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Column 317standards, because they will not give shareholders the sort of rights that they claim have spread democracy in the trade unions. That is an appalling example of Government hyprocrisy.
There is some interesting information about why the Government are hesitant to do that. They are hesitant because they might lose a great deal of money. "Labour Research" for December 1988 conducted a survey to determine political donations. It revealed that 1987, election year, saw the highest amount of money being given to the Conservative party. There was a total direct donation to the Conservative party of £4,528,533, from 333 companies. That is not the total of political donations, but I shall come to that in a moment. Metal goods, engineering and vehicle companies gave the Tories £657,533. Energy and water supplies contributed the comparatively trivial amount of £14,333. The extraction of minerals and ores, and the manufacture of metals, mineral products and pharmaceuticals handed over £449,250 and general manufacturing handed over £943,810. Distribution, hotels and catering produced £229,552. Construction and other such companies, including Taylor Woodrow, which is an avid supporter of the Conservative party and which one recalls built Ronan Point, produced £461,925. Transport and communications produced £188, 950.
However, it is when one comes to banking, finance and insurance that one sees where the real pearls were handed to the swine, if I may use that phrase. Banking, finance and insurance produced £1,451, 550. No wonder that powers of investigation are not to be applied to such enthusiastic supporters of the Government. After all, they contributed almost £1.5 million directly to the Tory party. As I said earlier, that was not the total amount given to the Tory party and front organisations. Total donations were £5,023,243. The paltry amount of £42,250 went to the SDP-Liberal alliance and no doubt the money came from Tories eager to split the Opposition vote. The Labour party received £1,000, and £4.5 million went to the Conservative party. British United Industrialists, which is a hiving-off operation to give money to the Tory party, received £214, 750 and the Economic League, which exists to spy on workers and hand over the information in a most disgusting manner to employers, received £52,592. The Tory Centre for Policy Studies, which has several graduates in this place producing their noxious nostrums, received £81,500. Aims of Industry received £22,110 and so on. All the money--well, 99.9 per cent. of it--went to the Tory party or its front organisations. It is pretty timid, to say the least, of the Government not to be able to say--this is what they say to trade unionists- -"We have given you an element of democracy." The Government have insisted
Mr. Wardle rose--
The Government have insisted that trade unionists should have ballots before they take strike action. Similarly, they have insisted that trade unionists should use ballots to elect officials, although the democracy of trade unions has developed over the years and the Government's intervention was really an attempt to diminish democracy. In the Government's terms, however, they claim that they have extended democracy for trade unions.
Mr. Wardle rose --
Mr. Cryer : Unfortunately, the Government will not apply the same principle to shareholders. Surely shareholders are those whom the Government claim to cosset. When the Government steal public assets from the citizenry at large and hand them over to a relatively few shareholders, they claim that they are spreading shareholder involvement and a participating democracy. It is described by some as people's capitalism. It should be noted that those who have capital are not allowed to decide which organisations should receive political donations. They are not allowed to decide the amount of such donations.
Mr. Cryer : The fact that they are not allowed to do so is an outrage. I hope that it is another nail in the Government's coffin. It may not be an especially large nail, but many others are being hammered in, as the Vale of Glamorgan by-election and the local authority elections tomorrow will demonstrate.
Mr. Jeremy Hanley (Richmond and Barnes) : I welcome the Bill, which is a long-awaited measure, and the majority of its provisions. I regret only that earlier parliamentary antics have curtailed the debate on a most important Bill. The more substantial contributions to it must await the Bill's consideration in Committee. I shall reduce my speech to three main areas, but I am grateful that there has been no undue pressure from the Government to shorten the debate on Second Reading. I understand that consideration must be given to all hon. Members, but the House must understand that certain matters must be raised on Second Reading if we are to have an effect on the consideration of the Bill in Committee. It is difficult for those who wish to raise technical matters at this time of night, and perhaps unfair on them, if they are obliged to do so only briefly. Primarily, the Bill implements the seventh and eighth company law directives that regulate consolidated accounts and the regulation of auditors. The opportunity has been taken, however, to improve and strengthen company law while at the same time removing many unnecessary burdens and elements of bureaucracy.
I am mindful of the great effect that the Bill will have on the regulation and practice of auditors. I wish to declare an interest as a chartered accountant and the parliamentary adviser to the Institute of Chartered Accountants in England and Wales.
