I beg to move, That this House does not insist on its amendment.

With this, it will be convenient to discuss Lords amendments Nos. 245A and 245B.

I hope that the debate can be brief because the issues have been debated at length in both Houses over a long period of time. As I explained when the amendment was tabled in this House, the original wording was not about companies providing lists of suppliers or customers or any other people with whom they have or had a contract, but about reporting significant relationships that are likely to have an impact on the performance or value of the business. It is up to the directors to exercise their judgment about what should be incorporated in the business review. They need include information only to the extent necessary for the understanding of the development, performance or position of the company.

The amendment does not impose a disproportionate burden on business and the costs, which are based on costings that the CBI provided to us when the operating and financial review was being considered, are minimal. However, in the discussions that have taken place in the past couple of weeks, I was persuaded by representatives of the pharmaceutical industry that there was a possibility that the information could be misused by animal rights extremists. Amendments were tabled in another place on that basis. The intention behind the revised amendments is to deal with legitimate concerns around animal rights terrorism.

The amendment is framed, first, to exempt directors from disclosing information about a person if disclosure would, in their opinion, be seriously prejudicial to the interests of that person. The prejudice might be direct or indirect. Secondly, disclosure must also be contrary to the public interest. That requirement is to ensure that exclusion is not used to cover up wrongdoing on the part of the contractor. For example, if a supplier has supplied dangerous goods and may have been negligent in so doing, it is clearly not in the public interest to conceal his identity.

We are not trying to exempt the directors from reporting information that would be prejudicial merely to the company. That would create an unjustifiable let-out. It is not necessary to do that to ensure that the interests that we want to protect are covered.

The business review is an important matter. We have had long, lively debates on it throughout the Bill’s passage. Clearly, some have argued for more detailed prescription in the requirements but others—on the Opposition Benches—have argued for weakening the provisions. We have struck the right balance and I hope that we will agree today that we can put the matter to rest.

The Bill is a more comprehensive version of the measure that was first presented to the Lords on 11 January this year. It is in three volumes rather than two and has 1,264 clauses instead of 885. It has broken many records along the way. One must be the 1,029 amendments that were pinged back to the Lords last week. The fact that only a few amendments have been ponged back to the Commons shows that they were mainly uncontentious. Indeed, most were needed to consolidate the Bill with company legislation from 1985, 1988 and 2004.

We had called for such consolidation for four years. However, the harsh implications of the Government’s decision to implement that just before the second Chamber’s Report stage have been unfortunate for the legislative process. Despite a valiant and expert effort by the Bill team, we have a good example of how making law on the hoof is clearly unsatisfactory. I sincerely hope that the rush will not come back to haunt the Government.

Without much pleasure, let me deal with amendments Nos. 245A and 245B. I shall begin by putting the debate in context. The business review was born of the Government’s cack-handed approach to the operating and financial review. When the Chancellor scrapped the OFR in November 2005, without consultation with the Department of Trade and Industry or Ministers, let alone any stakeholders, the Government left companies with a bill for the OFR preparations running into millions of pounds.

The business review was introduced to fulfil the EU directive requirements. After much bungling by the Government, we reached a position that was broadly supported by the Government, business and the Conservative party. On Report, we discussed at length our commitment to encouraging companies to develop their corporate responsibility and we accept that the business review, with its requirements for listed companies to report on environmental and community issues, should play a role in that process.

However, at the last moment, two days before the final debate of the final parliamentary stage, the Government tabled amendment No. 822, which required directors to provide

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

We were immediately contacted by numerous stakeholders, such as the Association of British Insurers, representing investors, the Institute of Directors, the British Chambers of Commerce, the Quoted Companies Alliance, the CBI, representing large and small companies and the Association of the British Pharmaceutical Industry, representing pharmaceutical companies. They all believed that, whatever the issue, such a method of making significant policy change was unacceptable. Let it not be forgotten that the Bill has been eight years in the making and the business review provisions had been agreed after months of significant debate. To throw that aside by tabling the amendment with one and a half day’s notice was, to stakeholders, let alone Opposition parties, staggeringly irresponsible.

