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Legislative Reform (Limited Partnerships) Order 2009

Volume 712: debated on Wednesday 15 July 2009

Considered in Grand Committee

Moved By

That the Grand Committee do report to the House that it has considered the Legislative Reform (Limited Partnerships) Order 2009.

Relevant document: 10th Report from the Regulatory Reform Committee.

We are debating today the Legislative Reform (Limited Partnerships) Order 2009. Limited partnerships were created by the Limited Partnerships Act 1907. The Act has remained substantially the same over the past 100 years. There are currently around 16,000 limited partnerships. They have been used for a wide variety of purposes, but most new limited partnerships are for investment funds, particularly private equity funds. In 2003, a Law Commission report made a set of recommendations for reforming limited partnership law, which the Government decided to accept. The recommended changes would not alter the nature of limited partnerships, but would comprehensively modernise and clarify the law. They are therefore appropriate for a legislative reform order.

We consulted last year on a comprehensive LRO. It would have repealed the 1907 Act entirely and replaced it by writing new sections into the Partnership Act 1890. The response showed that there was wide support for modernising and clarifying the law along the lines recommended by the Law Commission. It also showed that there was insufficient support for the draft order on which we had consulted. We therefore reconsulted informally on a proposal to proceed stepwise by introducing the reforms in a short series of LROs, beginning with the instrument under debate today. Some consultees were naturally disappointed that the full reform would be delayed, but in general they accepted that this would be a more certain way of proceeding. We plan to consult later in the summer on the forward programme of LROs.

The current order delivers two changes recommended by the Law Commission. The first provides clarity that a limited partnership comes into existence on the date shown on its certificate of registration and that the certificate is conclusive evidence of its formation. Practitioners have told us that the current vagueness about when a partnership comes into existence is a serious problem, as is the risk that if there is some fault in the application process, it might turn out later that none of the partners has limited liability. The first change in the order will resolve both of these problems.

Some consultees argued that this clarification would be of most value if Companies House offered a same-day registration for limited partnerships, as it does for companies. I am happy to tell the Committee that Companies House is planning to offer a same-day registration service for limited partnerships from 1 October this year. The second change delivered by the order is to require all new limited partnerships to choose a name that includes an indication of its status at the end. Each of these proposals was welcomed by all consultees who addressed them, and no consultee objected to either. I hope that your Lordships will also agree that they make a useful first step in our programme of reform. I beg to move.

Once again, I thank the Minister for introducing the order. Reducing unnecessary regulatory burdens on both the public and private sectors is a worthwhile aim that is supported on these Benches and, I am sure, around the House, so to that extent the order is welcome.

According to the Explanatory Memorandum, the Law Commission originally recommended these changes in 2003, so why has it taken the Government over five years to make them law? The Minister will understand that this does not reduce our scepticism on these Benches about quite how high a priority legislative reform is for the Government. I have to wonder, for example, how many venture capital funds have chosen to register under a different jurisdiction during this period. On a more positive note, while on that subject, the British Venture Capital Association had asked me to ask the Minister if he could do anything to arrange that from October Companies House would be able to offer same-day limited partnership registration, so I am grateful for his assurance in that regard.

On the policy section of there is a small entry that states:

“In 2009, the administrative burden on business of regulation will be reduced by almost 20 per cent making it easier and cheaper for businesses of all sizes to grow”.

That is quite a commitment. One has to ask how on earth, having dismissed tools such as regulatory budgets and sunset clauses, the Government intend to achieve that reduction. Six months into 2009, how much progress has been made?

According to the noble Lord the First Secretary of State, the new better regulation sub-committee of the National Economic Council will scrutinise planned regulation. That was said over three months ago. Would it be possible to have a report on what the committee has achieved so far? How many legislative reform orders have been laid before Parliament this year, and how many regulations have been introduced in the same period?

