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Column 288(2) Proceedings on the Bill at a sitting of the Standing Committee on the said 18th May may continue until Ten o'clock whether or not the House is adjourned before that time, and if the House is adjourned before those proceedings have been brought to a conclusion the Standing Committee shall report the Bill to the House on 19th May 1989.
Report and Third Reading 2.--(1) The proceedings on consideration and Third Reading of the Bill shall be completed in one allotted day and shall be brought to a conclusion at midnight on that day ; and for the purposes of Standing Order No. 80 (Business Committee) this Order shall be taken to allot to the proceedings on consideration such part of that day as the Resolution of the Business Committee may determine.
(2) The Business Committee shall report to the House its Resolution as to the proceedings on consideration of the Bill, and as to the allocation of time between those proceedings and proceedings on Third Reading, not later than the fourth day on which the House sits after the day on which the Chairman of the Standing Committee reports the Bill to the House.
(3) The Resolutions in any report made under Standing Order No. 80 may be varied by a further Report so made, whether or not within the time specified in sub-paragraph (2) above, and whether or not the Resolutions have been agreed to by the House.
(4) The Resolutions of the Business Committee may include alterations in the order in which proceedings on consideration of the Bill are taken.
Procedure in Standing Committee 3.--(1) At a sitting of the Standing Committee at which any proceedings on the Bill are to be brought to a conclusion under a Resolution of the Business Sub-Committee the Chairman shall not adjourn the Committee under any Order relating to the sittings of the Committee until the proceedings have been brought to a conclusion.
(2) No Motion shall be made in the Standing Committee relating to the sitting of the Committee except by a member of the Government, and the Chairman shall permit a brief explanatory statement from the Member who makes, and from a Member who opposes, the Motion, and shall then put the Question thereon.
4. No Motion shall be made to alter the order in which Clauses, Schedules, new Clauses and new Schedules are taken in the Standing Committee but the Resolutions of the Business Sub-Committee may include alterations in that order.
Conclusions of proceedings in Committee 5. On the conclusion of the proceedings in any Committee on the Bill the Chairman shall report the Bill to the House without putting any Question. Dilatory motions 6. No dilatory Motion with respect to, or in the course of, proceedings on the Bill shall be made in the Standing Committee or on allotted day except by a member of the Government, and the Question on any such Motion shall be put forthwith. Extra time 7.--(1) On the allotted day paragraph (1) of Standing Order No. 14 (Exempted Business) shall apply to the proceedings on the Bill for two hours after Ten o'clock.
(2) Any period during which proceedings on the Bill may be proceeded with after Ten o'clock under paragraph (7) of Standing Order No. 20 (Adjournment on specific and important matter that should have urgent consideration) shall be in addition to said period of two hours.
(3) If the allotted day is one to which a Motion for the adjournment of the House under Standing Order No. 20 stands over from an earlier day, paragraph (1) of Standing Order No. 14 (Exempted business) shall apply to the proceedings on the Bill for a period of time equal to the duration of the proceedings upon that Motion. Private business 8. Any private business which has been set down for
Column 289consideration at Seven o'clock on the allotted day shall, instead of being considered as provided by Standing Orders, be considered at the conclusion of the proceedings on the Bill on that day, and paragraph (1) of Standing Order No. 14 (Exempted business) shall apply to the private business for a period of three hours from the conclusion of the proceedings on the Bill or, if those proceedings are concluded before Ten o'clock, for a period equal to the time elapsing between Seven o'clock and the conclusion of those proceedings.
Conclusion of proceedings 9.--(1) For the purpose of bringing to a conclusion any proceedings which are to be brought to a conclusion at a time appointed by this Order or a Resolution of the Business Committee or the Business Sub-Committee and which have not previously been brought to a conclusion, the Chairman or Mr. Speaker shall forthwith put the following Questions (but no others)--
(a) any Question already proposed by the Chair ;
(b) any Question necessary to bring to a decision a Question so proposed (including, in the case of a new Clause or new Schedule which has been read a second time, the Question that the Clause or Schedule be added to the Bill) ;
(c) the Question on any amendment or Motion standing on the Order Paper in the name of any Member, if that amendment is moved or Motion is made by a member of the Government ;
(d) and other Question necessary for the disposal of the business to be concluded ;
and on a Motion so made for a new Clause or a new Schedule, the Chairman or Mr. Speaker shall put only the Question that the Clause or Schedule be added to the Bill.
