Clause 21 — Power to require documents and information

New Clause 1 — Amendment of Companies Act 1985: limit on auditor's liability (No.1) – in the House of Commons at 3:30 pm on 19th October 2004.

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Photo of Andrew Mitchell Andrew Mitchell Shadow Minister (Home Affairs) 3:30 pm, 19th October 2004

I beg to move amendment No. 1, in page 27, line 29, at beginning insert

'Where there appears to be good reason.'.

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

With this it will be convenient to discuss the following amendments: No. 20, in page 27, line 29, after '(1)', insert

'If he thinks there is good reason to do so'.

No. 2, in page 29, line 12, in clause 23, leave out 'thinks' and insert 'reasonably believes'.

No. 3, in page 29, line 12, in clause 23, after 'thinks', insert 'on reasonable grounds'.

No. 21, in page 29, leave out line 14 and insert—

'(2) Subject to subsection (9) an inspector or investigator may at all reasonable times within the first 30 days following his authorisation under subsection (1)(a)–'.

No. 4, in page 29, line 14, after 'may', insert

', subject to subsection (3A),'.

No. 5, in page 29, line 14, at end insert 'during normal office hours'.

No. 6, in page 29, line 16, after 'there', insert 'during normal office hours'.

No. 7, in page 29, line 16, leave out 'thinks' and insert 'reasonably believes'.

No. 8, in page 29, line 16, after 'necessary', insert 'on reasonable grounds'.

No. 9, in page 29, line 16, after 'necessary', insert

', not exceeding one month,'.

No. 10, in page 29, line 16, after 'necessary', insert

'not exceeding one month (or such longer periods as may be authorised by the Secretary of State)'.

No. 22, in page 29, line 17, at end insert

'provided that unless authorised to do so by the Secretary of State under subsection (9) he shall not remain on the relevant premises for the whole or substantially the whole of the company's normal working hours for a period of more than 7 consecutive days.'.

No. 11, in page 29, line 17, at end insert—

'(2A) Except when the investigator or inspector reasonably believes that the exercise of his functions under this Part would otherwise be seriously impaired the powers under subsection (2) shall be exercised between the hours of 9 am and 5.30 pm and between Monday and Friday.'.

No. 23, in page 29, line 18, after second 'premises', insert

', or if in mixed use the parts or parts thereof,'.

No. 12, in page 29, line 20, after subsection (3) insert—

'(3A) Where the relevant premises consist either of premises all parts of which are used for residential purposes or of premises which can only be accessed via premises or parts of premises which are used for residential purposes an inspector or investigator shall not exercise his powers under subsection (2) without a warrant issued under section 453C by a justice of the peace and if such a warrant is issued the inspector's or investigator's powers under subsection (2) shall be limited to his powers under such warrant.'.

No. 13, in page 29, line 21, after '(2)', insert

'subject to the terms of any warrant issued under section 453C'.

No. 24, in page 29, line 32, at end insert—

'(9) The Secretary of State may on the written request of the inspector or investigator—

(a) if satisfied that it is necessary for the purpose mentioned in subsection 1(b) extend for a period which he may specify beyond the initial 30 days the period of authorisation under subsection 1(a); or

(b) extend the number of consecutive days during which the inspector or investigator may remain on the relevant premises.

(10) There shall be no limit on the number of extensions which may be requested of or granted by the Secretary of State under subsection (9).'.

No. 14, in page 30, line 7, at end insert—

'(c) the grounds for his belief that entry onto the company's premises will and that remaining thereon for a period will be necessary to materially assist him in the exercise of his functions under this Part,'.

No. 15, in page 30, line 42, at end insert—

' "453 C Entry into residential premises

(1) A justice of the peace may issue a warrant under section 453A(3A) if satisfied on information on oath given by or on behalf of the inspector or investigator authorised under section 453A(3A) that there are reasonable grounds for believing that access to any premises falling within section 453A(3A) will materially assist the inspector or investigator in the exercise of his functions under this Part.

(2) A warrant under section 453A(3A) may authorise the inspector or investigator, accompanied by a constable and any persons thought appropriate under section 453A(4) and any other constables—

(a) to enter the premises, and

(b) to remain there for such period as the inspector or investigator thinks necessary, or for such period as the warrant may provide, for the purpose mentioned in subsection 453A(1)(b).

(3) A warrant may be issued under section 453A(3A) subject to conditions.

(4) Sections 448(5) and 448(9) shall apply to the issue of a warrant under section 453A(3A) as they apply to the issue of a warrant under section 448(1).".'.

No. 16, in page 59, line 31, in schedule 2, at end insert—

'(d) any person accompanying an inspector or investigator pursuant to section 453A(3A).'.

Government amendments Nos. 17 and 18.

Photo of Andrew Mitchell Andrew Mitchell Shadow Minister (Home Affairs)

We now come to the guts of the Opposition's concerns about the Bill: investigations and the powers of investigators. I draw the attention of the House to amendments Nos. 1 and 20, in which we argue that the Secretary of State must have "good reason".

Clause 21 reformulates section 447 of the Companies Act 1985 and excludes the requirement under that section for the Secretary of State to act only if he thinks there is good reason to do so. The amendments propose alternative forms of words but which have the same intention: to maintain in section 447 an express requirement for the Secretary of State to act only where it appears to him or her that there is good reason to do so.

Amendment No. 1 adopts the form of words found in section 167(1) of the Financial Services and Markets Act 2000, which provides for the Financial Services Authority's power to appoint persons to carry out general investigations. Amendment No. 20 retains the form of words in section 447 of the 1985 Act. A similar amendment was proposed and defeated in the other place on 22 March and was proposed and debated in the Standing Committee on 16 September. I subsequently withdrew it, to give the House an opportunity of considering the proposal further today.

The Government's answer throughout has been doggedly to maintain that those words are superfluous and add nothing to the requirements imposed by general administrative law. In Committee, the Minister suggested further reasons for the Government's refusal to adopt such an amendment. First, she suggested that there is a thorough approach to vetting complaints that give rise to investigations under section 447 of the 1985 Act, which will not change if those words are omitted. Secondly, she suggested that the courts have never given any special meaning to the words, which she described as

"a somewhat antiquated expression with no transparent, obvious and precise meaning."

Thirdly, as a consequence of the second point, she said that the phrase

"could, over time, produce a result that we do not want to achieve by narrowing or widening the circumstances in which the power can be used." ."—[Official Report, Standing Committee A, 16 September 2004; c. 89.]

I am sorry to tell the Minister that neither my colleagues nor I found those arguments remotely convincing. There are compelling answers to those points and strong, positive reasons to accept one or other of the amendments.

I challenge the Minister's assurance that the approach to vetting will not change if the words are omitted. That is dangerous speculation on her part. In fact, the thorough and admirable vetting procedures to which she referred that are carried out in practice by the Secretary of State's officials at the companies investigation branch of the Department of Trade and Industry have come about precisely because section 447 of the 1985 Act has hitherto contained the words.

The officials who carry out the vetting procedures will have at the forefront of their minds at every stage these questions: "Is there good reason to take the step that I am contemplating? What is that good reason? How do I express it? Can I justify it if challenged?" That is why the vetting procedures have evolved in the way that they have. No one can assert with confidence that rigour will be maintained in the future, as it has been in the past, if those important words simply vanish from the lexicon of that section, new and challenging situations develop or budgetary constraints begin to bite on the Department's budget. The words are not surplus. The discipline imposed on officials by the inclusion of explicit words of limitation in a section under the authority of which they propose to act is a powerful, positive justification for adopting the amendment.

The criticism of the words "good reason" by the Minister as "antiquated" and lacking transparency or precise meaning was rather surprising. The same so-called antiquated and precise phrase has been incorporated in the parallel section 167 of Financial Services and Markets Act 2000—legislation enacted by the Government in the past four years. Something that happened four years ago is surely not yet to be relegated to antiquity, even if four years certainly feels like a very long time under this Government. The words were included because they have a real context.

The Government have not suggested that developments in administrative law have now made redundant words that were, by necessary implication, considered essential and not superfluous in 2000. The Minister conceded on two occasions in Committee—I draw her attention to columns 88 and 102—that the Secretary of State will have to give sound reasons for using the powers. She is right: let the clause say so expressly to stand as a reminder and a check.

