Business, Innovation and Skills Committee - Minutes of EvidenceHC 603

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Oral Evidence

Taken before the Business, Innovation and Skills Committee

on Tuesday 26 March 2013

Members present:

Mr Adrian Bailey (Chair)

Mr Brian Binley

Paul Blomfield

Mike Crockart

Julie Elliott

Ann McKechin

Mr Robin Walker

Nadhim Zahawi

________________

Examination of Witness

Witness: Rt Hon Vince Cable MP, Secretary of State for Business, Innovation and Skills, gave evidence.

Q311 Chair: We are very slightly early, but I think we can get going. I realise that time is pressing for you, Minister, as well as ourselves. Can I thank you for agreeing to speak to the Committee on the Kay Review and welcome you? Just for voice transcription purposes, could you introduce yourself?

Vince Cable: I am Vince Cable, Secretary of State for Business, Innovation and Skills.

Q312 Chair: Thanks very much.

I want to start with a fairly general question. You may remember these words: "And the principles of responsible ownership should apply across the business world…So I am shining a harsh light into the murky world of corporate behaviour. Why should good companies be destroyed by short-term investors looking for a speculative killing, while their accomplices in the City make fat fees? Why do directors sometimes forget their wider duties when a cheque is waved before them? Capitalism takes no prisoners and kills competition where it can." That, of course, was your speech to the Lib Dem conference in September 2010. You set up the Kay Review as a result, in part, of that speech. Now I have the Government response to the Kay Review, and their responses will be: "working with the EU counterparts to end mandatory quarterly reporting"; "endorsing clear minimum standards of behaviour for all investment intermediaries"; "the Law Commission has been asked to review the legal obligation on intermediaries"; "encouraging industry to establish an Investors’ Forum"; and "endorsing Good Practice Statements for company directors." We had the sound and fury of your speech and then the somewhat less robust response from the Government. Just how many prisoners of capitalism do you think will be released as a result of this?

Vince Cable: Probably quite a lot over a long period of time. As you know, a party conference does induce poetry that we perhaps lack in our everyday discourse, but I do not, in any sense, retract the principles that I was talking about. We wanted to be guided by evidence and therefore we asked a distinguished academic and journalist to lead this review-he was backed by an industrialist, Sir John Rose, among others-and he has produced a report that relies very heavily on cultural change, rather than regulation. This is done, essentially, by trying to ensure that the whole complex chain of equity financing becomes much more transparent and operates on the basis of trust, which had largely broken down.

If I can add to your general question at the beginning about what we are doing, of course it is not just the Kay Review. In addition to the Kay Review, we now have an industrial strategy evolving, which depends very much on accepting the long-term nature of investment in many of our key industries and the need to work on a partnership basis with them. We have changed the terms of reference of the competition authority, so it must have regard to long-term investment decisions. The system of executive pay has been radically overhauled through Parliament and, again, that gives a longer-term dimension to decision making. Also, the takeover panel has reformed its activities, encouraged by us, not in dramatic ways, but in ways that will significantly address the issues I raised in the speech.

Q313 Chair: I think it is probably fair to say that the reaction to Kay was that it was very good on analysis, but weak on recommendations. I can see the problem from a ministerial perspective that it is very difficult to have bite on such a weak set of recommendations. Could you just say what the factors were that made you want to look into Kay, in particular, stripping out the conference rhetoric there? How far do you really think they will be addressed by the measures being taken by Government?

Vince Cable: The premise of your question is a criticism of Kay’s report, because it relies on voluntary compliance rather than regulation; I do not regard that as a criticism. These problems are complex and they do, ultimately, rely on a very complex financial system and a tier of intermediaries. There are limits to the extent to which either British or European regulation can address those failings. If they can be addressed by the industry itself, through good practice and through the investors’ forum-which is one of his key recommendations, through it is not a hard, aggressive regulation; it does rely on voluntary compliance-and if we can get that right, it will make a big difference over time.

You asked what prompted me to get into this whole field. It was the fact that when I came into this office, as you know, we had some pretty fierce controversies about takeovers and whether the time perspective was right. I was making factory visits to some of our leading engineering companies who were saying that they want to invest 10 or 20 years ahead, and they find it difficult to get the equity markets on the same wavelength; it was about how we address that problem. That is what led me into it. Although the arguments that come out of it do not involve a lot of mandatory regulation, it is not just analysis; these are good conclusions. What we now see happening is that the key players-such as the IMA, the investment managers, the pension funds and the insurance industry-are thinking very carefully about how to put this into practice and improve their good practice arrangements. We have had some very good statements in recent days from the Chartered Secretaries and from the NAPF-the pension funds-about how they are going to adapt their practices in the light of Kay, and that is good. We have also seen the European Union, which has major legislative responsibilities in this area, produce a green paper to guide its future work, which could have been written by Kay-it embodies all the arguments and principles.

Q314 Chair: One of Lord Myners’ contributions was, in effect, to say he produced a similar report 10 years ago, and he did not feel that, shall we say, the culture had changed enormously as a result of that report. I am perhaps paraphrasing him. Do you really think, in 10 years’ time, that the Kay Review will have resulted in a change of culture that will have actually delivered on the issues that you have outlined?

Vince Cable: I think so and I hope so. We are not letting the matter rest; it is not just a question of getting a report, sticking it on a shelf and vaguely hoping that people comply with it. We have made it very clear that in the summer or autumn of 2014 we want to go back over what the Kay Review has recommended to make sure that these things are actually happening. We are also commissioning a group of independent people who will track these recommendations and see that they are being followed through. You are quite right that there is always a danger of nice reports that just never happen. I did look over some of the evidence of Lord Myners. Essentially, when he came before your Committee, he started being quite critical of John Kay but, I think before the end, he effectively, while not retracting it, said, "Well, I’ve been actually a bit over-critical", and I think he concluded in his evidence to you that, basically, he had said the right things and come to the right conclusions.

Q315 Chair: Yes, I think he agreed that it said the right things. What he was concerned about was the political will to make recommendations arising from them.

Moving on, the equity market has seen huge technological changes in the past decade or so, and a lot of the evidence to this Committee indicates that that has actually given even more advantage to the institutional investor. Where, in the Kay Review, and the Government response to it, do you think there will be an enhanced voice of the owners of capital as opposed to the managers of it?

