ACCOUNTS OF ASSEMBLY SUBSIDIARIES ETC (Hansard, 3 February 1998)

§ Mr. Jenkin
I beg to move amendment No. 343, in page 49, line 30, after 'Assembly', insert 'or the Welsh Development Agency'.

§ The Chairman of Ways and Means (Sir Alan Haselhurst)
With this, it will be convenient to discuss amendment No. 342, in page 49, line 30, leave out 'an' and insert 'a controlling'.

§ Mr. Jenkin
I do not pretend that the amendments are desperately cunning or designed to stretch the Minister out on the rack of office as he seeks to discover our motive. They are simply probing amendments. Clause 99 covers the Auditor General's right of access to accounts 909 relating to the assembly's expenditure, including accounts for any assembly subsidiary. The term "Assembly subsidiary" is defined in clause 99(4)(a) as any body corporate in which the Assembly holds an interest". Amendments Nos. 343 and 342 would make it clear that an assembly subsidiary should include, for the avoidance of doubt, subsidiaries of the Welsh Development Agency.
Amendment No. 343 would also make it clear that we should keep to the usual meaning of the word "subsidiary" in corporate matters. In other words, a controlling interest would be necessary. It does not seem reasonable for the Auditor General for Wales to seek the accounts of businesses in which the WDA has a minority stake. That would not be a sensible use of his time or a suitable use of executive power.
Companies are regulated by the Companies Acts when they publish financial information. I have been a venture capitalist, and I believe that the WDA should have appropriate shareholders' agreements with any private companies in which it has invested. It should not be necessary for the Auditor General for Wales to be able to intrude into private affairs. I hope that the Minister will say whether the Bill already includes the subsidiaries of the WDA in the meaning of the phrase "Assembly subsidiary", and also whether the word "subsidiary" includes any body corporate in which the assembly holds any interest.

§ Mr. Öpik
The Liberal Democrats agree with amendment No. 343, which would include the WDA in the requirement to provide accounts. It seems sensible that such an important body is formally included. After all, it will probably become even more important to the Welsh economy and is, therefore, a legitimate target of scrutiny. However, we have a problem with amendment No. 342, because the assembly should have the right to look at the accounts of any organisation in which it has a financial interest.

§ Mr. Ancram
The Auditor General.

§ Mr. Öpik
The right hon. Gentleman is right to correct me. I mean that the Auditor General should have the right to look at the accounts of such bodies. A sad example from my own constituency illustrates that point well. A company called Merchants Design has gone into liquidation and questions have been raised about whether the necessary proprieties were observed in its financial handling. The right of access to its accounts would be beneficial so that any problems could be exposed.

§ Mr. Jenkin
If money from the WDA was invested in the business—even if it was only loan money—a loan agreement would provide the WDA with regular access to management accounts, probably every month. That would be the responsible way in which to conduct the investment. If investment was not conducted in that way, the Auditor General would have an argument with the WDA, not with the failed company. The company would have its own auditors who would ultimately be answerable to Companies House and the Department of Trade and Industry, which regulate the directors of companies. It would be for those bodies to decide whether the company was run properly, not the Auditor General for Wales.

§ Mr. Öpik
I understand that point, but it seems to me that there is a problem with that particular company 910 specifically because the provision is not enshrined in legislation, and I look forward to hearing the Minister's response to that point.
It is my understanding that the Bill does not make it mandatory for the Auditor General for Wales to investigate every organisation, but simply gives the Auditor General the right to do so. Surely it is common sense that the Auditor General should have the power to act responsibly and investigate when that is appropriate. Again, I look forward to hearing the Minister's views.

§ Mr. Hain
I thank the hon. Member for North Essex (Mr. Jenkin) for the points he raises, which are genuine and probing, and which give us cause to reflect, especially about amendment No. 342. I am also grateful for the points raised by the hon. Member for Montgomeryshire (Mr. Öpik), which are legitimate.
It may help the Committee if I explain the background to clause 99. It caters, among other things, for the possibility that the assembly may establish companies to provide certain services. An example might be if the assembly decided to follow the model of the House of Commons and have a gift shop or cafeteria, and if it decided to run those operations through a subsidiary company. The assembly might also be involved in trusts or charities. Clause 99 ensures that, regardless of the fact that the assembly may have subsidiaries that take a particular legal form, the Auditor General for Wales can have access to their accounts and the Treasury can issue directions about the form of their accounts, if necessary.
As the Committee would expect, careful consideration was given to the definition of "Assembly subsidiary" in subsection (4). The problem with inserting the word "controlling", as amendment No. 342 would do, is that it would then be necessary to define "controlling", and it is our concern that whatever definition was adopted might enable the assembly to avoid the intended effect of clause 99. If the assembly held, for example, 1,000 shares in a company quoted on the stock exchange, that would not be an interest of the sort that would give rise to the Auditor General seeking access to the books of the company or to the Treasury seeking to direct the form of its accounts. In exercising their functions under clause 99, the Auditor General and the Treasury will be subject to review by the courts in accordance with well-accepted principles regarding the exercise of statutory powers.
Amendment No. 343 includes a body corporate in which the Welsh Development Agency has an interest in the definition of "Assembly subsidiary". That is not appropriate either. Although the WDA has powers to invest in companies, any such company would in no sense be a subsidiary of the assembly because it would be a subsidiary of a public body funded by the assembly. We intend that the Auditor General will have full access to the WDA's books, including its investments in companies. That will be achieved by order under clauses 136 and 138, and we submit that clause 99 is not the proper place to deal with this matter.
In inviting the hon. Member for North Essex to withdraw the amendments in the light of my explanation, I stress that, in the past 10 to 15 years in Wales, there has been much questioning of quangos and subsidiaries of quangos, and of the arrangements privately entered into under their aegis. It is absolutely vital that there is full 911 transparency and accountability in future, and the Auditor General's powers in this respect, as provided for in the clause, give effect that objective.

§ Mr. Jenkin
I am grateful for the way in which the Minister has responded to the amendments. I reiterate the need to clarify the question of what is an interest. He asserted that 1,000 shares in a quoted company would not constitute an interest in the accepted sense of the word, and I accept his admonition that defining what is a controlling interest can be extremely complicated. To give an example, one might have 10 per cent. of the ordinary share capital-10 per cent. of the votes—but, when the company goes into default in respect of an agreement, one might find that other, non-voting shares become voting shares and one suddenly has a controlling interest; or the nature of the shareholders' agreement might suggest that one has a controlling interest, even though one does not have a majority of the votes.
I can understand the difficulty, but I am grateful to the Minister for accepting that there is an issue to be addressed. There is a danger that the assembly may find itself restricted in terms of what it can invest in for the benefit of Wales by having this potentially draconian influence—the Auditor General for Wales—behind it with the ability to interfere in the relationship between the assembly and its non-subsidiaries. I am grateful to the Minister for agreeing to look at the issue again. In the meantime, I beg to ask leave to withdraw the amendment.