House of Commons
Thursday 19 October 2006
The House met at half-past Ten o’clock
Prayers
[Mr. Speaker in the Chair]
Oral Answers to Questions
Trade and Industry
The Secretary of State was asked—
Post Office
The Royal Mail’s operational performance is just one of the issues that Ministers and officials discuss regularly with the company.
May I refer the Secretary of State to the experience of my constituent, Mr. Alan Sinclair, who received a medium-sized package through the post that had been tampered with and opened, it being perfectly obvious that it was not the result of machine damage? The Post Office did not want to know, Postwatch did not want to know, and the Department of Trade and Industry did not want to know. Everyone has told him to take a running jump. What can the Secretary of State say to my constituent about his very serious complaint about opened and tampered-with mail?
I agree that it is a serious matter. The primary responsibility is of course with the Royal Mail, but if the hon. Gentleman would care to let me have the details, I will look into it. It is worth bearing in mind, though, that well over 99 per cent. of mail is successfully delivered and that the Royal Mail overall does a good job.
That is what the Post Office says, but most hon. Members would agree with the hon. Member for North-West Norfolk (Mr. Bellingham). I welcome the fact that the Minister will look into this. When he does so, will he reconsider the requirement that when sending a gift overseas one has to declare precisely what it is? The use of a bar code instead would at least disguise the nature of the contents from the casual thief. The problem is that declaring what one is sending is an open invitation for the package not to be delivered, which is what is happening.
I do not agree with my hon. Friend. From time to time, things will go wrong and packages will not be delivered, or damaged or interfered with, but the vast majority of parcels and letters are delivered efficiently by the Royal Mail. If there are problems, we will look into them, but it is not right to give the impression that this problem is widespread, because that is not true.
I would say that the problem is far more widespread than the right hon. Gentleman suggests. In response to a recent survey, I received more than 1,000 complaints, an awful lot of which were about not only delivery times but lost and stolen mail. What is the Minister going to do to deal with the Royal Mail, which is not delivering for local people?
As I said to the hon. Member for North-West Norfolk, if the hon. Lady has specific complaints that she would like the Royal Mail to look into, I would be happy to ensure that it does so. Despite the fact that there will be problems from time to time, overall the Royal Mail does a good job in delivering mail.
Is the Secretary of State aware that each week 1,100 car tax discs go missing in the post, as well as many more driving licences, causing great stress and anxiety to those who are waiting for those documents? Does he agree that urgent discussions are needed between the Driver and Vehicle Licensing Agency, the Post Office and his Department?
I am aware that tax discs and licences go missing. Much of the mail that goes missing is the result of criminals targeting mail vans and the like. We take that seriously, as does the Royal Mail. Hon. Members will be aware that some 3 million licences were obtained online as a result of changes made by the DVLA last year, which helps to make their delivery more secure. However, people have a choice, and they have every right to expect that if something is posted to them, they will get it.
Is the Secretary of State aware that the Royal Mail is becoming increasingly secretive about the facts and figures relating to lost and stolen mail, claiming commercial sensitivities? Is not a mail company’s performance on lost and stolen mail a legitimate piece of information for consumers? If he agrees, what action will he take to ensure that we have full disclosure not only from the Royal Mail but from all mail operators on that important piece of information?
I agree. This year, Postcomm imposed a fine on the Royal Mail of about £9 million because of its failure to meet its licence obligations; that is what the regulator is for.
As the Secretary of State said, the scale of this problem is shown by the size of the fine that Postcomm has imposed. Will he also consider whether the problems could partly be addressed by allowing sub-post offices to work with carriers other than the Royal Mail? Does he agree that such competition would force the Royal Mail to do more to tackle these failings, have the added advantage of increasing consumer choice, and bring desperately needed new business to the post office network?
As I have said in the past few weeks, we are ascertaining how we can help post offices expand their business, and I shall make a statement to the House in a few weeks. However, it is important that we do everything that we can to help those businesses develop in a manner that is consistent with the Government’s overall objectives for Royal Mail.
Oil Workers (Annual Leave)
In 1998, the Government introduced for the first time an entitlement to four weeks’ paid annual leave through the working time regulations, which came into force on 1 October this year.
We amended the regulations on 1 October 2006. That put beyond doubt the fact that the working time regulations apply to offshore workers on the UK part of the continental shelf. As my hon. Friend knows, that followed a dispute between employee representatives and employers over the jurisdiction of the original regulations.
I thank my hon. Friend for that response. The recent amendment to the working time regulations is welcome and, as he says, puts beyond doubt the fact that they apply to all employees. However, Amicus has brought it to my attention that some offshore employers still try to prevent their employees from receiving full annual leave entitlement. They claim that onshore leave, which is effectively rest time, should be regarded as annual leave. That is as if an onshore employer claimed that weekends and bank holidays constituted annual leave. That is wrong and should be resisted. Will my hon. Friend take steps to ensure that offshore workers receive their full annual leave entitlement?
I do not disagree with the principle that my hon. Friend outlines of entitlement to appropriate annual leave. Indeed, we have just concluded consultation on ensuring that workers are entitled to their eight days of bank holidays as well as the four weeks for which we legislated in 1998. I know that some discussions are continuing between unions and the oil companies. We clarified the jurisdictional dispute that held up resolution to the disagreements and we hope that, as a result of doing that on 1 October, sensible discussions can take place between employee representatives, the oil companies and other companies that work offshore, so that they can arrive at satisfactory agreements for their staff.
I draw the House’s attention to my entries on the oil and gas industry in the Register of Members’ Interests.
The Under-Secretary said that the Government have now clarified the jurisdiction, but both sides would welcome clarification of the way in which they envisage the directive applying offshore. What assurance can the Department give about the implications of the Jaeger judgment and whether it would apply to the situation?
The hon. Gentleman makes an important point. The SiMAP/Jaeger European Court of Justice rulings have an impact on many businesses and services in the United Kingdom. We are examining them carefully to ascertain whether they apply in the case that we are considering. In November, we expect an outstanding tribunal decision, which should provide additional clarity. We do not believe that SiMAP or Jaeger applies to the North sea as matters stand, but we are keen to see the results of the judgment as well as those of the further discussions in Europe about the operation of the two European Court of Justice judgments on working time in the UK.
The clarification of jurisdiction is welcome. However, my discussions with contractors in the summer show that they simply want the issue sorted out. They would like to know exactly how the regulations will work in practice and what they mean for their employees. In some cases, they would welcome the Government defining exactly what the regulations mean in practice. I appreciate that that is not necessarily the view of all the operators and others, but some were reaching it in the summer because of their frustration about the length of time that the issue is taking.
My hon. Friend ably describes the frustration of many involved in the industry about the inability to determine the nature of the agreement. We passed the amendment to the regulations on 1 October to clarify the jurisdictional difficulties that prevented proper negotiations. We do not believe that we have a role in negotiating what the leave arrangements should be but we felt that we had a role in clarifying the leave entitlements under law. Although it is early days yet, and we await the November employment tribunal judgment, we hope that, once it is out of the way, the employers and employee organisations can reach agreements that are satisfactory to both. We will not intervene in those negotiations but we are watching them carefully.
Personal Debt
Although most people use credit productively, some end up with huge problems. The Department is most concerned to help such people, and there is much that we are doing.
We are giving grants totalling £45 million over the two years until April 2008 for advice agencies to hire and train 450 new debt advisers, who will help more than 100,000 of those with the highest levels of personal debt. That is part of a package to combat financial exclusion under the Treasury’s £120 million financial inclusion fund.
We are also giving more than £24 million to Citizens Advice and Citizens Advice Scotland to help support citizens advice bureaux, which, among other things, provide help and advice to those in debt.
We have recently funded loan shark pilots in Birmingham and Glasgow with a grant of £835,000 this year. We will assess the pilots, which have helped combat illegal activities.
We have given another grant of £l million this year to National Debtline, which will help tens of thousands of the indebted. We are doing as much as we can to try to help those with the highest levels of debt.
Let me say without qualification that the interest and initiatives of the Department of Trade and Industry and the Treasury in this respect are welcome. Given that there is now a record £1.3 trillion of personal debt in this country, however, will the Minister ensure that his Department conducts a review of credit card charges? Two years ago, both the Trade and Industry Select Committee and the Treasury Select Committee, as well as the DTI, said that although good steps had been taken, much more needed to be done to protect people from being ripped off by small print that they do not understand or by charges that they have not been alerted to.
I thank the hon. Gentleman for his very fair comments. I will write to him on this matter, because I have taken up this issue with representatives of the industry and I am having discussions with them now. I will come back to the hon. Gentleman and the House with further information, following the conclusion of those discussions.
My right hon. Friend will be aware that the voucher company Farepak, which is based in my constituency, collapsed this week, robbing thousands of people on low incomes of their Christmas savings. My constituents use Farepak to avoid falling into debt, and many have lost hundreds of pounds. As one Swindon mum said:
“For so many people, Farepak has been a lifeline because it means we don’t have to get into debt at Christmas, so we want to know why we might all get into debt now, trying to make this Christmas like any other.”
Does the Minister agree that this stinks, especially as Farepak made a £1.2 million profit 18 months ago? Will he meet the administrator, and get the Insolvency Service to look into the matter thoroughly and take action against the directors if needed?
Like my hon. Friend, I understand why those people are hurt, angry and frightened about being fleeced and so badly let down. I have already discussed a way forward with the administrator earlier today. Furthermore, this morning my officials and I contacted the British Retail Consortium, which represents the retail sector. It has no legal obligations, but this is a very successful sector, and the overwhelming majority of the BRC members are socially responsible employers and companies. Its representatives immediately agreed to meet me this weekend at the DTI, with the administrator, to see what the industry can do. They cannot take on the legal obligations of this shocking company, but they will see what they can do in the lead-up to Christmas as a good-will gesture to help the most needy people who have lost out completely.
I have also asked the administrator to report as soon as he can, under the terms of the Company Directors Disqualification Act 1986, on the fitness of the directors, on how they have run the company, and on the extent of their responsibility for any failure by the company to supply goods or services that have been paid for in full or in part. I have also asked my officials this morning to take full advice from the Insolvency Service. I have been in touch with the Hamper Industry Trade Association, and I shall be meeting its representatives in a few days’ time. I shall also be meeting the executive director of the Office of Fair Trading, Mr. John Fingleton, to discuss how we can take this issue forward to avoid such failures again.
The Minister will be aware that a principal cause of personal debt is gambling, including, increasingly, online gambling. Will he therefore comment on recent press reports that the Government are seeking to turn this country into a world leader in the online gambling industry, to the extent of relaxing the regulatory and fiscal regimes? Does he really believe that this country should aspire to become a world leader in an activity that consigns so many of its citizens to misery?
Despite my background as a politician, I am not much of a gambler myself. The industry employs tens of thousands of people in this country, and is well regulated. I recognise, however, that some individuals have gambling problems, and that the consequences for them and their families are indeed great. We will certainly keep a close eye on the industry, as the hon. Gentleman requests, to ensure that it not only operates effectively but provides services to give support and assistance to those who have gambling problems.
To return to credit card debt, although I welcome the activities that the Minister has outlined as attempts to give people who are already in difficulty guidance to get out of it, does he agree that the way the different credit cards are advertised—often in a misleading manner—makes it much harder for consumers who are inexperienced in relation to the existing 30,000 credit cards to make rational decisions? They often get ripped off and end up paying high interest for borrowing small amounts of money. Will he outline his views on how that could be dealt with?
Order. The supplementaries are too long.
Mine is very short.
There is no answer to that.
I assure my hon. Friend the Member for Wallasey (Angela Eagle) that I am in discussions with APACS—the UK payments association—as are my officials, about the best-practice guidelines. Then we can take the matter forward. Indeed, in only the last few days I met the vice-chair of Barclays bank, who is, on behalf of the industry, keen to work with the Government to bring forward such proposals.
Those guidelines will give security through an understanding across the industry of what best practice is and ensure that competition does not lead to overly complex and difficult situations for the consumer of those products. Therefore, I am quite confident that, along with the industry itself, the best-practice guidelines can be amended in such a way that, for example, the appropriate checks on a customer’s ability to pay and checks between the industries will lead to us not having credit limits that are difficult to meet due to their complexity for the consumer who wants to have a credit card limit increased, or indeed wants to have a credit card in the first place.
The debts of students and young people are especially concerning. Indeed, outstanding student loans are now at more than £19 billion. Given that, and the importance of data-sharing between lenders, why is the Student Loan Company not sharing its data? It is almost a year since Ministers promised us that they would resolve this issue. When can we expect action, not just yet another consultation paper?
The hon. Gentleman makes a fair point about the promise and I can say that, as consumer Minister, I am actively engaged with the issue, so watch this space. We want to resolve the issue in an effective way, as my predecessors said. That will be done.
What advice will my right hon. Friend give to the family sheltering under that green tree, who propose to get £21 billion in debt and do not have the money to finance it?
My hon. Friend alludes to the shadow Chancellor’s banana republic report on public expenditure cuts and massive tax incentives for the very rich in society. Indeed it is a recipe for economic disaster, but what do you expect? This is just another Tory leader with the same old Tory policies.
Olympic Games
Hosting the Olympics provides Britain and British businesses with a unique opportunity to showcase our products and services, and to exploit commercial opportunities in the short term to create a lasting legacy for British enterprise in the long term.
We are working with the regional development agencies and the devolved Administrations to ensure that we provide appropriate business support so that companies are fit to compete for games-related opportunities. We are ensuring that there is widespread access to, and up-to-date information about, procurement opportunities, and we are working with specific sectors, such as construction and information and communications technology, to ensure that we take maximum advantage of the commercial opportunities as they arise.
There is real interest in the Olympics, but there is a genuine need for the firms to get the information in a proper way and for the procurement processes to be open and transparent. Will my right hon. Friend ensure that the contract packaging is right so that the smaller businesses can also get a chance to bid for some of this valuable work? That will enable my region to see some of the benefits from the 2012 games.
I agree with all of that. We are working with regional development agencies to establish a business opportunities network, and we have already started putting online some of the opportunities that exist. My hon. Friend makes valid points, and I will take them on board as we develop our networks and information vehicles.
May I remind the Minister that it would be advantageous to the regions, and Wales and Scotland, if Olympic events were held outside London? In that regard, will she pass on to her colleagues the message that Bala, my home town, has the best white-water canoeing in Europe, and that on Cardigan bay at Pwllheli, arguably, there is the best yachting in Britain?
I will certainly pass that on to my colleagues. When the Sydney games were held in 2000, Brisbane, for example, benefited hugely, not least because the presence of the British team alone added £6 million to its economy.
One of the best and easiest ways that companies in the north-east can benefit from the games is to host a training camp. Gateshead international stadium in my constituency is ready and waiting, offering world-class facilities. The transport links to the north-east are the best, and visitors will receive the warm hospitality of its friendly folk. Can the Minister say whether a timetable has been discussed yet?
I cannot say whether such a timetable has been established, but I will pass on the enthusiasm to have such a facility in my hon. Friend’s constituency to my right hon. and hon. Friends in the Department for Culture, Media and Sport.
The value of additional tourism and so on arising from the games has been estimated at some £610 million. What estimate has the Minister made of the proportion of that income that will be generated outside London? Can she assure me that my Province will get its fair share of the commercial opportunities, along with the rest of the United Kingdom?
We have not made an estimate of the extent to which the benefit will be spread across the whole of the United Kingdom, but we are determined to ensure that we do that. That will happen partly through the way that we distribute the various facilities that the games will require, which is a matter for the Olympic Delivery Authority, the London Organising Committee of the Olympic Games and the Department for Culture, Media and Sport. Part of that is about ensuring that businesses are fit for purpose, which we have taken on board, and that proper information is provided to businesses so that they can take advantage of the games. The fact that so many hon. Members are rising on this question shows the enthusiasm across the United Kingdom for the hosting of the Olympics here in 2012.
Does my right hon. Friend agree that the games represent a great opportunity for the manufacturing sector, particularly the steel industry? Has she had any discussions with the Corus management in particular on how it can take advantage of this great opportunity and play its part?
My hon. Friend the Minister for Energy has responsibility for the steel industry and will take that on board. In general, we have had discussions with the construction industry, and a construction commitment has been signed not only by construction companies but by all suppliers, such as architects and quantity surveyors, to ensure that we use the opportunity of the Olympics to improve our construction practices and showcase the best of British construction as we build facilities.
Tariffs (Far East)
Ministers and officials have regular contact with our European Union counterparts and discuss a wide range of issues.
Is it not disgraceful that we are no longer able to determine our own trade policy? Surely our future prosperity as a country is dependent on promoting our own freer trade policies with countries such as China, rather than being shackled by some inward-facing, backward-looking protection racket. Why does the Secretary of State think that our future prosperity is best decided by the unelected and unaccountable Peter Mandelson in Brussels, rather than by our Government making our own trade policies?
When the right hon. Member for Witney (Mr. Cameron) tells us that his party has changed, he should have a good listen to what the hon. Gentleman is saying. The hon. Gentleman might want to have a word with Lady Thatcher, who in 1986 made a considerable contribution to the very matters about which he is complaining.
The European Union is responsible for trade, and as trade becomes increasingly global, it makes more and more sense to deal with such matters on a larger scale. The United Kingdom plays a very active role, because trade—and, in particular, keeping markets as open as possible and securing a good outcome to the current World Trade Organisation talks—is as important to us as it is to every other country.
Is it true that, as has been reported, the British Government have agreed to support protectionist higher tariffs on Asian footwear in return for Italian support for postponement of the working time directive? If it is not true, will the British Government be voting against those protectionist measures in the Council of Ministers?
The British Government have already voted against them. The vote took place about 10 days ago. I know that the hon. Gentleman is very busy these days, but if he takes a look at the record—I am sure that a record is kept of these things in Europe—he will see exactly how we voted.
On the subject of Peter Mandelson, and in the light of the collapse of the Doha trade round, what assessment has the Secretary of State made of the enthusiasm of the EU Trade Commissioner for bilateral trade deals with countries in the far east and elsewhere?
There are two points. I think the hon. Gentleman will recognise that nothing will happen to the WTO talks and the Doha round before the United States congressional elections in the next few weeks. After that—in our view and, I believe, in the view of all involved—it is essential for the American Government, the European Union and, indeed, all the other players to become seriously engaged. Without movement from all parties the talks will not succeed, and while the price of success is immense, there is a huge cost to be paid if the talks fail.
We are prepared to support regional or bilateral trade agreements, but they must be complementary to an overall settlement. Multilateral agreements are far better, and regional or bilateral agreements cannot be seen as a substitute for them, but to the extent that they are considered to be complementary, we certainly support them.
The Secretary of State will be aware that the EU’s share of world trade decreased and its deficit widened by 7 per cent. in the first quarter of this year. Surely these unfair, discriminatory tariffs will serve only to make the position worse. Is it not true that their only likely effect is people paying more for their shoes in the shops? Does the Secretary of State agree with Alisdair Gray of the British Retail Consortium that they will not save a single job in the EU? What representations is he making to his friend Peter Mandelson to end this situation?
As I said, discussions about tariffs on imported shoes took place throughout the summer, and the vote took place about two weeks ago. As I just told the hon. Member for Twickenham (Dr. Cable), the British Government’s position is on the record. However, I agree that we must aim to break down trade barriers. Protectionism is disastrous for trade and industry in the medium and the long term, and we should be ensuring that we can secure as much trade as possible. Europe will depend on it, and this country depends on it. Our approach has always been to take a very liberal view, and I hope that we shall have cross-party support for that.
Business Relocation
We encourage companies to consult their employees before making relocation decisions. We also expect companies to work with their RDAs and local communities to help any employees who lose their jobs as a result of such decisions. However, we have no plans to make consultation a requirement.
I thank the Minister for her reply, but expectations and reality are not necessarily the same. Does she share my dismay at the way in which some absentee owners show contempt for a loyal, hard-working work force, uprooting them and moving them overseas? If she does, would she be kind enough to arrange a meeting with me to discuss the particular problem of a company that may be contemplating doing just that?
I am aware of the company in the hon. Gentleman’s constituency, and I am happy to meet him to discuss it. Many foreign companies invest in the UK. We have become the location of choice for many such companies, especially those that are trying to establish headquarters somewhere in Europe. Many choose the UK, and we should encourage that because it is good for British jobs and for the UK’s wealth.
Is my right hon. Friend aware of the announcement today by MBDA? It is getting rid of 170 manufacturing jobs at Lostock in the constituency adjoining Chorley. Specialist skills in missile technology will not be able to be replicated in the future as and when we need a new missile. These companies such as MBDA come round MPs demanding support and loyalty, talking about investment in the UK and supporting British workers, yet today we have the sad announcement that 170 people will lose their jobs. It is not good enough. What can the Government do?
Again, I share the concern that my hon. Friend has expressed on behalf of his constituents and those who work for the company. I am happy to meet him to discuss the particulars of the situation that he faces. In the end, companies take commercial decisions. What we need to do, and are doing in the Companies Bill that is currently before the House, is to ensure that we have the conditions in the UK to encourage sustainable investment that will bring jobs to the UK and add wealth to the economy.
I am astonished that the hon. Member for Colchester (Bob Russell) thinks that by asking a company to talk to quangos in the UK he is going to stop it from quitting the country. I simply do not know what planet he is on.
Is it not the case that Britain has slipped down the competitiveness league, and that we have to address that problem, which is yet another reason why the tax reform commission that we announced today is so important? In order to create inward investment instead of a flight of capital, will the Minister now announce policies to rebuild Britain’s brand image abroad in a simple and effective way through UK Trade and Investment and, indeed, through our own competitive merits, and put an end to the absurd practice of all our regional agencies costing a fortune by having competing offices in the likes of Shanghai?
I am puzzled by that contribution. I assume that the Opposition have now decided to abolish the regional development agencies as a contribution to finding £21 billion of cuts to fund their tax reductions. I take a much more optimistic, pro-British view of the way we are performing on inward investment. The most recent World Bank report “Doing business in 2007” says that the UK is the best country in the whole of Europe for inward investment. We are one of the top two EU member states on employment law, with Denmark higher. We are in the top two in Europe in terms of protection for investors. We are joint second in the EU for the ease of paying taxes. That is a good record, which encourages foreign investment. It is not the poor record that the hon. Gentleman seeks to describe; he does down businesses and employees in the UK.
Nuclear Decommissioning
The Nuclear Decommissioning Authority and British Energy calculate these costs. At all times, the Department follows HM Treasury guidelines.
That is an interesting answer. It contradicts what Mr. Hugo Robson, one of the Secretary of State’s own officials, told the Public Accounts Committee on 27 March. The DTI first claimed that it had followed the Green Book, then admitted that it had ignored it. The Secretary of State told me on 6 July that he would write to me explaining the problem. I do not know whether he has written to me and the letter has been lost in the post. Could he send me another copy?
I wrote to the hon. Gentleman on 10 July and I will certainly send him another copy. As I understand it, the Department follows Treasury guidelines. As he knows, the purpose of the Green Book is slightly different. It looks at investment appraisal. The discounted rates that the Department has applied in relation to decommissioning costs are in line with the Treasury guidelines. I confirmed that when I wrote to him last July.
The Government have decided to include nuclear energy in the mix and have promised not to provide any taxpayers’ subsidies. It is important for the right level of provision to be made so that future taxpayers as well as current ones benefit. In view of what the Secretary of State has said, will he go back to the Department and ensure that it uses the 2.2 per cent.—not 3.5 per cent.—figure that is in line with the new Treasury guidance?
On the latter point, the Treasury rate to be applied has, as my hon. Friend knows, been reduced to 2.2 per cent., which is the figure being used. On the broader point, we are talking largely about decommissioning costs that have arisen from the fact that, throughout the 1940s, ’50s, ’60s, ’70s and ’80s, no one sat down to work out how the decommissioning work was to be carried out and costed. That is now being done in respect of a new generation of nuclear power. I believe that it is important to maintain the mix, as my hon. Friend said. We set out the position in July and that remains our position.
Gas Industry
As confirmed by the recent energy review report, we remain committed to a market-based approach, operating within a regulatory framework determined by our policy objectives and overseen by an independent regulator.
The world gas price is only one element of the cost to a supply company. What action is the Minister taking, with the regulator, to ensure that a 30 per cent. increase in the price of gas does not lead to an opportunistic 30 per cent. rise in a customer’s bill?
The regulator Ofgem has recently made strong statements to the effect that it is keeping a very close eye on this. A bit of a time period elapses before wholesale prices can affect the consumer, but I agree that gas prices are coming down at the moment. We cannot predict what they will be in the future, but we back the regulator in adopting a strong regulatory approach to the problem.
Is not the real problem faced by the gas industry the failure of the market in mainland Europe to deliver gas to this country through the pipelines at times when prices here have suggested that it should? What progress is being made in the EU to ensure that all member states actually deliver what they signed up to on energy market liberalisation?
Steps are being taken to put principle into practice in respect of market liberalisation. The UK Government have led the charge on that and we have seen strong action from one of the commissioners, who initiated dawn raids on companies. Let us also remember that, with the opening of the Langeled pipeline, we will soon have about 20 per cent. of our future gas supply coming in from Norway, with liquefied natural gas coming in from Qatar to the tune of another 20 per cent. Continental Europe is important, but we are certainly not putting all our energy eggs in one basket, which would be the wrong thing to do. We are doing the right thing.
Waste Electrical and Electronic Equipment Directive
The latest consultation exercise on the draft implementing regulations for this directive was concluded on Tuesday this week. Subject to a detailed analysis of the outcomes of that exercise, the directive should be transposed into UK legislation early in 2007, leading to full implementation on 1 July next year.
The Minister has caught me slightly unaware with that announcement, as no one was aware that that was about to happen. He has had six consultations, a review and a three-year delay. He now says that it is about to implemented, which is very welcome, but does he recognise that the delay has led to a huge mountain of discarded electronic goods—35 per cent. of them perfectly usable—piling up with nowhere to dispose of them? The UK and Malta are the only two countries that have not implemented so far. It is a very sorry state of affairs and I hope that the Minister will keep on the button and ensure that it actually happens.
It pains me to disagree with my own MP—I will not say whether I voted for him or not, as it is a secret ballot—but I have to say that he is a little out of date. Many people in the industries know where we are on this matter as we have carried through the consultation exercise and people have known about the appropriate time scale. Let us remember what this is about. In Britain alone, we have 1 million tonnes of electrical and electronic waste every year and the amount goes up by about 4 per cent. a year. The European directive is about promoting producer responsibility. As part of a more sustainable economy, it is important that we recycle and reuse electrical and electronic waste.
The Minister knows that the national headquarters of the Furniture Reuse Network is in my constituency and, from the meeting we held with him earlier this year, he also knows how keen the network is to see the implementation of the directive. Can he tell the House how the Government plan to support the community sector to ensure that it has access to reusable waste electronic and electrical equipment from local authority and retailer sites?
I know of a number of good voluntary sector schemes, including one in Croydon, which I visited recently. Although we expect most of the waste to go to local authority sites—we are consulting on that—voluntary organisations are important in making sure that the products can be reused and sold on relatively inexpensively, often to low-income groups. Non-governmental organisations have a vital role.
Post Office
Under the Postal Services Act 2000, Postwatch was established to monitor changes to postal services and to ensure effective consumer representation. Postwatch has signed a code of practice with the Post Office, which provides a practical framework for consulting on proposed changes.
There is no doubt that Post Office Ltd has to make some difficult decisions and has some difficult challenges ahead, but does my right hon. Friend agree that, often, the way the Post Office goes about involving and consulting local communities leaves a lot to be desired? It was warned about that by the Select Committee on Trade and Industry and others over the urban reinvention programme, but in my constituency, although the Post Office has met me in respect of the proposal to franchise out a Crown post office, it seems to be adopting a tick-box mentality when saying that the local community has been consulted rather than thinking creatively about the process. Will my right hon. Friend have a word with the Post Office about that?
Yes I will. As my hon. Friend says, over the next few months the Post Office will have to make some difficult decisions about the shape and size of the network, and it is important that when there is consultation it is carried out properly. It will always be the case that, if people do not like a proposal, they may feel that there has not been proper consultation—no matter what the outcome—but there are some elementary things that we need to get right, so I would appreciate it if my hon. Friend could let me know precisely what passed between him and the Post Office so that we try to avoid such mistakes in the future.
Does the Secretary of State accept that, when there are changes to local postal services, it is important that there is proper consultation? In my constituency, for example, the sorting office in Kirriemuir, which covers the glens of Angus, decided to stop making newspaper deliveries. That does not appear to be a national process, but there seems to have been a review and cuts are being made by stealth. Where there is a rural service that has an impact on rural businesses, is not it important that there is proper consultation before such actions are taken?
I am not familiar with that particular instance, although I know Kirriemuir and that it is important. If the hon. Gentleman would care to let me know what he thinks went wrong, I will certainly ask the Post Office to look into it.
Disabled Staff
Neither the Secretary of State nor I have held recent discussions on that topic with employer representatives.
That is an extremely disappointing reply, given that the Government are putting the Welfare Reform Bill before the House and that one of the critical issues in the Bill is how to get more disabled people into work. Is the Minister’s hesitation in holding discussions with employers’ groups because the Government’s own record is so lamentable? Nineteen per cent. of the working age population is disabled, yet only 6.8 per cent. of DTI employees are disabled, so what urgent measures will the Minister take to restore the credibility of his Department on that important issue?
There is no embarrassment on the Government Benches. We passed the Disability Discrimination Act 2005 and established an office for disability issues. The Act requires that all public bodies have due regard to promoting disability in all their functions and also that they produce a disability equality scheme by 4 December. The DTI is on target to meet that deadline; the scheme will provide an action plan for work to provide the framework in which we will meet our duty.
One of the largest categories of long-term illness and disability is made up of those suffering from mental ill health. When I talk to groups in my constituency, they report that, despite a transformation in social attitudes to mental ill health, there remain serious problems in terms of returning to the workplace and the difficulties that people encounter in having their applications treated fairly. Will the Minister say whether he agrees and, if he does, what he hopes that our Government will do to tackle that?
My hon. Friend raises an important issue. Mental ill health affects a sizeable proportion of the population. Almost every family—if not every family—has a member affected by it. It is an important aspect of our disability policy and I am sure that it will feature in all the plans that Departments make. It is a difficult area of work that requires a lot of attention to detail. I am sure that we will do that in due course.
Minister for Women
The Minister for Women was asked—
Equal Pay
Last month, I published an action plan, in response to the women and work commission recommendations, that set out a comprehensive package of measures across Government that I believe will widen women’s choices, enable more women to realise their potential and reduce the gender pay gap.
In Hull and the sub-region, women still face many barriers in the field of employment. What is my right hon. Friend doing to encourage more employers to take up best working practices and to break down some of those barriers?
My hon. Friend is right to suggest that the issue is not just about legislative change. We have to change the culture within which employers operate. I am determined to build up as many companies as possible as exemplar employers that can showcase their flexible working to others and show what is possible. We have nearly 100 exemplar employers and I hope to build that up further.
What discussions has the Minister had with the Chancellor of the Exchequer to ensure that the comprehensive spending review 2007 will prioritise closing the gender pay gap, set specific gender equality targets for Departments and require measurable progress year on year?
As the hon. Lady knows, I have regular discussions with the Chancellor of the Exchequer on this and many other issues. She will also know that we do have a target for reducing gender inequality. As part of the Budget process, we try to ensure that women are treated fairly and we are making real progress in tackling inequality and the gender pay gap, in particular. I hope that she is also aware of the latest action that we have taken through the women and work action plan, which not only builds up exemplar employers, but introduces equality reps and a quality part-time work initiative and sets out the measures that the Government are going to take, including extending the right to request flexible working.
In my constituency of Hove and Portslade, our further education and sixth-form colleges have pledged to put increased effort and investment into NEET pupils—pupils not in employment, education or training. What advice would my right hon. Friend give those institutions and those pupils on training to address the gender pay gap?
