to the view that the right distinction was between private and public. Of course, not having a company secretary does not mean that someone does not have to be authorised to take decisions. But just as there does not have to be a company chairman—although there usually is a chairman, for private companies as well as for public companies—we thought it best to remove that requirement. As the hon. Gentleman says, for a very small company that is properly run, some requirements are excessive. A husband and wife may have to hold an AGM in their front room once a year.

The hon. Gentleman makes a fair point, in that some private companies are quite big, but for that reason, and because of the amount of money that they handle, they probably would take up the option of having a company secretary. It is not mandatory not to have one, but we are giving them that option. If he is lucky enough to be on the Committee that will scrutinise the Bill, he may want to press that point further.

For the purposes of dealing with company secretaries, I declare my registered interests. The answer that the Secretary of State has just given betrays one of the fundamental misunderstandings about the proposal for getting rid of the requirement for a company secretary in a private company: a company secretary, as opposed to the chairman of a board, is an office holder—otherwise we would not even have the term “directors’ and officers’ liability insurance”. An office holder is a completely different species from the chairman of a board, who is another co-director, chosen by the board to chair that board, and who has the accountabilities that go with that. I hope that I will be able to develop some of those points if I get the chance to catch your eye, Mr. Speaker. As we develop the debate on the requirement for a secretary, it is important to recognise that the secretary is, uniquely, an office holder. That was not part of the Secretary of State’s answer.

I think that I acknowledged the fact that the secretary of a company performs an extremely useful function in many companies. The point of the legislation is to remove the requirement for private companies to have a secretary—although they may still choose to have one. Certainly they will probably want to designate somebody to authorise signatories. If the hon. Gentleman or I were dealing with a company, we would want to be sure that whoever was entering into an agreement with us had that company’s authority to do so. Those safeguards exist in the Bill—but I am sure that he will return to the matter if he catches your eye, Mr. Speaker, and that he will return to it in Committee if he catches his Whip’s eye. We look forward to hearing what he has to say.

Will the Secretary of State explain why the Government are trying to improve their own cash flow at the expense of private companies by reducing the accounting period from 10 months from the end of the financial period to only seven months from the end of the financial year?

Again, we thought that that was the right thing to do. Perhaps I will come back to the hon. Lady if she wants that to be explained further. What the appropriate accounting period should be is always a matter of judgment, but I will happily come back to her on that matter.

We think that the Bill will save businesses about £250 million a year, of which £100 million will benefit small businesses—so the deregulatory measures are important. In relation to the engagement of shareholders and encouraging long-term thinking, the Bill also carries forward the long-established principle of enabling shareholders to be the primary regulators of corporate behaviour. It is designed to encourage and enable companies to create internal structures and controls that will promote trust and transparency and lead to better performance.

The Bill also contains a number of other provisions, to which I want briefly to turn. The first seven parts relate to the fundamentals of a company and how it can be formed. Later in the Bill, there are clauses that remove any obstacles to electronic incorporation. There are a number of measures on shareholders and management generally. Part 8 provides a balance between, on the one hand, the public right to know who a company’s members are and how to contact them, and, on the other, protecting members from attempts to defraud or harass them.

There is one important measure that I hope will be supported on both sides of the House—the part of the Bill that is designed to protect directors and shareholders in companies that have been targeted by a tiny minority of people who threaten or intimidate them simply because they do not agree with them. The measure will allow directors’ names to be withheld and will also mean that if a company suspects that someone is trying to get hold of its register of shareholders for an improper purpose, it can get the protection of the court. The measure has been widely welcomed by the industry, and I hope that it will be welcomed by everybody in the House, because it is important that we show our unconditional support for people who are exposed to that totally unjustified behaviour.

We totally support those moves, although we will suggest in Committee that the Government need to go further to protect individual shareholders. In the other place, the Government appeared to create the offence of using the register for improper purposes. However, surely the Secretary of State will admit that people who wish to access the register for bad purposes are not worried about another criminal offence, given that they are accessing the shareholder register to commit a crime. The protection that he is giving shareholders appears to be weak, so will he be prepared to be open-minded and examine the matter again?

If there is a feeling that we need to do more to help companies in such circumstances we will, of course, do so. However, we will want to ensure that any proposal is workable, strikes the right balance and is not open to abuse, because there has been worry about that. If the hon. Gentleman can make proposals that would help people who would otherwise be subject to such harassment, the Government will consider them. He might be interested to know that we had quite extensive discussions with several pharmaceutical companies about the matter, and as I understand it, they are happy with our approach.