(2) Proceedings under sub-paragraph (1) above shall not be interrupted under any Standing Order relating to the sittings of the House.
(3) If an allotted day is one on which a Motion for the adjournment of the House under Standing Order No. 20 (Adjournment on specific and important matter that should have urgent consideration) would, apart from this Order, stand over to Seven o'clock--
(a) that Motion shall stand over until the conclusion of any proceedings on the Bill which, under this Order or a Resolution of the Business Committee, are to be brought to a conclusion at or before that time ;
(b) the bringing to a conclusion of any proceedings on the Bill which, under this Order or a Resolution of the Business Committee, are to be brought to a conclusion after that time shall be postponed for a period equal to the duration of the proceedings on that Motion.
(4) If an allotted day is one to which a Motion for the adjournment of the House under Standing Order No. 20 stands over from an earlier day, the bringing to a conclusion of any proceedings on the Bill which, under this Order or a Resolution of the Business Committee, are to be brought to a conclusion on that day shall be postponed for a period equal to the duration of the proceedings on that Motion.
Column 290Supplemental orders 10.--(1) The proceedings on any Motion made in the House by a member of the Government for varying or supplementing the provisions of this Order (including anything which might have been the subject of a report of the Business Committee or Business Sub-Committee) shall, if not previously concluded, be brought to a conclusion one hour after they have been commenced, and paragraph (1) of Standing Order No. 14 (Exempted business) shall apply to the proceedings.
(2) If on the allotted day the House is adjourned, or the sitting is suspended, before the time appointed by this Order or a Resolution of the Business Committee as the time at which any proceedings on the Bill are to be brought to a conclusion, no notice shall be required of a Motion moved at the next sitting by a member of the Government for varying or supplementing the provisions of this Order. Saving 11. Nothing in this Order or a Resolution of the Business Committee or Business Sub-Committee shall--
(a) prevent any proceedings to which the Order or Resolution applies from being taken or completed earlier than is required by the Order or Resolution, or
(b) prevent any business (whether on the Bill or not) from being proceeded with on any day after the completion of all such proceedings on the Bill as are to be taken on that day.
Recommittal 12.--(1) References in this Order to proceedings on consideration or proceedings on Third Reading include references to proceedings, at those stages respectively, for, on or in consequence of, recommittal.
(2) On an allotted day no debate shall be permitted on any Motion to recommit the Bill (whether as a whole or otherwise), and Mr. Speaker shall put forthwith any Question necessary to dispose of the Motion, including the Question on any amendment moved to the Question.
Interpretation 13. In this Order--
"allotted day" means any day (other than a Friday) on which the Bill is put down as first Government Order of the Day provided that a Motion for allotting time to the proceedings on the Bill to be taken on that day either has been agreed on a previous day or is set down for consideration on that day ;
"the Bill" means the Self-Governing Schools etc. (Scotland) Bill ; "Resolution of the Business Sub-Committee" means a Resolution of the Business Sub-Committee as agreed to by the Standing Committee ; "Resolution of the Business Committee" means a Resolution of the Business Committee as agreed to by the House.
Column 291Companies Bill (Lords)
Order for Second Reading read.
