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Mr. Battle: My hon. Friend suggests that jazz clubs could be provided, and I know that he is a great jazz fan. I see no reason why entertainment and leisure provision should not be part of the new companies' remit. A micro-economy is developed through the local provision of services and goods. New forms of social enterprise can meet local needs, and new community economic development can serve as the focus for the work of community development and rebuilding. In turn, that will lead to local people being trained in new skills. People will therefore remain in the community because they enjoy living there, as a result of having the access to the same services and goods as are available elsewhere.
A recent report from the London Business School entitled "Social Entrepreneurship Monitor UK 2004" found that 7 per cent. of the UK population was engaged in some form of community work or social entrepreneurial activity. That is a start, but the figure is still far too low if we want to think about regenerating urban neighbourhoods. In the past, social enterprises that use business tools and techniques have resulted in co-operatives and housing associations being set up. Café Direct and The Big Issue are examples of that, but most social enterprise has been focused around London, as the LBS study found. I suggest that it needs to be spread around the country.
We need more of it in west Yorkshire and in my neighbourhood. We must encourage people to have a go, and we will not do that if we do not sell the ideas
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behind CICs. If people take on this new interest, the development of micro-businesses could be assisted. What is more, they could open up some innovative space and provide to their communities new goods and services that have not previously been thought of. That entrepreneurial imagination would be most welcome.
There remains a need for quality jobs and training and for businesses to provide goods and services. That is certainly true in my constituency, but the provision must happen within a fully sustainable economy so that we can move into the future with some stability.
I am enthusiastic about CICs and believe that they will have a role to play in the community economic development of the future. However, I urge the Minister to ensure that we get the solid legal framework right in our discussions in this Chamber and in Standing Committee. I hope that she and the Government will take a more proactive role in encouraging and supporting the development and growth of CICs, as soon as the Bill becomes law.
6.43 pm
Brian Cotter (Weston-super-Mare) (LD): Thomas Edison, the famous inventor, once said that opportunity is missed by most people because it is dressed in overalls and looks like work. When it comes to the question of reforming company law, I would certainly not accuse the Government of being workshy. An enormous amount of consultation has already been completed in this area, yet various proposals are still waiting to be enacted.
Thus, for whatever reason, this Bill represents a major missed opportunity to carry out the extensive reform and simplification of the law that is so desperately needed. That point that was made eloquently by my noble Friend Lord Sharman in the other place when he criticised the Government for nibbling away at the edges of company law reform. My noble Friend mentioned the Enterprise Act 2002, which dealt with questions of bankruptcy and insolvency, but now we have this Bill, which devotes 17 clauses to the reform of regulation, five to improving company investigations, and 37 to establishing community interest companies.
But what about other matters that have yet to be addressed? We still await draft regulations to require companies to produce an annual operating and financial review. This continued piecemeal approach to company law is causing immense frustration. Last month, Eric Anstee, the chief executive of the Institute of Chartered Accountants told the Financial Times that, without action on both auditor and director liability, the initiative by the Department of Trade and Industry on the OFR was "doomed to failure."
I now turn to this morning's statement announcing the Government's approach to director and auditor liability. I shall come to auditors later, but I give one cheer to the announcement that companies will be allowed to indemnify directors in terms of legal costs. That is a step forward, but will the Minister explain why the Government rejected the proposal from the Institute of Directors to cap director liability?
The prospect for company directors is therefore bleak and, for the near future, it is evident that they will have no choice but to continue wading through successive
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layers of company law many of which have become unfathomable as a result of continual change and amendment.
Mr. Austin Mitchell: Does the hon. Gentleman agree that, if we are to cap the obligations of company directors, chief executives and the like, we should also cap their salaries? Their salaries can be raised to quite obscene levels, and the people involved use their positions to control and decide them.
Brian Cotter: The hon. Gentleman raises a matter that is of great concern. The way salaries have been raised is absolutely appalling, but I do not think that problem falls within ambit of this Bill.
A written ministerial statement made by the Secretary of State on 26 May 2004 announced new proposals to try and deal with this problem, promising the introduction of
"new types of legislative power enabling company law in future to be amended by a special form of secondary legislation".
That would make it easier to keep company law updated over time. The Secretary of State assures us that these new powers will be
introduced as part of the major new Companies Bill . . . as soon as
Parliamentary time allows."——[Official Report, 26 May 2004; Vol. 421, c. 78W.]
Yet here we are in the meantime scrutinising another companies Bill. On behalf of all the company directors who are currently frustrated by the plethora of company law regulations, the first thing I ask the Minister is how much longer they will have to wait for the major reform and simplification that is promised.
Although the Bill is a missed opportunity, it still has merits that the Liberal Democrats wish to support—as do those who sit on the Conservative Benches. The first part of the Bill aims to improve public confidence in companies and financial markets by strengthening the system of regulating auditors, tightening up the enforcement of accounting and reporting requirements, and strengthening the company investigations regime.
That is very welcome in light of the recent Enron and Parmalat cases, and others, and I know that my noble friend Lord Sharman was able to offer his expertise to strengthen the Bill further, in respect of the provisions relating to auditing and investigations. Indeed, he has applied his expertise so rigorously that we are relatively content with this part of the Bill.
We are all aware, as a result of what has been written in the pages of the Financial Times, of the arguments that have been raging between the Treasury and the DTI about whether a cap should be introduced to limit auditor liability. We found out today who won that particular argument.
The Liberal Democrat party is concerned to ensure that the free market should be allowed to operate in this area. We currently have a unique situation in which statutory intervention will not allow an auditor and a company freely to negotiate the liability to be borne by either party. We know that auditors, lawyers and the business community have questioned the Office of Fair Trading's conclusion that a cap on liability would be competitively neutral and that they have claimed that the OFT's report is flawed.
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At face value, those claims carry some weight. In Germany, where a cap is in existence, 67 of the top 300 quoted companies are audited outside the big four auditing firms, and the story is similar in countries such as Greece and Austria. In the UK, in contrast, all the FTSE 100 companies, and 248 of the FTSE 250 companies, are audited by the big four firms. Are the Government satisfied that these competition points were adequately addressed by the OFT? If agreement is reached, will the Secretary of State consider a legislative timetable in relation to auditors' liability so that we can look forward to legislation early next year?
Does the Minister further accept that confidence is dented if the OFT gets so wrong the availability of personal indemnity insurance for auditors? In the statement issued earlier, the Secretary of State said that the Government would look closely at the option of proportionate liability by contract. We welcome that. It would ensure that auditors paid for their mistakes in an equitable way, which would, I think, carry the support of businesses and the auditing profession. I ask the Minister to clarify two points. First, what is the timetable for looking at proportionate liability by contract? Secondly, will the right hon. Lady make a commitment the effect that if agreement is reached between auditors, investors and business, the Government will quickly legislate to allow proportionate liability by contract?
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