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My hon. Friend spoke of protecting the public interest and of the need for a light touch. He observed that corporate social responsibility was now taken seriously—and it is, because the environment has changed. I support the Government amendments because they respond to an aspect of our debates on these issues, but the new clause would introduce a serious bureaucratic burden without achieving the desired results. Surely we should all want the whole of business to be both successful and responsible, and the new environment of enlightened shareholder value encouraged by the Bill will have a major impact in that regard. The balance of success and responsibility is built into the Bill very carefully. In my
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view, the hon. Member for Cambridge (David Howarth) is wrong: a tick-box mentality is more likely to result in a PR tool than to encourage a positive change in the environment.

The Bill embodies other important principles, such as “Think small first”, which has been seven years in the making. The new clause has good intentions, but in practice it embodies the principle “Think bureaucratic first”. It introduces a danger—companies will be advised by lawyers and they will play safe, not in protecting sustainable development, but in bureaucratic activity, producing more paperwork rather than public benefit.

Gibbon has warned us that laws often fail to prevent what they forbid. I suggest that bureaucratic regulation often fails to achieve the desired outcome. There can be perverse, unintended consequences. What enlightened shareholder value does is allow more citizen engagement in how companies operate. Those of us who care about issues such as sustainable development and fair trade, and wish to combat exploitation, surely want an environment in which the citizen campaigner is complemented by the citizen consumer. We can now go into a shop and see half a dozen different fairly traded coffees, which was not the case a few years ago. We also want the citizen shareholder to have an impact. What we want is not a tick-box environment, but intelligent engagement by companies. That is where I agree with the hon. Member for Putney. The Bill retains “true and fair” as the accountancy standard, for instance, which is extremely important.

I believe that enlightened shareholder value will allow organisations in the Corporate Responsibility Coalition—those who want to campaign for trade justice, environmental protection and the rest—to continue an intelligent engagement with business that has helped to increase responsibility in terms of sustainable development and international accountability in the United Kingdom, while at the same time making the UK a better place in which to do business. Surely there are lessons to be learned from our success in recent years in encouraging small companies to promote entrepreneurship.

There may be things that companies should do to a greater extent in order to carry out their responsibilities, but some of them should be contained in employment, environment or health and safety legislation rather than a Bill that is concerned with the vehicle—the company. Moreover, there is nothing to prevent companies from reporting in a way that is not required by law if that proves useful to shareholders for reasons of transparency. It would be good for their reputations, demonstrating that they were working responsibly.

Let us continue the partnership between Government and business and, indeed, the organisations that have campaigned for improvements. Let us think small first. Let us work on the application of enlightened shareholder value, which is making the UK a good and progressive business environment. Let us not go down the heavy-handed bureaucratic route that I fear is being proposed, although not intentionally, in the new clause and amendments.

Lorely Burt (Solihull) (LD): I had the privilege of sitting through the entire Committee stage, and, as a non-legal person, I now know more than I ever really wanted to know about company law. Only yesterday, we were treated to a fascinating discussion on corporate sole.

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Some Conservatives made extremely negative remarks yesterday about the Minister’s unhelpfulness in terms of accommodating input from other Members. Although in my view the amount of time allocated to Report could and should have been greater, some shameful remarks were made by Conservative Members who had not had the benefit of experiencing the Committee stage. I find myself in the unusual position of defending a Minister by seeking to put the record straight. The Minister did consult, and she did accommodate helpful suggestions and proposals from Liberal Democrats, Labour Members and those in other parties.

Even the Minister, however, has been unable to accommodate the wish of both Labour and Opposition Members to retain the operating and financial review. It was certainly not her fault that her boss-to-be, the Chancellor of the Exchequer—in a moment of madness, and apparently without consultation with any of his parliamentary colleagues—made a rash promise last November which he thought would appease big business. I refer to his promise to scrap the OFR.

The Chancellor thought that he would please business. In fact, he has angered many first-class businesses that had already begun to incorporate the requirements of the OFR in their business reporting. A report in today’s Times estimates that just under 50 per cent. of top UK companies have done so. I cannot agree with the hon. Member for Putney (Justine Greening) that the OFR is a waste of time, and apparently those companies do not agree with her either. Meanwhile, we are left with the somewhat weakened imitation that is the business review.

New clauses 1 and 75 seek to stiffen the requirements of the review and make it more effective. The hon. Member for Hemsworth (Jon Trickett) made many of the relevant points very eloquently, and I shall not elaborate on them, because we are short of time.

I am grateful to the Government for giving way on the issue of the supply chain. Any company can purport to be acting ethically, but if a company employs child labour or pollutes the environment, ethical investors and many others will wish to know about it.

Our amendment to new clause 1 is designed to widen the scope of the review to accommodate ethical investors—that growing band of individuals who base their investment decisions at least partially on the ethical behaviour of the company. That is hugely important. Clearly, that type of investor cannot make informed decisions if the information is not there; they cannot make them based on pious words or spin. New clause 75 gives auditors the power to check the accuracy of the report and provides for a duty to report any anomalies, specifically with regard to the contents of the business review.

