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Lord Bruce of Donington: My Lords, I am not quite sure at the moment whether the noble Baroness has formally moved the next regulation which deals with payments to creditors. If she has done so, I should like to speak to it now. If not, I prefer to wait until she has done so.
Baroness Miller of Hendon: My Lords, I had better say that I have not done so. It was a mistake. I shall come back to that regulation afterwards and the noble Lord can ask me what he will.
The noble Lord, Lord Haskel, was rightly concerned about whether the disclosure should also cover quango board members and directors of private utilities. He was concerned with transparency, and so indeed are we. Information on the remuneration of board members and chief executives, for example, of national health service bodies or other non-departmental public bodies, is published in the Cabinet Office's annual publication Public Bodies and in the bodies' annual reports. The noble Lord is probably aware that copies are available in the House's Library.
But perhaps he was slightly more concerned with the utilities. So far as concerns the utility regulators, the salaries of the directors general are published in the 1996 Oftel and Ofgas reports. The 1996 annual report for Offer will be published later--I believe this week or next week. I am happy to tell the noble Lord that he can be reassured on that point. There is no secret. He has only to look at the Utility Weekly, which has a table of all the figures. So he can reassure himself on that point.
The noble Lord was also concerned in the case where the utility was a wholly owned subsidiary. Directors of wholly owned subsidiaries are not in the same position as directors of the parent companies, so far as concerns the ability to determine their own remuneration. The pay of directors of wholly owned subsidiaries is a matter for the parent company as the sole shareholder. The parent will have full access to relevant information without needing to rely on statutory disclosures.
The noble Lord had great concern about the different ways in which the director works perhaps as a consultant to the company, having set up his own consultancy. The draft regulations require companies to disclose directors' remuneration and pension contributions in respect of their services as directors of the company or otherwise in connection with the management of the affairs of the company. The draft regulations retain the wording in the current Companies Act provisions. The words:
- "the management of the affairs of the company"
have been given a very wide interpretation by the courts in another context. In our view, they encompass amounts received by a director in connection with any or all of his services to the company, including those undertaken in a consultant capacity.
The noble Lord, Lord Haskel, can also be reassured that the existing provisions in the Companies Act which require things such as payment to wives or expense allowances to be included in figures to be disclosed in the report remain unchanged. So there is not a problem there.
The noble Lord was also concerned that directors of some United Kingdom companies are overpaid. We believe it is important to distinguish myth from reality. The Greenbury Report noted that for the most part remuneration levels of directors in the United Kingdom lie within the range of European practice and well below American levels. It is essential that British industry remains competitive. That will sometimes mean companies paying high salaries to attract or retain the very best executives. Those are decisions which can only be taken by companies and shareholders.
The noble Lord was concerned that directors' pay appears to rise more quickly than workers' pay. We believe that what is important in this matter is that United Kingdom industry remains internationally competitive. All salaries should be justified by performance and affordability. That is true for all levels.
Lord Haskel: My Lords, before the noble Baroness sits down, I was concerned about the ratio between directors' pay and shop floor pay, which is measured now by most firms trying to assess the effectiveness of a business.
Baroness Miller of Hendon: My Lords, we believe it is important that the United Kingdom remains internationally competitive. We believe that all salaries, whether directors' pay or the pay of people working on the shop floor, should be justified by performance and affordability. We would like it to be true at all levels.
On Question, Motion agreed to.
Companies Act 1985 (Directors' Report) (Statement of Payment Practice) Regulations 1997
1.11 p.m.
Baroness Miller of Hendon rose to move, That the draft regulations laid before the House on 27th January be approved [10th Report from the Joint Committee].
The noble Baroness said: My Lords, this statutory instrument makes amendments to the accounting schedules of the Companies Act 1985. I shall now deal with the requirement to disclose payment policies in the directors' report. I apologise to noble Lords if the first part sounds like a repeat performance.
Your Lordships will be aware that the problems caused by late payment continue to give concern to a number of small businesses. Indeed, it was one of the main anxieties highlighted last year when we gave small firms the opportunity to shape future policies through the regional Your Business Matters conferences. While there are no easy answers to tackling the problems caused by late payment, the Government are committed to helping small businesses. We have consulted widely and have introduced a number of positive measures to tackle the problems associated with late payment.
These regulations are just another element of that package of measures designed to help small businesses to help themselves and to change the culture towards payment practice. We have tried to find a straightforward way of stating payment performance which provides useful information in a readily understandable way. The figure to be disclosed represents in very broad terms the average time taken to pay suppliers. To ensure that all companies are working on a comparable basis, only one method has been stipulated in the regulations. This figure will help meet the needs of small suppliers by providing additional and easily understandable information on the payment practices of larger companies.
The new disclosure requirement is a logical next step to complement the payment policy disclosure we introduced last year. It is therefore only sensible that it should apply to the same companies. These are public limited companies and their large private subsidiaries. The new requirement will go in the directors' report alongside the policy disclosure. This should help smaller supplier companies which will not have to go through pages of notes to the accounts to search for just one figure. It should also enable users of the information to keep track, in a relatively straight forward way, of how a company's performance measured up to its stated policy year-on-year. No doubt, it will also give directors at the annual general meeting the opportunity to explain if these figures diverge.
