With this it will be convenient to discuss the following: New clause 4—Report of regulatory infractions and censures—
'.—Limited liability partnerships trading outside the United Kingdom shall report to the registrar all infractions of regulatory rules and all censures by regulators in other jurisdictions.'.
New clause 7—Disclosure of emoluments—
'.—Any limited liability partnership in which the amount of profit before member remuneration and profit share exceeds £200,000 shall publish details of director emoluments comparable in detail to those required of companies by Schedule 6 to the Companies Act 1985.'.
New clause 8—Statement of assets, etc.—
'.Each limited liability partnership shall, when filing annual accounts with the registrar, submit a statement showing—
'(2A) A statement of the scope of authority to act of each member shall be lodged with the registrar, displayed in all partnership offices and made available to clients.'.Amendment No. 24, in clause 9, page 5, line 7, after "days", insert—
'giving full details of the address, financial and property interests and other trading activities of new designated members, and, in the case of those ceasing to be designated members, the reasons why they are leaving'.
Let me make it clear, as I did on Second Reading, that I do not like the Bill in any way. Essentially, it gives a dodgy, dirty deal to fat-cat accountancy practices, and that should not be the responsibility of the Labour party and a Labour Government. I find the speed with which the deal is being done even more reprehensible, when we are not making any special concessions to trade unions or friends of the party. Indeed, many of our party's friends in local government, education and the union movement are being treated as the enemy within, while we are giving a dirty deal to accountancy houses.
The big accountancy houses have been pushing for this Bill, and have gone to extreme lengths to get it. The process was begun by the Conservative Government, and while it is perfectly right for a Labour Government to pursue that process, it is not right to introduce the Bill at this speed and this early in the legislative programme without countervailing concessions.
As a prelude to the long list of amendments that I shall move, I say to the House that I am resentful of the way in which my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins) and I have been treated. We wanted to be on the Standing Committee, but we were not, and it would have been appropriate to have argued all this out in Committee rather than on the Floor of the House, when another, welcome Bill follows and we are under great pressure to shut up. I do not think that things should be done like that. The Hansard Society is to have a committee on the scrutiny of legislation, and I shall write a case study in which the Bill is an example of how not to scrutinise legislation. Instead of giving you my paranoia, Mr. Deputy Speaker, I shall deal with the new clause.
The general principle behind all the new clauses and amendments that I have tabled is consumer protection and ensuring that more information can be made available to the consumers of audit and insolvency services and all the other services that accountancy houses provide, because the Bill will protect accountants from the consequences of their own failure. If they carry out a bad audit—which often comes to light only when a firm fails—because they are so busy selling other services to the firm that they neglect or dilute the audit, they should be accountable in full for the consequences. If an insolvency is protracted, which does not serve the interests of the creditors because the insolvency practitioner owes no duty of care to them, they should also be accountable in full.
We are making a concession to the big accountancy houses without introducing any effective, independent regulation of accountancy and insolvency firms. We promised in our business manifesto that we would have full, independent regulation. We are not fulfilling that commitment; via so-called independent regulation, we are, classically, merely adding yet another layer to the existing chaos of regulation. There are eight regulators for 1,800 practitioners in insolvency. That is absolutely ludicrous, yet we are adding another layer above those eight. We are not providing independent regulation.
I was listening to the hon. Gentleman's argument with great interest, but I left the Chamber briefly to find out how he voted on Second Reading. Of course he did not vote because there was no Division. I wonder whether he is against the principle of the Bill. I shall ask him a hypothetical question: if there had been a Division, would he have voted against the Bill?
How would I have pursued the Bill's aims? As I said in my introductory remarks, during which the hon. Gentleman left to find out information that was obvious to everyone else, it was right to pursue the Bill's aims because the Conservative Government—our predecessors—had started to develop such legislation. I am a Fabian in such matters. Festina lente is the slogan.
Let us make progress with the Bill while introducing corresponding concessions to protect consumer interests and a corresponding framework of legislation to ensure that those accountancy firms that opt to become limited liability partnerships are accountable. That is the essence of my argument. Protection for consumers means providing a duty of care, which I shall attempt to do under later amendments, and reversing the Caparo judgment.
The basic principle behind all the amendments and new clauses that I have tabled, especially in this group, is that there should be maximum publication and recording of the available information because partnerships are inherently secretive organisations. There can be many variations of partnership and individual agreements.
I am not comparing partnerships with sole traders. We are talking about bigger organisations than sole traders. The accountancy houses were allowed to set up as limited companies under the Companies Act 1989, but only one accountancy house did so. Why? First, there are tax disadvantages in becoming a limited company. Secondly, there are publicity disadvantages; they have to disclose more information. They do not want to disclose. They are secretive, powerful organisations.
