HL Deb 05 November 2004 vol 666 cc561-8

12.16 p.m.

Lord Triesman rose to move, That the regulations laid before the House on 11 October be approved [30th Report from the Joint Committee].

The noble Lord said: My Lords, it will probably assist the House if I speak also to the Limited Liability Partnerships (Fees) Regulations 2004 to save time.

These regulations will apply to England and Wales and to Scotland, but not to Northern Ireland, which has its own companies registry. The effect of the regulations is: to revoke the existing company fees regulations introduced in 1991 and amended by statutory instrument eight times since; to revoke the limited liability partnerships—known as LLP—fee regulations introduced in 2001 and amended the following year; and to make new consolidated fees regulations for both companies and limited liability partnerships that provide for a revised scale of fees to be payable to the Registrar of Companies with effect from 1 February 2005.

The fees set by these regulations will also be mirrored in another statutory instrument to come into force on the same date, with the effect that the equivalent fees for European economic interest groupings will be the same as those for companies and limited liability partnerships. During this debate, I will concentrate on the company fees regulations, as companies comprise the major part of the register and are therefore the largest group affected by the regulations.

In order to equip Companies House to set appropriate fee levels for these regulations, a comprehensive internal review of all Companies House fees has taken place. The review analysed the statutory framework for setting fees and recommended that fees for established registration and information services should be set by statutory instrument. Therefore, charges for the most widely used electronic registration and information services are included in the regulations. Previously, those fees were set administratively under the provisions of Section 708(5) of the Companies Act 1985.

As a trading fund, Companies House must recover the full cost of the services that it provides to companies, LLPs and the public from fees charged for delivering those services. The cost base for Companies House has increased, with a rising workload and changes in customer practice and demand. The fees regulations reflect that, and the overall effect is to raise income to meet the increased costs of providing Companies House's services, mainly through increases in some registration fees. However, I am pleased to say that many registration fees have been reduced or held at the same level, along with most fees for searching company information. Companies House is not allowed to charge higher fees for one service in order to subsidise another. The prices in the proposed regulations are, therefore, based on a proper consideration and allocation of the cost involved in providing the services concerned.

The benefits of electronic services are clear in cost and efficiency terms. They are cheaper to administer; reduce bureaucracy; are more efficient for users and Companies House; and are more convenient and generally more secure. It is the method of delivery that Companies House sees as the most efficient way forward in the future, and, in line with government policy, it is set to enhance and transform its electronic services over the next three years. It is part of what is unquestionably an ambitious change programme by which Companies House will modernise all its IT systems. From 2008, Companies House believes that it will lead to substantial savings that will be passed on to customers.

I confirm that the regulations are compatible with the European Convention on Human Rights. I hope that my explanation of the purpose of the regulations has made them as clear as possible to the House. I beg to move.

Moved, That the regulations laid before the House on 11 October be approved [30th Report from the Joint Committee].—(Lord Triesman.)

Baroness Noakes

My Lords, I thank the Minister for introducing the orders and for the clarity with which he did so.

One would not think that fees and charges for putting information into and getting it out of Companies House would be a contentious issue, and, in the whole scheme of things, clearly, it is not. However, the orders mark a fairly radical departure from the structure of fees that applied in the past, so it is important that we pause to examine them before letting them pass. I have a few specific questions for the Minister.

I accept the proposition that the fees charged by Companies House should reflect the costs involved. That has been the Treasury guidance for as long as I can remember. However, in the case of Companies House, some documents are filed free of charge; for example, the 288 forms, which deal with changes in directors. Of course, there is a cost to the registrar for handling them. Will the Minister explain how those costs are handled? Presumably, they are, in effect, recovered from other fees. How is that done, or, more simply, who pays for that?

The fees introduce for the first time a differentiation between documents that are filed and those that are retrieved electronically. I have no reason to doubt the basic proposition that electronic transactions can be more efficient than paper-based ones, but it is not inevitably the case, especially for documents that are filed as opposed to retrieved. A lot will depend on the capital costs of Companies House and how joint costs are shared between electronic and non-electronic activities and on the processes adopted by Companies House.

I see from the Explanatory Notes that a team headed by an outside expert has reviewed the Companies House fees. That is comforting.

Lord Razzall

KPMG?

Baroness Noakes

Will the Minister say who that expert was? My colleague on the Liberal Democrat Benches is suggesting the answer. Will he make the contents of the review available? I am sure that the Minister will agree that transparency in fees and pricing is essential. Whatever cost and pricing structures are set up, there will be a lot of subjective judgments. I hope that the Minister will want there to be the capacity for an honest debate on the issues that arise.

We do not have that review available today, so I shall ask the Minister a couple of questions about relative prices for similar activities. The annual return will cost £30, if filed by paper, and £15, if filed electronically, paper being more expensive by a factor of two. But the provision of a company report is £1 electronically and £3 on paper—a factor of three. There is a factor of four on document packages. Is the Minister happy that cost differences explain those different factors in the various forms of handling information?

