SMALL AND MEDIUM-SIZED COMPANIES

HC Deb 20 October 1981 vol 10 cc184-201

Mr. Clinton Davis

I beg to move amendment No. 170, in page 14, line 6, leave out '£1,400,000; and insert '£250,000.'

Mr. Deputy Speaker (Mr. Bryant Godman Irvine)

With this it will be convenient to take the following amendments:

No. 171, in page 14, line 7, leave out '£700,000' and insert '£125,000'.

No. 172, in page 14, line 10, leave out 'fifty' and insert 'ten'.

No. 173, in page 14, line 14, leave out '£2,800,000' and insert '£600,000'.

No. 175, in page 14, line 17, leave out 'two hundred and fifty' and insert 'fifty'.

No. 176, in page 14, leave out lines 23 to 37.

Mr. Davis

These amendments go to the heart of this part of the Bill. We do not oppose the classification of companies with a view to the disclosure requirements which are imposed upon them. We were the authors of that idea in the 1977 Green Paper, although we did not disclose at that stage the definitions and criteria that we wished to use because they were subject to discussion. I argue strenuously on behalf of the Opposition that the definitions which have been used for describing large, medium and small companies are wrong.

The Government say that they are implementing the EEC directive in this regard. They are going to the maximum limits which have been defined by the directive. They are under no obligation to do that. If they accepted our amendments, they would still be complying with the directive. I want to get that counter-argument that might be used by Government supporters out of the way.

The definitions of a small company are contained in clause 8(2). Anyone who is a little sceptical about the Government's definitions will have his anxieties reinforced by the way in which the Government have reacted since the Green Paper consultations. The qualifying conditions for a small company are, first: the amount of its turnover must not exceed £1,400,000". That is hardly a small company if one is dealing with the upper echelons of that figure. The second condition is: its balance sheet total must not exceed £700,000". That is not insubstantial. The third criterion is: The average number of persons employed by the company in the financial year in question (determined on a weekly basis) must not exceed fifty. I do not believe that that is a small company, although small companies are included within that definition. The figures which I have put forward in my series of amendments still include companies which, in previous definitions, would hardly be regarded as small. However, my figures are substantially less than the Government's. I am suggesting that instead of a figure of £1,400,000, there should be one of £250,000 for the turnover. We are suggesting that instead of the balance sheet total of £700,000 provided for in the Bill, we would insert £125,000. Instead of 50 employees we should have 10 employees. Similar changes are made for the medium-sized companies. That applies to the other three amendments.

In substance, we are saying that the Government have the figures wrong. By no stretch of the imagination could a company which comes within the top levels of the definition of a small company in clause 8 be regarded as small. The Government have extended the criteria which they laid down in their Green Paper in September 1979. At the time, they suggested a turnover figure of £1,300,000 and a balance sheet total of £650,000. They have increased those figures. They say that they have done so because there ought to be a 10 per cent. leeway.

Really small companies—this is the gravamen of our case—should be able to gain some exemption from the full rigours of the company law requirements relating to disclosure. Indeed, we went even further in Committee, because we argued that tiny companies—the small shop carrying on a fish and chip business or confectionery business on the street corner—ought to be able to claim exemption from audit. We are not arguing that today. We were defeated on that proposal. That establishes our bona fides about the matter.

We believe that it is entirely wrong for the same principle to apply to a large number of companies which cannot by any stretch of the imagination be regarded as small, and which will qualify for exemption under these provisions.

About two years ago, the Amalgamated Union of Engineering Workers carried out a survey and found that about 60 per cent. of companies in the engineering industry employed fewer than 50 persons, and that 50 per cent. employed fewer than 25 persons. That indicates the scale of the problem that we shall encounter in this respect.

The accountancy profession itself expressed very serious reservations about these definitions. The Minister has been full of praise for the accountancy profession. Last night he waxed as eloquenty about that profession as he did about the contribution made by the hon. Member for Kensington (Sir B. Rhys Williams) on the question of audit committees. He was over the moon about the profession. But, over the moon though he may have been on that occasion, members of the profession do not like what he is doing. They believe that the criteria for the small company—in the Green Paper it was called a proprietary company, and the title has been changed—are far too high. The criteria have been extended since 1979.

The accountancy profession and the trade unions, which have expressed great reservations about the small and medium-sized companies in this regard, are right to do so. The effect of the Government's proposals is that small companies will no longer be under any requirement to file profit and loss accounts at Companies House for public information. They will be obliged to do no more than file an abridged balance sheet. They will not have to file any information concerning the aggregate remuneration of the directors. They will not have to meet the same rigorous accounting standards as they are required to meet today.

The information that is no longer to be made available to the public is, for the higher echelons of a company within the definition, information that should be readily available to the public. It is stretching the imagination a little to say that the information can be made available voluntarily by the companies. Blocks will be put in the way. Some information that is currently available will no longer be available to trade union negotiators who customarily search the records.

It is no use the Minister's saying, as he did in other respects, that the company records are irrelevant to trade union negotiators, to the work of investigative journalists or to the public as a whole, because the historic information is frequently of the greatest importance. A good deal of that information will not be made available in future because the companies, in the event, will be the arbiters of what is to be disclosed and of the extent of the disclosure.

How did the Government arrive at these strange conclusions? We have received scant information from the Minister. He said, in one remarkable intervention, that company law provisions must be limpid, clear and simple

Mr. Eyre

indicated dissent

4.45 pm

Mr. Davis

If the Minister disagrees, I shall have to find the reference, because it will be relevant to many other debates on the Bill. I think he said that it was an aim—that the provisions had to be made limpid, clear and simple—but that it could not always be achieved. He has certainly not achieved it. The Bill is so complicated that it will tax the ingenuity of professional advisers beyond all reason, and it will cost the public a great deal of money for professional advisers to exercise their ingenuity and skill in advising their clients.