That requirement will provide two things of great value to companies. First, it will create a level playing field for all companies of the same size. Those that behave in a way that is inconsistent with the spin in the business review will, I hope, be found out. Secondly, ethically behaved companies will attract investors who demand reassurance that their profits have not been created at the expense of others, or of the environment.

What of the cost? When the Chancellor made his fateful statement, wiping the operating and financial review from the expectant statute books, he was clearly
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seeking to ingratiate himself with business by appearing to be a man keen to reduce regulation and reduce costs. He should know about costs, Mr. Deputy Speaker. British Chambers of Commerce has estimated the cumulative cost to business of implementing new Government regulations since this Government came to power at £50 billion. The cost of implementing these proposals, over and above the existing regulatory impact assessment, is only an additional £30 million. If the Government were to approve an extension to all large private companies, the cost would be an additional £144 million. I am sure hon. Members would agree that that amount pales into insignificance in comparison with the huge burden already imposed by the Government.

Justine Greening rose—

Lorely Burt: I am sorry, but we are running out of time.

This cost has the huge benefit of creating a level playing field for competitors to give an accurate picture of how revenue and profits have been achieved. That, in turn, will affect the perception of their product or service to customers and investors alike. It is a virtue on which the company literally can trade. I therefore respectfully request hon. Members to support new clause 1 and new clause 75.

Mr. Austin Mitchell (Great Grimsby) (Lab): I shall speak briefly in support of new clauses 1 and 2, but I also want to speak to some other amendments tabled by myself and my hon. Friends. They further the same principle of keeping companies accountable by reporting—in other words, by asking them to say what they have done in certain areas. The sort of reporting envisaged in amendments Nos. 801 and 820, which we are proposing, cannot be subject to the usual Tory accusation that while companies spend millions on public relations, telling us what they have done, any expenditure on reporting to tell us what they have done is likely to put people out of work and cause companies to flee to some other jurisdiction. The amendments escape that criticism.

Amendment No. 801 tackles a basic issue, on which I would have hoped the Department of Trade and Industry had collaborated with the Inland Revenue and Treasury, as they both want to restrict the use of transfer pricing to launder profits into other jurisdictions either for avoiding tax or for money-laundering purposes. It is an important fact that FTSE 100 companies have 1,500 subsidiaries through which profits can be laundered. Indeed, 60 per cent. of world trade goes through multinationals. Bearing that in mind, something has to be done about transfer pricing, and amendment No. 801 actually does it.

There is considerable concern about this problem in the United States, where several inquiries have been conducted. UNESCO has also had some inquiries. From tax inquiries and congressional hearings in the US, it has emerged that the more flagrant examples of transfer pricing include, for instance, importing plastic buckets from the Czech Republic at $972 each, fence posts from Canada at $1,800 each and a kilo of toilet paper from China at $4,121. That shows how trade is used to
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launder money out of one jurisdiction into another. Lower prices, going the other way, include prefabricated buildings to Trinidad at $1.20 per building and bulldozers to Venezuela at $387. In that way, tax obligations in one jurisdiction can be avoided and money can be laundered through to another jurisdiction, so it is important that we know what is going on.

2.45 pm

The Treasury and tax authorities are now grappling with the problem. They are already tackling royalty payments by IBM, and Vodafone is currently locked in a transfer pricing discussion. We should get companies to declare what transfer pricing policies they are using and to report at constant market prices so that we know what is being done. It is public information and not a great burden on companies. Indeed, Henderson Global Investors, one of the largest institutional investors, has openly called for transfer pricing disclosures so that investors can know where the money is coming from, what is happening to it, where the profits are being generated and where tax has been paid. As I say, it is an important piece of investor information.

I do not have time to speak to all the amendments—to the House’s great regret, I am sure—but I want to deal with another amendment in detail.

David Howarth: On a point of order, Mr. Deputy Speaker. The hon. Member for Great Grimsby (Mr. Mitchell) is making a very interesting speech, but I am afraid that he is speaking to amendment No. 753, which is in the next group of amendments.

Mr. Deputy Speaker (Sir Michael Lord): Perhaps the hon. Member will bear that in mind as the debate continues. Let us get on with it.

Mr. Mitchell: The next group will have to be voted on at 3 pm as well, and the principle is exactly the same—the publication of information by companies so that markets and the authorities know what is going on. That applies to amendment No. 820, which deals with the publication of the highest and lowest annual earnings by employees, the number of UK-based workers and the gap between male and female earnings. All the years of pressure to equal up pay and to take action against low pay have not succeeded to the extent that is socially necessary.