I want more disclosure. I want more light; it is as simple as that. The consumer has a right to know. People who might be affected by the business or insolvency of limited liability partnerships have a right to know what their strengths and weaknesses are, so they should be subject to exactly the same disclosures as a public limited company, as was provided for in the Companies Act.
Another consideration behind the amendments, particularly this group of amendments, is the need to avoid fraud and tax fiddles. It is possible for all kinds of dodgy organisations to register as limited liability partnerships. The words "dodgy organisations" bring to mind Yorkshire Water, now the Kelda Group. It is attempting to perpetrate what must be a deceit upon its shareholders: a process of so-called mutualisation to pass on assets that do not yield much profit to the shareholders. It will then offer itself as a management company to run the assets for a fee.
That must be a monstrous deceit of the consumer. One of my later amendments seeks to preclude it all together, saying that publicly regulated utilities should not have such a facility. I mention that in passing because the main problem is the use of those organisations to reduce the tax burden and to perpetrate fraud and tax fiddles. The transfer to limited liability status gives rise to that.
I am glad that the Minister, in his many answers to my many questions, communicated that fact. I have also written to the Chancellor of the Exchequer about the matter. Rightly, the tax regulation differences between partnerships and limited companies is now being reviewed. They should be aligned as closely as possible. Why are we pushing for the legislation to be implemented before that review has been completed? People need to know what the tax benefits or disadvantages may be. In my view, there could be disadvantages—or there should be—in transferring, so I do not want the legislation to be implemented before the tax review has ended.
The hon. Gentleman is presenting a powerful argument as to why he opposes the principle of the Bill. I understand where he is coming from, but I am a little confused in one respect. He said in answer to my earlier question that, had there been a Division, he probably would have voted against Second Reading. He makes it clear that he is against the principle of the Bill. Why, then, did he not call for a Division on Second Reading, so that he could vote?
Thank you for warning me, Mr. Deputy Speaker. I was not going to follow the hon. Member for Lichfield (Mr. Fabricant) down the path of his ignorance of parliamentary procedure and the role of amendments on Report—the stage of the Bill's proceedings in which I am participating.
Thank you, Mr. Deputy Speaker. The hon. Member for Lichfield should not raise silly, querulous points during my speech. He would have done better to use his position on the Committee to raise some serious points there, instead of fighting to extend the vested interests and privileges of the big accountancy houses. That was the essence of what he was doing on the Standing Committee, which had only one Division, and in which Opposition Members promoted those vested interests. It is a little nitpicking, to say the least, of him to raise those points with me, having failed to fulfil his own responsibilities on the Standing Committee. However, I do not intend to follow that argument.
I was saying that the measure should not be implemented until the review of the tax status of partnerships and companies is completed; only then should it come into effect. I wish to raise many points and to warn off the hon. Member for Lichfield, who has interjected three times in an attempt to prolong my speech and who does not seem able to count, either. I point out that this argument is, in essence, about the consumer and about the soul of the Labour party and the Labour Government.
Conservative Members had their opportunity in Standing Committee and earlier to represent the views of the vested interests, and they did that very articulately. Indeed, Liberal Members, who are now engaged in hasty consultation at the last minute, also did that. It was a shame on Second Reading to hear the Liberal spokesman speaking for professional vested interests when the only effective opposition in the House of Lords came from Liberal Democrats and particularly from Lord Phillips of Sudbury who appears on the Jimmy Young show.
Order. The hon. Gentleman is again distracting the House from the new clause that he is supposed to be moving. Will he please address his remarks to new clause 2 and to the other new clauses and amendments that we are legitimately discussing?
I will not give way on this point, because I think I can anticipate the hon. Gentleman's objection. It will lead me down a path along which I do not want to go.
On new clause 2, Ministers said that limited liability partnerships would be treated as companies. In fact—and this is the purpose of the new clause—they have been treated more leniently. When a company prepares its accounts, it must indicate its contingent liabilities under accounting standard SS18, which accounts for contingencies. It is right that companies should do that, because anyone to whom a company owes money or supplies services will want to know its liabilities. To decide on the financial standing of a company, people need to know its contingent liabilities. That protects creditors and suppliers and it provides information to the public.
It is important to bring LLPs into line with companies, because partnerships have few assets. All the assets of a company are in its name, and creditors can try to get hold of them if it becomes insolvent. That is not so with a partnership, which tends to have few assets and the case has to be pursued against the negligent partner. I hope to come to the issue of how people will decide who is the negligent partner and how he will be designated, because such information should be available. However, creditors find that much less is up for grabs in a partnership than it is in a company. The two entities should be aligned with each other. Initially, we were told that they would be, but that has not occurred. New clause 2 would achieve that aim.
