§ Mr. John Burnett (Torridge and West Devon)I beg to move amendment No. 7, in page 10, line 15, after "to", insert—
'bodies corporate recognised by the Law Society under section 9 of the Administration of Justice Act 1985,'.
§ Mr. Deputy SpeakerWith this it will be convenient to discuss the following amendments: No. 8, in page 10, line 17, after "to", insert—
'bodies corporate recognised by the Law Society under section 9 of the Administration of Justice Act 1985,'.No. 4, in page 10, line 22, at end insert—'(2) For the purposes of this section any law relating to bodies corporate recognised by the Law Society under section 9 of the Administration of Justice Act 1985 shall be deemed to be a law relating to companies or other corporations'.
§ Mr. BurnettWe discussed in Committee a new clause that contained proposals fairly similar to those in amendments Nos. 7, 8 and 4. Unfortunately, due to a technical hitch, I am now told that solicitors might not be able to set up as LLPs—at least, not as soon as other professions. The Minister was helpful in Committee, and was anxious that solicitors were not discriminated against.
There is a large body of legislation that makes reference to solicitors which will need amending in the light of this Bill. The Law Society was led to believe that this could be achieved by making regulations under clause 15, and that is what I have sought to do. However, I understand that the Law Society has been told that the Minister's Department believes that it may lack the power to make these regulations.
This has led to some confusion, and the Government clearly still intend solicitors to take advantage of this new business entity. Indeed, the Minister assured me in Committee that solicitors would not be penalised or discriminated against in any way. I hope that the Minister can put my concerns at rest.
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However, there is still concern in the Law Society about how the Government will ensure that solicitors are not discriminated against. The Minister suggested in Committee that it might require primary legislation, but what chance is there of a dedicated solicitors Bill before this Bill comes into force in 2001? I understand that another option might be to use orders under the regulatory reform Bill, but that Bill is still in draft. When can we be certain that it will receive Royal Assent in any event? It may be that the necessary changes can be made by using existing powers within the body of legislation affecting solicitors and their practices, such as the Solicitors Act 1974 and the Administration of Justice Act 1985. However, the Law Society is doubtful whether that can be achieved, and I believe that the Department of Trade and Industry also has concerns.
It is surely the neatest solution to use clause 15 to make the necessary changes, in accordance with the three amendments that we are discussing. Even though the DTI recently voiced doubts, the Law Society still believes that the powers in the Bill are adequate, although I understand 953 that we are waiting for parliamentary counsel to confirm that. I hope that the Minister will let us have his views on that point. The amendment would simply make the power more explicit.
I know that the Minister is extremely concerned about this problem. He assured me in Committee that no discrimination or prejudice would be suffered by the solicitors' profession as a result of the introduction of this legislation. In other words, all trades and professions should be treated equally and must equally be able to become LLPs in 2001. Many thousands of individuals who make a great contribution to the United Kingdom economy wait to hear from the Minister his response to the group of amendments.
§ Dr. HowellsI rise with appropriate gravity, knowing that thousands of solicitors out there are hanging on my every word. I restate my determination that solicitors will not be discriminated against when it comes to their ability to form LLPs. I am sure that the hon. Gentleman will be pleased to hear of the progress that we have made on this issue since we discussed it in Committee. I said then that my Department was working with the Law Society and the Lord Chancellor's Department to examine the detail of the legislation governing solicitors and consider whether primary legislation was unavoidable and, if so, to determine what specific changes needed to be made.
On the basis of the analysis carried out by the Law Society and the Lord Chancellor's Department to date, we believe that the vires contained in the Bill are wide enough to make the amendments that have been so far identified by regulation to ensure that solicitors may make use of LLPs. Assuming that no further amendments are considered necessary that differ in kind to those already identified, the amendments will be included in the regulations to be made under the Limited Liability Partnerships Bill when it receives Royal Assent. I see no advantage in the amendments tabled by the hon. Member for Torridge and West Devon (Mr. Burnett), and I invite him not to press them.
§ Mr. BurnettI am much comforted by the Minister's words. I am grateful to him for the attention that he has given to this important matter. I note his comment that his Department, the Lord Chancellor's Department and the Law Society believe that the vires are wide enough in the Bill as drafted, and in the regulation provisions in clause 15. On that basis, I am happy to beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
§ Mr. GibbI beg to move amendment No. 2, in page 10, line 22, at end insert
'(2) Section 458 of the Companies Act 1985 (punishment for fraudulent trading) shall apply to limited liability partnerships.'.
