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Companies Bill [Lords]

Volume 450: debated on Wednesday 18 October 2006

[2nd Allotted Day]

[Relevant document: The Twenty-eighth Report from the Joint Committee on Human Rights, Session 2005-06, Legislative Scrutiny: Fourteenth Progress Report, HC 1626.]

As amended in the Standing Committee, further considered.

New Clause 1

Contents of directors’ report: business review (No. 2)

‘(1) Unless the company is subject to the small companies’ regime, the directors’ report must contain a business review.

(2) The purposes of the business review are to inform members of the company, help them assess how the directors have performed their duty under section 173 (duty to promote the success of the company), and assist potential investors to decide whether to invest in the company.

(3) The business review must contain—

(a) a fair review of the company’s business, and

(b) a description of the principal risks and uncertainties facing the company.

(4) The review required is a balanced and comprehensive analysis of—

(a) the development and performance of the company’s business during the financial year, and

(b) the position of the company’s business at the end of that year,

consistent with the size and complexity of the business.

(5) The business review must, in a manner consistent with the size and complexity of the company, include—

(a) the main trends and factors likely to affect the future development, performance and position of the company’s business, and

(b) information about—

(i) environmental matters (including the impact of the company’s business on the environment),

(ii) the company’s employees,

(iii) social and community issues, and

(iv) persons with whom the company has contractual or other arrangements which are essential to the business of the company,

including information about any policies of the company in relation to those matters and the effectiveness of those policies.

If the review does not contain information of each kind mentioned in paragraph (b)(i), (ii), (iii) and (iv), it must state which of those kinds of information it does not contain.

(6) The review must, in a manner consistent with the size and complexity of the company, include—

(a) analysis using financial key performance indicators, and

(b) where appropriate, analysis using other key performance indicators, including information relating to environmental matters, employee matters, supplier matters and social and community issues.

“Key performance indicators” means factors by reference to which the development, performance or position of the company’s business can be measured effectively.

(7) The review must, where appropriate, include references to, and additional explanations of, amounts included in the company’s annual accounts.

(8) In relation to a group directors’ report this section has effect as if the references to the company were references to the company and its subsidiary undertakings included in the consolidation.

(9) Nothing in this section requires the disclosure of information about impending developments or matters in the course of negotiation if the disclosure would, in the opinion of the directors, be seriously prejudicial to the interests of the company.’.—[Jon Trickett.]

Brought up, and read the First time.

With this it will be convenient to discuss the following:

Amendment (a) to the proposed new clause, at end of subsection (2), insert

‘and potential customers to decide whether to purchase the company’s goods or services.’.

New clause 2—Reporting standards—

‘(1) A business review must—

(a) state whether it has been prepared in accordance with relevant reporting standards, and

(b) contain particulars of, and reasons for, any departure from such standards.

(2) In this section, “reporting standards” means statements of standard reporting practice which the Secretary of State shall ensure are issued and which—

(a) relate to business reviews, and

(b) shall be issued by a body or bodies specified in an order made by the Secretary of State.

(3) References in this section to relevant reporting standards, in relation to a company’s business review, are to such standards as are, in accordance with their terms, applicable to the company’s circumstances and to the review.

(4) Where or the extent that the directors of a company have complied with a reporting standard, they are presumed (unless the contrary is proved) to have complied with the corresponding requirements of this Part relating to the contents of a business review.’.

New clause 75—Requirement for audit of business review—

‘The auditors must state in their report—

(a) whether in their opinion the information given in the business review for the financial year for which the annual accounts are prepared is consistent with those accounts; and

(b) whether any matters have come to their attention, in the performance of their functions as auditors of the company, which in their opinion are inconsistent with the information given in the business review.’.

Amendment No. 1, page 196, line 30, leave out clause 423.

Amendment No. 760, in clause 423, page 197, line 2, leave out

‘In the case of a quoted company’.

Government amendments Nos. 821 and 822.

New clause 1, which I tabled, has been signed by 51 other hon. Members. That significant body of opinion indicates the strength of feeling about the subjects with which the proposal deals.

One of the historical roles of the House has always been to attempt to protect the general social interest against specific actions of private interests. The Bill is an attempt to do that, but with a light touch. It is clear that corporations have become increasingly important actors both inside the United Kingdom and on a global scale. Many of the world’s largest companies are absolutely enormous. The fact that Wal-Mart, the world’s biggest corporation, is larger than 150 nation states shows the size of the private interests that are emerging. It is for nation states and national Parliaments to reflect on private power and its consequences and to attempt, albeit in a way that is not too burdensome, to protect the social interest.

I noted that the hon. Member for Huntingdon (Mr. Djanogly) claimed in the House yesterday that corporate social responsibility, which is the name that we give to the attempt to encourage companies to behave more responsibly, is now taken more or less seriously by all the larger companies based in this country. That was a sweeping and—some might say—complacent statement, given that there are companies whose actions still cause problems both in the United Kingdom and abroad. For example, I draw the House’s attention to the UK-based mining giant, Anglo American. A recent report indicated that poor communities in Ghana were seriously afflicted by environmental pollution that was a by-product of the company’s operations. The water supply was poisoned and the farming land was degraded, so the local people could not carry out their traditional pursuits of fishing and farming.

I do not want to give the impression that I am vilifying the whole of the UK corporate sector, but we must be honest in the House about the fact that, unfortunately, there are widespread examples of such actions. For example, it is said that Shell is in breach of statutes in the Niger delta by flaring off the by-products of its activities, which produces carbon dioxide and other greenhouse gases that damage the environment. It is suggested that Shell is producing as much pollution through its activities in the Niger delta as the rest of west Africa. It is also said that Tesco is using unfortunate techniques in relation to female workers in South Africa. The list goes on, so I do not need to strengthen my point. We should simply reflect on the fact that private power cannot be left totally unaccountable in this modern world, and that is the context of our debate.

The Conservative party has been seen to represent the narrow class base of shareholder interest, but the right hon. Member for Witney (Mr. Cameron), at least, has realised that the party needs to break with that narrow sectional interest. He placed an advert in the newspapers in which he said that it was his business not to stand up for big business,

“but to stand up to big business when it’s in the interest of Britain and the world.”

There was an understanding that a form of regulation for misbehaving companies was needed, and I began to think that the Conservative party might become part of a progressive consensus on corporate regulation. I was thus disappointed to read several of the speeches made, and amendments tabled, by Conservative Members.

The right hon. Member for Witney said in a speech on 9 May:

“I’ve never believed that we can leave everything to market forces”.

He was quoted in The Sunday Times on 7 May 2005 as saying that the regulation of companies

“clearly has an important role in ensuring competition and setting minimum acceptable standards”.

It was therefore assumed that the Conservatives would join in a consensus on light-touch regulation of business. That is precisely the type of regulatory framework that the Bill—the largest ever to have come before the House—would incorporate into law.

At the centre of the Bill is the concept of enlightened shareholder value. Again, I should have thought that there would be a consensus across the House that if the aim is to ensure that the corporate sector operates in a socially responsible fashion, enlightened shareholder value could be at the core of any legislative framework that we introduce. I should have thought that it would be apparent to everyone that if shareholders are to have the capacity to act in an enlightened way, information, particularly information on the way in which the company is being managed by its directors, is key. That brings us to the heart of the provisions: the business review.

The Bill as a whole is intellectually coherent. It proposes the concept of enlightened shareholder value, and an instrument—the business review—that will enable shareholders to act in ways that secure the best interests of the company, applying a definition that goes beyond narrow financial considerations, and encompasses the environment, both social and ecological, in which the company operates. I would argue that the business review is the core of the Bill’s intellectual underpinning. The Bill is a good measure, containing much that is to be welcomed. However, it seems to me—this is why I proposed new clause 1—that some of the detailed provisions on the business review could be extended. I note that the Government have been persuaded to table an amendment to new clause 1, to which I shall refer shortly.

The business review requirement might be extended in relation to those categories of company that will be required to produce a review. There must always be boundaries around any legislation, and it is for the House to define where those boundaries fall. The Bill therefore states which classes of company should produce business reviews. The Government have drawn the boundary around larger companies—by definition, those that are listed on the stock exchange. That will cover about 1,300 companies, which are among the largest in the UK. It is welcome that the Government have done that, but there are 4 million companies in the UK, and many are larger and have a greater impact on life in the UK and in the rest of the world than the companies that fall within that category.

In new clause 1, I propose a modest—I might even say timid—extension to the category of companies that will be required to produce a business review.

In the course of his compelling speech, my hon. Friend has mentioned Tesco, which is a quoted company and would therefore be covered by the business review requirement, as would Sainsbury. Asda, however, as a subsidiary of Wal-Mart, is not quoted on the stock exchange and is not covered by that requirement. New clause 1 is an attempt to correct that.

My hon. Friend is right. Asda is part of the Wal-Mart group, which, it is alleged, employs teams based at its headquarters in the United States to break trade unions. Such activities cannot be justified. We have seen little of that in the United Kingdom, but it is part of Wal-Mart’s corporate strategy. Even more worrying is the allegation that the Wal-Mart group of companies receives supplies from thousands of factories in the People’s Republic of China that pay workers 13 cents an hour, when the minimum wage in China is 31 cents an hour. It is probable that many of those commodities are entering the United Kingdom via Asda. It has been put to me that, as part of an American corporation, Asda cannot be covered by the legislation, but I have checked and found that Asda’s corporate headquarters remain registered in the United Kingdom. I suggest to the Minister that Asda may well be covered by UK legislation.

As my hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins) has illustrated, many companies that have a huge impact on our social and ecological environment will be excluded from the Bill. This morning, I obtained a list of the top 10 private companies. John Lewis Partnership is owned by its employees. It is a model company that reports regularly on its social impact, but although it employs 63,000 people in the UK and has a turnover of £5 billion, the company will not be required to report under the Bill if new clause 1 is not added. If I was in charge of Tesco or another retailer and I was told that my company, because it is listed, will have to report, but my competitors—John Lewis Partnership or Asda—will not, because they are private companies or wholly owned subsidiaries, I would say that the playing field is not level.

No logical intellectual case can be made for excluding larger private companies or subsidiaries that are registered in the UK. Littlewoods, which has 29,000 employees, will be excluded, as will another private company, John Swire and Sons, which has 76,000 employees. The case for requiring those companies to produce a business review is overwhelming. I understand that the Government had to draw a boundary somewhere, but I believe that we could extend the requirement beyond the 1,300 listed companies. The new clause would do that.

In new clause 1, I suggest that medium-sized companies should also be included. Why should such companies be excluded? A medium-sized company is, by definition, quite a large operation: it may have a turnover of tens of millions of pounds and 250 or more employees. Such companies are significant players. I would like to hear the Minister’s explanation of why the boundary was drawn where it was. If the Government accept new clause 1, the number of companies covered by the requirement to produce business reviews will increase from 1,300 to 36,000. That is a modest extension, given the fact that there are 4 million companies in the UK.

The new clause would also correct some of the anomalies that will be thrown up by the Bill. We have discussed the retail sector and the anomaly that some retailers will have to produce business reviews but other, perhaps larger, companies will not. It is anomalous that Virgin will not have to produce a business review. The company claims to be environmentally sound—that is what Richard Branson regularly tells us and it is part of the image that he projects for his company, and I have no reason to doubt it. However, Virgin will not have to produce a business review, whereas British Airways will. How can it be right to have such an uneven playing field for the two companies, simply because of the definition set out in the Bill? Another excluded group of companies consists of those listed on the alternative investment market. Many companies with an AIM listing have a significant impact on our society and on the environment. It cannot be right that companies listed on the London stock exchange will have to produce a business review, but those on AIM will not.

The second proposal in new clause 1 deals with supplier issues. There will probably be further debate about that, because the Minister has tabled her own amendment. I notice the expressions of what I regard as phoney outrage by the CBI in this morning’s newspapers. That is unfortunate because the proposal is modest. If a corporation is to produce a business review that comments on those aspects of its activities that have an impact on the rest of society and on the environment, to exclude the supply chain would vastly diminish the amount of reporting required of the company. We are strongly in favour of the supply chain being included.

It is often said that some of the supermarkets operating in the UK, which are increasingly dominant on the high street and elsewhere, use methods that have an oppressive effect on the agricultural sector in the UK and beyond. It is regularly argued that workers are being brought in from eastern Europe to produce agricultural products—strawberries, potatoes and so on—under the most appalling conditions. They are employed not by Asda, Tesco or other supermarkets directly, but by suppliers. If the supply chain were brought within the remit of the Bill, it is arguable that horrific arrangements such as that of the cockle pickers and the gangmasters would be exposed at a much earlier stage, rather than in the tragic way in which that situation emerged. Supply issues are important, and it is good to see that the Government have reflected on the matter.

I strongly support any effort to ensure that supplier relationships are incorporated in the Bill. Can the hon. Gentleman expand on the challenges that that presents? Suppliers are complaining, anonymously of course, that there are overriders, lack of written contracts, many short-term changes and return of goods on rather questionable bases. Many of those suppliers fear the consequences of having such matters too publicly and transparently debated. Will the hon. Gentleman explain how suppliers would be protected by the measure?

I thank the hon. Gentleman for raising that important point. The dominant market position that certain companies secure in their own sector could be used to the disadvantage of those further down the supply chain, often smaller companies living hand to mouth. Anyone who, like me, seems unable to sleep the night through and listens to “Farming Today”, an excellent programme at 5.45 am on the BBC, will regularly hear farmers speaking anonymously. I never thought I would be an advocate for the farming community, but it is interesting to hear people further down the supply chain objecting to the techniques being used by the retail sector—by the large supermarkets—to drive down the conditions in which their suppliers are working.

We know that many companies are moving their production overseas. Several clothing factories have closed in my constituency. The company that owned the factory remains and continues to supply retailers, but the production has moved overseas, largely to take advantage of what the company would regard as favourable labour conditions overseas, which probably means poverty wages and extremely poor contractual standards in respect of employment law.

If we were to secure a more balanced relationship in the supply chain, with longer-term relationships and more balanced ones too, that would benefit not only the rest of society and the work force, but the larger companies, which would reveal the suppliers of materials to them. In the long term business should operate through secure relationships down the supply chain. That would obviously create a good business environment.

I said earlier that the cries of outrage in many of the newspapers this morning sounded somewhat phoney. I notice that the much lamented operating and financial review, which some months ago got lost somewhere along the line, included supply chain issues. Many companies that belong to the CBI and are part of the corporate world had already begun to include supply chain issues—stronger issues than my right hon. Friend the Minister is proposing. The CBI should not be expressing outrage at such a modest proposal. Many in the corporate sector had already adapted to it, and it would create more harmonious economic relationships down the supply chain.

There is a third issue in the new clause—materiality, which I shall try to explain. The business review requires directors to report to shareholders on matters that are directly material to the company’s narrow financial health. It is accepted that companies seek to maximise the return to their shareholders, and that that is how the system works. However, it is possible to take a slightly longer-term view than the return of profit in the here and now. A company’s actions in the medium to longer term could be damaging to the company itself.

An example is oil production in the Niger delta, which I mentioned a few moments ago. In the end, if the company continues to break Nigerian law, damage the local environment and exploit local people, it will not be in the company’s interests. Eventually, Nigeria will turn against the company. New clause 1 suggests a more relaxed version of materiality—what is material to the company’s operation—than the version in the Bill. It will be interesting to hear the Government’s arguments for suggesting such a narrow definition, rather than a slightly wider one.

I have tried to provide a philosophical explanation of the current position and the Bill, which I warmly welcome, and to suggest how, without changing the world fundamentally, the Government might move the business review forward. Shareholders are unable to judge what is in the interests of the company if the business review is not made available to them. I would argue for a wider definition of that group.

I began my comments by referring to the right hon. Member for Witney and quoting some of his comments, which I found amusing. I shall conclude with his remarks to The Sunday Times on 7 May. He said:

“I’m not prepared to turn a blind eye if the system sometimes leaves casualties in its wake.”

He went on to say:

“Unless shortcomings are addressed, the entire system risks falling into disrepute.”

I rather think he is speaking about capitalism. It is not a word or a concept that we often use in this place. For the moment at least, we are not challenging the entire capitalist system.

That is a debate for later—in the bar, probably.

I simply say that it is clear that if the corporate sector fails to move with the times, if private power insists on remaining secretive and lacking in transparency, when danger occurs, individual companies, and perhaps even the entire system, will fall into disrepute.

It is a great pleasure to be at the Dispatch Box for the first time, although, I have to accept, after today, possibly the last. I am pleased to speak for the Opposition on this part of the Bill, although it is not exactly as I had expected. My understanding was that an Opposition spokesman generally moves amendments to improve and change Government Bills, whereas I have no amendments to move because we are happy with the business review as it appears in the Bill. Instead, it is the Government and their Back Benchers who are trying to change their legislation. The situation is perverse, but I have no doubt that we will soldier on and have an interesting debate. I should say, however, that the Government have been particularly late in tabling their amendments.

Is it not a sad indictment of the official Opposition that the real opposition does not come from the Conservative party?

There was I thinking that we had seen the end of Punch and Judy politics for the sake of it. We are an Opposition that have for some time now said that, when we are happy with legislation, we will not oppose it just for the sake of it. We saw no reason to change that with the business review, because we support increasing and enhancing the corporate social responsibility framework in this country.

We are well aware that the business review started life as the operating and financial review many years ago. Eight years ago, children now in university were in primary school when the operating and financial review was first developed and work on the Bill started, but we have finally reached the stage where we have a business review in the Bill, which Conservative Members support.

We recognise the importance of the role of businesses in creating jobs and prosperity, but we also recognise the broader impact of businesses not only on the environment but on the local and international communities in which they operate. There is no inherent contradiction between companies striving for long-term financial success and demonstrating strong corporate responsibility. In fact, the Minister herself correctly described those two issues as being interlinked and interwoven.

At the heart of any successful company is an in-depth understanding of what its customers want and value. Perhaps more than at any time in the past, customers place a value not just on what they are purchasing from companies, but on the way in which companies have carried out their business in order to provide those products or services. Companies can therefore be at the forefront of the push to tackle environmental and ethical issues. They do not have to be at the back of that argument.

The business review as set out in the Bill will be an important part of that developing corporate social responsibility agenda. As we approach the Queen’s Speech, which Conservative Members very much hope will contain a climate change Bill, it is possible to see the emergence of a real corporate social responsibility reporting framework in the UK. The business review could play a vital role in that, and we certainly hope that it does, but new business legislation often involves additional costs and burdens on those businesses that it affects.

The Opposition recognise the importance of establishing for the first time a formal narrative of a company’s development risks and uncertainties and the wider impact of its relationship with the environment, its employees and the community. However, those of us who have worked in business—I should declare that I am a chartered accountant—also know how careful Government need to be before adding any unnecessary burden on business. As the Minister said on Second Reading, we should ensure that the new law is as clear, simple and modern as possible, that it is fit for today’s business purposes, and that it does the maximum possible to get rid of any unnecessary burdens of regulation.

Much of what the hon. Lady says is welcome, but has she spotted that the business review that she supports would not cover, to take a significant climate change issue, Thames Water, a company in which her constituents will have a great interest?

The business review clearly sets out the need for directors to have a narrative on social and community issues, and also environmental issues.

My hon. Friend makes an excellent point, but the point made by the hon. Member for Newcastle upon Tyne, Central (Jim Cousins) was wrong. Thames Water and other companies may be foreign-owned, but they have nothing to do with the Bill. He has just demonstrated one of the weaknesses of using the Bill to advance corporate social responsibility.

Throughout the Bill, the Government have been clear about what the business review is intended to do, and it is to be a narrative for the members of the company. I am sure that the Minister will want to deal with whether the Bill should have a much wider application to any company that is operating within UK jurisdiction. We need to strike the right balance with this legislation. That has been difficult to achieve and later we will debate whether we have achieved it. That has obviously partly been because it fits so clearly into a broader and important debate on the environment, but also because company law is necessarily limited in the extent to which it can be used as a vehicle to address such concerns.

I fully recognise the concerns that the hon. Member for Newcastle upon Tyne, Central (Jim Cousins) raised, but the question is what is the best way to address them. I agree with Lord Sainsbury and many others both from the Lords and in this place, including Ministers and Opposition Members, that company law is one way to pursue the need for companies to review more carefully the effect of their operations on the environment, but it is not the only route by which that can take place, so we need to be careful.

As the Minister said, company law is not the best vehicle for addressing wider social and environmental concerns. We can address those objectives, as some Government Members have said, through domestic legislation, health and safety measures and environmental protection, on which progress has been made.

I am following the logic of what the hon. Lady describes. Bearing it in mind that Conservatives appear to support the Government on this issue with not quite the same enthusiasm as they supported military action in Iraq, but just a little less than that, which aspects of the relationship between supermarkets and suppliers does she feel will be best served by elements within the Bill? Given that she wants to avoid unnecessary burdens on businesses, does she accept that one of the biggest burdens on the many suppliers in the supply chain, particularly to supermarkets, is their relationship with the supermarket, and that it is that burden that they need to have lifted and made more transparent?

We will come to that, but I was not aware that this was a Bill solely structured to deal with supermarkets. We need a Bill that will work for the whole of our business environment, not just one sector in it. There is a wealth of difference between measuring directors’ effectiveness in performing their duties, which is what the narrative is there to do, and taking steps to change company culture.

Whether in the other place, in this Chamber, in Committee or even outside the House, the problem of where to strike the balance has been keenly debated. In fact, it has had eight years of debate, with much money being wasted by companies on the operating and financial review preparation, which was subsequently dumped by the Government. The Opposition believe that balance has been achieved, which is why we support the business review in the Bill.

I must declare an interest, because I work with the Chartered Institute of Marketing. The Bill does not explicitly require the reports to cover the marketing performance of a company. The Chartered Institute of Marketing feels that that is an omission and that shareholders should have the right to know the strategic and tactical operations of the marketing conducted by companies.

We are in danger of making the business review far too prescriptive, particularly given that we know that more environmental legislation is likely to be enacted. What is needed is a narrative that has a good enough framework for the outcomes that we want, which includes information for members on environmental issues and the impact on people, employees and communities. However, it should not be so prescriptive that it closes down the debate and potentially gives directors the chance not to disclose something, because it is not on the list that they have been given. I have no doubt that companies that care about corporate social responsibility reporting will want to give a full and useful report in the business narrative, which will allow members to see which companies take that responsibility seriously. We feel that the Government have got the balance right, which is why it is so perplexing that they seem unhappy with the business review.

I will discuss new clause 1 shortly, but first I shall touch on amendments Nos. 821 and 822. I was surprised when the Minister tabled those amendments at such a late stage, because on Second Reading she said:

“The provisions on directors’ duties, together with the provisions on narrative reporting, will give a huge boost to our corporate social responsibility agenda. If we went further, we would damage our success in attracting companies to incorporate in Britain, along with the economic growth and jobs that that brings. In a global economic environment with global markets, companies can choose where they wish to incorporate their business, so company law must focus on its core purpose to create the right environment for business success.”—[Official Report, 6 June 2006; Vol. 447, c. 216.]