New clause 4 is about compliance with foreign rules. That is important. In the United States, the Securities and Exchange Commission—which is the most effective independent regulator in the world and the type of body that we should have in this country—is making a concerted attempt to force differentiation in the big accountancy houses between the audit arm and the service arm. If the audit arm sells services to its audit clients, that dilutes the effectiveness of the audit by making the firm more compliant to the wishes of the directors selling the services. That creates an undesirable vested interest if we are to have effective and independent audits. That shows the importance of complying with foreign rules. Such an attempt is being made in the United States, and it will come to fruition. Already, the SEC, which is not satisfied with professional self-regulation as it exists in the United States, has produced a scathing report on PricewaterhouseCoopers.
The interesting finding from the SEC inquiry was the amount of negligence that exists. In two years, there were 8,000 violations of basic principles of accountancy and audit, particularly partners and employees of PricewaterhouseCoopers holding shares in companies that were being audited by PricewaterhouseCoopers. Eight thousand violations! The report stated that there were
serious structural and cultural problems
in PricewaterhouseCoopers' compliance in these matters. In other words, the firm did not give a damn. It was negligent, there was a culture of laxness in the organisation, and it violated the rules of the industry. That report was an eye-opener to—
Order. May I gently remind the hon. Gentleman that he has tabled new clause 3, which deals with the United States, the Securities and Exchange Commission and so on? I am happy for him to pursue his argument now, as long as he does not repeat it when he comes to new clause 3.
The matter is better dealt with now, Mr. Deputy Speaker. I shall mention it only briefly later.
That inquiry has extended to other firms, and there is a concerted attempt to prise the audit arms apart. We should be inquiring in the same way. In my view, the big accountancy houses are far too friendly with Government. I saw in The Observer on Sunday that since the election, PricewaterhouseCoopers, Ernst and Young, and Pannell Kerr Foster had all donated staff to the Treasury to draw up tax legislation. We do not have panels of criminals coming in to advise the Home Office on the criminal law or police methods, but in the case that I mentioned, the interested parties are being brought in to advise Government.
If my hon. Friend had listened, he would know that I said that we did not get criminals in to advise the Home Office, and that it was ill advised to get interested parties in to advise the Treasury on tax law. The analogy is there. I am aware of my hon. Friend's interest in those accountancy houses. The point is valid, because the question will always be asked whether we are soft-pedalling on the need to regulate those bodies because of the services provided to Government.
I have been listening with care to what the hon. Gentleman has been saying. It seems to be a rant against a particular firm, which does not necessarily do the House any credit. Would the hon. Gentleman be prepared to repeat what he has been saying outside the House, without the cloak of parliamentary privilege?
What a ridiculous question. If the hon. Gentleman had said that he had listened with interest, I would have been overjoyed. If he is listening with a police notebook in his hand, the point is fatuous in the extreme. I have quoted the SEC's report on one particular company and the facts about the firms advising the Treasury. That is all that I have done. That is repeatable inside or outside the House. It is a matter of public record. I am sorry that we have to come down to such silly, nit-picking points in objection to the argument that large blocks of power need to be controlled and regulated, which is the responsibility of government.
I understand what the hon. Gentleman is saying. Does he believe that the Government should impose on the Institute of Chartered Accountants in England and Wales more stringent rules with which it can govern the affairs of its members?
I do not believe in professional self-regulation. Chaps regulating chaps is almost a British myth. The Institute of Chartered Accountants in England and Wales is a puny body when compared with the enormous power of the big five accountancy houses, whose fees run into a total of £4.5 billion a year. These are enormous concentrations of power. A small professional body cannot effectively regulate them, and so-called independent regulation, which we are proposing, will not regulate them properly either.
I shall move on to new clause 7, despite the interruptions from vested interests on the Opposition Benches. The Bill introduces some highly desirable changes, but accountancy houses enjoy a state guaranteed monopoly on insolvency and auditing. It is therefore right to regulate. I am glad that my hon. Friend the Minister gave the commitment that legislation will include a requirement for financial disclosure equivalent to that which is required of companies. The new clause deals with the disclosure of emoluments. The Minister told us—it is in the Bill—that limited liability partnerships will provide information in the notes to accounts about the aggregate amounts withdrawn or applied on behalf of members during the financial year. There is also the requirement to disclose the earnings of the highest paid member in cases where profit exceeds £200,000.
The figure of £200,000 comes from schedule 6 to the Companies Act 1985. That Act requires that information that is published should include emoluments, gains made by directors on the sale of share options and amounts paid to directors under long-tern incentive schemes. I hope that the Minister will tell us that the same categories will be covered in the requirements on limited liability partnerships, and that his estimate of £200,000 is based on the categories to which I have referred. Will LLPs be required to publish these details?