The Government argue that the words have not been judicially defined and may later be construed as unexpectedly to narrow or, indeed, widen the powers intended, but they are missing the bigger picture. It may be that the words have never been subjected to judicial interpretation because their plain and natural meaning is clear enough. For example, where wording that contains the notion of reasonableness has been considered, the courts have recognised the fact that what is or is not reasonable will depend on the facts in any case. It is plain beyond argument that a similar approach will attach to any consideration of what is or is not a good reason to act.

The Minister makes the criticism that the phrase is not precisely defined, but that dodges the real question that it is incumbent on the Government to introduce legislation that precisely defines the powers and discretions given to Ministers and their officials. Even without attempting to pre-empt any judicial interpretation, I suggest that the more obvious and more serious risk of unexpected and undesirable consequences of interpretation springs from the Government's refusal to incorporate the words suggested in the amendment. The reason is plain to see: the requirement for good reason to act appears in other closely analogous provisions in other Acts and, crucially, in similar provisions in the Companies Act 1985.

Leaving such words out of proposed new section 447 of the Companies Act 1985 represents a great risk. The courts will be induced to conclude that Parliament's intention was for the provision to confer far wider executive power or discretion on the Secretary of State than that enjoyed under analogous provisions that are expressly constrained by the "good reason" requirement. If that is the Government's intention, let that be expressed, exposed to debate and set out in the Bill. The power should not be expanded on by stealth.

I shall cite the analogous provisions to which I referred. First, under the heading "Appointment of persons to carry out general investigations", section 167(1) of the Financial Services and Markets Act 2000—as enacted by the Government—which is the exact counterpart to section 447 of the Companies Act 1985, states:

"If it appears to the Authority or the Secretary of State . . . that there is good reason for doing so, the investigating authority may appoint one or more competent persons to conduct an investigation on its behalf".

Secondly, section 442 of the Companies Act 1985 confers powers on the Secretary of State to appoint inspectors to report on company ownership. It states:

"Where it appears to the Secretary of State that there is good reason to do so, he may appoint one or more competent inspectors".

Thirdly, section 444 of the 1985 Act confers powers on the Secretary of State to obtain information as to those interested in shares. It states:

"If it appears to the Secretary of State that there is good reason to investigate the ownership of any shares in or debentures of a company and that it is unnecessary to appoint inspectors for the purpose, he may require any person"— and so on.

The Government seem to rely on general administrative law as the bedrock of the limitations on the Secretary of State's powers, but administrative law is a fluid discipline and the legislature has no control on its development. By leaving out the words "good reason", yet not inserting any other words of limitation, the Government are denying themselves and the legislature a voice in defining the scope of law. They are replacing bedrock with shifting sands, and more importantly they are failing to address the fundamental question of the intended effective limit on the Secretary of State's powers. It is worth remembering that if words are interpreted as narrowing the power that Parliament intends to confer, the remedy is in our own hands. However, if a power is conferred by statute that is far wider than that intended, it creates a licence for future abuse.

There is a further compelling and positive reason to include such words in new section 447. They would act as a signpost to not only officials, but a lay person or company director who was the object of the exercise of the powers. The corollary of the Government's position is that an onus will be placed on an individual either to have knowledge of, or to obtain legal advice on, the complex area of administrative law. It is right that legislation should be internally comprehensible to the man in the street as well as practitioners at the administrative Bar, so it would be unfair to pass legislation that would impose such a burden. Given that the Executive could subject companies and individuals to intrusive action, the Bill should plainly set out the Secretary of State's obligation to act for good reason.

Amendments Nos. 12 and 15, which address relevant premises, characterise the amendments that I have tabled to clauses 23 and 24. Those clauses will insert new sections 453A, 453B and 453C in the 1985 Act, thus conferring on inspectors and investigators the entirely new power to require entry to, and to remain on, relevant premises. Relevant premises are defined in proposed new section 453A(3) as

"premises which the inspector or investigator believe are used (wholly or partly) for the purposes of the company's business."

The provision will broaden for the first time the powers of inspectors and investigators by permitting them to enter into and remain on domestic and residential premises. Section 448 of the 1985 Act provides that investigators and inspectors must obtain a warrant before they are able to enter any premises.

The amendments would require inspectors and investigators to get a warrant before entering and remaining on residential premises. Their purpose is to restrict the possible abuse of the broad and largely unfettered power of entry and to control its impact in situations in which domestic or family circumstances overlap with company activity. In reality, they would preserve the status quo for residential property without restricting the powers to enter and remain on separate company premises. A similar amendment was moved and debated in Committee. Regrettably, it was rejected by the Government. I hope to be more fortunate in attracting the Minister's support this time.

The matter is of real concern. Investigations pursuant to the powers conferred by section 447 of the 1985 Act are frequently targeted at small businesses. Such businesses often trade from, or have a registered office at, the director's home address, or they use domestic premises for storage if space at trading premises is constrained. No one disputes that there may be cases in which it will be necessary, in order not to frustrate the purposes of an investigation, to have access to premises that may be of mixed use. However, the power to enter into and to remain on company premises is highly intrusive. How much greater is the intrusion and how much more carefully must we tread if the power is to be operated in respect of domestic property, which means an individual's or a family's home?

As drafted, the Bill allows the Secretary of State to appoint an official, although she has no need to show good reason for doing so. That authorisation will be made as a matter of course at the beginning of every investigation, whether it is necessary or not. The official will be empowered to enter into commercial or domestic premises merely because he thinks that that will materially assist him. No mechanism requires him to explain why he has come to that conclusion.

The official can remain on the premises without limit of time so long as he continues to think in that way, although no one can know if and when he may change his mind or exceed his right to remain. He may be accompanied by one person or as many as he sees fit. Further, there is no requirement that there should be a lack of co-operation before the powers are exercisable, contrary to what the Minister appeared to understand in Committee. That is a chilling prospect and it would be an abdication of Parliament's function to protect the citizen to allow a Bill in this form to be passed without better restraints against abuse.

The Government were exhorted in Committee to consider the amendment in that context by no less than a distinguished former Labour Minister, Mr. Fisher. He said:

"All these amendments say that Parliament must think carefully about the way that we word powers given to civil servants. Because the Minister has total confidence in her carefulness, reasonableness and intelligence, and in the carefulness, reasonableness and intelligence of her ministerial colleagues, she knows that she and they will not abuse these powers. But we always legislate not just for the Ministers who will introduce the powers, but for future Ministers, who often act in very different circumstances. Future Governments may have very different intentions and different pressures on them.

We all know from bitter experience in recent years that the thing that most undermines confidence in Parliament and most leads Parliament to take bad decisions is Ministers' sense that something has to be done in response to a particular crisis. In those circumstances, the hon. Gentleman's warnings"— my warnings—

"about the powers that are delegated to civil servants are very important."

The hon. Gentleman finished by saying:

"The hon. Gentleman"— again, he meant me—

"was careful to heap praise on the Minister and the Secretary of State for being reasonable people. He was genuine in that. These are reasonable Ministers and we can be confident that they will not allow their civil servants to abuse these powers. But I hope that between now and consideration on Report the Minister will consider the wording and perhaps devise some small but crucial amendments to some of these powers to ensure that we retain ministerial control over some powers in the Bill so that they cannot inadvertently be misused in different circumstances in the future."—[Official Report, Standing Committee A, 16 September 2004; c. 100–01.]

Those were not the words of Members of the Conservative Front Bench or, indeed, of the Liberal party, who would agree with them; they were the words of an experienced former Labour Minister and express succinctly and eloquently the powerful argument that we are trying to make.

Photo of Greg Knight Greg Knight Shadow Minister (Environment, Food and Rural Affairs) 3:45 pm, 19th October 2004

I am less satisfied with ministerial control in that area than with judicial control. Would it not be much better to allow the courts to say that the use of the powers must be reasonable instead of allowing a decision to be made on the whim of a transient Minister?

