§ In the case of companies whose securities have been neither quoted nor offered to the public and which are not subsidiaries of companies whose securities have been quoted or offered to the public such companies may withhold from the information filed with the Registrar of Companies—
- (a) particulars of directors' emoluments as set out in section 6 and section 7 of this Act.
- (b) particulars of salaries of employees as set out in section 8 of this Act.
- (c) particulars of turnover as set out in section 17 of and Schedule 2 to this Act.
- (d) particulars of the average number of employees and their wages as set out in section 18 of this Act.
- (e) particulars of exports as set out in section 20 of this Act.—[Mr. Michael Shaw.]
§ Brought up, and read the First time.
§ 7.45 p.m.908
§ Mr. Speaker
We now come to a large group of Amendments that are being taken with the new Clause. I shall not read the numbers of the Amendments, because I think that all who are interested have them.
§ Mr. Shaw
From everyone's point of view the principles involved in the group of Amendments that we are discussing with the new Clause are the most important in the Bill. They are related to the question of disclosure by companies both to shareholders and to the public at large. This has been a matter for discussion over many years, but I think it important to bear in mind, because too often we hear criticism of limited companies, that the privilege of limited liability has been given to the companies over the years now for more than 100 years in varying forms for two purposes.
909 First, it has been given to assist companies to grow larger and acquire resources from further and further afield, aid to encourage people to invest in them without having to put at risk the whole of their fortune. Secondly, the purpose has been to encourage the growth of industry. I think that over the years the formation of limited liability companies has proved of tremendous benefit to the well-being of the country. Indeed, it is fair to say that we could not today support the sophisticated commercial and industrial life of the country were it not for the existence of limited liability companies.
Part I of the Bill, although it is headedAmendments of Law with respect to Companies generally",contains Clauses the majority of which relate to disclosure and the consequences of the amending of the law in that respect. As I said, the obligation is twofold. It is first to the shareholders. I believe that there is no real difference of opinion between the two sides of the House about the need for more information being given to the shareholders about the companies in which they have invested.
That this additional information should be, given was fully recognised in the Jenkins Report of May, 1962. But differences of opinion have arisen between us as to how much information should be disclosed to the public through the accounts and directors' reports that have to be filed with the Registrar of Companies. This is the real difference of opinion, although there are certain maters of general information about which we shall argue later as to whether they will assist either shareholders or the general public.
I believe that in assessing the information which is required under this part of the Bill—we seek in our Amendments to take these factors into account—we must look first at how much information is required for it to be of benefit to the people concerned. I believe that there is a very real danger of over-burdening companies with the necessity to provide information. Indeed, if too much unnecessary information is asked for it can undo some of the good done by the provision of the necessary information 910 because there will be so much of it that it will be more difficult to see the really important information.
Secondly, we must look carefully not only at the rights of the shareholders and creditors as to information, but also at the rights of the company itself, and consider whether the information will do harm to the company if it is disclosed. We believe in the general conclusions of the Jenkins Committee. We believe that it is desirable for more information to be disclosed to shareholders. We believe that this information should be available to the public through the filing of accounts with the Registrar of Companies.
We also believe that the Jenkins Committee was right when it came to the conclusion in paragraph 61 of its Report that, in filing this information for the benefit of the public,… some of the information now required by the Act (or to be required if our recommendations on accounts are accepted) is of much greater interest to shareholders and prospective shareholders than to creditors, and its omission from the copy of the accounts of small unquoted companies, required to be filed with the Registrar and therefore open to public inspection, might perhaps avoid some of the embarrassment without seriously reducing the value to creditors of the filed accounts.That is fulfilled in the Committee's recommendation in paragraph 352, which says:We recommend that companies whose securities have been neither quoted nor offered to the public and which are not subsidiaries of companies whose securities have been quoted or offered to the public should he permitted to withhold from accounts filed with the Registrar of Companies (but not from accounts circulated to their members and debenture holders)"—and we are all agreed in that—(i) the information now required by section 196 about the directors' emoluments; (ii) the details of turnover and rents receivable …Rents are no longer an issue.
The main theme of our Amendments is that we believe that Jenkins was right to make the chief differential that between the quoted company and the unquoted company, because there is a real differential. In other parts of the Bill, in several places we come across the differential being made between the quoted and the unquoted company, and I am certain that this is the proper classification which 911 should be made when we are discussing disclosure to the public at large.
§ Mr. Joel Barnett (Heywood and Royton)
Will the hon. Gentleman make clear whether it is the Opposition's view that, in the case of all companies, the balance sheet should be disclosed?
§ Mr. Shaw
Certainly. If the hon. Gentleman reads the Amendments, as I am sure he has, he will see that we agree that the balance sheet should be disclosed. Indeed, we might have a long argument about whether anything else need be disclosed, but that is not strictly relevant to the Amendments which we are considering.
As the Jenkins Committee reported, the difficulty lies in the fact that exemptions should be made in respect of small unquoted companies. In our long and usually friendly deliberations in Committee upstairs, the Minister of State placed much more emphasis on the word "small". On the other hand, we have placed all our emphasis on the word "unquoted". There, I believe, we come to the real difference between us.
I accept that the smaller the unquoted company the more harsh are the provisions for disclosure likely to be. Let me make it clear that one of the Amendments removes Clause 48 from the Bill. That Clause was introduced in the House of Lords from our side, and it is now proposed by the Government that it should be removed. We are perfectly happy with Clause 48 as it stands, and we should be very ready to leave it there, but we have good reason to believe that the Government will have their way and will remove it. As a result, we have to seek alternatives.
In new Clause No. 2, we have tried to find an Amendment which, as it were, brings Jenkins up to date by including certain other matters which in our view unquoted companies should not be required to disclose to the public at large. We believe that when companies are unquoted and when they do not seek capital from the general public, but find it from their own resources or through personal borrowings at the bank, the only real need in presenting their accounts to the Registrar each year is that of satisfying the legitimate needs of creditors as to their solvency.
912 That is the main criterion, and we believe that the matters which we have enumerated in our Clause—the particulars of directors' emoluments, the particulars of salaries of employees, the particulars of turnover, the particulars of the average number of employees, and the particulars of exports—should be omitted from the accounts of unquoted companies. I could take up these points individually at length, but there are other Amendments which deal with these points, and perhaps it would be of benefit if we discussed the general principles of the disclosure of those matters when we come to them on later Amendments.
That is our first alternative. Having had an indication from the right hon. Gentleman in the course of or Committee proceedings as to what were his likely exceptions in place of Clause 48, we knew that he was moving along the lines of excluding information about directors' emoluments if the total amount of directors' remuneration fell below a certain figure. We knew also that if total turnover was under a certain figure that, too, would be excepted from being included in the accounts filed with the Registrar.
I am bound to say that we were in considerable expectancy throughout the first half of our deliberations upstairs. We had been led to expect much from the right hon. Gentleman. We were told that the only reason why the Jenkins Committee had included classification of unquoted companies was because the Committee had not been able to define what we have now come to call the family company. The right hon. Gentleman told us that, although Jenkins could not do it, the Government would do it and that we should wait and see when it came.
When he produced those two exceptions, we felt thoroughly deflated. I expressed concern on the very first occasion that I heard his suggestions of the limits; namely, directors' salaries of £5,000 and turnover of £20,000. I found it difficult to understand how anyone with a knowledge of companies could imagine that those two limitations were realistic in the light of present day circumstances.
I am glad to say that the right hon. Gentleman has had second thoughts, and I hope that our deliberations assisted him. We put down Amendments along those lines giving him various alternatives. 913 First, we gave him the alternative about directors' total remuneration which we knew was looked upon favourably by certain trade organisations, namely, where a single director was earning less than £5,000, two directors, £7,500, and more, £10,000. On turnover, we also gave him the alternative of increasing his thoughts to £50,000 and £100,000.
I am glad that in both cases he has moved some way along the road to meet us and has plumped for the middle figure of £7,500 for directors' salaries and #.50,000 for turnover. Therefore, if the right hon. Gentleman gets his way, companies which are not holding companies or subsidiaries of other companies, provided that their directors remuneration does not exceed £7,500, will not be required to file the details of the directors' remuneration or the total remuneration. Similarly, if such a company has a turnover not exceeding 50,000 it will not have any obligation to file the details of turnover with the Registrar of Companies. However, all this information will still be required for the benefit of shareholders, and this we approve.
We have other Amendments to try and encourage the right hon. Gentleman. We had one very interesting Amendment upon which my hon. Friend the Member for Harrow, Central (Mr. Grant) will expound in due course. I should like to congratulate him on the tremendous amount of trouble and ingenuity to which he has obviously gone—something which no one else has been able to do—in preparing a classification of a family company. Were an Amendment on these lines to be accepted it would be of very material help to that type of company, and it is that type of company that we are anxious to help.
The remuneration of directors of a private family company is not a significant figure in itself. Time and time again when these family companies have their accounts prepared and finalised the last thing that is done is to examine the best tax advantage to be gained through the size of directors' remuneration. When tie profits have been arrived at the directors' remuneration is decided upon in the light of taxation levels and burdens and tie like. Directors' remuneration is not 914 only remuneration as such, but in these types of company it is very often a distribution of profits at the same time.