Vince Cable: Kay sees a chain going all the way back from the ultimate investor, through the chain, to the asset owners-the pension funds and the institutional investors-and wants to make sure that the distribution of costs is completely transparent, and that there is no abuse at various points along the chain and, therefore, there is basic trust. That set of relationships is set out very clearly. You make the point that we are dealing with important technological change. One of the things we are trying to encourage in the Government-and, again, we have to work through European institutions and legislation-is to create a proper electronic platform, which is the way business increasingly will be transacted.

Q316 Chair: You referred to Lord Myners earlier and his evidence. One of his concerns was that arising from his experience when he did his review, he was subjected to intense lobbying from the financial services industry, and this was repeated when he was a Minister. Can you say whether you have been put under that sort of pressure?

Vince Cable: No, I have not. The financial services industry, particularly banking, has been rather humbled by the experience of the last few years and will probably be rather less aggressive now than it used to be. Far from being aggressively lobbied, I have actually sought out these groups to talk to them and get their feedback. Certainly within the last few months, I have been to talk to pension fund events and insurance industry events. I have met investment managers and tried to put to them the Kay Review arguments, in order to encourage them to set up this investors’ forum, as well as talking about the more general long-termism agenda and trying to engage them in it. In answer to your question, no, I have not been subject to aggressive lobbying, and certainly nothing that I would want to complain about.

Q317 Chair: In terms of your dialogue with the industry, could you give us some idea of, over the past 12 months, how many meetings you have had with the representatives of the financial services industry and also with the representatives of "responsible" investment groups, such as ShareAction, UKSIF and FairPensions?

Vince Cable: I cannot produce an inventory, but we are talking about high single figures to perhaps a dozen-probably something of that order. Quite a few of these occurred in the context of the work that we did on executive pay, where we organised a series of workshops with key people in the industry, including the institutional investors. That was a separate exercise, but I did engage substantially with the industry on that set of issues. In parallel with that, there was some discussion on Kay follow-up.

Q318 Nadhim Zahawi: Secretary of State, just on that point, some of the response we have had from those industry practitioners is that some are taking this very seriously-we have had Fidelity, Aberdeen Asset Management, and others come before us. However, some of the feedback is that others are thinking, "This will just go away if we ignore it". What message do you have to those who just want this thing to go away?

Vince Cable: If they are going to avoid the opprobrium that has descended on the banking industry, they would be well advised to follow best practice. That is one of the lessons of recent history. There are initiatives opening up by their industry bodies-the trade bodies. Now, of course, as you quite rightly say, it is the membership that matters, not the trade bodies. The trade bodies have now set up a steering group to launch this investors’ forum, which is at the heart of the Kay recommendations, and so I would strongly encourage them to participate in that and make sure it works. I would also strongly encourage them to listen to the statements of best practice that have emerged from the representative bodies in the industry, because that is how standards are raised.

Q319 Nadhim Zahawi: If they do not, is there a big stick that you can wield?

Vince Cable: We are not currently thinking of that and there is no obvious big stick to wave. There are certain specific problems, like remuneration, where have we have introduced some sticks, and there will be European regulation under the UCITS directive and so on. That will be mandating, and our job in the UK Government is to make sure that that heads in the right direction. We are not waving big sticks and that would go contrary to the Kay philosophy, which was about building up trust.

Q320 Nadhim Zahawi: It has been pointed out to us that the Government are encouraging diversification-for example, tax breaks connected to managed ISA funds. This is an outcome that has obviously suited the fund management and banking industry very well. How do you see these incentives changing in the future?

Vince Cable: I am not sure we are talking about quite the same thing, but if we are talking about diversification-the building up of equity markets-there is a whole series of initiatives. One that you mention is using ISA products as a vehicle for, say, AIM equity. The Government, as you know, have scrapped stamp duty on AIM shares, which will help to diversify that equity market. There are discussions taking place with the Stock Exchange about how to improve entry to the higher-level FTSE, rather than the AIM market. A whole lot of initiatives are being taken to broaden out and deepen equity markets.

Q321 Nadhim Zahawi: On the Chancellor’s announcement of the scrapping of stamp duty on AIM shares, how do you think that will affect your response to and the implication of the Kay Review?

Vince Cable: It is a useful step forwards. There was a very good report published recently by the thinktank Reform, which explained why that would make a key difference. We know that equity markets are defective right the way up the chain. From socalled friends, families and fools at the bottom, right up to the FTSE 100, there are gaps in the equity chain, and that will fill in one segment of the market.

Q322 Nadhim Zahawi: Similarly, for business, there appears to be a vast gap in the way different sources of finance are treated. Would you prefer companies to finance their growth through debt or equity?

Vince Cable: In general, I would share the view that the Chancellor and others have set out that our system does load incentives to debt, rather than equity, and it would be sensible and helpful over time to try to shift that. The problem is about how you do this through the tax system. You have got an enormous number of companies that are loaded up to gunnels with debt, and if you stop them withdrawing interest relief, you put them into even deeper problems, so we have got to work through the debt crisis before creating that kind of unintended consequence. However, if we can devise tax and other regulatory interventions, we certainly should be trying to make equity more attractive, relative to debt.

Q323 Nadhim Zahawi: That was going to be my follow up-interest payments on debt are obviously tax-deductible, whereas similar returns going to equity investors in the form of dividends are not.

Vince Cable: You know this area. There are considerable limits to interest offsets, but the principle is right, yes.

Q324 Nadhim Zahawi: Given your preference to move to equity finance, what representations have you made to HMRC and the Treasury on this, in relation to changes in the tax system and to rectify these perverse incentives?

Vince Cable: Not a great deal, but interventions like the AIM market and the encouragement of seeds-type activity are all part of that general approach, which we would certainly want to encourage.

Q325 Nadhim Zahawi: Can we go any further than that, or is that as far as the Business Secretary will take it?

Vince Cable: I will just mention one or two other things. We do envisage, with the business bank that is now getting off the ground-we put in a written ministerial statement last week explaining it-that quite a big component of that will actually be about equity development. It will not just be about loan finance, so that is something we did not expect when we got into it. We are now realising that that is where a lot of SMEs are trapped and we think we can do some quite creative work with the business bank on equity financing as well as loan financing.

Q326 Nadhim Zahawi: Absolutely right. Just on the Kay Review, who wrote the Government’s response? Which Department and which officials wrote the response?

Vince Cable: There are officials in my corporate governance section-very good officials-who wrote it, and I, of course, looked over it before it was issued.

Q327 Nadhim Zahawi: Did any official involved in Professor Kay’s team have any influence over the Government’s response?