Column 319The Bill, as with every recent companies Bill, has received exhaustive examination during its passage through the other place. These are important technical and largely non-political Bills and they are often the subject of many amendments and new clauses. I remind my right hon. and hon. Friends on the Government Front Bench that the Insolvency Bill, as it then was, to which the hon. Member for Dagenham (Mr. Gould) referred, contained 200 clauses. It was the subject of 1,400 amendments, of which 1,250 were tabled by the Government. That must prove that the Department, or its draftsmen, did not have everything right initially and that proper discussion improved an imperfect Bill. In the end, that discussion produced reasonable, although imperfect, legislation. In the main, the Bill that is before us has fewer defects.
Part I deals with company accounts. Accounting standards will soon be brought into our consideration of the Bill, and the issue is so important that I feel that is should be raised this evening. There may be many hon. Members on both sides of the House who feel that accounting standards constitute an unimportant and esoteric matter, but every set of accounts and every bid, be it an attack or a defence, relies on a set of standards that must be observed in the creation of figures that can mean millions or billions of pounds for shareholders, employees and, increasingly, for those who are both shareholders and employees. In other words, accounting standards are vital to achieving a level playing field.
In 1969, to reduce the variety of accounting practice and to make accounts more consistent for the reader, certain standards were formulated. That programme was financed and developed by accountants through an extra levy on their subscriptions. Therefore, that work was completely paid for by the practitioners--although it was respected enough for many of its basic concepts to be incorporated in later company law statute.
That programme expanded over the past 20 years, but the preparation and enforcement remain with the accountancy profession alone. The system has very largely been a great success, as the improved economy, as measured by the values and numbers of shareholdings, shows. After all, any lack of confidence in the integrity of published accounts would have led to a severe reluctance of invest in United Kingdom companies, with highly damaging consequences for Britain as an international financial centre.
We need enforceable accounting standards, but the accountancy profession can discipline only its own members. Only the Government can establish a system effectively to regulate the corporate sector when it breaches standards. Eighteen months ago the Combined Consultative Accountancy Body-- the six accountancy bodies recognised by statute--established the Dearing committee to suggest the way forward in creating an independent body to devise and enforce standards. The result is the Financial Reporting Council which, it is suggested, should comprise 25 representatives of preparers, users and auditors of accounts, supervising and guiding the work of the nine-person accounting standards board. Also proposed is a review panel to review and enforce compliance with the standards. The accountancy profession welcomes the Dearing report and is pleased that the Government agreed to implement its proposals. However, the ICAEW has strong reservations about the way in which the Government intend implementing them. As to the membership of the
Column 320FRC, the Government suggest that its chairman should be appointed by the Secretary of State, possibly with the advice of the Governor of the Bank of England, but that its other members should be representatives of accountancy firms, large and small companies, banks, perhaps the Confederation of British Industry, and the stock exchange.
It is suggested that anyone wanting to join could pay a contribution of £25,000, say, and share the costs of that important body. That must be wrong. Some important groups, such as academics, would not have £25,000. They may not have a bean, but their advice, and the contribution they can make, would be vital. It is surely in the public interest that the FRC should remain independent and that not just its chairman but all its members should be appointed by the Secretary of State and the Governor of the Bank of England. Payment should take the form of a levy on all limited companies of only £6 for every firm registered at Companies House. That would not be taxpayers' money but a small extra cost imposed on those who enjoy the very great privilege of limited liability, as was mentioned by the hon. Member for Dagenham.
It is also suggested that either the DTI, the review panel or the stock exchange should bring actions against directors--and perhaps their auditors --in cases of departure from the agreed standards. The ICAEW believes that only the Secretary of State should have the duty, on the advice of the review panel, to order corrected accounts. If that is left to any one of three bodies standing in a circle waiting fo the others to move because the first one to pick up the glowing coal will have to pay the bill, one can be sure that there will be another two or three years of inaccuracy and delay before corrected accounts are ordered.
The cost could be immense. If a company with the determination of Lonrho, for example, decided to pursue an order for corrected accounts all the way to the House of Lords, there is no doubt that the stock exchange would not touch it, and that the review panel would not have the depth of purse or the staff to pursue such an action. As to staffing, the review panel could not deal with more than four or five large cases a year. If it became caught up in a major court action, it could hardly deal with more than one correct account case. It must be the Secretary of State who not only orders those actions but guarantees payment.