Mr. Newton : I am sure that the House will understand if I speak crisply and do not say too much by way of history or generalisation. This is a significant Bill of 167 clauses, much of it the product of extensive public consultation and detailed discussion in many quarters. Its essential purpose is to bring company law up to date, to reflect changes or prospective changes in the business environment--for example, the development of the European single market ; to implement changes in policy, for example, those directed to reduce unnecessary burdens on business and to deal with problems that experience has revealed in the existing provisions--for example, to make changes to the rules for disclosures of interest in shares and to refine and strengthen the powers to investigate companies. In view of the terms of the Opposition's motion, it is most emphatically not the present Government's view that the law should contain blueprints for the internal management of companies in matters where the general public is not at risk. The Opposition's motion refers to participation by employees. Not only do we have nothing against worker involvement, but we have accepted into the Bill new provisions to make it easier to set up partnership companies and employee share schemes. However, I should make it clear that we are not inclined towards the imposition of particular models of employee participation or involvement by compulsion through the law. The overall purpose of the Bill is to provide, in today's circumstances, a system of company law that meets the needs of enterprise, not least in ensuring open markets, while at the same time giving clear safeguards for those who invest in companies or do business with them.
I turn now in more detail to the individual parts of the Bill. Part I is concerned with the production of company accounts, obviously a pillar of company law. The Bill implements the seventh European directive, which deals with group accounts. It requires all groups in Europe above a certain size to prepare consolidated accounts on a defined basis.
The Bill will require better information to be given on the effect of acquisitions on the position of a group. While not specifically required by the directive, this is a feature that we have introduced in response to widespread concern at the confusing, and arguably misleading, ways in which some companies deal with acquisitions at present.
The Bill also gives effect to a decision announced last year to allow listed companies to provide their members with summary financial information rather than full accounts, unless the members indicate that they want to receive the full accounts. This is intended to help shareholders generally to have key information in an accessible form, but I emphasise that any member who wishes will still be able to receive the full accounts free of charge.
Column 292Clause 19 introduces a new definition of a subsidiary undertaking which is wider than the existing definition in the Companies Act 1985 and introduces tests based on control and dominant influence, to replace the existing test based simply on holding a majority of equity share capital. We are widening the definition in this way to bring many of the so-called "off-balance sheet vehicles" back within the consolidation. Off-balance sheet vehicles are an artificial device, typically controlled by the parent but kept outside the letter of the existing definition of a subsidiary. Their increasingly widespread use could undermine the value of consolidated accounts. We intend to curb their abuse.
Having made those points, I should emphasise that, as under the present law, the general requirement of accounts to give a true and fair view of a company's affairs will remain paramount. In any conflict with the detailed rules, that provision will override. It is important that that should be understood.
Before leaving part I, I remind the House of the announcement last week of the Government's decision to bring forward legislation relating to the Dearing report on setting and enforcing accounting standards. That will be done by introducing amendments part I in Committee.
I turn now to part II which deals with the regulation of auditors of company accounts--
Mr. David Winnick (Walsall, North) : To satisfy our curiosity, before the Minister goes any further will he tell us whether it is the intention of the Government to keep in the Bill the amendment that was passed in another place on political donations?
Mr. Newton : I now turn briefly to part II which deals with the regulation of auditors of company accounts. It too derives from a European directive which requires us to give statutory force to rules which previously were set and administered by professional accounting bodies on their own behalf. We have sought to achieve this without erecting an unnecessarily burdensome or expensive regulatory system as it is right to acknowledge that we have no general sense of dissatisfaction with the quality or conduct of firms and individuals carrying out company audits or of the professional bodies which regulate them.
Part III of the Bill implements the measures my right hon. Friend the Secretary of State announced in May last year following a review of investigation powers and procedures. The measures amend and extend provisions relating to investigations under the Insurance Companies Act 1982, the Companies Act 1985, the Insolvency Act 1986 and the Financial Services Act 1986.
Two of the measures recommended following that review which did not require legislation have already been put into practice with good effect. The main investigation and enforcement activities of the Department have been brought together in a new investigations division. This, together with an increase in resources allocated to investigations, has already led to investigations being concluded in a much shorter time, despite an increase in the overall number of inquiries. Inquiries begun in 1984
Column 293took an average of three years five months to complete ; inquiries begun in 1987 and completed have so far taken an average of 18 months.