Earlier this week, the Minister lost sight of that core purpose. Yesterday, the debate involved the point that directors have an overall duty to promote the success of their company. Do DTI Ministers not have the same duty to promote the success of British business? I am amazed that I am having to remind the Minister of the core purpose of her job.

When did the Minister decide to table amendments Nos. 821 and 822? They appeared after the main body of amendments was published, so they were presumably tabled this week, but when did she take the decision and why has she tabled them? I have no doubt that we will receive an explanation, but perhaps she will cover who or what changed her mind on the business review, which the Government have supported since they ditched the operating and financial review. The Government have had the whole summer since the Bill was in Committee, so why were the amendments tabled so late? Why could the amendments not have been tabled last week?

What steps did the Minister take to consult business on the impact of the amendments before taking her decision and was the advice from business given to Ministers? My understanding from the CBI is that the Minister conducted no consultation with business whatsoever. The CBI has said that the amendments will place an extra burden on businesses due to the costs of compliance and legal advice. The Institute of Directors has also expressed its concern about amendments Nos. 821 and 822, saying:

“it is unacceptable for the government to table amendments that make significant policy changes at such a late stage and without any consultation.”

I welcome the hon. Lady to her Front-Bench position and wish her well. The issues that she has raised are entirely procedural.

Yes, procedural. How I did it and when I did it are procedural issues, but I want to hear the hon. Lady’s comments on the substance of the amendments. Does she agree with the right hon. Member for Witney (Mr. Cameron) that she should stand up for not only the interests of business, but for the interests of Britain?

I am interested to hear the Minister’s comments. I shall discuss the substance of the amendments, but the way in which the Government tabled them at such a late stage is disgraceful. It is not acceptable for her to say that I cannot question how the amendments were tabled. I am trying to stand up for the British economy and the jobs that depend on its success, and it worries me that a DTI Minister takes that matter so glibly.

Is the hon. Lady seriously suggesting that the amendments, which were subject to wide consultation when we consulted on the business review, will damage British business and British jobs?

It is not my suggestion, although I happen to agree with it; it is the right hon. Lady’s suggestion.

The hon. Lady needs to substantiate that claim. I cannot understand how the amendments, which will give greater depth to the narrative reporting, will damage British business. Will she explain how they will damage British business?

On Second Reading, the Minister said:

“If we went further, we would damage our success in attracting companies to incorporate in Britain”.—[Official Report, 6 June 2006; Vol. 447, c. 216.]

That is why I am asking whether the Government have assessed whether the amendments will damage British competitiveness.

I had hoped that Ministers would have addressed that question themselves before tabling amendments. If the Minister for Industry and the Regions has not consulted business, will she agree today to meet all the key stakeholders who will be affected by the amendments? [Interruption.] Ministers are still quizzical about how the amendments will affect British business, which is deeply concerning and justifies my raising the following issues.

Whether or not consultation was carried out, there has clearly been no assessment of the impact of the amendments on Britain’s economic competitiveness. How will the amendments affect our flagship companies? Will the Minister assess the number of jobs that she believes will be affected by companies not relocating here or by companies that are already here relocating elsewhere? On Second Reading, she said that to go further would cost jobs. Which is it?

I am fascinated by the hon. Lady’s speech, although she has still not answered my question. However, I will answer her question—none.

“None” was obviously a response to my question about the assessment of the impact of the amendments.

On a point of order, Mr. Speaker. I will not interrupt the hon. Lady again unless she provokes me, but she was misrepresenting me. When I said, “none”, I meant, “no jobs.”

That is a rebuttal for a later stage. Misrepresentation is a very strong term. The Minister could always say that the hon. Lady was mistaken, which is nicer.

It is obviously difficult being in this position, as I have asked lots of questions about the amendment and had only one answered. That is why I had to make my best guess at working out which one the word, “none”, related to.

Perhaps I may continue with my list of questions. What specific information does the Minister hope to elucidate from directors regarding corporate social responsibility that she did not believe would be disclosed in the business review as it stands? Whatever that information, how has she reached the conclusion that the value of that information outweighs the impact on our economy? The Minister seems to have made this decision with all too little understanding of its real costs and benefits. The best decisions are generally taken with facts and data, but this one was taken so late in the day that there cannot possibly have been a robust assessment of the reasonableness of the amendment or the impact of the decision on our economy and its businesses. If the Minister will not consult business about the impact of the amendment, I can assure her that we will. In betraying the sensible arguments made to support the business review made not only by herself previously but by Lord Sainsbury and by her boss, the Secretary of State, she has done British business, and all those who work for it, a true disservice.

Let me turn to the detail of amendment No. 821, which is a blunt instrument that largely replicates part of new clause 1. It asks directors to provide in the business review

“information about persons with whom the company has contractual or other arrangements which are essential to the business of the company.”

Most companies will believe that all aspects of their operations are essential; otherwise, they would not waste money and resources carrying them out. A whole host of arrangements could be deemed essential—from suppliers to utility, IT and telephony providers, from leasing arrangements for buildings to agreements with local authorities. Do the Government intend that the amendment be so widely couched? Presumably, it would even include financing from banks or arrangements with auditors or the Inland Revenue that are vital for the company’s operation. The term, “contractual arrangements”, requires clarification. It could even be considered to cover customers. For example, Homebase has its “Spend and Save” scheme, with 4 million cardholders collectively accounting for 40 per cent. of its sales. That arrangement is clearly essential to Homebase, so would it need to be disclosed in the business review? If so, I do not see how that would further the aim of the business review, which I understood was intended to put in place, for the first time, a robust corporate social responsibility framework.

Will the Minister provide some guidance on the type of information that the Government are trying to bring to the surface? Is it names and addresses? Is it length of contracts, assuming that it is the supplier relationship that the Government are driving at? What is intended to be disclosed by directors? How will members judge whether enough has been disclosed? If it is largely environmental information that is required by members so that they can assess whether the company in which they hold shares has behaved ethically, would not that be part of the existing “environmental matters” narrative?

Based on what was reported in the papers today and yesterday, it seems that the amendment is aimed at the supplier side of the business, but that is not how it is phrased. That is worrying for business, and for us. Surely important supplier relationships that had an effect on the company’s environmental impact, or an effect in relation to the local community, would be included in the “environmental matters” or “social and community issues” aspect of the report, so why introduce the amendment at this late stage? The business review as structured already provides a mechanism for catching such important aspects of business operations, but the Government, in tabling the amendment, are casting doubt on that. As a result, they are, at the very last moment, managing to snatch defeat from the jaws of victory.

The amendment will add costs to companies in terms of compliance and related legal advice and guidance. That is not my assessment, but that of the CBI.

Does the hon. Lady accept that new clause 2, which would restore the reporting standards part of the original operating and financial review, would answer all her questions?

We cannot support new clause 2, because it would relegate the business review to a tick-box exercise, with the unacceptably high risk that it would be of poor quality.

Worst of all, the amendment could put some companies at risk, because the information that they are required to disclose, while having no relevance whatsoever to corporate social responsibility reporting, may give out vital commercial information. I am surprised about that, given the example of Huntingdon Life Sciences. Companies working with or supplying that company, and its customers, have been targeted through no fault of their own having carried out perfectly legal operations. Other companies will be worried by the danger in which the amendment puts them. That potentially negative impact cannot be in the interests of the members of the company for whom the report is ultimately intended, nor in the interests of the company’s employees. Surely that is not what the Government intend. Leaving aside the atrocious way in which they have introduced the amendment, even worse is how it weakens the business review by detracting from its focus on corporate social responsibility and its main function as a report to the members of the company so that it becomes a much broader report for a much broader audience. Until now, the Minister had always said that that was a dangerous road to take.

Let me turn to the issues raised by the hon. Member for Hemsworth (Jon Trickett). I fully appreciate what hon. Members are trying to achieve in new clauses 1, 2 and 75, but I have some concerns. Widening the purpose of the business review to expand its remit so that it is not only for existing members but for potential investors and customers would weaken, not strengthen, it. The review is designed to be a core narrative on the company, which may include a warts and all assessment by directors in which they consider difficult challenges that lie ahead. Many companies are in industries which, by their nature, have a big impact on the environment—for example, aircraft operators. Surely the most valuable business review for members will be one in which directors can set out not only their successes but their failures and future challenges regarding corporate social responsibility. It is vital to cover aspects where things are not going well if we are to see an overall improvement in this field.

The danger of widening the business review’s purpose from being a narrative for members to one for potential investors and customers is that it will stop being a narrative and start to become a sales brochure in which, like it or not, positives will be accentuated and negatives may risk being downplayed. Directors may ultimately face a conflict of interest between producing the best business review for their members and the best business review for a broader audience. The review exists to enable members to hold directors to account. It is a powerful tool and we should not weaken it, which amendment No.821 and the new clause risk doing.

I remind the hon. Lady that every British company that is listed on the American stock exchanges must, according to American legal requirements, produce a 20F statement, in which it sets out all the legal, regulatory and statutory challenges that it faces. Would not it be reasonable for us to require that of British companies?

If such a requirement does not help to achieve the Bill’s objective—I do not believe that it does—we should not include it. As someone who was involved in the audit profession, I know that, in the US, a tick-box mentality prevails and has led to a proscriptive audit approach, whereas the UK’s audit approach continues to be based on the substance of transactions, and auditors judging what is true and fair. The latter is a much stronger framework and I believe that we can be satisfied with the UK corporate environment and corporate governance when compared with the position in which US corporate governance has sometimes found itself in recent years.

Defining who would constitute a potential investor or customer in practical terms is such a broad concept as to be impossible to tie down meaningfully. In the case of a highly diversified company or a company that sells a wide product range, potential investors could have a variety of priorities that they wanted to highlight in a business review, and a vastly differing range of understanding of the company. Companies with a huge product range could have so many products that almost anyone could be classed as a potential customer. That is unworkable in the context of the business review.

Perhaps one of the most fundamental changes that the new clause proposes is the requirement for medium-sized companies to complete a full business review. Conservative Members believe that that would be excessively onerous, especially taken with new clause 2 and new clause 75, which deals with reporting standards and auditing the business review.

The Government estimated that the operating and financial review audit would cost business £33 million. I am concerned that formalising reporting standards, as new clause 2 proposes, and requiring an audit of the business review, as new clause 75 proposes, would risk transforming the business review exercise into nothing more than a tick-box approach, whereby the quality of the substance of the business review took second place to ticking all the boxes of a reporting standard.

Clause 510 provides that auditors must review whether the directors’ report is consistent with the accounts as a whole. The Bill therefore already contains a safeguard to ensure overall consistency. I am sure that hon. Members know that the Accounting Standards Board had prepared a robust reporting standard to use alongside the OFR. Once the OFR was amended and downgraded to a business review, the ASB similarly downgraded the reporting standard to a reporting statement. Nevertheless, it still provides clear best practice guidance to directors and their auditors on the expected content and quality of the report and can therefore provide some quality assurance in the business review narrative.

Surely the hon. Lady cannot have it both ways. She cannot on the one hand say that reporting standards will lead to a tick-box approach and on the other praise the reporting standard that the ASB produced.

I am amazed. There is a touch of irony to a Liberal Democrat saying that I want to have it both ways. In the House of Lords, the Liberal Democrats were happy with the business review, as we discussed in Committee, but by the time the Bill reached the House of Commons—a matter of weeks—they were resolutely claiming that we needed the OFR back. We want an efficient, effective minimum regulation approach to the business review that will enable companies to get on with good quality corporate social responsibility reporting. We do not want to force them down routes that they may not find valuable.

Surely providing some flexibility is a better approach, especially given that we may debate a climate change Bill shortly, than tying the review down so tightly to lists of requirements for inclusion that there is no flexibility to adapt as the agenda changes and grows.

Conservative Members want a climate change Bill to be included in the Queen’s Speech. We are disappointed that, at this late stage, the Government have changed their mind on a business review about which all key stakeholders had largely agreed. That is representative of a Government who are weak minded, badly organised and listless. We will oppose the Government amendments and new clause 1. We look forward to working with environmental groups and business in the coming months and years on the important matter of corporate social responsibility to ensure that the business review proves successful in establishing a robust corporate social responsibility framework in the UK.

Many other hon. Members want to participate, so I shall end my remarks.

I commend the hon. Member for Putney (Justine Greening) on her opening speech from the Conservative Front Bench. Her initial remarks led me to believe that she would be consensual—I was looking forward to more such speeches—but her later remarks made me doubt it. However, we look forward to hearing her arguments in future.

I support new clauses 1 and 2, which my hon. Friend the Member for Hemsworth (Jon Trickett) moved so eloquently and persuasively. They require companies to produce a business review, which examines the impact of company policies on not only the environment but employees, the local community and suppliers.

There is a long history to the proposals. It has long been understood that the best way to get industry fully to understand and tackle its social and environmental impacts is to require companies to measure and report on them. One cannot manage what one cannot measure. The Government therefore rightly initially drafted legislation in the form of an operating and financial review—or OFR as everyone fondly knows it—and required the leading 1,000 companies to produce one. A dispute then occurred about whether it was right to require those companies to report on their impacts unconditionally or only those that were material to the interests of the company.

The Government went to extreme lengths to resolve the matter. They set up an external committee to advise them on the definition of “materiality”. I believe that they did that to get agreement and, after due discussion and considerable delay, agreement was reached and a consensus achieved between the Department of Trade and Industry, the Department for Environment, Food and Rural Affairs—I know that because I was there—and the business and investment community. However, last December, the Chancellor suddenly announced at a CBI dinner that he was shelving the OFR legislation. There was no consultation about the abrupt U-turn and the reasons that were given at the time to justify it do not bear examination.

It was argued that the statutory OFR was a prime example of gold-plating—the normal argument that Whitehall and the CBI use—EU legislation. The Chancellor said that it went beyond the requirements of the 2003 accounts modernisation directive. However, the OFR proposals predated the EU legislation by several years. Indeed, the OFR package was amended in 2004, but that was simply to ensure that it complied with the EU directive, not to enable it to go beyond it. Nor was the sudden shelving of the OFR legislation universally welcomed by industry. One had only to look at the Financial Times during that period to see a letter of protest from the Institute of Directors, no less.

It is highly relevant that, more recently, top executives from among the 14 largest FTSE companies—the list reads like a roll-call of the senior ranks of British industry—headed a delegation to the Prime Minister to demand that the Government regulate against climate change. I was delighted—if slightly surprised—by that. It showed, in contrast to the rather curmudgeonly remarks of the hon. Member for Putney about the attitude of British business, that those attitudes are beginning to change—and not before time.

I suspect that that is the reason the Government are now—in another excellent development—considering producing a climate change Bill in the next Session. I very much welcome that, as someone who—along with the right hon. Member for Suffolk, Coastal (Mr. Gummer) and the hon. Member for Lewes (Norman Baker)—is sponsoring a climate change Bill before Parliament that will require an annual 3 per cent. cut in greenhouse gas emissions in order to achieve what the scientists say is necessary to stabilise climate change, namely a 60 per cent. reduction in those emissions by 2050.

For the purposes of this debate, the key point—which we recognise in our Bill and I hope that the Government will recognise in their climate change Bill if it is forthcoming—is that, in order to meet the unquestionably demanding targets, it is necessary to make regular measurements, sector by sector. That includes transportation, industry and the domestic sector. The measurements must also be made on a company-by-company basis. They must ascertain whether the targets are being met and, if they are not, determine what remedial action needs to be taken to get back on track. That is why the business review, as it is set out in the new clauses as a replacement for the lamented OFR, is absolutely essential.

My right hon. Friend rightly drew our attention to the excellent points that the Corporate Leaders Group made to the Prime Minister. The Minister has also received a letter from the Aldersgate Group, of which I am a member. The group includes leading businesses that want to promote sustainable development, and to see the establishment of reporting in relation to carbon allowances. Would the Minister for Industry and the Regions like to touch on that letter when she responds to the debate, and tell the House how those reports can be incorporated? That matter certainly seems to be addressed in new clause 1.

I am sure that my right hon. Friend the Minister will respond to my hon. Friend’s request. The members of the Aldersgate Group, like others in the senior ranks of British industry, realise that that is the direction in which the international economy is going, and that, if we are to be smart, we need to be in there at an early stage, because, unquestionably, there will be a requirement to produce such a review in due course. This is not only a matter of environmental sensitivity but a good business move in relation to the bottom line.

The method adopted by the EU emissions trading system under the Kyoto protocol, which is highly relevant to the debate, is the national allocation plan. This requires each industry to reduce its emissions to a fixed lower level within a given time scale. The relevance of that is that the new clauses provide the framework by which those reductions can be achieved in two important ways. I am at one with my hon. Friend the Member for Hemsworth in strongly requesting the Government to reconsider their position on this. First, the national allocation plan, to which we have signed up, applies to all large and medium-sized public and private companies—some 36,000 in all. That is still fewer than 1 per cent. of all companies, but it is significantly more than the 1,300 publicly listed companies covered by the Bill as it is drafted. The Aldersgate Group and the 14 key representatives of the big companies who went to see the Prime Minister are all concerned about the need for a level playing field. They do not want to be disadvantaged, and they therefore expect there to be a general requirement for the whole of business, including large private equity firms and foreign-owned private subsidiaries. The new clauses cover such businesses, but the Bill does not.

Secondly, the new clauses would introduce a mandatory reporting standard. I strongly suggest that that is absolutely essential, because we have repeatedly tried to make voluntary codes of practice work. As a former Minister for the Environment, I speak with some anguish about this. We introduced a number of voluntary codes, but they were honoured more in the breach than in the observance. Voluntary codes of practice will never be observed, other than by a relatively small number of scrupulous and conscientious companies. They will certainly not be universally observed. If we want to establish a level playing field, the code of practice must be mandatory and universal.

There is also the question of placing burdens on business. We have only to open the papers today to see the CBI repeating its usual mantra. Even the hon. Member for Putney could not resist buzzing around it. Of course there is an initial outlay involved in meeting the proposals. The truth is, however, that having spent that relatively small sum, companies will start to measure their energy efficiency, their transport impacts, their waste generation, their water consumption and their greenhouse gas emissions. They will then find, perhaps to their surprise, that once they have measured the waste and inefficiency that they were inadvertently generating, they will be able to make disproportionately larger savings. That is the key point: they will get a far bigger return for their initial outlay if they are required to assess the environmental impact of their work.

Proof of that can be seen in the fact that mandatory social and environmental reporting is already being pursued in various forms in other successful competitor countries to our own, including the United States, Canada, France, the Netherlands, Norway, Sweden and Denmark. I must underline strongly that sustainability is the friend of competitiveness. It is not a burden on it. For all those reasons, I hope that the Government will reconsider their position and accept new clauses 1 and 2. This would result in a win-win situation, not only for the environment—important though that is—but for the bottom line.

It is a great pleasure to follow the right hon. Member for Oldham, West and Royton (Mr. Meacher), who speaks with great authority on these matters. Perhaps I should say to the hon. Member for Putney (Justine Greening) that this is the stage at which the real Opposition get to have their say.

The right hon. Member for Oldham, West and Royton related quite accurately the history of how the operating and financial review was abandoned. It is alleged that the Chancellor decided to announce, without much consultation with anyone, that the OFR was to be suppressed because he wanted to make a symbolic gesture to show that the Government were willing to deregulate in matters that affected big business. That move was so surprising because, first, it was not clear that big business wanted that gesture to be made and, secondly, because we are talking about serious matters, not just symbols.

I am slightly perplexed by the hon. Gentleman’s comments about being the real Opposition. Will he oppose Government amendments Nos. 821 and 822?

Of course not, because the Government are giving way on a point that we are urging them to give way on. We are therefore very glad that they are doing so, and it would be perverse of us to oppose them. We are going to support that proposal. I accept that there are concerns about how it has been introduced: this is a surprisingly late concession, but late concessions are better than none at all.

In addition, it is not surprising that a concession has been made, because this matter was included in the original OFR. Furthermore, there was a clear argument that the drafting of the original clause—it talked about all the matters that were material to the company’s position—by implication included supply chain matters. There is a problem over late concessions, but it is a rather lesser one than would normally apply.

With respect to the hon. Gentleman’s claim that he speaks for the real Opposition, perhaps he would like to explain to the House why, in Committee, his party either abstained or, on several occasions, voted with the Government when the official Opposition voted against them.

As I remember it, at that stage the official Opposition opposed even the business review, although they appear to have changed their position, presumably due to the election of the right hon. Member for Witney (Mr. Cameron). The inconsistency of the Opposition’s position needs to be explained.

The hon. Gentleman’s question, asked from a sedentary position, shows that it is a big issue in the House as to which party is the real Opposition. [Interruption.] I want to make progress.

The question is whether the business review that emerged from the row that blew up after the Chancellor removed Government approval for the original OFR goes far enough. That is what new clauses 1, 2 and 75, as well as our amendment (a) to new clause 1, are about. The business review is too narrow in a variety of ways, and the right hon. Member for Oldham, West and Royton mentioned them all. In particular, it covers too few companies for the purposes for which we think it should be created. It does not cover the supply chain issue, although the Government have rightly introduced a proposal to correct that position.

Most important for us is the fact that the new business review fails to have proper audit requirements. There is a general requirement of audit, as the hon. Member for Putney mentioned, but what is not contained in the business review, which was contained in the original OFR, is a requirement for auditors to report on matters that come to their attention that are inconsistent with what is in the business review. The wording that we have used in new clause 75 is precisely that which was in the original OFR regulations.

I suppose that it is fair to say that our starting point, and our reason for supporting new clauses 1, 2 and 75, is perhaps rather different from that of the Government and the Conservative party. We are interested not just in the risks that the company faces, from loss of reputation through to introducing policies that are environmentally unfriendly or socially irresponsible, and unwelcome—from its point of view—regulatory activity, but in helping to create a market for ethical investment and ethical consumption. That precise point is where we differ from the other parties, because that is our first concern as to what the business review should contain and how it should work.

The hon. Gentleman talks about creating an ethical market. Does he agree that there is already one established, although developing it is clearly something to be encouraged?

Yes, I was coming to the size of the market. Ethical investment has probably got much further than ethical consumption, but even ethical investment is still not fully developed. Last year, ethical investment went through the £10 billion barrier for the first time. That sounds like a lot of money, especially compared with gross household savings, which are about £40 billion. However, a lot of the funds moving into ethical investment are moving from existing investment funds, so the percentage of new investment—new saving going into ethical investment—is rather less than the quarter it appears to be.