Part II of the Bill introduces a new regime for the regulation of auditors. It implements the EC eighth directive on the approval of auditors, but goes well beyond the directive's requirements. The United Kingdom Government do not often go way beyond European Community directive requirements, but in schedule 8, for example, the requirements on monitoring, on maintaining competence and on technical standards are not contained in the directive. Therefore, the Government have chosen a significantly heavier regulatory regime than we believe is needed. The costs of the new regime will be increased further by the Government's decision to retain the small company audit requirement.
We in the Institute of Chartered Accountants accept the monitoring of auditors, but we do not believe that the public interest is served by monitoring all auditors of all companies as is proposed. Why should one monitor the activities of a small audit firm that audits the local newsagent? It cannot be in the public interest. The accounts are not in the public interest, the company is not
Column 321in the public interest. Therefore, the nettle of removing the statutory duty of small companies to have an audit should have been grasped. Not only would accounting standards and the monitoring of auditors be applied solely to firms that had a public interest, but the costs would be greatly reduced for all concerned. Only about 1, 000 firms would have to be monitored if only major companies had to be audited rather than the estimated 11,000 firms at the moment. Those costs will be passed on to the smaller companies being audited, and that cannot be in the national interest.
Accountants are members of the one profession that is happy to lose an apparent vested interest by removing the statutory requirement for audits of all companies, no matter how small. We should rather do work that clients want than the work that the state demands. There would be no loss of security on income tax. After all, large partnerships do not have audits unless they want them, and it is pointless to say that banks will insist on an audit. Banks do not need last year's audited profit and loss account ; they need next year's projected cash flow.
The Government are considering a number of detailed points that the institute has raised on part II of the Bill, and have already brought forward a number of amendments in response to our comments. We are grateful for those changes, and particularly for the introduction of immunity against litigation for recognised supervisory bodies. I must pay tribute to my hon. Friend the Under-Secretary of State for Corporate Affairs for listening to our arguments and to Lord Strathclyde, and particularly to Lord Benson who worked so hard to achieve that immunity. Without that protection, recognised supervisory bodies and their officers and employees would have been vulnerable to litigation for huge sums--amounting to hundreds of millions of pounds in some cases--and the new regime would have been unworkable.
I regret having to leave out four other substantive issues which must be left for consideration in Committee, but my final point is equally important. The Institute of Chartered Accountants in England and Wales has been concerned for many years about the complexity and uncertainty surrounding the Companies Act provisions relating to the disclosure of directors' transactions. My hon. Friend the Minister will remember that clauses were introduced in part IV of the Companies Act 1980 to try to stop various abuses by which directors used company funds for their own benefit. Very few would deny that the combination of straight prohibition and heightened disclosure has worked to some extent, but those 1980 rules, which were consolidated into the Companies Act 1985, are famous by their obscurity of language and complexity in practice. The main object of the regulations seems to be to embarrass directors who use loans, quasi-loans, expenses or other transactions with their companies, into giving up their erstwhile practices because of the publicity given to them in the company's accounts which would be checked by the auditors.
The state relies on company auditors to make sure that proper disclosure is achieved, and that directors do not wriggle out of their legal obligations. The only problem is that auditors, solicitors and the barristers to whom they refer from time to time are frequently unable to give companies positive advice on the law as it applies in
Column 322particular circumstances. The law, on one hand, is too complex and, on the other, is not comprehensive enough. It cannot be in the interests of any of us who want to see properly agreed legislation fully carried out if the auditors, on whom the directors, the DTI and shareholders rely, are seen to be muddled and uncertain about those interpretations. The most significant problems were communicated to my hon. Friend the Minister in a memorandum from the ICAEW dated December 1988 in an endeavour to have the matter considered under the Bill. Regrettably, the Department said that the Bill was too complex without the introduction of further material.
