European Company Statute

HC Deb 22 October 1990 vol 178 cc45-70

5.8 pm

The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. John Redwood)

I beg to move, That this House takes note of European Community Document No. 8404/89 on the proposal for a European Company Statute; and supports the Government's intention to seek to ensure that if there is to be a European Company Statute, it should contain a minimum of regulation consistent with the aim of providing adequate protection for those who may be involved with a company formed under the statute. An extensive inquiry has been conducted in the other place into the draft regulation and the draft directive for a European company statute. It has produced a good report, which I hope hon. Members who are interested in the subject have had a chance to read.

The report makes it clear that in their Lordships' view a fundamental revision of the proposal will be required before it produces something worth while. The Lords also support the Government's view that the voting base chosen by the Commission in its draft proposal is not the correct one, and I shall expand on the reasons for that.

The United Kingdom Government are negotiating—and will continue to negotiate—in good faith on the general issue of whether it is possible to find a form of European company which would transcend national laws in some respects and which might be useful for businesses thinking of operating across the borders of the 12 European Community member states.

There are several problems with the present proposal and they may well account for the fact that the negotiations with our partners have taken so long. The first proposal was introduced as long ago as 1970. There was another proposal in 1975 and there has been extensive reworking and discussion since then. The Commission's original drafts have been replaced with the present proposal, which is more modest in scope and extent. Even though the proposals have been changed in many respects and even though their authors have tried to make them less ambitious—and thus find more agreement among the member states—we have found considerable difficulties standing in our way at each stage in our attempts to reach agreement on them.

The Government do not believe that the adoption of the proposal is now imminent. We have brought it before the House on a take-note motion so that we can have a good debate because we believe that negotiations will get under way again and that they may pick up speed. As the Minister likely to handle the negotiations, it is most important to me to have in my mind the views of hon. Members on both sides of the House and to have the Government's attitude to the proposal tested in the House.

Mr. Ivan Lawrence (Burton)

Most of the House is not here.

Mr. Redwood

My hon. and learned Friend says that most of the House is not here. In a democracy, one can only offer people an opportunity. One cannot force them to debate something, although I hope that others will join us so that we may be made aware of their views as the debate progresses.

The Government went out to consultation with a substantial number of those who are not fortunate enough to be Members of Parliament but who are in business and can therefore give us good counsel on this matter. Of the 41 bodies that responded to the consultation document—not itself a high figure—only three favoured the proposal with the attached worker participation directive as it stands. The overwhelming majority felt that the proposal was flawed both as a prospective piece of company law and particularly with respect to its employee participation provisions, which are not in sympathy with the style of employee involvement and the voluntary system that we have traditionally favoured in this country.

The employee participation provisions are one of the most important matters that we shall be debating today. The British system is based on voluntary agreement within companies. Many styles have been evolved and those adopted by some companies have provided much better results than have the statutory or mandatory system adopted by some of our continental fellow members. Some of the best examples are set out in the Department of Employment booklet "People and Companies". which refers to the United Kingdom's achievements in this respect, based on the voluntary principle.

In the negotiations, the United Kingdom Government will continue to press for that essential principle of voluntarism in all our work on employee participation. We do not believe that the Commission and the European Community should attempt to prescribe and enforce a style or styles of employee participation. We are reluctant to have potentially divisive issues dragged up under Commission proposals, especially now that we have a much better record on strikes and labour relations following legislation that the House has passed and following highly successful experiments with voluntary systems of participation chosen by companies in consultation with those whom they affect.

Mr. Anthony Nelson (Chichester)

My hon. Friend will recall our debate on non-executive directors. It was argued on that occasion that such a system might detract in some way from the unitary board principle and structure, which places equal responsibility in the members of a board. I suspect that the same concern and principle may be at stake in our reaction to the present proposal. Is there perhaps a middle way? There are, after all, a number of proposed models for employee participation. Could not we adopt and embrace the principle—and perhaps enshrine it, to a limited extent, in our company statute in an attempt to comply a little more with the spirit of the proposals—while ensuring that we do not destroy the unitary board structure, which is a matter of heritage and which has worked successfully in Britain?

Mr. Redwood

My hon. Friend is right that there are already several options on offer and that not all of them make a frontal assault on the unitary board principle. We are worried not so much about the principle of the unitary, as opposed to the two-tier board, but about the principle of whether a particular form of participation should be mandatory or voluntary. As soon as a system is made mandatory, it has to be defined in legislation arid enforceable in the courts. The statutory imposition of a particular style of consultation or participation may force companies to create the necessary structures but it cannot force them to enter into the spirit of the thing.

To work a system, we need agreement. We need a system that works harmoniously because people want it to succeed. Our worry is that if we accept a mandatory system, we shall lose that agreement and we shall not gain what the authors of the proposal want, which is improved participation in companies.

Rev. Ian Paisley (Antrim, North)

Will the Minister explain his objection to the second model, under whose terms an employee representative body could be set up which would have rights to specific information, to require reports from the board and to be consulted before certain decisions … implemented. Surely that would make for the better running of the company and would not interfere with the role of the board as the controller of the company.

Mr. Redwood

I have already explained my objection to the principle of making such participation mandatory. The British Government welcome various styles of participation in companies but we believe that companies are in the best position to judge what makes sense for them. If we impose arrangements on them from above, we may succeed in achieving the form of participation specified—by force of law—but we shall not necessarily engender the spirit of participation that we seek to achieve. A similar argument applies in respect of non-executive directors—the question to which my hon. Friend the Member for Chichester (Mr. Nelson) referred. The Government welcome the strengthening of boards with non-executive directors and the work of audit committees and so on. We have not thought it right, however, to make provisions mandatory, because that would not necessarily guarantee the appointment of independent men and women of repute who would make the kind of contribution that I am sure my hon. Friends could make, were they offered such important work.

Ms. Marjorie Mowlam (Redcar)

I am listening carefully to the Minister's explanation of what he is for and what he is against. He says that he does not want mandatory provisions because he does not believe that that would encourage the spirit of participation and co-operation that he seeks. The Minister is very proud of the self-regulatory system in the City, where we have a statutory framework and, within that framework, self-regulation, choice, variation and participation in many different forms. Such a structure would be in accordance with the directive and, judging by what the Minister has said, he would be happy to adopt it.

Mr. Redwood

There is a difference between imposing a regulatory system for the protection of investors—where, in extreme cases, one is worried about fraud and malpractice—and encouraging companies to adopt best practice in employee relations. The two are rather different matters and I do not accept the hon. Lady's analogy.

Mr. Lawrence

There is another important difference. In the case of the City, the British legal system, the British Government and the British Parliament have control. With a European statute operated from Brussels, we shall have minimal control.

Mr. Redwood

My hon. and learned Friend makes a powerful point, which leads me to another question that is central to the debate. The proposal before us is not a proposal for a single European company—far from it. We have before us a proposal for 12 different types of company. If the regulation and directive were passed unamended, a different type of European company would be formed in each member state, for the simple reason that there is not a big enough corpus of European law, compiled at EC level, for each of the companies to satisfy the legal requirements without reference to national law in the member states. In a few modest respects, a European company in Spain would be similar to a European company formed in the United Kingdom. However, in most other respects, the European company in Spain would be answerable under Spanish law and the European company set up in the United Kingdom would be answerable under United Kingdom law. It is not foreseeable for some time to come that we will have a sufficient body of European law to resolve that problem. In the foreseeable future there will always need to be recourse to national law to cover most of the issues that arise in any companies formed under a statute of this nature.