When the Minister says these strange things, on what evidence are they based? What surveys has he undertaken? No hon. Member is more conscious than the Minister of the need for surveys. Nobody is more diligent about going down back streets and talking to people about whether a business names register is needed than the hon. Gentleman, who sits so benignly on the Government Front Bench. We all love him. But I ask him to tell us what evidence was examined. What surveys did his officials undertake?

I should rather see them at work in the Department of Trade than going down all those dusty roads to carry out these funny surveys of which he is so fond. Did they do anything in this instance? Did they question the CBI? Did they look at any statistical information that might be relevant? The Minister was very coy about that when we were discussing the matter in Committee.

The Minister is fond of saying that all these provisions are designed to secure great savings and an avoidance of bureaucracy. What savings does he envisage will be achieved? I argued in Committee that the benefits that he seeks to confer are likely to be largely cosmetic. One very large firm of accountants with which I have conferred in this matter—a company of the highest reputation in the profession and with no political axe to grind—argues that companies within the particular categories might have to spend rather more money, because they will require to have audited accounts. Banks and the tax authorities will require audited accounts from them. Creditors might require audited accounts from them if there is to be some realistic discussion about debts. So what will be the saving at the end of the day?

It is perfectly true that some companies which may wish to hide certain information from the public at large will take advantage of the provisions of the Act and publish abridged accounts, despite the additional cost in which they might be involved. But I do not believe the argument that the Minister repeatedly adduces about the onerous nature of the task that companies have to undertake in publishing the information which they are currently required to publish at Companies House. I do not accept that their task is so appalling or so difficult. Indeed, I wonder whether many companies made representations to him, within the spheres that we are discussing, about reducing those tasks.

I expressed another anxiety in Committee. I received no answer from the Minister, so I return to the question. If companies seek some advantage in non-disclosure and are prepared to face the additional cost of the Government's requirements—I believe that that is what will happen in practice—might there not be a possibility that companies will be prompted to fragment in order to take advantage of the lower thresholds related to disclosure?

I realise that there is provision affecting companies which are linked to a holding company, but it is perfectly possible for separate entities to be established and to take advantage of the framework of the Bill. That would compound the secrecy which I believe is implicit in the consequences of the Government's proposals.

The Government have also used the argument that there is information which companies wish to hide from their competitors and that it is therefore undesirable that they should be compelled to publish the information at Companies House. In that respect, the Minister seeks to have the argument both ways. On the one hand, he has argued that the information is largely irrelevant to the public interest because it is historical. On the other hand, he argues that competitors, particularly international competitors, will be deeply interested in it. He cannot have it both ways.

What evidence is there that the information which companies have had to publish hitherto has been gravely damaging to their competitive abilities? What requests have been made by what would now be described in the Minister's proposals as small and medium-sized companies to carry out the change on those grounds? Does he really think that competitors will be persuaded one way or the other or will be tremendously assisted by the information which they now obtain? As my hon. Friend the Member for Coventry, North-West (Mr. Robinson) forcefully pointed out in Committee, competitors are interested in the state of industrial relations which may beset a company at any given time. They want to discover secret processes and new developments and new processes. They are far more interested in those matters than in the formalities of accounting.

The burden of proof in establishing the need for change is firmly on the Minister's shoulders. In my submission, he has not come within a hundred miles of discharging that onus in our debates so far. In a large area of that which is within the definition prescribed in clause 8, information which is important to creditors, to outside interests, to trade unionists and to the public will not be disclosed or will be abridged. A mask will be placed over it. That is not right. Secrecy is a bad criterion for business and a bad criterion for management. Yet it is one for which the Government have opted, and they have failed to indicate to the House the grounds upon which they have so opted.

Mr. James Hill (Southampton, Test)

My hon. Friend the Minister wi11 realise that it is a matter of opinion what is a small, medium or large business. My experience in business, mainly in small business, suggests to me that the figures at which he has arrived are fairly sensible. To my mind, it would certainly be a small business which employed 50 or fewer staff. That seems very much a commonsense view. Turnover may be in penny washers or in items of considerable value, but I do not think that these days £1.4 million is a high turnover. The balance sheet must not exceed £700,000.

If the amendments were accepted, the paper work, the bureaucracy and the amount of money that the companies involved would have to spend on additional staff to produce all these statistics would be incredible. I have operated a small business for many years. Certainly a turnover of £1.4 million is no indication of a large business. For the medium-sized business, turnover must not exceed £5.75 million; that is about right. We wish this legislation to date itself for at least another three to five years. Regardless of what the hon. Member for Hackney, Central (Mr. Davis) has said about the figures of 50 and 250 staff for small and medium-sized businesses, I hope that my hon. Friend will resist the amendments, because if there is one thing that small businesses do not need at this time it is further paper work or further reasons to take on additional staff to advise the Department.

Mr. Eyre

The amendments relate to the accounting exemption provisions of the Bill. I was, frankly, disappointed when the Opposition tabled them, as I believe that both the nature and the extent of the exemptions have been widely welcomed. Taking the profession as a whole, I do not accept the view of the hon. Member for Hackney, Central (Mr. Davis) about accountants. Moreover, for reasons which I shall make clear, I strongly disagree with the views that he expressed about the role and relationships of small businesses.

Mr. Clinton Davis

The CCAB strenuously opposed the criteria laid down in the 1979 Green Paper. Did it not continue to oppose the Government's proposals, particularly when they were extended in the Bill?

Mr. Eyre

There were more than 150 responses to the Green Paper, meetings with the CBI, the CCAB, the Law Society, chambers of commerce, the Institute of Directors and bodies representing small businesses. The overall result of those consultations was approval of the necessarily complicated balance which the Government have to strike in determining these matters.

Mr. Clinton Davis

I am obliged to the hon. Gentleman. Will he answer my question? What was the view of the CCAB? I am not interested in the other 150. I do not know who they were. I want to know about the CCAB.