On the ethical consumption side, matters are far less well developed than that. A report by Co-operative Financial Services found that a third of UK consumers claim to be concerned about ethical consumption, yet only about 3 per cent. of the UK market for goods and services is clearly ethical in its production methods and aims.

We believe that ethical investment and ethical consumption have great power. They have the potential to change the world. The hon. Member for Hemsworth (Jon Trickett) talked about ending capitalism. We on the Liberal Democrat Benches take the traditional Keynesian view that our job is to make capitalism work for better ends. As Keynes said, eventually he knew which side of the barricades he would be on, but nevertheless capitalism has to be reformed if it is to be worth continuing.

One problem, as we see it, is ethical consumers and ethical investors finding out whether the information out there about the behaviour of particular companies is believable, accurate and true. We believe that an expanded business review, especially with an audit requirement, would help those customers and investors to find out where their ethical pounds would be best placed. In that process, audit is crucial. That, again, is where we differ very strongly from the hon. Member for Putney.

Our view is that, without proper audit, the business review will turn into a marketing tool. Already, a large number of companies give the impression that they are environmentally and socially responsible, but not all their claims can be taken absolutely at face value. All too often, companies already do precisely what the hon. Lady said they would do if the audit requirement was introduced. They highlight isolated examples of good practice, but fail to mention the full picture.

Our view is that there is a threat in current unaudited practice to the whole ethical investment and consumption market. It would be a great shame—even a disaster—if corporate attempts to “greenwash” operations led to public distrust and cynicism about the process of ethical investment and consumption. The auditing of claims made in business review reports would help to concentrate the minds of those who write them and increase the trustworthiness of the information that they give.

As the right hon. Member for Oldham, West and Royton said, the better companies would welcome that, because they would then receive the advantage they deserve over the companies that are interested merely in public relations, not in thoroughgoing ethical behaviour.

If the opportunity arises, we would like to press new clause 75 to a vote. It is independent of the success of new clauses 1 and 2. Even if those new clauses are not accepted today, although we hope they are, it will remain true that the audit requirement in the original OFR should be put back in place in the business review that the Government, at this stage, want to establish.

I wish to speak to new clause 2, which completes the circle and complements new clause 1, which was moved by my hon. Friend the Member for Hemsworth (Jon Trickett). Our new clauses combined have the backing of more than 50 Labour Members and I think that I am correct in saying that they have sizeable support among Liberal Democrat and nationalist Members. More importantly, they have the support of the Trade Justice Movement and the Corporate Responsibility Coalition, which, I am told, together represent more than 130 civil society organisations. I pay great tribute to those organisations for the campaign that they conducted across the country. I do not wish to sound pompous, but I hope that most right-minded members of the British public support the new clauses, too.

New clause 2 is rather like me and my politics: it is modest, thoughtful and rational. It is linked to this timely Bill, which is the biggest in parliamentary history—it has more than 1,200 clauses and was eight years in the making. The Bill goes a long way towards setting reasonable standards on corporate social responsibility, which the country, the environment and the world desperately need. I sincerely congratulate the Government on their efforts to produce forward-thinking legislation. Some Members, and perhaps some exhausted Clerks and Officers of the House, may question the necessity for further amendments or new clauses to a colossal Bill, so I shall explain why we introduced our new clauses. I always try to keep my contributions brief and incisive, and I shall endeavour to do so today.

The right hon. Member for Witney (Mr. Cameron) and the hon. Member for Huntingdon (Mr. Djanogly), who spoke on behalf of the Opposition in Standing Committee, have both praised BP’s environmental record, so the company provides a relevant case study. BP was praised for taking corporate social responsibility very seriously, but that is qualified by the fact that the company spends a significant amount of money on selling its CSR reputation. That is part of a much wider problem. All too often, companies spend vast sums of money projecting a positive image of themselves as green or ethical organisations—it is obviously not only political parties that do so—and do not spend enough money or time on the real issues that we aim to deal with under the Bill. Those are issues of shaping, guiding and ultimately changing the behaviour of the transnational companies whose activities have an extremely serious impact on our environment, climate and communities.

Hon. Members on both sides of the House regularly—and rightly—voice concerns about climate change and our environment, and several Members have already alluded to the subject. For many people, that is the central challenge of our times, and that belief is shared by the wider public. To refer to my case study, in the past financial year, only 5 per cent. of BP’s investment went into alternative energy. By comparison, 72 per cent. went into fossil fuels. That puts it only slightly ahead of competitors such as Shell. As one of Shell’s shareholders, and as a representative of a party that is going green, the hon. Member for Huntingdon may wish to raise that with BP’s directors at an appropriate time.

Regrettably, BP has been associated with a range of what can only be classed as negative environmental impacts and human rights abuses, from the Baku-Ceyhan pipeline to the Alaskan oil spill. This summer in Texas, the Rev. Jesse Jackson led protests against BP over price-fixing, employment discrimination and health and safety violations, following the Texas City explosion. In fact, BP has one of the worst records for health and safety in the US oil refinery sector. Moving down the continent, in July it settled a court case with a group of Colombian farmers who were forced off their land by paramilitaries so that BP could build a pipeline.

By way of comparison—I want to be even-handed—Shell’s corporate social responsibility record causes equal consternation. Shell, too, is a big spender on the generation of positive PR, but it is less energetic in making attempts to moderate the negative impact of its commercial activities in the countries and communities in which it operates. For instance, the exposure of Shell workers to toxic pesticides in Brazil has resulted in severe medical problems for the work force. Shell has been forced to take steps to protect workers, but it still will not guarantee treatment for conditions that have developed as a result of that toxic exposure. Its joint venture in Port Arthur emits massive quantities of toxins known to damage human cardiovascular and respiratory systems. Some 80 per cent. of Port Arthur’s residents suffer from heart conditions and respiratory problems, whereas the regional rate is 30 per cent. among people who do not live near an oil refinery.

Those are negative examples from just two companies. They have been sourced and exposed through local legal challenges to the companies in question, and thanks to the endeavours of environmental NGOs. Of course, we cannot make meaningful, objective comparisons between companies such as BP and Shell because neither is forced to report on their activities in a manner that conforms to a level, comprehensive standard that can be easily understood by everyone. That is the crux of my argument. The examples that I have given show how irresponsible behaviour can damage the long-term interests of the company, its customers and shareholders. Companies must understand those factors if they, in turn, are to understand their position and its risks.

A central plank of the Bill is that, through reporting obligations, shareholders and investors can vote with their wallets and choose not to invest in unethical or environmentally irresponsible companies. Self-evidently, that is worth while only if companies are forced to publish things that they do not want to publish. At present, I understand that there are up to six sets of voluntary reporting guidelines that companies can consult for an indication of what non-financial information to include in their reports. That is exactly why we need a common, mandatory and auditable standard of environmental and social reporting, so that we can cut through the spin and make a judgment on the substance.

To some extent, what the Bill overlooks—and what Her Majesty’s Opposition fundamentally misunderstand when they talk about CSR being a unique selling point—is that CSR is what companies do, not what they represent, report or claim to have done. It is not about what they say, but about what they do. New clause 2 would allow customers and shareholders to judge the situation objectively. If it was accepted, it would require reporting standards in business reviews to be set by a relevant body, and compliance with those standards would mean compliance with the requirements of the Bill.

The lack of a reporting standard is perhaps the most glaring gap in the Bill. The original operating and financial review regulations were accompanied by such a standard, issued by the Accounting Standards Board, to provide companies with guidance on what information they should include. The standard was intended to be a clear template, setting out the types of key performance indicator that could be used by companies to ensure that they complied with the law. The new clause would introduce similar mandatory standards for the business review. That is an issue of major importance for the Corporate Responsibility Coalition, the Trade Justice Movement and the many Labour Members who believe that mandatory guidance is essential to ensure that the information in business reviews is meaningful and comparable across companies, down the years.

Standards help to reduce businesses’ compliance costs, and they have been called for by a number of other stakeholders in the debate, including the Chartered Institute of Management Accountants. Without such a provision, it will be the responsibility of the directors of each company to determine the content of the business review and what indicators to use. That would make it impossible to compare one company with another, or the same company’s performance year on year. Shareholders would not be able to assess how their company is performing compared with its competitors, or whether its performance is improving over time—I would have thought that that was self-evident. Without being able to do so, it will be difficult to judge how directors have performed their duties. The absence of reporting standards thus undermines the whole concept of enlightened shareholder value as enshrined in the heart of the Bill.

It would also be useful for directors to have a clear benchmark and a model to follow, so that they can be confident that they are compliant with the law rather than competing models, which can result in confusion. The new clause, tabled by me and about 50 other Members, allows reasonable latitude in framing the reporting standard, which should address concerns that too strict a reporting standard will place too heavy a burden on businesses and could deter business growth—an argument we hear a great deal. As we have seen with other European nations, such as Sweden and Denmark, that is patently not the case. Allowing complete freedom to directors to decide how they report goes too far in a direction that, in my view, is wrong, and undermines the entire concept of reporting and its role in delivering enlightened shareholder value.

This is an historic opportunity to make a decent Bill better, at a time when the ramifications of its details have never been more important in Britain and, I would argue, throughout the world. I especially commend the new Government amendments on business-supplier relations, which improve the Bill—the fact that the Conservatives oppose them means that we must have got something right. I ask my right hon. Friend to re-examine how we might seize the opportunity to consider mandatory standards to the benefit of all interested parties, including the business community. Will she seriously consider, mindful of the Bill as it currently stands, how companies could be encouraged to comply with the suggested voluntary guidance? Statutory standards would, of course, present consequences to companies who fail to adhere to them. Is not a voluntary code by definition rather toothless, unless there is at least some level of supported implementation? Does she actively recommend to companies full compliance with any voluntary guidance? How robust does she expect her outstanding powers of persuasion to be? Furthermore, if, within a set period, companies were seen not to be complying with the voluntary code, would my right hon. Friend set a time frame to reconsider the option of mandatory standards if the law proves to be impotent, in consultation with business and the various NGOs?

As the excellent little pamphlet from the Trade Justice Moment and Corporate Responsibility Coalition states:

“The Bill provides Parliament with an unmissable opportunity to put in place a legal framework, which ensures that UK companies are fit for the 21st century, combining successful enterprise with ethical and responsible corporate behaviour. But to achieve this, the Bill must be amended further and a bolder approach is needed.”

I wait on the words of the Minister.

It is a privilege to follow my hon. Friend—for the purposes of this debate—the Member for Elmet (Colin Burgon) and to support new clauses 1 and 2. I pay tribute to him and his hon. Friend the Member for Hemsworth (Jon Trickett) for giving voice in the House to the hundreds of thousands of citizens who have led one of the biggest letter-writing campaigns that I have seen while I have been in the House.

Given that enormous campaign, it seems clear that the introduction of statutory standards for environmental and social reporting is an idea whose time has come. When we consider that the joint stock corporation, as it used to be called, or limited liability company has been around for 200 years, this Bill and these amendments make a small, modest step towards restoring the balance of power with regard to the rights and responsibilities—to use the well-worn new Labour phrase—of corporations. For too long, companies have operated in a privileged twilight world beyond the reach of accountability. We have heard a lot of debate about veils recently. This Bill and the amendments are about lifting the corporate veil and providing not just shareholders, but for society as a whole—employees, communities and campaign groups—with reliable, up-to-date, accessible information about corporate responsibility and the impact of companies on society.

During the 200 years in which corporations have existed, their power has waxed and, unfortunately, democratic power has waned. In terms of the broader context of the Bill and these amendments, it is therefore essential that we hold companies that have such an impact on our society and the world as a whole to account for their actions. After all, many of the ills faced by society today, whether environmental degradation or social injustice and inequality, do not stem from governmental action or inaction but from corporate irresponsibility. Therefore, the Bill and these amendments—I welcome the Government’s concessions—represent an important step in the right direction.

I would go much further. The whole issue of limited liability is problematical. I am in good company here, because Adam Smith was against the whole notion of providing shareholders with a get-out clause. In this case, therefore, the hon. Member for Hemsworth is, unfortunately, to the right of Adam Smith, for the time being. The problem was captured famously by Edward Thurlow, a Lord Chancellor in the 18th century, who said that the problem with the corporation was that it had

“no soul to be damned and no body to be kicked”.

In that phrase, he captured the problem of holding companies to account through the courts and legal system, and the problem of the human beings who own and run companies. Even where companies are found guilty of environmental degradation, it is difficult to hold individual directors or executives to account, unless one can demonstrate that they were directing minds.

I have been following the hon. Gentleman’s points with considerable interest, and I also regard him as my hon. Friend. Things have moved on a great deal since the 19th century. It is ironic that tomorrow morning, at 9 am, a Standing Committee will sit on the Corporate Manslaughter and Corporate Homicide Bill. Therefore, there is accountability now, and there will be even greater accountability once that Bill becomes law.

And all the angels in heaven rejoice when one sinner repenteth. The fact is that that Bill demonstrates the emerging consensus in society, which is more important than the consensus in this place. That consensus is for greater accountability with regard to corporate power, which, whether we like it or not, is central to the way we organise ourselves—it is the governing social form.

On the issue of voluntary codes on corporate social responsibility, the hon. Members for Elmet and for Hemsworth made the point strongly that companies will often give a very good story on CSR. Some consultants are making a very good living out of CSR. But beware the veil—and in some cases, unfortunately, the mask—of corporate social responsibility. As Andrew Pendleton, senior policy officer of Christian Aid, said:

“Some of those shouting the loudest about their corporate virtues are also among those inflicting continuing damage on communities where they work”.

That is why we need these amendments.

The concession is welcome because, clearly, there is a problem in the complex world of corporate power, where there are joint venture companies, subsidiary companies and all kinds of complicated relationships. It was therefore important to get the amendment on suppliers and subsidiary companies. We have had particular problems with asbestos-related cases in the past, where companies have tried to avoid accountability through Russian doll-like subsidiary companies across the globe. The underlying message in the amendments is that society predated the joint stock corporation. Those companies—which were time-limited back then—were given a licence to operate by society, and we create the conditions—the legal framework and the transport infrastructure—in which they can make their profit.

It is entirely acceptable to demand what the new clauses demand—statutory minimum environmental and social reporting standards. Companies must be accountable not just to their shareholders and employees, but to the wider society in which they operate.

I congratulate my hon. Friend the Member for Hemsworth (Jon Trickett) on the sensible and coherent way in which he introduced a very important debate. I also congratulate the hon. Member for Putney (Justine Greening) on the style of her maiden Dispatch Box speech. Unfortunately, it demonstrated the essence of the new Conservatives’ policy, which is to agree with Labour proposals, attack the Labour Government, and have no ideas of their own. It is also clear that the hon. Lady has no conception of the iterative process over the past eight years that has engaged business and, indeed, all other stakeholders, in a creative and constructive process. As I know from the comparatively short period during which I have been involved, it has been far more than consultation; it has been very full engagement.

Many of my hon. Friends wish to speak, so I shall keep my remarks very brief.

The speech of my hon. Friend the Member for Hemsworth touched on issues in which I have taken a passionate interest for many years. The only public meeting that I held at the time of the last general election was on the theme “Poverty is political”, linked to the need to tackle poverty worldwide. I have been involved in fair trade issues for many years, and ministerial experience has taught me a great deal about how to make sustainable development a reality.

Freedom from ministerial responsibilities allows me to take part in the debate, and to say frankly and openly what I think about the issues. I want a business environment in which the long-term interests of a company include consideration of its responsibility to people and to the environment, but I cannot support new clause 1 because I do not believe that it will have the desired effect. I agree with my hon. Friend about the ends, but great care must be taken with the means.

My hon. Friend spoke of protecting the public interest and of the need for a light touch. He observed that corporate social responsibility was now taken seriously—and it is, because the environment has changed. I support the Government amendments because they respond to an aspect of our debates on these issues, but the new clause would introduce a serious bureaucratic burden without achieving the desired results. Surely we should all want the whole of business to be both successful and responsible, and the new environment of enlightened shareholder value encouraged by the Bill will have a major impact in that regard. The balance of success and responsibility is built into the Bill very carefully. In my view, the hon. Member for Cambridge (David Howarth) is wrong: a tick-box mentality is more likely to result in a PR tool than to encourage a positive change in the environment.

The Bill embodies other important principles, such as “Think small first”, which has been seven years in the making. The new clause has good intentions, but in practice it embodies the principle “Think bureaucratic first”. It introduces a danger—companies will be advised by lawyers and they will play safe, not in protecting sustainable development, but in bureaucratic activity, producing more paperwork rather than public benefit.

Gibbon has warned us that laws often fail to prevent what they forbid. I suggest that bureaucratic regulation often fails to achieve the desired outcome. There can be perverse, unintended consequences. What enlightened shareholder value does is allow more citizen engagement in how companies operate. Those of us who care about issues such as sustainable development and fair trade, and wish to combat exploitation, surely want an environment in which the citizen campaigner is complemented by the citizen consumer. We can now go into a shop and see half a dozen different fairly traded coffees, which was not the case a few years ago. We also want the citizen shareholder to have an impact. What we want is not a tick-box environment, but intelligent engagement by companies. That is where I agree with the hon. Member for Putney. The Bill retains “true and fair” as the accountancy standard, for instance, which is extremely important.

I believe that enlightened shareholder value will allow organisations in the Corporate Responsibility Coalition—those who want to campaign for trade justice, environmental protection and the rest—to continue an intelligent engagement with business that has helped to increase responsibility in terms of sustainable development and international accountability in the United Kingdom, while at the same time making the UK a better place in which to do business. Surely there are lessons to be learned from our success in recent years in encouraging small companies to promote entrepreneurship.

There may be things that companies should do to a greater extent in order to carry out their responsibilities, but some of them should be contained in employment, environment or health and safety legislation rather than a Bill that is concerned with the vehicle—the company. Moreover, there is nothing to prevent companies from reporting in a way that is not required by law if that proves useful to shareholders for reasons of transparency. It would be good for their reputations, demonstrating that they were working responsibly.

Let us continue the partnership between Government and business and, indeed, the organisations that have campaigned for improvements. Let us think small first. Let us work on the application of enlightened shareholder value, which is making the UK a good and progressive business environment. Let us not go down the heavy-handed bureaucratic route that I fear is being proposed, although not intentionally, in the new clause and amendments.

I had the privilege of sitting through the entire Committee stage, and, as a non-legal person, I now know more than I ever really wanted to know about company law. Only yesterday, we were treated to a fascinating discussion on corporate sole.

Some Conservatives made extremely negative remarks yesterday about the Minister’s unhelpfulness in terms of accommodating input from other Members. Although in my view the amount of time allocated to Report could and should have been greater, some shameful remarks were made by Conservative Members who had not had the benefit of experiencing the Committee stage. I find myself in the unusual position of defending a Minister by seeking to put the record straight. The Minister did consult, and she did accommodate helpful suggestions and proposals from Liberal Democrats, Labour Members and those in other parties.

Even the Minister, however, has been unable to accommodate the wish of both Labour and Opposition Members to retain the operating and financial review. It was certainly not her fault that her boss-to-be, the Chancellor of the Exchequer—in a moment of madness, and apparently without consultation with any of his parliamentary colleagues—made a rash promise last November which he thought would appease big business. I refer to his promise to scrap the OFR.

The Chancellor thought that he would please business. In fact, he has angered many first-class businesses that had already begun to incorporate the requirements of the OFR in their business reporting. A report in today’s Times estimates that just under 50 per cent. of top UK companies have done so. I cannot agree with the hon. Member for Putney (Justine Greening) that the OFR is a waste of time, and apparently those companies do not agree with her either. Meanwhile, we are left with the somewhat weakened imitation that is the business review.

New clauses 1 and 75 seek to stiffen the requirements of the review and make it more effective. The hon. Member for Hemsworth (Jon Trickett) made many of the relevant points very eloquently, and I shall not elaborate on them, because we are short of time.

I am grateful to the Government for giving way on the issue of the supply chain. Any company can purport to be acting ethically, but if a company employs child labour or pollutes the environment, ethical investors and many others will wish to know about it.

Our amendment to new clause 1 is designed to widen the scope of the review to accommodate ethical investors—that growing band of individuals who base their investment decisions at least partially on the ethical behaviour of the company. That is hugely important. Clearly, that type of investor cannot make informed decisions if the information is not there; they cannot make them based on pious words or spin. New clause 75 gives auditors the power to check the accuracy of the report and provides for a duty to report any anomalies, specifically with regard to the contents of the business review.

That requirement will provide two things of great value to companies. First, it will create a level playing field for all companies of the same size. Those that behave in a way that is inconsistent with the spin in the business review will, I hope, be found out. Secondly, ethically behaved companies will attract investors who demand reassurance that their profits have not been created at the expense of others, or of the environment.

What of the cost? When the Chancellor made his fateful statement, wiping the operating and financial review from the expectant statute books, he was clearly seeking to ingratiate himself with business by appearing to be a man keen to reduce regulation and reduce costs. He should know about costs, Mr. Deputy Speaker. British Chambers of Commerce has estimated the cumulative cost to business of implementing new Government regulations since this Government came to power at £50 billion. The cost of implementing these proposals, over and above the existing regulatory impact assessment, is only an additional £30 million. If the Government were to approve an extension to all large private companies, the cost would be an additional £144 million. I am sure hon. Members would agree that that amount pales into insignificance in comparison with the huge burden already imposed by the Government.

I am sorry, but we are running out of time.

This cost has the huge benefit of creating a level playing field for competitors to give an accurate picture of how revenue and profits have been achieved. That, in turn, will affect the perception of their product or service to customers and investors alike. It is a virtue on which the company literally can trade. I therefore respectfully request hon. Members to support new clause 1 and new clause 75.

I shall speak briefly in support of new clauses 1 and 2, but I also want to speak to some other amendments tabled by myself and my hon. Friends. They further the same principle of keeping companies accountable by reporting—in other words, by asking them to say what they have done in certain areas. The sort of reporting envisaged in amendments Nos. 801 and 820, which we are proposing, cannot be subject to the usual Tory accusation that while companies spend millions on public relations, telling us what they have done, any expenditure on reporting to tell us what they have done is likely to put people out of work and cause companies to flee to some other jurisdiction. The amendments escape that criticism.

Amendment No. 801 tackles a basic issue, on which I would have hoped the Department of Trade and Industry had collaborated with the Inland Revenue and Treasury, as they both want to restrict the use of transfer pricing to launder profits into other jurisdictions either for avoiding tax or for money-laundering purposes. It is an important fact that FTSE 100 companies have 1,500 subsidiaries through which profits can be laundered. Indeed, 60 per cent. of world trade goes through multinationals. Bearing that in mind, something has to be done about transfer pricing, and amendment No. 801 actually does it.

