HC Deb 28 June 2000 vol 352 cc959-67

Amendment made: No. 6, in page 15, line 15, leave out—

'incorporated as a limited liability partnership with that name,' and insert—

'a limited liability partnership or oversea limited liability partnership,'.—[Mr. Stuart Bell.] Order for Third Reading read.

6.55 pm
Dr. Howells

I beg to move, That the Bill be now read the Third time.

The Bill will introduce, for the first time in nearly a century, a new vehicle for carrying on a business. It is the result of three years of consultation and debate with a wide variety of interested and learned individuals. Detailed legislative proposals have been in the public domain since September 1998, and these were scrutinised shortly afterwards by our own Select Committee on Trade and Industry. Since then, the Bill has received close and thorough scrutiny in the other place and by Members of this House.

The Bill before you today, Mr. Deputy Speaker, is in very good shape, and I take the opportunity to thank all those, on both sides of the House, who participated in the many lively and interesting debates that we have had on the detail to ensure that this is the case.

6.56 pm
Mr. Gibb

We have now reached the final stage of the Bill's long journey to the statute book. It is one of the few Bills that the Government have managed to get through both Houses without its becoming logjammed in the congestion that they have created in the other place, so this is quite a novel occasion.

The Bill started life under the Conservative Government, in response to some genuine concerns on the part of the accountancy and legal professions, which were finding it increasingly difficult to retain some of their best people because those people were refusing to accept the risks of becoming a partner.

Listening to some of the members of the Labour party and their deep-rooted prejudices and hostility to accountants has been quite a revelation. There are 114,000 chartered accountants in this country, who work hard for a living, like anyone else. Some are paid well; others are not. But why should that particular line of work expose participants to the risk of losing a lifetime's savings as a result of the negligence of a fellow partner? That approach does not apply to doctors or nurses in the national health service—no one could say that the work of a chartered accountant is more important than that of a doctor or a nurse—or to teachers, or even to bankers in the City of London, so why should it apply to accountants and solicitors?

The Bill simply addresses that historical anomaly and, if anything, it is likely to ease the upward pressure on salaries as firms of solicitors and accountants find it easier to recruit and to retain key staff.

Mr. Fabricant

Is it not also the case that people using those services will also find that their fees are reduced, as was pointed out earlier in our debates this evening, because there will be less need for firms to take out indemnity insurance, which can be so costly nowadays?

Mr. Gibb

My hon. Friend makes a very valid point, and I hope that the hon. Members for Great Grimsby (Mr. Mitchell) and for Newcastle upon Tyne, Central (Mr. Cousins), who tabled several amendments, will take it on board.

The Bill was one of the first to undergo the new procedure of being examined by a Select Committee before beginning its passage through Parliament. The Select Committee report was of a very high quality and certainly resulted in the removal from the Bill of a raft of the more unacceptable and unworkable provisions. However, it is disappointing that the Committee has not been given the opportunity to examine in more detail the whole volume of draft regulations which were re-published in almost final form in May 2000. Given that the meat of the Bill is contained in those regulations, I believe that the experiment of having a Bill scrutinised by a Select Committee has not been completed, given that it has not yet looked at those regulations. The Committee requested to look at those regulations. I hope that before those regulations are laid before Parliament, a report will be prepared on the volume of draft regulations that the Government have published.

The new draft Bill that followed the Select Committee report went through a further consultation process. However, the final Bill, which started life in another place, gave rise to a number of concerns. My noble Friend Baroness Buscombe highlighted on Second Reading our concern over the disapplication of partnership law and the absence of a default to that law on issues on which the partnership agreement is silent. The Government have dealt with that matter in part, although not satisfactorily.

The Government took on board and dealt satisfactorily with our concern about the absence of provisions to deal with a member wishing to retire from a limited liability partnership. We were also concerned about an ambiguity in the Bill: whether members of an LLP could be construed as employees. That would have significant tax and employment law consequences for that member. Again, Lord McIntosh took on board Opposition concerns and amended the Bill to make it clear that members of an LLP were not to be employees.