The matter of the turnover of the family company often applies in the case of single outlet retail shops. It makes these companies so vulnerable if the details of their turnover and sometimes the details of exports, as we explained in Committee, are disclosed, because their competitors are given very valuable information about the well being and size and profitability of their activity. That can be very embarrassing for that type of company. However, we shall hear more of that on further Amendments.
The one thing above all that disturbed us in Committee was the tendency running through the debate to shuffle off to a certain extent the reasons for giving all this information of these strictly commercial requirements on to an additional reason—the reason of Prices and Incomes policy. We believe that it is wrong to use the technique of a Companies Bill to provide statistical information for purposes other than the commercial needs of a company. There are many ways in which the Board of Trade can collect these statistics other than through the office of the Registrar of Companies.
This new reason that came at us on several occasions in our deliberations upstairs is a bad reason and we will continue to resist it throughout the passage of the Bill. We should view the requirements of disclosure both on the merits and the rights of outsiders to the company and also on the merits and rights of the company itself. It is, therefore, with complete conviction that I beg to move new Clause No. 2.
Mr. Gresham Cooke
I support what my hon. Friend has said. If the Minister of State will cast his mind back to the moment when he produced his formula for exclusion of small private companies at £20,000 a year turnover, he will recall that I at once said that was too small and that he would be criticised in the Press and by outside bodies. He was, in fact, taken to task by the Financial Times the next day, and then the professional bodies weighed in saying that £20,000 turnover—just about enough to keep a small sweetshop—was too small a limit.
915 I suggested that £100,000 was nearer the right figure and that he would be attaining the path of virtue if he went up to that amount. He has gone nearly halfway along the path of virtue—I am sorry that he has not gone the whole way—to exclude these family companies from what will be the very rigorous requirements of the Bill. The sum of £50,000 is not very large. There are a great many shops—sweetshops and grocers' shops—which have a turnover of £1,000 a week. One has only to stand in a bank and see the girl with the daily takings paying in £250 to realise that these little shops earn at least that amount of money, and sometimes considerably more. I think that £50,000 will prove too small a figure.
It is a bad thing to require disclosure of all these details from these small companies for two reasons. First, it makes them much more vulnerable to takeover from a big chain which has not disclosed the turnover of its own branch, but knows the turnover and details of the grocers' shop alongside it.
Secondly, I cannot help feeling that in small towns there will be busybodies—possibly the local Press—who will interest themselves in the turnover and salaries of small shops and make a habit perhaps of revealing these to the local public. That is not a good thing in the case of these family businesses. They should receive protection from public disclosure and this might fairly be achieved if the turnover figure was £100,000. I am sure that the onerous requirements of the Bill on these small businesses makes the risk of their being taken over by the big chains much greater because the turnover or the limit of protection is only £50,000 a year. I think that it should be higher.
§ Mr. A. G. F. Hall-Davis (Morecambe and Lonsdale)
As my hon. Friend the Member for Scarborough and Whitby (Mr. Michael Shaw) has said, coupled with the new Clause is a very wide group of Amendments and, because of the rules of order for this stage of the Bill, one must be careful not to omit to deal with the many matters which arise. I should like first to deal with the broader question of principle and then with some specific issues which arise from the 916 Government's policy which is embodied in some of the Amendments and which other Amendments seek to alter.
Two basic principles are involved in our approach to the issue of disclosure. The first is whether there should be a total abolition of any kind of exempt private company status and the second is whether disclosure is an absolute virtue in itself, or a means to an end. I believe that the views of the Standing Committee crystallised on this subject during our many discussions, which is not surprising, because we had 27 sittings in which to review the provisions of the Bill.
While the new Clause as drafted may not entirely meet the views of everyone who served on the Standing Committee, it would go a long way to meet the views of many people, and I suspect that there are not many hon. Members who would feel strongly if the Clause found its way into the Bill. It is dangerous to anticipate the views of hon. Members, but I would anticipate the views of the general public with considerably more confidence and say that if the new Clause were to be embodied in the Bill the general public would feel that the House had reached a sensible conclusion and had succeeded in balancing the various factors involved in deciding what was fair to the public in disclosure while avoiding the pitfall of prying into private affairs merely for the sake of idle curiosity.
In their proposals—and this is very important—the Government have recognised that the scale of operations of an undertaking is relevant to disclosure. This is a welcome flexibility. The Government have conceded that there should be exemptions in disclosure about directors' remuneration, which is covered by one of the Amendments, and about turnover when it is below certain levels.
The right hon. Gentleman may feel that it is a poor reward for this welcome flexibility on the part of the Government if, the Government having given way on a point of principle, I now use that as a ground, while pressing for an increased figure, to ask them to look again at the whole question of exempt categories, but it is important that they should do so, because they must recognise that the 917 nature of ownership is as relevant to some aspects of disclosure as is the scale of operations.
After those 27 sittings and after a little pause away from the Bill in sunnier and pleasanter pastures, I went back to the Jenkins Report, as did my hon. Friend the Member for Scarborough and Whitby. I believe that the Jenkins Report put the balance right in paragraph 61 and that in general terms there is a case for wider disclosure from those which enjoy limited company status, but that, equally, there is an extremely strong case for not pressing that to the ultimate limits when disclosure is of no conceivable benefit to the general public as a whole.
I believe that the filing of the balance s feet and the profit figure is relevant to the interests of the general public, but I cannot believe that the information which would be elicited by the new Clause—directors' emoluments, total remuneration of employees' salaries, turnover, the numbers of exports and salaries of employees—is relevant to the protection of the general public when there is no public shareholding, in the general sense of the expression, in a company.
The House will be pleased to know that I have finished dealing with the issue of principle, but our labours would be made worth while if the Government recognised the considerable consensus of opinion and provided something which would give wide satisfaction to the general public.
The Minister will not be surprised if I return to the question of turnover, as did my hon. Friend the Member for Twickenham (Mr. Gresham Cooke). In Amendment No. 140 my hon. Friends and I are seeking to amend the figure of turnover limit for disclosure purposes to £l00,000. The Government introduced a welcome approach when they split up the different categories of disclosure and sought a way out of their problem by fixing different levels for it. This to me was a new approach, a sort of unravelling of the Gordian Knot, and it has struck me that it could be applied to other legislation and other very important matters with general advantage.
Even so, there must be some balance in the general size of operations which the Government regard as qualifying for 918 non-disclosure. For instance, a limit for the disclosure of the remuneration of directors at £7,500 would not be entirely unreasonable—the company concerned would have to be an exempt company with a turnover of up to £100,000 unless all the employees were directors—and nor would an exemption limit of 100 employees for wages. At any rate, it would lean towards being a sizeable company. I cannot emphasise too strongly that the figure of £50,000 is minute in relation to the general operations of commerce and industry today.
If such a modest figure as £100,000 is unacceptable to the Government, I am driven to the conclusion that there is some factor in their thinking, some underlying motive in their policies, which they have not disclosed to the House. I do not believe that they are deliberately trying to expose the small single-unit business to a savaging by large multiple concerns, because I do not think that the right hon. Gentleman would lend his personal support to such a step.
There is very real apprehension among small businesses, which is mainly the result of a fear of what will happen, and I can see no reason why the Government cannot accept the figure of £100,000 for turnover. It has been suggested that it will be necessary to amend this Bill very frequently. We have heard enough about the second Bill, and there will be sufficient in that without having to amend this one.
The general scale of business operations is increasing across the whole range of our economy. It is the Government's intention and policy to bring this about. Therefore, £100,000 will shrink in relation to the general size of activity in the years ahead. Secondly, a sadder point on which to end, the value of money is still falling. There has been a 10 per cent. increase in retail prices since the present Government came into office, so that £100,000 in 1964 would have shrunk to £90,000 now. It would be a bold man who would prophesy what is the political future. I hope that the Government will not be afraid to consider the principles involved in this new Clause and at least, in relation to the general turnover, will think once more and step up the figure to £100,000.
§ Mr. Barnett
I hope that hon. Members will forgive me for joining in this 919 debate although, unfortunately. I was not able to take part in the debates in Committee, because I was busy on the Finance Bill at the time. The point of my intervention in the speech of the hon. Member for Scarborough and Whitby (Mr. Michael Shaw) was to clarify the point about the attitude of the Official Opposition on the question of the disclosure of balance sheet. It seems that there has been, both in this House and Committee, and elsewhere, a certain fostering of fear in the minds of small family businesses that this Government are a sort of ogre doing dreadful things to small family companies. This is the general attitude of the Opposition and of the Liberal Party. I am surprised to note that in spite of its concern for the family companies the Liberal Bench is empty.
Some of the remarks made just now are an indication of something not far from a squalid political manoeuvre, implying that this Government somehow or other have something terrible in mind for the public concern. The hon. Member for Scarborough and Whitby must know that far more onerous for the small family company is the disclosure of the balance sheet. All the other matters are much less important than this to his next-door neighbour. Yet the hon. Gentleman accepted that this was the official Opposition view. I noted from the shaking of heads that some of his hon. Friends did not entirely agree. I cannot help feeling that it is a little shabby and dishonest to suggest that the Government are in some way hunting family businesses.
For one thing they know and we know that no small one-man business need suffer in any way. It either need not be a company or it can become unlimited under the terms of the Bill. If there is to be a privilege or limited liability, then there has to be, as has been said on many occasions, an obligation on that company.
