§ Mr. RedwoodI beg to move amendment No. 10, in page 200, line 28, leave out from beginning to end of line 31.
§ Mr. SpeakerWith this it will be convenient to discuss Government amendments Nos. 31 and 258.
§ Mr. RedwoodThese amendments concern the Dearing report on the making of accounting standards. The House might like to know that, earlier today, in answer to a question from my hon. Friend the Member for Pembroke (Mr. Bennett) I announced that Sir Ronald Dearing has accepted an invitation to become chairman designate of the Financial Reporting Council—[Interruption.] There are some hon. Members who would like to hear this announcement.
Sir Ronald's initial task will be to negotiate with interested parties so that the new arrangements for making and enforcing accounting standards are in place by next summer. Once the body is established, it is the intention of my right hon. Friend the Secretary of State for Trade and Industry, acting jointly with the Governor of the Bank of England, to appoint Sir Ronald formally—[Interruption.]
§ Mr. SpeakerWould those hon. Members who are below the Gangway and do not want to participate in this debate please leave the Chamber quietly?
§ Mr. RedwoodI shall make that last sentence available to the House again. Once the body is established, it is the intention of my right hon. Friend the Secretary of State for Trade and Industry, acting jointly with the Governor of the Bank of England, to appoint Sir Ronald Dearing formally as chairman of the council.
Clear unambiguous accounting standards, effectively enforced, are essential to the good workings of a market economy. The report of the committee chaired by Sir Ronald has been widely welcomed as identifying the way to enhance the authority and general acceptability of accounting standards. I can think of nobody better qualified to carry through the important task of setting up the new arrangements. I am delighted that Sir Ronald has agreed to undertake that role. I have always been most impressed by the work that he has done in his various jobs.
§ Mr. SkinnerWe should get this matter straight because we have had a lot of trouble about Alan Walters. We should be sure about where this fella stands before going any further. Will he support the Department of Trade and Industry? Will he support the Chancellor of the Exchequer or will he support the Prime Minister? Is he "one of us?" Have all those questions been answered in the positive, because if not, the Tory Government will have a lot of trouble with him. I am not worried about that and, frankly, I should like the Government to appoint somebody who would cause them a bit of trouble. However, I should like an explanation. Where does this man stand politically?
§ Mr. RedwoodSir Ronald will defend the public interest as he did as a civil servant and subsequently as chairman of the Post Office. He has a fine record of public service and this job is not connected in any way with the party political dogfight in the way in which the hon. Gentleman has tried to suggest.
Amendment No. 10 changes the way in which the Bill gives effect to one of the central recommendations of the Dearing report—that directors should state in their accounts whether those accounts have been drawn up in accordance with applicable accounting standards. It implements the Committee's wish that any company departing from accounting standards should give reason why. It does not, however, also require the financial effects to be shown, as that is tantamount to saying that companies can never deviate from accounting standards narrowly defined.
Anyone concerned about the accounting practices is free to question the company at the AGM before which the accounts are laid. The Financial Reporting Council will have a duty to stop departures from accounting standards becoming a scandal. It will also be the responsibility of auditors to draw attention to any departure which causes the accounts not to give a true and fair view.
There are other reasons why the Bill in its present form is not acceptable on this point. We have argued consistently in relation to Dearing that it is important that at the end of the day standards are not given legal effect. The strength of accounting standards is that they offer a more flexible system of rules than statute can provide. We believe that a requirement to show financial effects would result in standards increasingly written and interpreted as a piece of statute law—with greater emphasis on meeting the letter rather than the spirit. Whilst we all want standards to have authority—indeed, the whole thrust of 947 the Dearing proposals has that end in view—I do not believe that the way to do this is to encourage greater legalism. This could all too easily shift the emphasis of accounting away from the objective of producing true and fair accounts.
The related amendment, No. 31, simply ensures that the equivalent provision for banking and insurance companies is in step.
§ Mr. Campbell-SavoursThe Minister said that anyone has the right to question the accounting arrangements and standards of a company at its annual general meeting. Will the Minister turn his attention to the case of Mr. George and Mrs. Liz Davies, the husband and wife team who were ousted from the board of Next, the high street retailer, last December? At the annual general meeting of that company, the chairman refused to tell his shareholders about the golden handshake that was being paid to those two people, despite being pressed to do so by the shareholders. Indeed, a resolution calling for the sacking of the directors was tabled. What is the Minister's view of that case? What is the position on such a case as a result of the appointment of this gentleman who will obviously be setting new standards? Would the board of that company have been required to declare how much those two people were being paid as part of their golden handshake? What would happen now?
§ Mr. RedwoodWe shall have to let Sir Ronald set up his Financial Reporting Council and review and establish the accounting standards that he wants. Then I would be able to answer the question whether any new provision with which he might come forward would have a bearing on that case—were history to repeat itself, which is extremely unlikely.
Amendment No. 258 would delete clause 198 from the Bill. Clause 198 was inserted in Committee——
§ Mr. Campbell-SavoursWill the Minister give way?
§ Mr. RedwoodNo, I have answered the question.
§ Mr. Campbell-Savoursrose——
§ Mr. SpeakerOrder. The Minister is not giving way.
§ Mr. Campbell-Savoursrose——
§ Mr. SpeakerOrder. The Minister is not giving way.
§ Mr. RedwoodClause 198 was inserted in Committee against the advice of my hon. Friend the then Parliamentary Under-Secretary of State for Corporate Affairs. It was put to the Committee with passion and eloquence by my hon. Friend the Member for Beaconsfield (Mr. Smith), but everyone would accept that it does not work in its present form——
§ It being Ten o'clock, further consideration of the Bill stood adjourned.
§ Question put,
§ That, at this day's sitting, the Companies Bill [Lords] may be proceeded with, though opposed, until any hour.—[Mr. Dorrell.]
§ The House divided: Ayes 157, Noes 54.
