Companies (Audit, Investigations and Community Enterprise) Bill [Lords]

Public Bill Committee, 16 September 2004.

Standing Committee A

Companies (Audit, Investigations and Community Enterprise) Bill [Lords]

Derek Conway (Conservative, Old Bexley and Sidcup)

Good morning. We resume our considerations this morning on a Corridor more famous than it was on Tuesday morning.Clause 19 Power to require documents and information

Clause 19 - Power to require documents and information

Andrew Mitchell (Conservative, Sutton Coldfield)

I beg to move amendment No. 17, in

clause 19, page 23, line 41, at beginning insert

'Where there appears to be good reason,'.

Derek Conway (Conservative, Old Bexley and Sidcup)

With this it will be convenient to discuss the following amendments:

No. 24, in

clause 21, page 25, line 24, leave out 'thinks' and insert 'reasonably believes'.

No. 25, in

clause 21, page 25, line 24, after 'thinks', insert 'on reasonable grounds'.

No. 28, in

clause 21, page 25, line 28, leave out 'thinks' and insert 'reasonably believes'.

No. 29, in

clause 21, page 25, line 28, after 'necessary', insert 'on reasonable grounds'.

No. 33, in

clause 21, page 26, line 19, 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. 40, in

clause 39, page 36, line 42, after 'appears' insert 'on reasonable grounds'.

No. 38, in

schedule 7, page 70, line 14, after 'may', insert

'if it appears reasonably necessary for the purposes of the investigation'.

No. 39, in

schedule 7, page 70, line 19, at end insert—

'(1A) The investigator of a community interest company must give reasons in writing for any requirement imposed under sub-paragraph (1) above, such reasons to be given to the company or other person to whom the requirement is directed.'.

Andrew Mitchell (Conservative, Sutton Coldfield)

I was about to start by gently chiding the Government Whip—I have developed a bond with him in this Committee—for the fact that we were not quorate, but, magically, and with only 30 seconds to go, enough Government Back Benchers suddenly arrived to make us quorate, so I cannot tease him. However, you will recall from our days in the

Government's Whips Office in the Parliament of 1992 to 1997, Mr. Conway, that the great thing was to get hold of as many pliant Members as possible and ensure that they turned up on time. Given the number of pliant, docile and subservient Government Back Benchers—[Interruption.]

Derek Conway (Conservative, Old Bexley and Sidcup)

Order. Is the hon. Member for Preseli Pembrokeshire (Mrs. Lawrence) in the right Committee? This Committee is debating the Companies (Audit, Investigations and Community Enterprise) Bill, and I do not want to embarrass the hon. Lady, but she has not been appointed to it by the Committee of Selection.

Jackie Lawrence (Labour, Preseli Pembrokeshire)

I understood that I was standing in for my hon. Friend the Member for Falkirk, West (Mr. Joyce) this morning.

Derek Conway (Conservative, Old Bexley and Sidcup)

I am sorry, but it does not work like that.

Jackie Lawrence (Labour, Preseli Pembrokeshire)

I think that I am in the wrong Room. My apologies, Mr. Conway.

Derek Conway (Conservative, Old Bexley and Sidcup)

Not at all, but we have to do these things right. The Committee of Selection rules on such matters.

Andrew Mitchell (Conservative, Sutton Coldfield)

The House has had problems with people who are not supposed to come in wandering into debates, so we are grateful, Mr. Conway, for the sharp eyesight with which you are protecting the Committee.

I was making a point to the Government Whip about the importance of getting the people who actually are members of the Committee to turn up on time. I was drawing his attention to the pliant, docile and subservient nature of so many of Government Back Benchers. However, I am convinced that when hon. Members study my amendments today, they will find them so reasonable that I shall be able to secure their support. My attempts on Tuesday to seduce the Minister with my utterly reasonable, helpful, well honed and finely crafted amendments were, alas, unsuccessful; the hon. Lady remained icily resistant to what I proposed. However, I am ever optimistic, and I hope to make progress in that direction today.

Clause 19 deals with excessive investigatory powers. On Second Reading, I drew the House's attention to the fact that the Bill places only the barest limits on investigatory powers. My party's concern is that they may well give rise to abuse of power. I was particularly concerned about the powers for inspectors and investigators to enter and remain on premises, which considerably extends their existing powers; previously, they had no power of entry without a search warrant.

As I said on Second Reading, I am not against giving inspectors and investigators powers of entry, but I am firmly against allowing them entry when they only ''think'' that it would materially assist their work. I hope to persuade the Committee that all of us, on behalf of our constituents, should be wary of giving powers to investigatory officials to go on fishing trips.

The inspectors and investigators must reasonably believe that entering and remaining on the premises will materially assist them.

I draw the Committee's attention to amendment No. 17, which would insert the words:

''Where there appears to be good reason''.

Clause 19 reformulates section 447 of the Companies Act 1985. The new form excludes the requirement in subsections (1) and (2) of the existing section 447 for the Secretary of State to act only if he or she thinks there is good reason to do so.

The amendment would retain an express and specific requirement for the Secretary of State to act only if there were good reason to do so. A similar amendment was proposed and defeated in the other place on 22 March. The Government's answer, as foreshadowed in the explanatory notes, was that the words were superfluous and added nothing to the requirements imposed by general administrative law—that the Secretary of State would need a good reason to act, and could not act on grounds that were trivial, irrelevant or irrational.

We maintain that it is desirable in such cases, in which the Government could visit intrusive actions on companies and individuals, that the Act should plainly state the obligation of the Secretary of State to act for ''good reason''. The companies and individuals affected by the actions of the Secretary of State should be able to see from the statute that those powers are limited. Individuals and small companies should not be expected to have a compendious knowledge of administrative law. It was not suggested that the general administrative law did not impose such obligations upon the Secretary of State at the time of the 1985 Act, yet it was thought important to include those words then. It remains desirable today.

It will help to consider the provisions of the Financial Services and Markets Act 2000, which was passed under the present Government. Section 165 of that Act, which gives the Financial Services Authority the power to require information, provides in subsection (4) that that power applies

''only to information . . . reasonably required in connection with the exercise by the Authority of functions conferred on it by or under this Act.''

Similarly, section 167 of the 2000 Act, which provides the FSA's power to appoint persons to carry out general investigations, provides in subsection (1) for that power to be available

''If it appears to the Authority or the Secretary of State . . . that there is good reason for doing so''.

Let the Government be consistent and accept the amendment. If those words were necessary in parallel provisions in the 2000 Act, why are they unnecessary now?

I now turn to amendments Nos. 25, 28, 24, 29 and 33. The latter would insert into proposed new section 453B(4) of the 1985 Act a new paragraph (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''.

That flows directly from what I said about amendment No. 17. The other amendments refer to new sections 453A and 453B, which clause 21 will insert into the 1985 Act. The first two amendments should be treated as pairs, but they are alternatives; each pair may stand alone, but it is preferable that one or other of the two pairs be adopted.

The exercise of the power of entry and the right to remain on relevant premises, which may include residential premises, depends presently only on what the inspector or investigator thinks will materially assist him. The amendments impose an express requirement that the official in question must have reasonable grounds for so thinking, or must reasonably believe something to be so. Those requirements would be given practical effect, and companies and individuals given proper notice of why their homes or premises were being intruded upon, by amendment No. 33, which would require the inspector to set out his grounds in the notice that must be given to an appropriate recipient under new subsection 453B(4) to the 1985 Act.

I have already dealt with an amendment to replace the word ''thinks'' with the words ''reasonably believes''. Such an amendment was also dealt with in the House of Lords on 7 July and rejected. I regret that, and hope that I will have more luck with the Minister this time. The Government have argued in the other place that the words ''reasonably believes'' or ''thinks on reasonable grounds'', which are hallowed through usage, are unnecessary verbiage because the general administrative law applies to officials carrying out public functions.

In Grand Committee, the Minister in the other place said:

''It is not necessary, however, to write in an express reasonableness requirement. Inspectors and investigators perform public functions and the ordinary principles of administrative law apply to their exercise of powers. If no reasonable person in the inspector's or investigator's position could think that to require access to the premises in question will advance the investigation, the power to require access will not be available.''—[Official Report, House of Lords, 22 March 2004; Vol. 659, c. GC258.]

The Minister went on to make a number of similar points, but that was the heart of his speech.

On Report in the House of Lords, the Minister said:

''In my view, the use of the word ''thinks'' is very much to be preferred to the use of ''reasonably believes''. There are a number of potential variations on the latter; for example, ''believes on reasonable grounds'', ''has reasonable grounds to believe'' or ''reasonably considers''. Effectively they all mean the same thing and ''thinks'' encapsulates them all.''

The Opposition disagree with the argument of the Minister in the other place that the word ''thinks'' necessarily means the same thing as ''reasonably believes'', ''believes'' or ''thinks on reasonable grounds''. It is one thing to be able to show, as the Minister put it, that

''no reasonable person could believe''—[Official Report, House of Lords, 7 July 2004; Vol. 663, c. 836-7.]

that access would advance the investigation. It is a different and a higher test to have to show positively that any reasonable person would believe access to be

necessary. My comments apply equally to the test of the words ''thinks necessary'', which are applied in section 453A(2)(b) to the power to remain on premises.

We are discussing a serious potential intrusion by officialdom into companies' premises and even into individual private homes occupied by directors and their families. The requirement for access ought to be subject to a higher test than that encapsulated in the word ''thinks''.

It is instructive in this context to consider again the Financial Services and Markets Act 2000, to which I referred earlier. I referred then to section 165; I draw the Committee's attention now to section 167, which deals with the Financial Services Authority's powers to appoint persons to carry out general investigations. Subsection (2) provides

''If a person appointed under subsection (1) thinks it necessary for the purposes of his investigation, he may also investigate''

certain other parties. At first glance, that might seem to give some support to the Government's position. However, a closer inspection shows otherwise.

First, as I have already pointed out in connection with the proposed amendment to clause 19—that is, to new section 447—section 165(4) of the Financial Services and Markets Act 2000, unlike the Bill, subjects the authority's power to require information to an express test that it be ''reasonably required''. That is the answer to the Government's argument in the other place that the use of the words ''reasonably believes'' or ''on reasonable grounds'' is undesirable because it might affect other parts of the Bill that do not impose a reasonableness requirement: we should insert the reasonableness requirement in those places also, as we have proposed for clause 19. The Government should not tolerate error in one part of the Bill for fear of causing more work for themselves.

Secondly—unlike the provisions in this Bill relating to the much more intrusive powers of entry on to premises—where the investigator thinks it necessary to exercise the power to investigate under section 167 of the Financial Services and Markets Act, he is required first to give written notice to the person concerned. That is clearly set out in section 167(3).

There is a further and fundamental reason why the amendments should be accepted. Particularly where small or one-man businesses may be affected by the exercise of intrusive state powers, the enabling statute should contain the obligations and duties of the officials. It should be a complete code, which is transparent and comprehensible to the individual citizen. It is unacceptable to require the director of a small company, as the Government do, to have a detailed knowledge not only of company statutory and regulatory provisions—which the Government are, sadly, ever keen to impose on businesses—but of administrative law, in order to understand his position. He should not have to go to specialist lawyers to find out whether the Secretary of State, or his or her officers, are entitled do what they are doing.