Vince Cable: Are you suggesting there is something irregular?

Nadhim Zahawi: No, it is just a question.

Vince Cable: No, there are some extremely knowledgeable officials who I respect and I listen to what they have to say. They know far more than I do about this subject.

Q328 Chair: If my memory serves me right, this arises out of something that Lord Myners said, when he effectively said it looked as if somebody on the departmental team had basically just reproduced what the Kay Review was saying and, effectively, they were marking their own homework.

Vince Cable: I met John Kay and his team several times when they were doing the report, and I did not get the sense that they were being led by the nose. John Kay is one of the brightest people around. He has written an extremely good book, which is widely used, on corporate governance, and he was very much developing his own ideas, rather than the views of my officials.

Q329 Mr Binley: You have been very kind to the members of this Committee in having met with us on this issue on two occasions so far, and we are very grateful for that, and that has been very helpful. You know our concerns arose out of the hostile Cadbury takeover, which we felt was a group of American pirates-if I can put it at its worst-trying to get hold of one of the jewels in the British industrial and commercial crown. I still remain of that view, actually, and I was hopeful that Kay might do something about this. Indeed, in your written evidence submitted to this Committee, you said that "the Kay Review seeks to shift the culture of UK equity markets to ensure they support long-term investment" and "constructive relationships". The hostile takeover did not start off well, with regards to Cadbury in that respect. I wonder what you see in Kay at the moment to suggest that that situation will be improved for the future, should similar occurrences arise.

Vince Cable: It is fair to say that my interactions with your Committee started off with the takeover, did they not? As I said to you at our last meeting, the outcome has not turned out to be anything like as bad as was forecast.

Mr Binley: I think that is fair.

Vince Cable: Of course, Kraft is now doing quite a lot of global R and D work here. In terms of where it led, the first set of actions related to the takeover panel, where we did encourage the takeover panel-a self-regulating body-to toughen up its approach to takeovers. The expression used is "throwing a bit of sand in the wheel". There are the put-up-and-shut-up requirements; the requirement that boards are no longer obliged to take the biggest offer if it would lead to a short-term benefit but long-term loss; and greater transparency over the fees of the intermediaries who are making money out of the takeover. All those things came as a direct consequence of that worry about takeovers. There has subsequently been quite a lot of stakeholder consultation around the takeover panel’s activities. The conclusion we have come to, at least for now, is that those changes have made quite a bit of difference-probably more than we had assumed at the time. If there is a new surge of takeovers which have the damaging effect that you and others fear, we can certainly go back to this. There are issues you may want me to discuss about whether we should be giving preference to long-term investors over short-term investors, and so on, which we have not yet done and are difficult. However, we can certainly go back to those if there is another outburst of unhelpful activity.

Q330 Mr Binley: Secretary of State, that is encouraging and I am most grateful to you. Can I, however, just be slightly more specific about the shorttermism involved in hedgefund funding that happened, to a sizeable extent? I think about 27% of the money in the Cadbury takeover was provided by very short-term hedgefund thinking, and it was a hostile bid. I just wonder whether we can still go back to the possibility of a time limitation on hostile takeovers, and whether there is anything we can do about short-term money, in the light of your need to have more long-term investment.

Vince Cable: My instincts are to go back to it. As the Chairman quoted of me in my party conference speech, that is probably where my instincts are. Let me just set out the reasons why we have not done that, and they are quite compelling. You could perhaps help me by finding a way past them. The arguments that are put are the following: first, if you stop the short-term investors, you reduce the demand for shares, you drive down the share price and you then make the takeover more attractive; secondly, you stop long-term investors from acquiring shares in order to build up their stake in the company during the takeover period; and thirdly, we do not have an effective system, at the moment, for distinguishing between nominees and original owners. In the UK, we do not have that, so it is not possible to divide the share register in the way that one would ideally like. Moreover, if you tried to, there is a danger of setting up secondary trades in ultimate ownerships-in other words, to defy the rules. Now, I see those as a challenge rather than as a fundamental objection to never doing anything, but these are quite serious problems, and if we are ever going to take that forward, we have got to find a way around those arguments.

Mr Binley: You set us a challenge and I am hopeful the Chairman might accept it.

Q331 Ann McKechin: Good morning, Secretary of State. There is a current argument that there is really no way to establish whether public companies are providing a good purpose or if the market price really reflects the true value. Which of Professor Kay’s recommendations would rebalance this perception, in your view?

Vince Cable: I am not sure if this is quite what you are driving at, but he does raise the old issue about whether mark-to-market pricing is, in fact, seriously distorting, or actually helpful-that is the issue he raises. The problem is we are operating with international and European rules on mark-to-market accounting. One way in which we have anticipated the criticism you rightly made about there often being distorted values is through the pension regulator, which now has an obligation to look at long-term growth. With defined benefit funds, they will be obliged to think beyond the immediate mark-to-market solutions, which could involve them doing very damaging things to companies. Kay does pursue that argument and suggests the way forward.

Q332 Ann McKechin: So you are hopeful that if there is a change by this major set of institutional investors, that would actually also influence the entire market, as a result.

Vince Cable: Yes, it could do.

Q333 Ann McKechin: Which of Kay’s recommendations will change the perception that institutional investors do not act as true owners of businesses? You have mentioned pension investments. There is also this issue about fiduciary duty and you have asked the Law Commission to review it. Perhaps I could just press you a little further. Do you consider that when the Law Commission does eventually report, the Government then actually have to provide the clarity and guidance to make the changes, if they are recommended, in legislation?

Vince Cable: Yes. This is actually a very important stage in the followup to the Kay Review, and thank you for picking it up. We set the terms of reference today, where the Law Commission is already actually looking at this, because there is ambiguity about what fiduciary duties really are in different points of the investment chain. The answer to your question is that yes, if it does recommend legal change-it may well do-we will go down that route, but we obviously do not want to prejudge what they conclude.

Q334 Ann McKechin: Do you have any anticipated timetable for when it is likely to report back?

Vince Cable: I asked myself and my officials that question. I did not want this to be reporting in 25 years time. The Law Commission does have a Jarndyce v. Jarndyce approach to legal cases. We would express the hope-and I have expressed the hope-that it will do this quickly.

Q335 Ann McKechin: By "quickly", do you mean some time this year?

Vince Cable: I would hope that before the end of this Parliament we will have a very clear answer to the questions we pose.

