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Mr. Andrew Mitchell: It feels like we have run a marathon, but we are in sight of the finishing tape.
I join the Minister in thanking my hon. Friend the Member for Old Bexley and Sidcup (Derek Conway) and the hon. Member for North-West Leicestershire (David Taylor), who did a first-class job chairing our Committee proceedings. I also commend the usual channels. The Bill was not programmed but was accomplished in the old-fashioned way and the system worked extremely well. I thank the Minister for her courtesy. We spent much time together working on the Bill and I shall treasure the formal letter she sent conceding that we were right on two small points in Committee, which she addressed by tabling two Government amendments on Report.
It has been a frustrating experience for Her Majesty's Opposition because our powerful arguments have been politely but firmly rejected. All my attempts at reasonable amendments have been unsuccessful. The Bill would be better had the amendments been accepted. The Minister will appreciate that we regret that they were not.
The Bill is not party political. It is required and has benefited from a great deal of good work in the Lords. It would be wrong of me not to mention the work by my colleague the noble Lord Hodgson, especially on clause 9. The Government agreed to Opposition amendments on that and, as a result, the clause is now much better.
There is broad strategic agreement on both sides of the House on what we are trying to achieve. Of course we want to punish wrongdoing and promote good practice. We have been in firm agreement with the Government on those measures that attempt to do that. Our main reservation is that Parliament has been ill used by introducing such measures in this form. They owe it to the House and the business community to bring forward the company law review. The Government have been sitting on that for nearly four years. The good governance of the British corporate sector requires a Bill on that. We are grateful to hear that one will be introduced soon. Although we did not tie the Minister down to precisely when, she made the right noises.
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The second part of the Bill deals with community interest companies. We think that that small measure should be part of a much bigger Bill. It could easily have been tacked on to the draft Charities Bill, which will introduce the charitable incorporated organisation. Our reservations are principally that the Government are wrong to introduce this minnow when they should have introduced the serious legislation that is required following the company law review and the important legislation on charities, for which the charitable organisations have been waiting for so long.
There are things with which we disagree over and above those two central strategic points. The Government firmly misunderstand the effect of regulation, which stifles initiative and entrepreneurialism. As many commentators have said, it is not the high tax that is the main threat afflicting the business community but the stifling increase in regulation, red tape and bureaucracy that makes Britain less competitive than its neighbours.
As the Minister knows, we are concerned about the Government's delay in addressing the problem of auditor liability, on which we had a good debate this afternoon. The Government can be left in no doubt about the urgent need for action on auditors, not for their benefit but for the sake of good governance of the corporate sector. Although I did not receive a copper-bottomed assurance from the Minister, I sensed that Ministers in the Department understand the importance of taking action, are consulting and will shortly introduce something very similar to the measures that they obliged their Back Benchers to oppose in the Lobby this afternoon.
We have not dealt today with director's liability, which we discussed in Committee. The Government satisfied us that they had made some progress when the Minister announced her conclusions on the consultation exercise. However, bigger issues, which I set out on Second Reading, govern the role of non-executive directors. The Government must ensure that governance does not mean that people whom we want to be non-executive directors are unwilling to take on that important role in major public companies because the risk to their reputation and, indeed, their wealth is disproportionate to the rewards. We failed to persuade the Minister in Committee to give greater protection to people below board level. In the other place, the Opposition were successful in changing the onerous burdens imposed on directors by clause 9, but we should give more protection to individuals below board level. I explained on Second Reading that just because I have an encyclopaedia in my study, it does not mean that I have encyclopaedic knowledge. It is important that people below board level who are assumed to have knowledge and are therefore held to account are protected. We made that argument powerfully but, regrettably, the Government did not accept it.
We tabled amendments on the extent of independent monitoring of major audits and the levy, as well as the nature of disciplinary hearings and whether they accord with natural justice. The Minister politely but firmly resisted all those amendments and the core of her argument was that there was already sufficient protection in the Bill. Time will tell whether that is the case. We are pleased with some of the measures in the Bill, but sorry that not all the changes that we asked for
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have been accepted. We look forward to the Government introducing other long-awaited legislation and we send the Bill on its way with one cheer but, alas, not with three.
6.33 pm
Brian Cotter: We have had some interesting and important debates on the Bill, which makes a welcome effort to improve public confidence in companies and financial markets by strengthening the systems for regulating auditors and accounts in the light of recent scandals such as Enron and Parmalat. The Minister promised further legislation to modernise company law and we believe that the Government will introduce it, because the issue has been in the air for a long time.
