Company Law Reform Bill [HL]

Before the noble Baroness decides what to do with her amendment, I raised the issue of the additional costs that would be incurred. It has been made quite clear that the inclusion of this offence—I referred to this earlier in the Committee—will result in risk-averse auditing behaviour because it substantially raises the stakes. It is inevitable that it will have such an effect. It will have a knock-on effect on company costs and, therefore, it will be an additional regulatory burden. As the Government have produced no evidence that there is an ill that needs to be solved, I cannot see how a cost-benefit analysis could come out in favour of this. When the Minister sought to justify the clause he did so in hypothetical terms. He referred to rebalancing incentives as if limitation of liability agreements will suddenly magic away the issue of auditor liability and make auditors say, ““Yippee, we do not have to worry about good auditing any more because we have limited our liability””. That is not what a limitation of liability agreement does. It still leaves auditors who have done bad auditing with a very significant liability—namely, whatever is agreed—which may well be on a proportionate liability basis. So there is not an issue of rebalancing incentives—auditors still have the right incentives to carry out good audits—and the Minister has not given any evidence that the offence is needed.