Government takes wraps off plans to cut red tape

The Government yesterday unveiled plans to lighten the regulatory burden on small companies but at the same time increase the penalty on directors who try to falsify their companies' accounts.

Melanie Johnson, the minister for Competition, Consumers and Markets, said the measures to cut red tape would save businesses £168m a year. This only amounts to about £150 for each business, but Ms Johnson said small companies would feel the benefit as they would have to make "less effort in unhelpful areas".

Proposals put forward in a White Paper, called Modernising Company Law, include scrapping many requirements for small companies to provide financial information on top of statutory accounts, such as a cash flow statement.

The Department of Trade and Industry, which is proposing the changes, also favours bringing more companies under the small business definition, from an annual turnover of £2.8m to the £4.8m suggested by the European Union.

At the same time the White Paper, which is part of the Government's drive to re-write Britain's company law, suggests a new offence should be created for employees who do not give honest information to auditors.

It is suggested that auditors be allowed for the first time to compel the company to hand over information and if directors refuse or they give false information, they could be sent to prison for two years and face unlimited fines. Ms Johnson defended the decision not to make the sentence longer, saying a two-year term was a "substantial deterrent."

She will unveil further measures to beef up the powers of auditors next week when she reports findings from the working party that has considered the implications of the collapse of Enron for the UK.

The DTI expects to publish two more White Papers on changes to company law before pushing through its new Bill in the life of this Parliament.

Private companies would see their regulatory burden lifted, after suggestions that they would not have to hold annual general meetings. But larger companies will have to produce more information, in the form of an Operating and Financial Review, which would take in not just the annual accounts, but also information about company prospects.