If we require companies to report on what they are doing, it may well prove a way of bringing pressure to bear on them in the face of a glaring scandal. There are massively high pay levels at the top in comparison with exploitation and low wages at the bottom. Between 1997 and 2004, the average FTSE 100 chief executive’s total annual pay rose by 80 per cent. to £1.7 million. Pay at the bottom did not increase in anything like the same way, so the gaps are becoming ever more glaring. The only way to deal with the problem is to let people know what is going on and for companies to report on what they are doing. If companies want their enterprises to be run as a body, co-operating in order to advance the company and achieve greater shareholder value, they should be proud of their pay record and proud of what they are doing to provide incentives for their lowest-paid workers, particularly women.

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Unfortunately, I do not have time to deal with all the amendments in the group, but many of them deal with a growing trend, discernible in America, whereby companies want to report on their achievements. Massive public relations campaigns are taking place and millions of dollars are being spent in America on publishing that information, yet the Conservative Opposition in this country are niggling that any further obligations on companies will bring them crashing down around our ears, sending them into tax havens overseas and causing them to fire large numbers of workers. Those are ridiculous accusations to launch against what amounts to a simple principle of social justice and open government—that companies should be open and should be required to publish information, as Government Departments, public authorities and everybody else in our democracy has to. They are part of the fabric of society, and they must maintain their responsibilities to the fabric of society. That is my purpose in highlighting these amendments, and I hope that the Minister will make a difference when she replies to this fascinating debate.

Margaret Hodge: It has been an extremely good debate, and I particularly commend the speeches of my hon. Friend the Member for Hemsworth (Jon Trickett) and the hon. Member for Putney (Justine Greening) and those of my right hon. Friends the Members for Oldham, West and Royton (Mr. Meacher) and for Cardiff, South and Penarth (Alun Michael), who in their ministerial capacities contributed enormously to the agenda. I should also have mentioned my hon. Friend the Member for Elmet (Colin Burgon). Despite my interruptions, it was great to see the hon. Member for Putney contribute from the Front Bench, and I welcome her to her role.

I want to deal quickly with the issues. Yesterday, we talked about directors’ duties under clause 173. Today, we are considering clause 423 and, as I said yesterday, the two clauses go hand in hand and form an integral part of our approach in introducing a framework for corporate social responsibility while promoting business success. I do not want to repeat what I said yesterday, but some Members here today were not here yesterday. I know that many Members have received hundreds of representations on these issues and that there is great public interest in what we are debating.

It is important to put it on record that the purpose of the Bill is to provide a regulatory and legal framework that will promote enterprise and growth and that will encourage investment and employment. As our leading British companies and businesses recognise, businesses will prosper best, will be sustainable for the longer term and will grow faster when they act in an enlightened way. Businesses do not operate in a vacuum; they operate within communities and as part of society. All responsible businesses recognise what they do and how they do it impacts on the community in which they operate and more widely in society. All responsible businesses take account of the economic, social, environmental and human rights implications and impacts of what they achieve. By improving the way in which companies report on their activities and by enhancing the transparency of that reporting, the clause will make it easier for shareholders to hold directors to account.

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Susan Kramer (Richmond Park) (LD) rose—

Margaret Hodge: I am sorry but I will not give way, because time is very short.

I will deal briefly with new clause 1, new clause 2 and our amendments. New clause 1 was tabled by my hon. Friend the Member for Hemsworth. All companies, except small companies, will have to prepare a business review. Most companies, such as the Virgins and the Asdas, will choose of their own volition to incorporate many of the issues that we are debating when they prepare that review. However, we have exempted large private companies from having to comply with the fifth element of clause 423 for a particular reason—because there is a difference between the position of a private company and a public company. A quoted company has dispersed shareholders and operates in a regulated market for its shares, and we believe that that requires a greater degree of statutory underpinning for transparency and scrutiny than for companies that are privately held. However, all companies, including Thames Water, will have to report with a business review.

My hon. Friend the Member for Hemsworth raised the issue of materiality, and we think it wrong to remove what is described as the “materiality” requirement in the review, as his amendment seeks to do. The provisions were drafted carefully to avoid the review becoming a box-ticking exercise. The requirements are for the review to be

and for quoted companies to include specific information

That provides flexibility in the disclosures that need to be made and enables the directors to exercise their judgment as to whether something should be included. When the directors believe information to be material to an understanding of the company’s business, we would expect them to include it in the business review.

I am tight for time, so I wish to deal with issues relating to the Government amendments and then new clause 2. On the Government amendments, I say to the hon. Member for Putney that we have listened to all stakeholders, not just business stakeholders. It was in response to the representations that we had from all stakeholders that we brought forward the amendment to the business review. Of course I will meet, as I always do, the business representatives who may be concerned about this, but our slight amendment just reflects what was in the original company law review.

I also wish to say something about what has appeared in the press today. It remains the directors’ judgment to decide what is relevant in the supply chain for them to report on. Nothing is changed by the amendment. It does not require companies to list their suppliers and it is not about miles and miles of paperwork. As clause 423 says, a quoted company will in its business review have regard to the content of the amendment

No more, no less. Some of the fears that the hon. Lady mentioned do not reflect what will happen in practice.

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