We all know that there is considerable disquiet about fat cats. The public need to know how much they are being paid. It is possible for limited liability partnerships to own limited companies. We would therefore have the ludicrous situation in which the limited company would have greater obligations to disclosure than the LLP parent of that company, which is exempt from much of that disclosure. That seems to be wrong.
I know that Opposition Members are not keen on disclosure of public information, but it is the public's right to know, especially when incomes have been accrued in pursuance of a publicly granted state-conferred monopoly in audit and insolvency.
New clause 8 is about more disclosure of the assets of each partner. Concessions are conferred on accountancy and other firms that are trading as LLPs. In the event of insolvency, the creditors can call on the assets of an LLP, which as I have said will not be substantial. It is more the assets of the negligent partner that are important. I return to the point which I broached earlier, which is how the public know which partner is responsible for the negligence. Who is the negligent partner against whom actions must be pursued? Knowledge of that might dissuade some clients from having dealings with that partner.
Customers should have access to that information. If existing claims against a partner are such that a further claim would take all his assets, the public need to know. How will they learn who is the negligent partner and whether other allegations of negligence have been made against individual partners of a limited liability partnership? People need to know who they are dealing with and what their status is.
We are talking about public provision of information to safeguard creditors, including information about individual partners' assets, against which claims can be made. We are limiting liability, so we need to know what the assets are. In the case of a company, shareholders' liability is limited to the extent of the paid-up shares, and the balance sheet lists the assets and liabilities for anyone to see; but the balance sheets published by LLPs will not give the creditors full and fair information. All I want is parity between the information published by LLPs and by limited companies. That seems fair.
Amendment No. 19 deals with registration and is designed to let us know what authority each member has to act.
Amendment No. 24 is again a matter of necessary public information for creditors and potential creditors about the financial standing of the LLP.
I hope that my hon. Friend the Minister will respond to some of my points and clarify whether my arguments are valid.
The hon. Member for Great Grimsby (Mr. Mitchell) delivered quite a rant and proved his inability to count: I intervened twice, not three times. Some of his arguments, if not persuasive, raise interesting questions that the Minister should address.
It is a good idea in principle for the liability of large partnerships to be limited. In this modern age, partnerships can comprise 50, 100 or even 200 or 300 people—and in some instances, several thousand—and it is not practical to expect them all to have joint and several liability, but I tend to agree with the hon. Gentleman that, if the state is providing some protection, it should demand a quid pro quo and expect certain information from the partnership.
I do not go as far as the hon. Gentleman. Judging from their faces, not many Government Members would go that far. It is interesting to note the divisions on the Government side. The Government feel—and I agree with them—that there should be some protection in the form of limited liability, possibly echoing some of the protections that are available to companies under the Companies Acts. Should not limited liability partnerships also have to meet some of the obligations of disclosure in annual returns that are imposed on companies under the Companies Acts? I would welcome an unemotional and non-ranting answer to that question—the Minister is known for his unemotional and accurate responses.
I share much of the frustration and irritation expressed by my hon. Friend the Member for Great Grimsby (Mr. Mitchell) at the circumstances in which we find ourselves. Apparently, the Bill is technical and rather obscure—of interest only to a few people who have a particular interest in some obscure points of law and commercial practice. Yet it advances an important innovation in British commercial law, which could well be taken up by many presently unlimited liability partnerships.
The hon. Member for Lichfield (Mr. Fabricant) said that the Bill was targeted at the needs of large partnerships. He and the Government must recognise that a number of partnerships that are not large may seek the protection and advantage of limitation of liability. That ought to give the House cause for a little caution.
We find ourselves discussing this quite complex Bill, which advances an important new principle, between the excitement of a statement on the Post Office, which is important, and the even greater excitement of debate on the Fur Farming (Prohibition) Bill. That is not the ideal circumstance in which to be discussing such a matter. It inevitably imposes a good deal of pressure—I do not suggest in any way that it is external pressure—on those taking part in the debate.
Of course the hon. Gentleman is right that small as well as large partnerships may seek the protection that the Bill will offer when enacted. However, given that there is similar legislation in other parts of the world, does he fear that jobs might be lost if larger partnerships centred outside the United Kingdom, in countries that offer partners protection?
Of course I shall come to that point, although I hope not to be tempted too wide of the new clauses and amendments.
The hon. Gentleman asked my hon. Friend the Member for Great Grimsby whether, in principle, he accepted the idea of limitation of liability in partnerships. Were I to be asked that question, my answer would be yes; I have no difficulty with the limitation of liability in partnerships.
The Partnership Act 1890 has always been considered one of the most ideal pieces of legislation. It has endured for more than a century without any tampering with or amending of its essential form or principles. It has stood the test of time; it has the clear concept of joint and several liability.