Mr. Bob Cryer (Bradford, South) : I am sure that we are all pleased that inquiries are taking a shorter time to complete. Is the right hon. Gentleman concerned that it is necessary to introduce part III, which gives greater powers to investigate companies? Are those powers necessary because the enterprise culture, so much supported by the Government, is a corrupt culture?
Mr. Newton : No. The provisions in the Bill seek to support the changes that we have already introduced, to which I have just referred, in three main ways--by adjusting or extending the circumstances in which inspectors may be appointed and in which such appointments may be directed or terminated ; by simplifying or enhancing powers to obtain and disclose information ; and by enabling us to investigate on behalf of overseas regulators.
Clauses 76 and 77 would empower the Secretary of State to require the provision of information, the production of documents, or other assistance for the purpose of assisting an overseas regulatory authority in the exercise of its regulatory functions. Those powers are broadly similar in scope to domestic investigation powers and are subject to certain safeguards.
Part IV of the Bill concerns the registration of charges on companies--for example, in connection with loans. The overall aim is to provide a better register that will be of assistance to those offering advice to companies and it will reduce costs at Companies house, which will be to the benefit of those who pay for its services.
A second deregulatory element in part V of the Bill is the provision which permits the shareholders of private companies by unanimous vote to dispense with certain specific provisions of company law designed for their own--I emphasise "their
own"--protection. Part V also implements some new proposals enabling a wider range of financial assistance to be given by companies to support employee share schemes and to facilitate the setting up of partnership companies. I mention those proposals as I know that they will be welcomed by the Opposition.
Among the other features of part V, I will confine myself to mention clause 108 only, which tightens the rules in the Companies Act 1985 for the disclosure of interests in shares. This clause implements proposals that were announced in 1987 following the review of takeovers. In our view, a greater degree of disclosure is needed to protect the interests of shareholders, especially in the run-up to a possible takeover bid. That brings me naturally to part VI of the Bill that concerns mergers and related matters. One provision I should mention is the new voluntary pre- notification system that will offer bidders a formal procedure for clearing merger proposals in advance, with a timetable for a decision. Provided that they give the Office of Fair Trading certain information, and meet the other conditions, they will receive automatic clearance within four weeks, unless they hear to the contrary.
That should cover the vast majority of simple cases which raise no competition or other concerns. Where cases
Column 294raise problems or are more complex, there will be powers to seek further information and if necessary extend the period for consideration.
Even where mergers raise competition problems, they can sometimes be resolved quite easily by selling off part of the merged business. That occasionally happens now, when disposals form part of the proposed merger arrangements, but the present legislation is not well-adapted to that. In particular, there is only power to order a disposal following an adverse finding by the Monopolies and Mergers Commission ; so if a disposal is not carried out, a reference to the MMC may have to be made.
What the Bill therefore provides is for undertakings which would deal with the possible adverse effects of the merger as identified by the Direcor General of Fair Trading, to be enforceable either directly through the courts, or by making an order, without the need for an MMC reference.
The Bill also contains provisions to restrict further acquisitions of each other's shares by the parties to a merger which is referred to the MMC ; and to allow us to charge fees to cover the costs of merger control. It also makes a number of other minor changes to improve procedures and remedy deficiencies.
Mr. John Fraser (Norwood) : On what now becomes the 20-day rule for dealing with merger applications, what will happen if the Office of Fair Trading is overwhelmed by a number of major mergers--for example, if two banks, two brewers, BA and BCal all come along together? Will there not be occasions when the 20-day period, even with a 10-day extension, will not be sufficient, particularly if there is a multiple bid with two or three bids coming in against the same company over a period of two or three weeks, but not all on the same day? Is not the time scale too short for a mature and proper consideration of the bid application?
Mr. Newton : The fact that we acknowledge the hon. Gentleman's point in general terms is reflected, as he accepted, in the provisions for extension in certain circumstances. If the hon. Gentleman feels that further consideration needs to be given to it, that is very much the kind of point that can be considered further in Committee or by the House at a later stage.