I suggest that the careers advice that pupils are given should emphasise the importance of pay progression and the opportunities that will be available to those young people. I have been trying to encourage girls to consider non-traditional occupations, which they might ultimately find more rewarding in every sense—personally fulfilling, as well as financially rewarding. The Government have introduced a national standard for careers advice to make sure that top-quality careers advice is offered throughout our schools and colleges.
Science
The promotion of science, engineering and technology comes under the Office of Science and Innovation. The Minister for Science and Innovation meets the chair of the ETB regularly. I am pleased to report that the board and the UK resource centre for women in science, engineering and technology are developing a memorandum of understanding to promote the role of women in science, engineering and technology. I met Annette Williams, the director of the UK resource centre, this week to discuss progress.
I am grateful to the Minister for that comprehensive answer. She will have heard her right hon. Friend the Minister for Women say that she has frequent meetings with the Chancellor of the Exchequer. She will also know that the Department of Trade and Industry is a sponsor of the ETB. Will she or her right hon. Friend be saying to the Chancellor of the Exchequer that funding continues to be needed in this valuable area to promote science, engineering and technology?
Of course. I pay tribute to the hon. Gentleman’s role in the engineering board. It is important that we continue not only to get more women into the sector, but to get back into it some of the 70 per cent. of women who have qualifications in the area. The funding that has gone into the UK resource centre has been enormously important and we will of course continue to press for more.
For 13 years, Aberdeen has hosted a science festival called Techfest at the beginning of each September. The festival is aimed predominantly at schoolchildren, although events are also held for adults. May I invite my hon. Friend to come up next September to see what is happening in Aberdeen, the excitement on the children’s faces—boys and girls—and the way in which all businesses have been supportive of the festival and engaged with young people to get them interested in science in the first place?
I congratulate Aberdeen on its efforts. My hon. Friend is absolutely right that it is enormously important that children are enthused at an early age. Great work is going on in this area, and, subject to diary commitments, I would certainly love to look at the opportunity of going to Aberdeen next year.
Equality Bodies
In October 2007, all the existing equality bodies will be replaced by the Commission for Equality and Human Rights. As was set out in the “Fairness for All” White Paper, one of the guiding principles of the new body will be partnership working, including with the voluntary sector.
In thanking my hon. Friend for that response, may I remind her that the voluntary sector is often at the cutting edge of innovative new ideas, especially in the areas of sexual orientation and disability? The sector’s work has not always come to fruition, but it has often come up with ideas that have later become the norms of behaviour and attitude. The Minister for Women referred earlier to changing cultures. Does my hon. Friend agree that if we are to change cultures in such areas, it is important that we have a flourishing voluntary sector with which the statutory bodies work properly? For example, the Fawcett Society addresses gender equality, and I could go through a list of different aspects of equality in which the sector’s contribution has been enormous. It is important that we get the balance right.
I agree entirely with my hon. Friend. In preparation for the new commission, 15 stakeholder events were held throughout the country, and many voluntary sector organisations attended them. We hope to announce in the near future the commissioners of the Commission for Equality and Human Rights. I am sure that there will be representatives with a great deal of experience of the voluntary sector.
I welcome what the Minister says about the progress so far, but as the next step towards establishing the new statutory equality body—the Commission for Equality and Human Rights—will the Minister publish as soon as possible the results of the Government’s consultation on the Sexual Orientation (Goods and Services) Regulations? I ask this in the true spirit of co-operation: will she then publish the regulations in draft form so that Parliament can have a meaningful debate on this sensitive and important matter, instead of the wide-ranging and unfruitful debate that is taking place at present?
I can give the Government’s absolute commitment to bringing forward the regulations as soon as possible. I will certainly take back the suggestion of draft regulations, but our priority must be to lay the regulations in Parliament, alongside the religion and belief regulations, and get them implemented next April.
Sexual Orientation (Goods and Services) Regulations
We made clear earlier this month our intention to implement the sexual orientation regulations next April. As my hon. Friend the Minister for Women and Equality has just set out, we will lay the regulations before the House in good time for them to be debated and approved so that they can come into effect on that date, alongside the regulations on religion and belief.
Does the right hon. Lady agree that, subject only to the very limited doctrinal exemption that the Government already propose, the sexual orientation regulations must apply in full to all organisations, religious or otherwise, including adoption agencies, charities, general practitioners, housing trusts, nurseries and youth groups, because the principle of equality before the law must take precedence over the views of a vociferous religious minority which, however sincere, is fundamentally opposed to that important principle?
The hon. Gentleman is absolutely right that we must provide effective protection against discrimination for gay, lesbian and transsexual people. It is right that we take the time to consider the more than 3,000 responses that we have received on the matter. As I am sure he and other hon. Members are aware, there are passionate views on each side. It is only right that we take the time to consider properly such a complex issue, so that we provide protection against discrimination in a way that is effective and appropriate and which gets the balance right so that people are able to hold religious views and beliefs.
I reiterate the call for the regulations to be published in draft form before they are laid in Parliament. That could lead to a much more sensible and rational debate when the time comes. I cannot emphasise too strongly my agreement with the words of my colleague the hon. Member for Buckingham (John Bercow). Any excessive exemptions granted in the regulations would undermine the principle that Parliament has adopted.
I hear exactly what my hon. Friend and the hon. Member for Buckingham (John Bercow) have said. It is important that we have a proper debate that involves people who hold views on both sides of the argument and that we can discuss matters openly and honestly with each other. My first priority is to have the regulations implemented in April. In the consultation, passionate views were expressed on both sides, some of which, I fear, are completely misleading—for instance, the thought that the regulations would in any sense force Churches to marry gay people or schools to promote a homosexual lifestyle. It is 100 per cent. inaccurate to suggest that that might be the case, but given the nature of the responses to the consultation that we received, it is only right that we take our time to analyse them properly. If we can, I will consider laying the regulations in draft form, but my priority must be to implement them alongside the religion and belief regulations in April.
Business of the House
May I ask the Leader of the House to give us the business for the coming week?
The business for next week is as follows:
Monday 23 October—Motion to approve a Ways and Means resolution on the Safeguarding Vulnerable Groups Bill [Lords], followed by remaining stages of the Safeguarding Vulnerable Groups Bill [Lords].
Tuesday 24 October—Consideration of Lords amendments to the Police and Justice Bill.
Wednesday 25 October—Remaining stages of the Charities Bill [Lords], followed by proceedings on the Parliamentary Costs Bill [Lords], followed by proceedings on the Wireless Telegraphy Bill [Lords].
Thursday 26 October—Remaining stages of the Fraud Bill [Lords], followed by motion to approve a European document relating to A Citizens’ Agenda—Delivering Results for Europe, followed by a debate on the Department for International Development’s White Paper on a motion for the Adjournment of the House.
Friday 27 October—The House will not be sitting.
The provisional business for the following week will include:
Monday 30 October—Consideration of Lords amendments to the Violent Crime Reduction Bill.
I know that colleagues on all sides of the House want notice of recess dates as early as possible. Until we have made a decision about September sittings, which will be before Prorogation, I cannot give all the dates, but for the convenience of the House let me give the Commons calendar until February 2007. We plan to rise for the Christmas recess on Tuesday 19 December and return on Monday 8 January. For the February constituency week, the House will rise on Thursday 8 February and return on Monday 19 February. This is, of course, subject to the progress of business.
I thank the Leader of the House for telling us the business for next week and the available recess dates.
On Tuesday, the House debated a motion to refer two statutory instruments to a Standing Committee. The Deputy Leader of the House battled valiantly to respond to the points raised by my hon. Friend the Member for Eddisbury (Mr. O'Brien), but the debate masked a serious issue about House business. Since 1997, well over 30,000 statutory instruments have been laid before this House. The Government are increasingly changing the law through the use of such secondary legislation, which is rarely debated, and, if it is, usually it is for only about an hour and a half in Committee and often after it has come into force. That smacks of Government arrogance, and it also potentially lays the House open to be a laughing stock. For example, the statutory instrument to set up the new strategic health authorities will be debated next week. It was laid in June and came into force on 1 July, and the authorities started working on 1 October. Little wonder that the Deputy Leader of the House said that if the House failed to pass that legislation
“The consequences would be dire.”—[Official Report, 17 October 2006; Vol. 450, c. 846.]
Will the right hon. Gentleman review the use of secondary legislation and make a statement to the House?
The Leader of the House has in the past said that he wants to make sure that parliamentary questions are answered in a helpful and timely fashion. [Interruption.] He says “Yes” or “Hear, hear” from a sedentary position. My right hon. Friend the shadow Home Secretary has been waiting for the answer to no fewer than 43 written questions to the Home Office since 8 July, which is more than three months. I fully appreciate that the Home Secretary might find it inconvenient to answer the questions, but that is to do with the failure of Government policy. The delay is simply not good enough. Does the Leader of the House agree, and will he ensure that those questions are now answered promptly?
On 11 September, the Minister for Policing, Security and Community Safety issued a written ministerial statement on the operation of control orders. He did not say that there had been any breaches to the orders or risk to the public. Why not? Although the failure to mention that might not have been a breach of the letter of the requirement on Ministers, it certainly was a breach of the spirit of the agreements made when control orders were introduced. May we have a statement from the Home Secretary on that?
Earlier this week, the chief executive of the NHS said that he does not know how many job cuts there will be in the NHS this year—which, of course, according to the Health Secretary is the best year ever for the NHS. We believe that 20,000 jobs will be lost, and NHS employers say that it could reach 20,000. The only people who do not seem to know are the Government. When will the Health Secretary publish a figure for Members?
Yesterday, a petition of 4 million signatures was handed to No. 10 highlighting the fact that the withdrawal of the Post Office card account will lead to yet more post office closures. It was reported this morning that the Minister with responsibility for employment relations and postal services said that
“it is important that there is a successor to the Post Office card account. And there will be and the DWP are in negotiations. There does need to be a clear statement from Government to give reassurance.”
When will the Secretary of State for Trade and Industry make that statement to the House?
Tomorrow, the House will consider a Bill proposed by my hon. Friend the Member for Tunbridge Wells (Greg Clark) to change the definition of brownfield land and to stop garden-grabbing, which is a problem throughout the country. Will the Government come off the fence and support the Bill, and, if necessary, introduce such a Bill in Government time in the next Session?
Let me deal with those points in turn. Anyone listening to the right hon. Lady would think that the Labour Government had invented secondary legislation. Secondary legislation is a fact of British parliamentary life. More than 50,000 statutory instruments were introduced under the Administration whom she supported, before 1997. I accept that the way in which the House is able to deal with statutory instruments is not as satisfactory as it should be, but there is an inherent problem to do with the management of Government time. There is also the simple truth that we cannot in any legislation—her Government did not do it, and we cannot do it—anticipate every change in ministerial power when the primary legislation is introduced. I am very happy—we all are—to discuss and think about changes in the management of statutory instruments to the benefit of the House and good governance. I suggest that she offer some practical ideas that the Conservatives would be willing to introduce, were they in government.
My right hon. Friend the Secretary of State for the Home Department is very concerned indeed about the huge backlog of parliamentary questions. Ever since he took office in May, he has been working very hard with his colleagues to clear the backlog, which in part arose—I do not complain about this—from the massive increase in the number of questions as a result of the foreign prisoners problem. However, I will of course follow up the issue that the right hon. Lady raises.
We have been up hill and down dale on the issue of control orders, and I have looked at what the Minister in question said on 11 September. There was no disingenuity whatsoever about the statement that was made—as, indeed, the right hon. Lady accepted when she had to resort to saying that at least she could not complain about the letter of what was said. The Home Office has been as open as it can be when breaches have taken place.
Let me deal with the two issues that the right hon. Lady raised concerning the national health service and the Post Office. I know that she is running a scare story that 20,000 people in the NHS are going to be sacked. If she looks at the detail, she will see that, so far, the number of redundancies in the health service, particularly compulsory ones, is tiny. She always forgets to acknowledge that since 1997 the number of NHS staff has gone up by 303,000—a huge increase on the very poor start that we inherited in 1997. The implication of what she is now saying about the NHS is that more should be spent on it, and the implication of what she is saying about post offices is that, in addition to the £2 billion in subsidies that we have already spent, more should be spent. The question for her and for the whole of the Tory party is how on earth they can square that with their promise to cut taxes by between £20 billion and £30 billion—
Order. I call Gavin Strang.
Following the printed and broadcast statements by General Sir Richard Dannatt, the head of the British Army, and President Bush’s acknowledgement that the position in Iraq is comparable to the Tet offensive in Vietnam in 1968, is it not time that this House debated the situation in which our servicemen and women now find themselves in Iraq?
As my right hon. Friend knows, we have been able to debate the matter on many occasions. For reasons that I think everybody understands, I cannot promise a debate on foreign policy before Prorogation, but five days of debate on the Queen’s Speech will be available at the Opposition’s discretion, and I should be astonished if one of them was not on foreign policy.
I congratulate the Leader of the House on finding the lost Bills that I drew his attention to last week; he obviously does not expect prolonged debate on the Fraud Bill, which gives me some cause for concern.
May we have a debate on freedom of information and the application of the Freedom of Information Act 2000? Many people are extremely concerned that the good intentions behind the Act are to be undermined by the introduction of new charges, the sole raison d’être of which is to prevent people from having the access to information from Government Departments that they should have.
May we also have a debate on the fiasco of the Rural Payments Agency? It is quite extraordinary that it should have performed so badly, as has now been outlined by the National Audit Office. It has been outperformed by its Scottish and Welsh equivalents and by every European agency; indeed, even the German agency, which uses the same methodology, managed to outperform it considerably. It is probably the worst payments agency in Europe, yet the chief executive, who was sacked, is still on full pay.
May we have a debate on the Government’s position on cluster bombs? The UN Under Secretary General for Humanitarian Affairs has spoken about their use in Lebanon. I recently saw for myself how one still cannot walk on huge areas of Bosnia and Herzegovina—off the roads but only a couple of miles from Sarajevo—because of mines and cluster munitions. Is not it time that we took a lead in removing those appalling weapons from use in warfare?
Finally, what is the position of the legislation anticipated by the Secretary of State for Northern Ireland? If it is to go ahead, it must do so before 24 November, which is in the middle of the debate on the Queen’s Speech. As I understand it, the House has two options: we could deal with it very late at night, after the Queen’s Speech debate, or we could interrupt the Queen’s Speech debate for a day. I suggest that dealing with the provisions late at night would be an insult to the Province of Northern Ireland and to the people who are depending on the legislation. It would be far better to interrupt our proceedings on the Queen’s Speech in order to have a proper debate in the House.
The hon. Gentleman asked about FOI, but I completely reject his contention that the spirit of the legislation and its effect have been undermined by the possibility that charges will be introduced. In case he has forgotten, I remind him that I introduced the Bill when I was Home Secretary, and that it contained a power to allow for charges. I do not recall any Front Benchers objecting to that power. However, a slight anomaly exists at present. If the hon. Gentleman were to apply, under the data protection legislation, to a public authority for information about himself, he would almost certainly be charged, whereas he would not be charged if he applied for information about the hon. Member for North Southwark and Bermondsey (Simon Hughes), who is sitting next to him. The hon. Member for Somerton and Frome may not wish to be burdened with that information, but that is certainly something of an anomaly. The Government are justly proud of the FOI Act, but we must ensure that its provisions do not undermine good administration in other respects.
The hon. Member for Somerton and Frome will know that my right hon. Friend the Secretary of State for Environment, Food and Rural Affairs has been determined to sort out the problem with the Rural Payments Agency. The situation is very unsatisfactory, as today’s NAO report highlights, but I understand that farmers are now receiving payments in almost every case.
The hon. Gentleman asked about cluster bombs. Like my right hon. Friend the Secretary of State for Defence, and his predecessor, I have always acknowledged that we must be extremely careful in the use of cluster bombs. That has been the British Government’s policy.
The hon. Gentleman asked about Northern Ireland legislation, but I simply did not follow his point. We all know about our responsibilities to Northern Ireland, and we have to ensure that the agreement is pinned down. If it is, we will meet the requirement for there to be legislation before 24 November. That will be sorted out through the usual channels.
Will my right hon. Friend ask a Minister from the Department for Constitutional Affairs to make a statement clarifying future investment in the courts estate? We are continually modernising and improving the services that our courts provide, but some of the buildings are clearly outdated and are struggling to house those services. For instance, a new court building has been earmarked as a priority for Newport for many years, but it has been held up by a lack of funding.
My right hon. Friend the Lord Chancellor is well aware of the need to press ahead with the court building programme. He would be delighted to receive any representations that my hon. Friend might care to make to our right hon. Friends the Chief Secretary and the Chancellor.
Today, Sir Hayden Phillips is publishing his interim report on party funding. On Tuesday, the Leader of the House said that he wanted to find a consensus on that important issue, although he then went on to make a number of deeply anti-consensual remarks. Would not both Sir Hayden and the achievement of a consensus be assisted if we were to have a debate, in Government time, on the interim report? That would allow a broader range than is proposed by those who inhabit the two Front Benches.
It is an interim report. I am sorry to tell the right hon. Gentleman that there is no time for such a debate before Prorogation, but if there is time afterwards, we will think about that. I am always searching for consensus, but highly partisan points were made by Opposition Members, including the hon. Member for The Wrekin (Mark Pritchard), who is sitting just in front of the right hon. Gentleman. The hon. Member for The Wrekin led with his chin, because he omitted to mention that although he spent £11,000 within the time limit in April last year, he spent £50,000 outside the time limit, using money from secretive front organisations such as unincorporated associations. When that happens, we are entitled to draw it to wider public attention.
Will my right hon. Friend set aside time for a debate on Farepak, so that we can put on record the anger on the issue felt by Members on both sides of the House? It is a Christmas saving scheme that went into liquidation last week, with the consequence that, for tens of thousands of hard-working families, Christmas is effectively cancelled. The directors should be called to account for their behaviour. Will my right hon. Friend organise a debate on the matter?
I understand my hon. Friend’s great concern, and I hope that he can find opportunities to raise the subject, for example in Westminster Hall or in an Adjournment debate. I know from his early-day motion just how terrible the situation is for some of his constituents and for many others. My right hon. Friend the Secretary of State for Trade and Industry is profoundly concerned, and I know that he is willing to follow the matter up with my hon. Friend.
Given the significance of General Sir Richard Dannatt’s comments on Iraq, and given that he felt that he had to vent his frustration by speaking to the media—despite all the qualifications made since the original interview, the Prime Minister now seems to agree that, in certain parts of Iraq, the presence of British troops exacerbates the problems, yet troop deployments continue—will the Leader of the House further consider allowing the House a proper debate on the specific issues, which are of great importance to the country, and to the 8,000 British troops in Iraq?
We always make statements on Iraq as and when required. As I said earlier, there will be a five-day debate on the Queen’s Speech. It is a matter for the Opposition, and not for us, but I hope very much that one of those days will be used for foreign policy. I would like a better balance in the subject days in this House, so that we have scheduled debates on foreign policy, just as we have on Europe and defence. However, we must sort that out through the usual channels.
Does my right hon. Friend agree that a debate is taking place in the country about our military presence in Iraq? In order to clear the air, would it not be useful to hold a debate on the subject in the Chamber, as many Members would like? It seems odd that the country and the media are discussing the subject, which is of great importance, but that we are not. I therefore suggest an early debate.
I entirely understand what my hon. Friend says and it echoes what the hon. Member for Billericay (Mr. Baron) said a moment ago. We will look carefully to see whether time can be found, but as my hon. Friend will understand, given the pressures on time in the closing weeks of a parliamentary Session, that will be difficult to do. I reiterate that there will be an opportunity to discuss the subject in the debate on the Queen’s Speech, which is only three weeks away.
Will the Leader of the House advise the Home Office that police authorities in Wales are concerned about the £1.3 million that they spent, at its behest, on the botched plans for the amalgamation of Welsh police forces? They were promised repayment six weeks ago, but nothing has happened since. I ask the right hon. Gentleman to pass that on. In addition, may we have a debate on the police funding formula as it applies to Wales, as there are serious disparities within Wales?
I shall certainly pass the first point on to my right hon. Friend the Home Secretary. On police funding, I can say, wearing my hat as a former Home Secretary, that there are always questions about the police funding formula, the policing of rural roads and all sorts of other things. If the hon. Gentleman believes that there are serious anomalies and justifiable concerns, I suggest that he follow the matter up with the police Minister.
May we have an urgent debate on the future of the steel industry in the UK? Steel remains a strategically important industry and a major employer in many parts of the UK, but further moves and speculation about possible takeover bids for Corus can only lead to uncertainty in the sector, so may we have an early debate?
I accept my hon. Friend’s concerns. The steel industry is one of the great successes of British manufacturing, and that is often forgotten, given the background of news of some major closures. I will certainly pass my hon. Friend’s concerns on to my right hon. Friend the Secretary of State for Trade and Industry. I hope that my hon. Friend is able to ensure that the matter is raised, either in an Adjournment debate or in Westminster Hall.
Will the Leader of the House arrange for the Prime Minister to come to the Chamber next week to make a statement, so that he can clear up confusion and reassure the country that he lives in the real world, rather than cloud cuckoo land? On the day that the Prime Minister made his statement at No. 10 that only a few hundred jobs would be lost in the health service, the local hospital in my constituency announced 250 redundancies, which reaffirmed the belief of normal people outside the House that up to 20,000 jobs have been lost in the health service.
My right hon. Friend will be here, as usual, at Prime Minister’s questions next Wednesday. He always enjoys the occasion, and, after yesterday, it will be the Leader of the Opposition who absents himself next week, given the appalling notices that he received this morning. I have two things to say to the hon. Gentleman. First, there have been endless stories about compulsory redundancies in the health service, but in most cases those redundancies have not been made, and any adjustments in head count have been due to natural wastage or voluntary redundancy—mainly natural wastage, in fact. Secondly, as the hon. Gentleman holds out to the good people of Chelmsford the prospect of more spending on the health service under a Conservative Government—
indicated dissent.
It does absolutely no good to do that, because we know that, under a Conservative Government, less would be spent—
Order. I call Mr. George Howarth.
My right hon. Friend is currently contemplating legislation on the reform of the upper Chamber. Will he reassure Labour Members and Members from other parties who are unicameralists that we will have an opportunity, under any legislation that he introduces, to vote for the abolition of the House of Lords?
Yes, I can certainly tell my right hon. Friend that it is my plan that, in any debate on the future composition of the Lords, the first vote would be on the question of whether there ought to be a second Chamber; only if that was defeated would we come to issues about its composition.
As my right hon. Friend is aware, the Modernisation Committee has taken a great interest in the citizenship curriculum in schools, believing that it is important to increase knowledge and understanding of Parliament and the democratic process from an early age. Does he therefore share my concern, and that of other colleagues, that Ofsted has reported poor standards of teaching in citizenship, and will he make time for an urgent debate on that important matter?
First, may I commend my hon. Friend’s continuing interest in, and pushing of, the subject? Secondly, I certainly share her worry; the matter is of concern across the House. The introduction of a compulsory element of citizenship in the national curriculum was welcome, but it is no good if it is squashed in with PE or religious education, as it has been in too many cases. There must be an elevation of the teaching of citizenship as a serious subject that is respected in the staffroom, as well as in the classroom. I shall certainly pass my hon. Friend’s concerns on to my right hon. Friend the Secretary of State for Education and Skills. I hope that, at some stage, it will be possible to have a debate on the matter.
According to credible estimates, there have been more than 100 knife-related incidents in our schools since children returned for the autumn term just last month. Does the Leader of the House agree that an urgent debate is required on that pressing matter, and that more needs to be done to make schools safe and secure environments in which our youngsters can learn?
I am almost dumbstruck. More does need to be done in respect of violent crime, and it would be extremely helpful if the Liberal Democrats voted for such proposals. They have failed to vote for almost every measure that would help to control crime in the past 10 years—[Interruption.]
Order. The hon. Member for Cheadle (Mark Hunter) might get answers that he does not like, but he must not shout at the Leader of the House—it is not called for.
Will my right hon. Friend arrange for time for a debate on YouTube? I am aware that several hon. Members have found and used that website, but I am more concerned about a posting from my constituency. Entitled “Milton Road Fight Club”, it shows a man being attacked in the street and kicked in the face until he is unconscious. I am worried that acts of violence and instances of happy slapping recorded on mobile phones are being transferred to the web for wider consumption. Will my right hon. Friend ensure that we have a debate in this House so that we can discuss how to stop this?
I am glad that my hon. Friend mentions that. We will discuss the Violent Crime Reduction Bill during the next week, and I hope that he raises the matter in relation to an appropriate amendment. There is a very serious issue about how such videos should better be controlled.
Following the Leader of the House’s fascinating reply to my hon. Friend the Member for West Chelmsford (Mr. Burns), can he arrange for a debate next week on the difference between an adjustment of head counts and redundancy?
The hon. Member for West Chelmsford has disappeared from the Chamber, presumably because he was shamefaced about asking the question on the very day that the Conservatives are proposing between £20 billion and £30 billion of tax cuts and announcing the most reckless public spending and economic policy that we have seen.
On the other matter, the Conservatives need to be clear about what they are arguing—
Order. I have expressed my disapproval to the Leader of the House on these matters. This is not about the business for next week. These things can be talked about in the Tea Room, but not here at this hour.
May we have an early debate on taxation policy? In my constituency, we have benefited hugely from policies such as the working families tax credit, which has radically changed the life chances of the 20 per cent. of my constituents who live in the lowest quintile of economic activity. They would be hugely disadvantaged if we adopted a taxation policy that took money away from them. It is enormously important that the House has a serious debate about taxation policy to reassure those people that future Governments will support their needs.
I will try to stay in order, Mr. Speaker.
I very much hope that we can find time for a debate on tax policy in which we consider all the available alternatives. Perhaps the Conservatives will decide to use one of their days on the Queen’s Speech to discuss tax policy—they would show great courage were they to do so. If not, we will certainly find an occasion. It would make for a good and timely debate following yesterday’s and this morning’s reports of their “cut tax, spend more” policy and given that the shadow Chancellor has said:
“the framework of our tax policy is now set.”
Last week, it emerged that 1,649 dentists quit the service in the first three months of the Government’s disastrous new dental contract. Given that chaos, will the Leader of the House ask his right hon. Friend the Health Secretary to attend the House to explain the debacle over which she has presided and to tell us what remedial measures she will put in place?
I do not think that I can promise that. The truth is that we have been trying to sort out a long-term problem that goes back to much earlier changes in dentists’ contracts in 1991 and 1992, which were the mother and father of all the difficulties that we have faced subsequently. I know that some dentists have refused to accept the contract. I do not have the figures in front of me, but I looked at them last week. Overall, however, I think that going back to the base of 1997 there are more NHS dentists doing more NHS treatments.
May I press the Leader of the House again on a debate about Iraq and Afghanistan? It seems absolutely extraordinary to many people outside this House that we should have had the report by The Lancet, rumours of policy changes in the USA, and the general’s comments about the presence in Iraq, and yet no debate in this House. May I press him, seriously, to have an urgent debate on the presence of British and American troops in Iraq and Afghanistan so that we can debate the alternatives, which I believe should be withdrawal from those places?
I note what my hon. Friend says and fully accept the importance of this. I hope that he accepts, too, that there is pressure from legislation at this time of year. Without making promises, I will discuss the matter with my right hon. Friend the Patronage Secretary. Let me also say, at the risk of repetition, that I want to see more regular debates on foreign policy. We have regular debates on all sorts of things, but there have never been scheduled debates on foreign policy. I hope that that will require us to have slightly fewer debates on other subjects that are much less well-attended than they should be.
Could we have a debate on the efficacy of the immigration service? One of my constituents, who was born in this country, whose parents were born in this country, and who is married to someone born in Turkey, is now expecting their second child since they first applied for what ought to be perfectly proper permission to live and work here. Many decent people are unable to work for more than 20 hours a week and to keep their families although they have, in every sense, a right to be here. They have been told that it will be another two years before this incompetent service provides them with an answer to a very simple question.
I have a very heavy immigration caseload myself. I suggest to the right hon. Gentleman that in such a case, which in my experience is rather unusual, he asks to see the Home Secretary or the Minister responsible for immigration to try to sort out the matter. If the facts are as he stated, as I am sure they are, a decision should have been made long ago.
One of the Government’s major achievements in education policy is the reform of the 14-to-19 curriculum and the planned introduction of vocational diplomas. While some people may have preferred the Government to take on board more of the recommendations of the Tomlinson report, I welcome the fact that the first five vocational diplomas are due to be introduced in 2008. I understand that there are serious concerns about the likelihood of that time scale being achieved and that a considerable amount of work is yet to be done in terms of preparation of the curriculum and materials and of the training of teachers. Does my right hon. Friend accept that it is crucial for the credibility of the qualifications system that a time scale is adhered to and that the process is managed effectively; and may we have a debate to ensure that everything is in place?
I accept the importance of this, and I will pass my hon. Friend’s concerns on to my hon. Friend the Minister for Higher Education and Lifelong Learning. I have not heard of such difficulties, but that does not mean that they do not exist.
May we have a debate on the availability of Alimta for the treatment of mesothelioma? I am sure that the Leader of the House is aware that a postcode lottery is operating in relation to that drug, which is the only one available for victims of mesothelioma. On 27 October, the National Institute for Health and Clinical Excellence will rule on whether it could be made available on the NHS. Many Members such as myself who have local factories where workers have suffered from asbestosis are seriously concerned about this.
I understand the great concerns in areas where there were asbestos factories. We had a gas mask factory in Blackburn during the war, and the effects of the use of asbestos there are still continuing. It is reasonable to await the decision by NICE. I am glad that there is an increasing consensus that that process is the way forward.
Will my right hon. Friend have a word with my right hon. Friend the Secretary of State responsible for the BBC? Given that both the charter and the licence fee are under discussion, is not it fair to have a debate subsequent to the decisions, with substantive votes, so that we can evaluate the role of the BBC properly? There has been continual debate about the change in the licence fee arrangements and the way in which the fee is now collected. That point arose in the debate on Monday. Given that the BBC is a state corporation, it is right and proper for this place to have a proper say in the way that it carries out its duties.
I will certainly pass on my hon. Friend’s concern to my right hon. Friend the Secretary of State for Culture, Media and Sport, aka the Secretary of State responsible for dealing with the BBC. I accept the need for a debate and understand my hon. Friend’s case for it to be on a substantive motion, although I cannot promise to provide that. He will acknowledge that, when possible, I have introduced greater use of substantive motions, because that is the way forward instead of basing subject debates entirely on Adjournment motions.
May we have an urgent debate on why thousands of car drivers in the borough of Telford and Wrekin have their journeys disrupted every day as a result of the decision by the council’s Labour leadership to introduce new traffic signals at the Ketley Brook and Trench roundabouts? If the Leader of the House does not believe me, I invite him to come and see for himself.
Of course I believe the hon. Gentleman, but I do not think much of his powers of advocacy if he cannot get the phasing of the traffic lights turned round.
It has already been said that the tax credits system has been a huge success in alleviating poverty and helping low earners. That is certainly true in my constituency. However, will my right hon. Friend find time for a debate on the possibility of amending the law on tax credit appeal rights so that we can consider extending the jurisdiction of the independent appeal tribunal to cover overpayments of tax credits, as happens with other welfare benefits? Tax credits are a huge success but extending the jurisdiction of the independent appeal tribunal would be a fairer system of dealing with overpayments.
My hon. Friend makes an important point, which I shall personally draw to the attention of my right hon. Friend the Secretary of State for Work and Pensions.
I am sure that the Leader of the House well knows that it is a serious matter for a senior service chief to put himself publicly at variance with Government policy. I believe that most hon. Members are more concerned about the unreasonable pressures on the armed forces and the lives of our troops than the pressure of business in the House. May we have a debate on the consequences of General Sir Richard Dannatt’s remarks either on a Friday or on the Monday before the state opening of Parliament? The matter is urgent and should not have to wait nearly a month for a day in what is effectively Opposition time, which would have happened anyway, and will be cluttered with many other subjects that people want to raise.
The days of debate on the Queen’s Speech do not quintessentially constitute Opposition time. There is a five-day debate on the Government’s proposals for legislation. However, by convention, the Opposition determine the priorities for debate, and that is entirely proper. I hope that they use one of the days to debate the important issue that the hon. Gentleman raised. I repeat that I understand the importance of the matter, but we are in difficulties with finding time at this stage of the Session.
