§ 6.30 p.m.
§ Lord Inglewood rose to move, That the draft order laid before the House on 6th March be approved [12th Report from the Joint Committee].
§ The noble Lord said: My Lords, the order is made under Section 77(2) of the Deregulation and Contracting Out Act 1994. This is the first use of the important power which enables certain statutory functions to be discharged by contractors where at present they may only be discharged by public servants.
§ The power was introduced as part of the Government's drive to ensure improvements in the quality of public services and efficiency in their delivery. The Government's "Competing for Quality" programme has produced a sea change in the way such services are delivered, ensuring better value for money for the taxpayer and higher standards for customers.
§ Companies House has been part of that success story. Since it became an executive agency in 1988 and achieved trading fund status in 1991, it has shown continuing improvements. In 1992 it received the Charter Mark for excellence in the provision of public service. In 1988 it used to take 30 days for a document to be processed and made available to the public; nowadays it takes less than five. Similarly, the proportion of companies which meet their annual filing 64 obligation has risen from 80 per cent. in 1988 to over 90 per cent. this year. Those are very significant achievements. Companies House is now deservedly held in high regard by its users. Of course, that was not always so and I pay tribute to the management and staff of the agency for the improvements that they have already achieved. Like every organisation, Companies House must strive for continuous improvement. The timely incorporation and dissolution of companies, the proper keeping of company records, the pursuit of compliance and the speedy and accurate dissemination of information are essential to our commercial system.
§ Noble Lords will be aware that it is standard practice to review the status of each agency periodically. The review into the future of Companies House was undertaken to see how best to build on its record.
§ The Government's decision following the review was announced by my right honourable friend the President of the Board of Trade on 20th December 1994. We have concluded that the best way of achieving further improvements is through the closer involvement of the private sector in the running of Companies House.
§ However, the business information industry is in the early stages of a major technological change as microfiche is replaced by digital technology. We therefore plan to proceed on a progressive basis. Companies House will remain an executive agency and work in partnership with the private sector to develop the new technology. At the same time it will work through a programme of contracting out a number of specific areas, putting each out to tender to private providers. I envisage that some 270 jobs out of a total of about 950 will have transferred to the private sector by 1996. Just over 100 of them will be in Cardiff, the rest mainly in London and Edinburgh.
§ The programme involves a number of statutory functions, which is why the order is necessary. They are presently carried out at Companies House London, the satellite offices in Leeds, Birmingham and Manchester, Companies House in Edinburgh and—in the case of postal search—at Companies House Cardiff.
§ In London and the satellite offices, the statutory functions are to provide facilities for inspecting company records and to receive documents for filing. The offices also undertake same day incorporation and changes of name of companies. The Edinburgh office carries out the full range of Companies House functions in Scotland, including the recording and retention of company information.
§ It may help the House if I briefly explain the purpose of the main articles in the order and their supporting schedules. First of all, I turn to England and Wales. Article 3 enables any function of the Registrar for England and Wales which is listed in Schedule I to be contracted out. A number of different Acts require documents to be delivered to the Registrar of Companies. Schedule 1, paragraph 1 ensures that they can be delivered to a contractor.
§ Paragraph 2 covers functions which relate to the incorporation of companies or a change in a company name. It will enable the contractor employed to run the 65 London and satellite offices to continue to offer same day incorporation, re-registration and change of name services on behalf of the registrar.
§ Paragraph 3 covers functions in relation to the delivery of documents and the making of them available for public inspection. It has been framed to ensure that, while the receipt and dissemination of information may he carried out by a contractor, decisions as to how the relevant functions should be undertaken are retained by the registrar. For example, the decision as to which medium is used to make information available, presently microfiche, will still be up to the registrar. The paragraph will enable a contractor to run the search room services provided by the London and satellite offices. It also covers the postal search activity carried out from Cardiff, which is included in the contracting out programme. Paragraphs 4 to 8 of Schedule 1 cover duties conferred under other enactments, particularly the provision of certified copies of documents.
§ I move now to Scotland. Article 4 of the order permits the Registrar for Scotland's statutory functions to be contracted out, with the exceptions of those listed in Schedule 2. The exceptions are limited. They consist of two types of power. First come powers to seek a court order against a company. Those functions are exercised only rarely by the registrar. They entail the exercise of discretion as to whether to commence legal proceedings. We believe it right that they should be retained by the registrar. Secondly, there are powers to decide how functions should he undertaken—for example, decisions as to the form in which documents are presented for registration or the form of numbers allocated to registered companies. Decisions like this, which are fundamental to the design of the companies registration system, will be retained by the registrar.
§ In addition to the registrars' statutory functions, there also also a number of functions conferred on the Secretary of State which are exercised by Companies House. They apply to Great Britain as a whole. Article 5 of the order and Schedule 3 enable a limited number of those functions to be contracted out. They are ones where the activities concerned can he set out clearly in guidance to a contractor, in line with well established current practice.