Q336 Ann McKechin: Should more people in fund management have practical experience of business management? This is an issue that Lord Myners, as you may recall, raised in his evidence, and it has also been raised by others. As few hedge fund managers have practically run a business, their ability to make long-term decisions or to understand them is limited.

Vince Cable: I guess, in an ideal world, that that should happen. We could probably say that for politicians as well, but we do not have many, with one or two exceptions here. I am not sure how you would make that happen, other than to incorporate it into best practice. Given that the investment management chain is now adopting best practice codes, maybe that is a good thing that should be incorporated.

Q337 Ann McKechin: Could that be part of the stewardship code that Kay talked about? Could there be reference to people having more experience?

Vince Cable: Yes, I take your point entirely. Of course, there are big companies and small companies and they have different levels of expertise associated with them.

Q338 Chair: Just before we move on, I am not sure which representative group it was, but certainly one pointed out to the Committee that the parliamentary contributory pension fund has not signed up to the stewardship code. I recognise that is not your specific responsibility-it is, indeed, a collective one here-but I personally feel that is slightly embarrassing, as we need to be exemplars ourselves. Do you see any role for the Department in promoting that?

Vince Cable: I was once a trustee of that fund.

Chair: So you are to blame.

Vince Cable: When I first came in, so I am probably partly to blame.

Chair: I have to say I was not aware of that when I asked that question.

Vince Cable: As we know, Government and Parliament are distinct entities, and we would not want to lean on Parliament to improve its practice. However, you make a very good point and if there are any trustees here, they should take it as their responsibility.

Chair: We will be looking at a way to do so.

Q339 Mike Crockart: I would like to turn to specific recommendations. First of all, on the third recommendation, it says, "An Investors’ Forum should be established to facilitate collective engagement by investors in UK companies". To me, that sounds a bit like management speak, and it is unclear exactly what it is driving at and what the investors’ forum should be doing. We know that the Investment Management Association is taking that forward, but have you provided a remit for what that forum should be looking to do? Do you have views on what the features of it should be?

Vince Cable: We do not have a remit and we did not consider that our job. We considered the Department’s job to be actually trying to get the people together to make sure they did it, because we had thought that the Kay Review was sufficiently clear about what that investors’ forum would achieve, and that the bodies should themselves take the responsibility for organising it and should promote it-which they are now doing through the steering body-but, of course, they should not run it, because it should be independent of the trade bodies. It is going to be quite tricky because, on the one hand, we are getting them to talk to each other, and we are getting people to talk about the boundary between investment institutions, but we do not want collusion and we do not want insider trading, which is the worst form of conversation that could take place. The best institutions do have very clear Chinese walls to permit these conversations to happen. To answer your question, no, we do not have a departmental remit telling them what we think they should do; we think Kay gives enough guidance on that.

Q340 Mike Crockart: Do you have any knowledge of when the first investors’ forum will actually be held?

Vince Cable: I do not, but now that this steering group is established, I would hope we are talking about weeks or months, rather than years, but I cannot give you a precise answer.

Q341 Mike Crockart: The ABI, IMA and NAPF issued a press release today which, in fact, I have to say is a mastery of saying very little and using lots of words to do it. Having read it, I am unclear whether what is now being set up, which is a working group, is the investors’ forum, or whether it is a working group to look at what an investors’ forum should be doing.

Vince Cable: I think it is the latter.

Q342 Mike Crockart: Right, okay. So it is to report in the autumn with recommendations as to how collective engagement might be enhanced to make a positive difference. It feels quite amorphous and it is difficult to see what progress is being made in any real time.

Vince Cable: That is, maybe, a fair criticism. I would take it as a criticism of them.

Mike Crockart: Absolutely, but I am raising it with you.

Vince Cable: If the forum has not happened in the autumn, when this steering group reports, I think you would have good grounds for coming to me and saying, "Why aren’t you chivvying these people along? The report’s been out there for a year or so. Why is nothing happening?" That would be perfectly legitimate.

Q343 Mike Crockart: Do you have views about the specific resources that an investors’ forum would require, in terms of funding, particularly?

Vince Cable: We have envisaged that this is something the industry should be doing in its own interests and it should fund it. There has been an issue about levies. The real resource that would be required is serious research, particularly if you are developing metrics and things of that kind. We are organising, at the moment, a competition to establish better metrics for investment managers in the investment chain, but it would be the industry’s job to put this on a permanent footing, and it would have to fund it. There is an issue about how they charge their members for it and how transparent that charge is. The simple answer is that we do not see this as the Government’s job. It is the industry’s job; its own reputation is at stake.

Q344 Mike Crockart: But a watching brief would be kept. Turning to another specific recommendation-we have touched on it a little bit-which is that the Law Commission should be asked to review the legal concept of fiduciary duty. Can I start by asking what you understand by the term "fiduciary duty"?

Vince Cable: It is the duty in law of the people in the investment chain towards their clients. I think that is what we are talking about.

Q345 Mike Crockart: Given the fact that most of our witnesses seem to have a clear view, much the same as yourself, of what fiduciary duty is, why do you think that the Law Commission needs to have a look at redefinition? How do you think that will actually help compliance?

Vince Cable: This goes right to the very beginning and how far they have an obligation to think about long-term value, rather than short-term returns. What does the existing system of investors’ responsibilities tell us? Again, I am not a lawyer and I am certainly not a lawyer in this rather recondite field, but I am told that the law is a bit ambiguous and it needs clarification as to where first duties are when there is a conflict of objectives.

Q346 Mike Crockart: Although most of our witnesses seemed to be fairly clear about what it meant, one witness did say that they thought the law prohibits good behaviour, or that there was certainly a perception that law prohibited good behaviour.

Vince Cable: That is exactly the kind of thing that we need to get to the bottom of. When people are saying things like that, which sound a bit strange but are maybe true, we need to get the top lawyers in the country coming to a definitive ruling.

Q347 Mike Crockart: My final question was going to be: what should we expect after the Law Commission has reported? However, I think you have already answered that in saying that you are minded to take forward any recommendations that it comes up with.

Vince Cable: Yes, I would sincerely hope so. It probably requires legislation, but that is obviously a matter for the House.

Q348 Chair: In terms of both the investors’ forum and the Law Commission review of fiduciary duty, it would appear that a process is being set up that could significantly delay any action on these issues. Certainly, in terms of the latter, I have had it to put to me that giving it to the Law Commission is just a way of kicking the issue into the long grass. Have you set a deadline for either-or both-the investors’ forum to be set up or a conclusion on the issue of fiduciary duty from the Law Commission?