The existing law must be simplified and improved in the interests of all by starting again from first principles, offering greater simplification and clarity and, at the same time, removing unnecessary burdens and plugging loopholes. The longer the law continues unchanged, the longer the defects and ambiguities will be allowed to continue. The current muddle on loans, quasi-loans and credit transactions will, for yet another two or three accounting years, be a drain and burden on those who exercise their obligations properly and a muddy pond in which the ignorant or, at worst, the fraudulent will continue to wallow. For instance, transactions by non- relevant companies can be easily structured to avoid the prohibition on loans to directors, allowing a director, in certain circumstances, to borrow from his company without financial limit. Extended credit terms can be used to drive a coach and horses through intended legislation. Too many subjective judgments must be made, all of which are unfair on an auditor trying to do an accurate job, and these lead to poor relationships with a director, who for the life of him cannot understand why he should be exposed to such publicity, about which there is no clear legal interpretation. I ask my hon. Friend the Minister, in all sincerity : if a Companies Bill is not the proper medium to amend this important legislation, what on earth is? If the Bill is too complex and long, when can we expect another to deal with these important matters? I am aware of an exchange of letters between my hon. Friend and the Institute of Chartered Accountants and of the fact that there will be a further meeting later today. Progress cannot be delayed much further.
I am sad that we have not had longer to debate the Bill. There will be many chances to debate it in Committee, but I ask my hon. Friend the Minister, please, not to consider that the shortness of the debate has reduced the sincerity with which hon. Members have discussed the issues that are involved and the importance of the task still facing him in producing a Bill that will be regarded as competent and workable legislation.
Mr. John Garrett (Norwich, South) : The debate has given us an opportunity to examine some important issues in relation to the regulation and governance of companies. I join hon. Members in saying how ridiculous it is that such an important Bill is being considered at this hour. Although it is true that the delay was caused by the now absent hon. Member for Glasgow, Govan (Mr. Sillars), we are discussing the Bill at this hour to satisfy the amour propre of the Government. It could easily have been dealt with tomorrow, or later.
Column 323That is not the only example of unsatisfactory conduct on the Bill by the Government. In another place, the Bill was presented incomplete and poorly drafted. The ultra vires provisions were inserted as Government amendments in the Committee stage and we still await amendments based on Department of Trade and Industry consultations on the Dearing report on the making of accounting standards and on proposed amendments to the Financial Services Act 1986. Those consultations were carried out late in the progress of the Bill.
Ministers have continually referred to seeking consultations on the detailed provisions of the Bill, yet part VII--"Financial Markets and Insolvency"--introduced its measures without consulting the major relevant body--the Insolvency Practitioners Joint Liaison Committee. In a complex subject, this failing resulted in proposed legislation that was less than comprehensible and the Government had to introduce 110 amendments to this part on Report.
As my hon. Friend the Member for Dagenham said, in 50 hours of discussion on the Bill in another place, the Government introduced 400 amendments. In his final speech, the Secretary of State, in one of his most welcome appearances during discussion of the Bill, told the other place that there were still many matters on which the Government were in the process of coming to a view, which may lead to changes in this House.
I hope that the Minister will undertake that in Committee we shall have adequate notice of proposed amendments, some of which raise the most important issues in the Bill. The Government should make up their mind what they want and put forward legislation designed to achieve their objective. We should not have to debate what are merely suggestions in the Department's consultative documents.
We are critical of the Bill in three main areas. It gives inadequate recognition to the fact that limited liability is a privilege that carries with it obligations to shareholders, creditors, employees, the local community and the public interest ; its failure to address the all too prevalent problem of managerial and financial market short-termism, manifested by our present outbreak of merger mania ; and the reliance on self-regulation, which has not worked when high financial stakes are involved. I shall refer briefly to some of the consequent issues to enable the Minister to reply. Given the privilege of limited liability, it follows that company accounts should reflect the consequent obligations to provide full and meaningful disclosure. We want a regime of disclosure as a result of which the company is made more accountable to its shareholders, customers, employees, the local community and the national interest. We welcome the Government's apparent commitment to give the degree of statutory backing to the statements of standard accounting practice recommended in the Dearing report. This, however, puts the cart before the horse and we await the Government's comments on the Dearing report's recommendations for a new structure for accounting standards. We are not impressed by the present self-regulatory approach with the major accountancy firms dominating the body responsible for drafting accounting standards--and a particularly secretive body it is, too.
Part II deals with the regulation of the auditing profession and seeks to implement the EEC eighth company directive. In 1986, the then Secretary of State for Trade and Industry said that the implementation process
Column 324provided the opportunity to take "a long, hard look" at the structure and organisation of the profession. In the light of that long, hard look, we regret that the Government appear to have in mind measures which essentially leave intact the present hands-off regulatory approach to auditing.