As it stands at the moment, we are worried that far from this proposal being a simplification for businesses trying to conduct business across frontiers among the 12 member states, it could become another major complication. Were some companies to decide to form a European company in one or more member states under such a proposal, there would be more legal complexities for their counterparties than if they had simply set up a company under a given national law and had taken advantage of the opportunities for open trading, passports in financial services and so forth which would enable them to trade across frontiers without needing to set up the separate form of incorporation suggested by this European company statute.

That point was borne out in our consultation. The companies that we asked told us that they did not see any great interest in forming such a company. They believe that their cross-border business can already be conducted taking advantage of the general corpus of international law and the national laws of individual countries. They can already form companies where they wish and can optimise their business arrangements by choosing the country for that company's formation which they think is most effective for their business purposes.

Mr. Tam Dalyell (Linlithgow)

The Minister said that he has not had a great response about this. Was there any response from some of the big American companies which carry out a great deal of business in several countries in Europe? I am thinking in particular of Hewlett-Packard which has a big factory in south Queensferry and has expressed concern about certain aspects of this very important matter. Has the Minister heard of any particular concerns expressed by American-based companies?

Mr. Redwood

I have not read of any complaints of that kind and I cannot remember any crossing my desk. However, I cannot speak for the whole Department. The overall impression in the consultation replies that I have seen is as I have described it; there is very little demand for such a company and I have been aware of no difference of concern in terms.of the nationality of those who responded. Of course we are most likely to have United Kingdom-based companies responding to our consultation documents, but, as the hon. Member for Linlithgow (Mr. Dalyell) has said, the responses may also come from large American companies that have large United Kingdom interests and subsidiaries.

The European company statute includes a tax proposal and we believe that it is wrong to use company law proposals to try to introduce certain tax advantages for a European company by the back door when such matters should be discussed more generally under the proper unanimity provisions concerning taxation, and a sensible tax regime—if one is needed—should be achieved by agreement across the member states with regard to the measures that may be necessary to improve the company tax regime across border trading. A few welcome improvements in that regard have been made, but we do not believe that we need tax harmonisation or common rates across the Community to have a free and open market. It is more important that we all play by the same rules in any given market place within the member states. Other barriers got in the way in the past and those are being removed by the single market campaign.

The British Government have difficulties with the legal base proposed by the Commission. The mixture of article 100A and article 54 is quite incorrect. For example, the Commission seems to imply that this is a harmonising measure to further the single market. It is not. It attempts to set up a new entity outside the existing member states' national law and it should be treated differently.

Because the measures before us include both tax and employee participation provisions, we also believe that unanimity is a more appropriate way of proceeding than qualified majority voting. Therefore, the British Government would like to see the correct legal base which we believe must require unanimity and that is the legal base of article 235 or other measures rather than that for specific single market measures for which we have agreed to qualified majority voting to expedite their progress.

Other hon. Members wish to participate in the debate and I shall be brief. In summary, the British Government will continue to negotiate with our partners to discover whether a suitable vehicle can be found to meet the Commission's ambitions. We do not believe that this vehicle is currently in anything like the right shape. We believe that there should be changes with regard to the voting base, the introduction of taxation provisions and the form of employee participation included in the draft. There should also be some resolution of the difficulties inherent in creating 12 entirely different types of company which might well complicate and make business life more difficult in the Community instead of simplifying it. If hon. Members can propose a better way forward, the Government would be grateful to hear from them.

5.25 pm

Ms. Marjorie Mowlam (Redcar)

As I rose to speak, I wondered whether the Minister would consider a better way forward in other policy areas. If he is looking for advice in that regard, I am sure that we can help him out in other areas. It was also interesting that the Minister thought it necessary to state that the Government were negotiating in good faith on this European company statute. He seemed to imply that some people might doubt whether the Government negotiated in good faith in Europe and that we would think that the Government would do otherwise with regard to directives and regulations. However, we shall take the Minister's comments at face value.

We understand some of the difficulties that the Minister faces with the negotiations. We agree in principle with the European company statute. The directive and the regulation are important to the future of Europe. However, we take into account some of the worries and doubts that have been expressed about how the negotiations are taking place.

The negotiations have continued for a long time and, in an attempt to reach agreement, more and more host nation or country rules are coming into play. The Minister made the point that nation state rules are coming into play and that we shall have 12 different pieces of legislation or different forms of European companies and will end up with a statute that is not worth having. Therefore, the provision's final downfall is built into the way in which the Minister and others have approached it. That is unfortunate.

We are particularly worried about some of the host nation and national laws that will come into play because of varying standards between different European countries whether they be in relation to auditing, accounting or bankruptcy. I will leave the latter subject to the hon. Member for Antrim, North (Rev. Ian Paisley), but those areas may cause us difficulty in future.

The Minister was slightly disingenuous when he talked about his concerns. From previous debates on this and other topics I guess that the Government are primarily opposed to the statute because of the element of worker participation. We have been told that there should be unanimity of voting on the issue and not a simple majority. We know that the Government are not happy with the worker participation element of this statute and it is clear that they will choose whatever channel possible to broaden the debate to make it look as if they are interested in other factors. The Government do not want workers in this country who work in a European-based company to have a basic right. We are not asking for something under the social charter which does not or would not exist in any other European country. We are asking for workers in a particular company to be informed and consulted about decisions. Our European colleagues do not find that a particularly demanding part of the statute. Only this Government find it so objectionable.

It would be useful if the Minister could clarify a point which occurs on page 5 about the proposals for a European company statute, tabled by the Department of Trade and Industry. The Minister that the Government are opposed to worker participation in the three forms that are being recommended in the company statute and that it is mandatory that one of the three forms will have to be taken. Page 5 of the Department of Trade and Industry's document on worker participation states: If no agreement"— that is, no agreement on any of the three models— could be reached, or where the parties to the negotiations so decided, a national model would apply. This would have to provide for at lest the same information and consultation as would be required if a model were agreed by collective bargaining. That document is saying that, if a company based in the United Kingdom has basic levels of information and consultation that most people would accept as reasonable, common sense and rational, the three mandatory models do not have to be adopted. It is not as though we are being forced to have the German or French models of worker participation; all we are being asked is to have basic levels of informnation and consultation with the work force.

I do not wish to broaden the debate outside the auspices of the statute, but, when the Government call for wage restraint and are not prepared to talk to people and ask managers and others to have wage restraint, people will not respond. That may be a lesson for the Government to learn. The statute will help them to learn that, in relation to European companies, if we have a level of information and consultation, the problems that the Minister mentioned about the mandatory enforcement of one of three models would not exist. I should appreciate it if the Minister would clarify that point.

Mr. Redwood

There would still be mandatory enforcement of the standards of minimum levels which would have to be prescribed in statute and would mean that the law got involved in matters that we have left to individuals to decide. The Government are against that.

I should be grateful if, in turn, the hon. Lady would clarify a point. She says that she welcomes the European company statute and thinks that trying to get agreement by putting more and more national law into the solution is unhelpful because it destroys the principle. Is she saying that the Labour party would like to see a comprehensive company and insolvency law at European level, and, if so, how long does she think it might take to get it?

Ms. Mowlam

I shall respond with pleasure to the Minister's second point. As I pointed out, the difficulty is that we are now faced with host or national law regulation because we have been unable to get agreement on the European company statute. That position would not have been reached if the Government had been negotiating with a little more willingness. We ask why our colleagues in Europe have doubts about the Government. To answer the Minister's point head on, the reason why the Government went into the ERM was to gain political ground from the Labour party after our good conference. Also, they had no hope of going to the intergovernmental conference in November and convincing anybody that they could negotiate for the hard ecu when no one believes that they are committed to Europe in the first place.