There is considerable concern about this problem in the United States, where several inquiries have been conducted. UNESCO has also had some inquiries. From tax inquiries and congressional hearings in the US, it has emerged that the more flagrant examples of transfer pricing include, for instance, importing plastic buckets from the Czech Republic at $972 each, fence posts from Canada at $1,800 each and a kilo of toilet paper from China at $4,121. That shows how trade is used to launder money out of one jurisdiction into another. Lower prices, going the other way, include prefabricated buildings to Trinidad at $1.20 per building and bulldozers to Venezuela at $387. In that way, tax obligations in one jurisdiction can be avoided and money can be laundered through to another jurisdiction, so it is important that we know what is going on.

The Treasury and tax authorities are now grappling with the problem. They are already tackling royalty payments by IBM, and Vodafone is currently locked in a transfer pricing discussion. We should get companies to declare what transfer pricing policies they are using and to report at constant market prices so that we know what is being done. It is public information and not a great burden on companies. Indeed, Henderson Global Investors, one of the largest institutional investors, has openly called for transfer pricing disclosures so that investors can know where the money is coming from, what is happening to it, where the profits are being generated and where tax has been paid. As I say, it is an important piece of investor information.

I do not have time to speak to all the amendments—to the House’s great regret, I am sure—but I want to deal with another amendment in detail.

On a point of order, Mr. Deputy Speaker. The hon. Member for Great Grimsby (Mr. Mitchell) is making a very interesting speech, but I am afraid that he is speaking to amendment No. 753, which is in the next group of amendments.

Perhaps the hon. Member will bear that in mind as the debate continues. Let us get on with it.

The next group will have to be voted on at 3 pm as well, and the principle is exactly the same—the publication of information by companies so that markets and the authorities know what is going on. That applies to amendment No. 820, which deals with the publication of the highest and lowest annual earnings by employees, the number of UK-based workers and the gap between male and female earnings. All the years of pressure to equal up pay and to take action against low pay have not succeeded to the extent that is socially necessary.

If we require companies to report on what they are doing, it may well prove a way of bringing pressure to bear on them in the face of a glaring scandal. There are massively high pay levels at the top in comparison with exploitation and low wages at the bottom. Between 1997 and 2004, the average FTSE 100 chief executive’s total annual pay rose by 80 per cent. to £1.7 million. Pay at the bottom did not increase in anything like the same way, so the gaps are becoming ever more glaring. The only way to deal with the problem is to let people know what is going on and for companies to report on what they are doing. If companies want their enterprises to be run as a body, co-operating in order to advance the company and achieve greater shareholder value, they should be proud of their pay record and proud of what they are doing to provide incentives for their lowest-paid workers, particularly women.

Unfortunately, I do not have time to deal with all the amendments in the group, but many of them deal with a growing trend, discernible in America, whereby companies want to report on their achievements. Massive public relations campaigns are taking place and millions of dollars are being spent in America on publishing that information, yet the Conservative Opposition in this country are niggling that any further obligations on companies will bring them crashing down around our ears, sending them into tax havens overseas and causing them to fire large numbers of workers. Those are ridiculous accusations to launch against what amounts to a simple principle of social justice and open government—that companies should be open and should be required to publish information, as Government Departments, public authorities and everybody else in our democracy has to. They are part of the fabric of society, and they must maintain their responsibilities to the fabric of society. That is my purpose in highlighting these amendments, and I hope that the Minister will make a difference when she replies to this fascinating debate.

It has been an extremely good debate, and I particularly commend the speeches of my hon. Friend the Member for Hemsworth (Jon Trickett) and the hon. Member for Putney (Justine Greening) and those of my right hon. Friends the Members for Oldham, West and Royton (Mr. Meacher) and for Cardiff, South and Penarth (Alun Michael), who in their ministerial capacities contributed enormously to the agenda. I should also have mentioned my hon. Friend the Member for Elmet (Colin Burgon). Despite my interruptions, it was great to see the hon. Member for Putney contribute from the Front Bench, and I welcome her to her role.

I want to deal quickly with the issues. Yesterday, we talked about directors’ duties under clause 173. Today, we are considering clause 423 and, as I said yesterday, the two clauses go hand in hand and form an integral part of our approach in introducing a framework for corporate social responsibility while promoting business success. I do not want to repeat what I said yesterday, but some Members here today were not here yesterday. I know that many Members have received hundreds of representations on these issues and that there is great public interest in what we are debating.

It is important to put it on record that the purpose of the Bill is to provide a regulatory and legal framework that will promote enterprise and growth and that will encourage investment and employment. As our leading British companies and businesses recognise, businesses will prosper best, will be sustainable for the longer term and will grow faster when they act in an enlightened way. Businesses do not operate in a vacuum; they operate within communities and as part of society. All responsible businesses recognise what they do and how they do it impacts on the community in which they operate and more widely in society. All responsible businesses take account of the economic, social, environmental and human rights implications and impacts of what they achieve. By improving the way in which companies report on their activities and by enhancing the transparency of that reporting, the clause will make it easier for shareholders to hold directors to account.

I am sorry but I will not give way, because time is very short.

I will deal briefly with new clause 1, new clause 2 and our amendments. New clause 1 was tabled by my hon. Friend the Member for Hemsworth. All companies, except small companies, will have to prepare a business review. Most companies, such as the Virgins and the Asdas, will choose of their own volition to incorporate many of the issues that we are debating when they prepare that review. However, we have exempted large private companies from having to comply with the fifth element of clause 423 for a particular reason—because there is a difference between the position of a private company and a public company. A quoted company has dispersed shareholders and operates in a regulated market for its shares, and we believe that that requires a greater degree of statutory underpinning for transparency and scrutiny than for companies that are privately held. However, all companies, including Thames Water, will have to report with a business review.

My hon. Friend the Member for Hemsworth raised the issue of materiality, and we think it wrong to remove what is described as the “materiality” requirement in the review, as his amendment seeks to do. The provisions were drafted carefully to avoid the review becoming a box-ticking exercise. The requirements are for the review to be

“a balanced and comprehensive analysis...consistent with the size and complexity of the business”

and for quoted companies to include specific information

“to the extent necessary for an understanding...of the company's business”.

That provides flexibility in the disclosures that need to be made and enables the directors to exercise their judgment as to whether something should be included. When the directors believe information to be material to an understanding of the company’s business, we would expect them to include it in the business review.

I am tight for time, so I wish to deal with issues relating to the Government amendments and then new clause 2. On the Government amendments, I say to the hon. Member for Putney that we have listened to all stakeholders, not just business stakeholders. It was in response to the representations that we had from all stakeholders that we brought forward the amendment to the business review. Of course I will meet, as I always do, the business representatives who may be concerned about this, but our slight amendment just reflects what was in the original company law review.

I also wish to say something about what has appeared in the press today. It remains the directors’ judgment to decide what is relevant in the supply chain for them to report on. Nothing is changed by the amendment. It does not require companies to list their suppliers and it is not about miles and miles of paperwork. As clause 423 says, a quoted company will in its business review have regard to the content of the amendment

“to the extent necessary for an understanding of the development, performance or position of the company’s business”.

No more, no less. Some of the fears that the hon. Lady mentioned do not reflect what will happen in practice.

I have a great deal of sympathy for the motivation of my hon. Friend the Member for Elmet in tabling new clause 2. Hon. Members want there to be consistent reporting across companies—I understand that—so that comparisons can be drawn and so that we can see the history of an individual business’s reporting against consistent criteria. We have not gone down the road of giving standards a statutory underpinning, because we think that new clause 2 would encourage a box-ticking culture rather than encourage directors to think about the issues on which they are reporting. However, guidance is prepared by the Accounting Standards Board, and it has said that it will update and revise it. I am sure that companies will have regard to that guidance.

The argument is therefore between voluntary guidance and standards that are recognised in statute. I will closely monitor implementation of the clause in practice to make sure that it leads companies to provide meaningful and useful narrative reporting on issues relevant to the particular company. Specifically, I will ask my officials to conduct an assessment of whether our provisions are working in the way that we hope two years after the implementation of the business review provisions of the Bill. We will consult business, non-governmental organisations and other stakeholders as part of that process, and it will be open to us to return to the issue if the law does not work in the way we intend. We have the power in the Bill to add to the contents of the business review.

Finally, it is important to say to those who have been pressing for more movement on the review that I have seen the corporate social responsibility agenda develop over time. Provisions that are controversial today but are adopted by some, become widespread tomorrow. It is an evolving agenda as there is greater acceptance of the wider responsibilities of a company. I believe that companies will change and that their role in the community will change. It is on that basis that I ask hon. Members not to press their new clauses and amendments.

In the light of the Minister’s comments, and particularly in the light of the supply chain amendment, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

It being Three o’clock, Mr. Deputy Speaker, put forthwith the Questions necessary for the disposal of the business to be concluded at that hour, pursuant to Order [17 October].

New Clause 75

Requirement for audit of business review

‘The auditors must state in their report—

(a) whether in their opinion the information given in the business review for the financial year for which the annual accounts are prepared is consistent with those accounts; and

(b) whether any matters have come to their attention, in the performance of their functions as auditors of the company, which in their opinion are inconsistent with the information given in the business review.’.—[David Howarth.]

Brought up, and read the First time.

Motion made, and Question put, That the clause be read a Second time:—

On a point of order, Madam Deputy Speaker. The Opposition wish to oppose Government amendment No. 821 but, because of the programme motion, it would appear that we do not have any choice except to oppose every Government amendment listed, until the falling of the knife. Is there any way that we can vote against amendment No. 821 without having to vote against all the Government amendments?

I must inform the hon. Gentleman that the Opposition will have to vote against all the Government amendments; under the programme motion, I am bound to put all the remaining amendments in this group.

Question put, That amendments Nos. 821, 822, 712, 530 to 533, 311, 303, 340, 341, 312 to 315, 235 to 239, 824, 224, 713, 534 to 536, 240, 537, 825, 538, 316 and 539 to 543 be made:––

New Clause 16

Names and addresses of members of companies: company application

‘(1) Subject to the provisions of this section, a company may make an application under this section to the Secretary of State where the condition in subsection (2) is satisfied.

(2) The condition referred to in subsection (1) above is that the company considers that the availability for inspection by members of the public of particulars of the names and usual residential or business addresses of the members of the company creates, or (if an order is not made under this section) is likely to create, a serious risk that a member of the company or a person who lives with or is an employee of a member of the company will be subjected to violence or intimidation (“a serious risk”).

(3) Where, on an application made by a company under this section, the Secretary of State is satisfied that the availability for inspection by members of the public of the particulars of that company’s members’ usual residential addresses creates or (if an order is not made under this section) is likely to create a serious risk that a member, or a person who lives with him, or an employee of his will be subjected to violence, intimidation or criminal activity, he shall make an order under this section (“a company member’s confidentiality order”) in relation to the company.

(4) Where the Secretary of State is not satisfied under subsection (3) he shall dismiss the application.

(5) At any time when a company member’s confidentiality order is in force in relation to a company, the name and address of any individual in the register of members of the company that is the subject of the confidentiality order, shall not be disclosed to any person who may request either company or Companies House disclosure of such names and addresses save in prescribed circumstances.

(6) The Secretary of State shall give the applicant notice of his decision under subsection (3) or (4); and a notice under this subsection shall be given within such period and shall contain such information as may be prescribed.

(7) At any time when a company member’s confidentiality order is in force in relation to a company, the company must pass on to all of its members any lawful message or documentation that a member of the company or a member of the public wishes to send to the company’s members.

(8) The company may charge a reasonable fee for sending a message or documentation under subsection (7).

(9) Where the company has become bound to act under subsection (7) and has failed to so act, an offence is committed by—

(a) the company, and

(b) every officer of the company who is in default.

(10) A person guilty of an offence under this section is liable on summary conviction to a fine not exceeding level 3 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 3 on the standard scale.

(11) In the case of any such refusal or default as set out in subsection (9) the court may by order compel an immediate inspection of the register or, as the case may be, direct that a copy of the register be sent to the person to whom the undertaking was made.

(12) The Secretary of State may at any time revoke a company member’s confidentiality order if he is satisfied that such conditions as may be prescribed are satisfied.’.—[Mr. Djanogly.]

Brought up, and read the First time.

With this it will be convenient to discuss the following:

New clause 17—Names and addresses of members of companies: individual application—

‘(1) Subject to the provisions of this section, an individual may make an application under this section to the Secretary of State where the condition in subsection (2) is satisfied.

(2) The condition referred to in subsection (1) above is that the individual—

(a) is or proposes to become a member of a relevant company; and

(b) considers that the availability for inspection by members of the public of particulars of his name and usual residential or business address creates, or (if an order is not made under this section) is likely to create, a serious risk that he or a person who lives with him or an employee of his will be subjected to violence, intimidation or criminal activity (“a serious risk”).

(3) Where, on an application made by an individual under this section, the Secretary of State is satisfied that the availability for inspection by members of the public of the particulars of the individual’s usual residential address creates or (if an order is not made under this section) is likely to create a serious risk that the individual, or a person who lives with him, or an employee of his will be subjected to violence, intimidation or criminal activity, he shall make an order under this section (“an individual member’s confidentiality order”) in relation to him.

(4) Where the Secretary of State is not satisfied under subsection (3) he shall dismiss the application.

(5) At any time when an individual member’s confidentiality order is in force in relation to an individual the name and address of the individual in the register of members of the company which is the subject of the confidentiality order shall not be disclosed to any person who may request either company or Companies House disclosure of such name and address save in prescribed circumstances.

(6) The Secretary of State shall give the applicant notice of his decision under subsection (3) or (4); and a notice under this subsection shall be given within such period and shall contain such information as may be prescribed.

(7) At any time when an individual member’s confidentiality order is in force in relation to a company, the company must pass on to all of its members any lawful message or documentation that a member of the company or a member of the public wishes to send to the company’s members.

(8) The company may charge a reasonable fee for sending a message or documentation under subsection (7).

(9) Where the company has become bound to act under subsection (7) and has failed to so act, an offence is committed by—

(a) the company, and

(b) every officer of the company who is in default.

(10) A person guilty of an offence under this section is liable on summary conviction to a fine not exceeding level 3 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 3 on the standard scale.

(11) In the case of any such refusal or default as set out in subsection (9) the court may by order compel an immediate inspection of the register or, as the case may be, direct that a copy of the register be sent to the person to whom the undertaking was made.

(12) The Secretary of State may at any time revoke an individual member’s confidentiality order if he is satisfied that such conditions as may be prescribed are satisfied.’.

Amendment No. 758, in clause 113, page 51, line 22 , at end insert

‘to whom the beneficial rights and obligations of membership belong’.

Amendment No. 383, in clause 116, page 53, line 35 , at end insert—

‘(5) Notwithstanding the foregoing provisions of this section, a shareholder in a quoted or publicly traded company who is an individual shall have the right to require that his home address is not set out in the register of members available for inspection or in the copy of the register supplied by the company pursuant to a request, nor in any record of the register of members supplied to the Registrar of Companies for the public file maintained by the Registrar.’.

Amendment No. 384, in clause 117, page 53, line 38, leave out ‘five’ and insert ‘fifteen’.

Government amendment No. 222

Amendment No. 683, in clause 9, page 4, line 28, at end insert—

‘(d) a statement setting out and verifying the identity of the initial shareholders.’.

I congratulate my hon. Friend the Member for Putney (Justine Greening) on her succinct and expert introduction at the Dispatch Box. She gave an excellent presentation and her experience showed through in the quality of her remarks.

We move on to the rights of shareholders and non-members to inspect and require copies of the register of members of a company. Although we believe that the Government have made good progress on protecting shareholders, we would like the Bill to be bolstered further. The initial Bill that was presented in the House of Lords contained little on the matter. However, after several thousand shareholders in GlaxoSmithKline, the pharmaceutical group, started to receive threatening letters from animal rights terrorists, Lord Sainsbury, on direct orders from above and urged on by a chorus of vocal peers, suddenly promised on Report to reconsider the Government’s position before Third Reading in the Lords, when amendments were indeed tabled and slipped into the Bill.

We have been demanding increased protection for shareholders for several years. The Government rejected amendments that we tabled to the Serious Organised Crime and Police Bill that would have achieved that, so we are pleased that the matter is being addressed. My hon. Friends and the public wish to ensure that shareholders are protected from violence and intimidation.

We have been round the houses on this in our six or seven weeks in Committee. I understand that the hon. Gentleman is interested in the matter as a constituency issue, principally because of Huntingdon Life Sciences. Does he agree that he is perhaps not the right person to front this debate—maybe the hon. Member for Putney (Justine Greening) should be doing so—because he is in danger of confusing a constituency problem about which he is rightly worried with measures that would have a broad-ranging effect on companies legislation affecting business as a whole, to which I hope to refer later?

I am pleased that the hon. Gentleman has given me the opportunity to put on record the fact that, although Huntingdon Life Sciences is in my constituency and I have been following its ongoing problems with animal rights terrorists, that introduction to the subject has probably given me an expertise that other hon. Members might not have, not least because I have seen at first hand what can happen and have spoken to the police and the companies affected—not only HLS, but dozens of its suppliers. I would say that my experience helps my cause, rather than gives me a problem. I appreciate that the hon. Gentleman was an investigative journalist in his previous career and some of his remarks might come from that perspective. However, I would not say that it is any worse to make them because of that. Perhaps that balances out the situation.

In any event, this is about more than protecting companies that practice animal testing, although that is the matter on which I have direct experience, as I explained to the hon. Gentleman. This is about the kind of environment that we offer for people who invest in business in this country. Just as the protection of the person must be a priority for the Government, the protection of companies and their shareholders must also be a priority. Without that protection, business will simply pick up and go.

I point out, with some irony, that several speakers in the Lords debate and several journalists have made out that the GSK letter incident was a new and dangerous development. That was not the case. Attacks on shareholders have become an established theme of anti-corporate activism. Although direct action, sometimes slipping into terrorist activity, is emanating from animal rights activists today, the same methods could be used tomorrow by other groups. If drug manufacturers, animal testing companies and furriers are affected now, meat importers, road builders, handbag manufacturers, furniture makers or mining companies could be affected tomorrow.

I emphasise the fact that countering criminal activity using shareholders’ registers goes much further than dealing with extremists. Another significant example of such activity is the growth of foreign-based so-called boiler rooms. They harvest the personal details of individuals from members’ registers and approach those shareholders to try to persuade them to buy investments that are often worthless, regularly by implying that there is a connection with the company concerned.

A court case recently revealed that fraudsters had been using registers to steal shares from overseas investors. The Financial Times reported in May that the company secretary of Balfour Beatty wrote to the company’s 20,000 shareholders after receiving a significant number of complaints. I received a separate letter from Balfour Beatty that outlined the company’s concerns about the situation. Diageo wrote to 110,000 shareholders after similar calls were made to its members.

I have a great deal of sympathy with the point that my hon. Friend is making, but I have a reservation about new clause 16. As far as I can tell, if the Secretary of State decided to grant the request of the applicant, there would be no process whereby his decision could be reviewed, say by judicial review. Does my hon. Friend think that, if new clause 16 were accepted, it should have an appeal mechanism against the decision of the Secretary of State?

My right hon. and learned Friend makes his important point well, although it is related not to new clause 16, but to the clause per se.

I was going to raise exactly the same point that the right hon. and learned Member for Sleaford and North Hykeham (Mr. Hogg) made so well. The hon. Member for Huntingdon (Mr. Djanogly) is speaking rather more widely than to just new clauses 16 and 17 because he is addressing amendment No. 383. That amendment would make the new clauses redundant because it would confer on any shareholder the right to remove his name from the share register that is made publicly available.

The hon. Gentleman pre-empts me because I have some way to go before I get on to amendment No. 383. The amendment was proposed by an outside body as an alternative suggestion. I thought that it was worth tabling the amendment so that we could hear the Minister’s response to it, given that it is a sensible suggestion. However, it does not tally with our approach in the new clauses, which I will support.

I thank the Institute of Chartered Secretaries and Administrators for the action that it is taking on boiler rooms. The institute recently announced that it had produced a warning notice to be used by companies to raise awareness of boiler rooms. The notice can be distributed to shareholders with other mailings or via websites. We feel that that is a positive move against operators of boiler rooms.

We need to appreciate that many, if not most, of the companies affected by the problem are far from large companies such as GSK. They are usually small family businesses for which a civil injunction costing thousands of pounds against illegality or terror would often be unaffordable. More to the point, such companies are saying, “Is it not for the Government to defend us against terrorist activity, rather than our having to pay for an injunction?”

Where do shareholders fit into all this? I have tried to explain that the debate is multifaceted and highly interconnected. Activists will often look for weak points—the points at which with the minimum number of people they can inflict the maximum damage, be that to property, people or the company’s economic prospects. Many companies will fold under such a concerted and multi-directional attack, but some companies that believe in what they are doing and refuse to be scared by intimidation will trade on—companies such as HLS and Montpelier, the company that is building the Oxford laboratories. In both those cases, the crisis was sparked by terrorists attacking the companies’ shareholders via the register of members. At that point, HLS, unable to survive as a company registered in this country because of the hate mail and death threats being sent to its shareholders, repatriated itself to Maryland, USA, and relisted on the US NASDAQ exchange. Why Maryland? Because in that state only holders of 5 per cent. or more of a company’s shares have to be disclosed, and then only to other shareholders. We are not advocating that approach for the United Kingdom, but the case does show what will happen if we do not get on top of the problem: other companies will leave the country.

To amplify the importance of the issue, let us examine the case of Montpelier in Oxford. The company bravely resisted the attacks of the terrorists, but finally stopped work when its shareholders started to be threatened and attacked. As a relatively small listed company, its share price was directly affected by that activity, so a direct link could be made between access to a register of members and impending disaster for the company. Roughly the same tactics were used in the terrorist attack on GSK shareholders as in the HLS and Montpelier cases. The letters to GSK shareholders stated:

“The only way to hold GlaxoSmithKline to it's PROMISE”—

not to use HLS—

“is to target it's financial vulnerability. We are therefore giving you this opportunity to sell your shares in GlaxoSmithKline. If you have any doubts over the effectiveness of this action then keep a close eye on the GSK share price and watch it plummet.”

If we do not get on top of this problem, we will see many more Huntingdon Life Sciences—many more companies repatriating. We can have whatever tax regime we like; if a company’s shareholders are going to be attacked physically, the company will be forced to consider moving. To put the pharmaceutical sector alone into perspective, it contributes more than £6.5 billion a year to Britain’s GDP and £12 billion in exports, and employs 80,000 people directly and 250,000 indirectly. The issue is a serious one for this country.

I have attempted to explain the need to protect shareholders’ details, so how should we now proceed? My first point is that, as things stand, a coach and horses can be driven through the Bill’s provisions, because, in addition to the current register of members being accessible, copies of the register of members as at the return date need to be filed annually with the annual return, which is a publicly accessible document. In Committee in the Lords, Ministers said that they would consider introducing regulations to change that requirement, but why not simply add the relevant provisions to the Bill? We tabled an amendment for that purpose, which we hope to move when—or if—we reach part 25, which deals with annual returns, in the latter part of tomorrow.