We regret that the Government have not chosen to implement any of the suggestions in the DTI consultative document "Regulation of Auditors" regarding article 24 of the eighth directive which requires member states to ensure that statutory auditors must be independent. We welcome the announcement by the Secretary of State on Second Reading in another place that the Government amendments would require the fees paid to auditors, or their associates, for services other than auditing to their clients, to be disclosed in company accounts, as audit fees are now. Clearly, there are potential conflicts of interest, and we shall seek the Government's views in Committee. I was involved in the campaign that led up to the National Audit Act 1983. We are concerned that the Bill in at least one respect is narrower than the EEC eighth directive on which part II is based. The restrictions in schedule 9 on the type of audit work and the bodies to be audited may have a substantial impact on the work of the National Audit Office, the Audit Commission for England and Wales and the Accounts Commission for Scotland--for example, in the establishment of agencies which may become corporate bodies but are still largely funded by public expenditure which the National Audit Office would no longer be empowered to examine. Those of us who were in the campaign that led up to the National Audit Act 1983 would be sorry to see its provisions weakened.
We welcome the wider investigation powers conferred in the Bill in part III. The Minister referred to speeding up investigations, but 19 inquiries are still uncompleted, some dating back to 1982. Slackness and inefficiency by the DTI is the clearest possible signal to miscreants in the City that they have nothing to fear from the present regulation arrangements.
Part V, on other amendments to the Companies Act 1985, is disappointingly short. The Government could have updated the purpose and concept of company law, so that it was concerned not only with protecting the shareholders but with recognising the great social and economic importance of the limited liability company and ensuring that it served the wider interests of the community. The interests of the company are defined by the courts to be those of its shareholders. Section 309 of the 1985 Act which enables and requires directors to take account of the interests of employees is ineffective.
I am glad that the hon. Member for Chichester (Mr. Nelson) referred to non- executive, audit committees and compensation committees. The desire to see them introduced is held by hon. Members on both sides of the House, and I hope that we can form an alliance in Committee to ensure that progress is made. That would ensure public accountability of a company in a simple way- -which has been advocated by hon. Members for a long time.
In Committee we shall also discuss European initiatives in providing new statutory rights to employees--rights of representation on the board and rights to information and consultation. Such changes would bring us into line with the EC Vredeling directive and the draft fifth directive on the structure and management of public companies.
Column 325We look forward to discussing in Committee the Government's position on takeovers, as embodied in part VI. The hon. Member for Esher (Mr. Taylor) referred to the greater efficiency, effectiveness or both that can arise from takeovers. In fact, however, the DTI's research shows that more than half of takeovers lead to a decline in company performance or at best have a neutral effect on it. The threat of takeover leads to preoccupation with short-term survival. We shall try to establish what Government policy is on that, given that there is widespread confusion at present.
We welcome the increased shareholder interest disclosure provisions in the Bill as a step towards greater transparency, to bring the behind-the-scenes activities of predators out into the open. As my hon. Friend the Member for Dagenham (Mr. Gould) said, however, we do not think that it goes anything like far enough. At present the law proceeds on the assumption that takeovers and mergers are beneficial in principle. We should like the burden of proof to be reversed so that mergers or takeovers could proceed only if they were shown to be in the public interest. The Director General of Fair Trading aired that possibility some time ago. Overall then, this is a Bill of missed opportunities, which we shall do our best to amend in Committee.
I should like to refer to the Special Standing Committee procedure and the motion on it. I am glad that the hon. Member for Chichester referred to it. Our objective view is that this Bill is particularly well suited to examination in a special Standing Committee. The 1987 Procedure Committee, which proposed the procedure and of which I was a member, thought that it was well suited to a technical Bill affecting the interests of particular groups. Those groups could be summoned--for no more than three opening sittings in Select Committee form--to give evidence to show to what extent their interests were enhanced or prejudiced by the proposals.