As I said on Second Reading, that does not mean that I am in favour of information for information's sake. I am not. Even if there is an obligation, it may be that we do not need that obligation, in which case we should not have it. Some of the examples given in Committee, from my reading of the debates, showed a singular lack of knowledge of the real 920 effects of this disclosure and how it would discriminate against the small company. For example, we were told of the great dangers of a takeover for the small shopkeeper with the single shop. It has to be borne in mind that he has no need to sell anyway because he owns it 100 per cent. To think that the disclosure of turnover would of itself give information to multiple groups of stores which they did not already have or could not easily obtain, is a little naive.
§ Mr. Hall-Davis
When the hon. Gentleman refers to the risk of takeover, he is entirely misinterpreting the dangers to which the small business would be exposed. The danger that I foresee is that it would be destroyed profit-wise by pressure applied by a larger concern, without any suggestion of take-over, but by cut-price methods, and by a deliberate approach to customers. In this way a company that has disclosed a turnover in excess of what was expected by its competitors would be faced with very severe competition.
§ Mr. Barnett
This is stretching the imagination very much indeed. We were told by the hon. Member for Twickenham (Mr. Gresham Cooke) of the small shopkeeper going with his hundreds of £s every week to the bank. I can assure him that if he comes to my constituency the owners of small local grocery and sweet and tobacconist shops are not taking £500 a week, or £50,000 a year. They are taking very much less than that. To suggest for one moment that anyone interested in so harming that single shop as to make it vulnerable for a takeover, to suggest that a chain of stores would not be able to do it without this, is, I still suggest, a little naive.
There were some other odd reasons given in Committee. We were told that for tax purposes it would be harmful to revert to the partnership. This is, after all, what we heard throughout the 1965 Finance Bill debates and in 1966 and 1967, about the terrible penalties that we were inflicting upon the small family business by the close company provisions. Now we are told that it is a terrible hardship for them to revert to being a partnership. The type of small family business, which is a limited company, does not leave any profits in the company anyway, because, as was said, it is allocated as directors' salaries.
§ Mr. Stainton
The hon. Member has obviously overlooked the implications of the Capital Gains Tax and revaluation of assets on reversion of the company from one state to another.
§ Mr. Barnett
I was coming to that point. It was interesting to note in the Committee debates that the hon. Gentleman, a man with experience in these matters, was totally at variance with his colleagues. I take it that my point is taken on the question of Corporation Tax.
§ Mr. Corfield
Would the hon. Gentleman be good enough to give us a reference, because I have no recollection of mat point?
§ Mr. Barnett
If the hon. Member would care to look at a number of the speeches made he will see this. For example, in the speech of the hon. Member for St. Ives (Mr. Nott) he will see that reference was made to this question of the difficulties of reverting to partnership. I want to return to the question of capital gains and this great danger of enormous capital gains to the small family company if it reverts from being a company to a partnership. It is possible that the one-man business would have some Capital Gains Tax if it reverted in that way, although it still has the option to be an unlimited company under the provisions of this Bill, and it would not have any Capital Gains Tax liability.
Even if it did not do that and wanted to revert to being a partnership, we are not very far from April, 1965, the important date for the purposes of Capital Gains Tax. Bearing in mind that the only Capital Gains Tax would be on the difference of the value of particular fixed assets as between April 1965 and the date of conversion to partnership, I would be very surprised if the Capital Gains Tax penalties would be as enormous as has been suggested. We have been told about the dangers of Estate Duty if they revert to being a partnership. One thing which this indicates is how valuable it is to be a limited company. But my experience is that in respect of small family companies the Inland Revenue invariably insists on a net asset value for Estate Duty purposes.
Those are some of the major reasons we have been given as to why there is 922 serious discrimination against family companies. I suggest that no such serious discrimination exists. However, there are nearly 400,000 private companies and I accept that in the great majority of cases there would be no advantage in having publication of anything, including the balance sheet, especially in the case of the husband and wife company which holds its annual general meeting in bed at night.
§ Mr. Barnett
This particular auditor is not present. Perhaps the hon. Gentlement will enlighten us about the position in his own firm.
If we are to have the privilege of limited liability, there is some onus on the small company—and, indeed the Opposition accept this—to publish something, particularly the balance sheet, which is a rather important change in the provisions on company law. The hon. Member for Sudbury and Woodbridge (Mr. Stainton) made some of the most interesting contributions on this point in Committee. Clearly, he spoke from great experience and he differed widely from his colleagues about the advantage to a creditor of having this information.
It would be particularly valuable to a creditor to have it not simply because he will know 18 months later what the position of the company he was selling to was, but before he sells to it it is important to know the position and by this disclosure many small companies who abuse limited liability very considerably by trading when insolvent or nearly insolvent will not wish thereafter to trade in such a position. Disclosure would do no harm at all. In fact, it would be quite beneficial.
But that is an entirely different matter from disclosing all the information given in a profit and loss account. In the case of the great majority of the 400,000 small companies, such information would be of very little, if any, interest to anybody. But equally no harm would be done. However, I wish only information of value to be discolsed. It should not be disclosed simply for its own sake.
The problem is one of definition. It bothered many in Committee to try to find the best definition to give exemption for some disclosure. I would take the point 923 that the hon. Member for Morecambe and Lonsdale (Mr. Hall-Davis) made and I would go for turnover of about £100,000 a year. That would mean that information disclosed in the profit and loss account of a company with such a turnover would be of very little value to anybody.
Some misunderstanding may arise from the rather unfair criticism of hon. Members opposite about our views on small family companies. While I do not think that this is an ideal solution, I would exempt all information, not just parts of it, given in the profit and loss account of companies of the sort which come within the definition in new Clause No. 2 and which have a turnover of less than £100,000 a year. In one or two cases the information disclosed might be of some value, but in the great majority of cases it would alleviate very considerably the extent of the administrative problem without doing any harm from the point of view of economic or financial information which might otherwise be available to the companies. I suggest to my right hon. Friend that that way might give us the best of all worlds, and I hope that he will accept that sort of suggestion.
§ Mr. Airey Neave (Abingdon)
I gather that the hon. Member for Heywood and Royton (Mr. Barnett) has come round about two-thirds to our point of view. The trouble is that the concessions that the right hon. Gentleman has made in Amendments Nos. 157 and 159, 291 and 297, raising the limit to £50,000 and the directors' salary limit, do not go to the root of the matter.
We are talking about why it is necessary for unquoted companies to disclose the items contained in new Clause No. 2 and there are wider problems in the other Amendments. I gather that the hon. Member for Heywood and Royton does not think that the items contained in new Clause No. 2 are necessary. I do not think that they are necessary in any way for an unquoted company, because there must be a basic principle of disclosure unless we are to have disclosure for disclosure's sake, which is not the wish of the House.
Shareholders have certain responsibilities and interests with regard to a company. In the case of an unquoted company, that does not apply. Is it 924 really necessary for the items in new Clause No. 2, therefore, to be sought out by other persons such as banks or trade creditors? We discussed this in Committee. That kind of information can be obtained locally—for example, in small country towns; I instance Abingdon, in my constituency—because many companies have shops of the type which we have been discussing. Is it really necessary for someone to have to go to Companies House to find these things out?
This is a practical matter for small companies. It has not been established that these items are essential in the public interest. The principle on which we should work is the Jenkins' principle of the interest of the shareholders. Unless we come down to a basic principle, we will get disclosure for other and far too wide reasons which have not been fully explained.
I do not know whether the Government have in mind other reasons for disclosure than they told us in Committee. There have been suggestions that the incomes policy is involved. Will the right hon. Gentleman confirm or deny that? So far, he has not established a case for making unquoted companies provide the kind of information which is specified in new Clause No. 2.
I would like the turnover limit to be raised to £100,000. My hon. Friend the Member for Morecambe and Lonsdale (Mr. Hall-Davis) was quite right about this and I hope that the Minister of State will concede the point. I think that the hon. Member for Heywood and Royton would agree with that, too. It would be a reasonable figure.
We are trying to legislate in the case of large companies for disclosure where it is absolutely necessary in the interests of shareholders, and, possibly, in wider interests, too, in the same way as for small companies. I do not think that that is possible, as I do not think that it is possible to legislate for quoted companies in the same way as for unquoted companies. There is confusion of thought behind all this and it could lead to great disadvantages to the small companies whose shares are not quoted.
For that reason, I hope that the Minister of State will give serious consideration especially to raising the turnover limit to £100,000.
§ Mr. Robert Sheldon (Ashton-under-Lyne)
The hon. Member for Scarborough and Whitby (Mr. Michael Shaw) said that we would be bringing Jenkins up to date, but in his observations it seemed he was being rather selective about which part of Jenkins he wanted t o bring up to date. For myself, I accept the argument used by Jenkins on disclosure of turnover. It was not really an argument at all, but rather was a view expressed. This was in paragraph 351, where it was stated thatpublic disclosure by some small companies might be embarrassing to them".This is no more than a view or an opinion.
In the period intervening between the publication of that Report and now there has come a need to bring that view—not an argument—up to date. I believe that the need for disclosure is much more widely understood and accepted today than it was when that Report was published.
§ Mr. Michael Shaw
Surely the hon. Member regards it as much more selective to quote a view and not to quote the actual recommendation of Jenkins?