Mr. Eyre

As the hon. Gentleman knows, it is not customary to disclose precise details of consultations with bodies of this kind. We are most grateful to the CCAB for the tremendous amount of consultative work it did in assisting us. I do not think that it is accurate for the hon. Gentleman to explain the CCAB's views on the total balance struck in these complicated matters in the terms that he did.

I shall explain my reasons for disagreeing so strongly with some of the views expressed by the hon. Gentleman today. As I said when we debated this matter in Committee, the Government regard these proposals as misguided and unacceptable because they would significantly reduce the number of small and medium-sized companies able to take advantage of the accounting exemptions available to companies listed in clause 6.

I am most grateful to my hon. Friend the Member for Southampton, Test (Mr. Hill), who made a number of strong practical points in referring to the definition of small businesses. I agree entirely with the view that he expressed. 5 pm

Our policy is to assist the smaller company sector wherever it is possible and reasonable so to do. Thus, the thresholds for determining the size of small and medium companies for this purpose have been set at virtually the maximum permitted by the fourth directive for the classification of such companies in order that the maximum number of companies can take advantage of the accounting exemptions. This will help to protect their competitive positions in relation to larger companies and groups. However, under the amendments, companies would have to be very much smaller indeed before they could take advantage of the exemptions.

Mr. Clinton Davis

The Minister says that this will enable such companies to protect their interests against larger groups. What does he mean? What evidence is there to support that proposition? The Minister makes many bare assertions that are backed up by no evidence.

Mr. Eyre

If the hon. Gentleman contains himself, I shall explain what I mean by these exemptions; but he knows very well, and it is only his prejudice that does not permit him to take account of the arguments deployed earlier.

In response to the thrust of the hon. Gentleman's arguments, there are several points that need to be explained about the accounting exemption provisions. First, they relate only to what is filed with the Registrar of Companies. All companies are still required to draw up full accounts for shareholders. That is a perfectly proper provision, and these are the accounts on which auditors pronounce a true and fair view. The modified accounts filed with the registrar are not required to give such a true and fair view, although safeguards are available in the form of a directors' statement and supplementary auditors' report.

Secondly, we accept that the provision of modified accounts may involve some additional cost to the company, but we consider that the company concerned should be allowed to judge whether that cost is disproportionate to the longer-term cost of disclosing information that might be harmful to its competitive position. I maintain that the requiring of an audit is a right and proper decision that is very much in the interest of company shareholders as well as the proper arrangement for credit. At the same time, we acknowledge the special need of a company to protect confidential information, and it need not disclose that information in a way that would harm its competitive position. Nor do the exemptions affect the provision of information to major creditors who may well require full accounts before giving credit, but this is a matter between the company and the provider of credit.

Mr. Clinton Davis

We are coming to the end of this debate, and this point is at the heart of the matter. I am perturbed by what the Minister has just said, because it appears that the modified accounting system could be more expensive. It will be left to the company to decide whether it is in its overall interest to provide abridged accounts, which would be more expensive, or to file the full accounts. He has also said that the modified accounts are not required to give a true and fair view. We said that in Committee. Is it not right to say that the company to be the sole arbiters of what is to be made available to the public? Can it not hide behind the guise of abridged accounts other information which is not strictly harmful to its competitive ability?

Mr. Eyre

The hon. Gentleman is exaggerating this out of proportion. As I have said, if abridged, the accounts that are filed would be accompanied by the directors' statement and supplementary auditors' reports. That completely answers the hon. Gentleman's point. The point that I made about the preparation of these more limited accounts is entirely reasonable, because it will be for the company to decide whether it wishes to incur the cost of producing abridged accounts. It will do so if it is in its commercial interest or if its competitive position may be harmed. That is a perfectly reasonable decision for the company to make, but for the reasons that I have explained it in no way prejudices the public situation.

We have attempted to strike a balance between the various parties who have an interest in the accounts information. We believe that the package in the Bill in relation to both the criteria we have set and the exemptions we have given is fair to all parties. If medium-sized and small companies wish, they will be able to file abbreviated accounts. We feel that such an approach fully justifies our enabling as many companies as possible, subject, of course, to the fourth directive constraints, to take advantage of exemptions. The hon. Gentleman is trying to have it both ways by saying that if the disclosure advantages prove to be popular it will lead to fragmentation. That is an exaggerated view. The disclosure provisions will not lead to fragmentation nearly as much as would the two amendments, which would do a lot more harm in that respect.

We have struck a balance. For medium-sized companies, the exemptions are relatively modest. In particular, such companies are permitted—not required—to omit a breakdown of their turnover in the accounts filed with the registrar. Nevertheless, the exemptions are important to a number of medium-sized companies, particularly those engaged in one-product lines where knowledge of turnover can be of significant commercial advantage to large competitors or groups which, because of the diversity of their operations, will not give a smaller company similar beneficial information.

Mr. Clinton Davis

What evidence has been forthcoming about damage to the competitive position of companies as a result of the present requirements of the law?

Mr. Eyre

The hon. Gentleman will know that a number of representations were received from companies precisely in that position. They made the perfectly fair point that by having one main line of production the accounts could reveal information which could be unfairly helpful to competitors and damaging to their interests. That point was fairly and properly taken into account by the Government in determining the accounting rules relating to medium-sized companies.

These exemptions are important to a number of medium-sized companies. We consider that we were quite justified in setting the thresholds as high as that permitted by the directive, so that the maximum number of our medium-sized companies could take advantage of the exemptions if they so wished.

The total package of exemptions contained in the Bill has been arrived at only after extensive consultation. Naturally, there were differences of view, but we believe that the overall package meets the concerns of smaller companies while catering adequately for others which have an interest in the accounts. In short, we believe that the balance struck is fair to all parties.

Mr. Clinton Davis

If the Minister's argument is that small and medium-sized companies may have their competitive position eroded by revealing information, what is the position of large companies? After all, much of our export trade and much of Britain's ability to perform in the industrial world is undertaken by extremely large enterprises. Is the Minister arguing that they should be entitled to exemption from disclosure as well?