Vince Cable: We have not set a deadline, but I have specifically asked that they deal with this expeditiously and get a move on, precisely because of the suspicion that I had already heard, which you have expressed very well. We do want some answers quickly. The problem about taking shortcuts on complex, legal questions is that the outcome is then disputed. The whole purpose of going to the Law Commission is that what emerges then becomes a definitive interpretation that we can act on. It is frustrating and, like you, I would much rather we had some quick results with some of these things.

I think there is a prevailing cynicism-sorry, in fact I have actually got something more concrete. The Law Commission will consult this year and report no later than June 2014, so there is a deadline. I am sorry; I misled you.

Chair: Yes. I was going to say I am not sure whether that reinforces your argument or the argument of representatives of the Committee. It does demonstrate that the Law Commission’s interpretation of a speedy review is rather different from that of most people in the universe.

Q349 Mr Binley: I note in the Government’s written submission to this particular inquiry that you are promoting the revised edition of the stewardship code, which was published in September 2012, which emphasises that stewardship should encompass engagement via investors in company strategy. You will know, Secretary of State, that I, and I think other members of this Committee, are not overly enamoured with voluntary codes, and I would only point you to the pub code in that respect, where prevarication has been the name of the game, almost from the outset. Are you concerned about whether the code is fit for purpose now-and clearly you are not, because you are waiting for what the Law Commission says-and what powers do you have in your own hands to make sure that it is an Act that is brought into effect in good time, and it does not linger on as the pub code has almost ad nauseam, quite frankly?

Vince Cable: The way we are dealing with companies is a mixture of voluntary stewardship codes of practice, on the one hand, and legislation on the other-there is a two-track approach to most of these questions. In the mandatory area, of course, we have the legislation on executive pay, and narrative reporting is coming into effect as well. On the stewardship code itself, we have just had a wholesale revision, which the FRC oversaw-you know the way the system works. Next year, we have asked them to go back to the stewardship code specifically to take into account the Kay recommendations. It is a twintrack approach. There are key areas of corporate behaviour that have to be regulated, and are regulated, but for other areas, where subtle changes are involved, the voluntary approach works well, as it is the best solution and it works.

Q350 Mr Binley: I accept the last phrase. I wonder if you can give us a little more confidence by telling us the evidence you have to the effect that the voluntary code will work in this respect, because we are perhaps talking about a pretty heavy area of activity dealing with other people’s money. One might think that that gives it an extra impetus for action.

Vince Cable: Maybe I should just give you one example of where voluntary behaviour is moving in the right direction, but where you have the ultimate sanction. Maybe I could give you two examples where you have the sanction, ultimately, of a regulatory solution. One of them is the disclosure of votes in companies, where we have progressively had an increase of disclosure-on one measure it is 75%; the TUC has a slightly lower measure. There is clearly a tendency towards disclosure by institutional investors on how they voted on issues like executive pay, so the trend is in the right direction. They know, and we have said, "If you don’t do it, we will ultimately legislate," but voluntary behaviour has worked. The other slightly different area is female representation on boards, where we are adopting a stewardshipcode approach. We have set objectives and asked them to do it themselves in their own way, and there has been a significant change over a two-year period.

Chair: We are looking at that issue in a separate inquiry.

Vince Cable: Yes, I did not want to get into the issue. I was just using these examples for Mr Binley about how a voluntary approach can achieve results.

Q351 Mr Binley: Can I ask you about time frames? You have responded, pleasingly, very quickly with regards to the prevarication with the pub code, and we welcome that enormously. I wonder what time frame you are thinking about giving a voluntary code being set up in this respect before you do move to your heavier shot across the bows.

Vince Cable: It obviously depends on the feedback. We knew there was a problem with the pubs because of the howls of pain from a lot of publicans. If we get a very strong sense from companies that, despite all this nice talk, nothing much is changing and they are being short-changed by the equity investor community, we can do stronger things. It depends on the feedback, obviously.

Q352 Mr Binley: So the Law Commission data are pretty important in terms of your judgment in this respect.

Vince Cable: On the fiduciary duty issue, yes.

Q353 Mr Binley: Also, can we link the same sort of time frame to the code?

Vince Cable: Yes, the stewardship code is being revisited next year anyway.

Mr Binley: That is what I thought.

Vince Cable: By the FRC. It has already committed itself to doing that.

Q354 Chair: Before we leave this issue, I do recall us having a disagreement on this at a previous session when you were talking about salaries. There does seem to be conflicting evidence on the level of, shall we say, transparency and adherence to the stewardship code, and you yourself pointed to different evidence from different bodies. My understanding is that, first of all, not enough companies sign up to the stewardship code. Secondly, there are those that do adopt a tick-box approach, which does really reveal the full extent of their involvement or lack of involvement. What evidence will you use as an evidence base for determining whether you need to go in harder on this?

Vince Cable: I would turn it back to you, in a way. I have not heard the stewardship code being discussed in quite such negative terms, but if your Committee-

Chair: I do not think it is the stewardship code that is; it is the adherence to it and transparency.

Vince Cable: If your hearings-and this is what you are doing-do elicit quite a lot of evidence that this approach is failing, I would feel obliged to respond to it, as I did when you similarly did valuable work on the pubs.

Chair: That is a very welcome comment, Minister. We may well look at that. Thank you.

Q355 Mr Binley: I think I know the answer, but do institutional investors dedicate enough resources to corporate governance and stewardship, in your opinion?

Vince Cable: I would like to see more, but I cannot give a very informed response.

Q356 Mr Binley: It does lie at the heart of what you are trying to do, does it not? I wondered whether you have got any evidence, because Aviva Investors is suggesting a simple way of resourcing stewardship: use equity commission towards what it calls a long-term investment on research, voting advice and stewardship work. Is that how you thought this thing should proceed?

Vince Cable: I said, in response to Mike Crockart’s question, that clearly there does need to be proper research and they do need to have good metrics that are trusted and credible. That does involve a certain amount of investment and the obvious way for the industry to invest would be to make a contribution from its own coffers, and those would then have to be transparent so that investors are aware of them.

Q357 Mr Binley: Again, time frame is important. I wonder how quickly you then feel that could be implemented.

Vince Cable: Again, it would be a bit invidious if I just plucked a date out of the calendar. We are hoping that by the summer of 2014, when the Government conducts its own review of the effectiveness of the Kay Review, of which this is one, we will then be able to see tangible progress. That is the kind of timeline we are working to.