On Report, my hon. Friend the Member for Putney (Justine Greening), who is present in the Chamber, voiced the Opposition’s concerns about the broad scope of the amendment. She queried what the Government wanted companies to disclose, as the amendment was so vague that it provided little guidance on business reporting obligations. Stakeholders were already attempting to calculate the cost to companies in terms of compliance and related legal advice and guidance. The Government spin machine had stated that the provision would apply to suppliers. Clearly, however, it applies much more widely—to customers and possibly even to bank arrangements or arrangements with Government.

Following Report, and amid the understandable storm of controversy over the Government’s actions, business representatives met the Government to discuss their concerns. We understand that the meeting did not provide much comfort. The Government stated that, at that stage, the amendment would not be changed. Owing to the concern of stakeholders and the vagueness of the wording, and in the light of the Government’s intransigence, our noble Friends tabled an amendment to the provision, which introduced a caveat allowing directors to refrain from disclosing information that, in their opinion, would be seriously prejudicial to the interests of the company or other persons involved. We were therefore surprised to discover that, having told everyone that there would be no movement on the matter, the Government tabled their own amendment narrowing the scope to allow the omission of information about a person if, in the directors’ view, it would be seriously prejudicial to that person and contrary to the public interest.

We support the position of our noble Friends that the provision should also apply to the company, and that the public interest element should be separated by replacing “and” with “or”. The clarification provided by Lord Sainsbury on the Government amendment, and on our counter amendment, was welcome. I repeat, however, that it was all much too late. There has simply not been enough time to review how the provision will work in practice. For instance, can the Minister please advise the House how directors are expected to know what may or may not be in the public interest? Does the provision to omit information about a company apply equally to the holding company or subsidiary of the third-party person with whom the company is contracting?

We have practical problems with the wording as well as with the lack of consultation and we also have conceptual problems. If we look at the speeches on the matter in the other place, we see that Lord Sainsbury’s key point was that the amendment will not require lists of suppliers and customers to be provided. As he put it, the requirement would be for “key relationships”, not “exhaustive lists”. There seems to be some belief among non-governmental organisations and certain Members of both Houses, however, that the provision would provide full transparency. That is plainly not the case, and the Minister should comment on that. Anyone who thinks that the clause will lead to supermarkets having to disclose the suppliers of their 30,000 product ranges, as one Member mentioned in this place, is gravely mistaken. The provisions will affect not the large multinational but the small listed company with a smaller field of operation, whose key supplier or customer might have commercial sensitivity, which might mean that it does not want to disclose such contracts. In stock exchange listing rule terms, where such sensitivities exist on circulars, a discussion with the Financial Services Authority can allow the relevant documents not to be disclosed. In the Bill, however, the provision is a blunt instrument with no such flexibility.

For those of us who are less informed on this matter than my hon. Friend, how can a key relationship be defined for the purpose of the Bill?

My hon. Friend makes an important point, and the Minister may wish to clarify the matter. From what I can make out, having read Lords Hansard, Lord Sainsbury seems to have spoken about what a key relationship would not be, rather than what it would be, in relation to those suppliers that companies would have to disclose. Under the Bill, it will be left to the company to determine what a key relationship is. One might have expected the Government to have a view, given that they tabled the proposal in the first place, presumably with some agenda. But the position is unclear, and my hon. Friend has made an important point.

We are talking about a blunt instrument. The fact that the Government seem to have been unable to recognise that shows how detached they are from the practicalities of business practice. Because the Lords amendments improve slightly on the Government’s bad error we will not oppose them, although they do not go nearly far enough.

Improved corporate governance will never be achieved if businesses are confused by mixed messages about their reporting obligations. With the operating and financial review and now with these last-gasp amendments to the business review, the Government have treated business in this country with contempt. Business looks to Government for stability and careful review of legislation, but in this sorry episode it has received neither.

As the Minister and the hon. Member for Huntingdon (Mr. Djanogly) have said, Lords amendment No. 245A has a fairly long history. The original operating and financial review proposal included provisions referring to the supply chain in virtually the same words as those in the Government’s amendment. As people in business pointed out, the difficulty with that amendment—although we welcomed it in principle as something that we had called for—was that it left businesses in a state of some uncertainty about precisely what they had to reveal.

The solution proposed by our party in the House of Lords was rather different from that proposed by the hon. Member for Huntingdon, but it suffered the same fate. We suggested going further along the line of laying down, via reporting standards, exactly what was expected of business. We believed that that would resolve all the problems identified by the hon. Member for Huntingdon. Regrettably, the Government rejected our suggestion for a reason often repeated during our debates on this matter—that it would lead to a tick-box mentality. Our view was “Better a tick-box so that people know what they are supposed to do than a vague and difficult position for businesses to cope with”.

