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Session 1999-2000
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Standing Committee Debates
Limited Liability Partnerships Bill [Lords]

Limited Liability Partnerships Bill [Lords]

Standing Committee F

Tuesday 13 June 2000

[Mr. GEORGE STEVENSON in the Chair]

Limited Liability Partnerships Bill [Lords]

10.30 am

The Minister for Competition and Consumer Affairs (Dr. Kim Howells): I beg to move,

    That, during proceedings on the Limited Liability Partnerships Bill [Lords], the Committee do meet on Tuesdays at half-past Ten o'clock and at half-past Four o'clock and on Thursdays at Ten o'clock and at half-past Two o'clock.

May I say that I hope that it will be a relatively brief Committee, Mr. Stevenson, and that it is a pleasure to serve under your chairmanship. I know that it must be difficult for you, given that the Committee follows the crash of a prominent soccer team last night, but then I do not take a great deal of interest in the subject.

The Chairman: Do you mean Stoke City's failure to be promoted?

Dr. Howells: I hope, Mr. Stevenson, that you will enjoy the Committee's proceedings as much as we shall.

Mr. Nick Gibb (Bognor Regis and Littlehampton): I, too, welcome you to the Chair, Mr. Stevenson. As we said on Second Reading, the Opposition welcome the Bill. It started life under the previous Administration in response to the real concerns expressed by the accountancy and legal professions about the unwarranted and unacceptable personal exposure to liabilities that can result from the business activities of partnerships. We therefore would not expect the sittings to start any earlier than 10.30 am on Tuesdays or 10 am on Thursdays.

I concur with the Minister in saying that the Committee's proceedings are likely to be brief. However, they may not be as brief as the Minister would like because we have an important scrutiny role. The Bill will receive considerable further Opposition scrutiny because, despite the enormous scrutiny that it has already received, several concerns remain unanswered. Consultation documents were published by the previous Conservative Government in February 1997. That was followed by detailed scrutiny and a report by the Select Committee on Trade and Industry. Another draft Bill and consultation document was issued in July 1999, and the Bill was finally published in November 1999.

Thanks to the exemplary work done by my noble Friend Baroness Buscombe, significant changes were made to the Bill, which makes it a far better proposition as it begins its Committee stage here than when it began that stage in the other place. However, we are still concerned about some issues, such as the default provisions in partnership law, which have been debated at length. A consultation document on the matter was published in February 2000 and a summary of responses and the Government's reaction to them was published in May. The debate covered by those documents is important and I hope that we shall be able to refer to it.

One of the Committee's legitimate and important roles is to ensure that the Government do not indulge in an excessive use of secondary legislation. That matter was raised in the other place by the House of Lords Select Committee on Delegated Powers and Deregulation. That Committee considered the use of Henry VIII clauses, of giving the power through secondary legislation to amend principal Acts of Parliament and of using secondary legislation to import into those rules indictable criminal offences and punishment. We, too, shall need to give particular attention to those matters if we are to carry out our primary task of scrutinising the probity of the Bill. Too much of the meat of the Bill appears to be by way of secondary legislation.

There seems to have been plenty of consultation, not all of which was taken on board by the Government, but some of the debate should take place in public and not behind closed doors. The Committee is an appropriate place to discuss such matters.

One issue raised in the consultations on the regulations that are to be made under the Bill is the importing into its provisions of the company law requirement to disclose the earnings of the highest paid member of the limited liability partnership in the notes to the published accounts. The reason for that requirement under company law is to ensure that shareholders are aware of those important facts, to which they would not otherwise have access. They are not important to third party creditors in assessing the viability of a company. However, in the case of a limited liability partnership, the members are the shareholders, so they already have that information. Therefore, to incorporate that requirement into the legislation on limited liability partnerships is nothing but left-wing prurience.

Dr. Howells: It is a long time since I have been called a left winger and I have never been called prurient. However, is it not the case that limited liability partnerships will have clients who should know exactly what the financial situation is within the partnership to which they are entrusting their custom?

