§ 12.12 p.m.
§ Lord McIntosh of Haringey
rose to move, That the regulations laid before the House on 14th March be approved [11th Report from the Joint Committee].
The noble Lord said: My Lords, as I explained when we debated the limited liability partnerships regulations on 16th March, due to an administrative error an earlier set of fees regulations had to be withdrawn and a new set laid. I should like to assure the House that the regulations before us today contain the correct incorporation fee for limited liability partnerships, which is £95. We have also taken the opportunity to propose a minor change to fee No. 4, which has been reduced from £20 to £10.
In setting the level of fees for limited liability partnerships, we have made every effort to ensure that it is as near as possible to the level of fees for companies. Following the revocation of the earlier fees regulations, we looked again at the fees applied to LLPs and concluded that fee No. 4 could be reduced to bring it in line with companies. However, because of the need to set up a separate registration system for LLPs, it has not been possible to do this in all cases, although six of the nine fees applied to LLPs are in line with companies.
Companies House is responsible for the incorporation and dissolution of companies and the publication of financial and other information 555 supplied in compliance with the provisions of the Companies Act. The Limited Liability Partnerships Act 2000 gives it similar responsibilities for LLPs.
Clearly, one of the fees that is higher for LLPs than for companies is the registration fee. I should like to explain why. The demand for LLP incorporation is unlikely to be on anything like the scale of company registrations. Market research carried out for Companies House suggests initial volumes of some 8,000 LLPs over the first three years, although, of course, there is considerable uncertainty about any estimate of that kind.
The administration of the LLP regime requires the creation of a dedicated team within Companies House. The fees charged for LLPs need to recover these costs, the cost of developing the necessary computer systems and the costs of provision of information to the public. As a result, the projected unit costs for the registration of an LLP gives a fee of £95. By contrast, there are 1.4 million active companies and some 200,000 new company registrations per year. This brings substantial economies of scale and accounts for the much lower registration fee of £20.
It is not permissible for Companies House to cross-subsidise LLPs from the moneys received from the registration of companies. Companies House has been an executive agency since October 1988 and has operated as a trading fund since October 1991. As a trading fund, Companies House must recover the costs of providing its services from fees. It must also aim to achieve a net return of 6 per cent on its assets, on average, taking one year with another. Within this framework, Companies House must also avoid, as far as possible, cross-subsidy between its various activities. So each major product and service category has to be broadly self-financing.
Companies House also has to finance development programmes from fees and charges. This includes the costs of continuing to invest in new IT systems. These costs must be charged to and spread across the relevant components of Companies House products and services.
As part of the modernising and e-commerce agenda, Companies House is putting a great deal of effort into systems which will widen the scope of electronic filing, permit electronic incorporation and make company information available over the Internet—a great relief to those of us who had to use the old microfiche system. At the same time, it is putting the final touches to a project to make all information held available electronically. Information up to five years old is already available electronically.
The users of information on limited liability partnerships will benefit from these changes immediately. Later on, there will be benefits for LLPs in terms of registering information electronically.
Companies House, as a DTI agency and a trading fund, is set strict public targets. Among those targets is a requirement to recover its operating costs from the fees it charges. In this way, it is self-financing and makes no demands on the public purse. It has made efforts. year by year, to reduce the unit cost of 556 processing information by almost 20 per cent in real terms over the past four years. The result is that the fees for the incorporation of companies and registration of returns are quite exceptionally modest. The proposed fees for LLPs are inevitably higher for the reasons that I have given.
In the longer term I expect that the systems for capturing, holding and disseminating information on both companies and LLPs will come together. We can then look again at the relative level of fees, but I hope that I have explained why the fees for LLPs in these regulations are both reasonable and reflect the expected cost of Companies House administration. I commend the regulations to the House. I beg to move.
Moved, That the regulations laid before the House on 14th March be approved [11th Report from the Joint Committed].—(Lord McIntosh of Haringey.)
§ Lord Skelmersdale
My Lords, the House will be grateful to the Minister for introducing the regulations so thoroughly. I should like to say a word on behalf of the Joint Committee on Statutory Instruments.
As the Minister explained, the regulations are before us almost for the third time of asking and certainly for the third time of printing. Unlike negative instruments, affirmative instruments normally sail through the Joint Committee on the basis that Members of this House and another place have to examine them for themselves; they have to be debated. However, when the original regulations were before the JCSI, they were accompanied, a few orders down in the pile, by the relevant companies order. It was, therefore, easy to see that the fees were different. So the Joint Committee decided to put in an artful little question to the Minister's department asking why they were different.
I am glad that the Minister has explained why they are different. I am even more glad that fee No. 4—the fee for the performance by the Registrar of Companies of his functions—has been reduced from £20 to £10. I am sure that the Joint Committee would wish me to congratulate the Minister on that. However, it does not alter the fact that this should never have happened in the first place.
