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Accounting Standards

6. Mr. Desmond Swayne (New Forest, West): If she will make a statement about the findings of the review of accounting standards. [66372]

The Parliamentary Under-Secretary of State for Trade and Industry (Miss Melanie Johnson): The group set up in February to co-ordinate the responses of the key regulators to issues for audit and accounting raised in the aftermath of Enron—and now WorldCom—will produce an interim report by the end of this month. The Government have made it clear that it is important to restore confidence in the independence of auditors.

Mr. Swayne: Does the hon. Lady agree that our procedures are more robust, largely as a consequence of the lessons learned from the Mirror Group Maxwell affair? If so, will she say why the reaction of the stock market in this country has been more alarming even than that in the United States?

Miss Johnson: I agree with the hon. Gentleman that our systems appear to be more robust than those of the United States. Indeed, the UK's principles-based regime is a more effective basis for accounting than the rules-based system of the United States. Clearly, consideration is now being given to what changes might be made across the Atlantic. The response of the markets is unsurprising, because no one suffers more than business if the legitimacy of business is called into question. We believe that trust and confidence are key, which is why it is so important that confidence must be restored.

Mr. Andrew Love (Edmonton): Does my hon. Friend agree that accounting standards cannot be entirely divorced from corporate governance and, in particular, the role of non-executive directors? Does she also agree that such directors should be more independent, take responsibility for the audit function and report directly to the annual meeting?

Miss Johnson: I certainly agree with my hon. Friend about the importance of non-executive directors. That is why the Government have commissioned the review that is being conducted by Derek Higgs into their role and

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effectiveness. The review was conceived before the events at Enron and WorldCom, but it is highly relevant to them. There is a question about the composition, duties and effectiveness of audit committees, and the review will look into it. We will consider the review and any other issues that arise post-Enron.

Dr. Vincent Cable (Twickenham): Does the Minister accept that investor confidence in accounting standards has been seriously undermined as a result of the involvement of leading accounting companies in a succession of audit failures? If British standards are superior, as she said, why does she propose to abolish them in 2005 and replace them with an American-dominated global standard that will be significantly weaker?

Miss Johnson: We certainly do not propose to abolish those standards and to replace them with any weaker ones. It is clear from current discussions in the USA that there may be significant changes in approach. Negotiations are currently under way to modernise EU accounting directives and international dimensions are also under discussion. Like the hon. Gentleman, we are keen, whatever happens, to examine ways to regain confidence in the independence of the auditor on both sides of the Atlantic, and we look forward to seeing regulatory activity and reform to support that aim.

Mr. Colin Challen (Morley and Rothwell): Does my hon. Friend agree that we would have higher accountancy standards if there were a complete separation of accountancy services from consultancy services? How can accountancy firms advise the Government on PFI, but participate at the same time in consortiums that are making bids for those projects? We then get advice from other firms, such as Arthur Andersen, which seems to be the only advice yet available on the value for money of those bids. Does she agree that there should be complete separation?

Miss Johnson: I agree with my hon. Friend that the relationships between auditors and clients can be too cosy and that there is a need to demonstrate independence. As my right hon. Friend the Secretary of State said in her recent speech to the Cambridge university faculty of law, there is a risk of having too many conflicts of interest. We are currently exploring questions in relation to audit firm rotation, more frequent rotation of partners and the supply of non-audit services to audit clients.

Mr. Nigel Waterson (Eastbourne): In the wake of the problems faced by companies such as Enron, WorldCom and now Qwest, it is clear that the overwhelming priority is to reassure investors and markets. The Opposition welcome the review of accounting standards. However, does the Minister agree that when all the evidence is collected, many of the problems may turn out to have been caused by simple fraud rather than audit failures? Is not a calm, measured response required, rather than a rush to place unnecessary extra burdens on business?

Miss Johnson: I entirely agree with the hon. Gentleman that in some of those instances outright fraud has clearly been perpetrated. We believe that it is important that regulators identify the changes that they think are needed, including any that involve accounting

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standards, audit firm rotation or the other issues that I mentioned. The co-ordinating group, which I lead with my hon. Friend the Financial Secretary, is ensuring that those issues are well thought through and properly co-ordinated, and the Government will make any further changes that they believe are necessary. I agree that a considered response is needed.


7. Jim Knight (South Dorset): What steps she is taking to encourage the take-up of broadband in rural areas. [66373]

The Parliamentary Under-Secretary of State for Trade and Industry (Nigel Griffiths): On 26 June, we announced a new broadband network of dedicated broadband advisers to help to boost roll-out and take-up of broadband across the UK. The Government have also made available £30 million as a broadband fund to help the regional development agencies and the devolved Administrations to develop schemes to extend broadband access.

Jim Knight: I thank the Minister for that reply. I agree that we are making some progress in the roll-out of broadband to rural areas. Indeed, this week BT Group wrote to inform me that it is upgrading the exchanges at Portland and at Swanage for its asymmetric digital subscriber line—ADSL—broadband service. However, I remain concerned about more sparsely populated areas that are not as commercially attractive. I am particularly interested to know what the Department is doing to ensure that cross-Department initiatives, such as the regional broadband consortiums from the Department for Education and Skills, are co-ordinated so that there is no duplication, so that opportunities for piggybacking are maximised, and so that the roll-out of broadband, especially in rural areas, is accelerated.