It would save time if we could examine the Minister rather than having to table probing amendments leading to long and often fruitless debates, and the two Procedure Committees that have considered the procedure since 1987- 88 have concluded that it should be used more widely. The Procedure Committee that sat in 1984-85 observed that all the evidence that it had received on the operation of Special Standing Committees "was enthusiastic" and the Committee that sat in 1987 said that it should be more widely used. Given the number of technical, largely non-controversial Bills that come before us, it is a great pity that the Leader of the House has seen fit to accede to a request for its use on only five occasions, although we have examined 440 Bills under this Government. In our objective and non-partisan view, the Companies Bill is just the kind of Bill that would benefit from examination. In view of the lateness of the hour and the known opposition of the present Leader of the House--who, I am afraid compares most unfavourably with one of his predecessors, Lord St. John of Fawley--I shall not press the motion to a Division.
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The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. Francis Maude) : A number of hon. Members have commented on thetime at which this debate is taking place, and I am sure that all of us on the Conservative Benches share the disquiet that has been expressed. It is a matter of regret, however, that the culprit who held up our proceedings for so long with his outrageous display of egotism and publicity-seeking has not sought to avail himself of the opportunity to take part in this debate on what everyone has agreed is an extremely important Bill. Moreover, the Bill directly affects Scotland, so it is a matter of regret that the hon. Member for Glasgow, Govan (Mr. Sillars) and all his colleagues in the Scottish National party should have taken themselves away as soon as their publicity stunt was over.
The hon. Member for Dagenham (Mr. Gould) referred to the motion to refer the Bill to a Special Standing Committee. I understand his arguments. He took part in the setting up of that procedure, which is particularly dear to his heart. This is not the right sort of Bill for that approach. He said, as the Select Committee on Procedure said, that that was appropriate for Bills which affect particular groups. This Bill has wide application. It affects every company in the business sector. It is of universal application. It does not fall into the category of Bills which affect certain groups in the way that the Select Committee had in mind.
Several hon. Members have taken the trouble to express thoughtful and serious views about this important Bill. Several points have been agreed to be desirable, and I welcome the support that has been expressed. So much agreement was expressed about the Government's views on employee share ownership schemes that I am inclined to think that it may arouse some suspicion. None the less, we are glad to have the universal approbation that the provisions have aroused. I shall deal briefly with some of the points that have been raised in, I regret, no particular order and not, I regret, comprehensively. My hon. Friend the Member for Richmond and Barnes (Mr. Hanley) referred to the Dearing committee on accounting standards. I am aware of the Institute of Chartered Accountants' concern about financial arrangements. I stress that the financial arrangements will not be comprehensively dealt with. I have no doubt that, if the new system is to work, it must attract funding from a wide variety of sources-- practitioners, users of accounts, and a wide variety of participants.
Regarding the regulation of auditors in part II of the Bill, the hon. Member for Dagenham asked whether there was a need for monitoring arrangements to be included in the Bill and whether the eighth directive requires that. That is not done in specific terms, but we have no doubt that the requirement that companies set up effective supervision implicitly requires that there should be some monitoring. We do not believe that the monitoring to be carried out by professional bodies need be excessively burdensome. The hon. Gentleman will know that detailed arrangements have not been submitted to my Department by professional bodies.
The hon. Gentleman asked whether progress can be made in resolving the incredibly difficult issues on directors' transactions. All of us agree that the present state of the law is by no means ideal. Nevertheless, no one
Column 327can agree on how the law can be improved. I am aware of the concern of the institute on this matter, too, and further discussions are taking place.
Several hon. Members referred to political donations. The hon. Member for Dagenham went to some pains to knock down, so he thought, my right hon. Friend's arguments--arguments that my right hon. Friend had not in fact deployed. It was rather foolish of the hon. Gentleman to raise that matter, because what he said was wholly spurious. He argued that it was not possible for indirect investors, through insurance schemes or unit trusts, to opt out of paying political contributions by selling their shares. He said that we should therefore embrace the amendment made in another place. Unhappily for him, that amendment provides no remedies at all in the case of such indirect investors. The hon. Gentleman would have been wise to leave that argument alone.
The hon. Member for Walsall, North (Mr. Winnick) spoke about river companies. Any such companies are subject to the proper requirements of company law that political donations of more than £200 must be disclosed. That provision was introduced by the Labour Government about 22 years ago and has operated effectively since then. We see no reason to change it.