Mr. Eyre

The hon. Gentleman is again questioning basic principles in a way that surprises me after our debates. He knows that one purpose of the directives is harmonisation with the EEC market, which is generally accepted. The harmonisation measures in the second and fourth directives are regarded as reasonable. The harmonisation that we have carried out in company law is proper and justifiable, even with the complexity that the hon. Gentleman complained of. We believe that it is justified in the long-term interests of companies and of industrial and commercial activity.

Within the total situation, which relates to big companies operating within the market, competition and free trade are a valuable stimulus, but we have said that we shall take special account of the difficulties of medium and small companies and make special provision for them. It is that consideration that the hon. Gentleman carps about. He is wrong to do so. He is taking a very limited view. The balance that we have struck and the provisions that we have made which are favourable to medium and small companies are entirely justified and will be very valuable in the long run.

Sir Albert Costain (Folkestone and Hythe)

Would not the amendment of the hon. Member for Hackney, Central (Mr. Davis) stop small companies expanding? It is part of our policy to cure unemployment by helping small companies to expand. Perhaps the hon. Gentleman is putting forward the amendment to maintain the unemployment figures so that he can have something to shout about.

Mr. Eyre

I agree, and I appreciate my hon. Friend's intervention. The hon. Gentleman shows that he does not realise the enormous contribution that small and medium companies can make to our economy, to the creation of new jobs and to progress and development generally. He makes a serious mistake in putting down the amendment and pursuing his arguments.

Finally, I make the same point as I made in Committee. The thresholds proposed in the Opposition amendments would very likely put our companies at a competitive disadvantage with certain of their European counterparts which are likely to adopt the maximum threshold allowed by the directives. It is therefore important that the levels should be kept as high as possible, as we have done in clause 8.

Amendment No. 176 is put down because of references to the complicated nature of clause 8(5) and (6), which I admit are complex. As I have said, the implementation of the second and fourth directives, which are of long-term value to our position in the EEC, are inevitably complex, but by doing my duty in the 1980 Act and in this Bill to implement the legislation I am taking steps along the road to worthwhile harmonisation, which will be of benefit in the long term to our commercial and industrial structure.

The concept introduced by article 11 of the directive whereby the fact of a company exceeding or ceasing to exceed the thresholds will affect the application of the accounting exemptions only if it occurs in two consecutive financial years in itself raises complex issues. One could not have dealt with such complicated circumstances without complicated provisions. However, the initial proposition that a company must comply for two consecutive financial years is dealt with fairly simply in clause 8(1). The complexity arises only when a company changes category in a third and possibly a fourth year also, and subsections (5) and (6) of clause 8 are necessary to deal with the complexity. They allow for the flexibility of changing circumstances, so that a company can pass from one category to another if its trading circumstances so require and justify it in the company's interests.

5.15 pm

For the reasons that I have given, I ask the hon. Gentleman to consider withdrawing the amendment. His reference to medium and small companies does not justify them. If he does not withdraw the amendments, I urge the House to reject them.

Mr. Clinton Davis

It is a bit rich for the Minister to accuse me of not caring about the contributions that small and medium-sized companies make to this country, when his Government have destroyed the hopes of many people in small and medium-sized companies on a scale hitherto never experienced. His care about small companies is minuscule. In fact, he wishes to promote secrecy. Listening to him, one would assume that small companies were going into bankruptcy on such an enormous scale because they had to reveal information to Companies House. If he believes that, he will believe anything.

The hon. Gentleman has not answered my arguments in a number of material particulars. He says that representations were made to the Department, presumably on the thresholds to be employed. He has not begun to disclose the nature of the information. He has not told us whether the Government have checked on it. As far as we know, he has undertaken no surveys.

Most surprising of all, the hon. Gentleman concedes that the modified accounting procedures can be more expensive for small companies. They will have to provide to their creditors in some instances, to their bankers in others and to the tax authorities in others full audited accounts. As I said before, they will therefore be the sole arbiters of what is to be disclosed.

Mr. Eyre

If a company wished to incur extra professional expense in providing abbreviated accounts, it would do so only in circumstances that were to its commercial advantage. As that was the point in making the provision, does the hon. Gentleman not see the good sense of it?

Mr. Davis

What may be to a company's commercial advantage may not necessarily be in the public interest. Does the Minister not see that? Over the years a great deal of information has been ferreted out in investigation after investigation at Companies House, because information has to be properly filed—information which I imagine the Minister was interested to receive from time to time—and that may not be in the commercial interest of the company concerned. Is there not another motive? Companies may not wish to reveal information because they do not believe that it may be considered to be conducive to the public good.

Mr. Eyre

The hon. Gentleman is exaggerating terribly. For years there was a system of exempt companies that did not register any information. Progressively, more information has been required, and the amount of information now to be provided by small companies is entirely reasonable in the public interest. The essential information supplied is perfectly adequate in the public interest and enables a small company in particular circumstances to protect its competitive position if it is reasonable to do so but, I emphasise, without prejudice to the total disclosure of information justified in the public interest.

Mr. Davis

The Minister cannot have it both ways. At the end of the day he will have his way, but he must realise that in practice some companies, sheltering under the mantle of not revealing matter that may be damaging to their competitive interests, will carry out abuses by not revealing information that does not genuinely fall under that head. My concern is that the Minister is enabling far too extensive a number of companies to obtain that sort of haven. I do not want that to happen.

The hon. Member for Folkestone and Hythe (Sir A. Costain) made an intervention, I think, for the first time in these debates. I do not wish to do the hon. Gentleman an injustice: he is an old friend of mine. He has intervened in other debates in which I have taken part. I think, however, that he would have done better not to have intervened today. He said that my proposals would stop small companies expanding. Does he really think that a small company will be deflected from expanding because of a requirement to carry out the current law on the disclosure of accounts? The hon. Gentleman is much too wise to believe that.

Sir Albert Costain

Small companies are worried about the accounting side. That is my practical experience. They are scared to death of it. It is wrong that they should have to take on extra staff for it.