Mr Binley: So, we revisit this in a year’s time or thereabouts.

Vince Cable: In about 15 to 18 months.

Q358 Paul Blomfield: Secretary of State, I wonder if I can move to a different issue: the financial transaction tax. We have heard from a number of the witnesses, including Professor Kay and Lord Myners, that there is a positive case for an FTT. Putting aside the specifics of proposals that might be on the table at the moment in Europe, on which you have expressed your views, and also putting aside the revenue issues, do you think that there is a case for a financial transaction tax to discourage short-termism?

Vince Cable: Yes, I think there is a case, and I am, in some ways, quite disposed to it. I originally worked on Tobin tax concepts 20 or 30 years ago, long before I came into this place. The problem, all along, has been implementing it in a way where you have very rapid electronic transactions where cross-border transactions are very difficult to trace. I saw some of the figures this morning coming out of the European Union on its first experience of this. Countries like Hungary, France and elsewhere were getting in a fifth or a quarter of the revenue that they thought they would get, because it is so very, very difficult to pin down these transactions and tax them in a sensible way. I have no objection to-well, I would put it more positively: I think there is a case, if you are trying to change behaviour, for using a market instrument of that kind to make it happen.

Q359 Paul Blomfield: Is the rapid nature of the electronic transactions not part of the case for the tax?

Vince Cable: It could well be. The problem that Tobin was originally trying to address was transactions in foreign exchange markets. We have now moved on to a different world where that is no longer an issue, but you could argue that for very rapid transactions, which yield very little value-I think Lord Turner came before your Committee and may have made that case a couple of years ago-there would be an argument for using tax in that way. The reason why the British Government have been pretty negative about it is mainly on grounds of practicality. The other reason we have been sceptical about it is, of course, most of the revenue would be generated in the UK and, under the European Union’s proposal, would be repatriated to Brussels which, understandably, we are not too happy about.

Q360 Paul Blomfield: Putting aside the specifics, given there is general warmth to the idea, we have also heard that it was an area in which the review feared to tread. Are you concerned that the review that you commissioned felt that it was unable to recommend freely in this area?

Vince Cable: In relation to that tax?

Paul Blomfield: Yes.

Vince Cable: They certainly were not forbidden from doing it, or discouraged from doing it. John Kay is a very good economist and has written extensively about it, and he probably realised that the analysis had been pushed about as far as it could usefully go. I suspect that that was why it did not feature more prominently.

Q361 Paul Blomfield: Did you have a specific conversation with him at any time about it?

Vince Cable: I seem to remember it was on the agenda when we had our reportback sessions, and we did exchange views about whether the tax system could be used to change behaviour. The transaction tax is one, but there have also been arguments, as you know, about capital gains tax, which operated under a different regime when your party was in government. That is another way of using the tax system. There was some discussion of that, but I think he felt it was not very productive.

Q362 Paul Blomfield: On a related issue, the Chancellor, when he was making his Budget statement in relation to stamp duty, said that in parts of Europe they are introducing a financial transaction tax, but here in Britain we are getting rid of one. Did he consult you about his decision on stamp duty?

Vince Cable: That combination of things was not put together. They are very different.

Paul Blomfield: It was interesting that he linked them in that way.

Vince Cable: We are actually increasing stamp duty in the UK on highvalue properties, as you know, so there are certain kinds of big, lumpy transactions where we are using stamp duty to deal with, frankly, rampant tax avoidance that is happening at the upper end of the property market. We are therefore using stamp duty in certain cases. The reason why it has been waived in respect of AIM is to achieve a particular set of policy objectives, which is to reduce the costs of medium-sized companies coming to the market. There is an enormous difference between the way the stamp duty would operate on an AIM equity deal, which is one big payment for one lumpy deal, as opposed to trying to tax a thousand electronic transactions in a minute or however the system works.

Q363 Paul Blomfield: Perhaps I could move on to a different area: mergers and acquisitions. I know a number of colleagues will also want to come in on this one too. Perhaps to start off, how do you see the nature of mergers and acquisitions in a post-Kay world?

Vince Cable: At the moment it is fairly dormant; there is not a great deal of activity taking place. There are large cash piles around that you would have thought, in normal circumstances, companies might use for aggressive acquisitions. My general view about this, which I have expressed to your Committee before, is to be a bit sceptical of the value of takeover activity. There is a lot of research that tends to show that, probably on balance, it reduces shareholder value, quite apart from any social consequences. However, there is counter-evidence. There was a big report by the Cass business school a year ago, which tended to show the opposite. I am sceptical about the value of takeover activity, but recognise that in a capitalist system, you do need to have it, because if companies are underperforming and their shareholders are being poorly awarded for bad performance, there has to be a mechanism in the market to correct that.

Q364 Paul Blomfield: Do you think that things will change specifically as a result of Kay’s recommendations, if implemented?

Vince Cable: Not a great deal. If we are looking for change, we would have to look to the takeover panel and the existing rules, and whether they need to be developed further, and indeed the more radical solutions, which have often been put about public interest tests, which we have not followed through. However, if one was really concerned about damage in this area, that would be the way to do it. There is nothing in the Kay Review that will radically change the mergersandtakeover landscape.

Q365 Paul Blomfield: Can I ask you specifically about shareholder rights? Very specifically, at the time of takeover, do you think that short-term shareholders should continue to have the same voting rights as those with a long-term interest in companies?

Vince Cable: I gave quite a long answer to the Chair or Mr Binley about that before. We have certainly looked very carefully at this because of the reasonably wellgrounded fear that hedge funds and other short-term investors can drive the wrong kind of merger. We looked at that very carefully but, as I said, attempts to restrict it by making an arbitrary distinction-say between a six-month investor and a six-monthplus, or a year and a yearplus-would probably have all kinds of unintended consequences and would be very difficult to pin down because of the issue of nominee shareholders. I agree with you that it is a serious question, and I frequently engage serious people who try to make that case, and I have quite a lot of sympathy for them.

Q366 Chair: I believe I am right in saying that one of our previous witnesses claimed that there had been no benefit from any hostile takeover in the UK over the last few years. Is there any authoritative research that the Government have done to assess whether this assertion is correct or not?

Vince Cable: I think I am correct in saying that the Cass business study was actually prompted by our Department, but I cannot remember whether we funded it or not, but we certainly encouraged it. It did not actually reinforce that conclusion-I might say "unfortunately", but it did not.