We were concerned about the taxation provisions in the Bill and whether converting from a partnership to an LLP would trigger a capital gains and a stamp duty charge. We secured assurances and amendments on that matter in another place. Other issues, such as insolvency and acquisition accounting were also raised and dealt with. Indeed, if Ministers were as responsive to Opposition concerns in this House as they seem to have been, on occasion, in another place, they might not now be developing a reputation for being out of touch and arrogant.

Having said that, the Opposition are pleased that we have ensured that this legislation, which is important for commerce, will go on to the statute book in a better form than it would otherwise have done. We remain concerned about the absence of a general default clause and alarmed at the extensive regulatory powers contained in the Bill, in particular clause 16—the Henry VIII clause—and the power to create new serious crimes and punishments by secondary legislation, which is contained in clause 17.

Those important reservations aside, the Bill is welcome. As my hon. Friend the Member for Lichfield (Mr. Fabricant) just intimated, it will do much to ease concerns among professional firms and we can only hope that that may lead to industry facing smaller increases, or even reductions, in professional fees.

7.2 pm

Mr. Burnett

We support the Bill, although some other improvements should have been made. I am encouraged by what the Minister said about its applicability to solicitors.

We discussed clause 7 at length in Committee—the provisions that relate to ex-members. The Minister criticised that clause in Committee, at least by implication, because he considered it inflexible. On report, I tabled amendment No. 5, but it was not selected. I hope that the Minister will think again about that matter. The amendment would have made it clear that clause 7(2) was intended to have a similar effect to section 31 of the Partnership Act 1890, which the Minister conceded was important and prayed in aid for flexibility. Such an amendment would preserve flexibility with regard to the arrangements for the internal management of a limited liability partnership, which is important.

There are to be further consultations and regulations in respect of taxation. I draw the Minister's attention to the roll-over relief provisions that impact unsatisfactorily on LLPs. Roll-over relief has been an aspect of capital gains tax since the inception of that tax in 1965, I believe. At present, gains on the sale of an asset used in a trade can be rolled over into partnership property—that is, an existing 1890 Act partnership. There are special rules if the property is a wasting asset. Where that roll-over has taken place, the gain is not recaptured if that 1890 partnership comes to an end, provided that the assets are not disposed of. One pays the tax, including the tax on the rolled-over gain, when the asset is sold. If one partner leaves and sells his interest, the gain crystallises at that point and only in relation to that proportion of the asset that is sold. If an 1890 partnership ceases trading and the asset is owned in the same proportions as it was owned in the partnership when it was functioning, the rolled-over gain does not crystallise—it does not do so until the asset is sold.

I hope that the Minister will confirm that that capital gains tax treatment should apply to LLPs as it does to existing partnerships. It is important because there will be no cash to pay the tax until the asset is sold and that will affect small businesses in particular. We talked about that in our debates on report. Small businesses do not have the benefit of high-powered and expensive lawyers and accountants to advise them—we must remember that any trade or profession can become an LLP. First, the small business will not have the cash to pay the capital gains tax. Secondly, small businesses require simplicity. If they cease trading as an LLP, they do not know that rolled-over gains will necessarily have to be payable in those circumstances.

Roll-over relief is important for small businesses—it is important for all businesses—and that is reflected in the fact that the relief for assets used in a trade which has not altered since the inception of capital gains tax in 1965. It is important because it encourages investment, which will encourage jobs. I hope that the Minister will think again about those two matters: clause 7 and the roll-over relief.

Finally, we support the Bill and we wish it a swift Royal Assent so that it can become the law of the land in short order. No body of individuals, no profession and no individual trade should be excluded or prejudiced because they cannot become an LLP at the same time as all the other organisations, trades or professions.