My right hon. Friend may not know that, earlier this year, his predecessor promised a debate in the House on the forthcoming energy review. It has since been published and it raises as many questions as it has provided answers and has spawned a series of reviews. However, it is overwhelmingly important, especially in relation to our climate change policy. Will my right hon. Friend facilitate a full debate in the House on the future direction of our energy policy?
As my hon. Friend knows, a big debate on climate change took place last Thursday and was directly related to the matter that he raised. I shall bear his important request in mind and discuss it with the Chief Whip.
Will the Leader of the House find time for a debate on the treatment of members of our armed forces who are injured while on operations? Yesterday, the Prime Minister said in answer to a question from my hon. Friend the Member for Gosport (Peter Viggers) that the Government had received no complaint. That is not the case. I have a constituent who was discharged from the Army while waiting for an operation after being injured in Iraq. The Government should give us time for a debate and give some support to our troops, who fight on their behalf, but receive shoddy treatment when they return and leave the armed forces.
Of course the hon. Gentleman is right to say that we should do everything that we can for injured service personnel and give them every support. My right hon. Friend the Secretary of State for Defence regards that as a high priority in the Ministry of Defence and throughout the world, as I know not least from a conversation that I had with him yesterday. However, it is not appropriate for the hon. Gentleman to imply that one party has a monopoly of caring about the armed forces.
Orders of the Day
Companies Bill [Lords]
[3rd 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 15
Duty to provide information about exercise of voting rights
‘Institutions to which section 1241 applies shall publicise on their website, in relation to each opportunity that they have to exercise voting rights attached to shares to which that section applies, whether or not they have exercised such voting rights.’.—[Mr. Djanogly.]
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.
With this it will be convenient to discuss the following amendments: No. 434, in page 603, line 22, leave out clauses 1241 to 1244.
No. 435, in clause 1241, page 604, line 4 at end insert—
‘(7) Regulations under this section shall be subject to public consultation prior to publication, and shall be the subject of a cost benefit analysis.’.
As we begin the third and final day of Report on the longest Bill ever produced, I want to make a few brief remarks. Unfortunately, an urgent engagement requires me to leave the debate shortly before Third Reading, but my hon. Friend the Member for Rutland and Melton (Alan Duncan), the shadow Secretary of State, will step in. I should therefore now like to thank my advisers and researchers, who have been magnificent, and the Committee team, especially my hon. Friends the Members for Putney (Justine Greening) and for Hornchurch (James Brokenshire)—he joins me today—who made their impressive debuts at the Dispatch Box yesterday.
We have experienced problems with programming and some points of principle. However, progress has been made in a generally good spirit of co-operation with Ministers and we are pleased that many of our points have been fully addressed. All in all, we believe that company law will take a step forward through the Bill.
The new clause and amendments deal with information on the exercise of voting rights by institutional investors. The Bill compels institutional investors to provide information about the exercise of voting rights. On Third Reading in the House of Lords, my noble Friends and Liberal Democrat Members excluded clause 1241 on a vote. However, the Government reintroduced clauses 1241 to 1244, albeit in slightly amended form. Unfortunately, they did not allow proper debate of clause 1241 in Committee and we are therefore left to discuss it on the last day.
The amended clauses deal with some of the technical difficulties that have been brought to our attention. For example, they tackle aggregate voting provisions and allowing only the top fund to make the disclosure if an institution holds shares in a company through more than one fund. The provisions have polarised opinion. On one side stand the CBI and many institutional investors who resent being forced to disclose how they vote, and on the other stand the Government, who frequently appear to be taking orders on clause 1241 from the trade unions.
I am interested to hear where the hon. Gentleman and the Opposition stand on this matter.
If the Minister will give me half a chance, I will certainly come to that.
The Government have not listened to the overwhelming consensus in the business and financial communities. They have reintroduced the clause, yet they have not taken the time to carry people with them by considering a suitable compromise between the two sides that would suit all parties. I am at a loss to understand why the Government have been so last minute with these provisions. It is therefore essential that important stakeholders’ views be heard on the general principles behind the clauses. We have received comments from organisations such as the Association of Investment Trust Companies and the Investment Management Association.
A number of other stakeholders are also against the introduction of the clauses, including the CBI, whose October briefing states:
“At House of Commons Committee stage, we opposed the re-introduction into the Bill of provisions or powers to require mandatory disclosure by institutional investors as to how they have exercised their voting rights. CBI members accept that there can be practical problems involved in exercising voting rights by some investors but consider that much has been achieved in recent years by market participants working to resolve the problems. Disclosure of voting is an area where several institutional investors are already disclosing their actions and so we do not see the regulatory need for these Bill provisions. In the absence of deletion of these provisions”—
as is proposed by amendment No. 434—
“there should be full public consultation on any proposal to implement any proposals under the powers taken”
in the Bill. That is what we are proposing in amendment No. 435.
This request has also been made by the Investment Management Association, which states that the reintroduction of the clause as drafted would run counter to the Government’s aim of reducing Government red tape. The IMA, while supporting transparency, believes that it would be counter-productive to make this the subject of statutory regulation. The IMA’s briefing sets out the reasons why the new clause should be opposed:
“The voluntary system is working and increasing numbers of managers are making certain of their voting records public.”
The briefing provides a lot of statistics to back that up, stating that many more managers than in the past are making their voting records public by putting details of how they have voted on their websites, and that mangers such as Fidelity Investments and, recently, Hermes have also stated their intention to do this. It goes on:
“All this clearly shows that the ‘culture of secrecy’ in the asset management industry that some have claimed exists, does not.”
The IMA is also concerned that
“a ‘one-size-fits-all’ requirement would undermine progress. As well as looking at the number of managers that disclose, the survey analysed voting details published on web-sites. This showed a wide variation in the matters reported, indicating the complexity of this matter and the difficulty of introducing regulations that would require uniform disclosure. In effect, imposing a ‘one-size-fits-all’ legislative requirement would undermine the progress made to date.”
The IMA also believes that the
“introduction of an enabling power could bring this voluntary progress to a halt. Managers considering public disclosure would face the dilemma that if they went ahead in advance of regulation they could face the expense of completely changing their systems, and incurring costs all over again, when regulations are introduced. A number have already told us that they have shelved disclosure plans for this reason.”
The IMA states that
“Government-mandated disclosure would be costly. The Regulatory Impact Assessment published with the draft clauses…addressed the ongoing costs of disclosure. It did not address the costs of: setting up systems; determining whether voting rights have actually been exercised; vetting the information; and monitoring compliance with legal requirements. These costs are likely to be significant.”
As we can see, the IMA has made some serious points.
The Association of British Insurers believes
“that the principle of transparency is right. Market forces are, unsurprisingly, supporting the development of voluntary transparency in this area and reflecting this, major institutional investors including ABI members…are all making their voting information public.”
However, the ABI also believes that
“the costs of legislating in this area have been underestimated and since statutory rules would impose a very significant regulatory and compliance burden that would dwarf any benefits. Indeed, it would be likely to lead to less considered voting, as resources are devoted to legal compliance or to the outsourcing of both decision-making and disclosure functions. The possibility of introducing future requirements under the reserve powers of the Bill could deter those companies seeking to voluntarily disclose voting information.”
There is a growing movement among many in the investment management community voluntarily to disclose how they vote. Hermes, one of the country’s largest and most successful fund managers, has now taken this step. It is the 12th UK fund manager to decide to publish its entire voting record at annual shareholder meetings, and many others have also done so.
The Conservatives welcome this voluntary disclosure. We are in favour of business moving towards greater transparency of its own accord, rather than of the Government issuing edicts from on high as to how investment managers should act. Self-regulation from the bottom up will always be more effective than forced regulation from the top down in this complicated area. The Conservatives fully support transparency from institutions, towards their own investors and towards third-party stakeholders. We welcome the sector’s move towards voluntary disclosure and encourage it to go further. An open and transparent institution is likely to be a successful one, but if an institution wishes to maintain secrecy with its investors, that should be its choice, and we should respect that. People do not have to invest with it.
A good middle view on this matter was put forward by the ABI, which has stated:
“The proposed clauses provide sweeping and ill-defined reserve powers which provide little, if any, intimation of their purpose or of their justification of being in the public interest. They are targeted in a discriminatory way, imposing duties on certain types of shareholder whilst leaving others unaffected. This is a violation of the principle of equal treatment of all shareholders.”
The ABI goes on to state:
“For example, the clauses do not apply to important categories of investor such as hedge funds and overseas holders. Their stake is nowadays frequently as large, if not larger, than that of traditional UK institutional investors. If the latter should disclose their voting record in the public interest, then surely this should be an obligation on the former. As the requirement is constructed, it appears to be UK institutions and their clients who will have to bear the costs of disclosure…Furthermore, the clauses as drafted would require disclosure by fund managers even when they are passing on voting instructions on behalf of their clients. Where these clients have different views the fund manager’s public disclosure would show that it gave instructions to vote for, against or abstain on the same resolution. It is evident that disclosure of this nature will frustrate the presumed purpose of these provisions, to inform those with an interest in a particular fund how the shares in which they have an actual interest have in fact been voted.”
The ABI briefing goes on to state:
“Clause NC433 (4)(a) allows any person to whom disclosure should be provided to institute civil proceedings if this does not happen. If it is intended that the obligation will be to publish information, this means that any member of the public would be able to instigate legal action against a shareholder or fund manager even though that member of the public has no interest in the shares in question.”
The ABI concludes:
“The practical effect of introducing regulations is likely to be to reduce the quality of institutional shareholder engagement with companies—a process which can add real value to the beneficiaries’ holdings. Institutions will become less concerned with considered voting as their resources are switched instead to compliance with these complex disclosure requirements. There will be an increase in outsourcing of voting decisions to proxy lodgement agencies, and in some cases, a decision to refrain from voting as a conscious policy in all but exceptional circumstances.”
That is pretty forthright stuff.
Let us be clear: what we are being told by those independent bodies that represent people in the industry is that the effect of the Government proposals will be fewer institutions being likely to vote so that they do not have to disclose how they voted or intend to vote.
In addition to transparency, an important issue, which is not covered by these clauses, is participation. We in the Conservative party very much want to encourage institutions to vote and participate. That the effect of these Government provisions could be to replace participation with non-voting is, to our mind, a potential disaster. In reality, the Government are addressing the wrong issue with these provisions. Our amendment would reconcile those views and find a middle way.
As we have made clear, the Government’s threats of compulsion are cack-handed and over-regulatory. Accordingly, we have tabled new clause 15, which seeks a compromise that would be acceptable to all parties. We support institutional investors having to disclose whether they have voted, rather than how they have voted, although, as I have said, we support more institutions declaring voluntarily how they have voted, after the event.
That is why the amendment would require institutions to publish whether, rather than how, they had voted. That in turn would enable institutions to show engagement in the companies in which they invest. Individuals and larger funds whose moneys are managed by those institutions could take more part in running the company that they part own. The cause of shareholder democracy would be advanced in a non-heavy-handed manner, whereas if the provision is left as it is, there will be a real danger that some institutions do not vote at all to avoid having to disclose how they would have voted.
We believe that that would defeat the purpose of the clause by preventing institutions from engaging with companies, so we take this opportunity to warn the Government that this potential disaster is what we shall face if the clause is left intact. Over recent days, the Minister seems to have been saying that if the institutions continue to move towards voluntary disclosure, the clause might not be needed and might not be enforced by the Government. We have to say that that threat approach is counter-productive, and indeed sounds arrogant to those who are subject to its provisions.
I hope that the Government will now see reason on those provisions and simply get rid of them, as proposed through our amendment No. 435.
It is true that a number of legitimate concerns have been raised about the practicalities of introducing institutional disclosure in the way proposed in the Bill. The Liberal Democrat team in the House of Lords thought those practical problems serious enough to raise the question of whether these powers should be supported at all.
On Second Reading, my hon. Friend the Member for Kingston and Surbiton (Mr. Davey) said that, on further reflection, our view is that there is a case for the reserve powers, but only if the Government make it clear that they will not go for a one-size-fits-all approach and that they will consult carefully with the industry before introducing any regulations under the powers that the Bill will grant.
To put it briefly, our view is that it would be highly preferable if amendment No. 435 were agreed to, because it would make it clear that there would be consultation with the industry and careful consideration of the costs and benefits before any regulations were introduced using the new powers.
In those circumstances, we believe that the fear expressed by the hon. Member for Huntingdon (Mr. Djanogly)—simply having the reserve power will result in fewer institutions moving towards voluntary disclosure—is misplaced. We believe that as long as the industry is reassured by the Government, preferably by the amendment being accepted, although the Minister could attempt it in other ways, further progress towards voluntary disclosure will continue.
The question laid down by the hon. Member for Huntingdon is, why have the reserve powers in the first place? The answer is that it is perfectly legitimate for the Government to take the view that there will be institutions and institutional investors that follow practices that are not as transparent as others, and that there might come a time when, to provide a level playing field for the whole industry, some regulation is necessary.
I hope that that time does not come and that the Government will use the powers that the Bill will grant them in a way that helps the industry to move further, although we recognise that there is a legitimate case for those powers as they stand.
I am interested in what the hon. Gentleman is saying. Does he envisage the majority of institutions following a voluntary procedure and it then becoming necessary to force a minority to come on board with disclosure, or does he think that perhaps two or three large institutions will continue to refuse to disclose when the rest are disclosing? Would that be acceptable to him?
To make things clear, I should say that I envisage there perhaps being some recalcitrant institutions, which it would then be necessary to coerce. I was about to say that the exact shape of the regulations needs to take into account industry practice, so even if it is proposed, at some stage, to coerce the final few, it will be much better if the Government draw on the experience of the industry as it has developed in the intervening period.
I hope that the Government do not evince an intention to use the regulations early. They need to consider the practice of the industry and to use that practice as a way to shape any regulations that they are thinking of introducing.
I must say first to the hon. Member for Huntingdon (Mr. Djanogly) that this is not a last-minute idea. These provisions were in the Bill when they were introduced, but were overturned in the House of Lords. We reinstated them in Committee. They have been part of the Bill from the start.
I have to say further, to all hon. Members, that a theme running through the Bill is our attempt to ensure better shareholder engagement. We think that this is part of it. The hon. Gentleman, in a very lengthy contribution, quoted every business organisation he could—the CBI, the ABI et al—and I found it extremely difficult to work out whether he was working in the spirit of what his leader said. Whether the hon. Gentleman was standing up for business or was willing to stand up to it in the interest of shareholders; I could not get it at all.
On the other hand, the contribution made by the hon. Member for Cambridge (David Howarth) was perfectly valid, and I hope to give him the undertaking that he wants. We want a practical scheme and we want to ensure that we do not have a one-size-fits-all approach. We also want a proper cost-benefit analysis and consultation, although not in the terms of the amendment. This is a good move—a reserve power that will not allow again, in the words of the hon. Member for Huntingdon, an institution that wants to maintain secrecy to do so. We do not think that is appropriate. We would rather back shareholders in this instance.
There are people who appear to oppose transparency of voting on principle. That seems to me pretty fundamental, so it was good that Lord Hodgson said in Committee in the Lords that
“shareholders whose shares are held through nominees or are managed on their behalf are entitled to know what is being done with the shares that they own.”—[Official Report, House of Lords, 25 April 2006; Vol. 681, c. GC69.]
I could not agree more. They are entitled, which means that the entitlement goes to the shareholders, not the companies. Nor is that an isolated view. The hon. Member for Huntingdon talked about a number of business interests, but John Bogle, the founder of the $500 billion Vanguard funds group, has said:
“Vanguard’s founding principles stand for the simple proposition that it is the duty of an agent to faithfully serve his principal…Viewed in this light, it would seem self evident that each Vanguard Fund shareholder has the right to know how the shares of the corporations in his or her portfolio are voted”.
The two examples given by the Minister relate to the relationship between the institution and the people investing in it, but the concerns relate more to the third parties who want to see the institution’s policies.
I do not follow that argument. Those third parties who act on behalf of shareholders in relation to institutions have such a right. Is the hon. Gentleman willing to rephrase his point?
My point is that there is a difference between information that an institution gives to people who invest in it, and information that an institution puts on its website for third parties.
I do not follow that that has an impact.
To elaborate further for the Minister’s benefit, the problem that many institutions have is not with disclosing information to people who invest in it but with having to disclose information to third parties.
I find that rather a tenuous point—[Laughter.] The hon. Gentleman laughs, but if institutions have chosen to vote in a particular way on a particular issue, I can see nothing wrong with that being open. I will deal with some of the concerns that he expressed about how openness on voting intentions or voting record, which are among the practical issues that we need to address, might lead institutions to choosing not to vote or making secret deals, which appears to be his line of argument.
Is not another argument that many institutions, such as pension funds, are very big, and it would be much cheaper for them to put the information on their website for those who are interested, rather than having to go back to all the investors in that institution?
Indeed. In discussions that we had about information being given by companies to indirect shareholders, the companies made it clear that they preferred to use e-information channels. I suppose that the hon. Member for Huntingdon would make a distinction between reports and accounts and, for instance, information on voting on particular resolutions. I cannot, however, follow the qualitative difference between the two that would lead to secrecy on one and openness on the other. I therefore agree completely with the intervention of the hon. Member for Angus (Mr. Weir).
The important principle of openness must be underpinned by clear benefits. What are the benefits? First, it can only increase the confidence of savers in the governance being exercised on their behalf by institutional investors, that they are engaging with companies and that they are doing that well.
Secondly, greater transparency makes institutional investors more accountable for the governance decisions that they make on behalf of savers, providing stronger incentives to cast votes and to do so thoughtfully. It will put more pressure on institutional investors to explain their decisions. That cannot be a bad thing. The hon. Member for Huntingdon used the argument—I cannot remember whether it was from the ABI—that this would encourage uninformed voting decisions. How can that be right? An institution that chose to vote unthinkingly would be exposed to ridicule. Why would it choose to do that, when delegating decisions to a fund manager or using a voting advisory service are simple options to ensure considered voting?
Thirdly, greater transparency will help institutional investors manage potential conflicts of interest arising from voting decisions, thus deterring decisions that might benefit the institutional investor rather than savers. Such conflicts can influence behaviour. Research by the university of Michigan using data acquired under the American disclosure rules found that business ties between the institutional investor and a company made it more likely that the investor would vote with the company’s management. That is natural, but not right, and transparency would reduce that risk.
Fourthly, greater transparency enhances shareholder engagement between institutions and investee companies, which is one of the key objectives of the Bill. Again, it has been argued that that will harm behind-the-scenes engagement. Of course, some discussions are more effective behind closed doors. But if a company knows beforehand why an institution is not supporting a resolution, how does disclosure after the fact of the vote cause damage? And if it did so, why are a dozen major UK institutional investors, including institutions such as the Pru and Standard Life, making voluntary disclosures of their voting records?
Of course, there are important issues to deal with in designing the disclosure regime. I accept that it must be cost-effective, and we are confident that it will be. The disclosure data in question are already available, as required by the industry’s own best practice guidelines. Institutions that already publish voting records, such as Co-operative Insurance Services, confirm that the costs are not excessive, and John Bogle said that they were a “drop in the bucket”. That might be why there is a strong existing trend towards voluntary disclosure, which the hon. Member for Huntingdon accepted. In the UK, of 35 major fund managers, the number making voluntary disclosures has increased from two in 2003 to 10 in 2005, and two more have now joined them. Alternatively, the reason might be pressure from clients. A recent survey among pension fund trustees found nine out of 10 agreeing that fund managers should publicly disclose their votes.
I am also encouraged by the growing number of international precedents. The US in 2003, followed by Canada, have mandated voting disclosure. In the US, that covers 3,700 mutual funds with approximately $2 trillion of investments, and it has been implemented without the dire consequences that the hon. Member for Huntingdon predicts for the UK. Action is also being contemplated in South Africa and France.
During the passage of the Bill, it has been interesting to note that fewer people are saying that disclosure is wrong in principle. I do not think that the hon. Member for Huntingdon is saying that. Increasingly, people are saying, “It’s a good thing, but you don’t need the power, it’s going to happen anyway”. Even the industry may be moving that way, if the vigorous debate on a voluntary disclosure regime is anything to go by. But the argument goes the other way. If it is going to happen anyway, why is there all this angst about taking a power? The positions adopted by the Opposition and others are inconsistent.
In the Government’s view, taking the power is still necessary. While we are keen to see how market practice evolves before considering a mandatory regime, we need back-up if the voluntary movement does not deliver. Of course, there will be a full consultation and cost-benefit analysis, and parliamentary approval through the affirmative procedure, to ensure that any mandatory regime is proportionate. The case for disclosure of voting is clear. We want to work with all stakeholders to make sure that we achieve that sensibly and practically, at least cost. This power lets us do that, and I ask the hon. Member for Huntingdon to withdraw his amendment.
Amendment No. 435, to which the hon. Member for Cambridge referred, would require the Government to consult and undertake cost-benefit analysis on regulations. I have already made clear that we will do that. Do we need a provision in the Bill that tells us to do that? Our view is that we do not. Consultation on such proposals is in line with normal practice and Government guidance. We have made a formal commitment—I have done so today two or three times—to full public consultation. In the circumstances, we think it unnecessary to introduce such a requirement in the Bill. I note that an amendment in the other place that would have had a similar effect was withdrawn after the Government gave their assurance.
New clause 15 would require the institutions to which the disclosure applies to disclose on a website whether they had exercised voting rights attaching to shares. They would have to make the disclosure in respect of each opportunity to exercise such rights. The new clause suggests that we share common ground on the principle of introducing provisions governing institutional investor voting, and we welcome that acknowledgment. We also agree with the logic behind the requirement for website disclosure. As was suggested by the hon. Member for Angus, that may be the best way of ensuring that disclosure is cost-effective. However, the new clause interacts with clauses 1241 to 1244, and two problems may arise.
First, the new clause makes compulsory the disclosure of certain information on the exercise of voting rights. That means that the Government would not have flexibility to adjust the requirement—as suggested by the hon. Member for Cambridge—even if that was supported by the results of consultation and analysis. Secondly, in the absence of clause 1244, the new clause would limit disclosure to whether or not voting rights had been exercised. The Government would not be able to require the disclosure of information about how the votes had been cast. That would prematurely restrict the scope of the Government’s flexible enabling power before we had consulted on the best way in which to achieve a proportionate disclosure regime.
I believe that the knowledge of how votes were intended to be cast is important to understanding how the institutional investor is exercising ownership responsibilities. However, I do not want to prejudge the outcome of the consultation to which I have committed us.
I do not consider the new clause, as drafted, to be appropriate. I hope that the hon. Member for Huntingdon will not press it or his amendments to a Division, and that he will support the more flexible and principled route that the Government have taken.
The Minister’s final comments suggested that she accepts the principle behind new clause 15 as long as there can be consultation beforehand. Perhaps she will come up with some suggestions to be dealt with in the other place.
Of course we in the Conservative party wish to encourage transparency. I said that quite clearly, and I think the Minister acknowledged it. I also think we have both acknowledged that the industry is moving in the right direction without the need for a Bill. Although I disagree with none of the Minister’s reasons for saying that institutions should be open, we do not feel that they should be forced to accept the provisions of clause 1241. The Minister mentioned shareholder engagement, and I tried to explain earlier why we think the clause could damage that. Institutions that must say how they voted and do not wish to do so will simply not vote. The impact of the clause could be purely counter-productive.
We note that the Liberal Democrats have become a little less forthright in their opposition to the clause than they were in the other place or in Committee. Having said that, I note their support for amendment No. 435, which I wish to press to a Division.
I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.
Clause 1241
Power to require information about exercise of voting rights
Amendment proposed: No. 435, page 604, line 4, at end insert—
‘(7) Regulations under this section shall be subject to public consultation prior to publication, and shall be the subject of a cost benefit analysis.’.—[Mr. Djanogly.]
Question put, That the amendment be made:—
Clause 1245
Disclosure of information under the Enterprise Act 2002
I beg to move amendment No. 740, in page 606, line 10, after ‘Kingdom’ insert ‘or elsewhere’.
With this it will be convenient to discuss the following amendments: No. 436, in page 606, line 10, after ‘Kingdom’, insert
‘or, if such proceedings relate only to intellectual property rights, in any jurisdiction’.
No. 437, in page 606, line 35, leave out
‘annulment in pursuance of a resolution of either’
and insert ‘affirmative resolution of each’.
No. 438, in page 606, line 36, at end insert
‘and after prior public consultation on the terms of a draft statutory instrument’.
The amendment will permit disclosure to be made for civil proceedings overseas. In Committee, I agreed to consider a useful proposal made by the Opposition to allow disclosure for overseas proceedings by intellectual property rights holders. I agreed to consider this, as I recognised that brand owners and those with an interest in intellectual property rights would have a particular interest in enforcing their rights overseas. However, the disclosure provisions in clause 1245 have been drawn up on the basis that business and consumers are treated equally. Therefore, I asked my officials to discuss further with a range of stakeholders whether we should amend the clause to enable disclosure for overseas civil proceedings with respect to business and consumers and not just limit it to IP rights holders.
In general, the feedback from our consultation with stakeholders was positive in supporting disclosure provisions for overseas civil proceedings for business and consumers, and we agree with that view. Consumers are increasingly likely to purchase goods and services from overseas, so it makes sense to allow them the information that they need if they choose to seek cross-border redress. I recognise that businesses have some concerns about widening the gateway, but I simply point out that, as with the existing gateway for overseas disclosure, we have excluded from what may be disclosed sensitive information provided in connection with competition inquiries.
On the basis of that explanation, I hope that amendment No. 740 will be accepted, so we will not need to consider amendments Nos. 436, 437 and 438.
Moving on to the disclosure of information under the Enterprise Act 2002, I shall speak specifically to amendments Nos. 436, 437 and 438. The amendments come from the CBI and are put forward on a probing basis. The proposed new section 241A in clause 1245 provides wide powers to amend part 9 of the 2002 Act in respect of all kinds of legal proceedings. That is because, in Committee, the Government wanted to include consumer rights within the gateway. The CBI opposed that, but there was general agreement that part 9 should extend to information concerning intellectual property rights and proceedings to counter the ever-increasing problems of counterfeiting and piracy.
The CBI also told us that it strongly opposes any further reform that would weaken the part 9 safeguards and seriously undermine business confidence in the arrangements provided for in the Enterprise Act 2002. The consumer and competition enforcement regime rests on the fact that a wide range of information is provided to public authorities by business on the basis that it will not be disclosed. In general, the gateways work well and there is no justification, the CBI says, for making any wider changes than those needed in respect of infringements of intellectual property rights where genuine problems have been identified.
Proposed new section 241A(1)(b) requires amendment so that it refers to intellectual property proceedings “in any jurisdiction”—not limited to the UK. It is often the case that counterfeits found on the UK market have been imported. For brand owners to take effective action to reduce the trade in counterfeiting and piracy, they need to be able to pursue everyone in the supply chain, including the manufacturer. That may involve criminal, administrative or civil action, depending on applicable local laws. It is also essential to be able to use such information to feed the worldwide intelligence-gathering exercise that is required. However, exclusion of the limitation to the UK is needed only in respect of information relation to IPR proceedings where there are specific international problems and obstacles to pursuing counterfeiters resulting from the fact that information gained in this country cannot be disclosed overseas. That is not the case in other areas, and the CBI strongly opposes any lifting of the limitation on overseas disclosures in other circumstances.
As the Minister said, she took our comments into account in Committee and undertook to discuss the issue with stakeholders over the summer. She has just told us that that is what happened. We therefore take note of Government amendment No. 740. If an amendment is to be made, however, we point out that some organisations, such as the CBI, wish to limit the provision to intellectual property rights, as suggested in amendment No. 436.
We firmly believe that the secondary legislation proposed in clause 1245 should be subject to full prior public consultation and to an affirmative resolution in both Houses—rather than the negative resolution currently proposed—to ensure full debate and parliamentary scrutiny. Will the Minister tell us the level and type of consultation that she intends to undertake on these provisions?
Briefly, we take the same view as we did on the previous group of amendments. In principle, we favour the Government view on extending the permission—it is only a permission, not a duty—to disclose information in civil proceedings abroad in favour of consumers, rather than just litigants in intellectual property disputes. That strikes us as right in principle. The hon. Member for Huntingdon (Mr. Djanogly) has a point about the importance of proper consultation on the detail of any regulations, but we accept that the result of such consultation will be very similar to the consultation undertaken over the summer on these very provisions. We take the Government’s rather than the Conservatives’ view on that.
This is the second group of amendments on which I have to tell the Conservative Opposition that they are increasingly sounding as though they are standing up for business rather than standing up to it on behalf of consumers. We have proceeded as we have because the provisions are not just about how businesses can get information, but about how consumers can secure the information that they will need to seek redress. The breadth of our consultation over the summer with all stakeholders—we talked to business organisations, consumer representatives and enforcers—led us to believe that while business had its own perspective, a more balanced view should include consumers among those who have the right to information for redress. I wish that the hon. Member for Huntingdon (Mr. Djanogly) would withdraw his amendment on that.
I wish that the Minister had listened to what I said. I clearly stated that the amendments were proposed on a probing basis and I explained that they were based on representations that we had received from the CBI. I believe that the CBI has as much right to be heard on this matter as anyone else. If others had provided comments, I would have ensured that they were discussed as well. I think that the Minister should accept my comments in that light.
I hear that, but I have to tell the hon. Gentleman that it provides an interesting comment on the trust that people generally have in the Conservative party when only business interests make representations to it and other interests do not. I ask him again to reflect on whether he is standing up for business or standing up to it.
Amendment No. 438 deals with giving stakeholders the opportunity to comment on the detail in respect of secondary legislation. I give a commitment today that we intend to speak to all interested parties— representative of business, consumers and enforcers—before we draft the order. Following that, we will have a normal, short public consultation. As with the relevant amendment in the previous group, it is unnecessary to build a requirement for public consultation directly into the Bill.
Amendment No. 437 was discussed in Committee, in the other place and again in the House, but I have not changed my view. Negative resolution is consistent with the other order-making powers in part 9 of the Enterprise Act 2002 that may be used to provide for wider disclosure of information. There is no good reason to distinguish between those powers and this power. I therefore urge hon. Members to support Government amendment No. 740 and resist amendments Nos. 436, 437 and 438.
Amendment agreed to.
Clause 521
Offences in connection with auditor’s report
I beg to move amendment No. 439, in page 251, line 28, leave out ‘knowingly or recklessly’ and insert ‘dishonestly or fraudulently’.
With this it will be convenient to discuss the following: amendment No. 440, in page 251, line 32, leave out ‘knowingly or recklessly’ and insert ‘dishonestly or fraudulently’.
Government amendments Nos. 447 and 448.
Amendment No. 684, in clause 503, in page 243, line 22, at end insert—
‘(4A) With the exception of the audit fee, an auditor or auditors of a public company must not be a party to any transaction in the financial statements.’.
Amendment No. 686, in clause 505, in page 244, line 7, at end insert ‘, and
(c) they serve a maximum of five consecutive years’.
Amendment No. 759, in clause 509, in page 246, line 17, at end insert—
‘(2A) The auditor’s report must be accompanied by a statement stating the regulatory action, if any, taken against the firm or any member of the audit team during the preceding five years, together with the outcomes.’.
Government amendments Nos. 213, 225, 449 and 519.
In speaking to amendments Nos. 439 and 440, I return to the subject of the auditor offence proposed in the Bill. At this point, I declare an interest: I am a chartered accountant, as I pointed out yesterday, and I spent my formative years as an accountant auditing a wide variety of companies, many in Britain and some in other European countries.
Clause 521 will enable an auditor to be prosecuted if he or she has acted knowingly or recklessly to cause
“a report under section 509…to include any matter that is misleading, false or deceptive in a material particular”.