§ Mr. Sheldon
I was quoting the reason for the recommendation, which is surely much more important. The recommendation stemmed from that view, and I was quoting that view, and thus quoting the source of the recommendation.
The hon. Member for Morecambe and Lansdale (Mr. Hall-Davis) wanted to make sure that we did not attempt to pry into the private affairs of companies. I myself do not think that a company is an extension of the individual. There comes a fundamental change at the moment when an individual starts employing others, and at the moment when the individual says that if his enterprise fails he will not be liable for the debts of that enterprise, and as soon as that transition is made, from the individual to the company, rather different rules then have to apply. Most important of all, one must accept that the affairs of that company, because of the great privileges it has secured in the process of transition from an individual to a company must be subject to much closer scrutiny than when it was an individual trading.
Naturally, on these matters one has to end up not with a real, solid argument 926 which hon. Members would like, but by making one's own judgment how far ahead of public opinion one can really go, and here we must accept that custom has some sort of rôle. But the most important reason for the extension of disclosure is not only the need for creditors to know what is going on, for people lending money to know what is going on, but for the public as a whole to know what is going on in the private field.
The coy and bashful attitudes which have been prevalent in the past may not be quite so prevalent in the future. We all know the position of civil servants and Members of Parliament. Industry, which previously operated largely in secret behind shuttered windows, is now becoming much more accessible, much more widely understood. I think that this is a move in the right direction.
It is hard to know at what speed one may proceed in such a way. I would prefer to go a little faster than my hon. Friend, but I think the move must be in this direction, must be towards greater disclosure, so that the public can be informed of what is going on, and be rightly informed. I believe that when this is known the time will come when it will be accepted much more readily than hon. Members suggest.
§ Mr. Barnett
Will my hon. Friend tell me what particular advantage it is to the public, in the case of a very small company, to know these sorts of things?
§ Mr. Sheldon
At present, many people have some very misleading impressions of what goes on in private industry and small firms—in particular, the dreams of high fortune which prompt so many people to take shops of one kind and another, and those dreams might well be dispelled to the benefit of those people who would be taking on those businesses, and others in a similar position.
I think that disclosure in itself is good, and that those who dispute it need to make their arguments much more convincingly than they have done so far.
§ 8.45 p.m.
§ Mr. Burden
If the hon. Gentleman's argument is right that the public should know, surely the Government should apply it to every company and not if only there is a high turnover. Surely that would be ridiculous.
§ Mr. Sheldon
The hon. Gentleman has not understood what I was saying. What I had in mind was the figure of £25,000. This embodies the difference between myself and my hon. Friend the Member for Heywood and Royton, on the one side, and my right hon. Friend, on the other. I am somewhere even lower than both of them.
§ Mr. Grant
The House has enjoyed the Mr. Bones and Mr. Jones dialogue that we have listened to, as we always enjoy the contributions of the hon. Member for Ashton-under-Lyne (Mr. Sheldon) and the hon. Member for Heywood and Royton (Mr. Barnett). But they revealed two things, perhaps in a Freudian manner. The hon. Member for Heywood and Royton confirmed, if it ever needed confirming, the animosity towards small companies on the benches opposite, because he showed uncharacteristic venom against them.
§ Mr. Grant
No. It was rather the way in which the hon. Gentleman said it that was uncharacteristic. However, we must not attribute too much to each other. The disclosure point on which he diverged from the Minister of State was more interesting. I found myself much more in sympathy with him than with the hon. Member for Ashton-under-Lyne.
We agreed that, generally, there was need for more disclosure of the affairs of companies. There need be no doubt about that. I have argued it for many years, particularly in relation to some of the scandals which have taken place among large public companies. But disclosure is not an absolute virtue in itself, as the hon. Member for Ashton-under-Lyne seems to think. Some disclosure is good, but some of it is irrelevant and troublesome at best and at worst is sheer nosey-parkerism. I got the impression of nosey-parkerism from the hon. Member for Ashton-under-Lyne, who seems to want to know all about private companies just for the sake of knowing about them. What will he do with that information when he has it?
§ Mr. Sheldon
The point I was making was that those who want to create secrets and maintain them need to justify it.
§ Mr. Grant
I am reminded of the official of the War Office whom my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) has told the House about. At the height of the battle of Cassino, when my right hon. Friend was on the staff, he received a requisition from a War Office official asking him to supply a return of the number of members of the Women's Services under his command who were suffering from chilblains. He made up a fictitious figure, sent it back and never heard another word about it.
A lot of the information to be supplied by companies will be lost in dusty corners of Companies House. It is necessary to preserve a distinction between private and public companies. Letters and representations from my constituents and others show that there is more anxiety about small private companies on this matter than on anything else in the Bill. Indeed, the Government themselves were so uneasy about it that they invited us to make researches into ways out of the dilemma involving disclosure.
We were all to search for a new animal. I support the animal created by my hon. Friend the Member for Scarborough and Whitby (Mr. Michael Shaw), following Jenkins. I find attractions in this strange cross-breed animal produced by the hon. Member for Heywood and Royton and my hon. Friend the Member for Scarborough and Whitby. But in my researches I sought a much smaller animal—very small indeed and embodied in Amendment No. 1 and the Schedule that goes with it. It is so small that it is almost an insect. There is a very great number of these "animals". They are the small family companies which I have sought to define. The definition of this animal is a company whose directors and owners are the same people and none of the shares are held by nominees. As a concession to what went on in Committee, the members are limited in number to 10 and the assets do not exceed the liabilities by more than £50,000.
929 I am sure that there is a case to be made for preserving the old exemptions under the company law for a very small family business of this nature. There are only two possible reasons for disclosure of the balance sheet to the outside public. The hon. Member for Ashton-under-Lyne wanted to add a third because he was nosey. There are only two main reasons. One is to protect the creditors and the other is to protect the shareholders. This cannot apply to the shareholders, because in the kind of company I have defined the shareholders are members of the same family, or of a very small group. They will get the balance sheet anyway, by virtue of the law as it stands.
For creditors, there is more of a problem. I know that it is the anxiety of many people that perhaps the very small companies do cause a number of bad debts. I speak from experience, having often professionally collected some of those debts. This is greatly exaggerated. The amount of bad debts forms a small proportion in the major firms and businesses with whom I have dealt. Here, I am perhaps cocking a snook at my hon. Friend the Member far Sudbury and Woodbridge (Mr. Stainton). I do not believe that if one could go to Bush House and look up the balance sheet of the small company I have described, one would do so, because life is short and business is so harsh.
§ Mr. Burden
Is it not a fact that bad debts are often brought about by economic circumstances and that there is a growth of bad debts at the moment because of the circumstances inflicted on tie business community by the economic policy of the Government?
§ Mr. Grant
That is patent to us all, but I am grateful to my hon. Friend for reminding us of it.
If a great deal of benefit is to be gained in prudent business, most of the information can be obtained through inquiries from available sources. I do not believe twat there is a strong case on the ground a creditors and there is no case from the points of view I have described.
Unless we succeed in the new Clauses, as a result of the Bill a vast amount of energy will be expended by small companies, small men who ought to be getting 930 on with the job. This in itself is damaging. Much unnecessary information will be acquired. In spite of what was said by the hon. Member for Heywood and Royton, I believe that there is a danger to small companies from disclosure of the balance sheet. I am not suggesting that they will be swept away entirely or that giant corporations will take over every street-corner sweet shop. But on a lower level it can be damaging, as I know from my professional experience, as a result of the acquisition of information which would not otherwise be available.
I believe that the case for some form of exemption has been made overwhelmingly and I hope that my hon. Friends will carry at least two of our alternative proposals to Divisions.
§ Mr. Bernard Weatherill (Croydon, North-East)
I hope that I may be forgiven for intervening briefly in the debate. Like my hon. Friend the Member for Heywood and Royton (Mr. Barnett)—he is my hon. Friend; I often walk home with him at night—I was not a member of the Standing Committee. But the House knows that I have a particular interest in small companies, and I should like to make a brief contribution.
The hon. Member for Heywood and Royton said that small businessmen were unjustifiably fearful of the Government's attitude towards them. I think that they have every reason to be fearful. Does he suggest that the close company provisions of the 1965 Finance Act give small companies any confidence? As I have said, we often walk home together, and we discuss these matters, and I very much admire the way in which he seems to have information as to how to get round these difficulties. But the fact is that the Finance Act, 1965, was, I believe, intended to ensure in the long-term the break-up of the small family company.
§ Mr. Barnett
The hon. Member will surely recognise that small close companies—trading companies, as opposed to investment companies and finance companies—gain from the close company provisions and Corporation Tax under that Finance Act.
§ Mr. Weatherill
I ought to disclose an interest in this matter in that I run a close company, and I see nothing in the 931 close company provisions by which I gain anything at all. It seems to me that this Bill is intended further to accelerate the process of breaking up the small family businesses.
On Second Reading, much emphasis was placed on the amount of disclosure which American companies have to make without any apparent harm to themselves, but that information was not true. Indeed, it is nonsense. Very much more information is required from bigger quoted companies in America but small unquoted companies in America, I understand, need not file their accounts at all.