Mr. Davis

The hon. Gentleman is wrong. Companies will have to do so in any case. They will need to have audited accounts available. All that they will be given is an option to file abridged accounts at the companies registry rather than the full accounts that they will need to have available anyway. What extra work is involved? As the Minister says, they could be going to more expense. He is providing a cloak for the avoidance of disclosure which, in the higher company echelons, is wrong.

The Minister has, in effect, conceded that his proposals are to a large extent cosmetic and to some extent likely to be damaging to the public interest. I do not believe that he has carried out the burden of proof that falls on him in proposing this change to establish it beyond reasonable doubt. I believe that open government is desirable. It should be extended to companies. There lies the difference between the Government and the Opposition.

The Government do not believe that there should be available to the public fully information that is relevant and that can be tested against the criterion of being true and fair to the public, to employees and to society as a whole. The Government do not, in fact, believe in industrial democracy. That is one of the arguments that relates to what we are discussing. There is a distinction between the Opposition believing in open government and the Government believing in secrecy. I believe that secrecy is a bad counsellor for business, for management and for industrial relations. I have therefore no hesitation in asking my hon. Friends to divide against the Government.

Question put, That the amendment be made:—

The House divided: Ayes 142, Noes 189.

Division No. 305]	[5.23 pm
Allaun, Frank	English, Michael
Archer, Rt Hon Peter	Evans, loan (Aberdare)
Ashton, Joe	Ewing, Harry
Atkinson, N.(H'gey,)	Faulds, Andrew
Bagier, Gordon A.T.	Fletcher, Ted (Darlington)
Bennett, Andrew(St'kp't N)	Ford, Ben
Bidwell, Sydney	Forrester, John
Booth, Rt Hon Albert	Foulkes, George
Boothroyd, Miss Betty	Garrett, John (Norwich S)
Bottomley, Rt Hon A.(M'b'ro)	Garrett, W. E. (Wallsend)
Bradley, Tom	Graham, Ted
Bray, Dr Jeremy	Grant, George (Morpeth)
Brown, Hugh D. (Provan)	Hamilton, W. W. (C'tral Fife)
Buchan, Norman	Harrison, Rt Hon Walter
Callaghan, Rt Hon J.	Hattersley, Rt Hon Roy
Callaghan, Jim (Midd't'n & P)	Haynes, Frank
Campbell-Savours, Dale	Healey, Rt Hon Denis
Canavan, Dennis	Home Robertson, John
Carmichael, Neil	Homewood, William
Cartwright, John	Hooley, Frank
Clark, Dr David (S Shields)	Howell, Rt Hon D.
Cocks, Rt Hon M. (B'stol S)	Hoyle, Douglas
Coleman, Donald	Huckfield, Les
Concannon, Rt Hon J. D.	Hughes, Robert (Aberdeen N)
Conlan, Bernard	Hughes, Roy (Newport)
Craigen, J. M. (G'gow, M'hill)	Janner, Hon Greville
Crowther, Stan	Jay, Rt Hon Douglas
Cryer, Bob	John, Brynmor
Cunliffe, Lawrence	Johnson, Walter (Derby S)
Cunningham, G. (Islington S)	Jones, Rt Hon Alec (Rh'dda)
Cunningham, Dr J. (W'h'n)	Jones, Barry (East Flint)
Dalyell, Tam	Kerr, Russell
Davies, Rt Hon Denzil (L'lli)	Lambie, David
Davis, Clinton (Hackney C)	Lamond, James
Davis, T. (B'ham, Stechf'd)	Leadbitter, Ted
Deakins, Eric	Lewis, Arthur (N'ham NW)
Dean, Joseph (Leeds West)	Lewis, Ron (Carlisle)
Dewar, Donald	Lyon, Alexander (York)
Dixon, Donald	Lyons, Edward (Bradf'd W)
Dormand, Jack	Mabon, Rt Hon Dr J. Dickson
Douglas, Dick	McCartney, Hugh
Dubs, Alfred	McDonald, Dr Oonagh
Dunn, James A.	McElhone, Frank
Dunwoody, Hon Mrs G.	McGuire, Michael (Ince)
Eadie, Alex	McKay, Allen (Penistone)
Eastham, Ken	MacKenzie, Rt Hon Gregor
NOES
Alexander, Richard	Fisher, Sir Nigel
Ancram, Michael	Fletcher, A. (Ed'nb'gh N)
Aspinwall, Jack	Fletcher-Cooke, Sir Charles
Atkins, Rt Hon H.(S'thorne)	Fookes, Miss Janet
Atkins, Robert(Preston N)	Forman, Nigel
Baker, Kenneth(St.M'bone)	Fowler, Rt Hon Norman
Baker, Nicholas (N Dorset)	Fraser, Peter (South Angus)
Beaumont-Dark, Anthony	Freud, Clement
Beith, A. J.	Gardiner, George (Reigate)
Bell, Sir Ronald	Garel-Jones, Tristan
Bendall, Vivian	Goodhew, Victor
Bennett, Sir Frederic (T'bay)	Goodlad, Alastair
Benyon, Thomas (A'don)	Gorst, John
Berry, Hon Anthony	Gower, Sir Raymond
Biggs-Davison, Sir John	Gray, Hamish
Blackburn, John	Greenway, Harry
Bonsor, Sir Nicholas	Griffiths, Peter Portsm'th N)
Boscawen, Hon Robert	Grimond, Rt Hon J.
Bottomley, Peter (W'wich W)	Gummer, John Selwyn
Braine, Sir Bernard	Hamilton, Michael (Salisbury)
Brinton, Tim	Hannam, John
Brown, Michael(Brigg & Sc'n)	Haselhurst, Alan
Bryan, Sir Paul	Hawkins, Paul
Budgen, Nick	Hawksley, Warren
Burden, Sir Frederick	Hayhoe, Barney
Butcher, John	Henderson, Barry
Cadbury, Jocelyn	Higgins, Rt Hon Terence L.
Carlisle, John (Luton West)	Hill, James
Carlisle, Kenneth (Lincoln)	Hogg, Hon Douglas (Gr'th'm)
Carlisle, Rt Hon M. (R'c'n)	Holland, Philip (Carlton)
Chapman, Sydney	Hordern, Peter
Clark, Sir W. (Croydon S)	Hunt, David (Wirral)
Clarke, Kenneth (Rushcliffe)	Hunt, John (Ravensbourne)
Cockeram, Eric	Jessel, Toby
Colvin, Michael	Jopling, Rt Hon Michael
Cope, John	Kaberry, Sir Donald
Costain, Sir Albert	Kershaw, Sir Anthony
Cranborne, Viscount	King, Rt Hon Tom
Dickens, Geoffrey	Knight, Mrs Jill
Dorrell, Stephen	Knox, David
Dover, Denshore	Lawrence, Ivan
Dunn, Robert (Dartford)	Lee, John
Eden, Rt Hon Sir John	Lennox-Boyd, Hon Mark
Edwards, Rt Hon N. (P'broke)	Lloyd, Ian (Havant & W'loo)
Eggar, Tim	Lloyd, Peter (Fareham)
Eyre, Reginald	Lyell, Nicholas
Fairgrieve, Sir Russell	Macfarlane, Neil
Faith, Mrs Sheila	McNair-Wilson, M. (N'bury)
Fell, Anthony	McQuarrie, Albert
Fenner, Mrs Peggy	Major, John
Finsberg, Geoffrey	Marlow, Antony