Several hon. Members have referred to the disclosure of interest in shares. The hon. Member for Dagenham regretted that we have not gone further in requiring nominee share owners to disclose their interest. He does not recognise that such disclosure requirements affect nominee share ownership. The beneficial interest in shares must be disclosed, not the nominal ownership of the shares. The impact is considerable, bringing the time period for disclosure down from five days to two days and reducing the threshold from 5 to 3 per cent. The hon. Gentleman was ungracious not to recognise the significance of that change. He also failed to recognise the changes made by the stock exchange in enabling companies, by their own articles of association, to provide a remedy against nominee share owners who fail to disclose, when properly required to disclose by companies. My hon. Friend the Member for Chichester (Mr. Nelson) asked that we ensure that other member states in Europe implement the requirements as rigorously as we will do. I have discovered that there is a tendency in the European Community to believe that each country is the only one implementing rules properly and that all other 11 countries are breaking the rules. We must be alert to ensure that the rules are properly implemented.
My hon. Friend also referred to non-executive directors' audit committees and so on. With his experience, he will know that the law makes no distinction between non-executive directors and executive directors. All directors are under a fiduciary duty to act in the interests of the company. That obligation rests on all directors, irrespective of their role in the company.
Opposition Members, particularly the hon. Member for Dagenham, made some snide allusions to the House of Fraser case. His allegations were extremely offensive and unfounded. When he reads them in the cool light of dawn, he will regret the tone he used. In the case of the publication of reports, each instance must be considered on its merits to decide how the public interest is best served. The hon. Gentleman does himself no credit if he suggests that anything other than the public interest has motivated the Government.
Column 328Several hon. Members referred to the provisions on mergers. The hon. Members for Ross, Cromarty and Skye (Mr. Kennedy) and for Dagenham suggested that we should reverse the presumption that a merger is in the public interest, and cast the burden on companies to prove that their proposed mergers meet that requirement. A takeover bid, a public offer for shares, is an invitation to shareholders to sell their shares. They need do so only if they decide that it is in their interests. Companies are owned by their shareholders. Are the hon. Gentlemen saying that the Government should exercise more powers strenuously to prevent mergers from taking place? Are they saying that we should forbid shareholders from selling their shares to a willing buyer? If they are trying to make themselves out to be respectively representing the parties of the shareholder, they have some more thinking to do.
The hon. Member for Ross, Cromarty and Skye said that we must be more alert to prevent concentrations of shares. It is true that in the early 1970s concentrations did increase, but the hon. Gentleman will be relieved to know that, since then, they have decreased, if only slightly.
My hon. Friend the Member for Dorset, North (Mr. Baker) said that speed must not be an overriding master. However, it is in the interests of commercial efficiency that matters are resolved speedily. My hon. Friend complimented the takeover panel on the effective way in which it operates, and I endorse what he said. We are anxious that the very effective procedures that exist as a method of self-regulation should be allowed to continue. No one disputes the voluntary nature of the arrangement. We are simply trying to find a way in which that non-statutory form can be used to implement the takeover directive.
Several hon. Members referred to the United Kingdom market's relative openness to takeovers. That is correct and it is a problem that needs to be resolved. However, the way to resolve it is not by making our markets less open ; it is to take steps to make other markets more open. At our specific request, the European Commission is undertaking studies, assisted in many ways, into what barriers exist and whether they can be removed by legislative means. I have no doubt that some can, but many are cultural and attitudinal barriers and they will take time to remove--but being removed they are, and that will continue.
My hon. Friend the Member for Chichester referred to the Monopolies and Mergers Commission and hoped that it would continue to have a role. I assure him that it will, and I endorse his tribute to the work of the MMC, which has had an exceptionally heavy work load in the past 12 months, which it has discharged efficiently, thoroughly and effectively. I am grateful to my hon. Friend for his remarks. The hon. Member for Dagenham referred to the modest changes that we are proposing to the Financial Services Act 1986 and said that he sympathised with our argument on section 62. I assure him that we shall consult before we make regulations that define who the private investor is. It is important that we should maintain adequate, proper and full protections for private investors, but we feel that it is reasonable to take the view that professional investors can look after themselves to a large extent. Therefore, the argument for removing section 62 protection from such investors is incontestable. The principles that the Securities and Investment Board will be able to promulgate do not replace the rules which have a legally binding effect ; they merely form a backdrop
Column 329to those rules so that a firm that manages to avoid the letter of the rules does not avoid the consequences of that altogether.