In that connection, I refer specifically to amendment No. 33. Section 453B(4) requires an investigator to serve on the appropriate recipient as soon as possible after entry a notice setting out, as regulations may

prescribe, matters such as a statement of the investigator's powers of entry and the occupier's rights and obligations. The amendment would require the list to include a statement of the grounds on which the investigator or inspector saw fit to exercise his powers. In practice, it would require officials to consider carefully the justification for exercising the significant powers conferred on them. It would also inform, in a transparent manner, persons affected by the exercise of those powers and give them the practical means to ascertain whether those powers were being abused.

I shall now dart towards the community interest companies regulatory amendments. I draw the Committee's attention to amendments Nos. 40, 38 and 39. Amendment No. 40 would apply an express requirement of reasonableness to a decision by the regulator of community interest companies that the conditions for exercising his wide-ranging powers had been satisfied. Amendments Nos. 38 and 39 would clarify the powers of a person appointed by the regulator to investigate a CIC and require that person to provide reasons in writing for requiring the production of documents or information. The amendments therefore marry with the protective amendments that I sought to persuade the Government to accept to the earlier part of the Bill.

As I said, amendment No. 40 would apply an express requirement of reasonableness to a decision by the regulator that the condition for exercising their wide-ranging powers had been satisfied. In effect, clause 39(3) defines when the regulator is entitled to exercise his extensive powers, including those relating to the removal of directors, the appointment of a manager and the compulsory appropriation of property belonging to a CIC—significant powers indeed. Those powers are exercisable only when the company default condition referred to in the Bill is satisfied. Clause 39(3) provides that that will be the case when

''it appears to the Regulator necessary''

to exercise his powers.

That provision is too broad, given the scope of the powers that the regulator can seek to exercise. It is conceivable that an innocent CIC will fall foul of the regulator without knowing that it is doing so, simply because it appears ''necessary'' to the regulator that he should exercise his powers, although no objective criteria are satisfied. The amendment would make it clear that the regulator must have reasonable grounds on which to conclude that it is necessary for him to exercise his powers. That would provide a necessary protection for the CIC concerned. I should add what I know the Minister will find to be the clinching argument: the amendment is consistent with similar amendments proposed to earlier clauses relating to auditors' rights to information.

Amendments Nos. 38 and 39 would, let me remind the Committee, clarify the powers of a person appointed by the regulator to investigate a CIC. The powers of an investigator of a CIC are set out in schedule 7. From the definition, it is clear that such a person is either the regulator, a member of his staff to whom his powers have been delegated, or some other

person appointed by the regulator under clause 40(1)(b). The regulator does not currently have to give any reasons why he has decided to investigate a CIC under clause 40(l)(a) or why an investigator has been appointed under clause 40(l)(b). Those provisions do not appear to be covered by the obligation to give reasons in clause 59(4), as they are not provisions against which an appeal lies.

The powers of an investigator in schedule 7 are wide-ranging and, as presently drafted, not subject to any express limits. Paragraph 1(1) of schedule 7 simply empowers an investigator to require the production of documents or information without having to give any reason. Furthermore, the investigator can seek them not only from the CIC being investigated but from ''any other person'', including, it seems, persons not directly connected with the CIC under investigation.

It is wrong to allow both elements in the investigation process—namely the appointment and the subsequent conduct of the investigation—to proceed without any reasons being provided to the CIC being investigated or to the third party being required to comply with a direction from an investigator. At present the only right is to require the investigator to provide evidence of his authority, as set out in paragraph 1(2) of schedule 7.

The amendments therefore impose a requirement on the investigator both to have reasonable grounds for requiring the documents or information and to set those out in writing. That will not impinge upon the wide power of the investigator, but will provide proper protection to the CIC being investigated or the other person being obliged to comply with the direction, who will be entitled to know why they are being ordered to produce documents or information. Given that a failure to comply may result in contempt proceedings, as set out in paragraph 4 of schedule 7, it is only right that that information is provided. Finally, given that the regulator has to give reasons when orders other than the investigation provisions are made, it is inconsistent for the powers of investigation to be free from any such fettering.

Such matters are detailed and they dart about within the Bill, from the beginning to the provisions covering the new CIC. However, they are at the heart of what Parliament should do to protect our citizens from invasive regulatory and investigatory powers. For those reasons, I hope that the Minister will be able either to satisfy me that adequate protection is already available in the Bill—she should bear in mind that my hon. Friends and I were not satisfied with any of the assurances that were given in the other place—or to accept the amendment on the grounds that it does what Parliament is here for, which is to protect the rights and privileges of individuals in their own homes.

Jacqui Smith (Labour, Redditch)

We now move to chapter 3, which concerns company investigations and, with the amendment, to the clauses that relate to improved powers to gain

information and to enter and remain on premises, which are linked to the constrained powers of the community interest company regulator.

Although the vast majority of the 1.8 million companies operating in the UK are honest and do the right thing by their workers, shareholders, suppliers and creditors, a small minority do not. It is right that we have a strong and effective investigations regime, in order to maintain faith in the basis of corporate Britain. That regime has to have suitable safeguards—I hope that I will reassure the hon. Member for Sutton Coldfield (Mr. Mitchell) of that—but must nevertheless take into consideration the experience of the people involved in the investigation regime and their knowledge of what we need to do to the law to facilitate their work. I will deal with the relatively narrow definition with respect to the CIC regulator later.

The clause replaces section 447 of the Companies Act 1985, which contains the powers used to carry out most company investigations. The powers of investigators in new section 447 are wider than those currently available to investigators under the existing section 447: for example, the general power to require information from anyone is wider than the existing powers to require explanations of documents and information about the whereabouts of documents.

Amendment No. 17 seeks to impose an express restriction on the Secretary of State's ability to exercise her own powers—in other words, her power to require information from companies and her power to appoint investigators—under new section 447. She would be able to use the powers only where there appeared to be good reason. The phrase ''good reason'' is, of course, not defined—indeed, I believe that even the hon. Gentleman has not attempted to define it this morning. In our view, that phrase contributes nothing to section 447, nor will it contribute anything to new section 447. The hon. Gentleman will argue that it is better to clarify the legislation, but the problem is that where we cannot be very clear about the intention behind words in legislation, we should always be aware that if we are not careful and insert words into legislation that do not need to be there, they will be interpreted in ways that do not fulfil the intention of what we are setting out to do.

I hope that I can reassure hon. Members that whether the legislation refers to ''good reason'' or not, the Secretary of State will have to have a very sound reason for using the powers. She cannot act lawfully without such a reason. Her decision to act must be within the legal scope of the provision and must pursue the policy and objects of the Act. It must also be reasonable. Those are some of the principles of administrative law that apply. Of course, no investigation will have been started without a very thorough vetting process.

An investigation will usually result from a complaint either from a member of the public or from evidence passed on by another regulator. That information is then thoroughly vetted to establish whether an investigation is warranted. Investigations under section 447 are started when, for example, there

are grounds for suspicion of fraud, misfeasance, misconduct, conduct that is unfairly prejudicial to shareholders, or a failure to supply shareholders with information that they may reasonably expect. That thorough approach to vetting complaints will not change as a result of omitting references to ''good reason''.

As I suggested, there is no legal definition of the phrase ''good reason'' in existing legislation. The courts have not given any special meaning to the words here. It may be a somewhat antiquated expression with no transparent, obvious and precise meaning. So there is real concern, as I suggested, that those words might be construed not simply as expressing the ordinary principles of administrative law, but as a much greater limitation on the powers, which would be very undesirable. They might also be construed as allowing the powers to be used more widely than we believe they can and should be used. That is the risk of using words that are legally unnecessary, as I believe these are.

I suggest, therefore, that it is obvious under the clause as it stands that the Secretary of State's decisions are constrained by the principles of administrative law and by the vetting process that I have outlined. A reference to ''good reason'' would not help anyone. At best the phrase would be superfluous. At worst it could, over time, produce a result that we do not want to achieve by narrowing or widening the circumstances in which the powers can be used.

Amendments Nos. 24, 25, 28, 29 focus on the word ''thinks'' in new section 453A(l) and (2), and offer, as the hon. Gentleman says, two alternatives. He is very generous with his amendments. Indeed, he offers us a cornucopia of them. Unfortunately, I do not particularly fancy any of them. I will explain why, and, I hope, reassure the hon. Gentleman. Amendments Nos. 24 and 28 would replace ''thinks'' with ''reasonably believes''. Alternatively, amendments Nos. 25 and 29 would change the formulation to ''thinks on reasonable grounds''.

Let us remind ourselves that clause 21 inserts new sections 453A and 453B to provide new powers to enable an inspector or investigator to enter and remain

on premises if he is authorised to do so by the Secretary of State—that is an important proviso—and if he ''thinks'' that to do so will materially assist him in the exercise of his investigatory functions. He may remain on premises for as long as he ''thinks'' necessary. The amendments seek to tackle those references to what the inspector or investigator ''thinks''.

We could spend time debating the relative merits of ''thinks'' in comparison with other phrases such as ''reasonably believes'' or ''thinks on reasonable grounds'', as proposed by the hon. Gentleman. In practice, however, there is no difference in legal effect between them. Whichever word or phrase is used, the inspector or investigator cannot use the powers on an unreasonable basis; they are performing public functions. They need reasonable grounds to think that it will help their investigation to gain access to the premises, and they can stay only for as long as they think, on reasonable grounds, to be necessary. More words are not needed in this case.

The law is clear, and inspectors and investigators know what their obligations are: they must act within the law, which means that they must act reasonably. They must have reasonable grounds to think that their investigation will be helped by gaining access to the premises in question. They are working within a clear statutory framework, performing public functions—and when they come to use these powers the investigation will have already started.

I suspect that there will be more discussion later when we consider the amendments to clause 21 in detail. There seems to be a feeling in the air that the investigators will be acting on a whim, trampling into people's homes and businesses; that is why I was at pains to emphasise the vetting process that will have happened before the investigation starts. For that investigation to take place, the inspectors or investigators will have been appointed by the Secretary of State, because the Department of Trade and Industry had received a complaint or other suggestion of possible misconduct. That complaint would have gone through a two-stage vetting process, which weeds out 90 per cent. of complaints received, including those that are simply malicious.

In addition, to use the power to enter or remain on premises, the investigator or inspector will have to have been specifically authorised to use it by the Secretary of State. The power can be exercised only at reasonable times; the investigators or inspectors 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 of the company or other occupier and of persons present on the premises, and they must produce a written record of the visit.

I emphasise that the power is not about breaking down doors or getting on to premises to seize incriminating evidence. Under these provisions, investigators cannot use force and will have no power to search or seize. Instead, clause 21 gives investigators and inspectors a right of access, which will increase their ability to progress an investigation, for example when faced with obstructive or unco-operative behaviour.

Amendment No. 33 relates to the written statement, which is a description of the inspector or investigator's grounds for belief that the use of the power of entry will materially assist him. I appreciate that the hon. Gentleman believes that it would provide a measure of protection to explain in the written statement the basis for an inspector or investigator's belief that access to premises will materially assist the investigation.

However, let us think about the situation in which the written statement is administered. It will be given to what is described as an ''appropriate recipient'' at the point at which the investigator enters the premises. That ''appropriate recipient'' does not necessarily have to be an officer of the company; it could be the landlord, or another occupier, of the premises. The hon. Gentleman is suggesting that it would be appropriate for the investigator to hand over to

someone who perhaps does not have direct knowledge of, or a stake in, the company a written explanation of what the problem might be, and of the investigation.

