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Mr. Cousins : To return to the hon. Gentleman's previous point, is the implication of his remark that he would want a cap on expenditure on regulation, and that he would want to build that into the Bill? That would be a very significant step.
Mr. Mitchell: Indeed. However, I assure the hon. Gentleman that that is not my intention. I want to see the Government committed to paying their fair share, along with the business community. They cannot in one year decide that they are not going to pay it, and leave the cost entirely to the business community as a result.
My third point relates to the wider group of people who could face serious criminal penalties for failing to provide necessary criminal information. There is concern that the correct balance has not been struck between strengthening the auditing regime—empowering auditors and investigators—and adequately protecting those against whom the powers may be exercised. For example, the original clause 9 required directors to state that not only have they given to the auditors any relevant information, but that each and every other director of the company has also given to the auditor the information that he or she should have. Directors were not only asked to take responsibility for the actions of their colleagues but were required to state that there was no information that had not been disclosed to the company's auditors—an extraordinary requirement.
The problem has been dealt with by the introduction of new clause 9, following several amendments sponsored by Lord Hodgson, but officers and employees of the company remain relatively at risk under clause 8. Clause 8 empowers an auditor to require a very wide range of people—under sanction of serious criminal penalties—to provide him with information, including
"any officer or employee of the company"
or "a subsidiary". An auditor may require information from any and every employee of the company, irrespective of their role or position.
There is a considerable risk that employees who have not had their duties explained to them in as much detail as directors might unwittingly fail to provide information, or sufficient information, and face considerable penalties and/or fines. It is possible to imagine a scenario in which a junior employee, perhaps on the accounts team, might have access to, or handle, relevant information, and yet he or she may not fully comprehend what is required of them by the auditor or the nature of the information to which they have access. There is a distinction between having information and
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having knowledge. I have in my study an encyclopaedia, but that does not mean that I have encyclopaedic knowledge.
Mr. Austin Mitchell: Is not the real problem not the hypothetical one to which the hon. Gentleman refers, but that someone who does give information—such as a tea lady reporting a conversation that she has heard in the canteen between directors, which indicates that something irresponsible is going on—is effectively a whistleblower, blowing a whistle to the audit firm, and will be dismissed? That kind of person needs protection.
Mr. Andrew Mitchell: I look forward to discussing those measures with the hon. Gentleman in Committee. He is dealing with exactly the same problem as me: the role and position of a junior employee not being protected in the same way as that of a director.
Similarly, an employee may handle aspects of company accounts without realising their import.
The Bill fails to provide adequate grounds of defence. The defence allowed to an employee of the company is that
"it was not reasonably practicable for him to provide the required information or explanations."
I therefore hope that the hon. Gentleman agrees with me that the Government have agreed to give an improved level of protection for directors but not for those further down the scale. It will therefore fall to the Conservative party, as so often before in Committee, to protect and enhance the position of ordinary people, unionised or not, whom Labour has forgotten.
Fourthly, I turn to the issue of excessive investigatory powers. Provisions contained in the Bill, particular clause 21, place only the barest of limits on investigatory powers, and may well give rise to an abuse of power. Clause 21 empowers inspectors and investigators to enter and remain on premises, considerably extending their existing powers. Previously, they had no power of entry without a search warrant.
I am not against giving inspectors and investigators power of entry, but I am firmly against allowing them entry when they only think it will materially assist their work. The House has rightly resisted the giving of powers to investigatory officials to go on fishing trips for information, and it should certainly do so again in this case. The inspector or investigator must reasonably believe that entering and remaining on the premises will materially assist him. That is particularly vital because there is no limit to the time for which he may remain on the premises. Is he to be allowed to sit in someone's house for any length of time, just because that person carries on a business from his home? The Government must offer clear legislative protection against abuse, rather than seeking to rely on administrative law and retrospective challenge.