Part 9 of the Bill deals with the ability of indirect investors to exercise governance rights. It might be helpful if I tell the House—especially the official Opposition—that the Government intend to reverse an amendment that was successfully made in the other place, which on the face of it extends the exercising of members’ rights for shareholders who hold shares through nominees. I understand perfectly well what the official Opposition were trying to do, and I am not against extending the democratic process in such a way, but subsequent to the passing of the amendment, many representations have been made suggesting that the measure now in the Bill would be pretty unworkable and expensive. We thus propose to table a further amendment, and my right hon. Friend the Minister for Industry and the Regions will hold discussions with the spokesmen for other parties in the House with a view to trying to get a measure that is actually workable.

Will the Secretary of State please clarify what he is proposing? Is he proposing to amend or scrap the concept that beneficial shareholders should have access to documents and votes?

We are already holding discussions with sections of the industry, and there will be discussions in the House with a view to trying to address people’s understandable desire that the franchise should be widened, without imposing an unjustified burden on companies by causing them to go to huge expense for no obvious purpose. In keeping with what I said earlier, it is important that we get a system that is workable.

Part 10 of the Bill will tighten up the law on child directors. Many people will find it strange that in this country a director need not be a person, so long as it is a legal person, and that anyone of any age can sit on a board. It may be novel to stick a toddler on a company’s board of directors, but that can be done at present. We propose to change the law so that a director must be over 16. There will be regulations to provide for exemptions—for example, a charitable company might want a young person as a director—but I think that the change to the law is welcomed.

We are also simplifying the decision-making process and making changes on accounts and auditing, especially regarding auditors’ liability, which people think are sensible. There will be a new offence for those who knowingly or recklessly cause misleading, false or deceptive material to be included in audit reports.

There are measures in the Bill on the raising of share capital and takeovers. There are also provisions that preserve the independence of the takeover panel, which has worked well in this country. On the regulatory framework, there are provisions to provide for the greater use of electronic communications. Part 36 of the Bill includes changes that will make procedures a bit more transparent.

A measure on institutional shareholders’ voting was discussed in the other place. I think that I am right in saying that both Conservative and Liberal Members of the other place voted to remove a provision that would have allowed the Government to make it compulsory for institutional investors to reveal how they voted. I am not sure why they did that, but the Government believe that transparency is important. I can think of no reason why companies’ institutional investors should withhold such information. The provision would have allowed us to introduce measures to make such transparency mandatory—albeit at some point in the future, because we would like to encourage a voluntary approach. As the Bill stands, institutional investors who do not wish to disclose what they do could remain in such a position for ever, but that would not be in keeping with the modern view that companies should be as open as possible.

Although there is no Member representing a Northern Ireland constituency in the Chamber at present, I should say that the Bill does extend company law to the whole of the United Kingdom, which I think will be welcomed by Northern Ireland businesses. Until now they have always had to wait to get what the rest of the United Kingdom has been getting.

This is an important Bill. It may be lengthy, but if we pass it I believe that it will add to the value that people see in investing in this country. The Bill is deregulatory; it aims to simplify. It also aims, crucially, to give investors a greater say and greater access to what companies are doing. As I have said, the changes that we are making in relation to directors’ duties are, I believe, a major step forward and should be accepted. I hope that we shall be able to continue to discuss the Bill in a largely consensual way. It will make a difference not only to corporate Britain, but to Britain’s well-being overall. I commend it to the House.

I welcome the Secretary of State to his first Second Reading debate in his new role. I had the pleasure of being his opposite number in my previous role as shadow Secretary of State for Transport.

The Secretary of State went to great lengths to explain what is in the Bill. Although I do not agree with him on some aspects of it, I am grateful for his explanation. Furthermore, I appreciate the way in which he took many interventions during his speech. I am sure that the Bill will receive detailed scrutiny in Committee, as far as we are able to engage in it.

We broadly support the Bill. As it has nearly 1,000 clauses, it is pleasing that we have to disagree with only a handful of them. We are glad that the Government have moved towards our position on some of the issues that remain before us.

The reports, consultations and reviews on which the Bill is based argued for putting deregulation and a “think small first” approach at the heart of company law. The Bill that has come to us, much amended in another place, is broadly to be supported. In many areas it deregulates and simplifies existing law, for which companies will be grateful.

The Opposition have some concerns about a number of the provisions in the Bill. I hope that the Secretary of State will not sweep aside our concerns on the ground that the overall effect of the Bill is to be deregulatory. We must examine the specifics.

Our shared objective with business is that it should achieve sustainable economic growth. That is why, under the leadership of my right hon. Friend the Member for Witney (Mr. Cameron), Conservatives have put ideas such as corporate social responsibility very much at the heart of the agenda that we wish to champion. Company law forms the framework in which business must operate. Achieving our aim of seeing a growing, competitive and high productivity economy depends on the legal framework being right. It has to be comprehensive and effective yet simple to understand and as unburdensome as possible.