In Britain, about 700,000 audits are carried out annually. To my knowledge, they are carried out professionally, and largely show no indication of behaviour by auditors that would need to be tackled by the proposed new criminal auditor offence. As my hon. Friend the Member for Huntingdon (Mr. Djanogly) noted yesterday, we have debated the proposals not only in the House, but at a breakfast briefing in the City last week. At that event, I challenged the Minister for Industry and the Regions to tell us how many auditors she believed would be prosecuted under the new offence. I hesitate to put words in her mouth but, from memory, she suggested that there would be only one or two auditors whose behaviour would have to be dealt with via the offence. That sounds like taking a sledgehammer to crack a nut, especially given the existing law on negligence and fraud.
Can the hon. Lady tell us from her experience as a chartered accountant whether any malfeasance by an auditor, whether reckless or not, ever comes to light unless the company goes belly-up and flops? Was there reckless behaviour in Andersen’s audit of Enron in the United States?
Generally, shareholders and the company would have redress if they felt that an audit had not led to an accurate audit opinion. The Enron case was in the US jurisdiction rather than in the UK, so it is probably not appropriate for me to comment on it in the UK Parliament.
The Opposition are not convinced that a fresh offence is necessary.
Does not the hon. Lady accept that “knowingly or recklessly” is a fairly high level for an auditor to reach? We are not talking about mere carelessness or mistakes; an auditor would have to do something, or deliberately not disclose something, that was of material importance to people relying on the company’s accounts, for investment or other purposes. The barrier is high, so does she accept that for a few cases it may be necessary?
If the hon. Gentleman makes a contribution to the debate, perhaps he could mention any cases that were not prosecuted, but would have been if the new offence were in place. The proposed auditor offence actually lowers the bar for the prosecution of auditors. They can already be prosecuted under the existing negligence and fraud laws.
In addition, we have concerns about how the offence will work in practice, especially its impact on the broader audit process and, consequently, on business and the economy. The offence necessarily lowers the threshold for the prosecution of auditors and in doing so will have negative consequences for the whole of business and the audit profession.
Can we clarify the fact that no criminal offence of negligence is involved? There is civil liability for negligence in very limited circumstances. We are talking about what criminal offence should be added to a difficult aspect of civil liability.
I take the hon. Gentleman’s comments on board, but the Government clearly want to broaden the ability to prosecute auditors. My concern is that that will have negative consequences for business and audit that are disproportionate to the number of offences that will be prosecuted under the new provisions. That is important, first, because more audit opinions will be qualified. Auditors will require a significantly higher risk threshold to be passed before they can be comfortable in stating that accounts are true and fair. For some companies—in respect of going-concern issues, for example—the provision could be a self-fulfilling prophecy if auditors are forced unduly to highlight such matters by qualifying an audit report when, in reality, they might have been perfectly happy with assurances from management about the going-concern nature of the company. In fact, we are putting at risk the fine judgments made by auditors, because instead of looking at the facts in front of them, they will constantly be looking over their shoulders at the offence.
Secondly, audits will take longer because more issues will need to be followed up, and in more detail. I note that later amendments propose that filing time limits for some companies should be shorter. The offence would put considerable strain on the potential for that. At present, when auditors come across a matter that seems to be unusual or anomalous, they have to make a judgment whether, and to what extent, they should follow it up.
The hon. Lady seems to be following the line of argument that she took in Committee, but at that stage the Minister reassured us that “recklessly” meant knowingly taking an unreasonable risk, and knowing about its unreasonableness. In those circumstances, I cannot see how the concerns that the hon. Lady raises are still valid.
In Committee, we argued about the fine legalities of the meaning of the offence in relation to existing law. I am not going back down that track; I am trying to get more information from the Government about the cost of the offence to business and the audit profession.
I was talking about the decisions that auditors may need to take about following up an anomalous matter. If they believe that the matter is immaterial, they may take no further action and will continue with the remainder of the audit. However, there is no doubt that once the new offence is in place, such immaterial issues will be chased up—just in case. Audit companies will not take the risk of being accused of not following up something that may subsequently become a material issue. That will take more time, but it will also take more resources, so my final point about the effects on the audit process is that audits will be more costly because audit work will need to be broader to prove that all anomalies discovered—not just potential material anomalies—are followed up adequately.
The hon. Lady’s point about following up matters that would not previously have been pursued applies to the lower test of negligence, not to the higher test of knowingly or recklessly doing something criminal. Her point is aimed at a different civil liability.
Again, Members seem to misunderstand my argument. Even if the hon. Gentleman is right, is it therefore appropriate that we should take action that leads to incredibly increased audit costs for businesses—large, medium and small—when there is apparently nothing for auditors to worry about because, in his mind, there is only a small risk of their being prosecuted? In reality, the audit profession and business will find that they cannot accept even that small risk.
To prove that someone has behaved recklessly, it is necessary to show that the auditor was aware that an action or failure to act carried risks, that they personally knew that the risks were not reasonable ones to take, and that, despite knowing that, they went ahead. Why does the hon. Lady not want such people to be prosecuted?
People who are prosecuted are not always found guilty and the provision may well lead to spurious cases that put reputations on the line. The judgment as to whether the auditor’s judgment about whether he or she knew that a risk was unreasonable will be made by the courts, rather than by the auditor as at present. Can Ministers name one case that they believe should have been brought to court, but which was not because this offence did not exist? We would all be interested to hear which cases they feel have not been dealt with as a result of not having this law in place. I did not receive an answer to that question on Second Reading or in Committee. Perhaps I will finally get an answer today. The danger is that very few—if any—prosecutions will be brought. At the breakfast briefing last week, the Minister for Industry and the Regions seemed at pains to stress that the offence would be rarely used, and yet the ramifications for business and the audit profession could be broad.
The hon. Lady asked for an example. I wonder whether the Department of Trade and Industry report on the performance of Coopers and Lybrand as auditors in the Maxwell case might provide her with a convincing one. The evidence cited was that the senior partner at Coopers and Lybrand summed up the strategy when he told his audit staff:
“The first requirement is to continue to be at the beck and call of R.M.”—
Robert Maxwell—
“his sons and staff, appear when wanted and provide whatever is required”.
Was he therefore recklessly conceding to the wishes of Maxwell?
The hon. Gentleman raises another potential problem with the clause as it is drafted, to which I will come later. Frankly, I do not think that it is for Members to interpret what that Coopers and Lybrand partner was saying. One of the amendments that the hon. Gentleman has tabled would mean that audit companies could only carry out the audit, and not provide any other form of service. Clearly, audit companies provide a whole host of services to their clients, ranging from due diligence to tax and IT. Who knows what the Coopers and Lybrand partner was talking about?
The hon. Lady has referred twice to remarks that I made at a breakfast meeting at which she and I were both present. I just want to put the record straight in the House. I said that, of the 700,000 or so audits that take place a year, most are carried out scrupulously by auditors, with diligence and honesty. However, that does not mean that we do not need an offence to assure ourselves that all audits are carried out scrupulously, diligently and honestly. Most people do not commit murder, but that does not mean that we do not have an offence on the statute book to prosecute people who do so. Her argument is spurious.
I would counter that the Minister’s argument is far more spurious than mine. The offence of murder does not change everybody else’s behaviour towards one another, but the proposed auditor offence will change the behaviour—[Laughter.] Hon. Members are laughing, as if knowing that there is an offence of murder is what stops law-abiding people from killing one another. I fail to see how that furthers the Minister’s argument in relation to the auditor offence. I am sure that she will try to come on to that. [Interruption.] The Minister is saying that it is a poor argument. I presume that she is talking about her own comments.
My final point about how the offence will affect the audit process is that audits will be more costly. Audit work will need to be broader to prove that all anomalies discovered—not just potential anomalies—have been followed up. Everything will get followed up. Those costs will almost certainly be passed on to companies—large, medium and small—placing additional unnecessary costs on them. I have a large number of small and medium-sized companies in my constituency and I know that they will not welcome the prospect of increased audit costs, which might put some of them at risk of going out of business.
In the other place, Baroness Noakes, who has a vast amount of experience in this area, said of the Bill:
“I believe the biggest impact will be risk-averse auditing and higher audit costs.”
She goes on to say, of auditors:
“Put simply, they will do more auditing, more documentation, more double review and more double checking. They would be fools not to do so.”—[Official Report, House of Lords, 10 May 2006; Vol. 681, c. 1028.]
We ignore the views of people such as Baroness Noakes at our own risk. I agree with her comments. Is that really what we want to achieve—an across-the-board raising of audit costs and risk-averse auditing for an offence that may capture only one or two, or perhaps several, rogue auditors?
I have great respect for Baroness Noakes, but after she made those comments we explored in greater depth the extent of criminality, as the hon. Member for Cambridge (David Howarth) has made clear. It appears that I satisfied the hon. Lady’s colleagues, as none of them is here to support her today. She should look at what Baroness Noakes said in the context of the issue having been more fully explored by us in Committee. I doubt that Baroness Noakes would say what she said then if she had heard our argument in Committee.
I have, of course, spoken with Baroness Noakes and she is pretty comfortable with her initial comments. The Minister did take some time to run through the Government’s rationale for this offence, stating that, in her opinion,
“Good auditors who behave honestly have nothing to fear.
But even having said that, when I asked about the issue of auditors occasionally making mistakes—given that they are human—and following up anomalies, she said:
“If he”
—the auditor—
“was in any doubt, the safest thing would be to check things through”.—[Official Report, Standing Committee D, 13 July 2006; c. 724-5.]
Surely that is the heart of the problem. That is why audit costs will rise if this offence is passed today. The Minister said so in Committee. Will she agree to assess the impact of this aspect of the Bill once we are, perhaps, two years into its operation, and will she agree to revisit the offence if it proves to lead to unnecessary and disproportionate rises in audits costs for businesses?
Moreover, to return to the intervention that was made by the hon. Member for Great Grimsby (Mr. Mitchell), given that audits are carried out by teams of people, ranging from the audit junior to the assistant manager, the manager, the director, and the partner, in practice it could prove difficult to establish which team member committed the offence. I presume that we could have a situation in which several auditors on a team would be prosecuted simultaneously because it was not clear where exactly in the team the “knowingly and recklessly” behaviour associated with the offence took place. In Committee, I expressed my doubts and said that that might be a fatal flaw. Before that is brushed off by the Minister, I refer again to the corporate manslaughter legislation, which had a fatal flaw and ultimately proved entirely ineffective in the courts because of that flaw, to the extent that the House—I think today—has had to set up another Committee to look at a fresh version of that legislation. Perhaps the Minister can comment on how she expects that it would be assessed which audit team member should be prosecuted. Does she expect that multiple prosecutions of team members might arise?
Before the hon. Lady finishes, I invite her to explore the meaning of “dishonestly or fraudulently” in her amendment. Does she mean by dishonest or fraudulent what fraud means in the Fraud Bill, which is that there has to be an intention to cause a gain or a loss—a gain, for example, for the defendant or a loss to the victim?
The hon. Gentleman brings me neatly on to what I was about to say. Amendments Nos. 439 and 440 would substitute the words “knowingly or recklessly” with “dishonestly or fraudulently”. They would thus prevent the litigation risk from being excessively increased for auditors, in line with his comments about alignment with our understanding of the concept of fraud in current law.
Although our amendments would leave an auditor offence in place, they would take away the negative by-products to which the clause as drafted will lead, such as companies having to put up with auditors over-auditing under the new law compared with what they would have otherwise done under the current law in order to be comfortable with declaring accounts to be true and fair.
Let me turn briefly to the other amendments that hon. Members have tabled. Amendment No. 684 would be unworkable. As I have said, audit companies provide a whole host of services for their clients, such as tax advice, IT systems consultancy, internal audit, due diligence work and regulatory filing work. The restriction suggested under amendment No. 684 would harm not only the businesses that clearly value the additional services that they engage audit companies to provide, but audit businesses themselves.
Amendment No. 686 proposes to limit auditors to serving a maximum of five years. Again, I would be concerned that the amendment would lead to added costs for companies and auditors because they would spend too much time on costly tender processes. New auditors have to take time to get to know client operations and doing that regularly would perpetually add unnecessary costs, prevent auditors from carrying out efficient audits on behalf of their clients and, dare I say, lead to the risk that auditors would be less able to spot that one anomaly that represented a major problem because they had not been involved with the company for as long as they ordinarily would have been. For small, medium-sized and large companies alike, that would add not only cost, but risk.
Amendment No. 759 would be unworkable and unfair. It would devalue the accounts of companies not involved in any dispute unnecessarily. It would also have an impact on large accounting firms with offices throughout the world. The corporate structure of such a body might be that a large accounting firm in Europe was merged with another firm in Asia. In such circumstances, it might well be impossible to say whether a regulatory action taken in one continent should be included in the report for an office not merged in the other continent. It would be difficult to make the amendment stick.
We are broadly happy with the Government amendments. Although we have already heard several interventions, I look forward to hearing hon. Members’ contributions to the debate and, of course, the Minister’s response to the issues that I have raised.
The problem that we face is due simply to a slip that a Minister in the House of Lords made when attempting to be helpful by describing the meaning of “recklessly”. That Minister was not a lawyer and his words caused the auditing and legal professions some anxiety about the Government’s intention in their use of the word. Whatever the Minister meant to say, the entire problem was cleared up in Committee by the Under-Secretary of State for Constitutional Affairs, the hon. and learned Member for Redcar (Vera Baird), when she said—as she repeated today—that “recklessly” was used for a thoroughly subjective offence because a risk taken must be unreasonable in the mind of the person taking it. If so, I do not think that the bad consequences identified by the hon. Member for Putney (Justine Greening) will follow.
If we are to understand the situation as it now stands, we must go back to the legal context of actions against auditors. There are two liability pressures on auditors in civil law: the auditor’s contract with the company; and the threat of a negligence action by other possible victims. An important aspect of the introduction of the new crime with which we are faced is that the Bill will reduce the contractual pressure that might be put on auditors. The Bill will, for the first time, allow auditors to contract to limit their liability to the company itself. Indeed, we will later debate amendments that challenge that very possibility.
The Bill will not allow auditors to limit their liability unreasonably.
That is correct, but the fact that it will allow auditors to limit their liability at all is a new departure. There will thus be a reduction in the contractual pressure on auditors.
Is the hon. Gentleman saying that he thinks that it is a good idea that auditors should be exposed to unreasonable liability?
I think that the hon. Lady is confusing the liability rule and the test in the Bill—they are quite different.
It is crucial to bear it in mind that the circumstances under which auditors can be sued in tort by third-party victims of negligent auditing are extraordinarily limited. The fundamental problem is the form of loss. Pure economic loss, as it is known in law, can be sued for only when the auditor has assumed responsibility to the victim of the particular negligent act. That usually means that no liability is found because the court thinks that the primary responsibility of the auditor is to the company, not to any third-party victims. The number of cases in which auditors have been found liable of negligence to third parties is very small. There will be little pressure—or less than there is now—on auditors from civil liabilities across tort and contract after the Bill has been passed. That is the context of the introduction of the new crime to try to rebalance the situation.
As we have heard, problems can be caused by audits that go wrong—the Enron and Maxwell cases have been raised. We must thus ask what form the new crime should take. The choice is between a knowing and reckless crime, and a dishonest and fraudulent crime. The difference between the two is not that which the hon. Lady described, because she fundamentally misunderstands the notion of recklessness. In one crime, the most important thing is the consequences for other people and the defendant’s state of knowledge about those consequences, while causing gain or loss is crucial for the other crime.
Given the circumstances in which problems arise in audit cases, it is not especially relevant to worry about whether auditors are dishonest in the sense of wanting to gain for themselves from a situation. The important point is the consequences for other people and whether an auditor unreasonably—subjectively unreasonably— took an unreasonable risk. Given the balance of the measures in the Bill and the fact that pressure on auditors is being reduced in some respects—the civil liability pressure on them is quite low anyway—the form of the crime that has been chosen is acceptable, especially given what the Minister has said on many occasions about the Government’s view of the meaning of the word “recklessly”. I will resist the Conservative amendments.
It is interesting to get a clear-cut opinion from the hon. Member for Cambridge (David Howarth), who is leading for the Liberal Democrats, at least on this issue, and an opinion in favour of the Government. I welcome that.
I was amazed at the case advanced by the official Opposition for their amendment. My view is that this part of the Bill is far too sympathetic to auditors, particularly the big four. I intended to call it “The prevention of cruelty to the big four and other endangered species”, until I saw the provision, which puts teeth into the Bill and which I warmly welcome.
The hon. Member for Putney (Justine Greening) presented a picture of the big four as paragons of virtue, always doing proper, efficient and effective audits—creatures without sin. In fact, they are powerful multinationals and they have a responsibility to review their operations and, where possible, to restrain them. They are not in danger of extinction. The Government have given them special protections in the Bill, including the effective capping of liability. They are huge multinationals rolling in money. Their combined global income is $70 billion a year. They audit 99 per cent. of the FTSE 100 companies—
I note that the hon. Gentleman’s comments relate to large audit firms. Does he have a view on how the Bill will affect small audit firms, which may have to pass on higher costs to small businesses?
It is certainly true that the main problems are caused by the big four. Their failures and their practices act as a slur on the entire accountancy profession and audit. However, the Government’s aim, and ours, is to achieve proper, effective audit. Audit is valuable, important and required by law, and it might require some increase in the costs of audit to make it as effective as it should be. That is a price that we should be prepared to pay for good audits, but my worry is that the big four do not provide a good audit because they are involved in a collusive relationship with companies. They are selling services to them and using audit as a foot in the door for the sale of other services. That is the import of our amendments Nos. 684, 686 and 759, to which I shall speak briefly.
The sale of other services creates a collusive arrangement. The audit firms derive 75 per cent. of their profits from the sale of other services. I cite the case of the RAC audits. PriceWaterhouseCoopers undercut the incumbent auditor, Stoy Hayward, by 50 per cent. to get the RAC audit. Stoy Hayward’s senior partner accused PriceWaterhouseCoopers of undercutting it to secure an appointment that might enable it to introduce higher price consultancy services to the RAC. That is exactly what happens.
Such firms cut the price of audit, which means cutting its effectiveness and must mean increased pressure on the auditors, in order to get their foot in the door and use that as a market stall from which to sell other services. That brings them into a collusive relationship with the managing director, chief executive and senior figures in the company, because they are more lenient about the audit, about possible failures and about arrangements made in the audit that may raise eyebrows and be slightly dodgy, in order to maintain the good relationship and sell other services.
Following the failure of the Versailles Group in 2004, Nunn Hayward was fined for failures as auditors. It was making too much money from the sale of other services and the group was too important a client to be as stringent on the audit as it should have been. The big audit houses are prepared to restrict themselves in the sale of other services when they sell audit to local authorities. They agreed not to sell other consultancy services to get that market. If they can do it in the public sector market, why can they not do it in the private sector market? It will eventually bring down the price of other services because firms will get auditors bidding to provide other services, rather than entering into a collusive relationship with one auditor, which is a serious danger.
The US Government have been active in restricting the practice. The Sarbanes-Oxley Act placed restrictions on the sale of other services, which I am grateful to see we have followed in this country. Other restrictions are on their way and we should follow them as well. A collusive relationship is dangerous to the effectiveness, independence and accuracy of the audit. If the price of the audit is cut, that must cause pressure. The firm must be using untrained staff, cutting corners and not reporting things that should be reported, just to get the audit through at a certain price. We should ban the practice of selling other services.
Amendment No. 686 provides for rotation—a maximum of five years’ tenure as an auditor. The Government and the audit profession say that partners are already rotated, but that is not good enough. We must provide for auditors to be changed. It is necessary for a new pair of eyes to look at the arrangement, scan the papers of the previous auditor and take a view. Longevity of auditors means collusion. Longevity of auditors means a comfy relationship and the kind of situation that developed in the Maxwell pensions case.
I quote from the Department of Trade and Industry report on Coopers and Lybrand’s performance. The DTI report stated that the auditing firm
“consistently agreed accounting treatments of transactions that served the interest of RM”
—Robert Maxwell—
“ and not those of the trustees or the beneficiaries of the pension scheme”.
Collusion—that is what it is about. We end that with rotation of auditors.
Rotation of partners is not the same and is not good. Enhancing the independence of auditors requires a new auditor. How likely is it that partner B, on taking over from partner A, will say, “Scandalous practices! We can’t to this. We can’t do that. We must change that”? It is not going to happen, is it? If the auditors are partners in the same firm they are unlikely to abuse each other or check each other’s performance closely. Most of the audit is, in fact, done by teams lower down whose turnover is rather rapid, so even a new partner does not produce the continuity of contact and skill that is claimed. We want rotation of auditors on the grounds that longevity leads to collusion, carelessness and the kind of situation that developed in the Maxwell case. The research indicates that that is a failure.
Amendment No. 759, tabled by my hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins) and me, seemed to scandalise the hon. Member for Putney by calling for the auditor’s report to
“be accompanied by a statement stating the regulatory action, if any, taken against the firm or any member of the audit team during the preceding five years, together with the outcomes.”
Why not? Why should we not know the reputation of such firms and what action has been taken against them? Why should we not be able to judge the quality of their work from what they have done in previous cases where regulators have taken action against them? This should be public information and it should be available so that we can understand the judgment of the auditor in the light of the performance of that firm and the regulatory action taken against the firm.
I understand why the hon. Gentleman is setting out this argument, but does he really think that it is an appropriate one in respect of, for example, only one audit in one office in one part of the world? Does he really think that it is a proportionate response, in respect of every single company in every other part of the world that might be audited by teams and offices that have never come into contact with the team that audited that office and that might or might not have had successful regulatory action against it, for every single audit report to include that point? If that means that some businesses might have to have a fresh audit, or even go out of business because investors simply say that they are unwilling to use their accounts any longer, does he really think that that is proportionate response?
That is a fairly far-fetched picture. It is ridiculous to suggest that, because auditors report that action was taken against them in one jurisdiction, clients will flee from the firm that is being audited.
However, on the hon. Lady’s basic point, I simply answer that the international composition that she talks about applies primarily to the big four, which are multinationals. They market themselves as multinationals and as having a common reputation: “We are PriceWatersCooperhouse”—or whatever it is called. I forget whether it is PWC, which sounds fairly obscene to my ears, or PCW. I think it must be PWC. It markets itself as a multinational team, maintaining common standards and providing services on an international basis. If it does that, it is answerable in respect of its offices in other jurisdictions, and we should know what has happened to it in other jurisdictions.
An astounding number of cases are relevant to my point. For instance, in the United States of America in 1995, Ernst and Young gave undertakings to
“comply with standards and guidelines issued by the…SEC…and the accounting profession regarding the independence of public accountants”,
but when a case came up about it not having done that, the judge said that
“the evidence shows that EY has an utter disdain for the Commission’s rules and regulations on auditor independence…EY committed repeated violations of the auditor independence standards by behaviour that was reckless, highly unreasonable and negligent.”
That is what the judge said about Ernst and Young, which markets itself as a multinational providing services all over the world.
We are obliged to publish performance and league tables for every other kind of organisation—such as schools—so why should we not have similar information on the firms that are auditing the accounts of public companies and putting their reputations on the line? Those firms do 99 per cent. of the audits of the FTSE 100 companies.
All our proposals in amendments Nos. 684, 686 and 759 are important, because we do not accept that there is any threat to those big multinationals and their behaviour. Their reckless pursuit of profit endangers the reputation of sound, efficient, effective, respectable and reputable accountants and auditors, which are smaller and are not going in for the same kind of behaviour as the big four.
I did not intend to speak on this matter, but I have been moved to do so by the comments of the hon. Member for Putney (Justine Greening). She seemed very concerned about auditors, but I have a concern for those who rely on the audit report. It is not only the company that relies on that report: an audit report in a company’s accounts will be important to those who are thinking of investing in the company and those who have an interest in it—not least pensioners in the company. The hon. Member for Great Grimsby (Mr. Mitchell) highlighted the Maxwell situation, and the disasters that followed from that.
The hon. Member for Cambridge (David Howarth) talked about civil negligence against auditors. I have been racking my brains, but I cannot think of any major cases where anyone successfully sued an auditor in such circumstances, although I think that there was an attempt in the Equitable Life case that failed. If an audit goes wrong, that can lead to very serious circumstances.
What is proposed will not put an undue burden on auditors. The phrase we are talking about is “knowingly or recklessly”. I am not an auditor. I was a fairly lowly solicitor before I entered this House, and in law there is a clear and well-established difference between carelessness and recklessness. Even in areas such as road traffic, we talk about careless driving and reckless driving. Recklessness is a very high burden for the prosecution to prove. I accept what the Minister said: the vast majority of auditors are honest, hard-working and do a good job. They have little to fear. The very small minority that for whatever reason—being too close to the company or for their own reasons—do not do the job to anything like the standard of a reasonable auditor are the only people who would have anything to fear. To add “dishonestly or fraudulently” would make it almost impossible for anyone to prosecute successfully. As the hon. Member for Cambridge said, it would have to be proven that the auditor had in some way benefited from the fraudulent activity, which would be almost impossible to do.
This is a sensible move. It means that auditors will have to think about the impact of an audit report outwith the company and adhere to proper standards. If they do not adhere to those standards, to the extent that it is reckless, it is right that there should be the option of a prosecution against them.
The House has a brief opportunity this afternoon to consider how to deal with certain remarkable financial institutions that we have developed, which have huge market power and huge global reach, namely the big four accountancy firms. We have the opportunity to consider the domination they have over the auditing of all our great companies, for which they have an effective monopoly among themselves, and also the influence that they have over government.
Some estimates suggest that, since 1997, the Government have spent almost £2.5 billion on commissioning consultancy and advice from the big four accountancy firms. Many Members are concerned with issues such as the new localism. It would be a very bold councillor indeed who would gainsay it, if an officer produced some advice that had been endorsed by the local branch of one of the big four accountancy firms. The point made by the hon. Member for Putney (Justine Greening) emphasised the global reach of those companies. KPMG is said to have 140,000 partners worldwide.
The internal organisation of these companies is far from clear, as our colleagues in the United States found when they attempted to investigate BCCI. They chased one of the big four accountancy firms across the globe, only to end up at an office in Bermuda with which no one had information-sharing agreements and no more could be said or done. The hon. Member for Cambridge (David Howarth) clearly set out to the House the very limited legal remedies that apply and can be brought against such massive financial institutions, even were it not the case that some of the very biggest law firms in the City of London have already made it clear that they would not contemplate any kind of legal action against the big four accountancy firms.
To deal with that situation, the Government have proposed the very blunt instrument that is the reason for the Conservative amendments. Here, I have some words of comfort for the hon. Member for Putney. It is almost inconceivable that there are any circumstances in which the powers set out in the Bill will be used. When in government, her party introduced the crime of insider dealing, which was on our statute book for nearly 20 years. I invite the Foss and Harbottle tendency among us to tell me whether there was ever a successful criminal prosecution for insider dealing under that legislation. No, there was not.
We can effectively dismiss the possibility that the situation that the hon. Lady is inviting us to discuss would ever arise. What public prosecutor would be bold enough to bring a criminal case against a big accountancy firm, in the light of the Chancellor’s very clear statement yesterday that he will resist—I doubt whether he will be successful—the importation of Sarbanes-Oxley. Following the outcome of the so-called “Plumber” case in the Financial Services Authority, the number of such cases that any agency will bring will be very limited indeed. That is why we should not seek this blunt instrument of criminality in order to create a cultural change in behaviour. Any 18th century squire would have been able to tell this House that there is no prospect of a hanging party changing its behaviour unless it actually hangs someone. No one is going to be “hanged”, so the prospects of changing behaviour do not exist.
The hon. Member for Putney said that it would be entirely wrong to separate audit from non-audit services. In 1982, a Conservative Government introduced just such a requirement into the auditing of local government, and it has worked very successfully for 25 years. In April, the public company accountancy oversight board introduced a requirement for the complete separation of tax advice from the auditing of companies. In due course, that will be introduced into our own rules through the Auditing Practices Board. Nothing is more certain, because for the big firms, there has to be consistency between us and the United States. How much more sensible to introduce our own arrangements, rather than passively importing into this country requirements and regulations from the United States. If, by chance, one of the big firms was required to tell a company what each one of its 140,000 partners across the world might or might not have done, what a very important discipline that might be. What clarity that might bring to the internal organisation of these big firms, and how helpful it would be to the members of the company and to the wider world.
I shall begin by discussing Opposition amendments Nos. 439 and 440. I will then turn to the three amendments tabled by my hon. Friends, and to the six Government amendments that make up the balance of this group.
This new offence has been debated extensively—hyperbole is a tool that is frequently used, but “extensively” is probably an understatement—and I do not suggest for one minute that the hon. Member for Putney (Justine Greening) is trying to defend the bad auditor. Rather, she is considering the possible impact on the good and honest auditor, and I accept that it is right that she do so. But frankly, the dismal picture that she paints is based on the misunderstanding that we are criminalising negligence by auditors. I agree with her entirely that to do so would be counter-productive, but that is not what we are doing: the Bill does not criminalise negligence. Recklessness and negligence are well-established legal concepts, and they are very different. I explained this at tedious length in Committee, and most members of it seemed satisfied with my explanation. I am grateful to the hon. Member for Cambridge (David Howarth), who indicated that I satisfied him on that point. As the distinction is so central, let me explain its elements one more time.
To prove that someone has behaved recklessly, it is necessary to show that the auditor was aware that an action, or a failure to act—the latter is probably much more likely—carried risks; that they knew that the risks were not reasonable ones to take; and that despite knowing this, they went ahead anyway. I did not set the position out in Committee in quite that way; I think that I quoted pretty much the sentence structure used in the House of Lords case of Crown v. G, which dealt with the question of whether recklessness was a subjective or an objective test. The Lords made it very clear that the test is exactly as I have just set out, so I hope that the hon. Member for Putney will at last be satisfied that we have been very careful in casting this offence, and that it will not have the consequences that she fears.
The hon. Lady also said that it might not be clear in some circumstances which team member behaved “knowingly or recklessly”. If there is no evidence against a particular team member, there will be no prosecution. The offence deals with cases in which there is sufficient evidence, and absolutely nothing in the clause would allow all team members to be prosecuted in the hope that one could be caught. The provision could be used only in respect of a person against whom there was evidence that they had been in the state of mind that I have described a number of times. That is a very long way from negligence.
My noble Friend Lord Sainsbury went further. He has been faintly criticised in that regard, but he was trying to be reassuring when he said that the guidance to be issued under clauses 522 and 523 would say that for a prosecution to be brought under the new offence, there should be specific evidence of recklessness, and that one should not generally rely on an inference of recklessness from hindsight, even where such hindsight showed a judgment to have been so wrong that it was not credible that the auditor did not know the risk that they were running. We intend that, as a further protection, the guidance will make it clear to prosecutors that that should be the position.
Let me reassure my hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins) that this provision will be used, if necessary. It is one of a portfolio of offences, and it fills a gap. I have it on the authority of no less a person than the Solicitor-General that the insider dealing provisions led to many prosecutions and to at least one conviction while they were on the statute book.
May I just confirm that I am being assured that, in the 20 years in which insider dealing was a criminal offence, there was one conviction?
No, I am saying that the Solicitor-General, in a different guise, successfully defended some of the many prosecutions that were brought, but that he, from his own anecdotal experience, can talk about one that most definitely did succeed. However, I doubt whether it was the only one that succeeded. The provision will be used, and we legislate with the intention of using the legislation.
If we accepted the amendment tabled by the hon. Member for Putney, which would insert the phrase “dishonestly or fraudulently”, it would make the offence redundant. If an auditor behaves dishonestly or fraudulently, they are already guilty of an extant criminal offence. This is a useful new offence that will have a positive economic impact, without imposing additional burdens on those who act in good faith in carrying out their duties. We think that it is right to have that sort of legal sanction in such cases. I hope that the hon. Member for Putney will withdraw the amendment, now that we have shown yet again that her concerns are not really justified.
I turn now to the amendments from my hon. Friends the Members for Newcastle upon Tyne, Central and for Great Grimsby (Mr. Mitchell). Amendments Nos. 684 and 686 are aimed at ensuring the independence of auditors from the companies that they are auditing. Amendment No. 684 would prevent a company from employing its auditor for any work other than the audit, while amendment No. 686 would require the rotation of auditors every five years.
