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Mr. Cousins: In his apparent support for the idea of a contractual limiting of auditor liability between the auditor and the company, does the hon. Gentleman conceive of possible collusive relationships that might be built up?
Brian Cotter: Yes. That is why we need a lot more consultation to arrive at the solutions we need. We certainly need a way forward.
The second part of the Bill introduces the community interest company, which is a new type of company whose profits and assets will be used for the public good. The Minister quite rightly applauded that sector, and I pay tribute to the right hon. Member for Leeds, West (Mr. Battle) who promoted CICs through his very constructive speech. For many years, we as a party were leaders in the co-operative field, and we therefore support community interest companies very much. When we reach Committee stage, I hope to deal with the important issues that the right hon. Gentleman raised. I shall certainly look at the Bill with renewed interest to ensure that it contains every encouragement for community interest companies to be effective and to provide a route for economic progress in many parts of the country. I have met a number of people involved in community interests of one sort or another—the right hon. Gentleman mentioned cinemas, but there are many others. I welcome the Government's saying that they will progress that part of the Bill.
We have historically welcomed such things. Indeed, we argued that the Government's long-promised companies Bill should be used to create a public benefit organisation structure, which is very much in sympathy with the aim of the community interest companies that are now being proposed. However, we still have some concerns about the nature of the new companies. In the other place, Lord Phillips of Sudbury was able to use his
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expertise in the legal and charitable sectors to argue that the Bill should not prevent charities from choosing to become community interest companies, which is what seems to be being proposed. As he said,
"the law of charity has been distinguished by being a function of purpose and not a form or format."—[Official Report, House of Lords, 7 July 2003; Vol. 663, c. 848.]
That principle has given charities maximum choice in allowing them to determine whichever form best allows them to carry out their work. The Bill represents the first step away from that flexibility. Although opinion is somewhat divided on the issue, we feel that there is an important point to which we shall return in Committee.
Corporate governance is an area in which the general public increasingly look to companies to demonstrate high standards. Indeed, we would hope for high standards when it comes to remuneration and just returns as shareholders and stakeholders. My friends in the other place, Lord Sharman and Lord Razzall, attempted to mitigate the slow progress towards reporting details of social and environmental performance by tabling an amendment requiring the Secretary of State to publish standards in order to guide companies further in that respect. That may be an issue to which we will wish to return, as it is an important one. I have been involved in small business all my life, and when I came back to big business after many years of non-involvement, I was quite concerned about the lack of transparency.
There is another issue of corporate governance relating to larger companies dealing with smaller suppliers. In particular, there is the issue of late payment of debt, an ongoing bugbear for British small firms, which according to some estimates are owed up to £20 billion by larger companies in payment for services and goods provided. The Federation of Small Business estimates that one in four business failures are as a result of cash-flow problems caused by the late payment of commercial debt. I very much supported the Bill on late payment brought in by the Government, and the FSB and the Forum of Private Business were instrumental in helping me and others to do our best to ensure that it was placed on the statute book. Clearly, there is a major problem, and despite the introduction of legislation allowing businesses to claim statutory interest on any overdue invoice, the situation has not improved as much as we had hoped. Further action is needed to tackle the culture of late payment.
At least five pieces of independent research confirming that have been published since January. A Bank of Scotland survey this month found that almost half of small businesses had been forced to take legal action against late or non-paying ones. The FSB payment performance tables in April showed no improvement in the amount of time it takes plcs to settle their commercial bills. The latest survey, published in July by Experion, suggested that the amount of time it takes companies to settle their bills has risen to its highest level since 1998, which is very worrying. Unless the Government encourage and actively help the largest companies to lead by example, we will never achieve the culture change that is needed to eliminate the late payment that continues to plague Britain's small businesses.
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Sadly, the Government are failing to lead by example, as my hon. Friend the Member for Twickenham (Dr. Cable) illustrated when he revealed this week that the Treasury is one of the worst culprits when it comes to late payment of bills. The Forum of Private Business has been particularly assiduous in pressing the Department for Environment, Food and Rural Affairs to release the money that it still owes many foot and mouth contractors for work carried out during the crisis some three and a half years ago. It is hardly surprising that many large businesses still fail to pay small suppliers on time.
Trying to identify in advance whether a large company is likely to pay on time is near impossible for small businesses. Under the Companies Act 1985, UK plcs are required to publish details of their payment performances in their annual accounts. Yet when the FSB was conducting research for its payment performance league tables, it was unable to find that information for 57 of the FTSE 100 companies. Following an investigation at my request, Companies House confirmed that all the companies had published the details, but the problem is that there are no standard requirements for reporting payment performance. The job of finding the information is rather like hunting for the proverbial needle in the haystack. Following my inquiries, Companies House admitted that it had taken
"a considerable amount of time to examine each set of accounts"
to check whether the companies had made the required disclosure. Clearly, there is a problem there. If Companies House cannot easily identify the information, how on earth is a small business person who lacks the necessary resources supposed to identify it?
I hope that the Government will take the issue seriously. Liberal Democrats, the Government and others are committed to the measure, but there are clearly problems with the way in which it works. If a business cannot access a company's payment performance record, how can it make an informed decision about whether to enter into a contract to supply that company? Given that the law was introduced to help small firms, we must ensure that it does so effectively.
