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Earl Russell: I beg the Minister's pardon. Four weeks is for the pilot schemes; however, I understand that when the Bill is operative the period might be extended to 26 weeks.

Baroness Hollis of Heigham: In which case regulations would have to be made and it would be for your Lordships to debate them, as it would be for another place.

I remind the Committee that employment-related sanctions and JSA already run for up to 26 weeks. We recognise that offenders with families may still decide to breach their sentence. For those receiving income support, which will include the majority of the most vulnerable people subject to these provisions, benefit will continue to be paid, albeit at a reduced rate, for the four-week period. In other words, we have in place a system of hardship payments broadly similar to that which has operated for many years in cases where employment-related sanctions are imposed. In extreme cases, to protect the position of dependants, payments of JSA, including hardship payments, may be split. If, for example, someone is vulnerable--responsible for a child, where the claimant or partner is disabled or pregnant, is a carer, has a chronic medical condition or has left care within the past three years--people do not have to wait a fortnight for the hardship payments; they can be paid immediately.

I was asked about the consequences and the evaluation of this policy. It is subject to a subsequent amendment, but perhaps I may comment briefly. The experience of the pilots will determine much better than can speculation to what extent our hopes or the concerns expressed by Members of the Committee are realised. I shall say more about that in relation to the next amendment.

The evaluation exercise will examine precisely the issues that have been raised, including crime levels, breaches, benefit claiming, jobseeking, as well as practical issues in relation to the different parties operating the sanction and the take-up of hardship provisions. We shall not extend the policy nation-wide before we have considered carefully the findings of the evaluation.

In conclusion, this is a measure concerned with the conditions attached to benefit. To describe it as an extension of benefit conditionality rather than as punishment that offends justice is not simply being sophistical; it is a genuine difference of perspective, concerned with justice between the majority of members of society who, through their taxes, contribute to the support of people on benefit and those who repeatedly break community sentences, to the disturbance, harassment and often real grief of the areas in which they live, yet who none the less expect to be supported even though they fail to meet their obligations and act with impunity.

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I urge Members of the Committee to understand where the Government are coming from. I ask the Committee to appreciate the weight that will be carried by the pilots to see whether our hopes or the concerns expressed are realised. In the understanding of where the Government are coming from--namely, that we think it right and appropriate to attach these conditions to benefit if a community sentence is breached--I commend these clauses to the Committee.

Lord Windlesham: I shall be brief. In our adversarial system it is never easy to get governments to change course. Once legislative proposals have been announced and publicised--especially if they are aimed at the general public--and have passed through the House of Commons, it is unrealistic to suppose that they will be readily abandoned or even amended.

It is the duty of this place to exercise some pressure and to bring to bear the weight of informed public opinion. Although a number of Government Back-Benchers spoke in support of the proposal, the debate was notable for the views of those with professional experience of dealing with offenders, sometimes a lifetime's experience, such as the noble Lord, Lord Christopher, on the Government Bench, the noble Baroness, Lady Stern, on the Cross-Benches, the noble Baroness, Lady Kennedy, on the Government Benches, and the noble Lord, Lord Dholakia, on the Liberal Democrat Benches. These are people who have given a large part of their working lives to dealing with offenders. Their comments were not put forward on the basis of assertion, or of party loyalty. It goes much deeper than that.

In replying, the noble Baroness gave a forthright defence. It was an able defence, as we have come to expect from her. But every part of the proposal was defended and justified without any indication of giving consideration as to how it might be changed in some respect.

Baroness Hollis of Heigham: I apologise for intervening after having spoken for so long. Will the noble Lord not accept my point about pilots and their full evaluation before the scheme is unrolled? Is it not appropriate to see whether the proposal works, and whether the noble Lord's fears are validated?

Lord Windlesham: I take that for granted. The pilot scheme was part of the blueprint from the start. That is not a concession. It was part of the original design, and thank goodness it was. We shall await the results of the pilot scheme with interest.

The noble Lords and I who put our names to the Motion do not intend to oppose the Question this evening that Clause 61 shall stand part of the Bill, nor the following clauses, Clauses 62 to 65. However, we shall certainly return to this matter again on Report. Unless the Government have a change of heart in the interval, the result may be very different.

Clause 61 agreed to.

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Baroness Amos: I beg to move that the House be now resumed. In moving this Motion, I suggest that the Committee stage begin again not before 8.59 p.m.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.

Companies Act 1985 (Audit Exemption) (Amendment) Regulations 2000

7.59 p.m.

Lord Sainsbury of Turville rose to move, That the draft regulations laid before the House on 3rd May be approved [18th Report from the Joint Committee].