We entirely agree that the independence of auditors is absolutely essential, but we also have a responsibility to avoid unnecessary regulation. Tightening the regulation on auditors often ends up imposing significant costs on companies. However, over the past few years, particularly since the collapse of Enron and WorldCom, the structures in the UK within which auditors operate have been strengthened in a number of ways. We removed responsibility for auditing standards on independence from the professional bodies and passed it over to the independent Auditing Practices Board of the Financial Reporting Council. Moreover, only a couple of years ago the APB issued ethical standards on auditor independence that impose strict duties on auditors to monitor and deal with any threats to their independence. In particular, they must avoid doing other work for an audit client if that would result in their effectively having to audit their own work.
I am very glad that my hon. and learned Friend has pointed that out, as the APB’s requirements follow to the letter those introduced in the US after the Sarbanes-Oxley Act was passed and the Public Company Accountancy Oversight Board was established. She makes precisely my point—that we in this country are not setting standards for ourselves but allowing the APB to import into British jurisdiction exactly the same requirements that are introduced in the US. How feeble that is.
I follow what my hon. Friend says, and he is right, at least in part. However, I hope that he will agree that substantial steps have been taken in the past few years to guarantee the independence of auditors—an aim that he and I share. The two steps that I have described are clearly highly germane to my assertion that he and I are thinking along the same lines, even though our approach differs slightly.
There is no doubt that there is a move to restrict the sale of tax advice by auditors to their clients, just as is happening in America. My hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins) is exactly right: we are being dragged behind the Americans, step by step. It is as if we are regulating audit in the same way that we are treating Iraq.
Order. Perhaps I can help the Minister. That is not a good line to pursue, I think.
Thank you, Mr. Deputy Speaker. I do not think that I could cope even if I did try to pursue it.
The Government believe that it is better for businesses and investors in the UK to use the ways set out in the Bill to guarantee or safeguard auditors’ independence, and that the approach adopted is more compatible with the culture that we are used to than would be a pursuit of the course taken by the US, with its Sarbanes-Oxley rules.
Similarly, we do not agree with the proposal that regulatory action against an audit firm or an individual auditor should be disclosed in every audit report with which they are involved. If an auditor, whether a firm or individual, is found guilty of a disciplinary offence by the professional body or by the AIDB, that is publicly available information to which audit committees and shareholders can have ready access. If auditors are investigated and cleared of a professional shortcoming, it would be unreasonable and wrong to require them to disclose that in reports.
In summary, I sympathise powerfully with the desire on the part of my hon. Friends the Members for Newcastle upon Tyne, Central and for Great Grimsby to improve the independence and accountability of auditors, but I believe that we have made real progress in these areas in the past few years and that the extra bits of regulation that they propose would be counter-productive.
Finally, the six Government amendments in this group are minor but worthwhile technical improvements. Amendment No. 213 removes a reference to a type of fine that is inappropriate in relation to conviction on indictment. Amendment No. 261 provides a definition for a “supervisory body” for the purposes of clause 539. Amendments Nos. 447 to 449 clarify that, when rights are available to a specified percentage of shareholders, someone who holds shares on behalf of more than one investor can choose to deploy the part of his overall holding appropriate to those investors who wish him to do so. Amendment No. 519 updates the definition of “bank” in clause 1174 so that it now refers to the new banking consolidation directive published in June 2006.
We have had an interesting and wide-ranging debate. The hon. Member for Cambridge (David Howarth) appears to think that he belongs to the real Opposition, but will clearly vote with the Government on the Conservative amendment before the House. I listened very carefully to the hon. Members for Newcastle upon Tyne, Central (Jim Cousins) and for Great Grimsby (Mr. Mitchell), and I understand the points that they raised. However, I have considered their amendments previously, and I cannot agree that they would have a positive effect. I therefore remain unconvinced of their merit.
Similarly, I take on board the points made by the hon. Member for Angus (Mr. Weir), but there seemed a slight prejudice in his remarks against successful multinational audit firms, some of which happen to be British. By and large, they get on with their business very well.
I appreciate the Minister’s acceptance that I am not trying to protect reckless accountants. In fact, the representatives from the accountancy and audit professions who have got in touch with me are worried about the rising costs that they may now have to pass on to customers. They do not feel that that will add anything to the audit approach, and we ignore their views at our peril.
Finally, my main concern is for the impact that increasing audit costs could have on small business. I very much hope that the Minister will keep a close eye on how the legislation is working once it is enacted, as that would go a long way towards minimising the potential risks that I have flagged up today. I am fully aware of how the offence is structured legally, and I understood the arguments that the Minister made in Standing Committee. However, the impact that the measure will unwittingly have on the audit profession broadly, and the costs to business that will result, cause me concern. As I have had no assurances that those arguments have been taken on board at all, I shall push amendment No. 439 to a vote.
Question put, That the amendment be made:—
New Clause 86
Circulation of liability limitation agreement
‘A proposal for a liability limitation agreement must be circulated to all the parties entitled to receive company accounts in accordance with section 429.’.—[Jim Cousins.]
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.
With this it will be convenient to discuss the following amendments: No. 751, in page 264, line 36, clause 546, leave out from ‘proceedings)’ to end of line 37.
No. 752, in page 265, line 12, leave out clauses 548 to 552.
No. 763, in page 265, line 33, clause 549, at end insert ‘, and
(c) shall not specify a sum of money as a cap or absolute upper limit on the total liability.’.
Government amendment No. 648.
No. 803, in page 266, line 41, clause 551, leave out ‘Part’ and insert ‘Act’.
No. 802, in page 267, line 14, clause 552, at end insert—
‘(1A) The regulations must require that all such agreements must be filed at Companies House within 21 days of the date of agreement together with a copy of the correspondence relating to the agreement between the company, its advisers, auditors and their advisers.’.
In our last debate, when my hon. Friend the Member for Great Grimsby (Mr. Mitchell) and I tried to draw the House’s attention to the possibility of market regulation in dealing with our new overmighty subjects—the big four accountancy firms—it was reasonably clearly established that we can await rescue from the United States in due course. In this debate, we will consider the legal situation is as regards these matters. We are in the hands of a powerful array of impressive lawyers, although I see that we do not currently have the assistance of the Solicitor-General, who did heroic work in former times.
We are dealing with a situation in which there was already moral hazard because of the enormous power and influence of a few institutions, the domination that they had over their own markets, and the need to open up those markets to a much wider range of audit and accountancy firms that could seek to challenge them. We now have an attempt to strengthen and embed the privileges and to deepen the moral hazards that such institutions already have. The hon. Member for Cambridge (David Howarth) may put me right, but the Caparo judgment was the first step on the route towards embedding the privileges of these powerful firms.
In 1997, two further court cases—it is unnecessary to go into detail—limited the liabilities of the big firms even further and established the idea of proportionate liability, which has become part of our courts’ practice. Not content with that, in 2000, the Government introduced the concept of limited liability partnerships, which effectively further strengthen and defend the powers of a few large firms to dominate the audit and accountancy market. On that point, I had a great deal of sympathy with the hon. Member for Putney (Justine Greening) when she spoke up for the smaller firms. New entrants to the big end of accountancy will find it extraordinarily difficult, given the market power of a few large firms and their international reach and connections.
It is extraordinary that the Government seek to add even further limitations on liability and even more protections. I hope that they will clarify how much further they intend to go in regulation. There has already been a cascade of protections, yet the Government propose an additional one.
The new clause would simply provide that people apart from the members of a company—the Government have already accepted in clause 429 that such people should receive relevant documents from the company—should also receive the information about the limitation of liability agreements so that they are in a position to challenge it. It is a small point and perhaps the Government intend to cover it in regulations. The debate provides an opportunity for my hon. Friends on the Front Bench to clarify that.
In the general structure of introducing liability limitation agreements, amendment No. 763 would provide at least that no one should specify a figure that represents an absolute cap on liability. That would protect the principle of proportionate liability, which has already become a feature of our common law and hardly needs the further reinforcement of the Government opening up the possibility of a final and absolute cap.
I ask my hon. Friends on the Front Bench to consider how the big four accountancy firms behave in the public interest when they act through the insolvency procedures in which they become administrators of a company. An extraordinary case was brought against the Bank of England and convulsed it for years because it had to put legal and manpower resources into defending itself. The big four accountancy firms, which brought the case, made a great deal of money through the way in which they work the fee system in insolvency cases, despite the compensation that they may ultimately have to pay the Bank of England.
It worries me—and should worry hon. Members—that, when those firms act in insolvency cases, they are adept at suing each other, yet they seek ever further and deeper protections against the common world. I hope that my hon. Friends on the Front Bench can clarify their future line of march on the matter. We already have examples in the European Union of attempts to introduce a general system of liability protection, and the Government must set out how they propose to deal with that. Of course, the gaping hole in all these arrangements represented by the very different course being taken by the United States could bring the structure of liability protections that the Government are seeking to introduce crashing to the ground. That, too, is something on which the Government Front Bench ought to express a view.
I am conscious of the time, so I shall briefly set out the Opposition’s view on the new clause and amendments. We broadly support the limited liability agreement clauses and do not therefore support amendments Nos. 751, 752, 763, 802 and 803. The limited liability agreement is not made mandatory by the Bill. It will be a matter for companies and their auditors, an agreement between the audit firm and the business. It might, however, provide a tool for more carefully limiting the risk to auditors in relation to the corporate risk that they can influence and have some responsibility for. It is right that clauses 458 to 552 do not take an over-prescriptive approach. It will clearly be a matter for companies and their auditors to work through the fine details of structuring the agreement, and that process will no doubt be adapted with experience and time.
New clause 86 provides for a limited liability agreement to be circulated to all parties entitled to receive company accounts. This would result in unnecessary bureaucracy, as any agreement would have to be approved by members through the normal company procedures anyway and at that stage the agreement would be available for scrutiny. Similarly, amendment No. 803 also seems to involve unnecessary bureaucracy.
Clause 551 provides a reasonableness test against which to judge an agreement. Clause 552 provides that the Secretary of State could introduce regulations that require disclosure of an agreement in the annual accounts or the directors’ report. Will the Minister tell the House whether the Government intend to introduce such disclosure regulations and, if so, when she expects them to come into force?
Does not any limitation of liability—whether introduced by agreement, a cap or some other means—strengthen the big four against the smaller accountancy businesses that the hon. Lady and I want to protect and encourage?
That is an interesting point. Companies can engage whichever audit firms they choose. If a company felt that its accountant was pressing for a limited liability agreement that was excessively limited, that could result in the audit business being made more competitive. There are clearly only so many firms that are in a position to audit multinational companies, but I do not think that this agreement will change that. If anything, it could open the door to some medium-sized companies, to allow them to compete in relation to the agreement that they put in place.
It would be helpful if the Minister could provide the background to Government amendment No. 648. When I read the existing clause, I felt that it was adequate as it stood. The Government are proposing a change to ordinary resolutions, and it would be helpful if she could clarify the background to this proposal.
I rise to support the speech made by my hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins) and to put the case for the amendments.
We are trying to enforce liability, particularly against the big firms. The auditor has responsibilities and it is not reasonable that liability should be limited in any way. We are saying that there is a principle here that applies in no other field—that is, when a product, which is what an audit is, fails or is not fit for use, there should be no redress against the producer of that product. If that applied in relation to baked beans or Coca-Cola, consumer protection legislation would be reduced to farce.
Why should the big four—the species that we are told is in danger of extinction—have protection from their own failures, which is effectively limitation of liability? This has a long history, and I have been surprised by some of the concessions made by my Government. I was involved in a Companies Bill in the 1980s, under a Conservative Government. The audit firms came to us to say that they were threatened because they had deep pockets, poor creatures—the more money they have, the more threatened they feel.
Those companies were exposed to law suits against them, most of which came from other members of the big four. The audit arms were being pursued by the insolvency arms, so it was fairly incestuous, as my hon. Friend the Member for Newcastle upon Tyne, Central pointed out. They came quaking in fear and said, “We want our liability limited.” How did they want it limiting? They said, “We should be able to set up as limited companies, rather than as partnerships.”
So the Bill was changed as a result of representations from the chartered institute and the big audit firms. They were given the right to set up as limited companies, but they did not use it, because they had moved on to another stage—upping their demands. They produced a demand for limited liability partnerships, but the Conservative Government wisely refused to grant it.
Those firms then bought legislation in Jersey and promised the Jersey legislature, which is not a paragon of virtue, that they would provide the legislation, which they did. It cost more than a million quid and was written by the big accountancy firms here. The legislation passed through the States of Jersey, but the promised flock of dark-suited immigrants who would come to Jersey to set up accountancy businesses to benefit from limited liability partnership did not arrive. Nobody came.
Those firms then turned to our Government, who, having told us that there was no time to introduce the independent regulation of accountancy and audit as in the United States, which is the only way forward, decided that there was time to limit liability of partnerships. That came in, over our protests.
The only concession that we gained came about because the Minister was desperate to go to Norway that particular night. If we had continued to talk here, his journey would have been threatened, so he gave us the concession that the proposal would not come into force immediately and that there would be consideration of the exact effects. We achieved a minor victory, but here we are again.
The argument is specious. We are, effectively, providing limitation of liability, but the amendments would stop either any such agreement or any form of cap. Those big, secretive firms have never produced evidence that there is a huge threat against them or that huge damages would be awarded against them. Only two cases from the 1960s to the 1980s were cited earlier, as I recall, and in the 1990s the big four auditing firms were spending just 2.6 per cent. of their income to meet liability costs. What I have to spend on insurance—house, car and personal—amounts to far more than 2.6 per cent.
I am following with care my hon. Friend’s argument. In dealing with the big four, however, is it not clear that there is a lack of ability to prosecute a case against them? Whether liability is limited is not therefore the issue; the issue is whether we can get to them in the first place. Therefore the point that he makes is not really the one that he should be making.
That is correct, and the reluctance of even big City law firms to embark on a case against the big four has been pointed out. They do, however, embark on cases against each other. When there is a question of making the auditor liable, the case is usually brought by the insolvency arm of another of the big four. They are fairly adept at taking action against each other, which is what they fear. They want limitation of liability to protect them from each other.
All the precedents indicate that such limitation is dangerous. In 1986, the Law Commission said that a “cap” on auditor liability or “proportional liability” were against the public interest. The Office of Fair Trading also rejected the idea. Section 137 of the Companies Act 1989, which I mentioned earlier, allowed firms to buy insurance to cover their liability should they wish, but no major company has taken advantage of that. When such companies tell us that they would not get insurance, I wonder what kind of business they are running. One can buy insurance against Martians landing on the roof of one’s house. How come the big four are so shady that they cannot get insurance? The crisis of huge cases pending against the big four, threatening to end the existence of any one of them, is entirely spurious.
It is clear that Enron, WorldCom, Xerox, Tyco, Adelphia and all the other scandals resulted directly from the limitation of liability in the United States. Joseph Stiglitz, who was an adviser to President Clinton, has said that the US liability laws directly paved the way for auditor negligence and the mega-scandals. If we limit liability, we get scandals. If liability is limited, what will keep auditors up to the mark? What will improve their performance and make sure that they are providing good audits? It seems a crazy principle to adopt.
The president of the Institute of Chartered Accountants of Scotland, which examined failures—our chartered institute does not seem inclined to take on the big four, largely because it is permeated and dominated by them, and they provide the personnel and partners with the time to run the institute and to influence policy—said:
“All the failures we looked into would have been found if anyone other than the audit junior had looked at the bank statements”.
He added:
“Big firms are no longer carrying out audits. They audit in helicopters and circle clients from a few thousand feet and take pictures. No one gets out of the helicopter and kicks tyres. It’s no longer audit, it’s more akin to due diligence”.
We have supplied evidence to the Department that more than 60 per cent. of the staff carrying out audits admit to falsifying work under the pressure to provide the audit for the level of fees that has been cut to get the audit in the first place. We did not get much reaction from the DTI.
We are against the principle of limiting liability. It seems dangerous and not conducive to good audit. We are anxious to maintain the reputation of the profession, particularly those small and medium-sized audit firms that need to be brought into the market to make it more competitive, but which are excluded by the dominance of the self-perpetuating big four.
I have a great deal of sympathy with what has just been said by the hon. Member for Great Grimsby (Mr. Mitchell). The audit market is a guaranteed market, guaranteed by the state, and companies covered by the obligation must have an audit. There are very few audit firms. If we put the two together—a state basis and an obligation for the market, and a very small number of firms—we have the classic conditions for a monopoly, or in this instance an oligopoly. Members on both sides of the House have commented on the position of small and, indeed, medium-sized firms trying to break into the market. They are in a very difficult position as a result of the structure created ultimately by the law. The hon. Gentleman mentioned the Law Commission’s view, and I share some of its worries. There is a serious risk that the interests of third parties will be affected. I want an assurance from the Government that they do not intend to affect those interests.
What the Bill does looks entirely legitimate on the surface. The members of a company who are most directly interested in its welfare are allowed to contract with the audit firm to limit the audit firm’s liability. That appears to be a straightforward deal between two parties, and if it were there could be no objection to it: the parties would have worked out their own interests and the price would reflect the risks on both sides. The trouble with audit is that the company’s members are not the only people involved.
Two other parties are obviously involved. One—this classic case takes us back to the Caparo litigation, mentioned by the hon. Member for Newcastle upon Tyne, Central (Jim Cousins)—is a takeover bidder or buyer of the business. If the audit firm could limit its liability with the company, a takeover bidder who took over the company could not then use it to obtain recourse against an auditor who had acted badly, because the company would still have limited rights against the auditor. The only recourse would be for the takeover bidder to act in his personal capacity, or the capacity of another company.
A similar case is that of creditors. Many of the examples given so far have involved insolvency. If an audit has resulted in a company’s being worth much less than people thought it was worth and creditors find that they cannot get their money back, their problem will be that the liquidator or administrator is technically acting on behalf of the company. The rights of the creditors are therefore through the company, and the company has limited its recourse to the audit firm. The creditors will suffer because of an agreement made previously by someone else, namely, the shareholders. The shareholders’ agreement has an impact beyond their own interests.
There is obviously the possibility of creditors trying to obtain recourse outside the remit of the company, in their own right. That brings us to the crucial question—do the Government intend limited liability agreements to affect the rights, such as they are, of third parties? Let me put it technically: do the Government intend to change the law of tort, or just to change the law of contract? It has to be said—the hon. Member for Newcastle upon Tyne, Central mentioned this—that even in the law of negligence, or tort, the rights of outsiders are limited. The Caparo case was followed by a series of other cases that make it very difficult for people to win in those circumstances, but it is not impossible. In the Morgan Crucible case, the plaintiffs won because the court thought that, given the special circumstances and the fact that specific extra representations had been made to the auditors, the audit firm was bound by those extra representations over and above the normal audit to the person who ended up losing out—so it is possible. I want to hear from the Government that their intention is not to rule out that possibility indirectly through the ability of auditors to limit their liability in contract to the company.
As before with the modest quip made by my hon. Friend the Member for Great Grimsby (Mr. Mitchell) about Iraq, I shall not allow his rhetorical flow, whether it be about dark-suited accountants or escaping early doors to Norway, to move me away from the focus of the amendments. I shall go through them one at a time as speedily as I realistically can.
I sympathise strongly with the concerns expressed by my hon. Friends the Members for Newcastle upon Tyne, Central (Jim Cousins) and for Great Grimsby, but I hope to persuade them that we have here an appropriate balance. Their amendments Nos. 751 and 752 would delete the clauses that enable the auditor and the company to agree a limitation to the auditor’s liability, so the Bill would just reflect the current position that any attempt to do that is void and unenforceable. Their alternative route is, through new clause 86 and amendment No. 802, to extend the publicity given to liability limitation agreements. New clause 86 would do so by requiring proposals to be sent to shareholders of private companies, who would resolve to waive the need for authorisation, and to debenture holders as well as shareholders of all companies. Amendment No. 802 would require agreements and associated correspondence to be filed at Companies House. Amendment No. 763 would prevent liability limitation agreements being made that specified a monetary limit—a cap, as my hon. Friend the Member for Newcastle upon Tyne, Central put it.
Amendment No. 802 would modify one of the issues to which a court should have regard in considering whether a liability limitation agreement was fair and reasonable. Instead of looking at the auditor’s responsibilities under part 17, which is the audit part, it would look at the auditor’s responsibilities under the entire Bill. Let me deal with that one first. The amendment would have no effect because all of the responsibilities owed by the auditor of the company that could give rise to a claim by the company are in part 17.
Government amendment No. 648 removes subsection 550(4), which specified that members were to authorise a liability limitation agreement by ordinary resolution. The hon. Member for Putney (Justine Greening) asked me to say what the point of that was. It is just that the subsection is unnecessary because that is the effect of saying in clause 550(2) that the authorisation is to be by the company passing a resolution.
Let me go through how we deal with the points raised. The hon. Member for Cambridge (David Howarth) asked us to give an assurance that third parties were not affected. Yes, but as the hon. Gentleman has observed, third parties will seldom have a claim. However, if creditors can get recourse outside there is nothing in this change that ought to affect their ability to do so. It certainly is not our intention that that should be so.
The agreements will limit an auditor’s liability only if the company agrees to the limitation in the contract and it is authorised by the explicit decision of the shareholders or, in the case of a private company, the shareholders resolve to waive the need for approval. The Government’s approach to the request made by my hon. Friend the Member for Newcastle upon Tyne, Central about regulation is that the safeguard is that there must be a shareholder resolution.
There is, of course, much more to be said. After the event, a court can decide, whatever the agreement was, that the limited amount payable by the auditor is not fair and reasonable and, if necessary, it is open to the court to impose a much higher amount, if that is called for. Those provisions were extensively debated in the other place, where there was widespread cross-party support for the policy approach and useful clarification of the drafting took place.
To put the point moderately, my hon. Friends have argued—I hope that I do justice to their arguments—that the changes will reduce the incentive on auditors to do a good quality job. Let me reiterate that under the new provisions, auditors will not be able to exclude their liability altogether and it will always be open to the court to decide that the limitation is not fair and not reasonable and to impose a higher amount as it thinks fit. Civil liability, of course, is only one of the external incentives on auditors to do a good professional job. If they fall short, a range of disciplinary procedures are available and, although we do not want to go back there, we have just introduced a new offence for anyone who knowingly or recklessly causes an audit report to be misleading, false or deceptive.
Amendment No. 763, which prevents companies from agreeing a fixed sum as the limit of their auditors’ liability, amounts to the same argument. Any attempt to limit the liability to a specific financial amount will not be effective if the court decides that a larger amount is fair and reasonable and that the capped amount is not. There is also a power in clause 549(2) under which regulations could prevent limitation by fixed monetary amounts if, against our expectations, there proves to be a case for doing so in the light of experience.
New clause 86 and amendment No. 802 deal with the publicity given to liability limitation agreements. As the provisions are drafted, the company will have to write to its members to receive authorisation, except where members of a private company have decided to waive the need for approval, and the company will have to disclose its agreements under clause 552. The details of disclosure are to be fixed by regulations, on which, to respond to a question posed by the hon. Member for Putney, we will consult.
I am listening to the hon. and learned Lady, but can she help us with the claims of depositors with respect to banks? If a bank goes bust and the auditor should have picked up the fact that money was being filched by bank employees, but does not, what happens to the depositors? Does a liability limitation agreement pre-empt or prevent the depositor from being able to maintain a claim against the auditor?
Is not that the same question put by the hon. Member for Cambridge, which I have already answered? [Interruption.] I think that it is, but let me say it again. There are rarely claims for third parties, but if a creditor of some sort—including a depositor— can get recourse outside the contract to limit liability, there is nothing in the provisions that will prevent them from doing so. They will be in no worse or better a position than they were before the change was introduced.
The current position is that the requirements for publicity surrounding the entry into an agreement are as I have set out, but new clause 86 would force the company to send the proposal to all those—including private companies that had already decided to waive the need for approval—who receive the company’s accounts. It would also include venture holders as well as members. If the company wants to send the publicity to the venture holders, that is absolutely fine, but they are not part of the decision-making process and we see no good reason for forcing companies to send the proposals to them.
Amendment No. 802 would constrain the regulations on disclosure that include filing the full agreement and all correspondence at Companies House within 21 days. As I have already explained to the hon. Member for Putney, the Department will consult on the best form of disclosure, seeking views on the balance between the need for transparency and the avoidance of unnecessary burdens. I would not like to pre-judge that consultation, but it strikes me that the proposals of my hon. Friend the Member for Newcastle upon Tyne, Central lie towards the extreme wing of the argument. In our view, it is best left to regulation and we should not place such definitive proposals in the Bill.
My hon. and learned Friend advises the House that some of these issues will be clarified in later regulation. We understand that and I drew attention to it, but can she give us a flavour of what propositions the Government will advance in the regulatory consultation?
We will do our best to ensure that all the interests in such arrangements are consulted as thoroughly as possible about the right level at which to pitch the measure. It would be wrong for me to suggest that the Government were going in a particular direction. It is a matter of balance between the need for transparency and the avoidance of unnecessary burdens. I am sure that my hon. Friend will play a role in that consultation, representing the interests that he has rightly represented today.
The last of my hon. Friend’s amendments in this group is No. 803, which would make a small change to the list in clause 551 of items to which the court is to have regard in considering whether a limitation of liability is fair and reasonable. In practice, I do not think that it would make any difference whether the court has regard to the auditor’s responsibilities under part 17 or under the Bill as a whole, because those responsibilities are confined to part 17.
In conclusion, I support Government amendment No. 648, which is minor and technical. If anybody wants to know what it is I shall be pleased to tell them more about it, but it is merely a drafting amendment. We shall resist the new clause and the other amendments.
This has been an interesting series of exchanges. I am left to puzzle about what my hon. and learned Friend the Minister has just told us—that a court can override a limited liability agreement. A number of people will ponder carefully what circumstances might give rise to that situation. She has indicated that there will be regulations to cover consultation on the introduction of a limited liability agreement. Although, to be frank, I do not find her initial remarks on that point entirely satisfactory, there will at any rate be a consultation in which we can all take part.
At an early age I was taught to believe that confession and repentance were more important than righteousness, so I considered carefully whether I should ask the House to divide on the new clause and on amendment No. 763. However, as I believe that in due course the Government will come to repent the approach of limiting liability, and I fear that to force a Division would only slow down that process, I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.
rose—
Order. Before we deal with the next group, the House must deal with the Government amendments and new clauses that have already been debated. With the leave of the House, I shall put all amendments and new clauses together.
Question, That amendments Nos. 241, 242, 447, 243 to 245, 544, 545, 246, 546, 714, 547, 247 to 252, 548, 488, 213, 225, 449, 648, 549, 826 and 550 to 552 be made, that new clauses 8 and 10 to 12 be brought up, read the First and Second time, and added to the Bill, put and agreed to.
New Clause 18
Application of this Part
‘(1) This Part applies where—
(a) a compromise or arrangement is proposed between a public company and—
(i) its creditors or any class of them, or
(ii) its members or any class of them,
for the purposes of, or in connection with, a scheme for the reconstruction of any company or companies or the amalgamation of any two or more companies,
(b) the scheme involves—
(i) a merger (as defined in section (Mergers and merging companies)), or
(ii) a division (as defined in section (Divisions and companies involved in a division)), and
(c) the consideration for the transfer (or each of the transfers) envisaged is to be shares in the transferee company (or one or more of the transferee companies) receivable by members of the transferor company (or transferor companies), with or without any cash payment to members.
(2) In this Part—
(a) a “new company” means a company formed for the purposes of, or in connection with, the scheme, and
(b) an “existing company” means a company other than one formed for the purposes of, or in connection with, the scheme.
(3) This Part does not apply where the company in respect of which the compromise or arrangement is proposed is being wound up.’.—[Margaret Hodge.]
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.
With this it will be convenient to discuss the following:
Government new clause 19—Relationship of this Part to Part 27.
Government new clause 20—Mergers and merging companies.
Government new clause 21—Draft terms of scheme (merger).
Government new clause 22—Publication of draft terms (merger).
Government new clause 23—Approval of members of merging companies.
Government new clause 24—Directors’ explanatory report (merger).
Government new clause 25—Expert’s report (merger).
Government new clause 26—Supplementary accounting statement (merger).
Government new clause 27—Inspection of documents (merger).
Government new clause 28—Approval of articles of new transferee company (merger).
Government new clause 29—Protection of holders of securities to which special rights attached (merger).
Government new clause 30—No allotment of shares to transferor company or its nominee (merger).
Government new clause 31—Circumstances in which certain particulars and reports not required (merger).
Government new clause 32—Circumstances in which meeting of members of transferee company not required (merger).
Government new clause 33—Circumstances in which no meetings required (merger).
Government new clause 34—Other circumstances in which meeting of members of transferee company not required (merger).
Government new clause 35—Divisions and companies involved in a division.
Government new clause 36—Draft terms of scheme (division).
Government new clause 37—Publication of draft terms (division).
Government new clause 38—Approval of members of companies involved in the division.
Government new clause 39—Directors’ explanatory report (division).
Government new clause 40—Expert’s report (division).
Government new clause 41—Supplementary accounting statement (division).
Government new clause 42—Inspection of documents (division).
Government new clause 43—Report on material changes of assets of transferor company (division).
Government new clause 44—Approval of articles of new transferee company (division).
Government new clause 45—Protection of holders of securities to which special rights attached (division).
Government new clause 46—No allotment of shares to transferor company or its nominee (division).
Government new clause 47—Circumstances in which meeting of members of transferor company not required (division).
Government new clause 48—Circumstances in which meeting of members of transferee company not required (division).
Government new clause 49—Agreement to dispense with reports etc (division).
Government new clause 50—Power of court to exclude certain requirements (division).
Government new clause 51—Expert’s report: valuation by another person.
Government new clause 52—Experts and valuers: independence requirement.
Government new clause 53—Experts and valuers: meaning of “associate”.
Government new clause 54—Power of court to summon meeting of members or creditors of existing transferee company.
Government new clause 55—Court to fix date for transfer of undertaking etc of transferor company.
Government new clause 56—Liability of transferee companies for each other’s defaults.
Government new clause 57—Meaning of “liabilities” and “property”.
I know that there are a lot of new clauses in this group, but I hope that they are pretty uncontentious. The restatement clauses in part 27 of the Bill allow for the wide range of reorganisations, arrangements and reconstructions that can arise within a company and allow some types of merger or demerger to take place. Part 27, as introduced in Committee, contained a regulatory power under clause 908 to make detailed provision for mergers and divisions of public companies in certain cases. On reflection, we have concluded that it would be preferable to replace that power by setting out the provisions in full in primary legislation, as they are in the Companies Act 1985. We all feel that that is a better way of proceeding where we can.
Accordingly, this part restates section 427A and schedule 15B to the 1985 Act. We have made only one minor change: in new clause 52(1)(c), concerning the independent requirement of experts and valuers, we have taken a power to specify a disallowed connection for the purposes of determining whether a person meets the independence requirement. That is consistent with the approach that we have taken elsewhere in the Bill, in clauses 351, 1117 and 1178. We have consulted on the new clauses and are grateful to the Law Society, in particular, for its comments.
The Government’s approach in this group is acceptable to the Opposition, but I would like to put it on the record that, with just over half an hour to go, we have finished dealing with only four of the 31 groups to be discussed today. Many of the issues in these groups are being covered for the first time on this Bill. Surely that is yet another indictment of the Government’s guillotining of the Bill.
I will respond to that point, because I am rather tired of it. [Interruption.] I am delighted to welcome the hon. Member for Rutland and Melton (Alan Duncan) to his place for the first time since we have been discussing the details of the Bill. I wonder whether he knows—
Order. May I remind Members that the Minister will just be responding to the debate on the new clause?
I am sure that the hon. Member for Rutland and Melton knows full well what is involved in this group of new clauses. I will simply say what I said at the beginning: the amendments tabled in the names of Opposition Members are all amendments that we have discussed before and the amendments tabled by the Government relate to the consolidation that was requested by the Conservatives in the House of Lords. We have taken the advice of leading people in the field—particularly the Law Society—and have made sure that what we put into the Bill can stand the test of time. That is a perfectly proper way of proceeding, which was agreed by Opposition Members. To play silly politics just wastes time.