It is not appropriate for people unconnected with the company to know the grounds for the investigator's decision. An investigation will be carried out in such a way that the fact that it is taking place is not brought to everybody's attention. I think that the hon. Gentleman would agree that that is right. An investigation can always conclude that the suspicions are without foundation. However, if a written statement suggesting what the basis of the investigation might be had been handed to the landlord before the investigation started on the premises, it would be difficult to put back into the box the reasons why the investigation was started, and unfounded rumours could damage a company's reputation.

It is right that there is a written statement setting out the powers and rights of the company and the power of the inspector or investigator. In fact, we recently published a consultation document seeking views from interested parties on what such a statement should include. However, it would be wrong, and potentially injurious to the company being investigated, for the statement to include all the reasons for the investigation.

Amendments Nos. 38 and 39 concern the investigation powers available to the new regulator of community interest companies. Amendment No. 38, to schedule 7, which sets out the detail of those powers, states specifically that the regulator may use the powers only if he believes that that is

''reasonably necessary for the purposes of the investigation''.

The amendment is unnecessary and, potentially, less restrictive than the restrictions that the Bill places on the regulator. Clause 39 already restricts the exercise of all the regulator's supervisory powers, including those of investigation, so that they may be used only if necessary to maintain confidence in CICs, and even then

''only to the extent necessary to maintain confidence in community interest companies.''

That means that the regulator cannot request information and documents unless he considers that such a request is necessary to maintain confidence in CICs. That imposes a stronger restriction on the use of the powers of investigation than the amendment proposes.

In addition, clause 25 requires the regulator to have regard to the impact of an investigation on those affected and to the need to use resources efficiently and economically. Schedule 7 contains additional protections—for example, an investigator may not override ''legal professional privilege''. Finally, the regulator, and anyone investigating a CIC on his behalf, will face the additional constraints of administrative law, which provides that powers must not be exercised unreasonably.

Amendment No. 39 would insert into schedule 7 a duty for an investigator of a CIC to give reasons for any requirement made for information or documents. Again, because of the practical issues relating to investigations, the amendment would be inappropriate. It would create a significant practical risk that the giving of such reasons would interfere with the investigation by revealing information that might thwart it or alert others.

Of course, we expect investigators, when appropriate, to provide reasons for any requirement that they make for documents or information. However, they should not be required to do so in all situations, irrespective of the need for an effective investigation. Saying to the company under investigation, ''The reason why we want to look at these documents is that we think you're doing this dodgy thing,'' would enable it to hide precisely the documents and information that the investigator needs to carry out the investigation. No such requirement is imposed by legislation in respect of company investigations under the Companies Act 1985, or investigations by the Charity Commission or the Housing Corporation, and we do not believe that there is good reason to do so in this case.

Finally, amendment No. 40 would amend one of the key constraints—as I said, there are already considerable constraints—on the community interest company regulator's use of his supervisory powers. The amendment would expand clause 39(3), which currently prevents the regulator from using four of the key supervisory powers in clauses 43 to 46, unless certain conditions are satisfied. As the hon. Gentleman said, those powers are: to appoint new directors to a CIC; to remove or suspend an existing director of a CIC; to appoint a manager to a CIC; and to place certain constraints on the use of property held by a CIC.

Those are significant powers, and the Bill provides that the regulator may use them only if the company default condition is satisfied. Therefore, they can be used only if the regulator concludes that it is necessary to use them because: there has been misconduct or mismanagement in the running of the company; action is needed to secure the proper use of the company's property; the CIC is failing to satisfy the community interest test; or the CIC is not acting in pursuit of any community interest objects to which it has committed itself. Those are reasonable, but constrained, reasons allowing the CIC regulator to operate.

Amendment No. 40 would add a small hurdle to the company default condition, in that the regulator could not exercise his powers unless it appeared to him on reasonable grounds that the default condition had been reached. I do not argue with the intention of the amendment, but as was suggested in the discussions on amendments Nos. 24, 25, 28 and 29, it would add nothing to the existing requirements, which already provide that the regulator could not act on what appeared to him to be unreasonable grounds, or to the restrictions already in the Bill.

In conclusion, I hope that I have reassured the hon. Gentleman about the specific and relatively onerous requirements necessary to begin an investigation and use the powers in clauses 19 and 21 for company investigations. Safeguards already exist for those being investigated, and we must maintain the investigators' ability to carry out the necessary investigations in practical ways. I hope that I have also made clear the constrained ability and remit of the community interest company regulator. Having heard my reassuring words this morning, I hope that the hon. Gentleman will withdraw the amendment.

Andrew Mitchell (Conservative, Sutton Coldfield)

I listened with care to the Minister, and we will read what she said, as it will be on the record, and consider which issues we shall return to on Report and Third Reading. The issue is not about her reasonable interpretation of the words in the Bill. We are clear that she is a reasonable Minister who listens to representations that she receives and would exercise the considerable powers judiciously. The issue is not about this Minister or this ministerial team at the DTI—indeed, as I said on Tuesday when discussing auditor liability, I would like to come along and support them in their negotiations with the Treasury. However, what would happen if there were a serious problem and lawyers were examining the legislation? An official who may not be as temperate as the Minister and may not have the same balanced approach to life, could get hold of the powers in the Bill. If someone asked them, ''Why are you doing this?'' they could reply, ''You can't question me; I think I should be doing it, and that is why I am doing it.''

Parliament should be careful about giving excessive powers to officials, when the reasonableness of Ministers beguiles Committees such as this to allow the legislation through. As I listened to the Minister's honeyed words, I realised that she was putting the most scurrilous argument when she said that it was better to keep investigations secret from those being investigated. It is as if I were investigating you, Mr. Conway, in pursuit of your actions as director of a CIC, but not telling you why. The Minister said that it was better to keep the reasons from the person being investigated; otherwise unfair and inaccurate allegations might be brought before more people. But what on earth happens when someone goes to court and is tried for an offence? That is an exact parallel. I am sure that when we have looked carefully at the Minister's arguments, we will want to return to these matters on Report.

Among the 14 or so excellent and hard-working officials from the Minister's Department in the Committee Room this morning, there are perhaps representatives from the Home Office. The Home Office, which will be watching the Committee's attitude towards the community interest companies, will also know of the read-across to the charitable incorporated organisations—the CIOs—that appear in the draft Charities Bill, and were raised on Second Reading. In view of your past outside this House, Mr. Conway, you will be an expert on that area.

Without breaching the confidentiality of the Joint Committee on the draft Charities Bill, the scrutiny report from which will be published on 30 September—I had the honour to serve as the only Conservative MP on it—I can tell hon. Members that it takes a view on giving people information about CIO investigations different from that taken by the Department of Trade and Industry on CIC investigations. The Minister should think again about those arguments, and I hope that she will have the opportunity to do so on Report.

The next group of amendments, which would affect clause 21, are similar to, and as important as, the ones that we have already discussed, so in view of that, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 19 ordered to stand part of the Bill.

Clause 20 ordered to stand part of the Bill.

Clause 21 - Power to enter and remain on premises

Andrew Mitchell (Conservative, Sutton Coldfield)

I beg to move amendment No. 18, in

clause 21, page 25, line 26, after 'may', insert

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

Derek Conway (Conservative, Old Bexley and Sidcup)

With this it will be convenient to discuss the following amendments:

No. 19, in

clause 21, page 25, line 32, 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. 20, in

clause 21, page 25, line 33, after 'subsection (2),', insert

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

No. 21, in

clause 21, page 27, line 8, at end add—

'(2) After section 453B of that Act insert—

''453C 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. 22, in

clause 22, page 27, line 10, leave out '453B' and insert '453C'.

No. 23, in

clause 22, page 27, line 12, leave out '453C' and insert '453D'.

No. 34, in

schedule 2, page 55, line 31, at end insert—

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

I nearly added the next group of amendments as well there. I was getting carried away by my enthusiasm.

Andrew Mitchell (Conservative, Sutton Coldfield)

You are absolutely right to get carried away by your enthusiasm for the amendments that I now have the honour to put before the Committee, Mr. Conway.

I draw the Committee's attention to amendment No. 18 and, in particular, amendment No. 19. Amendment No. 20 would make a number of consequential changes. Amendment No. 21 deals with entry into residential premises, and amendments Nos. 22 and 23 are consequential on it.

The amendments concern clause 21, which would insert new sections 453A, 453B and 453C into the 1985 Act and would confer on inspectors and investigators a new power to require entry to and remain on the relevant premises. The relevant premises are defined in proposed new section 453A(3) as

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

Investigators and inspectors are thus being given the power to enter and remain on premises that are, in some cases, also domestic residential properties.

Not infrequently, the subject of an investigation pursuant to the powers conferred by section 447 of the 1985 Act is a small business. It is by no means uncommon for such businesses to trade from, or have their registered office at, the director's home address; if a business operates from small premises where space is scarce, books, records and other materials may be stored at the directors' homes.

Previously, under the 1985 Act, investigators and inspectors had to obtain a warrant under section 448 before being able to enter any premises. The Bill would empower an official to enter the premises and remain there as long as they thought necessary to assist materially with their functions. The provision requires only that they should be authorised by the Secretary of State to do that—one can see that in practice such authorisation would be given as a matter of course at the start of any investigation—and that they should think that entering the premises would materially assist them in exercising their investigatory function, which I have already mentioned this morning.

The Bill effectively gives investigators carte blanche. In contrast to the existing law, it does not require any failure to produce documents or information before the exercise of the powers. The amendment would impose on inspectors and investigators a requirement

to seek a warrant before entering and remaining on residential premises—to mitigate the possible abuse of the broad power of entry and its impact in situations where domestic or family arrangements overlap with company activity. The amendment would preserve the status quo with regard to residential property, without restricting the powers to enter and remain on separate company premises.

No one disputes that there may be times when, to avoid frustrating the purposes of an investigation, access to premises of mixed use will be necessary. However, the power to enter and remain on residential property, in a domestic setting, is a draconian one. It is potentially highly intrusive into the private lives of children or others with no direct connection to the company's business. If such intrusion is necessary, it must also be proportionate.

Let us imagine that an inspector were to arrive at a family home during a children's meal time or at bed time, or during a visit by an elderly or infirm relative. Amid the chaos the harassed mother might ask the investigators—there could be more than one—to wait, or to come back the following day when co-operation would be easier. The Bill would permit the inspectors to enter and to insist on staying as long as they thought necessary. If challenged they would need only to reply ''We think it necessary''. Refusal to bow to their demands would put the mother at risk of contempt proceedings under proposed new section 453C, on the basis of the inspectors' certification alone.

Alternatively, an inspector who was dissatisfied with the comprehensiveness of the information provided by a director might turn up at the director's home, in front of his family, and insist on staying until the director told him what he expected to hear. We cannot grant the powers in such a form.

I considered tabling an amendment that would impose a limit of five years on the time that an investigator might stay—but I am sure that the Minister will understand that we cannot agree to such an open-ended power. We must stand up for our constituents. The clause presents a frightening prospect. It is right and proper for the power in it to be carefully circumscribed; there should be proper defences against the potential for abuse.