The most recent small-business survey found that health and safety regulations are the most burdensome regulation from the perspective of small businesses. What recent discussions have been had with the Minister’s counterparts in the Department for Work and Pensions to ensure that the Health and Safety Executive vigorously sets about the task of removing unnecessary regulation in the same zealous fashion in which it introduces it? In the Making it Simple Annual Review 2008, the noble Lord, Lord Carter, states that the Government are on target to reduce the overall burden of regulation by 25 per cent. Is the Minister able to square this figure with the most recent Burdens Barometer produced by the British Chambers of Commerce, which found that the total cost of regulation to business since 1998 had risen to £76.8 billion, an increase of £10.8 billion on last year, and a recent CBI statement that government regulation of business had reached what it called a “tipping point”?

In a recession, businesses need better, rather than more, regulation. I finish by drawing attention to the difference between effectively regulating the financial services sector and overburdening small firms with red tape.

I support the order before us today. As the Minister knows, limited partnerships—not to be confused with limited liability partnerships—have been used more and more in certain forms of fundraising. Following the advice of the Law Commission, it is extremely important that this structure is assisted by being burdened with, as the noble Lord, Lord De Mauley, said, as little red tape as possible. The Minister has not heard me speak on these orders before and, although I am in danger of becoming a toady, perhaps I may again congratulate his department on the quality of the explanatory document, which is set out in an extremely clear and concise form.

This is not a Welsh order, so it will not take the amount of time that anything to do with Wales appears to take. I have only two questions. As we know, the Government withdrew the original order because they felt that the consultation had demonstrated that other items that were going to be set out in the order were highly controversial. When does the Minister think that that consultation exercise on the wider issues raised here will be completed and when will we therefore have the further order? Pressing him a little further, it seems that the major issue of concern was whether the certificate would be conclusive evidence not only of the existence of the limited partnership—that is, the subject of the order that we have before us today—but that all the requirements of the Act had been complied with. That seems to be the controversial issue. Do the Government have a view on that or will they simply wait for the consultation?

I am very grateful to the noble Lord, Lord De Mauley, for putting this change in regulation into the wider context. The points that he made are vital, and I am grateful for his welcome of the commitment by Companies House to move smartly to implement the change. I say to him directly that it should not have taken five years. That is far too long. We should do better and we need to do better in the future.

The noble Lord made a point about business reaching a tipping point. With regard to the over-regulatory burden, we are listening very carefully to what business is saying to us at the moment. The global financial downturn was a crisis that very nearly engulfed our financial services industry, and the call for stronger regulation which came out of that was, I think, valid. However, in recognising the need for more regulation in that area, there is a danger that we will fail to recognise the equal importance of putting the same effort into simplifying and reducing the regulatory burden on business. I accept his point that the regulatory burden is significant. Following the decision not to implement a regulatory budget, we are monitoring the numbers of new regulatory instruments and are collating them into an overall single picture, which we are now reviewing. It would be useful for us to be in a position to share the outcome of that in the near future.

The committee’s reports on progress are indeed the mechanism for oversight, and I can tell the noble Lord, Lord De Mauley, as a member of that committee that this issue was reviewed just a few days ago. It is at the front and centre of the Government’s mind, and we take it very seriously. While making the necessary regulatory changes, we are committed to learning from what has happened to the financial services and to maintaining our focus on simplifying regulation. I will take his point about health and safety to my colleagues in the Department for Work and Pensions. I share some of his concern about our need to avoid developing in this country a culture of risk avoidance at all costs and the department’s need to develop an important role in ensuring sensible and effective health and safety regulation.

Questions were asked about the timing of the consultation. All the requirements of the Act are to be included in the certificate, which implies checks and inquiries that the register will not be equipped to make. I will write to the noble Lord about the timing of the completion of the consultation once I have made further inquiries in the department. We hope that it will be possible—this is not a commitment—to make a second LRO in the first half of 2010 and a third in the second half. That is our intention, but we are not committed to doing that at this point.

I thank noble Lords for their questions, and I commend the order to the Grand Committee.

Motion agreed.