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Mr. Austin Mitchell:
There is no doubt that there is a move to restrict the sale of tax advice by auditors to their clients, just as is happening in America. My hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins) is exactly right: we are being dragged
behind the Americans, step by step. It is as if we are regulating audit in the same way that we are treating Iraq.
Mr. Deputy Speaker: Order. Perhaps I can help the Minister. That is not a good line to pursue, I think.
Vera Baird: Thank you, Mr. Deputy Speaker. I do not think that I could cope even if I did try to pursue it.
The Government believe that it is better for businesses and investors in the UK to use the ways set out in the Bill to guarantee or safeguard auditors’ independence, and that the approach adopted is more compatible with the culture that we are used to than would be a pursuit of the course taken by the US, with its Sarbanes-Oxley rules.
Similarly, we do not agree with the proposal that regulatory action against an audit firm or an individual auditor should be disclosed in every audit report with which they are involved. If an auditor, whether a firm or individual, is found guilty of a disciplinary offence by the professional body or by the AIDB, that is publicly available information to which audit committees and shareholders can have ready access. If auditors are investigated and cleared of a professional shortcoming, it would be unreasonable and wrong to require them to disclose that in reports.
In summary, I sympathise powerfully with the desire on the part of my hon. Friends the Members for Newcastle upon Tyne, Central and for Great Grimsby to improve the independence and accountability of auditors, but I believe that we have made real progress in these areas in the past few years and that the extra bits of regulation that they propose would be counter-productive.
Finally, the six Government amendments in this group are minor but worthwhile technical improvements. Amendment No. 213 removes a reference to a type of fine that is inappropriate in relation to conviction on indictment. Amendment No. 261 provides a definition for a “supervisory body” for the purposes of clause 539. Amendments Nos. 447 to 449 clarify that, when rights are available to a specified percentage of shareholders, someone who holds shares on behalf of more than one investor can choose to deploy the part of his overall holding appropriate to those investors who wish him to do so. Amendment No. 519 updates the definition of “bank” in clause 1174 so that it now refers to the new banking consolidation directive published in June 2006.
Justine Greening: We have had an interesting and wide-ranging debate. The hon. Member for Cambridge (David Howarth) appears to think that he belongs to the real Opposition, but will clearly vote with the Government on the Conservative amendment before the House. I listened very carefully to the hon. Members for Newcastle upon Tyne, Central (Jim Cousins) and for Great Grimsby (Mr. Mitchell), and I understand the points that they raised. However, I have considered their amendments previously, and I cannot agree that they would have a positive effect. I therefore remain unconvinced of their merit.
Similarly, I take on board the points made by the hon. Member for Angus (Mr. Weir), but there seemed a slight prejudice in his remarks against successful
multinational audit firms, some of which happen to be British. By and large, they get on with their business very well.
I appreciate the Minister’s acceptance that I am not trying to protect reckless accountants. In fact, the representatives from the accountancy and audit professions who have got in touch with me are worried about the rising costs that they may now have to pass on to customers. They do not feel that that will add anything to the audit approach, and we ignore their views at our peril.
Finally, my main concern is for the impact that increasing audit costs could have on small business. I very much hope that the Minister will keep a close eye on how the legislation is working once it is enacted, as that would go a long way towards minimising the potential risks that I have flagged up today. I am fully aware of how the offence is structured legally, and I understood the arguments that the Minister made in Standing Committee. However, the impact that the measure will unwittingly have on the audit profession broadly, and the costs to business that will result, cause me concern. As I have had no assurances that those arguments have been taken on board at all, I shall push amendment No. 439 to a vote.
Question put, That the amendment be made:—
The House divided: Ayes 121, Noes 306.
