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The Parliamentary Under-Secretary of State for Trade and Industry (Dr. Kim Howells): I am well aware of the concern of my hon. Friends the Members for Great Grimsby (Mr. Mitchell) and for Newcastle upon Tyne, Central (Mr. Cousins) about accountancy and its regulation in this country. They have made it clear that they believe that limited liability partnerships are a concession to the professions, especially the accountancy profession.
By tabling the new clauses, my hon. Friends are trying to use the Bill as a means of regulating the accountancy profession. As I said on Second Reading, I admire their tenacity and their concern for the reform of accountancy regulation. However, it is not the Bill's function to regulate professional activity. When regulation is believed to be necessary, the activity, not the LLP as an entity, will be regulated.
Time and deliberation were mentioned on several occasions. This Government and the previous Government have consulted on the detail of the Bill for at least four years. A long and intensive debate has therefore taken place about the proposals.
On the issue raised by my hon. Friend the Member for Newcastle upon Tyne, Central about the investigation of the professions by the Office of Fair Trading, I share the views of my hon. Friends that the issue of auditor independence--in particular, the extent to which an audit firm should be able to provide a non-audited service to audit clients--is important. That applies not only in the US, where the SEC has made proposals to deal with the issue, but in this country.
The OFT is conducting a review of the professions that will focus on, among others, accountants and solicitors. Iam sure that the review will address the balance between competition and regulation in relation to the accountancy profession. That work provides an excellent opportunity to examine the concerns that my hon. Friends have raised about the ability of auditors to provide non-audit services. The comments of my hon. Friend the Member for Newcastle upon Tyne, Central encourage me to ensure that those conducting the review are fully aware of those concerns, and I undertake to do so.
It has always been the intention that an LLP will have applied to it, through secondary legislation, requirements similar to those that are applied to a company. The amendments, if they were accepted, would add a heavy additional burden to LLPs in comparison with those of a company. I am strongly of the opinion that that is not the right approach.
New clause 2 would add a substantial extra burden on an LLP in comparison to a company, and it would be manifestly unfair to require such extra requirements on an LLP. There are no Companies Act requirements for a company to set out any claims made against it for work done, nor does it need to have a statement from its regulator stating that it has complied with the relevant regulatory framework. In addition, I do not see what would be gained by giving details of employee pay, which should be a matter between the employee and the LLP.
Under section 709 of the Companies Act 1985, any person may inspect the records kept by the registrar, and that section will be applied to LLPs. New clause 4 would impose a burden on LLPs trading outside the UK that goes beyond the requirements imposed upon a company or a partnership. It is not the role of the registrar of companies to list infractions of regulatory rules, either in the UK or in other jurisdictions. It is a matter of policy for the regulatory body concerned to decide whether infractions should be reported. I shall try to return to that issue, because my hon. Friends raised some interesting points.
New clause 7 would require an LLP to publish details similar to the details of director emoluments that are required by schedule 6 of the Companies Act 1985. That issue was addressed by the Trade and Industry Committee, which agreed that there was no reason why the Department should revisit the issue of the disclosure of the highest paid members' drawings. I do not believe that making available any further details of members' drawings would add anything. All LLPs will need to provide information on the aggregate amounts withdrawn or applied on behalf of members during the financial year
in the notes to the balance sheet. That is in addition to the requirement to disclose the earnings of the highest paid member in firms where profit--before member remuneration and profit shares--exceeds £200,000. The disclosure of that information will allow potential creditors to take a view on how the LLP is being managed and whether members are making excessive withdrawals.New clause 8 would require the annual accounts of the LLP to include a statement that would show the value of the assets of each partner and whether that partner was involved in any litigation. I share my hon. Friends' aspirations for greater transparency and this central issue is being examined by the independent company law review, which will make--I trust--some insightful and radical proposals.