I ask the President of the Board of Trade or the Minister of State to tell me why he seeks to get private limited companies to supply all this information. I fully accept that a big quoted public company has an absolute duty to tell its participators all about its affairs. That is not in dispute. But what is very much a matter of dispute, and what new Clause No. 2 is about is the amount of disclosure which a small private limited company has to make under the Bill. I believe that there are a number of great dangers. For example, take turnover. Despite what the hon. Member said, this must be an obvious danger when a one-shop business has to disclose its turnover whereas its direct competitors, the branches of chain stores, need not disclose their individual turnovers. This will only forearm their competitors and will be a severe disadvantage to the one-shop business.
As to salaries, this, too, will be a highly embarrassing matter. The Minister of State knows that nearly every thriving small business has a number of highly-skilled, specialised, valuable men, on its staff. If one is obliged to disclose theirturnover—I meant to say "salaries"; two nights and three days take their toll!—the competitors of such a firm, if they want to, are able to look at the information and try to tempt these key men away.
On the subject of exports, the point needs to be made that many companies are engaged in export trade in a hidden way. Any shop which sells to foreign visitors over the counter is carrying on 932 an export trade. Again, many firms that do not do a direct exporting business are performing a very useful function in keeping out imports. This point needs to be underlined.
Then, again, many companies make components which go into the major products which are exported. An obvious example is the motor car industry. Therefore, I do not see that this provision relating to the disclosure of exports will do anything to give security to the investors or creditors. It seems to me to be quite an irrelevant provision. Not only that; I think that it is potentially very harmful indeed.
I expect that a number of hon. Members have seen the splendid annual report by the Chairman of Butterworth & Co. Ltd., in which he says:Thanks to the new Companies Act, U.S.A. publishers will now be enabled to learn far more about their U.K. competitors than they can learn about those in their own country. No wonder the present Government is acceptable to Washington.Some years ago I was unwise enough to attend the annual general meeting of a small company in which my wife had been left some shares. I asked some questions and was put on the board that same evening. It did not take me long to find out exactly what had gone wrong. It was simply that something like 90 per cent. of that firm's turnover went to one very large customer, and it was not the firm that worked out the price; it was the customer who dictated it. I think that this is likely to happen in the case of these export figures. If a company is exporting to one single market, it is hound to forearm its foreign competitors.
Unless the House accepts this Clause this will be a further nail in the coffin of small businesses. I cannot see that to provide all this information will do any good at all. It will, on the other hand, do a very great deal of harm.
As I say, I did not have the good fortune to be appointed to the Standing Committee, so I merely wanted to make these few points tonight. What is really wrong with business and, indeed, with the country today, is the sheer weight of overheads. Speaking as the proprietor of a small company, I should like to stress the amount of work that we already do for the Government—P.A.Y.E., the collection 933 of Purchase Tax, annual returns, and the like.
No one minds filling in forms which will be useful, but, so far as I can see, the effect of the Bill, apart from the dangers which I have already outlined, will be simply to add further to the sheer weight of paper with which those of us who run these companies now have to concern ourselves.
I agree very much with what was said by my hon. Friend the Member for Harrow, Central (Mr. Grant). What we want to do is to get on with the job, and be left alone to get on with it. No one in a business objects to fair competition, and I take my stand firmly on the premise t rat, if a man cannot make a profit, he should not be in business. But the great danger of the Bill is that it will cause unfair competition in that it will arm our competitors.
For this reason, I hope that the House will accept the new Clause.
§ Mr. Burden
I also had the misfortune not to serve on the Standing Committee, though, when I learn how many sittings there were, my disappointment is somewhat muted.
The debate on this new Clause has been remarkable for one feature which seems to run through most of our debates nowadays, that is, the number of times hon. Members opposite disagree with their own Front Bench on various matters, sometimes on quite broad issues. It is not altogether surprising to find the hon. Members for Heywood and Royton (Mr Barnett) and for Ashtonunder-Lyne (Mr. Sheldon) differing to a considerable extent from their Front Bench on this issue. We are becoming accustomed to it, and I begin to wonder when, if ever, we shall see a united party opposite taking a unanimous view on any subject.
I hope that the Government will accept the new Clause. All of us who are in business know that directors of public companies are the custodians of the shareholders' business. It is not their business. It is the shareholders' business, and the directors run the company on behalf of the shareholders. I welcome any measure designed to provide slareholders with more information. In recent years, we have seen the need in 934 some areas for a tightening of the company law as it applies to public companies. I see nothing wrong in that. But I cannot see how the information required of private companies by the Government is either necessary or desirable.
Some hon. Gentlemen opposite say that it is necessary in order that creditors may know what is going on. Believe me, I like to know what is going on in any company to which my company supplies goods before we start supplying the goods. I see no benefit in being provided with their yearly accounts when there are already adequate services available to s how whether a company's credit rating is satisfactory. There are in existence companies specifically established to make inquiries and give information about the credit rating of any type of company. Moreover, those of us who are in business, when we wish to open trading with another company, ask for trade references, including bank references, and the information is available to us. We do not need all the rigmarole which the Board of Trade is now demanding. If the accounts are already on our books we watch how the companies make their payments, watch their position and regulate the credit we give accordingly.
Why is the sum of £50,000 proposed? It is very small. The hon. Member for Heywood and Royton said that in his constituency very few companies like tobacconists, newsagents, sweet shops and so on had a turnover of £50,000. But I know that in many parts of the country many such companies have this turnover, and some have more.
We want to get the whole question into perspective. I do not think that the information will be particularly helpful anyway, and I do not know what it is designed to provide in the case of private limited companies. But if the Government are adamant and determined to call for it I believe that a turnover of £100,000 is the minimum that they should set their sights at.
In any case, we must ask the right hon. Gentleman to tell us why the information is required. To what purpose will it be put? In what way will it assist the Board of Trade? How will it help the country? In what way will it 935 help other traders to obtain information that is not already available to them?
I ask the right hon. Gentleman, in assessing the value of the information, to recall the activities about three or four years ago of a very efficient company—Marks and Spencer. The directors called for every bit of paper circulated through the company, looked at it and asked themselves whether it provided information of any value. As a result, they abolished a great deal of the "bumph" that had been floating through the company, was costing a great deal of money, and, far from improving efficiency, was making for inefficiency.
I hope that before requesting information from companies and all sorts of people the right hon. Gentleman, the Board of Trade and Government Departments in general will in future first ask themselves what useful information will be provided, to what good purpose it can be put, and whether the cost of obtaining it will far outweigh the benefits.
If the right hon. Gentleman's and the Government's intention is carried out, and Bush House is flooded with great files of information, how many more civil servants will be required there to move the information around, in case somebody might want to see it at some time?
§ 9.15 p.m.
§ Mr. Stainton
We have had a very full debate on this matter, and in Committee we had an even fuller discussion of the principles involved. As I incurred a certain amount of opprobrium—I might almost say "odium"—from my hon. Friends for the stand I took in support of the Government on the abolition of exempt companies, leaving open the question of where the dividing line should come in future, perhaps it is appropriate that I should say a word or two at this point.
I should especially like to record my extreme pleasure about the view expressed by my hon. Friend the Member for Scarborough and Whitby (Mr. Michael Shaw) and his joy that balance sheets and profit and loss accounts should now be filed by all companies. I do not recall that that sentiment prevailed at all notably in Committee, but I am very happy to hear it now.
The Government and anybody who looks at the problem are faced with a 936 very considerable dilemma. It is agreed that we must have more disclosure. The only problem—it is a substantial one is precisely where to draw the line. There are a number of parties involved in this situation—shareholders, creditors, employees—they have not been mentioned so far tonight, but they have a distinct interest in the matter—and the Government. I cannot see, certainly in principle, why the Government, if they can show good cause, should not glean policy-making statistics from information such as this. That is not to give them carte blanche to weigh down all proposed operations with futile questionnaires, but, in principle, I would accept and urge this step.
It is a red herring to concentrate too much on new Clause No. 2—the unquoted as opposed to the quoted company—because they will be let out by the net sum of the measure. There are a number of such industrial enterprises in the country, few admittedly. We could all quote names. For instance, there is Pilkington Glass. These exist. I will not extend the list because the position is known and accepted. Therefore, the differential between quoted and unquoted is highly misleading.
Looking through paragraphs (a) to (e) of new Clause No. 2 one can pinpoint the situation. With regard to the disclosure of directors' emoluments, there is an Amendment to exempt them up to a total of £7,500, and so that takes out the vast majority of small companies. The next paragraph concerns particulars of employees as set out in Clause 8. That starts at £10,000, and I should have thought that that would let out a subsantial number of companies about which my colleagues and other hon. Members appear to be concerned.
Then we have particulars of turnover as set out in Clause 17 and Schedule 2. To repeat what I observed in Committee, the profit and loss account is now to be filed apparently with the blessing of all sides of the House. Easily from that and from the balance sheet with the figures of debtors and creditors one can reasonably reduce the turnover figure without much doubt, and if one adds a little native wit and observation, I do not think that the band of statistical error will be very substantial.
937 The next paragraph concerns particulars of the average number of employees and their wages as set out in Clause 18. Numbers up to 100 do not apply. Here again, we let out a very substantial number.