I now turn to part VII, which concerns the way in which insolvency law applies to financial markets. It is a highly complex area. I will content myself by saying that our objective is primarily to remove uncertainties and to clarify the effect that most people believe the current law already has.
Part VIII makes a number of individual changes to the Financial Services Act 1986, the Insolvency Act 1985, the Policyholders Protection Act 1975 and the Building Societies Act 1986. Most of these changes are for clarification or tidying up purposes rather than being major policy departures. But I should refer briefly to clause 158 which removes the right of a professional investor to sue under section 62 of the Financial Services Act if he suffers loss as a result of a breach of the rules made under that Act. In considering experience of the working of the Act we have concluded that in respect of professionals--I emphasise professionals--the provision is inappropriate. I stress, however, that there is no change in the position for private investors, who will retain the additional safeguard provided by section 62.
Column 295We propose to bring forward in Committee amendments to achieve certain other changes to the Financial Services Act, following public consultation. The main effect of these amendments will be as follows. First, the Securities and Investments Board will have the ability to promulgate a set of general principles governing the conduct of investment business. A breach of such a principle will not give rise to civil liability under section 62 of the Act but may give rise to disciplinary consequences or the exercise of SIB's powers of intervention. The self-regulatory organisations will be required to adopt these same principles for similar purposes.
Secondly, the SIB will have the ability to require all the self-regulatory organisations to adopt so many of the board's rules as are designated for this purpose by the board. Those rules will have the same status as any other rules ; in particular, a breach may give rise to liability under section 62 in appropriate circumstances.
Thirdly, both the SIB and the self-regulatory organisations will be able to supplement their rules with guidance as to the application of those rules in particular cases. A breach of that guidance would not of itself constitute breach of a rule, but could be used as evidence of such a breach.
We also propose to amend the test for recognition of a self-regulatory organisation. In future it will be possible for the SIB to recognise such an organisation if it is satisfied, having regard to the principles, the rules and the guidance, that the organisation provides an adequate level of investor protection, having regard to the type of investor with which its members deal. The board will also be able to take account of the costs of compliance with an organisation's rules. The new recognition test will replace an existing one after a transitional period. The Government also intend to introduce provisions to increase the scope for the board and the organisations to rely on other financial services regulators, both in the United Kingdom and overseas. The Government believe that these amendments will assist the process, already under way, of simplifying the rules made under the Act without detracting from essential protections for investors. In generally commending the measure to the House, I should make it plain that there is one aspect of the Bill as it presently stands that I cannot join to that general commendation. That is those parts of clauses 1 and 8, introduced by amendment in another place, which seek to provide for a form of specific shareholder approval of political donations. As my right hon. Friend made clear in another place, we regard that proposal as defective in that it leaves entirely unclear what the position would be if the shareholders declined to endorse donations already made. Leaving that aside, we see no good reason for going beyond the present position in respect of such donations--a policy that was introduced by a Labour Government in 1967. That legislation already provides that, if the donations exceed £200, they should be specifically disclosed in the annual report.
This provision, coupled with the existing ways in which shareholders, if they wish, can secure discussion of this or any other aspect of the report, seems to strike a sensible balance in ensuring proper openness, without unduly restricting the discretion of company boards acting in good faith, in what they judge to be the companies' interests, to disperse funds on political or charitable donations, or on the sponsorship of voluntary and sporting bodies, and the like.
Column 296Therefore, we shall not press for the retention of the provision as the Bill proceeds, but shall invite the Committee to remove it. With that reservation and also recognising that there will be many other aspects of this substantial, and often technical, Bill that the House will wish to discuss more fully at later stages, I ask the House to give the Bill a Second Reading.