Against those measures, much of the Bill stands up very well. Existing companies legislation certainly needs revision so that it better reflects modern business practice and technological developments such as electronic communications. Businesses have rightly complained that existing law involves unnecessary formalities and creates administrative burdens that no longer have any corresponding benefits. The Bill does good work in tackling some of these issues. We therefore congratulate the Government on realising how important such matters are.

Small business and private companies have in the past suffered from having to comply with requirements that were designed for larger public companies. The Bill goes some way towards rectifying that. We support, for example, the provision that one person alone can set up a company and that he will not have to appoint a company secretary, although they may choose to do so if they so wish. The requirement to hold an annual general meeting was a burdensome formality—it was a nuisance for some small firms. It is the recognition of these issues in the Bill that we thoroughly support.

I should offer my thanks to their lordships for their admirable work on the Bill. They took a long time, quite rightly, to consider it. I particularly thank Lord Hodgson of Astley Abbotts, Lady Noakes and Lord Freeman, who on behalf of the Opposition put in an enormous amount of work to improve the Bill. More than 1,600 amendments were considered in the other place. We are pleased that, on some issues, the Government took our suggestions on board. For example, the removal of what was part 31 was a sensible victory for the principle that the law should be clear to those who must abide by it. The idea that the fundamentals of company law should be changed by a Government without the full scrutiny of Parliament was deeply disturbing to people who know how difficult this area of law is. We are pleased, too, that the Government have agreed that the Bill should fully replace the Companies Act 1985. It was absurd to expect to be able to repeal of three quarters of that Act, leaving behind a stubby remnant and making cross-referencing impossible and company law even more complex.

We welcome the extension of shareholders’ rights to ensure that someone who invests in a company has the same rights regardless of whether they invest in their own name or do so through an individual savings account, personal equity plan or nominee account. I heard what the Secretary of State said a moment ago, but we must debate the issue in Committee. I hope that between us we can find a workable solution that will extend shareholder democracy without placing an unwarranted burden on company administration. The wording of the relevant provision requires significant work, and during the passage of the Bill we will go to great lengths to consult interested parties to achieve the workable solution that we all want.

Other significant improvements have been made to the Bill, and I hope to come on to them shortly. Elsewhere, however, serious problems arise from provisions that add new burdens and from clauses that confuse existing practice. In the other place, a number of controversial issues became clear. One that attracted significant public notice was the codification in statute of directors’ duties. We support the principle underpinning the relevant provision. Good directors take account of a range of long-term factors when acting in the best interests of their business. Good business involves making assessments of short and long-term risks, and using them to achieve success for the company. Furthermore, we entirely agree that a successful director pays close attention to the factors listed in clause 158, as well as many others. Fulfilled employees and satisfied customers are good for business, and a concern for the environmental impact of one’s activities may attract consumers and investors who are increasingly conscious of corporate social responsibility. Our anxiety is not that part 10 fails to fit with an ideological position, but that it is inflexible and will lead to confusion. In flagging up the issues associated with part 10, the Opposition were initially on their own, but now, largely as a result of the work done by my noble Friends and my hon. Friend the Member for Huntingdon (Mr. Djanogly), we have received the support of the Financial Times, The Economist, the Law Society and the CBI.

The existing common law position holds that directors’ duties are more complex than simply maximising profit from a given transaction. The provision appears likely to reduce the courts’ ability to develop the law to suit changes in business practice, so we must look at what the codification adds.

I am surprised by the position that the hon. Gentleman’s noble Friends took in the other place. Is he not aware, for example, that in section 309 of the Companies Act 1985, a Conservative Government legislated to ensure that employees’ interests had to be taken into account by directors when pursuing the company interest? The position that he has outlined marks a return to the position that applied many years ago, when corporate practice was not as good as it is today.

That is a red herring—the Government removed that provision, and we will probably take steps to restore it. The codification provides a list of just six factors, so it is a little like a written constitution—if we try to codify something in simple terms in clause 159 there is a danger that we may lose the wealth of experience and practice that has built up over time. Some people believe that the list is designed entirely to replace the greater number of fiduciary duties in common law. That would be a simplification—but, in our view, a bad one. The courts would be unlikely to consider themselves bound by this simple list, and in any case it is clear from Government guidance attached to the Bill that that is not what they intend.

Clause 158 states that directors must have regard to the matters set out there, but it adds “amongst other matters”. I cannot see how on earth passing the Bill will curtail the courts’ consideration of these issues. Furthermore, if the hon. Gentleman speaks about green issues, he might think about how such aims are to be achieved.

The problem is that there are about 650 “other matters” which have built up over time as considerations that guide the behaviour of directors. By picking out a mere six, the simplicity of the codification may make matters worse. It seems clear that directors will have to look, as the Secretary of State said, at both statute and case law to find out what their legal duties are, and perhaps at guidance as well.