I do not doubt that in practice, the DTI's appointed officials will maintain their excellent standards of professionalism, and will strive to act sensitively in the exercise of the new powers. However, opinions may legitimately differ on what is intrusive or oppressive. Officials' actions may inadvertently exceed what is reasonably necessary. In testing the effectiveness of protection against intrusive powers, it is no use assuming the best. The law that we enact must be proof against the deliberately or inadvertently abusive.

Moreover, there is no provision in the Bill for any mechanism to allow anyone to complain about or obtain effective relief from the abuse of the power by an inspector. Instead, individuals are left to the cumbersome and specialised remedies available under the general administrative law. The Government should give further consideration to that omission.

The requirement for inspectors and investigators to obtain a warrant, which may be subject to conditions, before entering and remaining on residential premises, would provide an effective safeguard against over-zealous officialdom or abuse, and ensure that any necessary intrusion was carefully and independently weighed for proportionality before it took place.

I turn now to amendments Nos. 32, 26 and 27. Amendment No. 32 would add a new subsection to the clause. The purpose of the amendments is to include within new section 453A clear limits on the times during which the power to enter and remain on premises can be exercised by inspectors. I remind the Committee that relevant premises may include domestic as well as business premises.

In the Bill in its present form, the rights to exercise the powers are triggered by what the inspector or investigator thinks would materially assist them in the exercise of their functions and what, in the case of remaining on premises, is necessary for that purpose. The time for exercising the power is circumscribed in only the vaguest of ways by the words, ''at all reasonable times.'' We feel strongly that that balance is not right.

My amendment would add a subsection to new section 453A to make it clear that the exercise of those powers is to be limited to normal office hours, which are defined as being between 9 am and 5.30 pm on Monday to Friday—

Jacqui Smith (Labour, Redditch)

Perhaps you could advise us, Mr. Conway. The hon. Gentleman has now moved on to amendments Nos. 26, 27, 30, 31 and 32, which are about times. I understood that we were going to discuss those in a separate bunch from the amendments about which the hon. Gentleman has already spoken.

Derek Conway (Conservative, Old Bexley and Sidcup)

We are taking them as a separate bunch, but I had not spotted that we had got on to them. They are related to the group under discussion.

Andrew Mitchell (Conservative, Sutton Coldfield)

Yes, Mr. Conway. The points that I am making specifically relate to different amendments, but it may be helpful to the Minister if I make my case in respect of clause 21 in one go. That may also speed up the proceedings of the Committee.

Derek Conway (Conservative, Old Bexley and Sidcup)

Order. It is acceptable to lump the amendments together if that helps the Minister, the mover of the amendments and the Cttee. We do not like breaking across clauses, but the amendments all relate to the same clause. If it facilitates the debate, and as the issues are related, I am happy to discuss the two sets of amendments together. If that facilitates the debate, it will not be out of order.

We are therefore now also considering the following amendments:

No. 26, in

clause 21, page 25, line 26, at end insert 'during normal office hours'.

No. 27, in

clause 21, page 25, line 28, after 'there', insert 'during normal office hours'.

No. 30, in

clause 21, page 25, line 28, after 'necessary', insert

', not exceeding one month,'.

No. 31, in

clause 21, page 25, line 28, after 'necessary' insert

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

No. 32, in

clause 21, page 25, line 29, 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.'.

Andrew Mitchell (Conservative, Sutton Coldfield)

I was explaining that my amendment deals with the times at which an inspector may enter premises. In view of my earlier description of a harassed mother, I have no doubt that my suggestion that the powers should be exercisable only during the course of a normal business day will prove enormously attractive to the Minister.

We define a normal day as being between 9 am and 5.30 pm, Monday to Friday. However, we are prepared to take into account certain circumstances in which being restricted to those times would seriously impair the work of officials.

The limitation would apply both to the power of entry and to the period during which an investigator or inspector may remain on the relevant premises. The explanatory notes state, in paragraph 131:

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

However, there is no guidance given in the Bill as to what a ''reasonable time'' might be.

In another place the Government postulated a number of alternative situations as reasons for not rising to the drafting challenge, such as the possibility that a company could trade only at night, or that it might not have its own normal business hours, or that it might change them in order to frustrate a legitimate investigation. My amendment would provide certainty and clarity about what, in most cases, would be a ''reasonable time'', while preserving the power of inspectors to operate at other times where otherwise their investigations would be seriously impaired. It remains the case that at other times and during those other periods, investigators will be required to act at reasonable times. The amendment would, in effect, impose on the investigator a duty to consider carefully whether acting outside hours that would not ordinarily be regarded as reasonable would nevertheless be necessary in any particular case because to do otherwise would impair his or her work.

I turn now to amendment No. 30, of which amendment No. 31 is a variant. Amendment No. 30, likewise, would place limits on the wide powers of officials to enter and remain on relevant premises that are contemplated under new section 453A of the Companies Act 1985. The purpose of the amendment is to impose a temporal limit on the length of time—presently limited only by what an inspector or investigator thinks is necessary to ''materially assist'' them in discharging their function. Having entered,

investigators and inspectors may remain on the relevant premises—which, as I said, may be mixed between business and domestic activity.

The extension and expansion of investigators' powers to acquire information, which are affected by the Bill, ought to assist them to complete inquiries more efficiently than hitherto. A limit on the period for which investigators can remain on premises would ensure that they did not prolong their time longer than is necessary, and conducted themselves expeditiously. In the carrying out of investigations, it would provide an effective safeguard against possible abuse in the form of excessively long-drawn-out investigations that cease to be fruitful and cross the line into oppression.

It will be recalled that the investigations under section 447 of the 1985 Act—in contrast to those to be publicly reported under section 431—are intended to be conducted confidentially and without publicity. To take the example of a business that is largely a front-of-house operation, where customers or the public have access, the fact of an investigation would be very effectively and publicly advertised by the persistent presence over a period of DTI inspectors on the premises asking questions of employees in front of customers, or even of customers themselves—that is now envisaged, as I understand it, in clause 19, which amends section 447(3) of the 1985 Act.

Nothing could be calculated to cause greater damage to the reputation of a company and its business, which might prove to have been innocent of any wrongdoing whatever. We would give favourable consideration to an appropriate Government amendment that would allow the extension of that period, where justified by circumstances. Having decided not to follow the idea that I mentioned to the Committee a moment ago of specifying a very long period to tempt the Government to circumscribe the length of time that someone can remain on premises, I have decided that the period should not exceed one month—but it could be longer if the Secretary of State agrees.

Finally, I come to amendment No. 34, which the Minister will find irresistible. The amendment seeks to add to new section 449 of the Companies Act 1985, which is entitled ''Provision for security of information obtained'', a new paragraph, (1)(d), dealing with the important issue of security of information obtained through the use of the Secretary of State's investigatory powers, and limiting the persons to whom such information may be disclosed.

New section 449 contemplates information being obtained in consequence of the exercise of the inspector's powers of entry under new section 453A, which also covers, in subsection (4), persons accompanying inspectors or investigators on such visits. The amendment includes such persons in the list of persons who are prohibited from disclosing information other than as provided for in new schedules 15C and 15D to the 1985 Act. To omit such

persons from the list of those subject to limitations on disclosure of information so obtained would be a serious lacuna in the section 449 protections.

Proposed new section 449 states:

''This section applies to information (in whatever form) obtained . . . in pursuance of a requirement imposed . . . by means of a relevant disclosure . . . by an investigator in consequence of the exercise of his powers.''

It is clear that the only reason why the Government want to omit my new subsection (4) is that the Minister has been so busy working on the law of auditor liability to see whether she can amend it. This is another example of the Conservative party being extremely helpful. I hope that the Minister will accept my amendment No. 34 to insert

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

That completes my explanation of our amendments, which are designed to protect our constituents from excessive investigatory powers. I look forward to hearing the Minister's comments on the important points I have raised.

Mark Fisher (Labour, Stoke-on-Trent Central)

I have listened carefully to the hon. Gentleman. I am sure that the Minister's brief states strong resistance to all the amendments, both on clause 19 and this clause. ''Do not be seduced,'' her officials will be saying, ''by the hon. Gentleman's blandishments and blithe confidence in his amendments.'' Notwithstanding that, I hope that between now and consideration on Report she will think carefully about the general thrust of what the hon. Gentleman has been saying.

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 about the powers that are delegated to civil servants are very important. In 10 years, when some nasty little crisis arises in the financial world, a Minister will find it hard to resist when civil servants say, ''Look, Minister, we have the powers. We have to go in.'' When Downing street says, ''Do something about this—we have to show that we are tough on these problems,'' the delegated powers that Parliament gives to civil servants can be treated in a very different way.

The hon. Gentleman 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.

Jacqui Smith (Labour, Redditch)

Clause 21 gives inspectors and investigators powers to gain access to and remain on premises that they believe are used wholly or partly for the business of the company that they are investigating. The clause calls such premises ''relevant premises''.

As I outlined, the powers can be used only if the Secretary of State specifically authorises their use and an inspector or investigator thinks, on reasonable grounds, that entering and remaining on the premises will materially assist his or her investigation of the company. An inspector or investigator can require entry to relevant premises, which, as the hon. Member for Sutton Coldfield said, may be part of domestic premises. Having gained entry, the inspector or investigator can remain there for as long as he or she thinks, on reasonable grounds, is necessary to further the investigation. The powers to enter and remain can be used only at reasonable times.

I understand the concerns expressed by the hon. Gentleman and my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher) about the powers, although I am not sure that they are quite as extensive as the hon. Gentleman implied. I shall address that later. It is important, however, that we are clear about the safeguards that will apply before the powers are used and while they are being used, because those safeguards are quite considerable.

When inspectors or investigators seek to enter premises under the powers in the clause, they must produce evidence of their identity and their appointment or authorisation. As soon as is practicable after they enter the premises, they must hand over a written a statement containing information about their powers as well as the rights and obligations of the company occupier and of any persons present on the premises. If nobody is there to receive it at the time, the inspectors or investigators must send it to the company afterwards. As soon as is practicable after the visit, they must prepare a written record of the visit, a copy of which must be given on request to the company and any other occupier of the premises.

The hon. Gentleman's first set of amendments is about access to residential premises and would, in effect, include a warrant procedure in the new powers in clause 21. As I suggested, the power of enforcement officers to gain access to domestic premises will always raise concerns, and the fact that we may be talking about people's homes increases the need for safeguards. It is right that the powers should not be used lightly or without due consideration, and there must be safeguards. However, let us remind ourselves

once again about the circumstances in which an investigator will arrive at somebody's domestic premises.

When an investigator arrives, the investigation will already have started. It will have to have gone through the vetting process that I outlined earlier, and the Secretary of State will have to have given sound reasons for authorising the investigation under proposed new section 447 of the Companies Act 1985. In addition, if the investigator is to be able to use the powers in clause 21, he will need to have received authorisation from the Secretary of State. To get it, he will have to have demonstrated that getting on to the premises used for the company's business would materially assist the investigation. He would therefore have to have done his homework.

A director who, for example, uses his home address as the registered office or the trading address of his business must expect that all sorts of individuals, not just company investigators, will attend that address for business purposes. While I accept specific concerns about domestic premises, we need to set them against the fact that operating within the framework of a limited liability company gives directors considerable safeguards. It also brings responsibilities—rightly so—and the ability for investigations to be carried out in ways that might be necessary to uncover wrongdoing. There is, however, a potential danger.