On the Minister's point about national law, company insolvency and the length of time, the rest of Europe is quite clear on Labour's position. Labour Members have stated their position. The Conservative party is so badly divided that one of the difficulties that Europeans have when they sit around the table is that they do not know what position will be adopted, whether the Government will be able to deliver it, whether there is a commitment to the principle, or whether there is just a paper-thin view that could collapse halfway through the negotiations.

The Minister says that information and consultation would have to be mandatory. I do not see what difficulty the Government should have in setting a basic level, as we want to do with the minimum wage, of information and consultation. Working people in this country should not be denied the legally enforceable right to participation in the form of consultation and information. Clearly, the detail of that should be left to specific situations. We do not disagree with that. Individual companies will want to do things differently, but it should be essential and correct to have a legally enforceable right.

Mr. Redwood

Is the hon. Lady saying that the Labour party's official policy is that all United Kingdom company law should be replaced by a law harmonised with our partners who have rather different company law systems?

Ms. Mowlam

No. If negotiations had taken place differently—I gave an example of negotiations in other matters in which the Government are having difficulty—we would not be in this position years down the road and unable to get agreement because the Government are dragging their feet. Europe is left with no other option, as it has been with so many other directives and regulations, but to go to the lowest common denominator—in this case, national laws. As a result the ludicrousness of that option becomes clear. We do not have one set of regulations for European company statutes; we have 12, and we may have more in future. Again in answer to the Minister's point, it is a matter of negotiation and discussion. We would not have been in this position because we would not have had——

Mr. Redwood

Will the hon. Lady give way?

Ms. Mowlam

I have answered the Minister twice. I will not do his job any further. He has asked for advice on two pieces of legislation, and he has asked us for advice on where he goes forward because he has no ideas. I shall make progress because other hon. Members wish to participate.

The right to consultation and information to which workers in this country should be entitled should be a legal base. The difficulty is that the Confederation of British Industry and the Institute of Chartered Accountants seemingly object—in particular the CBI—for the same reasons that the Minister gave. The CBI's press release on this matter states that these proposals would be more a back-door attempt to introduce legislation on mandatory worker participation. Clearly the objection is of the same nature, but the point that we made this afternoon in line with Labour party policy would begin to answer it. Our position is very clear.

The Minister argued for unanimity and said that majority voting is the basis for this legislation. It would be interesting to see, if the legislation on worker participation was not perceived by the European commissioners as an essential part and that the two aspects had to travel in unison, whether the same objections on voting rights would still hold. Opposition Members doubt whether they would. We agree in principle—

Mr. Tim Smith: (Beaconsfield)

Will the hon. Lady give way?

Ms. Mowlam

The hon. Gentleman has plenty of time in which to participate. I shall conclude my remarks. I shall come back later if the hon. Gentleman wants any particular points answered. [Interruption.] I have said that the hon. Gentleman can participate later in the debate.

If the Government's position on Europe had been clearer and the present confusion did not exist, their negotiating position would have been made much clearer and we would not face such difficulties with the statute.

5.37 pm

Rev. Ian Paisley (Antrim, North)

I regret the Government's attitude to workers. I do not think that that should be the real thrust against the proposal. I have participated in such debates in Strasbourg, and my views are well known. I should not like the people of Europe to think that the British working classes would not be in the same position as they would be in regard to their legitimate rights. After all, no United Kingdom person should be ashamed of the history of workers in this country and the fight that they put up for basic rights. It was a fight for basic liberties, and all parties agree that those liberties are inalienable rights. I regret that the Minister denied that by placing such great emphasis on his vigorous objection to worker participation. Those are not the grounds on which we should object to the proposal, because we should be concentrating on far more serious matters.

Both the Conservative and the Labour parties are in considerable difficulties over this matter. There was a time when the Labour party was very much opposed to Europe. When I was first elected a Member of the European Parliament, many Labour Members took the same view as I, whereas many Tory Members were more pro-European than the Tory party itself. I am glad that Tory Members now recognise Europe's threat to our sovereignty. We should consider that important matter, because the long arm of Europe could reach into our country and be effective in overruling the democracy of the House of Commons that has been won for the British people.

I am glad that the Government are not happy about the proposal, but regret that they are objecting to a matter on which we should be united. The best way forward for the British people is to show Europe—as we have shown Europe in the past—that, notwithstanding the European structures and Mr. Delors' mad schemes, we can give leadership, have unity in industry, and move forward in the way in which we should move forward. I nearly said "Ulster people" instead of "British people" because I am so used to addressing my own Province, as hon. Members well understand.

I therefore trust that the debate will not follow the line that has been taken up to now. I have no difficulty with the second model, under which an employee representative body could be set up which would have rights to specific information, to require reports from the board and to be consulted before certain decisions are implemented. As that is what is happening in some companies today, we should not be seen in Europe to be resisting it. I should like to think that the United Kingdom's European opponents on this matter would recognise that far more important matters are at stake, some of which have already been mentioned.

Obviously, there are difficulties in terms of the laws of the 12 countries, many of which differ greatly. I cannot see how one European Act could straddle all the 12 countries. The hon. Member for Redcar (Ms. Mowlam) did not really tell the House how she proposes that that could be done. I think that she was in a little difficulty—in fact, a colossal difficulty. Far be it from me to diminish her wisdom in any way, but wiser minds than hers cannot find the answer to that question. It is right for the Government to ask, "How are you going to do it?" because I do not think that it can be done.

We need to look carefully at what is being proposed. We should not allow Europe, via this directive, to get its hands on our tax system. The directive should not be the back door through which Europe can proceed to tax harmonisation. I think that this is one of the back doors that Delors wants to use for his own ends.

The House would do well to take the stance that it does not accept what has been proposed. We should say that we are opposed to it. I should not like anybody to think that the United Kingdom's opposition to this matter is on the ground of worker participation. That would be a bad message to come from the British House of Commons. It would look as though many of us were not prepared to ensure that the working class in our country has its full rights. Even we in this country have more rights than the people of some other European countries. Those rights have been hard fought for and achieved after immense struggles. They came before many of the rights accorded to workers in the rest of Europe.

Finally, there is something wrong with the way in which this material is presented. My copy of the report was a completely unreadable photostat. That is what is being presented to hon. Members, yet we are supposed to take an interest in it and to try to read it. I had to get the original because I was told that all the copies were the same. If I were suspicious, I would say that there was a dark conspiracy down in the bowels of the House and that a person in the pay of Mr. Delors was inking the copies as thoroughly as he could so that hon. Members could not read them. I notice that one of the Whips is a former Member of the famous Strasbourg Assembly. I hope that he will be an anti-Guy Fawkes investigator and will discover why hon. Members cannot be given decent copies before debating these important matters. Hon. Members are blamed for not reading things, but how can we read unreadable material and pass our comments on it?

5.46 pm

Mr. Tam Dalyell (Linlithgow)

I, too, was a Member of what the hon. Member for Antrim, North (Rev. Ian Paisley) referred to as "the famous Strasbourg Assembly". I was also a member of the budget committee and the budget sub-committee of that famous Assembly, which were supposedly the equivalents of the Public Accounts Committee, and which looked into fraud and malpractice. In general, over those years, it was my considered opinion, when serving on those Committees under the chairmanship of Heinrich Aigner from Bavaria and his expert officials, that there was comparatively little fraud and malpractice in relation to the European funds. The hon. Member for Lancaster (Dame E. Kellett-Bowman) might agree that blanket criticisms of the Brussels bureaucracy are often ill-founded and ill-directed. In my experience, the European funds were used pretty honestly and the budget sub-committee found that, generally, there was little fraud and malpractice.