AYES
Ainsworth, Mr. Peter
Amess, Mr. David
Atkinson, Mr. Peter
Bacon, Mr. Richard
Baldry, Tony
Barker, Gregory
Baron, Mr. John
Bellingham, Mr. Henry
Blunt, Mr. Crispin
Bone, Mr. Peter
Boswell, Mr. Tim
Brady, Mr. Graham
Brazier, Mr. Julian
Brokenshire, James
Burrowes, Mr. David
Burt, Alistair
Butterfill, Sir John
Cameron, rh Mr. David
Carswell, Mr. Douglas
Clappison, Mr. James
Clark, Greg
Clarke, rh Mr. Kenneth
Clifton-Brown, Mr. Geoffrey
Curry, rh Mr. David
Davies, David T.C. (Monmouth)
Davies, Philip
Davis, rh David (Haltemprice and Howden)
Djanogly, Mr. Jonathan
Dorries, Mrs. Nadine
Duddridge, James
Duncan, Alan
Duncan Smith, rh Mr. Iain
Dunne, Mr. Philip
Ellwood, Mr. Tobias
Evans, Mr. Nigel
Evennett, Mr. David
Fabricant, Michael
Francois, Mr. Mark
Garnier, Mr. Edward
Gauke, Mr. David
Gibb, Mr. Nick
Goodman, Mr. Paul
Goodwill, Mr. Robert
Gray, Mr. James
Grayling, Chris
Green, Damian
Greening, Justine
Grieve, Mr. Dominic
Hands, Mr. Greg
Heald, Mr. Oliver
Hendry, Charles
Herbert, Nick
Hoban, Mr. Mark
Hogg, rh Mr. Douglas
Hollobone, Mr. Philip
Holloway, Mr. Adam
Horam, Mr. John
Howard, rh Mr. Michael
Hunt, Mr. Jeremy
Hurd, Mr. Nick
Jack, rh Mr. Michael
Jackson, Mr. Stewart
Johnson, Mr. Boris
Jones, Mr. David
Key, Robert
Knight, rh Mr. Greg
Laing, Mrs. Eleanor
Lancaster, Mr. Mark
Leigh, Mr. Edward
Letwin, rh Mr. Oliver
Lewis, Dr. Julian
Loughton, Tim
Luff, Peter
Mackay, rh Mr. Andrew
Main, Anne
Malins, Mr. Humfrey
Maples, Mr. John
Mates, rh Mr. Michael
May, rh Mrs. Theresa
McIntosh, Miss Anne
McLoughlin, rh Mr. Patrick
Mercer, Patrick
Miller, Mrs. Maria
Milton, Anne
Moss, Mr. Malcolm
Murrison, Dr. Andrew
Newmark, Mr. Brooks
O'Brien, Mr. Stephen
Osborne, Mr. George
Ottaway, Richard
Paice, Mr. James
Paterson, Mr. Owen
Pelling, Mr. Andrew
Penrose, John
Pickles, Mr. Eric
Prisk, Mr. Mark
Randall, Mr. John
Redwood, rh Mr. John
Rifkind, rh Sir Malcolm
Rosindell, Andrew
Ruffley, Mr. David
Scott, Mr. Lee
Simmonds, Mark
Spicer, Sir Michael
Spring, Mr. Richard
Steen, Mr. Anthony
Stuart, Mr. Graham
Swayne, Mr. Desmond
Swire, Mr. Hugo
Turner, Mr. Andrew
Tyrie, Mr. Andrew
Vaizey, Mr. Edward
Vara, Mr. Shailesh
Villiers, Mrs. Theresa
Walker, Mr. Charles
Wallace, Mr. Ben
Watkinson, Angela
Whittingdale, Mr. John
Wiggin, Bill
Wilson, Mr. Rob
Yeo, Mr. Tim
Tellers for the Ayes:
Andrew Selous and
Mr. Simon Burns
NOES
Abbott, Ms Diane
Ainger, Nick
Ainsworth, rh Mr. Bob
Alexander, Danny
Allen, Mr. Graham
Anderson, Janet
Atkins, Charlotte
Austin, Mr. Ian
Bailey, Mr. Adrian
Balls, Ed
Banks, Gordon
Barlow, Ms Celia
Barrett, John
Barron, rh Mr. Kevin
Battle, rh John
Bayley, Hugh
Begg, Miss Anne
Beith, rh Mr. Alan
Benn, rh Hilary
Benton, Mr. Joe
Berry, Roger
Betts, Mr. Clive
Blackman, Liz
Blackman-Woods, Dr. Roberta
Blizzard, Mr. Bob
Borrow, Mr. David S.