Mr. Cryer : On a point of order, Mr. Deputy Speaker. We have heard the Minister make his comments about the House of Lords' changes to the Bill, which would introduce certain obligations in relation to the disbursement of company funds for political purposes. Will you examine the position of any hon. Member who votes on the Bill tonight who is in receipt of benefits from company disbursements to political parties? The Conservative party, for example, received £4 million in 1987. Would that constitute a direct pecuniary interest and so prevent from voting any Conservative Members who received any grant from central Conservative funds? Would you not agree that if this were the case in a local authority, there would be absolutely no doubt that it would do so? To allow Conservative Members to vote away the clauses because of their own financial involvement would be to draw ridicule and an accusation of corruption on the House.
Mr. Winnick : Further to that point of order, Mr. Deputy Speaker. Yesterday-- [Interruption.] Yesterday, a question was asked of the Prime Minister and it was later shown by my hon. Friend the Member for Bradford, West (Mr. Madden) that the Conservative Member who asked the question had a direct interest in asking it because of the way in which he was associated with a company--[ Hon. Members :-- "What about your financial support?"] The hooliganism from Conservative Members will not stop me saying that I hope that you, Mr. Deputy Speaker, will agree that the reputation of the House should remain clean and honourable. If hon. Members who have direct financial interests with companies vote on a motion such as this, it is essential for you to give us guidance.
Several Hon. Members rose--
Mr. Deputy Speaker (Sir Paul Dean) : Order. I think that I can deal with this matter. As the House well knows, hon. Members declare their interests in the register, which is published. However, on a matter of public policy--the Bill deals with public policy--hon. Members are free to vote as they think appropriate.
Mr. D. N. Campbell-Savours (Workington) : On a point of order, Mr. Deputy Speaker. May I place on record the fact that some of us object most strongly to the fact that this important piece of legislation is being heard tonight at 11 o'clock and cannot be given the measure of debate that it deserves? I hope that the Government will take into account the objections of hon. Members from both sides of the House who will, I am sure, object to what is happening.
Mr. Bryan Gould (Dagenham) : I beg to move, to leave out from "That" to the end of the Question and to add instead thereof : "this House declines to give a Second Reading to a Bill which is inadequately prepared and still contains major lacunae on important issues such as accounting standards and City
Column 297regulation, which fails to provide for greater disclosure of a company's affairs, for greater participation by employees and for a more effective regulation of mergers, and which reflects a narrow and outdated view of the role of the limited liability company in a modern society."
Let me begin with the strongest possible protest at the fact that a Second Reading debate on an important measure has begun at such a late hour. I do not believe that there is any precedent, at least in recent times, for a Second Reading debate to be entered upon so late. It makes proper debate of the Bill virtually impossible. [Interruption.] I see that the Conservative Front Bench is trying to shift responsibility to other hon. Members. I remind the Government that the responsibility for ordering their business is theirs, and that if they run into procedural problems they must make the necessary adjustments. I do not think that it shows sufficient concern and respect for the importance of the Bill to ask the House to debate it at this late hour, particularly when we know that tomorrow important county council elections are to be held, and many hon. Members will already have left for their constituencies. At such an hour we have little chance of airing and elucidating some of the important matters that arise from the Bill. This should have been an opportunity for major debates on a range of questions relating to City regulation, mergers and the role of limited liability companies in our economy. That opportunity has been severely circumscribed by the Government's insistence on bringing the measure before us at this time.
Nevertheless, we want to make it clear that the Bill, although it may appear a technical and perhaps unimportant measure to the casual observer, is very important--important for what it contains, and perhaps even more for the opportunities that it misses. Although limited by the unsatisfactory nature of tonight's debate, we shall treat the Bill on its merits. We shall welcome those parts that we feel able to welcome, such as the provision of wider powers of investigation, but we shall pointedly express our regret--both this evening and in Committee--at the important opportunities that have been missed, and do our best to strengthen what I consider to be the Bill's deficiencies and weaknesses.