I had not intended to speak, but I have sat through most of the debates, as I think the right hon. Lady will agree, and although there are no issues that I want to raise in detail in relation to this series of amendments and new clauses, I do not think that it is proper to let this opportunity go past without saying that there are a lot of other issues in the rest of the Bill that I would want to raise if we had time. There is no other opportunity to say that. The point about the House of Commons is that it is increasingly true that the Bills that we pass are badly thought out, badly understood and badly debated. That is the fault of this Government, who use the House of Commons disgracefully. There are whole areas of the Bill that my constituents want me to debate, but the Government and the Minister have stopped me doing so. It is a disgrace.
Question put and agreed to.
Clause read a Second time, and added to the Bill.
Question, That Government new clauses 19 to 57 be brought up, read the First and Second time, and added to the Bill, put and agreed to.
New Clause 58
Consequences of order imposing restrictions
‘(1) The effect of an order under section 803 that shares are subject to restrictions is as follows—
(a) any transfer of the shares is void;
(b) no voting rights are exercisable in respect of the shares;
(c) no further shares may be issued in right of the shares or in pursuance of an offer made to their holder;
(d) except in a liquidation, no payment may be made of sums due from the company on the shares, whether in respect of capital or otherwise.
(2) Where shares are subject to the restriction in subsection (1)(a), an agreement to transfer the shares is void.
This does not apply to an agreement to transfer the shares on the making of an order under section (Removal of restrictions) made by virtue of subsection (3)(b) (removal of restrictions in case of court-approved transfer).
(3) Where shares are subject to the restriction in subsection (1)(c) or (d), an agreement to transfer any right to be issued with other shares in right of those shares, or to receive any payment on them (otherwise than in a liquidation), is void.
This does not apply to an agreement to transfer any such right on the making of an order under section (Removal of restrictions) made by virtue of subsection (3)(b) (removal of restrictions in case of court-approved transfer).
(4) The provisions of this section are subject—
(a) to any directions under section 803(2) or section (Relaxation of restrictions) (3) (directions for protection of third parties), and
(b) in the case of an interim order under section 803(3), to the terms of the order.’.—[Margaret Hodge.]
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.
With this it will be convenient to discuss the following:
Government new clause 59—Penalty for attempted evasion of restrictions.
Government new clause 60—Relaxation of restrictions.
Government new clause 61—Removal of restrictions.
Government new clause 62—Order for sale of shares.
Government new clause 63—Application of proceeds of sale under court order.
Government amendments Nos. 454 to 458.
The right hon. Member for Suffolk, Coastal (Mr. Gummer) has been in the Chamber for much of our proceedings and has made a welcome contribution. However, I must tell him that the new clauses in this group, those that we have just discussed and many others are simply a restatement of existing legislation. At the behest of Members of the House of Lords, we decided to incorporate the provisions in one place so that it would be easier for businesses—especially small businesses, which are enabled by much of the legislation to act more effectively and efficiently, with less regulation—to ensure that they understood and could cope with the law.
The new clauses in this group restate part 15 of the Companies Act 1985 in so far as the provisions apply in relation to part 23 of the Bill. Part 23 enables public companies and members of those companies to ascertain the underlying beneficial owners of shares. The company may apply to the court for an order under clause 803 directing that the shares in question be subject to various restrictions under part 15 of the 1985 Act, which include voiding any transfer of the shares and providing that voting rights are not exercisable in respect of the shares. Those provisions are restated without substantive change in the new clauses.
Part 15 will remain in the 1985 Act because it also applies to part 14 of that Act, which will remain in force. Nevertheless, we think that it is helpful to make a restatement through the new clauses so that the reader can find all the relevant provisions for part 23 in one place. Again, we have consulted on the new clauses and we are especially grateful to the Law Society for its useful comments.
The new clauses relate to the old section 212 notice provisions. Where a shareholder or beneficial holder fails to respond to a section 212 notice inquiry into the ownership of the shares in question, a public company generally has powers in its articles to remove rights from the shares. Those powers will now go into the Bill so that transfers can be blocked, rights to vote removed, and so forth. However, the Minister will appreciate that that is very much the nuclear option and that, in all likelihood, it will rarely, if ever, be used. I have only one question: how extensive has the Minister’s consultation been, and what further consultation and review will be undertaken on the matter?
There has been extensive consultation over the summer with stakeholders. I do not see a need for further consultation, and I accept that, as the hon. Gentleman says, the provision is unlikely to be widely used. If he puts an argument to me, I will take it on board and see whether further consultation is required.
Question put and agreed to.
Clause read a Second time, and added to the Bill.
Question, That new clauses 59 to 63 be brought up, read the First and Second time, and added to the Bill, put and agreed to.
New Clause 64
Registrar’s requirements as to certification or verification
‘(1) Where a document required or authorised to be delivered to the registrar under any enactment is required—
(a) to be certified as an accurate translation or transliteration, or
(b) to be certified as a correct copy or verified,
the registrar may impose requirements as to the person, or description of person, by whom the certificate or verification is to be given.
(2) The power conferred by section 1034 (registrar’s requirements as to form, authentication and manner of delivery) is exercisable in relation to the certificate or verification as if it were a separate document.
(3) Requirements imposed under this section must not be inconsistent with requirements imposed by any enactment with respect to the certification or verification of the document concerned.’.—[Vera Baird.]
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.
With this it will be convenient to discuss the following:
Government new clause 84—Power to accept documents not meeting requirements for proper delivery.
Government new clause 85—Documents containing unnecessary material.
Government amendments Nos. 741, 484, 466 to 469, 742, 174, 743 to 748, 175 to 187, 749, 188, 189, 233, 750, 190, 191, 234 and 192 to 194.
The majority of the amendments in this group are drafting amendments and I do not propose to dwell on them at length. If hon. Members have questions about them, I shall do my best to reply. The amendments are all pretty self-evident. They make improvements to the Bill and should cause no contention.
I should say something about the amendments relating to the provisions on proper delivery, as these introduce changes to the Bill in the interests of clarity and consistency. It is clear from the Bill, as set out in clause 1038(1), what requirements a company must meet in order to have “properly delivered” a document. In the Bill there is some inconsistency as to the implications of failure to comply with these requirements. For example, clause 862(6) as it currently stands makes it clear that when we talk about a company failing to deliver its annual return, what is meant is failure to comply with all the requirements set out in clause 1038(1). If the company does not meet those requirements, it cannot be said to have delivered the document for the purposes of compliance with the law.
However, provisions in the Bill in relation to many other documents do not make similar reference to clause 1038, implying that there are, so to speak, two sorts of delivery, a “first class” status of “proper delivery” and a “second class” one of “mere delivery”. Such an inconsistency cannot be helpful to anyone and it leaves the status of documents that are “delivered” but not “properly delivered” somewhat uncertain.
It is important to be clear about what a company does and does not need to do in order to comply with the law when it submits documents. Clarity is provided by amendment No. 742, which makes it clear that in order for a document to be considered as delivered, it must be properly delivered in the terms of clause 1038. That clarity will be helpful to companies, so that they know what they need to do, and to Companies House, which needs to be sure when it can and cannot take action against a company. Introducing a consistent policy across the Bill has some implications for other clauses, which are dealt with by other amendments.
As the Minister said, these are largely drafting, technical and legal changes. We agree that they improve the Bill, so we have no objection to the amendments and new clauses.
Question put and agreed to.
Clause read a Second time, and added to the Bill.
New Clause 55
Court to fix date for transfer of undertaking etc of transferor company
‘(1) Where the court sanctions the compromise or arrangement, it must—
(a) in the order sanctioning the compromise or arrangement, or
(b) in a subsequent order under section 906 (powers of court to facilitate reconstruction or amalgamation),
fix a date on which the transfer (or transfers) to the transferee company (or transferee companies) of the undertaking, property and liabilities of the transferor company is (or are) to take place.
(2) Any such order that provides for the dissolution of the transferor company must fix the same date for the dissolution.
(3) If it is necessary for the transferor company to take steps to ensure that the undertaking, property and liabilities are fully transferred, the court must fix a date, not later than six months after the date fixed under subsection (1), by which such steps must be taken.
(4) In that case, the court may postpone the dissolution of the transferor company until that date.
(5) The court may postpone or further postpone the date fixed under subsection (3) if it is satisfied that the steps mentioned cannot be completed by the date (or latest date) fixed under that subsection.’.—[Margaret Hodge.]
Brought up, read the First and Second time, and added to the Bill.
New Clause 66
Application of Part 27
‘(1) The provisions of this Part apply where a compromise or arrangement is proposed between a company and—
(a) its creditors, or any class of them, or
(b) its members, or any class of them.
(2) In this Part—
“arrangement” includes a reorganisation of the company’s share capital by the consolidation of shares of different classes or by the division of shares into shares of different classes, or by both of those methods; and
“company”—
(a) in section (Powers of court to facilitate reconstruction or amalgamation) (powers of court to facilitate reconstruction or amalgamation) means a company within the meaning of this Act, and
(b) elsewhere in this Part means any company liable to be wound up under the Insolvency Act 1986 (c. 45) or the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)).
(3) The provisions of this Part have effect subject to Part (Mergers and divisions of public companies) (mergers and divisions of public companies) where that Part applies (see sections (Application of Part 27A) and (Relationship of this Part with Part 27)).’.—[Margaret Hodge.]
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.
With this it will be convenient to discuss the following:
Government new clause 67—Court order for holding of meeting.
Government new clause 68—Statement to be circulated or made available.
Government new clause 69—Duty of directors and trustees to provide information.
Government new clause 70—Court sanction for compromise or arrangement.
Government new clause 71—Powers of court to facilitate reconstruction or amalgamation.
Government amendments No. 520 to 522
Amendment No. 113, in page 421, line 31, Clause 901, leave out from ‘application’ to ‘the’ in line 32 and insert
‘from the company, a member or a creditor’.
Government amendments Nos. 523 to 529
Amendment No. 117, in page 425, line 5, clause 908, leave out ‘900’ and insert ‘899(1)’.
Amendment No. 118, line 20, after ‘undertaking’, insert ‘,’.
These new clauses replace the existing part 27, making a number of minor and technical amendments. Part 27 is part of the exercise of restating the Companies Act 1985. The provisions in part 27 concern reorganisations, arrangements and reconstructions within a company, and allow some types of merger or demerger to take place. They restate what is currently part 13 of the 1985 Act, without making any change in substance. Following our consultation over the summer, and particularly in light of comments received from the Law Society, we propose to delete clauses 899 to 908 in part 27 and replace them with new clauses containing amendments of a minor and technical nature. I hope that Opposition Members agree that their drafting amendments to these provisions—amendments Nos. 113, 117 and 118—should no longer be necessary in light of the Government changes, which replace the clauses that they address.
Let me explain the minor and technical changes that we propose. New clause 67 allows the court to order a meeting without having first received an application to sanction a scheme. What was clause 900 has been placed after what was clause 903 and becomes new clause 70. Clause 908, which provided a power to make regulations on mergers and divisions, has now been deleted. That should be welcome, as we are now including those provisions in full in the Bill. References to clause 908 have also been deleted. There are a few other minor drafting changes.
We have chosen to lift and replace the existing clauses largely because the Law Society had proposed some desirable reordering of the clauses, which we have adopted. If we had tried to achieve that through amendments, we considered that it would have been hard for Members to follow the end result.
As the Minister said, these are technical changes relating to arrangements and reconstructions, and they reflect the proposals of the Law Society. The only question that I had was whether amendment No. 113, which is a consequential change suggested by the Law Society, had been dealt with as part of the proposals that the Minister has just explained. I heard what she said about being satisfied that that had been addressed, and therefore I have no further objections.
I also have no objection to these new clauses. They are entirely reasonable and sensible. However, I wish to observe that amendment No. 118 makes an extraordinary powerful change; it brings in a comma. I observe for the benefit of the hon. Member for Hornchurch (Mr. Brokenshire), who tabled the amendment, that he should perhaps bear in mind the words of one of the great observers of political life on that kind of amendment, which he refers to as comma-hunting.
F. M. Cornford said:
“Another sport which wastes unlimited time is Comma hunting. Once start a comma and the whole pack will be off, full cry, especially if they have had a literary training…But comma-hunting is so exciting as to be a little dangerous. When attention is entirely concentrated on punctuation, there is some fear that the conduct of business may suffer, and a proposal get through without being properly obstructed on its own demerits.”
Question put and agreed to.
Clause read a Second time, and added to the Bill.
Question, That new clauses 67 to 71 be brought up, read the First and Second time, and added to the Bill, put and agreed to.
New Clause 77
Documents to be incorporated in or accompany copies of articles issued by company
‘(1) Every copy of a company’s articles issued by the company must be accompanied by—
(a) a copy of any resolution or agreement relating to the company to which Chapter 3 applies (resolutions and agreements affecting a company’s constitution),
(b) where the company has been required to give notice to the registrar under section 35(2) (notice where company’s constitution altered by enactment), a statement that the enactment in question alters the effect of the company’s constitution,
(c) where the company’s constitution is altered by a special enactment (see section 35(4)), a copy of the enactment, and
(d) a copy of any order required to be sent to the registrar under section 36(2)(a) (order of court or other authority altering company’s constitution).
(2) This does not require the articles to be accompanied by a copy of a document or by a statement if—
(a) the effect of the resolution, agreement, enactment or order (as the case may be) on the company’s constitution has been incorporated into the articles by amendment, or
(b) the resolution, agreement, enactment or order (as the case may be) is not for the time being in force.
(3) If the company fails to comply with this section, an offence is committed by every officer of the company who is in default.
(4) 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 for each occasion on which copies are issued, or, as the case may be, requested.
(5) For the purposes of this section, a liquidator of the company is treated as an officer of it.’.—[Margaret Hodge.]
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.
With this it will be convenient to discuss the following:
Government new clause 78—Resolutions to be forwarded to registrar.
Government new clause 79—Obligations of company with respect to articles etc.
Government new clause 80—Supplementary provisions where company’s constitution altered.
Government new clause 99—Notice to registrar of existence of restriction on amendment of articles.
Government new clause 100—Statement of compliance where amendment of articles restricted.
New clause 89—Unamendable articles—
‘(1) Notwithstanding anything in section 22, a company’s articles may provide that specified provisions of the articles may not be amended or repealed—
(a) except with the unanimous consent of the members, or
(b) in any circumstances.
(2) Provision for unamendable articles under this section may only be made in the company’s articles on formation.
(3) Provision for unamendable articles shall count for the purposes of this Chapter as provision for entrenchment.’.
Government amendments Nos. 688 and 206.
Amendment No. 790, in page 9, line 13, leave out Clause 22.
Government amendments Nos. 837 to 841 and 791.
Amendment No. 378, in page 9, line 31, Clause 23, leave out subsection (2).
Government amendment No. 792.
Amendment No. 379, in page 10, line 7, Clause 24, at end insert ‘by unanimous consent less one vote.’.
Amendment No. 380, in page 10, line 7, at end insert
‘by a resolution of at least 90 per cent.’.
Amendment No. 381, in page 10, line 7, at end insert
‘by a scheme of arrangement approved by the court.’.
Government amendments Nos. 689 to 697.
Amendment No. 4, in page 15, line 23 , Clause 36, at end insert
‘or such longer time as the court allows’.
Amendment No. 3, in page 15, leave out lines 26 to 30 and insert—
‘(b) if the order—
(i) amends the company’s articles, or
(ii) amends a resolution or agreement to which Chapter 3 applies (resolutions and agreements affecting the company’s constitution), or
(iii) gives leave for the company to make any, or any specified, alteration in its articles,’.
Government amendments Nos. 698 to 702.
Amendment No. 93, in page 461, line 21, Clause 963, at end insert—
‘(f) make provision for entrenchment as referred to under section 22.
(3) The court’s order must be embodied in or annexed to every copy of the company’s articles issued by the company.’.
Government amendments Nos. 703 and 704.
This series of clauses and amendments relates to a company’s constitution. Government new clauses 77 to 80 and amendments Nos. 206, 688 to 695 and 699 to 705 are drafting or minor technical amendments. They also make amendment No. 67, which is grouped with other amendments to part 19, unnecessary. Many of the changes made by these amendments have been prompted by Law Society comments or by amendments tabled by Opposition Members. They tidy up the drafting of various clauses that refer to documents of constitutional significance for companies, and we hope that some potential overlaps or ambiguities have been removed. Some cross-references have been added and some points of procedure clarified. We hope that the overall result is more internally consistent and user-friendly.
Amendment No. 696 has a long history, but its purpose is simply to tidy up the drafting of clause 34, following its amending in Committee, so that it states explicitly that the provisions of a company’s constitution take effect as if it was a contract between the company and its members. We are not changing the law—we are simply making it clearer that it means what it has been recognised to mean for many years, and we have removed an outdated reference to signing and sealing. We are all grateful to Lord Wedderburn for raising this issue in another place, and to the hon. Member for Huntingdon (Mr. Djanogly) for proposing in Committee the amendments that, as evidenced today, prompted us to think again about the clause.
I will largely confine my comments to amendment No. 790 and clause 22. This must be one of the most bizarre concepts in the Bill. Historically, members have been able to change their articles of association or amend their memorandums if they get 75 per cent. of the votes in a general meeting. The Government seem fixated with the concept of shareholders being able to entrench their rights, so that future members are unable to change the company’s constitution. The foremost question is why the Government want that to happen. We have seen no representations asking for the provision, but plenty of criticism. My hon. Friend the Member for Huntingdon (Mr. Djanogly) put that point in Committee, and the Minister replied:
“Why have a concept of entrenchment? Why go beyond a special resolution?...We have to look at the Companies (Audit, Investigations and Community Enterprises) Act 2004, which introduced new provisions that make it difficult to entrench provisions in articles. There was a demand for us to do so, particularly from social enterprise and community interest companies.”—[Official Report, Standing Committee D, 20 June 2006; c. 61.]
It seems strange that the Government should base the entrenchment provisions on the requirements of the roughly 300 community interest companies in existence. There is neither interest in nor demand for entrenchment from large companies, small family companies, venture capital companies, or from any of the tens of thousands of other companies that exist.
In Committee, the Minister agreed that CICs would have separate legislation and would not be consolidated. However, if she wants to present arguments for entrenchment in relation to CICs, surely separate legislation is the best place to do that? Amendments Nos. 790, 791 and 792 together would provide for those provisions to be deleted from the Bill. If I am given leave to do so, I should like to press amendment No. 790 to a Division, in order to test the House’s opinion on the matter.
I turn now to amendments Nos. 379 and 380. If the entrenchment clauses have to remain in the Bill, better provision should be made for removing them. I recognise that the Government have gone some way to accepting that through their introduction at an earlier stage of an amendment allowing entrenchment to be reversed by a unanimous vote. That was a step in the right direction. Furthermore, they propose to extend the provision to court orders that counter the entrenchment, and that is another welcome improvement. However, the Opposition believe that there is a need to go further, so amendment No. 379 allows for the fact that public companies always have more than one shareholder and that private companies, before 1989, had to have at least two. Many private companies still do have at least two shareholders, as they never got rid of the spare shareholder after 1989.
Public holding companies got around the provision by finding an individual—normally one of the directors—who would hold the second share, subject to a declaration of trust. That declaration meant that the director promised to act in accordance with the holding company’s wishes. In practice, those declarations were not always made, depending on the efficiency of the company secretary. Sometimes they get lost in the mists of time, and sometimes old forms get thrown away when a director leaves a company. As a result, getting unanimity can often be tough, and that is why we suggest that articles should be removed by unanimous resolution, less one vote.
Additionally, amendment No. 380 brings back into play a proposal originally put forward by Lord Hodgson. It would reduce to 90 per cent. the level of agreement required for the removal of entrenched articles. That 90 per cent. level would tie in with the amount required to buy out minorities in a takeover, and I also point out that 10 per cent. is the level needed to call a general meeting.
My main concern about the Government’s position in Committee was that if two individuals owned 100 per cent. of a company that they set up, they could at the outset put in place whatever provisions they wanted. The Minister came up with a compromise, saying that 100 per cent. of shareholders can end the entrenchment. That is an improvement, but we maintain that it is hardly most people’s idea of shareholder democracy. The Government need to make clear the concept behind their approach, as they have not yet done so.
We have tabled amendment No. 381 in accordance with the brief from the Institute of Directors in respect of the modernisation of company law. It states:
“Entrenching provisions need to be approached with care. In commercial companies they could be dangerous, as a company could be held to ransom by a single shareholder holding one share (if he has a genuine grievance, his remedy will normally be to apply to the courts). We think it is essential to make it explicit in the legislation that any entrenching provision (and any entrenched provision) may be a scheme of arrangement approved by the court regardless of absence of unanimity (or other level of approval stipulated in the constitution). We consider that this would reduce the impact of companies happily introducing a requirement for unanimity then living to regret it when the business cannot move on. We also think there should be no encouragement for commercial companies to adopt entrenching provisions. For instance, any model form of constitution for such a company should not include wording for entrenching provisions (even as an optional extra).”
That is another option that the Government could use to replace their restrictive provisions to reflect the wishes of many small and large companies.
Turning to amendment No. 378, clause 23 provides for a notice of entrenchment to be filed, but if an entrenchment resolution is passed, surely the resolution filed at Companies House, together with the revised version of the articles filed, should be adequate. I cannot think of any other compliance provisions, so I question the purpose of the extra piece of paper, particularly given our desire to be deregulatory. Furthermore, the measures will increase regulation. The director must ask a lawyer to confirm that the new notice is compliant. Even if it is blatantly the case that it is compliant, doing so is a belt-and-braces safeguard. The Government measure is unnecessary and will lead to trouble, so I urge the Minister to drop it. We should consider how we can improve shareholder democracy, not restrict it with entrenched provisions.
I note the Minister’s comments on the contractual arrangement between companies and their members. I certainly welcome that clarification of the law, given the history of such measures. Unfortunately, time does not allow me to discuss the matter in greater detail, or to talk about Lord Wedderburn and various other learned, legal minds, but we certainly welcome that aspect of the Minister’s proposals.
I shall be brief, and shall refer only to amendment No. 790, which the hon. Member for Hornchurch (James Brokenshire) mentioned, and new clause 89, which I tabled with my hon. Friends and which takes exactly the opposite direction from his amendment. Our view, at least on formation, is that companies should be allowed to entrench provisions. We would allow them to set up an organisation in which people had certain rights that only the court could take away, and which could not be removed even by agreement of all the members.
There is no ideological difference between the hon. Gentleman and me. We simply have a different perspective on what the law is for. Some lawyers think that their job is to create new organisations and institutions for people, and to do so in the way that their client wants. That is largely my view—the law should allow such institutions to be created according to the wishes of the people setting them up. The hon. Gentleman and the hon. Member for Huntingdon (Mr. Djanogly) view the law from the opposite perspective, and are concerned with legal professionals who think that it is their job to sort out problems that have been set up by lawyers for other people. There is conflict in the law between those who create and those who dismantle, and I am in favour of the creation lobby, not the dismantling lobby. I urge the Government to choose our way forward rather than theirs, although I suspect that they may stick with their middle way.
I would like to speak at length on this group of amendments, as some important issues are involved. However, I cannot do so because we have only two minutes before the guillotine falls, resulting in our failure to discuss the rest of the Bill. I shall just make the major point that the Government have failed, throughout proceedings on the Bill—I have looked at the record—to find anybody of any standing whatever who wants to include such a measure. I am always suspicious of Governments who want to regulate when no one wants them to do so. I am not suspicious of this Minister in particular, but I am suspicious of all Ministers. I am more suspicious of Labour Ministers, but I am suspicious of Ministers from all parties. I believe that Ministers have been led by the nose by civil servants in this case.
Someone, somewhere has decided that the provision is a good idea, and no one has discovered any reason why we should include it. We should not regulate if we do not need to do so. The Better Regulation Commission should look at the Bill, because we do not need this piece of regulation. No one has asked for it, and the House has not had a chance to debate it properly. It is another regulation that will pass into law without having been properly debated. The Minister will not even have time to answer me properly.
I do not have time to answer the right hon. Gentleman properly, but the issue has been discussed many times—probably about five times. I simply draw his attention to the fact that the proposition before us was not invented by civil servants, but emerged from the company law review. It has been debated and discussed with all stakeholders over a very long period, and on that basis has some credibility. We debated it in Committee. We have one view from the Liberal Democrats and a completely opposite view from the Conservatives, while Labour Members stand where they always do—representing the vast majority of people in this country—
It being Four o’clock, Madam Deputy Speaker put forthwith the Questions necessary for the disposal of business to be concluded at that hour, pursuant to Order [17 October].
Question put and agreed to.
Clause read a Second time, and added to the Bill.
Question, That new clauses 78 to 80, 84, 85, 87, 88A, 92 to 96 and 98 to 100 be brought up, read the First and Second time and added to the Bill, put and agreed to.
Question, That amendments Nos. 470, 471, 823, 472, 764, 718, 765, 719, 720, 473, 721, 766, 722, 688 and 206 be made, put and agreed to.
Amendment proposed: No. 790, in page 9, line 13, leave out clause 22.—[James Brokenshire.]
Question put, That the amendment be made:—
Question, That new schedules 1 to 3 be brought up, read the First and Second time, and added to the Bill, put and agreed to.
Remaining Government amendments agreed to.
Order for Third Reading read.—[Queen’s Consent, on behalf of the Crown, and Prince of Wales’s consent, on behalf of the Duchy of Cornwall, signified.]
Motion made, and Question proposed, That the Bill be now read the Third time.—[Mr. Michael Foster.]
This has been a very good learning process. I am delighted that we have now reached the Third Reading of the Bill.
I am proud to have been part of what has been the biggest reform ever, I think, of company law. The Government’s goal has been to increase competitiveness. We are committed to ensuring that the legal and regulatory framework within which business operates promotes enterprise, growth and the right conditions for investment and employment. We all recognise that we operate in an increasingly global marketplace. Our company law framework must enable business to flourish in the 21st century, where business and investment decisions are determined more and more by our global environment, and cross-border activity is commonplace.
Since this Government have been in office, we have been extremely successful in securing growth in British enterprise and growth in British jobs. New incorporations have risen by over 60 per cent. since 1997. Companies House adds 120 companies to its register every working hour. Indeed, the customer record for the fastest incorporation at Companies House is less than five minutes. The number of EU firms incorporating in the UK has more than quadrupled since 1997, and Britain is increasingly seen as the location of choice for international companies for manufacturing, research and development, marketing and European headquarters.
The Bill will make the UK an even more attractive place in which to invest and do business. It is a real step forward in the reform and modernisation of company law, so that the UK remains a leader in the world of business and finance. As I have learned, much of our company law dated back to Victorian times. Over the past 50 years, the law has undergone reform, but in a piecemeal fashion, leading to a body of law that is increasingly complex and inaccessible, especially for smaller businesses. The framework established by that law needed to be updated. It needed in-depth and considered reform. That is what we have delivered.
This Bill will bring many and important benefits to British business. Company law is a crucial part of the legal framework that promotes enterprise and growth. The Bill ensures that we can continue to grow our economy, providing the right conditions for investment, employment and modernisation. Our aim has been to maintain the UK’s position as a prime place to incorporate a business. I am confident that we have succeeded.
The Bill has also rightly attracted the attention of a much wider constituency. The Bill is significant for the culture it seeks to promote on corporate accountability. Our company law needed to reflect the new climate of corporate social responsibility. The importance of the issue to companies and citizens was reflected in the thousands of representations to MPs, and in the time that we spent on Report and before that debating the relevant clauses. In my view, we have taken some historic steps forward, which will help us to achieve long-term sustainability for businesses and for the communities and societies within which they operate.
Let me reiterate the Bill’s key themes. The first is to enhance shareholder engagement and create a long-term investment culture. The second is to ensure better regulation and a “Think small first” approach. The third is to make it easier to set up and run a company. The fourth is to provide flexibility for the future.
The Bill updates and simplifies the regulatory framework to reduce cost and increase flexibility for companies. The “Think small first” approach to regulation is at its heart, which makes it easier to set up and to run a company. It makes life easier for companies and their advisers by bringing company law together in one place, and by restating the law in clear, modern language. It is now a complete code of company legislation. It incorporates all the provisions in existing companies legislation except those on investigations, which go wider than companies, and the self-contained provisions on community enterprise companies.
I should make it clear that in introducing the restated clauses, we have not made changes to the law except to the extent necessary to ensure consistency with other parts of the Bill, and in some cases to ensure that the provisions comply with our European obligations. A complete code is what users want, and I am pleased that we have been able to deliver it.
At the heart of the Bill are the provisions on directors and shareholders. We have provided a statutory statement of directors’ general duties, which will make what is expected of directors much clearer. It recognises that to achieve sustainable success for the benefit of shareholders, directors should have regard to wider factors than short-term profit. Many businesses have long seen the link between long-term success and responsible behaviour, but we want all directors and all companies to behave in that way. Prosperity and responsibility go hand in hand.
We have carried forward the long-established principle of enabling shareholders rather than the state to be the primary regulators of corporate behaviour. Provisions to strengthen the involvement of shareholders and thus to promote a long-term investment culture are key parts of the Bill. There will be fuller reporting, and quoted companies will need to cover future challenges and opportunities as well as past performance. Investors holding shares indirectly will now be able to play a full part.
This is undeniably a long Bill, but it is also comprehensive. Now is not the time for me to go through all the ways in which it modernises and simplifies the law. Many of the changes are small, taken individually, but taken together they add up to a thorough-going reform that will help UK business to succeed in the future.
On Report, the hon. Member for Huntingdon (Mr. Djanogly) asked me for an indication of when the Bill’s provisions would commence. Because of time pressures, I did not respond then. I can say now that some of the provisions, such as those on takeovers and the transparency directive, need to be in place very soon because of our European obligations. As for the rest, there are strong interconnections. We have already received detailed views from interested parties on the factors that we should take into account in deciding on the timetable. I want to ensure that we implement the Bill in the way that will be best for business. We will announce our timetable for implementation before it completes its passage.
Let me say something about the way in which the Bill has been developed. I take particular pride in the inclusive and collaborative approach that we have adopted, and in the consistent and informed engagement of so many outside parties. I pay tribute to those who undertook the company law review, which was the inspiration for the reform process. The review brought together leading experts in the field, and many interested parties became involved in the deliberations both during the review and subsequently. I thank the many businesses and other organisations—including professional associations, trade unions and special interest groups—who worked with us so constructively in developing the legislation over time. I particularly thank the company law committee of the Law Society, which worked painstakingly to scrutinise the proposals at every stage. That includes the re-statement clauses added during the Commons passage. I believe that it is in large part thanks to that collaborative approach that the resulting legislation has generally been warmly welcomed.
I should also like to pay tribute to the parliamentary draftsman and his team. The clarity and simplicity of his drafting style has been much commented on and will, I know, be appreciated by generations to come who have to use our company law. I thank colleagues from all parties for their contributions to our interesting and constructive debates. I particularly want to thank those hon. Members who served so expertly on Standing Committee D and the Chairmen of that Committee for the thorough and detailed scrutiny of the Bill which took place there. My particular thanks go to my hon. Friends on the Labour Back Benches, who had to sit patiently through many hours and many sittings of Committee proceedings. They are not here today, but I will mention their names.
I thank my hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins), who was a member of the Committee until he was taken ill, but who has helped considerably on Report. He was replaced by my hon. Friend the Member for Broxtowe (Dr. Palmer). I also thank my hon. Friends the Members for Liverpool, Riverside (Mrs. Ellman), for Barnsley, East and Mexborough (Jeff Ennis) and for Newcastle-under-Lyme (Paul Farrelly). My hon. Friend the Member for Bedford (Patrick Hall) has played a constructive and active role, and I thank my hon. Friends the Members for Falkirk (Mr. Joyce) and for Bradford, West (Mr. Singh). My hon. Friend the Member for Burnley (Kitty Ussher) has been extremely helpful to me, and I also thank my right hon. Friend the Member for Leicester, East (Keith Vaz).