However, the Act was framed when all partnerships were extremely small, the people were individually known to each other, and the reputation, efficiency and performance of the partners could be measured and tested by potential and actual partners. Any problems could be addressed immediately, simply and directly. We have moved on: we now have partnerships that consist not merely of thousands of partners but sometimes of tens of thousands of partners, in which such disciplines cannot apply.
It may be right to offer the protection of limited liability to such partnerships, but—this point has already been discussed—the limitation of liability being offered here is not confined to such circumstances. Small partnerships can also take advantage of it. Therefore, we are considerably modifying the structure of the principle advanced in the 1890 legislation, and we should be properly cautious about that.
I am prepared to consider the principle of limitation of liability in partnerships, but we must consider whether this is the right moment to introduce such legislation. We still have the unfinished business of the Caparo judgment, to which my hon. Friend the Member for Great Grimsby rightly drew attention. Auditors appear to owe no significant legally meaningful duty of care to the shareholders in the enterprises that they serve.
Accountancy was done no favours by the Caparo judgment. It opened a hole in accountability and responsibility, which we are still puzzling how properly to fill. The present proposal to create an independent regulator for accountancy, but not a statutory one, in a way seeks to undo the damage that was done in the Caparo judgment.
One of my anxieties about the Bill is that until we can see the real strength of the framework being offered under independent regulation—the proposals that are now being worked up in front of us in the area of accountancy—it is difficult to know whether the Bill is appropriate and soundly formed. There must be a legitimate anxiety about that.
Furthermore, there have been a number of legal actions. Out of respect to my hon. Friend the Member for Middlesbrough (Mr. Bell), I shall not start a cascade of prominent names and cause him some agitation lest important people in our commercial world be denounced. However, my hon. Friend must recognise that those people are suing each other. Such matters may all be settled out of court. One would not attempt to speculate about that, but it is entirely possible. However, if matters do come to court, the rehearsal of the evidence will provide some important information which can guide us in legislatures and help us deal with some of the issues that arise in partnerships if we begin to limit liability.
I do not dispute what the hon. Gentleman says about accountants suing each other, but to put it in perspective, much of what is happening is probably driven by the insurance cover that those partnerships have, whereby they are required to pursue their interests. The insurers drive them to that. Part of the point of the Bill is that limited liability partnerships will, to some degree, obviate the need for that depth of insurance and the expense of it, which is ultimately passed on to clients and consumers.
That raises more issues than it tidies up. It may be true that insurance is one of the drivers behind large accountancy firms suing each other over responsibility for the disappearance of what, it must be recognised, are hugely significant sums of money. The loss of that money has damaged thousands of individuals, voluntary organisations—in the case of BCCI, a large number of voluntary organisations—and enterprises. We are not talking about something that is of no significance; it is of profound significance.
The hon. Gentleman says that partnership firms are suing each other because of the insurance driver, and that such legal actions would not otherwise take place. That worries me. What are we doing in this legislation, offering an alternative source of cover to insurance cover that can now be purchased perfectly properly, and which is the basis of those legal actions? What will this legislation cause to be hidden that would otherwise be exposed?
I am following the hon. Gentleman's argument with considerable interest, but surely there is nothing in the Bill that prevents any client of an organisation that is perceived not to have acted properly from suing the limited liability partnership?
I have already referred to the great difficulty there. The pressure for the legislation began in the accountancy partnerships, and although I entirely accept that far more than accountancy partnerships may seek to take advantage of it, in the accountancy world we come up against the great problems that my hon. Friend the Member for Great Grimsby and I have mentioned—the Caparo judgment and its rather unfortunate inheritance.
Against the background of the Caparo judgment, any legal action against an accountancy partnership faces the difficulty of having to overcome the consequences of that legal decision. That point does not apply to other kinds of partnership that might seek to take account of the legislation. I fully acknowledge that. However, the House knows that the driving influence in the introduction of the legislation came from those accountancy firms. That is a relevant point.
I do not want to take up too much time. I know that there is a custom whereby people who want to talk at length always say that they do not want to detain the House, but on this occasion I really do not want to detain the House, so I shall be careful about taking interventions.
The hon. Member for Lichfield (Mr. Fabricant) drew attention to the fact that there are legal jurisdictions close to Britain—the one that is always mentioned is Jersey—in which limited liability has already been carried into law. The Conservative Government's motive for wanting legislation in this form was the fear that people would relocate to such regimes to take advantage of limited liability.
All that has been overtaken by other events, in particular concerns about offshore legal and tax regimes, which provide unfair competitive advantage. That is a difficult and complex issue, into which I do not wish to stray this afternoon, but all will recognise that the Government have offered leadership to Europe in striking a deal on the withholding tax only a fortnight ago, and setting up a regime based on the exchange of information, which is a real, genuine and significant breakthrough in tackling such offshore regimes. Therefore, it might again be wise to see how all that develops before we advance as an argument for this legislation the fact that there may be competitive, more attractive jurisdictions elsewhere in which people might seek to locate. That is an argument for a little caution and delay.