§ Mr. Deputy Speaker (Mr. Michael J. Martin)With this it will be convenient to discuss the following amendments: No. 3, in page 10, line 22, at end insert—
'(2) No regulations made under subsection (1) above shall enable indictable criminal offences punishable by imprisonment to be made applicable to limited liability partnerships, other than those which are contained in the Companies Act 1985 and Insolvency Act 1986 as at 1st June 2000.'.954 No. 11, in clause 17, page 10, leave out lines 31 and 32.No. 6, in schedule, page 15, line 15, leave out—
incorporated as a limited liability partnership with that name,'and insert—'a limited liability partnership partnership,'.
§ Mr. GibbDuring a debate earlier this afternoon, we heard from the hon. Members for Great Grimsby (Mr. Mitchell) and for Newcastle upon Tyne, Central (Mr. Cousins) about the vast salaries that some lawyers and accountants are able to command, but I should tell them that they are responsible for those high salaries. The growing body of rules and regulations emanating from this place that have to be obeyed by people in the real world is the cause of those high salaries. The left-wing interventionist philosophy of the hon. Gentlemen and their party creates the pressure for the vast majority of regulations.
When I started work as a tax adviser in 1986 at KPMG, or Peat Marwick Mitchell and Co., as it was then, the tax legislation was contained in one volume of "Butterworths", and it was not a particularly thick volume. Now there are three volumes, each bigger than the 1986 one and printed on thinner paper. The tax practice grew hugely during that period as the volume of tax legislation increased, and the same has happened to company law and no doubt a whole host of other areas of law. I know that most of the increase took place under the Conservative Government, but the pressure for regulation tended to come from the left-wing philosophy in our political regime, although much of the tax legislation was introduced in order to close loopholes.
The consequence is that the demand for people who have read, learned, remembered and understood our legislation is increasing. Although the supply of people prepared to do that kind of work has increased to a degree, the work is painstaking and not terribly exciting. So demand has outstripped supply and the people with experience and ability are now commanding high salaries. The responsibility lies not with the City firms—with KPMG or PricewaterhouseCoopers, which the hon. Member for Great Grimsby kept going on about—but with us in this place.
We pushed through vast volumes of new rules and tried to make it even easier for ourselves by pushing large chunks into secondary legislation, which often are not debated. When they are debated, it is done upstairs in Committee without the possibility of tabling amendments. We are becoming a conveyor belt, mass-producing legislation that we expect people to obey. We deem them to have knowledge of all the laws that we pass. Then some Members of Parliament have the audacity to complain that society is devoting too many resources to reading and applying that legislation.
The Bill is a classic example of how a simple 19-clause Bill can spawn a volume of regulations. Four clauses of the Bill simply empower the Government to create new swathes of regulations contained in a volume the size of the copy that I have here. Clause 16 is a classic Henry VIII clause, and it even provides power to make regulations that themselves can amend primary legislation. There will be no First or Second reading, no tedious Committee stage, Report or Third Reading. The primary legislation will simply be amended by a statutory instrument rubber-stamped by a Committee upstairs.
955 Throughout the Committee proceedings, when the Opposition have raised concerns—the hon. Member for Torridge and West Devon (Mr. Burnett) shares our concern—about the quantity of secondary legislation, the answer from the Minister was that it was better to use secondary legislation because it was easier to amend. That is the point. We must make it harder, not easier to amend and create new regulations. Some £10 billion of additional regulatory burdens have been piled on to industry in just the past three years. Small business in particular is drowning under the deluge of paperwork. We are becoming a nation of inspectors and regulators instead of shopkeepers and entrepreneurs.
The House of Lords Select Committee on Delegated Powers and Deregulation carried out its duties well when it examined the Bill. It alerted Parliament to the fact that clause 16 is a Henry VIII provision, and we ought to take notice of that, not simply ignore it, as the Government did in Committee. The Select Committee was set up to highlight Henry VIII provisions.
The report also highlighted the Committee's concerns about the use of secondary legislation to create new serious criminal offences. In paragraph 8, the Committee says:
The draft regulations create offences punishable on summary conviction by a fine but the power is wide enough to allow the regulations to provide for imprisonment or for trial on indictment. If, as seems likely, the intention is to provide only for summary trial and a fine, the Committee is of the opinion that it would be better for this limitation to appear in the Bill.In other words, the Committee assumed that the power was intended to create only minor offences. Its members felt that that was acceptable, but they were alarmed that the way in which the clause was drafted could enable the creation of more serious offences. They thus recommended that the Government should change the clause so as to reduce the power and to confine it only to minor criminal offences.The Government refused to do so, however. They insisted on the need to incorporate all the existing criminal penalties under the Companies Acts and under insolvency legislation in the LLP regime. That may be fair enough, but it should be done through primary legislation, not by statutory instrument. The amendments would do precisely that; they would incorporate in primary legislation the serious criminal provisions that the Government want to include.