Photo of Andrew Mitchell Andrew Mitchell Shadow Minister (Home Affairs)

My right hon. Friend has put his finger on an important point. Parliament must add the necessary safeguards to the Bill so the courts can exercise them. The safeguards on which the Minister relies sadly offer little reassurance. In Committee, she referred to the obligation on inspectors when seeking entry to produce proof of identity and provide a statement of their powers and the company occupier's obligations under proposed new section 453B. Those responsibilities will be prescribed by regulations, but we have not been given any comfort about their content.

Will the Minister give us an undertaking that the regulations will require that the statement will make it unequivocally clear to people on whom it is served that they may, without penalty, refuse to admit the inspector or may request that he and anyone accompanying them should leave? The occupier may believe that the investigation is to take place at an unreasonable time, but will the statement provide examples of such circumstances? Will the statement make it clear that officials have no power to search for or seize documents, and will it refer occupiers to the code of conduct and the published complaints procedure for Department of Trade and Industry officials?

The Minister reminded us that a thorough vetting procedure would be completed before the visit took place and that the Secretary of State must give sound reasons for authorising an investigation. In fact, I cannot find any obligation on the Secretary of State to give any reasons to anybody. In Committee, the Minister resisted an amendment that provided expressly for the Secretary of State to have good reason for authorising an investigation, as I explained earlier. I agree with her about the liabilities that directors of limited liability companies enjoy and the responsibilities, such as the exposure to investigations, that are a natural consequence of those privileges. However, those responsibilities may not be assumed willingly by spouses and family members, who may be reluctant to accept that business activities should be carried out in their home. The Bill, however, exposes them to the full force of untrammelled officialdom in their home and the prospect of being hauled before the courts on the inspector's written certification.

The Minister reminded us that the Bill does not entitle inspectors to enter premises by force. However, it entitles them to visit people at home and seek entry with the threat, which will no doubt be set out in the statement issued pursuant to new section 453B, of contempt of court proceedings for non-co-operation. It entitles inspectors to enter premises and remain there, even though no one connected with the company is present. We are assured that, during that time, they will not conduct searches of any kind. The availability of redress, which the Minister accepted was important, turns out to be an action for trespass. Given the way in which the Bill is drafted, any such action would require knowledge of administrative law, practice and quite possibly procedure.

The Minister objected that the amendment requiring a warrant to enter domestic premises would mean the inspector turning up accompanied by a policeman. For reasons that escape me, she appeared to conclude that that automatically would create the impression that criminal activity was being investigated and would make the investigation public. I do not follow her logic, as there may be any number of reasons why a police officer should visit a house; such a visit does not imply the conduct of a criminal investigation. The presence of a neutral third party such as a police officer may be a comfort for people affected by the potentially oppressive exercise of the powers.

I am sure that the Minister accepts that my words have added weight, given the fact that since we began our deliberations on the Bill I have become the Conservative spokesman on policing. The powers are highly intrusive and affect the private lives of children and people without any direct connection to the company's business. Where such intrusion is necessary, it should be proportionate, and there must be effective safeguards against abuse, tested not by the high standards and integrity of the Minister and her officials but by measures to deal with unforeseeable pressures that may operate in a very different political climate.

The Bill has got the balance wrong. The requirement for inspectors and investigators to obtain a warrant, which may be subject to conditions, before entering and remaining on residential premises provides an effective safeguard against over-zealous officialdom or abuse, and ensures that any necessary intrusion is carefully and independently weighed for proportionality before it takes place.

The third of the four subjects that we are raising under this set of amendments is characterised by amendment No. 11. The purpose of this and its sister amendments is to include in section 453A, which is to be introduced into the 1985 Act by clause 23, a clear and express limit on the times during which the power to enter and remain on premises—as I have already underlined to the House, these may include domestic as well as business premises—can be exercised by inspectors. In the present form of the Bill, the right to exercise the powers is triggered by what the inspector or investigator thinks would assist him materially in the exercise of his functions and what, in the case of remaining on premises, is necessary for that purpose. The only limitation in the Bill on the exercise of this power is that it may be exercised "at all reasonable times".

The amendment would introduce a subsection into section 453A to make clearer what will in the normal case be regarded as a reasonable time. The exercise of the powers would be limited effectively to the normal working hours of a company unless exercise of the powers only during that time period would seriously impair the work of officials. The limitation applies both to the power of entry and to the period during which an investigator or inspector may remain on the premises.

Photo of Greg Knight Greg Knight Shadow Minister (Environment, Food and Rural Affairs)

My hon. Friend has taken me with him thus far, but I am a little concerned about the provisions. If the inspectors were in effect allowed to work only during normal office hours, would that not enable a dishonest and unscrupulous director to dispose of damning evidence outside office hours, knowing that the inspector could not possibly appear on his doorstep?

Photo of Andrew Mitchell Andrew Mitchell Shadow Minister (Home Affairs)

Once again, my right hon. Friend makes a very good point, to which I shall come shortly.

As I pointed out in Committee, the explanatory notes state:

"A visit to business premises outside the company's trading hours would not ordinarily be regarded as taking place at a reasonable time."

The amendment neatly encapsulates what those preparing the Bill clearly intended, and it is difficult to see what objection there can be to including my amendment in the form proposed.

No guidance is given in the Bill as to what reasonable times might be. The Government suggested in another place a number of alternative situations as a reason for not rising to the drafting challenge: the possibility that a company trades only at night; that it might not have its own normal business hours; or that it might change them in order to frustrate investigation, the very point made a moment ago by my right hon. Friend.

In Committee, the Minister refused to adopt amendments that sought to limit the exercise of the entry and remainder powers to normal office hours or to define "reasonable times" as 9 am to 5.30 pm. The grounds for refusing to accept the amendments were, respectively, that a company may not have normal office hours, and that if the hours between 9 and 5.30 were set out as normal office hours, companies would trade outside those hours to avoid or frustrate investigation.

The amendment provides answers to both concerns. First, it refers to "normal working hours", a phrase that encompasses a wider range of activity than the phrase "office hours". Secondly, in the case of companies whose activities extend to evenings and weekends, the inspector would not be precluded from pursuing investigations at those times if necessary, because they would be the company's normal working hours. In any event, the amendment preserves the inspector's power to enter premises at any other times, provided that he reasonably believes that to be necessary because his investigative functions otherwise would be seriously impaired.

Our amendment provides desirable certainty for companies and the public, as well for Department of Trade and Industry officials, about what, in the vast majority of cases, will be reasonable times for the exercise of powers of entry, while preserving the power of inspectors to operate at other times when their investigations otherwise would be seriously impaired. At other times and during other periods, investigators will be required to act at reasonable times.

The final change is characterised by amendment No. 24, which limits officials' wide powers in proposed new section 453A of the Companies Act 1985 to enter and remain on premises. First, the amendment imposes a one-month time limit within which inspectors may initially seek entry into premises, which may be mixed business-domestic premises as well as commercial premises. Secondly, it limits the period in which investigators may continuously remain at a company's premises without express authorisation by the Secretary of State. A limit on the period in which the power of entry may be exercised should encourage inspectors to get on with their investigations and not hang about squatting in somebody's home. It provides an effective safeguard against possible abuse in the form of excessively long, drawn-out investigations that cease to be fruitful and begin to border on the oppressive.

In the case of genuinely lengthy and complex investigations, the amendment provides the Secretary of State with the power to extend the one-month period. The requirement for reauthorisation should focus the minds of the Secretary of State and officials on the reasonableness of continuing to use those powers and requires circumstances and considerations to be reviewed and formally recorded regularly.

The intention is that, unlike investigations conducted under section 431 of the 1995 Act, which are intended to be public, investigations under proposed new section 447 should be conducted confidentially and without publicity. That addresses the concern that the continued presence of inspectors at a company's trading premises could result effectively in the investigation being publicised.

In Committee, I raised the example of a business that was largely a front-of-house operation to which customers or the public had access. The presence of an investigation would be effectively and publicly advertised by the persistent presence over a period of time of DTI inspectors on the premises asking questions of employees in front of customers, or even asking questions of customers themselves. Such practices are envisaged in proposed new section 447(3) of the 1985 Act, and nothing could be calculated to cause greater damage to the reputation of a company, which might prove to be entirely innocent of any wrongdoing.