All the new clauses concern disclosure and the importance of making information available, which will allow outsiders to form proper judgments about the good conduct and good management of any regime which has the advantage of limited liability.
New clauses 2 and 8 advance the principle of openness in the specific context of financial information. The creation of limited liability partnership regimes gives rise to a potential tax problem. The Government acknowledge that in their correct intention to remove both the possibility of improper tax avoidance and the use of a variety of legal vehicles to take advantage of tax planning possibilities and thus improperly avoid taxation. I expected an intervention at that point, but no one wishes to intervene, so I shall move on.
We are considering an important point. It would be extremely helpful if my hon. Friend the Minister could clarify the Government's discussions about the tax regime that accompanies the Bill, and the way in which that regime will work. The House would then be well informed.
New clause 7 attempts to deal with one of the issues that features in the Government's agenda for company law reform. Sadly, we shall not legislate on that agenda until after the next general election. Again, there is a question of timing. I know that my hon. Friend the Minister intends the full force of current company legislation to be exercised over limited liability partnerships. We cannot speculate on any future changes—the House is not the right forum or platform for indulging in such speculation—but we are all considering the matter, and it would be helpful if my hon. Friend could tell us that the Government intended to reflect future changes in company law in the liabilities for disclosure affecting limited liability partnerships.
As my hon. Friend the Member for Great Grimsby rightly said, new clause 4 attempts to deal with what goes on in other jurisdictional regimes. My hon. Friend rightly mentioned the work of the Securities and Exchange Commission in the United States, and its attempts to provide for a proper relationship between general accountancy work and the specific work of audit. It ensures that those two functions are not confused, and that no market abuse occurs when people use their economic power in one context to achieve economic advantages by sweeping up all the audit work. The Securities and Exchange Commission properly tries to deal with fair competition and market abuse.
There is no point in Opposition Members saying that the Securities and Exchange Commission will not affect us here; it has already affected us. We are considering global partnerships that engage in economic activities all over the world, which are caught by the actions of the Securities and Exchange Commission. It is fair to ask how we will tackle those issues. It would be unfortunate to be led down a road of competing jurisdictional regimes with barriers between them, and all sorts of intergovernmental disputes over the propriety of one action by a regulator in one country when compared with the different framework of rules in another country. We must try to avoid that.
The Government have referred a general bundle of issues to the Office of Fair Trading. It has been asked to consider the way in which professional partnerships work, and the way in which demonstrable problems will be tackled. It would not be proper for my hon. Friend the Minister to direct the OFT's work; it would be wrong, and I do not ask him to do that. However, it would be proper for him at least to direct the OFT's attention to the matter so that it could perhaps ascertain methods of avoiding the possibility of conflict between jurisdictions, and of attempting to introduce in our regimes governing market abuse and fair competition some of the benefits that the Securities and Exchange Commission brings to regimes in the United States.
I have mentioned important underlying issues, which all give grounds for caution; they are reflected in the new clauses. I accept that Back-Bench amendments are not always framed well. However, I have outlined the purpose of new clauses 2, 8, 7 and 4. I hope that I have explained the reasons for them, and that my hon. Friend the Minister will be able to assist us in dealing with them.
I declare at the outset that I am a solicitor and that I no longer practise. I used to specialise in taxation and, to some extent, partnership matters.
Any trade or profession can become a limited liability partnership provided that at least two persons—that includes companies—come together to form one. As has been said, the usual rules for joint and several liability are not applicable to limited liability partnerships. Nevertheless, it is worth putting it on record that an individual member of an LLP is liable in tort for his or her actions, if they are negligent or held to be negligent. The firm and all its assets are fully liable.
Disclosure should be at the heart of the Bill. I refer the House to my words on 23 May 2000 on Second Reading. I said:
Finally, a fundamental principle of the Bill should be that the price for the limitation of liability is full disclosure of the financial affairs of a business and that such information should be readily available to the public.—[Official Report, 23 May 2000; Vol. 350, c. 907.]
I have not changed my mind. It would be in the interests of those who did not serve on the Committee, or who have not studied the matter as deeply as others, and for the convenience of the House, if the Minister set out clearly the disclosure obligations in the Bill.
I am well aware of the concern of my hon. Friends the Members for Great Grimsby (Mr. Mitchell) and for Newcastle upon Tyne, Central (Mr. Cousins) about accountancy and its regulation in this country. They have made it clear that they believe that limited liability partnerships are a concession to the professions, especially the accountancy profession.