§ The Earl of Northesk
My Lords, like my noble friend Lord Skelmersdale, I thank the Minister for his customary courtesy in describing the regulations to the House. I am particularly grateful to the noble Lord for pointing out that there has been a bit of a muddle about a point echoed by my noble friend.
We on these Benches are happy to accept that this confusion was the result of an administrative error. I leave it at that except to say that, inevitably, it takes some of the gloss off the Government's pride in introducing for the first time in nearly a century a change to business entities in Great Britain.
As to the substance of the regulations, I understand that it has always been the Government's aim to ensure that fees for LLPs are as near as possible to those for companies. In those circumstances I simply ask: is £95 really as near as possible to the £20 that it would cost a plc for what is essentially the same service?
557 I am, of course, aware of the regime under which Companies House operates. The Minister was good enough to explain it in some detail today. What I fail to understand is why the Government felt it necessary for Companies House to introduce a discrete system, with the properly trained staff, to deal with LLPs.
The Minister will be aware that the Minister for Competition and Consumer Affairs said:The Government have carried out what we consider good, exhaustive market research on just how many limited liability partnerships there may be. We think that there may be about 8,000 during three years"—a figure repeated today by the noble Lord. I should be grateful if the noble Lord would tell the House what was the cost of the market research and from which departmental or agency budget it was drawn.
Against the background of 1.4 million existing company registrations at Companies House and 200,000 new registrations each year, what sense does it make to set up an entirely new and discrete system for LLPs? Surely a more cost-effective—perhaps the phrase "best value" would be more appropriate—way forward would have been to take advantage of the existing companies database and software and bolt LLPs on to that.
As my honourable friend Mr Gibb observed, a unit handling 8,000 registrations during three years will be a tiny unit within Companies House. I repeat: are these regulations really consistent with the aim of making fees for LLPs as near as possible to those for companies?
With the leave of the House, I turn to a related matter. The Minister will recall that, when the House debated the limited liability partnership regulations on 16th March, my noble friend Lord Burnham sought clarification of a discrepancy relating to subsection (5) of Section 391A of the Companies Act. As my noble friend explained, this is the introduction of a fine and a criminal record when no such sanction applies against company directors. In other words, secondary legislation has been used to introduce a new criminal offence.
At the time, the Minister maintained a contrary view. I make it plain that I am not in any way impugning the integrity of the noble Lord. This is a highly technical matter. None the less, as he will know, his letter of 21st March to my noble friend Lady Miller accepts our interpretation that a new criminal offence has been created, albeit with the qualification of being only in "the very narrowest sense".
We can perhaps agree to differ on that point. The fact remains that under the regulations a failure to communicate an auditors' report to members of an LLP has become a criminal offence, whereas a similar misdemeanour in the case of an ordinary limited company is not subject to any sanctions against its directors. I hope, therefore, that the noble Lord will feel able to take this opportunity to confirm this for the record.
558 Perhaps I may also ask the noble Lord to give the House an undertaking that, in future, across all departments, every effort will be made to ensure that there is no repetition of this. For our part, we on these Benches deplore the use, however inadvertent, of secondary legislation as the mechanism to create new criminal offences. Such matters should be dealt with in primary legislation. Perhaps, therefore, the noble Lord could also indicate that the Government share this view.
§ Lord McIntosh of Haringey
My Lords, I accept the rebuke from the noble Lord, Lord Skelmersdale. It is even more embarrassing that we did not discover the point ourselves; it was discovered by the Opposition in the course of proceedings in Committee in the other place.
The noble Earl, Lord Northesk, asked whether the difference between £95 and £20 is the real difference in cost. I have explained that the costing system and the pricing system which Companies House has to adopt derives from its status as a trading agency. That, in turn, derives from decisions of the government that the noble Earl supported at the time.
On the practicalities, clearly we are talking about something that will happen in the future. I said in introducing the regulations that there would have to be a dedicated team. Indeed, at the outset, there will have to be such a team, probably of six people, because they will be working up the forms, the software and the procedures. If there is a wrong estimate of the numbers or if the numbers fall off after the beginning, clearly the dedicated team will be diverted to other activities. There is no point in keeping a team of people twiddling their thumbs. Our calculation is based on the best estimates of the likely number. I do not know the cost of the market research. It was carried by Companies House and comes from its own development budget and is, therefore, in turn paid for by fees from companies and in future from LLPs.
I can assure the noble Earl, Lord Northesk, that the workload of the team will be monitored so that we can keep the fees in line with changes in demand. If this is enormously successful and there are hundreds of thousands of them, clearly the fees will come closer to those applied to companies.
Finally, the noble Earl asked about an issue that was raised when we debated the other LLP order on Section 391A. I have written to the noble Baroness, Lady Miller, on that point and I have copied the letter to all noble Lords who took part in the debate. The noble Baroness has written to me again and I am preparing a reply to her letter at the moment. Since it does not raise a matter covered by these regulations, I believe it is better if we keep it in the realm of correspondence at present. I commend the regulations to the House.
On Question, Motion agreed to.