949| Division No. 344] | [10 pm |
| AYES | |
| Alexander, Richard | Atkinson, David |
| Alison, Rt Hon Michael | Baker, Nicholas (Dorset N) |
| Amos, Alan | Batiste, Spencer |
| Arbuthnot, James | Bellingham, Henry |
| Bennett, Nicholas (Pembroke) | Jessel, Toby |
| Benyon, W. | Jones, Gwilym (Cardiff N) |
| Biffen, Rt Hon John | Key, Robert |
| Body, Sir Richard | Kilfedder, James |
| Boscawen, Hon Robert | Knapman, Roger |
| Boswell, Tim | Knight, Greg (Derby North) |
| Bowis, John | Knight, Dame Jill (Edgbaston) |
| Braine, Rt Hon Sir Bernard | Knowles, Michael |
| Brazier, Julian | Lang, Ian |
| Brown, Michael (Brigg & Cl't's) | Latham, Michael |
| Buck, Sir Antony | Lester, Jim (Broxtowe) |
| Burns, Simon | Lilley, Peter |
| Burt, Alistair | Lyell, Sir Nicholas |
| Butler, Chris | MacGregor, Rt Hon John |
| Butterfill, John | Maclean, David |
| Carlisle, Kenneth (Lincoln) | McLoughlin, Patrick |
| Carrington, Matthew | McNair-Wilson, Sir Michael |
| Carttiss, Michael | Major, Rt Hon John |
| Cash, William | Mans, Keith |
| Chalker, Rt Hon Mrs Lynda | Marland, Paul |
| Chapman, Sydney | Marshall, John (Hendon S) |
| Chope, Christopher | Martin, David (Portsmouth S) |
| Clark, Dr Michael (Rochford) | Maxwell-Hyslop, Robin |
| Clark, Sir W. (Croydon S) | Meyer, Sir Anthony |
| Clarke, Rt Hon K. (Rushcliffe) | Mills, Iain |
| Coombs, Anthony (Wyre F'rest) | Morrison, Sir Charles |
| Coombs, Simon (Swindon) | Nicholls, Patrick |
| Currie, Mrs Edwina | Nicholson, Emma (Devon West) |
| Curry, David | Pawsey, James |
| Davies, Q. (Stamf'd & Spald'g) | Powell, William (Corby) |
| Davis, David (Boothferry) | Redwood, John |
| Day, Stephen | Ridley, Rt Hon Nicholas |
| Dicks, Terry | Ridsdale, Sir Julian |
| Dorrell, Stephen | Rumbold, Mrs Angela |
| Douglas-Hamilton, Lord James | Sainsbury, Hon Tim |
| Dover, Den | Shaw, David (Dover) |
| Dunn, Bob | Shaw, Sir Giles (Pudsey) |
| Durant, Tony | Shephard, Mrs G. (Norfolk SW) |
| Evennett, David | Shepherd, Richard (Aldridge) |
| Fallon, Michael | Shersby, Michael |
| Favell, Tony | Smith, Tim (Beaconsfield) |
| Fishburn, John Dudley | Soames, Hon Nicholas |
| Fookes, Dame Janet | Speller, Tony |
| Forman, Nigel | Spicer, Sir Jim (Dorset W) |
| Forsyth, Michael (Stirling) | Steen, Anthony |
| Forth, Eric | Stevens, Lewis |
| Fowler, Rt Hon Norman | Stewart, Andy (Sherwood) |
| Fox, Sir Marcus | Stradling Thomas, Sir John |
| Freeman, Roger | Summerson, Hugo |
| French, Douglas | Taylor, John M (Solihull) |
| Gale, Roger | Taylor, Teddy (S'end E) |
| Garel-Jones, Tristan | Thompson, D. (Calder Valley) |
| Glyn, Dr Alan | Thompson, Patrick (Norwich N) |
| Goodlad, Alastair | Thorne, Neil |
| Goodson-Wickes, Dr Charles | Townsend, Cyril D. (B'heath) |
| Green way, Harry (Ealing N) | Tracey, Richard |
| Griffiths, Peter (Portsmouth N) | Twinn, Dr Ian |
| Ground, Patrick | Vaughan, Sir Gerard |
| Gummer, Rt Hon John Selwyn | Waddington, Rt Hon David |
| Hague, William | Wakeham, Rt Hon John |
| Hamilton, Neil (Tatton) | Walters, Sir Dennis |
| Hanley, Jeremy | Ward, John |
| Harris, David | Wardle, Charles (Bexhill) |
| Haselhurst, Alan | Watts, John |
| Hayes, Jerry | Wheeler, John |
| Hayward, Robert | Widdecombe, Ann |
| Heathcoat-Amory, David | Wiggin, Jerry |
| Hicks, Mrs Maureen (Wolv' NE) | Winterton, Mrs Ann |
| Hind, Kenneth | Winterton, Nicholas |
| Howells, Geraint | Wolfson, Mark |
| Hughes, Robert G. (Harrow W) | Wood, Timothy |
| Hunt, David (Wirral W) | Young, Sir George (Acton) |
| Hunt, Sir John (Ravensbourne) | |
| Hunter, Andrew | Tellers for the Ayes: |
| Irvine, Michael | Mr. Tom Sackville and |
| Jack, Michael | Mr. Irvine Patnick. |
| Janman, Tim |
| NOES | |
| Ashton, Joe | Illsley, Eric |
| Barnes, Harry (Derbyshire NE) | Jones, Barry (Alyn & Deeside) |
| Barron, Kevin | Kirkwood, Archy |
| Brown, Ron (Edinburgh Leith) | Livsey, Richard |
| Campbell, Menzies (Fife NE) | Lofthouse, Geoffrey |
| Campbell, Ron (Blyth Valley) | McCartney, Ian |
| Campbell-Savours, D. N. | Mahon, Mrs Alice |
| Carlile, Alex (Mont'g) | Meale, Alan |
| Clwyd, Mrs Ann | Michael, Alun |
| Corbyn, Jeremy | Michie, Bill (Sheffield Heeley) |
| Cousins, Jim | Morris, Rt Hon A. (W'shawe) |
| Cox, Tom | Parry, Robert |
| Cryer, Bob | Patchett, Terry |
| Cummings, John | Pike, Peter L. |
| Cunliffe, Lawrence | Powell, Ray (Ogmore) |
| Cunningham, Dr John | Prescott, John |
| Dixon, Don | Primarolo, Dawn |
| Ewing, Mrs Margaret (Moray) | Salmond, Alex |
| Fearn, Ronald | Skinner, Dennis |
| Flynn, Paul | Spearing, Nigel |
| Fraser, John | Steinberg, Gerry |
| Galloway, George | Vaz, Keith |
| Gilbert, Rt Hon Dr John | Wall, Pat |
| Golding, Mrs Llin | Wallace, James |
| Hardy, Peter | Welsh, Andrew (Angus E) |
| Haynes, Frank | |
| Hinchliffe, David | Tellers for the Noes: |
| Home Robertson, John | Mr. Michael Welsh and Mr. George J. Buckley. |
| Hughes, John (Coventry NE) |
§ Question accordingly agreed to.