7.7 pm

Mr. Mitchell

I had not intended to take part in this debate, but the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) provoked me to do so by arguing that Labour Members were attacking accountants. We were not attacking accountants; we were primarily attacking the power of the big five accountancy houses, which inflict damage on the rest of the profession by their failures, by the sort of cases that come up against them and by stealing business from smaller accountants. We should protect the smaller accountants. We should use the power of Government and Parliament as a countervailing power against the over-weaning dominance of the big accountancy houses, which are now such a power in the land.

In the United States, the Securities and Exchange Commission is attacking such power assiduously. The difference between the two countries is that the Bill is another milestone on the rise to power of such companies. In that situation, it is right to insist on concessions in return for the privilege of limited liability partnership that is being given—concessions on consumer protection, protection for stakeholders and more effective regulation. In this country, those concessions come later, and I hope that they will do so.

The Bill does not show the House at its best. All the speeches, apart from those of my hon. Friends the Minister for Competition and Consumer Affairs and the Member for Newcastle upon Tyne, Central (Mr. Cousins) and myself, were a defence of professional privilege and attitudes, even those of the Liberal Democrats—that party should be speaking for the people, but its members concentrated on the purpose and privileges of solicitors and the professions, not on countervailing their power. That does not show scrutiny at its best.

In conclusion, to recoin an old Irish joke, like the man in Little Grimsby who asked the way to Great Grimsby and was told, "I wouldn't start from here," I would not start from here. Unfortunately, we are doing so. It is right now that we should ensure the proper regulation of the powerful accountancy houses and of the profession. It is right now to enhance the power of stakeholders in response to the privileges that are being conferred on the accountancy profession. It is also right to argue that audit work should be split from the sale of other services. That is the next agenda on reform, and I hope that we go on to undertake it. In conclusion, I thank my hon. Friend the Minister for a sterling performance: he has listened, responded and treated all the arguments with respect, intelligence and courtesy, and I congratulate him on that.

7.10 pm
Mr. Fabricant

I support the Bill and, as the Minister knows, I served on the Committee that considered it. The Bill had its genesis in the last Parliament, and it is right and proper that the present Government should continue with the measure.

The hon. Member for Great Grimsby (Mr. Mitchell) gave a long catalogue of complaints against the larger accountancy firms. Even if he were right, I can see no reason why that should inhibit the Bill's passage, as the Bill relates to a very different issue. Certain concerns were raised by my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb). I am especially concerned that, in this Bill, as in other Government Bills, there is yet again, a blank cheque in relation to secondary legislation. Something that is important and ought to be included in the Bill is going to be left to delegated legislation.

On this occasion, the issue is the level of offences and the penalties that will accrue to them. That is particularly strange, as I pointed out in Committee, because clause 9(6) deals with the level of offence. It states: A person guilty of an offence under subsection (4) is liable on summary conviction to a fine not exceeding level 5 on the standard scale. The Government are therefore able to state what the level of offence should be. It is inconsistent and wrong that they choose not to do so with other offences which are named, quite rightly, in the Bill.

Government Members have expressed concern about the principle of the Bill, which is the removal of joint and several liability of partners. However, as the Liberal spokesman, the hon. Member for Torridge and West Devon (Mr. Burnett), pointed out, along with my hon. Friend the Member for Bognor Regis and Littlehampton, nothing under the law on civil torts prevents a prosecution against a particular partner for duties that are not carried out in accordance with the law. That is right and proper, and that facility will not be removed by the Bill's enactment.

The Bill is needed. The movement since 1890 towards a global economy means that a partnership alone is not enough in this day and age. The hon. Member for Great Grimsby highlighted the growth of the larger accountancy firms. I agree that that has happened in the United States of America, which has protection similar to that proposed in the Bill. We need that protection here in the United Kingdom. As I said in Committee and earlier today, there must be equity between the protection afforded in overseas countries and that offered in the UK.