It is possible to envisage a different political climate in which inspectors might or might not be encouraged or induced by political pressures to remain on the premises of a particular company—perhaps a company that conducts a politically controversial, but lawful and legitimate activity—in order to close down its trading operations by stealth. That might involve driving away customers by persistent questioning and making employees uncomfortable or insecure by a continuous and oppressive presence in the workplace. The possibility of such abuse is effectively balanced by the requirement to seek, explain and justify the need to attend a business premises continuously for an extended period.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal 4:00 pm, 19th October 2004

Will my hon. Friend point out to the House that that scenario is not as far fetched as it is sometimes made out to be? In a number of our fellow member states of the European Union, political pressure can result in the use of such powers. That is a possibility and, as my hon. Friend said, it should not be discounted merely because we have been lucky enough to live in an atmosphere in which that has not happened to any great extent in the past.

Photo of Andrew Mitchell Andrew Mitchell Shadow Minister (Home Affairs)

My right hon. Friend makes a good point. Those concerns apply to the potentially oppressive and excessive presence of inspectors at domestic or residential premises, and I have no doubt that his point is correct. We did not have the pleasure of his presence in Committee, but I assure him that the Opposition made such points trenchantly.

In conclusion, the investigatory powers are significant and Parliament should not grant them without good reason. Conservative Members reluctantly accept the Minister's general point that investigatory powers must be enhanced, but the legislation is defective in the ways that I have set out this afternoon.

I have set out at some length the safeguards that we seek to place in the Bill, which would deal with how long an inspector can stay on premises, when they can enter those premises and the test they must pass in order to do so. In Committee, I drew attention to a likely scenario in which a harassed mother is feeding her children, with an aged, possibly infirm, relative upstairs, and an inspector is able to enter the premises without adequately demonstrating that they should be there. The inspector then stays on an open-ended basis for as long as they wish without being bound to answer questions of the kind that I propose.

These are strong powers, as was pointed out in Committee by a former Labour Minister who listened to the arguments advanced on both sides. The measure would significantly enhance the powers of inspectors at the expense of our constituents. The Minister will have to make an extraordinarily good case in order to undermine my arguments and to prevent us from dividing the House.

Photo of Michael Fallon Michael Fallon Chair, Treasury Sub-Committee

There are some 23 amendments in this group, and I hope that the House will forgive me if I do not deal with all of them. I want to support my hon. Friend Mr. Mitchell on amendment No. 1. His case is so overwhelming that I am surprised to learn that it was not supported in Committee. Adding these words to the clause would do no harm to anybody and would considerably strengthen the position. I hope that the Minister, with her usual courtesy, will at least do the House the service of explaining why that cannot be done. I shall certainly support the amendment if it is pressed to a Division.

I also support my hon. Friend on amendments Nos. 14 to 16, which deal with the investigation of premises. He made some powerful points and I hope that they will be answered.

I want particularly to speak to amendment No. 2. Clause 23(1)(b) states that the inspector or investigator may act in relation to a company if

"he thinks that to do so will materially assist him in the exercise of his functions".

I do not like using "thinks" as a test. Indeed, my hon. Friend the Member for Sutton Coldfield proposes in other amendments to remove the word "thinks" and either to add to it or to replace it with a test of reasonable belief. Is it enough for an investigator to stand up in a court of law and say, "I undertook this investigation and entered these premises because I thought it would assist me"? I am not a lawyer, but I presume that if pressed he would be able to say, "Well, that is what I thought at the time; I may not think it now, but I thought it then", or, "I was misguided, and it turned out that I was wrong, but that is what I thought."

That test is not sufficient, and I should prefer it to be replaced by the test of reasonable belief. The word "thinks" is entirely subjective, and it would be extremely unfortunate were it left in the clause. I hope that the Minister will explain why it is used and whether that has any precedent in previous legislation that allows people to enter or to remain on premises.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

I sometimes think that it is helpful to the House to insert the negative of an amendment into a Bill in order to demonstrate why it is necessary. The Minister might find it reasonable to suggest that if one does not insert the words in amendment No. 1,

"Where there appears to be good reason", one is really saying, "Even when there appears not to be good reason." If the Minister does not insert those words, she is effectively condoning circumstances in which there appears to be no good reason for such activities to take place. In my long experience of business, I have met with nothing but courtesy and helpfulness from those concerned with companies' money, and I therefore speak without angst about people who are likely to perform the activities that we are considering. I simply want to put the case for our being careful to ensure that the public are happy about the way in which we deal with investigations of all kinds.

It is possible for investigations to arise perfectly properly from misinformation and misunderstanding or simply because people have presented their accounts in a way that leads to questions that are not immediately answerable. Some investigations will, therefore, always be carried out, in reasonable circumstances, of people who have nothing to hide but for whom it would be embarrassing if it were thought that they had behaved other than correctly.

I therefore do not suggest that there will not be occasions when investigations take place to protect the public and ensure that there is no dishonesty, and it is discovered that no dishonesty has occurred and that there was no reason for the investigation, which was nevertheless properly carried out. However, it is difficult for one's constituents to understand that. Several constituents have approached me to point out the huge damage done to them by investigations that have turned out to be groundless. I cannot blame the investigatory authorities because the facts as presented to them made an investigation necessary. In some cases, the way in which it was conducted or the fact that it was made public had a serious effect on business.

It is proper for us to consider the wording carefully for two reasons. First, that would protect our constituents in the circumstances in which they are investigated. Secondly, it is important to ensure that our constituents feel that somebody has thought about the circumstances. I have participated in several discussions about changes to, for example, the Finance Bill. It is clear from them that, the more complicated we make matters, the more our constituents feel harried and harassed simply by the difficulty of understanding what they should be doing.

That is also true about responsibilities that we place on directors' shoulders. I am in favour of that—I believe that directors should have more responsibilities. However, the quid quo pro is recognising that there is a fear and a concern that needs to be assuaged. I wonder whether it would be easy to say to a constituent that the Government are not prepared to insist that some things happen only when there appears to be a good reason. I would not like to hold that discussion in my surgery.

Would the Minister be happy to sit opposite someone who says, "This happened and there was no good reason for it. I've been told that it could happen because there was no protection"? I believe that she would find that difficult. She might have an esoteric argument that she could present in Committee, but face to face with a constituent, she would find it hard.

Photo of Michael Fallon Michael Fallon Chair, Treasury Sub-Committee

Would it not be worse if my right hon. Friend had to answer his constituent by saying, "The investigation was some sort of fishing expedition that's lawful under the Bill"?

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

I agree but I was trying to address the Minister. It would be even more embarrassing for her. She would have to say, "I stopped something happening in the House of Commons so that fishing expeditions could go on." At least I could say, "I fought against this because I don't approve of fishing expeditions." The Minister would have to say that she was in favour of fishing expeditions. That would be difficult for her.

I should like to turn to amendment No. 2, which proposes replacing the word "thinks" with the words "reasonably believes". I have a number of constituents who think that Britain should leave the European Union. I think that they are entirely wrong. That is not a reasonable proposition, in my opinion, but there are those who hold that view. Some of my constituents think that Joseph Smith found the Book of Mormon on a hill, where he was led by the angel Moroni. They think that, but I think that they are entirely wrong, and that it is not possible for them reasonably to believe it as a matter of fact. I certainly do not think that it is possible reasonably to believe that Britain should leave the European Union. There is, therefore, a fundamental difference between "thinks" and "reasonably believes", and it is quite clear that, in normal circumstances, we can draw that distinction.

I find it extremely hard to understand why the Government do not like the words "reasonably believes". They are a reasonable Government, I am often told. They certainly appear to be a believing Government, otherwise the Prime Minister would not have been able to come to the House to speak on the Iraq war in the way in which he did. So they are a believing Government; they are also a thinking Government. What is wrong with the words "reasonably believes"?

What is wrong with the words "on reasonable grounds", which are proposed in amendment No. 3? Why should "thinks" be better than "on reasonable grounds"? In normal circumstances, we know precisely the distinction between the two concepts. Thinking involves a matter of opinion. People think the most ridiculous things, but they cannot reasonably believe those things, and they cannot have reasonable grounds for believing them.