Since that time, there has been Government confusion on the issue. In Committee, the Minister for Industry and the Regions suggested that our proposal on annual returns was too restrictive, but the Secretary of State has said that he intends to use regulations to ensure that a company need supply only details of shareholdings of 5 per cent. or more in its annual return. I shall be grateful if the Solicitor-General makes clear the Government’s intentions.

The formula chosen by the Government is for the company to initiate an application to the court if it objects to a request to see the register. One problem that we have identified is that, although it may be possible for a large company to instruct lawyers—probably solicitors and barristers—to take the matter to court within five days to comply with the Bill’s provisions, although it would probably be pushed to do so, it would be unrealistic to expect a smaller company to keep to such a tight and inconvenient timetable. That is why we tabled amendment No. 384, which would increase from five days to 15 the period in which a request that a person be deemed unsuitable to receive the register must be made.

In Committee, the Minister’s response was that a company of any size should be aware of a suspect application straight away, and that if company directors were given too long, there would be a risk of abuse on the part of the company. However, in its brief of 2 October, the Confederation of British Industry stated that it did not regard an extension of the period as an invitation to abuse the application process, but as an opportunity for companies to consider whether requests were for a proper purpose or not, to take advice, and to respond appropriately. We continue to support the CBI’s view, and that is another reason why we tabled amendment No. 384.

The Government intend to provide that people have to identify the purpose for which the information is to be used. We tabled a probing amendment in Committee stating that that information should be precise. For example, what if the reason given is that the applicant wants “to inform shareholders of an important matter for themselves, the company, humanity, or the environment” without stating that he or she intends to ask shareholders to sell their shares as a protest? As hon. Members can see, this could be a complicated matter. In Committee, the Minister did not accept that our proposed amendment would add much to the definition of proper purpose, but we think that it would be helpful if the Government at least issued some guidance.

A further approach, which we see as being complementary to the Government’s approach, is to provide companies and individuals with the right to apply to the court to close the register if the availability of the register creates, or is likely to create, a serious risk that a member of the company or connected parties will be subject to violence or intimidation. In other words, not all companies would be thrown into the same basket. Some companies or individuals may be at such risk or under such pressure that they should be treated on a stand-alone basis. The provisions could be tacked on to the existing provisions as a further level of protection, which might be more realistic, more accessible and certainly cheaper for smaller companies that need protection.

Furthermore, the existing clause works only for a company to seek protection in respect of all its members. It does not provide for an individual member to seek to protect his or her details. We therefore tabled new clause 17 to allow for that. The theme of individual rights to allow people to protect themselves, rather than relying on the company to seek protection for them, has also been taken up by the CBI. Our final amendment, No. 383, as I mentioned earlier, was proposed by the CBI for that purpose.

The amendment is complementary to the issue of directors’ home addresses and allows for the home address of a registered shareholder in a listed company or a company traded on a regulated market not to be disclosed if the shareholder does not wish it. In short, the shareholder has a legal right to require that his home address be omitted from the register of members which the company may be asked to supply to a third party, and from the public register of shareholders maintained at Companies House. In the past, the Government have told us that that is unnecessary because shareholders can use nominees. In practice, many smaller shareholders will not do that, so we see the CBI’s point.

In Committee the Liberal Democrats provided a further option, which we thought was worthy of consideration. Their amendment provided for a company, by members’ resolution, to stop inspections of the register of members, on the basis that it agrees to pass on lawful communications. Although we thought that was a step too far in terms of restricting access to the register, we can see the importance of the second strand of the Liberal Democrat amendment. If the register is closed, the company must take on the responsibility of passing on communications. We therefore tabled new clause 16, reflecting our joint proposal.

The Minister dismissed our comments on this point in Committee as “very wide ranging”. She was concerned that we were restricting long-held principles on public access to the register of members. That is not the case. All we are doing is allowing a court in extremis to protect the small minority of companies whose details are highly sensitive, for whatever reason. That would never be an everyday occurrence and a court decision to close the register would be taken only on a company by company basis and, I imagine, very carefully.

Amendment No. 683 tabled by the hon. Member for Newcastle upon Tyne, Central (Jim Cousins) deals with initial shareholders. I believe that is covered by the Bill as drafted, although the Minister may wish to elaborate on the point. With reference to amendment No. 358, the register is a register of legal owners. We have supported the concept of giving rights, votes and information in particular to beneficial owners of shares. We were delighted to see the Government move on the matter. However, we see no reason to change the underlying nature of ownership split between legal and beneficial owners. I look forward to hearing the Minister’s views.

I shall speak briefly against new clauses 16 and 17 and amendment No. 383. We spent six or seven weeks in Committee discussing the matter at great length, so I shall not repeat all the arguments against. Essentially, they have to do with regulation, law enforcement and the shareholder protection regime in the UK. However, I shall have to repeat some of the arguments, as the Conservatives clearly have not listened. I shall pay a compliment to the hon. Member for Cambridge (David Howarth). The Liberal Democrats tabled similar amendments in Committee and it is to their credit that they have not advanced them again on the Floor of the House.

As I said in my intervention, I understand the constituency interest of the hon. Member for Huntingdon (Mr. Djanogly), arising from the position of Huntingdon Life Sciences, but with respect to animal rights terrorists, by advancing those new clauses, he is using a sledgehammer to crack a few nuts.

We had a similar situation at a guinea pig farm in Staffordshire, where the animal rights terrorists went as far as exhuming a body and kidnapping the bones, and they also occur elsewhere in the country. But the police have not been beating a path to my door saying that a clause such as this is essential to help them to prosecute the perpetrators. More fundamentally and importantly, investors, the Association of British Insurers, the British pension funds, City banks and the stock exchange are also not clamouring for clauses such as this in the Companies Act because they are aware of the wider consequences for shareholder protection and company regulation.

The reason for that is that new clauses 16 and 17 are drawn extremely widely. Amendment No. 383 institutes an absolute right to shareholder secrecy, and I note the comments of the hon. Member for Huntingdon on my intervention that he will not put that to a vote later. Like him, I do not take that amendment very seriously, but even the new clauses are drawn extremely widely. The test is that the company has to show that its members or their families run the risk of being subject to violence and intimidation.

In Committee, I gave an example from my days as an investigative journalist when I pursued a bank director in Russia whom I considered to be a dodgy stockbroker. He was pursuing various deals in Moscow, which in those days during liberalisation was the equivalent of the wild east. Because he had a grudge against a number of other people whom he came up against in negotiations, he let it be known that one particular director of a Dutch bank was the blocking point to a big deal with Gazprom. The Dutch bank director’s house in Moscow was subsequently set on fire when his family was in it.

In such circumstances, a major bank might come to the Secretary of State and say that it operates in Russia or in a lawless country and that there is a severe danger that if the identities and addresses of not only their employees but their shareholders are disclosed, they may be subject to the risk of violence and intimidation. The companies that are most difficult to regulate and enforce laws against, and funnily enough that are most regularly involved in fraud, are the very same companies that operate offshore. They are usually small companies, operating in dangerous environments. To institute a right on their behalf of secrecy of membership would make regulation and shareholder protection much more difficult.

The hon. Gentleman makes a perfectly fair point, but if there was a reviewing mechanism whereby the reviewing body had to take account of public interest and proportionality, many of the objections that he has made against new clauses 16 and 17 would fall away.

I accept the right hon. and learned Gentleman’s point. My point is that the clause is drawn widely, and as he himself has pointed out there is no right of appeal against this for journalists such as myself or other agencies if the Secretary of State were to err on the side of caution and confer such a right.

The hon. Gentleman makes a point in relation to dodgy directors operating through offshore companies, which of course will not be subject to the Companies Act in any event.

I am illustrating the general point that companies operating in dangerous environments may make use of this sort of clause to try to confer, for illegitimate reasons, secrecy on their shareholder base. To summarise the arguments that I made in Committee, effectively, in many instances, that would be tantamount to a fraudster’s charter, which would block the legitimate efforts of myself and former colleagues—I have spent far too many hours than I care to remember meticulously tracking down connections between shareholders on the basis of their addresses.

The hon. Gentleman pursues an interesting line of thought, but does he appreciate that if the Secretary of State carefully looks at the whole matter at the beginning, he is unlikely to sanction a fraudulent operation such as the hon. Gentleman describes?

I will come to that point when I conclude my remarks, but the hon. Gentleman is perhaps conferring an omniscience on the Secretary of State that they may not possess at the time.

The bar to legitimate investigative journalism also applies to the activities of law enforcement agencies such as the Serious Fraud Office and the stock exchange. In Committee, I advised the hon. Member for Huntingdon to ask the Cambridgeshire constabulary fraud squad whether that approach would hamper its efforts.

More widely, new clause 16 will damage shareholder protection. If the rights of secrecy are granted to a company, which may have stocks on which people have taken a punt, the shareholders may not know who controls the company. A concert party could be legitimised through such shareholder secrecy.

The hon. Gentleman made a number of important comments in Committee, which have influenced thinking on both sides of the House. However, his point that the police and investigative journalists would be excluded has been taken into account in the drafting of new clause 16, which is very different from the provision that we discussed in Committee. New clause 16(5) would allow the Secretary of State to prescribe circumstances in which the information would be given to, for example, the authorities. The hon. Gentleman has made a serious point, but new clause 16 takes it into account.

I take the hon. Gentleman’s point, but the Secretary of State may not be in a position to foresee all sorts of circumstances, just as they may not know all the facts about a particular company behind a particular application. If the facts were known, there would be no impediment, because the company would already have been investigated.

On shareholder protection, one company may wish to take over another company, but if it is unable to access the share register, the conduit for takeovers or for any communications with shareholders would be the company itself. If there are question marks about a company, one would not want it to be the master of the information that goes to its shareholders, and similar arguments also apply to credit protection.

New clause 16 will put the Secretary of State in an impossible position. If an application is made, the likelihood is that the Secretary of State will err on the side of caution—in other words, they will be damned if they do and damned if they do not. If a company were to tell them that there was serious risk of violence and they said, “I do not believe it”, if the violence were to occur, then the Secretary of State would be damned. Equally, if they were to grant an order and the company turned out to be fraudulent, they would be damned again.

The application will be made to the court, so the issue would predominantly be dealt with by court process.

I have listened carefully to the hon. Gentleman, who listened carefully to the debate in Committee because of his particular constituency interest. I suspect that taking a sledgehammer to crack a few nuts would drive a coach and horses through effective shareholder protection and company regulation in this country, which is why I oppose new clauses 16 and 17 and amendment No. 383.

The hon. Member for Huntingdon (Mr. Djanogly) has described the circumstances that have given rise to new clauses 16 and 17. I agree with other hon. Members who have spoken that amendment No. 383 is far too draconian, which is why I cannot see any hon. Member supporting it. The issue therefore concerns new clause 16, which is a serious proposition that responds to the debate in Committee by combining the various proposals.

I freely admit to the House that the proposals that we put to the Committee were not perfect, by any means, and we listened to that debate carefully. The question is whether this composited new clause deals with the objections that were raised in Committee and again today. On the whole, I think that it does.

The key question is how far to go in a direction that the Government have already agreed on. Clauses 117 and 118 go a long way towards protecting shareholders in the circumstances of violence and intimidation that have been described. The hon. Member for Newcastle-under-Lyme (Paul Farrelly), who has made several important contributions to the debate, exaggerates rather when he says that this extra bit of protection is a fundamental threat, but the existing clauses are not. In fact, the distance between what the Government propose and what the new clause proposes is very small.

One of the main points that I was trying to make is that the clauses put the matter in the hands of the Secretary of State, who will be put in an impossible position in being forced to err on the side of caution. That opens the door more widely to the aforementioned coach and horses.

I was going to come that later, but we may as well deal with it now. The hon. Gentleman refuted his own point as he made it. He said that the Secretary of State will face two possible errors, both of which would be equally embarrassing. His conclusion that they would always err on the side of caution was not shown by his remarks, because that would be true only if the error in one direction was more embarrassing than that in the other direction.

The issue before us is the extent to which the Government’s proposal is enough to satisfy the legitimate concerns—not only constituency concerns—that have been raised by Opposition Members. The Government point to clause 117(4) as providing adequate protection, but what is crucial is whether it is as much as is necessary There is no doubt that it offers a lot of protection, because the register is effectively closed in the circumstances where it applies.

The problem with clause 117 is that the court must know what are the motives of the person seeking the inspection, yet they would often have a covert motive that would not be known to the court.

I thank the right hon. and learned Gentleman for his comment. That is a significant problem with the way in which clause 117 is drafted—namely, in terms of purposes. As he says, it is often difficult for courts to have access to the purposes of individuals. Subsection (4) makes use of that concept when it refers to

“requests made for a similar purpose”.

It is difficult to get access to people’s minds to find out whether their purpose is similar.

The other problem is that clause 117(4) says that the court

“may direct that the company is not to comply with any such request.”

That means that the company could be subject to continued harassment in the courts whereby people could make a new request saying that it is not for similar purposes and is therefore not such a request. Even if the court had made an order under clause 117(4), the company, especially in the case of a small business or a business without much in the way of resources, could come under great pressure from organised campaigners working on behalf of people whose purposes were probably nefarious. There is therefore a problem with the protection that clause 117(4) provides. That leads to the question of what other protection might be offered in such circumstances.

I appreciate that the hon. Gentleman is an expert in law and I am sure that that applies to company law, too. However, he describes circumstances in which someone was intent on taking a matter to court time after time to try to break through. Would not the court take the view that that constituted vexatious litigation, and would not such persons be ruled out?

As I understand the system, the Attorney-General would have to declare people to be vexatious litigants. That would lead to the problem that the hon. Member for Newcastle-under-Lyme outlined of putting Ministers in a difficult position.

Many shareholders could buy one share each or many people could ask for access to the register, all with slightly different reasons for doing that, but with the same underlying vexatious purposes. That would mean a series of cases that would keep the company in court.

That is true. One cannot declare whole classes of people to be vexatious, only specific individuals.

The hon. Member for Newcastle-under-Lyme claimed that the new clause was too widely drawn. That is a serious accusation against it. However, I believe that it is narrowly drawn. It would provide that the Secretary of State had to find a specific set of facts to do with violence and intimidation before being allowed to close the register. If the Secretary of State failed to do that properly, there would be a possibility of judicial review. That is not the full system of independent review that the right hon. and learned Member for Sleaford and North Hykeham (Mr. Hogg) mentioned; nevertheless it is an important safeguard.

Let me outline what makes the new clause much narrower than the proposal that was made in Committee and therefore acceptable. First, it would provide for the Secretary of State to prescribe circumstances in which, despite the closure of the register, information could be given out. That is an important difference between the proposal that was made in Committee and the new clause. As I said earlier, it deals with the problem of investigative authorities, perhaps even investigative journalists, being locked out of proper investigations.

Secondly, the new clause includes an important element of our original proposal. The closure of the register should not prevent people from getting legitimate, lawful information to shareholders. The purpose is to prevent the violent intimidation of shareholders, not stop information getting to them. We proposed that a company that wished to invoke the new procedure should undertake, at a reasonable fee, to direct to its shareholders any information sent to it for them. The new clause maintains the right balance. Often, there are legitimate campaigns, even in industrial relations, and it is important that people get information to shareholders, perhaps over directors’ heads. An important point about openness and transparency was made in Committee. The new clause preserves at least the essence of the proposal that was made in Committee.

Will the hon. Gentleman direct me to where the new clause would safeguard openness and transparency in circumstances in which the company constituted the block and had thus taken advantage of the measure to keep members secret? Secondly, will he direct me to provisions in new clauses 16 and 17 for a right of appeal against the Secretary of State’s decision?

On the hon. Gentleman’s second point, there is no right of appeal but there is always a right of judicial review. To answer his first point, I would draw his attention to subsections (7), (8) and (9), which provide for a system to be set up by which a company has to pass on information subject to the charging of a reasonable fee, and which determine that failure to do so is a crime.

It is ironic that some of us have been worried about the extent to which the Bill uses criminal penalties. It is perhaps a legitimate criticism of the Bill that it seems to go first to the criminal law, rather than using it as a last resort. Having listened to the views of the hon. Member for Newcastle-under-Lyme and others, however, I believe that it would be justified, if there were a serious risk that the provision would not be complied with, to back that right with a criminal penalty. The hon. Gentleman is right to think that there might be a connection between closing a register and not wanting information to be passed on.

The proposal in new clause 16 is worth while, but it will not be used very often. Indeed, it will be used only in the most extreme circumstances. The main safeguard against its being used too widely is the Secretary of State. The hon. Gentleman says that it puts too much pressure on the Secretary of State, but I disagree. I think that this is just the kind of decision that Secretaries of State are employed to make, and I am sure that if they did not do it very well, their decisions would be subject to judicial review and perhaps also to the scrutiny of the House.

I am trying to follow the hon. Gentleman’s argument with care, but I am still not sure why he takes the view that the decision should be made not by the courts—as set out in clause 117—but by the Secretary of State, with the safeguard of having the courts in the background. What is the point of this? I cannot follow the nub of his argument as to why the Secretary of State should make this decision, rather than the court.

That is an interesting point. The question that I would ask in return is: if new clause 16 proposed that the court should make the decision, would the Solicitor-General accept the system as one that he would wish to adopt? Is it that important?

Perhaps the difference is that, under clause 117, the test is that of proper purpose, whereas under new clause 16, the question is one of risk. The two do not necessarily overlap.

That is absolutely correct. They are different concepts in terms of what has to be found, although either the Secretary of State or a judge could find in either instance. It is a close judgment between whether the Secretary of State or a court should do this. I have a preference for the Secretary of State, because the kind of circumstances that are likely to arise are so varied that the Secretary of State would be in a better position to judge all the different circumstances. He would also be in a slightly better position to gather all the evidence. If, however, one were to take the view that a court would be in a better position to gather the evidence and to take advice, one could establish the same system using a court. The question would then be: would the Government and the hon. Member for Newcastle-under-Lyme accept the new clause on those terms?

The question does not really apply, because the new clause does not say that. These are the new clauses that we shall be asked to vote on later. I find it odd that the proponents of smaller government on the Conservative Benches, and the Liberal Democrats, who are proponents of more devolved government, should believe that this is the kind of decision that should be taken by the Secretary of State, day in, day out, rather than by a court, where the case could be put in far more detail.

These decisions would not be taken day in, day out. One of the important aspects of the proposal is that it would be used only rarely and sparingly. There are also policy matters behind the proposal, as has been revealed in the debate. As I have said, it is a close judgment as to whether a court or the Secretary of State should make these decisions, but on the whole, I believe that the Secretary of State is in a better position to make them, subject to judicial review.

The proposal is far more narrowly drawn than the one that we discussed in Committee, and it meets a specific need. The provision in the Bill is good, but it is not quite enough. I urge the House to support the new clause.

We are making heavy weather of a straightforward issue, although it was fascinating and quite a spectacle to see the Lib Dem spokesman, the hon. Member for Cambridge (David Howarth), struggling to maintain a foot in both camps, in his usual fashion and in his lawyerly way. However, the issue is clear cut and we should not accept new clauses 16 and 17 because they conflict with something quite basic, which is access to information, openness and full accountability.

I, of course, have every sympathy with the shareholders of Huntingdon Life Sciences who were threatened, but to introduce such a complicated arrangement would mean invoking a sledgehammer to crack a few nuts, because those people were being persecuted by lunatics—there is no other word for them. There is no way to protect everybody who might be threatened by such lunacy and no reason in relation to such a threat to invoke secrecy of the kind that would be invoked by new clauses 16 and 17. An important principle of openness would be breached just to avert a few much exaggerated—although I am sure painful for the shareholders—incidents. We should oppose these proposals, and in doing so I commend my amendments Nos. 758 and 683, which run in the direction of openness and against the spirit of the new clauses.

The hon. Gentleman has expressed sincere concern about those affected in relation to Huntingdon, and there are other examples as well, but he should not simply describe the people who are perpetrating such acts as lunatics. They are plausible and intelligent, they make up a network and they are an increasing danger. The next people to be eyed up will be those such as me, who enjoy fishing at the weekend. This is a growth area. I know that he is taking the point seriously, as I would expect of him, but there was a real risk in relation to Huntingdon, and the Cambridge example as well. I foresee many others in the coming months and years.

The principle the hon. Gentleman’s invokes is that we should not publish any information about anything or anybody. In relation to his fishing activities, I picture him in his waders in the rivers of north Wales, which is a touching spectacle—but that that must be kept from the public eye, and that his name and address should not be published because he goes fishing, would be to go to extreme and silly lengths to avert something that is haphazard and low in incidence. The people we are discussing should be dealt with by the law for threatening behaviour, rather than by us closing down all access to information that they might use.

The same principles that are being used to invoke this closure of information could be used to close the electoral roll, which might be used by people to enable them to send out bumf, go out knocking on doors, check people’s credit or even check their existence. Because the electoral roll could be used in that fashion, should we not publish it? We cannot negate a fundamental principle of shareholder democracy to avert the action of a few people, which is wrong and which can be prosecuted through other means.

The fundamental principle is that the list of shareholders should be published. That is what gives this corporate body that we have introduced an identity. For instance, my amendment No. 758 would stop the use of nominee names. Shareholders in Huntingdon Life Sciences could have used nominee names if they did not want their names to be known, but I would stop that practice entirely, because if people use nominee names, what is the use of a register?

The principle of a joint stock company is that there has to be a register, so we know who is investing, what the company is about and who supports it. If we remove that principle, we attack the fundamentals of the joint stock company and the principles on which such companies were granted their corporate identity in the 19th century. Anonymity will always be abused.

Under new clause 16, a company could designate itself as conducting undesirable activities. It could say, “We have something to hide. Let’s keep our registers secret so that no one knows who is investing in us.” That principle would apply not only to Huntingdon Life Sciences, but to the arms trade or the tobacco industry. It could be very wide ranging, and any company in an industry that is subject to public criticism could designate itself as doing something shady, so that it has to hide its operations. If we had legalised brothels, as in New Zealand, the companies running those brothels, which might indeed be indulging in nefarious activities, would want to hide in the same way.

We are obviating any principle of shareholder democracy. If shareholders want to mobilise and organise themselves, and want to try to gain some countervailing power to the power of the directors, they must be able to find out who the other shareholders are. That is a big job when the company is a multinational or a bank with thousands, or possibly millions, of shareholders. It is an enormous job for shareholders to organise themselves against directors, given the weight and strength that directors have as a result of all their proxy votes, which they accumulate and use, ad lib, to crush the emergence of any shareholder opinion. That is an impossible job unless the names of the shareholders are published.

If we want to encourage investigative journalism—there is not enough investigative journalism in this country; things are handled far better in America—journalists must be able to investigate who the shareholders of the company are, so that they know what the company is about and what it is doing.