Bradshaw, Mr. Ben
Brooke, Annette
Brown, Lyn
Brown, rh Mr. Nicholas
Brown, Mr. Russell
Browne, Mr. Jeremy
Bruce, rh Malcolm
Bryant, Chris
Buck, Ms Karen
Burden, Richard
Burgon, Colin
Burt, Lorely
Butler, Ms Dawn
Byrne, Mr. Liam
Cairns, David
Campbell, Mr. Alan
Campbell, Mr. Ronnie
Caton, Mr. Martin
Chapman, Ben
Chaytor, Mr. David
Clapham, Mr. Michael
Clark, Ms Katy
Clark, Paul
Clarke, rh Mr. Charles
Clarke, rh Mr. Tom
Clelland, Mr. David
Coaker, Mr. Vernon
Coffey, Ann
Connarty, Michael
Cooper, Yvette
Corbyn, Jeremy
Cousins, Jim
Crausby, Mr. David
Creagh, Mary
Cruddas, Jon
Cummings, John
Cunningham, Mr. Jim
Cunningham, Tony
Davey, Mr. Edward
David, Mr. Wayne
Davidson, Mr. Ian
Dean, Mrs. Janet
Devine, Mr. Jim
Dhanda, Mr. Parmjit
Dismore, Mr. Andrew
Dobbin, Jim
Donohoe, Mr. Brian H.
Doran, Mr. Frank
Dowd, Jim
Drew, Mr. David
Eagle, Angela
Efford, Clive
Ellman, Mrs. Louise
Engel, Natascha
Ennis, Jeff
Farrelly, Paul
Featherstone, Lynne
Fisher, Mark
Fitzpatrick, Jim
Flello, Mr. Robert
Flint, Caroline
Flynn, Paul
Follett, Barbara
Foster, Mr. Don
Foster, Mr. Michael (Worcester)
Foster, Michael Jabez (Hastings and Rye)
Francis, Dr. Hywel
Gardiner, Barry
George, rh Mr. Bruce
Gerrard, Mr. Neil
Gidley, Sandra
Godsiff, Mr. Roger
Goggins, Paul
Goodman, Helen
Griffith, Nia
Griffiths, Nigel
Grogan, Mr. John
Gwynne, Andrew
Hall, Mr. Mike
Hall, Patrick
Hamilton, Mr. David
Hamilton, Mr. Fabian
Harman, rh Ms Harriet
Harris, Dr. Evan
Harvey, Nick
Healey, John
Heath, Mr. David
Hendrick, Mr. Mark
Heppell, Mr. John
Hesford, Stephen
Hewitt, rh Ms Patricia
Heyes, David
Hill, rh Keith
Hillier, Meg
Hodge, rh Margaret
Hodgson, Mrs. Sharon
Hoey, Kate
Hood, Mr. Jimmy
Hope, Phil
Hopkins, Kelvin
Horwood, Martin
Howarth, David
Howarth, rh Mr. George
Howells, Dr. Kim
Hoyle, Mr. Lindsay
Hughes, rh Beverley
Hughes, Simon
Humble, Mrs. Joan
Hutton, rh Mr. John
Iddon, Dr. Brian
Irranca-Davies, Huw
Jackson, Glenda
James, Mrs. Siân C.
Jenkins, Mr. Brian
Johnson, Ms Diana R.
Jones, Lynne
Jones, Mr. Martyn
Jowell, rh Tessa
Joyce, Mr. Eric
Keeble, Ms Sally
Keeley, Barbara
Keen, Alan
Keen, Ann
Kelly, rh Ruth
Kemp, Mr. Fraser
Kennedy, rh Jane
Khabra, Mr. Piara S.