Amendment No. 5 proposes the inclusion of the words "during normal office hours". The Government often talk about the importance of entrepreneurial activity, and they are determined to appear in favour of small businesses. However, they do not seem to realise how small businesses begin and bear their first fruits. They often begin in a domestic situation, in circumstances in which the business is able to do what it needs to do because it does not have the overheads that a larger business would have. It is important to realise that we have more unconventional businesses now than we have ever had before. It is therefore reasonable to include a provision about normal office hours to protect people from unreasonable intervention and interference in certain circumstances.

I also want to point out the importance of some of the time limits that are being proposed. I do not know anything about the Minister's private life or her private reactions, but a large number of my constituents are easily frightened, even when they have no reason to be. We have all had people come into our surgeries to describe cases in which they are entirely innocent, but in which they have been frightened by the tone of a letter, by the way in which people have approached them, or by the fact that they have been held without being given an answer for a long time. All those things cause fear where fear is unnecessary.

When Members of Parliament are asked why they came into politics, most would say that one of the reasons was to ensure that people were not bullied, and to stand up for people who found it difficult to stand up for themselves. These provisions are an example of how we can, in a small way, do something for such people. We are merely saying that there are necessary interferences in the way in which individuals carry on their lives, particularly if their lives are to some extent public, in the sense that those people run businesses. We are not objecting to that, or making any suggestion that there should not be investigations. Nor are we saying that such investigations should not be given all the aid that they should necessarily and properly have. We are saying something quite different—namely, that the terms of those investigations should not unnecessarily raise fears or concerns among people who are innocent and have no real reason to fear or be concerned. Therefore I hope that the Minister will think seriously about these small amendments, which are nevertheless important. What they do is assure the public that we have thought through the circumstances in which they may find themselves.

That is my last point: Parliament is often thought ill of because the public do not believe that we have put ourselves in their position in such ordinary, common circumstances. They think that we have not felt for them in relation to how they may be frightened or concerned if matters go on longer than is necessary; that we have not thought that they can be seriously inconvenienced or have their business entirely closed down if people act without good reason, act because they "think" rather than "reasonably believe", or act because they "think" rather than "have reasonable grounds".

I hope that the Minister will recognise that this is not mere nit-picking about individual words, but a different way of examining the relationship between Parliament and the public. If the public understood that we understood the positions in which they quite easily find themselves, they would be more willing to accept the legislation that we pass and to have respect for this institution. They would feel that when the Minister went to her surgery, she would not have to pretend—she could say that she insisted that none of this was done unless there were reasonable grounds, unless people could reasonably expect, and unless there appeared to be good reasons. I did that. I did not need to be pushed by the House—I saw why it was sensible. If she cannot do that, it is an embarrassment to her, and I would hate to embarrass her or any of her colleagues.

Photo of Mr Brian Cotter Mr Brian Cotter Shadow Minister (Trade & Industry), Trade & Industry, Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson 4:15 pm, 19th October 2004

I am particularly pleased to speak after Mr. Gummer, who offered some good thinking and reasonable points, not least of which is that we have a duty in the House this afternoon to address the fact that we decide what we do in the circumstances that we see in front of us. He was right to make the point that circumstances do not always remain the same. Climates can change, and therefore changes can happen subtly. To use a different example, times have changed in relation to the way in which we must now face up to the threat of terrorism. Times can also change in other sorts of ways: future Governments could be less understanding and reasonable than the Minister is.

I will not stray on to whether my constituents think differently from me about various issues, as I could get myself into trouble, not having thought about it beforehand. The right hon. Member for Suffolk, Coastal is right to make those points, however. Certainly, "reasonably believe" would define more clearly where we should go than "think".

On this occasion, Mr. Mitchell, as on many other occasions, has made some reasonable points, particularly with this set of amendments. We are appealing for reason from the Government on the basis that that must be applied in so many areas of investigation. It is right to argue that the new rights being granted open up the possibility of inspectors' abuse of power. The Bill would put only the barest limits on inspectors' rights to demand entry to domestic premises where they believe relevant company documents or information may be kept. The DTI inspectors will no longer have to have a search warrant under the Bill and will instead rely on authorisation from the Secretary of State. It is a concern that that permission will be granted virtually automatically once an investigation has begun. Investigators will be able to enter premises to obtain material merely if they "think", as has been said, that there are problems ahead.

Without labouring the point too much, it is key that we hear from the Minister. On this occasion, it is not unreasonable to ask the Minister to address the issue of the difference between "thinking" and "reasonably believing".

I agreed less strongly with some of the arguments advanced by the hon. Member for Sutton Coldfield than with others. We Liberal Democrats need to hear what the Minister thinks. Certainly we would be minded to support some key amendments. Amendments Nos. 17 and 18, for instance, deal with the prevention of inspectors gathering information about a business from disclosing it to unauthorised individuals. The Government have always conceded that information acquired by an accompanying person needs to be treated in a way that is consistent with the treatment of information obtained by an investigator or inspector. I should like the Minister to clarify the position.

As I said at the outset and as others have said, we must ensure that what we decide does not infringe people's liberties, and provides a balance between the need to investigate and the need to respect those liberties.

Photo of Mr Richard Page Mr Richard Page Conservative, South West Hertfordshire

I did not intend to speak, but I was provoked by what my right hon. Friend Mr. Gummer said about what amounted, in my view, to the number of angels that could dance on the head of a pin.

As one with a degree of experience of running small businesses and knowing exactly what goes on, I think that we are deluding ourselves. Whether the Secretary of State "thinks" or—with respect to my hon. Friend Mr. Mitchell—"appears" to have "good reason" could almost be described as a massive irrelevance. The Secretary of State will not "think" in any of these cases. All that will happen is that a series of regulations, rules and items of guidance will be conveyed down to the inspectors, who will take that material as their authority to proceed.

We can fiddle around with this part of the Bill as much as we like, but—my hon. Friend the Member for Sutton Coldfield touched on this briefly—it is the wording of regulations that will mean something. Removing the protection that was there—the requirement for court orders—and descending to the "thinks" argument merely means directing the regulations towards the inspectors to give them the necessary authority.

I listened with great interest to my right hon. Friend the Member for Suffolk, Coastal, who demonstrated his theological training with considerable skill and expertise. I enjoyed his speech, but it seemed to me massively irrelevant to the practicalities. I think we shall only be able to judge how the system will work when we see the rules and regulations, and see what authority is given to inspectors. That is the only way in which we shall know how companies will be treated when the inspector knocks at the door.

Photo of Jacqui Smith Jacqui Smith Minister of State (Industry and the Regions and Deputy Minister for Women), Department of Trade and Industry

Let me put the provisions in context. The statistics are fairly familiar by now, but they bear repeating. Some 5,000 complaints or referrals are received by the DTI's companies investigation branch each year. Following a thorough vetting process, only 5 per cent. of those result in investigations affecting around 300 companies—300 out of some 1.8 million registered companies, or less than 0.04 per cent.

In 2002–03, following DTI investigations, 80 companies were wound up by the courts, 17 directors were disqualified and seven individuals were convicted of offences. Where appropriate, complaints were also referred to other regulators, such as the Financial Services Authority. The average investigation lasts about three months and there is a team of some 40 investigators.

I make these points because, during the Bill's passage, and certainly today, I have heard some Members offer descriptions of the investigations provisions that might leave the uninformed listener with the impression that an army of investigators routinely conducts fishing expeditions into the affairs of many companies, the greater proportion of which should be left in peace to carry on with their legitimate business. The same listener might also have concluded that officials will be able to abuse their powers without fear of reprisal. If accurate, that would be very worrying, but as I said, those impressions are simply not the reality.

Photo of Greg Knight Greg Knight Shadow Minister (Environment, Food and Rural Affairs) 4:30 pm, 19th October 2004

Is an injustice less of an injustice if it happens to only a few people?