Q367 Paul Blomfield: Specifically on section 172 of the Companies Act, do you think shareholders’ interests are best protected through it, and is there a case for changing the Act to integrate Kay’s principles?

Vince Cable: I am hazily aware of this Act and what it says, but that would be covered by this fiduciary duty reference, would it not? We are doing that partly to establish whether the law is clear enough in respect of shareholder rights and the duties of managers. That links to the issue of fiduciary duty, which I have tried to answer your questions on already.

Q368 Mr Walker: Secretary of State, we have taken a lot of evidence and you yourself have said you are sceptical about the value of M and A. We have taken a lot of evidence and Kay himself talked about the transactional nature of investment nowadays, and the fact that it has gone too far down the transactional route. Do you feel that there are enough recommendations in Kay and enough detail in the Government response actually to change that culture and move away from a transactional focus that drives M and A and makes that an inevitable part of investment?

Vince Cable: As we have said before, the Kay Review did not really go very far into that territory and it may have been useful if we had got a stronger steer on it. It did not actually say a great deal about it. To amplify what I said before, there is a counter-view. I think the CBI, for example, argues that there are not enough mergers and acquisitions among medium-sized companies, because it thinks that would be a way of galvanising that sector of the economy. The premise there was that that kind of activity could be beneficial. I stated my own view, which was to be a bit sceptical about M and A activity and its wider values. There is a strong view in business-and I think genuinely, not just by selfinterested people-that it has an important role to play.

Q369 Mr Walker: One area that Kay talked about, and that you mentioned earlier, was this idea of a public interest test for overseas takeovers. It is widely touted that the UK is probably more open than any other jurisdiction in the world to overseas takeovers. We have mentioned the issue of Cadbury, but I could list a whole slew of other takeovers over the years where UK companies have been taken over. Is that an area where you personally feel there is more scope for Government to get involved?

Vince Cable: No, I do not, and I have argued this with your Committee before. As a Government, we have rejected the Heseltine recommendation on foreign takeovers, and personally I think we should reject it. We should not be distinguishing between domestic and foreign ownership. It is not helpful, and some of our best companies are owned by "foreigners"-whatever that means these days. If you talk about Jaguar, Land Rover or Nissan, these are superb companies. They are not just good companies; they are very committed to Britain, and they invest heavily in R and D here. They see a future for this country. They see themselves as good corporate British citizens, whereas there are plenty of, essentially, British companies that have no attachment here at all. Distinguishing on the nationality of the owner is not useful and, on the contrary, the fact that Britain has a very good reputation for not being nationalistic stands us in very good stead when it comes to attracting good investors here.

Q370 Mr Walker: Just in terms of investment, a lot of the Kay Review focuses on the investors and financial intermediaries, so far as they sit on the buy side of the equation. There are very few recommendations or Government responses that relate to the sell side, and the culture in terms of the banks and institutions that are driving a lot of this process. I put it to you that, actually, the biggest change in culture over the last 20 years, which has moved us towards a transactional culture, has actually taken place in the banks, in the brokers and in the organisations that are selling these deals to businesses, management and their investors, rather than on the buy side. Is there not perhaps a need for the Government to be looking at that area, and is there a problem with the fact that that falls under the remit of the Treasury, rather than BIS, and therefore your Department is not able to set the agenda in that sense?

Vince Cable: I agree with your general point that the culture of financial transactions is being driven by the banking system, probably rather more than the things we are discussing here. We are not, as a Department, excluded from that. I have been very heavily involved in the arguments about banking reform and Vickers and electrification or whatever. In terms of the conduct of banking, Andrew Tyrie’s commission are the people looking at that. They seem to be coming out with some very sensible approaches and it is getting into exactly the question you described: they are looking at the culture of banking and the damaging effect that has had.

I would make one very specific point that does not relate to Kay, but is highly relevant, which is that what has caused so much damage with the SME community is not just the post-crisis problem of lack of capital; it is the fact that these institutions stripped out their relationship banking 10 or 15 years ago. They replaced their relationship managers with insurance salesmen; it was absolutely hopeless. It has affected the culture in a very damaging way. This, in a way, takes us back to the earlier part of the discussion about encouraging equity as opposed to debt. This is one way of avoiding the damaging influence of moneylending institutions, in that you have a stronger equity base for capital.

Q371 Mr Walker: I completely agree. I put it to you that we talk a lot about the incentives for management and for investors. The incentives for the sell side and for the bankers are going to be a crucial part of that and perhaps that is something for Andrew Tyrie’s commission to look at. It is generally agreed that to address this area-particularly the stewardship issue-it is going to take a lot of cross-departmental work. Do you feel that, around the Cabinet table, there is a consensus on the direction of travel here?

Vince Cable: I think so-not narrowly on Kay, but on things like corporate governance as it related to executive pay we could have easily diverged. If you go back 15 months ago, there was quite a vigorous debate inside Government and with outside institutions about where we should go on all that, but we finished up in the same place, hence the legislation that you in Parliament have subsequently dealt with. The one issue that might have caused some disagreement was about quarterly reporting, but we are all agreed that that is unhelpful-the mandatory requirement. The problem of shifting it is not that there is difference within the Government; it is that we have got to get the European Union to go back on this, and we think that we are fairly close to getting it.

Q372 Mr Binley: Secretary of State, we have had discussions, as I have already mentioned, about the Cadbury takeover, but is not one of the lessons not to distinguish between home-based and foreign-based ownership, but to distinguish between hostile and non-hostile attacks, as it were, for mergers and takeovers? There is no doubt that hostile attacks have much more opportunity to be damaging because of the very fact that they are hostile to start with. I just wonder whether you could not make that distinguishing comment and whether, if we come back with some answers to your challenge, that might figure in your thinking.

Vince Cable: I am not sure how you distinguish with any clarity between hostile and non-hostile. One of the issues that arose in the Cadbury takeover, as you remember, was that the people who were being "attacked" were perfectly happy to sell their shares to the hedge funds, otherwise how did the hedge funds get the shares in the first place? The idea that this is a crime with victims does not quite fit the way that markets operate.

Q373 Mr Binley: With respect, do we not live in a world now, with arbitrage and so on, where you do not know who you sell your shares to? Is that not one of the problems?

Vince Cable: That is, I am sure, one of the problems. When I described some of the changes in the takeover panel’s own principles, one of the things they do now do, in addition to the put-up-or-shut-up provisions and the greater transparency, is to require the acquirer to state their intentions for the company in a much more explicit way, so you can identify-or the shareholders of the company that has been attacked, as it were, can identify-the objectives of the people who are trying to take them over. I agree that that does not solve the problem, necessarily, but it make the whole process a bit more transparent.