With those reservations, I join my hon. Friend the Member for Bognor Regis and Littlehampton in wishing the Bill a fair passage. Despite our reservations about it, it will be good for business and, more important, good for British jobs.

7.14 pm
Mr. Stuart Bell

I shall briefly commend the Bill and add to the comments of the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb). It is perfectly right to say that the Bill owes its origins to Lord Freeman, who was Minister at the time. It was quickly taken up by the Labour party in opposition, and in our manifesto we said that we would introduce a Bill on limited liability partnerships. We also made a commitment to independent regulation, to which I shall return in a moment.

I commend the hon. Members for Bognor Regis and Littlehampton and for Torridge and West Devon (Mr. Burnett) and Opposition Back Benchers. I have forgotten which queen said that when she went to her grave and they opened her heart, they would see Calais written upon it. [Horn. MEMBERS: "Mary Stuart."' I thought it was, but I did not dare say so on the spur of the moment, in case I would stand corrected later. I commend my hon. Friends the Members for Great Grimsby (Mr. Mitchell) and for Newcastle upon Tyne, Central (Mr. Cousins), as I have a feeling that, when the LLP graves of the accountants and solicitors are opened up, they will see "Great Grimsby" and "Newcastle, Central" engraved inside. Anyone wishing to know what my hon. Friend the Member for Great Grimsby will do for an encore on independent regulation was given a reasonable impression tonight.

Finally, I commend with the utmost sincerity my hon. Friend the Minister and his staff at the Department of Trade and Industry, who have lived with the substance of the Bill for four years—one year in opposition and three in government. The Bill has followed the new parliamentary procedures introduced by the new Labour Government, has gone through a Select Committee and pre-legislation Committees and, after three years, has emerged as better legislation. This is a great day for parliamentary procedure, the Ministry, the Government and the House of Commons. I commend the Bill to the House and, as the hon. Member for Lichfield (Mr. Fabricant) said, I wish it a safe passage.

7.16 pm
Mr. Stephen O'Brien

As I did at the beginning of Second Reading and in Committee, I declare an interest as a fellow of the Institute of Chartered Secretaries and Administrators and as a parliamentary adviser to that body. I have been a non-practising solicitor since 1988.

I welcome the Bill and I pay particular tribute to the way in which it was handled in the other place before it came here. I pay special tribute to my colleague Baroness Buscombe who made a number of points that helpfully illuminated ways in which the Bill could be improved and in which the Houses of Parliament could introduce legislation that would be welcome and, we hoped, would improve company competitiveness and international location, so that companies that need to compete can make sure that they reside appropriately in this country.

I made a number of points on Second Reading and in Committee, many of them born out of my personal business experience, in so far as I have dealt with—indeed, I have established—an LLP in overseas territories and was responsible for it. I therefore have some experience which I have tried to bring to the attention of the House. I certainly wish to support fully all the points made by my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) and to back his careful, well-judged scrutiny of the Bill, especially the default provisions and, indeed, the Henry VIII clause.

It is disappointing, however, that the Government's approach to retaining that clause in the Bill has left a residual doubt about whether there will be proper scrutiny of potentially serious provisions that could be added later and which would have a direct effect on the competitiveness and effectiveness of this form of corporate entity. Above all, there is a need to take account of what the hon. Member for Great Grimsby (Mr. Mitchell) said and to ensure that there is total transparency and disclosure, which is the price to be paid for conferring limited liability on what were unlimited corporate entities.

I fully acknowledge that the Government have acknowledged the matters that I have raised, but it is disappointing that they have not acted on a couple of important points that highlight the concerns of those with experience of these issues. I shall re-emphasise a couple of those points, and I crave the indulgence of the House to place them on the record. First, the Bill has focused, quite understandably, on large professional partnerships, and I fear that implications about the way in which the new corporate entity will be used have been missed.