§ As noble Lords may he aware, applications for incorporation or a change of name are checked against a list of restricted words, which are set down by the Secretary of State through regulations. Registration of names which include those words requires the approval of the Secretary of State. In addition, the registration of certain other names which might constitute a criminal offence or he misleading—for example, "pharmacist" or "bank"—is allowed only if the relevant body (such as The Pharmaceutical Society of Great Britain or the Bank of England) confirms that the applicant is entitled to use the name.
§ Subparagraph 1(a) would enable the contractor to consider applications for incorporation or re-registration against the criteria set for each restricted name and, if the criteria had been met, to incorporate the company. But decisions on which words should be added to the list of restricted words and on the criteria which would need to he met before confirming an incorporation will 66 remain with the Secretary of State. That activity will need to be covered in the London, satellite and Edinburgh contracts.
§ Paragraphs 2 and 3 relate to the approval of business names. Approval is necessary for business names which contain a restricted word. They are assessed in the same way as company names. Inclusion of paragraphs 2 and 3 will enable a contractor to approve business names which meet the criteria set out by the Secretary of State. Subparagraphs 1(b) and (c) relate to the extension of periods allowed for laying and delivering accounts and reports. That is relevant only to the Edinburgh contract. The function is exercised regularly there and the procedures are well established. The contract will lay down precise guidelines.
§ The order, therefore, sets out the statutory functions which the contractor may be employed to carry out. But it is by no means the whole story. In the first place, under Section 72 of the Deregulation and Contracting Out Act, in all cases where statutory functions are contracted out, the registrar —or the Secretary of State, as the case may be—will remain legally responsible for anything done, or not done, in connection with that function.
§ Secondly, the extent to which particular functions will be delegated and the procedures and guidance which the contractor will be required to follow will be set out in the contracts. They will also specify the levels of service which a contractor would be required to provide; for example, setting out opening hours and the speed with which activities should be carried out. There will be effective monitoring procedures so that we can be sure that a contractor is performing his duties properly.
§ Thirdly, the fees and charges to users of Companies House services will continue to be set by the Secretary of State through statutory instrument (subject to affirmative resolution by Parliament if they are increased) whether the services are carried out by the agency or through contractors. Obviously, the contractor will not, therefore, be able to set his own fees for statutory services.
§ I should also emphasise that contractorisation is a process of testing. Potential bidders will be required to demonstrate that they can offer and deliver better value for money than would be achieved if the activity were not contracted out. By value for money, I do not just mean low prices. It is essential that the contractor maintains and, where possible, improves current levels of service. Unless that can be demonstrated, contracting out will not go ahead.
§ Our intention is to make rapid progress with the programme and to have completed it by 1996. We expect to issue an information memorandum and invite expressions of interest in respect of the contract for the London and satellite offices soon after the making of the order, with the invitation to tender following before the summer. Details of the contract for postal search and Edinburgh will follow later this year. The information memoranda for the other, non-statutory activities in Cardiff will he published during the spring and summer. Those activities include things like building management and cheque processing.67
§ As I said, we believe that the contracting-out programme offers the best way of building on the excellent record of Companies House. The agency plays a crucial role in the commercial system of this country. Our aim is to ensure that it operates as efficiently as possible and that, as taxpayers and users, we get the best possible value for money.
§ Moved, That the draft order laid before the House on 6th March be approved [12th Report from the Joint Committed].—(Lord Inglewood.)
§ Lord Haskel
My Lords, I thank the Minister for introducing the order and explaining to us what it was all about. The Minister told us how Companies House became a Next Steps agency in 1988 and achieved trading fund status in 1991. The Minister implies that this is the reason for the improved performance. I think that is an exaggeration. Any change in business and industry is always caused by a variety of factors. Probably in this case it is largely due to the sensible introduction of information technology, good training, setting proper standards and introducing an ethos of harmony, co-operation and pride so that the service is delivered quickly, efficiently and effectively. That is what has been happening in thousands of companies and organisations throughout the country over the past 15 to 20 years and it is totally unrelated to privatisation.
As the Minister reminded us, this is the first order under the deregulation Act. We recognise that the Government have followed the correct procedure under Part II of the Act and have consulted the registrar. Ironically, he is the last person to consult, because he has a conflict of interests. It is the users who should be consulted as we have suggested in our amendments, but they were rejected by the Government. In fact it was the consultant who consulted the users.
The conclusion of the Government's own consultant seemed to be that the users and customers would clearly prefer Companies House to remain a public sector agency. They value the Civil Service virtues of impartiality, reliability and public service and they were concerned about providing documents to a private sector contractor who might not have these virtues. As consultants usually do, they also have to give their clients what they think the clients want, so there are a couple of rather grudging suggestions that the operation of the London Search Room could be contracted out, as well as certain aspects of the Scottish registry. To cover themselves, the consultancy group pointed out that a company ignorant of the business could make things worse.