Mates, Michael	Shaw, Giles (Pudsey)
Mather, Carol	Shaw, Michael (Scarborough)
Maude, Rt Hon Sir Angus	Shepherd, Colin (Hereford)
Mawby, Ray	Sims, Roger
Mawhinney, Dr Brian	Smith, Dudley
Maxwell-Hyslop, Robin	Speller, Tony
Mellor, David	Spence, John
Meyer, Sir Anthony	Spicer, Jim (West Dorset)
Miller, Hal (B'grove)	Stainton, Keith
Mills, lain (Meriden)	Stanbrook, Ivor
Moate, Roger	Stanley, John
Monro, Sir Hector	Steel, Rt Hon David
Morgan, Geraint	Steen, Anthony
Morrison, Hon C. (Devizes)	Stevens, Martin
Morrison, Hon P. (Chester)	Stewart, Ian (Hitchin)
Mudd, David	Tapsell, Peter
Murphy, Christopher	Taylor, Teddy (S'end E)
Myles, David	Tebbit, Rt Hon Norman
Neale, Gerrard	Temple-Morris, Peter
Needham, Richard	Thomas, Rt Hon Peter
Nelson, Anthony	Townend, John (Bridlington)
Neubert, Michael	Townsend, Cyril D, (B'heath)
Newton, Tony	Trippier, David
Onslow, Cranley	Trotter, Neville
Osborn, John	van Straubenzee, Sir W.
Page, John (Harrow, West)	Viggers, Peter
Page, Richard (SW Herts)	Waddington, David
Pattie, Geoffrey	Wainwright, R.(Colne V)
Peyton, Rt Hon John	Walker-Smith, Rt Hon Sir D.
Pollock, Alexander	Wall, Sir Patrick
Prentice, Rt Hon Reg	Waller, Gary
Price, Sir David (Eastleigh)	Warren, Kenneth
Proctor, K. Harvey	Watson, John
Pym, Rt Hon Francis	Wells, John (Maidstone)
Rathbone, Tim	Wells, Bowen
Rees, Peter (Dover and Deal)	Wheeler, John
Rees-Davies, W. R.	Wickenden, Keith
Renton, Tim	Wiggin, Jerry
Rhodes James, Robert	Wilkinson, John
Rhys Williams, Sir Brandon	Williams, D.(Montgomery)
Roberts, Wyn (Conway)	Wolfson, Mark
Ross, Stephen (Isle of Wight)	Young, Sir George (Acton)
Rost, Peter
Royle, Sir Anthony	Tellers for the Noes:
Sainsbury, Hon Timothy	Mr. Peter Brooke and
Scott, Nicholas	Mr. Donald Thompson.

McMahon, Andrew	Skinner, Dennis
McNally, Thomas	Snape, Peter
McTaggart, Robert	Soley, Clive
Marshall, Jim (Leicester S)	Spearing, Nigel
Mason, Rt Hon Roy	Spriggs, Leslie
Maxton, John	Stewart, Rt Hon D. (W Isles)
Maynard, Miss Joan	Stoddart, David
Milian, Rt Hon Bruce	Stott, Roger
Mitchell, R. C. (Soton Itchen)	Strang, Gavin
Morris, Rt Hon C. (O'shaw)	Thomas, Mike (Newcastle E)
Mulley, Rt Hon Frederick	Thorne, Stan (Preston South)
O'Halloran, Michael	Walker, Rt Hon H.(D'caster)
O'Neill, Martin	Watkins, David
Orme, Rt Hon Stanley	Welsh, Michael
Owen, Rt Hon Dr David	Whitlock, William
Palmer, Arthur	Wigley, Dafydd
Parry, Robert	Willey, Rt Hon Frederick
Powell, Raymond (Ogmore)	Williams, Rt Hon A.(S'sea W)
Race, Reg	Wilson, Gordon (Dundee E)
Richardson, Jo	Wilson, William (C'try SE)
Roberts, Albert (Normanton)	Winnick, David
Roberts, Ernest (Hackney N)	Woolmer, Kenneth
Robertson, George	Young, David (Bolton E)
Rooker, J. W.
Sandelson, Neville	Tellers for the Ayes:
Sever, John	Mr. George Morton and
Silkin, Rt Hon J. (Deptford)	Mr. James Hamilton.

Question accordingly negatived.