Finally, we have particulars of exports as set out in Clause 20. The break point there is £50,000. There is a curiosity here in that one would have thought that there would be a theme running through the exemption limits. Relating £50,000 to 100 employees, one gets a gross output per annum of £500 per employee. If one relates it to the £7,500 directors' fees and the £10,000 break point for the disclosure of salaries of employees, one comes, I think, to the point that perhaps the £50,000 is too low. I would not go on record as saying that it ought to be £100,000, but there are a number of straws in the wind that the Government should heed.
I think that they are on the right lines, but I would not go so far as to say that they have it completely right. However, I concede that this is a complicated and tricky point, and perhaps one will have to wait and see how it evolves over the course of the next two or three years.
Finally, I wish to make a point in substantial contradiction of what I have been saying. I have been arguing so far in terms of the provisions in the abstract. I should like now to relate these provisions to the burden falling on companies. In his talk about working for the Government and collecting P.A.Y.E., my hon. Friend the Member for Croydon, North-East (Mr. Weatherill) sounded rather like a sub-postmaster rehearsing a speech for his association's annual conference, where one hears that kind of statement made. Nevertheless, the increased burden falling on companies at present is very substantial.
During the past two or three weeks, I have been looking at questionnaires from the Regional Planning Council in East Anglia, from "Little Neddies", from port authorities trying to determine the flow of traffic in exports and imports, and so on. All these make for a considerably added burden. I do not want to make loose political capital out of this. It is a fact of life.
938 I was talking to members of a firm of chartered accountants last week and asking them what they intend to do to advise their clients about the Companies Act when it passes into law. They are compiling a booklet, which has already reached 50 pages, as a child's guide to the Act telling their clients what to do. To say that this is a disastrous state of affairs would be to use dramatic and inappropriate language, but it is by no means a desirable state of affairs to add to the mountain of work on the shoulders of already overburdened companies. If the right hon. Gentleman wishes to retain the good will much less the friendship of the company world, he will have to hasten very slowly.
§ Mr. Darling
I was very pleased that the hon. Member for Sudbury and Woodbridge (Mr. Stainton) managed to get in at this last stage of a very interesting debate, because he helped to sustain me in Committee when we were discussing these problems, and I knew that he would not let me down now.
He is quite right. The real issue here is where one draws the line between the necessary disclosure of information which should be available for the benefit of shareholders, for potential shareholders, for investors and creditors, and for employees, and the unnecessary information which does not produce any good at all, as my hon. Friend the Member for Heywood and Royton (Mr. Barnett) pointed out. It might be completely useless.
Naturally we gave a good deal of thought to this and came to the conclusion that the best thing to do, seeing that we were all agreed about this closing information which was set out first of alt in the Jenkins Report and then in this Bill, was to draw the line and exempt for quite good reasons the very small companies. This immediately raises other problems such as the definition of a small company, but I will come to that in a moment.
The hon. Member for Gillingham (Mr. Burden) will be in extreme difficulty with some of his hon. Friends' new Clauses which will be coming up before long if he makes such a sweeping approach and says that none of the information which we are asking to be disclosed and which his hon. Friends are to ask to be disclosed—
§ Mr. Burden rose—
§ Mr. Darling
No. It was a crack. We approach this by saying that it is the small company which should be exempt. The hon. Member for Scarborough and Whitby (Mr. Michael Shaw), who opened the debate with a very moderate and well-reasoned speech, picked up the point which I tried to make in Committee, which was to say, "Please do not refer to what Jenkins says about quoted and unquoted companies if you slip over the word 'small', which is the word underlined both in paragraph 61 and in paragraph 351". In paragraph 61,… its omission from the copy of the accounts of small unquoted companies …",and in paragraph 351,… public disclosure by some small companies …".The emphasis in the Jenkins Report is on "small" and the emphasis of our approach to the problem is on "small companies". Now we are in difficulties. The Cohen Committee was in difficulties and the Jenkins Committee was in difficulties. Both failed to define a small company for this purpose. It is suggested that instead of trying to find a suitable definition for a small company in order to put the de minimis rule in, we should take unquoted companies and allow all unquoted companies to get away with no disclosure. We cannot accept that, because it gets away from the idea of smallness. Many of these unquoted companies, as has been rightly pointed out, are large companies and, in our view, although the shareholders' interests are quite different, the interests of the creditors and the employees are just as strong and important in the case of the unquoted companies as in the case of the quoted companies.
I have a very difficult one on my shoulders at the moment involving an unquoted company and the row it is having with some of the employees it is about to sack as a result of a take-over deal. It would have been far better if we had had a lot more information in this case. I can assure hon. Members that information of this kind about unquoted companies is as important as in the case of quoted companies. We are 940 concerned with the question of size and I am confident that—
§ Mr. John H. Osborn (Sheffield, Hallam)
Will the Minister of State tell us what the value of this information would be if he got it? He is talking about quoted and unquoted companies, but what is the value of this information? Will he try to bring this out in his comments because there are many who will want to hear his reasons for opposing this Amendment?
§ Mr. Darling
We discussed this at tremendous length in Committee and it has been discussed in the various reports that we have had under consideration. If the hon. Member is not yet convinced that disclosure of information about turnover, directors' emoluments, and so on, is not essential to shareholders, potential shareholders, creditors and so on, at this late stage I cannot help him to get hold of those facts. However, I will do my best if he will allow me to continue.
§ Mr. Stainton
I am not certain why the hon. Gentleman has alluded to a case concerning redundancies. I think he might be trying to court popular sympathy with this allusion. He knows that I am not hostile to him on this issue, but he has made an unfair point. I cannot see how redundancies would be affected by disclosure of this kind of information.
§ 9.30 p.m.
§ Mr. Darling
No. We want to go beyond that. I am sorry that I raised the matter. I am saying that the information being available to employees, as I am sure the hon. Member would agree, becomes important. Anyhow, we decided that the way to approach this problem was not to struggle any further with an attempt to find a definition for small companies which would be satisfactory, but to do what we have done in our Amendments.
This is to make no attempt at all to define "small company", but to set limits on each of the items of information, that is to say, the emoluments of directors, analysis and turnover of analysis, the number of employees and their wages, and exports. In each case we lay down a 941 limit below which that particular information need not be disclosed. Our Amendment says that if the total of directors' emoluments does not exceed £7,500, that information need not be disclosed and that the information about turnover need not be disclosed where turnover does not exceed £50,000. Of course, the two factors are not related. We have said that if the number of employees is fewer than 100, that information about their wages need not be disclosed.
The hon. Member for Sudbury and Woodbridge said that these things were not related if one wanted to find a common thread through them. In other words, as he pointed out, with 100 employees the maximum turnover figure would represent only £500 per employee, which would not pay his wages anyhow. These are convenient figures, and we believe that they are the right figures and we are not trying to find any relation among them.
The hon. Member for Twickenham (Mr. Gresham Cooke) said that many small firms would be vulnerable to take-over bids if this information were disclosed. He was referring to unquoted companies. As has been pointed out, if it is a very small company, there is no danger, because there will be one owner who will own 100 per cent. of the shares. I do not see any substance in that argument.
The hon. Member for Morecambe and Lonsdale (Mr. Hall-Davis) went on to say something far more important. He said that the nature of the ownership of a company was as important as its size if one was trying to deal with these problems as we are setting out to deal with them in the various Government Amendments. I agree with him entirely. This is one of the reasons why we want to see whether we can deal with many of the problems which have arisen in recent years, problems concerned not only with the disclosure of information, but with the administration of companies, problems raised in the Report of the Jenkins Committee.
We mentioned some of these in Standing Committee. We have to see whether we can find a new type of company whose structure and administration would solve same of these problems—a form of part- 942 nership, or whatever it might be. I believe that in this Bill the Government are on the right lines in seeking to limit the disclosure of information, but I hope that later we shall be able to turn again to the nature of the ownership of the company.
My hon. Friend the Member for Heywood and Royton and hon. Members opposite suggested that the turnover of £100,000 would be a more acceptable figure, but my hon. Friend was referring entirely to unquoted and not quoted companies. Generally speaking, hon. Members opposite have suggested that £100,000 turnover would be a far better figure for the cut-off.
I cannot accept this. I became increasingly confused as the hon. Member for Croydon, North-East (Mr. Weatherill) unfolded his views on this matter. It seemed that the kind of company about which he was talking was not a small family business but a flourishing medium-sized company. He is not here at present, but I have to say that he is far too modest. His speech raised the whole question of definition. It is a problem that we have run away from. We have solved the problem without trying to find a definition by setting forth a cut-off point in the way that we have. The hon. Member for Morecambe and Lonsdale also raised another very important point, which was that even if we accept a figure of £100,000 the way things have gone under succeeding Governments in the last 25 years or so means that it will be less than whatever figure we put into the Bill—about £50,000 less.
We have to look at this problem when we come to the second Companies Bill, when we shall deal more closely with administration and management of companies. I cannot accept the figure of £100,000, even from my hon. Friend the Member for Heywood and Royton in relation to unquoted companies. We must stick to the figures that we put forward in our Amendments. To my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), I would say that I agree entirely with what he has said about the Jenkins Report. This Report started a general discussion on the whole subject, not only of disclosure but of the administration, structure and management of companies—the private sector of the economy.
943 In the general discussion which followed, some of the views and recommendations based on those views have come in for severe criticism. It would be quite wrong for us, or any Government, to be tied to the very letter, and perhaps the spirit in many cases of the Jenkins Report. We must move ahead and take account of the general discussion which that report started.