Dame Elaine Kellett-Bowman (Lancaster)

In the hon. Gentleman's day, the European Parliament was not using its powers as strongly as it might. Budgetary control, for example, has been greatly tightened. However, the fact still remains that inspection is weak. Many things have happened to give the Community a bad name. If we had an international inspectorate, things would be much better because we obey the law. I am sure that the hon. Gentleman remembers serving on committees in which the French and the Italians took the view that it did not matter which regulations were being considered because they had no intention of observing them, whereas the Danes and the British wanted every i dotted and every t crossed because we wanted to observe the regulations. Inspection is the key to ensuring that there is no fraud.

Mr. Dalyell

My party decided—rightly, in my view—that Members of this House should no longer be Members of the Strasbourg Parliament. Therefore, as my experience is out of date and the hon. Lady's experience is far more up to date, I shall certainly not quarrel with her on this matter.

There are two sets of exceptions to article 24 and the other documents. The first relates to European companies' trade with Cambodia. I have been drawn first in Question Time on 31 October. I shall ask the Minister's Department about trade with Cambodia. Under the cloak of privilege—because law suits are flying and this is what House of Commons privilege is for—I shall ask about the Government's view of allegations made in front of millions of people by John Pilger about Anthony de Normann and Christopher MacKenzie Geidt on trading in arms and other materials with the Khmer Rouge and other people in Cambodia. I am entitled to ask that question in this debate because we are talking about fraud and malpractice. It is strictly in order. I am rather careful about these things.

I ask the Government directly to say what is their relationship, if any, with Anthony de Normann and Christopher MacKenzie Geidt and what they know about them. I am careful about bandying names around the Floor of the House of Commons, but those people have been named in front of millions of people. No answer has been forthcoming from Mr. Pilger. I talked to him both before and after the programme and he gave me the impression that it was extremely carefully researched. The programme was on television. Libel lawyers were involved. Therefore, I am entitled to ask the Government on the Floor of the House what they know about the matter.

I am also entitled to ask the Department of Trade and Industry whether it has had any dealings, either in the form of licences or end-user certificates——

Mr. Deputy Speaker (Mr. Harold Walker)

Order. I have listened carefully to the hon. Gentleman and tried to reconcile his assertion that he is in order with the proposal before the House. The motion appears to be about the Commission's proposal to permit the creation of a legal structure for supranational companies. It is difficult for me to reconcile what the hon. Member says with that.

Mr. Dalyell

We are dealing with supranational companies, because the matter crosses international frontiers. I understand that European firms were involved. The Minister, not I, raised the question of fraud and malpractice. My question has been clearly put and I am sure that the Minister would like to answer.

Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)

We always await with huge enjoyment interventions from the hon. Gentleman.

Mr. Deputy Speaker

Order. The hon. Gentleman does not have the right to speak for the Chair.

Mr. Beaumont-Dark

We always await your interventions with huge enjoyment, too, Mr. Deputy Speaker. We await with even greater anticipation the hon. Gentleman's interventions. Will he tell us why John Pilger should be looked upon as almost a holy grail of truth? Why is it that what such gentlemen say in all these programmes become facts? Why does the hon. Gentleman suddenly say that all the things that we hear on television are facts? Is not it possible—I know that it sounds entirely unlikely—that even the wonderful things that the television says are true are not always true? Why are this Government, or any Government, always wrong just because John Pilger and his crew say that it is so?

Mr. Dalyell

I am genuinely grateful for that intervention because it allows me to clarify a matter. I do not say that John Pilger is necessarily right. All that I say is that John Pilger has a track record of being sufficiently serious to entitle me to ask in the House of Commons what Her Majesty's Ministers know about the matter.

This is no trivial matter when one sees that sheer horror and destruction in Cambodia on film. It is a land—

Mr. Deputy Speaker

Order. The proposal that the House is required to consider is the establishment of a new legal structure. We are not debating whether a particular company or organisation is in breach of exisiting statutes or whether fraud has been committed under existing statutes. That is not a matter for this debate.

Mr. Dalyell

Clearly you want me to leave Cambodia and go on to safer ground. Therefore, I draw the attention of the Government to a report yesterday which said: Machinery for Iraqi defence factories was exported by British companies using loans guaranteed by the Government, I bring myself into order by quoting the people who have made those allegations. They are the state owned Banca Nazionale del Lavoro, an Italian firm which I shall call BNL for short. The report continues: They say that the beneficiaries included Technology and Development group (TDG), a London company controlled by Iraq's Ministry of Industry and Military Industrialisation and the Coventry machine tool company, Matrix Churchill, bought by TDG in 1987. BNL's Atlanta, Georgia, branch is at the centre of a scandal, over its provision, without authorisation from Milan, of $3 billion of export credits to Iraq. After its takeover by TDG, Matrix Churchill boosted its sales to Baghdad. Customs officers last week detained its managing director, Paul Henderson, for questioning on possible violations of UK controls on exports to Iraq in the Gulf war."—

Mr. Deputy Speaker

Order. Perhaps the hon. Gentleman would explain to me how relevant those matters are to the Commission's proposal to create a new legal structure for supranational companies within the Community.

Mr. Dalyell

It is simply an example of why we need a supranational structure with teeth. By referring to the Italian involvement and the involvement of the United States, I have shown that we are dealing with a supranational structure. As I said, it was the Minister who raised the question of malpractice. The debate is surely about malpractice.

The report continues: Although Britain officially banned the sale of lethal items to both sides in the Gulf war, there were no restrictions on the supply of machinery which would allow the Iraqis to manufacture conventional weaponry. And the Government helped Iraq secure the funds to place orders for such sales. The first British line of credit to Iraq, worth £275 million, was agreed in 1983, and a further £1.1 billion has followed. The credits were arranged by UK banks and guaranteed by the ECGD, the government Export Credits Guarantee Department. The credit lines were negotiated by the UK-Iraq Joint Commission, headed by the two states' Trade Ministers. I want to know from the Department of Trade and Industry whether it participated in that, because if it did it has some explanation to give to the House of Commons. The report continues: The size of the credit lines, and the goods covered, were decided by officials from the Department of Trade, the ECGD, the Foreign Office and the Treasury. Both the Foreign Office and the Department of Trade referred all questions to the ECGD, which said that its dealings were confidential. TDG and Matrix Churchill have also declined to comment. You bet, Mr. Deputy Speaker, that they have declined to comment.

We are on extremely delicate ground. It is fair to ask on the Floor of the House of Commons whether all that is true. It is reported in reputable newspapers. Members largely depend on such information, but we do not necessarily swallow it hook, line and sinker. The hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark), who has left the Chamber, should note that. We should at least ask whether such information is true. I freely confess that until recently many people did not want to see Iraq defeated, at least not by the ayatollahs and the mullahs, and did not want the Khomeini regime to win outright in the middle east. However, we must be clear about exactly what has happened over the past two years in terms of British law.

Mr. Deputy Speaker

Order. That does not fall under the heading of the debate.

Mr. Dalyell

I shall not exasperate you, Mr. Deputy Speaker. I have made the points and other hon. Members wish to speak. I hope that either in the debate or in writing we will get answers to the two questions that I have posed. One is about Anthony de Normann and Christopher MacKenzie Geidt and Astra in relation to Cambodia, and the other is about our exact relations in the export of arms and arms-related goods to the state of Iraq. Both questions are extremely significant and deserve an answer.