Mr. Martin Stevens (Fulham)

I beg to move amendment No. 174, in page 15, line 45, at end insert— '(13) Notwithstanding sub-section (1) of section 161 of the Companies Act 1948 (Disqualifications for appointment as auditor), but subject to sub-sections (2) to (4) thereof, a person shall be qualified for appointment as auditor of a small or medium-sized company as defined in section 8 (2) and (3) of this Act who is a member of the Society of Company and Commercial Accountants Limited (by Guarantee), the British Association of Accountants and Auditors Limited (By Guarantee), or of any other body of accountants established in the United Kingdom and for the time being recognised for the purposes of this provision by the Department of Trade and who is in receipt of a valid Practising Certificate issued by that member's qualifying body.'. Under section 161 of the 1948 Act professional bodies may apply for recognition as auditors of public companies and private limited companies. Only two bodies are currently recognised—the Institute of Chartered Accountants in England and Wales, and its equivalent bodies in other countries, and the body representing certified accountants. No professional body has applied for, or been accorded,. recognition since the 1948 Act was passed.

The British Association of Accountants and Auditors was established in 1923, the Institute of Company Accountants was set up in 1928, the body representing cost and industrial accountants was set up in 1936, and the Society of Commercial Accountants was established in 1942. Three of those bodies merged in 1974 to form the Society of Company and Commercial Accountants and were joined in 1980 by the British Association of Accountants and Auditors.

The joint organisation has 10,000 members and 5,000 student members—about the same number as belong to the body representing certified accountants. Not many practise as public auditors—only about 2,000—and they cannot act as auditors to public companies, but only to partnerships, sole traders and non-limited companies, many of which, however, are considerably larger than the small and medium-sized companies that we are discussing.

I am asking my hon. Friend the Under-Secretary to consider broadening the choice of auditors for small and medium-sized companies. He will say—and I know that he is sympathetic to the arguments that I am advancing today—that auditors of public companies and private limited companies must have and must be seen to have the best possible qualifications. The Society of Company and Commercial Accountants has taken great strides in recent years to demonstrate that its members have such qualifications. It issues practice regulations and a code of conduct. It has its own disciplinary committee. It has a very full examination procedure, which involves 60 hours of examinations. It is pledged to accept the European Commission's eighth directive on professional training. Incidentally, it was stated in a number of publications that the British Association of Accountants and Auditors, which has now joined the society, withdrew an application for recognition. In fact, it was not withdrawn; it lapsed when the association merged with the society.

The argument could be advanced—I know that my hon. Friend would rebut it vigorously—that we should develop one body for auditing and another body for company accounting, the reason being that in looking for qualifications the experience of the auditor is at least as important as the basic training that he has received. The auditing of company accounts for small and medium-sized organisations calls ideally for a fairly wide experience in that field.

One could ask "Why do not young men and women wishing to become professional auditors join the two existing bodies? Why should they join the society?" There are, of course, differences in training. The Institute of Chartered Accountants in England and Wales requires that a candidate should serve articles. This is not so with certified accountants. Nor do certified accountants insist on candidates being university graduates, although the institute would like to insist, and hopes to insist, on a graduate-only entry. The Institute of Chartered Accountants of Scotland already does so.

The certified accountants ask that candidates should undertake a period of training with a principal. They are trained to work in industry and to work as auditors and accountants for larger companies. The society does not require graduate candidates. It accepts the need for a master-pupil period, but treats its candidates as persons who are capable of earning their living in the ordinary way during this period.

Incidentally, when we talk about a graduate entry, no one questions what the subject is in which the graduate should have earned his degree. It may therefore be thought that the requirement or a future requirement from the institute for a graduate entry may not perhaps alter the professional character of its members as substantially as it may hope. The society also takes many overseas students.

5.45 pm

So the society is fulfilling an important role. It is increasingly fulfilling the role of training—I hope that I have shown that it is quite a severe and rigorous programme—young men and women do not have university degrees and who do not want to go through a period of articles. It is clearly right, in my opinion, that our country should offer this alternative channel for entry into the profession.

The society would claim that it offers special knowledge of smaller company accounts. It does not aim to audit the accounts of enormous public companies. It would accept that, if recognition were given in the terms of my amendment, it would mean that it would be recognised not for those purposes but only for the purpose of auditing the smaller companies which we are now discussing.

It is spurious to argue that smaller companies now have the benefit, and should not be denied the benefit in the future, of the services of chartered and certified accountants whose qualifications are better than those of members of the society. After all, smaller companies never see the principals. They see only the articled clerks. Many of the big firms of chartered accountants have so many principals that the currency in that respect may have been debased.

We can also argue that the House wishes to help the smaller business man, and the smaller accountant is himself a smaller business man. In granting recognition to the society, we should be ensuring, first, that the smaller business man would have access to principals where he now does not; that he would have access to the services of auditors with a much more genuine knowledge of the needs of small companies than often happens under the present arrangements; and that the door would be held open for candidates for the profession who cannot or do not wish to obtain university degrees or to serve a period of articles.

It would not be very difficult to confer recognition on the restricted terms that I have described, and I greatly hope that my hon. Friend may see fit to accept the amendment and confer the recognition that I am seeking.

Mr. John Fraser (Norwood)

I strongly support the amendment standing in the name of the hon. Member for Fulham (Mr. Stevens). It is about time that the Government made a move to enfranchise a much wider body of people in accounting and auditing. I say that for a number of reasons.

There is always a danger with qualifications. The current fashion seems to be to get a job, give it a name, invent a qualification for it, and then make the doing of the job exclusive to those who carry the qualification. Then, if too many people are getting in, one introduces a degree or diploma as a necessary preliminary, even before people start training in the profession. Professional life becomes rather like an Olympic high jump. The better that people become, the higher the opening standards.

There are dangers in that. I am not for a moment inveighing against high standards in the professions. They are absolutely necessary. However, one must view with suspicion the possibility that some professions—and, indeed, the Government—impose too high a standard in terms of those who can audit the books of smaller and medium-sized companies.