Again, from my experience, I think that it is clear that the LLP will be a very attractive vehicle for overseas partnering and joint ventures in this country. Certainly that is the way in which a similar measure was applied in California and other states in America. It carries certain tax advantages and also rightly reflects the business relationship in manufacturing companies, with which I am familiar.

Despite raising those issues in earlier debates, I have not heard a reply from the Minister, and I note that he has been well supported by a raft of advisers here—they are sitting in the box—and in Committee. I asked whether advice had been fully taken on the experience of those overseas territories in which there are joint ventures for manufacturing companies, and it would have been helpful to have heard a reply.

Dr. Howells

I assure the hon. Gentleman that we took advice. I understand the point that he makes, and I hope that a wide range of LLPs will be formed.

Mr. O'Brien

That is somewhat reassuring, and I thank the Minister for letting me know that that advice has been taken. It would be helpful to share it a little more fully later.

Such entities will be attractive to property companies, which, as we know, have particular risks and liabilities. The contractual and relationship issues in business are often represented by those concerned with property valuations and the title to ownership, and LLPs will hold a significant attraction to property ventures. There is a demand in property companies to examine—again, reflecting experience abroad—whether it would be appropriate and sensible for their competitiveness to create a mechanism by which a particular partner in such a property LLP could opt out of being bound. At the moment, all LLP members will be entitled to buy because of the way in which LLPs are structured. That is a matter of serious debate because of the nature of accountability and transparency, but is also goes to the heart of the way in which property risk is assessed and represented. Although I mentioned that in Committee, I wanted to place it on the record again now.

The Minister generously suggested that I had made some constructive points during the consideration of the Bill. I am not flattered, because I realise that that is part of the hon. Gentleman's customary generosity. But I am concerned that the points that I made on clause 8 were not taken up. The concern is that there has been an attempt to retain the partnership ethic, by which all members take responsibility, under the requirements of clause 8, unless at least two designated members have been appointed.

Although I can understand the mindset that has driven that provision, I am concerned especially about those LLPs that will not have the appropriate expertise, such as firms that are not accountants or solicitors, which, again, have driven the thinking on the provision. Given the importance of the compliance and governance needed to deliver the very transparency and accountability that is at the heart of the Bill, it would have been appropriate to examine more closely the possibility of having a partnership secretary, company secretary, or a designated person.

There is a distinction to be drawn between members, who clearly carry the overall business responsibility and accountability, and those who are required to deliver compliance and governance. As the Minister has said, nothing precludes an LLP appointing such a person as an employee. However, it would have been better to state that in the Bill, if for no other reason than that similar provisions exist under the Companies Acts for company secretaries in plcs. That confers the necessary status and authority in the corporate entity to command the necessary respect around the board table—or, in this case, around the LLP members table—where advice, high technical competence or a degree of conscience are required of the corporate entity to ensure governance. That is the case not least because things are not always rosy in partnerships; there will be disputes and factions. At times, it is helpful if such a person sits at the high table with the status and professional expertise to take the necessary action. It is disappointing that that point has not been taken more seriously.

That said, I have thought carefully about the Bill and whether I should have tabled amendments in Committee and on Report. I chose not to do so because the Bill is part of a wider issue; a major consultation exercise is being undertaken on company law reform. That consultation has run somewhat parallel to the Bill, but the latter preceded it because of the way in which the legislation has come about. In that context, I hope and request that the Minister and his officials in the Department will carefully consider the points that I made about clause 8; they are even more important in the context of that company law reform.

We should take advantage of all that has been learned about governance during the past 10 years, not least from the Cadbury report and the ensuing developments. We should at last put the genuine expectations about what is required of companies on a much more sound footing, and perhaps frame them in statute. We should ensure that they have the requisite person in place to ensure good governance. I shall defer pressing that point until we debate company law reform. I thank the Minister for the courtesy with which he has treated the points that I have made. I, too, agree that the process has been worth while.

Question put and agreed to.

Bill accordingly read the Third time, and passed, with amendments.

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