Community Interest Company (Amendment) Regulations 2014

Debate between Lord Hodgson of Astley Abbotts and Lord Geddes

Monday 21st July 2014 Grand Committee

[The Deputy Chairman of Committees (Lord Geddes) (Con)]

The noble Lord, Lord Hodgson, was in full flow. Perhaps he would like to resume.

[Lord Hodgson of Astley Abbotts]

I thank the Lord Deputy Chairman. I was just concluding my first general concern about the regulations, which is that we are in danger of creating such a multiplicity of corporate forms that the public become concerned. As such, if we have scandal or difficulties in these intermediate categories, that may undermine the public trust in proper, full charities which are already under some pressure because of other issues such as executive salaries, aid to extremists and so on. I was saying to my noble friend that I very much hope that she will be robust in the maintenance of the asset lock, otherwise that would open up a significant whittling away. I hope that as the Government think about reforms in this area they will bear in mind the need to keep as clear a differentiation as possible and to explain it to the public. That is my general concern.

On my specific question, I turn to a point that my noble friend raised in her opening remarks about the change being made by the regulator to raise the performance rate of interest rate payable from 10% to 20%, which is in paragraph 8.3 of the Explanatory Memorandum. I understand from my noble friend’s remarks that this can be done by the regulator off her own bat. I seek an explanation of what this actually means. I understand what it says on the tin, but does that mean that it is inside the tin? If I understand it, it means that if I were to lend some money to a CIC and was able to arrange with the management that some performance-related criteria could be set—and I might seek that they be set in a way that was reasonably favourable to me—I could then get a 20% performance-related interest rate payable.

I may be completely wrong, in which case I am delighted to withdraw that view, but if I am right that does not seem to be a very happy state of affairs. A 20% rate of interest is high. The regulator should have control over the performance criteria that enable such a rate to be set, but it seems unlikely that that could happen without a high degree of bureaucracy. As the Minister knows, 20% in today’s markets is an extraordinarily high rate of interest, when the base rate is as it is. Indeed, it is nearly the APR that you are charged on overdue bounces on your credit card—about 22% or 23%—which everyone is saying is close to usury and that it is disgraceful that people should be charged such a rate.

Auditors: EAC Report

Debate between Lord Hodgson of Astley Abbotts and Lord Geddes

Wednesday 14th March 2012 Grand Committee

[The Deputy Chairman of Committees (Lord Geddes)]

It is now 5.35 pm. The noble Lord, Lord Hodgson of Astley Abbotts, who was so abruptly cut off in mid-flow, may resume his speech.

[Lord Hodgson of Astley Abbotts]

I was winding up, talking about the value of the traditional statutory audit and whether it now needs some serious revision. I said that my company is a simple company, with market capitalisation of £660 million, all in the UK, no foreign exchange, none of those complications, no open final salary pension scheme and, apart from some hedging for our long-term debt, not a great deal of complexity. I pointed out that in 15 years our annual report has gone from 35 pages to 104 pages. I questioned whether that is a useful exercise and how many people read it. In the Companies Act 2006, we thought we were being extremely clever in introducing the e-mail opportunity for companies. In a strange way, that has taken the pressure off auditors to think about the thing because they can e-mail people. Many fewer copies of the report can be printed. Increasingly the default option is to send it by e-mail anyway, so some of the self-restraint has been removed.

I think the auditing profession needs to follow this report with some serious intellectual heavy lifting to provide a greater degree of focus going forward. I turn to another context: the City at the moment. Noble Lords will have received papers from banks recommending shares. On the back page there is half a page of tiny type containing disclaimers. An investment bank put halfway down that, “If you have read this far, call this number and we will send you a bottle of champagne”. In three months, it never had a call. That is how much all this stuff is being read. It has become boiler plate. Similarly, too much of annual reports has become box-ticking and verbiage read by almost nobody. I think the profession could do a really valuable service by introducing a degree of rigour and focus. I hope that above the desk of each of the members of that working party, there will be a banner reading: “Less is More”.