§ Bill, as amended, (in the Standing Committee), again considered.
§ Mr. RedwoodI should explain to the hon. Member for Workington (Mr. Campbell-Savours) that Sir Ronald Dearing could make changes to accounting standards once the council is up and running. There is also a legal requirement to reveal compensation to directors who lose office, and that would appear in the accounts following the events in question.
Amendment No. 258 will delete clause 198. As most accept, the clause does not work in its present form and must either be deleted or substantially revised. Clause 198 is directed at enabling the Secretary of State to delegate his power to order accounting provisions in the Act by regulation through a statutory financial reporting council. I acknowledge that the new clause does not require the Secretary of State to delegate his powers. None the less, it would be wrong in principle for the Government to support the inclusion of such a provision unless they thought it right to devolve such powers. Therefore, I ask the House to remove it from the Bill.
§ Mr. Campbell-SavoursIn the light of that reply, does the Minister think that legal action should be taken in the case of a company that refuses to reveal how much was paid? What is the position legally?
§ Mr. RedwoodThere is already a legal requirement that the information be published in the report and accounts concerning the year in which the events took place.
§ Mr. HanleyI should declare my interest as the parliamentary adviser to the Institute of Chartered Accountants in England and Wales. I add to the words of welcome to my hon. Friend the Member for Wokingham (Mr. Redwood). He may feel as if he has already been in the post for years and years. He brings a wealth of experience to his task, which he has already shown this evening, and he has approached his task in a most 950 constructive way. It is a great shame that activities completley unconnected with the Bill are proving more than a hiccup.
10.15 pm
I welcome the success of my hon. Friend the Minister in securing the appointment of Sir Ronald Dearing. We are all extremely fortunate to have secured him for such an important task. We look forward to observing the way in which he tackles the job in the months ahead.
Paragraph 7 of schedule 1 introduces a requirement for companies to disclose and explain any material departure from accounting standards. That requirement is imposed in the explanatory foreword to "Accounting Standards". Its incorporation in statute implements one of the recommendations of Sir Ronald Dearing's report.
New paragraphs 36A(2) and (3) bring into statute further requirements of the explanatory foreword. These are to disclose the financial effects of any departure from standards, unless this would be impracticable, and to explain any non-disclosure. Unfortunately, Government amendment No. 10 removes these requirements. I feel that that is a step backwards. If the requirements of the explanatory foreword are deliberately removed from the Bill while others are left standing, it may be difficult to enforce compliance in future. The status of accounting standards will thereby be reduced. Users of accounts will also be deprived of helpful information that would enable them to calculate what the figures would have looked like had the company followed accounting standards.
It follows from what my hon. Friend the Minister said that he should consider in the months ahead—I do not feel that this is a matter that should divide the House—whether the extra information, which according to "Accounting Standards" should be provided for shareholders so that they are able to consider whether the departure was valid and to quantify exactly what the accounting might have been had accounting standards been adhered to, should be made available. I feel that the information is important and should be included in future. Opportunities for comparisons with other companies will be reduced if the requirements are removed. After all, it is the removing of disparity of accounting treatment that has created the accounting standards programme. The removal of disparity is best able to be seen if we can quantify the departures from accounting standards.
§ Mr. John GarrettThe Opposition also welcome the appointment of Sir Ronald Dearing. He has been a most distinguished public servant both in the Civil Service and as the head of the Post Office. I understand that he is also the chairman of the Durham development corporation. That must be another reason for giving preferment.
The amendments embody our proposals that the reasons for any departures from accounting standards in company accounts must be stated in the annual report and accounts. They delete, however, the necessity to state the financial effects of departures. We fear that in the long run this may prove to be a weakness. In the explanatory foreword to "Statements of Standard Accounting Practice" it is required that the auditors should state the financial effects of departures if that is the decision of the accounting standards board. On the whole, it will be a weaker requirement than we would have wished for, but at least the amendment goes a significant way towards opening up the whole question of departures from 951 accounting standards. We are willing to put up with that inconsistency until Sir Ron, in the fullness of time, produces new directives.
Amendment No. 258 deletes the amendment successfully proposed by the hon. Member for Beaconsfield (Mr. Smith) about the formation of the Financial Reporting Council. As the Minister said, the amendment was faulty because the schedule accompanying it, which set out the constitution of the FRC, was not accepted by the Committee. The hon. Gentleman's proposals were weaker than those that we had in mind, which were for a statutory body concerned with the supervision both of accounting standards and the auditing profession—something that will come in the fullness of time. We were not entirely sold on the amendment. Eventually there will have to be some regulation covering the auditing profession. It is a large, multinational business; it no longer consists of a cottage industry with small groups of Scottish accountants, as it did when it started the better part of 100 years ago. They are enormous companies, they do not provide accounts, they are secretive in the way that they go about their business and we know little about them.