Q374 Paul Blomfield: I just wanted to pursue that point a little bit more. In answer to Robin, you said it was not helpful to distinguish between homebased and foreignbased ownership. You cited some very good examples of foreignbased owners who very much take a very positive role in the UK economy. Equally, I could cite to you, from the Sheffield steel industry, examples where foreign-based owners, as times get tough, retrench. When they retrench, they tend to retrench to the country of ownership for production. Do you not see any merit in the Government supporting UK-based ownership?

Vince Cable: I am not sure that what you say is true, actually. The Brinsworth Strip Mill is owned by Tata, is it not? It has shown at least as much commitment-

Q375 Paul Blomfield: I am acknowledging that there are examples of good foreign ownership but, equally, there are examples where that does not work, are there not?

Vince Cable: I just do not think it is true that overseas companies necessarily retreat to base in conditions of difficulty. If there is some hard evidence on that clearly that is significant, but I have never seen any, to be quite honest.

Q376 Paul Blomfield: So you do not think there is merit in encouraging UK ownership.

Vince Cable: I do want to encourage British entrepreneurs; that is a different point. We do want to encourage an entrepreneurial culture among our own people. There are problems with British entrepreneurs who grow to a certain size and then sell up. There is a genuine problem there, for which I do not think any of us totally understand the reasons. We do not produce our own Facebooks here; they get to a certain point and then sell out. It may well be that, in that particular industry, American investors will take them over, and that is a bit worrying, but not because the people who have taken them over are Americans, but because our own entrepreneurs do not have the incentive or the motive to stay the course, as it were. You are right to say that we need indigenous entrepreneurs and to encourage them, but I do not want to turn this into an anti-foreign investor thing.

Q377 Mr Walker: You are going to be publishing a progress report in the summer of 2014. What do you think is the minimum that should have happened by then?

Vince Cable: I would have thought that the minimum is that the investors’ forum, which is at the heart of Kay’s recommendations, would be up and running and functioning, and we would be able to see a discernible impact, and that the various statements of good conduct that have been issued by the trade bodies will be in place and will have been visibly acted upon. I would hope that, at roughly the same time, we would have a clear conclusion from the Law Commission, so we would have various pieces to put together a year before the end of the Parliament to be able to say, "Yes, things are moving".

Q378 Mr Walker: The majority of the Kay recommendations are quite vague on what the outcomes are going to be. Are there any specific targets that you would want to see hit, or any specific measures through which we, as a Committee, can hold the industry and the Government to account?

Vince Cable: You keep saying the recommendations are a bit vague. They are general and they do rely on trust and voluntary activities-this goes back to the very beginning. I think a lot of people were a bit surprised that he adopted that approach, but I do not quarrel with it, providing it does result in some change. As I say, we are setting up a mechanism to change it. I would be very disappointed if, within the next year or so, we have not, for example, changed the rules around quarterly reporting, because that is a very concrete thing that he has identified. It is in the power of Governments-not just ours-and it is a very tangible manifestation of a short-termdriven business culture.

Q379 Mr Walker: Who is responsible for taking that forward?

Vince Cable: It is our job to take that forward with European Ministers.

Q380 Chair: Just to conclude, Minister, you have said that, basically, these proposals rely, to a great degree, on trust and voluntary activity. Now, given the fact that this is an industry where trust and voluntary action in the public good has not exactly been very obvious, what would you do if you were satisfied, within a year or so, that this is not the right way forward?

Vince Cable: I am not sure I accept your point. There has been a collapse of trust in the banking system, for sure, after what has happened. I do not think that is true of the other institutional investors. After all, most of us still trust our savings to them. We do not try to bypass pension funds, even where we have the choice, and we do not try to bypass insurance companies; we still use them. We would not do it if there had been a collapse of confidence. The main task now is just to make sure that they do operate better in the interests of their shareholders and the original investors in them. That is what we are about. I do not totally share the premise of your question.

Q381 Chair: I find that rather odd given your comments that I read at the beginning of this session. You were not referring to just the banks then; you were talking about the industry in general.

Vince Cable: There are a lot of rogues. There is a lot of bad practice. There are a lot of bad companies, and in some sectors, we have seen this rampantly so. Banking is one and media, dare I suggest, may be another, and action is being taken to try to deal with those abuses. I did use strong language because there are some serious abuses, but that does not mean that the whole system of private enterprise, in general, and of institutional investors, as another, is corrupt, rotten and falling apart, because it is not. There are some bad examples and we need to deal with them.

Q382 Chair: It is more than just bad practice though, is it not? There is an underlying belief that the financial services industry does not think long term; it only thinks short term. I would have assumed that some of your comments previously were designed to remedy that.

Vince Cable: It does not think only short term, but there is a short-term bias. Pension funds, by their very nature, think long term-they have to. The underlying problem we are trying to deal with is that there are savers who want to save for the long term. There are pension funds trying to invest for the long term and there are companies out there that want to borrow or get equity investment for the long term to make investments. Somewhere in the chain, there are short-term incentives, which is essentially what the Kay Review is all about-that that collective interest we all have in good long-term investments is being twisted or diluted by institutions that do not work properly. It is somewhere in this system of incentives that the various investment managers have. That was his major conclusion and it is what we are trying to address.

Q383 Chair: You have put your finger on the crucial problem. It is the managers of our investment who have a financial motivation for working and thinking short term. I come back to the point I made: if, after a year or so of examination, it is obvious that this is not changing, what will you do then?

Vince Cable: I do not have any problem with adopting tough regulatory solutions when voluntary methods have failed and we have demonstrated that in one or two areas, with executive pay being the most obvious one. It will be the same with takeovers, if it proves to be necessary. My approach to all these things-women on boards, and a lot of other things-is to try the voluntary approach and try to build up trust with the practitioners. If it fails, we can adopt more aggressive solutions, but let us try the voluntary approach first.

Q384 Chair: Thank you, Minister. I expect that we will come back to this some time before the end of this Parliament. We recognise that, certainly in terms of the pub companies, you, shall we say, were open-minded enough to accept our criticism and do something about it, so if we feel the need to take further action, we hope that you will be open-minded in the future to do something about it in the future as well.

Vince Cable: Definitely.

Chair: Thank you very much and we appreciate your contribution.