Khan, Mr. Sadiq
Kidney, Mr. David
Knight, Jim
Kumar, Dr. Ashok
Lamb, Norman
Lammy, Mr. David
Laws, Mr. David
Laxton, Mr. Bob
Lazarowicz, Mark
Lepper, David
Levitt, Tom
Linton, Martin
Lloyd, Tony
Llwyd, Mr. Elfyn
Love, Mr. Andrew
Lucas, Ian
Mackinlay, Andrew
MacNeil, Mr. Angus
MacShane, rh Mr. Denis
Mahmood, Mr. Khalid
Malik, Mr. Shahid
Mallaber, Judy
Mann, John
Marris, Rob
Marsden, Mr. Gordon
Marshall, Mr. David
Marshall-Andrews, Mr. Robert
McAvoy, rh Mr. Thomas
McCabe, Steve
McCafferty, Chris
McCarthy, Kerry
McCarthy-Fry, Sarah
McCartney, rh Mr. Ian
McDonagh, Siobhain
McFall, rh John
McGovern, Mr. Jim
McGuire, Mrs. Anne
McIsaac, Shona
McKechin, Ann
McKenna, Rosemary
McNulty, Mr. Tony
Meacher, rh Mr. Michael
Meale, Mr. Alan
Merron, Gillian
Michael, rh Alun
Miliband, Edward
Miller, Andrew
Mitchell, Mr. Austin
Moffatt, Laura
Mole, Chris
Moon, Mrs. Madeleine
Moran, Margaret
Morden, Jessica
Morgan, Julie
Morley, Mr. Elliot
Mountford, Kali
Mudie, Mr. George
Mullin, Mr. Chris
Munn, Meg
Murphy, Mr. Jim
Naysmith, Dr. Doug
O'Brien, Mr. Mike
O'Hara, Mr. Edward
Oaten, Mr. Mark
Olner, Mr. Bill
Osborne, Sandra
Palmer, Dr. Nick
Pearson, Ian
Plaskitt, Mr. James
Pope, Mr. Greg
Prentice, Bridget
Prentice, Mr. Gordon
Price, Adam
Prosser, Gwyn
Pugh, Dr. John
Purchase, Mr. Ken
Purnell, James
Raynsford, rh Mr. Nick
Reed, Mr. Jamie
Reid, rh John
Riordan, Mrs. Linda
Robertson, John
Rogerson, Mr. Dan
Rooney, Mr. Terry
Rowen, Paul
Roy, Mr. Frank
Ruane, Chris
Ruddock, Joan
Russell, Bob
Russell, Christine
Salter, Martin
Sheridan, Jim
Simon, Mr. Siôn
Simpson, Alan
Singh, Mr. Marsha
Skinner, Mr. Dennis
Slaughter, Mr. Andrew
Smith, rh Mr. Andrew
Smith, Geraldine
Smith, rh Jacqui
Smith, John
Snelgrove, Anne
Southworth, Helen
Spellar, rh Mr. John
Starkey, Dr. Phyllis
Stewart, Ian
Stoate, Dr. Howard
Strang, rh Dr. Gavin
Straw, rh Mr. Jack
Stringer, Graham
Stuart, Ms Gisela
Stunell, Andrew
Sutcliffe, Mr. Gerry
Swinson, Jo
Tami, Mark
Taylor, Ms Dari
Taylor, David
Teather, Sarah
Timms, rh Mr. Stephen
Tipping, Paddy
Todd, Mr. Mark
Touhig, rh Mr. Don
Trickett, Jon
Truswell, Mr. Paul
Turner, Dr. Desmond
Turner, Mr. Neil
Ussher, Kitty
Vaz, rh Keith
Vis, Dr. Rudi
Walley, Joan
Waltho, Lynda
Wareing, Mr. Robert N.
Watson, Mr. Tom
Watts, Mr. Dave
Weir, Mr. Mike
Whitehead, Dr. Alan
Wicks, Malcolm
Williams, Mrs. Betty
Williams, Hywel
Willis, Mr. Phil
Willott, Jenny
Wills, Mr. Michael
Winnick, Mr. David
Winterton, rh Ms Rosie
Wood, Mike
Woolas, Mr. Phil
Wright, Mr. Anthony
Wright, David
Wright, Mr. Iain
Wright, Dr. Tony
Wyatt, Derek
Younger-Ross, Richard
Tellers for the Noes:
Jonathan Shaw and
Mr. Ian Cawsey
Question accordingly negatived.
‘A proposal for a liability limitation agreement must be circulated to all the parties entitled to receive company accounts in accordance with section 429.’.— [Jim Cousins.]
Brought up, and read the First time.
Jim Cousins: I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Sylvia Heal): With this it will be convenient to discuss the following amendments: No. 751, in page 264, line 36, clause 546, leave out from ‘proceedings)’ to end of line 37.
No. 752, in page 265, line 12, leave out clauses 548 to 552.
No. 763, in page 265, line 33, clause 549, at end insert ‘, and
(c) shall not specify a sum of money as a cap or absolute upper limit on the total liability.’.
No. 803, in page 266, line 41, clause 551, leave out ‘Part’ and insert ‘Act’.
No. 802, in page 267, line 14, clause 552, at end insert—
‘(1A) The regulations must require that all such agreements must be filed at Companies House within 21 days of the date of agreement together with a copy of the correspondence relating to the agreement between the company, its advisers, auditors and their advisers.’.