Photo of Jacqui Smith Jacqui Smith Minister of State (Industry and the Regions and Deputy Minister for Women), Department of Trade and Industry

Absolutely not, which is why I will respond in due course to all the issues that were raised, but I want first to set the context for the investigatory powers that we are considering. In citing their constituents' experience and so on, some Opposition Members have given the impression that we are talking about a mass investigation of lots of innocent companies. Some companies will have no case to answer; many will. It is of course right that those investigations be carried out in a proportionate manner, but the Bill's provisions will not change the basis on which they are carried out. This is not about casting our net more widely, nor is it about doing away with warrants in cases where they were previously needed, as Brian Cotter seemed to suggest. Nothing in the Bill would do away with the need for warrants in such cases, a point to which I shall return in more detail.

The provisions are about increasing the effectiveness of the investigations undertaken. We want to ensure that we uncover misconduct and that we do so quickly. Investigators will not be able to operate on a whim and the investigatory powers cannot be used without a sound basis for using them. The fact is that, rather than an army of individuals hounding innocent firms, a small team of trained individuals is conducting investigations in response to a small number of carefully vetted complaints and referrals to discover whether there is any substance to them. Of course, that team is also ensuring that all firms can carry out their business in the confidence that those with whom they do business are also behaving honestly and responsibly. Those of us who are investing our money in, or spending it with, such businesses can also share that confidence.

What investigators are doing is uncovering information. Such information might suggest that a criminal investigation is necessary, or that it would be in the public interest for the company to be wound up or its directors disqualified. Alternatively, such information could be referred to another, more appropriate regulator, such as a professional body. But the investigators are neither judge nor jury and they have no powers beyond those that enable them to obtain relevant information.

In setting the context for these powers, we also need to remember that limited liability offers companies significant benefits. However, not all companies operate honestly or within the law. If we are not effective in addressing abuse of the company form, real harm can be caused. Indeed, the greatest impact is often on customers, investors or suppliers. Such abuse also undermines trust in the corporate framework, so it is crucial that this process should operate properly.

Amendment No. 1 would add the phrase

"Where there appears to be good reason." to the beginning of proposed new section 447(1) in clause 21. I assume that amendment No. 20 is an alternative, as it would add the words

"If he thinks there is a good reason to do so" at the beginning of the same line. Neither in amendments Nos. 1 and 20 nor in a similar amendment in Committee has Mr. Mitchell attempted to define the phrase. However, he and other Conservative Members seem to believe that the amendments would somehow send a clear message about the test being set for the use of the powers, particularly for those who may be ignorant of the law. I am afraid that I disagree.

The amendments would offer a dangerous comfort blanket, because without definition, the phrase "good reason" may mean different things to different people. What appears good reason to a complainant may not be regarded as good reason by a company and it would leave open for the future a debate about whether the Secretary of State needs better grounds than administrative law would allow or, alternatively, whether she could act in a wider range of circumstances than such law would allow. That is what the drafters of legislation mean when they say that unnecessary words have a habit of turning septic.

Photo of Jacqui Smith Jacqui Smith Minister of State (Industry and the Regions and Deputy Minister for Women), Department of Trade and Industry

I shall give way so that the hon. Gentleman can, for the first time in the process, give us a definition of what the phrase "good reason" means.

Photo of Andrew Mitchell Andrew Mitchell Shadow Minister (Home Affairs)

I do not need to give the Minister a definition. What she needs to explain is why it was thought necessary to add this definition four years ago in the Financial Services and Markets Act 2000 and why her predecessors also took precisely the same view in the Companies Acts 1985 and 1986. Why are the Government unwilling to concede the same definitions in this particular case when they accepted them in the year 2000?

Photo of Jacqui Smith Jacqui Smith Minister of State (Industry and the Regions and Deputy Minister for Women), Department of Trade and Industry

That argument suggests that the hon. Gentleman adopts a sort of cut-it-out, stick-it-down and paste-it-in approach to legislation. Simply because one set of words is used in one piece of legislation, it does not necessarily mean that the same words are right in another context. I have spent some time outlining the dangers of otiose words in legislation—

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

Would the Minister like to reflect on previous debates on precisely the same issues? The reason that the Government offered at the time for including those particular words was precisely the same reason why Conservative Members are asking the Minister to include them here today—so that people will realise that these things do not happen without good reason. If she refuses to accept that, she is effectively saying—there is no doubt about it—that these matters can take place without good reason. She cannot have it both ways: if she will not allow "with good reason", it means that she accepts that these things can take place without good reason.

Photo of Jacqui Smith Jacqui Smith Minister of State (Industry and the Regions and Deputy Minister for Women), Department of Trade and Industry

It is a trivially attractive argument to say that we should reverse what is in an amendment to find out what legislation really means. Really, though, the right hon. Gentleman, with all his experience in government, should have more sophisticated arguments than that.

Photo of Andrew Mitchell Andrew Mitchell Shadow Minister (Home Affairs)

For the first time during the course of the Bill, I must chastise the Minister for failing to give a proper answer. It is no good her talking about doing a scissors-and-paste-job on the legislation. These are words and phrases that her predecessors expressly used in 1985 and 1986. I have given chapter and verse on why her Government put them in and where they put them in—particularly in the Financial Services and Markets Act 2000. Why does she think that they were right then, but wrong now?

Photo of Jacqui Smith Jacqui Smith Minister of State (Industry and the Regions and Deputy Minister for Women), Department of Trade and Industry

Because this is a different Bill and we are debating the impact of what happens when words are put into legislation without any clear reason. As I am about to explain, there is a clear legislative basis for action. Fundamentally, the decision whether to act is one for the Secretary of State and the basis on which she may so decide is circumscribed by the principles of administrative law. As I said in Committee, the Secretary of State will have to have a sound reason for using the powers. She cannot act lawfully without one. Her decision to act must be within the legal scope of the provision and it must be in pursuit of the policy and objectives of the Bill. It must also be reasonable. Neither amendment No. 1 nor amendment No. 20 would change that. The risk is that they would do the opposite of what is intended—that is, that they could muddy the waters sufficiently to mean that a person could misapprehend the circumstances under which an investigation might be carried out. Ultimately, new section 447 could be interpreted by the courts in a way that was not intended, so I do not accept that there is a need to reintroduce the so-called good reason test.

The remaining amendments in this group concern clause 23, which provides powers for inspectors and investigators to require access to—and to remain on—premises that they believe are being used wholly or partly for the purposes of the business of the company that they are investigating. That is an important addition to the range of powers available to inspectors and investigators. The ability to gain access to company premises, and to spend time there, has great practical benefits, as information is the lifeblood of a successful investigation. Without it, inspectors and investigators cannot operate effectively.

The simple observation of a premises can be enormously valuable in allowing inspectors and investigators to build an understanding of the company's business. They can find out who controls the company's operation on a daily basis and form a view about its viability. Companies with something to hide have been able to impede investigation by refusing access to their premises, leaving investigators or inspectors unable to identify the people to whom they should talk, or to approach them.

For example, investigators or inspectors might want to establish what telephone script was being used with potential customers in a call centre, but that would be less easy to do if they were unable to gain access to the premises. Lack of access also means that inspectors or investigators cannot ascertain the relationship between individuals. For example, they could not establish whether a disqualified director was acting as a consultant to the company or whether he had a management role.

Without access, it is impossible to determine whether the records presented to inspectors or investigators provide a complete picture. Investigators have found themselves being kept off premises and being drip-fed papers over a period of time. In such circumstances, their investigation is delayed and it is possible for companies to use the delay to destroy information or amend records.

I reiterate that the powers in the Bill must not be confused with the existing search and seizure powers available to investigators and inspectors. The two sets of powers are entirely distinct. The search and seizure powers in section 448 of the Companies Act 1985 depend on a warrant: a justice of the peace must issue that warrant, in specified circumstances, to allow an inspector or investigator to enter premises, if necessary by force, for the purposes of a search and the seizure of documents. However, the powers in the Bill are not about forcing entry, searching or the seizure of documents.

I turn now to amendments Nos. 2,3,7 and 8, which concern the basis on which a judgment is made by an inspector or investigator using the new power to enter a premises and remain there. All four would amend or replace references to what an inspector or investigator thinks: under the proposals, either the word "thinks" is replaced with the phrase "reasonably believes", or it is amended to read "thinks on reasonable grounds". New section 453A contains two references to an inspector or investigator being able to act on the basis of what he or she thinks.