By tabling the new clauses, my hon. Friends are trying to use the Bill as a means of regulating the accountancy profession. As I said on Second Reading, I admire their tenacity and their concern for the reform of accountancy regulation. However, it is not the Bill's function to regulate professional activity. When regulation is believed to be necessary, the activity, not the LLP as an entity, will be regulated.
Time and deliberation were mentioned on several occasions. This Government and the previous Government have consulted on the detail of the Bill for at least four years. A long and intensive debate has therefore taken place about the proposals.
On the issue raised by my hon. Friend the Member for Newcastle upon Tyne, Central about the investigation of the professions by the Office of Fair Trading, I share the views of my hon. Friends that the issue of auditor independence—in particular, the extent to which an audit firm should be able to provide a non-audited service to audit clients—is important. That applies not only in the US, where the SEC has made proposals to deal with the issue, but in this country.
The OFT is conducting a review of the professions that will focus on, among others, accountants and solicitors. I am sure that the review will address the balance between competition and regulation in relation to the accountancy profession. That work provides an excellent opportunity to examine the concerns that my hon. Friends have raised about the ability of auditors to provide non-audit services. The comments of my hon. Friend the Member for Newcastle upon Tyne, Central encourage me to ensure that those conducting the review are fully aware of those concerns, and I undertake to do so.
It has always been the intention that an LLP will have applied to it, through secondary legislation, requirements similar to those that are applied to a company. The amendments, if they were accepted, would add a heavy additional burden to LLPs in comparison with those of a company. I am strongly of the opinion that that is not the right approach.
New clause 2 would add a substantial extra burden on an LLP in comparison to a company, and it would be manifestly unfair to require such extra requirements on an LLP. There are no Companies Act requirements for a company to set out any claims made against it for work done, nor does it need to have a statement from its regulator stating that it has complied with the relevant regulatory framework. In addition, I do not see what would be gained by giving details of employee pay, which should be a matter between the employee and the LLP.
Under section 709 of the Companies Act 1985, any person may inspect the records kept by the registrar, and that section will be applied to LLPs. New clause 4 would impose a burden on LLPs trading outside the UK that goes beyond the requirements imposed upon a company or a partnership. It is not the role of the registrar of companies to list infractions of regulatory rules, either in the UK or in other jurisdictions. It is a matter of policy for the regulatory body concerned to decide whether infractions should be reported. I shall try to return to that issue, because my hon. Friends raised some interesting points.
New clause 7 would require an LLP to publish details similar to the details of director emoluments that are required by schedule 6 of the Companies Act 1985. That issue was addressed by the Trade and Industry Committee, which agreed that there was no reason why the Department should revisit the issue of the disclosure of the highest paid members' drawings. I do not believe that making available any further details of members' drawings would add anything. All LLPs will need to provide information on the aggregate amounts withdrawn or applied on behalf of members during the financial year in the notes to the balance sheet. That is in addition to the requirement to disclose the earnings of the highest paid member in firms where profit—before member remuneration and profit shares—exceeds £200,000. The disclosure of that information will allow potential creditors to take a view on how the LLP is being managed and whether members are making excessive withdrawals.
New clause 8 would require the annual accounts of the LLP to include a statement that would show the value of the assets of each partner and whether that partner was involved in any litigation. I share my hon. Friends' aspirations for greater transparency and this central issue is being examined by the independent company law review, which will make—I trust—some insightful and radical proposals.
As an LLP is a separate legal entity, we envisage that third parties will contract with the LLP rather than the member. For that reason, it is important that potential clients of the LLP are aware of the assets of the LLP and it is why we have applied the financial disclosure requirements for companies to LLPs. I do not believe that the disclosure of the net assets of members will add to creditor protection. Nor do I believe that providing information on whether a member is involved in litigation is right, because providing such information could be detrimental both to the individual and the LLP. The member should be seen as an individual separate from the LLP. I strongly believe that the new clause would be unfair and would go against our stated policy of having comparable treatment for LLPs and companies.
I see no reason why a statement of the authority to act of each member needs to be lodged with the registrar of companies and to be made available to clients, as suggested in amendment No. 19. It goes beyond what is required of directors of a company or of partners in a partnership. The Bill states in clause 6 that every member of the LLP is an agent of the LLP. A potential client will be able to find out who the members and designated members are, and details of the financial background of the LLP and any charges on the LLP will be available from Companies House. I am happy to inform my hon. Friends that we require designated members to give details of their addresses when they are appointed as designated members. That follows the requirements for the appointment of directors.
On the question of taxation, which my hon. Friends raised, I said on Second Reading that even though we believe that it is right to tax LLPs as partnerships, we are aware that, in some cases, the primary or only attraction of LLP status might be the tax treatment. As a result, we are considering the issue carefully with the Inland Revenue. Depending on our conclusions, legislation may be brought forward in the Finance Bill in 2001. We would, however, consult widely before legislating.
