Accounting Standards (Prescribed Bodies) (United States of America and Japan) (Amendment) Regulations 2024
(1 month ago)
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Lord Offord of Garvel
That the Grand Committee do consider the Accounting Standards (Prescribed Bodies) (United States of America and Japan) (Amendment) Regulations 2024.
The Parliamentary Under-Secretary of State, Department for Business and Trade (Lord Offord of Garvel) (Con)
My Lords, I beg to move that these regulations, which were laid before the House on 21 February 2024, be approved.
The Accounting Standards (Prescribed Bodies) (United States of America and Japan) Regulations 2015 provide a regulatory easement of the UK’s company reporting rules for US-listed or Japanese-listed parent companies that have chosen to re-domicile in the UK. The easement was originally introduced in 2012 and provides qualifying companies with extra time to transition from their national accounting practices to UK-recognised accounting standards. Following their UK incorporation, parent companies listed in the US or Japan may take up to four financial years to make the transition in order to prepare their group accounts in line with UK accounting principles.
At the original time of introduction in 2012, this was deemed especially helpful for companies using US and Japanese accounting standards that might otherwise have struggled to adapt to UK accounting standards when domiciling to the UK.
In 2023, the department published a post-implementation review of the 2015 regulations. The review took evidence from a small number of previously US-listed and Japanese-listed, now UK-domiciled, firms about their cost savings from the easement. The survey responses confirmed that the regulatory easement provided flexibility and enabled cost savings by the businesses using it. Businesses responding to the survey estimated that the regulations’ accounting conversion easement had reduced the scale of their conversion costs significantly. One company also said the regulations made possible the “most prudent and efficient” way for it to submit while listed in the US.
Although the post-implementation review found that the regulations were a helpful feature of the UK’s regulatory environment, it also identified a small risk of abuse of the easement. In particular, the review noted that more could be done to improve understanding that the easement was a transitional, time-limited concession, not a permanent exemption from the UK’s company reporting rules.
Having conducted the post-implementation review, the Government decided to extend the regulations, believing them to be a small, but useful, contribution to a pro-growth regulatory regime that supports inward investment. To give this decision effect, the Government laid the Accounting Standards (Prescribed Bodies) (United States of America and Japan) (Amendment) Regulations on 6 September 2023. These regulations extended the easement in recognition of its evident benefit to businesses that have used it so far. The easement would have expired without the regulations, with the result that newly domiciled US and Japanese companies would have been required to convert accounting practice immediately when they filed their first set of UK accounts.
When extending the regulations, the Government also took the opportunity to reduce the risk of the easement being misused or misunderstood by its beneficiaries. Specifically, regulation 4 of the 2023 regulations introduced an obligation on companies using the easement to include a note in their accounts stating when the easement ceases to apply. This additional requirement on companies was deemed a simple and proportionate mechanism to reduce the risk of abuse.
Regrettably, my department, the Department for Business and Trade, made a parliamentary procedural error in laying the latter provision by mistakenly using the negative resolution procedure rather than the correct affirmative resolution procedure. The new statutory instrument, which I beg to move today, is intended to correct the error. It removes regulation 4 of the 2023 amending regulations and substitutes a new regulation 5A in the 2015 regulations, doing this by the correct affirmative resolution procedure. The remainder of the 2023 amending regulations were made correctly, but the Government are grateful to the Joint Committee on Statutory Instruments for drawing their attention to the procedural error.
Driving growth in the UK economy requires attracting inward investment. These regulations are just one example of how we can make it easier for overseas companies to incorporate in the UK and create jobs in the UK economy. I beg to move.
Lord McNicol of West Kilbride (Lab)
I thank the Minister for introducing this statutory instrument, which remedies the Government’s mistake from last year. It is obviously a very short one and we on this side are not going to oppose it. I welcome any opportunity to speak in favour of regulations that seek to make businesses more likely to domicile in the UK. Making sure that Britain is open for business is vital and something that we want to push the Government to do in all areas.
As the Minister said, the 2023 post-implementation review found these regulations to be a positive although not decisive factor in encouraging companies to domicile here. The review also encouraged the Government to put forward Regulation 5A, which we now have an opportunity to welcome.
The Minister talked about abuse. What amount and type of abuse does he believe the regulation will counter? I could not quite understand that. What response has there been from the relevant UK companies to the regulations, given that they have already been introduced and implemented? Are those businesses satisfied with the level of clarity?
The Minister referred to the 2012 regulations but the draft instrument and the Explanatory Memorandum talk about the 2015 regulations, so I was not quite clear what he was referring to. Some clarity on that would be much appreciated.
Lord Offord of Garvel (Con)
I thank the noble Lord for his comments on this statutory instrument, and I welcome his enthusiasm for a pro-growth regulatory environment in the UK, which we have in common on both sides of the House. These regulations provide an easement of the UK’s company reporting rules, specifically to US and Japanese-listed parent companies.
I emphasise that this is a minority sport; not many companies participate in it, but where they do, among the major economies, there is perhaps more divergence in accounting standards in the US and Japan, because they are the biggest in the G7. That is why we have accommodated them with this legislation. I point out that this is a transitional concession simply to give companies more time and scope to convert their accounts to UK-recognised accounting principles. It is also designed to help safeguard the integrity of the UK’s accounting systems and reduce the risk of abuse.
On the concept of abuse, the post-implementation review found one instance in which a company was at risk of using regulations beyond the allotted four-year period. This is a minor risk, with only one instance, but the Government thought it prudent to address the concern while we have this opportunity.
The companies using this easement found it to be a small but useful intervention, citing cost savings of tens of thousands of pounds in some instances. For several larger companies, it amounted to millions of pounds.
The Government now propose to correct the procedural error made in laying Regulation 4 of the 2023 regulations by means of this affirmative statutory instrument. I therefore commend it to the Committee.
The Deputy Chairman of Committees (Baroness McIntosh of Hudnall) (Lab)
That completes the business before Grand Committee this afternoon. I wish a happy Easter to one and all.