I thank Opposition Members who sat through the proceedings on the Bill. I hope that they accept that we listened constructively to the propositions that they made. I always tried where I could to incorporate them in the legislation. I pay particular thanks to my ministerial colleagues—the Solicitor-General and the Under-Secretary of State for Constitutional Affairs, my hon. and learned Friend the Member for Redcar (Vera Baird)—for their help and expertise in taking the Bill through and keeping me sane by supporting me in what was a massive task.
I pay tribute to our Whip, my hon. Friend the Member for Birmingham, Hall Green (Steve McCabe), who also had challenges facing him during the proceedings on the Bill and who worked extremely hard to ensure its proper passage. Finally, I thank the officials and reporters of the House, who have earned particular gratitude for coping with the challenges of dealing with legislation of this size and complexity and the many officials in my Department and across Government, especially Philip Bovey and Anne Willcocks, for the contribution that they have made in ensuring that we got this historic legislation this far.
This is a crucial Bill for UK competitiveness. Our company law has served us well in the past. With this Bill, we modernise and strengthen it and ensure that we create a firm platform for national business success. I commend the Bill to the House.
Reaching the Third Reading of this Bill has taken a long, long time. Right back in March 1998, the Government launched the company law review, as the Minister has said. There was then a good case for updating company law in this country. It is a case that has grown in the intervening years. Since then, we have had eight years to discuss the issues and two White Papers along the way.
In another place Lord Hodgson opened the debate in Grand Committee by saying:
“A journey of a thousand miles begins with a single amendment.”—[Official Report, House of Lords, 30 January 2006; Vol. 678, GC1.]
It is a view with which I wholeheartedly agree. I should like to return to the issue of the passage of the Bill shortly, but first I thank my colleagues in this House and another place who have worked extremely hard in the past year to improve the Bill. In another place, Lord Hodgson, Baroness Noakes and Lord Freeman made substantial improvements to it. In this House, my hon. Friend the Member for Huntingdon (Mr. Djanogly), who apologises that he has not been able to stay for this Third Reading debate, has done a marvellous job in keeping on top of the Bill’s more than 1,200 clauses and an even greater number of amendments.
I should also like to thank our DTI Whip, my hon. Friend the Member for Reigate (Mr. Blunt), who has been utterly determined and masterly throughout this long process. We have also had the welcome assistance on the Front Bench of my hon. Friends the Members for Hornchurch (James Brokenshire) and for Putney (Justine Greening), who have both worked so hard in Committee and on the Floor of the House. They have proved themselves to be professional and effective Members of Parliament.
Conservative Members support most of the Bill and the loudest dissent, it has to be said, has come from Labour Back Benchers. There remain only a small number of issues on which we disagree with the Government. That is due in good part to the Government having conceded our point on a raft of concerns—a point to which I shall return later in acknowledgement of what the Minister said a few moments ago. In wrapping up this long process, I should like to spend a little time dealing with some of the most important issues.
The question of directors’ duties has proved one of the most contentious as the Bill has proceeded and I would like to make our position clear and put a few points on the record. First, Conservatives agree with the ethos behind enlightened shareholder value, even though the Government have been unable—or perhaps unwilling—to provide a simple interpretation of what it actually means. We tabled a number of amendments to what will become section 173 because we did not believe that the clause as drafted represented the best statement of the enlightened shareholder value principle.
Although the wording has, to be fair, improved, the central problem with the clause remains. It is broad, vague and unclear and is capable of being interpreted in many different ways. That may be something that Ministers have used to their advantage during the Bill’s passage. When addressing business audiences, Ministers have claimed that the clause is merely a restatement of the status quo, but when talking to campaign groups such as the Corporate Responsibility Coalition, they have emphasised how much the new approach will change things. The lack of certainty goes to the heart of the issue, as the House should aim to pass laws that are clear about what it is they are meant to do. We should reject laws that are worded in such a way as to make recourse to interpretation by the courts inevitable.
Let me make another point clear. Our amendments have not been designed to make it easier for directors to ignore concerns about employee issues, social issues or the environment. My hon. Friends will know that we are calling on the Government to introduce a climate change Bill in the next Session. Such a Bill would contain concrete provisions on companies and their environmental impact. That is the sort of regulation that we Conservatives believe would work effectively. By contrast, the Government perhaps want to fob us off with the vague provisions of clause 173.
It was Lord Eldon, then Lord Chancellor, who set down in 1817 one of the fundamental tenets of company law—that the courts should not
“be required on each Occasion to take the Management of every Playhouse and Brewhouse in the Kingdom.”
Since that time, the judiciary has been rightly reluctant to interfere with the internal management of companies. Lying behind Lord Eldon’s phrase is the principle that, so long as the directors of a company act in good faith, decisions will not be revisited by courts with the benefit of hindsight. I am afraid that the Government’s phrasing may well end up undermining that commendable principle.
The second contentious issue relates to clause 22, which deals with entrenched provisions in a company’s articles. There are potentially two logically consistent positions that one can hold on this matter. The first was put forward by the hon. Member for Cambridge (David Howarth), who said that full and irreversible entrenchment was desirable and that companies should have the right to create articles that can then never be changed. I disagree with the hon. Gentleman for reasons that I shall come on to in a few moments, but it is a logically consistent position to hold. The second possible approach is one of flexibility, reflecting the fact that businesses need to be able to respond to a changing marketplace or to changing purposes as a company’s scope and activities change.
The changed circumstances that we will see in the future will mean that companies will have to change, but the people entrenching provisions in today’s companies are not able to foresee the changes that lie ahead. We should not allow the present shareholders to impose absolutely on future shareholders. Such fossilisation may entrench principles that are inferior and unsuitable for future circumstances. That is our position and it, too, is logically consistent.
The Government’s position, on the other hand, is not logically consistent. They have argued, and continue to argue, that there may be value in allowing companies to entrench articles, but now they say that it should not be irreversible. In Committee, the Minister said that they do not want companies’ constitutions set in stone, but they have allowed the unreasonable requirement of unanimity to change provisions. What is really unacceptable is that the Government’s programming did not even give time for that issue to be debated at all on Report.
Thirdly, we are concerned about directors’ conflicts of interest and that the tightening of what constitutes a conflict and, more important, how it is dealt with by a board will lead to experienced directors being unwilling to share their experience on other boards. Our fourth area of concern relates to the new derivative claims regime, which by broadening the scope for shareholder-inspired actions against directors could lead us to the US have-a-go litigation culture, with the associated risks of higher directors and officers insurance premiums and fewer people wishing to serve as a director. We must look at the implications of Sarbanes-Oxley, which are stifling small and medium-sized listed companies in the United States, and be sure not to repeat the same mistakes in the UK.
Our fifth concern is the requirement to disclose institutional voting. That provision is one of a large number of clauses introduced by the Government at the end of Committee. No time was given to debate it in Committee, or to give it proper scrutiny. We support institutional investors voluntarily declaring how they voted with the shares they own. However, we feel that making it compulsory could be counter-productive. If such declarations mean extra costs, extra paperwork and intimidation from campaign groups, institutional shareholders are more likely not to bother voting at all with the shares they hold, which would not be good news for shareholder democracy.
Our sixth area of contention—and Members will be relieved to hear, the last—concerns the business review. Here, too, the Government and others have misrepresented our position. We believe in and support the business review, and for the avoidance of doubt I shall explain why. Clause 423 refers to businesses reporting annually on
“trends and factors likely to affect the future development, performance and position of the company’s business”.
That is eminently sensible. Investors will be pleased to see the provision enacted and will be able to make better investment decisions as a result of the extra information made available to them. The next paragraph in the clause requires reporting on environmental and social matters, along with issues relating to the company’s employees, and is also covered by the phrase:
“to the extent necessary for an understanding of the development, performance or position of the company’s business”.
Again, that seems perfectly sensible from the point of view of investors and not over-burdensome from the point of view of quoted companies. Indeed, according to the Association of British Insurers all FTSE 100 companies were reporting at some level on social, ethical and environmental issues as long ago as 2003. British companies are leading the way.
What is happening with voluntary reporting is good news. The business review will improve things by making companies that currently report nothing report something. Even greater levels of corporate disclosure will be commonplace in the next few years, through the voluntary actions of companies that increasingly recognise—as the Minister said earlier—the business benefits of openness and transparency.
Companies I talk to broadly welcome the business review, as it gives them flexibility to refer to their social and environmental actions in their own way and in a way that is relevant to their business. However, there is just one small spanner in the works of the business review: the Government’s decision to table last Monday a new amendment on the subject. It is not as though they have not already tinkered enough with corporate reporting provisions. First, they consulted on an operating and financial review and then regulated for it. Then, last November, the Chancellor scrapped it without telling the Department of Trade and Industry. Nine weeks later, he U-turned again and agreed to consult on it again. Finally, in March, the Government formally scrapped it.
Let us be clear: indecision on that issue helps no one and achieves nothing. Many British companies already lead the world in corporate social responsibility. They want to act decently and to be seen to be doing the right thing; yet, without consultation and without so much as a courtesy phone call, the Government slipped in amendment No. 821 at the last possible moment. The effect of the amendment will be significant and wide-ranging. Again, the proposed wording is broad, vague and unclear. Of course, the Government’s programme motion for Report ensured that Members did not even get a chance to debate it.
I wonder whether my hon. Friend would note that it is not only indecision on the part of the Government that has caused the problem. The Government got almost every major company in Britain all teed up for the OFR. Then, once they had spent the money and got themselves prepared, it was thrown over by the whim of the Chancellor. Now, at the last moment, we have something else. Even those of us who are enthusiastic about greater reporting and transparency and an emphasis on corporate social responsibility have to say that to include a provision such as this, which is quite unknown in its effect, makes the whole thing worse. That is particularly true given that it has been included only to get the Chancellor off a hook—a hook that he put himself on and ought to stay on.
My right hon. Friend is absolutely right. The Government’s conduct made the grand old Duke of York look like a hero. It is unacceptable for the Government to make such a change at this stage and without consultation. As he suggested, the provision is clearly designed by Ministers to keep a few of their own Back Benchers quiet. That is not the right way to make good law. Ministers should know that without successful and thriving businesses in this country, there would be no jobs, no tax receipts and therefore no money for the critical public services that we all want to see. They should know that creating vague, vexatious and burdensome regulation for political reasons is bad for the country and the reputation of politicians.
I said on Second Reading that we broadly support the Bill and that it is pleasing that we have to disagree with only a handful of its many clauses. Despite the areas that I have just laid out, where I believe that the Government have got things wrong, I still believe what I said earlier. In fact, I think that we now agree on more areas of the Bill, because the Government, to be fair, have listened to the reasoned arguments of Conservative Members on a number of key issues. I welcome the fact—and express appropriate gratitude—that Ministers have recognised that in a Bill this large, it was not possible to get everything right the first time. By the process of listening to suggestions and arguments from both sides of the House, the Bill has been much improved. I am grateful to the Government for accepting some of our arguments and not being obdurate on everything just because we are the Opposition. We are, after all, here to make good law for the one country that we all represent.
I am not claiming that Conservatives have a monopoly on wisdom in the House, but on this matter, just as on synthetic phonics, tax in relation to soldiers in combat, integration in faith schools and many other issues, the Government have come round to our way of thinking. They accepted our arguments on the value of company secretaries. They listened to our calls for consolidation of the Bill with the Companies Act 1985. The Conservatives even changed the name of the Bill. The Solicitor-General was good enough to vote with us on that and I am grateful for that support.
The Government saw the error of their ways on what was the original part 31, which created a monstrous new kind of super statutory instrument. They have come to agree in part with my hon. Friend the Member for Huntingdon on the issue of the home addresses of directors and, in part, with our position on access to the register of members. Following arguments from my colleagues in another place, nominee shareholders will have a greater opportunity to participate actively in the companies that they own. Our arguments to reduce the numbers of forms have been accepted, as well as our arguments on a host of technical issues, for which practitioners have been grateful. Small and charitable companies will benefit from our work on audit rules for such companies.
I express our profound gratitude to Ministers for the positive way in which they have dealt with those improvements to the Bill. I add my special gratitude—echoing the Minister—to Department of Trade and Industry officials, the Clerks of the House and all the Officers of the House for the mammoth undertaking that has probably dominated their lives for the past six months or so. I hope that they have managed to get some sleep in the course of their hard work.
I will conclude with a few remarks about the progress of the Bill. I understand—no one has questioned this—that this is the biggest Bill in parliamentary history. It had more than 1,260 clauses when it left Committee and more clauses have been added since. We have considered many hundreds of amendments. The Government have tabled more than 600 in the past fortnight. Some of them are what the Minister would have described, if she had just found the word, as consequential amendments—amendments that follow naturally, out of logic, from amendments that have been made earlier. Inasmuch as many of the amendments are consequential, we accept that they do not necessarily need debate—if they are genuinely consequential. However, this has not been a satisfactory way for the House to make law. Hundreds of new clauses—ones that do matter and are not merely consequential—have never been debated at all; some because they were uncontentious, many because of the iniquity of the programme motion, and yet more because they were tabled only at the end of the Committee stage and time was not given on Report to correct that misdemeanour.
Yesterday, my hon. Friend the Member for Reigate raised a point of order because for reasons that I have outlined we wished to vote against Government amendment No. 821. Madam Deputy Speaker ruled, quite rightly and understandably, that if we were to vote against those two lines of text, we would be obliged to vote against several pages of perfectly sensible amendments as well. It is a pity that our processes do not allow us to press distinctive amendments to a Division.
We have kept a tally of what has not been debated. In Committee, 419 Government new clauses were not debated. On Report, 33 out of 52 subject areas that were selected by Mr. Speaker were not debated, along with 177 Government amendments, seven Government new clauses and one Government new schedule. I have been given a useful crib sheet saying that I can add to that 123 Government amendments, two new clauses and two new schedules—and, no doubt, a partridge in a pear tree.
I hope that the Government will learn from the experience of this Bill. By bringing forward more clearly directed legislation that is better consulted on in advance, and without tabling surprise amendments at the last possible minute, the Government can help to ensure that the House delivers better legislation, and they will thus trouble our courts less with questions of interpretation.
By and large, the Bill is welcome and good. However, I am certain that we will have to revisit elements of it in the not-too-distant future. Sooner than we would wish, it will be tested in the courts, and subsequent legislation will be required to tidy it up.
Company law is part of the hidden wiring of the economy. Immense problems are caused if it goes wrong, but no one notices if it goes right. The limited liability company was one of the great inventions of the 19th century. In many ways, it was more important than the technological inventions of that century. However, like all inventions and advances, it brings its own problems. The corporate form helps to channel investment into specific areas, but it also brings its inherent problems, which are classically problems for creditors. The corporate form helps new enterprises to get off the ground by separating an enterprise’s assets from the personal assets of the entrepreneur, but it also provides a vehicle for the concentration of economic power and a type of organisation in which responsibility is diffuse. The fundamental principle of company law for the past 150 years—I hope that it is maintained in the Bill—has been that people should be allowed to use the tool of the corporate form as they wish, unless there is a public interest that overrides that power.
We welcome the underlying themes of the Bill, especially the deregulatory and “Think small first” themes. However, we remain convinced of the need for regulation in specific areas not only to restrain harmful behaviour, but—this was the theme of our contribution to the debate on the OFR and the business review—to help the creation of new markets and forms of market. However, we fully accept that the Bill is an attempt to strike the same balance that has faced Parliament for 150 years in new economic and social circumstances.
I shall not go through all the areas of the Bill that the hon. Member for Rutland and Melton (Alan Duncan) mentioned. The Bill is far too long and complex for me even to attempt a summary of pros and cons at this stage, but I shall mention one aspect that he covered: directors’ duties. Our view is that the reform contained in clause 173 is a useful development. The Minister called it historic. I am not sure that it is historic, but it is an important advance. It has the effect of protecting directors who wish to follow corporate social and environmental responsibility to a greater degree than fund managers might like. It encourages a responsible attitude towards the environment and social matters, and taking a long-term view.
There are worries that the clause mandates that approach in a way that would be restrictive for directors and difficult for them to deal with. We do not believe that that is the case. We believe that the reform is well balanced, but there are problems with the directors’ duties area of the Bill. The hon. Gentleman mentioned that there was insufficient time to debate certain parts of the Bill. I draw the Government’s attention to one aspect of the directors’ duties, a chapter which I fear may produce difficulties in the future. I hope that they pay some attention to it.
I refer to clause 171, which we were due to debate yesterday, but it was in one of the groups that fell. The problem in the clause is that the Government have not fully made up their mind what the relationship is between the duties as they stand in the Bill and the law as it was before the Bill. It should have been possible to be clearer about which aspects of the Bill are reforms and are new, and therefore take precedence, and which areas are consolidations and codifications of existing law, in which case the previous law is highly relevant.
There might be a political problem for the Government in doing that. The hon. Gentleman mentioned the difficulty of having to say slightly different things to different audiences. The cost of not being entirely clear about what is reform and what is codification will be litigation. I hope that the Government will bear that in mind in future consideration of these issues.
The other matter to which I draw the attention of the House has been mentioned several times—the business review. As the right hon. Member for Suffolk, Coastal (Mr. Gummer) said, the history of this part of company law is somewhat chequered and includes an extraordinary double reversal in the past couple of years, with the Chancellor of the Exchequer looking for a symbolic gesture to show his commitment to deregulation and big business, then a subtle reversal, with the position in the Bill being halfway back to where we started, but not quite, in our view, far enough.
The problems in the Bill are, first, that the coverage of the review is not broad enough. The question is, not broad enough for what? Our view all along has been that one of the purposes of the review is to help ethical investors and ethical consumers, rather than just to help members of the company—shareholders for the time being—hold directors to account for what the company is doing at present. For us, the fact that only listed companies are covered is a problem. We think that ethical investors, and especially ethical consumers, have an interest in more companies than those that are listed.
Perhaps a bigger problem—it is the biggest problem with the state of the business review as it leaves the House—is to do with auditing. That is, I think, the single issue that motivated the Chancellor to remove the original operating and financial review. Ministers frequently refer to the cost of auditing the business review—previously the OFR—but the auditing requirement is central to the utility of the review, for creating and helping to develop markets for ethical consumption and investment. Only reliable information will help to create those new markets. We accept that that process will bring a cost to business, but we believe that the offsetting benefit of developing ethical investment and consumption far outweighs that cost.
The Bill will leave the House in a somewhat rough state—especially for a Bill that will have gone through its Third Reading in its second Chamber. Consideration has sometimes been very rushed—at times it has been close to shambolic. However, we all must accept responsibility for that, because I fear that the origin of the problems to do with the consideration of the Bill lies in the decision to use it as a consolidation measure, and not just as a reform measure. There is evidence in all parts of the House—there are fingerprints and traces everywhere—of all parties having been involved in that decision.
If it had been recognised all along that the intention was to go for consolidation, we might have started our consideration of the Bill at a different time of year and have thought about having a carry-over provision for it. We did not do that. Consolidation and codification is, indeed, a good thing, as the Minister said: having a Bill that covers as much of company law as possible in one place is a good thing. However, if we had thought about this matter better in advance, we might either have started earlier, or have done the reform first and the consolidation second at greater leisure. Nevertheless, speaking as someone who attended almost every Committee sitting and almost every debate on Report, I certainly do not want to start again at this stage, so I have no intention of opposing the Bill on Third Reading.
I thank all those involved in discussions on the Bill, especially my hon. Friend the Member for Solihull (Lorely Burt), who supported me throughout in Committee and on Report, and my hon. Friend the Member for Cheadle (Mark Hunter), who also attended the Committee. I also thank the Liberal Democrat team in the House of Lords, who brought to discussions an extraordinary depth of experience of business. I pay tribute to the hon. Member for Huntingdon (Mr. Djanogly)—unfortunately, he is not present—who displayed an extraordinary degree of persistence and accuracy in his attempt to get to the technical heart of a great number of questions. I also thank the other members of the official Opposition Front-Bench team for their courtesy and good humour throughout the Bill’s extraordinary progress.
However, I thank most of all the ministerial team, and especially the Minister for Industry and the Regions, who has had to pick up, and learn to master, an extraordinarily complex and difficult brief in a very short period. Those of us who have dealt for a long time with company law—in my case, a quarter of my life, and I spent 10 years teaching the subject at university—have been very impressed by what a quick and accurate learner of this area of law she has shown herself to be. The rest of the ministerial team are more legally experienced, but they have shown themselves to be able to adapt quickly and well to a new area of law.
I should also like to thank the Bill team and the civil service for the very helpful way in which they dealt with Opposition Members. It is perhaps unusual at a national level—it is rather less unusual in local politics—for there to be a good relationship between the civil service and Opposition politicians. That has been genuinely helpful in our effort to make genuine progress in getting legislation through this House.
At one stage in the past couple of days, the hon. Member for Huntingdon said to me that he wanted to be involved in this Bill because, for a lawyer, it is a once-in-a-generation opportunity. That is true. Company law reform of this sort comes through Parliament very rarely, but I have to say that I expect we now both hope that it is a once-in-a-lifetime experience.
It is with some trepidation that I contribute to the debate, after all the hard work that so many people have clearly done over so many months on such technical legislation. However, there is one issue about which I remain concerned: information about shareholders and directors. I tried to discuss it on Tuesday evening, but—as with many of the amendments that were tabled, and as my hon. Friend the Member for Rutland and Melton (Alan Duncan) explained—that subject was not reached.
My principal concern, which stems from my involvement in this area for more than 25 years, is people and companies that undertake scientific research that involves the use of animals. I know that the Government have considered, and will be consulting on, ways of making it more difficult for information on such people and companies to be accessible to those of malign intent. I hope that the consultation will proceed apace and that innocent people whose lives are made a misery, who suffer mental breakdowns, whose marriages break down, whose children are terrorised, whose property is vandalised and whose companies are brought to the brink of bankruptcy through the malign efforts of animal rights terrorists can be afforded some protection from their names and addresses being known.
I have constituents who have been targeted in that way, and many of my friends have been broken by the attentions of animal rights terrorists. I hope that the Government will proceed with great speed and firmness to ensure that while information on a company and its members and shareholders can be made available, it is not available to those who wish to do them harm. As I said, I hope that the consultation will proceed apace and that the Government will quickly come up with serious measures to deal with this issue.
This is a new development, and it is particularly important to me because I understand that the name of the company that is allegedly building the primate laboratory in Oxford is well known to animal rights terrorists. That company—if it is that company—is also likely to be involved in building Olympic provision. If the animal rights terrorists, having obtained such information, behave in the same way toward the Olympics and everybody involved in it—that includes all the athletes, trainers and suppliers worldwide—we can only tremble at the prospect of what could happen to our Olympic games. That is the seriousness of the situation, and it is the reason why I have risen, with trepidation, to intervene at this very late stage to implore Ministers to ensure that there is no way that those people can ever gain access to any of that information.
I want to make a few brief points at the end of the debate. The length of the Bill has been commented on, and it is the biggest ever to go through the House. When I was a student—more years ago than I care to remember—I used to carry many legal volumes. I think that modern law students and lawyers must be thankful for the invention of the CD-ROM.
We have heard a lot about enlightened shareholder value being the cornerstone of the Government’s policy for company law in the 21st century. I believe that our system limits enlightened shareholder value, as the bulk of most large companies’ shares are controlled by institutions or other large companies. The hon. Member for Rutland and Melton (Alan Duncan) dismissed problems to do with disclosure about how institutions vote, but it is a vital matter. Many of us do not hold shares as individuals, but the institutions to which I referred control our pension funds or other investments. If we are serious about ethical investment, we need to know how they deal with those matters on our behalf. One of the most important facets of the Bill is that it will give many small shareholders the information that they need to understand what is happening to their investments.
A couple of days ago, I spoke to clause 173, which was presented as a way of improving directors’ responsibilities in respect of the environment and other matters. As I said, the clause is a step forward, although it does not go far enough. We will have to revisit the matter, as the world is changing. I heard this morning that the Conservative party, like the Liberal Democrats, is discussing green taxes. I am sure that other parties will follow suit, which means that all companies will have to change. That will have a knock-on effect on how directors react and companies work.
Another strand to the argument has to do with the proposed climate change Bill. If such a Bill comes before the House, that too will have an impact on companies. It does not contradict what has been achieved with this Bill to say that the climate change legislation must place a responsibility on directors to react to environmental issues.
Finally, it has been noted that many clauses have not been discussed, although the huge number of clauses means that we would still be talking next Christmas if we had debated all of them as much as some would have preferred. However, we did not discuss the important new clause 3, which was due to be debated today. It deals with the liability of UK companies for the actions of their overseas subsidiaries.
I raised the matter on Second Reading, when I said that the legal system in many developing countries is not sufficient to allow people to gain redress for the actions of companies. The Secretary of State said that he would be very reluctant to encourage widespread litigation in UK courts simply because remedies might not be easily available in some countries. However, if we as a developed nation are not prepared to give people the opportunity to take matters to court—and only a small number of UK companies would be involved—we are failing our responsibilities to the developing world.
The Government argue that the Bill is not the place to deal with such matters, but it codifies the law affecting UK companies so, if it is not appropriate for the purpose that I have set out, what would be? We have been told that the Bill sets out company law in the 21st century but it has been noted often enough over the past few days that the world is changing. Companies have to change with it: issues to do with the environment and trade justice are much more to the fore, and companies need to reflect our changing times. This was the time and the place to tackle the issue, and to ensure that UK companies were at the forefront in accepting responsibility for their actions, and those of their subsidiarie overseas. The best of our companies already do that; I stress that we are not talking about the majority of companies, which act responsibly in most areas. One of the problems is that people in many developing countries cannot easily get access to the courts. We have a well developed legal system, and a massive Bill on what our companies can do. We should have taken that extra step and allowed justice to prevail for those affected by the actions of some in the third world, and it is a shame that we did not.
I thank all Members for their contributions, particularly those who were on the Standing Committee. Britain is part of a global economy. Nobody owes us a living in that economy, so we must ensure that we modernise our industry and our tax laws. As the hon. Member for Cambridge (David Howarth) said, we must modernise the hard-wiring of the economy—the company law—and we must get it right. That is what we have done during our consideration of the Bill.
The Bill had a very long gestation—it was eight years in consideration, and the company law review looked into all aspects of company law. Initially, the legislation was the Company Law Reform Bill, and it then became a consolidation Bill. We have struck the right balance between ensuring that we build on the need for an enterprise economy and introducing the right element of regulation. We thus create fairness for shareholders and allow them better control over the companies in which they invest. Rightly, in addition to considering those issues, we looked into the subjects of animal rights and terrorism, and some of the other problems that the hon. Member for Beckenham (Mrs. Lait) identified in her contribution.
I thank all those who have contributed, particularly my noble Friend Lord Sainsbury and my right hon. and learned Friend the Attorney-General, who spoke in another place. I thank my right hon. Friend the Minister for Industry and the Regions for the way in which she piloted the Bill through its stages. It is a major reform that modernises Britain’s company law, and it will make our economy stronger. In no small part, that is thanks to her dedication and effort in ensuring that the Bill becomes law.
Question put and agreed to.
Bill accordingly read the Third time, and passed, with amendments.
Health Care (Suffolk)
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Heppell.]
I wish to discuss national health service provision in Suffolk as a whole, and in my constituency of Suffolk, Coastal, in particular. I begin by making two points to the Minister. First, I recognise that additional funds have been put into the national health service—indeed, I not only recognise the fact, but support it. Secondly, I recognise his good faith and the fact that he has shown competence and directness in handling the issues of the national health service since he took over the job. For that reason, I hope that he will not take some of the hard things that I will say personally, or as a comment on what is happening across the country.
My case is that Suffolk has particular problems that are clearly not of our own making, or the making of the people whom the Government have put in charge of our national health service. The key figures are simple. In the pecking order of 304 primary care trusts that, until recently, were in operation, Suffolk Coastal was 210th, receiving 91.5p against a standardised average of 100p. However, if we look at the number of over-65s in the 646 UK constituencies, we see that my constituency ranks 16th. My Suffolk, Coastal constituency and Suffolk Coastal PCT are not entirely coterminous but, to all intents and purposes, that is a perfectly reasonable comparator. As age is the biggest determinant of need in the health service, one would expect a rough correlation between areas with a higher proportion of old people—22 per cent. of my constituents are over 65, many of them are very old indeed, and a high proportion live in single-person households—and areas where the NHS receives an above-average sum from central Government.
The correlation would not be exact, as there are other issues to take into account, but there is a serious mismatch between my constituency, which is ranked 16th of 646 constituencies, and the PCT, which is ranked 210th of 304. That is neither right nor sensible. The fundamental problem is not one of spending but of under-resourcing. The way in which the Government hand out money makes it impossible to provide even an average service, as we receive less than average per head. The figures are even tougher for Suffolk as a whole, as the county receives 82 per cent. of the average funding, even though the average age of the people who live there is at the upper end of the spectrum.
The Government’s own quango, the Countryside Agency, which is responsible for dealing with the countryside, has pointed out that rural provision costs 70 per cent. more than urban provision. The cost of health cover in rural areas is 74 per cent. greater than it is in most urban areas. As the area is almost entirely rural, the funding arrangement is not sensible. On the Government’s own figures, it ought to receive a higher than average sum, not a below average sum. It is not just one PCT or one hospital that has overspent its budget over many years but every PCT and hospital.
To misquote Lady Bracknell, for one PCT to overspend might be thought an accident but for every PCT and hospital to overspend must be considered carelessness. The question is, whose carelessness? It is not, I submit, the carelessness of the heterogeneous collection of people appointed by the Government to run our local services—it is the Government’s carelessness in a number of specific instances. The amount of money accorded to those institutions is unsatisfactory. Every indicator suggests that we should receive more than average, but the Government have decided to give us less than average. Every indicator suggests that it is more difficult to provide services in that part of the country, but the Government have decided that it should receive less than other areas.
Everybody knows that old age is the major indication of need for help by the national health service, but the Government have decided that it is not suitable as a proper reflection of the situation when it comes to deciding what the resources shall be. They have changed the way in which they measure by reference to a deprivation index. I am all in favour of that, except that that it is what is necessary for a preventive health service, yet we have an acute health service. Perhaps the Minister would like to have something different, but that is what it is. That means that we have to try to determine the real measure of the need for acute services: again, it is age that really matters.
So who is being careless? First, the Government are being careless because their method of sharing out the money detracts from the ability of anyone in Suffolk to deliver the service that should be delivered. Secondly, the people whom the Government have put in charge are being careless. I do not know what the strategic health authorities do for their money. When one asks them whether their purpose is to represent to the Government the needs of their areas, they say no—that is down to Ministers. If one asks them whether it is to keep the PCTs within their spending limits, they say no—that is down to the PCTs. When we ask Ministers what their purpose is, they tell us that they are supposed to keep the local PCTs, hospital trusts and the like within their spending limits. Why the blazes, then, was the PCT overspending with no reference to the strategic health authority?
I am enjoying my right hon. Friend’s contribution, as will all patients in Suffolk. He may remember that it was said of the Holy Roman Empire that it was neither holy, nor Roman, nor an empire. Does he agree that the strategic health authority is neither strategic, nor about health, nor an authority on anything?
My meetings with those at the strategic health authority, which were wrung out of them—their incapacity to respond to Members of Parliament is legendary—led me to be even more depressed than I had expected due to their inability to answer any of my questions.
Irrespective of the Government’s carelessness in not reforming the method of handing out the money, if the strategic health authority had been doing its job it would have stopped the overspending of all PCTs and hospital trusts—that is what it must be there for. The fact that it did not beggars belief. But do the Government fine it? Are they placing on it the responsibility for paying the debts? No—not at all. It is still there, hectoring, except that it now has an even bigger remit—a larger area to fail to administer and to be an authority for.
It is of course unfair to ask PCTs to provide 100p-worth of services for 91.5p-worth of resources—although it is not really 100p-worth because it should be providing what would cost 72 per cent. more, according to the Government’s own figures from the Countryside Agency.
