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Companies (Fees) (Amendment) Regulations 2000

Volume 621: debated on Wednesday 31 January 2001

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9.17 p.m.

The Minister for Science, Department of Trade and Industry
(Lord Sainsbury of Turville)

rose to move, That the regulations laid before the House on 19th December be approved [3rd Report from the Joint Committee].—(Lord Sainsbury of Turville.)

The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper and at the same time speak to the Open-Ended Investment Companies (Investment Companies with Variable Capital) (Fees) (Amendment) Regulations 2000.

The proposed regulations will apply to England, Wales and Scotland. They will not apply to Northern Ireland, which has its own company registry that is responsible for setting its fees. Both of the orders were debated and approved on 24th January by the Delegated Powers and Deregulation Committee.

The main effect of the regulations is to increase fees for microfiche products. The aim is to enable CompaniesHouse to match the revenue that it generates from that aspect of the public service that it provides with the costs of providing that service. The changes are necessary because many people are now taking advantage of the alternative electronic services that are now on offer. Demand for microfiche has declined substantially from the level that applied when fees for it were last changed two years ago. Demand is expected to continue to decline. The balance in the provision of services is therefore shifting rapidly.

In my explanation of the reasons for the changes, I shall concentrate on microfiche and related products, which cover the bulk of the changes. I will naturally be happy to respond to any questions that noble Lords may have on any individual items in the regulations.

Companies House has been an executive agency since 1988 and a trading fund since 1991. As a trading fund, Companies House must recover all the costs of providing its services from fees. It must also aim to achieve a net return of 6 per cent on its assets on average taking one year with another.

Companies House must finance its running costs and future development programme from fees and charges and, so far as any major developments are concerned, from any reserves that have accrued from the previous levying of fees and charges. It must continue to invest in information technology to enable the provision of better and more up-to-date services. It also has regular operating outlay for staff salaries and accommodation, staff training, compliance, communication and marketing and so forth.

All that has to be funded from the revenue it raises. Those costs must be spread across the full range of Companies House products and services. Companies House will continue to allow easier access for electronic registration of statutory information. It will also enable the provision of company data in an increasingly wide range of electronic formats consistent with the Government's modernising ambitions.

In 1996 there was a general reduction in Companies House fees. That was made possible by the agency's success in significantly reducing its operating costs. Nonetheless it was necessary at that time to increase the price of the microfiche search because of reducing volumes. The cost of microfiche-based products was again increased for the same reason in 1998. This is because the cost of providing a microfiche service is substantial and essentially fixed. It means that as more customers switch from microfiche to the electronically-based ways of accessing company information, the unit cost rises.

The volume of microfiche searches has declined from 2 million in 1995–96 to well under 1 million last year (1999–2000)—a fall of over 50 per cent in five years. From 1.4 million at the time when fees were last adjusted, from 1st March 1999, the total number of microfiche searches dropped to under 0.7 million two years later. The decline is expected to continue in the coming year, 2001–02, to 500,000.

That is not something to be regretted. It is evidence of the introduction of new and better technologies. Nonetheless, the cost of producing a microfiche search is already £6.20 compared with the current fee of £5. So a loss is being made on that particular range of Companies House products.

Charges for microfiche and the broadly equivalent electronic alternative—a package of up to 25 documents delivered by e-mail—are currently the same. Each costs £5. Yet the process of generating microfiche for a database is a more complicated one. After electronic images are created, they are filmed and a large team of employees carefully cuts the film produced each day for all the documents registered the previous day and they are added to the individual company records. There is similar extra work when a microfiche search is requested. Instead of automatically downloading the information electronically, it is necessary for members of the information centre team to go to the physical fiche record, copy it and deliver it to the customer.

Maintaining the fiche library is an extra cost. Using it to deliver information on the day is similarly an extra cost. The effect of the fees regulations before this House will be to correct the balance by making microfiche bear more of its cost, with a £1.50 increase to £6.50. That will in turn allow Companies House to reduce the cost of electronic information by £1 to £4 for the key package. That is a 30 per cent increase to set against a 60 per cent decline in volume since last time. Nonetheless, it should allow Companies House to achieve something close to break-even on the provision of its microfiche services. Indeed, the House was warned of the likely increase in the price of microfiche products when the previous companies fees order was presented two years ago. Should the decline continue in line with present trends, further increases in the price of microfiche will be necessary quite soon in order to optimise recovery of the costs.

The overall effects on searchers of the information made available by Companies House will not be negative. The higher cost for microfiche will continue to be offset by the ever-expanding reliance placed on computerised information by Companies House customers. This is not only becoming more comprehensive and easier to access; it is also becoming cheaper.

Since 1998 customers have been able to obtain basic company information free from the Companies House website. Since October 2000 they have been able to purchase documents over the web using their credit card. That is something of a trailblazer so far as concerns the provision of government information. Increased demand for such services will lead to lower prices for conveniently accessible, high-quality data in electronic format. That will apply equally to bulk customers, for professional users of the Companies House subscription service, Companies House Direct, and to casual users via the Internet. Microfiche has served its purpose well. It will continue to be preferred by some people for some purposes for a little while yet. But it is now approaching the final stages of its product life.

Companies House intends to reduce the charges it levies for discretionary premium services for same day incorporation and change of name and is not seeking any increases for any of the electronic or bulk services. Companies House is decreasing the charges it sets administratively for electronic services. That decrease will be pitched at a level to achieve a net £2 million reduction in revenue at constant volumes. In doing so the agency is consciously playing a fuller part in the Government's modernising and "knowledge economy" agendas.