As an LLP is a separate legal entity, we envisage that third parties will contract with the LLP rather than the member. For that reason, it is important that potential clients of the LLP are aware of the assets of the LLP and it is why we have applied the financial disclosure requirements for companies to LLPs. I do not believe that the disclosure of the net assets of members will add to creditor protection. Nor do I believe that providing information on whether a member is involved in litigation is right, because providing such information could be detrimental both to the individual and the LLP. The member should be seen as an individual separate from the LLP. I strongly believe that the new clause would be unfair and would go against our stated policy of having comparable treatment for LLPs and companies.
I see no reason why a statement of the authority to act of each member needs to be lodged with the registrar of companies and to be made available to clients, as suggested in amendment No. 19. It goes beyond what is required of directors of a company or of partners in a partnership. The Bill states in clause 6 that every member of the LLP is an agent of the LLP. A potential client will be able to find out who the members and designated members are, and details of the financial background of the LLP and any charges on the LLP will be available from Companies House. I am happy to inform my hon. Friends that we require designated members to give details of their addresses when they are appointed as designated members. That follows the requirements for the appointment of directors.
On the question of taxation, which my hon. Friends raised, I said on Second Reading that even though we believe that it is right to tax LLPs as partnerships, we are aware that, in some cases, the primary or only attraction of LLP status might be the tax treatment. As a result, we are considering the issue carefully with the Inland Revenue. Depending on our conclusions, legislation may be brought forward in the Finance Bill in 2001. We would, however, consult widely before legislating.
I emphasised that our intention was not to undermine the commercial certainty of the taxation treatment of LLPs for those businesses for which LLP status was intended, and I recognise that that might happen. I know that my hon. Friends are concerned about that point--both about the possible deterrent factor it might have, and about the uncertainties that would exist for those who take the plunge to become LLPs. I share the concerns that they have raised about companies that wish to become LLPs and about the need for greater clarity about the taxation
implications of such a transformation. Indeed, the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) raised similar points in Committee.I am of the view, therefore, that it is appropriate to await the outcome of the review before commencing the LLP legislation, so that anyone wishing to become an LLP may be certain of what tax treatment it can expect. I do not expect that, in practice, that will cause delay, because our expectation was that LLPs would not be available before early 2001. Clearly, were there to be legislation in next year's Finance Bill, we would need in any case to be certain of our intentions by that stage.
My hon. Friend the Member for Great Grimsby raised concerns about the prospect of water companies using LLPs as a means of running not-for-profit mutualised companies. That is a novel idea that has suddenly emerged on the scene since several water companies decided that they cannot make profits out of supplying water. My hon. Friend expressed concern about the intention of the owners of one particular company--Yorkshire Water--to split it in two and sell its physical assets to a non-profit-making mutual company. In that context, a statutory undertaking under the Water Industry Act 1991 must be a company limited by shares and could not be a limited liability partnership. It is perhaps also worth noting that anyone wishing to become an LLP must be carrying on a lawful business with a view to making profit. An LLP is therefore not available as an option for non-profit-making organisations.
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The hon. Members for Lichfield (Mr. Fabricant) and for Torridge and West Devon (Mr. Burnett) raised the general question of disclosure, and my hon. Friends the Members for Newcastle upon Tyne, Central and for Great Grimsby made a number of valuable and interesting proposals in respect of disclosure requirements for limited liability partnerships. It is, however, difficult to accept those proposals simply in relation to LLPs without considering corresponding application to companies.
It is our aim, as far as is possible, to keep the disclosure requirements for LLPs in line with those for companies and--I hope that this addresses the point raised by my hon. Friend the Member for Newcastle upon Tyne, Central--to ensure that changes in circumstances and what those changes might generate in terms of demands for disclosure are allowed for within the remit and the report of the independent company law review.
As I said earlier, the provision of information by companies is one of the key themes of the company law review that the Government set up two years ago. The review has already published proposals which would change quite radically some of the disclosure requirements. This therefore provides the best opportunity for many years for my hon. Friends' ideas to be considered.
It is our intention that changes which are made to companies following the company law review should then be applied to LLPs to the maximum extent possible. Given those reassurances, I very much hope that my hon. Friends will withdraw their amendments.
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