Primary care trusts should therefore probably provide 110p or 115p-worth of services and it is hard to ask them to work on the basis of 10, 15 or 20 per cent. below the resources that they should have. Even so, that is their job. It is why they are paid and why they are there. They are accountable to no one except the Government.
The Government appoint PCT members, although there is an arm’s length organisation that finds hitherto unfindable people who serve on the boards—most of them unknown to the people whom they represent. None of the non-executive members of our strategic health authority comes from Suffolk or Norfolk, which are two of the largest affected counties. None of them knows about our specific problems. However, they are appointed by the Government. If the appointments commission proposed someone unsuitable, such as me, I doubt whether the Government would confirm the appointment. I have some names that I would like to suggest to the Minister but he will not accept them because the Government want people who kowtow first to the authority and then to them.
The Government, having got the sort and class of people they want—those who do what the Government demand and do not stand up for local people—find that their appointees cannot deliver the goods. Do they fine them? Do those people have their salaries reduced or removed? No. The Government reappoint them and fine my constituents. They say that, because people had more money spent on them in the past than the figures suggest should have been spent, present and future generations must pay.
Waveney PCT was close to paying all its debts and was in credit on a year-on-year basis. However, the Government decided that, far from helping it with the extra money that they promised, it will be fined to help pay for other people whom the Government have failed to control.
The Government are fining my constituents—what is the result of that? It means that NHS provision in my constituency is worse than it was 25 years ago when I was first elected. If the Minister finds that surprising—and it is surprising, given all the extra money—let me explain. In November, the Bartlet hospital, which is a community hospital—the Government have decided to find £300 million to increase the provision of such hospitals—will be closed. The building was presented to the people of Felixstowe through the honourable work of doctors who wanted to provide beds for those who came out of hospital and needed to convalesce. It was especially important for people who live in rural areas and find it difficult to go back to their homes, which are often unsuitable for those who are disabled, at least for a time. Many of them are elderly. People in that part of Suffolk, which I did not originally represent, will no longer have the Bartlet hospital. Some refurbishment will occur in Felixstowe general hospital but there will be a lack of beds for rehabilitation and aftercare, which has existed for all those 25 years.
Let us consider Ipswich hospital. I am glad that the hon. Member for Ipswich (Chris Mole) is present. We have had little support from him in our battle for Ipswich hospital and that is sad. If Ipswich were represented today by Jamie Cann, Ken Weetch, Dingle Foot or Richard Stokes—four fine former Labour Members of Parliament—they would have been battering on the Minister’s door. The Minister would hardly have been able to move without their saying, “Do something about Ipswich hospital.” Perhaps the hon. Gentleman has conducted a secret battering, but we have had no support for our fight for Ipswich hospital. I am pleased that he is here because I can give him the figures—I do not think that he knows them. He has certainly not protested about them in our local newspapers. There are going to be 357 redundancies at Ipswich hospital. That figure was confirmed this morning by the hospital’s chief executive, and it represents 10.1 per cent. of the work force.
Hon. Members who have listened to the Leader of the House try to explain away the redundancy figures in the national health service will realise just what that means. It is no good the Minister looking through his papers to try to explain how they will not be compulsory redundancies. It is funny how redundancies are no longer called that. All sorts of other phrases, such as “readjustment of staff”, are used.
Redeployment and modernisation.
Service redesign.
Indeed. So far as my constituents are concerned, however, this is going to be a 10.1 per cent. reduction in the work force, and that will include 31 nurses. There are 100 job losses at Ipswich for every nine in Peterborough. That shows the pressure on Ipswich hospital, which serves my constituency and those of my hon. Friends the Members for West Suffolk (Mr. Spring) and for Bury St. Edmunds (Mr. Ruffley), who have fought a noble battle in the absence of any support from the Member of Parliament who ought to be out there on the streets with us.
There are problems not only in Ipswich but in Aldeburgh, a town of some 2,500 people—a bit more if we include the villages round about. Five hundred of those people are over 65 and living on their own. The Aldeburgh cottage hospital—now the Aldeburgh community hospital—is exactly the kind of community hospital that the Secretary of State is supposed to be in favour of. Aldeburgh has halved the number of beds, even though people in the locality have raised a considerable amount of money in recent years to provide them. Those beds were serving the community; now they are not. Of course, we are told that this is because of a redesign of services.
That redesign of services is based on the premise that there will now be carers in the community, and that the social care system will be able to go out there and look after people. This illustrates what I mean about the decline in the service that is being provided. Any sensible reorganisation would have put the care in the community in place first, and reorganised the hospitals second. If this had not been a matter of saving money, that is how it would have been done. When I talked to people in Ipswich hospital today, as I have done over many months, they made the point that they were happy to move to new frameworks and systems, but that they did not want to move to the new one after the old one has been closed. We should keep the old one until the new one is seen to be working.
The Minister is unfortunate in that he does not spend much time in my beautiful constituency. It has 74 miles of coastline and more than 100 communities, it is very lovely and it is a long way from anywhere. That is a very good thing. In my constituency, however, there are very few carers. The Minister’s whole argument is based on the premise that enough carers can be found, but I have to tell him that people who pay for carers with their own money cannot find them. There are not even enough carers to meet the present demand, although there is still the full number of beds in the Bartlet and at Aldeburgh.
My neighbour, my hon. Friend the Member for Central Suffolk and North Ipswich (Sir Michael Lord), is not able to participate in this debate because of his position as Deputy Speaker, but he has exactly the same problem in the Hartismere hospital, which I used to represent. That hospital is also under threat, and it will certainly not continue as it is. It will probably be put out to some kind of privatised arrangement, and it might be closed altogether. The fact is that, yet again, we are discussing another community hospital serving an area where carers are almost impossible to come by.
If one in five of the population is already over 65, it is not surprising if it is quite difficult to find carers. That is why the situation is worse today than it was 25 years ago. Of course, it is worse too because then people could go to All Hallows hospital in Ditchingham, just over the border, where Anglican nuns have been caring for people in the most exemplary manner for a very long time. That is to be stopped: the respite and palliative care for the terminally and incurably ill is funded partly through the primary care trust and partly through contributions, but the PCT is withdrawing funding. That threatens the whole service.
The service is worse than it was 25 years ago, and I am sure that the Minister will want to apply that to the whole service, because 25 years ago if people needed a doctor in the night, they could get one. Then, we had a domiciliary calling service. Try that today. On dentistry, 25 years ago, I never had complaints that people could not get on the list of an NHS dentist, but now, of the 14 dental practices in Suffolk, Coastal, only one is taking on new NHS customers. So, I wrote to the Minister’s predecessor, who did something that I do not think this Minister would do—he wrote me rather a nasty letter saying that I could have found out about that myself by getting in touch with NHS Direct.
I had written about a constituent in Felixstowe who was unable to get on a list for an NHS dentist. That Minister sent me a list of eight NHS dentists who were, he said, within 10 miles of my constituent’s home. Four were within 10 miles and they were indeed NHS dentists, but none was taking on new patients, at least for the moment. I looked with enthusiasm to the other four, only to find that they were all in Frinton.
NHS Direct does not realise that there is a river between Felixstowe and Frinton or that it is some 50 miles to Frinton and 50 miles back. Unless people can swim, they cannot get an NHS dentist in Felixstowe. This Minister has to bear the brunt of the fact that we in my part of the country do not believe that NHS Direct understands.
What makes the difference? Why do we not get the money? Why have our community hospitals not had any of that £300 million? Why are our community hospitals closed? Why are other community hospitals kept open? Could it be that the one thing that distinguishes most constituencies in Suffolk is their political representation?
I was chairman of the Conservative party, and during my chairmanship I would neither have asked, nor been allowed, to play any part in the decisions on the closure of hospitals. I have talked to my colleagues who have been chairman of the Conservative party and they assure me that the same was true of them.
I spent some eight or nine years as a Cabinet Minister. As Secretary of State for the Environment, I would no more have allowed a political person to come in and decide how I would work out the money for local authorities than I would fly. The same was true of deciding whether to close or open MAFF offices when I was Minister of Agriculture, Fisheries and Food. I would have considered that dishonourable and wholly unacceptable.
Indeed, when I was making decisions on supermarkets and out-of-town development, I remember insisting that my officials remove the names of the supermarket companies, because one naturally had those that one liked and those that one did not. I believed it proper always to make those decisions at arm’s length.
I am not in any way criticising the Minister, but when we discover that hospital closures are discussed by Ministers in the presence of the chairman of the Labour party, the right hon. Member for Salford (Hazel Blears), we must think seriously about a connection between political representation and the closure or opening of community hospitals. That connection has been made clearer by the list produced by The Times. Surely it is not a matter of accident that all the closures have been in Conservative-held seats, except for a small number in Liberal Democrat-held seats. As I understand it, none of the closures so far has been in a Labour-held seat. I hope that the Minister will tell us how much of the £300 million is earmarked for Hartismere and Aldeburgh, the two community hospitals left in central and eastern Suffolk.
What is the effect of all that on the confidence of my constituents? We have an older population than almost anybody else, and we get less money. We have a more expensive service than almost anybody else—that is on the Government figures—and we get less money. We have a real problem with one-person households over the age of 65, and we get less money. All our PCTs and hospitals have gone into the red and have historic debts to pay off. The Government have taken no responsibility for that at all. All they have done is make our situation worse by fining Waveney, which had got itself into the right position, and, as far as the rest of us are concerned, by forcing people to pay back the money in a single year.
I therefore have five simple questions to put to the Minister. First, of the four community hospitals, Beccles, Lowestoft, Halesworth and Southwold, none of which is currently threatened, two are in the constituency of Suffolk, Coastal held by the Conservatives, and two are in the marginal constituency of Waveney, which will not be held by the Conservatives until after the next election. Does he therefore accept that we will watch carefully to see that all four remain open and that a choice is not made on the basis of political representation or the nature of marginal seats?
Secondly, will the Minister agree to go back, look at the debts and recognise that the local PCTs are underfunded? To enable them to return from their current terrible base to some kind of service that equates with what was there 25 years ago, and certainly that equates with what the Labour Government would no doubt say they are proud to have achieved in other parts of the country, does he agree that those debts will either be cancelled, as has happened in a number of cases, or paid without penalties over the next five years?
Thirdly, the Minister of State, Department of Health, the right hon. Member for Doncaster, Central (Ms Winterton) told the strategic health authority that the old services would not be closed before the new services were in place. In front of me and the hon. Member for Ipswich, who was present on that occasion, she said clearly that that was what should happen, and the SHA said that it could not happen, because it did not have the money. Does the Minister therefore accept that the services will not be closed until working replacements are in place throughout the county of Suffolk?
Fourthly, will the Minister consider the appalling position of midwives? It will now be almost impossible for women to have babies at home in many rural parts of Suffolk because of cuts, reduction in grading and the fact that that is another area in which savings can be made.
Finally, will the Minister promise me that he will talk to Suffolk county council about the pressures that are now being exerted on its social services department? The department is already hugely overspent, and has already been cut because of the Government’s pusillanimous post-election arrangements for the county council. Will he promise to sit down with members of the county council and establish what extra help it can be given to deal with the situation with which it has been left after the closure of so much of Suffolk’s heath provision?
I have said all that without going into the detail of the appalling cuts affecting those who are least able to defend themselves—the mentally handicapped in my constituency and elsewhere. I must tell the Minister that I cannot think of a circumstance in all my years as a Member of Parliament in which I have seen a national service that is much prized, much loved and much depended on destroyed by an accounting system that is manifestly bent away from the needy in Suffolk.
I congratulate my right hon. Friend the Member for Suffolk, Coastal (Mr. Gummer). I hope that the Minister heard the genuine passion in his speech. It is shared by the other Conservative Members in the county, all of whom face the same huge problem.
Let me take this opportunity to pay tribute to the staff of the NHS in Suffolk. My right hon. Friend talked of the staff cuts at Ipswich hospital. My hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley) knows from his constituency what is happening at West Suffolk hospital. I can tell the Minister that the collapse in morale among wonderful, caring professional people—our nurses, doctors, ancillary workers and community nurses: all those who make the NHS work—is devastating. They come up to us in the street, sign petitions and take part in marches. They simply cannot understand that in this country, the fourth richest in the world, we are seeing the decimation of something that is of great value and cherished by the people of this country: our national health service.
I think the Minister will agree that the clergy are not always ready to come forward on issues that may be controversial. I have lived in the county of Suffolk for a long time, and I am sure that my right hon. Friend finds the same. The clergy in the western part of Suffolk were so horrified by what was happening to the health service that, as a result of pressure from parishioners who approached them expressing concern about the decimation of services, a petition was organised throughout western Suffolk and signed by more than 1,000 people. I believe that that is unprecedented in the history of our county.
I became a Suffolk Member of Parliament in 1992. At the time there was a discussion about reorganisation, and I witnessed the disappearance of West Suffolk health authority. I was told that it was necessary for reasons of economies of scale, procurement and all the other things that would benefit a larger, pan-Suffolk health authority. Not many years ago, against the professional advice of people in the NHS and the county and, indeed Members of Parliament, five primary care trusts were created—all with their chief executives, staff and headquarters, and with all the attendant costs—allegedly to bring health services closer to the people whom they served. Well, of course, we then landed up with three PCTs. Now guess what: we are back to square one and to having only one PCT. Why? It is because creating services allegedly close to the people somehow has not worked. We are now back to large-scale procurement, economies of scale, cheaper purchasing and all the rest of it.
And new offices.
I will come on to the question, you bet, of new offices.
My right hon. Friend the Member for Suffolk, Coastal talked about the funding formula. I happen to have been a member of the Health Committee before 1997, and I think I have understood something about the funding formula for the NHS. When there was a change of Government and the funding formula was modified, my hon. Friends the Members for Bury St. Edmunds (Mr. Ruffley) and for South Suffolk (Mr. Yeo) went to see the then Secretary of State for Health to point out the very issue that my right hon. Friend has talked about—the impact that the funding formula would have in areas where the age profile of the population was older than in many parts of the country. He gave the assurance that it would be monitored and since then, as the Minister will confirm, there have been many changes which have further enhanced the gap between the so-called deprivation index and the age profile. This is at the heart of the problem.
In 2007-08 in my constituency the per capita spend on the NHS will be £1,156. In the Prime Minister’s constituency it will be £1,576. That is a £420 difference, up from £391 in the current year. The figure in my constituency is comparable to that of my right hon. Friend the Member for Suffolk, Coastal and my hon. Friend the Member for Bury St. Edmunds and is well below the national average, for the reasons that my right hon. Friend described. Of course, that is at the heart of the problem. The funding formula is skewed in a way that has made the adequate funding of the NHS in Suffolk well nigh impossible.
We have heard something about the strategic health authority. I invited members of the SHA in the first instance to come to London to talk about what very obviously two years ago was going to be a crisis in our county. They came, and I well remember the meeting because there was definitely an atmosphere of “You Members of Parliament are being hysterical. We are carefully watching the situation.” They showed the most extraordinary complacency. However, something must have dropped—the penny or whatever—because only a few weeks later the chairman and chief executive resigned. Perhaps they had begun what they should have done, which was to look at the figures for what was going on in the county, and they did not want to be around when something started hitting the fan.
We had another meeting subsequent to that, with the new chief executive. I remember the atmosphere there as well. It was extremely aggressive. “We are sorting this out”, they told us. They had recovery plans. The idea that there would be massive deficits was a huge exaggeration, because the authority had the matter under control. That simply was untrue. At the most recent meeting there was an admission of total despair and an acceptance that everything that we had forecast to the SHA had materialised. If a strategic health authority could not look at the figures from all the PCTs in the then three counties under its control and see what was so screamingly obvious to the Members of Parliament and which it should have picked up—that a crisis was developing—I have no understanding of what SHAs exist for. They simply have not been doing their job. That is exactly why they should have no right to exist. They are now conducting an exercise to look at the future of our acute care services in the region. I simply dread to think what they will do, given the performance that we have suffered from these people in the past.
Let me deal with the extent of the deficits. The county of Suffolk has some 650,000 residents. It seems to me as we look at the figures that the current deficit in the county is about £64.5 million—the cost of the creation of the new PCT. That includes the health trusts and the hospitals. We know, for example, that Suffolk West PCT has passed on a deficit of £16.1 million to the new PCT; and we know that in the east of Suffolk, the PCTs have passed on a total deficit of—
It being Six o’clock, the motion for the Adjournment of the House lapsed, without Question put.
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Heppell.]
The deficit in east Suffolk is £35.4 million, with the deficit in the West Suffolk hospital trust at £14.4 million, leaving a total of about £50 million. We understand—and my right hon. Friend the Member for Suffolk, Coastal will know that the information has been checked and published—that the shortfall in the Ipswich hospital may reach something approaching £50 million in the course of next year. We are therefore talking about a huge emerging deficit on top of the existing one and the possibility of some so-called user charge of 10 per cent. That would mean a staggering deficit in the region of £100 million.
I shall put a further point to the Minister. We hear about savings, but it is rather like putting something that costs £1 up to £1.50, then reducing it to £1.40 with an announcement of a 10p saving. That is exactly the logic of the situation. There have indeed been attempts to make savings, but the pattern of deficits—both current and, in particular, historic—has continued to rise.
We have had some discussion of rehabilitation beds and I must say that I took some comfort from the Secretary of State’s remarks that community hospitals should not close on short-term financial grounds. Newmarket hospital in my constituency, for example—a 10-year-old hospital that is much valued and cherished by the local community—is in danger of losing its rehabilitation beds. The bed spaces have to be used because of the repeated crises happening at the West Suffolk PCT and at Addenbrooke’s—almost constantly on black and red alerts. In those circumstances, they have to move people into the bed space simply to accommodate individuals.
In respect of the Newmarket hospital, 1,000 people marched in protest at the removal of these beds and a massive petition was organised. The problem is well known to everyone who works in the hospital, where morale is, of course, extremely low. As my right hon. Friend rightly said, if the beds go, it is a fantasy to suggest that there are appropriate support structures in the local community. There are already not enough carers and the idea that somehow this is all about modernising care or bringing it into the 21st century with all its support structures is simply untrue. We have heard the warnings from Lord Bruce-Lockhart about the pressures on social care budgets all over the country in the forthcoming year. Why has all this happened? It is partly to do with the funding formula, but it is difficult to get proper and adequate information about the real extent of the deficit. The proof of the pudding lies in the cuts in services and the sackings of staff.
We now have a new Suffolk PCT and the first thing that it did was to create a new headquarters—an interesting decision. If a family is in great difficulties, it does not move house, but makes do. I make that point very simply and we look forward to a meeting with the new chief executive of the new PCT, at which a whole series of important questions will be asked.
In conclusion, the Minister should recognise that it is a truly extraordinary situation when people who believed that the health service would protect them find that it is being demolished in front of their eyes. Of course there have been some improvements in aspects of primary care and I accept that there have been improvements in other spheres, but our acute care services are under threat and it now looks as if our community beds are very much under threat. The deficit and the debts come together to create an impossible situation. Ultimately, the problem comes down to fairness. It is about fairness to people living in Suffolk who are watching what is happening to their health service and who look at other places where the funding formula does not have such a negative effect. They feel that they are being treated extremely unfairly.
rose—
Order. Before I call the next speaker, I ask Members to recognise that the Minister may need a little extra time to reply to the right hon. Member for Suffolk, Coastal (Mr. Gummer), who initiated the debate.
Thank you, Mr. Deputy Speaker. As you may gather, it was not my intention to intervene in the debate, but given the length of time available I want to address some of the issues that have been raised.
I am particularly concerned about the co-ordinated attack that has been made, because I was the victim of such an attack from Conservative Members when I was the leader of Suffolk county council. They cloned a debate from Kent, in which the county council had been attacked by Kent Tory MPs, so it is a pity that such an attack has been made again today.
The comments of the right hon. Member for Suffolk, Coastal (Mr. Gummer) were unfortunate, especially because, as a constituency MP, I have regularly engaged with my health trusts—the Ipswich primary care trust, which was the predecessor to the Suffolk East PCTs, the Ipswich Hospital NHS Trust and the Suffolk Mental Health Partnership NHS Trust—and my understanding is that until some of the events described, the right hon. Gentleman had not set foot in Ipswich hospital for some years. The partisan comments we have heard this evening are regrettable; they have avoided a balanced look at developments in our local health economy.
We have heard nothing about what has happened in terms of key issues for many of our constituents, such as waiting times for elective surgery at Ipswich hospital. In April and May last year, more than 500 patients had been waiting more than six months. Unfortunately, the hospital has not yet met its target; at present, one person has been waiting for more than six months for elective surgery. At the same time last year, more than 500 out-patients had been waiting more than 13 weeks from their visit to their GP to their first appointment. However, I am pleased to say that the number is now zero; none of our constituents are on that waiting list.
We need to be honest about the situation. Clearly, there are financial challenges that all trusts have to address, but we must not wrap all the service changes into them. It is unfortunate that we have heard some rather head-in-the-sand observations, more focused on buildings and beds than outcomes for patients—the sort of things that our constituents expect us to deliver across the public service remit: not bricks and mortar, but services.
There are changes in the nature of surgery, such as day surgery. In the past, a day’s preparation and several days’ recuperation in an acute hospital were needed; nowadays, the procedure can be completed in 24 hours and the patient is back where they want to be—at home—as soon as possible. That reduces demand for the number of beds in an acute hospital such as Ipswich hospital and for the number of operating theatres, some of which, according to the hospital management, have been running at as little as 50 per cent. capacity recently.
We need to be responsible, to face up to the realities of some of those changes and to ensure that, when people move on from hospital, they get the support that they want. It is not necessarily just about social care, which was the focus of some of the comments from Opposition Members. The important thing is the intermediate health care that follows somebody’s time in an acute hospital. Given that focus, I suppose that it was not surprising that there was no mention of the £2 million developments in intermediate health care and the opening of the new Bluebird Lodge in my constituency, which is designed to provide modern, 21st century facilities for all sorts of patients, including older people. There is a particular focus on physiotherapy and active engagement. By that I mean not just letting people sit in what might be termed a recuperation hospital, but possibly in an old Victorian establishment that does not meet people’s needs in the 21st century and where people do not get active intervention to allow them to lead independent lives.
I will mention the social care situation, because it is clearly important and, to a degree, it is a linked issue. During the 12 years that Labour was in leadership in Suffolk county council, the number of home care packages were expanded enormously. The number had been cut under the Conservatives up until 1992. It is, of course, disappointing that the instant that Suffolk county council returned to Conservative control, those resources went backwards again, as other choices were made about spending on rural minor roads or whatever.
I am not prepared to stand here and hear our health services done down by the Conservative party. If any of the Opposition Members had made the effort, as I did, to ask about the relative per capita funding of our trusts in Suffolk, going right back to 1987, under the old Anglia and Oxford region, which I am sure the right hon. Member for Suffolk, Coastal will recognise from his days in government, they would know that that trust was funded below the national average at exactly the same level as the situation today. As I am sure that the Minister will explain, the formula recognises the needs of older people, as it does the needs of those who have disadvantages in their health.
Let us look at what has been happening at Ipswich hospital. I mentioned some of the service performance improvements, but there are some tough decisions being made. It is particularly regrettable that there have to be some reductions proposed in the specialist nurse services, which, apparently, the hospital is not commissioned to provide. At the same time, other changes are being made to the clerical and administration posts and to consultant secretaries. All those things are making significant contributions to the savings that the hospital needs to make to get into balance, as it has always been required to do statutorily.
Despite all that, we want to see a health service that is fit for the 21st century. I welcome the fact that, among the developments, is our brand new linear accelerator at Ipswich hospital, which is improving the delivery of cancer services—they are among the best in the UK. My constituents have only to drive by to see the construction of the brand new Garrett Anderson building, which will provide new accident and emergency services.
Will the hon. Gentleman join me and all those who are served by district general hospitals in Suffolk and Norfolk to fight any cuts to accident and emergency services, which, if the rumour mill is to be believed, could well be the result of the strategic health authority review that is due by the end of the year? Will he join me in the fight to save A and E services in our district general hospitals, especially in Ipswich and West Suffolk hospitals?
I make a habit of not listening to the rumour mill. I have found it interesting to see on the local media that there are campaigns going on all over our region that are based on rumours. I would not like to hypothesise about the origins of those rumours, but it seems that they are being used for particular political ends. Building on the investment in the accident and emergency department at Ipswich hospital, in which no one of course waits more than four hours for their treatment, I am confident that we will see in the Garrett Anderson an even better and further improved accident and emergency facility, and I have no doubt that it will be there for many years.
I congratulate the right hon. Member for Suffolk, Coastal (Mr. Gummer) on securing the debate. I know that he pays a great deal of attention to the issues that he raised, and I do not doubt the sincerity with which he brought them to the House. I know that many people in Suffolk will be watching this debate and looking at its outcome, so I also thank the hon. Members for West Suffolk (Mr. Spring) and for Bury St. Edmunds (Mr. Ruffley) and my hon. Friend the Member for Ipswich (Chris Mole) for attending.
Like the right hon. Member for Suffolk, Coastal, I want to congratulate NHS staff in Suffolk on the hard work that they have put into improving services and performance. Thousands of people are receiving high-quality care and safe services each day. The best of the NHS in Suffolk is among the best health care in the world, so we should all be proud of its achievements.
We are midway through a 10-year NHS plan. The achievements that the NHS is making nationally are outstanding. Waiting times for in-patient treatment have fallen to 26 weeks, compared with 18 months or more in 1997. The maximum waiting time for an out-patient appointment with a consultant has been halved to only 13 weeks, and 98.8 per cent. of patients are now seen, diagnosed and treated within four hours of arriving at an A and E department, as my hon. Friend the Member for Ipswich said.
I set out that context because although I was grateful for the kind words of the right hon. Member for Suffolk, Coastal as he opened the debate, I felt that there was a significant lack of balance in his contribution and that of the hon. Member for West Suffolk. Wild claims were made about the state of the national health service in the region. I do not believe that the claim that the NHS is worse than it was 25 years ago can be backed up by evidence. I will substantiate that remark, but I urge the right hon. Gentleman, who is an experienced parliamentarian for whom I have a great deal of respect, to consider whether several of his claims reflect the reality on the ground in his constituency. All the achievements to which I referred are being carried out in his constituency.
In some ways I will now go off my script. I took it that the crux of the contributions made by the right hon. Member for Suffolk, Coastal and the hon. Member for West Suffolk was the funding formula, so let us deal with that head on. During his speech, the right hon. Gentleman said—I think that I quote him correctly, but if I do not, I am sure he will put me straight—that old age should be the major indication of need in the national health service and that his area should thus get more than average.
May I refer the right hon. Gentleman to a document that his own party produced in the past month, which called for NHS funding
“to accurately reflect the burden of disease”?
That is a direct contradiction of the argument that he put to the House. The burden of disease does not equate to old age. Indeed, longevity may be a sign of good, not bad, health.
Let us consider some of the differences in the burden of disease. I take my constituency as an example, to make the comparison real. In my constituency, the cancer mortality rate per 100,000 for people under the age of 75 is 134. In Suffolk, Coastal the corresponding figure is 102. The coronary heart disease mortality rate per 100,000 population for people aged under 75 is 83.80 in my constituency and 35.52 in Suffolk, Coastal. The incidence of stroke among the under-65s is 11.72 in my constituency and 5.04 in Suffolk, Coastal. The Conservative party is telling the Department of Health that health funding should follow “the burden of disease”. From those figures, the right hon. Gentleman will see clearly where that burden lies.
What is the claim made by all the Conservative Members who have spoken in the debate? Is the claim that health funding should not follow the burden of disease—should not go to where the need is greatest—or that it should? I am genuinely confused about the position of the Conservatives on the issue, which they said was the crux of the debate.
Of course there are areas of the country that have always been recognised as areas of special deprivation. For example, there are problems of bronchial diseases in some parts of London. That has always been recognised in the funding of the health service.
indicated dissent.
Of course it has. It would be absurd not to recognise that. At base, there is a question of balance. If a funding formula creates a situation where hospitals are in crisis and are sacking people, that is not fair or balanced.
The Black report was not recognised by the hon. Gentleman’s Government. That ground-breaking report on health inequalities was not recognised. That is why there are health inequalities that still shame this country and why there is an unacceptably large gap in life expectancy between parts of the north and parts of London. The lowest male life expectancy in the country is in Manchester. There is a gap of some eight, nine or 10 years between parts of London. Health inequalities have not been adequately recognised. That was the point of the Conservatives’ document, but this evening I hear a different argument played out to me.
Let us be clear. The claim was for more money for the PCT, but the document says something different. If we followed the logic of the document on the basis of the figures that I gave, there would be more money going to other parts of the country, rather than less. I do not go along with that argument. We need a balance across the system, but we must recognise where ill health is greatest.
At the last general election each and every one of the Opposition Members present stood on the patient’s passport proposal. Each and every one of them voted against the national insurance increases to help fund the national health service. Is there not a twinge of shame that in their contributions there was not a jot of recognition of the stance that they took and what that would have done to health services in Suffolk, had we listened to the Conservative party? Is there not a minute when the words ring a little bit hollow and they feel a little ashamed of some of the claims that have been made? I would, if I were in their place.
The right hon. Member for Suffolk, Coastal claimed—to borrow his words—that they are not getting any money, or anything else, and that the decisions are all political. There was no mention of the £1.4 million that is being invested in Felixstowe to turn the old general hospital into a modern community hospital, which will include a day treatment centre, 16 in-patient beds, musculoskeletal services and a range of other clinics and services. Work is due to commence on that project next month—on 7 November, I believe—but there was no mention of that in the right hon. Gentleman’s contribution.
The hon. Member for Bury St. Edmunds did not speak for long, but I did not hear any mention of the £600,000 in capital and revenue that is being invested in Mount Farm surgery in Bury St. Edmunds, enabling 3,000 more patients to register with the surgery and to have access to an extended range of services. That backs up my point that there was no balance in the remarks that were made. Real improvements are being made on the ground in the hon. Gentleman’s constituency. It is misleading to claim that everything is being done according to a predetermined political agenda and that no investment is being made.
I turn to some of the more general points that were made about funding as a whole. The NHS is in receipt of record resources because of the Government’s funding policy. Funding has increased from a little over £34 billion in 1997-98 to more than £69 billion in 2004-05. It will increase further still, to £92 billion, in the next financial year.
NHS organisations have always been expected to plan for, and achieve, financial balance each and every year. If the Opposition are claiming that there should be no financial rigour in the system—that organisations should be able to spend more than they receive—that is an interesting position to adopt, but it is not one that we will follow. It must be said that the current financial situation in Suffolk cannot be attributed to a lack of funding. The four primary care trusts in Suffolk collectively received allocations of £659 million for this financial year. The NHS is required to generate a break-even position in 2006-07. All NHS organisations—including, of course, those in Suffolk—are expected to achieve run-rate balance by the end of this year.
It does not help local people’s understanding of the difficulties and pressures that all health systems in developed countries are under when wild claims are made about a particular situation. I think that I heard the hon. Member for West Suffolk, who made a long speech, say that he expected there to be a £100 million deficit next year.
indicated assent.
That is a wild claim that does nothing to aid local people’s understanding of the pressures on the system, or to enable them to know whether the quality of health services can be sustained. I make a plea for some facts in this debate, so that we can let people make their own judgments. Talking about a rumour mill does not help when the rumours are perhaps being started in this very Chamber. Let us have some balance and facts in this debate and some leadership from politicians in their communities. Let them explain the changes happening to health services locally and ensure that people understand the issues that we face.
Will the Minister give way?
I have just a moment left.
The right hon. Member for Suffolk, Coastal asked me five questions and I will write to him in detail on all of them. On the question of Suffolk county council, which he mentioned, my hon. Friend the Member for Ipswich was absolutely right. While social care does need the funds to provide an adequate level of service throughout the country, the right hon. Gentleman should perhaps talk to his colleagues on the county council to ensure that they give sufficient priority to social care and deliver the services that we all want to see.
This has been a long debate and we have covered a lot of ground. I am grateful for the opportunity to put some facts on the record, because I believe that they were severely lacking in the contributions that we heard this evening.
Question put and agreed to.
Adjourned accordingly at half-past Six o’clock.