Financial reports for City firms now run into the hundreds of pages, creating an undue burden for businesses just trying to do their job, writes Patrick Spencer.
At the beginning of the summer British Land published their 2023 annual report containing financial results for the year. Considering the state of the economy and the survival of a “work from home” culture in this country, these were hotly anticipated results.
At 260 pages long it was a lengthy read. The strategic report contains 6-pages on ‘People and Culture’. There were 12 pages from the Task Force on Climate-related Financial Disclosures, which is different from the Carbon reporting section and the report from the Environmental Social Governance Committee. The remuneration committee report was 21 pages long. Ironically on page 256 there was a one-page summary of the company’s 10-year financial record (detailing capital returns, revenue generation and cash flow management over a decade).
The point is though, that it was lengthy and reflects the changing nature of annual reports. As a point of reference, the company’s annual report in 1999 was just 60 pages long.
British Land is not an anomaly. The Royal Dutch Shell report for year-end 2022 was 399 pages. It was just 68 pages in 1997. Barclays most recent annual report was 526 pages long, in 1995 it was about a third of the length at just 160 pages. The growth of annual reports for large publicly listed companies stems from increased reporting duties around environmental impact, remuneration, diversity, stakeholder management, and policy disclosures.
Advocates for these new reporting standards will point to the admirable record British business has on areas of social mobility (according to the Sutton Trust British businesses have a disproportionate percentage of leaders from a state educated background compared to other professions) or environmental standards (total greenhouse gas emissions in Britain have halved since 1990). And it would be fair to do so.
But the pendulum may have swung too far. Yesterday the government announced it was “ditching” new reporting requirements for large firms. As reported in this paper, these new requirements included an annual resilience report, descriptions of principal risks, a disclosure of distributable profits as well as a description of a company’s internal audit and assurance capabilities.
Some will say these regulations only impact large firms. But we know at the Jobs Foundation that reporting requirements and regulations for firms of all sizes can be very punitive. A small business with one employee that generates no profit on sales of £50,000 will probably face a bill of £2,000 for accountants to help comply with reporting rules. This is after they have filed with the Information Commissioner, with the Local Authority for non-domestic rates, with HMRC, with Companies House, navigated Government Gateway, set up a workplace pension scheme, taken out employers insurance and kept a record of every financial transaction in and out. The growth in the business accountancy software companies (such as Xero and Quickbooks) are testament to how complicated running any business can be now.
Money spent on compliance comes from higher prices paid by customers and less money made available for staff wages and training. This depletes our ability to create more jobs and encourage growth in the economy.
It is not a massive leap in theory to say that reporting standards, and regulations of all types, have economic and social costs as well as benefits. I applaud the government’s decision to scrap a set of new burdens for businesses at a time of economic strain and pressure. We need our business sector to be given the space it needs to grow, because a successful society requires successful businesses.