The hon. Member for Sutton Coldfield spelled out clearly and appropriately why people's homes are often be used for carrying out the functions of the business or for storing records. However, we need to be careful that we do not impose too many limitations on the ability to investigate in domestic premises if it is believed that they contain materials or information that could help with the investigation, as that might create an incentive to hide incriminating documents or information in people's houses.

As for restrictions in relation to the use of clause 21, let us be clear that it does not give an investigator the right to make his way on to premises by force. An individual may refuse to allow an investigator to enter premises if he has a reasonable excuse. In the scenario that the hon. Member for Sutton Coldfield outlined, the investigator would have made contact in advance and, in most cases, would have come to a mutually agreed arrangement as to when it was reasonable to enter the premises. Frankly, turning up at a house when children were having tea, when the director was not present or during a family occasion would be an unreasonable time to enter the property. In such cases, the provisos already in the Bill would protect the home owner.

There is no power to search. If there were power to search and use force, that would obviously bring the clause within warrant territory. The hon. Gentleman suggested that the current position requires a warrant. It does so because the existing procedure for entering premises relates to being able to search premises and seize documents—clearly a different scale of activity from that proposed in clause 21. If a home owner refused entry on the basis that it was unreasonable, the

investigator would need to go through the warrant procedure to be able to force entry to the premises or to search or to seize documents. That is still the case.

Also important is the fact that people can gain redress and make complaints. If someone remains on a property or enters property at an unreasonable time or in an unreasonable way, the home owner or the company owner has the ability to take action for trespass. The investigator would in fact be trespassing if he had not fulfilled the requirements laid down in the legislation.

Andrew Mitchell (Conservative, Sutton Coldfield)

What the Minister says is technically correct, but the impact of what she describes is wholly wrong. The inspector would be asked why he was there. He would point to the Bill and say, ''I think I should be here.'' As the Minister did not accept my earlier amendments to strengthen those grounds, the dice are loaded entirely in favour of the inspector. In the circumstance that she rightly describes, the householder should have some power.

Jacqui Smith (Labour, Redditch)

It clearly is not sufficient simply for the investigator to ''think'' that he should be there. I have outlined the considerable processes that would have to be gone through before the investigator turned up. They would have involved vetting the complaint and authorisation by the Secretary of State. The visit could take place only at a reasonable time, and the investigator could remain only for a reasonable period.

I have already described the ability of the owner of the property to take action with respect to trespass; judicial review of the situation would also be open to them. The DTI has a code of conduct for civil servants and a published complaints procedure.

Andrew Mitchell (Conservative, Sutton Coldfield)

The Minister is being most generous in giving way; these are important matters. They are also complicated matters for the director of a small business to deal with, but, nevertheless, the right hon. Lady is technically correct about the action that can be taken afterwards, including judicial review. However, given what she said when I pointed out that the fact that an inspector thinks he should be there is the only protection, why will she not accept amendment No. 28, which would leave out ''thinks'' and insert ''reasonably believes''? Her argument endorses such an amendment.

Jacqui Smith (Labour, Redditch)

No, I am afraid it does not, for precisely the reasons that we explored in discussing the previous amendments. As I said, there is no legal difference in terms of definition between ''thinks'' and ''reasonably believes''. Anyway, changing those words around in no way restricts the limitations that I have already explained in relation to the ability of the property owner to refuse access and the responsibility of the investigators to ensure that they are entering the premises at a reasonable time and staying on the premises only for a reasonable period.

These are important, but relatively limited, powers and they are not in warrant territory. A warrant procedure would be entirely disproportionate in the present context, and would probably exacerbate precisely the type of situation that the hon. Gentleman wants to avoid. A warrant procedure is far more confrontational than the procedure envisaged in the clause, which legally strengthens the ability of the investigators to have more of the force of law behind them when they have to get the permission of the owner of the property to enter it. The clause gives them a little more ability to say to the property owner, ''Given that this is a reasonable time, that I will be staying for a reasonable period and that I have gone through the authorisation procedure and the vetting process for this investigation, it is reasonable that I am now able to enter your premises.''

A warrant could mean the investigator, accompanied by a police officer, turning up on the doorstep at the children's teatime. That is a much less satisfactory situation than the process I outlined. What the hon. Gentleman proposes would be counter-productive: it would create the impression that a criminal activity was being investigated and make it difficult to prevent the investigation from becoming public.

I remain of the view that our approach in clause 21 is appropriate. We have provided safeguards specifically because of the intrusive nature of the powers; we considered a warrant procedure but decided against it. On the basis of that reassurance, I hope the hon. Gentleman will not press his amendments to a Division.

The second group of amendments would place a restriction on the times at which investigators' powers to enter and remain in premises can be used. Amendments Nos. 26, 27 and 32 would restrict the hours between which an inspector or an investigator can require entry to, and remain on, premises using the powers in new section 453A. The amendments propose three alternatives; those in amendments Nos. 26 and 27 are based on the idea of normal office hours. It is not clear what normal office hours imply. In the modern day and age, many companies operate at hours to suit their customers and many service providers now operate outside what might traditionally have been regarded as normal office hours, because their customers are at work and therefore unavailable then.

Members of the Committee may well have received telephone calls from their banks in the evening or had contacts with businesses at weekends. The hon. Member for Sutton Coldfield and other hon. Members might not have been able to take advantage of those services, because they were still here in Parliament—as we were yesterday evening—where normal office hours would be difficult to define. The proposals would introduce uncertainty, which would hamper the effectiveness of the powers. Instead, we have provided that investigators can enter and remain on premises only at reasonable times.

Amendment No. 32 is even more explicit than amendments Nos. 26 and 27, and would limit the ability of investigators to exercise their powers to between the hours of 9 am and 5.30 pm, between Monday and Friday.

Amendment No. 32 appears to recognise that that could cause difficulties by providing for an exception where an investigation could be impaired by visits to premises being confined to those hours. I therefore hope that the hon. Gentleman is receptive to my argument that not all companies have hours of 9 am to 5.30 pm. If we were to set out in statute the hours during which visits could be made to premises, some dodgy companies would simply operate outside those hours to avoid being visited by investigators.

Either the implication of amendment No. 32 is not clear or it would constrain the investigator's ability to be on a company's premises at precisely those times when it was operating. In that way, amendment No. 32 strikes the wrong balance. Instead, we have included a test of reasonableness, in proposed new section 445A(2). The test applied will mean that the inspector or investigator may require access only at a reasonable time and can remain on the premises only for as long as it is reasonable for the company or other occupier to have him.

That, of course, means that investigators will have to take account of a company's genuine trading hours, but that approach means that the test of reasonableness depends on all the circumstances. That is preferable to trying to apply a general rule, which would lead to the need to introduce precisely the kind of qualification that the hon. Gentleman has had to set out in amendment No. 32, in proposed new section 453A(2A), which allows an exception to be made only in cases of serious impairment. That strikes entirely the wrong balance.

Finally, amendments Nos. 30 and 31 refer to an inspector or investigator being able to remain on premises only for a period not exceeding one month. I was not completely clear about the intentions behind those amendments and I am still not clear following the hon. Gentleman's exposition. It seems that there are two possible interpretations, which highlights a defect with the drafting.

Andrew Mitchell (Conservative, Sutton Coldfield)

Amendments Nos. 30 and 31 are absolutely clear, in that they would restrict the time for which an inspector or investigator may stay on the premises to one month. At the moment the period is completely open-ended. I seek the Committee's support for the idea that an inspector should be able to stay only for one month. I explained that I had considered a longer period, but that I wanted the legislation to introduce a constraint. Equally, however, amendments Nos. 31 and 30 are generous, because I make it clear that where one month is not adequate and a reason is given, the period can be extended. That is very clear indeed.

Jacqui Smith (Labour, Redditch)

In that case, I pose two potential readings of those amendments. First, they could be read as allowing an inspector to stay for a whole month, regardless of whether that was a reasonable

period or was undertaken during reasonable hours. I do not think the hon. Gentleman intends that, but, given the drafting, that is how amendments Nos. 30 and 31 could be interpreted.

Andrew Mitchell (Conservative, Sutton Coldfield)

I hesitate to correct the Minister, but if she looks carefully, she will see that the words are ''not exceeding one month''. There is therefore no question of the inspector being able to remain for a statutory month as the period is any time up to, but not exceeding, one month.

Jacqui Smith (Labour, Redditch)

We might have to disagree on whether the effect is as the hon. Gentleman suggests, even given the intention that he has spelt out.

Andrew Mitchell (Conservative, Sutton Coldfield)

If I offered to withdraw the amendment and allow the Minister's Department to redraft the clause and bring it back on Report, would that be helpful?

Jacqui Smith (Labour, Redditch)

I know that the hon. Gentleman is always trying to be helpful, but I was about to explain the other reason why the amendment is not appropriate, even if he interprets it differently. It would be operationally impractical if, as I believe he is saying, an inspector could exercise the power to enter and remain on premises only during a single month, or only during any other time scale that the hon. Gentleman might want to identify. An investigation might be conducted over only a couple of weeks, but a very complex investigation might well need to be conducted for very much longer than a month and will comprise a variety of activities, not all of which will involve full-time or regular contact with the company.

Such an investigation might involve visits to the company, obtaining information from elsewhere and then having to return to the company. By constraining the ability to investigate within one month, we would, in effect, make it impossible for the company investigators to carry out their tasks, given the complexity of some investigations.

Andrew Mitchell (Conservative, Sutton Coldfield)

The Minister is missing the point. Of course an investigation might take more than a month, but the issue is whether the inspector shall stay on premises, which might be domestic, for longer than that period without thinking it through and without justifying his actions very carefully. The investigation might take longer than one month, but the issue involves whether it is accurate to suggest that the inspector needs to sit in a domestic home for more than one month in pursuit of that investigation. I submit that it is not.

Jacqui Smith (Labour, Redditch)

An investigator would not, as the hon. Gentleman says, sit in a domestic home for a month. That, clearly, would not fulfil the criteria of entering the premises at reasonable times or remaining there over a reasonable period. However, the investigator might well need to visit certain premises—including a director's home, for example—and have to return several months later, perhaps because it had come to light that there might be other information or that other documents could be obtained on those premises.

I repeat my concern that what he is trying to do would be impracticable and would limit the ability to carry out an investigation.

Before I finish, however, I hope that I can make the hon. Gentleman happy.

On amendment No. 34, he suggested that he might have spotted a lacuna in new section 449 in that it does not protect information acquired by a person accompanying an investigator. In our view, that would be a rare event, but I would like to consider the situation that he has outlined, and I might well be prepared, if necessary, to table an amendment on Report.

I am extremely grateful to the hon. Gentleman for having brought the matter to the Government's attention. In that spirit of compromise, I hope he will withdraw his amendment.

Andrew Mitchell (Conservative, Sutton Coldfield)

I am, although Hansard cannot record it, visibly moved, not least because the Minister has shot my fox.

As members of the Committee will recall, I negotiated with the Clerk as to how to force a Division on my amendment. The Clerk, as ever, explained that, for technical reasons, I would have to force a Division on amendment No. 18 before forcing a Division on amendment No. 34. I was about to start my remarks by telling the Minister that I wanted to divide the Committee on the amendment; it is so reasonable that it is inconceivable that the Government Whip would permit her not to instruct her Back Benchers to support it. Now she has said that she finds it helpful and has suggested that she might allow me to re-table it on Report so that she can accept it. I shall not press it to a vote today.