My fifth point relates to compliance with the European convention on human rights. Despite Lord Sainsbury's statement, under section 19(1)(a) of the Human Rights Act 1998, that the provisions of the Bill are compatible with the convention rights, the
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Government appear reluctant to enforce ECHR article 6, which concerns the right to a fair trial. We fear that the Government will not prescribe in legislation how disciplinary hearings relating to public interest cases are to be conducted. We are informed by Lord Sainsbury that the representation of all defendants is too detailed a matter to include in the Bill, and is
"best left to the arrangements".—[Official Report, House of Lords, Grand Committee; 16 March 2004; Vol. 659, c. 33.]
Although we accept the Government's argument that if there were no access to representation the person or body exercising the recognition function would not agree that the particular disciplinary arrangements were "appropriate", there seems no good reason not to "set in stone" the rights of the defendant.
It must be made clear that the hearings are to comply with the rights of the defendant in accordance with the ECHR—specifically article 6—and the standards expected in a fair trial. As all parties are agreed that representation is necessary, and the Minister has stated that the Bill is compliant with the ECHR, there is no good reason why that should not be confirmed in primary legislation.
Let me say something about CICs, which the Minister mentioned. While we support the concept of the CIC, I feel that the introduction of yet another legal form for those wishing to set up a not-for-profit body or a social enterprise is unnecessary, and is contributing to the growing confusion of the wider public and those wishing to set up such enterprises. As I mentioned earlier, it seems very strange that CICs are to be introduced ahead of the Charities Bill, which promises wholesale reform of charity law, when that Bill is only now receiving pre-legislative scrutiny. It would surely have been sensible to keep the proposals on CICs until we could see how they would fit into the new regime following the long-promised overhaul of charity law. There may even be other models that would be preferable.
In creating ad hoc new legal forms and tacking them on to any Bill, we risk confusing and discouraging both the wider public and people wishing to set up a not-for-profit body or a social enterprise. I doubt that there is a benefit in setting up an additional special legal form for non-charitable public interest organisations. In particular, I cannot see that CICs offer any real advantage over industrial provident societies, established in 1965 and reformed partially in 2000 and 2003.
The "distinguishing" characteristics of a CIC, outlined in paragraph 161 of the original explanatory notes, are very similar to those of industrial provident societies, established by the Industrial and Provident Societies Act 1965. In particular, the justification for CICs has focused on the provision of an asset lock, but sufficient protection already exists for industrial provident societies. The Financial Services Authority will not register a community benefit society unless it has an asset lock-in, prohibiting the distribution of assets to any person or body other than another society with an equivalent rule or a charity, in its constitution.
The problem that a society might convert to a company and some time later reverse the asset lock-in rule in its company constitution was tackled by the Co-operatives and Community Benefit Societies Act 2003.
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The Act contained an enabling provision allowing the Treasury, through secondary legislation, to make provisions to permit IPSs whose business is conducted for the benefit of the community to commit their assets permanently for that purpose—in other words, an asset lock-in—subject to appropriate safeguards and supplementary provisions, thus giving community benefit societies the option of protecting their assets in perpetuity for a public purpose. All that is set out in the regulatory impact assessment.
Rather than introducing yet another additional form, the Government should provide the much-delayed and much-needed secondary legislation. There are problems with the industrial provident societies, but it would be far better to amend IPS legislation so that one form is flexible enough to cope with differing circumstances than to create a plethora of new forms.
Let me now deal with an issue that has attracted a great deal of public comment—auditors' liability. This is a glaring omission from the Bill. Large audit firms are in all respects, bar one, like any other commercial business. Every other business—I can think of no exception—can either limit its liability by way of contract with its customers, or obtain insurance to cover any residual risk that cannot be limited by contract. Auditors can do neither. They are unable to limit their liability by contract, because of the terms of section 310 of the Companies Act 1985; but they are also not able to obtain insurance in the commercial market to protect them from catastrophe. There is simply no capacity in the market. In other words, we have the bizarre situation that professional men and women are being asked to take on a risk that the insurance market, with all its resources, deems to be unacceptable.
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