Jim Cousins: In our last debate, when my hon. Friend the Member for Great Grimsby (Mr. Mitchell) and I tried to draw the House’s attention to the possibility of market regulation in dealing with our new overmighty subjects—the big four accountancy firms—it was reasonably clearly established that we can await rescue from the United States in due course. In this debate, we will consider the legal situation is as regards these matters. We are in the hands of a powerful array of impressive lawyers, although I see that we do not currently have the assistance of the Solicitor-General, who did heroic work in former times.
We are dealing with a situation in which there was already moral hazard because of the enormous power and influence of a few institutions, the domination that they had over their own markets, and the need to open up those markets to a much wider range of audit and accountancy firms that could seek to challenge them. We now have an attempt to strengthen and embed the privileges and to deepen the moral hazards that such institutions already have. The hon. Member for Cambridge (David Howarth) may put me right, but the Caparo judgment was the first step on the route towards embedding the privileges of these powerful firms.
In 1997, two further court cases—it is unnecessary to go into detail—limited the liabilities of the big firms even further and established the idea of proportionate liability, which has become part of our courts’ practice. Not content with that, in 2000, the Government introduced the concept of limited liability partnerships, which effectively further strengthen and defend the powers of a few large firms to dominate the audit and accountancy market. On that point, I had a great deal of sympathy with the hon. Member for Putney (Justine Greening) when she spoke up for the smaller firms. New entrants to the big end of accountancy will find it extraordinarily difficult, given the market power of a few large firms and their international reach and connections.
2.45 pm
It is extraordinary that the Government seek to add even further limitations on liability and even more protections. I hope that they will clarify how much further they intend to go in regulation. There has already been a cascade of protections, yet the Government propose an additional one.
The new clause would simply provide that people apart from the members of a company—the Government have already accepted in clause 429 that such people should receive relevant documents from the company—should also receive the information about the limitation of liability agreements so that they are in a position to challenge it. It is a small point and perhaps the Government intend to cover it in regulations. The debate provides an opportunity for my hon. Friends on the Front Bench to clarify that.
In the general structure of introducing liability limitation agreements, amendment No. 763 would provide at least that no one should specify a figure that represents an absolute cap on liability. That would protect the principle of proportionate liability, which has already become a feature of our common law and hardly needs the further reinforcement of the Government opening up the possibility of a final and absolute cap.
I ask my hon. Friends on the Front Bench to consider how the big four accountancy firms behave in the public interest when they act through the insolvency procedures in which they become administrators of a company. An extraordinary case was brought against the Bank of England and convulsed it for years because it had to put legal and manpower resources into defending itself. The big four accountancy firms, which brought the case, made a great deal of money through the way in which they work the fee system in insolvency cases, despite the compensation that they may ultimately have to pay the Bank of England.
It worries me—and should worry hon. Members—that, when those firms act in insolvency cases, they are adept at suing each other, yet they seek ever further and deeper protections against the common world. I hope that my hon. Friends on the Front Bench can clarify their future line of march on the matter. We already have examples in the European Union of attempts to introduce a general system of liability protection, and the Government must set out how they propose to deal with that. Of course, the gaping hole in all these arrangements represented by the very different course being taken by the United States could bring the structure of liability protections that the Government are seeking to introduce crashing to the ground. That, too, is something on which the Government Front Bench ought to express a view.
Justine Greening: I am conscious of the time, so I shall briefly set out the Opposition’s view on the new clause and amendments. We broadly support the limited liability agreement clauses and do not therefore support amendments Nos. 751, 752, 763, 802 and 803. The limited liability agreement is not made mandatory by the Bill. It will be a matter for companies and their auditors, an agreement between the audit firm and the business. It might, however, provide a tool for more carefully limiting the risk to auditors in relation to the corporate risk that they can influence and have some responsibility for. It is right that clauses 458 to 552 do not take an over-prescriptive approach. It will clearly be a matter for companies and their auditors to work through the fine details of structuring the agreement, and that process will no doubt be adapted with experience and time.
New clause 86 provides for a limited liability agreement to be circulated to all parties entitled to receive company accounts. This would result in unnecessary bureaucracy, as any agreement would have to be approved by members through the normal company procedures anyway and at that stage the agreement would be available for scrutiny. Similarly, amendment No. 803 also seems to involve unnecessary bureaucracy.
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