6 pm

Mr. Anthony Nelson (Chichester)

The hon. Member for Linlithgow (Mr. Dalyell) took us away from the rather narrow matters dealt with in the documents, but I am sure that what he has said is relevant. Even if it is not, I am always willing to forgive and show latitude to the hon. Gentleman because I shall never forget that as a result of his heroic actions some years ago we still have a United Kingdom. The hon. Gentleman is a great Member of Parliament.

This is an important debate and I am sure that the House will be grateful to my hon. Friend the Under-Secretary of State for Corporate Affairs for the clear way in which he explained the contents of the statute proposal and the directive on employee participation. Such issues are complex and technical, but constitute laws that have a direct impact on every employee, investor and creditor. In one way or another we shall all be affected by the form of company law which evolves in Europe and in Britain.

I am sure that all hon. Members are concerned about proposals for regulations rather than for directives. As I understand it, regulations apply immediately to all member states which must comply with their terms. However, directives simply mean that each member state has to pass legislation that is in line with them. Therefore, we should always scrutinise with great care any proposal for a regulation. The regulation before us has been debated for some years and there is no timetable for its remaining course. It is a radical proposal and we should be loth to give it the green light.

Many hon. Members will know that I am in the vanguard of those who would like to see greater unity and progress in the European Community. I applaud efforts that have been made on the monetary front and on many political fronts to bring about a single market and greater commonality of law in the Community. That does not mean that every proposal is automatically right. Those who find the idea of European unity abominable should occasionally give credit to some of the Community's achievements for Britain.

The proposal to establish a statute for a new societas Europaea that will be a parallel company structure within the Community seems to be fraught with problems. It seems rather curious that the Treasury is proposing a document for a parallel hard ecu to work alongside national currencies while the Department of Trade and Industry is reluctant to have a parallel hard European company structure alongside national structures. I do not mean to be jocular or difficult when I say that. It is dangerous to have a separate European company structure in any single country. Why do we have company law and set out in statute the subscriptions, the requirements placed on directors, and the nature of limited liability? It is not principally to help shareholders or to protect employees. Perhaps above all it is to protect creditors because the conferment of limited liability is a valuable privilege. It means that shareholders in a limited liability company, whether it is a plc or a societas Europaea, have their risks limited. Before that privilege is granted, it is right that many legislative requirements about disclosure and the discharge of responsibilities to shareholders and others should be made.

Britain has evolved just such a system of protection. Occasionally, it needs to be amended or improved in the face of change and pressures. Our limited liability companies and plcs form a valuable structure giving protection to those who offer credit, give cheques or lend money to such companies. Those people know where they are and can easily assess the risk on which they supply the money. If alongside that limited liability structure we introduce a wholly new structure, the societas Europaea proposal, yet another type of company will be operating in the United Kingdom and in all the other European countries. Will creditors of those companies be able to assume that they have the same protection? Will employees be able to assume that they will have the same rights to information? Will shareholders be sure that their criminal and civil liability is limited in the same way as it is under the existing plc and limited company structure? Those points are not clear. If they are exactly the same in each respect, why does one need to duplicate matters?

Surely one should arrive at one system of protection for all those who are involved in limited liability companies, and should seek to persuade through commonality—which is what I think my hon. Friend the Minister was driving at—other European countries to adopt the same stringent and responsible standards as us. As soon as we are all on a standard basis and when the law on the protection of creditors is exactly the same in each country, we can call a plc an SE or something else. However, that change must take place through organic commonality rather than through imposed regulation. I see grave risks and great uncertainty and misunderstanding about the imposition of a regulation in this area.

Secondly, I noted with interest what my hon. Friend the Minister said in reply to my intervention about the directive on employee participation. In general, we need not be too afraid to import even into our national company law some greater employee participation rights. The directive contains three options, the first of which assumes a supervisory board structure. I can live quite happily with the second one which could easily be accommodated in a unitary board structure company system. As I understand it, the second option proposes the setting up of a body to represent employee interests and says that they shall have certain rights of information. It does not say that they will have control over decisions made by the board or that they will have to account to other bodies in a particular financial way. It merely says that a body representing the employees in a company shall have certain rights of information.

There may be an argument about the information that should be provided and the basis upon which it should be done, but I am sure that my hon. Friend the Minister would be the first to agree that any company worth its salt ought to be doing that sort of thing anyway. Most of the companies that do not are probably exactly the sort of companies for which a directive or law is necessary to make sure that they divulge information to employees. I am a loyal supporter of a party that, more than any other in our post-war history, has encouraged employee participation, promoted worker shareholdings and relished the success of companies such as the National Freight Consortium that have been enormously profitable, built up and expanded on the basis of privatisation and employee shareholdings. This need not be a matter of partisan difference. I am amazed to see the hon. Member for Gateshead, East (Ms. Quin) shake her head when I suggest that there should be agreement across the Floor of the House about the success of employee participation and of companies such as the NFC, built up on ownership by the people who work in the company.

Ms. Joyce Quin (Gateshead, East)

If the Government are so keen on employee participation, why have they blocked all European initiatives on this subject?

Mr. Nelson

I am not aware that they have. As the record shows, the growth of employee participation has been faster in this country than in any other European state over the past 10 years, and that growth has been accompanied by a higher standard of take-home pay, and by an increase in proportion of worker participation in the companies from which they draw the fruits of their labour. That is wholly desirable. That is what the Conservative party believes in. We believe in private ownership and the responsibility attached to that. We view suspiciously the corporatist ethics of either large institutions or of Governments who vest unto themselves more and more power. We believe in plurality. That is what we stand for.

Ms. Quin

Oh!

Mr. Nelson

That is right. That is why we should support this motion. I am sure that the hon. Member for Redcar (Ms. Mowlam) would agree that we should not oppose the directive on employee participation.

Mr. Jeremy Hanley (Richmond and Barnes)

Perhaps my hon. Friend has spotted that there is a basic difference in the definition of participation in industry as given by the hon. Member for Gateshead, East (Ms. Quin) and the definition given by my hon. Friend the Minister. According to the Conservative party, participation means that each worker has a share in the company, and therefore a definable vote, and a right to receive financial information. According to the Labour party, participation in industry means that workers, rather than having shares in a company, should have imposed on them a trade union leader—a fat cat—who sits on the board. That gives workers no genuine participation.

Mr. Nelson

I could not have put it more eloquently. My hon. Friend is right. The Opposition believe in social demarcation. They have a vested interest in the continuation of a working class deprived of the fruits of its labour, kept in economic servitude, depressed and not made part of a capitalist sharing system under which, when they give something, they can take back something. They believe in the feudal patronage of company law, and we should have no part in that.

6.12 pm

Mr. Jeremy Hanley (Richmond and Barnes)

My hon. Friend the Member for Chichester (Mr. Nelson) and I are good Europeans and do not wish to oppose the motion out of a feeling that Europe has no part to play in the future of the United Kingdom. Quite the reverse—I should like to see set up either a European company or, as my hon. Friend said, a societas Europaea. I regret that now is not the time for that, for many good reasons.

I greatly enjoyed the speech made by the hon. Member for Antrim, North (Rev. Ian Paisley). It was interesting and we can all learn a great deal from some of the things that he said. His experience in Europe is second to none. I am reminded of the first day I came into the Chamber, some seven years ago, when I sat next to him. I was surprised to see him there and said, somewhat innocently, "I didn't realise that you were on our side." He said, "Never confuse sitting on your side with being on your side." The hon. Gentleman has shown us today that he is more on our side than is sometimes felt to be the case.