An inspector or investigator may use the power to enter premises and remain there if he or she thinks that that would materially assist the investigation. I emphasise that that is not the only criterion applied to use of the power, as its use by the inspector or investigator must also be authorised by the Secretary of State.

Secondly, inspectors or investigators will be able to remain on the relevant premises for as long as they think is necessary to assist the investigation. I stand by the clarification that I gave in Standing Committee: there is no difference in legal effect between the word "thinks" and phrases such as "reasonably believes". Inspectors and investigators must act within the law, and that means that they must have reasonable grounds to believe that gaining access to the premises in question will help the investigation. They will be able to remain on premises only for as long as they have reasonable grounds for believing that that is necessary. The context and safeguards for inspectors' actions are already set out in the legislation. The length of their stay is likely to be a matter of hours rather than days, but I will return to that point when I reach amendments Nos. 9 and 10.

Amendment No. 14 seeks to include in the written statement a description of the inspector or investigator's grounds for belief that the use of the power of entry will materially assist them. I understand that the hon. Member for Sutton Coldfield wants to guard against any possible misuse of powers that he regards as extensive, but I do not think that his amendments are necessary or desirable. There is already a series of specific safeguards that will apply to the use of the powers. I touched on those in Committee, but they bear repeating. The power to require entry to premises can be used only if the investigator or inspector has been authorised to use it by the Secretary of State in the investigation in question. The power can be exercised only at reasonable times. The investigator or inspector must produce evidence of their identity and of their appointment or authorisation. They must provide a written statement of their powers and of the rights and obligations of the company or other occupier and of persons present on the premises and they must produce a written record of the visit.

We are consulting on the content of the written statement that will be prescribed by regulations. I understand that we have sent out the consultation document and that we have sent a copy to the hon. Gentleman. As he has not had the chance to look at it yet, I shall ensure that he gets another copy. It is intended that the statement will be more than just a bald repetition of the statute. It will set out in plain English what the company, for example, can expect. However, I do not think that it would be right to set out the reason why the inspector or investigator thinks that gaining access to the premises would assist their investigation. It might be difficult to do so without including some detail of the complaint that led the investigator there. Were the investigator to provide information about the substance of the complaint, it might make obvious the source of that complaint. That could, for example, be an employee or a supplier or customer. It could make life difficult for them and it might dissuade other complainants from coming forward in the first place. Clearly, there will be an opportunity to have some discussion with the inspector or investigator, when they arrive, about the reason for their visit, but it would be disproportionate for the inspector or investigator to be required to provide what amount to written reasons. We have gone a long way with safeguards already and, in my view, nothing more is necessary or desirable.

Before I turn to the hon. Gentleman's amendments on residential premises, let me deal with amendment No. 23, which seeks to modify the definition of "relevant premises". He appears to have the situation in mind where, for example, the company under investigation occupies one or more parts of a building and other people occupy other parts of the building. He wants the power to enter and remain on premises to be exercisable only in relation to the parts used for the company's business. He thinks that the definition of "relevant premises" needs to be amended to achieve that. It does not. That is the effect of the clause as it stands.

Although the expression "relevant premises" is defined in new section 453A, the word "premises" is not. So it must take its natural meaning, in context. "The Shorter Oxford English Dictionary" defines it as including

"(a part of) a building housing a business etc".

Therefore, where a company trades from a building such as an office block, the "relevant premises" under new sections 453A and 453B are those parts of the building that are used for the purposes of the company's business. If the business is carried on in only one part of a building, it is only that part of the building that is the "relevant premises" and not any other part.

The reference in new section 453A(3) to premises that are "wholly or partly" used for the purpose of company business is there to deal with the situation where, for example, the company shares an individual office with another company. So the inspector or investigator can require entry to and remain in that individual office even though it is also used for the purpose of another company's business.

Where a private home is concerned, the words are intended to make it clear that, for example, the inspector or investigator can require entry to a director's home study, despite the fact that the director also uses that study for other unconnected business or domestic affairs. The words "wholly or partly" are not included so as to entitle an inspector or investigator to enter, and remain in, parts of a building not used for the company's business, although of course the right of entry to company premises inevitably entitles them to pass through such other parts to reach the company premises.

I suggest that what I have described as the effect of the new provisions is in fact their most obvious and natural meaning. They could not properly be construed as enabling inspectors or investigators to enter and remain in one part of a building simply because another part of the building was used for the business of the company they are investigating.

Amendments Nos. 4, 12, 13, 15 and 16, would, together, introduce a warrant procedure to gain access to residential premises. I am aware that the hon. Member for Sutton Coldfield has genuine concerns about the fact that the definition of relevant premises extends to residential premises also used for a company's business, and that inspectors or investigators will be able to get to relevant premises by moving through premises used entirely for residential purposes. He wants to establish a regime with regard to those premises whereby an inspector or investigator can use the new powers only if a justice of the peace has issued a warrant, and with the assistance of the police. As he sees it, he would be introducing an additional safeguard, but as I have already emphasised, clause 23 is not a power of search and seizure and no force can be used.

As I explained earlier, the inspector or investigator will be trying to establish the facts. I reiterate the point I made in Committee: to introduce any kind of judicial warrant procedure, whether or not involving the police as the hon. Gentleman seeks to do, would be entirely unsuitable and, I contend, unnecessary in light of the safeguards that will be in place. Indeed, with his new responsibilities for policing, I am not sure that he would consider it a good use of police time if, in all circumstances, there was a warrant and, presumably, a police officer attending alongside the DTI investigator.

It is inevitable that there will be circumstances where a company under investigation is trading from residential premises and where access will materially assist the investigation. I have already outlined the vetting process that leads to an investigation into a company. Furthermore, a trip to residential premises will not be the first step in the investigation process, but it is right that it should be an option, should that prove helpful to the inquiry. We must not allow people running dodgy companies to think that they can increase their chances of hiding from inspectors or investigators by trading from their residential address. I have spelt out the safeguards in the provisions and they offer a fair balance.

I turn to the hon. Gentleman's amendments on time limits for the exercise of the new powers to enter and remain on premises. Amendments Nos. 5 and 6 would restrict investigators' powers to enter and remain on premises to "normal office hours", while amendment No. 11 would limit visits to the hours between 9 am and 5.30 pm, Monday to Friday, unless the inspector or investigator "reasonably believes" that his investigation would be "seriously impaired". The purpose of amendments Nos. 9 and 10 appears to be to limit the permitted duration of a visit to a maximum of one month.

At this point, I want to say something about co-operation. I have already referred to information as the lifeblood of an investigation. Obviously, co-operation from those being investigated is always the most desirable circumstance, as it makes the investigation easier, speedier and more effective. It is crucial, of course, that inspectors and investigators have powers to conduct an effective investigation even when there is a lack of co-operation, but the norm for the inspector or investigator will always be to maintain the most productive relationship.

As I said earlier, the inspectors and investigators will be seeking to obtain information. They will try to achieve that by making contact with the company under investigation during the normal working hours of its business. However, normal working hours will vary from one business to another.

Companies that use call centres to interest members of the public in a wine investment scheme or a holiday club are likely to trade during the evening and at weekends. The days when every business in the high street opened only between 9 am and 5.30 pm, Monday to Friday, are a distant memory. Nowadays, companies target their resources to suit their customers' needs and expectations, and, in just the same way, Department of Trade and Industry inspectors and investigators must be flexible in their approach to investigations. However, their powers cannot, of course, be open-ended, so we have stated that inspectors and investigators can enter and remain on premises only at reasonable times. As I have already said, any other limitation is not practical in the modern business environment.

We have included a test of reasonableness in proposed new section 453A(2) of the Companies Act. The inspector or investigator must take into account all the circumstances of a case. He or she must take into account the company's actual trading hours, who is on the premises and what they are doing.