The appointment of Sir Ron is a reasonable start and we wish him well. We look forward to—
§ Mr. SkinnerI am just beginning to piece together what my hon. Friend has been saying about accounting and auditing. As the Bill began its passage some time ago, before the Ferranti—International Signal and Control fraud with the £200 million rip-off by the company and Mr. James Guerin, I wonder whether the new provisions—and my hon. Friend is not too happy with them—will help such companies to ensure that they are not ripped off. My guess is that some taxpayers' money could be used, through inflated contracts or some other method, to assist those companies through their problems. Can my hon. Friend inform us whether the conditions for auditing and accounting would fit the bill or whether the passage of time means that they need to be even stronger?
§ Mr. GarrettMy understanding is that the case currently being investigated by the serious fraud office relates to the gullibility of the Ferranti board in connection with certain contracts entered into by a company that it acquired in another country. To that extent, I do not think that the question of accounting standards is involved. In the initial stages, we cannot put these issues before Sir Ron and his Financial Reporting Council.
§ Mr. SkinnerI understand that a set of accountants were advising Ferranti, that those accountants were resident in this country and that they told Ferranti that ISC had a clean bill of health. If that is the case, those accountants were seriously at fault in telling Ferranti that it could go ahead. If that is proved by the investigations of the serious fraud office, it shows that there is something wrong with the way in which so-called professional auditors go through a company's books very quickly and enable a company, which attracts a great deal of taxpayers' money through defence contracts, to be milked by a bogus company in America. A British set of accountants, albeit acting at a multinational level, gave Ferranti very bad advice.
§ Mr. GarrettMy hon. Friend is putting me in the position of a Minister having to answer for the conduct of Government policy on the question of accountants——
§ Mr. SkinnerMy hon. Friend will be in that position soon.
§ Mr. GarrettPerhaps I will, but these matters should be addressed to the Minister. Perhaps my hon. Friend can ask his questions in a subsequent debate that will arise shortly. I cannot tell him whether the valuation of ISC was carried out by auditors at the request of the Ferranti board and whether those auditors behaved improperly. Perhaps the Minister has a view on that matter as it has been referred to the serious fraud office. I cannot pass an opinion on that.
I think that, eventually, the council that Sir Ron will head will have to take into account the conduct, behaviour and practice of auditing in general, in addition to the supervision of accounting standards with which it is presently charged. However, that is not the subject of this part of the Bill. If my hon. Friend wishes to raise the question of fraud, there is another part concerned with investigation: no doubt the Minister will be able to give an answer when we deal with that. I hope that that puts my hon. Friend's mind at rest for the time being.
§ Mr. SkinnerThe more I think about it, the more I recognise the Bill's importance in connection with another company in Britain that has run into serious trouble connected with homes. The ex-chairman of the 1922 Committee, Sir Edward du Cann, was involved: he was a non-executive director who ran away from the firm very quickly when he could see the so-and-so hitting the fan, as did many others.
It seems to me that the auditors are not doing their job very well. I wonder whether my hon. Friend believes that these clauses, and Ron Dearing's appointment, can ensure that those abscesses on the body politic—or the company politic—can be cleaned up by the new provision.
I hold the simplistic view that they cannot be cleaned up. This is all about making money, exploiting someone else, doing it as fast as possible and using a shady set of accountants to get it through. What worries me is whether, when the legislation is passed, it will be any good: will we have sorted out the accountants, or will it be in the pocket of companies which seem not to pay a blind bit of notice to all the corruption that is taking place in the City?
§ Mr. GarrettThe short answer is no. The Financial Reporting Council and its chair, Sir Ron Dearing, will not have any jurisdiction over auditors or auditing. What they are trying to do is improve the quality of information given to company shareholders in company accounts, under a set of rules that govern the way in which such things are calculated. The idea is to clarify company accounts. That is the relatively narrow front on which we are operating at present.
My hon. Friend invites me to go further. The point behind our proposal that the council should cover not only accounting and accounting standards but the conduct of the auditing profession would, I think, enable at least the public—the investors, consumers, banks and creditors—to establish rather better the performance of the auditing profession, which is relatively unregulated and very secretive.
§ Mr. HanleyIt is self-regulation.
§ Mr. GarrettThe spokesman for the Institute of Chartered Accountants says that it is self-regulation. That is not satisfactory, as we know from the number of actions 953 taken against auditors. I believe that the Government themselves are taking action against the auditors of De Lorean. These scandals are becoming more common, and this part of the Bill does not address them.
§ Mr. Tim SmithI, too, support and welcome the appointment of Sir Ron Dearing as chairman of the Financial Reporting Council. It is now 13 months since he published his report on the making of accounting standards, and I commend the Department on the way in which it has responded all the way along—first with its consultative document in January, and now with Sir Ron's appointment.
There is scope for improvement in the quality of financial reporting. The hon. Member for Norwich, South (Mr. Garrett) is quite right: the difficulty in the past has been securing compliance with accounting standards when the whole process was largely one of self-regulation. The great step forward was the new paragraph 36A, which appears on page 200 of the Bill and states for the first time in statute law that companies must state whether accounts have been prepared
in accordance with applicable accounting standards".It goes on to say:particulars of any material departure from those standards … shall be given.954 As a result of the change that was made in Committee, not only the particulars but the reasons will now have to be given. My hon. Friend the Minister explained why he could not go all the way and accept the full import of that. I understand that there is concern that we would be giving accounting standards legal form. Giving them legal recognition is a great step forward, and, in due course, with the new Financial Reporting Council, under Sir Ronald Dearing's chairmanship, that will lead to an improvement in financial reporting, which is the subject of our debate.10.30 pm
Of course I am sorry that the Government could not accept my proposal that the Secretary of State should send a delegation to the FRC, but I recognise that the clause as drafted is defective because it should have been accompanied by a schedule, so I understand why my hon. Friend has decided that it should be left out.