Nevertheless, as the hon. Member for Huntingdon said, the Government made a welcome concession on the supply chain. Then, because of issues raised by the Minister—including the possible emerging of information that would be detrimental to individuals faced with circumstances such as that involving Huntingdon Life Sciences—they were persuaded to table a further amendment tightening the original arrangement slightly. I am not entirely convinced that that “tightening” amendment is necessary, for the simple reason that information released by a company is ultimately a matter for the directors: it is for them to decide what is material. We feel, however, that the Lords amendments would bring some comfort to the businesses concerned, and as both the hon. Member for Huntingdon and I raised the issue several times in Committee and on Report, it would be excessively churlish of us to take a different view tonight. Therefore, like the hon. Gentleman, I have no objections to the amendments.

With the leave of the House, Mr. Deputy Speaker.

I will not say much, because we have discussed this issue endlessly. I will merely say that we did not accept the Conservative amendment in the House of Lords because by replacing “and” with “or” we would effectively be saying that any bad news about a company should not be reported, and we thought that that was a bridge too far.

The hon. Member for Cambridge (David Howarth) is right: the position is entirely based on the judgment of the director, and for that reason it is not prescriptive. The Conservative spokesmen have resisted prescription, in terms of standards, throughout the Bill’s passage; for them now to ignore the fact that without prescription the position is bound to be less clear strikes me as a bit churlish, if I may say so.

We have endlessly discussed corporate social responsibility during the passage of this Bill. Conservative Members say that they espouse it in theory, but every time it comes to the practice, they condemn it. Tonight, they condemn it in such a way that they will not even vote against it, which strikes me as being even more wimpish than they have been in the past. However, in the spirit in which we have reached almost the end of this process, I hope that the House will concur with the Lords amendments.

Commons amendment No. 245 disagreed to.

Lords amendments in lieu thereof agreed to.

After Clause 635

Commons amendment: No. 671.

I beg to move, That this House does not insist on its amendment.

The House will remember that the Bill as it was originally introduced in the other place contained a proposal for a general company law reform power. That proposal was dropped as a result of concerns about the breadth of the power, but we explained from the outset that there were a small number of areas where changes were expected to be needed in the short to medium term, including the area of capital maintenance, and where we felt that specific powers to reform the law in future would be appropriate.

In considering the potential changes to the area of capital maintenance, our view at the time was that three separate but interrelated powers were appropriate, which would have enabled the Secretary of State to amend respectively the rules on share capital, on purchase by a company of its own shares, and on distributions. Powers of that sort were therefore agreed in this House.

We have now had the benefit of consideration in the other place, and in particular the thorough and important report of the Delegated Powers and Regulatory Reform Committee. It expressed its concerns that those three powers, taken together, would permit the Secretary of State to amend, by regulations, provisions set out in more than 160 clauses of the statute, and that the powers might be seen as excessively wide.

We have reflected on those concerns and discussed them with others. Our conclusion, which was fully endorsed in the other place, was that there is an important distinction that can be made between the three powers. The parts of the Bill that deal with share capital and with purchase of own shares, while of great importance, seem to us essentially technical in nature. They are of a sort where it might well be appropriate to cover matters in secondary rather than in primary legislation, and where the case for some reform in the medium term remains clear and strong.

The power which would be removed by amendment No. 671A, however, is slightly different. It covers the area of distributions. The existing rules in this area are based on the second Company Law Directive, and have existed in much the same form since 1981. While there have been criticisms of them, there is as yet no consensus on whether, and if so how, they should be improved.

In the circumstances, we take the view that it would be going too far, and is not necessary, to take a power to change the basic rules on dividends. If future reform is proposed in this area, it may be that it can be achieved by way of existing powers under the European Communities Act 1972. To the extent that that is not the case, we accept that it would be necessary to come back to Parliament with primary legislation.

Amendment No. 671A refers to a clause put into the Bill by the Government in this House, which was then—confusingly—opposed by the Government in the other place, with the agreement of the Opposition. The right thing has been done in the end. In brief, its purpose was to provide the Secretary of State with new powers to amend the rules on distributions under delegated legislation subject to the affirmative procedure. As Lord Sainsbury said in the other place, there has been much criticism of the rule on distribution following the introduction of the international financial reporting standards and changes need to be made, we believe that delegated legislation is not the appropriate way to amend the rules.