The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. As noble Lords may recall, my right honourable friend the Secretary of State for Trade and Industry announced to the House on 4th April proposals to change the existing law on the audit of companies' accounts. We are here today to debate the regulations which will give effect to those proposals. These regulations are made under the powers in Section 257 of the Companies Act 1985. The purpose is threefold. First, they raise the threshold for audit exemption from its current level of £350,000 to £1 million. The Government are concerned that the regulations placed on business are not overly burdensome, particularly on small businesses. Hence the regulations that we are debating today reduce those burdens.

My right honourable friend made clear that the increase to £1 million is the first part of a two-step process. We were persuaded in the light of consultation that the balance of argument favoured moving the threshold for audit to the maximum turnover figure permitted under European rules; namely, £4.8 million. We made clear, however, that we wanted to move to this higher figure in the light of the proposals being developed by the independent Company Law Review. Specifically, the review is addressing whether some other less burdensome form of assurance might replace the full audit for companies with an annual turnover of between £1 million and £4.8 million. That is set out in the latest consultation document by the review, which was published in March. It is a question of weighing the costs and benefits of this "lighter" touch independent assurance. The Government have not taken a view on this as yet. The review will make its final recommendations to government in the spring of next year. We will then make a final decision.

Secondly, the regulations simplify the law relating to dormant companies; namely, those which are still on the register at Companies House but have no significant accounting transactions during a period. They dispense with the requirement that dormant companies must pass a special resolution to gain exemption from audit, but they allow 10 per cent or more of shareholders to require an audit. They allow certain payments required of all companies to be made to Companies House while retaining dormant status.

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Thirdly, they require a dormant company acting as an agent for a third party to disclose its agency status in its annual accounts. There is little doubt that these proposals will be warmly welcomed by the business community because they get rid of burdens and remove unnecessary irritations, but I emphasise that the changes reflect a careful assessment of the relative costs and benefits.

It may help if I provide a little explanation of how we reached our conclusions. I turn first to the increase in the threshold for audit exemption. The Companies Act 1967 introduced for the first time a requirement that all companies should not only file their accounts at Companies House but that those accounts should be accompanied by a report signed by a registered independent auditor. In the 1980s the then government on three occasions consulted on whether or not to keep the audit requirement for all companies. On each occasion it was decided to retain the status quo.

The first cautious step was taken in 1993 with the exemption of very small private companies from audit, while those with a turnover of between £90,000 and £350,000 were given the option of filing a simpler report in place of the full audit report. This regime was considered unsatisfactory and abolished in 1997 so that only companies with a turnover above £350,000 are subject to a full statutory audit. That is the present position.

We estimate that the increase in the threshold to £1 million will enable about another 150,000 companies to take advantage of exemption from audit. When my right honourable friend first proposed an increase, there were sharply differing estimates as to the cost of the statutory audit. For a company with a turnover at about the £1 million mark the cost ranged from £1,000 up to £5,000. The responses to the consultation suggest that the typical cost is around £1,200. Using that figure, our best estimate is that the potential savings for business are roughly £180 million in a full year. Some companies will, nevertheless, voluntarily continue to have their accounts audited; some will judge that they can make better use of specialist accountancy support; others may attach more importance to an overall reduction in their costs. The important point is that they will have the choice in the light of their own circumstances. The proposals do not change the existing safeguard for minority shareholders that 10 per cent of shareholders can require an audit.

I turn more briefly to the changes to dormant company status. Section 250 of the Companies Act 1985 draws a distinction between those companies that are actively trading and those that are not. Some 170,000 companies have dormant status--often they are incorporated to protect a company or brand name--whose only purpose is to own an asset such as the freehold of a building. Many dormant companies are within groups and would not otherwise be eligible for audit exemption. In March last year the Government published a consultative document on the legislative framework for dormant companies which set out proposals to reduce the costs involved in

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running a dormant company. A large majority of respondents agreed with the proposals for simplification of the law.

As to the proposals on "agent" companies, most respondents agreed that some action was needed to make it clear to a third party where a dormant company acted as an agent for another company. It is certainly legal to act in this way but it can be confusing or misleading to a third party. Just over half agreed with the proposal that companies acting as agents should be required to declare their agency status in annual reports.

I hope it is clear from what I have said that wide consultation on these proposals has led to a package of measures that are practical and appropriate, relieve unnecessary burdens on smaller companies and have the broad support of the business community. In accordance with the undertaking given by my noble and learned friend the Attorney-General in November last year, in my view the amendments to the Companies Act proposed in these regulations are compatible with the European Convention on Human Rights.

In our modern economy small companies are increasingly the vehicles for sustained economic growth and job creation. It is, therefore, vital that we reduce unnecessary burdens on these companies, and these regulations are a significant step in that direction. The regulations help to make an appropriate and equitable regulatory framework for business, and I commend them to the House.

Moved, That the draft regulations laid before the House on 3rd May be approved [18th Report from the Joint Committee].--(Lord Sainsbury of Turville.)

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