I said in Committee that, in the long run at any rate, it might be sensible to ask the same body to look after, supervise and regulate not only accounting standards but the content of company accounts. In practice, the dividing line between the two is not particularly clear cut. Perhaps my hon. Friend should consider the possibility of giving the same body responsibility for the entire contents of a company's accounts.
§ Mr. CousinsI add my congratulations to Sir Ronald Dearing on his new appointment. Many of us remember him at the DTI in Newcastle as regional director for the Northern region back in the 1970s. He was subsequently exiled to the Post Office and we welcome his return to a more normal existence and to the position he holds in County Durham. My personal hope is that he will end his career as a member of Durham county council, which, as some of us recognise, is the most august elected body in the United Kingdom.
The Minister is making a grave mistake in attempting to unpick the compromise that was made in Committee. He would have been far wiser had he fleshed out the free-standing clause giving the Financial Reporting Council the power that he is now removing. We all accept that the necessary additions were not made to make the clause operative. Nonetheless the Minister had that option and it is a great pity that he did not exercise it. It is quite certain that when the Financial Reporting Council under the leadership of Sir Ronald Dearing gets into business many of the pressures towards rationalising the mixed economy of regulation in accountancy and accounting standards will prove quite unstoppable.
The current position is extremely confused. At various points in the Bill review bodies are set up by statute which have, if not legal force, quasi-legal powers which substitute for previous powers that were actionable in court.
Tonight's attempt to unpick the compromise made in Committee will prove unfortunate. It does not get the Minister off to a particularly good start, although, obviously, we wish him well in the short time that remains to him and his colleagues. This matter will not stand still. The attempt to reverse the process that started in Committee of providing a properly-regulated authority over accountancy, accountancy practices and accountancy standards cannot be held up.
The Government's amendment is particularly unfortunate as it does not reflect the spirit of our discussions in Committee. If the Government's amendments are carried tonight, the Bill will be an even bigger mess containing various streams of thought about how to deal with the problem, none of which is carried to a perfect, well-elaborated solution.
It is a great regret that the Government have chosen to unpick the work carried out in Committee. I do not believe that their attempts to hold up the irresistible movement towards proper regulation of accountancy and accounting standards will be effective, and in a very short time we shall be back here discussing precisely the same problems with a further trail of incidents such as the one to which my hon. Friend the Member for Bolsover (Mr. Skinner) referred tonight, and we shall have to consider the matter again. It would have been far better and wiser if the Minister had rolled with the punch and reflected the consensus of the Committee by accepting the amendments that were passed with the support of Conservative and Opposition Members. To attempt to unpick the compromise that was achieved in Committee is to retreat on something that ultimately will prove unstoppable.
§ Mr. Campbell-SavoursI wish to add my congratulations to Sir Ronald Dearing on his new appointment.
I want to follow the remarks of the hon. Member for Beaconsfield (Mr. Smith), who, as I understand it, argued that Sir Ronald Dearing's remit should be extended beyond an examination of accountancy practices and 956 standards to the wider question of financial reporting of company accounts and the form that those accounts take when they are presented at annual general meetings.
In an intervention, I raised the case of a company that was reported in the Financial Times on 26 May. I wish to comment on the article because I believe that it goes to the heart of the debate. It shows deficiencies in how accounts are presented at annual general meetings. I should like a ministerial assurance that these matters will be dealt with by Sir Ronald Dearing when he takes over his new role.
The article refers to a settlement for
Mr. George and Mrs. Liz Davies, the husband-and-wife team ousted last December from their positions of chairman and product director at Next",which I understand is a retail group that sells clothes—[Interruption.] Some of us do not spend our time shopping in the west end—[Interruption.] Next has not made my patch yet, although I am sure that it will come in time—[Interruption.] I am prepared to take interventions if hon. Members wish to intervene and formalise matters for the Official Report. The article continues:Mr. Murray Gordon, executive chairman of Combined English Stores until its takeover by Next and now chairman of Era Group, asked about the amount"—the amount of compensation paid to Mr. and Mrs. Davies—to be told that a settlement had indeed been made but would not be disclosed as it was subject to a confidentiality agreement.Furthermore, shareholders were told' that no provisions would be made"—this answers the point that the Minister was making about matters not having to be reported in the current financial year—in the 1989, 1990 or 1991 group accounts in respect of any settlement.Obviously, there was no intention to publish information about the compensation paid, which runs to quite a substantial sum of money.The article continues:
Mr. Robin Adshouse, an analyst at Kitkat and Aitken, suggested that Next had settled with Mr. Davies within his contract of employment, and that that kind of non-disclosure was the 'thin end of the wedge for shareholders' democracy'.Mr. Gordon and Mr. Pat Hammond-Turner, one-time assistant managing director of CES, both voted against the re-election of the directors.It is significant that the journalist draws attention to that, because earlier this evening I argued that voting against the re-election of directors did not meet the concerns being expressed by my hon. Friends. In the case of Next, such voting does not appear to have had any effect.If Sir Ronald Dearing's remit can be extended in the way that the hon. Member for Beaconsfield suggested, will it be possible to ensure that such information is published in the accounts that are presented at annual general meetings? Shareholders at annual general meetings are entitled to know what large sums of money are being paid in what, in effect, are golden handshakes to departing directors. In the case I mentioned, the directors may have been required to leave or left for perfectly decent and honourable reasons, but there are occasions on which people leave companies or are required to leave for what I can only describe as dishonourable reasons. They may have had their hands in the till and the shareholders or the directors want rid of them. Clearly, that did not happen in this case. I should like to be assured that shareholders have the right to know the facts.