May I give my hon. Friend an example? I once investigated a publicly quoted company that was suspected of involvement in laundering money from one of the former Soviet republics in Asia. The investigation proceeded through an examination of the company’s shareholder register, and the shareholder register of companies that were in turn its shareholders, and links to some rather unsavoury characters were found. If I were running such a company, and the new clauses were added to the Bill tonight, the first thing that I would do is apply under the scheme. I would say, “My company operates in a former Soviet republic where violence and torture go on all the time. There is a serious risk of my shareholders being targeted if you do not keep their identities secret.”

I am grateful to my hon. Friend, who was of course in the investigative journalism trade—and a very good trade it is, too. I was in the electronic media, so we did not do any investigation. We just shouted at people, which was perhaps a mistake; perhaps we conducted ourselves at too low a level.

The principle is absolutely clear. We cannot accept either of the new clauses, because under new clause 17 the onus on companies is replaced by an onus on shareholders to say, “I am investing in something murky, please do not disclose my name.” That does not apply only to people who want to hide from possible persecution. The ability to remain anonymous, which would be checked by my amendment No. 758, is also used by tax evaders, money launderers and criminals. Will they, too, on the same principle, have the ability to hide? Or will they put all their money in Huntingdon Life Sciences and then hide themselves?

My hon. Friend talks of criminals and fraudsters. The hon. Member for Cambridge (David Howarth) says that applications made under the new clauses would be scarce, but he tends to underestimate the ingenuity of fraudsters. If I were a fraudster, given this provision and certain precedents that may be set by decisions taken by the Secretary of State, I would wish to put my company in the position where I could claim that my shareholders were subject to the risk of violence and intimidation. For instance, I might have two people in an office putting drops in a rabbit’s eyes, or I might set up a small subsidiary in a violent place. I could therefore close my shareholder register and prevent legitimate investigation of the various connections that my company has, if they are unsavoury.

If what the hon. Member for Newcastle-under-Lyme (Paul Farrelly) says is true, companies, by applying for this protection, would be fingering themselves as potential fraudsters, so the risks to them would be quite great. Therefore, they would not do it.

I am glad to see that the Liberal faith in human virtue and the virtue of companies lives on. Lots of organisations have something to hide, and lots choose to hide it. I do not want to provide any more opportunities for them to do so. New clauses 16 and 17 provide massive, unnecessary machinery to deal badly with something that, I am afraid, must just be accepted and can be dealt with in other fashions, and for which we should not breach the principle of full openness or full sunshine. My amendment No. 758 sustains the fundamental principles on which the new corporate identity was given to joint stock companies. If somebody is to be responsible, the legal personality created for the convenience of business must be rooted in identifiable shareholders whose names are known and whose interests can be investigated.

Amendment No. 683 is an effort to control the big trade in companies bought off the shelf. The technique is widely used by money launderers. Money laundering would be extremely difficult were it not for accountancy firms having the ability to set up shell companies in that way. I wrote an article about a money laundering racket by AGIP some years ago, in which Grant Thornton established shell companies in Jersey to launder money from that interest. It goes on all the time. Enron used it spectacularly on an enormous scale. If we are to deal with that issue, we need to know who the beneficial owners are, who is setting up the company and who is answerable. Currently, there is no requirement for third party agents such as accountancy firms who submit company formation papers to Companies House to collect and verify the ownership information for the company. Therefore, owners can conceal their identities and carry on their nefarious business. The principle of full openness, for which I am speaking, should therefore be extended to cover such shell companies. We should maintain that principle, not infringe it.

I shall confine myself to new clauses 16 and 17, and largely to new clause 16. I acknowledge that my hon. Friend the Member for Huntingdon (Mr. Djanogly) has a serious point and is right to put forward the new clause. In its present form, it is not satisfactory and needs adjustment, but I understand and agree with the general motive that lies behind it. The Government are right that clause 117 goes some way to address the problem, and they are to be congratulated on having put it into the Bill. There are at least three problems with clause 117, however, which cause me to think that an additional provision, along the lines of that put forward by my hon. Friend, is necessary.

The first problem with clause 117 is the proving of motive. Motive is often difficult to prove. In this instance, it is likely to be particularly difficult to prove and the courts may therefore be unable to determine what it is. A second, and quite different, problem is that even when it is possible to have an idea of the motive, it may not be so easy to show that it is not a proper motive. That takes me to my third point: what is a proper motive, or an improper motive? I can understand why the Government have not sought to define “proper purpose”, but the phrase is pretty opaque, and an opaque phrase is not likely to be a terribly valuable safeguard.

Clause 117 is directed primarily at motive, while new clause 16 is directed primarily at consequence. They are not the same. A person may have a perfectly proper motive for finding out addresses, but if those addresses fell into the hands of a third party who was not so properly motivated, that might well constitute a serious risk. There is not the necessary overlap between clause 117, which is directed at motive, and new clause 16, which is directed at consequence—as, indeed, is new clause 17.

I think that there is room for something similar to what my hon. Friend the Member for Rutland and Melton has suggested in the new clauses, but I cannot support him all the way. I agree with the hon. Member for Great Grimsby (Mr. Mitchell) about the desirability of transparency and openness, and I well understand what was said by the hon. Member for Newcastle-under-Lyme (Paul Farrelly) about investigative journalism. Those points are well founded.

I suggest something along these lines. First, along with the test of risk—and I have no particular objection to the Secretary of State exercising that power—there should be a test of proportionality and of public interest, which should apply in the first-instance test, the application to the Secretary of State. Secondly, there should be some mechanism, over and above judicial review, whereby the Secretary of State’s decision could be reviewed in a court.

Let me make two points about that. First, the test of proportionality and public interest should be a test to which the appellate tribunal should be specifically directed. Secondly, the right to make an application to the appellate court should be open to third parties who feel aggrieved by it, such as the press. There is a precedent of a kind. As you will doubtless know, Madam Deputy Speaker, judges in criminal courts can make orders restricting the publicity given to parties to the proceedings. In those circumstances, third parties have a right to apply to the court for a change in the order. I have something rather similar in mind. If a third party felt that the order was unduly restrictive, that third party—although not party to the application to the Secretary of State—would have the right to lodge an appeal.

Finally, I would enlarge the subsection dealing with prescribed circumstances to include classes of person and organisation. “Circumstances” is a fairly narrowly defined word. I should like the definition to be widened so that the information could be given to persons and organisations specified by the Secretary of State and/or the court on appeal.

I think that there is a great deal of force in what my hon. Friend the Member for Huntingdon has said, but I am unhappy with the new clause as currently drafted. If my hon. Friend puts it to the vote I shall support it, but I shall do so on the basis that it will be amended in the other place along the lines that I have taken the liberty of describing.

Having listened carefully to all the arguments, I think that this has been a very interesting debate of the highest calibre. I hope that my few remarks will not detract from that quality.

I see the point of clause 117, and I see a great deal of merit in what the Government have done. I also commend what was said by the hon. Member for Great Grimsby (Mr. Mitchell). There is a balance to be struck. On the one hand, there is the legitimate right of the public to know who the registered shareholders are. That relates to the veil of corporate liability that forms part of the history of company law. All that is fine and rightly understood, and we are all in favour of making everything as translucent and transparent as possible. The other side of the balance, as the Government recognise, is that we live in dangerous times. There are legitimate companies carrying out their business, yet their people are being threatened for no good reason.

I fully acknowledge what the hon. Member for Newcastle-under-Lyme (Paul Farrelly) and the right hon. and learned Member for Sleaford and North Hykeham (Mr. Hogg) said about investigative journalism. What they said is very important.

I do not want to be thought of only as an old hack speaking up for my old trade, as the same points that can be made about investigative journalism apply to investigations more generally, including law enforcement and regulation. Another important point is that in these circumstances, speed is often of the essence, as any blocks can be used in the sense of buying time in either rectifying or forging the real situation.

The hon. Gentleman makes that point again and I listen carefully to what he says.

One of my concerns about clause 117 is that it provides an open-ended invitation for applications to be made. As was observed earlier, a person making an application may have a friend who makes a slightly different one and so forth. Are we putting something of a legal treadmill in place? I do not know; time will tell. What I do know is that the provision represents an effort in a very difficult area to meet the genuine concerns of people who are desperately worried about terrorism from animal rights protesters, for example. I share that concern, but no doubt the Solicitor-General will advise us in due course that there will be some form of review of the court’s decision along the usual lines. [Interruption.] I believe that he confirms that.

Speaking rather like a Lib Dem, I have reflected on both sides of the argument and I also have considerable sympathy with new clause 16, but I am not sure that leaving the matter for a judicial review is the right way forward. It is an imperfect appellate procedure. I defer to the right hon. and learned Member for Sleaford and North Hykeham on the points that he made, but the judicial review procedure would look into the reasonableness of how the decision was reached—the Wednesbury principles and so forth—rather than the quality of the judgment. That is essence the of the matter. That is why I say that it is an imperfect appellate procedure and why I do not feel able to support the new clause.

We have had an interesting and important debate. I hope that the Solicitor-General will deal with the several points that have been raised in what I view as a most invigorating debate.

I agree with the hon. Gentleman that we have had a very good and high-level debate. All the contributions have showed the great deal of seriousness with which the issues have been considered. I particularly thank my hon. Friends the Members for Newcastle-under-Lyme (Paul Farrelly) and for Great Grimsby (Mr. Mitchell) for setting out their strong objections to the Opposition new clauses. Both my hon. Friends are ex-journalists who are greatly concerned about the impact of the Conservative proposals on investigative journalists seeking to expose scandals in big companies, for example—a point that everyone will want to take account of.

The hon. Member for Huntingdon (Mr. Djanogly) also made some important points about the dangers resulting from animal rights terrorists and others who seek to damage not just individuals, but the biotech industry itself. I share his concerns about Huntingdon Life Sciences, when individual employees of the company as well as other organisations that supply it have been subjected to attacks by animal rights terrorists. I have talked to employees of Huntingdon Life Sciences who have been the victims of having their cars blown up outside their homes with fire bombs.

The Government recognise the dangers of such activity and we have passed legislation in recent years to tackle the intimidation, harassment and other criminal acts that have been a feature of animal rights terrorism. The issues have been addressed to a considerable extent by the criminal law and the Government take them enormously seriously. Company law has a role, but it is a limited role. Clause 117 provides safeguards for those who may feel threatened, and it will enable the courts to intervene and provide some security for individuals who feel at risk. I shall return to that point in due course.

Let me deal more broadly with the new clauses and amendments. On new clauses 16 and 17, I begin by quoting the contribution of the hon. Member for Huntingdon in Committee. He said:

“There must be a balance and proportionality between access to a register and security for those on it.”— [Official Report, Standing Committee D; 22 June 2006; c. 183.]

I agree with that. The issue we need to consider is where that balance is struck. I fear that to deal with the real problem of animal rights terrorism his proposal is to change public access to the register of members—an issue deeply embedded in our company law—in a way that could well have adverse consequences.

Ever since it has been possible to set up a company with a separate legal identity, the law has required the names and addresses of both those who own the company and its directors to be on the public record. As long ago as the 1840s, when Gladstone’s committee on joint stock companies reported, the lack of transparency about company shareholdings was seen as a major problem. By instituting a system of registered membership, Gladstone’s committee wanted to suppress such practices as

“concealing the names or preventing the meeting of the Shareholders…falsifying the books containing transfers of shares”


“the creation of fictitious votes, so as to secure the means of outvoting the bonafide Shareholders”.

Of course, Mr. Gladstone and his colleagues did not have to contend with animal rights terrorists or “boiler room” investment scams, but the basic reasons for giving public access to the register, beyond those of investigative journalism, still hold good today.

It is fundamental to shareholder democracy that members can hold the management of their company to account. To do that, they need to be able to contact each other and, sometimes, to be contacted by the general public. Company law must ensure that shareholders can be contacted without any risk of interference or hindrance from the directors. The impact of the changes proposed by the Conservatives would run counter to that basic view of shareholder democracy. Indeed, some of the other amendments that they have put forward could have a profound effect on our company law.

New clause 16 would remove the essential underpinning of shareholder democracy. If a company were to have a “confidentiality order” under the new clause, all external communications to its members would be required to be “passed on” only by the company. How, and how quickly, is not specified, but speed is crucial if support is being sought, for example, for a resolution opposing one already tabled. How is someone seeking to convey a lawful message ever to know whether the company has complied with the request to pass the message to its members if he does not have the means to contact them? The enforcement mechanisms in subsections (9) to (12), and therefore the underlying obligation to pass on lawful messages, are worth nothing if a company’s failure to pass on those messages is undetectable, and there is nothing in the new clause to show how it could be. However, under clause 117, courts could deal with that problem.

The new clauses do not substantially add to protection that can be achieved under clause 117 and that can be done be much more effectively by using the courts. The clause provides that, when a court directs a company not to comply with a request for access to its register of members, it may direct the company not to comply with similar requests. In other words, if it becomes clear that a company’s register of members has become the target of animal rights extremists or fraudsters, it should be possible for the court to make an order in terms that permit it to refuse requests for access that appear to emanate from similar sources. That makes unnecessary the provision in new clause 16 for company confidentiality orders, unless there is some fundamental view that that has to be done via the Secretary of State in a particular way, rather than in the courts.

Is the Solicitor-General therefore saying that under the existing provisions in the Bill, a court would be able to close the register?

What I am saying is that, under clause 117, the court can enable—order, in fact—a company not to provide information requested. So the company will be in a position to make such order as it believes is appropriate when an application is made. The court would then be able to deal with concerns about shareholder democracy and other issues, which might properly be raised by shareholders. But there is nothing in new clauses 16 and 17 that would enable that to occur.

New clause 16 would also have unwarranted side-effects. Entry in the register of members is evidence of a member’s entitlement. That would be lost for any company with a confidentiality order. The loss of the ability to check the register would create a risk that registers of private companies with confidentiality orders would not be properly maintained.

May I make a suggestion to the Solicitor-General that might meet his concern—and also, perhaps, that of my hon. Friend the Member for Huntingdon (Mr. Djanogly)? One could enlarge the test in clause 117(3) so that the court could make an order where the

“copy is not sought for a proper purpose”,

or where—we could use a phrase such as “disclosure”—it would expose individuals to unreasonable risk. So one could build into clause 117 some of the concepts put forward by my hon. Friend, but have the policing done by the courts.

I hear what the right hon. and learned Gentleman says. However, subsection (4) states:

“If the court makes such a direction and it appears to the court that the company is or may be subject to other requests made for a similar purpose…it may direct that the company is not to comply with any such request.”

So there is a considerable amount of discretion for the court. The court is in a position to be able to make appropriate orders, as it thinks fit in the circumstances that it is facing.

Let me explain the point that I am trying to put to the Solicitor-General. There is a difference, and no necessary overlap, between not having a proper motive—that covers motive—and consequences. I think that one could get evil consequences in terms of risk, even if the application was made for a proper motive. So I think that the two tests should perhaps be incorporated into clause 117.

Let me consider for another time the idea put forward by the right hon. and leaned Gentleman. I do not dismiss it; it is a sensible suggestion. If we were currently in Committee, we might have had the opportunity to look into it in more detail.

New clause 17 provides that an individual member may apply for a confidentiality order so that particulars of his name and usual or business address are not publicly available. Everything that I have said about new clause 16 applies to new clause 17 as well. Transparency about membership is one of the conditions that a company and its members must observe in return for the privileges that come with incorporation. It would be fundamentally wrong for it to be possible for any individual to hide the extent of his control of a company. That said, we intend to use the power in clause 861 to reduce the information about members that companies with share capital have to send to Companies House each year as part of their annual return.

Subject to consultation, our intention in respect of public companies—the hon. Member for Huntingdon asked me to make a point of this—is to exempt them from the obligation to supply any details of those who hold less than 5 per cent. of any class of the company’s shares, and for private companies not to require the addresses of their members. That is a practical way of ensuring that the protection provided to registers of members by clause 117 is not subverted by the availability of this information from Companies House. By way of contrast, new clause 17 is in our view wholly incompatible with the concept of a public record.

I thank the Solicitor-General for clarifying that point; he has cleared up certain inconsistencies and his comments will be very well received by the business community. When are those regulations likely to be introduced?

We want to consult on and discuss them. We do not anticipate any substantial delay, but let us see what emerges from the consultation before I start giving time scales.

Given what my hon. and learned Friend has just said, could he make it clear to me, as a former frequent user of Companies House, that what he has said would not preclude me or journalists from writing to a company asking for a shareholder register, as we currently can, if that information is not available from Companies House?

Yes, my hon. Friend could still write to a company requesting that information. It would then be a matter for the company to decide whether there was a good reason not to disclose it, and to make any court application that it might wish to make, should that be necessary.

On clause 117 and the question of motive, although I take the argument of the right hon. and learned Member for Sleaford and North Hykeham (Mr. Hogg) against that clause very seriously, it is important that a court be able to examine whether the purpose of a person making such an application is “proper”. That is not a vague concept; it gives some discretion to the courts, but it is not so vague that a court will be unable to identify that an improper purpose relates to, for example, animal rights terrorism or to an attempt somehow to damage the company in question. We need a provision that allows us to look at motive rather than mere risk, which was the distinction that the right hon. and learned Gentleman made. In my view, clause 117 gets the balance right.

Does my hon. and learned Friend not recognise that the right hon. and learned Member for Sleaford and North Hykeham (Mr. Hogg) has raised some fundamental objections to the provisions as drafted, which are additional to the basic objections raised by me, and by my hon. Friend the Member for Great Grimsby (Mr. Mitchell)? The right hon. and learned Gentleman has said in an incisive contribution that, after six or seven weeks considering the Bill in Committee, these provisions are seriously flawed.

The right hon. and learned Member for Sleaford and North Hykeham damned with faint praise the new clauses proposed by the Conservatives, but some of the points that he made about the lack of an appeal process were damaged beyond all recovery by the hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd), who made it very clear that if judicial review had to be relied on, we would be looking at “Wednesbury” unreasonableness and a whole series of other problems arising from the inadequacies of that form of appeal. To be fair, the right hon. and learned Gentleman suggested that the appeal issue would have to be dealt with in another place, and he identified the problems with the new clause very well.

In fact, the hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd) and I were in total agreement. Both of us said that judicial review was not an adequate mechanism and that we needed a specific appeal mechanism with stated criteria.

I note what the right hon. and learned Gentleman says.

Amendment No. 383 would give every shareholder of a quoted or publicly traded company the right for their home address not be publicly available either through the company or Companies House. That is simply not necessary. There is no requirement for the home address of any member of any company to be publicly available anywhere. All that clause 113 requires is

“the names and addresses of the members”.

That is the same as the current requirement in section 352 of the Companies Act 1985. The Bill makes it clear elsewhere that an address for service, such as a PO box, is all that is required. We are talking about something for the purpose of communicating with the member and a way in which the member can be easily contacted. That is the objective of the exercise. In any event, a large and increasing proportion of individual investors in quoted companies and publicly traded companies hold their shareholdings through nominees so their names and addresses do not appear in the register at all.

Does my hon. and learned Friend share my puzzlement that, at this stage, on the Floor of the House—we are not in Committee, using probing amendments to score debating points—the Conservative Opposition are advancing an amendment that would drive a coach and horses through any effective regulation or shareholder protection, having gone through all the processes of trying to refine and make acceptable their new clauses 16 and 17, which would be made redundant by this sort of approach?

I agree with my hon. Friend, and I would not seek to defend the patent inadequacies of the Conservatives’ new clauses.

May I help the Solicitor-General in his answer to the hon. Member for Newcastle-under-Lyme (Paul Farrelly)? Frankly, these provisions came in at a late stage in the other place, and we have been fighting to make up for lost time.

After much complaining by the Conservatives that there was inadequate time to deal with the Bill, we managed to finish business early yesterday. We did not need all the time that was allowed under the programme motion. The Conservatives complain a lot about the time available, but when they are offered time they do not seem to use it very well. However, we should not let the debate degenerate. It has been a good debate. I want to focus on the real issues.

On boiler room scams, which were mentioned by the hon. Member for Huntingdon (Mr. Djanogly), under Government legislation introduced on 1 May 1999 and replaced on 11 December 2003 by the Privacy and Electronic Communications (EC Directive) Regulations 2003, it is unlawful to make unsolicited direct marketing calls to any individual who is registered with the telephone preference service. That is a whole lot easier than applying for an individual member’s confidentiality order as suggested in the amendment. The Bill provides that a court may relieve a company from the obligation to allow access to its register if the court is satisfied that the access is not sought for a proper purpose. We consider that that strikes a balance between, on the one hand, protecting members from attempts to harass or defraud them, and, on the other hand, the right of the public and members to know who owns a company and to contact them. New clauses 16 and 17 would destroy that balance.

As for amendment No. 384, there was a debate on this issue in Committee, so I shall be brief. Fifteen days is too long a period to allow in all cases where a company is considering a request for access to the register. Let us suppose that a shareholder is trying to contact other members about a resolution that has already been tabled for a general meeting that has been called—particularly an extraordinary general meeting on 14 days’ notice. In such a case, giving the company 15 days to process the request enables the management to frustrate the shareholder’s purposes without even having to justify themselves in court. Moreover, the difficulties of assessing requests for access can be overstated. At the risk of generalising, I suspect that the assessment process will rarely involve detailed research or analysis. A request will either look suspect, or it will not. In our view, five days—remember, that is five working days—will be enough.

Amendment No. 758 addresses a rather different topic. It proposes that companies’ registers of members should include details of not just the registered members, notably the legal owners of shares in companies limited by shares, but the holders of any underlying economic interests in the company that may stand behind its registered members. In other words, it would lead to a register not just of legal entitlements, but any related beneficial interests. I must tell my hon. Friend the Member for Great Grimsby (Mr. Mitchell) that we would not be prepared to accept such a huge change at this stage. It would represent a huge change not only in company law, but to the way in which all sorts of perfectly legitimate businesses are run.

If one thinks about what the amendment would mean in practical terms, it soon becomes clear that however desirable it might be in certain circumstances as a matter of principle, it would have undesirable consequences in other cases. It would also probably fail to achieve many of its objectives, even if it did not simply prove to be unworkable. The first question is how on earth one would enforce a universal requirement to disclose beneficial interests in companies. A company will generally be unaware of the identity, or even existence, of those who hold such interests. Even the registered member may not have all the information if he is only the first link in a chain of intermediaries between the company and those with the underlying economic interest in its shares. If the requirement is unenforceable, it is likely that any criminal elements that might benefit from the limitations of the existing system will also be able to find a way round the proposed new system.

An equal worry is that compliance with the proposed new system would impose hugely increased costs on investors, companies and the financial services sector because of the capturing and processing of all the additional information required, without, I regret to say, delivering any benefits commensurate with those costs. If I give a single example of which my hon. Friend might not have thought that is taken from an everyday situation, it might illustrate the complexities involved.