In Committee, something more sinister was revealed: clause 17 is not merely about incorporating in the LLP legislation the criminal provisions under existing company and insolvency law; it is also about enabling new criminal offences to be created by secondary legislation. The Minister said that
it is important to preserve the flexibility to create offences in future and to decide how they should be punished … There may be new crimes for which we shall have to formulate new punishments.—[Official Report, Standing Committee F, 15 June 2000; c. 63.]There we have it: new crimes and punishments created by secondary legislation. That is wrong. The Minister knows that it is wrong. The House of Lords Committee on Delegated Powers and Deregulation knows that it is wrong. That Committee was set up in 1992 with a specific 956 responsibility: to point out to Parliament when such matters are wrong. The Minister should take note of the Committee's views and accept our amendments.
§ Mr. Stuart BellI declare an interest as a barrister at law, as an adviser to Ernst and Young and as a contributor to Accountancy Age.
Amendment No. 6 is technical; it may seem minor, but it is important for those firms affected by the provisions and by those with whom they do business. It will mean that the British branch of an oversea limited liability partnership will be able to continue to use a name that concludes with the words "limited liability partnership", "LLP" or their Welsh language equivalents. As drafted, the Bill would make it an offence for people to describe themselves as a limited liability partnership or LLP unless they were incorporated in this country.
The pace of change in the global village is such that, sometimes, the drafting of legislation has difficulty keeping up. That is the case for the Bill. Its present wording would cause problems for all those LLPs that are registered in another jurisdiction, but have a place of business in the UK. It is to the credit of the Government, of Ministers and of the Department of Trade and Industry that they realised that such problems would be caused. I hope that they will look benevolently on my amendment.
It is thought that, for example, there are at least 30 United States law firms with LLP status that have an office in London. Their LLP status shows why the Bill is welcome; it allows British firms to compete on the same basis. The presence of such firms in London demonstrates the dynamism of the international market for legal services.
It must be right, however, that all those doing business with firms whose partners have limited liability should be aware of that fact. The thrust of the policy behind the Bill is that a firm's status should be disclosed, together with the fact that its liability is limited. Under clause 14, the Secretary of State will have power to regulate overseas LLPs. Furthermore, the DTI has suggested that, in due course, it will hold consultations on appropriate provisions.
It would be quite inconsistent with such powers and with such an intention to forbid the use of the LLP title from the outset. Fortunately, the solution is simple; it is to be found in the amendment. The amendment ensures that an oversea LLP will not be prohibited from describing itself as such. A definition of "oversea limited liability partnership" is to be found in clause 14(3): it is
a body incorporate or otherwise established outside Great Britain and having such connection with Great Britain, and such other features, as regulations may prescribe.The practical effect of that is that regulations will determine precisely which LLPs will be entitled to the benefit of the amendment. I know that those firms with limited liability that have a place of business in the United Kingdom are also subject to regulations under clause 14.6.45 pm
The amendment reflects the on-the-ground reality of international law practice and recognises the realities of the globalised economy. I am grateful to the Minister and to his Department for acknowledging that. The amendment also serves the public interest by communicating to the public 957 the status of business organisations. In those circumstances, I hope that the Minister and the whole House will welcome the amendment and further its passage onto the statute book.
§ Mr. BurnettI speak to amendments Nos. 2, 3 and 11, tabled by the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) and his hon. Friends. As the hon. Gentleman was kind enough to point out during his speech, Liberal Democrat Members deprecate the use of regulation to introduce so many of the provisions under the Bill; such power is utterly unsatisfactory. Most pernicious of all are new regulations that could deny individuals their liberty. They should not be incorporated in law except through primary legislation. That must be clear to all Members of the House.
§ Dr. HowellsI shall deal with amendments Nos. 2, 3 and 11, before dealing separately with amendment No. 6, proposed by my hon. Friend the Member for Middlesbrough (Mr. Bell).
In Committee, the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) expressed concern: first, that we were intending to apply to members of an LLP existing criminal offences that apply to company directors and are punishable by imprisonment; and, secondly, that those offences were to be imposed by secondary legislation. He expressed further concern that the power in clause 17 was wide enough to allow the creation in regulations of new offences that may also be punishable by imprisonment.
If I understand the hon. Gentleman correctly, amendment No. 2 is intended to probe why we have not included in the Bill all the offences punishable by imprisonment. Any alternative interpretation does not seem feasible. It is our intention to include section 458 of the Companies Act 1985 in regulations alongside other offences, and I cannot imagine that there is anything so special about that section that it should appear in the Bill when other sections—such as section 450, which makes it an imprisonable offence to destroy, mutilate, falsify, or alter documents—remain in regulations. Nor can I imagine that the intention is to place section 458 in the Bill as the only provision punishable by imprisonment. How would we justify providing that, in some circumstances, members of an LLP would face a lesser penalty than directors of a company for the same offence?