The hon. Member for Linlithgow (Mr. Dalyell) is, as has been said, a remarkable parliamentarian. His interesting speech was not so much supranational as supernatural, in that he mentioned items that are not part of this debate. He raised important matters, but the instrument that we are discussing is rather more mundane. Our debate is about whether we feel that it would help progress in Europe.if we had companies that could be called European companies—societas Europaea—or continue down our route of separate organisations such as plcs, ltds, ags, sas, and all the other letters and whether we should have a company which trades as a European company in the new harmonised, free, single market Europe. We have all agreed that that would be desirable.

Mr. Dalyell

The hon. Gentleman has said that the matters about which I asked are important, and I am sure that he means it. Would he like a letter from the Minister answering these questions? I have asked that we have an explanation. As the hon. Gentleman thinks the matter important, he might like such a letter.

Mr. Hanley

The hon. Gentleman said that he has been fortunate enough to have been given the opportunity to ask, at the appointed time, the question that he asked the Minister today. I shall be waiting for the Minister's answer on that occasion, and I shall be looking forward to the answer to the question for which two weeks' notice has been granted. These issues are so important that a Minister who has come briefed for a debate on a European company should not have to think on his feet. Furthermore, the answers to these questions will reverberate for some time to come. I agree that this is an important issue, but I am sure that the hon. Member will not expect the Minister to deal with it now.

When Europe is a single trade entity and we have harmonised our direct and indirect taxes and our laws by the gradual process that has begun, we could have a European company. However, we should not impose a European company at this stage, for a number of cogent reasons. The hon. Member for Redcar (Ms. Mowlam) said that the Institute of Chartered Accountants in England and Wales, for which I am Parliamentary adviser, is opposed to the draft regulation because it is opposed to worker participation in industry. She mentioned the institute in the same breath as the CBI. I rebut the allegation that the Institute of Chartered Accountants is opposed to the instrument purely for that reason. It is not opposed to discussion of the matter, but it is opposed to worker participation being imposed on us. It would be wrong to create a European company and then to impose on it a range of social and fiscal matters. Such issues must be sorted out first, and the European company created afterwards.

Dr. Lewis Moonie (Kirkcaldy)

Will the hon. Gentleman give way?

Ms. Mowlam

Will the hon. Gentleman give way?

Mr. Hanley

I am being bombarded in this exciting debate.

Mrs. Mowlam

I do not wish to mislead the House on the position of the Institute of Chartered Accountants in England and Wales. It is true that I mentioned the institute and the CBI in the same breath, but then I referred to the CBI's specific point about worker participation. I did not go further in taking up the response of the institute because its press release is so general. The only phrase that crystallises its position is that the Institute suggests that those dealing with the technical aspects of the law governing the European Company are likely to find daunting the possibility of a multiplicity of models from country to country. The rest of the press release is not especially descriptive. That is why I left the matter as I did.

Mr. Hanley

I am grateful to the hon. Lady for her intervention. I accept her good will, which she has made clear in explaining her position.

The institute's submission of February 1990 to the Department of Trade and Industry was its response to the DTI's consultative document of December 1989. The hon. Lady feels that the contents of the submission are not especially snappy, but I can assure the House that the document covers a great deal of ground.

The hon. Lady said that the only reason why the Government are opposed to the proposed legislation is that it includes provisions which bear on participation in industry. I suspect that the hon. Lady supports it because it includes those provisions. The institute has dealt with many other practical matters with which accountants have to deal in their professional work. Accountants are rather like the men who follow elephants around the circus ring: they have to use buckets and spades to clear up the messes caused by corporations, some of which are extremely large. The proposed legislation would introduce more complications and would lead to confusion in the minds of shareholders and creditors.

Since the previous consultation process, many submissions have been made to the Department of Trade and Industry and to the Department of Employment. The House will understand that both Departments share responsibilities for the proposed legislation. It is accepted in most of the submissions that there is some attractiveness in having a European company—a company which gives the impression to those who trade with it that it is a pan-European organisation. A company that chooses to set itself up as a European company must surely have in mind the objectives and ideals of Europe. That would be assumed by those who decided to deal with it. It would be thought that it must have a greater European experience if it chooses to be identified with the Community rather than with a single piece of national corporate law. There is no doubt that it would be an attractive vehicle. It might be thought that people would deal with it because its name and structure would suggest that it had greater experience and knowledge of trading in Europe than other organisations.

The proposed legislation tells us that it would be necessary only to form a group with two companies as part of it, with one in one country and one in another. That hardly means that the group would be pan-European. It means only that two separate companies which are under one holding company happen to choose to use the proposed structure. The group might appear to be European, but it might not necessarily be more European than any existing trading structure.

In its restrictions on the formation of the European company, societas Europaea, the proposed legislation contains a major problem. We are told that the structure which requires that a holding company has to be created will stop individual companies forming as a European company. I am not against companies wanting to be seen to be more European than perhaps they might be now, but I find artificial the strange structure of the holding company and the two subsidiaries. I should rather have a European company which does not necessarily need the particular formation of a holding company and two subsidiaries. I should like to see a European company as a genuine option when company law is far more closely aligned in the member states.

The cross-border merger issue is important. One of the stated objectives of the proposal before us is to give companies from different member states the option of combining their potential by means of inter-state mergers. It may be that the European company would be seen as a way to facilitate cross-border mergers. I am doubtful about that, however, and so is the Institute of Chartered Accountants in England and Wales. The institute has been much involved in the massive programme of mergers between companies and partnerships in the build-up to the single European market, and I doubt whether it has found the absence of a societas Europaea to be a major impediment. In other words, if the proposed legislation is introduced to try to help mergers throughout the European Community, why has there been such successful merger mania over the past 10 years?

Almost every large British company now trades in all of the European countries. These companies do not feel the need to have a societas Europaea. They trade as they have traded in the past but they take advantage of the single European market programme. To be opposed to this proposed legislation does not mean that we are bad Europeans. I remind the House that the United Kingdom is at the top of the list of member states when it comes to adopting the directives for the single European market. We have only nine still to achieve, so we have done far better than any other European country. Italy still has 50 to achieve. That demonstrates that Britain is a good European in terms of trade.

Worker participation has been mentioned by the majority of those who have contributed to the debate. The draft directive that accompanies the proposed legislation provides that there has to be the involvement of employees in the supervision and strategic development of a European company. We are told that there is a choice of four models for worker participation. The first is the election of at least one third and not more than one half of the members of the administrative or supervisory board by employees. Secondly, there is co-option to the boards, with the right of general meetings of shareholders and of employee representatives to object to any particular appointment subject to a procedure for declaring an objection inadmissible. That is rather complicated.

Thirdly, there is the establishment of an employee representative body with rights to information and reports from the board. As the hon. Member for Antrim, North said, what opposition has anyone to that proposal? I thoroughly agree with him. There is no good company in the United Kingdom that does not take into account fully the rights and futures of its employees. It is a truism that any company that rides roughshod over its employees will not survive in the climate of the United Kingdom in the 1990s. Major companies now give far more information to their employees, including specially created employee accounts. These accounts are not necessarily less sophisticated than others, but they are easily understood. They are designed so that employees will understand important information that is specific to them. I feel that companies care about their employees. Employees have rights as pension earners and as shareholders, and the atmosphere has never been better.