I join the Minister in commending the Delegated Powers and Regulatory Reform Committee on its speedy work in this area. The Committee indicated strong concern that amendment No. 671, as was, would provide the Secretary of State with extraordinarily wide Henry VIII powers, permitting the Government to amend general principles and detailed issues alike. The subject of distributions has not been properly debated in either House, and we agree with the Committee’s recommendations in that instance.

I agree with the hon. Member for Huntingdon (Mr. Djanogly) and have only one point to add.

Since the middle of the last century there has been a tradition that as much of company law as possible should be on the face of the statute. That is not simply for antiquarian reasons; investment decisions are made on the basis of company law, so it should not be too easy to change. Our principal object was to make sure that as much of the law that companies face and use every day should be in the Bill. We accept that that was not entirely possible in the other aspects that the hon. Gentleman mentioned, but we welcome the concession.

With the leave of the House, I accept that we all wanted to bring as much as possible within the compass of the Bill. However, we were persuaded by the Committee’s arguments.

I do not know precisely when we shall consult, but there will be consultation with stakeholders at an appropriate time. In the immediate term, we shall probably be busying ourselves with implementing the Bill’s many, many clauses and putting in place the necessary regulations and consultations that arise. That will keep us busy for a bit, but we shall keep talking to stakeholders.

Question agreed to.

Clause 857

Appointment of the independent supervisor

Commons amendment: No. 954.

I beg to move, That this House does not insist on its amendment.

With this it will be convenient to consider Lords amendments Nos. 954A and 957A.

To prevent a ping-pong and to provide the House with an earlier night, we accept the amendments that have ponged and pinged between us and the House of Lords. I ask the House to accept the motion.

The issue has come back to the House because the other place rejected Government amendments made in the Commons. We are certainly pleased that the Government are giving way on the issue. I congratulate Baroness Noakes and our noble Friends for persevering on the point.

The amendments would relate the Freedom of Information Act 2000 to the professional oversight board of the Financial Reporting Council. The issue was comprehensively debated by their lordships, so I do not want to rerun the technical ins and outs about whether our amendments will aid that disclosure, as we believe—or possibly not, as Lord Sainsbury suggested.

However, to keep the matter simple and principles-based, as there is mainly agreement, we note that under the combined code audit committees have to review the effectiveness of their audit firm annually. There is growing debate, however, on broadening the base of auditors, so that it encompasses not just the big four, but a wider spectrum of firms. For those reasons and others, it is in everyone’s interests that non-executive directors who sit on audit committees should receive the best advice on their auditors that is available.

Lord Sainsbury noted that, over the summer, the oversight board had consulted on the subject of disclosure by the audit inspection unit, and that it was likely to report on the results soon. Our concern was that the consultation had not been drafted widely enough to cover the subject of the amendments. We appreciate that the amendment is not the end of the matter—it will need to be looked into again—but we are pleased that such a review will start from the basis of disclosure.

I, too, welcome the concession. I am glad that, in the first discussion of the freedom of information legislation under the Companies Bill, we have come out in favour of widening that legislation, rather than narrowing it—I fear that that might not be the case when the Department for Constitutional Affairs has its way on the Freedom of Information Act 2000.

I am especially glad that the Government have given way and accepted the proposal that the principle of freedom of information should apply to the Professional Oversight Board of the Financial Reporting Council, because Lord Sainsbury’s arguments on the subject in the House of Lords were becoming ever more Sir Humphrey-ish. At one stage, he said that the main argument against the proposal was that accountants would become more defensive in the way in which they passed on information to the board, and so would not act in a frank way. That, of course, is an argument against having any freedom of information legislation, and that would be Sir Humphrey’s view of that entire field of legislation. There was no evidence to support Lord Sainsbury’s view; all that was really meant was that accountants would have to be more accurate, and the board would have to be more accurate in the way in which it came to its judgments.

It was also argued that board’s reports might be exempt from the legislation, and that is true, but that is a matter for the mechanisms of the freedom of information legislation to deal with, and it should not be ruled out, as it was under the Government’s original proposal. I am glad to join in the consensus on the very last amendments to a very long Bill.

Question agreed to.