Yet more confusing is the lack of clarity about how the list of factors provided in clause 158 should be approached. Are they listed in order of precedence? If not, what happens when there is a conflict between them? Ministers have given assurances that decisions taken in good faith will not be subject to review by the courts. The Secretary of State stated that yesterday in the Financial Times. However, the Law Society and many leading lawyers think otherwise. If it is not the Government’s intention that decisions taken by directors in good faith should be hauled through the courts, we urge them to work with us to tackle a provision that we think will lead to confusion. After all, it is what is in the Bill that matters, not what Ministers say they meant by the Bill.

Confusion in this area will inevitably lead to costly litigation. As Miles Templeman of the Institute of Directors cautioned,

“The Government has to make sure that the proposed legislation does not fundamentally change the current law. There is a danger that some of the drafting of the Bill could well have this effect, leaving confusion and uncertainty until the provisions are interpreted by the courts.”

I am following my hon. Friend’s argument with great care. Mr. Templeman does not want the present law to be changed because he does not want to take seriously issues of the environment and social concerns. That is a different position from the one that my hon. Friend is advancing. I hope that he will not quote the IOD on the matter, as it wants to restrict the responsibilities of directors, whereas he wants to clarify those responsibilities. That is a different issue. If he is doing the one, I support him. If he is doing the other, there is a real difference.

I imagine that if Miles Templeman were standing in my little shoes at this moment, he would robustly say that as a responsible businessman he would, in everything he does, wish to take seriously issues of the environment. If I may leap vicariously to his defence, I am pretty sure that that is what he would say in riposte.

We are perfectly willing to work with the Government to improve the clause and will table amendments in Committee. Our preference is for the Government to issue a single document of non-statutory guidance, which they have indicated they are willing to do. That would give directors a greater measure of certainty and clarity than does the current drafting. If, instead, the Government insist on the new statutory statement of duties, it must be drafted so as to make it clear that, as the Secretary of State wrote yesterday,

“directors are not required to keep additional records as a result of the statutory duties; and directors who act in good faith will not be held liable”.

Is my hon. Friend suggesting that, in the case that I put to the Secretary of State, if a business successfully applied for planning permission for, say, an opencast coalmine and met all the regulatory and other legal requirements, the local community could take an action against the directors under clause 158 if it did not approve?

No. To be fair, the Secretary of State answered that and, however reluctant I might be to do so, I largely go along with his attitude. In Committee we will have to consider the detailed working of all the clauses. This is a crucial Bill that the House must scrutinise word by word to make sure that every potential unintended and intended consequence is foreseen and properly understood, so that as a result of this mammoth piece of legislation we do not end up with a legislative corporate nightmare.

Those concerns about part 10 relate closely to concerns about part 11, which sets out a new procedure for individual shareholders to bring claims against directors. We are pleased that that procedure requires that the shareholder obtain the permission of the court to continue a claim, but we wait to see how high the bar is set when allowing such cases. This is, to some extent, an answer to my right hon. Friend the Member for Wokingham (Mr. Redwood). We believe in the principle that shareholders who suffer from the negligent actions of directors should have the right to bring an action, but because there is confusion arising from the statement of directors’ duties set out in the Bill, this part is problematic.

Under the new procedure, a pressure group could purchase a relatively small number of shares in a business and attempt to sue a director for a decision that he took with which the pressure group disagreed. If that decision had some environmental consequence, for example, the pressure group could reasonably argue that insufficient regard was given to that. Even if the case failed at the first hurdle, the damage done to the company could be significant, but if the court did allow the action to proceed, the company could find itself paying the legal costs of both sides, leaving the pressure group with no financial risk. The same procedure would be open to employees and ex-employees who owned shares, whereby decisions taken by directors that affected their jobs would be open to challenge in the courts. It seems likely that this part of the Bill will increase the likelihood of litigation without sufficient safeguards. It is possibly a recipe for disaster.

I am surprised by the hon. Gentleman’s remarks, because I thought that his colleagues in the other place had been fairly pleased with the Government’s approach. The standard by which the courts will have to form a judgment is whether there is prima facie evidence that a tort has occurred. That is quite a high standard. The hon. Gentleman is in danger of scaremongering on this issue when there has been a degree of compromise and consensus in the other place.

We will see. No doubt it will be discussed in Committee. Nevertheless, the provision opens the door for generously funded single issue pressure groups to try to use corporate law to undermine companies rather than to do what a company’s shareholders should, which is to try to make it a success.

There are two points here. First, it is already possible to bring such an action; the difference is that we are putting on to the statute book the rules that will govern it. Secondly, there are two stages: first, as the hon. Member for Kingston and Surbiton (Mr. Davey) said, there would have to be a prima facie case; and, secondly, the court would have to consider whether the decision was one that the directors could reasonably and independently have taken. That is a very high standard. People may not like the decision, and may come to the view that they would have taken a different one, but if it was found that the company could reasonably have taken it, an action of this sort would fail.