The fourth model in the directive is an agreement between the boards of the founder companies and their employees or representatives to a model which would provide the latter with rights to specific information and to be informed and consulted on the matters laid down in the Regulation. In other words, the two parts of the holding company, the two subsidiaries, would have a special structure that would give rights of access to employees by law.

In a memorandum way back in March 1984, the institute expressed the view that there was no reasonable justification for the imposition on member states of complicated and proscriptive provisions to attain an object whose desirability is not generally accepted either by employees or management. In other words, the principle has not been demanded by employees; it has been demanded by employee representatives and by trade unions, which view it as an additional power. No one had convinced me that the worker participation suggested in the Vredeling proposals, and which is dreamed of by the Opposition, would give more democracy and more information to individual employees—rather, it would give that to employee representatives, and we know what democracy is about at that level.

I do not believe that the movement towards worker participation in industry is greatly enhanced by being enforced by statute. I should prefer that the argument about worker participation be discussed separately and fully and, when it has been resolved, that the European company be imposed on top of that. It would be a disservice to such an important matter if the European corporate structure imposed worker participation in a roughshod manner.

My hon. Friend the Member for Chichester, referred to another matter. He and I served on the Standing Committee of the Companies Bill. We spent many happy moments discussing the subject of non-executive directors. We remembered the excellent work of Sir Brandon Rhys-Williams, a late Member of the House, who every year for 16 years introduced a Bill whose aim was to impose non-executive directors on the boards of major companies. He was a remarkable man and I was honoured to support him on five of those Bills. He was a legend in company law. It was said that many people looked forward to his company law Bill each Session—and in general few would admit to looking forward to company law legislation. Someone once said that company law was to an accountant what haemorrhoids were to a general practitioner; it is a rather unattractive end of the market, but it pays. Brandon was the expert in what, for most people, is an end of the market that they would rather ignore.

I can remember seeing in north Kensington one item of graffiti against Brandon—a large slogan, "Abandon Sir Brandon." I am sure that that most beautifully written graffiti had nothing to do with the Government's opposition to his Bills each year. It is worth remembering that, for the first time, the House passed his Bill—the 16th—and sent it to another place, yet the very day their Lordships rejected it was the day that he died. Happily, he did not know that his Bill was to be rejected. It was a sad end for a gallant man.

Even Brandon would not have accepted that the creation of a European company should be the medium through which non-executive directors could be imposed upon United Kingdom companies. He believed that they should be there as a form of audit committee. Again, the argument should not be whether this statute should impose important requirements by way of a sideline; it is too important a matter to he imposed through this legislation.

Article 66 provides that the executive members of a one-tier board, if that is the choice of the company, should be fewer in number than the other members of the board. To put it in the terms of the CB, single-tier boards—which must have more non-executive than executive directors, with at least one third of the directors being appointed by employees—would be an alternative model. Those arguments will rage, but for many companies they are a matter of practice. Many large companies have non-executive directors, but no single company is identical to any other single company. 'The needs of one company are not necessarily the needs of another company. How does the regulation that exactly one third of the board should be non-executive members advance the cause of democracy within a company? Companies should have expertise, and if that must be non-executive, so be it. The board of directors must answer to its shareholders. The non-executive directors that many companies have used successfully for many years must properly earn their keep. To impose non-executive directors through legislation would be a back-door measure.

Mr. Derek Conway (Shrewsbury and Atcham)

I am sure that the House recognises my hon. Friend's great expertise in this subject. Being able to share his views tonight is an educative experience. He is making a powerful case about back-door bureaucracy, which the EEC is trying to impose on nation states. Is he aware of companies such as Airbus Industrie—a supranational organisation that I was fortunate to visit during the recess as a member of the Industry and Parliament Trust? It is based at Toulouse and comprises a French-based company—sadly nationalised—a German company, British Aerospace and a Spanish company. They have come together to make the airbus. That happened before the United Kingdom even joined the European Community, so the concept of a supranational organisation not only works and, for this organisation, is extremely effective, but it does not necessarily have to involve all this European bureaucracy. That is the point that my hon. Friend is impressing on the House.

Mr. Hanley

I recently spoke to some of the directors of the airbus project, and they said that the highlight of recent months was my hon. Friend's visit. He has made a powerful case for the continuation of a structure that has so successfully traded among European countries. However, my hon. Friend might not agree with my view that there is nothing wrong with having a European company, although I hope to show why now is not the time for that.

Let us consider some of the more detailed points, which have nothing to do with worker participation or non-executive directors, but are to do with accounting requirements. The Institute of Chartered Accountants for England and Wales knows them better than most. The accounting requirements by which companies are regulated are among the most important regulations in company law. Successive Companies Acts have tightened those requirements. A judge once said that publicity was the most potent safeguard against fraud. What companies must produce in their accounts reduces the propensity for fraud; it is the accountability aspect of the company.

It is essential that the directors of the company produce and present accounts to the shareholders and that they are registered at Companies house so that everyone can see them. The regulations before us would apply to a European company the requirements of the fourth and seventh directives, which deal with both individual and consolidated accounts. However, they would retain the options within those directives. That is important because the options mean that if one registers a societas Europaea in Great Britain, the company would be required to disclose less information than that upon which we insist in our domestic legislation. In other words, there are so many areas in the accounting requirements of a societas Europaea, as set out in the regulation, that I fear that entrepreneurs will make a list of those items of information that they are required to publish under the societas system and those items that they are required to publish under domestic company law. It would be very wrong if the requirements of the House, as imposed on public limited companies, were circumvented by easier legislation.

Recent legislative requirements, such as the widening of the definition of a subsidiary—aimed at preventing off-balance-sheet financing—could effectively be avoided by means of the vehicle of the societas Europaea. A number of other requirements of United Kingdom company law are not even mentioned in the societas—for instance, analysis of directors' remuneration, and detailed information about transactions involving directors.

The House considers it right for the income of directors to be set out properly in published accounts. The House believes that, if directors have loans or use credit cards on the company, the information should be shown, again in published accounts. The House has agreed to that, and has incorporated it in successive items of legislation. This regulation, however, does not insist on the publication of directors' remuneration or interests, or on the publication of information relating to political and charitable donations. I am sure that the hon. Member for Redcar, who fought so hard for political and charitable contributions to be split in the Companies Act 1989, would hate to think that, under this legislation, political donations would not even be mentioned in the published accounts of the European company.

Ms. Mowlam

I do not wish to hold up the debate, but I must tell the hon. Gentleman that I was not the woman member of that Committee; I know that after a while we all look alike, but it was my hon. Friend the Member for Gateshead, East (Ms. Quin). Let me add—although I was not there—that, if the hon. Gentleman had looked al the amendments on employee share ownership plans that we tabled to the Companies Bill, he would know that we supported wider share ownership and the disclosure of information.

Mr. Hanley

The hon. Lady protests too much. The clause to which I was referring returned to the Floor of the House on Report, having been defeated in Committee. If she was following her party Whip, I am certain that the hon. Lady would have traipsed through the appropriate Lobby like any other faithful soul. It was, in fact, a Lords amendment that was discussed here. I am sorry if the hon. Lady was not present; I had forgotten that her knowledge of company law was so recent—on her own admission.

We fear that the cumulative effect of the relaxations relating to disclosure might lead a person who was not acting in full good faith to choose a particular vehicle merely because it was easier on him. That goes for taxation as well. Article 133 of the regulation provides that, where a societas Europaea has one or more permanent establishments in a member state or a non-member state and the aggregation of the profits and losses for tax purposes of all such establishments results in a net loss, that loss may be set against the profits of the societas in the state where it is resident for tax purposes. That is fine; the only trouble is that in every member state there are different calculations relating to profit, and to the taxation of that profit.