Nigel Griffiths: It is very important that no one is left behind in the roll-out of broadband, and my hon. Friend the Minister for E-Commerce and Competitiveness is taking three steps to ensure that it reaches rural areas more effectively: first, facilitating satellite broadband deployment through a fast-track online licensing regime and a review of planning regulations for satellite terminals; secondly, encouraging infrastructure sharing by industry to reduce the costs of roll-out; and thirdly, using more effective procurement of the public sector's broadband requirements to improve value for money and, in particular, to drive broadband into rural areas. I hope that those three measures will enable my hon. Friend's constituents to benefit from broadband through both private sector suppliers and the public services on which we all depend.

Michael Fabricant (Lichfield): The Minister is right to mention satellite, but he knows as well as I do that that is very expensive. He may like to read a report about that in last month's "IEE Review". Given that the Government are very much concerned with joined-up government, has he read the report by the Select Committee on Culture, Media and Sport, entitled "Communications", which includes a chart showing the penetration of broadband in this country? I am not talking about low band, but middle

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and high band broadband. In South Korea, penetration is 32 per cent., in Sweden it is four times that in Britain, in Italy it is twice that in Britain—indeed, the United Kingdom is right at the bottom of the table.

Although I am pleased to hear that the Government are trying to expand broadband, will the Minister admit that we have a long way to go? Will he ensure that middle and high broadband are expanded, rather than the very low rates of transmission which are not much better than a telephone line?

Nigel Griffiths: The hon. Gentleman is using out-of-date figures, and using them very selectively. I think that hon. Members will accept the straightforward fact that the need to drive forward the UK on broadband has been fostered partly by the success of narrowband and the fact that so many households—10 million—are connected to the internet. I gather that that is more than in any other country. In addition, more people are connected. The majority of the population use narrowband internet services. That slowed down some of the demand for broadband—[Interruption.] Many people can grasp that, even if the hon. Gentleman cannot, Mr. Speaker, but since his figures were wrong in the first place, it is good of you to be tolerant of him.

The straightforward fact is that having made a tremendous success of internet access using narrowband, we are now extending that to broadband. We intend to honour our commitment to ensure that at the end of this year, and at the end of three years, we are in the lead in broadband in terms of Government procurement and Government services.

Mr. Martin O'Neill (Ochil): Does my hon. Friend appreciate the fact that much of the work on expanding broadband will involve digging up roads, and that concerns are being expressed about road charging for that purpose, which could inhibit some of the important work that he identified? I know that a scheme that operates in Camden and in Middlesbrough is under review, but does my hon. Friend agree that the current position could represent a serious expense to the companies that are trying to follow the Government's lead by making broadband available all over the country?

Nigel Griffiths: As the Minister with responsibility for small businesses, I hear the other side of the story about the disruption caused by too many people digging up roads too often. My hon. Friend is right to let me highlight the need to co-ordinate that. I gather that his suggestion is under consideration, and I hope that on behalf of all our constituents we can reach agreement that intrusion into roads should be minimal, that the disruption in our high streets should be minimised, and that those who cause unnecessary disruption should pay—but where it is co-ordinated, obviously those costs can be absorbed.

Adam Price (East Carmarthen and Dinefwr): The Minister referred to outdated statistics. I wonder whether he has seen the latest Federation of Small Businesses survey, which shows that just 2 per cent. of businesses in Wales have broadband connection, compared with 11 per cent. in London. Not one business in my constituency is connected because we do not have a single ADSL-enabled

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exchange. Does he not agree that the only sure-fire way of ensuring parity of access in rural areas is to make broadband part of the universal service obligation?

Nigel Griffiths: The hon. Gentleman rightly highlights the fact that we need to ensure that every part of the country has access to broadband. My hon. Friend the Minister for E-Commerce and Competitiveness and his predecessor stressed that and, indeed, developed a strategy which has seen us accelerate the deployment of broadband. I am confident that we shall be able to report to the hon. Gentleman, so that he can report to his constituents, that the figures will be considerably improved in the short and medium term.

Mr. Philip Hammond (Runnymede and Weybridge): Local loop unbundling was one of the key elements in the Government's programme for broadband roll-out, especially in rural areas. When that initiative was announced, the expectation was that by now a substantial number of local loops would have been unbundled. Will the Minister confirm that the number of loops that have been unbundled is measured in hundreds? In view of that, do the Government acknowledge that they were wrong, that the initiative has failed, and that local loop unbundling will not be a significant factor in achieving broadband roll-out?

Nigel Griffiths: The hon. Gentleman should acknowledge that we are making considerable progress—with more than 400 unbundled lines and rising. More than 40 service providers—the competition that was once much lauded by the Conservative party now seems to be disparaged by it—are offering services over BT's DSL-enabled network. I am pleased to inform the House that the legal and regulatory framework for local loop unbundling is now in place. Good advances are being made.

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