We rightly had robust discussions on the liability of auditors and I hope that the Minister accepts that the issue should be addressed. We had some interesting discussions about investigations and there are issues still outstanding in that regard.
The Bill includes important provisions relating to the establishment of community interest companies. As I mentioned previously, that is welcomed by the Liberal Democrats, who have a historic commitment to co-operative and mutual structures. Any measures that encourage social enterprises working on behalf of the local community or other good causes are to be welcomed. As we know, social entrepreneurs who want their companies to operate on a not-for-profit basis run into difficulties because company law provides no simple and transparent way to lock profits into a company. The legal process of creating a not-for-profit company can therefore be lengthy and expensive, so the transaction costs can be high.
Social and philanthropic investors may be deterred by the lack of an obvious profit and asset lock, and may therefore prefer to support other organisations, such as charities. Commercial investors may be puzzled by the complexity and diversity of not-for-profit structures and can see social enterprises as riskier than they really are, which raises the cost of funds. The Bill is welcome because it deals with these concerns and creates a community interest company structure that will address the problems. The Minister announced a short time ago that a great deal of information, fact sheets, advice and help would be available. I reiterate that, as the hon. Member for Sutton Coldfield (Mr. Mitchell) said, it is important that the information is provided in clear and easily understood language.
I return to an aspect of corporate governance that I raised in Committee—late payment. During the Committee's last sitting, the Minister responded to my amendment which would have required company directors to report their payment performance in a standard and transparent way that would make it easy for their small suppliers to determine the payment record of a large potential customer. Because there is no standard means of reporting payment performance times, a small firm may—and frequently does—find that the job of establishing the payment record of a larger firm is like trying to find a needle in a haystack. Despite the assurances that I was given, I maintain that that is so.
The lack of clarity and openness does nothing to promote best practice among larger companies or to bring about the culture change necessary to ensure that
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businesses pay their bills on time. We know that the problem is a significant and continuing one. The Federation of Small Businesses estimates that one in four of all business failures are the result of cash-flow interruption stemming from the culture of late payment that seems to be so entrenched in this country, yet I was disappointed that, in Committee, the Minister apparently brushed aside those concerns. She mentioned the Grant Thornton European business survey as evidence that the situation has improved.
The survey does suggest that, but there is plenty of contradictory evidence showing that matters are getting worse. The Federation of Small Businesses payment performance league tables show that the average time that it takes a business to pay its bills remains 46 days. That figure has remained the same for the past five years. That is just one example from a list of surveys that have reported a worsening situation, particularly over the past year.
The Government have taken steps to improve the situation as part of an overall package of measures to tackle late payment. I very much welcomed the Late Payment of Commercial Debts (Interest) Act 1998 and the establishment of the better payment practice group, but unless we ensure that plcs come clean about how long it takes them to pay their bills, how can larger companies be held to account effectively? What motivation will there be for them to improve their performance? At the moment, reporting methods are insufficiently transparent. The Federation of Small Businesses told me that Companies House told it that some 14,000 plcs exist in the UK. By law, each of those companies must provide a statement of payment performance in their annual accounts. The Minister may claim that such a statement can easily be found for each business, but that is far from the case.
Over the past five years, the FSB has used one of the largest credit reference agencies in the UK and researchers from the university of Leeds, which the previous Minister for Small Business and Enterprise referred to as the "UK's late payment observatory", to compile its payment performance league tables. Yet, even utilising that level of help, the highest number of compliant companies that the FSB has ever found with that data is 4,100, as against the figure of 14,000 UK plcs. Surely the fact that the information is available for less than one third of plcs in the UK undermines the aim of the legislation and means that the Government are failing to implement one of the key elements needed to tackle late payment, namely transparency.
We have clear evidence that the law is not working, yet the Minister told me in Committee that, under section 257 of the Companies Act 1985, the Secretary of
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State has the power to introduce a standard method of reporting payment performance. I hope that the Minister will confirm exactly why the Secretary of State has chosen not to use those powers, given the growing weight of evidence. I hope that the Government take late payment seriously and do not brush it to one side.
It was a pleasure to work with the Minister and other hon. Members on the Bill. I thank the officials and others for the fact that we have a Bill that is an advance, but, as Liberal Democrat Members and others have said, we are looking for something more comprehensive. That said, the Bill has provided an opportunity to raise a significant issue for small businesses, namely the growing problems of cash flow and payment of bills, which I hope that the Government will address now or very shortly.
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