The hon. Member for Abingdon (Mr. Neave) wanted to know why we asked for that disclosure. This debate has answered the hon. Member. We would want disclosure, even from large unquoted companies, not in this case for the shareholders, but for creditors, employees and the general public. As the hon. Member for Sudbury and Woodbridge quite rightly pointed out, economic policy under any Government has to be based on facts. We have not had enough facts in the past. Many of the mistakes of successive Governments in economic policy have been due to the fact that there was a paucity of information upon which they could act. The more information we have the better.
I agree that we have an obligation here to make sure that requests for information over and above what can be disclosed out of companies' balance sheets and internal information should be asked for in the simplest and easiest form so that too great a burden is not placed upon the companies asked to provide the information. Therefore, my final word is that, much as I admire the initiative and enterprise of the firm of accountants to which the hon. Member referred, in preparing a handbook to the Companies Bill before it has got on to the Statute Book, it has anticipated what will be a far better, clearer and much shorter work which will come from official sources.
§ Mr. Corfield
I ought to say that I make no apologies, on behalf of myself, or my hon. Friends, for putting forward several alternatives to this problem. From the very moment that the right hon. Gentleman opened this matter with his Second Reading speech, there has been virtually an invitation from the Government to attempt to solve the difficult problem of defining a small company. The Government have given up the attempt, but that is no reason why the rest of us should be so fainthearted.
944 We have attempted to bring forward a number of Amendments—and we are concentrating mostly on new Clause No. 2 and Amendment No. 1, together with the new Schedule—which set out in some detail two alternative methods. Had the Government shown as much welcome to initiative as they appeared to show sympathy, I am sure that, even if one or other of the proposals was not acceptable, a combination could have been worked out which would have been much more satisfactroy than anything which the Government have produced.
As I said on Second Reading, basically the problem of the small family company is very largely the problem of the partnership. Many small family companies are virtually partnerships with limited liability. I do not deny that that brings benefits and privileges. If one accepts that, it is absurd to imagine that one should treat them in the same way as on treats the great bulk of companies, whether they be the giants or the medium companies. I would agree with the Minister of State that we should not take the Jenkins Report entirely as holy writ in these matters.
If there is a criticism of the Jenkins Committee in this respect, it is that it was composed very largely of people concerned mainly with large companies, and the information which it had before it was, almost inevitably, mainly concerned with large companies and the very small company was not given the full examination which perhaps was desirable and which certainly would have been useful for the problem with which we have been dealing.
We should remind ourselves that limited liability has given, and does give, benefits not merely to those people who enjoy the status but to the country and the public. There can be very little doubt that a very wide range, probably the great majority, of small businesses and medium and large businesses which have grown from small businesses would not have got off the ground if there had not been the safeguard to those who started them of feeling that, although they were prepared to take risks, they were not prepared to take the total risk of everything which they had. I am sure that this has been an enormous help, not only to our economy, but to the economy of every Western country. Therefore, 945 do not let us get it into our heads that this is purely something which gives benefit purely to those engaged in it.
The Minister and my hon. Friend the Member for Sudbury and Woodbridge (Mr. Swinton) mentioned employees. I admit that employees have rights and interests in these matters. But let us face the fact that the position of employees of a private individual who happens to have enough money to employ a fair number of them, of a partnership, of an unlimited company or of a small limited company such as my hon. Friend has in mind are precisely the same. If there is any advantage, it is with the employees of the small limited company who at least know that the liability is limited. But the employees of the individual have no more warning of an impending crash and they can be equally shattered. I do not believe that this is the right distinction to draw.
The arguments which can be put against the Government's approach are quite strong. I do not want to be too unwelcome, because at least they have moved a little, but I do not think that the concept of a ceiling either for directors' emoluments or for turnover can be regarded as satisfactory or as more than a temporary stop-gap. The great disadvantage of this approach is that it goes in the opposite way to that in which I should have thought most of us were anxious to go. Most people, and particularly the layman—I regard myself entirely as a layman in these matters—have a good deal of suspicion of what I call the mushrooming group of companies—the sort of operations which welt on under the Rachman racket in housing, with every little operation being hived off into a different subsidiary company so that all the links are lost and one does not know who controls it.
As soon as we start giving a privilege—and it is a privilege not to disclose up to a certain ceiling—on the basis of ceiling figures we virtually say to people that if they want to circumvent it they can form an exactly parallel company which would not be caught by the subsidiary company or associated company Clauses of the Bill. That is a defect in itself. It would be met by the proposals of my two hon. Friends.
946 In turning to the speeches of one or two hon. Members, particularly on the Government benches, I assure the hon. Member for Heywood and Royton (Mr. Barnett) that there is no need to foster any idea of fear of the Government as an ogre. I get the impression that it is already there. When the Lord Chancellor, in another place, states that practically all the tax frauds and evasions have arisen from the private company as the backbone of such operatons, it is hardly surprising when that is not backed up by evidence and is contrary to the impression which one gets from talking to people who are directly concerned with these matters.
§ Mr. Barnett
It is backed by all sorts of evidence and certainly by the fact that almost 100 per cent. of the back-duty cases for tax purposes concern private companies or individuals.
§ Mr. Corfield
I was saying that the Lord Chancellor himself did not support it. However that may be, I imagine that the hon. Member is endorsing the Lord Chancellor's remark to that effect concerning private companies.
The hon. Member said that it was stretching the imagination and being naive to suggest that a single shop competing with a branch of a large shop could possibly be harmed by the disclosures specified in the Bill without some form of limitation. It was the hon. Member who was being naive and stretching our imagination. It is a question, not of imagination, but of history.
I do not want to bore the House at this late hour, but I could quote many instances, admittedly mostly before the war, in which the most ruthless behaviour was carried on by larger firms because they happened to be able to get hold of information about smaller firms which became completely within their power, very much to the advantage of the larger ones. Perhaps over a coffee sometime I can tell the Minister of State of some of the ruthless methods which are used today, particularly by certain American firms in this country. I would be glad to tell him.
If the hon. Member for Heywood and Royton thinks that the publication of every bit of its information would not 947 in any circumstances harm a small company, I suggest that he is such an expert that he fulfils the old definition of somebody who knows more and more about less and less the further he goes on, because he is shutting his eyes to what goes on in the world.
The hon. Member for Ashton-under-Lyne (Mr. Sheldon) said that the onus to prove it is on those who think that disclosure for disclosure's sake is not a good thing. I would put the onus entirely the other way. As my hon. Friend the Member for Gillingham (Mr. Burden) remarked, one good reason for this is the enormous danger of cluttering up the place with paper and information which is not only of no great value, hut, what is much more important, will disguise the information that is of value and make it more difficult to sort out the wheat from the chaff. This is a real danger.
The hon. Member's suggestion that disclosure for disclosure's sake is good is something which I find repellent. The idea that everybody has the right to be a nosey-parker into everybody else's business, the idea that we base our incomes policy and everything else on envy, is
§ something which I find extremely unattractive. All I can say to him is that it is he who has to be a lot more convincing before my hon. Friends and I can go along with that philosophy. I would just remind him again that because of the value of limited liability to this country we as a House have duties to those companies, as well as those companies having duties.
§ I would ask the right hon. Gentleman to consider once more whether the proper approach to this should not be to continue to seek a definition, because, with due respect to him, he has not made a convincing case for not accepting the approach of my hon. Friends, particularly the approach of my hon. Friend the Member for Harrow, Central (Mr. Grant) in a Schedule which I think the House ought to congratulate him upon producing. It is an admirable piece of draftsmanship and an admirable concept—and the same applies to the other Amendments put down by my hon. Friends.
