Clause 857

Company Law Reform Bill [Lords] – in a Public Bill Committee at 9:15 pm on 4th July 2006.

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Appointment of the Independent Supervisor

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

I beg to move amendment No. 267, in clause 857, page 416, line 1, leave out subsection (3).

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

With this it will be convenient to discuss Government amendment No. 268.

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

The Professional Oversight Board is an operating body of the Financial Reporting Council, and is currently responsible for exercising the Secretary of State’s functions delegated to it under the Companies Act 1989 on the regulation of auditors. The Government expects that the role of independent supervisor of the Comptroller and Auditor General will be carried out by the Professional Oversight Board. The board is accountable, and will report annually, to the Secretary of State and through him to Parliament on the exercise of all functions delegated to it under this part of the Bill.

The Government recognise that the accountability and transparency of all bodies that perform a public function is important, and the issue was debated at length in another place. However, it is also important that designation of a body under the Freedom of Information Act 2000 is made only after careful consideration and consultation. Section 5 of that Act imposes an explicit statutory obligation to consult a  body to which an order under the section applies. Designating the Professional Oversight Board in the way proposed in the clause bypasses that important obligation and therefore makes the subsection technically ineffective.

The Government are building up evidence on the impact that freedom of information has had on the bodies that meet the existing criteria, particularly whether the costs and burdens of its application under section 5 of the 2000 Act to private bodies performing public functions are appropriate.

The Department for Constitutional Affairs is proposing to review which bodies might be suitable for section 5 designations under the FOI Act. The Financial Reporting Council, of which the Professional Oversight Board is a part, will be included in that review.

I feel strongly that the review is the appropriate context within which to consider the position of the Professional Oversight Board, with respect to inclusion within the provisions of the Freedom of Information Act. We would expect any designation order to be made after proper consultation with that body. It is for those reasons that we are seeking to reverse the amendments made in the other place.

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice)

I have to say that we were surprised to see the Government bringing forth those proposed amendments. As the Minister said, the matter was debated at some length in the House of Lords. I must have heard at least half a dozen times today alone both Ministers saying that matters have been debated in the House of Lords and that we do not need to debate them further and yet the Government are doing exactly what they are saying that we should not be doing ourselves. That is an ironic state of affairs, to say the least.

Moving on to the clauses, it seems as if we are debating two clauses here. Amendment No.267 deals with clause 857, but amendment No.268 deals with clause 881. On clause 857, the explanatory notes say that “Subsections (1) and”—I think that the notes should say (2)—

“provide that the Secretary of State has to appoint a body to be the Independent Supervisor of Auditors General in respect of the exercise of statutory audit functions. Subsection (2)”—

I think that that should be subsection (3)—

“provides for the appointment of the Independent Supervisor to have the effect of making it subject to the obligations of the Freedom of Information Act 2000.”

I think that the notes are wrong.

Subsections (4), (5) and (6) provide that a body may be appointed as Independent supervisor of an Auditor-General if it is a corporate body or unincorporated association that is willing to carry out the function, that has arrangements in place that will ensure that the supervision is carried out effectively, and if that will exercise such functions and requirements that may be laid down in the Secretary of State’s order appointing it. The appointed Independent Supervisor must perform its function on a UK-wide basis for all four Auditors General in accordance with clause 857

If we look at clause 857(1):

The Secretary of State must appoint a body (“the Independent Supervisor”) to discharge the function mentioned in section 858(1) (“the supervision function”).”

Then in clause 858(1), it says:

“The Independent Supervisor must supervise the performance by each Auditor General of his functions as a statutory auditor.”

As the Minister said, that was debated at some length in the Lords. However, Baroness Noakes, who is herself an experienced auditor, spoke extremely well on that. I am going to put to the Committee a small proportion of the key points that she made. She said:

“We believe that when a Minister delegates his functions to a body, whether a public sector body or not, it is right that the Freedom of Information Act, rights and responsibilities also follow. Put another way, it would be wrong if a Government Department could avoid the operation of the Act by choosing to delegate functions in a particular way, rather than carry them out directly. So as a matter of principle we think that the Act should apply to the cases such as the delegation of functions to the independent supervisor and the Public Oversight Board.