Serious matters are involved today, and the Minister must have listened with great care—as the Government Whip certainly did—to the wise words of the hon. Member for Stoke-on-Trent, Central. The hon. Gentleman has been a Minister; he has been in govt, as have you and I, Mr. Conway, and he knows that what he said is correct. In legislation one cannot rely on the self-evident reasonableness of one Minister; legislation must be made fireproof against abuse, which may come in many forms. Although I saw 14 DTI and Home Office officials around the Room stiffen and thrust a piece of paper towards the Minister—

Derek Conway (Conservative, Old Bexley and Sidcup)

Order. I dislike interrupting hon. Members in full flow, but this is the second time that the hon. Gentleman has referred to those people. I do not see anybody else in the Room but members of the Committee; nor does he.

Andrew Mitchell (Conservative, Sutton Coldfield)

I am grateful to you, Mr. Conway, for keeping me on the straight and narrow. Any official advice that might be given to the Minister in respect of the words of the hon. Member for Stoke-on-Trent, Central is bound to say, ''Resist'' or, ''Beware of an apparent agreement between Sutton Coldfield and

Stoke-on-Trent''. None the less, the hon. Gentleman is correct: Members of Parliament should be enormously careful about granting open-ended powers in such areas.

The Minister makes great play of the fact that the Secretary of State will have to authorise such an investigation, but it is extremely likely that almost every time the Secretary of State is asked to authorise, he or she will do so. If I remember rightly the comments made in the other place, the Minister there conceded that that was virtually certain to be the case.

The provisions that we seek to pass into law today mean that someone will not be told why they are being investigated, because the Minister resisted those amendments. Officials will not have a greater burden of certainty imposed on them before they make their inquiries, because those amendments have been rejected. Officials will be able to stay as long as they like—one can imagine officialdom sitting with folded arms, saying, ''Until you tell me what I want to know, I'm not going to move.'' I sought to win the Minister's support by mentioning the domestic circumstances into which an official might enter. The threat that an official could stay for a long time, putting undue pressure on a director being investigated, is real.

The Minister said blithely that we must not be in the business of imposing too many limitations on the powers, but I simply want to impose some limitations on those powers. It is our constituents who will be investigated by an over-mighty bureaucracy and investigatory regime, and that is wrong.

I shall withdraw my amendment, but I give notice to the Minister that I want to test the view of the House of Commons on Report to see whether the majority of our colleagues believe that the powers as drafted are excessive and go beyond what Parliament should permit of investigators in pursuit of our constituents, that the powers are unbalanced, and that they need to be amended. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 21 ordered to stand part of the Bill.

Clauses 22 and 23 ordered to stand part of the Bill.

Schedule 2 agreed to.

Clause 24 - Community interest companies

Brian Cotter (Liberal Democrat, Weston-Super-Mare)

I beg to move amendment No. 41, in

clause 24, page 28, line 16, at end add—

'(c) a charity may become a community interest company.'.

Derek Conway (Conservative, Old Bexley and Sidcup)

With this it will be convenient to discuss the following:

Amendment No. 42, in

clause 24, page 28, line 17, leave out subsection 3.

Amendment No. 35, in

clause 24, page 28, leave out lines 17 to 18 and insert—

'(3) Notwithstanding the purposes for which a community interest company is established it—'.

Brian Cotter (Liberal Democrat, Weston-Super-Mare)

I am pleased to move the amendment on behalf of my hon. Friend the Member for Tweeddale, Ettrick and Lauderdale (Mr. Moore) and myself. We are talking about an important subject, to which we have already referred: community interest companies. My colleagues and I are engaged on the issue, and are supportive of community interest companies, but I wanted to raise a particular point. The amendments would remove the provision that states that charities cannot become community interest companies and would instead allow them to choose that legal form if they so wished.

As my noble Friend Lord Phillips of Sudbury noted in the House of Lords, clause 24 states:

''A community interest company established for charitable purposes is to be treated as not being . . . a charity''.

As Lord Phillips pointed out, that is something of a paradox, because a body established for exclusively charitable purposes and operating exclusively as a charity is prevented from registering as a community interest company.

The concept of a charity has always been defined by an organisation's activity and purpose rather than its form. That fundamental point is enshrined in charity law and has in the past given charities the necessary flexibility to adopt the most appropriate form to perform their work. Preventing a charity from choosing to become a community interest company will only create confusion in the public mind about the differences between each structure.

The Government claimed in the other place that they would not accept such an amendment, on the grounds that it would be of little use to charities, which would not wish to use the new form as it would require them to comply with additional regulatory requirements. None the less, it should be for a charity to choose which legal form is most appropriate for the execution of its work. It should not be for the Government to limit the decisions of individual charities, which each have different needs and aspirations. As Lord Phillips said in the other place, he consulted two Law Lords, Lord Browne-Wilkinson and Lord Hoffman, on the issue. Both have extensive experience in dealing with charities, and both shared his concerns.

The Government have said that a new legal form for charities will be created: the charitable incorporated company. Under the draft Charities Bill, the Home Office believe that that will

''avoid dual regulation between charity and company law and provide an alternative to the company limited by guarantee model currently used by many charities.''

None the less, the proposal is likely to be utilised by smaller charities that want to operate within the simple legal framework that the charitable incorporated company will provide. Concern has therefore been expressed that the new type of legal form will be of little use to larger, high-profile charities, which may want to use the community interest company form.

It has also been said that grant-giving charities will find it easier if community interest companies can register as charities, as they will find it easier to make

grants to them—a point that I believe has been raised with Ministers by the Community Development Finance Association.

The Government have claimed that the community interest company form is not designed to be used by charities, but, as was pointed out in the other place, virtually no other legal form is specifically designed for charities. The company limited by guarantee and the company limited by share are both forms utilised by charities, but there is no confusion. For example, a company limited by guarantee that is a charity is still a company limited by guarantee. Why should the same not apply to charities that wish to use the community interest company form?

Allowing charities to become CICs will allow them the maximum flexibility to choose whichever form is most suitable for their work, and will thus help to enhance the value of the new community interest company structure. That will in turn boost the social enterprise sector, as there is a lot of commonality between CICs and charitable work. I commend the amendment to the Committee.

Derek Conway (Conservative, Old Bexley and Sidcup)

Before I call the next speaker, I should say that I intend to let the debate on the amendments range widely to cover the clause, on the basis that we will not then have a clause stand part debate. If that does not inconvenience the Minister, it might help to facilitate proceedings.

John Battle (Labour, Leeds West)

Thank you, Mr. Conway, for giving me the opportunity to say a few brief words, because I am enthusiastic about the idea of the new instrument of community interest companies reaching the statute book. That sentiment is shared on both sides of the Committee, so I am keen to ensure that we do not make obstacles, which may not really exist, so insuperable that we cannot move forwards.

I notice that we are already slipping into using acronyms—I am suspicious of our language being reduced to text language—and referring to CICs as ''kicks''. To use a most appalling pun, I believe that the instrument could ''kick-start'' local economic development. More seriously, we should get away from the acronym and focus on the purpose of the instrument. The purpose is to allow ordinary people to invest a modest amount of money in a company that can provide goods and services locally, so that the benefits will be felt locally. My neighbourhood of west Leeds loses £18 million a year through goods and services being bought elsewhere. We could reinvest that money in our neighbourhood to take the boards off of boarded-up shops and reopen them. We could use the provisions of the Bill to help with the care of the elderly, the sick and youngsters. I want the provisions to have a real practical input, and not be just a financial instrument or just another piece of law.

I shall briefly comment on the remarks by the hon. Member for Weston-super-Mare (Brian Cotter), because I know that he appreciates the purpose of the new instrument. Having read the Hansard record of the debate in another place, I believe that there is a

danger that the Law Lords can become so obsessed with reconciling law that they miss the point. I share the concerns raised on the Floor of the House about the interface with charity law. I worked for 10 years in charity law trying to separate out which activities counted as charity and which counted as educational. However, I cannot support the hon. Gentleman's amendment and I think that we are making a mountain out of a molehill.

More reform of charity law will come. However, the charity commissioners wrote in support of the Government and I read out the letter on the Floor of the House. They say, ''Don't turn charities into community interest companies, but there is nothing to stop a charity setting up, with others, a subsidiary that is a CIC.'' The current remit of the Bill does not dilute the practical effects that the hon. Gentleman highlighted. We should not hold up the Bill by arguing whether we should wait for charity law to be reformed later—when that comes, it will be helpful. There will always rightly be a complex interface between charity law and business activity, because both areas are dynamic and growing, but there should not be a problem.

I shall make three quick points to the Minister on my own behalf. First, I welcome the fact that in setting up the regulations, and in the conversations that the Government had with the sector, the interested voluntary bodies that have campaigned for new social enterprise instruments will be included in the ambit of regulation to work with the regulator. I hope that she can confirm that, because that is most welcome. Secondly, I know that most of the detail will be included in detailed regulations. When will they be published? I look forward to that, so that we can work with the practical instrument as soon as possible.

Finally, can I be assured that when CICs are set up, they will get a fair wind when it comes to competing for contracts and tendering? Only 20 years ago—it is now history—I was involved with setting up co-operative businesses. It may surprise hon. Members, even Labour Members, to know that the most difficult thing was to convince the Co-operative bank, of all people, to accept a workers' co-operative as a viable business. That was not because the co-operative did not have a good business plan; they had a damn good business plan. However, the bank could not understand the complex nature of a co-operative company's structure, or the fact that, rather than one person being involved, all members shared in it.

We are well beyond that stage now, I am glad to say. However, I hope that lack of awareness of the slightly more complex community structure of community interest companies does not deter other businesses, local authorities and public bodies from recognising them, respecting them and treating them fairly. The new companies will need to be treated as good real businesses that can bid for contracts and tender on a level playing field with other private businesses. If we reach the point at which that is the case, we will have an instrument that allows local communities to invest

in their communities, and when they do, that investment will remain in the communities. Even if a scheme goes belly up after a few years—and of course, some businesses do—all the assets will remain in the community.

We are in a win-win situation with this proposal. I hope not only that it will become law, but that the Government will give it publicity and advertise it as a good thing for local communities. We should promote this instrument of community economic development and ensure that it is used.

Andrew Mitchell (Conservative, Sutton Coldfield)

I am pleased to be able to speak to amendment No. 35, which is designed to be helpful to the Minister. Its purpose is to make it clear that a company established as a CIC cannot be a charity. That is, as I understand it, the current position in law, but the objective is achieved in the Bill by drafting that is so convoluted as to obscure the point. Anyone reading the Bill to the effect that a company established for a specified purpose

''is to be treated as not being so established''

would surely despair of the drafting. The amendment would make the point of principle more simply and clearly, and I offer it to the Government in that spirit only. If the Minister feels that it is not helpful, I will not press it.

Mr. Conway, you kindly said that we could have a slightly wider debate on the amendments in order to avoid the need for a clause stand part debate, and I am most grateful for your ruling. In the interests of the timing this morning, and of getting through the amendment paper, I do not intend to suggest a general debate on CICs, although I very much hope that we will be able to have one on Report, because, as the right hon. Member for Leeds, West (Mr. Battle) said, this is a matter of wider interest to a number of hon. Members.