Why, then, have we not put imprisonable offences in the Bill? Because we do not consider it appropriate. As I have made clear, our intention is that the members of an LLP should face the same penalties as members of a company; that seems a reasonable policy objective. The offences arise from various provisions throughout the companies and insolvency legislation. We see no reason to place those provisions in the Bill while others are confined to regulations. In considering the legislation, Parliament concluded that the level of penalty was appropriate to a body corporate with limited liability and to its directors. We see nothing about the limited liability partnership to suggest that application of those penalties to members of an LLP is inconsistent with Parliament's intentions.
I shall now discuss amendment No. 3. I realise that the intention is to restrict our powers to imprison members of a LLP to those offences that are contained at present in 958 the Companies Act 1985 and the Insolvency Act 1986. The hon. Member for Bognor Regis and Littlehampton would prefer it if, every time that the Government wanted to legislate to make an offence punishable by imprisonment, they could do so only by introducing primary legislation. That is a reasonable case to make.
I shall now discuss amendment No. 11. It is clause 17 which provides that regulations may, in particular, make provisions for dealing with non-compliance with any of the regulations, including the creation of criminal offences. However, amendment No. 11 would remove that provision in its entirety.
The House of Lords Select Committee on Delegated Powers, which the hon. Gentleman mentioned, drew the attention of the other place to the powers to create offences by regulations, and invited it to consider whether the Bill should be amended to provide that such offence should be punishable, on summary conviction, by a fine.
We explained in our response that it was our intention to apply to limited liability partnerships the same offences applying to companies. We noted that the creation of new offences would be subject to affirmative resolution, and our intention to apply existing offences for companies in the first set of regulations would mean that these would also be subject to affirmative resolution.
While we have no intentions at this stage to apply to LLPs anything other than the offences applying to companies, the power is wide enough to create new offences, as I think that our response indicated quite clearly. We believe this to be a prudent provision for the future, and consistent with similar provisions in existing legislation.
I cannot agree that amendments Nos. 2, 3 or 11 are either appropriate or necessary. In addition, if we look at their practical effect, we can see that they would be highly problematic. Amendment No. 3 is to clause 15, and to regulations made under subsection (1) of that clause, yet it is the power in clause 14 which provides for the Government to make regulations on the insolvency and winding up of limited liability partnerships or oversea LLPs. Were we to accept these amendments, we would be prevented from making any provision for non-compliance with regulations on the insolvency and winding up of LLPs. That cannot be right.
I shall now discuss amendment No. 6. I am very grateful to my hon. Friend the Member for Middlesbrough for raising this point. Our attention has been drawn very recently to the inconsistency between the drafting of this paragraph, and our statement to the Select Committee on Trade and Industry in June 1999. We told that Committee that company legislation which requires that oversea companies prominently display the company's name and the country in which it is incorporated will also be applied to oversea-registered LLPs by regulation, and that this includes the requirement to display that information on letterheads and on all notices and other publications of the LLP. That remains our intention.
The question then arises as to why we need additionally to prevent the use of the phrase "limited liability partnership" at the end of the title of an oversea-registered LLP. That would cause particular difficulties for existing oversea LLPs, many of whom will be required by the legislation of the jurisdiction in which they are registered, to include those words.
959 We have concluded that it is unnecessary both to restrict the use of the words "limited liability partnership" in the title of oversea LLPs and to require that they display their place of registration on all their publications. The latter should prove wholly sufficient to notify clients that they are dealing with an oversea entity.
Therefore, while I ask the hon. Member for Bognor Regis and Littlehampton to withdraw amendment No. 2 and not to press amendments Nos. 3 and 11, I will agree to amendment No. 6, tabled by my hon. Friend the Member for Middlesbrough—a rare event indeed in the progress of the Bill.
§ Mr. GibbI will accede to the Minister's request that I ask the leave of the House to withdraw amendment No. 2 and refrain from pressing amendments Nos. 3 and 11, but he was slightly disingenuous when he knew very well the purpose of the amendments. It was not intended to restrict the use of prison in dealing with people who commit serious company law or insolvency law offences. The purpose of the amendments is to point out the very real concerns, raised by the House of Lords Select Committee on Delegated Powers, that it is not proper—it is not right—for new serious criminal offences punishable by prison to be introduced into our legal system by means of secondary legislation.
The salient question is not whether the affirmative or negative resolution procedure is used, but whether the new crimes are created by secondary legislation, which cannot be right. Such a measure should go through the full procedures of the House—First Reading, Second Reading, Committee stage, Report stage and Third Reading—and then pass on into the Lords, so that there is a full chance of the whole nation being aware of the creation of those new criminal offences.
The provisions are very wrong. It is a sad day when our House is rubber-stamping and mass-producing this kind of criminal legislation through secondary legislation. I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.