Inevitably--as is the nature of such measures--the Bill is something of a hotch-potch. No doubt it began with the perfectly acceptable necessity to act on EEC directives, with which parts I and II are concerned. The problem is that it has subsequently been seen as a repository for odd fragments of change to all sorts of existing provisions. It amends--in a spasmodic way-- the Companies Act 1985, the Fair Trading Act 1973, the Financial Services Act 1986, the Insolvency Acts, the Policyholders Protection Act 1975, the Building Societies Act 1986, the Insurance Companies Act 1982, the Company Directors Disqualification Act 1986, and no doubt more.
The problem is that, in the Opposition's view, none of those changes has been thought through coherently. The Government are essentially legislating on the hoof. Moreover, changes that are made in this haphazard and spasmodic way are continually being supplemented as the Bill proceeds through both Houses. Already no fewer than 400 Government amendments have been made since it was
Column 298published, and we know that we have yet to see the important provisions that the Government are to introduce on accounting standards and City regulation.
As a veteran of both the Insolvency and the Financial Services Acts--I see that some others in that category are present--I know how unsatisfactory that method of legislating can be. In both instances the Government tabled literally hundreds of amendments, in one case over 1,000. I hope that we shall not have a repeat performance. If the Government are not ready for their legislation, they have no right to introduce ill-thought-out proposals late in the day and to ask the House to deal with them, particularly at this time of night. We have further objections to the form of the Bill. There are far too many clauses allowing the Secretary of State to remedy any omissions or correct any mistakes by changing the Act by statutory instrument at some later date. If the Government have so little confidence in the correctness of their current views, they should take more time before introducing legislative proposals. It is always dangerous and a legitimate cause for suspicion if the Government take powers to change primary legislation by statutory instrument. Our major anxiety about the Bill lies not with its detailed preparation, but with the Government's general failure of imagination and purpose in respect of the true role of limited liability companies. We all know that the limited liability company is an institution of the greatest importance. The concept of limited liability was introduced to encourage people with money to invest in our industrial economy but to give them protection if they were to invest in enterprises over whose immediate management they had no direct control. I can understand that, and the concept has been immensely valuable. I do not contest the principle of limited liability. The limited liability company has become part of the furniture, and we are inclined to accept it as part of the natural order of things.
An immense range of privileges is provided by law for suppliers of capital, and in this case suppliers who may have very little connection, other than owning certain bits of paper, with the enterprise concerned. The privileges range from the powers of ownership and decisions over employment and deciding major issues of company policy to the power to take divdends from the investment. In addition to those immense powers, it is surprising that we should consider it necessary to include the privilege of limited liability. In effect, after receiving all the advantages that I have just referred to, the investor is permitted by law, if things go wrong, to walk away and leave his debts unpaid. That is how limited liability works. It is time that we had a good look at the conditions on which that privilege can be exercised.
The time has come for a major reappraisal of the operation of limited liability companies. Such companies should no longer be seen as operating exclusively in the interests of the shareholders who possess those privileges. We should be thinking in terms of a company which also has obligations to its employees, consumers, customers and trading partners. We should be concerned about the way in which the market for corporate control in this country often operates in such an exclusive and narrow interest.
We cannot afford to be insular about this. A similar line of thought is increasingly taking hold in Europe and the European company statute is likely to be suggested to us
Column 299and thrust upon us before very long. The Bill ignores all that. Essentially it takes a narrow and technical view of any changes in company law which might be required. We contend that the Government have, in this Bill, adopted a narrow and outdated view of the role of the limited liability company.
We shall try to make good those deficiencies by tabling amendments in Committee. We shall try to illustrate our contention that limited liability is a privilege which must be earned by duties to the community, employees, consumers and shareholders. It must be earned by maximum disclosure of what the company is about. Company accounts should be as informative as possible on a whole range of issues which hitherto have not been thought to be of great interest to anyone else.
I had lunch in a hotel today in which I gather another celebration was taking place. At the table next to me a business man whom I did not know was describing to a colleague the operation of his company. He was asked about his turnover and what information he published. He said that he was a great believer in the principle of obfuscation. He did not believe in publishing any information. He believed that the only people who needed to have information were his auditors and Barclays bank.
