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Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008

My Lords, I am grateful to both noble Lords for their contributions, their brevity, and resisting the temptation for two chartered accountants to join forces against one criminal lawyer. It must have been very great for them, but they managed to resist and for that they deserve some congratulation. But I am more grateful for the general support given across the House to these regulations, particularly for the way in which the regulations are now set out under the new Act and for the raising of thresholds. I know that both noble Lords will be looking carefully to see how this works out in practice. Indeed, the noble Baroness asked whether, if in practice things do not work out as we hope they will, we will come back and make sure that they do. The answer is of course yes, although that will be subject to time and legislative ability. Everyone is in the business of trying to make these detailed and complex matters work for businesses and, I stress again, particularly for small concerns. I was asked a number of questions which I shall see if I can answer. I turn first to off-balance-sheet arrangements. These are not defined in the directive, as the noble Lord, Lord Shutt, pointed out. We believe that it would be very difficult, if not impossible, to provide a watertight legal definition that covered all the types of transactions that should be covered both now and in the future. Recital (9) of the directive provides useful examples such as the creation or use of special purpose entities and securitisation. The department intends to publish guidance on its website drawing attention to recital (9), and the Accounting Standards Board is keeping the relevant accounting standards under review. We think that this less prescriptive approach gives companies some more flexibility and therefore decreases the burden on them, and they can consider what is most appropriate for their circumstances. The noble Baroness was also concerned about accounting standards in relation to balance sheets, both UK and international standards. The standards are likely to have to keep changing in order to deal with off-balance-sheet arrangements, because those arrangements keep changing as the regulations change. We feel that it is best if the law remains at a principles-based level. We understand what the noble Baroness is saying about gold-plating. The 2006 Act as a whole introduced a range of deregulatory measures that have been widely welcomed by business. Annual administrative burdens on business will be reduced by over £300 million. It is a huge task to implement the Act and the secondary legislation under it, and we have to get it right. In the mid-1990s the then Government carried out an extensive review of statutory accounting requirements and a number of changes were made to simplify them where the UK had gone beyond what was required by EU accounting directives. The European Commission is currently working on proposals to simplify company law requirements, in particular the accounting requirements for small and medium-sized businesses. As a country we have been actively involved with the Commission on the work it is doing. When the EU proposals have been finalised and the Government come to implement the changes, there will be an opportunity for us to look at the few remaining areas where the accounting requirements could be more closely aligned with the EU accounting directives. We think it makes more sense to look at accounting simplification as a package rather than take a piecemeal approach, and we hope very much that all interested parties will help in this by bringing forward suggestions. The noble Baroness mentioned the new remuneration disclosure requirement and, in a gentle way, told us that she thought it was a bad thing. We think it is a proportionate response to the representations we received. Indeed, quoted companies should always apply the principles as part of the combined code. We are giving them the opportunity to look at how they do that over the next year so that they are ready to report on it when the requirement is implemented for financial years beginning on or after 6 April 2009. The noble Baroness said that she did not think this new disclosure requirement would cause industry a lot of trouble. We believe that it is a good thing that directors receive bonuses on the basis of increased productivity. It is important also to look carefully at what kind of remuneration other members of the company are getting because they, too, add to its profits in small and large ways. I do not think this is a big point between us—there are bigger ones. On templates, I hope the noble Lord, Lord Shutt, will be pleased to hear that Companies House is working on a standard template or format especially for small companies to make financial reporting easier for them. I hope that he and business will be pleased by what I am about to say. In general, figures that are zero will not be reported. This generally does not cause any problems at all. Companies House already allows electronic filing on a template for dormant company accounts and small company abbreviated accounts, so I do not think this is likely to be a large issue, if one at all. The noble Lord referred to thresholds and said that someone should look at them across the board. We appreciate his concern. Thresholds arise from different places so it is difficult to take a common approach to them. Company law thresholds are determined by EU directives, as are these rises in the thresholds. The consequence, of course, will be that more companies fall into the small company bracket. That must be a good thing because it means that they will have less regulation to fulfil and should aid them in being successful companies. I hope I have dealt with most if not all of the points so helpfully raised by noble Lords in this important statutory instrument debate. We believe that this is a business-friendly package of regulations and we are grateful for the support that it has around the House. It makes a small number of modest beneficial changes for companies. On Question, Motion agreed to.