It is obvious from the consultant's report that the main essential in Companies House is quality management. It is unclear how this dogma-driven contracting out will achieve this. Perhaps the Minister can tell us. The consultant's report shows overwhelmingly that it is the quality and excellence of the service and accuracy of the information, together with the even-handedness, confidentiality and professionalism of the enforcement, which is important to the users of Companies House. If the profit motive is being introduced in what is essentially a public service, 68 the Government have to see that the functions are carried out even-handedly, with adequate concern for the public good and at a sufficiently high standard so that the operation of the nation's business is not inhibited. How will the Government do this?
The Minister referred to some of the functions to be contracted out. I can understand that the users will be concerned. Article 5 of Schedule 3 allows a contractor to take over from the Secretary of State responsibility for prohibiting the registration of certain business names and extending the period for delivering accounts. Has the Minister any idea of the worry it would cause if this crucial power over business was contracted out to a private company open to all the pressures of the marketplace?
The same concern applies to the functions of the registrar in Article 3, Schedule 1. According to the first provision in that schedule, he can contract out the enforcement to receive the documents required by him under the Companies Acts. Is the Minister aware of the power he would be conferring on a contractor and the deep disquiet that this would cause? I would share that concern, Company registration is not like an ordinary service where companies can take their business elsewhere if they do not like the way registration is being handled. UK companies are a captive market and have to register here. Therefore it is no wonder that the consultant's report emphasises even-handedness and quality management. It is no wonder also that there is no requirement in the order to consult the staff, because the Minister knows that from them he will hear good reasons why the service will not be improved by contracting out. In addition he will be given an excellent technical development strategy, including electronic filing and document imaging.
The approach to this order is a good example of the differences between these Benches and noble Lords opposite. It is a difference of vision. On these Benches we have one ambition for Companies House, and that is for it to become a world class centre of excellence satisfying its users and contributing to the efficiency of British industry, and the effectiveness of British Government. What is the vision of the Government? It is sub-contracting, which will involve more supervision, more regulation, less control of standards, more uncertainty and additional layers of management.
This order to contract out parts of Companies House shows how out of touch the Government are with modem thinking in industry and business. Industry has moved on and the search now is for world class centres of excellence. This should be the objective, and not some minor bit of privatisation, discredited and outdated, in order to reduce the Civil Service by some few dozen employees. In view of what he has heard this evening, perhaps the Minister will reconsider this order. He will also perhaps reconsider the action to he taken under the order and even withdraw it altogether.
§ 6.45 p.m.
§ Lord Inglewood
My Lords, I welcome the recognition by the noble Lord, Lord Haskel, of the improvements—we can all share in commending the staff—gained at Companies House and of what the staff 69 and others have achieved there over the past few years. The noble Lord referred to the consultant's report. If one looks at that report, one will see that it paid tribute to and recognised the improvements that have taken place in Companies House recently. The consultant's report very much appreciated the value which was placed on the quality of the operation of Companies House by those who are using the service. Further—this is the important point—the consultant recognised that it would (having taken soundings from other people in the information delivery business) be possible to improve the operation of Companies House by contracting out some elements.
The concern on the part of the users of Companies House was that they were anxious about the unknown. At one time it had been proposed to privatise the whole enterprise. However, it was thought appropriate at this stage simply to see whether contracting out certain parts of the operation might result in delivering the benefits of the service without causing widespread unease and disquiet.
It is important to recognise that this order does not mean that the enterprise will definitely be contracted out—that is, those parts of the enterprise which are subject to that process. On the contrary, it provides for the possibility for that to happen. If contracts are put out to tender and there is an unsatisfactory response, the contracting out process will not go ahead. That seems to me to be the important safeguard. As I said earlier when I was talking about value for money, by that I do not just mean low prices. It is essential that the contractor maintains, and where possible improves, current levels of service. Unless this can be demonstrated, contracting out will not go ahead.
The noble Lord also referred to an anxiety that some may have at the fact that information would he provided to a private contractor rather than to someone on the public payroll. However, just as those on the public payroll are subject to the rule of law as regards how they deal with the information that they receive, precisely the same legal principles will apply to those in the private sector, should they do that job. There is no fundamental difference in that regard. It seems to us that the noble Lord, Lord Haskel, is being quite unnecessarily alarmist about all this—
§ Lord Harris of Greenwich
My Lords, I hope I may just ask one question. Does the Official Secrets Act apply to private sector employees?
§ Lord Harris of Greenwich
My Lords, the noble Lord has just said that the rules will he exactly the same, he they for public sector employees or private sector employees. Does the Official Secrets Act apply to private sector employees?
§ Lord Inglewood
My Lords, as I said, I do not know the answer. But we are talking about Companies House registration services. I am advised that the answer is no.
70 The crucial test is this. How does one provide the public with the best service? The order provides the possibility of contracting out services. Those services will be contracted out only if the placing of the contract will be to the benefit of the public. I commend the order.
§ On Question, Motion agreed to.