That attitude characterises the general approach of people who enjoy the privilege of limited liability. We cannot afford to tolerate that attitude any longer. We must ensure that the recommendations of the Dearing committee are acted upon. We should like to see a general accounting committee, a statutory body set up to establish wide-ranging standards and with wide-ranging powers. However, we want to go beyond that and make sure that company accounts are not just the glossy but uninformative bits of propaganda on bahalf of the company chairman which they often become. Why should company accounts not reveal, for example, the amount that the company spends on research and development, on training and on health and safety? Why should they not reveal the forms and quantities of central and local government assistance that the company receives? Why should they not give some indication of performance in respect of equal opportunities, imports and exports, the environment, pollution control and energy consumption? [Interruption.] The Minister thinks that companies would have little time to do anything else, but a well-run company would know about those things. If companies were compelled to operate monitoring systems for such matters, they would be able to produce information without any great effort.
Mr. Hugh Dykes (Harrow, East) : The hon. Gentleman spoke briefly about European aspects. I understand that he is now involved in organising the campaign for Labour's candidates in the European elections in June. In connection with the European company statute, he used the phrase "thrust upon us". Is he now in favour of that statute? Do I detect more enthusiasm from the hon. Gentleman for these European proposals than he has shown in the past?
Mr. Gould : As so often happens in interventions, the hon. Gentleman has intervened a little too soon. He should be patient. As soon as I have moved from my present point, I shall deal with the matter that concerns him.
There are further matters that company accounts should deal with. For instance, we regret that one of the
Column 300minor consequences of the measure is that it does away with the obligation in the Companies Act 1985 to disclose the salaries of highly paid employees. Why is that? It is a retrograde step. We want to know what companies pay by way, for example, of transfer fees, golden hellos, to directors. We also want to know about donations to charities and political organisations. I listened carefully to what the Minister had to say about those matters.
The amendment passed by a substantial vote in the other place has a rightful place in the Bill. We were dismayed to hear what the Minister had to say. This is a simple issue about openness, fairness and shareholder democracy. We are after equality of sorts between trade unions and companies. The Government were keen to ensure that trade unions had to go through the hoops before they could make donations. We simply want equity of treatment for companies. On those issues it is difficult at times to pin down the Government's argument. On occasion the Government have argued that the position of shareholders is quite different from that of trade union members because they can easily opt out of one shareholding and move to another company. I noticed that the Minister did not make that argument tonight. He was right not to do so because many shareholders are not direct investors but have their savings invested on their behalf by pension funds and insurance companies. In that respect, the Government's argument breaks down.
We want the inclusion of the simple principle that if a company wishes to make donations to a political party it must ask the shareholders for their approval. If that is not done, the whole range of Government propaganda about shareholder democracy is shown to to be the purest cant, nothing more than drivel, hypocrisy and propaganda. The true interest of the Conservative party is to ensure that companies continue unhindered to make political contributions. Consequently, many shareholders become involuntary contributors to Tory party funds. That is unacceptable.
There is another missed opportunity, and in dealing with it I take up the intervention of the hon. Member for Harrow, East (Mr. Dykes). One of the obligations which limited liability companies owe is to their employees. That is increasingly recognised, at times even by Conservative Members. Section 309 of the Companies Act 1985 was an attempt of sorts to recognise that responsibility. It so happens that that provision is unenforceable and almost completely useless. The amendment of legislation that has been introduced to ease the path towards the establishment of employee share ownership plans is welcome, but it must be recognised that it is the product of the Government yielding to pressure put upon them by the Opposition in another place. We are not concerned to establish employee shareholdings of various sorts. We want to see democratic ESOPs that transfer control of the enterprise to the work force. We are still far short of that objective.
The Bill misses major opportunities in other matters affecting employees. The Minister mentioned the European company statute. That provides for employee participation in a range of possible ways, including two-tier boards, elected employee representatives and a fair amount of flexibility as to how those goals should be achieved. There are also the proposals-- these originate from Commissioner Vredeling--for disclosure of information to employees. These are moves forward on a wide