§ Mr. RedwoodI might be able to speed up proceedings by pointing out to the hon. Gentleman that in the Companies Act 1985 there is a clear requirement to show the aggregate amount of any compensation to directors or past directors in respect of loss of office. If the hon. Gentleman thinks that any accounting violation has occurred in reports and accounts filed for the relevant year in which that happened, he should let me know at my office and we will obviously see what the facts are.
§ Mr. Campbell-SavoursIn the light of what the Minister has said, perhaps it will be noted by the shareholders of that company that I have raised this matter on the Floor of the House tonight. Perhaps they will note also that the Minister has replied to me and expressed an interest in so far as if it is true that the directors of the company have made it clear that they do not intend to reveal the information in the years 1989, 1990 and 1991 they would have a case to draw to the attention of the Department and may have the basis for a legal action.
§ Mr. HanleyWe had a discussion about this matter in Committee. I raised the point that if benefits in kind, such as occupation of property and so on, form part of compensation, there is a current loophole in the law. The then Minister said that he would plug that loophole. The Government have done so in an amendment which we hope that we will be able to discuss one day. That applies to compensation in benefits in kind other than money. The clause is not only already tight and prescribed in the existing statute, it is made even tighter by our discussions on this Bill. I am sure that the newspaper report must be wrong, and, if not, action should be taken.
§ Mr. Campbell-SavoursIt might be wrong, but I have another report from The Independent of 27 May this year. It states:
The conflict between the two sidesthat being clearly the representatives of the shareholders, that is to say the board of the company, and the two departing directors—has been resolved but neither side has any intention of disclosing the details of the settlement and have sworn each other to secrecy as a condition of the deal.From what the Minister is saying, that is not possible, and he is being backed by his hon. Friend the Member for Richmond and Barnes (Mr. Hanley). The article goes on to state:The Companies Act 1985 states clearly that it is unlawful for a company to make to a director any payment by way of compensation for loss of office without disclosing information on the proposed payment including its amount to shareholders.Michael Stoddard, the new chairman of Next, told shareholders at the annual general meeting on Thursday that no provision in connection with the settlement of the Davies affair had been made in the accounts for the year ended 31 January and none was required for the current year.If Slaughter and May, advising Next, have discovered some way around the provisions of company legislation—assuming something of value is changing hands which seems likely"—which is what the hon. Member for Richmond and Barnes was coming to—then Next shareholders are right to be unimpressed by such a display of legal ingenuity. And they should be concerned about the quality of information they are receiving.I am trying to establish that Sir Ronald Dearing, whose experience is eminent and impressive, will make it clear to all companies that that conduct is quite unacceptable. When shareholders demand that kind of information, they 958 should receive it. They should not be misled at annual general meetings. They are entitled to know what is happening. The money being paid out is, in effect, theirs—unless it should otherwise have been paid to the work force for some reason. In effect, the money is the property of the company. The Minister has clarified the position tonight. I hope that Sir Ronald Dearing impresses that principle upon the auditors and the accounting profession generally to ensure that reports like those to which I have referred do not appear in national newspapers and cause great concern to shareholders.
§ Mr. Bob Cryer (Bradford, South)I want to comment on this appointment. No doubt Ron Dearing has what is generally regarded to be an eminent record. I am not sure whether eminent people should be members of scrutiny bodies. Eminent people have been members of councils throughout the land. We hear that Ron Dearing is OK and that he has done a good job at the Post Office. He was a senior civil servant at the Department of Trade and Industry for several years when Sir Keith Joseph was at that Department. Sir Keith is now an eminent Member of the other place and he appointed Ron Dearing as chairman of the Post Office.
I am not sure whether people who spend their lives among the councils and behind the closed doors of Whitehall will scour out information and cause a fuss when things go wrong. Their lives have not been like that. They are more used to saying to Ministers, "Look Minister, there's going to be a bit of trouble here unless you take evasive action". I am not overwhelmed by the notion that Sir Ron Dearing will bring some fire and brimstone to this office following the repeated scandals that have erupted in the City of London week in week out over the past few years.
I believe that Ron Dearing would be better than someone like Sir Peter Carey who was permanent secretary at the DTI when Ron Dearing was there. As soon as Sir Peter Carey left the DTI, he cleared off to as many boards as he could lay his hands on. At least Ron Dearing has kept some sense of public service, unlike many other senior civil servants who clear off to as many boards as possible in a way that raises questions as to what they were doing before they were appointed to those boards. Questions have been raised about that.
Before the Government came to office in 1979, they said that they would end the quangos. I believe that if we are to have those quangos, they should comprise people who will pay attention to irregularities where they happen. The members of the Financial Reporting Council have not yet been appointed. They are the Secretary of State's appointees and they are not likely to be radical members of our community. Indeed, they are produced by the Civil Service in any case from a list of the great and the good. When I was a Minister, I tried to get hold of that list and held inquiries with civil servants to find out where they got the names from and I came up against a blank wall. It was impossible to define how people received that patronage. The patrons are the senior civil servants who suggest things to Ministers and they make the appointments.
Why not advertise for applicants for those jobs? What is wrong with that? By all means there could be a board within the Civil Service with the Minister present to make a judgment. All the other high quality jobs elsewhere in the 959 giant corporations are advertised and interviews are held. If we are appointing national bodies, even if they are quangos, we should adopt a different technique from the civil servants simply suggesting names to the Minister.
The company report published by Private Eye could provide the advice needed. In issue after issue that magazine publishes information of great value. In 1973–74, when the Poulson scandal was bubbling, it was Private Eye that dared to set it all out although other papers tried to take the credit. That magazine has a good track record of exposing the seamier side of the City and it could be of great help.
What about Paul Foot of the Daily Mirror?
§ Mr. Nicholas Winterton (Macclesfield)Thank you very much.
§ Mr. CryerOf course "Thank you very much". We want someone at whom Tory Members will raise their eyebrows. We want them to say, "Oh. Isn't it a shocking affair appointing someone like that." But like what? Paul Foot exposes scandals in the Daily Mirror and I should have thought that that was a good background for the job. Concern for the public good is his motivating force.