Mr. Nicholas Baker (Dorset, North)

How does the hon. Gentleman square the argument that he is putting now for widening a class of people who advise and have to do with companies with the arguments that were put from the Opposition Benches about the secretaries of limited companies under the Companies Act of last year?

Mr. Fraser

Perhaps I should not go into that matter. There is possibly some inconsistency, but I am advancing a view that I have advanced in the House for a long time and certainly when I was a Minister. The danger exists inside one's own profession. I remember that when I started to become a solicitor one had to have, I think, only O-levels. Then many working-class people seemed to become solicitors, so the requirement was raised to A-levels. Many working-class people went on to get A-levels. So then there was a move inside the profession to make it an all-degree profession. The same trends are present in relation to architecture, and so on. When I was an employment Minister an organisation came to me—I think that they were careers officers—suggesting that a degree should be a necessary pre-qualification for becoming a careers officer. I do not say that it was a majority view.

One must weigh those arguments very carefully and match the necessity for high standards of training and high academic qualifications with the need to have deep practical experience. Sometimes the deep practical experience—I emphasise "sometimes"—is a better qualification than high academic standards.

I am not trying to lay down a rule, and I am certainly not attempting to be anti-academic. I am simply saying that there is a danger in setting standards too high, and there is also the danger of a waste of manpower. A perfectly respectable argument which is put forward by well-known and distinguished members of the accountancy profession is that it is not really necessary to audit the books of some smaller companies at all, and that it is a complete waste of manpower and simply means paying people to do what becomes a routine job. I do not know whether such arguments bear weight, but I believe that we may be excluding necessary manpower by preventing responsible and respectable accountancy bodies from carrying out the audits of books of smaller companies, and taking off them work which they used to perform perfectly adequately.

As the hon. Member for Fulham said, the bodies that he has mentioned have a particularly good record in training people who come from overseas and, I believe, in training those whose chances of getting into some of the other professions are inhibited, perhaps because of family background or educational disadvantage at the beginning. Incidentally, in saying that, I do not wish in any way to reflect upon people who are members of the bodies that the hon. Member has mentioned and who have impressive qualifications and experience. In short, looking at other areas such as the medical profession, one finds grades of qualifications. There are consultants, doctors, sisters, State registered nurses, State enrolled nurses, and so on. I see no reason why one should not look at a gradation of qualifications to carry out the auditing of the accounts of a company.

I hope that the Minister will make a sympathetic response to the case which has been consistently put to him during this debate and in past debates on Companies Bills.

Mr. Eyre

As I expected, my hon. Friend the Member for Fulham (Mr. Stevens) put his case in an attractive and persuasive style. I am very sorry to have to tell him that I cannot accept his amendment, but I hope that I shall be able to give him some helpful information.

Auditors of companies have to say whether in their view the accounts give a true and fair view and comply with the Acts. Shareholders, creditors and other users of accounts place considerable reliance on the auditor's report. Shareholders are entitled to place the same degree of reliance on audited accounts regardless of the size of the company concerned. The importance of shareholdings does not vary according to the size of company. For that reason, the Government believe that the auditors of companies of all sizes must have a similar level of qualification.

Shareholders need to know that auditors are properly trained and are subject to proper ethical standards. It is widely accepted that the requirements of the four recognised bodies reflect informed opinion of what is appropriate, but there is no reason why only these four bodies should have recognised status. It is certainly our policy that any accountancy body that has suitable standards will be recognised. It will need appropriate educational requirements. By that, I do not mean a false measure of educational requirements. I take the point made by the hon. Member for Norwood (Mr. Fraser). Such bodies must have appropriate educational requirements, training arrangements and examination standards, as well as ethical rules, disciplinary arrangements, technical standards and procedure—all a necessary part of the professional standards about which we have been talking.

I am certainly ready to give the most careful consideration to any application for recognition. My Department will be glad to discuss the matter in detail with either of the bodies named in the amendment if they wish—the Society of Company and Commercial Accountants and the British Association of Accountants and Auditors.

The hon. Member for Norwood is a solicitor, and he understands the need for high professional standards in these respects. I do not think that his comparison was quite right. He mentioned the medical profession but then moved into other bodies which are not medically qualified. I believe that he dealt with a higher grade, at least of professional distinction, within the medical profession, and then went on to talk about nurses, and so on. I do not think that that argument is quite sustainable in these matters.

Mr. John Fraser

I think that it is very fair. For a long time we used to waste doctors' time in giving them jobs that nurses could perfectly adequately perform by themselves. There is increased recognition of the fact that one can dilute a job. I do not mean that in any pejorative sense. I think that it is a perfectly fair comparison.

Mr. Eyre

I understand exactly what the hon. Member has in mind. I do not think that it was entirely accurate to put all the people that he mentioned into the category of the medical profession. That is the only point that I am making. Again, I take his point with regard to education. I take my hon. Friend's point about the opportunity to join a body and to qualify and to obtain a full professional qualification. I promise the most careful consideration of any application for recognition.

I also recognise that the British Association of Accountants and Auditors applied for recognition some years ago and has not withdrawn its application. I take my hon. Friend's point. If that association or the Society of Company and Commercial Accountants wishes to pursue this matter, my Department is at their disposal.

Mr. Stevens

I am most grateful for the outspoken and staunch support from the hon. Member for Norwood (Mr. Fraser) and for the friendly response from my hon. Friend the Under-Secretary. I know that both the society and the association will heed the Under-Secretary's words and will be as grateful as I am for the spirit in which they were uttered. As my hon. Friend the Minister is to be the guest of honour, in two or three weeks' time, at the society's annual dinner, I have no doubt that that occasion will afford him the opportunity of learning more about it. It will also afford him an opportunity to heed its aspirations in a more human and relaxed fashion than is possible in the Chamber tonight. I shall ensure that his words are conveyed to the society. No doubt it will take advantage of the invitation that my hon. Friend has extended.

In those circumstances, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.