More substantively, we have a very real belief that the performance of audit firms, which will be a function of the Public Oversight Board, ought to be in the public domain. If we are to have confidence in the role of auditors underpinning the strength of our capital markets, it makes no sense at all to keep auditor performance behind the closed doors of the Public Oversight Board. As the noble Lord, Lord Sharman, and I explained”— the amendments were also supported by the Liberal Democrat peers—

“in Grand Committee and at Report, audit committees of listed companies bear a big responsibility to oversee the appointment of auditors and their work. How can audit committees discharge that responsibility if important information is kept from them? How can they rationally carry out a tender for an audit if they cannot compare the relative performance of auditors as judged by a knowledgeable external body? These two amendments are in the public interest.”—[Official Report, House of Lords, 23 May 2006; Vol. 682, c. 768-69.]

Baroness Noakes was making some important points, which go to the heart of what delegation to a public sector body should mean.

The Government said that they would be building a body of evidence for section 5 designations. However, the matter has been comprehensively debated in the Lords. The Government have had plenty of notice about the provisions, and they have had plenty of time to consult the appropriate people—all the bodies that the Minister mentioned earlier. There has been plenty of time for a review, quite apart from the fact that the matter has been consulted on for eight years. If we take only the Lords stages, it has been going on since January. [Interruption.] If the Minister for Industry and the Regions wants to intervene and talk about Eccles cakes, she may do so, but I think that we should stick to the substantive points.

If the Government wanted to change the Bill in the right way, they would have left the Lords amendments in place—they contain the principles of the matter, which we believe are important and should be maintained—and undertake their consultations, going to all the people whom the Minister mentioned in her opening remarks. They would then come back on Report with a thought-through series of amendments, putting in place a regime that would be acceptable to all parties.

I think that the right hon. Lady can tell from the way I am talking that we do not have a closed mind. However, we are not willing to roll over and accept  Government amendments to delete the clauses in their totality, so that we just start from nothing again. If we do that, all the work done in the Lords will have been for nothing and the pressure will have come off the Government to table amendments that would add to the Bill rather than detract from it.

On that basis, perhaps we should now move to the other clause.

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

I note that the hon. Gentleman is attempting to delay the due process of the Committee’s business. That is his right, but we should all bear that in mind if there is any discussion about an extension of time. We need to use our time effectively and to serve the interests of the public properly.

Photo of Crispin Blunt Crispin Blunt Opposition Whip (Commons) 9:30 pm, 4th July 2006

Is my hon. Friend as astonished as I am by that unbelievable outburst from the Minister? I do not know how many clauses we have been through today, because I have not counted them, but he, like the Minister and I have served on a number of other Committees, and to suggest that we are not making very good progress with the Bill, given that by the time the consolidation clauses come out, this will be the largest piece of legislation ever to come before Parliament, is unworthy of her—particularly given the filibustering that has occurred because the Government have on two occasions so far been unable to produce a majority on the Committee.

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice)

I thank my hon. Friend for putting the record straight. He is quite right. We have done a huge amount of business today, and the Government have no right to say that we are delaying matters, particularly in relation to two amendments that are Government wrecking amendments. That is the whole point. The Government are proposing wrecking amendments, so to say that we are somehow delaying the proceedings is out of the question.

Photo of Shailesh Vara Shailesh Vara Conservative, North West Cambridgeshire

Does my hon. Friend agree that for a Government who sought to argue that trade unions were not political organisations, and wasted an  enormous amount of time trying to do so, it is indeed rich that they should now blame the Opposition for wasting time?

Photo of Nick Palmer Nick Palmer PPS (Malcolm Wicks, Minister of State), Department of Trade and Industry

On a point of order, Mr. Illsley. What has this got to do with the clause that we are discussing?

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

Very good point. Let us get back to the amendments.

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice)

I agree. The interventions, which the Government prompted, have lowered the tone of a constructive day on which we have made a huge amount of progress.

By now, the Minister will appreciate my point, and on that note, I rest my case.

Photo of Crispin Blunt Crispin Blunt Opposition Whip (Commons)

I beg to move that the Committee do now adjourn.

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

Order. I do not think that the hon. Gentleman is in a position to move that motion. We are debating amendments Nos. 267 and 268.

Question put, That the amendment be made:—

The Committee divided: Ayes 12, Noes 8.

Question accordingly agreed to.

Clause 857, as amended, ordered to stand part ofthe Bill.

Further consideration adjourned.—[Steve McCabe.]

Adjourned accordingly at twenty-five minutes to Ten o’clock till Thursday 6 July at Ten o’clock.