The main aim of the regulations is to help small businesses to help themselves. We are providing useful information on the payment performances of PLCs and their large subsidiaries in a readily understandable format. We have consulted with the business community to identify the least burdensome method of doing this and the information should be relatively straightforward for companies to produce.
This new requirement is one of a number of measures implemented to tackle late payment. The regulations build upon the payment policy disclosure that was introduced last year and will enable small businesses to obtain more details of the payment record of larger companies that they may be considering doing business with. This measure should not, however, be seen as a substitute for proper credit management procedures but as an additional tool for small businesses which provides
easy to understand information on the payment records of large businesses. As such, it is a valuable tool and shows how this Government are able and willing to listen to the views of the small business community and to act on its wishes and in its interests. I commend the regulations to the House.Moved, That the draft regulations laid before the House on 27th January be approved [10th Report from the Joint Committee].--(Baroness Miller of Hendon.)
Lord Bruce of Donington: My Lords, I am grateful for the Minister's explanation of these new regulations dealing with statements of payment practice. They come not a moment too soon. For many years now it has been the practice of some large companies--not all--and some government departments--but not all--to delay payment to some of their suppliers that lacked the protection of bigness. That is particularly applicable to small businesses, many of which, over the past 18 years--and even before that--have literally gone out of business because they have failed to get bank support in respect of some of their debtors that have delayed payments for as long as possible.
In connection with this, I observe that the regulations will be signed by the Parliamentary Under-Secretary of State for Small Businesses, Industry and Energy in the Department of Trade and Industry. I suppose there is a certain poetry about that because the president himself, the right honourable gentleman the Member for Henley, revealed in his memoirs, published comparatively recently, that one of the foundations of the success of his businesses was the delay he was able to enforce in paying his suppliers. In fact, the document shows that he had some pride in that. His companies paid up at the last possible moment before the coming to court of the writs that would be issued in some cases.
Still, I do not make any point of that now. We are in a very friendly pre-election atmosphere and I would not wish to take undue advantage of it. I understand that since the parliamentary row was created on this matter, mainly from this side of the House, the payment of government departments to their suppliers has considerably improved. I am told that in 85 per cent. of the cases involving government department payments are made within a reasonable time and within the time stipulated by the government department to the suppliers themselves. Mind you, 85 per cent. still leaves 15 per cent., and 15 per cent. of outsourcing government requirements to subcontractors still represents a considerable sum within the national turnover. Therefore, I sincerely hope that the performance will improve.
These regulations deal with companies and the consequent alterations or additions to the Companies Act. I have no complaint about the content of the regulations, which, I understand, have been discussed with the representatives of small business interests and my own profession. Incidentally, I should declare a professional interest in that I am a practising chartered accountant and have to deal with matters of this kind.
What troubles me a little is that the information is to be given not in the notes to the accounts, but in the directors' report. Doubtless there is the very good reason
of convenience, but I am bound to point out that the contents of the directors' report, unlike notes to the accounts to which the report relates, are not subject to surveillance and certification by the company's auditors. It is to be hoped, even though the report contains the particulars required and being unaudited, that they are going to be reliable. I sincerely trust that that will be the case because if not it would be a matter of serious worry.If one refers to the particular parts of the regulations that have some impact on this, one has to look only to the disclosure in the directors' report:
- "if the company's policy is different for different suppliers or classes of suppliers, the report shall identify the suppliers to which the different policies apply".
- "In this sub-paragraph references to the company's suppliers are references to persons who are or may become its suppliers".
I imagine that that can be quite a lengthy addition to the directors' report which, I am devoutly assured, is read eagerly by all the shareholders.
But what happens to the suppliers themselves? If the company is a very large one it may have perhaps 50 or 70 suppliers. How are they going to get this information? It is no requirement of the Companies Act that the directors' report should be circulated to the suppliers of the company. The accounts of the company are supplied to the shareholders with a copy in due course to the company's file in Companies House. How is a disgruntled supplier going to go about pursuing the company concerned which he is supplying and against which he may have a complaint?
First, he has to go to Companies House and get the information required, and that is not always very easy. It is also time consuming. Then he has to wade all through the material to find out exactly how the company has complied with this particular regulation. It is quite true that if a supplier belongs to a trade association looking after his or her interests or a small company's interests, then that association may have a routine examination of the files of directors' reports at Companies House. All this does not make the information required readily available to the people it most concerns.
I have no doubt that we shall be told, with some justification, that the very existence of this regulation of itself may do much to address the evils of late payment to suppliers and that may well be so. But I would have thought that without some surveillance at some point by the company's auditors, some of the reports are not always going to be reliable, and once that becomes known, then much of the deterrent effect will not be present.
One welcomes the regulations themselves. I believe that it was a great mistake to put the material in the directors' report rather than to formally incorporate it in the notes to the accounts, which, as your Lordships know, are subject to audit by the auditors of the company. I press that point with diffidence because it would mean increased fees to my profession and I do not like to stomach that, of course. Being a very modest man, I would not wish the company to bear unnecessary
costs. The best thing for companies to do, therefore, if they want to avoid the ultimate imposition of my own profession on their activities, is to make quite sure that they never make a mistake and pay all their suppliers promptly as they should.
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