§ Question put, That the Clause be read a Second time:—
§ The House divided: Ayes 111, Noes 198.949
|Division No. 455.]||AYES||[9.49 p.m.|
|Alison, Michael (Barkston Ash)||Harvie Anderson, Miss||Pike, Miss Mervyn|
|Aster, John||Hawkins, Paul||Pink, R. Bonner|
|Awdry, Daniel||Heseltine, Michael||Powell, Rt. Hn. J. Enoch|
|Baker, w. H. K.||Hogg, Rt. Hn. Quintin||Pym, Francis|
|Birch, Rt. Hn. Nigel||Holland, Philip||Ridley, Hn. Nicholas|
|Boyd-Carpenter, Rt. Hn. John||Hornby, Richard||Ridsdale, Julian|
|Braine, Bernard||Hunt, John||Rossi, Hugh (Hornsey)|
|Brewis, John||Iremonger, T. L.||Royle, Anthony|
|Brinton, Sir Tatton||Jennings, J. C. (Burton)||Russell, Sir Ronald|
|Bromley-Davenport,Lt.-Col.Sir Waiter||Jopling, Michael||Scott, Nicholas|
|Bruce-Gardyne, J.||Joseph, Rt. Hn. Sir Keith||Shaw, Michael (Sc'b'gh & Whitby)|
|Buck, Antony (Colchester)||Knight, Mrs. Jill||Stainton, Keith|
|Burden, F. A.||Lancaster, Col. C. G.||Stodart, Anthony|
|Campbell, Cordon||Legge-Bourke, Sir Harry||Taylor, Sir Charles (Eastbourne)|
|Carlisle, Mark||Loveye, W. H.||Taylor, Frank (Moss Side)|
|Cooper-Key, Sir Neill||McAdden, Sir Stephen||Temple, John M.|
|Corfield, F. V.||MacArthur, Ian||Thatcher, Mrs. Margaret|
|Craddock, Sir Beresford (Spelthorne)||McMaster, Stanley||Tilney, John|
|Crowder, F. P.||Maude, Angus||Van Straubenzee, w. R.|
|Dalkeith, Earl of||Mawby, Ray||Vaughan-Morgan, Rt. Hn. Sir John|
|Dance, James||Mills, Peter (Torrington)||Walker, Peter (Worcester)|
|Dean, Paul (Somerset, N.)||Monro, Hector||Walker-Smith, Rt. Hn. Sir Derek|
|Deedes, Rt. Hn. W. F. (Ashford)||Morgan, Ceraint (Denbigh)||Walters, Dennis|
|Dodds-Parker, Douglas||Mott-Radclyffe, Sir Charles||Ward, Dame Irene|
|Doughty, Charles||Munro-Lucas-Tooth, Sir Hugh||Webster, David|
|Elliott.R.W.(N'c'tle-upon-Tyne,N.)||Nabarro, Sir Gerald||Whitelaw, Rt. Hn. William|
|Errington, Sir Eric||Neave, Airey||Wills, Sir Gerald (Bridgwater)|
|Eyre, Reginald||Noble, Rt. Hn. Michael||Wilson, Geoffrey (Truro)|
|Farr, John||Nott, John||Wolrige-Gordon, Patrick|
|Glover, Sir Douglas||Orr-Ewing, Sir Ian||Wylie, N. R.|
|Gower, Raymond||Osborn, John (Hallam)||Younger, Hn. George|
|Grant, Anthony||Page, Graham (Crosby)|
|Gresham Cooke, R.||Pearson, Sir Frank (Clitheroe)||TELLERS FOR THE AYES:|
|Hall-Davis, A. G. F.||Peel, John||Mr. Jasper More and|
|Harris, Frederic (Croydon, N.W.)||Percival, Ian||Mr. Bernard Weatherill.|
|Abse, Leo||Fool, Michael (Ebbw Vale)||Murray, Albert|
|Allaun, Frank (Salford, E.)||Ford, Ben||Neal, Harold|
|Anderson, Donald||Forrester, John||Newens, Stan|
|Archer, Peter||Fowler, Gerry||Noel-Baker, Francis (Swindon)|
|Armstrong, Ernest||Galpern, Sir Myer||Noel-Baker,Rt.Hn.Philip(Derby,S.)|
|Atkins, Ronald (Preston, N.)||Garrett, W. E.||Ogden, Eric|
|Atkinson, Norman (ottenham)||Gourlay, Harry||O'Malley, Brian|
|Bagier, Gordon A. T.||Grey, Charles (Durham)||Oram, Albert E.|
|Barnett, Joel||Griffiths, David (Bother Valley)||Orme, Stanley|
|Beaney, Alan||Crimond, Rt. Hn. J.||Owen, Dr. David (Plymouth, S'tn)|
|Benn, Rt. Hn. Anthony Wedgwood||Hamilton, James (Bothwell)||Padley, Walter|
|Bernett, James (G'gow, Bridgeton)||Hamilton, William (Fife, W.)||page, Derek (King's Lynn)|
|Bessell, Peter||Hannan, William||Palmer, Arthur|
|Binns, John||Harper, Joseph||Pannell, Rt. Hn. Charles|
|Bishop, E. 8.||Hart, Mrs. Judith||Pardoe, John|
|Blackburn, F.||Hattersley, Roy||Parker, John (Dagenham)|
|Boardman, H.||Heffer, Eric S.||Pearson, Arthur (Pontypridd)|
|Booth, Albert||Hooson, Emlyn||pentland, Norman|
|Bowden, Rt. Hn. Herbert||Howarth, Harry (Wellingborough)||Perry, George H. (Nottingham, S.)|
|Boyden, James||Howarth, Robert (Bolton, E.)||Prentice, Rt. Hn. R. E.|
|Braddock, Mrs. E. M.||Howell, Denis (Small Heath)||Price, Thomas (Westhoughton)|
|Brooks, Edwin||Howie, W.||Price, William (Rugby)|
|Broughton, Dr. A. D. D.||Hoy, James||Probert, Arthur|
|Brown, Hugh D. (G'gow, Provan)||Hughes, Rt. Hn. Cledwyn (Anglesey)||Rankin, John|
|Brown, R. W. (Shoreditch & F'bury)||Hughes, Emrys (Ayrshire, S.)||Rhodes, Geoffrey|
|Buchan, Norman||Hughes, Roy (Newport)||Robertson, John (Paisley)|
|Buchanan, Richard (G'gow, Sp'bu n)||Hunter, Adam||Robinson, W. O. J. (Walth'stow, E.)|
|Butler, Herbert (Hackney, C.)||Hynd, John||Rogers, George (Kensington, N.)|
|Carmichael, Neil||Jackson, Colin (B'h'se & Spenb'gh)||Rose, Paul|
|Carter-Jones, Lewis||Jay, Rt. Hn. Douglas||Rowland, Christopher (Meriden)|
|Coleman, Donald||Jenkins, Hugh (Putney)||Shaw, Arnold (Ilford, S.)|
|Concannon, J. D.||Johnson, James (K'ston-on-Hull, w.)||Sheldon, Robert|
|Conlan, Bernard||Jones, Dan (Burnley)||Short, Rt.Hn.Edward(N'c'tle-u-Tyne)|
|Craddock, George (Bradford, S.)||Kelley, Richard||Short, Mrs. Renée(W'hampton,N.E.)|
|Crosland, Rt. Hn. Anthony||Lawson, George||Silkln, Rt. Hn. John (Deptford)|
|Crossman, Rt. Hn. Richard||Lewis, Arthur (W. Ham, N.)||Silverman, Julius (Aston)|
|Cullen, Mrs. Alice||Lewis, Ron (Carlisle)||Slater, Joseph|
|Dalyell, Tam||Lomas, Kenneth||Small, William|
|Darling, Rt. Hn. George||Loughlin, Charles||Spriggs, Leslie|
|Davidson, Arthur (Accrington)||Lubbook, Eric||Steel, David (Roxburgh)|
|Davidson, James(Aberdeenshire,w.)||Lyons, Edward (Bradford, E.)||Steele, Thomas (Dunbartonshire, w.)|
|Davies, Dr. Ernest (Stretford)||McBride, Neil||Swain, Thomas|
|Davies, G. Elfed (Rhondda, E.)||McCann, John||Swingler, Stephen|
|Davies, Ednyfed Hudson (Conway)||MacColl, James||Symonde, J. B.|
|Davies, Harold (Leek)||MacDermot, Niall||Thomas, George (Cardiff, W.)|
|Davies, Ifor (Gower)||Macdonald, A. H.||Thornton, Ernest|
|Davies, S. O. (Merthyr)||McGuire, Michael||Thorpe, Rt. Hn. Jeremy|
|Dempsey, James||Mackle, John||Tomney, Frank|
|Dewar, Donald||Maclennan, Robert||Urwin, T. W.|
|Dickens, James||MacMillan, Malcolm (Western isles)||Varley, Erle G.|
|Dobson, Ray||McMillan, Tom (Glasgow, C.)||WainWright, Edwin (Dearne Valley)|
|Doig, Peter||McNamara, J. Kevin||Walden, Brian (AN Saints)|
|Driberg, Tom||Mahon, Peter (Preston, 8.)||Watkins, Tudor (Brecon & Radnor)|
|Dunnett, Jack||Mahon, Simon (Bootle)||Whitlock, William|
|Eadie, Alex||Mallalleu, E. L. (Brigg)||willams, Alan (Swansea, W.)|
|Edwards, Rt. Hn. Ness (Caerphilly)||Mapp, Charles||Williams, Mrs. Shirley (Hitchin)|
|Edwards, Robert (Bilston)||Marquand, David||Williams, W. T. (Warrington)|
|Edwards, William (Merioneth)||Mellish, Robert||Willis, George (Edinburgh, E.)|
|Ellis. John||Mendelson, J. J.||Wilson, Rt. Hn. Harold (Huyton)|
|Ennals, David||Millan, Bruce||Winstanley, Dr. M. P.|
|Evans, Albert (Islington, S.W.)||Miller, Dr. M. S.||Winterbottom, R. E.|
|Evans, loan L. (Blrm'h'm, Yardley)||Milne, Edward (Blyth)||Woodburn, Rt. Hn. A.|
|Faulds, Andrew||Mitchell, R. C. (S'th'pton, Test)||Woof, Robert|
|Finch, Harold||Morgan, Elystan (Cardiganshire)||Yates, Victor|
|Fitch, Alan (Wigan)||Morris, Alfred (Wythenshawe)|
|Fletcher, Raymond (Ilkeston)||Morris, Charles R. (Openshaw)||TELLERS FOR THE NOES|
|Fletcher, Ted (Darlington)||Moyle, Roland||Mr. Walter Harrison and|
|Mr. Harold Walker.|
§ It being after Ten o'clock, further consideration of the Bill, as amended, stood adjourned.