Mr. Gibb: That is not a matter for the law or for the Government. It is up to the provider of services to the client to decide whether to disclose that information. The law's purpose is to provide protection for third party creditors when we, as legislators, create an artificial body—either a company or a limited liability partnership—with its own legal personality. It is important that the Government do not take the line of being too prurient as a result of their egalitarian concern with what people in the private sector earn. Down that route lies a socialist economy, which will ultimately create an absence of the wealth that we would all like to spend on social services.

Mr. Michael Fabricant (Lichfield): My hon. Friend will be aware of the John Lewis Partnership plc, which is a contradiction in terms, but perhaps I shall have an opportunity to explain the relevance of that a little later. Before the previous election, the Prime Minister said that the John Lewis Partnership plc was the perfect example of a stakeholder. Its chairman earns £450,000 a year—and worth every pound—but people who work on the shop floor earn as little as £11,000 a year. That demonstrates that there are differences in earning capability even in the case of a stakeholder.

Mr. Gibb: My hon. Friend makes a valid point. I look forward to hearing his comments about that partnership, of which I am especially fond after taking delivery of various goods. It provides a really good service. However, my point is that consultation has taken place on a whole range of regulatory matters relating to the Bill, many of which I should like to debate in Committee. The consultation document states that none of the consultees supported the disclosure of the earnings attributable to the highest paid member. The most common objection was that the information would not provide any greater protection for third parties, but despite the fact that none of the consultees supported the measure, the Government's response was to ignore all the consultees' views and to proceed regardless.

That is not something that we can debate in Committee, despite its relative importance. Some professional partnerships believe that disclosure is an important issue because it will deter some law firms from becoming limited liability partnerships, which will mean that they cannot take advantage of the new structure that they believe is vital in helping them to recruit and retain new staff. However, despite its importance, the issue has been relegated to secondary legislation. Default provisions and whether to legislate for a general duty of care are important matters, which should be included in primary legislation so that the Committee could debate those issues.

On Second Reading, in answering concerns about whether the Administration of Justice Act 1960 would need to be amended to enable law firms to take advantage of the new limited liability partnership format, the Minister said:

    Further consideration is being given to the necessary changes and to how they could be given legislative effect.—[Official Report, 23 May 2000; Vol. 350, c. 891.]

That was on 23 May and it is now 13 June, so considerable time has elapsed during which consideration should have taken place. I trust that the Minister will use one of the Committee's sittings to explain the outcome of that consideration because many firms of solicitors, as well as the Law Society, which raised the concern originally, will be interested to hear his response.

On Second Reading, the Minister also mentioned a proposal that the Government might introduce in next year's Finance Bill—should this Administration be in office next April—to counteract the use of limited liability partnerships for tax avoidance schemes. The Minister said that such new measures would not be intended,

    to undermine the commercial certainty of limited liability partnerships' taxation treatment for those businesses for which limited liability partnership status was intended. That will be at the forefront of our minds, whatever options are proposed. [Official Report, 23 May 2000; Vol. 350, c. 891.]

Of course, any statement by the Minister will create the very uncertainty that he is seeking to avoid, so given that this is a new legal entity, which legal and tax experts have sweated over for the past three years, I hope that the Minister will find an opportunity to explain precisely what measures the Government intend to introduce in next year's Finance Bill. I do not want to hear that that is a matter for the Chancellor, which cannot be disclosed before the Finance Bill is published, because that is nonsense. Technical changes to Acts of Parliament may be announced way in advance of the Budget statement. In fact, such provisions may even be published in draft before the publication of the Bill. That would deal with the uncertainty that the Minister has created and would help to ensure that limited liability partnerships are successful. Given the great amount of scrutiny that the Bill has already received, and given the considerable support for the Bill from Conservative Members, I believe that the sittings motion should be adequate to ensure that the Bill receives the detailed scrutiny that it deserves, provided the Minister is prepared to listen and act on our remaining concerns.


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