What about Norman Atkinson who was a distinguished Member of this House for many years? He has a good track record of questioning and probing Ministers and has the public concern at heart.
§ Mr. William Cash (Stafford)What about Eric Varley?
§ Mr. CryerHe is not a suitable person. I know that he is resting at the moment—he has been deselected—but he has been too close to the Establishment. I mentioned Norman Atkinson on the basis that he was a Back Bencher who spent his life probing and cross-examining.
Perhaps the Minister will be able to tell us who is up for consideration. They are likely to be pillars of the Establishment who will opt for a quiet life. If they cause a few ripples, that will upset the Establishment of which they are a part. If I have suggested a few names that have raised eyebrows that is all well and good.
§ Mr. CashDoes the hon. Gentleman acknowledge that just lurking in the background, behind the pillars of the establishment of the Labour party, there is a degree of patronage in the recommendation of Norman Atkinson rather than Eric Varley? Are their credentials determined by the degree to which they move leftwards towards Marxism?
§ Mr. CryerThat is a legitimate question and I shall not make a judgment. The Secretary of State, however, will make such a judgment behind closed doors in Whitehall. In what sense will the right hon. Gentleman be accountable to the House and to the public?
Anyone who feels that he is able to do the job and has the qualifications needed should apply. If Eric Varley or Norman Atkinson want to apply, so be it. I suggested the sort of people who would be overlooked and ignored because of their background of challenging the Establishment.
§ Mr. Nicholas WintertonWhat about me?
§ Mr. CryerAfter the next election the hon. Gentleman will be looking for a job and he may want to apply. The hon. Gentleman displays an anti-Establishment attitude, which is certainly not confined to the Labour Benches, but 960 I like to think that there are many more people who hold anti-Establishment attitudes on the Labour Benches. The parliamentary Labour party has as its driving force the public good.
The Secretary of State will make the appointments and no doubt he will receive a report, but there will he no statutory obligation on the right hon. Gentleman to make a report to the House. However, there should be such a report so that we can have an opportunity to debate it, because that in itself is an element of accountability. We often push to one side and forget that Parliament is an important element in public accountability. The fact that there is a requirement to produce a report will be at the back of the council's mind and it will be speeded on in its task by the knowledge that its work will be subject to dissidence in the House of Commons. That will help it to ensure that it is doing its job, which is no bad thing. Indeed, it is part of the job that this place is supposed to carry out.
I hope that the Minister will be able to say that the reporting council will report to the Secretary of State and that those reports will be placed before us for proper scrutiny, debate and examination.
§ Mr. RedwoodI am glad that with only one dissenting voice the House has accepted that Sir Ronald Dearing is a good choice for this post. I am sure that he will be delighted to read later this week that he has received the acclaim of the Government, Conservative Back Benchers and the official Opposition. Sir Ronald commands great respect for the work that he has done in the past. I am sure that he will bring to this task a great deal of energy, objectivity and independence of mind. My memory may be playing tricks, but I believe that he started in the Civil Service with a humble role as a clerical officer and worked his way up. I hope that in all ways his credentials will meet with approval from Opposition Members.
The House has welcomed the Government's move towards the position identified in Committee by Opposition and Conservative Back-Bench Members in wanting to state the reasons for any departures from accounting standards. I offer that because the Commitee produced some good points and the case was well argued. That is the purpose of this amendment.
However, I hope that the House will understand my belief that quantifying the departures would be going too far as it would give legal form to standards, which we do not wish to do, and would make departures from standards impossible. What would be the point of ever departing from standards if one had to quantify the exact consequence of so doing?
The safeguard for the shareholders and others who are interested in the matter are that the reasons for departing will have to be stated. That means that the matter will be highlighted and come out in debate at the annual general meeting before the approval of the accounts if people feel that is a matter of concern. Of course, it would also be a matter for debate between analysts in the company and the large investors and the company if it is felt that the company is beginning to depart too far from those agreed standards.
I turn now to the point made by my hon. Friend the Member for Richmond and Barnes (Mr. Hanley) about comparisons being difficult if some companies choose to depart from the standards. It is a matter of degree rather than a black and white issue. The application of standards 961 is already difficult. Many areas require the exercise of judgment, as many hon. Members with accounting experience will know. The valuation of stock is always difficult. Provisions on long-term contracts in particular are hazardous to get right and funding pension rates can be difficult to get right actuarially in the light of changing market circumstances. There are a number of areas in which there are standards, but where it is difficult to make judgments. Therefore, it is always tricky to compare one company with another because some companies are more prudent and others less prudent in their calculations of profit or balance sheet values, which is quite permissible even in the framework of standards.
I should be reluctant to delegate law-amending powers to the FRC. It would be unprecedented to give a private body the power to amend legislation. That should remain a matter for debate between the Government and Opposition in the House and it should be for the Government to propose any changes in the legislative framework affecting accounts that may be deemed necessary in future.
Ferranti has been mentioned several times. I do not think that that is a standards issue, or that it relates to this debate. I agree with the views expressed by the hon. Member for Norwich, South (Mr. Garrett).
I turn finally to the issue of Next, which was raised by the hon. Member for Workington (Mr. Campbell-Savours). I was surprised that he had never seen a Next shop as Next was one of the most successful chains of stores in the early and middle '80s and can be seen in most high streets. I stand by what I said to him earlier. If the hon. Gentleman thinks that a problem has arisen in the accounts, as published, in the light of the nature of the statute concerning the requirements, he should write to my office and we will look into it.
§ Mr. Campbell-Savoursrose——
§ Madam Deputy SpeakerOrder. I cannot call the hon. Gentleman a second time, as he appreciates.
§ Question put, That the amendment be made:—
§ The House divided: Ayes 137, Noes 27.
