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Lord Hodgson of Astley Abbotts: The noble Lord, Lord Phillips, has made a very interesting and, in some ways, a powerful case. As I understand it, the heart of his argument is that the words "efficient and economic" are too narrow in the circumstances of the Bill. I see the force of that argument but, equally, I believe that narrowness does not necessarily mean "irrelevant". We should be more attracted to the amendment if his wider drafting about advancing the community interest objects of the companies nevertheless encompassed some "efficient and economic" test.
I do not believe that CICs should be a non-economic, non-efficient free-for-all. Therefore, while I consider that the noble Lord's amendment has much to commend it, it would be a pity if some of the underlying purposes that I read into the current drafting in the words "efficient and economic" were lost.
Lord Evans of Temple Guiting: I start by clearing up a small misunderstanding. The words "efficient and economic" refer to the regulator and not to the CICs.
Lord Phillips of Sudbury: Really?
Lord Evans of Temple Guiting: Yes. The Government do not welcome the removal of the wording deleted by the amendment. It seems wholly desirable for the new regulator to be required to use his resources in an efficient and effective way. Similar statutory requirements have been imposed on other independent regulators, such as the Financial Services Authority, and I cannot see any reason why the CIC regulator should be under less of an obligation to behave efficiently, even though the budget at his disposal will of course be very much smaller than that of the FSA.
The requirement for efficiency and economy is intended to influence the way in which the regulator allocates and deploys his resources. When addressing a specific risk or carrying out a particular function, the regulator should consider which of the options are most efficient and economic. But, of course, that is not the only factor that the regulator must keep in mind. He must balance that with the need to consider the likely impact on those who may be affected and the outcome of consultations. He must also properly fulfil his obligations under the Bill and perform his functions in a manner which complies with the common law.
Over time, we expect the regulator's fee income to move towards covering his costs. It would not be in the interests of either the taxpayer or the social enterprise sector for the regulator to be unconstrained in his use of the resources that are available to him.
Nor do we see the need for the alternative wording proposed by the amendment. The functions of the regulator fall into two broad categories: the giving of the routine approvals and consents necessary for the formation and operation of CICs envisaged by the Bill and regulations made under it; and the exercise of the supervisory powers which will help to build and maintain public confidence in CICs. It will not be his job to devote his own resources to pursuing the purposes of individual CICs. For those reasons, I ask the noble Lord to withdraw the amendment.
Lord Phillips of Sudbury: I shall not say that I was thunderstruck to hear that subsection (4)(c) referred only to the use by the regulator of his or her resources because it reads perfectly ambiguously. I read it as referring to the use of resources by community interest companies. That ambiguity should be dealt with, and it can easily be dealt with.
In addition, in relation to the regulator, I take the point that efficiency and an economic way of dealing is important. I take the point made by the noble Lord, Lord Hodgson of Astley Abbotts, on that matter, too. However, I still believe that it is worth the Minister contemplating the question of effectiveness. It would be an important additional yardstick against which the regulator should operate—largely for the reasons that I advanced when considering that word in relation to the operations of community interest companies themselves. If the Minister will consider those two points, I am happy to beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Glentoran moved Amendment No. 105:
- Page 27, line 4, at end insert ", and
The noble Lord said: The amendment looks at the statutory requirements of the regulator for carrying out his functions as prescribed in the Bill in subsection (4), specifically in relation to the regulator giving free advice. Our amendment would add a further
This is one further important issue with which we believe the regulator should always comply when exercising his powers under the Bill. As the Bill is currently drafted, he must think about the impact on CICs and others affected by the exercise of his power, he must consult and he must be economical with his resources. We want to include the obligation for the free provision of advice to any CIC when requested. That scope would clearly be limited to straight, objective yes-or-no answers and interpretation of the rules.
Noble Lords may ask why this is important. I have had several discussions with my noble friend Lord Hodgson, on the matter. He has a great deal of experience in working for a regulatory body, as he was on the board of the SIB for many years. His advice to me was that it was enormously frustrating to be unable to provide advice to businesses that came within the SIB's scope for regulation. It was not possible to point companies along the right track, only to admonish and criticise them when things went wrong and they failed to comply.
It looks to me as if we have a similar situation here. The regulator is designed as a check on CICs. The Minister and the Bill team have already remarked to me that the regulator will undoubtedly, due to the numbers of CICs that start up, have a reactive rather than proactive role. That is all well and good except that, as I have mentioned before, take-up on CICs is likely to be predominantly by small social enterprises. This is a new company vehicle and the Bill is a framework Bill; the regulations are complex, particularly in terms of caps on assets and payments on debts, debentures and interest.
We believe that it is perfectly reasonable for a small company, when applying to become a CIC, to be able to seek advice from the regulator. However, we have put some limit on this advice: companies can only query whether an action is permissible or not. That would help to anticipate any infringement of the compliance that the regulator has to monitor. Companies would be less likely to break the rules because they would be better informed of their obligations as CICs. We believe that the regulator should be more of an overseer than simply a figure to chastise CICs that run into problems. In the interests of transparency and efficiency, and with the hope of having a new model of company which is successful and has a significant take-up, we think that the provision of advice about permissibility should be mandatory. It might encourage more companies to apply to be CICs and it would be a sure sign of a more light touch regulation, which is what the Minister promised all along.
I shall finish by briefly commenting on Amendment No. 106 tabled by the noble Lord, Lord Phillips, which is grouped with our Amendment No. 105. Amendment No. 106 focuses on subsection (5) which states:
We certainly agree with the amendment as far as it goes. The regulator will not be able to charge for the provision of guidance or assistance as Clause 54(3) might suggest. We shall focus on that when speaking to a later amendment. However, our amendment puts the provision of advice and assistance as a compulsory factor for the regulator when discharging his functions.
The problem with subsection (5) on guidance and assistance is that it is too permissive. The Secretary of State "may" ask the regulator to issue guidance and provide assistance or he may not. The regulator may provide guidance or assistance or he may not. That is not good enough. CICs which are just starting out need more support from the regulator and it should be his statutory duty to provide it. I beg to move.
Lord Phillips of Sudbury: I shall speak to Amendment No. 106 in this group. As I look again at Clause 24(5) I am not sure that I am certain of its effect. The first part of that subsection, which the noble Lord, Lord Glentoran, just read out, states that the Secretary of State may require the regulator to issue guidance or otherwise provide assistance. The second part states that the regulator may provide guidance or otherwise provide assistance. If he is required to do so, is he then left only in a discretionary position, and may provide assistance? Either way, if this is a requirement emanating from the Secretary of State, I fail to see why those to whom that guidance or assistance refers should have to pay for it, but no doubt we shall soon hear.
I should have added that the Minister said in response to the last group of amendments that the function of the regulator was to become self-financing—I think that is what I heard him say. If that is correct, that will be bad news for those who are contemplating CIC status. It will be a major role with a significant staff, the official property holder and the appeal officer. If all that will have to be paid for out of fees, one begins to wonder just how much damage that will do to the concept which the Government are promoting.
(d) the need to provide advice when requested to any community interest company as to the permissibility of an action."
"the need to provide advice when requested to any community interest company as to the permissibility of an action"—
yes or no.
"The Secretary of State may require the Regulator to issue guidance, or otherwise provide assistance, about any matter relating to community interest companies which is specified by the Secretary of State; and the Regulator may provide guidance, or otherwise provide assistance, about any other matter relating to community interest companies".
It would insert at the end of the subsection the words,
"in all cases without charge".
5 p.m.
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