People who live in flats often have a share in the company that owns the flats. They also often have mortgages, and it is common for the lender to be in a position to require the resident of a flat’s share to be transferred to the lender. That gives the lender a beneficial interest in the share. The amendment would require the register to identify the lender’s beneficial interest and to update that information every time the resident switched to a different lender, as often happens, or whenever the lender was taken over by another institution, which also often happens. None of that would serve any especially useful purpose. Okay, we could deal with that problem by way of a further amendment to exclude such situations, but the example shows us the sort of unforeseen consequences that might arise from the amendment.

Finally, it is worth pointing out that there are already powerful statutory mechanisms, at least for public companies, that enable companies to get to the bottom of who might be behind their registered members. These will shortly be supplemented by further measures under the transparency obligations directive. When such mechanisms are used, there is provision for records to be kept of the beneficial owners whose interests have been identified and for those records to be disclosed.

My hon. Friend also spoke to amendment No. 683. Clauses 10 and 11 contain powers that enable the Secretary of State to prescribe in regulations made under the Bill the types of identity information that must be provided in the statements that are to be included in the application for registration, which are the statement of capital and initial shareholding that is required when a company is to be formed as limited by shares and the statement of guarantee that is required when a company is to be formed as limited by guarantee. Given those circumstances, I think that the amendment is unnecessary, because we will achieve the result that my hon. Friend wants, albeit by a different route. We are not especially attracted by the particular wording of the amendment, although I appreciate that that could be altered. However, I hope that my hon. Friend will accept that we achieve the result that he wants through the route already provided for, rather than by using the route that he proposes.

Government amendment No. 222 is a minor amendment that will clarify the Bill. I do not think that it will give rise to any controversy, but I will be happy to answer questions on it if necessary.

We have had a full debate on this group of amendments, and unfortunately time is now short. The Solicitor-General mentioned the programming. I have just had a quick look and can advise him that under the timetable we have so far been unable to discuss even half of the groups of amendments tabled by the Government. He referred to finishing early last night, but failed to mentioned that one and a half hours had been provided for debate on a single group of amendments.

The hon. Member for Great Grimsby (Mr. Mitchell) says that we should support openness, transparency and access to registers. I do not disagree with any of that; however, in certain exceptional circumstances there will be a need to restrict access, and that need is not currently catered for.

The hon. Member for Newcastle-under-Lyme (Paul Farrelly) repeated many of the arguments that we heard in Committee. He has acted as a good sounding board and we have learned from many of his comments, especially those in support of investigative journalism.

I thank my right hon. and learned Friend the Member for Sleaford and North Hykeham (Mr. Hogg) for his constructive remarks. We shall consider what he has said today as the legislation progresses.

To summarise, we believe that there will be circumstances in which companies and individuals should be able to ask for protection. The Secretary of State is mentioned in the new clause, but if the Government took a constructive approach, we could consider providing for a court process. Companies and individuals should be able to receive protection. That is why we shall press new clause 16 to a Division.

Question put, That the clause be read a Second time:—

Question, That amendments Nos. 209, 254, 210 to 212, 161, 222, 305, 223 and 306 be made, put and agreed to.

Clause 270

Private company not required to have secretary

I beg to move amendment No. 358, in page 128, line 21, at beginning insert ‘Subject to subsections (3) and (4)’.

With this it will be convenient to discuss the following amendments:

No. 359, in page 128, line 21, at end insert

‘but may at its discretion appoint a secretary (or joint secretaries)’.

Government amendments Nos. 771 and 772.

No. 360, in page 128, line 22, after ‘company’, insert ‘not having a secretary’.

No. 361, in page 128, line 32, at end insert—

‘(3) In the event that a company is not entitled to the exemption conferred by section 485(1) (small companies conditions for exemption from audit) in respect of its last completed financial year, the company shall be required to appoint a company secretary within three months of the date that the directors first became aware that such exemption would not be available to the company.

(4) In the event that subsection (3) shall apply, the relevant company shall be required to have a company secretary until such time as the company satisfies the conditions contained in subsections (2) or (3) of section 485.’.

No. 363, in clause 272, page 128, line 36, leave out ‘public’.

No. 364, page 128, line 36, at end insert ‘section 270 or’.

Government amendment No. 773.

No. 365, in clause 274, page 130, line 7, leave out ‘public company’ and insert

‘company required to have a secretary under section 270 or 271’.

Government amendments Nos. 366, 367, 776, 368, 304, 441, 369, 370 and 728.

No. 24, in clause 281, page 132, line 29, at beginning insert—

‘( ) An authorised corporate signatory is a person who, by virtue of his office, is authorised to sign documents of any description on behalf of the company.’.

No. 371, page 132, line 31, leave out ‘in the case of a public company,’.

No. 25, page 132, line 34, leave out subsection (2).

Government amendment No. 729.

No. 372, in clause 282, page 133, line 3, leave out ‘, in the case of a public company,’.

Government amendments Nos. 373 and 731.

No. 374, in clause 284, page 133, line 28, after ‘company,’, insert—

‘(aa) in the case of a private company which has appointed a company secretary, that its secretary (or any of its joint secretaries) are also authorised signatories in relation to the company,’.

Government amendment No. 732.

No. 375, in clause 285, page 134, line 7, at end insert

‘provided that in the case of a director or secretary of the company this requirement shall be satisfied by the insertion of the statement set out in section 284(3)(b).’.

Government amendments Nos. 733, 734, 723 to 727, 781, 735, 782, 783, 736, 737, 764, 765, 721, 766, 722 and 767 to 769.

Let me first declare my interest in the business under discussion. Although I am a non-practising solicitor, before entering this House I advised on company law for some 14 years. I therefore draw hon. Members’ attention to the entries appearing by my name in the Register of Members’ Interests.

I should also like to put it on record that this is the first time that I have had the opportunity to address the House from the Front Bench. It is an honour and a privilege to be able to debate several key aspects of this very important Bill on behalf of Her Majesty’s Opposition. My only regret is that the timetabling means that we do not have as much time as we would like to debate some of the issues.

The amendments relate to parts 12 and 13 and the continuing position of company secretaries within the corporate environment. Before speaking to our amendments, I want to say how much we welcome the about-turn that the Government have made on this issue. The amendments tabled by the Government give proper statutory recognition to company secretaries in private companies. Conservative Members have argued steadfastly that the company secretary performs a crucial role in ensuring good corporate governance and legal compliance, as well as fulfilling several important administrative tasks within the company. Secretaries are also officers of the company with the legal liabilities that that brings with it, and have a recognised ability to sign documents on behalf of the company.

Until now, the Government have said that there is no need to recognise private company secretaries in the Bill. While they implemented greater flexibility on the need for private companies to have a secretary, they argued quite forcefully that there was no need to keep any records of such persons if the secretary was appointed by a private company, or for third parties to have any automatic ability to check whether somebody was a company secretary. The Government said that if the secretary was appointed and there was a need for such a secretary to sign documents on behalf of the company, they would have to be appointed as an authorised signatory under part 13. During our debate in Standing Committee, the Solicitor-General did not appear to have any concerns about the approach that was being taken, telling me:

“Private companies should have a greater degree of freedom and choice. We believe that that will not lead to any significant problems and that this deregulatory approach is the better one.”—[Official Report, Standing Committee D, 27 June 2006; c. 264.]

The problems of implementation and the effect of the Government’s proposals have forced them to revise their whole stance. The Institute of Chartered Secretaries and Administrators set out the position well, saying:

“For any of the 2 million private companies which find their secretary useful, and want to continue employing such a person, there will be the confusing burden of having set up appropriate authorisations to try and mimic the current statutory powers that are well understood.”

I will try to allow some time for the Solicitor-General to respond, but we are short of time, as he will realise.

Not only did the revised arrangements cause problems, but the CBI suggested that the authorised signatory route would

“impose significant additional burdens on business compared with the existing regime, whilst imposing criminal sanctions for non-compliance. With the requirement for an authorised signatory to be an individual, these provisions also prevent corporate secretarial service companies acting as an authorised signatory.”

As a member of ICSA, as declared in the register, I welcome the Government’s about-turn and hope that they can now see their way to making the final changes to ensure that we have the final agreement.

I entirely endorse my hon. Friend’s comments.

Our only point of difference with the Government relates to the need for good corporate governance and a secretary’s role in that, and whether it should apply at the plc level or lower down the scale. We still argue firmly that it should be the latter, but I do not have time to develop those arguments further.

I welcome the hon. Member for Hornchurch (James Brokenshire) to the Front Bench. However, in the amendment, he confuses the whole subject of private companies and tries to introduce new criteria. He should trust private companies to make the decisions—we do not need the nanny state to interfere. The amendment shows the Conservatives trying to impose more regulation on companies when it is not needed. We should reject it.

Amendment negatived.

It being half-past Five o’clock, Mr. Deputy Speaker, put forthwith the Questions necessary for the disposal of the business to be concluded at that hour,pursuant to Order, [17 October].

Question, That amendments Nos. 771 to 773, 366, 261 to 264, 367, 776, 368, 304, 441, 369, 370, 728, 729, 373, 731 to 734, 207, 723 to 726, 347, 727 be made, that new clause 7 be brought up, read the First and Second time, and added to the Bill and that amendments Nos. 474 to 476, 510, 477, 478, 511, 479, 512, 513, 145 to 150, 208 and 151 be made, put and agreed to.

New Clause 81

Enforcement of directors’ liabilities by shareholder action

‘(1) Any liability of a director under section 376 is enforceable—

(a) in the case of a liability of a director of a company to that company, by proceedings brought under this section in the name of the company by an authorised group of its members;

(b) in the case of a liability of a director of a holding company to a subsidiary, by proceedings brought under this section in the name of the subsidiary by—

(i) an authorised group of members of the subsidiary, or

(ii) an authorised group of members of the holding company.

(2) This is in addition to the right of the company to which the liability is owed to bring proceedings itself to enforce the liability.

(3) An “authorised group” of members of a company means—

(a) the holders of not less than 5% in nominal value of the company’s issued share capital,

(b) if the company is not limited by shares, not less than 5% of its members, or

(c) not less than 50 of the company’s members.

(4) The right to bring proceedings under this section is subject to the provisions of section (Enforcement of directors’ liabilities by shareholder action: supplementary provisions).

(5) Nothing in this section affects any right of a member of a company to bring or continue proceedings under Part 11 (derivative claims or proceedings).’.—[Margaret Hodge.]

Brought up, and read the First time.

With this it will be convenient to discuss the following:

Government new clause 82—Enforcement of directors’ liabilities by shareholder action: supplementary.

Government new clause 83—Trade unions.

New clause 76—Expenditure on lobbying—

‘(1) A company must not in any financial year incur expenditure on lobbying activity in excess of the limit then in force, unless the expenditure has been authorised by a resolution of the members of the company.

(2) The provisions of sections 372(2) to (5), 372(6)(b), 372(7), 373(1), 373(2), 373(4), 373(6), 373(7), 374 and 375 to 379 shall apply to a resolution under this section.

(3) The Secretary of State shall have power to make regulations, which shall be subject to the affirmative resolution procedure, to—

(a) set the limit, and

(b) exempt, to any extent the Secretary of State sees fit, expenditure incurred by companies in responding to requests for information initiated by governmental or parliamentary bodies,

but if the Secretary of State fails to set the limit, the limit shall be £1,000.

(4) Companies must report expenditure on lobbying activity in excess of the limit in a form to be specified by the Secretary of State by regulations, which shall be subject to the affirmative resolution procedure.

(5) Failure to comply with reporting requirements established under subsection (4) shall count as a violation of the duty to keep accounting records under section 392 and shall be punishable in accordance with section 393.

(6) This section applies to overseas companies, as defined in section 1011, as well as to UK companies, and the powers of the Secretary of State in Part 34 shall be deemed to include a power to require overseas companies to report their expenditure on lobbying activity in excess of the limit.

(7) “Lobbying activity” means any activity intended directly or indirectly to influence legislation or policy at any level of government in the United Kingdom.’.

Amendment No. 687, in clause 372, page 168, leave out lines 34 and 35 and insert—

‘(3) Subsection (2)(b)(i) shall not apply where a company is a wholly owned subsidiary of a UK company.’.

Government amendments Nos. 647 and 708 to 711.

Amendment No. 376, in clause 380, page 173, line 12 [Clause 380], at end insert

‘provided that it satisfies the conditions set out in subsection (3).’.

Amendment No. 377, in page 173, line 15, at end insert—

‘(3) The conditions are that the trade union currently has in force a political resolution authorising the trade union to apply its funds in the furtherance of political objects and such political resolution authorised donations or expenditure under one or more of the following heads—

(a) donations to political parties or independent election candidates,

(b) donations to political organisations other than political parties, and

(c) political expenditure,

in each case up to a specified amount in the period for which the resolution has effect; and for this purpose “political resolution” shall have the meaning set out in the Trade Union and Labour Relations (Consolidation) Act 1992 (c. 52) save that the reference in section 73(3) of such act to “ten years” shall be deemed to be “four years”.’.

The funding of political parties is a topical issue, with implications for all hon. Members and parties. However, I hope that we all recognise that, in the debate, we are considering the matter from the perspective of companies and their members, and how and when directors of companies need to obtain authorisation from their members before making a political donation or incurring political expenditure.

The company law interest in the matter arises from the possibility that a director might put his personal interests or those of a political organisation before those of the company. In other words, a director might experience a conflict of interest when making a political donation or incurring political expenditure. The provisions therefore have an important but limited purpose. Company law is not an appropriate vehicle for delivering wider policy objectives in relation to political funding.

Clause 380 provides that a trade union is not a political organisation for the purposes of part 15 of the Bill. This means that funding from a company for a trade union—for example, providing free meeting room facilities or giving employees paid time off for trade union activities—cannot be considered as a political donation requiring the authorisation of the company’s shareholders. As we said in Committee, clause 380 was included in the Bill at the express request of companies that felt strongly that they should be able to provide facilities for their work force through a trade union without it being deemed political funding.

In Committee, however, a number of hon. Members expressed concerns that the provision might allow companies to circumvent the Bill’s requirement for authorisation by making donations to the political fund of a trade union, in the expectation that the trade union would make a donation to a political party. In response to those concerns, we propose to replace clause 380 with a new clause that would apply the controls of part 15 to donations made to the political fund of a trade union but to no other donations made to the union.

I think that the Minister will agree with what I am about to say. Does she agree that, when we are talking about these matters, even in the narrow confines of the Companies Bill, it is important to refute the attitudes of those who think that there is something wrong in financially supporting political parties of all kinds? Ought we not to say to such people that it is an important part of the nature of a democracy that political parties should be so supported, that that is an honourable thing to do, and that it is very much akin to supporting charities and other important institutions?

I agree with almost all that the right hon. Gentleman says. I would not put contributions by individuals to political parties on the same level as contributions by individuals to charities, but the continuation of healthy political parties is an essential feature of the democratic expression of the political views of all in our community. On the whole, therefore, I agree with the thrust of his remarks.

Our new clause will prevent companies from circumventing the controls of the Bill. If they wish to donate to the political fund of a trade union, they must seek shareholder authorisation. If they donate to trade union funding in other ways—such as providing free meeting room facilities—they will not need to seek authorisation. In the latter case, there is no danger of such funds being redirected to political parties, because the Trade Union and Labour Relations (Consolidation) Act 1992 prevents trade unions from making payments to political parties, except through their political fund. That Act also prohibits trade unions from redirecting money received from third parties into the political fund unless the money is given as a contribution to the political fund. I want to underline the fact that we are not aware of any companies making such donations to trade unions as a means of circumventing the requirements applicable to political donations in this way. However, I have taken on board the request of both Opposition parties that we should make that clear in the Bill to ensure that it is not a possibility in the future.

New clauses 81 and 82 and amendments Nos. 708 to 710 address an issue that was raised by the hon. Member for Huntingdon (Mr. Djanogly) in Committee. Under clause 376, the directors of a subsidiary company and the directors of its “relevant holding company” may be liable if an unauthorised donation is made by a subsidiary. Clause 377 recognises the possibility that neither the holding company nor the subsidiary may bring an action against the directors who are liable in respect of the unauthorised donation. It therefore allows shareholders to bring legal proceedings to enforce that liability. In such cases, we agree that shareholders of both the subsidiary and the holding company should be able to bring those proceedings. That is particularly important if the directors of the holding company are effectively the shareholders of the subsidiary—for example, if it were a wholly owned subsidiary.

As drafted, the clause would allow only shareholders of the subsidiary to bring proceedings, even against directors of the holding company. As I have explained, we do not think that that would work in practice, and these amendments address the problem by giving the right to bring proceedings to shareholders of the subsidiary and shareholders of the holding company. That will ensure that the directors of the holding company can be held to account by their shareholders if they use subsidiaries that they control to make unauthorised donations.

I wonder whether you, Mr. Deputy Speaker, might advise me on the rest of my contribution, which is about resisting other proposals in the group. Should I deal with those now or wait for them to be spoken to and come back?

That is entirely a matter for the right hon. Lady. She has moved the first new clause in the group, so she will have an opportunity to reply to the debate. In the meantime, she might wish to hear the particular arguments to be advanced.

Right, I shall proceed in that way and leave my comments on the other proposals for when other hon. Members have spoken to them.

I shall speak mainly to new clause 76 on corporate expenditure on lobbying. We do not know the exact extent of corporate lobbying in the UK, but we can get some idea of it from the fact that expenditures on public affairs have risen rapidly over the past 20 or 30 years. In the 1980s and 1990s, leading agencies were growing at between 20 and 40 per cent. a year, and according to a study done in 2000 by Miller and Dinan, in the last two decades of the 20th century, expenditure on public relations rose thirty-onefold.

We do not know exactly how much of that expenditure was directed at lobbying Government on Government relations, as it is called, but as Miller and Dinan point out in its study, it is hardly a coincidence that that massive growth in expenditure coincided with the era of massive privatisations and deregulation of the financial services industry. Lobbying is now a very big business.

The services offered by Government relations companies are extensive. A particular company—I have checked its website—gives these examples of its work: changing Government policy on payouts to Railtrack shareholders, changing telecommunications policy, defending the interests of companies involved in the private finance initiative, winning political approval for a takeover bid and getting changes in the Financial Services and Markets Bill.

Whatever one thinks about those issues, one way or the other, one thing about them that cannot be doubted is that they are political. Corporate lobbying is an intervention in the political process, just as much as, and in some ways more than, giving money to a political party or a political campaign, yet the law controlling corporate political activity, which is in the Bill, covers only activity connected with elections or referendums.

Lobbying is not just about issues that concern individual companies; it reaches the most important issues. During the past few weeks, there has been some controversy about the activities of certain oil companies—ExxonMobil in particular, and its alleged funding of climate change denial. That is an attempt to shift public policy in a way that favours the short-term interest of a company at the expense of everyone in the world.

The growth of lobbying over the last generation brings into question the type of democracy we are. Sometimes, even when discussing the Bill, the Government, and even the Opposition, have given the impression that the purpose of government is not to put forward and defend a certain view of the public interest, but is instead merely to navigate a path between clashing special interests. Earlier today, the Minister said something to the Conservative Opposition that I think implied that she feels that this is a problem in relation to how parts of the Bill have been handled—we have spent too much time working through what various lobby groups are saying and not enough on what we ourselves think.

Lobbying is creating a form of corporatism in which rich and powerful bodies reinforce their power and wealth by seizing control of the access to Government and excluding others. As the membership of political parties falls, and as in many parties the influence of members on the policies of those parties has declined, the space left behind in the political system has been occupied by corporate lobbyists. The result is that politics is becoming a closed circle.

In addition, lobbying is economically harmful. Most of the massive expenditures made on Government relations are aimed simply at redistributing wealth, usually from the poor to the rich. The aim is not to increase the productive capacity of the company or the country, but simply to shift wealth from one group to another. It is, in the jargon of economists, an example of non-productive rent-seeking. The resources devoted to lobbying would, in economic terms, be much better spent on developing new products, and on selling and marketing. Resources devoted to lobbying are, in economic terms, mainly waste.

We must do something to bring lobbying under control. New clause 76 is only the start of our thinking about that process. Frankly, I do not expect it to be added to the Bill tonight, but I hope that it will be the start of an important debate. The new clause would oblige companies to report on their expenditure on lobbying, once it exceeded a certain limit set by the Secretary of State, and to obtain shareholder approval for lobbying expenditure above that limit, in a way that is equivalent to the regime that applies to political donations.

In Standing Committee, there were various objections to our proposal. One was that companies would have to report trivial expenses, such as the cost of a cup of coffee with a Minister or a taxi to Parliament. We dealt with that in the new clause by allowing the Secretary of State to set a minimum limit. The objection was made that the measure would inhibit the flow of information from companies to the Government, or Parliament. To deal with that, we have given the Secretary of State power to exempt expenditure on meeting governmental or parliamentary requests for information. Outside the Committee, it was suggested that there was a gap in our proposal, because it did not deal with overseas companies operating in this country, and we plugged that gap by making it clear that it does apply to them. Such companies already have to register and report their activities.

The object of new clause 76 is to bring more transparency to the world of lobbying, but it is of help to shareholders, too. As the Minister said, one of the reasons that political donations need shareholder approval is that directors’ political enthusiasms can adversely affect a company’s reputation. The same is potentially true of lobbying. One might expect shareholders to be more in favour of lobbying in their company’s interests than in favour of political donations, but they, too, might wonder whether managerial effort would be better spent on promoting and developing the company’s products than on lobbying Government. They, too, might wonder about the effects on a company’s reputation if it was found to have lobbied in a way that was enormously unpopular—for example, on the subject of climate change. The topic is important and, if the opportunity arises, I should like to press my new clause to a Division. I realise that its chances of success are slim, if Standing Committee was anything to go by, but I hope that it will be the start of a serious debate.

I shall not press our other amendment in the group, amendment No. 687, to a Division. It is a drafting amendment, but an important one, and I hope that the Government understand the point behind it. It would amend clause 372, which is about the circumstances in which a company may make a political donation. Under the clause, a company must obtain a resolution of members. Subsection (3) is about what happens in a wholly owned subsidiary company but, obviously, in such companies, it is pointless to require a resolution of the shareholders separately from a resolution of the parent company, because they are one and the same thing. Clause 372(3) aims to prevent the requirement for two resolutions if one of them is pointless. Unfortunately, the wording of the provision it is not entirely clear:

“No resolution is required on the part of a company that is a wholly-owned subsidiary”

before it can make a donation. There therefore appears to be an enormous loophole, and all one need do to avoid making a resolution in the form required by the law is set up a wholly owned subsidiary. I hope that that is not the intention and amendment No. 687 aims to put into legislation what we all believe should be the case.