That means that yet another industry will be created, or rather built on: the industry that produces taxation information for corporate clients. In this instance, the companies will ask their advisers, "Do we want to set up this new body? If we do, we shall receive better tax treatment than we receive if we trade in individual countries." I am convinced that progress towards the harmonisation of income tax, corporation tax and value added tax should come first. Only then should the European company be imposed on a Europe in which fiscal harmonisation is a reality and not merely a pipe dream. If we cannot even achieve fiscal harmonisation in relation to VAT, fiscal harmonisation in relation to corporate and individual taxation is bound to be even harder.

Although the regulation is drafted in very general terms—much more general than the terms to which we are used in this country—numerous aspects would give rise to litigation, because of the current differences between member states. The fact that some national law is applicable and the reliance placed on reference to other directives are, I think, likely to make it difficult for businesses to ascertain the overall nature of the provisions under which the societas Europaea operates. It would not, in fact, be imposing a separate set of company law rules; each company would be obeying its own domestic company rules, and that is likely to lead to confusion. United Kingdom company shareholders are already confused enough by our own company law. What will they say when they are shareholders of a company which may have to answer to the regulations of at least 12 sets of legislation in other countries? According to the Institute of Chartered Accountants in England and Wales, significant differences amongst Member States in those areas of national law that would apply to an SE, and in approaches to enforcement, would frustrate the objectives of the Regulation. There is little doubt in my mind that the concept of the European company ought to benefit both Europe as a whole and the companies that choose to adopt it. I like to think that a company would decide to form an SE because it was a good European company, because it traded over all the national boundaries, because its staff were well versed in European matters—because it was indeed a genuine European company. I fear that, as the regulation is currently phrased, companies may choose to become European companies merely because of the odd little advantage that they might obtain through the relaxation of one piece of legislation—perhaps on the presentation of accounts—or the gaining of more allowances for taxation purposes, rather than because of the merits of the concept.

It would be most unfortunate if the popularity of this idea stemmed wholly from the desire to operate under a less demanding regime. I must therefore oppose the regulation, albeit with reluctance. I hope that my hon. Friend the Minister will accept that we are not merely discussing worker participation; that is only a sideline. The most important issues are the fact that accounting regulations differ between member states; the publicity that directors must provide in the publication of accounts; and the need to achieve final harmony before we start talking about a societas Europaea.

6.47 pm

Mr. Donald Thompson (Calder Valley)

I shall be brief. My hon. Friend the Member for Richmond and Barnes (Mr. Hanley) has already made most professionally and eloquently many of the points that I intended to make.

What we really want is deregulation, not more regulation. The annex to the document contains regulation after regulation. Many are worthy and necessary—the disclosure requirements and those relating to annual accounts, for instance—but surely the time has come for Europe to consider deregulation when introducing new directives.

It may seem at first that my two main points bear little relation to each other. I am a member of the British delegation to the Council of Europe, which many of the emerging states of eastern Europe are keen to join. Hungary joined at the last session. Those countries will, of course, want to become members of the EC quite soon. The word "pan-European" has been used. I use it to mean the whole of Europe, from the Urals to Madrid. It would be dangerous if such a regulation became a model for those emerging countries. It must be rejected as being unnecessary.

Firms in my constituency do not want the Commission telling them how they must set up a company before they can trade. They fear that it would not be long before societas Europaea status was a prerequisite of tendering for a contract, which would be ridiculous. Compulsory worker participation is not what this country needs, even if the Commission thinks that it is right in principle. The regulation must be rejected or altered drastically for the sake of those countries that are waiting to join the Community, and for those firms in my constituency that want to trade freely in a deregulated capitalist Europe.

6.50 pm

Mr. John Browne (Winchester)

The House has heard a fascinating and wide-ranging speech by the hon. Member for Linlithgow (Mr. Dalyell), and I look forward to hearing the Government's answers. I enjoyed also the speech of my hon. Friend the Member for Chichester (Mr. Nelson), who has exceptional knowledge of corporate law and of the taxation and financial sectors. I disagree with some of my hon. Friend's concepts, such as European monetary union. He may be right in the direction that he takes, but not in the timing.

My hon. Friend the Member for Richmond and Barnes (Mr. Hanley) made an outstanding contribution, and I will not waste the time of the House by reiterating my views on taxation and corporate law because they are very similar to those of my hon. Friend.

I must declare at the outset that I have financial interests that could be affected if the regulation were to become law.

I support the proposal in general terms as being part of the synergy of the European Community of 1992. It is designed to help companies governed by the laws of different member states to choose a structure for co-operation and restructuring that is suited to the dimensions of the larger market to be achieved in 1992. It aims at freeing companies from legal and practical constraints arising from the existence of 12 separate legal systems by offering them an optional structure based on Community law, and independent of national laws in so far as they have not been harrnonised.

That is great news from an EEC point of view, but the implications of such a proposal are worrying. Imposing by the back door and almost unnoticed practices that are at the heart of fundamental political issues that we in this House have fought over long and hard for decades cannot be right. Worker participation in particular, mentioned in several speeches, is among the most important of those fundamental issues and merits debate and legislation in its own right. It should not be slid through Parliament on the back of something else.

Ms. Mowlam

Does the hon. Gentleman seek specific legislation on worker participation? If the Government consider that so important, why have they blocked the fifth directive—the Vredeling document on consultation? That aspect has been divided into a directive and a regulation to meet the Government's opposition to worker participation over many years. The hon. Gentleman cannot have his cake and eat it.

Mr. Browne

I can only answer for my own view, which is that the regulation does not seem to cover that aspect adequately. My hon. Friend the Minister will explain the Government's viewpoint.

I have no objection to the principle of non-executive directors, but to impose them, and the percentage of a board for which they should account, is wrong. Again, that aspect merits its own debate rather than be included as part of a broader regulation.

Some of the tax reforms envisaged might be advantageous to some EEC countries and could encourage improvements that my right hon. and hon. Friends and even Opposition Members may consider beneficial. Nevertheless, the question remains whether the regulation is the right vehicle for tackling the vastly complex subject of tax reform, which has huge political implications. I think not. It is far too complex a matter to be dealt with in a few paragraphs of a regulation.

The accounting procedures observed in this country are of a very high standard, and they put the markets of the United Kingdom well on a par with the finest in the world. The regulation would weaken that standard.

I welcome the acknowledgement given to smaller businesses by lowering the capital requirement from 250,000 to 100,000 ecu, which shows a move in the right direction within the EEC.

I support the general aim of the proposal, but when one examines it in more detail and discovers the plans for imposing worker participation and non-executive directors rather than offering them as an option, one is bound to conclude that the regulation should not have the support of the House tonight.

I have reservations also about the timing of the introduction of the regulation, which strikes at the heart of several serious issues that are to come before the House in the near future such as the exchange rate mechanism and European monetary union. One may agree with them all in principle, but how and when are they to be introduced? I accept that, after EMU, gold will become a truly international form of currency. It is a well-known numeraire, it is readily tradeable and has a store of value.

Paper money represents an economy. That is important because paper money is politically controlled. I fail to see that we can have a credible single European paper currency without a single European economy. At the moment we do not even have a single European market, let alone a single economy. I fail to see how we can look forward to creating a single European paper currency in such a short time before we have achieved a single market.

It being Seven o'clock, and there being private business set down by THE CHAIRMAN OF WAYS AND MEANS, under Standing Order No. 16 (Time for taking private business), further proceeding stood postponed.