Amendments Nos. 9 and 10 refer to an inspector or investigator being able to remain on premises only for a period not exceeding one month. That would be inconsistent with the protection already afforded by proposed new section 453A. The effect of the first line in new section 453A(2) is that an inspector or investigator must leave the premises as soon as it becomes unreasonable for the company or other occupier to allow him to remain there and he is asked to leave. It is unlikely that it would be reasonable for an inspector or investigator to remain indefinitely for days at a time. However, the hon. Gentleman's proposal might have the effect of implying that it would be reasonable for the inspector or investigator to do so, up to a limit of one month.

The reasonable times test is likely to constrain the inspector or investigator to remaining on premises for a matter of hours, rather than days. On every occasion that the inspector or investigator wishes to gain access to premises, he or she must be satisfied that doing so will materially assist the investigation. Together with the reasonableness test, that will rule out the possibility of visits being repeated or drawn out for no good reason. The combination of the two tests—the reasonable-times test and the test about materially assisting the investigation—provides a strong limitation on the use of the powers. In my view, nothing further is required or desirable, as it could weaken the safeguards in the Bill.

Amendments Nos. 21, 22 and 24 appear to be intended to add a layer to the process, whereby an inspector or investigator can use the power to enter and remain on premises. Once the inspector or investigator had been given authority by the Secretary of State to use the power and could show that its use would materially assist the investigation, such authority would last for only 30 days. It would be possible to renew it, but only on the written request of the inspector or investigator to the Secretary of State.

In addition, the hon. Gentleman proposes that the ability to remain on premises be confined to a period of seven consecutive working days. We see no point to that. It seems to be a cumbersome, artificial and unnecessary system of statutory checks on the use of the power to enter and remain on premises. It would add nothing of value to the existing process. The deadlines of 30 days in respect of the authority or seven days to remain on premises are entirely arbitrary—something that is impossible to avoid with that approach.

Moreover, the hon. Gentleman, in dealing with one way in which he perceives that the powers could be used oppressively, has not dealt with other situations about which I am sure he would be equally concerned. What would happen, for example, if an inspector or investigator were to visit the premises for eight hours every other day for 30 days? Why is he not tackling that?

The truth is that all the necessary checks and safeguards are already in the new powers. For example, our approach provides a test that will be applied so that each case is judged on its merits. On every occasion when inspectors or investigators seek to enter premises using the power, they must think that it will materially assist the investigation. They must have reasonable grounds to think that the investigation will be helped by gaining access to the relevant premises. Once on the premises, they could stay for only as long as they thought it necessary to achieve their purpose. They may remain only for a reasonable time, which is likely to be a matter of hours rather than days. The necessary safeguards are in place to deal with such situations, so I remain of the view that our approach in clause 23 is appropriate. I am not attracted by the regime proposed by amendments Nos. 21, 22 and 24 because it would introduce an arbitrary, artificial and cumbersome layer of bureaucracy to the process without adding any value to the system.

I have responded at length to the worries that were reflected in amendments and raised by Conservative Members. However, Mr. Gummer asked what I will say to my constituents. I will be in a strong position if my constituents tell me that they have lost their savings or investments in a company and that Department for Trade and Industry investigators cannot investigate the matter properly because they cannot enter premises at an appropriate time, remain on the premises or get the information that they need to ensure that justice is done. I will be able to say that I have ensured that their interests will be safeguarded. I will be able to reassure constituents who are worried about whether to make a complaint about the company for which they work because they think that something dodgy is going on that I resisted calls from Conservative Members for investigators to have to submit information that could give away the fact that they had done the right thing by reporting such dodgy dealings.

I am confident that I have struck the right balance between safeguards and improvements to the company investigations regime and that I will be able to defend that to the House and my constituents. The system will improve the current situation by safeguarding not only people's savings, jobs and investments, but the corporate framework that is important to this country's prosperity.

Let me turn to amendment No. 16 and especially to Government amendments Nos. 17 and 18. The high point of the time spent by the hon. Member for Sutton Coldfield in Committee was when he rightly identified a lacuna in the Government's approach, and the Government amendments are my response to that. We thus cannot claim credit for the inspiration behind the amendments—I am grateful for the assiduous attention that he gave the matter.

Inspectors or investigators who use the new power to enter and remain on premises will be able to take other individuals with them as appropriate, such as technical experts or interpreters. While on the premises, inspectors or investigators will be able to use their other powers to require information. They will also be able to take in their surroundings by observing and hearing people and activities and by observing the layout of the premises for themselves. As the hon. Gentleman rightly pointed out in Committee, it cannot be right for information acquired by an accompanying person to be in any way less protected than that gained by an inspector or investigator. We were guilty of overlooking that crucial point of principle, and Government amendments Nos. 17 and 18 will put that right.

I hope that the House will support Government amendments Nos. 17 and 18 and that the hon. Member for Sutton Coldfield will not press amendments Nos. 1 to 16 and 20 to 24 to a Division.

Photo of Andrew Mitchell Andrew Mitchell Shadow Minister (Home Affairs) 5:00 pm, 19th October 2004

In spite of the Minister's charming concluding remarks, for which I am most grateful, her arguments are wholly inadequate and we will seek to divide the House on amendments Nos. 1 and 24, which I sense would meet some of the concerns expressed.

Nowhere was the Minister so dangerously exposed as in her exchanges with my right hon. Friend Mr. Gummer and me on the issue of good reason. Hansard will show that the Government lamentably failed to demonstrate why they refuse to accept the amendments.

Colleagues raised the danger of investigators going on fishing expeditions. That goes to the heart of the sort of thing from which the House should be protecting our constituents. The failure to accept the amendments encourages officials to go on fishing expeditions and there is nothing to stop them doing so. It was noticeable that not one Labour Back Bencher spoke up for the Government.

A number of my hon. Friends expressed the sensible view that this is a reasonable Minister with a reasonable team of officials, but times can change. We cannot legislate so easily to give away such powers just because the Minister and her colleagues showed a degree of reasonableness until the Bill was discussed in Committee and on Report. The Minister does not serve the House well by dismissing so lightly our words and those of a former Labour Minister, Mr. Fisher, who warned her against the powers.

The Minister summed up her case by saying that we must not allow dodgy companies to escape. Of course she is right, but we must not expose entirely innocent—perhaps wrongly suspected—people to undue pressure and unfair practices. It is that balance between protecting the innocent and catching and punishing the guilty that our amendments flag up and would change. It is a great pity that she did not heed the wise words of two senior former Ministers who served in her Department and one distinguished Cabinet Minister. They warned her in a gentle and encouraging way to think again about the powers.

The Minister addressed many of our amendments; indeed, she addressed some that Mr. Speaker did not select. We are grateful to her for covering the points that we raised. However, she has seriously underestimated our legitimate concerns. At one point she said that we should get the matter in perspective because we were talking about 5,000 cases a year, only 5 per cent. of which are investigated. That is all right, then: only 0.04 per cent. of companies are investigated. But what if it is her constituent or one of mine who is investigated unfairly and as a result of her failure to accept the amendments the law is not as constrained as it should be?

The Minister said that the average investigation lasts only three months, but 12 weeks is an awful long time if the inspector is going to sit in your home. She also said—this was the low point of the debate—that we are not talking about search and seizure operations, for which a warrant is required. I should think we are not. An Englishman's home used to be his castle. It is outrageous that she should dismiss our reasonable arguments. Our constituents' homes deserve better protection. An inspector may come to someone's home and stay there. He may have no good reason to do that. He certainly will not have to declare it. He can stay as long as he likes, including during the night. That has all the characteristics of a Chekhov play. We will vote to protect the ancient liberties that our constituents have every right to expect us to preserve.

When there is a great row in the press about excessive bureaucratic powers that have been ill exercised and the Bill is cited as the way in which those powers were given, Conservative Members will be able to say that through the amendments, painfully argued in Committee and the Chamber, we have discharged our duties and opposed the powers that the Minister is too lightly granting.

Question put, That the amendment be made:—

The House divided: Ayes 158, Noes 255.

Division number 268 New Clause 1 — Amendment of Companies Act 1985: limit on auditor's liability (No.1) — Clause 21 — Power to require documents and information

Aye: 158 MPs

No: 255 MPs

Ayes: A-Z by last name


Nos: A-Z by last name


Question accordingly negatived.