Second Standing Committee
on Delegated Legislation
Wednesday 24 January 2001
[Mr. Joe Benton in the Chair]
Companies (Fees) (Amendment)
The Minister for Competition and Consumer Affairs (Dr. Kim Howells): I beg to move,
That the Committee has considered the Companies (Fees) (Amendment) Regulations 2000 (S.I., 2000, No. 3325).
The Chairman: With this it will be convenient to consider the Open-Ended Investment Companies (Investment Companies with Variable Capital) (Fees) (Amendment) Regulations 2000 (S.I., 2000, No. 3324).
Dr. Howells: This is my first opportunity to serve on a Committee under your chairmanship, Mr. Benton.
The proposed regulations will apply to England, Wales and Scotland. They will not apply to Northern Ireland, which has its own company registry. The main effect of both sets of regulations is to increase fees for microfiche products, including the basic search of company records. The aim is to enable Companies House to match, as closely as it can, the revenue that it generates from that aspect of the public service it provides with the costs it incurs in providing that service. The changes are necessary because many people are taking advantage of the alternative electronic services now on offer.
Demand for microfiche has declined substantially from the level when fees for it were last changed two years ago. Indeed, demand is expected to continue to decline. The regulations are necessary because of the way in which Companies House is responding to the modernising agenda. It is increasingly offering up-to-date electronic services to its customers, who prefer them to older paper and microfiche-based services. The balance in the provision of services is therefore shifting, and shifting rapidly.
In explaining the reasons for the changes, I do not propose to refer to each of the amendments made by the regulations. Instead, I shall concentrate on microfiche and related products, which cover the bulk of the changes. I will naturally be happy to respond to any questions hon. Members may have on any item in the regulations.
First, on the background to the regulations, Companies House has been an executive agency since 1988 and a trading fund since 1991. As a trading fund, Companies House must recover all the costs of providing its services from fees. Taking one year with another, it must also aim to achieve an average net return of 6 per cent. on its assets. Within that overall framework, Companies House must avoid, as far as practicable, cross-subsidy between its various activities, which means that each major product and service category must be broadly self-financing.
Companies House keeps the provision of a high-quality public service as its dominant driver. It must also finance its running costs and future development programme from fees and charges and, so far as any major developments are concerned, from any reserves that have accrued from the previous levying of fees and charges. It must continue to invest in information technology to enable the provision of better and more up-to-date services. It also has a regular operating outlay for staff salaries and accommodation, staff training, compliance, communication and marketing and so forth.
All that must to be funded from the revenue that it raises. Those costs must, in effect, be charged to and spread across the full range of Companies House products and services. Companies House is continuing its programme of developing its systems and services, which will allow easier access for electronic registration of statutory information. It will also enable the provision of company data in an increasingly wide range of electronic formats consistent with the Government's modernising ambitions. The success of that strategy is reflected in the declining use of microfiche in favour of electronic access as the preferred way of retrieving company information.
In 1996, there was a general reduction in Companies House fees. That was made possible by the agency's success in significantly reducing its operating costs. None the less, it was necessary at that time to increase the price of microfiche search because of reducing volumes. The cost of microfiche-based products was again increased for the same reason in 1998. That was because the cost of providing a microfiche service is substantial and essentially fixed, which means that, as more customers switch from microfiche to the electronically based ways of accessing company information, the unit cost rises.
The volume of microfiche searches has declined from 2 million in 1995-6 to well under 1 million in 1999-2000a fall of more than 50 per cent. in five years. The total number of microfiche searches has dropped, from 1.4 million at the time when fees were last adjusted1 March 1999to under 700,000 two years later. The decline is expected to continue in the coming year2001-02to about 500,000. That is not something to be regretted; it is evidence of the march of progress.
None the less, the cost of producing a microfiche search is already £6.20 compared with the current fee of £5, so a loss is being made on that range of Companies House products. Accordingly, I propose to increase the cost of the standard microfiche search fee to £6.50a 30 per cent. increase to set against the 60 per cent. decline in volume since the previous time that the costs were altered. It has only been made possible at that level by strenuous and successful efforts within Companies House to effect economies and improve efficiency. It is estimated that this will raise an extra £100,000 in revenue, but that is a nominal sum. Much depends on the elasticity of demand and the continuing rate of decline in demand. Nevertheless, it should allow Companies House to achieve something close to break-even on the provision of its microfiche services.
Indeed, hon. Members were warned of the likely increase in the price of microfiche products when the previous order on companies fees was presented two years ago. Should the decline continue in line with present trends, further increases in the price of microfiche will be necessary soon to optimise recovery of the costs.
The overall effects on searchers of the information made available by Companies House will not be negative. The higher cost for microfiche will continue to be offset by the ever-expanding reliance placed on computerised information by Companies House customers. This is not only becoming more and more comprehensive and easier to access, it is also becoming cheaper. Company information can now additionally be obtained using the world wide web.
Since December 1998, customers have been able to obtain basic company information free from the Companies House website. Since October 2000, they have been able to purchase documents over the web using their credit card. This is something of a trailblazer so far as the provision of government information is concerned. Increased demand for such services will lead to lower prices for conveniently accessible, high-quality data in electronic format. This will apply equally to bulk customers, professional users of the Companies House subscription service, Companies House Direct and casual users via the internet.
Microfiche has served its purpose well. It will continue to be preferred by some people for some purposes for a little while yet, but although it remains a useful and comprehensive record of company information, it is now approaching the final stages of its product life. The end of its economic viability is within sight. A different approach to the setting of fees for basic services may be appropriate in years to come.
No other changes to the fees for any other incorporation or document registration activity are proposed today. However, Companies House intends to reduce the charges that it levies for discretionary premium services for same-day incorporation and change of namenor is Companies House seeking any increases for any of the electronic or bulk services on which I have dwelled and for which fees have customarily been set administratively. In fact, Companies House is decreasing the charges that it sets administratively for electronic services. That decrease will aim to achieve a net £2 million reduction in revenue at constant volumes. In doing so, the agency is consciously playing a fuller part in the Government's modernising and knowledge economy agendas.
At this point, it would be appropriate for me to stress that we are addressing those fees and charges established by regulations under section 708(1) of the Companies Act 1985. Companies House makes extensive use of section 708(5) for the setting of charges for its newer electronic services. It also does so for certain bespoke services, such as the provision of bulk information by means of image or data tapes to its major commercial customers. The flexibility of section 708(5) is necessary for the pricing of new products whose development costs and take-up may be uncertain or variable. None the less, Companies House brings the same concepts of cost recovery and avoidance of excessive return or cross-subsidy to those other services.
On open-ended investment companies, Companies House registers and provides the public records for that type of corporate vehicle. I understand that there are about 160. The cost of providing microfiche records for such enterprises is precisely the same as for companies, since they are included in the unit cost measurement for all microfiche products applied by Companies House. Consequently, these amending regulations introduce equivalent fees for similar services provided by Companies House to those provided for companies.
In summary, Companies House fulfils a clear function of being the key statutory registry for companies in Great Britain. The agency has an enormously important role in information provision. As a result of its newly introduced world wide web company information service, information is now available at the touch of a button to anyone, throughout the world. I hope that my explanation of the reasons behind these fee changes has been helpful to hon. Members. I commend the two regulations to the Committee. I confirm that, in my view, the regulations before us are compatible also with the European convention on human rights.