At this point I believe that it would be appropriate for me to stress that we are addressing those fees and charges established by regulations under Section 708(1) of the Companies Act 1985. Companies House makes extensive use of Section 708(5) for the setting of charges for its newer electronic services. It also does so for certain bespoke services, such as the provision of bulk information by means of image or data tapes to its major commercial customers. The flexibility of Section 708(5) is necessary for the pricing of new products whose development costs and take-up may be uncertain or variable. None the less, Companies House brings the same concepts of cost recovery and avoidance of excessive return or cross-subsidy to those other services.

I turn to open-ended investment companies. Companies House registers and provides the public records for this type of corporate vehicle. The cost of providing microfiche records for such enterprises is precisely the same as that for companies since they are included in the unit cost measurement for all microfiche products applied by Companies House. Consequently, these amending regulations introduce equivalent fees for similar services provided by Companies House to those provided for companies.

In summary, Companies House fulfils a clear function of being the key statutory registry for companies in Great Britain. The agency has an enormously important role in information provision. Because of its newly-introduced world wide web company information service, it is now available at the touch of a button to anyone across the world. Lastly, in accordance with the undertaking given by my right honourable friend the Attorney-General, I can confirm that in my view the regulations before the House are compatible with the European Convention on Human Rights. I hope that my explanation of the reasons behind the fee changes has been helpful to noble Lords. I commend the regulations to the House.

Moved, That the regulations laid before the House on 19th December be approved. [ 3rd Report from the Joint Committee].—( Lord Sainsbury of Turville.)

My Lords, I do not want to delay the House. Indeed, I am sure that the House is grateful for the full explanation of the two instruments. The only question I ask is why the Government or Companies House do not put microfiche out of its misery. Here, an old technology has become more and more expensive and is being run parallel to a new technology which is becoming cheaper. We are assured that we are within a few years of us all having Internet access. Instead of having this "dance of the seven veils', would it not be better to announce a finite cut-off from when microfiche will no longer be available? From what the Minister says, I doubt whether there would be many complaints about that.

My Lords, like the noble Lord, Lord McNally, I thank the Minister for his full explanation of the regulations. In a nutshell, they allow for a 30 per cent increase in the fees charged by Companies House for its microfiche-based information services. That said, I am bound to say that we on these Benches have a few slight reservations about the proposal. I therefore hope that the House will bear with me while I articulate one or two matters of concern.

As the Minister explained, the increased fees are predicated upon an analysis that demand for microfiche has declined substantially from when levels were last changed two years ago and that Companies House is increasingly offering more up-to-date electronic services to its customers. Such arguments are perhaps persuasive. In terms—and the Minister made the point—they gel with the Government's stated desire to make the UK the best and safest place for e-commerce in the world. All good and well.

But while acknowledging the requirement that, where practicable, Companies House should avoid cross-subsidy of its activities, does the Minister accept that, to an extent, these proposals could have the effect of creating a form of digital divide? Why is it that the burdens of the declining demand for microfiche services should be imposed upon those who are obliged to continue to use them simply because they are small and do not have the sophisticated technology of larger operations?

I note that the Minister for Competition and Consumer Affairs in another place suggested that part of the reason for the increase in fees was to,
"fund future improvements and developments",
at Companies House, particularly in terms of investment in information technology. That is fair enough. Effective strategies in this area should result in significant reductions in terms of both manpower and cost. Can the Minister therefore explain the 10 per cent or so increase in staffing levels at Companies House since 1996–97? Can he give us an idea as to future projections of staffing levels at Companies House? Perhaps more significantly in this context, can the Minister tell the House how many Companies House documents are filed electronically and what percentage that represents of the total? Is it fully on track with the,
"target for all business to be capable of being transacted electronically by 2005";
or is the comment of the chief executive in his annual report statement that electronic filing,
"remains as yet little used",
a more accurate assessment of the situation? I am sure that the Minister will clarify those points and I look forward to his response.

My Lords, I thank both noble Lords for their interesting comments, which can be taken together. The noble Lord, Lord McNally, asked why we do not put microfiche out of its misery immediately. The answer is that pricing where one has a falling demand and where one loads the fixed overheads on to the unit costs sharply pushes up the rate. It also gives every incentive, as it should, for people to move to the electronic alternative, which is cheaper and more effective. That is exactly the kind of pricing strategy one should have because it gives people a good incentive to move to a cheaper version but does so over a period of time.

That means that people have plenty of time to make alternative arrangements and move away from the older technology. That is why the measure does not contribute to a digital divide. This is the way in which the technology will go. It is cheaper for businesses to use and they should be moving rapidly in that direction.

As regards staffing levels, there is a huge expansion in the work of the registry office and it is rapidlyincreasing. The correct way to examine its efficiency is in terms of the unit cost of its operations. There is a 3 per cent annual reduction in that which it has been meeting. That is a satisfactory situation. In fact, there is a 40 per cent increase in its workload, which shows that it is doing a good job in improving its performance.

Finally, perhaps I may draw particular attention to Companies House's commitment to developing services which are efficient, economical and of high quality. The agency puts a good deal of effort into trying to establish the needs of its customers and uses such consultation and interaction with its customers as a basis for driving forward its evolving service offer. It aims to use the possibilities afforded by modern technology to create an environment for easier access for companies and individuals, whether they are delivering or obtaining information. It is that dedicated focus on customers which has led to Companies House being one of the few public sector organisations to be awarded the "Chartermark" on three consecutive occasions. It has also allowed Companies House to garner three significant awards in the wider business community for its on-line information service, Companies House Direct, in the course of the year 2000. I commend these regulations to the House.

On Question, Motion agreed to.