Mr. Gould : Is the Minister saying that the rulebook, as it existed in all its volume and complexity, will remain and that the principles will be additional, or can we expect that the principless will displace a good proportion of those pre-existing rules?
Mr. Maude : The hon. Gentleman will be aware that, within the existing framework of the law, some simplification of the rulebook has already taken place. I regard that as wholly desirable because the rulebook had become over-complex, which was helpful neither to investors nor to firms. Although we can expect further
simplifications of the rulebook, that does not mean that the effect of those rules will be less. I believe that their effectiveness will tend to be greater because the more detailed rules are, the easier it is for clever lawyers to find a way through them. Adding the principles to those rules with legal effect will provide a more effective backstop because it will enable the regulatory bodies to take disciplinary and regulatory action against those firms that try to avoid the letter of the rules but breach the principle. I hope that that satisfies the hon. Gentleman.
Mr. Gould : No, I am sorry, but it certainly does not. The Minister has confirmed that the principles will replace the rules at least in some respects. I agree that the rules are too detailed, but at least they have the merit of being legally enforceable at the suit of those who suffer from any breach of those rules. We are unhappy that, if the rules are to be replaced by principles that are not so legally enforceable, we have lost an important element of the regulatory framework. As that is exactly what the Minister and what his right hon. Friend said earlier, it is on that basis that we shall object to the proposals.
Mr. Maude : The hon. Gentleman's fears are unfounded. There is no question of the principles replacing the rules--they are an addition to the rules, which will continue to have legal effect. However, I look forward to discussing this in detail with the hon. Gentleman in Committee.
The hon. Member for Dagenham concluded his remarks by listing a string of examples, all of which he adduced in order, he hoped, to show that the Financial Services Act 1986 has not been effective. Those examples had one common thread running through them : they were all utterly irrelevant to the case that the hon. Gentleman was seeking to support. Either they related to events that happened before the 1986 Act came into effect or they related to breaches of laws that have nothing to do with that Act.
We take extremely tough action against any wrongdoing. Given the sort of cases currently before the courts, anyone who suggests that the Government are anything but robust in pursuing wrongdoing and bringing it to justice has not been reading the newspapers carefully.
Column 330This has been a useful debate. It is a prelude to more detailed discussions in Committee. The Bill is a useful measure that will improve the teamwork within which free enterprise can operate. I urge the House to support the Second Reading.
Mr. Nigel Spearing (Newham, South) : On a point of order, Mr. Deputy Speaker. Can you confirm that there is no constraint on time and that it is the courtesy and practice of the House for Front-Bench speakers, particularly on important Bills, to give way on explanations?
Question put, That the amendment be made :--
The House divided : Ayes 18, Noes 91.
Division No. 186] [1.41 am
Barnes, Harry (Derbyshire NE)
Garrett, John (Norwich South)
Hughes, John (Coventry NE)
Jones, Martyn (Clwyd S W)
Quin, Ms Joyce
Tellers for the Ayes :
Mr. Frank Haynes and
Mr. Allen McKay.
Alison, Rt Hon Michael
Baker, Nicholas (Dorset N)
Brooke, Rt Hon Peter
Brown, Michael (Brigg & Cl't's)
Coombs, Anthony (Wyre F'rest)
Coombs, Simon (Swindon)
Currie, Mrs Edwina
Davis, David (Boothferry)
Douglas-Hamilton, Lord James
Forsyth, Michael (Stirling)
Greenway, John (Ryedale)
Griffiths, Peter (Portsmouth N)
Hargreaves, Ken (Hyndburn)
Howarth, Alan (Strat'd-on-A)
Howarth, G. (Cannock & B'wd)
Hughes, Robert G. (Harrow W)
Hughes, Simon (Southwark)
Hunt, David (Wirral W)
King, Roger (B'ham N'thfield)
Martin, David (Portsmouth S)
Maude, Hon Francis
Morrison, Sir Charles
Moynihan, Hon Colin
Newton, Rt Hon Tony
Porter, David (Waveney)
Sackville, Hon Tom
Shaw, David (Dover)
Smith, Tim (Beaconsfield)
Stewart, Allan (Eastwood)
Stradling Thomas, Sir John
Taylor, Ian (Esher)
Thompson, Patrick (Norwich N)
Twinn, Dr Ian
Waddington, Rt Hon David
Wardle, Charles (Bexhill)