As well as the premium paid for using paper, there are premiums for speed. For example, if I form a company electronically, it will cost me £30 for same-day service but £15 in other cases. What sort of costs require a fee to be doubled, simply for being dealt with at once?

The Minister will be aware that no consultation on the fees has been carried out and no attempt made to carry out a regulatory impact assessment. There are 1.9 million registered companies. Have the Government any idea how many of those companies will be hit by a doubling of their registration fees, if they cannot use electronic filing? We are not, in many cases, talking about a sophisticated business. We are talking about charities and non-profits. The orders will make obtaining information cheaper, but they will make it more expensive for the least sophisticated to provide the statutory data. Is the Minister content that that policy is fair?

I am all in favour of doing business electronically, but the service should be easily accessible. Can the Minister assure the House that the electronic filing requirements, which at first sight look a bit bureaucratic, with both a security code and an authorisation code, will be easy to operate? Lastly, can the Minister explain why, in a 24/7 electronic world, Companies House operates electronically only between 7 a.m. and midnight and only from Monday to Saturday? When will Companies House occupy the same world as the businesses with which it deals?

Lord Razzall

My Lords, I share the concerns expressed by the noble Baroness. I agree particularly with her opening comment that, if we are asked to spend time on this chilly Friday approving the increase in fees for companies and limited partnerships, we should pause and ask the sort of detailed questions that the noble Baroness asked. I have two more questions to put to the Minister.

Paragraph 7.1 of the Explanatory Memorandum on the Companies (Fees) Regulations, which deals with policy background, says: As a trading fund Companies House must always recover the full costs of the services it provides from fees and charges so that it does not become a burden on the general taxpayer". Are Her Majesty's Government saying that that is the only policy background for fees and charges charged by Companies House? Are Her Majesty's Government completely neutral as to whether the fees and charges increase or reduce the number of organisations that incorporate? Is it simply a matter for Companies House, at best, to break even? Are the Government neutral on, in particular, the impact on small organisations such as those to which the noble Baroness referred?

There is a second policy issue on which I wonder about the Government's position. Are the Government neutral as to whether such an increase in fees will improve the capability of all the interested parties to search the registry at Companies House or reduce the number of people who will be prepared to pay the fees? I cannot believe that those arc not policy background issues that should be relevant to consideration of the fees.

We will not oppose the regulations, but I am intrigued. Who takes the decisions? If, in six months' time, it emerges that many fewer people are searching at Companies House or that many fewer small organisations are choosing to incorporate, will that be a matter for the Government or for Companies House? Who determines the policy?

Lord Triesman

My Lords, I will do my best to answer the questions. I may manage at least some of them.

The noble Baroness, Lady Noakes, asked how the costs would be handled in relation, for example, to filed 288 documents. They are largely covered by annual return fees. That has been found to be the most efficient method of collecting money and ensuring that the costs were covered on that front, rather than to charge per form. If Companies House was to charge per form, it is believed that that would raise the overall costs for everyone, which would be undesirable.

Telling points were raised about the relative charges that are now being made. In some cases, the differentials are plainly greater than in others because of the differences in the costs of using new and improved modern technologies or still having to rely on things being done by people handling large quantities of paper. I hope that I have got this statistic right. I was told it and I am doing my best to make sure that I have got it right. I understand that there is somethimg like six miles of files and papers.

As the number of incorporations has increased by well over 40 per cent in the past five years, the handling of papers has meant that the amount of paper being handled, and the number of people handling it, has increased considerably. Of course, that is going in the opposite direction as a trend from the capacity to handle some information electronically.

I simply say to the noble Baroness, Lady Noakes, that the expert was a senior civil servant from another department. In common with the normal approach to these matters, I will not name the civil servant. It was an independent operation undertaken by an entirely different department. It was advised by a steering group, which involved the DTI, Companies House and non-executive representatives. The review papers were for internal use only because of their policy and, even more significantly, their commercial nature. The review outcomes covered advice on good practice, detailed cost allocations based on up-to-date volumes, application for fee-setting powers and pricing levels.

Baroness Noakes

My Lords, I thank the noble Lord for giving way. I take it from that answer that the Government are not committed to transparency on the fee charging mechanisms for Companies House.

Lord Triesman

My Lords, we are entirely committed to transparency, but it would be an unfortunate departure in this debate to name senior civil servants from other departments brought in to do that kind of job for Companies House. Although my experience is a good deal more limited than many noble Lords, I believe that the tradition is not to name the civil servants who are involved. I certainly would not wish to change that.