962| Division No. 345] | [10.59 pm |
| AYES | |
| Alexander, Richard | Campbell, Menzies (Fife NE) |
| Alison, Rt Hon Michael | Carlile, Alex (Mont'g) |
| Amos, Alan | Carlisle, John, (Luton N) |
| Arbuthnot, James | Carlisle, Kenneth (Lincoln) |
| Arnold, Jacques (Gravesham) | Carrington, Matthew |
| Ashby, David | Carttiss, Michael |
| Ashdown, Rt Hon Paddy | Cash, William |
| Atkinson, David | Chapman, Sydney |
| Baker, Nicholas (Dorset N) | Chope, Christopher |
| Batiste, Spencer | Clark, Dr Michael (Rochford) |
| Beith, A. J. | Clarke, Rt Hon K. (Rushcliffe) |
| Bellingham, Henry | Coombs, Anthony (Wyre F'rest) |
| Bennett, Nicholas (Pembroke) | Coombs, Simon (Swindon) |
| Biffen, Rt Hon John | Currie, Mrs Edwina |
| Boswell, Tim | Curry, David |
| Bowis, John | Davis, David (Boothferry) |
| Brazier, Julian | Day, Stephen |
| Brown, Michael (Brigg & Cl't's) | Dorrell, Stephen |
| Bruce, Malcolm (Gordon) | Douglas-Hamilton, Lord James |
| Buck, Sir Antony | Dover, Den |
| Burns, Simon | Dunn, Bob |
| Burt, Alistair | Durant, Tony |
| Butcher, John | Evennett, David |
| Butterfill, John | Fallon, Michael |
| Favell, Tony | Mans, Keith |
| Fearn, Ronald | Marshall, John (Hendon S) |
| Fishburn, John Dudley | Martin, David (Portsmouth S) |
| Forman, Nigel | Maxwell-Hyslop, Robin |
| Forsyth, Michael (Stirling) | Meyer, Sir Anthony |
| Forth, Eric | Mills, Iain |
| Freeman, Roger | Nicholls, Patrick |
| Gale, Roger | Nicholson, Emma (Devon West) |
| Garel-Jones, Tristan | Pawsey, James |
| Glyn, Dr Alan | Redwood, John |
| Goodlad, Alastair | Ridley, Rt Hon Nicholas |
| Goodson-Wickes, Dr Charles | Sackville, Hon Tom |
| Griffiths, Peter (Portsmouth N) | Shaw, David (Dover) |
| Gummer, Rt Hon John Selwyn | Shaw, Sir Giles (Pudsey) |
| Hague, William | Shephard, Mrs G. (Norfolk SW) |
| Hamilton, Hon Archie (Epsom) | Shepherd, Richard (Aldridge) |
| Hamilton, Neil (Tatton) | Smith, Tim (Beaconsfield) |
| Hanley, Jeremy | Soames, Hon Nicholas |
| Harris, David | Speller, Tony |
| Hayes, Jerry | Stevens, Lewis |
| Hayward, Robert | Stewart, Andy (Sherwood) |
| Hind, Kenneth | Stradling Thomas, Sir John |
| Howarth, G. (Cannock & B'wd) | Summerson, Hugo |
| Howe, Rt Hon Sir Geoffrey | Taylor, John M (Solihull) |
| Howells, Geraint | Taylor, Teddy (S'end E) |
| Hughes, Robert G. (Harrow W) | Thompson, D. (Calder Valley) |
| Hunt, David (Wirral W) | Thompson, Patrick (Norwich N) |
| Hunt, Sir John (Ravensbourne) | Thorne, Neil |
| Hunter, Andrew | Thurnham, Peter |
| Irvine, Michael | Townsend, Cyril D. (B'heath) |
| Jack, Michael | Tracey, Richard |
| Janman, Tim | Twinn, Dr Ian |
| Jessel, Toby | Waddington, Rt Hon David |
| Jones, Gwilym (Cardiff N) | Wallace, James |
| Kirkwood, Archy | Ward, John |
| Knapman, Roger | Wardle, Charles (Bexhill) |
| Knight, Greg (Derby North) | Watts, John |
| Knight, Dame Jill (Edgbaston) | Wheeler, John |
| Knowles, Michael | Widdecombe, Ann |
| Lang, Ian | Winterton, Mrs Ann |
| Latham, Michael | Winterton, Nicholas |
| Lester, Jim (Broxtowe) | Wood, Timothy |
| Lilley, Peter | |
| Livsey, Richard | Tellers for the Ayes: |
| Lyell, Sir Nicholas | Mr. Irvine Patnick and Mr. David Heathcoat-Amory. |
| Maclean, David | |
| McLoughlin, Patrick |
| NOES | |
| Barnes, Harry (Derbyshire NE) | Jones, Ieuan (Ynys Môn) |
| Campbell-Savours, D. N. | Mahon, Mrs Alice |
| Cousins, Jim | Michie, Bill (Sheffield Heeley) |
| Cox, Tom | Nellist, Dave |
| Cryer, Bob | O'Neill, Martin |
| Cummings, John | Pike, Peter L. |
| Davies, Rt Hon Denzil (Llanelli) | Powell, Ray (Ogmore) |
| Ewing, Mrs Margaret (Moray) | Salmond, Alex |
| Flynn, Paul | Skinner, Dennis |
| Godman, Dr Norman A. | Smith, Rt Hon J. (Monk'ds E) |
| Hardy, Peter | Welsh, Andrew (Angus E) |
| Haynes, Frank | |
| Hinchliffe, David | Tellers for the Noes: |
| Hughes, Robert (Aberdeen N) | Mr. Michael Welsh and Mr. Ronnie Campbell. |
| Illsley, Eric | |
| Jones, Barry (Alyn & Deeside) |
§ Question accordingly agreed to.
§ Amendment proposed: No. 11, in page 200, line 35, at end insert—
-
cc962-4
- 'Loans in connection with assistance for purchase of company's own shares 706 words, 1 division