I emphasised that our intention was not to undermine the commercial certainty of the taxation treatment of LLPs for those businesses for which LLP status was intended, and I recognise that that might happen. I know that my hon. Friends are concerned about that point—both about the possible deterrent factor it might have, and about the uncertainties that would exist for those who take the plunge to become LLPs. I share the concerns that they have raised about companies that wish to become LLPs and about the need for greater clarity about the taxation implications of such a transformation. Indeed, the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) raised similar points in Committee.
I am of the view, therefore, that it is appropriate to await the outcome of the review before commencing the LLP legislation, so that anyone wishing to become an LLP may be certain of what tax treatment it can expect. I do not expect that, in practice, that will cause delay, because our expectation was that LLPs would not be available before early 2001. Clearly, were there to be legislation in next year's Finance Bill, we would need in any case to be certain of our intentions by that stage.
My hon. Friend the Member for Great Grimsby raised concerns about the prospect of water companies using LLPs as a means of running not-for-profit mutualised companies. That is a novel idea that has suddenly emerged on the scene since several water companies decided that they cannot make profits out of supplying water. My hon. Friend expressed concern about the intention of the owners of one particular company—Yorkshire Water—to split it in two and sell its physical assets to a non-profit-making mutual company. In that context, a statutory undertaking under the Water Industry Act 1991 must be a company limited by shares and could not be a limited liability partnership. It is perhaps also worth noting that anyone wishing to become an LLP must be carrying on a lawful business with a view to making profit. An LLP is therefore not available as an option for non-profit-making organisations.
The hon. Members for Lichfield (Mr. Fabricant) and for Torridge and West Devon (Mr. Burnett) raised the general question of disclosure, and my hon. Friends the Members for Newcastle upon Tyne, Central and for Great Grimsby made a number of valuable and interesting proposals in respect of disclosure requirements for limited liability partnerships. It is, however, difficult to accept those proposals simply in relation to LLPs without considering corresponding application to companies.
It is our aim, as far as is possible, to keep the disclosure requirements for LLPs in line with those for companies and—I hope that this addresses the point raised by my hon. Friend the Member for Newcastle upon Tyne, Central—to ensure that changes in circumstances and what those changes might generate in terms of demands for disclosure are allowed for within the remit and the report of the independent company law review.
As I said earlier, the provision of information by companies is one of the key themes of the company law review that the Government set up two years ago. The review has already published proposals which would change quite radically some of the disclosure requirements. This therefore provides the best opportunity for many years for my hon. Friends' ideas to be considered.
It is our intention that changes which are made to companies following the company law review should then be applied to LLPs to the maximum extent possible. Given those reassurances, I very much hope that my hon. Friends will withdraw their amendments.
I am grateful to my hon. Friend the Minister and I shall try to save what is left of my career by gibbering that gratitude to him for a little while. He has given us some substantial assurances. First, I particularly like the assurance that the Kelda Group—formerly Yorkshire Water—will not be able to get away with what I thought was a possible subterfuge by registering as an LLP. I am grateful for that assurance, although it was not made in relation to this group of amendments.
Secondly, I am grateful for my hon. Friend's substantial assurance that the Bill will not come into effect until the tax review is completed. That is important as it will enable people thinking of setting limited liability partnerships to know from the recommendations of that review what the tax regime will be. That is a substantial advance in our argument.
My hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins) and I have been entertaining the House with our nice guy, nasty guy double act—
Of course my hon. Friend is the nice guy.
Thirdly, my hon. Friend the Minister's assurances on disclosure and bringing partnership law and safeguards into line with those that apply to limited companies through the company law review has given us the incentive to make submissions along the lines of the arguments that we have put before the House. We shall consider doing that in respect of both sets of provisions. That is another substantial point.
Fourthly, my hon. Friend assured us that the Office of Fair Trading review will be looking at these matters and I am sure that it will take into account fair competition considerations in respect of the sale of other services.
We are grateful to my hon. Friend the Minister for those substantial advances and we feel that we have achieved something in very difficult circumstances. Although Opposition Members tried to heckle us—in particular, they tried to heckle me rather than my statesmanlike hon. Friend—we were only doing the job of scrutiny that the Opposition singularly failed to do. Instead, they simply pressed for further concessions for the vested interests.
We have been doing a job of scrutiny under a handicap. As the Bill originated in the House of Lords, it will not be returning there for further amendment. I am grateful for the four substantial concessions that my hon. Friend has given us and I realise they are all that we shall get at this stage. I do not think that it should have been done in this way, but as it has we are grateful to my hon. Friend for the concessions that he has made. As I am a realist, I shall withdraw the motion and give notice that my hon. Friend and I shall not be moving any of the other amendments in our names. I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.