Having addressed that point, let me say that I hope we can make progress on the Bill in Committee to ensure that small business and others have transparent information available based on strict and clear guidelines on what firms should include in their records. As Companies House has difficulty in listing the information, perhaps we can do something to clarify that situation. I look forward to addressing that issue and others in Committee.
7.2 pm
Mr. Austin Mitchell (Great Grimsby) (Lab): I am surprised that the spokespeople for the two Opposition parties are so overwhelmingly favourable to the big four. It is an interesting revelation. They are both sycophantically grovelling at the feet of the big four, but it is no use: we have been so kind to the big four that they are probably about to affiliate to the Labour party, so there is no hope of attracting their support.
The hon. Member for Sutton Coldfield (Mr. Mitchell) gave us the views of unregenerate accountants, greedy and irresponsible chief executives and indolent non-
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executives—three small minorities in the business community—and erected them into an ideology for the Conservative party. Indeed, the longer he spoke, the more favourable I became to the Bill, which I did not favour in the first place. Having given that panegyric on the big four and that astonishing rant against a mild an innocuous Bill, he has given me the opportunity to welcome it. The measure is long overdue and has the potential for being improved in Committee. I know that there are doubts about the Whips' enthusiasm for putting critics on Committees, but I hope to contribute to those debates to produce an effective system of regulation of the business community. That is the strongest praise I will give the Bill, so I put it at the head of my speech.
I want to deal primarily with part 1. It follows a long period of delay and obfuscation by the Department of Trade and Industry, which over the years has acted as the protector, friend and, alarmingly, sometimes the spokesperson for the big four. The DTI stands in awe of them. It must be frustrating for civil servants to have to put the views of the big four when they get much lower salaries than the partners of the big four, but that is the reality: hear no evil, see no evil, speak no evil.
The measure goes back a long way. In 1992, my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins) and I, along with our advisor, Professor Prem Sikka, persuaded the then Opposition spokesperson on trade and industry, Mo Mowlam, to include in the manifesto a provision for the independent regulation of accountancy, like the Securities and Exchange Commission. In 1997, independent regulation of accountancy appeared in Labour's business manifesto and stayed there all those years, which is quite an achievement given the transformation that took place. However, when we sent our ritual delegations to the DTI to ask when we were getting the independent regulation, we were told, "Oh no. Sorry. There's no time for the independent regulation that we promised in the business manifesto. What we're going to do is create a foundation based on the Swinson report", which was a means of avoiding independent regulation. The Department would have put that foundation on top of the 23 other bodies responsible for regulating accountancy and auditing—a cherry on top of the pie. Lovely.
We were told there was no time for legislation and that the foundation would do the job, but the Bill effectively kills off the foundation, which in reality was stillborn. It achieved nothing and was a waste of seven years. The big four, however, decided that that was not enough. They wanted limited liability partnerships, which they set about achieving by buying legislation in Jersey. They drew up legislation, which Jersey passed. That clearly concentrated the mind of the Government. Indeed, the senior partner of Ernst and Young said:
"It was the work that Ernst & Young and Price Waterhouse undertook with the Jersey government"—
they actually took over the job of the Jersey Government—
"that concentrated the mind of UK ministers on the structure of professional partnerships . . . The idea that two of the biggest accountancy firms plus, conceivably, legal, architectural and engineering and other partnerships, might take flight and register offshore looked like a real threat . . . I have no doubt whatsoever that ourselves and Price Waterhouse drove it onto the government's agenda because of the Jersey idea".
By threatening to go to Jersey and getting limited liability partnerships past their Government, the big four forced the hand of our Government who, having told us that there was no time to legislate for independent regulation, immediately rushed through limited liability partnerships.
The big four now want us to move a stage further. We are told that they want us to cap their liability. It appears from the report that I received that the Minister told the Institute of Chartered Accountants conference in July that the DTI would cap their liability. We are confused about what will happen and I want to encourage the Minister not to go ahead with that disastrous idea or anything like it. It is not simply that the European Union Commissioner, the American Government, the Office of Fair Trading and the institutional investors—all minor, unimportant people—are against it, but that it is daft. We could have a dual system, as the Americans do. They have a day-tripper auditor—an external auditor—plus the Federal Reserve audit of all financial institutions, which could be handled by the Financial Services Authority here.
We are told that there is an issue of competition. In that case, why were all the mergers of the big accountancy houses allowed? If competition is now so restricted that we have to revive it and encourage it by capping liability, why did we allow the mergers in the first place? It seems a little illogical. We could introduce competition by using other sources of audit. Why should not the Inland Revenue, Customs and Excise or the National Audit Office do audits? Why should not financial service groups such as Virgin or Marks and Spencer's financial services do audits? Either widen the competition or, having encouraged the concentration, break up the big four so that we get real competition.
Most of the claims against auditors come from the insolvency arms of other big accountancy houses. The problem is self-perpetuating. The inflated figures that have been bandied around to create shock and horror take no account of the fact that the principle of contributory negligence was introduced in 1993. Deloitte used that in the Barings case to get a fine of £150 million reduced to £1.5 million on the basis that its negligence was only contributory.
We also have to think of the knock-on effect on other sectors and industries. It is all very well for the Opposition to say that other firms can get insurance cover against their failures, but they might not want to because it becomes expensive. So why not cap their liabilities, as has been suggested for accountants? If we do it for one sector, we shall have to do it for others. It is ludicrous to argue that we would not because the companies can get insurance cover, because there is no guarantee that that will be maintained.
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