The hon. Member for Weston-super-Mare asked whether a CIC could be a charity. I am agnostic on that point, although I think that the Bill should make the position clear. As I understand it, a CIC can have a relationship with a charity or, possibly, a charitable incorporated organisation. That means that if the Government intend us to be clear that a CIC cannot be a charity, they will have to look quite carefully at this legislation to ensure that it is enforceable, because of the arrangements that I have described.

I want to make three further points. I agree with the right hon. Member for Leeds, West about the use of acronyms. He will have noted that throughout these proceedings I have never referred to a ''kick''; I have always referred to either a C-I-C or a community interest company. It is quite important to distinguish this organisation, because in a moment I shall say a few words about another organisation that the Government are seeking to establish—the charitable incorporated organisation, which will arise under charity law. If there is a Charities Bill in the next Session, that form of organisation, too, will be established, and although the Minister made a good attempt on Second Reading to describe the difference between the two types of organisation, it will defy most

of our constituents. The organisations are closely related in intent in so many ways that great confusion will be caused.

My submission to the Committee is that the Government would have been wiser to wait until the House could see the shape of the charity legislation—draft legislation is being considered by the Joint Committee—before proceeding with CICs. That is the same point as was made about part 1 of the Bill: Opposition Members regret that the Government have produced a minnow when they should have produced the company law review and the major company law changes that we have been awaiting. Similarly with CICs, it would have been better to wait until the House could see the new Charities Bill and consider CICs in that connection.

I also think that the Minister will need to demonstrate that the raft of new legislation proposed is necessary. On Second Reading I drew the attention of the House to the Industrial and Provident Societies Act 1965. It is clear that the distinguishing characteristics of a community interest company, which are outlined in paragraph 161 of the explanatory notes, are very similar to those of an industrial and provident society set up under the 1965 Act.

For example, an industrial and provident society for carrying on any industry, business or trade can be registered if its business is conducted for the benefit of the community. Clause 33 says that a CIC

''satisfies the community interest test if a reasonable person might consider that its activities are being carried on for the benefit of the community.''

Similarly, the Industrial and Provident Societies Act says that a community benefit society must state in its rules how profits are to be applied, and state factors relevant to the decision whether a society qualifies as a community benefit society; it must include whether it is non-profit-making and whether its rules prohibit distribution of assets among its members.

Clauses 28 and 29 allow regulations to prohibit or limit the distribution of assets by CICs and deal with the distribution on winding-up of a CIC. The Industrial and Provident Societies Act says that rules must prevent surplus assets from going to members, and the Bill promises, with regard to CICs, regulations that limit the amounts that can be paid to members in a winding-up.

Not only is the Bill premature, as this proposal should have been examined in the context of the draft Charities Bill, but much of it may be unnecessary. Its aims could have been accomplished in a far simpler legislative way.

I must point out to the right hon. Member for Leeds, West that the difference between the CIC and the CIO, which he understands—as you will, Mr. Conway, because of your expertise in the charitable sector—will not be understood by many others. The Government will have to return with a clearer exposition of the aim of both those two instruments.

The right hon. Gentleman was right to point out that we have not seen the secondary legislation regarding the CIC. As for the CIO, those considering

the draft Charities Bill have seen nothing, because there are no regulations for us to see. We are stabbing in the dark. I hope that the Minister will hear the words of the right hon. Gentleman and ensure that we are given sight of the secondary legislation, which, so far, we have been unable to review.

Jacqui Smith (Labour, Redditch)

As we have heard, clause 24 introduces the concept of the community interest company—the CIC, or ''kick''. I shall try to refer to it in full. The community interest company will be a company with additional features to ensure that it will work for the benefit of the community. The proposal has been developed in the light of two consultations, both of which have clearly demonstrated the demand for the specific and separate features of a community interest company. For instance, in response to the consultation, the Social Enterprise Coalition said that it would be a valuable addition to the legal forms available. The National Council for Voluntary Organisations described it as a useful tool for many organisations.

Some of the discussion today has centred round the distinction between the possible alternatives. The hon. Member for Sutton Coldfield questioned, both on Second Reading and today, how the community interest company would fit together with other legal forms—particularly the proposed charitable incorporated organisation and the industrial and provident society. The answer lies in the analysis carried out in the strategy unit report on the matter. It recommended the creation of the community interest company and the charitable incorporated organisation and the updating of the industrial and provident society.

I shall briefly explain the distinctions between those. The industrial and provident society, as we have heard, is a well established legal vehicle for co-operative and mutual activity, for the benefit of members and the wider community. The IPS is particularly valued for its close links to co-operative and mutual principles, usually expressed in a one member, one vote governance structure. It is a very appropriate structure for many community enterprises, but it is not appropriate for everything.

Our consultation clearly showed that many social enterprises wanted to use the company form, because of its flexibility and familiarity, but they wanted the additional help of a tailor-made, robust asset lock. In other words, they would not need constantly to re-invent, sometimes with quite considerable expense and difficulty, an asset lock to tag onto a traditional company form. That is what the community interest company will provide.

The charitable incorporated organisation is an entirely different animal from the community interest company; indeed, its potential users are the very people who will not want to use community interest companies. The charitable incorporated organisation is for those organisations that wish to be charitable but want a simpler, better vehicle than the charitable company. The community interest company, on the other hand, is for those who want a distinct non-charitable company form. I shall come on to some of

the difficulties that would be caused by conflating the two in a moment when I address the amendments tabled by the hon. Member for Weston-super-Mare.

I hope that that explanation also helps the hon. Member for Sutton Coldfield to understand why we are legislating for community interest companies now, in advance of the Charities Bill. We are not placing the cart before the horse, as he suggested on Second Reading; rather, we have two different but equally valuable horses, one of which—the community interest company—is running a slightly earlier race. The community interest company is being introduced in this Bill because it is a company, formed by company law. The charitable incorporated organisation is not a company; it will be formed by charity law, so it is appropriate that be covered by the Charities Bill. As I suggested on Second Reading, there is nothing to be gained by forcing through legislation for both forms in the same Bill. There are considerable advantages, as my right hon. Friend the Member for Leeds, West said, in getting on with providing the alternative vehicle for social enterprise that received so much clear support during the consultations.

I accept that for some of those who want to set up new enterprises for the community, the choice of legal forms is quite complicated. That is one of the reasons why the Government intend to make a particular effort to promote both the community interest company and the other legal options available to help people to understand which is the right one for their enterprise. I agree with my right hon. Friend and the hon. Member for Sutton Coldfield that that is a priority, and I can assure the Committee that the Government will be working closely with the social enterprise sector to make that happen.

We strongly believe that amendments Nos. 41 and 42, which challenge the basis of the policy on which we consulted last year, would have harmful consequences both for community interest companies and for charities. As the hon. Member for Weston-super-Mare said, that was subject to considerable debate in another place. We have carefully considered the policy and are satisfied that it is the right one. The community interest company should not have charitable status: it is a new company form for social enterprises, is clearly non-charitable, and as I suggested, has the flexibility of a company limited by guarantee or shares, but it is run for the benefit of the community and has a regulated asset lock. It is a clear and separate option—a clear and separate brand for social enterprise.

Charities can choose a range of organisational forms and may incorporate in several ways, including as a company limited by guarantee. The difference between incorporating as a company limited by guarantee and as a community interest company is the access to the community interest company form's asset lock. That is a major benefit but, of course, charities already have an asset lock as part of their regulation by the Charity Commission.

Therefore, a charity that chose the community interest company form would gain nothing from the asset lock, but would be submitting itself to dual regulation by the community interest company regulator and the Charity Commission. A charity that was allowed to adopt a community interest company could act only within the boundaries of the more onerous Charity Commission regulations. It would not be able to trade or otherwise run itself with the freedom that would be enjoyed by the non-charitable community interest companies envisaged in the Bill.

Hon. Members rightly raised the issue of clarity with respect to different forms, and the other problem with the amendment is that it would undermine the clarity between the different forms. If we were to accept the amendment, there would be two regulators and no single answer to such questions as, ''Who are community interest companies regulated by?'', ''Who do I complain to about a community interest company?'', ''Do community interest companies get tax breaks?'', ''How can community interest companies raise finance?'' or ''Can community interest companies pay directors?'' That confusion would create a barrier to building understanding of the community interest company among the public in general and among those wishing to become community interest companies, give advice on them or finance them.

The policy that we are introducing is based on our successful consultation last year. Responses to it raised specific concerns that community interest companies and charities should be clearly separate. As my right hon. Friend the Member for Leeds, West, pointed out, the Charity Commission itself raised that concern and supports our position. We have considered the arguments for an amendment, but we remain convinced that our policy is right.

Amendment No. 35, tabled by the hon. Member for Sutton Coldfield, seeks, as he said, to restate our policy in different words. Although I again thank him for his helpfulness, I believe that the amendment is not only unnecessary but may have unintended and unwelcome consequences.

As I said in my comments on the other amendments in the group, the purpose and effect of clause 24(3) is to ensure that a community interest company cannot have charitable status. That is achieved by providing that it is not a charity and cannot be recognised as a Scottish charity. The provision also refers to charitable purposes, because that is the language used in some statutes and in tax legislation in particular. Even though a community interest company cannot be a charity, it may still be set up for purposes that would be charitable. For example, a community interest company could be set up to research cures for disease. Clause 24 therefore explains, for the avoidance of doubt, that a community interest company with charitable purposes should not be treated in the same way as any other organisation with charitable purposes.

Our policy in the area is clear, but the amendment might make it possible for someone to argue that a community interest company established for

charitable purposes would be eligible for tax breaks. I repeat that our policy is clear: community interest companies will not be eligible for special tax breaks or for any tax breaks designed for charities. That is entirely in line with our intention that they should be a non-charitable company form.

I agree with my right hon. Friend the Member for Leeds, West that consultation with the organisations involved in social enterprise is crucial, and we have undertaken such consultation up to this point. For example, we involved those organisations in the consideration of the job description and appointment of the community interest company regulator. I assure my right hon. Friend that we will continue to keep up that important and fruitful relationship and continue to consult.

We have already published draft—what we call ''dummy''—regulations with respect to community interest companies. I have sent those to members of the Committee and am happy to circulate them again. In a few weeks, we will consult formally on the draft regulations.

Finally, I am happy to reassure my right hon. Friend that community interest companies will be no different from other companies in terms of the requirements that apply to them when they engage in public procurement. That means, for instance, that the rules applying to the transfer of employees will be the same, regardless of whether the company is a community interest company.

The Government see, as my right hon. Friend does, that public procurement is an area in which social enterprises, including community interest companies, have an important part to play. Although they will compete on a level playing field with private companies, social enterprises may enjoy some competitive advantage simply because they can market themselves as working for the community, as he pointed out, rather than for private gain. We produced a tool kit last October specifically to help social enterprises to bid for local government contracts.

I hope that hon. Members will not press their amendments and that we can proceed with the important work of boosting social enterprise and the economic development of our communities through the development and institution of community interest companies.

Brian Cotter (Liberal Democrat, Weston-Super-Mare)

First, I thank you, Mr. Conway, for allowing us to have a brief but wide-ranging debate on community interest companies. The right hon. Member for Leeds, West feels particularly strongly about this, as we all do on both sides of the Committee. That is welcome in itself.