I conclude by thanking the Minister for closing the loophole on trade union political funds that we brought to her attention in Committee. I accept that it is unlikely that that loophole has been used, but it could be used in future, so I welcome the fact that the Government have taken the opportunity to close it.

I wish to look at the treatment of trade unions in the Bill. At the end of our debate in Committee, the relevant provision said that unions were not political organisations, which, as we all know, is a legal fiction. The recent document published by the Trade Union and Labour Party Liaison Organisation on party funding made it clear that

“unions are an inseparable part of the Labour party.”

Union votes account for a third of the votes for the next Labour leader. The unions make Labour party policy through the national policy forum, and they exercise a 50 per cent. block vote on policy motions debated at the Labour party conference. How best should we address the political position of trade unions in the Bill? As the Minister said, the Government clearly listened to the debate in Committee, particularly the points made by Conservative Members, and have moved the debate forward by tabling Government new clause 83. Under subsection (1), a company does not have to submit to the approvals process prescribed in the Bill if a donation, other than a contribution to a union’s political fund, is made to a trade union. Financial support from companies for trade unions to facilitate training, educational development, employee counselling and other important aspects of unions’ work to promote good employment relations in the workplace would fall outside the approval requirements. That is of particular concern to many companies—indeed, that concern largely drove the inclusion of clause 372 at the outset.

Subsection (2) makes it clear that the qualification—I have termed it a legal fiction—that a union is not a political organisation applies only in connection with political expenditure in clause 371. In other words, a company can promote or publicise a trade union’s activities without the need to seek shareholder consent. That is entirely appropriate in the context of fostering positive employee relations and ensuring that employees have access to advice and guidance in the event of a dispute or a safety issue. It is worth putting on the record the fact that trade unions’ political activities are framed by the Trade Union and Labour Relations (Consolidation) Act 1992, which incorporates provisions on the establishment and maintenance of the political fund and the uses to which the fund can be applied. Section 72 makes provision for the contribution of funds to political parties, as well as the distribution of materials relating to the promotion of political parties or candidates. The political fund can be used by the union only for political purposes, but I expressed anxiety about it in Committee, and I remain slightly concerned about the proposal on displacement. If a company made a donation to a trade union for non-political purposes, could it be used to free up, displace or transfer resources to the political fund for a political application? We debated the issue in Committee, and the hon. Member for Burnley (Kitty Ussher) highlighted advice from the TUC on actions taken by a union that could endanger its independence for the purposes of the 1992 Act.

The Minister kindly wrote to me on 24 July 2006, enclosing a copy of the briefing note, for which I am grateful. It would be helpful, however, if the Minister were to respond to the following points when she sums up. First, has she obtained legal advice confirming that a transfer of funds from an employer to a union, which either displaces or frees up other resources in the general fund, which are then transferred to the political fund, would be a breach of the independence requirements of the 1992 Act, as per the advice given by the TUC in its briefing note? Secondly, does she construe the wording in new clause 83,

“other than a contribution to the union’s political fund”,

to encompass direct and indirect contributions, where the purpose of the contribution was clear or where it might not be clear from the contribution that it was so intended but it had that effect indirectly?

Amendment Nos. 376 and 377 develop a slightly different point—the equivalence between the treatment of companies and trade unions in terms of the approval process for sanctioning political donations or expenditure. Under clause 371, companies are required to pass a shareholder resolution at least every four years. Under the 1992 Act, however, political fund ballots are only required every 10 years. The Government have argued clearly that there is a need to ensure, in the context of companies, that protections are afforded to shareholders in relation to the use of company funds for political purposes. Similar arguments also apply to trade unions. In the consultation document, “Review of the Employment Relations Act 1999”, the Government responded to calls for a review of the requirement for political fund ballots:

“The Government understands the case for reform. However, these ballots serve an important democratic function and ensure that union members can at regular intervals collectively authorise their union’s involvement in political activities.”

In that context, the purpose behind each of the constructs seems to have a broad equivalence. If a company is required to seek shareholder approval every four years, surely it is appropriate for a trade union to be treated in the same way. The Bill cannot, by its nature, amend the underlying trade union legislation, so the amendments seek to highlight that important point in the context of company donations only. Back in 1994—this was reflected in the Labour party’s manifesto—the Prime Minister said in an interview with The Independent:

“In my view trade unions are an important part of our democracy—but fairness, not favours, is the way we are going to run things.”

Fairness is what we are seeking in the amendments, and I hope that the Minister will consider that.

With regard to new clause 76 tabled by the Liberal Democrats, I recognise the concern about lobbying expressed by the hon. Member for Cambridge (David Howarth), and we debated in Committee whether undue influence is a factor. To resolve the matter by putting restrictions on the company seems particularly harsh, however, given that some lobbying informs political debates, as Members on both sides of the House would recognise. Obviously, if the issue relates to political expenditure and attempts to change or to influence the way that people vote, it would be caught by the existing provisions relating to political expenditure in the Bill.

The difficulty is that the current definition of political expenditure is aimed solely at elections. The definition of politics that the law currently follows is exclusively electoral, so anything that does not relate to an election is not covered by regulation.

I think the point made in Committee was that the term “political expenditure” could be construed more widely, beyond the narrow confines of an election campaign. Something that was supportive to either an Opposition or a Government could be captured by the definition.

I do not think that the Bill is as restrictive as the hon. Gentleman suggests. I fear that the approach adopted in new clause 76 would be more regulatory and bureaucratic, and would not achieve the greater transparency that he wants.

Is not the problem with the Liberal Democrat proposal that it arises from a very narrow view of what constitutes lobbying? If, for example, a European Union Government decided to try to pass internally a law that would damage British companies, the first to know about it would be the British companies. It would be important, for the sake of both their employees and their products, for them to lobby the foreign Government, the European Commission and Ministers at home in order to protect their business. Much lobbying is of that kind. We must not fall into the belief that it is always—as it sometimes is—an unsuitable activity.

My right hon. Friend makes a powerful point. Lobbying does instruct, and can inform, the way in which we govern. To assume that all of it is bad is a very simplistic approach. To be fair to the hon. Member for Cambridge, I do not think he was suggesting that, but his new clause highlights the difficulties of trying to legislate in this way.

I welcome the opportunity that we have had to debate the issues, but I consider this to be the start of a process that will require much more detailed consideration. We need to think about the impact of lobbying. We need to think about whether it is a good thing, which elements are bad and which may require reflection.

There are a number of technical amendments to this part of the Bill. I have some sympathy with amendment No. 687, which attempts to make it clear that clause 372(3) does not obviate the need for the holding company of a wholly owned United Kingdom subsidiary to produce an appropriate political resolution. Although this is a technical and a drafting matter, I think it worth putting on record, and I hope that the Minister will consider it.

New clause 81 provides further clarification of enforcement rights in connection with holding companies and their subsidiaries. That was discussed in Committee, and I am pleased that the Minister has had time to reflect and table an amendment.

There have been some significant improvements in this part of the Bill since the Committee stage, and I welcome what the Government have done. We have a limited opportunity to provide for some broad equivalents in the context of trade unions, but a fuller and more formal debate may be required for that purpose.

The hon. Member for Hornchurch (James Brokenshire) referred to the use of political funds by trade unions and the ability to switch money around, and asked about the transfer of money between general and political funds. That is not possible. I did not understand his point about the difference between direct and indirect contributions to the political fund, given that there is no possibility to transfer money between the two. That was basically my answer to his first question, but I would be happy to listen further if the hon. Gentleman wants to expand.

My point was about new clause 83(1), which includes the words

“other than a contribution to the union’s political fund”.

It may be a legal expression, but I am seeking to clarify what happens according to whether the contribution is direct or indirect. The Minister may want to take further advice. I am raising a technical point, on which I would like some clarification. I accept that we may not obtain it this evening, but any further assistance would be helpful.

The advice that I am getting is what I thought myself—that there cannot be an indirect donation.

The point about trade union ballots on political funds was inappropriate in this context. I was very careful earlier not to raise an issue that would have been far more relevant to this evening’s debate—Constituency Campaigning Services, of Coleshill Manor, an organisation that appears to act as a Tory party front in the west midlands. Some say that the company is separate from the Conservative party, but the current Conservative leader believes that it is directly linked. Anyone who delves into the organisation can see that it is very closely linked. In debating the provisions on political donations, it would have been more appropriate for the hon. Member for Hornchurch to have reflected on whether there was proper transparency in respect of Conservative party funding, rather than head-banging and having another go at the link between the Labour party and the trade unions, of which we are extremely proud.

We had a long debate in Committee on lobbying, and I think that the hon. Member for Cambridge (David Howarth) and I simply differ. I disagree with him on his definition of political lobbying, because lobbying in the interests of a company on an issue that may, in future, be decided by politicians is a very different matter from other types of lobbying. Such lobbying is utterly legitimate and utterly invaluable to any member of the Government and in no way should we attempt to intervene. I said in Committee and I say again that my decisions as a Minister are much better informed when I have listened to all the interest groups—as indeed we have in the process of devising the Bill’s clauses—than they would be if I took advice only from my civil servants, for whom I have huge regard for their endless work on the Bill, but who nevertheless come with the limited view of working within the civil service. I believe that we have to accept that situation.

The hon. Gentleman made a wholly proper point, which I accept, about it being much easier for richer individuals and richer companies to lobby, but I am not sure that there is an easy answer to it. No doubt the hon. Gentleman would deal with the problem by finding mechanisms for equalising the voice of people in what I referred to in Committee as the political marketplace of interests. I believe that trade associations and other such organisations are hugely important in giving voice to smaller, less endowed companies.

In the end, we have to have faith in our own judgment that we can make an objective appraisal after lobbying from all sides. Indeed, we spent quite a lot of time this afternoon debating issues surrounding narrative reporting, about which we have been massively lobbied by business interests with differing views on a range of matters concerned with the environment and corporate social responsibility. In the end, we have to reach a balanced view and make a judgment on it. I am sorry that the hon. Gentleman and I disagree. We have already had the debate twice and no doubt we will have it again, but I believe that lobbying has a very important part to play in a vibrant, good democratic structure. We should look into ways of increasing the voice of people less able to fund that themselves, and we should nurture and value lobbying generally.

We have considered amendment No. 687 carefully and whether the drafting change to clause 372 that the hon. Gentleman proposes would make the meaning of the clause clearer. That is an issue for the lawyers and they have concluded that it would not. Subsection (3) clearly states that a resolution of members of a wholly owned subsidiary is not required, but a resolution of the members of its holding company is. I am, however, grateful to the hon. Gentleman for making the suggestion and lawyers will no doubt continue arguing about it.

I forgot to move amendment No. 647 at the beginning of my remarks and it would remove—

Order. The right hon. Lady does not have to move the amendment. We will come to it in the course of our proceedings. She moves only the lead item in the group.

With that helpful advice, Mr. Deputy Speaker, I draw my remarks on this group of new clauses and amendments to an end.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

Question, That new clauses 82 and 83 be brought up, read the First and Second time, and added to the Bill, put and agreed to.

New clause 76

Expenditure on lobbying

‘(1) A company must not in any financial year incur expenditure on lobbying activity in excess of the limit then in force, unless the expenditure has been authorised by a resolution of the members of the company.

(2) The provisions of sections 372(2) to (5), 372(6)(b), 372(7), 373(1), 373(2), 373(4), 373(6), 373(7), 374 and 375 to 379 shall apply to a resolution under this section.

(3) The Secretary of State shall have power to make regulations, which shall be subject to the affirmative resolution procedure, to—

(a) set the limit, and

(b) exempt, to any extent the Secretary of State sees fit, expenditure incurred by companies in responding to requests for information initiated by governmental or parliamentary bodies,

but if the Secretary of State fails to set the limit, the limit shall be £1,000.

(4) Companies must report expenditure on lobbying activity in excess of the limit in a form to be specified by the Secretary of State by regulations, which shall be subject to the affirmative resolution procedure.

(5) Failure to comply with reporting requirements established under subsection (4) shall count as a violation of the duty to keep accounting records under section 392 and shall be punishable in accordance with section 393.

(6) This section applies to overseas companies, as defined in section 1011, as well as to UK companies, and the powers of the Secretary of State in Part 34 shall be deemed to include a power to require overseas companies to report their expenditure on lobbying activity in excess of the limit.

(7) “Lobbying activity” means any activity intended directly or indirectly to influence legislation or policy at any level of government in the United Kingdom.’.—[David Howarth.]

Brought up, and read the First time.

Motion made, and Question put, That the clause be read a Second time:—

Question, That amendments Nos. 495 to 497, 706, 499, 647, 500, 501, 707, 503, 708 to 711 be made and that new clause 9 be brought up, read the First and Second time, and added to the Bill, put and agreed to.

New Clause 13

Saving for provisions of articles as to determination of entitlement to vote

‘Nothing in this Chapter affects—

(a) any provision of a company’s articles—

(i) requiring an objection to a person’s entitlement to vote on a resolution to be made in accordance with the articles, and

(ii) for the determination of any such objection to be final and conclusive, or

(b) the grounds on which such a determination may be questioned in legal proceedings.’.—[Margaret Hodge.]

Brought up, and read the First time.

With this it will be convenient to discuss the following: Government new clause 14—Computation of periods of notice etc: clear day rule.

Government amendment No. 643

Amendment No. 682, in clause 291, page 137, line 1, at end insert—

‘(3A) Directors of the company shall be ineligible to cast any proxy votes.’.

Government amendment No. 301

Amendment No. 355, in clause 307, page 142, line 23 , at end insert—

‘( ) Nothing in this Chapter affects a provision of a company’s articles which provides for a resolution in writing executed by or on behalf of each member who would have been entitled to vote upon it if it had been proposed at a general meeting, or at a meeting of any class of members of the company, at which he was present (whether such resolution consists of one instrument executed by or on behalf of each such member or of several instruments in the like form each executed by or on behalf of one or more such members) to be as effectual as if it had been passed at a general meeting, or at a meeting of any class of members of the company, duly convened and held. A resolution in writing passed in accordance with such a provision of the company’s articles shall be treated as if it were a “written resolution” for the purposes of this Chapter.’.

Government amendments Nos. 443, 302, 348 and 349.

Amendment No. 418, in clause 316, page 146, line 2,  at end insert ‘and

(d) be communicated directly to the member either in electronic form or in hard copy form’.

Government amendment No. 444

Amendment No. 419, in clause 327, page 149, line 30 ,  at end insert—

‘(1A) The chairman must demand a poll when he is aware that the outcome would be different from that reached on a show of hands.’.

Amendment No. 420, in page 149, line 30,  at end insert—

‘(1A) The chairman must announce the number of proxy votes in favour and against each resolution, before such a resolution is put to a vote of members in general meeting.’.

Government amendment No. 445

Amendment No. 421, in page 158, line 13, leave out Clauses 349 to 352.

Government amendments Nos. 446 and 350.

Despite the number of Government amendments and new clauses, I can assure you that I will be brief, Mr. Deputy Speaker. These are all designed to help to improve the operation of the resolutions and meetings provisions in part 14 and related provisions. I will take Members through some of the key points.

Government new clause 13 and Government amendment No. 301 respond to concerns raised by the hon. Member for Hornchurch (James Brokenshire) in Committee about the admissibility of votes. Clause 294 is replaced with a new clause to preserve the right of a company to require objections to votes to be made in accordance with procedures in the articles. We took the point that the old clause was too ambitious so we are just preserving the current law. If an objection is overruled, the decision will be final, except in the case of fraud and certain other kinds of misconduct detailed in case law, where a court may intervene.

New clause 14 is intended to ensure clarity and consistency in the calculation of time periods in relation to meetings and resolutions. That was also an issue raised by the hon. Gentleman in Committee. His point related to whether, in calculating periods of notice, the date of the notice and the date of the meeting are supposed to be excluded.

Government amendment No. 643 to clause 288 and Government amendments Nos. 644 to 650 ensure that when a resolution is required, but the type of resolution is not specified, the default will be an ordinary resolution unless the articles require a higher majority. When a provision specifies that an ordinary resolution is required, the articles will not be able to specify a higher majority. That will be the case when, for example, we do not want the will of a simple majority to be frustrated by a blocking minority.

As the Minister implied, we are considering something of a hotch-potch of new provisions to finish off the day. Just in case we end up with a problem with time, I shall start by speaking to amendment No. 355, which we believe to be the most important element of the group.

Amendment No. 355 originated from the Law Society. It would enable a company to make provision in its articles on the passing of unanimous written resolutions that were not subject to the procedures laid down in chapter 2 of part 14. The provisions in chapter 2 are less flexible than those in section 381C of the Companies Act 1985, which permits a company’s articles to make provision for written resolutions to be passed pursuant to the articles as an alternative to following the statutory procedure. The amendment would preserve that flexibility when the written resolution is agreed unanimously by members. That reflects a principle of common law, as expounded in the case of re Duomatic, 1969, which hon. Members will remember was mentioned in Committee.

Such flexibility was incorporated in clause D18 in the White Paper of March 2005. Subsection (2) provided:

“This section does not affect any power of a company to make provision in its articles for its members to pass resolutions without a meeting other than in accordance with this Chapter.“

We think that the flexibility needs to be retained, but only for written resolutions that are passed unanimously. We do not consider that clause 288(3) achieves that flexibility.

Such flexibility is needed for not only private companies, but public companies that cannot avail themselves of the statutory written resolution procedure that exists in the Bill. It is not uncommon for newly incorporated public companies to pass written resolutions pursuant to a provision of their articles, and if that ceased to be possible it would create extra work and cost.

Two examples come to mind in relation to the provision. First, following the formation of a public company, it is common to adopt new articles. That can be done by a written resolution pursuant to regulation 53 of table A when that is incorporated in the articles of a company on its formation. Secondly, when a public company is a wholly owned subsidiary of another company, it is common to pass written resolutions in accordance with the outcomes. However, the Bill does not allow that practice to continue. The consequence will be that a resolution of a public company will require a meeting of members in all circumstances. That would involve additional expense, but it would give no benefit in the circumstances that I have mentioned.

We welcome Government amendment No. 301 and new clause 13. We tabled amendments to clause 294 in Committee and my hon. Friend the Member for Hornchurch (James Brokenshire) expressed his justifiable concerns about the effect of the clause as drafted. It allowed that if a person was not entitled to vote, but did so, and if the articles of association of that company provided a mechanism for objecting to an improper vote, and if an objection was made and rejected, or if no objection was made in the relevant time period, the unauthorised voter would be deemed to have been entitled to vote. My hon. Friend stated that that would unfairly prejudice shareholders who could not challenge a decision that was irrational, unreasonable or even unlawful. The Government amendments return us to the existing common-law position. If the result of a poll is declared, a court should now be able to question it, rather than having no power to change it. That is sensible and to be welcomed.

New clause 14 is the Government’s welcome response to amendments that we tabled in Committee. Currently, companies insert into their articles a provision that when giving a notice period for meetings, no account will be taken of the day of sending of the notice, or the following day, or the date of the meeting itself. However, that can be drafted as two extra days or three extra days, which can cause confusion. In the worst instances, circulars have been sent out illegally to members, causing great embarrassment to all concerned. The point might be slightly technical and one that only practitioners and company secretaries will be happy to see made, but we thank the Government for reconsidering that grey area, which we highlighted, tabling new clause 14 and thus providing clarity to all concerned.

In amendment No. 682, the hon. Member for Newcastle upon Tyne, Central (Jim Cousins) suggests that directors should be ineligible to cast proxy votes. I would look forward to hearing his reasons were he here to state them, but he is not. However, most proxy forms give power of proxy to the chairman or such other person as the shareholder nominates. No one is forcing shareholders to support the chairman in order to cast their vote; it is simply convenient for many shareholders. For that reason, we cannot support the amendment. The amendment stands in the name of the hon. Member for Great Grimsby (Mr. Mitchell) as well, so perhaps he will speak to it in due course.

Amendments Nos. 348 and 349 would reserve the original position in the Bill, such that an AGM of a public company will be capable of being called on short notice where all shareholders consent. That will make public company AGMs—mainly where there is a handful of shareholders—provide the formality that shareholders normally require. It is a deregulatory measure and, as such, we support it.

The purpose of amendment No. 418 is to clarify how a company should notify its members of the publication on a website of the notice of the meeting. Clause 316 makes provision in that respect, and subsection (2) states that the company has a duty to notify its members of the existence of the notice on its website, but it is not made clear how such notification is to be given. We agree with the Law Society that it is important that companies notify their members directly when they have published a notice. How that should be effected requires clarification. We would be concerned if it was sufficient merely to put the notice of the meeting on the website.

Amendment No. 419 is a probing amendment that we received from the Investment Management Association. In a previous debate, it was said that now is not the time to be proposing probing amendments, but I am sure that the Minister will forgive us on this occasion, given the nature of the Bill and the way in which everything seems to be crammed in at the last minute.

Under regulation 46 of table A to the Companies (Tables A to F) Regulations 1985, a resolution voted on at a company meeting is decided on a show of hands—one vote per member for each shareholder actually present or represented in the case or a corporate shareholder, but not proxies unless the articles so provide—unless a poll is called. Common law clarified the chairman’s duty to

“ascertain the true sense of the meeting”.

If the chairman as proxy is aware that if a poll was called the outcome would be different from that reached on a show of hands, he has a duty to demand a poll, if he is able to do so under the company’s articles of association. Guidance from the Institute of Chartered Secretaries and Administrators re-emphasises that duty.

We were therefore concerned to learn that at the AGM in July of GoshawK Insurance Holdings, the reinsurer, an advisory resolution on the remuneration of the chairman was decided on a show of hands when a poll would have defeated it. We understand that GoshawK’s lawyers had advised that, because votes on remuneration are advisory and not binding on the company—that is certainly the case in relation to the combined code—the chairman was not obliged to call a poll. It is considered important by the Investment Management Association that the law in this area is clarified, and the Bill is an opportunity to do that. It would be helpful if the Minister set out the Government’s position in that regard.

Amendment No. 420 deals with the related issue of votes at general meetings. On the question whether a chairman should be forced to call a poll, transparency would be a key issue. To that end, the amendment suggests that the chairman announce the number of proxy votes before the resolution is put, rather than after the resolution is put, as is usually the case with listed companies. In that way, members will know to call a poll in the usual way. Such transparency would make the IMA amendment unnecessary. The provision may be more suited to the compliant code for listed companies, but I shall be interested to hear the Minister’s views and whether she will look into the matter in more detail.

Finally, on amendment No. 421, which would remove clauses 349 to 352, the CBI’s updated view is rather blunt. It believes that the provisions dealing with independent reports on a poll are

“excessive and unnecessary and will place increased burdens and costs on companies”

and that they are

“contrary to the Government’s aim for deregulation and the principles of better regulation.”

We debated the matter in Committee and it has been debated in another place. The Government have still not got the position right.