The next point, which was made with some force by the noble Baroness, Lady Noakes, was about why some differentials are greater or smaller than others. In all of those issues, an attempt has been made to try to measure the relative cost of doing any particular activity and practice, even in the electronic field. The introduction of new information technology is improving most of those cost regimes all the time.

It is quite clear that the overall trendline for the costs of electronically handled data and forms is going down. We expect it to continue to go down and for customers to benefit from that. There would he little point in doing it for any other reason. There has been an attempt to metricate the level of cost to the level of work that is involved and to the extent of IT that is available.

Overall, the costs are the specific costs for the service. They are the premium costs plus the standard costs of providing the cost of the service. They are no more than that. The level of the premium services, including services that are done within 24 hours rather than delayed, are also factored into that so that Companies House can manage the demand for the level of service of one kind or another. That is why some of those costs are slightly different.

I had hoped that I had dealt in my introductory comments with the reason why costs have doubled. Essentially, they involve the increased size of the register, the handling of the bulk of the register still in paper form and the additional running costs both in personnel and facilities that are needed for handling those volumes of manual annual returns. It is an operation that is at its most complex in the handling of annual forms because of the sheer volume of them.

Currently, I do not think that there is reliable information—of course, the system has not changed in fee terms yet—on how the firms described as the least sophisticated by the noble Baroness will respond and how they will be affected. But there is some evidence of most firms making an attempt to move to at least a limited form of IT. After all, this is not the most sophisticated end of information technology use. Over time, I appreciate that questions will arise when we have more information about how firms respond.

I hope that it will be regarded as a fairly reasonable statement to say that we are talking about an annual increase of £15. Even in relatively less sophisticated firms, that will probably not be an unreasonable burden. But, in any case, I make the point to the House that the cost of handling these volumes of paper must one way or another be met, and not by cross subsidy. In any event, there is a cost.

Will it be easier to use the electronic methods, the security codes, the authorisation codes and so on? It will, on balance, be easily and readily understood. Even more importantly, it will be more secure. Paper forms arrive; they have whatever information is on the face of them; they are filed; and they are retrieved when people need them. But of course it would be an absolutely enormous task to check and authenticate all of the information that is on a paper form that has come back in in that way.

The advantage of an electronic development is that there is a proper track and trail back to the source. That will produce quite a considerable advantage in ensuring that more accurate information is retained by Companies House and that those who are dealing with companies will be less exposed to poor performance by companies or indeed to fraudulent performance.

I am told that Companies House has had a good look at why it is not operating on a 24/7 basis like most of the rest of us. Customers are and will continue to be consulted. The hours seem to reflect what it is believed that customers most use and most want. I have no doubt that that is a matter which would in any case be kept under review. Obviously, whatever practices are used at Companies House, they have to accord with whatever arrangements can be made with its staff for doing the job effectively and on a reasonable basis.

I understand the point that electronic registration does not need people in exactly the same way. My experience of electronic systems is that, although we rely on them to do a job perfectly, they often need people when they fall over—including occasionally the computing systems of your Lordships' House.

I hope that I have answered the main points raised by the noble Baroness. If I have not done so, I shall go through Hansard carefully to check and respond in writing if I have missed anything.

Perhaps I may turn to the points raised by the noble Lord, Lord Razzall. The background policy issues certainly have as one of their cardinal features the fact that this is a trading fund at Companies House and that therefore it must deal with matters in the way I described in my opening comment. The sums that have been done as a background to these increases reflect a number of other factors. No undue weighting has been added for the expected increase in incorporations. Indeed, that increase is a major factor: well over 40 per cent over five years of which some 23 per cent took place over the past year or so, although in general that has been a relatively neutral matter. There has been no increase in the fees for a period of eight years. This is the first increase for some time and reflects the new circumstances under which a review was thought necessary. Moreover, continuing reviews will take place to make sure that the figures all add up. It would be foolish to do otherwise.

The other main policy issue is related to improving the capacities of Companies House: encouraging people to make searches which, after all, will become cheaper under this fees regime. It will make use of search engines, meaning that people do not have to do it and therefore will be cheaper. It should also be more efficient, although of course we shall see what happens. The point is well taken. However, improving the capability of people using the register is likely to increase the numbers wishing to access it, and it will cost them less to do so.

I do not believe that any of these changes in fees will have an adverse effect on small businesses. Companies House is an executive agency and 90 per cent of the companies in the register are small businesses. In setting the fees and the review that took place, we have tried to reflect that fact. It is not the case that a huge proportion comprises large businesses. The review had to reflect the fact that this involves small businesses and I believe that the fee levels which have been set are broadly right.

As I said in response to the noble Baroness, Lady Noakes, I shall check to ensure that I have answered all the questions put to me by the noble Lord, Lord Razzall, and will write if there are any gaps in the information I have provided. With those assurances, we believe that this is the right way to go ahead and, in that light, I commend the regulations to the House.

On Question, Motion agreed to.