The Minister has not exactly made me crumble with her remark, but I accept that the concern about charities has been raised in the other place. There was a long debate and a close vote, indicating concerns that

are fairly widespread. She has advanced some points and the uncertainty about charities is very much in the arena. On the basis that the matter has been rehearsed twice at length and very clearly, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Derek Conway (Conservative, Old Bexley and Sidcup)

Mr. Mitchell seeks to catch my eye.

Andrew Mitchell (Conservative, Sutton Coldfield)

I do not want to press my amendment, following the Minister's withering rejection of it, but I hope we can return to CICs on Report. There is undoubtedly strong support across the House for the concept. I listened once again with great care to the Minister's description of the difference between the CIO and the CIC. I will read what she said in Hansard, but I still do not think that we are there. As I said on Second Reading—

Derek Conway (Conservative, Old Bexley and Sidcup)

Order. I may not have given the hon. Gentleman a clear enough steer. I thought he was seeking to raise a point of order with me about whether we may debate his amendment now because it was not the lead amendment, which was moved by Mr. Cotter. That means that there is now no amendment before the Committee. The hon. Gentleman may call a Division on his amendment, but I am afraid that he cannot debate it again.

Andrew Mitchell (Conservative, Sutton Coldfield)

May I complete my remarks on CICs?

Derek Conway (Conservative, Old Bexley and Sidcup)

Yes, we could do so in a brief clause stand part debate.

Question proposed, That the clause stand part of the Bill.

Andrew Mitchell (Conservative, Sutton Coldfield)

I am most grateful, Mr. Conway. I still believe that this is not joined-up government and that the cart was placed before the horse. The Minister said that this is a case of two horses pulling the same cart, but I fear that we are observing two horses from a great distance without being able to distinguish between them—they are both greys. As a result, I am unable to place my bet on which horse would most adequately fulfil my demands for it. Because we have not seen all the secondary legislation and have seen none of the legislation in connection with the CIO, we cannot tell whether the horse is a nag or a racehorse.

Derek Conway (Conservative, Old Bexley and Sidcup)

I am grateful for the Committee's tolerance of my slight confusion there.

Question put and agreed to.

Clause 24 ordered to stand part of the Bill.

Clause 25 ordered to stand part of the Bill.

Schedule 3 agreed to.

Clause 26 ordered to stand part of the Bill.

Schedule 4 agreed to.

Clause 27 ordered to stand part of the Bill.

Schedule 5 agreed to.

Clauses 28 to 31 ordered to stand part of the Bill.

Schedule 6 agreed to.

Clauses 32 and 33 ordered to stand part of the Bill.

Clause 34 - New companies

Andrew Mitchell (Conservative, Sutton Coldfield)

I beg to move amendment No. 37, in

clause 34, page 33, line 35, at end add—

'(11) The Secretary of State shall establish a fund to support the cost of organisations setting up and registering as community interest companies.'.

This probing amendment was suggested to me by the Royal National Institute of the Blind. When organisations write to hon. Members on important matters, it is no bad thing to consider them in Committee.

The amendment would require the Secretary of State to establish a fund to support the cost of organisations setting up and registering as community interest companies. I would expect the Minister to ensure that such funds came out of her Department's existing budget.

Many community enterprises play an invaluable role in getting blind, partially sighted and other disabled people for whom it is difficult to find and retain employment into work. However, they have difficulty in obtaining the necessary funding to set up successfully; many funding sources give money only to registered charities and the Bill states that community interest companies are not charities. Therefore, despite the fact that a new type of organisation is being created, they might still struggle to get the necessary funding.

The RNIB therefore submits that to gain the full benefit of creating the new type of company, the Government need to create a fund to support, in certain circumstances, the cost of certain new organisations setting up and registering as community interest companies.

I shall be most grateful if the Minister responds briefly to the amendment, or, if time does not permit, if she writes to me on the matter. In turn, I will write to the RNIB.

Jacqui Smith (Labour, Redditch)

The hon. Gentleman makes an important point, which reinforces the importance of community interest companies, particularly because of their role in respect of disabled people. We have put considerable investment into the development of the proposal, not only in the Bill, but in promoting social enterprise generally. There is a future builders' fund of £125 million from the Home Office to support the development of voluntary and community organisations offering public services. However, a new fund to provide finances to organisations wishing to set up community interest companies is not appropriate because that is one choice among many options. There are many ways in which we can support community interest companies and I am extremely willing to write to all members of the Committee outlining what they are.

Andrew Mitchell (Conservative, Sutton Coldfield)

I have listened with great care to the Minister. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 34 ordered to stand part of the Bill.

Clauses 35 to 40 ordered to stand part of the Bill.

Schedule 7 agreed to.

Clauses 41 to 62 ordered to stand part of the Bill.

11.15 am

Schedule 8 - Repeals and revocations

Clause 65 - Short title

New Clause 2 - Funding of director's expenditure on defending proceedings

New Clause 11 - Director's Report (Statement of Payment Practice)

Brian Cotter (Liberal Democrat, Weston-Super-Mare)

I beg to move, That the clause be read a Second time.

I appreciate the fact that new clause 11 has been selected for debate. To me, it covers one of the most important issues to be raised under the Bill. As a result of legislation passed in 1998 to address late payment, the business community finds itself in a situation in which one in four businesses are failing from a lack of cash flow, mostly because large firms in particular are not paying their bills on time.

I very much regret that this important new clause has come up at such a late stage, because I had quite a lot to say about it. I shall make only a few remarks, however, and I look to the Minister for a response. Indeed, I hope that she will cave in, as she should,

given the concern about late payment. If she does not, however, I shall return to the issue with great force on Report.

The Late Payment of Commercial Debts (Interest) Act 1998 made it clear that businesses needed clearly to include records of payment in their annual reports. However, as I said on Second Reading, and as the Minister will know, that is not being done. I have asked several parliamentary questions about the matter and pursued it with Companies House, but even Companies House was not immediately able to produce evidence of what reporting has been done as regards the payment of bills, and it took a month or more to find information that should be readily available to small businesses.

The late payment of debts is becoming an increasing problem for small businesses, which are being driven out of business as a result. It is increasingly difficult for them to make judgments, because they do not have clear information, in a standard format, about larger companies' payment records as companies have not been able to list the information themselves.

I have a lot of questions, and I hope the Minister accepts that there are issues to address. Although I hope she will give me some reassurance, I shall refer to the issue again on Report.

Jacqui Smith (Labour, Redditch)

I have considerable sympathy with the hon. Gentleman's point that late payment can cause small businesses severe difficulties. That, of course, is why the Government have introduced a package of measures to assist small businesses, including the 1998 Act, which gave suppliers the right to claim interest for late payment and set a credit period of 30 days where no other credit period has been agreed. We strengthened the Act through the Late Payment of Commercial Debts Regulations 2002, which enable every business to claim a fixed sum of compensation for the cost of chasing bad payers, as well as giving them the right to claim interest.

In addition, we established the better payment practice group in conjunction with the small business community, including the Federation of Small Businesses, to promote the commercial and ethical benefits of paying promptly and to make credit management tools and techniques freely available.

Those Government actions have helped to improve the situation. In 1997, published data from the Grant Thornton European business survey showed that the average time taken in the UK to settle accounts was 49 days. By 2002, that had fallen to 41 days, compared with a European average of 50. So, we are doing better on this than our European competitors.

On Second Reading, the hon. Gentleman mentioned the performance league table of the Federation of Small Businesses. This Government's commitment to tackle late payment encouraged the federation to compile and publish a league table to show the average payment times of Britain's plcs and their larger private subsidiaries. As set out in schedule 7 to the Companies Act, directors are required to disclosed the average time taken to pay trade creditors. That information is then collected by the Federation of Small Businesses and published annually in a league

table. I welcome those tables; they are an important measure. They contribute to the change in payment practice by showing small businesses how quickly they can expect to be paid when dealing with large customers.

Although I am sympathetic to the problems of collating the data in a meaningful way, as set out by the hon. Gentleman, I am not convinced that the solution is to introduce further regulation and increase the burden on companies, not least because the power that new clause 11 would give the Secretary of State is effectively already available under section 257 of the Companies Act 1985.

Derek Conway (Conservative, Old Bexley and Sidcup)

Order. I am sorry to interrupt the Minister . I am of the opinion that the Committee is concluding its consideration not only of the clause but of the Bill. I have power under Standing Orders to extend the sitting for a short time. Although it may inconvenience some hon. Members, I intend to do so as that will enable the Committee to conclude its business now, rather than having to come back this afternoon. I ask the right hon. Lady to conclude her remarks.

Jacqui Smith (Labour, Redditch)

Section 257 of the 1985 Act enables the Secretary of State to amend part VII of that Act. The Government have not yet thought it necessary to use that power to introduce a standard reporting format along the lines proposed by new clause 11 because there is no evidence that doing so would improve the quality and usefulness of the information given.

The record shows that our actions are bearing fruit. The new clause is therefore not necessary or desirable. However, we will continue to keep the situation under review, listen to the concerns of small businesses and hon. Members, and continue to make progress in tackling the problem of late payment.

Brian Cotter (Liberal Democrat, Weston-Super-Mare)

I would strongly rebut almost every point made by the Minister, regarding in particular any improvement and the new clause not being necessary. I am very disappointed indeed, especially at the fact that we are discussing this measure so late in the Session. I do not believe in regulation, but a format for reporting information is required. I would wish to say more, but the Liberal Democrats have questions tabled for Trade and Industry Question Time in the House, which is due to begin in a moment. I shall

conclude, but I will rehearse the argument at the next opportunity. I beg to ask leave to withdraw the motion.

Motion, and clause, by leave withdrawn.

Title

Jacqui Smith (Labour, Redditch)

On a point of order, Mr. Conway. Committee proceedings are drawing to a close, but it would be remiss of me not to record my appreciation of how the Committee's work has been carried out. I thank you and your co-Chairman, Mr. Taylor, for chairing the Committee. I also express my appreciation to my hon. Friends.

I thank the hon. Member for Sutton Coldfield for trying so hard to provide us with a range of alternatives. I also thank our Liberal Democrat colleagues for engaging with the Bill in the correct spirit. I congratulate my hon. Friend the Member for West Bromwich, East (Mr. Watson) on successfully piloting his first Bill through Committee. Last but not least, I thank my officials for all their hard work in getting us to this point.

Andrew Mitchell (Conservative, Sutton Coldfield)

Further to that point of order, Mr. Conway. I echo the Minister's thanks to you and Mr. Taylor, your co-Chairman, for how you chaired the Committee. This is a highly technical Bill covering a large range of technical matters, and I am grateful for the long-suffering way in which you allowed us to range over them. I also thank the Minister for her courtesy. I congratulate the Government Whip, who clearly has an outstanding career ahead of him. I also thank the Hansard staff—on a Bill as technical as this, they perform what is an extremely difficult task.

Brian Cotter (Liberal Democrat, Weston-Super-Mare)

I simply say, ''Hear, hear!''

Derek Conway (Conservative, Old Bexley and Sidcup)

I thank members of the Committee for their observations and their compliments to me and my co-Chairman, Mr. Taylor. I share the thanks that they expressed to the Serjeant at Arms team, our Clerks and the Hansard reporters. I also thank members of the Committee for their co-operation; both Chairmen are grateful.

Question put and agreed to.

Bill, as amended, to be reported.

Committee rose at twenty-nine minutes past Eleven o'clock.